-----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, BCfEIeZuoPC4IlP6rgnzgbQu0JezOLzjGYeqyfLCoyAcvAwmYTuRBCfScm+NyITW ncwA5t15ETl4Zi1X5xNpPA== 0000950129-97-001088.txt : 19970320 0000950129-97-001088.hdr.sgml : 19970320 ACCESSION NUMBER: 0000950129-97-001088 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19970319 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSTON INDUSTRIES INC CENTRAL INDEX KEY: 0000202131 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 741885573 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-08907 FILM NUMBER: 97558938 BUSINESS ADDRESS: STREET 1: 4400 POST OAK PKWY STREET 2: 5 POST OAK PK CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7136293000 MAIL ADDRESS: STREET 1: P O BOX 4567 CITY: HOUSTON STATE: TX ZIP: 77210 U-1/A 1 HOUSTON INDUSTRIES INCORPORATED U-1/A 070-08907 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM U-1/A ------------------------- AMENDMENT NO. 2 TO APPLICATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ------------------------- Houston Industries Incorporated and Houston Lighting & Power Company Houston Industries Plaza 1111 Louisiana, 47th Floor Houston, TX 77002-5231 (Name of company filing this statement and address of principal executive offices) ------------------------- None (Name of top registered holding company parent of each applicant or declarant) ------------------------- Hugh Rice Kelly Executive Vice President and General Counsel Houston Industries Incorporated Houston Industries Plaza 1111 Louisiana, 47th Floor Houston, TX 77002-5231 (Names and addresses of agent for service) ------------------------- The Commission is also requested to send copies of any communications in connection with this matter to: James R. Doty Stephen A. Massad Baker & Botts, L.L.P. Baker & Botts, L.L.P. The Warner One Shell Plaza 1299 Pennsylvania Avenue, N.W. 910 Louisiana Street Washington, D.C. 20004-2400 Houston, TX 77002-4995 2 Houston Industries Incorporated ("HI") and Houston Lighting & Power Company ("HL&P") are filing this Amendment No. 2 to file certain additional exhibits with the Securities and Exchange Commission. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
Exhibits - -------- Exhibit A: Agreement and Plan of Merger (attached as Appendix A to the Form S-4 Registration Statement attached as Exhibit B hereto)* Exhibit B: Form S-4 Registration Statement of HI (Commission File Number 1-7629) and HL&P (Commission File Number 1-3187), filed on September 4, 1996* Exhibit C: 1995 State-by-State Gross Operating Utility Revenues* Exhibit D: Notice pursuant to 17 C.F.R. Section 250.23(f)* Exhibit E: Certain Orders of State Regulators: E.1. Order, dated November 6, 1996, of the Arkansas Public Service Commission conditionally approving the Merger* E.2. Final Order, dated October 15, 1996, of the Corporation Commission of the State of Oklahoma approving the Merger* E.3. Final Order Approving Merger Transaction, dated December 11, 1996, of the Public Service Commission of the State of Mississippi* E.4. Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public Service Commission* E.5. Amendment, dated January 23, 1997, to Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public Service Commission E.6. Final Order Approving Merger Subject to Conditions, dated February 24, 1997, of the Minnesota Public Utilities Commission E.7. Final Order, dated March 12, 1997, of the Arkansas Public Service Commission approving the Merger Exhibit F: Opinion of Counsel ** Exhibit G: Response to February 13, 1997 data request of the Securities and Exchange Commission - ------------
* Previously filed. ** Not applicable. 2 3 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this statement to be signed on their behalf by the undersigned thereunto duly authorized. Date: March 18, 1997 Houston Industries Incorporated By: /s/ HUGH RICE KELLY ------------------------------------------- Hugh Rice Kelly Executive Vice President, General Counsel and Corporate Secretary Houston Lighting & Power Company By: /s/ HUGH RICE KELLY ------------------------------------------ Hugh Rice Kelly Executive Vice President, General Counsel and Corporate Secretary 3 4 EXHIBIT INDEX Exhibit A: Agreement and Plan of Merger (attached as Appendix A to the Form S-4 Registration Statement attached as Exhibit B hereto)* Exhibit B: Form S-4 Registration Statement of HI (Commission File Number 1-7629) and HL&P (Commission File Number 1-3187), filed on September 4, 1996* Exhibit C: 1995 State-by-State Gross Operating Utility Revenues* Exhibit D: Notice pursuant to 17 C.F.R. Section 250.23(f)* Exhibit E: Certain Orders of State Regulators: E.1. Order, dated November 6, 1996, of the Arkansas Public Service Commission conditionally approving the Merger* E.2. Final Order, dated October 15, 1996, of the Corporation Commission of the State of Oklahoma approving the Merger* E.3. Final Order Approving Merger Transaction, dated December 11, 1996, of the Public Service Commission of the State of Mississippi* E.4. Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public Service Commission* E.5. Amendment, dated January 23, 1997, to the Letter of Non-Opposition to the Merger, dated December 23, 1996, of the Louisiana Public Service Commission E.6. Final Order Approving Merger Subject to Conditions, dated February 24, 1997, of the Minnesota Public Utilities Commission E.7. Final Order, dated March 12, 1997, of the Arkansas Public Service Commission approving the Merger Exhibit F: Opinion of Counsel** Exhibit G: Response to February 13, 1997 data request of the Securities and Exchange Commission
- ------------ * Previously filed. ** Not applicable. 4 EX-99.E5 2 AMENDMENT (1/23/97) TO LETTER OF NON-OPPOSITION TO 1 EXHIBIT E.5 AMENDMENT, DATED JANUARY 23, 1997, TO THE LETTER OF NON-OPPOSITION TO THE MERGER, DATED DECEMBER 23, 1996, OF THE LOUISIANA PUBLIC SERVICE COMMISSION 2 Louisiana Public Service Commission Post Office Box 91154 Baton Rouge, Louisiana 70821-9154 (504) 342-4427 January 23, 1997 Mr. John O. Shirley Roedel, Parsons, Hill & Koch 8440 Jefferson Hwy. Baton Rouge, LA 70809-7652 Re: Joint Application by Arkla, Entex, NorAm Energy Corp., Houston Industries Incorporated, Houston Lighting and Power Company and HI Merger, Inc. For Non-opposition to a Merger Transaction. Dear Mr. Shirley: This letter is to amend the December 23, 1996 letter of non-opposition issued by the Louisiana Public Service Commission ("Commission"). As per our discussion, the last sentence of paragraph 2 on page 3 of the December 23, 1996 letter of non-opposition will be revised to read: "Such debt will not be secured by the utility property of Houston Lighting and Power Company or NorAm, but will be secured by preferred stock issued by Houston Industries, Inc., the stock of Houston Industries, Inc's direct and indirect subsidiaries, Houston Industries, Inc.'s stock in Time Warner and/or intracompany notes." Enclosed is a copy of page 3 reflecting the revision. Please notify all parties with interest in the transaction. This revision to the December 23, 1996 letter of non-opposition issued by the Commission is done without prejudice to the authority of the Commission to make investigations and require any reasonably necessary change it may legally find to be in the public interest. Sincerely, Lawrence C. St. Blanc Secretary Encl.: E.5-1 3 The Parties pledge that the manner of financing the merger will not encumber the utility property of Entex and Arkla and will have no impact on rates charged to customers of Arkla and Entex. However, none of NorAm's $1.4 billion debt will be retired in connection with the transactions. Under the Merger Agreement, Houston Industries, Inc. will pay approximately $2.5 billion for NorAm common stock and equivalents. Houston Industries, Inc. will pay $16.00 for each NorAm common share outstanding, approximately 50% of which will be paid in the aggregate in cash and approximately 50% in Houston Industries Inc. common stock. Debt may be incurred to fund payments to NorAm shareholders who choose to take cash as part of the merger consideration. Such debt will not be secured by the utility property of Houston Lighting and Power Company or NorAm, but will be secured by preferred stock issued by Houston Industries, Inc., the stock of Houston Industries, Inc.'s direct and indirect subsidiaries, Houston Industries, Inc.'s stock in Time Warner and/or intracompany notes. In the proposed merger, Houston Industries Inc. will pay a premium over book value for NorAm as a whole. Houston Industries Inc. has committed that it will not seek to collect the acquisition premium resulting from the merger through the rates of any of the regulated business units. Accordingly, the Parties attest that the merger will not increase rates to customers in any of the states served by NorAm, including Louisiana. Because the principal objectives of the merger are strategic, the Parties expect no significant near-term cost savings to result from the merger transaction, so there is little opportunity to generate near-term rate reductions. To the extent that there are net savings that result from the merger, those benefits will be shared with Louisiana customers through the operation of the prevailing LPSC rate orders of Arkla and Entex. The Parties expect that the cost allegations impact of the merger will provide a modest benefit to Entex and Arkla. The expected near-term savings are attributable to a reduction in management personnel and the elimination of certain non-management redundancies in certain aspects of some NorAm and Houston Industries Inc. headquarters functions. The total corporate cost of the combined company are thus expected to be somewhat less than the total of the NorAm and Houston Industries Inc. stand-alone costs. The Parties assert that the merger will have no adverse effect on the operation of Arkla and Entex or their ability to provide reliable and adequate service. Arkla and Entex will each retain its name and separate identity, will continue to operate in Louisiana in the same way that they operate today and will continue to maintain the level of service they now provide. The merger does not seek any changes in the rates charged by Arkla and Entex to their customers, or in any of their policies with respect to service, employees, operations, financing, accounting, E.5-2 EX-99.E6 3 FINAL ORDER DATED 2/24/97 1 EXHIBIT E.6 FINAL ORDER APPROVING MERGER SUBJECT TO CONDITIONS, DATED FEBRUARY 24, 1997, OF THE MINNESOTA PUBLIC UTILITIES COMMISSION 2 BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION Edward A. Garvey Chair Joel Jacobs Commissioner Marshall Johnson Commissioner Mac McCollar Commissioner Don Storm Commissioner In the Matter of a Joint Petition by ISSUE DATE: February 24, 1997 Minnegasco, a Division of NorAm Energy Corp., NorAm Energy Corp., Houston DOCKET NO. G-008/PA-96-950 Industries Incorporated, Houston Lighting & Power Company, and HI Merger, Inc. for ORDER APPROVING MERGER Approval of the Transaction Pursuant to the SUBJECT TO CONDITIONS Agreement and Plan of Merger Among Houston Industries Incorporated, Houston Lighting & Power Company, HI Merger, Inc. and NorAm Energy Corp.
PROCEDURAL HISTORY On September 6,1996 Minnegasco filed a petition under Minn. Stat. Section 216B.50 for approval of the purchase of its parent company, NorAm Energy Corp. (NorAm), by Houston Industries Incorporated (Houston Industries). The petition was filed jointly by Minnegasco, NorAm, Houston Industries, Houston Lighting & Power Company (a subsidiary of Houston Industries, to be merged with Houston Industries before NorAm is purchased), and HI, Merger, Inc. (a transitional entity which will merge with NorAm and be renamed NorAm). On September 10, 1996 the Commission issued a notice establishing time frames for commenting on the filing. On September 12, 1996 petitioners filed supplemental information and corrections to one of the exhibits attached to the petition. On October 7,1996 petitioners filed additional information. On November 7, 1996 petitioners filed the Joint Proxy Statement/Prospectus of the petitioning companies. On November 26, 1996 the Residential and Small Business Utilities Division of the Office of the Attorney General (RUD-OAG) filed comments recommending approving the merger and prohibiting any recovery from ratepayers of any acquisition adjustment, transaction costs, or severance costs. On November 26, 1996 the Minnesota Utility Investors, Inc. filed comments recommending approving the merger. E.6-1 3 On November 27, 1996 the Minnesota Department of Public Service (the Department) filed comments which recommended approving the merger, prohibiting rate recovery of any merger-related cost or acquisition adjustment, and requiring a series of filings over the next four years to establish merger-related costs and clarify accounting and cost allocation procedures. On December 9, 1996 petitioners filed reply comments, agreeing to all conditions proposed by the Department and the RUD-OAG, with the exception of the prohibition on rate recovery of transaction costs and severance costs. (Petitioners had stated in the petition that they would not seek rate recovery of any portion of the acquisition adjustment.) On January 23, 1997 petitioners filed a stipulation agreeing to take the following actions: provide local access to books and records required for Minnesota regulatory purposes; reduce corporate cost allocations sought in the next rate case below those allowed in the last rate case; relinquish any claim to rate recovery of transaction costs and severance costs;(1) provide detailed information in the next rate case on Minnegasco's hypothetical capital structure and on the actual capital structures of corporate affiliates NorAm and Houston Industries. On January 27, 1997 the Department filed a list of questions about the stipulation, asked to meet with petitioners and Commission staff to discuss them, and asked the Commission to postpone acting on the petition until the Department had analyzed and filed comments on the stipulation. The Commission agreed. On February 4, 1997 the Department filed comments stating it did not object to the stipulation as clarified by petitioners' written responses to the questions the Department filed on January 27. The agency urged that petitioners be bound by their responses to those questions as well as by the text of the stipulation. Petitioners agreed. The matter came before the Commission on February 6, 1997. FINDINGS AND CONCLUSIONS I. THE MERGER A. THE COMPANIES Minnegasco is a natural gas distribution company headquartered in Minneapolis. The Company is engaged in the sale and distribution of natural gas to approximately 625,000 customers in 200 Minnesota communities. The largest metropolitan areas served by Minnegasco are Minneapolis and its western suburbs. __________________________________ (1)Petitioners also confirmed on the record at the hearing that they were waiving all present and future claims to rate recovery of theses costs. E.6-2 4 Since late 1990 Minnegasco has been an operating division of NorAm Energy, formerly known as Arkla, Inc. NorAm is a diversified energy company engaged primarily in the interstate transmission and local distribution of natural gas. NorAm owns three local distribution companies serving a total of 2.7 million natural gas customers. Houston Industries is a holding company with two subsidiaries, Houston Lighting & Power Company and Houston Industries Energy, Inc. Houston Lighting & Power, serving Houston, Texas, is the ninth largest electric utility in the United States. It accounts for nearly all of Houston Industries' income from continuing operations. Houston Lighting & Power has no natural gas operations. Houston Industries Energy, Inc., Houston Industries' other subsidiary, is an unregulated company providing energy management and other energy-related services. B. THE PROCESS The petitioning parties propose a two-step merger process. First, Houston Industries Incorporated will merge with its subsidiary, Houston Lighting & Power Company, forming a new company, Houston Industries, Inc. Houston Industries, Inc. will then buy NorAm at a purchase price of approximately $2.4 billion or $16 per share, half in cash and half in Houston Industries stock. Minnegasco will remain an operating division of NorAm, which will be a wholly owned subsidiary of Houston Industries, Inc. NorAm's existing subsidiaries will remain NorAm subsidiaries. Houston Industries' unregulated subsidiary, Houston Industries Energy, Inc. will become a subsidiary of the new company, Houston Industries, Inc. Petitioners anticipate that Houston Industries, Inc. will be an exempt holding company under the federal Public Utility Holding Company Act of 1935. C. THE PURPOSE AND ANTICIPATED EFFECTS Petitioners explained that the merger is proposed for strategic reasons. Houston Industries is convinced that current trends toward utility competition and convergence of the gas and electric industries will continue. By combining the nation's ninth largest electric utility with one of the nation's largest distributors of natural gas, Houston Industries hopes to become a frontrunner in the new competitive era, both nationally and internationally. Since Houston Industries and NorAm have no significantly overlapping operations (a NorAm company does deliver natural gas to approximately 600,000 customers in Houston Lighting & Power's service area), petitioners expect no significant cost savings from combining their operations. They see the benefits of the merger as improving the participants' competitive positions, ensuring Minnegasco's continued ability to provide high quality service through greater financial strength, positioning Minnesota to reap maximum benefits from competitive energy markets, and increasing the value of the holdings of NorAm stockholders, which include many pension funds. E.6-3 5 Petitioners believe the merger will have no immediate or significant rate effects for Minnegasco customers. They state there is reason to believe that in the long term the merger could reduce rates due to the financial strength of the new parent and the presence of a strong competitor in the Minnesota market. They also contend these factors could contribute to the development of innovative services and service options. II. THE LEGAL STANDARD Under Minnesota law, the Commission is to approve the merger upon a showing that it is "consistent with the public interest." The statutory text reads as follows: No public utility shall sell, acquire, lease, or rent any plant as an operating unit or system in this state for a total consideration in excess of $1,000,000, or merge or consolidate with another public utility operating in this state, without first being authorized so to do by the commission. Upon the filing of an application for the approval and consent of the commission thereto the commission shall investigate, with or without public hearing, and in case of a public hearing, upon such notice as the commission may require, and if it shall find that the proposed action is consistent with the public interest it shall give its consent and approval by order in writing. . . . Minn. Stat. Section 216B.50. The statute does not require that proposed mergers affirmatively benefit ratepayers or the public or that they otherwise promote the public interest. They cannot contravene the public interest, however, and must be shown to be compatible with it. III. COMMENTS OF THE PARTIES A. THE DEPARTMENT The Department analyzed the merger by examining its potential effects on Minnegasco's costs and rates, Minnegasco's day to day operations, the Minnesota regulatory process, and the combined market power of the merging companies. The Department determined that market power and operational effects were non-issues, because Minnegasco, was and would remain the only party to the merger with operations in Minnesota. Also, since the acquiring company has no natural gas operations, there is no risk of it imposing on Minnegasco its standard operating procedures for distributing natural gas. The Department concluded the merger would not impair Minnesota regulators' ability to perform their duties under the Public Utilities Act, since the holding company structure that would result from the merger has not been a barrier to the effective regulation of other Minnesota utilities. E.6-4 6 Examining the cost and rate effects of the merger was another matter. Although the Department believed the merger held some potential to reduce costs and rates, the agency considered those reductions speculative. The Department also took strong exception to any rate recovery of merger-related costs, arguing that since strategic corporate concerns were driving the merger, it would be inappropriate to assess any of its costs to ratepayers. Ultimately, the Department concluded the merger was consistent with the public interest and should be approved. The agency emphasized, however, that this recommendation rested on the fact that the statutory standard was no more exacting than consistent with the public interest. To permit proper review of accounting procedures and ensure adequate tracking of the financial effects of the merger, the Department recommended imposing four requirements, summarized below: (1) requiring the filing of final journal entries within 90 days of closing; (2) prohibiting rate recovery of any acquisition adjustment, transaction costs, or severance costs; (3) requiring annual reports for four years from completion of the merger showing the following: o each cost or expense charged to Minnegasco by HI Merger, Inc.; o an explanation of the allocator and formula used for allocating corporate costs to Minnegasco; o the 1995 level of Minnegasco's comparable pre-merger costs; (4) requiring Minnegasco to include in its next rate case filing the information required above in annual filings. B. THE RUD-OAG Like the Department, the RUD-OAG believed that the proposed merger met the statutory test for Commission approval. The agency saw no realistic potential for harm and some potential for benefit, in the form of reduced corporate overhead and capital costs. The agency considered petitioners' pledges to keep Minnegasco headquarters in Minneapolis, to continue to rely on Minnegasco's current management and to maximize local control as important safeguards. The RUD-OAG urged the Commission to require Minnegasco to continue to maintain all books and records necessary for regulatory oversight in Minneapolis and to prohibit any rate recovery of any merger-related costs, including the acquisition adjustment, severance costs, and transaction costs. E.6-5 7 C. MINNESOTA UTILITY INVESTORS The Minnesota Utility Investors (MUI) believed the proposed merger would benefit ratepayers, shareholders, and the general public. They agreed with petitioners that the post-merger companies would be premier contenders in the coming age of competition. They argued that the financial strength of Houston Industries would bolster Minnegasco's ability to provide safe and reliable service at reasonable rates. They believed the merger would produce synergies that would benefit the shareholders of both NorAm and Houston Industries. IV. THE STIPULATION On January 23, 1997 Minnegasco filed a stipulation in response to concerns; raised by other parties and by staff. Its provisions are detailed, but can be summarized as requiring petitioners to take the following actions: (1) provide local access to books and records required for Minnesota regulatory purposes; (2) reduce corporate cost allocations sought in the next rate case below those allowed in the last rate case; (3) relinquish any claim to rate recovery of merger-related transaction costs and severance costs;(2) (4) provide detailed information in the next rate case on Minnegasco's hypothetical capital structure and on the actual capital structures of NorAm and Houston Industries. On January 27, 1997 the Department filed a list of questions about the stipulation, to which petitioners made written responses. On February 4, 1997 the Department filed comments stating it did not object to the stipulation as clarified by petitioners' written responses to its questions.(3) The agency urged that merger approval be conditioned upon petitioners' being bound by their responses to those questions, as well as by the text of the stipulation. Petitioners agreed. __________________________________ (2)In brief, severance costs were defined as severance costs incurred within twelve months of closing and severance costs relating to NorAm's top 87 employees. (3) The Department noted that the stipulation's definition of "severance costs" was arguably more restrictive than leaving the term undefined. The Department did not oppose the stipulation, including the definition, however. E.6-6 8 V. COMMISSION ACTION The Commission agrees with the parties that the Proposed merger meets the statutory standard of "consistent with the public interest." Minn. Stat. Section 216B.50. There is nothing in the record to suggest any reasonable likelihood that the merger will harm ratepayers or the public, and there is evidence suggesting it will produce at least modest benefits. Any potential risks to ratepayers are adequately addressed by the conditions recommended by the parties and the safeguards offered by petitioners in the stipulation. The chief benefit is that Houston Industries is a much stronger company financially than Minnegasco's present parent, NorAm. The two companies' financial risk indicators as of June 30, 1996 compare as follows:
INDICATOR NORAM HI HI MERGER, INC. --------- ----- --- --------------- Funds from Operations/Interest 1.69 2.53 1.92 Pre-Tax Interest Coverage 1.98 2.90 2.14 Net Cash Flow/Capital Expenditures 102% 90% 89% Total Debt/Total Capital 64% 57% 58%
The Commission has expressed deep concern about NorAm's financial action in the past: Furthermore, the Commission is not as convinced as the parties appear to be that NorAm's financial condition will never affect Minnegasco's long-term performance and prospects. It is clearly conceivable that a long uphill struggle against insolvency could deprive Minnegasco of the resources necessary to remain a sound, let alone thriving, local distribution company. A parent company in serious financial trouble might not make the investments necessary to maintain a solid infrastructure, reliable long term gas supplies, and a quality work force. Without these things, Minnegasco's long term ability to provide high quality service would be at risk. In the Matter of the Application of Minnegasco, a Division of Arkla, Inc. for Authority to Increase Its Rates for Natural Gas Service in Minnesota, Docket No. G-008/GR-93-1090, FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER (October 24,1994). This acquisition alleviates that concern. Less importantly, but quite insignificantly, it also carries the potential for reduced rates, since the financial strength of Houston Industries could reduce Minnegasco's cost of capital. It is also possible that Minnegasco's long term corporate overhead expenses will decline under new ownership, given the capital-intensive nature of Houston Lighting & Power and the emphasis on capital investment in many methods of allocating corporate overhead. Any such reduction would translate into lower rates for Minnegasco ratepayers. Furthermore, E.6-7 9 petitioners have stipulated that Minnegasco's next rate case filing will reflect lower corporate overhead costs than its last filing, translating into same measure of immediate rate relief. Finally, the public interest is clearly served by Petitioners' plans to keep Minnegasco's headquarters in Minneapolis, to continue to rely on Minnegasco's current management, and to maximize local decisionmaking. Safe, reliable, affordable natural gas service is critical to the public interest; there is no margin for error during transitions or other times. Minnegasco has a solid history delivering safe and reliable service at reasonable rates. Petitioners' recognition of this and their plans to capitalize on it signify good business judgment and concern for the public interest, both essential qualities in a utility. VI. CONCLUSION For the reasons set forth above, the Commission will approve the proposed merger, subject to the conditions agreed to by the parties and to the conditions contained in the January 23, 1997 stipulation, as clarified by petitioners' written responses to the questions filed by the Department on January 27. ORDER 1. The Commission grants the petition for approval of the transaction pursuant to the agreement and plan of merger among Houston Industries Incorporated, Houston Lighting & Power Company, HI Merger, Inc. and NorAm Energy Corp., subject to (a) the annual filing requirements and rate case filing requirements proposed by the Department and concurred in by the Company; (b) the terms of the stipulation filed by petitioners January 23, 1997; (c) petitioners' written responses to the question on the stipulation filed by the Department of Public Service. E.6-8 10 2. This Order shall become effective immediately. BY ORDER OF THE COMMISSION Burl W. Haar Executive Secretary (S E A L) This document cannot be made available in alternative formats (i.e., large print or audio tape) by calling (612) 297-4596 (voice), (612) 297-1200 (TTY), or 1-800-627-3529 (TTY relay service). E.6-9 EX-99.E7 4 FINAL ORDER DATED 3/12/97 1 EXHIBIT E.7 FINAL ORDER, DATED MARCH 12, 1997, OF THE ARKANSAS PUBLIC SERVICE COMMISSION APPROVING THE MERGER 2 ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF THE JOINT APPLICATION ) OF HOUSTON INDUSTRIES INCORPORATED, ) HOUSTON LIGHTING & POWER COMPANY, HI ) MERGER, INC. AND ARKLA, A DIVISION OF ) NORAM ENERGY CORP., FOR APPROVAL OF ) DOCKET NO. 96-286-U AN AGREEMENT PROVIDING FOR THE MERGER ) ORDER NO. 8 OF NORAM ENERGY CORP. WITH HOUSTON ) INDUSTRIES INCORPORATED, ET AL. ) ORDER On November 6, 1996, the Arkansas Public Service Commission ("Commission") issued Order No. 7 granting conditional approval of a Joint Application filed by Houston Industries Incorporated ("HI"), Houston Lighting & Power Company ("HP&L"), HI Merger, Inc. ("HI Merger") (collectively referred to as "HI Applicants"), and Arkla, a division of NorAm energy Corp. ("NorAm") (collectively referred to as "the Applicants") for approval of an agreement by which NorAm would be merged with HI Applicants. The primary plan of the proposed merger was approved on a conditional basis pending the Commission's review and consideration of the final resolution of related proceedings pending before the Public Utility Commissions of Louisiana, Mississippi, and Minnesota and the Federal Energy Regulatory Commission ("FERC") and the United States Securities and Exchange Commission ("SEC"). The proposed merger was further conditioned on the continued compliance by the Applicants and NorAm with the various regulatory assurances referenced in Order No. 7 and as contained in the record of this proceeding. E.7-1 3 On February 28, 1997, the Applicants filed a Motion For Entry of Final Order ("Motion") in this docket requesting that the Commission issue a "final" order approving the proposed merger. Prior to the issuance of Order No. 7, a copy of the final order of the Oklahoma Public Service Commission approving the proposed merger was provided to this Commission. A copy of the Oklahoma Commission's final order was filed in this docket on November 6, 1996. Since the issuance of Order No. 7, the Mississippi Public Service Commission and the Louisiana Public Service Commission have each granted the necessary approvals for completion of the proposed merger. A copy of the order of the Mississippi Commission approving the proposed merger and a copy of the Louisiana Commission's Letter of Non-Opposition to the proposed merger were filed in this docket on December 13, 1996, and December 31, 1996, respectively. The Louisiana Commission subsequently issued an amendment to its earlier Letter of Non-Opposition, and that amendment was filed in this docket on January 31, 1997. The Applicants made no commitments in either of these jurisdictions or in Oklahoma that were not similarly made by the Applicants in this docket. In Minnesota, the Applicants did enter into a Stipulation, a copy of which is attached as Exhibit A to the Applicant's February 28, 1997, Motion, by which a number of commitments were made by the Applicants to the Minnesota Public Service Commission. The order of the Minnesota Commission approving the proposed merger subject to certain conditions was issued on February 24, 1997, and attached as Exhibit B to the Applicant's Motion. The Minnesota Commission's order E.7-2 4 incorporated the Stipulation, the written responses to questions regarding the Stipulation, attached as Exhibit C to the Applicant's Motion, and certain agreed to filing/reporting requirements, attached as Exhibit D to the Applicant's Motion. By its February 28, 1997, Motion, the Applicants commit to the Arkansas Commission to observe in Arkansas the various commitments, agreements and conditions adopted by the Minnesota Commission to the extent to which the Arkansas Commission deems appropriate. The only remaining documentation required by Order No. 7 relates to pending proceedings before the FERC and SEC. By its Motion, the Applicants further commit that, upon issuance of any final and non-appealable FERC or SEC order adopting any stipulation or otherwise providing any benefits to ratepayers of any state jurisdiction, or imposing any conditions on Applicants that would benefit the ratepayers of any state jurisdiction, such benefits or conditions will be extended to Arkansas ratepayers to the extent the Arkansas Commission deems appropriate, provided the proposed merger is ultimately consummated. Based upon the foregoing commitments, the Applicant's request that this Commission issue a final order approving the proposed merger. Having considered the Applicant's Motion, as well as the Exhibits thereto, the Commission finds that the Motion is in the public interest and, therefore, should be approved. Accordingly, the Commission orders as follows: E.7-3 5 1. Applicant's February 28, 1997, Motion For Entry of Final Order is granted subject to the Applicants continuing compliance with the various regulatory assurances referenced in Order No. 7 and as otherwise contained in the record of this proceeding, and the Applicants compliance with the additional commitments, agreements and conditions set forth in said Motion and Exhibits A, B, C and D thereto. 2. In consideration of and reliance on such commitments, agreements and conditions, the proposed merger, conditionally approved by Order No. 7 herein, is hereby granted final approval. BY ORDER OF THE COMMISSION. This 12th day of March, 1997. /s/ Lavenski R. Smith ------------------------------------- Lavenski R. Smith, Chairman /s/ Sam I. Bratton, Jr. ------------------------------------- Sam I. Bratton, Jr., Commissioner /s/ Julius D. Kearney ------------------------------------- Julius D. Kearney, Commissioner /s/ Glenna Hooks (acting) - ----------------------------- Jan Sanders Secretary of the Commission ` E.7-4 EX-99.G 5 RESPONSE TO 2/13/97 DATA REQUEST OF THE SEC 1 EXHIBIT G RESPONSE TO FEBRUARY 13, 1997 DATA REQUEST OF THE SECURITIES AND EXCHANGE COMMISSION 2 1. PLEASE INCLUDE IN THE RECORD OPERATING REVENUES, OPERATING INCOME AND NET INCOME FOR THE MOST RECENT AVAILABLE 12-MONTH PERIOD, AND ASSETS AND NUMBER OF CUSTOMERS AS OF THE MOST RECENT AVAILABLE DATE, ATTRIBUTABLE TO THE UTILITY OPERATIONS OF HOUSTON INDUSTRIES INCORPORATED AND NORAM ENERGY CORP., AND RELATED RATIOS WITH RESPECT TO EACH ITEM.
NORAM/NORAM FOR 12-MONTH HI/HL&P LOCAL GAS PERIOD AT HOUSTON NORAM ENERGY PERCENTAGE OF PERCENTAGE 12/31/96 INDUSTRIES INCORPORATED CORP. TOTAL OF TOTAL - -------------------------------------------------------------------------------------------------------------- OPERATING REVENUES Consolidated* Consolidated* 49% 51% $3,984,157,000 $4,176,349,000 GROSS OPERATING HL&P NorAm Local Gas 66% 34% UTILITY REVENUE $4,025,000,000 Distribution $2,144,000,000 - -------------------------------------------------------------------------------------------------------------- CONSOLIDATED $990,000,000 $314,093,000 76% 24% OPERATING INCOME - -------------------------------------------------------------------------------------------------------------- NET OPERATING HI NorAm 81% 19% UTILITY INCOME $405,000,000 $91,000,000 CONSOLIDATED HL&P $732,000,000 NorAm Local Gas 82% 18% NET INCOME Distribution $178,000,000 - -------------------------------------------------------------------------------------------------------------- CONSOLIDATED $12,136,000,000* $3,474,000,000* 78% 22% ASSETS Total Utility Assets Total Utility Assets 85% 15% HL&P $10,596,000,000 NorAm Local Gas Distribution $1,921,000,000 - -------------------------------------------------------------------------------------------------------------- CUSTOMERS HL&P 1,528,000* Local Gas Distribution 36% 64% 2,736,000* (Texas customers: Arkla 45,728 Entex 1,166,119) - --------------------------------------------------------------------------------------------------------------
* For 12-month period at 9/30/96 G-1 3 2. PLEASE INCLUDE A BRIEF NARRATIVE EXPLANATION OF WHY NORAM HAS SIGNIFICANTLY MORE CUSTOMERS THAN HL&P. The different nature of the utility services provided by electric utility and gas distribution companies would suggest that meaningful comparisons probably cannot be made based on number of customers. It is our impression, for example, that the Commission has only considered the relative number of customers as one of many contextual facts, not as a determining standard, in evaluating utility combinations. In the case of HL&P and NorAm, direct comparisons of customer bases may be confusing. HL&P serves 1,528,000 customers, but all are located within the City of Houston and its surrounding areas, a highly concentrated and industrialized area. Within this area, the number of HL&P's customers predominates over the number of NorAm's customers. However, NorAm's local distribution companies provide gas service to a much larger geographic area, encompassing not only the Houston area, but rural areas in other parts of Texas, Louisiana, Arkansas and Oklahoma, and NorAm provides gas service in the City of Minneapolis. Within this much larger geographic area, NorAm serves a total of 2,736,000 customers. The number of customers served by a retail public utility depends on three factors: the nature of the utility service, the size of the geographic area in which the utility is authorized to provide service and the population density within that geographic area. Under traditional public utility regulation, the regulatory authority grants each retail public utility a "certificate of convenience and necessity" to provide utility service within a defined geographic boundary. While minor overlaps in such territories are frequent, the bulk of the retail customers in a given area will usually be served by a single public utility, and within that defined area the public utility generally has an obligation to provide utility service at nondiscriminatory rates to all who request such service. If the certificated area encompasses a large municipality, the potential customer base, of course, is larger than an area that is primarily rural in nature. Also, the nature of the utility service can influence the willingness of individual customers to obtain service from the utility. For example, the cost of natural gas line extensions and the availability of alternatives to natural gas tend to reduce the number of rural natural gas customers in some areas, though rural electric service can be more prevalent as a result of the efforts of the Rural Electrification Administration and retail electric co-ops. To provide electric service, HL&P, as with other electric utilities, has constructed large generating facilities at high capital cost, and creates the electricity HL&P sells through the transformation into electric energy of the fuels HL&P purchases from others (natural gas, coal, lignite and uranium). Today, relatively minor amounts of the electric energy sold are purchased from other producers. HL&P distributes electric energy to its customers through a network of power lines which HL&P has constructed and maintains. While the costs associated with that function are not insubstantial, they are relatively small when compared with the cost associated with generation of electric energy. G-2 4 Natural gas utilities such as the NorAm distribution companies, on the other hand, operate principally as distributors of natural gas purchased from others. The facilities used for that distribution constitute the gas utility's primary assets, which are relatively small in comparison with the total assets of an electric generating company such as HL&P. The fuel component of the distribution company's business is a pass-through of purchased gas costs. Therefore, the actual portion of NorAm's revenues that relate to the gas distribution company's activities are relatively small. 3. THE APPLICATION STATES THAT HOUSTON WILL GET AN OPINION OF A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION AS TO THE EFFECT OF THE BASIC MERGERS ON THE OUTSTANDING DEBT OF HOUSTON AND NORAM. PLEASE UPDATE THE STATUS OF THIS MATTER. On December 12, 1996, Moody's Investors Service issued the following HI/HL&P ratings for HI/HL&P debt, after giving effect to the Merger: HI Commercial Paper (existing Rating is P-2; no rating was issued giving effect to the Merger; the HI commercial paper will not continue after the Merger); HI Senior Unsecured Debentures (Baa2 to Baa1); HL&P Commercial Paper (P-1 to P-2); HL&P First Mortgage Bonds (A2 to A3). On October 1, 1996, Standard & Poor's issued the following ratings for HI/HL&P debt, after giving effect to the Merger: HI Senior Unsecured Debentures (A-to BBB+); HL&P Commercial Paper (A-1 to A-2); HL&P First Mortgage Bonds (A to A-). On December 12, 1996, Moody's Investors Service issued the following rating changes for NorAm debt, after giving effect to the Merger: NorAm Notes and Debentures (no change); NorAm Subordinated Debt (no change). On October 1, 1996, Standard & Poor's issued the following rating changes for NorAm debt, after giving effect to the Merger: NorAm Notes and Debentures (BBB-to BBB); G-3 5 NorAm Subordinated Debt (BB+ to BBB-). On January 31, 1997, Moody's rated FinanceCo, the newly created Borrower, as follows: FinanceCo Commercial Paper (P-2); Bank debt of $2.7 billion (Baa1). Further information is provided in Appendix 1, a summary of rating information for Houston Industries. 4. PLEASE DESCRIBE THE APPROVALS AND CONSENTS RECEIVED FROM MUNICIPALITIES IN TEXAS, INCLUDING THE CITY OF HOUSTON, AND FILE ANY RELATED DOCUMENTS AS EXHIBITS. Section 6.01 of the Texas Gas Utility Regulatory Act requires that gas utilities provide notice to the Texas Railroad Commission when they acquire gas utilities, but does not require notice to the Texas Railroad Commission of electric utility acquisitions of gas utilities. Most of Entex's franchise agreements negotiated with municipalities for the use of the municipalities' streets are silent regarding merger approvals. Several franchises require municipal approval of mergers with other gas utilities, but do not require approval of mergers with an electric utility. The City of Tyler required notice of the Merger, with approval granted by operation of law, when the City did not object to the Merger by a date certain. Franchises in the cities of Houston, Longview and Stafford required City Council action, as reflected in the attached ordinances (see Appendix 2, Exhibits 1-3). Four municipal approvals were required under the terms of various NorAm franchise contracts: o On December 18, 1996, the Houston City Council adopted an ordinance approving the transfer of Entex's franchise through the Merger. The ordinance was adopted without dissent. See Appendix 2: Exhibit 1. o On October 2, 1996, Stafford's City Council adopted an ordinance approving the Merger. See Appendix 2: Exhibit 2. o On November 7, 1996, Longview's City Council adopted an ordinance approving a transfer of Arkla's franchise and recognizing the Merger. See Appendix 2: Exhibit 3. o On December 15, 1996, approval for the transfer of franchise application before the City of Tyler became effective by operation of law. There exists no formal order or approval. 5. PLEASE UPDATE THE STATUS OF THE NUCLEAR REGULATORY COMMISSION DETERMINATIONS WITH RESPECT TO THE OPERATING LICENSE FOR THE SOUTH TEXAS PROJECT. G-4 6 On December 9, 1996, the Nuclear Regulatory Commission ("NRC") informed HL&P that the NRC staff believes that no NRC action is required for the Merger to occur. See Appendix 3, Letter from NRC to HL&P (December 9, 1996). 6. PLEASE EXPLAIN WHY THE APPLICANTS BELIEVE THAT PUBLIC SERVICE COMMISSIONS PREFER A STRUCTURE THAT PROVIDES LEGAL SEPARATION BETWEEN THE ENTITIES PROVIDING GAS AND ELECTRIC SERVICE. The legal separation of the gas and electricity operations serves several ends, each of which are consistent with the goals and duties of state regulatory agencies. First, the segregation of the gas and utility operations is well understood and familiar to both state regulators and to financial markets. In Texas, for example, the separation of regulation by the establishment of two, separate regulatory bodies having quite distinct responsibilities--one for gas and one for electric utilities--further reflects this operational division. Financing sources and financial analysts have familiarity with evaluating the financial positions of the gas company and the electric company as separate entities. Accordingly, a corporate structure which keeps those entities separate, does no violence to the pattern of state regulation. Rather, this separation facilitates the combined company's access to capital markets, serving the preferences of lower cost financing specifically designed for the separate and different businesses. Similarly, state regulators are comfortable with analyzing gas and electric utilities separately. The Minnesota Public Utilities Commission ("Minnesota"), for example, voiced concern about the increased difficulty in regulation that would transpire if Minnesota became obligated to consider issues related to nuclear generating facilities owned by the same entity that Minnesota regulated for gas rates. Minnesota noted that the risk pattern for a company with nuclear generating facilities is different from that of a gas distribution utility. That difference obviously extends beyond the presence of nuclear plants. For example, an electric utility can have different capital needs and cost issues by virtue of its need to build and maintain generating facilities. While there are many similarities among gas distribution utilities, even in different geographical areas, the state regulators of NorAm's gas operations are not necessarily fully conversant with the types of business and regulatory issues that HL&P would face in providing electric service in Houston, Texas. Naturally, more regulatory effort would be required if the staffs of NorAm's current state regulators were obligated to consider how to allocate capital costs across a fully merged "Utilicorp-type" entity and to understand the interrelationship among regulatory concerns facing HL&P electric customers and NorAm gas customers. While the regulatory tasks associated with a "Utilicorp-type" structure would not be insurmountable, regulatory issues are more easily addressed by maintaining the separately regulated businesses in individual corporate subsidiaries. Each business would be better situated to address its particular capital needs and regulators would be able to focus on only those issues and requirements related to the utility services being provided in their jurisdictions. G-5 7 7. PLEASE STATE IN THE RECORD WHETHER HOUSTON INDUSTRIES INCORPORATED AND NORAM WILL CONTINUE TO BE SUBJECT TO STATE AND LOCAL UTILITY REGULATION BY THE SAME REGULATORS AND TO THE SAME EXTENT AS ARE CURRENTLY APPLICABLE TO HL&P AND NORAM. Nothing in the proposed Merger will modify any state or local regulatory authority over the HI and NorAm entities. Each state and local regulatory authority will continue to exercise its regulatory jurisdiction. The only regulatory complication is an additional regulatory scrutiny of the parent corporation by state regulators. Because HI's unregulated subsidiary, Houston Industries Energy, Inc. ("HI Energy"), is engaged in foreign utility investments, the state regulators in Oklahoma, Arkansas, Mississippi and Louisiana have been asked to provide the certifications provided for under Section 33 of the Act for HI investments in addition to those investments NorAm is pursuing. 8. PLEASE INCLUDE A BRIEF NARRATIVE DESCRIPTION OF THE TYPES OF NONUTILITY BUSINESSES IN WHICH HOUSTON INDUSTRIES AND ITS SUBSIDIARIES ARE CURRENTLY ENGAGED. HI owns one million shares of Time Warner Inc. common stock and 11 million shares of non-publicly traded Time Warner Inc. convertible preferred stock, which securities HI received in July 1995 as consideration for the sale of its cable television subsidiary. HI has recorded its investment in these securities at the then current combined fair value of approximately $1 billion on its consolidated balance sheets. Also, through its Development Ventures, Inc. subsidiary, HI continues to hold minor, largely inactive investments that were made previously but which have been written off for financial purposes.(1) HI recently formed a subsidiary to pursue certain energy services businesses. These would include providing appliance services, assisting in energy audits for industrial and commercial facilities and in developing projects to use electrotechnologies to enhance efficiency and cost effectiveness for industrial and commercial facilities. In addition, HI is currently pursuing, through another subsidiary, investments in power generation projects involving domestic exempt wholesale generation facilities. HI Energy has the following foreign utility company investments (all of which are the subject of U-57 filings), which are utility businesses but are not regulated by domestic regulatory authorities: EDELAP S.A. (Argentine electric utility in La Plata, Argentina); Central Dique S.A. (Argentine electric utility associated with EDELAP S.A.); Edese S.A. (Argentine electric utility in Santiago del Estero, Argentina); Rain Calcining Limited (petroleum coke calcination facility and associated cogeneration facility under construction but expected to sell electricity at wholesale to the Andhra Pradesh State Electricity Board); and Light-Servicos de Eletricidade S.A. (Brazilian electric utility servicing Rio de Janeiro). See Appendix 4 for a summary of aggregate investments in foreign utility companies and exempt wholesale generators by HI Energy. In addition, a subsidiary of HI Energy currently serves as contract operator of a cogeneration facility owned by Shell Oil Company at its Deer Park Refinery, near Houston.(2) - ------------------- (1) In the past, HI has held investments in cable television, oil and gas properties and rail car maintenance facilities. These businesses have been sold, but HI has retained the corporate entities through which those businesses were conducted. (2) HI Energy also owns interests in two waste-to-energy projects near Chicago, but those projects are inactive due to a change in Illinois regulatory treatments. G-6 8 APPENDIX 1 SUMMARY OF RATINGS 9 HOUSTON INDUSTRIES INCORPORATED AND SUBSIDIARIES SUMMARY OF RATINGS 02/14/97
Duff & Phelps Moody's Standard & Poor's ------------------ -------------------------- ------------------------------- Est. of Post Merger Prior New Date of Prior New Date of Rating Rating Rating Rating Change Rating Rating Change ------ ------ ------ ------ ------ ------ ------ -------- Houston Industries Incorporated - ------------------------------- Commercial Paper D-2 D-1 P-2 None 12/12/96 A-2 A-2 Senior Unsecured Debentures BBB+ A- Baa2 Baa1 12/12/96 A- BBB+ 10/1/96 Houston Lighting & Power Company - -------------------------------- Domestic Commercial Paper D-1 D-1 P-1 P-2 12/12/96 A-1 A-2 10/1/96 Euro Commercial Paper NR P-1 P-2 12/12/96 A-1 A-2 10/1/96 First Mortgage Bonds A+ A A2 A3 12/12/96 A A- 10/1/96 Unsecured Pollution Control Bonds A A- A3 Baa1 12/12/96 A BBB+ 10/1/96 Preferred Stock A BBB+ baa1 baa2 01/31/97 A- BBB+ 10/1/96 Trust Preferred and Capital A BBB+ baa1 01/31/97 BBB+ 1/31/97 Securities Subordinated Debt Related to Trust Baa2 01/31/97 Preferred and Capital Security
G-1-1 10
Duff & Phelps Moody's Standard & Poor's -------------------- --------------------------- ------------------------------- Est. of Post Merger Prior New Date of Prior New Date of Rating Rating Rating Rating Change Rating Rating Change ------ ------ ------ ------ ------ ------ ------ -------- Houston Industries FinanceCo LP - -------------------------------- Commercial Paper P-2 01/31/97 BBB+ 12/4/96 Bank Debt of $2.7 billion Baal 01/31/97 NorAm Energy Corp. - ------------------ Notes and Debentures BBB- BBB Baa3 Baa3 12/12/96 BBB- BBB 10/1/96 Convertible Preferred Stock BB+ BBB- Subordinated Debt Ba1 Ba1 12/12/96 BB+ BBB- 10/1/96 NorAm Financing I - ----------------- Cv. TOPrS BB+ BBB- bal bal 12/12/96 BB+ BBB- 10/1/96
G-1-2 11 APPENDIX 2 APPROVALS AND CONSENTS FROM TEXAS MUNICIPALITIES 12 APPENDIX 2: EXHIBIT 1 CITY OF HOUSTON, TEXAS ORDINANCE NO. 96-1342 AN ORDINANCE APPROVING THE TRANSFER OF NORAM ENERGY CORP. TO HI MERGER, INC. (AN ENTITY TO BE RENAMED NORAM ENERGY, INC.) OF NORAM ENERGY CORP.'S RIGHT, PRIVILEGE AND FRANCHISE TO USE ALL OF THE CITY OF HOUSTON'S PRESENT AND FUTURE STREETS, AVENUES, ALLEYS, ROADS, SIDEWALKS, EASEMENT AND OTHER RIGHTS OF WAY FOR ITS NATURAL GAS OPERATIONS UNDER CITY OF HOUSTON ORDINANCE NO. 37-2031 (SAID TRANSFER TO OCCUR THROUGH MERGER); EXPRESSLY MAKING THE RIGHTS AND PRIVILEGES SO TRANSFERABLE SUBJECT TO ALL TERMS, CONDITIONS AND LIMITATIONS OF CITY OF HOUSTON ORDINANCE NO. 37-2031; ACKNOWLEDGING THAT NORAM ENERGY CORP. HAS COMPLIED WITH SECTION 20 OF CITY OF HOUSTON ORDINANCE NO. 37-2031; PROVIDING FOR SEVERABILITY; AND DECLARING AN EMERGENCY. * * * * * * BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF HOUSTON: Section 1. The transfer by NorAm Energy Corp. to HI Merger, Inc. (a wholly owned subsidiary of Houston Industries Incorporated which subsidiary will be renamed NorAm Energy Corp. following the merger of NorAm Energy Corp. into HI Merger, Inc.) of its right, privilege and franchise to use all of the City of Houston's present and future streets, avenues, alleys, roads, highways, sidewalks, easement and other public rights of way for its natural gas business operations under City of Houston Ordinance No. 87-2031 is approved by the City of Houston City Council contingent upon the completion of the proposed merger proposal of Houston Industries Incorporated into Houston Lighting & Power Company and of NorAm Energy Corp. into HI Merger, Inc. resulting in NorAm G-2-1.1 13 Energy Corp.'s becoming a wholly owned subsidiary of Houston Industries Incorporated. It is further acknowledged that this approval complies with Section 20 of City of Houston Ordinance No. 87-2031. Section 2. The rights, privileges and franchise to be so transferred are hereby expressly declared to be subject to all terms, conditions and limitations of City of Houston Ordinance No. 87-2031. Section 3. If any provision, section, subsection, clause or phrase of this ordinance is for any reason held to be unconstitutional, void or invalid or for any reason unenforceable, the validity of the remaining portions of this ordinance shall not be affected thereby, it being the intent of the City of Houston in enacting this ordinance that no portion hereof or provision hereof shall become inoperative or fail by reason of any unconstitutionality or invalidity of any other portion, provision or regulation and, to this end, all provisions of this ordinance are declared to be severable. Section 4. A public emergency exists requiring that this ordinance by passed finally on the date of its introduction as requested in writing by the Mayor; therefore, this ordinance shall be passed finally on such date and shall take effect immediately upon its passage and approval by the Mayor; however, if the Mayor fails to sign this ordinance within five days after its passage and adoption, it shall take effect in accordance with Article VI, Section 6 of the Houston City Charter. PASSED AND APPROVED THIS 18th DAY OF Dec., 1996. _____________________________________________________ Mayor of the City of Houston G-2-1.2 14 Pursuant to Article VI, Section 6, Houston City Charter, and Section 4 of the foregoing Ordinance, the effective date of the foregoing Ordinance is December 24, 1996. /s/ ANNA RUSSELL ---------------------------------------- City Secretary Prepared by Legal Dept. _________________________________________________________ Senior Assistant City Attorney (Requested by Richard Lews, Director, Department of Finance and Administration) (I.D. File No. 349633001) G-2-1.3 15 APPENDIX 2: EXHIBIT 2 RESOLUTION NO. 96-5 A RESOLUTION CONSENTING TO THE MERGER OF NORAM ENERGY CORP., INTO HI MERGER, INC., A WHOLLY OWNED SUBSIDIARY OF HOUSTON INDUSTRIES INCORPORATED. * * * * * * WHEREAS, by Ordinance No. 456, passed and approved the 14th day of March 1990, the City of Stafford, Texas (the "City") granted to Entex, formerly a division of Arkla, Inc., but now known as the Entex Division of NorAm Energy Corp. (hereinafter referred to as "NorAm"), a franchise to supply natural gas to the City for a period of twenty (20) years; and WHEREAS, under the terms of such franchise agreement, Entex may not combine with another company unless such combination is expressly authorized and approved by the City Council of the City; and WHEREAS, NorAm has recently announced its plan to merge into HI Merger, Inc., a wholly owned subsidiary of Houston Industries Incorporated; and WHEREAS, NorAm will continue to operate under the franchise agreement and will be responsible for all existing obligations under such agreement; now therefore BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF STAFFORD, TEXAS: Section 1. The merger of NorAm into HI Merger, Inc., a wholly owned subsidiary of Houston Industries Inc., is hereby authorized and approved by the City Council of the City of Stafford, Texas; provided, however, such consent to the merger shall not be effective until HI Merger, Inc., has filed with the City Secretary of the City an instrument, G-2-2.1 16 duly executed, accepting the terms of the franchise agreement and agreeing to comply with all of the provisions thereof. Section 2. This Resolution shall take effect and be in force from and after the date of adoption hereof. PASSED, APPROVED, AND RESOLVED this 2nd day of October, 1996. /s/ LEONARD SCARCELLA -------------------------------------- Leonard Scarcella Mayor ATTEST: /s/ BONNIE BAIAMONTE - ---------------------------------- Bonnie Baiamonte City Secretary ACCEPTANCE HI Merger, Inc., a ___________ corporation hereby accepts the terms of that certain franchise agreement entered into by and between Entex and the City of Stafford, G-2-2.2 17 Texas, pursuant to City of Stafford Ordinance No. 456, passed and approved the 14th day of March 1990, a copy of which is attached hereto, and agrees to be bound by and comply with all of the terms and provisions thereof. HI MERGER, INC. By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Dated this _____ day of ___________, 1996 G-2-2.3 18 THE STATE OF TEXAS ) ) COUNTY OF FORT BEND ) I, Bonnie Baiamonte, City Secretary of the City of Stafford, Texas, hereby certify that the above and foregoing Acceptance was received and filed in the office of the City Secretary on the ______ day of ____________, 1996. EXECUTED UNDER MY HAND AND THE OFFICIAL SEAL of the City of Stafford, Texas, this _____ day of _________, 1996. ________________________________________ Bonnie Baiamonte (SEAL) G-2-2.4 19 APPENDIX 2: EXHIBIT 3 ORDINANCE NO. 2597 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LONGVIEW, TEXAS, APPROVING THE TRANSFER OF FRANCHISE ORDINANCE NO. 2389 WHICH GRANTED AUTHORITY TO ENTEX, A DIVISION OF ARKLA, INC. (THE FORMER NAME OF ENTEX, A DIVISION OF NORAM ENERGY CORPORATION), A FRANCHISE TO FURNISH AND SUPPLY GAS TO THE GENERAL PUBLIC IN THE CITY OF LONGVIEW, THE SAME TO BE TRANSFERRED TO HI MERGER, INC., THEREBY RECOGNIZING THE MERGER OF ENTEX, AND ITS PARENT COMPANY NORAM ENERGY CORPORATION, WITH HOUSTON INDUSTRIES, HOUSTON LIGHTING AND POWER COMPANY, AND HI MERGER CORPORATION; PROVIDING A REPEALER; PROVIDER A SEVERABILITY CLAUSE; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, on April 28, 1994, the city of Longview, Texas, granted a franchise to Entex, a division of Arkla, Inc. (the former name of Entex, a Division of NorAm Energy Corporation), for the right to furnish and supply gas to the general public in the city limits of the City of Longview; and, WHEREAS, Article XIX of the aforesaid Ordinance No. 2389 provides in part as follows: "This franchise shall not be amended, renewed, extended, assigned, or otherwise transferred without twenty (20) days advance written notice to the City of such intended change and without official approval of the City Council of the City in accordance with the Charter and ordinances of the City. For the purposes hereof, 'transfer' shall include transfer of the rights hereunder to another division of Grantee or the sale of Grantee or an affected division of Grantee, whether by sale of stock, sale of assets, a combination of both, or otherwise."; and, G-2-3.1 20 WHEREAS, Article XII, Section 12.02 of the City Charter contains similar language related to the transfer of franchises; and, WHEREAS, Entex, a division of NorAm Energy Corporation, has provided sufficient and adequate notice to the City of its intent to merge with and among Houston Industries, Houston Lighting and Power Company, HI Merger Corporation and NorAm Energy Corporation, thereby requiring the transfer of franchise No.2389 to the merged corporation now referred to as HI Merger Corporation; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LONGVIEW, TEXAS: Section 1. That the findings set out in the preamble to this ordinance are hereby in all things approved. Section 2. That the transfer of the franchise and franchise rights previously afforded Entex, a division of Arkla, Inc. (the former name of Entex, a Division of NorAm Energy Corporation), by Ordinance No. 2389, adopted on second and final reading by the City Council of the city of Longview, Texas, on April 28, 1994, the same to be transferred to HI Merger Corporation, is hereby in all things approved effective the date of this ordinance; and thereafter, the rights, privileges, and obligations of Entex shall likewise be transferred to HI Merger Corporation and thereafter, the aforesaid HI Merger Corporation shall for all things be considered the "Grantee" thereunder. Section 3. That pursuant to Section XIX of Ordinance No. 2389, the City Council of the City of Longview, Texas, hereby consents to the merger of NorAm Energy Corporation into HI Merger Corporation. G-2-3.2 21 Section 4. That the consent granted herein is also deemed to apply to the franchise granted Unit Gas Transmission Company pursuant to Ordinance No. 2391, dated April 28, 1994, to the extent such consent is required under Ordinance No. 2391. Section 5. That to the extent that same may be repealed by this ordinance, all ordinances and parts of ordinances in conflict herewith are hereby repealed to the extent of such conflict only. Section 6. That the approval granted herein satisfies the requirements of Article XIX of the franchise with regard to transfer of said franchise, but shall not be construed nor shall it act as a modification of, amendment to, or extension of the aforesaid franchise. Section 7. That the approval granted herein shall not be construed in any way as a waiver or relinquishment of any claim or cause of action, or other right related to the franchise that City may have against Entex or NorAm Energy Corporation, and the same shall be and is hereafter preserved and reserved unto the City of Longview against the aforesaid companies or against HI Merger Corporation as the successor in interest under said franchise. Section 8. That all provisions of this ordinance are hereby declared to be severable, and each section of this ordinance, and each part of each section hereof, is hereby declared to be an independent section or part of section, and the holding of any section of part thereof to be unconstitutional, void, illegal, ineffective, or contrary to the provisions of the Charter of the City of Longview, Texas, any amendments thereto, or any state or federal law, for any reason, shall not affect any other section or part of section of this ordinance. G-2-3.3 22 Section 9. That this ordinance shall take effect from and after its date of passage and publication as required by law. PASSED, APPROVED AND ADOPTED this 7th day of November, 1996. /s/ I.J. PATTERSON ------------------------------------- Mayor ATTEST: /s/ LOIS McCALEB - -------------------------------- City Secretary APPROVED AS TO FORM ________________________________ City Attorney G-2-3.4 23 THE STATE OF TEXAS ) ) COUNTY OF GREGG ) I, Lois McCaleb, City Secretary of the City of Longview, Texas, am the legal custodian of the City's files and records. I further certify that the attached is a true, accurate, and complete copy of City of Longview instruments and records as those instruments are filed with the records of the City. /s/ LOIS McCALEB -------------------------------------- Lois McCaleb City Secretary SWORN TO AND SUBSCRIBED BEFORE ME, the undersigned authority, by the said Lois McCaleb, City Secretary, on this the 12th day of November, 1996. /s/ MARY LEE ABLES --------------------------------------- Mary Lee Ables G-2-3.5 24 APPENDIX 3 NRC LETTER 25 UNITED STATES NUCLEAR REGULATORY COMMISSION WASHINGTON, D.C. 20555-0001 December 9, 1996 Mr. William T. Cottle Executive Vice-President & General Manager, Nuclear Houston Lighting & Power Company South Texas Project Electric Generating Station P.O. Box 289 Wadsworth, TX 77483 SUBJECT: MERGER OF HOUSTON LIGHTING & POWER COMPANY AND ITS PARENT, HOUSTON INDUSTRIES INCORPORATED, WITH NORAM ENERGY CORPORATION, SOUTH TEXAS PROJECT UNITS 1 AND 2 (TAC NOS. M96704 AND M96705) Dear Mr. Cottle: By letter dated October 3, 1996, Houston Lighting & Power Company (HL&P) confirmed a presentation made to the Nuclear Regulatory Commission (NRC) staff during a September 12, 1996, meeting, regarding the proposed merger of HL&P and its parent, Houston Industries Incorporated (HII), with NorAm Energy Corporation (NorAm). The letter describes the proposed merger and states that HL&P will submit an administrative license amendment request to reflect the planned name change from HL&P to HII. The October 3, 1996, letter concludes that aside from the name change, there is no impact on HL&P's licenses as a result of this transaction and no NRC action is required. The letter then asks that NRC confirm this conclusion. G-3-1 26 The NRC staff has reviewed your October 3, 1996, letter and based on the information provided, believes that no NRC action under 10 CFR 50.80 is required before the proposed transactions occur. Sincerely, William D. Beckner, Director Project Directorate IV-I Division of Reactor Projects III/IV Office of Nuclear Reactor Regulation Docket Nos. 50-498 and 50-499 cc: See next page G-3-2 27 APPENDIX 4 AGGREGATE INVESTMENT IN FUCOS AND EWGS (12/31/96) 28 HI Energy Aggregate Investment in FUCOs and EWGs(1) (12/31/96)
Project Amount ------- ------------ Empresa Distribuidora La Plata S.A./Central Dique S.A. (FUCOs) $ 84,262,000 Empresa Distribuidora de Electricidad de Santiago del Estero (FUCO) $ 15,655,000 Rain Calcining Limited (FUCO) $ 13,519,000(2) Light Servicos de Electricidade S.A. (FUCO) $393,119,000 Hie Argener S.A./HIE Opco S.A. (EWGs) $ 50,440,000(3) ------------ Aggregate Investment $556,995,000 ============
__________________________________ (1)"Aggregate investment" means all amounts invested, or committed to be invested, in exempt wholesale generators and foreign utility companies, for which there is recourse, directly or indirectly, to HI. For purposes of calculating aggregate investment, HI includes (i) the amounts contributed by HI to HI Energy that are invested in exempt wholesale generators located outside the United States and foreign utility companies (less amounts distributed to HI from HI Energy as a result of such investments), plus (ii) development costs (such as costs incurred in preparing a bid, conducting due diligence examinations and engaging in preliminary discussions) that culminate in the acquisition of the exempt wholesale generator or foreign utility company, plus (iii) the amount of any guarantee or other funding commitment that is recourse to HI. (2)Includes $5,334,008 in contingent obligations under the terms of a support agreement entered into by HI in favor of Citibank. Such support agreement was entered into in connection with the issuance by Citibank of a letter of credit to ensure the timely payment of amounts owed to the construction contractor for the Rain Project. (3)Does not include $53,000,000 in unfunded to go construction costs which are non-recourse to HI. G-4-1 -----END PRIVACY-ENHANCED MESSAGE-----