-----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, OPyNq+FyKbb0bOBTUG/8OVaw0lSSQhtaO5Cgo1F23Wu5Uc3LAT58oa/1e8wOBNIE C5APvs3pQETGaNsB7bDhwQ== 0000950131-00-006955.txt : 20001229 0000950131-00-006955.hdr.sgml : 20001229 ACCESSION NUMBER: 0000950131-00-006955 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20001228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WISCONSIN ENERGY CORP CENTRAL INDEX KEY: 0000783325 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 391391525 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: SEC FILE NUMBER: 070-09809 FILM NUMBER: 797642 BUSINESS ADDRESS: STREET 1: 231 W MICHIGAN ST STREET 2: P O BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4142212345 MAIL ADDRESS: STREET 1: 231 WEST MICHIGAN STREET STREET 2: P O BOX 2949 CITY: MILWAUKEE STATE: WI ZIP: 53201 U-1 1 0001.txt FORM U-1/A (As filed with the Securities and Exchange Commission December 28, 2000) File No. 70-9741 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------------- AMENDMENT NO. 2 TO FORM U-1/A APPLICATION OR DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ----------------------------------------------- Wisconsin Energy Corporation 231 West Michigan Street P.O. Box 2949 Milwaukee, Wisconsin 53201 Wisconsin Electric Power Company 231 West Michigan Street P.O. Box 2046 Milwaukee, Wisconsin 53201 (Names of companies filing this statement and addresses of principal executive offices) ----------------------------------------------- None (Name of top registered holding company parent) ----------------------------------------------- Larry Salustro Senior Vice President and General Counsel Wisconsin Energy Corporation 231 West Michigan Street P.O. Box 2949 Milwaukee, Wisconsin 53201 (Name and address of agent for service) ----------------------------------------------- The Commission is requested to send copies of all notices, orders and communications in connection with this matter to: A. William Finke, Counsel Bruce C. Davidson, Esq. Wisconsin Electric Power Company Brian D. Winters, Esq. 231 West Michigan Street Quarles & Brady LLP P.O. Box 2046 411 East Wisconsin Ave Milwaukee, Wisconsin 53201 Milwaukee, Wisconsin 53202 TABLE OF CONTENTS Page ---- ITEM 1: DESCRIPTION OF PROPOSED TRANSACTION............................... 1 A. Introduction and Request for Commission Action.................... 1 B. Transco Legislation............................................... 11 C. Transco Operations and Organization............................... 14 D. Transferred Properties............................................ 28 E. Related Orders and Applications Pertaining to the Establishment of the Transco and Corporate Manager................................. 32 ITEM 2: FEES, COMMISSIONS AND EXPENSES.................................... 33 ITEM 3: APPLICABLE STATUTORY PROVISIONS................................... 34 A. Section 10 Standards.............................................. 35 1. Section 10(b)................................................ 35 a. Section 10(b)(1)................................. 36 b. Section 10(b)(2)................................. 37 i. Fairness of Consideration........................ 37 ii. Reasonableness of Fees........................... 38 c. Section 10(b)(3)................................. 38 2. Section 10(c)................................................ 41 a. Section 10(c)(1)................................ 41 b. Section 10(c)(2)................................ 42 (i) Efficiencies and Economies...................... 42 (ii) Integrated Public Utility System................ 43 (a) Physical Interconnection........................ 45 (b) Single Interconnected and Coordinated System.... 45 (c) Single Area or Region........................... 46 (d) Localized Management, Efficient Operation and Effective Regulation............................ 46 3. Section 10(f)................................................ 48 B. Section 3(a)(1)................................................... 49 ITEM 4: REGULATORY APPROVALS.............................................. 52 A. Federal Power Act................................................. 52 B. State Public Utility Regulation................................... 54 ToC-i ITEM 5: PROCEDURE......................................................... 55 ITEM 6: EXHIBITS AND FINANCIAL STATEMENTS................................. 55 A. Exhibits.......................................................... 55 B. Financial Statements.............................................. 58 ITEM 7: INFORMATION AS TO ENVIRONMENTAL EFFECTS........................... 58 ToC-ii Wisconsin Energy Corporation and Wisconsin Electric Power Company hereby amend and restate their Application/Declaration on Form U-1 in Commission file No. 70-9741 as follows: ITEM 1: DESCRIPTION OF PROPOSED TRANSACTION A. Introduction and Request for Commission Action Pursuant to Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935, as amended (the "Act"), Wisconsin Energy Corporation ("WEC" or "Wisconsin Energy"), a Wisconsin corporation and an exempt holding company pursuant to Section 3(a)(1) of the Act, and Wisconsin Electric Power Company ("Wisconsin Electric") (collectively "Applicants"), a wholly-owned subsidiary of WEC and an electric utility company as defined by the Act, hereby request authorization for a transaction, as described in further detail below, in which: (i) Wisconsin Electric will transfer ownership and control over its transmission assets to American Transmission Company LLC ("ATC" or the "Transco"), a Wisconsin limited liability company formed on June 12, 2000, which will be a single-purpose transmission company; (ii) Edison Sault Electric Company ("Edison Sault"), a wholly-owned subsidiary of WEC and an electric utility company as defined by the Act, will transfer ownership and control over its transmission assets to the Transco; (iii) Wisconsin Electric and Edison Sault will receive, in exchange for such transfer, member units of the Transco in proportion to the value of the transmission assets contributed; (iv) Wisconsin Electric will purchase Class A shares of ATC Management Inc. (the "Corporate Manager"), a Wisconsin corporation formed on June 12, 2000, in proportion to the value of the transmission assets contributed to the Transco by itself and Edison Sault; and (v) Wisconsin Electric will purchase one Class B share of the Corporate Manager. WEC also requests an order from the Commission affirming its continued Section 3(a)(1) exemption from registration under the Act. As explained in Section E below, this request for Commission action is made in conjunction with several other such requests by other parties related to the formation of the Transco. Applicants do not at this time request Commission approval for any further transaction by Transco or 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 Corporate Manager or Transco for which approval of the Commission may be required under the Act, Applicants will undertake to file a Post-Effective Amendment requesting such approval. In 1999, the State of Wisconsin enacted legislation that facilitates the formation of a single-purpose transmission company such as the Transco. As explained in more detail below, that legislation, among its other provisions, encourages public utility affiliates of Wisconsin holding companies to transfer ownership of their transmission assets to a transmission company. The legislation does so by beneficially adjusting the calculation of an existing limit on the amount of unregulated (or non-utility) investments these holding companies and their affiliates can make, after the transfer of assets to the Transco. The Transco will be managed by the Corporate Manager, which will also hold a portion of the Transco's membership interests. All participants in the Transco will ultimately own a direct or indirect interest in the Transco and the Corporate Manager in proportion to the value of the transmission assets or cash each participant 2 contributes to the Transco (except Edison Sault and South Beloit Water, Gas & Electric Company, which are not expected to invest in the Corporate Manager). In addition to Wisconsin Electric and Edison Sault the initial participants in the Transco will be Wisconsin Public Power Inc. ("WPPI"), Wisconsin Public Service Corporation "AWPS"), Madison Gas & Electric Company "AMGE"), Wisconsin Power and Light Company ("WPL"), South Beloit Water, Gas and Electric Company ("South Beloit"), and the Corporate Manager./1/ All utilities participating in the Transco are referred to herein as "Member Utilities". Other transmission- owning utilities may, in the future, decide to become members of the Transco, as may non-transmission-owning utilities, based on their load ratio shares. Wisconsin Electric and Edison Sault intend to contribute their transmission assets to the Transco on or about January 1, 2001./2/ WEC is a public utility holding company incorporated under the laws of the State of Wisconsin and is exempt pursuant to Section 3(a)(1) of the Act by order of the Commission from regulation by the Commission under the Act (except for Section 9(a)(2) thereof). Wisconsin Energy Corporation, Holding Company Act Release No. 27163 (April 10, 2000) ("WEC"). WEC's principal executive office is located at 231 West Michigan Street, Milwaukee, Wisconsin 53203. - -------------------- /1/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. /2/The Wisconsin legislation currently contemplates that the transfer of the transmission assets to the Transco will occur by January 1, 2001. 3 WEC owns directly all of the common stock of two public utility companies: Wisconsin Electric, a combination electric and gas utility company, and Edison Sault, an electric utility company. In addition, WEC owns all of the common stock of WICOR, Inc. ("WICOR"), a public utility holding company incorporated under the laws of the State of Wisconsin, which is exempt from regulation under the Act (except for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) of the Act. See WEC, supra. WICOR has one wholly-owned public utility subsidiary, Wisconsin Gas Company ("Wisconsin Gas"), which is a gas utility company organized under the laws of the State of Wisconsin. On a consolidated basis at December 31, 1999, WEC had total assets of $6.2 billion. During 1999, WEC had, on a consolidated basis, total operating revenues of $2.27 billion and net income of $209 million. WEC acquired WICOR on April 26, 2000, in a transaction accounted for as a purchase. Accordingly, WICOR is reflected in WEC's consolidated financial statements from and after the date of acquisition. WEC's June 30, 2000 consolidated financial statements are incorporated by reference in Item 6.B. After the acquisition of WICOR, WEC had consolidated total assets of $8.4 billion at June 30, 2000. Wisconsin Electric and Edison Sault are subject to regulation by the Federal Energy Regulatory Commission (the "FERC") under the Federal Power Act (the "FPA") with respect to wholesale sales and transmission of electric power and gas, construction and operation of hydroelectric projects, gas marketing, and accounting and certain other matters. Wisconsin Electric is subject to regulation by the Public Service Commission of Wisconsin (the "Wisconsin Commission") and the Michigan Public Service Commission (the "Michigan Commission") and Edison Sault is subject to regulation by the Michigan Commission with respect to rates charged 4 for retail gas and electric service and the terms and conditions of such retail service provided in the respective jurisdictions. Wisconsin Electric is subject to regulation by the Nuclear Regulatory Commission with respect to the activities of the nuclear facility which it owns. Wisconsin Gas is subject to regulation by the Wisconsin Commission with respect to rates charged for retail gas service and the terms and conditions of such retail service. Wisconsin Electric is authorized to provide retail electric service in designated territories in Wisconsin and in certain territories in Michigan. Wisconsin Electric also sells wholesale electric power. At December 31, 1999, Wisconsin Electric had total assets of $5.0 billion. During 1999, Wisconsin Electric had total operating revenues of $2.02 billion, and net income of $212 million after dividends on preferred stock. Wisconsin Electric generates, transmits, distributes, and sells electric energy in a territory of approximately 12,000 square miles, with a population estimated at 2,300,000 in southeastern (including the metropolitan Milwaukee area), east central and northern Wisconsin and in the Upper Peninsula of Michigan. As of December 31, 1999, Wisconsin Electric had approximately 1.0 million electric customers. During 1999, Wisconsin Electric had electric operating revenues of $1.69 billion. Wisconsin Electric purchases, distributes and sells natural gas to retail customers and transports customer-owned gas in four distinct service areas of about 3,800 square miles in Wisconsin: west and south of the City of Milwaukee, the Appleton area, the Prairie du Chien area, and areas within Iron and Vilas Counties. The gas service territory has an estimated 5 population of approximately 1,200,000. During 1999, Wisconsin Electric had gas operating revenues of $307 million. Effective May 31, 1998, WEC acquired ESELCO, Inc. ("ESELCO"), a holding company whose principal subsidiary was Edison Sault. ESELCO was merged with and into WEC with WEC the surviving company. Wisconsin Energy Corporation, Holding Company Act Release No. 26877 (May 21, 1998). Thus, Edison Sault is a wholly- owned direct subsidiary of WEC. Edison Sault is authorized to provide retail electric service in certain territories in Michigan. Edison Sault generates, transmits, distributes and sells electric energy in a territory of approximately 2,000 square miles with a population of approximately 55,000 in the eastern Upper Peninsula of Michigan. Edison Sault also provides wholesale electric service under contract with one rural cooperative. At December 31, 1999, Edison Sault had approximately 22,000 electric customers, and total assets of $75 million. During 1999, Edison Sault had electric operating revenue of $38 million and net income of $4 million. During 1999, Wisconsin Electric sold approximately 30.6 million megawatt- hours (MWH) of electric energy (at retail and wholesale). Wisconsin Electric's net generation totaled 28 million MWH during 1999, with the remaining sales provided for by power purchases. For the year ended December 31, 1999, approximately 63.6% of Wisconsin Electric's MWH sales was obtained from coal- fired generation, approximately 22.0% from nuclear generation, approximately 2.7% from other generation, and approximately 11.7% was purchased. During 1999, Edison Sault sold approximately 0.8 million MWH of electric energy (at retail and 6 wholesale). In 1999, Edison Sault generated 23.9% of its total electric energy requirements and purchased 76.1% of its requirements. At December 31, 1999, Wisconsin Electric's electric transmission system consisted of 2,870 miles of transmission circuits, of which 771 miles were operating at 345 kilovolts, 123 miles at 230 kilovolts, 1,652 miles at 138 kilovolts, and 384 miles at voltage levels less than 138 kilovolts. The transmission assets also include associated real property interests. At December 31, 1999, Wisconsin Electric was operating 21,987 pole miles of overhead distribution lines and 16,295 miles of underground distribution cable, as well as 350 distribution substations and 233,726 line transformers. Edison Sault owns two 138 kilovolt submarine transmission cable circuits, which interconnect with Consumers Energy Company in the Lower Peninsula of Michigan, as well as two 138 kilovolt substations, which interconnect with a 46 mile, 138 kilovolt transmission line owned and operated by Cloverland Electric Cooperative. In total, Edison Sault had 282 miles of transmission line in service at December 31, 1999, and maintained 792 miles of primary distribution lines. Edison Sault renders service to its customers through approximately 8,600 line transformers. At December 31, 1999, Wisconsin Electric's gas distribution system included approximately 7,895 miles of mains connected at 22 gate stations to the pipeline transmission systems of ANR Pipeline Company ("ANR"), Natural Gas Pipeline Company of American, Northern Natural Gas Company ("Northern Natural") and Great Lakes Transmission Company. Wisconsin Electric has a liquefied natural gas storage plant, which converts and stores in 7 liquefied form natural gas received during periods of low consumption. The liquefied natural gas storage plant has a send-out capability of 70,000 dekatherms per day. Wisconsin Electric also has propane tanks for peaking purposes. These tanks can provide approximately 7,000 dekatherms of supply to the system. Wisconsin Electric also operates two district steam systems for space heating and processing. These systems are located in Milwaukee and in Wauwatosa, Wisconsin, and are subject to regulation by the Wisconsin Commission. The combined systems consist of approximately 43 miles of high and low pressure mains and related regulating equipment. Steam for the Milwaukee system is supplied by Wisconsin Electric's Valley power plant. Steam for the Wauwatosa system is supplied by Wisconsin Electric's Milwaukee County power plant. In addition, each of the following companies are direct non-utility subsidiaries of WEC: (a) Wispark Corporation ("Wispark"), which develops and invests in real estate, primarily business parks and industrial buildings. (b) Wisvest Corporation ("Wisvest"), which is a non-regulated energy services subsidiary that builds, owns, operates and maintains energy production facilities and invests in other energy-related projects. (c) Wisconsin Energy Capital Corporation ("WECC"), which engages in investing and financing activities. (d) Minergy Corp. ("Minergy"), which is engaged in the business of developing and marketing proprietary technologies designed to convert high volume industrial and mineral wastes into value-added products. 8 (e) WEC International Inc. ("WECII"), which serves as WEC's international investment vehicle. (f) Witech Corporation ("Witech"), which is a venture capital company operating in the State of Wisconsin. (g) WEC Nuclear Corporation, formerly WEC Sub Corp., which has an ownership interest in Nuclear Management Company, L.L.C., a company which provides services to Wisconsin Electric in connection with the Point Beach nuclear plant and to other companies that own nuclear generating facilities. (h) Northern Tree Service, Inc., which is engaged in tree trimming in the State of Michigan's eastern Upper Peninsula. (i) Badger Service Company ("Badger"), which holds coal rights in Indiana. Effective April 26, 2000 WEC acquired WICOR, a holding company. See WEC, Supra. On a consolidated basis at December 31, 1999, WICOR had total assets of $1.1 billion. During 1999, WICOR had total operating revenues of $1.01 billion and net income of $53.8 million. WICOR has one wholly-owned public utility subsidiary, Wisconsin Gas, a gas utility company which is organized under the laws of the State of Wisconsin. At December 31, 1999, Wisconsin Gas distributed gas to approximately 538,000 customers in 529 communities throughout Wisconsin. Wisconsin Gas' service area has a population of approximately 2,000,000. At December 31, 1999, Wisconsin Gas had total assets of $674 million. During 1999, Wisconsin Gas had total operating revenues of $439.5 million, and net income of $26.4 million. 9 Wisconsin Gas owns a gas distribution system, which, on December 31, 1999, included approximately 9,300 miles of distribution and transmission mains, 455,000 service laterals and 535,000 active meters. Wisconsin Gas receives gas at gate stations throughout Wisconsin connected to the pipeline transmission systems of ANR, Northern Natural and Viking Gas Transmission Company. The following companies are direct non-utility subsidiaries of WEC's wholly-owned subsidiary WICOR: (a) WICOR Energy Services Company ("WICOR Energy"), which engages in natural gas purchasing and selling, and energy and price risk management. (b) FieldTech, Inc. ("FieldTech"), which provides meter reading and technology services for gas, electric and water utilities. (c) WICOR Industries, Inc. ("WICOR Industries"), an intermediate holding company, which holds the stock of WICOR's manufacturing subsidiaries and owns 100 percent of the voting securities of five direct subsidiaries: Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump Manufacturing Company ("SHURflo"), Hypro Corporation, WEXCO of Delaware, Inc. and WICOR Foreign Sales Corp. WICOR Industries and its subsidiaries manufacture pumps and fluid processing equipment including filtration equipment for residential, agricultural, and industrial markets worldwide. WICOR is a co-owner of Guardian Pipeline, L.L.C. ("Guardian"). Guardian is a limited liability company formed to construct, own and operate an interstate natural gas pipeline extending approximately 150 miles from the Chicago Market Hub near Joliet, Illinois, to near the 10 Town of Ixonia, Jefferson County, in southeastern Wisconsin. Subsidiaries of CMS Energy Corporation and Northern States Power Company are equal one-third members with WICOR in Guardian. The pipeline will have a capacity of 750,000 dekatherms per day, will cost approximately $234 million, and is planned to be in service by November 1, 2002. Wisconsin Gas has committed to purchase 650,000 dekatherms per day of capacity in the pipeline. B. Transco Legislation In 1999, the State of Wisconsin enacted legislation which facilitates the formation of the Transco as a for-profit single-purpose transmission company./3/ The Transco will charge a single system-wide average network rate to be phased in over 5 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 services 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 WEC, to transfer ownership of their transmission assets to the Transco by beneficially adjusting the calculation of - -------------------- /3/1999 Wisconsin Act 9, (S)(S) 2335 tr to 2335 uh (Assembly Amendment to Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133) (the "Transco Legislation"). 11 an existing limit on the amount of unregulated (or non-utility) investments the holding company system can make, after the transfer of their assets to the Transco./4/ The Transco will be managed by the Corporate Manager. All Transco participants will ultimately own direct or indirect interests in the Transco 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,/5/ will purchase their interests for cash at a price that will keep the other participants whole, as explained below. - -------------------- /4/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 public 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 investments" (as defined in the Wisconsin Public 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 Public Service Commission of Wisconsin 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 Transmission System Operator, Inc. 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 telecommunications services; provide environmental engineering services; and manufacture or sell products that filter, pump, or process water or other fluids. All such assets in the WEC system will thus not count toward the investment cap if, among other things, Wisconsin Electric contributes its transmission assets to the Transco in accordance with the Transco Legislation. /5/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 subdivision of the state. Section 66.073 of the Wisconsin Statutes. 12 The Transco Legislation obligates the Transco to construct, operate, maintain and expand its transmission facilities to provide adequate, reliable transmission services for a single, system-wide rate for the use of its system under an open-access transmission tariff (the "Transco OATT") that has been filed with the FERC. The Transco Legislation directs that the Transco support robust competition in energy markets, extend no favoritism to any participant and meet the transmission needs of all participants. Under the provisions of the Transco Legislation, the Transco will transfer the operational control of its transmission facilities to the Midwest Independent Transmission System Operator, Inc. (the "Midwest ISO") when the Midwest ISO becomes operational. If, however, the Midwest ISO fails to commence operations, 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. As previously stated, the initial participants in the Transco will include, in addition to Wisconsin Electric and Edison Sault, WPL, South Beloit, WPPI, WPS, and MGE/6/. All utilities participating in the Transco are referred to herein as "Member Utilities". Other entities, both within and outside of Wisconsin, may, in the future, decide to become members of the Transco 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, - -------------------- /6/The Corporate Manager will also initially own a less than 1% interest in the Transco. 13 (the "Operations Date")./7/ The transmission systems of the Member Utilities (and the Alliant Energy transmission assets that are not being transferred to the Transco) are interconnected at various points and essentially all operate as part of the same reliability and planning council -- the Mid-America Interconnected Network, Inc. ("MAIN")./8/ MAIN promotes coordinated planning, construction, operation, maintenance and use of operation and transmission facilities by its members. The Member Utilities' transmission systems were also planned and built on a coordinated basis pursuant to the Wisconsin "advance planning" law in effect from 1975 until 1997. For a map detailing the interconnection of the transmission systems of the Member Utilities, see Exhibit E hereto. C. Transco Operations and Organization The Transco will have the exclusive duty to provide transmission service in geographic areas previously served by the Transco members. The Transco will not, however, have that duty in areas where control of transmission facilities has been transferred directly to the Midwest - -------------------- /7/The Transco Legislation currently contemplates that the transfer of the transmission assets will occur by the Operations Date. Indeed, for a Wisconsin public utility holding company to obtain relief from the asset cap described in note 4 above, the holding company's affiliated transmission-owning utilities must commit to transfer their transmission assets to the Transco by January 1, 2001. Wisconsin Electric has made such a commitment to the Wisconsin Commission. It is not clear how a failure to actually effect a transfer by the Operations Date would affect relief under the asset cap calculation. Accordingly, the Member Utilities are proceeding under the assumption that the Transco will begin operations on the Operations Date and are therefore making all of the requisite FERC filings to have the Transco OATT effective as of such date. /8/Edison Sault is technically a member of the East Central Area Reliability (ECAR) group. However, pursuant to a FERC-approved joint operating agreement, on January 1, 2001, Edison Sault will become a part of the Wisconsin Electric control area. 14 ISO./9/ Wisconsin law prohibits the Transco from bypassing distribution systems and directly serving retail customers. As contemplated by the Transco Legislation, the Transco is organized as a limited liability company under Wisconsin law. A Wisconsin limited liability company may elect to be "member managed" or "manager managed."/10/ The Transco has elected to be manager managed, and Wisconsin law specifically allows the manager of any limited liability company to be a corporation./11/ The Transco has designated the Corporate Manager, a Wisconsin corporation formed for this purpose, to be its manager. The two legal entities, the Transco and the Corporate Manager, are a single functional unit, as the Corporate Manager exists for the sole purpose of conducting the affairs of the Transco. The transmission-owning Member Utilities will receive member units in the Transco in proportion to the value of the transmission assets they contribute. For purposes of establishing these proportions, the transmission assets will be valued at their Contribution Value, defined as original cost less accumulated depreciation, as adjusted on a dollar-for-dollar basis for deferred taxes, excess deferred taxes and deferred investment tax credits. The resulting proportions will then be adjusted based on various factors including the level of participation by transmission dependent utilities, such as WPPI, which may acquire member units in the Transco for cash - -------------------- /9/As noted above, if the Midwest ISO fails to commence, or ceases operations, the Transco will join another independent system operator or other regional transmission organization authorized under federal law to operate in Wisconsin. /10/Section 183.0401(2), Wis. Stat. /11/Sections 183.0401(2)(6), 183.0102(13), and 183.0102(18). 15 based upon their 1999 Wisconsin load share ratio. It is expected that Wisconsin Electric's and Edison Sault's initial interests in the Transco will approximate 42% and 6%, respectively, or 48% in the aggregate. These ownership percentages may fluctuate based on various factors, including the number of municipal utilities and electric cooperatives that participate in the Transco. The Member Utilities, with the exception of Edison Sault and South Beloit, will also purchase shares of the Corporate Manager for cash, in proportion to their percentage interests in the Transco. It is expected that Wisconsin Electric will pay approximately $48,000 for an approximate 48% interest in the Corporate Manager based on the initial interests in the Transco of itself and Edison Sault. The Corporate Manager will have two classes of common stock: Class A and Class B. Wisconsin Electric will receive approximately 48% of the non-voting Class A shares, in proportion to its and Edison Sault's ownership interests in the Transco. Additionally, Wisconsin Electric, WPL, MGE, WPS, and WPPI will each receive one Class B voting share. This structure accomplishes two explicit goals articulated by the Wisconsin Legislature in the Transco Legislation. First, the Transco Legislation requires that the transfer of transmission assets be designed to avoid or minimize material adverse tax consequences and, to the extent practicable, satisfy the requirements for a tax-free transfer./12/ The "pass-through" tax treatment afforded by the limited liability company structure accomplishes this purpose and avoids any tax-induced retail rate impact from the creation of the Transco. The transfer of assets to a limited liability company is a tax-free transaction and income earned by the Transco will not be taxed twice, as it would in a corporation. - -------------------- /12/Section 196.485(5)(b)2.a and 196.485(5)(b)2.b, Wis. Stat. 16 Second, the Transco Legislation clearly contemplates a transmission company that can access public financial markets./13/ The Transco Legislation also allows any holder of 10% or more equity in a transmission company to, after 3 years, require the transmission company to comply with all state and federal laws necessary for the holder to sell or transfer its ownership interests./14/ 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 public financial markets. FERC, in Order 888 and Order 2000, and the Wisconsin Legislature in Act 204, have recognized that in order to foster competitive markets in electricity, transmission facilities should operate independently from the generation or distribution business. The Transco will further the goals of FERC and Act 204 in two ways. First, the Transco has applied to join the Midwest ISO and the Midwest ISO has accepted the application effective on the ISO's operation date, at which time the Transco will transfer operational control of its transmission facilities to the Midwest ISO./15/ Second, over time, public ownership of the Transco is expected to increase and ownership by the utilities to decrease, furthering the goal of complete independence of transmission from the generation and distribution businesses. During the first three years of the - -------------------- /13/The Transco Legislation refers to an anticipated "initial issuance of securities by the transmission company to any 3d party." Section 196.485 (3m)(a)4, Wis. Stat. /14/Section 196.485(3m)(a)5, Wis. Stat. /15/The Transco Legislation provides that if the Midwest ISO fails to commence operations or ceases operations, requirements that apply to the Midwest ISO will apply to any other independent system operator or regional transmission organization that is authorized under federal law to operate in Wisconsin. Section 196.485(2)(bx), Wis. Stat. 17 Transco's existence, no member may transfer its interest in the Transco except to an affiliate or to another member of the Transco. After the three-year period, however, if a Transco member wishes to sell all or part of its interest in the Transco, it can do so by redeeming its Member Units in the LLC for Class A Shares of the Corporate Manager. (The member who receives such Class A stock would be free to sell it to a third party.) Alternatively, the Transco member could sell its member units to the Corporate Manager for cash. The Corporate Manager would raise the cash for such a purchase by means of a public offering of Class A shares. As the initial members of the Transco sell some or all of their interest to the Corporate Manager, a greater share of the Transco will be owned by the Corporate Manager. The Corporate Manager, in turn, will be owned in greater share by the investing public through the sale of stock. Broader public ownership would move the Transco over time toward the goal of complete independence from the founding utilities and thus from the generation and distribution businesses those utilities engage in. Various requirements regarding the ownership and governance of a transmission company in Wisconsin are set forth in the Transco Legislation./16/ Each utility that transfers its transmission assets to the Transco will receive as consideration membership (LLC) units in the Transco in proportion to the value of the assets transferred. In accordance with the Transco Legislation, the assets transferred will be valued at - -------------------- /16/Sections 196.485(3m)(c), 196.485(5), and 196.485.(6), Wis. Stat. 18 net book value determined on the basis of the regulated books of account at the time of transfer./17/ WPPI, which owns no transmission assets, is investing cash in the Transco and will receive membership units in proportion to its investment. Membership units will initially be valued at $10. The Corporate Manager will also have a membership interest in the Transco by virtue of an investment of $1,000 for 100 membership units. The Transco is governed by the Corporate Manager's shareholders and Board of Directors ("Board"). The Board will appoint the chief executive officer (and other officers) of the Corporate Manager. Because the management of the Transco is vested in the Corporate Manager, the governance requirements set forth in the Transco Legislation/18/ are satisfied through the provisions of the Corporate Manager's organizational documents as described below. The Corporate Manager's Amended and Restated Articles of Incorporation provide for 100,000,000 shares of common stock, with 99,999,990 shares being Class A stock and ten shares being Class B. Initially, each participant's ownership of Corporate Manager Class A stock will be in the same proportion as the participant's ownership interest in the Transco (its own and Edison Sault's interests in the case of Wisconsin Electric). With 5 initial participants, only 5 of the 10 shares of Class B stock will initially be issued. (Ten thousand shares of Class A Stock will initially be issued.) If at any time a participant's ownership interest in the Transco falls below 2%, then it must sell its share of Class B stock back to the Corporate Manager./19/ - -------------------- /17/Section 196.485(5)(b)7, Wis. Stat. /18/Section 196.485(3m)(c), Wis. Stat. /19/However, unlike the other participants, WPPI may retain its share of Class B stock regardless of its percentage ownerhip interest in the Transco. 19 Prior to a public offering, only Class B shares will have voting rights, including the right to elect directors. Each Class B stockholder will have the right to appoint one director to the Board. An appointee to the Board may be removed only by the participant nominating him or her. The four independent directors required by the Transco Legislation/20/ will be elected to the Board by a majority vote of the Class B stockholders. Class B stockholders will also have the following powers: (i) by majority vote, to amend the Articles of Incorporation; and (ii) by majority vote, to approve any merger, consolidation or sale of all or substantially all of the assets of Corporate Manager. After a public offering of stock in the Corporate Manager, Class A stockholders will be entitled to vote and will elect a majority of the Board. Although after a public offering Class B stockholders will only elect a minority of the Board, each Class B stockholder would continue to have the right to appoint one director to the Board. After a public offering, holders of Class A stock will possess all voting rights incident to shares of common stock under Wisconsin law, including the right to vote on amendments to the Articles of Incorporation and on any proposal to merge, consolidate or sell the Corporate Manager. All Class B shares will convert into Class A shares on the earlier of the following events: (i) the Corporate Manager owns more than 50% of the Transco membership units; or - -------------------- /20/Section 196.485.(3m)(c)2, Wis. Stat., provides: "That at least 4 managers or directors of the transmission company have staggered 4-year terms, are elected by a majority vote of the voting security holders and are not directors, employees or independent contractors of a person engaged in the production, sale, marketing, transmission or distribution of electricity or natural gas or of an affiliate of such person." 20 (ii) the tenth anniversary of the Operations Date;/21/ provided that the Board may, by majority vote, elect to override the conversion and keep the Class B shares outstanding after such an event. Such a conversion of Class B shares into Class A shares would mean that, at that time, the Class A shareholders will elect all directors. Most decisions of the Board require a majority of a quorum/22/ of the Board, including: (i) approving an operating and a capital budget for the Transco and the Corporate Manager; (ii) effecting a change in the distribution payment rate of the Transco, which will initially be set at 80%; (iii) hiring and firing officers and establishing their compensation, including benefit plans; (iv) admitting new participants to the Transco, and determining the price therefor; (v) after three years, making an initial public offering of the stock of the Corporate Manager; (vi) approving for submission to the shareholders either (a) the amendment of the Articles of Incorporation of the Corporate Manager or (b) the merger, consolidation or sale of all or substantially all of the Corporate Manager's assets; and (vii) approving changes to the Bylaws (with certain exceptions). Unanimous Board approval will be required for the following: (i) to effect a change in the allocation of profits and losses; (ii) to effect a public offering prior the third anniversary of the Operations Date; - -------------------- /21/The Operations Date is January 1, 2001. /22/A quorum is fixed at two-thirds of the directors until an initial public offering is made, at which time a simple majority will constitute a quorum. 21 (iii) to change the number of directors on the Board prior to the tenth anniversary of the Operations Date; and (iv) to make any amendment of the Articles of Incorporation or Bylaws that relates to matters requiring unanimity or to amend any provision in the Bylaws that incorporates or embodies a provision of 1999 Wisconsin Act 9. The Transco members will enter into an agreement (the "Operating Agreement") which will govern the activities of the Transco. Because the Transco is a manager-managed limited liability company, the Operating Agreement will grant to the Corporate Manager full, complete and exclusive discretion to exercise management control over the business of the Transco. As the manager, 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. (The members of the Transco also control the Corporate Manager so if they believe that it is 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 the Transco. Such expenses will be charged back to the Transco at cost in accordance with Section 13(b) of the Act and Rules 90 and 91 thereunder. The Corporate Manager will have all powers as a manager to do all things 22 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. 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./23/ Services provided under the O&M Agreements will include operations services such 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 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, - -------------------- /23/Section 196.485 (3m)(a)1.b. of the Wisconsin Statutes. 23 billing and collection, joint facility management and route planning, siting and selection; project services necessary for the design, 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 decision to employ the O&M Agreements and the Services Agreements just referred to has been made pursuant to the requirements of the Transco Legislation, which provides that the Transco shall, [S]ubject to any approval required under state or federal law, contract with each transmission utility that has transferred transmission facilities to the transmission company for the transmission utility to provide reasonable and cost-effective operation and maintenance services to the transmission company during the 3-year period after the transmission company first begins operations. The transmission company and a transmission utility may, subject to any approval required under federal or state law, agree to an extension of such 3-year period. The rationale for this statutory mandate is that, at least during the initial 3- year period, economy, reliability and safety will best be served if the required services are provided to the Transco by the utilities whose transmission assets are being transferred. Those utilities have the resources, and their personnel have the expertise and the experience with the transmission assets, to provide the required services safely, reliably and economically. The agreements provide that the covered services will be rendered at cost, except that unless otherwise prohibited by law, the Transco will commit to use an annual minimum of 85% of the number of hours of a member utility's own labor used in a representative year for transmission facilities maintenance. The rationale for this 24 provision is that the utilities will be committing labor and other resources to performance of the services required by the Transco and will incur the costs of that resource commitment. Wisconsin Energy, as an unregistered holding company, and Wisconsin Electric and Edison Sault as its affiliates, are not subject to the Commission's jurisdiction regarding transactions limited to cost. Nevertheless, the Applicants believe that the terms of the Services Agreements and the O&M Agreements provide fair, reasonable, and equitable compensation for the costs incurred to render services to the Transco, and are consistent with the requirements of Section 13(e) of the Act. 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 services will be provided under the Forming Party Agreement, though some of the principles 25 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. The Member Utilities' generators are currently interconnected with the Member Utilities' transmission systems. On January 1, 2001, the Member Utilities' generators will be interconnected with the Transco's transmission system. Each Member Utility will enter into a Generation B 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 contains no provisions for the payment of rates or 26 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's OATT on file at FERC for the provision of network integration transmission service. The NITSA is a form agreement on file at FERC. The NITSA specifies the network resources and network load that will be served under the agreement. The NOA contains the specific operating provisions that allow a network customer to integrate its load and resources as provided in the OATT. 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,/24/ 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 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 - -------------------- /24/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. 27 required to make additional cash contributions (or receive a refund of any "over contributed" funds) to ensure that the return otherwise payable to the other transmission-contributing participants is not diminished because of the tax exempt entities' participation. No Member Utility will be obligated to make any additional capital contributions to the Transco or the Corporate Manager; however, there may be additional 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. More detailed information regarding the financing and governance of the Transco and the Corporate Manager is contained in the August 15, 2000 Application of Alliant Energy, SEC File No. 70-9735 (the "Alliant Application"). D. Transferred Properties Wisconsin Electric and Edison Sault propose to transfer ownership and control of their transmission assets to the Transco. The Transco will acquire from Wisconsin Electric and Edison Sault transmission facilities that operate at voltages of 345 kV, 138 kV and 69 kV. The Wisconsin Electric and Edison Sault transmission assets proposed to be transferred include: . Transmission lines (including towers, poles, and conductors) and transmission substations; . Transformers providing transformation within the bulk transmission system and between the bulk and area transmission systems; . Lines providing connections to generation sources and step-up (plant) substations; 28 . Radial taps from the transmission system up to, but not including, the facilities that establish the final connection to distribution facilities or retail customers; . Substations that provide primarily a transmission function; . Voltage control devices and power flow control devices directly connected to the transmission system; and . Associated real estate and interests in real estate located in the States of Michigan and Wisconsin, as further described in the relevant property descriptions, or easements granted or assigned to the Transco. The determination as to what Wisconsin Electric assets constitute "transmission" assets to be transferred to the Transco has been made consistent with an order of the Public Service Commission of Wisconsin, dated July 13, 2000, in Docket No. 05-EI-119. The PSCW conducted a proceeding specifically to provide direction on this issue to the Wisconsin utilities./25/ A breakdown of the transmission assets to be contributed to the Transco by Wisconsin Electric and Edison Sault is provided in Exhibit I. The original cost of the Wisconsin Electric and the Edison Sault transmission assets is approximately $372.9 million and $41.0 million, respectively. The net book value (original cost less accumulated depreciation) of the Wisconsin Electric transmission assets and the Edison Sault transmission assets at December 31, 2000 is expected to be approximately $230.0 million and $31.4 million, respectively, and the contribution value is expected to be approximately $214.0 million and 30.0 million, respectively. The facilities Wisconsin Electric and Edison Sault 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 - -------------------- /25/See Investigation into the Classification of Transmission Facilities Pursuant to Wis. Stats. (S) 196.485(1)(h), Docket No. 05-EI-119. 29 substations providing transformation or connection to any retail customer regardless of voltage level. Wisconsin Electric currently provides FERC jurisdictional transmission service to certain customers over distribution facilities operated at voltages of less than 50 kV. The Transco will continue to provide such service as Wisconsin Electric's agent. Consequently, transmission customers that use Wisconsin Electric's distribution system will, in the future, be able to secure from the Transco all necessary transmission services over Wisconsin Electric's current transmission and distribution system. The Transco will be under a statutory mandate to transfer operational control of its jurisdictional facilities to the Midwest ISO./26/ Prior to the transfer, the Transco will have operational control of the transmission system contributed by Wisconsin utilities; provide ancillary services; operate an Open Access Same-Time Information System ("OASIS") in conformance with FERC Order No. 889; and administer the Transco OATT. The Transco will also 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. Wisconsin Electric and Edison Sault will each enter into a bill of sale, deeds, easement assignments and other documentation with the Transco governing the conveyance of their - -------------------- /26/If the Midwest ISO fails to commence operations or ceases operations, statutory requirements that apply to the Midwest ISO will apply to any other independent system operator or regional transmission organization that is authorized under federal law to operate in Wisconsin. Section 196.485(2)(bx), Wis. Stat. 30 respective transmission assets. The transmission assets transferred to the Transco will include Wisconsin Electric's rights and interests in any contracts under its existing Open Access Transmission Tariff (the "Wisconsin Electric OATT"). In addition to the assets from Wisconsin Electric and Edison Sault, it is expected that the Transco will also acquire transmission assets from WPL, South Beloit, MGE and WPS. The Transco is also expected to acquire the incidental transmission facilities of transmission-dependent utilities, such as WPPI's member municipal utilities. The Transco will assign a nominal value of $10 to each member unit initially issued in exchange for transmission assets. 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 Wisconsin Electric, 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. Upon receipt of necessary regulatory approvals, the Transco will begin providing open access transmission services under its OATT to those existing open access customers currently served by Wisconsin Electric under the existing Wisconsin Electric OATT and to any other eligible customer requesting transmission service from the Transco. Wisconsin Electric will become a transmission customer of the Transco under its transmission tariff. Where Wisconsin 31 Electric is responsible for providing transmission service under agreements or tariffs pre-dating 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. E. Related Orders and Applications Pertaining to the Establishment of the Transco and Corporate Manager On August 3, 2000, Alliant and WPL obtained a Commission order authorizing them to: (i) acquire small membership interests in the Transco; (ii) acquire a small percentage of the capital stock of the Corporate Manager; and (iii) authorizing Alliant, through September 30, 2001, to guarantee the Transco's payment obligations under a credit agreement and to enter into a reimbursement agreement with the Transco./27/ On August 15, 2000, WPL, South Beloit, the Transco and the Corporate Manager filed the Alliant Application seeking Commission authorization for: (i) WPL to transfer ownership and control over its transmission assets to the Transco; (ii) South Beloit to transfer ownership and control over its transmission assets to the Transco; (iii) WPL and South Beloit to receive, in exchange for their transmission assets, member units, i.e., shares, of the Transco; (iv) WPL to purchase Class A shares of the Corporate Manager; (v) WPL to purchase one Class B share of the Corporate Manager; (vi) the Transco's issuance of member units in exchange for transmission assets, in the case of transmission-owning Transco members, or cash, in the case of - -------------------- /27/Alliant Energy Corporation, HCAR No. 27206 (August 3, 2000). -------------------------- 32 transmission-dependent Transco members; and (vii) the Corporate Manager's issuance of its Class A and Class B shares in exchange for cash payments. WPL and South Beloit have also sought Commission authorization through June 30, 2004 for external financing by the Transco and the Corporate Manager through various forms of (i) short-term debt financing; (ii) 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. This Application, the Alliant Application and any applications filed by other Member Utilities should be viewed as companion filings. All must be approved expeditiously if the Transco is to commence operations prior to the Operations Date. If the Commission does not act within this timeframe certain Applicants will be in violation of the Transco Legislation and may face adverse regulatory consequences./28/ ITEM 2: FEES, COMMISSIONS AND EXPENSES. The fees, commissions and expenses incurred, or to be incurred, by the Applicants in connection with the transactions proposed herein are estimated as follows: Real Estate Appraisal and Transfer Costs $ 821,000 Environmental Assessment and Remediation 311,000 Legal Fees 1,082,000 Independent Engineer's Fee and Miscellaneous 80,000 Internal Non-Labor 806,000 Internal Labor 812,000 ---------- Total $3,912,000
- -------------------- /28/For example, pursuant to Wis. Stats. (S) 196.485(8), any public utility affiliate that does not complete the contribution of its transmission facilities to the Transco by January 1, 2001, will be subject to a penalty of $25,000 for each day that the contribution is delayed if the Transco is legally able to accept the contribution. 33 ITEM 3: APPLICABLE STATUTORY PROVISIONS The Applicants believe that the proposed transaction is regulated by Sections 9(a)(2), 10 and 3(a)(1) of the Act. To the extent the Commission finds that the transaction requires authorization, approval or exemption under any section of the Act or provision of the rules or regulations thereunder other than those specifically referred to herein, the Applicants hereby request such authorization, approval or exemption. When the transmission assets of the Member Utilities are transferred to the Transco, the Transco will become an "electric utility company" under Section 2(a)(3) of the Act and a "public utility company" under Section 2(a)(5). In addition, it is possible that the Corporate Manager, by virtue of its ownership interest in, and management of, the Transco, will also become an "electric utility company" and a "public utility company." For purposes of this Application, the Applicants have assumed that the Commission will consider the Corporate Manager to be a "public utility company." However, the Applicants reserve the right to make a future filing demonstrating that the Corporate Manager should not be considered to be a public utility company. As a result of the proposed transaction, Wisconsin Energy will be indirectly acquiring 5% or more of the outstanding voting securities of the Transco. Wisconsin Energy already maintains such an interest, directly or indirectly, in Wisconsin Electric, Edison Sault and Wisconsin Gas, all of which are public utility companies under Section 2(a)(5) of the Act. As a consequence, Wisconsin Energy's indirect acquisition of an interest in the Transco will be subject to the 34 Commission's approval pursuant to Section 9(a)(2) of the Act. Similarly, if the Corporate Manager is considered to be a public utility company, Wisconsin Electric will be directly acquiring more than 5% of two public utility companies (the Transco and the Corporate Manager)/29/. Therefore, the Applicants believe that the proposed transaction cannot proceed without the Commission's approval under 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 Standards The statutory standards to be considered by the Commission in evaluating the transaction are set forth in Sections 10(b), 10(c) and 10(f) of the Act. For the reasons set forth in detail below, the transaction fully complies with such sections. 1. 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; - -------------------- /29/Although Edison Sault may acquire more than 5% of the voting securities of the Transco, it will not acquire any shares in the Corporate Manager. Since Edison Sault does not have any other utility affiliates, as the term "affiliate" is defined for purposes of Section 9(a)(2) of the Act, the Applicants believe that its direct acquisition of member units in the Transco, as opposed to WEC's indirect acquisition of those units, is not subject to the Commission's approval under Section 9(a)(2) of the Act. In the event that Edison Sault's interest in the Transco exceeds 10%, in which case Edison Sault may be deemed to be a "holding company" under the Act, Edison Sault will file an exemption statement on Form U-3A-2 pursuant to Rule 2 under the Act. 35 (2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired; or (3) such acquisitions will unduly complicate the capital structure of the holding-company 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. a. Section 10(b)(1) The proposed transaction 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 consumer. 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 transaction will not tend toward any "concentration of control of public utility companies" that is detrimental to the public interest or the interest of consumers or investors. The end result of the formation of the Transco will not be the concentration of control over the Wisconsin transmission system, but rather the dilution of control. There will be at least five member utilities with input, through the Corporate Manager, over decisions as to the 36 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. b. Section 10(b)(2) Under Section 10(b)(2) of the Act, the Commission must determine whether the consideration to be paid in connection with the transaction "including all fees, commissions and other remuneration ... is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of ... the utility assets underlying the securities to be acquired ...." i. 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 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 the assets as well. 37 This being the case, all Member Utilities, including Wisconsin Electric and Edison Sault, can expect to earn a fair return on their investment. ii. 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 transaction. 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. c. Section 10(b)(3) Section 10(b)(3) requires that the Commission determine whether the proposed transaction will unduly complicate WEC's or Wisconsin Electric's capital structure or will be detrimental to the public interest, the interests of investors or consumers or the proper functioning of WEC's system. The corporate capital structures of WEC and Wisconsin Electric after the consummation of the proposed transaction 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 member units (LLC interests) of the Transco. Although such structure introduces an additional corporate layer into the WEC system, the Transco and the Corporate Manager will, as 38 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"./30/ In any event, as set forth more fully elsewhere 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 WEC holding company system. The transfer of the Wisconsin Electric transmission assets to the Transco in exchange for a membership interest in the Transco will not be detrimental to the investors in Wisconsin Electric. There are currently outstanding approximately $712 million principal amount of Wisconsin Electric first mortgage bonds which are secured by permanent additions having a depreciated book value of approximately $2.8 billion as of September 30, 2000. Of this amount, approximately $1,187 million of permanent additions (166 2/3% of the principal amount of the bonds) were applied to the issuance of the bonds (or refundable bonds made the basis for the issuance of $130 million of the outstanding bonds) with the balance available for additional bonding or other applications permitted by the mortgage indenture securing the bonds. The aggregate depreciated book value of the Wisconsin Electric transmission assets is approximately $230 million. Following the release of the Wisconsin Electric transmission assets from the lien of the mortgage indenture, Wisconsin Electric's outstanding first mortgage - -------------------- /30/Upon the transfer of transmission assets to the Transco, Wisconsin Electric may be deemed to be a "holding company" under the Act because of its more than 10% ownership interests in the Transco and the Corporate Manager. Consequently, Wisconsin Electric will file an exemption statement on Form U-3A-2 pursuant to Rule 2 under the Act. 39 bonds will be secured by permanent additions with a depreciated book value of more than 3.5 times the aggregate principal amount of those bonds. After the release of the transmission assets from the lien of the indenture, which will be effected by substituting refundable (previously issued and retired) bonds in the aggregate principal amount of 6/10ths of the amount of cash that would otherwise be required to be deposited with the Trustee, as permitted by the indenture, there will be net bondable property additions of approximately $1.8 billion and refundable bonds in the aggregate principal amount of approximately $1.3 billion available for the issuance of additional bonds, the withdrawal or reduction of cash deposited or required to be deposited with the Trustee, or other applications permitted by the indenture. Wisconsin Electric has no intention to issue additional first mortgage bonds; however, it does intend to transfer additional utility assets free of the lien of the indenture in connection with the proposed further restructuring of its operations. Any such further transfers will be made in accordance with the terms of the indenture. With respect to the equity investors in Wisconsin Electric (preferred stockholders all of Wisconsin Electric's common stock is owned by Wisconsin Energy) and holders of Wisconsin Electric's unsecured debt securities, Wisconsin Electric's total assets will not be materially affected by the proposed transaction. Wisconsin Electric will receive directly or indirectly an equity interest in the Transco which approximates the value of the Wisconsin Electric transmission assets transferred to the Transco. Wisconsin Electric is required by order of the Public Service Commission of Wisconsin to maintain a capital structure in which equity constitutes 48.5% to 53.5% of total capital. The 40 proposed transaction will not adversely affect Wisconsin Electric's ability to maintain a balanced capital structure in accordance with the requirements of the Public Service Commission of Wisconsin. Edison Sault has no equity holders other than Wisconsin Energy and has called for optional redemption of all of its outstanding first mortgage bonds. The proposed transaction will not adversely affect Edison Sault's ability to maintain a balanced capital structure. 2. 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 asset, 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 any integrated public utility system .... a. 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 an electric utility 41 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, subject to the right of each Member Utility to appoint a director of the Corporate Manager, voting powers are generally allocated based on contributions to the Transco. Accordingly, the proposed transactions meet the standards of Section 11(a) of the Act. b. Section 10(c)(2) As the following discussion will demonstrate, the proposed transaction 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. (i) Efficiencies and Economies. The proposed transaction tends toward a variety of efficiencies and economies. It implements the legislative intent of the Transco Legislation 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 42 MAIN side of the interface;/31/ 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. The Transco also takes the functional unbundling requirement of FERC Order Nos. 888 and 2000 a step further by separating transmission from generation and distribution into a separate entity. In addition, by combining the transmission systems of several utilities, the Transco will provide operational benefits, such as internalizing loop flow, eliminating constraints, and permitting calculation of available transmission capability on a system wide basis. (ii) 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. - -------------------- /31/Wisconsin is split between two reliability councils, with the Western part of the state belonging to MAPP and the eastern part of the state belonging to MAIN. Currently transfer capacity at the MAPP/MAIN interface is limited. 43 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 those developments./32/ Based on the statutory definition, the Commission has established four standards that must be met before it will find that an integrated public-utility system will result from a proposed acquisition of securities: (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./33/ The proposed transaction satisfies all four of these requirements. In examining proposed transactions to determine whether the integration requirements have been satisfied, the - -------------------- /32/See, e.g., American Electric Power Co., HCAR No. 27186 (June 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) (stating that "an agency is not required to" establish rules of conduct to last forever, "but rather must be given ample latitude to Aadopt [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) (stating that an agency "is expected to treat experience not as a jailer but as a teacher"). /33/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). -------------------------- 44 Commission has "interpreted the Act and analyzed transactions in the light of ... changed and changing circumstances."/34/ 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 transaction. (a) 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 Item 1, the utility assets to be owned by the Transco are already physically interconnected. (b) 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 dictate./35/ As discussed above, the transmission assets that will be transferred to the Transco will be operated in a manner that satisfies the standard of economic and coordinated operations in Section - -------------------- /34/AEP Order. --------- /35/See UNITIL Corp., HCAR No. 25524 (Apr. 24, 1992). ----------- 45 2(a)(29)(A) of the Act. Moreover, the proposed transaction is expected to result in greater coordination and more efficient allocation of the provision of transmission services within the area served by the Transco. (c) Single Area or Region The "single integrated system" of the Transco will initially be the central and eastern portions of the State of Wisconsin and small adjacent areas of the Michigan Upper Peninsula and Illinois. Through the membership of additional transmission-owning-utilities, the Transco's system may grow to include other parts of Wisconsin and portions of other Midwestern states. (d) 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 transaction fully preserves the advantages of localized management. In such cases, the Commission has evaluated localized management in terms of : (1) responsiveness to local needs/36/; (2) whether management and directors were drawn from local utilities/37/; - -------------------- /36/See American Electric Power Co., HCAR No. 20633 (July 31, 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"). /37/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). 46 (3) the preservation of corporate identities/38/; and (4) the ease of communications/39/. 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 (except Edison Sault and South Beloit) 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. Communication between the Transco and its members will flow easily./40/ Finally, the formation of the Transco will have no impact on the existing integration of the Wisconsin Energy holding company system. In its Order dated April 10, 2000, regarding the acquisition by Wisconsin Energy of WICOR, Inc., the Commission made the following findings: The existing WEC electric utility system is, and following the Merger will continue to be, an integrated electric utility system .... [T]here is substantial evidence that the gas operations of [Wisconsin Electric] and Wisconsin Gas will constitute an integrated gas utility system within the meaning of section 2(a)(29)(B). - -------------------- /38/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). /39/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 communication and transportation"). /40/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. 47 In this matter there will be de facto integration of the separate gas and electric systems./41/ The formation of the Transco and the participation in the Transco by Wisconsin Electric and Edison Sault will not alter in any way the facts on which the Commission based its April 10, 2000, findings that the Wisconsin Energy holding company system is integrated under the meaning of the Act. 3. Section 10(f) Section 10(f) provides that: the Commission shall not approve any acquisition as to which an application is made under this section unless it appears to the satisfaction of the Commission that such State laws as may apply in respect of such acquisition have been complied with, except where the Commission finds that compliance with such State laws would be detrimental to the carrying out of the provisions of Section 11. As discussed above, the Transco is being created pursuant to, and in accordance with, Wisconsin law. As already discussed, Wisconsin law provides an incentive for Wisconsin public utility holding companies to transfer their transmission assets to a single-purpose transmission company such as the Transco will be. The Wisconsin Transco Legislation also facilitates and regulates the proposed transaction. As described below, the transaction requires the approval of the Wisconsin Commission and that approval has been granted. Thus, the requirements of Section 10(f) are satisfied. - -------------------- /41/HCAR No. 27163 (April 10, 2000). 48 B. Section 3(a)(1) Section 3(a)(1) provides that unless the Commission would find an exemption "detrimental to the public interest or the interest of investors or consumers," the Commission shall exempt any holding company from registration if such holding company, and every subsidiary company thereof which is a public utility company from which such holding company derives, directly or indirectly, any material part of its income, are predominantly intrastate in character and carry on their business substantially in a single State in which such holding company and every such subsidiary company thereof are organized. As previously noted, WEC is currently a Section 3(a)(1) exempt holding company pursuant to Commission order. After completion of the proposed transaction, WEC will continue to satisfy the requirements of Section 3(a)(1). Section 2(a)(8) of the Act provides that a utility, such as the Transco will be and the Corporate Manager may be, is a "subsidiary company" of any entity that owns at least 10% of its voting securities. Because WEC will own (indirectly through Wisconsin Electric and Edison Sault) more than 10% of the Transco and the Corporate Manager, each will be a "subsidiary company" of WEC. In its recent order granting WEC exemption from registration under Section 3(a)(1) in connection with its acquisition of WICOR, the Commission stated: Wisconsin Gas will remain the sole public-utility subsidiary of WICOR and will become an indirect, wholly owned subsidiary of WEC. Wisconsin Gas is incorporated under the laws of the state of Wisconsin and conducts all of its gas business within Wisconsin. WICOR will obtain 100 percent of its utility gross revenues from 49 within Wisconsin, and WEC will obtain approximately 94 percent of its utility gross revenues from Wisconsin. The remaining six percent of utility gross revenues primarily come from [Wisconsin Electric's] and Edison Sault's operations in the Upper Peninsula of Michigan. Using the net operating revenues test, the number would be lower than six percent./42/ Based on that analysis the Commission concluded that WEC (and WICOR) would satisfy the standards of Section 3(a)(1), and issued an order granting exemption from registration. WEC's (indirect) acquisition of an interest in the Transco will have only a de minimis effect on the calculations the Commission relied on its April 2000 - ---------- order. All of the Transco's assets will be located in Wisconsin, with the exception of the Edison Sault and Wisconsin Electric transmission assets located in the Upper Peninsula of Michigan and some South Beloit transmission assets located in Illinois. The rates ultimately charged for the Transco's services, and thus its revenues and earnings, will be based largely on the value of its assets. WEC's share of the Transco's revenues and earnings attributable to activity in Michigan will actually be less than the imputed transmission revenue and earnings WEC currently receives from Michigan./43/ The reason is that WEC currently has a 100% (indirect) interest in its Michigan transmission assets but, upon transfer of those assets to the Transco, will have only a 48% (indirect) interest in them. The estimated value of South Beloit's Illinois transmission assets that will be transferred to the Transco is approximately $590,000 or 1/10 of 1% of the Transco's total assets. Thus, - -------------------- /42/HCAR No. 27163 (April 10, 2000). /43/Currently, most of the transmission service that WEC's utility subsidiaries provide to their customers is bundled with the power those customers purchase. As a result, revenue and earnings attributable only to the sale of transmission service are not broken out but can be thought of as "imputed." Because the Transco will sell unbundled transmission service, once the Transco begins operation WEC will be able to identify its pro rata share of earnings and revenue attributable to transmission. 50 WEC's pro rata share of earnings and revenue attributable to the Illinois assets will be insignificant. Accordingly, the Applicants believe that WEC will retain its current Section 3(a)(1) exemption after Wisconsin Electric's acquisition of interests in the Transco and Corporate Manager and Edison Sault's acquisition of interests in the Transco. On the Operations Date, the Transco and the Corporate Manager will clearly be "predominantly intrastate in character" and will carry out nearly all of their business in Wisconsin, the state where they are organized. Applicants estimate that until and unless additional non-Wisconsin utilities join the Transco, the Transco will derive approximately 95% of its revenues and income from Wisconsin activities. Similarly, approximately 95% of the total value of the Transco's transmission assets will be associated with transmission facilities located in Wisconsin. These figures are well within the ranges the Commission has previously found to be acceptable./44/ For these reasons, WEC requests that the Commission affirm WEC's exemption from registration under Section 3(a)(1) of the Act. Wisconsin Electric may become a utility holding company in its own right as a result of its acquisition of a greater than 10% interest in the Transco and, assuming it is considered to be a public utility company, the Corporate Manager. Given that the Transco and the Corporate Manager will be "predominantly" Wisconsin utilities that carry out nearly all of their business in Wisconsin on the Operations Date, the Applicants believe that Wisconsin Electric will qualify for exemption from registration pursuant to Rule 2. Consequently, upon the completion of the - -------------------- /44/See, e.g., NIPSCO Industries, Inc., HCAR No. 26975 (February 10, 1999). ---------------------- 51 transaction described in this Application, Wisconsin Electric will file an exemption statement on Form U-3A-2 pursuant to Rule 2. Edison Sault will own less than 10% of the Transco and will not have any ownership interest in the Corporate Manager. Consequently, the Transco and Corporate Manager will not be subsidiaries of Edison Sault for purposes of the Act and Edison Sault will not become a utility holding company. Edison Sault will therefore not be required to seek an exemption under the Act. ITEM 4: REGULATORY APPROVALS Set forth below is a summary of the regulatory approvals that the Applicants have obtained or expect to obtain in connection with the proposed transaction. Except as set forth below, no other state or local regulatory body or agency and no other federal commission or agency (except the Commission under the Act) is known to have jurisdiction over the proposed transaction, and no other regulatory approvals are required. A. Federal Power Act. Under Section 203 of the Federal Power Act, the FERC has jurisdiction over the proposed transaction. Wisconsin Electric filed an application with the FERC on January 6, 2000, for authorization to transfer ownership and control of certain transmission facilities to the Transco (referred to in the proceeding at the FERC as "Wisconsin Transco"). On March 31, 2000, the FERC issued an order authorizing the transfer as consistent with the public interest./45/ - -------------------- /45/Wisconsin Electric Power Company, Docket No. EC00-45-000, Order Authorizing Disposition of Jurisdictional Facilities (March 31, 2000), 90 FERC (PAR) 61,346. 52 Edison Sault filed an application with the FERC on August 28, 2000 for authorization to transfer ownership and control of certain transmission facilities to the Transco. On November 9, 2000, the FERC issued an order authorizing the transfer as consistent with the public interest./46/ In addition to its Section 203 jurisdiction over the transfer to the Transco of transmission assets by individual Member Utilities, FERC has jurisdiction under Section 205 over the Transco's rates and terms and condition of service. The Transco applied to FERC on July 31, 2000, for approval of its proposed Open Access Transmission Tariff ("OATT"). On December 14, 2000, FERC issued an order in Docket No. EROO-3316-000, Accepting in Part and Rejecting in Part Filing of Open Access Transmission Tariff. In that order, FERC accepted the Transco's proposed OATT, with certain clarifications and modifications, as consistent with or superior to FERC's pro forma tariff./47/ FERC accepted the --------- OATT to be effective on the date the associated rates become effective. With respect to the Transco's proposed rates, however, FERC stated that certain aspects of the rate proposal deemed to be rate "incentives," such as the capital expansion adder and shortened depreciation for new transmission facilities, were only available in the context of RTOs. On December 15, 2000, the Transco submitted a new Section 205 rate filing without the capital expansion adder and shortened depreciation life proposals. The rates proposed in the December 15, 2000, filing reflect a reduction of approximately 5% from the rates proposed in the July 21, 2000, filing but are otherwise identical to the rates proposed in the July filing. The Transco has asked FERC for expedited review of its December 15, 2000, filing. - -------------------- /46/Edison Sault Electric Company, Docket No. ECOO-131-000, Order Authorizing Disposition of Jurisdictional Facilities (November 9, 2000), 93 FERC (PAR)61, 146. /47/American Transmission Company LLC, 93 FERC (PAR) 61, 627 (2000). --------------------------------- 53 Applicants do not believe that final FERC approval of the OATT price terms is required in order for the Commission to grant the authorizations requested in this Application. Based on the FERC's December 14, 2000, order approving the Transco's 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. B. State Public Utility Regulation On December 22, 2000, the Wisconsin Commission issued its Order in Docket No. 137-NC-100. In that Order, the Wisconsin Commission ordered, inter alia, that Wisconsin Electric is authorized to become a member of the Transco by contributing its transmission facilities and land rights to the Transco. Edison Sault filed an application with the Michigan Commission on October 27, 2000, requesting the Commission to approve the classification of Edison Sault's facilities of 50kV or higher as transmission facilities and to grant any other approvals that may be needed to facilitate transfer of such facilities to the Transco, including approval of journal entries to record the transfer of the affected property. On December 20, 2000 the Michigan Commission issued an order approving the application. Wisconsin Electric filed an application with the Michigan Commission on October 27, 2000, requesting the Commission to approve the classification of its transmission and distribution facilities as determined by the Wisconsin Commission and the associated journal entries to record the transfer of transmission assets to the Transco. On December 20, 2000, the Michigan Commission issued an order approving the application. 54 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 required in order for the Wisconsin public utility holding companies to qualify for relief from the Wisconsin non-utility asset cap limit. The Applicants further request that there should not be a 30-day waiting period between issuance of the Commission's order and the date on which the Order is to become effective, hereby waive a recommended decision by a hearing officer or any other responsible officer of the Commission, and consent that the Division of Investment Management may assist in the preparation of the Commission's decision and/or order, unless the Division opposes the matters proposed herein. ITEM 6: EXHIBITS AND FINANCIAL STATEMENTS A. Exhibits A-1 Form of Articles of Organization of the Transco. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-2 Form of Operating Agreement of the Transco. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. 55 A-3 Form of Articles of Incorporation of ATC Management Inc. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-4 Form of Amended and Restated Articles of Incorporation of ATC Management Inc. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. A-5 Amended By-laws of ATC Management Inc. - - Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-1 Form of O&M Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-2 Form of Services Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695 B-3 Form of Asset Contribution Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-4 Form of Transco Forming Party Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-5 Form of Transco Generation - Transmission Interconnection Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-6 Form of Network Operating Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-7 Form of Transco Distribution-Transmission Interconnection Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. B-8 Form of Network Integration Transmission Service Agreement. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. C Not Applicable. D-1 Application of Edison Sault to FERC. D-2 Application of Wisconsin Electric to FERC. D-3 Order of FERC regarding Wisconsin Electric Application. D-4 Order of FERC regarding Edison Sault Application. 56 D-5 Application of Edison Sault to Michigan Public Service Commission. D-6 Application of Wisconsin Electric to Michigan Public Service Commission. D-7 Order of Michigan Public Service Commission regarding Wisconsin Electric. D-8 Order of Michigan Public Service Commission regarding Edison Sault. D-9 Application of the Transco to FERC. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. D-10 Order of FERC regarding Transco Application. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. D-11 Omnibus Application of the Transco and Member Utilities to the Public Service Commission of Wisconsin (Docket No. 137-NC-100). -- Incorporated by reference to Alliant Energy SEC File No. 70- 9695. D-12 Supplement to Omnibus Application. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. D-13 Order of Wisconsin Commission regarding Omnibus Application. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. E Interconnection Map. -- Incorporated by reference to Alliant Energy SEC File No. 70-9695. F-1 Preliminary Opinion of Quarles & Brady LLP. F-2 Past Tense Opinion of Quarles & Brady LLP.* F-3 Past Tense Opinion of Loomis, Ewert, Parsley, Davis & Gotting, P.C.* G. Not applicable. H. Form of Notice -- previously filed. 57 I. Description and valuation of transferred assets. * To be filed by amendment. B. Financial Statements. 1.1 Balance Sheet of Wisconsin Energy and consolidated subsidiaries, as of June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of Wisconsin Energy for the quarter ended June 30, 2000) (File No. 001-09057). 1.2 Statement of Income of Wisconsin Energy and consolidated subsidiaries for the six months ended June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of Wisconsin Energy for the quarter ended June 30, 2000) (File No. 001- 09057). 1.3 Balance Sheet of Wisconsin Electric, as of June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of Wisconsin Electric for the quarter ended June 30, 2000) (File No.001-01245). 1.4 Statement of Income of Wisconsin Electric for the period ended June 30, 2000 (incorporated by reference to the Quarterly Report on Form 10-Q of Wisconsin Electric for the six months ended June 30, 2000) (File No. 001-01245). ITEM 7: INFORMATION AS TO ENVIRONMENTAL EFFECTS None of the matters that are the subject of this Application/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/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/Declaration. 58 SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this amendment to be signed on their behalf by the undersigneds thereunto duly authorized. WISCONSIN ENERGY CORPORATION By: /s/ Larry Salustro ------------------- Larry Salustro Senior Vice President and General Counsel WISCONSIN ELECTRIC POWER COMPANY By: /s/ David K. Porter -------------------- David K. Porter Senior Vice President Dated: December 28, 2000 59 EX-99.D1 2 0002.txt APPLICATION OF EDISON SAULT TO FERC. Exhibit D-1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Edison Sault Electric Company ) Docket No. EC00-___-000 ) APPLICATION OF EDISON SAULT ELECTRIC COMPANY FOR AUTHORIZATION TO TRANSFER JURISDICTIONAL TRANSMISSION ASSETS PURSUANT TO SECTION 203 OF THE FEDERAL POWER ACT Donald Sawruk Julie B. Greenisen President Antoine P. Cobb Edison Sault Electric Company Melissa L. Pignatelli 725 East Portage Avenue Troutman Sanders LLP Sault Ste. Marie, MI 49783 1300 I Street, N.W. (906) 632-2271 Suite 500 East Washington, D.C. 20005-3314 (202) 274-2950 (telephone) (202) 274-2994 (facsimile) Dated: August 28, 2000 Washington, D.C. UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Edison Sault Electric Company ) Docket No. EC00-___-000 ) APPLICATION OF EDISON SAULT ELECTRIC COMPANY FOR AUTHORIZATION TO TRANSFER JURISDICTIONAL TRANSMISSION ASSETS PURSUANT TO SECTION 203 OF THE FEDERAL POWER ACT Pursuant to Section 203 of the Federal Power Act ("FPA")/1/ and Part 33 of the regulations of the Federal Energy Regulatory Commission ("FERC" or "Commission"),/2/ Edison Sault Electric Company ("Edison Sault") hereby tenders for filing the original and five copies of this application ("Application") for authorization to transfer ownership and operational control of its FERC- jurisdictional transmission assets ("Divestiture Transaction") to American Transmission Company LLC ("ATCLLC")./3/ ATCLLC is a Wisconsin limited liability company created pursuant to the State of Wisconsin's "Reliability 2000" legislation/4/ for the purpose of owning and operating the high voltage transmission system in Wisconsin. The assets that Edison Sault proposes to transfer to ATCLLC comprise the integrated, high-voltage (50kV and above) transmission system that Edison Sault currently owns and operates (the "Edison Sault Transmission System"). Pursuant to the Divestiture Transaction: (1) Edison Sault will divest its 100 percent interest in the Edison Sault Transmission System through the transfer of those assets - ------------------ /1/ 16 U.S.C. (S) 824b (1994). /2/ 18 C.F.R. (S) 33.1 et seq. (1999). /3/ Edison Sault also seeks, to the extent necessary, authority to assign to ATCLLC all tariffs, contracts, books, and other records necessary to effectuate the Divestiture Transaction. /4/ 1999 Wisconsin Act 9 ("Act 9"); Wis. Stats. (S) 196.485(3m). to ATCLLC; and (2) ATCLLC will acquire operational control over the Edison Sault Transmission System. Act 9 requires ATCLLC to apply for all necessary approvals under state or federal law to begin operations on or before January 1, 2001./5/ Accordingly, Edison Sault hereby requests that the Commission review and approve the Divestiture Transaction on or before November 15, 2000, in order to accommodate closing the transfer in advance of the statutorily-required operations date of January 1, 2001. As shown below, the proposed transfer of the Edison Sault Transmission System to ATCLLC is consistent with the public interest and should be approved. I. BACKGROUND. Initially, six other entities are transferring assets to ATCLLC. In addition to Edison Sault, the following entities will transfer assets to ATCLLC by January 1, 2001: Wisconsin Electric Power Company ("WEPCO"), Wisconsin Power & Light Company ("WPL"), Wisconsin Public Service Corp. ("WPS"), South Beloit Water, Gas and Electric Company ("SBWGE"), Madison Gas & Electric Company ("MGE"), and Wisconsin Public Power Inc. ("WPPI") (collectively, the "Participating Entities"). WEPCO and WPL have already received authorization to transfer their jurisdictional facilities to ATCLLC. See Wisconsin Electric Power Co., 90 FERC (P) 61,346 (2000); Wisconsin Power & Light Co., 90 FERC (P) 61,347 (2000). SBWGE's Section 203 application to transfer its jurisdictional facilities to ATCLLC, which was filed in Docket No. EC00-120-000 on August 3, 2000, is presently pending ____________________________________ /5/ Wis. Stats. (S) 196.485(3m)(a)1. 2 before the Commission. Finally, MGE and WPS are concurrently filing a joint Section 203 application to transfer their jurisdictional assets to ATCLLC. Through this Application, Edison Sault will join with the six other Participating Entities in forming ATCLLC. ATCLLC will be structured as a for- profit transmission company, and will own and control the contributed transmission systems in Eastern Wisconsin (i.e., that part of Wisconsin that is within the Mid-American Interconnected Network, Inc. ("MAIN")), and in certain portions of Illinois and the Upper Peninsula of Michigan. Except for WPPI, all of the Participating Entities are investor-owned utilities, and will receive equity ownership interests in ATCLLC in proportion to the net book value of the transmission facilities that they contribute. Because WPPI does not own any transmission facilities, it will contribute cash to ATCLLC and will receive an equity ownership interest in ATCLLC approximately/6/ in proportion to the cash it contributes./7/ On July 31, 2000, ATCLLC filed an application for acceptance of its open access transmission tariff. ATCLLC's application and the transmission rates contained therein are premised, in part, on the Commission's approval of Edison Sault's proposed transfer of facilities as outlined in this Section 203 application. ATCLLC's application is pending before the Commission in Docket No. ER00-3316-000. ____________________ /6/ To account for tax adjustments, WPPI's ownership interest will be slightly less than the proportionate amount of cash it contributes to ATCLLC. /7/ WPPI is a municipal joint action agency organized pursuant to Wis. Stats. (S) 66.073. WPPI provides bulk power, energy, and other services to its thirty municipal member-owners. These members are located within the service territories of the four large investor-owned utilities in Wisconsin: Northern States Power Company-Wisconsin ("NSP-Wisconsin"), WEPCO, WPS and WPL. Each member of WPPI is a Wisconsin municipality that operates its own municipal electric utility and distributes electricity at retail to the residences, businesses, and industries in and around its municipality. WPPI supplies the bulk power and energy requirements of its municipal members from generation resources owned by WPPI and through purchased power contracts. WPPI owns no transmission facilities. 3 Edison Sault notes that neither it nor ATCLLC proposes that ATCLLC, by itself, will qualify as a Commission-approved Regional Transmission Organization ("RTO") under Order No. 2000./8/ ATCLLC and its member utilities, including Edison Sault, will satisfy Order No. 2000 RTO requirements by joining the Midwest Independent Transmission System Operator, Inc. ("Midwest ISO") and transferring operational control of the ATCLLC transmission assets to the Midwest ISO as soon as the Midwest ISO begins operations./9/ Edison Sault notes that on December 29, 1999, in Docket No. EC98-24, WEPCO notified the Commission that the Edison Sault Transmission System would join the pool of facilities to be operated by the Midwest ISO when the Midwest ISO commences operations on November 1, 2001. It is Edison Sault's understanding that the Midwest ISO intends to qualify itself as an RTO. Currently, Edison Sault has only one transmission customer, Cloverland Electric Cooperative ("Cloverland"). Cloverland takes service under a pre-Order No. 888/10/ transmission agreement - the Transmission Coordination Agreement ("TCA"). Cloverland has the ability to transfer its transmission assets to ATCLLC and become a participating entity in ATCLLC. In fact, Edison Sault understands that Cloverland is actively considering this option at this time. However, because Cloverland has not yet made the decision to transfer its assets to ATCLLC, Edison Sault proposes in this application to assign the TCA to ATCLLC, such that Cloverland _____________________ /8/ Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 809, FERC Stats. & Regs. (Regulations Preambles) (P) 31,089, order on reh'g, Order No. 2000-A, 65 Fed. Reg. 12088, FERC Stats. & Regs. (Regulations Preambles) (P) 31,092 (2000). /9/ See Wis. Stats. (S) 196.485(3m)(a)1.d. and e. /10/ 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, FERC Stats. & Regs. (Regulations Preambles) (P) 31,036 (1996), order on reh'g, Order No. 888-A, III FERC Stats. & Regs. (P) 31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC (P) 61,248 (1997), order on reh'g, Order No. 888- 4 will have the ability to continue to receive transmission service as provided in the TCA, with ATCLLC taking over Edison Sault's rights and responsibilities under the contract. By transferring the TCA to ATCLLC, Cloverland will be able to continue to receive service as originally contemplated under the agreement. As demonstrated below, the Divestiture Transaction fully satisfies the standards set forth in Order No. 592,/11/ and is consistent with the public interest. Moreover, the Commission has already authorized as consistent with the public interest similar transactions by WEPCO/12/ and by WPL./12/ In addition, as discussed in Section VI.A.2, Edison Sault plans to take appropriate steps to ensure that its only transmission customer - Cloverland - is not harmed by the Divestiture Transaction. Edison Sault therefore respectfully requests that the Commission approve this Application without an evidentiary hearing by November 15, 2000. ________________________________________________________________________________ C, 82 FERC (P) 61,046 (1998). /11/ Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement, FERC Stats & Regs. (Regulations Preambles) (P) 31,044 (1996), order on reconsideration, Order No. 592-A, 79 FERC (P) 61,321 (1997) ("Merger Policy Statement"). The Commission recently issued a Notice of Proposed Rulemaking that sets forth specific filing requirements and revisions to the Part 33 filing requirements consistent with the Merger Policy Statement. See Revised Filing Requirements Under Part 33 of the Commission's Regulations, IV FERC Stats. & Regs. (P) 32,528 (1998) ("Merger Filing NOPR"). Although these proposed regulations have not gone into effect, Edison Sault has attempted to conform this filing to the principles articulated in the Merger Filing NOPR to the extent practical. /12/ Wisconsin Electric Power Company, 90 FERC (P) 61,346 (2000). When WEPCO requested Section 203 approval of the Divestiture Transaction, the details of the transaction were not yet finalized. Nonetheless, in Wisconsin Electric, the Commission granted Section 203 approval to WEPCO for the transfer of its transmission and related assets to a transmission company which would be a member of the Midwest Independent Transmission System Operator, Inc. ("Midwest ISO"). This application of WEPCO's affiliate Edison Sault will serve as notice to the Commission of the form of corporate transfer that will also be utilized by WEPCO to effectuate the transaction approved by the Commission in Wisconsin Electric. Pursuant to the same transaction form utilized by the other Participating Entities, WEPCO will transfer to ATCLLC its transmission assets, as well as all related tariffs, contracts, books, records, and accounts necessary to effectuate the transfer. /13/ Wisconsin Power & Light Company, 90 FERC (P) 61,347 (2000). 5 II. DESCRIPTION OF APPLICANT. A. EDISON SAULT AND ITS RELEVANT AFFILIATES. 1. Wisconsin Energy Corporation. Edison Sault is a wholly owned subsidiary of Wisconsin Energy Corporation ("Wisconsin Energy"). Wisconsin Energy is a public utility holding company exempt from registration under Section 3(a)(1) of the Public Utility Holding Company Act of 1935, 15 U.S.C. (S) 79c(a)(1) ("PUHCA"). Wisconsin Energy does not directly own, operate, or control any facilities used for the generation, transmission, or distribution of electric energy in interstate commerce. Wisconsin Energy has five subsidiaries, described below, which own FPA-jurisdictional facilities. 2. Edison Sault Electric Company. Edison Sault is a direct, wholly owned subsidiary of Wisconsin Energy. Edison Sault is a public utility operating company that owns electric generation, transmission, and distribution facilities located in the State of Michigan. Edison Sault provides retail electric service to approximately 22,000 customers located on Michigan's Eastern Upper Peninsula. Edison Sault's retail operations are subject to the jurisdiction of the Michigan Public Service Commission ("MPSC"). Edison Sault also transmits and sells electric energy at wholesale subject to the Commission's jurisdiction under Part II of the FPA. In addition to its generating assets, Edison Sault owns approximately 340 miles of transmission facilities with ratings from 69 to 138 kilovolts ("kV"). These facilities are interconnected with WEPCO, Upper Peninsula Power Company, Consumers Energy Company and Cloverland. Edison Sault is a member of the 6 East Central Area Reliability Council and, on December 29, 1999, filed with this Commission its request to become a member of Midwest ISO./14/ 3. Wisconsin Electric Power Company. WEPCO is a public utility operating company that owns electric generation, transmission, and distribution facilities, as well as natural gas distribution facilities. These facilities are located in the States of Wisconsin and Michigan. WEPCO provides retail electric service to approximately one million customers and retail natural gas service to approximately 400,000 customers located throughout portions of southeastern, central and northern Wisconsin and the Upper Peninsula of Michigan. WEPCO also sells steam service to about 450 customers in Milwaukee County. WEPCO's retail operations are subject to the jurisdiction of the Public Service Commission of Wisconsin ("PSCW"), and the MPSC. WEPCO also transmits and sells electric energy at wholesale subject to the Commission's jurisdiction under Part II of the FPA. In addition to its generating assets, WEPCO owns approximately 2,870 miles of transmission facilities with ratings from 69 to 345kV. These facilities are interconnected with the following entities: Edison Sault, Commonwealth Edison Company, MGE, Marquette Board of Public Utilities, NSP- Wisconsin, Upper Peninsula Power Company, WPL, WPPI, and WPS. WEPCO is a member of MAIN and is a participant in the Midwest ISO. 4. Wisvest Corporation. Wisvest Corporation ("Wisvest") is a wholly owned subsidiary of Wisconsin Energy. Through its own wholly owned subsidiary, Wisvest-Connecticut, L.L.C. ("Wisvest-Connecticut"), Wisvest owns an indirect 100 percent interest in certain generating facilities _____________________ /14/ Letter from Dale A. Landgren to Secretary David P. Boergers, Dated December 29, 1999 (Docket No. EC98-24). 7 formerly owned by United Illuminating Company./15/ The Commission has authorized Wisvest-Connecticut to engage in sales of electric energy at wholesale and sales of ancillary services at market-based rates within the energy market administered by ISO-New England, Inc./16/ Wisvest-Connecticut is an "exempt wholesale generator" as defined in Section 32 of PUHCA. 5. Minergy Corporation. Minergy Corp. ("Minergy") is a wholly owned subsidiary of Wisconsin Energy engaged in the business of marketing technologies designed to convert high-volume industrial and municipal waste into value-added products. Through a wholly owned subsidiary, Minergy Neenah, L.L.C. ("Minergy Neenah"), Minergy owns an indirect 100 percent interest in a facility that recycles paper mill sludge into glass aggregate and steam. A portion of the steam is sold to a paper mill for processing and the remainder is used to generate electric energy. The Commission has authorized Minergy Neenah to engage in sales of electric energy at wholesale at market-based rates./17/ Minergy Neenah is an "exempt wholesale generator" as defined in Section 32 of PUHCA. 6. Griffin Power Marketing, L.L.C. Griffin Power Marketing, L.L.C. ("Griffin Power") is an indirect wholly owned subsidiary of Wisconsin Energy engaged in the business of brokering and marketing electric energy and power, natural gas, and other energy services at wholesale and retail throughout ____________________ /15/ See United Illuminating Co., 86 FERC (P) 62,162 (1999). /16/ See Wisvest-Connecticut, L.L.C., 86 FERC (P) 61,133 (1999). /17/ Minergy Neenah, L.L.C., Docket No. ER99-3125-000. 8 North America. The Commission authorized Griffin Power to make wholesale sales of power and at market-based rates in Docket No. ER97-4168-000./18/ III. DESCRIPTION OF AMERICAN TRANSMISSION COMPANY LLC AND ATC MANAGEMENT INC. A. AMERICAN TRANSMISSION COMPANY LLC. As noted above, ATCLLC is a Wisconsin limited liability company created by specific legislative mandate through Act 9. While beginning as an affiliated transmission company wholly owned by the Participating Entities, ATCLLC has the capability to evolve into a publicly owned, for-profit, multi- state transmission company. This could be accomplished through a public stock offering that would reduce the percentage of ATCLLC's equity that its member utilities own. ATCLLC also will be able to increase its membership and expand the scope of its operations by adapting its structure as necessary to encourage other transmission owners within the region to transfer ownership or operational control of their facilities to ATCLLC. The original owners of ATCLLC have agreed not to sell their equity interests in ATCLLC for a period of three years following the initial day of operations (January 1, 2001). A participant may, however, offer all or a portion of its interest to the other participants at ATCLLC's then existing net book value./19/ Each participant will have the right to purchase the _______________________ /18/ See Griffin Power Marketing, L.L.C., 81 FERC (P) 61,133 (1997). /19/ Any participant, however, may transfer its interest to a 100%-owned affiliate at any time. WPPI will be permitted, if it chooses, to transfer its interest to another entity owned by its members. Transfers of ownership by operation of law, such as merger or consolidation, or in connection with the sale of all or substantially all of the assets of the participant, are also permitted. 9 offered interest to the extent of its pro rata interest. Any participant can increase the percentage of its ownership if the other participants elect not to purchase their share of the offered interest. Act 9 imposes certain ownership and governance requirements on transmission companies. In accordance with Act 9, ATC Management Inc., the corporate manager of ATCLLC (see III.B. below) will have no less than 5 and no more than 14 managers or directors (which may be modified by an unanimous vote of the managers or directors)./20/ Also as provided in Act 9, at least 4 managers or directors will be independent, i.e., "not directors, employees or independent contractors of a person engaged in the production, sale, marketing, transmission or distribution of electricity or natural gas or of an affiliate of such a person."/21/ Certain statutory restrictions are also placed on the number of managers or directors that each company can appoint for the ten-year period after start-up. Act 9 states that each of the following may appoint one manager or director for a one-year term: (1) each non-transmission utility security holder that owns ten percent or more of the outstanding voting securities of the transmission company; (2) each group of non-transmission utility security holders that, as a group, owns ten percent or more of the outstanding voting securities; (3) each electric utility, transmission dependent utility and retail electric cooperative that holds at least five percent equity interest; and (4) each transmission utility security holder./22/ ATCLLC may not sell or merge its assets with another person unless they are sold, transferred, or merged on "an integrated basis" and in a manner that ensures that the ___________________________ /20/ Wis. Stats. (S) 196.485(3m)(c)1. /21/ Wis. Stats. (S) 196.485(3m)(c)2. /22/ Wis. Stats. (S) 196.485(3m)(c)3. "Transmission utility security holder" means "a person that is a security holder of a transmission company, is an investor-owned transmission utility in the transmission area and has contributed its transmission facilities to the transmission company." Wis. Stats. 196.485(1)j. 10 transmission facilities in Eastern Wisconsin are planned, operated, maintained, and controlled as a single transmission system./23/ ATCLLC does not seek to qualify as an independent system operator ("ISO") or RTO. As noted above, ATCLLC will satisfy Order No. 2000 RTO requirements by joining the Midwest ISO. As ordained by Act 9, key provisions relating to the structure and operation of ATCLLC include: . A requirement to contract back with contributing transmission owners for operating and maintenance services for at least three years. Non-supervisory utility employees will have certain job rights after the three years;/24/ . A requirement to join the Midwest ISO and apply to operate as a single rate zone under the Midwest ISO tariff for at least six years;/25/ . A prohibition against bypassing distribution systems and against providing service to retail customers;/26/ . A prohibition against owning generation or participating in the wholesale power market (with specific exceptions for procuring or reselling ancillary services, redispatch or control area functions);/27/ and . A requirement that the governing board will consist of representatives of member entities, and that independent members will be elected by shareholder vote./28/ The affairs of ATCLLC will be governed by an LLC Operating Agreement, which will be executed by all of the Participating Entities and any other utilities that contribute transmission assets or cash to ATCLLC. The LLC Operating Agreement will also establish the _______________________________________ /23/ Wis. Stats. (S) 196.485(3m)(a)2.a. /24/ Wis. Stats. (S) 196.485(3m)(a)1.b. /25/ Wis. Stats. (S) 196.485(3m)(a)1.d.-f. /26/ Wis. Stats. (S) 196.485(3m)(a)2.b. /27/ Wis. Stats. (S) 196.485(3m)(a)2.c. /28/ Wis. Stats. (S) 196.485(3m)(c). 11 respective ownership shares of the members, their contribution obligations and their interest in distributions. As discussed above, the LLC Operating Agreement will also place certain restrictions on the transfer of members' interests. Finally, the LLC Operating Agreement will specify that ATC Management Inc. (also referred to as the "Corporate Manager" or "CM") will manage the day-to-day operations of ATCLLC. B. ATC MANAGEMENT INC. ATC Management Inc. will manage ATCLLC. The CM was organized as a corporation under Wisconsin law on June 12, 2000. The CM will be a member of ATCLLC and will be owned by the Participating Entities. All ATCLLC decisions will be effected through and undertaken by the CM. The CM will employ all personnel necessary to operate the ATCLLC./29/ All of the CM's costs and expenses will be treated as ATCLLC expenses. Prior to its initial date of operation (January 1, 2001), the CM will amend its articles of incorporation in accordance with the Amended and Restated Articles of Incorporation, which will provide for two classes of shares: Class A shares, which will initially be held in substantially the same proportion that interests are held in ATCLLC, and Class B shares, one of which will be held by each Wisconsin member of ATCLLC. The Bylaws of the CM establish the right of the Class B shareholders to elect the Board of Directors of the CM until a public offering, at which time a majority of the Board would be elected by the Class A shares held by the public. Until that time, the CM and the Class B shareholders will enter into shareholders agreements setting forth the procedures by which those shareholders will elect directors in accordance with Act 9. _____________________ /29/ Mr. Jose M. Delgado has been appointed as the Chief Executive Officer of the CM. 12 The diagram below shows the relationship between ATCLLC and the corporate manager. It also shows the manner in which utilities may transfer assets or cash in exchange for membership interests in the LLC and the CM. OWNERSHIP DIAGRAM ----------------- [OWNERSHIP DIAGRAM APPEARS HERE] 13 IV. OVERVIEW OF THE PROPOSED DIVESTITURE TRANSACTION. Edison Sault will transfer the Edison Sault Transmission System to ATCLLC in exchange for an equity interest in ATCLLC. The Edison Sault Transmission System will be valued at its "Contribution Value," which generally is defined as original cost less accumulated depreciation, as adjusted for deferred taxes, excess deferred taxes and deferred investment tax credits. Thus, the Edison Sault Transmission System will be valued at its net book value,/30/ and Edison Sault will contribute along with the Edison Sault Transmission System, the associated deferred tax reserves and investment tax credits. As noted above, the Edison Sault Transmission System consists of Edison Sault's FERC-jurisdictional transmission assets. Generally, this includes all of Edison Sault's transmission facilities rated at 50kV and above, including specifically the following assets: . Transmission lines (including towers, poles, and conductors); . Transformers with voltage ratings of 50kV and above; . Lines providing connections to generation sources and step-up (plant) substations; . Radial taps from the transmission system up to, but not including, the facilities that establish the final connection to distribution facilities or retail customers; . Mobile capacitor banks with voltage ratings of 50kV and above; . Substations that exclusively provide a transmission function;/31/ . Voltage control devices and power flow control devices directly connected to the transmission system; and . Certain equipment spares for transmission facilities. ________________________ /30/ Transmission facilities contributed to ATCLLC must be "valued at net book value determined on the basis of the regulated books of account at the time of the transfer." Wis. Stats. (S) 196.485(5)(b)7. /31/ For substations and other facilities that provide both a transmission and distribution function, Edison Sault will enter into an agreement allowing ATCLLC to use the transmission portion of the facility. 14 The individual physical FERC-jurisdictional Transmission Assets that are the subject of this filing are listed in Attachment 1 hereto. Edison Sault will also transfer to ATCLLC related tariffs, contracts, books, and records. It is presently contemplated that Edison Sault and ATCLLC will enter into an Asset Contribution Agreement, which will specify the conveyance documents whereby the underlying real estate and personal property will be conveyed or assigned to ATCLLC./32/ Act 9 requires that ATCLLC and the contributing utilities structure the transfer to avoid or minimize material adverse tax consequences to the public utility affiliate/33/ and, to the extent practicable, ensure that the structure of the transfer satisfies the requirements of the Internal Revenue Service for a tax-free transfer. To meet these requirements, Edison Sault may choose to transfer the Edison Sault Transmission System to ATCLLC by first transferring the assets to an affiliated company that will ultimately transfer the Edison Sault Transmission System to ATCLLC. V. COMMISSION'S PART 33 FILING REQUIREMENTS. A. APPLICANT'S NAME AND PRINCIPAL PLACE OF BUSINESS. Edison Sault Electric Company is a Michigan corporation with its principal place of business at 725 East Portage Avenue, Sault Ste. Marie, MI 49783. __________________ /32/ Act 9 requires the transfer of certain transmission-related "land rights" (i.e., rights of way, easements, and fee ownership) to ATCLLC. Wis. Stats. (S) 196.485(5)(c). Edison Sault will transfer to ATCLLC the rights of way associated with the Edison Sault Transmission System. /33/ Wis. Stats. (S) 196.485(5)(b)(2)(a) and (b). 15 B. NAMES AND ADDRESSES OF THE PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS WITH RESPECT TO THE APPLICATION. Edison Sault respectfully requests that notices, correspondence, and other communications concerning this Application be directed to the following persons: Antoine P. Cobb Troutman Sanders LLP 1300 I Street, N.W., Suite 500 East Washington, D.C. 20005-3314 (202) 274-2950 (telephone) (202) 274-2994 (facsimile) Donald Sawruk, President Edison Sault Electric Company 725 East Portage Avenue Sault Ste. Marie, MI 49783 (906) 632-2271 C. DESIGNATION OF TERRITORIES SERVED, BY COUNTIES AND STATES. Edison Sault respectfully requests waiver of the Commission's requirement in 18 C.F.R. (S) 33.2(c) that it designate territories served. In the recent Merger NOPR Filing, the Commission proposed to streamline applicants' filing responsibilities and "eliminate ... unnecessary or inapplicable information requirements." See IV FERC Stats. & Regs. (Proposed Regulations) (P) 32,528 at 33,364. No franchises will be transferred as part of the Divestiture Transaction and, thus, Edison Sault's service territory will not change. Accordingly, Edison Sault respectfully submits that good cause exists to grant this request for waiver. 16 D. DESCRIPTION OF JURISDICTIONAL FACILITIES. Edison Sault owns facilities for the production, transmission, and distribution of electric energy and power. Edison Sault also owns books and records and has on file with the Commission agreements, rate schedules, and tariffs pursuant to which it provides transmission service at wholesale. The individual physical FERC-jurisdictional Transmission Assets that are the subject of this filing (listed in Attachment 1 hereto) generally consist of the following: . Transmission lines (including towers, poles and conductors); . Transformers with voltage ratings of 50kV and above; . Lines providing connections to generation sources and step-up (plant) substations; . Radial taps that are 50kV or above (up to, but not including, the facilities that establish the final circuit connection to distribution facilities for retail customers); . Mobile capacitor banks with voltage ratings of 50kV and above; . Substations that exclusively provide a transmission function; . Associated voltage control devices and power flow control devices directly connected to the transmission system; and . Certain equipment spares for transmission facilities. E. DESCRIPTION OF TRANSACTION AND STATEMENT AS TO CONSIDERATION. For a detailed description of the transaction and statement as to consideration, refer to the discussion in Section IV. The consideration for the Divestiture Transaction will be an amount equal to the net book value of the Edison Sault Transmission System, as adjusted for deferred taxes, excess deferred taxes and deferred investment tax credits, taken as an equity ownership interest in ATCLLC. 17 F. DESCRIPTION OF THE FACILITIES TO BE DISPOSED OF, CONSOLIDATED OR MERGED. As noted above in Section V.D, the facilities that Edison Sault will transfer to ATCLLC include the facilities listed in Attachment 1 hereto. The assets to be transferred also include general and intangible plant assets associated with Edison Sault's transmission operations, including certain plant materials, inventory, and operating supplies. These assets include not only real property, plant assets, and equipment constituting the Edison Sault Transmission System, but also certain vehicles and other motor-operated equipment, tools, computers, software, testing equipment, communications equipment, furniture, and certain other personal property used by Edison Sault in performing the transmission function. In addition, the Edison Sault Transmission System includes all tariffs, service agreements, books, and records that will be necessary for ATCLLC to provide transmission service under the terms and conditions of the ATCLLC open access transmission tariff. G. STATEMENT OF THE COST OF THE FACILITIES INVOLVED IN THE TRANSACTION. Edison Sault respectfully requests waiver of the Commission's requirement in 18 C.F.R. (S) 33.2(g). As noted above, the "purchase price" for the Edison Sault Transmission System is equal to the Contribution Value of the facilities (i.e., the net book value), as adjusted for deferred taxes, excess deferred taxes, and deferred investment tax credits. 18 H. STATEMENT AS TO THE EFFECT OF THE SALE OR TRANSFER UPON ANY CONTRACT FOR THE PURCHASE, SALE OR INTERCHANGE OF ELECTRIC ENERGY. As discussed in Section I, supra, the Divestiture Transaction will not have a detrimental effect on Edison Sault's only transmission customer (Cloverland), which can continue to receive service as provided under the TCA from ATCLLC. As discussed herein, Edison Sault will take network integration transmission service from ATCLLC under the ATCLLC OATT necessary to serve its load. I. STATEMENT AS TO THE OTHER REQUIRED REGULATORY APPROVALS. The following are the other regulatory approvals required in conjunction with the transfer of jurisdictional assets described in this Application. . Edison Sault will require an order from the Commission under Section 205 of the FPA accepting for filing an Interconnection Agreement to be negotiated between Edison Sault and ATCLLC; . Edison Sault will require an order from the Commission to assign, to amend, or to terminate the Transmission Coordination Agreement with Cloverland; . Edison Sault may require approvals from the Securities and Exchange Commission; and . Within six (6) months following the filing of this Application, Edison Sault must file an application for an order from the MPSC approving the proposed accounting treatment of the Divestiture Transaction. J. FACTS SHOWING THAT THE PROPOSED TRANSACTIONS WILL BE CONSISTENT WITH THE PUBLIC INTEREST. See Section VI below. K. BRIEF STATEMENT OF FRANCHISES HELD. See Section V.C. above. 19 L. FORM OF NOTICE. A form of notice suitable for publication in the Federal Register is attached to the transmittal letter accompanying this Application. In addition, an electronic version of this notice on a 3.5-inch computer diskette in WordPerfect format is enclosed with this filing. VI. THE DIVESTITURE TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST. The Divestiture Transaction is consistent with the public interest and therefore should be approved under Section 203 of the FPA./34/ As a general matter, when reviewing corporate transactions under Section 203 of the FPA, the Commission has undertaken a public interest evaluation pursuant to the three- pronged test set forth in the Merger Policy Statement./35/ Under this test, the Commission examines the proposed transaction's effect on competition, on rates, and on regulation. Id. The proposed transaction satisfies the public interest requirements set forth in the Commission's Merger Policy Statement, as it: (i) will have a beneficial effect on competition in the electric generation industry and no adverse impact whatsoever on the regulated transmission _______________________ /34/ Section 203(a) of the FPA, 16 U.S.C. (S) 824b, states: No public utility shall sell, lease, or otherwise dispose of ... its facilities subject to the jurisdiction of the Commission ... or by any means whatsoever, directly or indirectly merge or consolidate such facilities or any part hereof with those of any other person, or purchase, acquire, or take any security of any other public utility, without first having secured an order of the Commission authorizing to do so ... After notice and opportunity for hearing, if the Commission finds that the proposed disposition, consolidation, acquisition, or control will be consistent with the public interest it shall approve the same. /35/ FERC Stats. & Regs. (Regulations Preambles) at 30,116-125. Cambridge Electric Light Company, et al., 85 FERC (P) 61,217 (1998); New England Power Company, et al., 82 FERC (P) 61,179 (1998), on reh'g, 83 FERC (P) 61,275 (1998); Boston Edison Company, 82 FERC (P) 61,311 (1998); Long Island Lighting Company, 82 FERC (P) 61,129 (1998). 20 industry; (ii) will have a beneficial or neutral impact on rates; and (iii) will have no negative 21 impact on regulation at either the state or federal level. Moreover, the proposed transaction furthers the policies reflected in Order Nos. 888 and 889, and provides a vehicle for Edison Sault (and the other Participating Entities) to meet the requirements of Order No. 2000. A. THE TRANSACTION MEETS THE REQUIREMENTS OF THE COMMISSION'S MERGER POLICY STATEMENT. As noted above, the Merger Policy Statement, sets forth the regulatory framework for evaluating proposed transactions under Section 203 of the FPA./36/ Specifically, the Commission examines three factors in analyzing whether a proposed transaction is consistent with the public interest: (1) the effect on competition; (2) the effects on rates; and (3) the effect on regulation. Consideration of these factors, as applied to the facts set forth in the instant Application, demonstrates that the Divestiture Transaction is consistent with the public interest and, therefore, the Divestiture Transaction should be approved by the Commission. 1. Competition Will be Unaffected or Enhanced. In the recent Merger Filing NOPR, the Commission noted that its "competitive concerns in any type of merger involving jurisdictional electric utilities is whether the merger will result in higher prices or reduced output in electricity markets."/37/ To evaluate this concern, the Merger Policy Statement sets forth specific questions which parties are required to address in order to determine if a proposed transaction is "consistent with the public interest." The fundamental inquiry is: does the merger substantially reduce the alternatives available to buyers of a product or service, relative to those existing prior to the merger and will reduction in the alternatives reduce substantially the degree of competition in the market? ______________________ /36/ See FERC Stats. & Regs. (Regulations Preambles) at 30,116-125. 22 The Commission requires that merging parties submit a competitive screen analysis in answering this question. Because the proposed Divestiture Transaction does not involve the merger of public utilities, and will not have any adverse effect on competition in the markets for generation and transmission services, Edison Sault has not submitted a competitive screen analysis as described in Appendix A of the Merger Policy Statement. Specifically, there is no need for a competitive screen analysis because there will be no new generation market "overlaps" or consolidations resulting from the Divestiture Transaction. In fact, just the opposite will occur. Because Edison Sault is going beyond the requirements of Order No. 888 by engaging in a corporate unbundling transaction, and intends that ATCLLC will transfer operation and control of the divested transmission facilities to the Midwest ISO (consistent with requirements of Order No. 2000), generation markets should become less concentrated. The increase in non-discriminatory transmission access and availability resulting from the Divestiture Transaction should expand the geographic scope of relevant generation markets, providing greater sources of supply. Furthermore, the Divestiture Transaction does not itself involve any disposition of generating assets. Therefore, the transaction can have no negative competitive impact on the generation market, as generation market shares remain unchanged. With respect to transmission, ATCLLC will be subject to FERC oversight regarding transmission rates and the obligation to provide non-discriminatory, open-access transmission service. Given the greater separation between the generation and transmission functions, and the lack of any change in generation market shares, the Divestiture Transaction ________________________________________________________________________________ /37/ Merger Filing NOPR, IV FERC Stats. & Regs. (P) 32,528 at 33,365. 23 will have a neutral or beneficial effect on competition and, therefore, should be approved by the Commission. 2. The Divestiture Transaction Will Have No Adverse Effect on Rates. Under the Merger Policy Statement, the Commission must determine that FPA Section 203 applicants' wholesale power and transmission customers will be protected from adverse rate impacts attributable to a proposed transaction./38/ In this case, no such adverse effects will result from the Divestiture Transaction. Although Edison Sault does not have any current OATT customers, applicable rates for transmission service on those facilities should remain the same or decline. The rates charged for generation-based ancillary services by Edison Sault under the WEC Operating Companies' OATT will remain unchanged. Since ATCLLC's rates for generation-based ancillary services will simply reflect a pass-through of such costs, and since it will be free to purchase ancillary services from other suppliers where technically feasible, rates for these ancillary services will remain the same or decline. In addition, transmission customers will benefit from ATCLLC's transmission-only business focus from both a tariff administration and system-planning standpoint. As discussed above, Edison Sault does have one transmission customer - Cloverland - who takes service under a pre-Order 888 contract, the TCA. The TCA provides for the coordinated use of Cloverland's and Edison Sault's transmission facilities (40kV and above) that are situated "within or immediately adjacent to the Counties of Luce, Mackinac, Schoolcraft - --------------- /34/ See FERC Stats. & Regs. (Regulations Preambles) at 30,123. 24 and Chippewa in the Upper Peninsula of the State of Michigan ..."/39/ The TCA refers to the joint pool of Cloverland and Edison Sault facilities in or immediately adjacent to the identified counties as the Coordinated Transmission System. The purpose of the TCA is stated in section 2.01 of the agreement as follows: The Coordinated Transmission System shall provide the transmission service needs of both parties, and is established in order to obtain the benefits of coordinated development of transmission service requirements of both parties and to make unnecessary the construction of duplicating facilities by either party. For such purposes, each party shall coordinate its planning for construction of additional Transmission Facilities with the other party and shall utilize the Coordinated Transmission System so far as is practical to deliver its power and energy requirements in accordance with the provisions of this Agreement. Under the TCA, Cloverland and Edison Sault coordinate the day-to-day interconnected operations of their respective transmission systems, annually prepare a five-year load forecast, and plan for the operation of the Coordinated Transmission System. In addition, the contract requires that each party contribute annually to the operations and maintenance of the Coordinated Transmission System, and to the construction of additional facilities if needed. The financial responsibility of the parties for the Coordinated Transmission System is determined based on the parties' relative peak loads,/40/ multiplied by the aggregate dollar investment in the Coordinated Transmission System. Because Edison Sault is seeking to transfer all of its transmission facilities that are part of the Coordinated Transmission System under the TCA, Edison Sault believes that the assignment of the TCA to ATCLLC is an appropriate option. Cloverland and ATCLLC can coordinate their operations of the Coordinated Transmission System, and the financial - ------------------- /39/ TCA Preamble. A copy of the TCA is included in Exhibit H. /40/ Peak load is defined in the TCA to be the amount of demand that each transmission provider supplies from the Coordinated Transmission System. 25 responsibility of Cloverland and ATCLLC for the Coordinated Transmission System can be determined in the same fashion - based on the parties' relative peak loads. Edison Sault notes that, at least initially, it will maintain accounting and property records relative to the administration of the TCA until such time as ATCLLC is capable of maintaining this data. 3. There Will be No Adverse Effect On Regulation. Under the Merger Policy Statement, the Commission requires parties to evaluate the effect on regulation of a merger or other proposed transaction, both at the federal and state level. The Commission has indicated that it may set a Section 203 application for hearing if: (1) the merged entity would be part of a registered holding company and the applicants do not commit to abide by the Commission's policies on the pricing of non-power goods and services between affiliates; or (2) the affected state commissions do not have authority to act on the transactions./41/ Neither of these concerns is raised by this Application, and the Divestiture Transaction will not adversely affect federal and state regulation. The Divestiture Transaction will not have any adverse impact on federal regulation. First, Edison Sault, the contributor of the assets, will continue to be fully subject to Commission regulation with respect to all wholesale sales provided to its existing customers. Second, the transfer of the Edison Sault Transmission System to ATCLLC will not result in the formation of a registered holding company, but ATCLLC will be a public utility fully subject to the jurisdiction of the Commission. Accordingly, there should be no concern over the Commission's ability to regulate effectively, nor any Ohio Power concerns as a result of the Divestiture Transaction. - --------------- /41/ See FERC Stats. & Regs. (Regulations Preambles) (P) at 30,124-125. 26 Furthermore, with regard to "affected state commissions," the Merger Policy Statement reflects the Commission's concerns that state regulators should not be divested of the authority to act on mergers of traditional vertically integrated utilities with captive retail (as well as wholesale) customers. The Divestiture Transaction does not involve a merger of vertically integrated utilities. Upon consummation of the Divestiture Transaction, Edison Sault will continue to be fully subject to the jurisdiction of MPSC with respect to retail rates charged by Edison Sault, either as provider of electricity or as a provider of electric delivery services for unbundled retail electricity sales./42/ B. THE DIVESTITURE TRANSACTION IS CONSISTENT WITH THE RTO FINAL RULE, AND ADVANCES COMMISSION POLICY SUPPORTING FUNCTIONAL UNBUNDLING ARTICULATED IN ORDER NOS. 888 AND 889. 1. Order No. 2000. Edison Sault believes that its transfer of assets to ATCLLC is consistent with Order No. 2000, because it will facilitate greater separation of generation and transmission ownership, and will allow Edison Sault to meet all of the RTO criteria set out in Order No. 2000 through its membership in the Midwest ISO. Edison Sault clarifies that, currently, it is not intended that ATCLLC will necessarily meet all of the requirements of Order No. 2000, nor will ATCLLC individually seek to be constituted as an RTO. Both Edison Sault and ATCLLC will meet the requirements of Order No. 2000 through membership in the Midwest ISO. Accordingly, Edison Sault does not believe it is necessary that the Commission condition - -------------- /42/ While the MPSC may lose jurisdiction over the transmission component of Edison Sault's retail sales, that component will continue to be subject to regulatory scrutiny at FERC, and thus will not fall into any regulatory gap. 27 approval of this Section 203 application on ATCLLC itself meeting the requirements of Order No. 2000. 2. Order No. 888. In Order No. 888, the Commission determined that functional unbundling of wholesale generation and transmission services is necessary to implement non- discriminatory open access transmission service. In doing so, the Commission stopped short of mandating corporate unbundling, which could include the establishment of a separate corporate affiliate to manage a utility's transmission assets. The Commission concluded that "functional unbundling of wholesale services is necessary to implement non-discriminatory open access transmission and ... corporate unbundling should not now be required."/43/ ATCLLC's acquisition and operation of the Edison Sault Transmission System will exceed the functional unbundling requirements of Order No. 888 and bring with it greater corporate and organizational separation of transmission from generation. ATCLLC will be responsible for providing all open access transmission and ancillary services under the ATCLLC OATT. Edison Sault will remain responsible for obtaining transmission service in order to serve its retail load. Thus, upon consummation of the Divestiture Transaction, Edison Sault will become a network transmission customer of ATCLLC and will be required to secure transmission service from ATCLLC in the same manner as unaffiliated network transmission customers. Moreover, the Divestiture Transaction allows for an even greater separation of Edison Sault's wholesale merchant employees from its transmission system operations personnel - -------------- /43/ FERC Stats. & Regs. (Regulations Preambles) at 31,654. 28 than is required under Order Nos. 888 and 889. Edison Sault will no longer operate transmission facilities, and ATCLLC's transmission operations will be managed by a corporate manager (ATC Management Inc.), which will have its own board of directors. ATCLLC will not be engaged in the electric power generation business, and it will contract with Edison Sault and others on the open market to provide ancillary services on a least-cost basis. ATCLLC will not own local distribution facilities, and it will arrange for use of local distribution only to the extent required to provide transmission services to wholesale customers served at voltages below 50kV (generally) under the ATCLLC OATT. ATCLLC will focus solely on efficiently and effectively operating and maintaining, and where necessary expanding, its transmission system, and will be well suited to respond quickly to customer needs. In sum, Edison Sault, by transferring all of its transmission facilities to a separate company and by agreeing to take transmission and ancillary services under that company's OATT, goes well beyond the Commission's comparability and functional unbundling requirements set forth in Order Nos. 888 and 889. VII. REQUEST FOR WAIVER OF CERTAIN FILING REQUIREMENTS UNDER PART 33 OF THE COMMISSION'S REGULATIONS. The Commission has granted waiver of certain filing requirements of Part 33 of its regulations in similar situations, including WEPCO and WPL's recent applications for authority to transfer their assets to ATCLLC in Docket Nos. EC00-45-000 and EC00-33-000, respectively. Likewise, the Commission has not applied its Part 33 requirements to transfers of operational control of transmission facilities to an ISO despite the literal applicability of Section 29 203. See Atlantic City Elec. Co., 76 FERC (P) 61,306 (1996)./44/ Thus, the Commission has focused on the practical question of whether the applicants have provided sufficient information to evaluate the proposed disposition. The information contained in this application provides the Commission with sufficient information to evaluate Edison Sault's proposal to transfer the Edison Sault Transmission System to ATCLLC. Accordingly, to the extent deemed necessary, Edison Sault requests waiver of the Part 33 filing requirements. VIII. LIST OF EXHIBITS REQUIRED BY PART 33 OF THE COMMISSION'S REGULATIONS, 18 C.F.R. (S) 33.3. Edison Sault has attached the following exhibits in accordance with the Part 33 filing requirements, or hereby requests waiver of certain requirements as follows: Exhibit A. Copies of All Resolutions of Directors. As discussed in Section VII above, Edison Sault requests waiver of this requirement. Exhibit B. Statement of Intercorporate Relationships. As discussed in Section VII above, Edison Sault requests waiver of this requirement. Exhibit C. Statements A and B, Actual and Pro Forma Balance Sheets and Plant Schedules. Attached hereto are copies of the relevant comparative balance sheets for Edison Sault for the year ending December 31, 1999. To the extent that Part 33 requires additional data, Edison Sault requests waiver of this requirement as discussed in Section VII above. - -------------- /44/ As noted in the January 15, 1998, filing under Section 203 of the FPA submitted by the Midwest ISO public utilities in Docket No. EC98-24-000, the Commission generally has not applied the filing requirements set forth at 18 C.F. R. (S)(S) 33.2 and 33.3 to the transfers of facilities pursuant to the establishment of an ISO. 30 Exhibit D. Statement of All Known Contingent Liabilities Except Minor Items. As discussed in Section VII above, Edison Sault requests waiver of this requirement. In addition, Edison Sault notes that in the Merger Filing NOPR, the Commission proposed to streamline applicants' filing responsibilities by, inter alia, eliminating the current Exhibit D filing requirement. See FERC Stats. & Regs. (P) 32,528 at 33,364. This requirement is somewhat redundant, in that information with respect to known contingent liabilities is filed in Edison Sault's FERC Form 1 and, thus, the Commission already has such information in its files. Accordingly, Edison Sault submits that good cause exists to grant this request for waiver. Exhibit E. Statement C, Actual and Pro Forma Income Statements. Attached hereto are copies of Edison Sault's income statement as reported in its FERC Form 1 for the year ending December 31, 1999. To the extent that Part 33 requires additional data, Edison Sault requests waiver of this requirement as discussed in Section VII above. Exhibit F. Analysis of Retained Earnings. Attached hereto are copies of Edison Sault's retained earnings statement as reported in its FERC Form 1 for the year ending December 31, 1999. To the extent that Part 33 requires additional data, Edison Sault requests waiver of this requirement as discussed in Section VII above. Exhibit G. Copies of All Applications Filed with any Other Federal and State Regulatory Body in Connection with the Proposed Transaction and Certified Copies of Each Order Relating Thereto. As discussed in Section VII above, Edison Sault requests waiver of this requirement. 31 Exhibit H. Copies of All Contracts with Respect to the Transaction. Attached hereto as Exhibit H are copies of the Asset Contribution Agreement, the Shareholders Agreement, the Operating Agreement of American Transmission Company LLC, and the TCA between Cloverland and Edison Sault. A complete set of the contracts applicable to this transaction was filed with the Commission on August 24, 2000, in Docket No. EC00-120-000, as Attachment H to the section 203 application of SBWGE. Exhibit I. Maps of Property Being Conveyed, Interconnections, and Principal Cities Served. A map of the Edison Sault Transmission System is attached hereto as Exhibit I. To the extent additional information is required, Edison Sault requests waiver of this requirement as discussed in Section VII above. IX. CONCLUSION. Edison Sault respectfully requests that the Commission expeditiously authorize the Divestiture Transaction under the terms and conditions set forth in this Application. In addition, Edison Sault respectfully requests that the Commission approve the transfer under Section 203 of the FPA by no later than November 15, 2000. As this Application shows, the Divestiture Transaction is consistent with the public interest and further facilitates the increasing efforts to restructure and bring robust competition to the Nation's electric utility industry. 32 Respectfully submitted, _______________________________ Julie B. Greenisen Antoine P. Cobb Melissa L. Pignatelli Troutman Sanders LLP 1300 I Street, N.W., Suite 500 East Washington, D.C. 20005-3314 (202) 274-2950 (telephone) (202) 274-2994 (facsimile) Attorneys for Edison Sault Electric Company Dated: August 28, 2000 33 EX-99.D2 3 0003.txt APPLICATION OF WISCONSIN ELECTRIC TO FERC. Exhibit D-2 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Wisconsin Electric Power Company ) Docket No. EC00-___-000 ) APPLICATION OF WISCONSIN ELECTRIC POWER COMPANY FOR AUTHORIZATION TO TRANSFER JURISDITIONAL TRANSMISSION ASSETS PURSUANT TO SECTION 203 OF THE FEDERAL POWER ACT Larry Salustro Clifford S. Sikora Vice President-Legal, Regulatory and R. Michael Sweeney, Jr. Government Affairs Troutman Sanders LLP Wisconsin Electric Power Company 1300 I Street, N.W. 231 West Michigan Avenue Suite 500 East Milwaukee, WI 53203 Washington, D.C. 20005-3314 (414) 221-2345 (telephone) (202) 274-2950 (telephone) (202) 274-2994 (facsimile) Dated: December 30, 1999 Washington, D.C. UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION ) Wisconsin Electric Power Company ) Docket No. EC00-___-000 ) APPLICATION OF WISCONSIN ELECTRIC POWER COMPANY FOR AUTHORIZATION TO TRANSFER JURISDITIONAL TRANSMISSION ASSETS PURSUANT TO SECTION 203 OF THE FEDERAL POWER ACT I. INTRODUCTION. Pursuant to Section 203 of the Federal Power Act, 16 U.S.C. (S) 824b (1994), and Part 33 of the Commission's regulations, 18 C.F.R. (S) 33.1 et seq. (1999), Wisconsin Electric Power Company ("WEPCO"), a Wisconsin corporation, hereby tenders this application ("Application") with the Federal Energy Regulatory Commission ("FERC" or the "Commission") for authorization of the sale or transfer of FERC-jurisdictional transmission assets ("Divestiture Transaction") to a separate transmission company to be formed in accordance with the laws of Wisconsin ("Transco"). The assets to be sold or transferred comprise the integrated, high-voltage transmission system currently owned and operated by WEPCO ("WEPCO Transmission System"). Pursuant to the Divestiture Transaction: (1) WEPCO will divest its 100 percent equity interest in the WEPCO Transmission System through the sale or transfer of these assets to 2 Transco; and (2) Transco will acquire control over, and the entire equity interest in, the WEPCO Transmission System. Consistent with the requirements of 1999 Wisconsin Act 9 ("Reliability 2000 Legislation"), WEPCO hereby agrees that it will not withdraw the instant --------------------------------------------------------- Application in the event that the Commission conditions its approval of the - --------------------------------------------------------------------------- Divestiture Transaction on changes that are consistent with federal law. See - ----------------------------------------------------------------------- Wisconsin Stats. (S) 196.485(5)(a)(5). Although WEPCO is filing this request for Section 203 approval of the Divestiture Transaction in order to meet certain requirements of the Reliability 2000 Legislation,/1/ WEPCO notes that many of the specifics of the proposed Divestiture Transaction (which would ordinarily be necessary for the Commission to grant section 203 approval), have not yet been agreed upon by all stakeholders in Wisconsin. Nonetheless, WEPCO requests that the Commission accept this Section 203 application for filing now, notwithstanding the fact that the Application may require the filing of supplemental amendments or information as the details of formation of the Transco become more clear. Indeed, the Reliability 2000 Legislation was only very recently enacted on October 27, 1999, and Wisconsin stakeholders are currently in the process of implementing the transco provisions of the new law through discussions and negotiations. This legislation contemplates: (1) the formation of a single- purpose transmission company which will, at the very least, own and operate transmission grid assets located within the State of Wisconsin; (2) that the new transco will charge a single fee for use of the grid under an open access transmission tariff to be filed with this Commission; and (3) Wisconsin utilities or holding - --------------- /1/ Pursuant to Section 196.485(5)(a)(5) of the Reliability 2000 Legislation, in order to increase WEPCO's ability to expand its non-utility investments beyond currently-established limitations, WEPCO must file a petition with this Commission requesting approval of the contribution of WEPCO's transmission assets to the Transco. The instant Application meets this state law requirement. 3 companies, such as Wisconsin Energy Corporation, will own shares of stock in Transco proportionate to the transmission assets contributed. However, the Reliability 2000 Legislation does not specify -- and transmission owning --- utilities and other interested parties in Wisconsin have not yet determined -- the exact form of the corporate transaction which will result in the formation of Transco, or the exact make-up and corporate form of Transco itself. Accordingly, WEPCO requests that the Commission accept this Application for filing, subject to subsequent amendments "filling in the details" of the Divestiture Transaction, as such details become available. Still, notwithstanding the fact that this Application does not yet contain all of the details of the Divestiture Transaction, the Commission should be assured that WEPCO does fully intend to carry out the sale or transfer of its transmission assets to a transco consistent with Wisconsin law and the Federal Power Act. Indeed, with respect to the Divestiture Transaction, and consistent with the relevant provisions of the Reliability 2000 Legislation, contemporaneously with this filing, WEPCO is today filing with the Public Service Commission of Wisconsin ("PSCW") an unconditional, irrevocable and binding commitment to: (1) contribute to a transco, no later than September 30, 2000, all of the transmission facilities that it owns or operates in Wisconsin; and (2) to cause each entity into which WEPCO merges or consolidates, or to which it transfers substantially all of its transmission assets, to contribute to a transco any transmission facility in Wisconsin the ownership or control of which it acquires after the effective date of the new law which is October 29, 1999./2/ These commitments should assure this Commission that it will indeed be reviewing the merits of a real and "live" transaction with respect to the formation - ----------------- /2/ Wisconsin Stat. (S) 196.485(5)(a)(2), (3). 4 of the Transco, and will not be spending its time reviewing this application in order to render a decision in the nature of an advisory opinion or declaratory ruling. Completion of the Divestiture Transaction is expected to occur on or before September 30, 2000. Accordingly, WEPCO hereby requests review and approval of the Divestiture Transaction under FPA Section 203 to the extent necessary to accommodate this date, as set by the Reliability 2000 Legislation. As demonstrated below, the Divestiture Transaction fully satisfies the standard set forth in Order No. 592, Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement, FERC Stats. & Regs. (Regulations Preambles) (P) 31,044(1996), order on reconsideration, Order No. 592-A, 79 FERC (P) 61,321 (1997) ("Merger Policy Statement")./3/ WEPCO, therefore, respectfully requests that the Commission approve this Application without an evidentiary hearing by September 30, 2000. The Commission should be advised that: (1) it is intended that the Transco will transfer operation control of its transmission assets to the Midwest Transmission System Operator, Inc. ("MISO"); and (2) WEPCO has become, and will continue to be, a member of the MISO. See Midwest Independent Transmission System Operator, Inc., 84 FERC (P) 61,231, order on reconsideration, 85 FERC (P) 61,250, order on reh'g, 85 FERC (P) 61,372 (1998)("MISO Order"). On September 16, 1998, the Commission approved, as consistent with the public interest under Section 203 of the FPA, the transfer of operational control of a substantial portion of the WEPCO Transmission System to the MISO. Pursuant to the MISO Order, MISO will assume - ------------- /3/ The Commission recently issued a Notice of Proposed Rulemaking ("NOPR") which sets forth specific filing requirements and revisions to the Part 33 filing requirements consistent with the Merger Policy Statement. See Revised Filing Requirements Under Part 33 of the Commission's Regulations, IV FERC Stats. & Regs. (P) 32,528 (1998)("Merger Filing NOPR"). Although these proposed regulations have not gone into effect, WEPCO has attempted to conform this filing to the principles articulated in the Merger Filing NOPR to the extent practical. 5 control over the transmission facilities of its members' transmission systems, including portions of the WEPCO Transmission System, rated 100 kV and higher, but it will not own these facilities. In contrast, upon consummation of the Divestiture Transaction, Transco will acquire control over, and the entire equity interest in, the WEPCO Transmission System. Pending commencement of MISO operations in 2001, Transco will assert control over the WEPCO Transmission System. However, once MISO commences operations, Transco is legally obligated to transfer operational control over its transmission facilities to MISO. WEPCO clarifies that, currently, it is not intended that Transco itself --- ------ will necessarily meet all of the requirements of the Commission's final rule on regional transmission organizations ("RTOs"). See Order No. 2000, Regional Transmission Organizations, 89 FERC (P) 61,285 (1999). Nonetheless, WEPCO intends that, as public utilities subject to Order No. 2000, both WEPCO and Transco will meet the requirements of Order No. 2000 through membership in the MISO, and that the MISO, instead, will meet all Order No. 2000 requirements. Because the Reliability 2000 Legislation requires Transco to transfer operational control of all of its transmission facilities to MISO, the Commission may assure itself that Transco will not seek to meet the requirements of Order No. 2000 by intending to constitute itself as a RTO. Accordingly, ------ WEPCO does not believe it is necessary that the Commission condition approval of this Section 203 application on Transco itself meeting the requirements of Order ------ No. 2000. WEPCO notes that in Docket No. EC00-33-000, Wisconsin Power & Light Company filed a similar request to transfer its jurisdictional transmission facilities to Transco. In addition, other Wisconsin utilities including, Madison Gas and Electric Company, Wisconsin Public 6 Service Corporation, Northern States Power Company-Wisconsin, and Wisconsin Public Power, Inc. may soon determine that it is appropriate to transfer their jurisdiction transmission assets to Transco. WEPCO would not oppose the consolidation of these proceedings involving the transfer of transmission assets to Transco. II. DESCRIPTION OF APPLICANT. A. Wisconsin Electric Power Company and Relevant Affiliates. 1. Wisconsin Energy Corporation. WEPCO is a wholly-owned subsidiary of Wisconsin Energy Corporation ("Wisconsin Energy"). Wisconsin Energy is a public utility holding company exempt from registration under Section 3(a)(1) of the Public Utility Holding Company Act ("PUHCA") of 1935, 15 U.S.C. (S) 79c(a)(1). Wisconsin Energy does not directly own, operate, or control any facilities used for the generation, transmission or distribution of electric energy in interstate commerce. Wisconsin Energy has five subsidiaries described below which own, or will own, FPA-jurisdictional facilities. 2. Wisconsin Electric Power Company. WEPCO is an electric and natural gas public utility operating company which owns electric generation, transmission and distribution facilities and natural gas distribution facilities located in the States of Wisconsin and Michigan. WEPCO provides retail electric service to approximately one million customers and retail natural gas service to approximately 380,000 customers located throughout portions of southeastern, central and northern Wisconsin and the Upper Peninsula of Michigan. WEPCO's retail operations are subject to the jurisdiction of the Public Service Commission of Wisconsin ("PSCW"), and the Michigan Public Service Commission ("MPSC"). WEPCO also transmits and sells electric energy at wholesale subject to 7 the Commission's jurisdiction under Part II of the FPA. WEPCO also sells steam service in the downtown Milwaukee area. In addition to its generating assets, WEPCO owns approximately 2,760 miles of transmission facilities with ratings from 69 to 345 kilovolts. These facilities are interconnected with the following entities: Commonwealth Edison Company, Madison Gas and Electric Company, Marquette Board of Public Utilities, Northern States Power Company-Wisconsin, Upper Peninsula Power Company, Alliant Energy Corporation, Wisconsin Public Power System, Inc., and Wisconsin Public Service Corp. WEPCO is a member of the Mid-American Interconnected Network, Inc. and, as noted herein, is a participant in MISO. 3. Edison Sault Electric Company. Edison Sault Electric Company ("Edison Sault") is a direct, wholly-owned subsidiary of Wisconsin Energy. Edison Sault is an electric public utility operating company that owns electric generation, transmission and distribution facilities located in the State of Michigan. Edison Sault provides retail electric service to approximately 21,000 customers located on Michigan's Eastern Upper Peninsula. Edison Sault's retail operations are subject to the jurisdiction of the MPSC. Edison Sault also transmits and sells electric energy at wholesale subject to the Commission's jurisdiction under Part II of the FPA. In addition to its generating assets, Edison Sault owns approximately 340 miles of transmission facilities with ratings from 69 to 138 kilovolts. These facilities are interconnected with Consumers Energy Company and Cloverland Cooperative. Edison Sault is a member of the East Central Area Reliability Council and, on December 29, 1999, filed with this Commission its request to become a member of MISO. 4. Wisvest Corporation. 8 Wisvest Corporation ("Wisvest") is a wholly-owned subsidiary of Wisconsin Energy. Through a wholly-owned subsidiary, Wisvest-Connecticut, L.L.C. ("Wisvest-Connecticut"), Wisvest owns an indirect 100 percent interest in certain generating facilities formerly owned by United Illuminating Company. See United Illuminating Company, et al., 86 FERC (P) 62,162 (1999). The Commission authorized Wisvest- Connecticut to engage in sales of electric energy at wholesale and sales of ancillary services at market-based rates within the energy market administered by ISO-New England, Inc. See Wisvest-Connecticut, L.L.C., 86 FERC (P) 61,133 (1999). Wisvest-Connecticut is an "exempt wholesale generator" as defined in Section 32 of PUHCA. 5. Minergy Corp. Minergy Corp. ("Minergy") is a wholly-owned subsidiary of Wisconsin Electric engaged in the business of marketing technologies designed to convert high-volume industrial and municipal wastes into value-added products. Minergy owns patent rights to technology that manufactures a lightweight aggregate product from combustion ash, municipal waste-water sludge, and paper mill sludge. The technology recently has been commercialized and Minergy is actively developing other technologies to convert high volume industrial wastes into value-added products. 6. Griffin Power Marketing, L.L.C. Griffin Power Marketing, L.L.C. ("Griffin Power") is an indirect wholly- owned subsidiary of Wisconsin Energy engaged in the business of the brokering and marketing of electric energy and power, natural gas, and other energy service at wholesale and retail throughout North America. The Commission authorized Griffin Power to transact wholesale 9 sales of electric energy and power at market-based rates in Docket No. ER97-4168-000. See Griffin Power Marketing, L.L.C., 81 FERC (P) 61,133 (1997). III. OVERVIEW OF THE PROPOSED DIVESTITURE TRANSACTION. A. Reliability 2000 Legislation. On October 27, 1999, the Wisconsin legislature enacted legislation restructuring the state's electric utility industry which, among other things, contemplates the formation of a single-purpose transmission company for purposes of owning and operating transmission grid assets located, at a minimum, within the State of Wisconsin./4/ As enacted, the Reliability 2000 Legislation provides specific incentives for public utility affiliates of holding company systems in Wisconsin, including WEPCO, to voluntarily transfer ownership of their transmission assets to a transco./5/ For example, as an incentive for public utility operating companies to transfer their jurisdictional transmission assets to a transco, the Reliability 2000 Legislation provides Wisconsin public utility holding companies partial relief from the strict limits currently placed on the ownership of non-utility affiliates./6/ As a functional matter, the Reliability 2000 Legislation obligates Transco to plan, construct, operate, maintain, and expand its transmission facilities to provide adequate, reliable transmission services and charge a single fee for use of its systems located within Wisconsin under an open access transmission tariff to be filed with the Commission (the "Transco Tariff")./7/ - -------------- /4/ 1999 Wisconsin Act 9, Sections 2335tr to 2335uh (Assembly Amendment to Assembly Subcommittee Amendment 1 to 1999 Assembly Bill 133). /5/ Wisconsin Stats. (S) 196.485(5). /6/ Id. /7/ The Transco Tariff will be filed with the Commission, to be effective November 1, 2000. It is expected that the Transco Tariff will be a "license plate" transmission tariff. 10 Pursuant to the Reliability 2000 Legislation statutory directive, Transco should promote and support robust competition in energy markets, with no favoritism towards any participant, while meeting the needs of end-users who are dependent upon it. Consistent with the relevant provisions of the Reliability 2000 Legislation, in order to take advantage of certain relaxed restrictions on non- utility investment, WEPCO must make an unconditional, irrevocable and binding commitment to the PSCW to transfer operational control of the jurisdiction facilities that it owns to a transco by no later than September 30, 2000./8/ B. Proposed Corporate Structure of Transco. Transco does not currently own, operate, or control any facilities used for the generation, transmission or distribution of electric energy. However, upon consummation of the Divestiture Transaction, Transco will be a "public utility," as that term is defined under Section 201(e) of the FPA, 16 U.S.C. (S) 824(e), and will be subject to the jurisdiction of this Commission under Part II of the FPA. Although the corporate structure pursuant to which Transco will be formed is not yet finalized, WEPCO anticipates that Transco will be a corporation or limited liability company ("LLC") with a Board of Directors ranging from 5 to 14 members (or managers, if the LLC structure is adopted). At least 4 directors/managers will be elected by majority vote of the shareholders and may not be persons employed by or engaging in natural gas or electric businesses; one manager/director will be appointed by each contributor of transmission facilities; and the other directors will be appointed based on minimum ownership criteria. - ------------- /8/ Id. 11 Additionally, with respect to operations and service within the State of Wisconsin, Transco will have the exclusive right to construct and own transmission facilities in geographic areas served by Wisconsin public utilities that have contributed their transmission facilities to Transco./9/ The Reliability 2000 Legislation defines the transmission facilities to be transferred to a transco as any "facility that is not a radial facility and is designed to operate above 130 kV."/10/ A facility from 50 kv through 130 kV which is not a radial facility also is presumed to be a transmission facility, unless it is demonstrated to the PSCW that the facility is not a transmission facility (based on this Commission's standard Seven Factor Test)./11/ The Reliability 2000 Legislation prohibits Transco from directly serving retail customers and further prohibits Transco from bypassing distribution systems./12/ Radial facilities or those facilities designed to operate at 50 kV or less are presumed not to be transmission facilities, unless the contrary is demonstrated to the PSCW. C. Operation of the WEPCO Transmission System by Transco. As noted above, Transco is under a statutory mandate to transfer control of its jurisdictional facilities located within the State of Wisconsin to MISO, upon commencement of - ----------------------------- /9/ Id. (S) 196.485(lm). /10/ Id. (S) 196.485(5). /11/ In Order No. 888, the Commission established a "functional-technical" test that evaluates facilities on the basis of seven indicators of local distribution. These factors include: (1) close proximity to retail customers; (2) primarily radial in character; (3) power flows primarily into local distribution systems; (4) power entering local distribution systems is not reconsigned or transported on to some other market; (5) power entering a local distribution system is consumed in a comparatively restricted geographic area; (6) meter location near transmission/local distribution interface to measure flows into the local distribution system; (7) reduced system voltage. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Reg. Preambles, Order No. 888, FERC Stats. & Regs.(Regulations Preambles) (P) 31,036 at 31,771 (1996), order on reh'g, Order No. 888-A, III FERC Stats & Regs. (P) 31,048 (1997), reh'g denied, Order No. 888-B, 81 FERC (P) 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC (P) 61,046 (1998). 12 operations by MISO in 2001. In the interim, however, Transco will: (1) own and assert operational control over the transmission system contributed to it by participating utilities; (2) operate an Open Access Same-Time Information System ("OASIS") in conformance with Order No. 889;/13/ and (3) administer the Transco Tariff. Transco will be responsible for the maintenance of the transmission facilities under its ownership and control,/14/ as well as engaging in transmission system planning./15/ In addition, Transco will offer ancillary services under the Transco Tariff. Since Transco will own no generating facilities, it is expected that Transco will enter into agreements to purchase ancillary services and must-run services from third-party generators located within its control area. Finally, it should be noted that Transco will not engage in the purchase and sale of energy other than to obtain necessary ancillary services required by its customers./16/ Upon receipt of necessary regulatory approvals, Transco will commence providing open access transmission service under the Transco Tariff to: (1) WEPCO; (2) WEPCO's existing open access transmission customers; and (3) to any other eligible customer requesting transmission service from Transco. Where WEPCO is responsible for providing transmission service pursuant to agreements or tariffs predating Order No. 888 ("Grandfathered Transmission Agreements"), Transco will provide transmission service to WEPCO pursuant to the Network _______________________________________________________________________________ /12/ Wisconsin Stats. (S)(S)196.485(3m). /13/ Open Access Same-Time Information System (Formerly Real-Time Information Network) and Standards of Conduct, Order No. 889, FERC Stats. & Regs. (Regulations Preambles) (P) 31,035 (1996), order on reh'g, Order No. 889- A, III FERC Stats. & Regs. (P) 31,049 (1997), reh'g denied, Order No. 889-B, III FERC Stats. & Regs. P31,253 (November 25, 1997). /14/ WEPCO anticipates that Transco initially will contract with WEPCO to perform maintenance on the WEPCO Transmission System facilities transferred to Transco. /15/ Wisconsin Stats. (S)(S) 196.485(l)(ge) and 196.485(lm)(3m). 13 Integration Service and Operating Agreement set forth under the Transco Tariff in order to allow WEPCO to continue to provide comparable transmission service to these customers. D. Sale or Transfer of Jurisdictional Transmission Assets by WEPCO to Transco. It is currently contemplated that the Divestiture Transaction will be effected in accordance with an asset purchase agreement ("Asset Purchase Agreement") to be negotiated by WEPCO and Transco. Pursuant to the terms of the Asset Purchase Agreement, it is contemplated that: (1) WEPCO will divest its 100 percent equity interest in the WEPCO Transmission System through the sale or transfer of such assets to Transco; (2) Transco will acquire control over, and the entire equity interest in, the WEPCO Transmission System; and (3) Wisconsin Energy will own shares of stock in Transco proportionate to the value of the transmission assets contributed by WEPCO. The specific transmission facilities subject to transfer under the Divestiture Transaction will be determined in a proceeding, currently pending before the PSCW, to develop a methodology for classifying facilities owned and operated by WEPCO as "transmission" or "local distribution" pursuant to the Commission's Seven Factor Test ("Seven Factor Proceeding"). (See Attachment 1)./17/ Once the Seven Factor Proceeding is completed, WEPCO will file in this docket a specific list of the transmission facilities to be transferred to Transco. Consistent with Order No. 888, WEPCO anticipates that this Commission will show substantial _______________________________________________________________________________ /16/ Id. /17/ See Investigation into the Classification of Transmission Facilities Pursuant to Wis. Stat. (S) 196.485(1)(h), Docket No. 05-EI-119 (Oct. 19, 1999). 14 deference to the transmission/distribution split decided upon by the PSCW in the Seven Factor Proceeding. Currently, it is anticipated that Transco will acquire from WEPCO certain transmission facilities that operate at voltages of, generally, 345 kV, 230 kV and 138 kV, as well as 69 kV facilities. These facilities will include: . Transmission lines (including towers, poles, and conductors) and transmission substations; . Transformers providing transformation within the bulk transmission system and between the bulk and area transmission systems; . Lines providing connections to generation sources and step-up (plant) substations; . Radial taps from the transmission system up to, but not including, the facilities that establish the final connection to distribution facilities or retail customers ; . Substations that provide primarily a transmission function; and . Voltage control devices and power flow control devices directly connected to the transmission system. It is anticipated that the WEPCO facilities subject to the Divestiture Transaction shall not include those facilities determined by the PSCW in the Seven Factor Proceeding to be "local distribution" facilities used to provide retail electric service. As such, it is currently anticipated that local distribution facilities will 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. WEPCO currently provides transmission service to certain wholesale customers at delivery points less than 50 kV. In order to ensure the continuity of service to such wholesale customers who elect to take service under the Transco Tariff, WEPCO and Transco may enter 15 into an agency agreement. Such an agreement likely would provide Transco with the use of certain WEPCO local distribution facilities necessary to continue transmission service to WEPCO wholesale customers served at delivery points whose voltages are less than 50 kV. Transmission service to wholesale customers over these local distribution facilities would be made available under the Transco Tariff, and associated local distribution costs are expected to be recovered in rates on a direct assignment basis. This procedure may be necessary to ensure that existing wholesale customers served under Grandfathered Transmission Arrangements at voltages below 50 kV will have access to comparable transmission service. E. Financial Aspects of the Transaction. The WEPCO Transmission System will be conveyed by WEPCO to Transco at net book value (original cost less accumulated book depreciation)./18/ When the exact facilities to be transferred are determined, WEPCO will provide the dollar value of the facilities to be transferred, as well as final accounting entries. IV. COMMISSION'S PART 33 FILING REQUIREMENTS. A. Applicant's Name and Principal Place of Business. WEPCO is a Wisconsin corporation with its principal place of business at 231 West Michigan Street, PO Box 2046, Milwaukee, Wisconsin 53201. B. Names and Addresses of the Persons Authorized to Receive Notices and Communications with Respect to the Application. WEPCO respectfully requests that notices, correspondence, and other communications concerning this Application be directed to the following persons: ______________________ /18/ Wisconsin Stats. (S) 196.485(5). 16 Clifford S. Sikora R. Michael Sweeney, Jr. Troutman Sanders LLP 1300 I Street, N.W., Suite 500 East Washington, D.C. 20005-3314 (202) 274-2950 (telephone) (202) 274-2994 (facsimile) michael.sweeney@troutmansanders.com (e-mail) Larry Salustro Vice President-Legal, Regulatory and Government Affairs Wisconsin Electric Power Company 231 West Michigan Avenue Milwaukee, WI 53203 (414) 221-2345 (telephone) larry.salustro@wepco.com C. Designation of Territories Served, by Counties and States. WEPCO is an investor-owned public utility operating company engaged in the business of furnishing retail electric service to approximately one million customers and natural gas distribution service to approximately 380,000 customers located throughout the southeastern, central and northern portions of the State of Wisconsin, as well as substantial portions of the Upper Peninsula of Michigan. WEPCO's service territory includes approximately 2,760 miles of interconnected transmission lines operated at voltages from 69 to 345 kilovolts. Described below are the municipal electric franchises currently held by WEPCO: Angelica; Appleton; Ashford; Ashippun; Auburn; Aurora; Aztalan; Barton; Bayside; Belgium; Belle Plain; Black Creek; Bondeul; Brighton; Brillion; Bristol; Brookfield; Brown Deer; Buchanan; Burlington; Butler; Byron; Caledonia; Calumet; Campbellsport; Cedar Grove; Cedarburg; Center; Chase; Cicero; Clayton; Cleveland; Combined Locks; Concord; Cottage Grove; Cudahy; Dale; Dayton; Deerfield; Delafield; Delevan; Dousman; Dover; Eagle; East Troy; Eden; Elkhart Lake; Ellington; Elm Grove; Emmet; Empire; Erin; Farmington; Florence; 17 Forest; Fort Atkinson; Fox Point; Franklin; Fredonia; Freedom; Genesee; Geneva; Germantown; Gillett; Glendale; Greendale; Grafton; Grand Chute; Greenbush; Greendale; Greenfield; Greenville; Hales Corners; Harrison; Hartford; Hartland; Herman; Hilbert; Holland; Hortonville; Hubbard; Hustisford; Ixonia; Jackson; Jefferson; Johnson Creek; Kenosha; Kewaskum; Kimberly; Koshkonong; La Grange; Lafayette; Lake Mills; La Larrabee; Lebanon; Leroy; Lima; Lind; Lisbon; Little Wolf; Lomire; Lowell; Lydon; Lyons; Maple Grove; Marshall; Marshfield; Medina; Meeme; Menasha; Menomonee Falls; Mequon; Milwaukee; Mt. Pleasant; Kukwa; Mukwonago; Muskego; Neenah; New Berlin; New Holstein; New London; Niagara; Norway; Oak Creek; Oak Grove; Oakland; Oconomowoc; Oneida; Oosburg; Osceola; Ottawa; Paddock Lake; Palmyra; Paris; Pewaukee; Phelps; Pittsfield; Pleasant Prairie; Plymouth; Polk; Port Washington; Pulaski; Racine; Randall; Random Lake; Raymond; Rhine; Richfield; Richmond; River Hills; Rochester; Royalton; Rubicon; Schleswig; Sherman; Shorewood; Silver Lake; Slinger; Somers; South Milwaukee; Spring Prairie; St. Francis; Stockbridge; Sturtevant; Sugar Creek; Sullivan; Summit; Sun Prairie; Sussex; Taycheedah; Theresa; Union Grove; Vandenbrock; Veron; Vinland; Wales; Washington; Waukesha; Waupaca; Wauwatosa; Wayne; Wescott; West Milwaukee; Weyauwaga; Wheatland; Whitefish Bay; Whitewater; Wind Point; Wolf River; Woodville; and Yorkville. D. Description of Jurisdictional Facilities. WEPCO owns books and records and has on file with the Commission numerous agreements, rate schedules, and tariffs pursuant to which it provides transmission service and engages in sales of electric energy at wholesale. As described in Section III.C above, the physical jurisdictional facilities which are the subject of this Application are being determined by the PSCW in the Seven-Factor Proceeding. Consistent with Order No. 888, WEPCO anticipates 18 that this Commission will show substantial deference to the transmission/distribution split decided upon by the PSCW in the Seven Factor Proceeding. Order No. 888, FERC Stats. & Regs. (Regulations Preambles) at 31,770-771. Upon the issuance of an order by the PSCW stating which facilities owned by WEPCO are properly classified as "transmission" or "local distribution" pursuant to the Seven Factor Test, WEPCO will file an amendment in this docket supplementing the record with such information. E. Description of Transaction and Statement as to Consideration. As described above in Section III.C, supra, pursuant to the Divestiture Transaction, WEPCO will dispose of the WEPCO Transmission System through the sale or transfer of these assets to Transco, who will acquire control of, and the entire equity interest in, the WEPCO Transmission System. However, as described above, the specific steps and form of the Divestiture Transaction have yet to be determined. Again, WEPCO will supplement the record in this docket with such information as soon as it becomes available. F. Description of the Facilities to be Disposed of, Consolidated or Merged. See Section III.C, supra. G. Statement of the Cost of the Facilities Involved in the Transaction. The cost of the facilities subject to the Divestiture Transaction, as described elsewhere in this Application, are yet to be determined because the specific facilities to be transferred have yet to be determined. Cost data of such facilities will be submitted by WEPCO as soon as it is available. WEPCO hereby stipulates that the cost of these facilities is in excess of $50,000. 19 H. Statement as to the Effect of the Sale or Transfer Upon any Contract for the Purchase, Sale or Interchange of Electric Energy. The effect of the Divestiture Transaction on transmission customers is described elsewhere in this Application. As discussed above, WEPCO transmission customers served under existing Grandfathered Transmission Agreements will have the right to continue receiving transmission service under these arrangements from WEPCO. WEPCO will take network integration service from Transco under the proposed Transco Tariff. I. Statement as to the Other Required Regulatory Approvals. The following are the other regulatory approvals required in conjunction with the transfer of jurisdictional assets described in this Application. First, the sale or transfer of physical transmission facilities to Transco requires that WEPCO file an unconditional, irrevocable and binding commitment to contribute all of its transmission facilities to Transco no later than September 30, 2000 with PSCW pursuant to Wisconsin Stats. (S) 196.485(5)(a)(2). Second, WEPCO will require an order from the Commission under Section 205 of the FPA accepting for filing an Interconnection Agreement to be negotiated between WEPCO and Transco. Third, WEPCO anticipates that it may be necessary to file with the Securities and Exchange Commission for approval under the Public Utility Holding Company Act of 1935, for the creation of a new public-utility company affiliate of WEPCO, i.e., Transco. J. Facts Showing that the Proposed Transactions will be Consistent with the Public Interest. See Section V, infra. K. Brief Statement of Franchises Held. 20 See Section IV.C., supra. L. Form of Notice. A form of notice suitable for publication in the Federal Register is attached to the transmittal letter accompanying this Application. In addition, an electronic version of this notice on a 3.5 inch computer diskette in WordPerfect format is enclosed with this filing. V. THE DIVESTITURE TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST. The Divestiture Transaction is consistent with the public interest and therefore should be approved under Section 203 of the FPA. The Commission must approve the proposed transfer of jurisdictional transmission facilities subject to the Divestiture Transaction if it finds that this transaction "will be consistent with the public interest."/19/ As general matter, when reviewing divestiture transactions under Section 203 of the FPA, the Commission has undertaken a public interest evaluation pursuant to the three-pronged test set forth in the Merger Policy Statement./20/ FERC Stats. & Regs. (Regulations Preambles) at 30,116-125. Under this test, the Commission examines the proposed transaction's effect on competition, on rates, and on regulation. Id. The proposed transaction satisfies the public interest requirements set forth in the Commission's Merger Policy Statement as it: (i) will have a beneficial effect on competition in _______________________ /19/ Section 203(a) of the FPA, 16 U.S.C. (S) 824b, states: No public utility shall sell, lease, or otherwise dispose of...its facilities subject to the jurisdiction of the Commission...or by any means whatsoever, directly or indirectly merge or consolidate such facilities or any part hereof with those of any other person, or purchase, acquire, or take any security of any other public utility, without first having secured an order of the Commission authorizing to do so...After notice and opportunity for hearing, if the Commission finds that the proposed disposition, consolidation, acquisition, or control will be consistent with the public interest it shall approve the same. 21 the electric generation industry and no adverse impact whatsoever on the regulated transmission industry; (ii) will have a beneficial or neutral impact on rates; and (iii) will have no negative impact on regulation at either the state or federal level. A. The Divestiture Transaction is Consistent With the RTO Final Rule, and Advances Commission Policy Supporting Functional Unbundling Articulated in Order Nos. 888 and 889. 1. Order No. 2000. -------------- WEPCO clarifies that, currently, it is not intended that Transco itself --- ------ will necessarily meet all of the requirements of Order No. 2000, nor will Transco seek to be constituted as an RTO. Nonetheless, WEPCO intends that, as public utilities subject to Order No. 2000, both WEPCO and Transco will meet the requirements of Order No. 2000 through membership in the MISO, and that the MISO, instead, will meet all Order No. 2000 requirements. Because the Reliability 2000 Legislation requires Transco to transfer all facilities to MISO, the Commission should assure itself that Transco will not seek to meet the requirements of Order No. 2000 by intending to constitute itself as a RTO. ------ Accordingly, WEPCO does not believe it is necessary that the Commission condition approval of this Section 203 application on Transco itself meeting ------ the requirements of Order No. 2000. Instead, WEPCO believes that creation of the Transco is consistent with Order No. 2000 because it will facilitate greater separation of generation and transmission ownership, and will meet all of the RTO criteria set out in Order No. 2000 through the MISO. ________________________________________________________________________________ /20/ Cambridge Electric Light Company, et al., 85 FERC (P) 61,217 (1998); New England Power Company, et al., 82 FERC (P) 61,179 (1998), on reh'g, 83 FERC (P) 61,275 (1998); Boston Edison Company, 82 FERC (P) 61,311 (1998); Long Island Lighting Company, 82 FERC (P) 61,129 (1998). 22 2. Order No. 888. ------------- In Order No. 888, the Commission determined that functional unbundling of wholesale generation and transmission services is necessary to implement non- discriminatory open access transmission service. In doing so, the Commission stopped short of mandating corporate unbundling, which could include the establishment of a separate corporate affiliate to manage a utility's transmission assets. The Commission concluded that "functional unbundling of wholesale services is necessary to implement non-discriminatory open access transmission and . . .corporate unbundling should not now be required." FERC Stats. & Regs. (Regulations Preambles) at 31,654. Transco's acquisition and operation of the WEPCO Transmission System will exceed the functional unbundling requirements of Order No. 888 and bring with it greater corporate and organizational separation of transmission from generation. Transco will be responsible for providing all open access transmission and ancillary services under the Transco Tariff, and existing open access service agreements entered into under WEPCO's open access transmission tariff, designated by the Commission as Wisconsin Energy Corporation Operating Companies FERC Electric Tariff, Original Volume No. 1 ("WEPCO OATT"), will be assigned to Transco. WEPCO will remain responsible for obtaining transmission service associated with Grandfathered Transmission Agreements. Upon consummation of the Divestiture Transaction, WEPCO will become a network transmission customer of Transco and will be required to secure transmission service from Transco in the same manner as unaffiliated network transmission customers. Upon consummation of the Divestiture Transaction, the current functional separation of WEPCO's wholesale merchant function employees from its transmission system operations 23 personnel will be implemented well beyond the requirements of Order Nos. 888 and 889. Specifically, WEPCO's transmission system operations personnel will become employees of a separate company, Transco, which has its own board of directors./21/ Transco will not be engaged in the electric power generation business, and it will contract with WEPCO and others on the open market to provide ancillary services on a least-cost basis. Transco will not own local distribution facilities, and it will arrange for use of local distribution only to the extent required to provide transmission services to wholesale customers served at voltages below 50 kV under the Transco Tariff. Transco will focus solely on efficiently and effectively operating and maintaining, and where necessary expanding, its transmission system, and will be well suited to respond quickly to customer needs. In sum, by transferring all of its transmission facilities to a separate corporation and by agreeing to take transmission and ancillary services under that corporation's open access tariff for the delivery of all power sold by WEPCO to wholesale and retail customers, the proposed Divestiture Transaction goes well beyond the Commission's comparability and functional unbundling requirements set forth in Order Nos. 888 and 889. B. The Transaction Meets the Requirements of the Commission's Merger Policy Statement. As noted above, the Merger Policy Statement, sets forth the regulatory framework for evaluating proposed transactions filed for approval under Section 203 of the FPA. See FERC Stats. & Regs. (Regulations Preambles) at 30,116-125. Specifically, the Commission examines three factors in analyzing whether a proposed transaction is consistent with the pubic interest: (1) the effect on competition; (2) the effects on rates; (3) and the effect on regulation. Consideration __________________ /21/ Wisconsin Stats. (S) 196.485(3m). 24 of these factors, as applied to the facts set forth in the instant Application, demonstrate that the Divestiture Transaction is consistent with the public interest and, therefore, the Divestiture Transaction should be approved by the Commission. 1. Competition Will be Unaffected or Enhanced. ------------------------------------------ In the recent Merger Filing NOPR, the Commission noted that its "competitive concerns in any type of merger involving jurisdictional electric utilities is whether the merger will result in higher prices or reduced output in electricity markets." Merger Filing NOPR, IV FERC Stats. & Regs. (P) 32,528 at 33,365. To evaluate this concern, the Merger Policy Statement sets forth specific questions which parties are required to address in order to determine if a proposed transaction is "consistent with the public interest." The fundamental inquiry is: Does the merger substantially reduce the alternatives available to buyers of a product or service, relative to those existing prior to the merger and will reduction in the alternatives reduce substantially the degree of competition in the market? The Commission requires that merging parties submit a competitive screen analysis in answering this question. Because the proposed Divestiture Transaction does not involve the merger of public utilities, and will not have any adverse effect on competition in the markets for generation and transmission services, WEPCO has not submitted a competitive screen analysis as described in Appendix A of the Merger Policy Statement. Specifically, there is no need for a competitive screen analysis because there will be no new generation market "overlaps" or consolidations resulting from the Divestiture Transaction. In fact, just the opposite will occur - because WEPCO is going beyond the requirements of Order No. 888 by engaging in a corporate unbundling transaction, and intends that the Transco will transfer operation and control of transmission to the MISO (consistent with requirements of Order No. 2000), WEPCO contends that generation markets will become less concentrated as a result of the Divestiture Transaction 25 because the resulting increase in non-discriminatory transmission access and availability will increase the geographic scope of relevant generation markets. Furthermore, as described elsewhere herein, the Divestiture Transaction does not itself involve any disposition of generating assets and, therefore, the transaction can have no negative competitive impact on the generation market as a result of a change in generation ownership. Transco does not currently own or operate any facilities used for the generation, distribution, or transmission of electric energy. Upon consummation of the Divestiture Transaction, Transco will neither own nor control any generation assets. The proposed corporate unbundling transaction does not involve any different concentration of utility or other generation capacity ownership. WEPCO respectfully submits that consummation of the Divestiture Transaction will not confer to Transco greater market power than WEPCO already possesses in the relevant geographic market. As a result, the Divestiture Transaction will have a neutral or beneficial effect on competition and, therefore, should be approved by the Commission. 2. The Divestiture Transaction Will Have No Adverse Effect on Rates. ---------------------------------------------------------------- Under the Merger Policy Statement, the Commission must determine that FPA Section 203 applicants' wholesale rates and transmission customers will be protected from adverse rate impacts attributable to a proposed transaction. See FERC Stats. &Regs. (Regulations Preambles) at 30,123. In this case, no such adverse effects will result from the Divestiture Transaction. The Reliability 2000 Legislation allows Transco the option of being included in a single system zone, subject to certain provisions./22/ Specifically, in the event the transmission rates of _________________________ /22/ Wisconsin Stats. (S) 196.485(3m). 26 any "transmission utility," as that term is defined under Wisconsin law, are 10% or more below the average transmission rates in the transmission area,/23/ Transco shall prepare a phase-in plan for "a combined single zone rate for the purpose of pricing network use by users of the transmission system operated" by MISO./24/ The Reliability 2000 Legislation specifically requires Transco to file this plan with the Commission./25/ Accordingly, WEPCO contends that the creation of Transco will have a positive impact on transmission customers, particularly as a result of these protective provisions of the Reliability 2000 Legislation. The rates charged for generation-based ancillary services by WEPCO under its OATT will remain unchanged. Since Transco's rates for generation based ancillary services will simply reflect a pass-through of such costs, and since it will be free to purchase ancillary services from other suppliers where technically feasible and where such services are cheaper, rates for these ancillary services will remain the same or decline. Transmission customers will benefit from Transco's transmission-only business focus from both a tariff administration and system-planning standpoint. Some of WEPCO's transmission-dependent customers take service under Grandfathered Transmission Agreements executed prior to issuance of Order No. 888. These customers will have the right to remain under their existing arrangements, or at their option they may contract with Transco for transmission services. Customers who choose to obtain transmission services under their Grandfathered Transmission Agreements are free to do so, and will be included as __________________ /23/ The Reliability 2000 Legislation defines "transmission area" as that part of Wisconsin "that, on January 1, 1997, was served by the Mid-America Interconnected Network, Inc., reliability council..." Wisconsin Stats. (S) 196.485(1)(g). /24/ Wisconsin Stats. (S) 196.485(3m). 27 part of the Network Load of WEPCO. These customers will continue to pay the same rates, and have the same rights and obligations as provided in their Grandfathered Transmission Agreements. The effect on rates to transmission-dependent customers who contract with the Transco for network integration transmission service under the Transco Tariff is almost entirely dependent on the individual circumstances of the customer. Because existing arrangements provide a variety of rates for service at voltages below 50 kV, the rate impact will vary from customer to customer. However, due to the direct assignment of distribution costs, rates under the Transco Tariff will more closely match the cost of providing service to particular customers. 3. There Will be No Adverse Effect On Regulation. --------------------------------------------- Under the Merger Policy Statement, the Commission requires parties to evaluate the effect on regulation of a merger or other proposed transaction, both at the federal and state level. The Commission has indicated that it may set a Section 203 application for hearing if: (1) the merged entity would be part of a registered holding company and the applicants do not commit to abide by the Commission's policies on the pricing of non-power goods and services between affiliates, or; (2) the affected state commissions do not have authority to act on the transactions. See FERC Stats. & Regs. (Regulations Preambles) (P) at 30,124-125. Neither of these concerns are raised by this Application, and the Divestiture Transaction will not adversely affect federal and state regulation. For the following reasons, the Divestiture Transaction will not have any adverse impact on federal regulation. First, WEPCO, the seller of the assets, will continue to be fully subject to ________________________________________________________________________________ /25/ Id. 28 Commission regulation with respect to all wholesale sales and transmission services provided to its existing customers. Second, the sale of the WEPCO Transmission System to Transco will not result in the formation of registered holding company, but will result in a public utility fully subject to the jurisdiction of the Commission. Accordingly, there should be no concern over the Commission's ability to regulate effectively after the Divestiture Transaction is consummated. Furthermore, with regard to "affected state commissions," the Merger Policy Statement reflects the Commission's concerns that state regulators should not be divested of the authority to act on mergers of traditional vertically integrated utilities with captive retail (as well as wholesale) customers. The Divestiture Transaction does not involve a merger of vertically integrated utilities. Pursuant to the Reliability 2000 Legislation, the Divestiture Transaction must be reviewed by the PSCW. Additionally, upon consummation of the Divestiture Transaction, WEPCO will continue to be fully subject to the jurisdiction of PSCW with respect to retail rates charged by WEPCO, either as provider of electricity or as a provider of electric delivery services for unbundled retail electricity sales. VI. REQUEST FOR APPROVAL. WEPCO respectfully requests that the Commission approve the Divestiture Transaction under Section 203 of the FPA by no later than September 30, 2000. WEPCO has today filed with the PSCW an unconditional, irrevocable and binding commitment to transfer its jurisdictional facilities to Transco by no later than September 30, 2000. Accordingly, WEPCO seeks to secure all required regulatory approvals necessary to consummate the Divestiture Transaction in advance of September 30, 2000, and the proposed commencement of operations by Transco, scheduled for November 1, 2000. In sum, the Divestiture Transaction is consistent with the public interest and further facilitates the increasing efforts to restructure and bring robust 29 competition to the Nation's electric utility industry. WEPCO, therefore, respectfully requests that the Commission act expeditiously and grant approval of the proposed Divestiture Transaction as described in this Application. VII. 18 C.F.R. (S) REQUIRED EXHIBITS. As described elsewhere herein, many of the details of the Divestiture Transaction, including Transco's corporate form, the transaction steps creating Transco, and the list of facilities to be transferred by WEPCO to Transco, are not now available. Accordingly, WEPCO requests waiver of the Part 33 filing requirements until such time as the necessary information becomes available. WEPCO commits to file such information as soon as it becomes available. VIII. LIST OF EXHIBITS REQUIRED BY PART 33 OF THE COMMISSION'S REGULATIONS, 18 C.F.R. (S) 33.3. Exhibit A. Copies of All Resolutions of Directors. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. Exhibit B. Statement of Intercorporate Relationships. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. Exhibit C. Statements A and B, FERC Form No, 1. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. Exhibit F. Analysis of Retained Earnings. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. 30 Exhibit G. Copies of All Applications Filed with any Other Federal and State Regulatory Body in Connection with the Proposed Transaction and Certified Copies of Each Order Relating Thereto. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. Exhibit H. Copies of All Contracts with Respect to the Transaction. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. Exhibit I. Maps of Property Being Conveyed, Interconnections, and Principal Cities Served. As explained in Section VII, above, WEPCO requests waiver of this requirement until such time as this information becomes available. 31 IX. CONCLUSION. WEPCO respectfully requests that the Commission expeditiously authorize the transfer to Transco of the facilities proposed herein under the terms and conditions set forth in this application. Respectfully submitted, ______________________________ _______________________________ Larry Salustro Clifford S. Sikora Vice President-Legal, Regulatory and R. Michael Sweeney, Jr. Government Affairs Troutman Sanders LLP Wisconsin Electric Power Company 1300 I Street, N.W. 231 West Michigan Avenue Suite 500 East Milwaukee, WI 53203 Washington, D.C. 20005-3314 (414) 221-2345 (202) 274-2950 (telephone) (202) 274-2994 (facsimile) Attorneys for Wisconsin Electric Power Company Dated: December 30, 1999 32 EX-99.D3 4 0004.txt ORDER OF FERC REGARDING WISCONSIN ELECTRIC Exhibit D-3 Commission Opinions, Orders and Notices Wisconsin Electric Power Company Docket No. EC00-45-000 Order Authorizing Disposition of Jurisdictional Facilities (Issued March 31, 2000) Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt H (acute)ebert, Jr. I. Introduction On January 6, 2000, Wisconsin Electric Power Company (WEPCO) filed an application pursuant to Section 203 of the Federal Power Act (FPA), 16 U.S.C. (S) 824b (1994), for Commission authorization to transfer ownership and operational control of certain jurisdictional transmission facilities to the Wisconsin Transmission Company (Wisconsin Transco). Wisconsin Transco will exercise control over these facilities until control is assumed by the Midwest Independent System Operator (Midwest ISO) [FN1] when the Midwest ISO commences operations in 2001. As discussed below, we will authorize the transfer of jurisdictional facilities as consistent with the public interest. II. Background A. Description of the Parties 1. WEPCO WEPCO, a wholly owned subsidiary of Wisconsin Energy Corporation (Wisconsin Energy), is an electric and natural gas public utility operating company that owns electric generation, transmission, and distribution facilities and natural gas distribution facilities in the States of Wisconsin and Michigan. In addition to generating assets, WEPCO owns approximately 2,760 miles of transmission facilities with ratings from 69 to 345 kV. WEPCO transmits and sells electric energy at wholesale subject to the Commission's jurisdiction, and is a member of the Midwest ISO. [FN2] WEPCO also provides retail electric service to customers in Wisconsin and Michigan subject to the jurisdiction of the Public Service Commission of Wisconsin (Wisconsin Commission) and the Michigan Public Service Commission. 2. Wisconsin Transco Wisconsin Transco is a transmission company created by Wisconsin law to own and operate the high-voltage transmission system in Wisconsin. The Wisconsin law encourages certain public utility affiliates of holding company systems in Wisconsin to transfer ownership of their transmission assets so that Wisconsin Transco will exclusively provide transmission services in geographic areas formerly served by the utilities. [FN3] However, under the provisions of the Wisconsin law, Wisconsin Transco will be required to transfer operational control of its facilities to the Midwest ISO or a successor organization. In areas where control of transmission facilities is transferred directly to the Midwest ISO, Wisconsin Transco will not have a duty to provide service. The Wisconsin law also prohibits Wisconsin Transco from directly serving retail customers, and further prohibits Wisconsin Transco from bypassing distribution systems. B. Description of the Proposed Transaction WEPCO requests Commission authorization to transfer its transmission assets to Wisconsin Transco. WEPCO states that these assets comprise the integrated, high-voltage transmission system currently owned and operated by WEPCO. WEPCO further states that: (1) WEPCO will divest its 100 percent equity interest in the WEPCO transmission system through the sale or transfer of these assets to Wisconsin Transco; and (2) Wisconsin Transco will acquire control over, and the entire equity interest in, the WEPCO transmission system. *2) Although WEPCO states that it is filing the proposed transaction to meet certain requirements of Wisconsin law, WEPCO notes that many of the specifics of the proposed transaction have not yet been agreed upon by all stakeholders in Wisconsin. Nonetheless, WEPCO requests that the Commission accept the application for filing now, notwithstanding the fact that the application may require supplemental information as the details of the formation of the Wisconsin Transco become more clear. WEPCO states that consistent with Wisconsin law, WEPCO agrees that it will not withdraw the application in the event that the Commission conditions its approval of the transfer on conditions consistent with Federal law. WEPCO asks that the Commission provide authorization without a hearing by September 30, 2000, since it has filed a binding commitment with the Wisconsin Commission to transfer its transmission facilities to Wisconsin Transco no later than September 30, 2000. C. Applicant's Statement of Public Interest WEPCO argues that the proposed transfer of transmission assets is consistent with the public interest and should be approved under Section 203 of the FPA. WEPCO claims that the creation of Wisconsin Transco is consistent with Order No. 2000 [FN4] because it will facilitate greater separation of generation and transmission ownership. WEPCO asserts that as public utilities, Wisconsin Transco and WEPCO will meet all of the Regional Transmission -2- Organization (RTO) criteria through membership in the Midwest ISO, which will meet all of the Order No. 2000 requirements. Moreover, WEPCO claims that Wisconsin Transco will not seek to meet the requirements of Order No. 2000, since Wisconsin Transco is obligated under Wisconsin law to transfer operational control of all of its transmission facilities to the Midwest ISO. Therefore, WEPCO argues that the Commission need not approve this filing on the condition that Wisconsin Transco itself comply with Order No. 2000. WEPCO also argues that by transferring all of its transmission facilities to a separate corporation, Wisconsin Transco, and by agreeing to take transmission and ancillary services under Wisconsin Transco's open access transmission tariff for the delivery of all power sold by WEPCO to wholesale and retail customers, the proposed transfer surpasses the Commission's requirements under Order Nos. 888 [FN5] and 889. [FN6] In addition, WEPCO maintains that the proposed transfer meets the requirements of the Commission's Merger Policy Statement. [FN7] In this regard, WEPCO notes that the proposed transfer will not confer greater market power to Wisconsin Transco than WEPCO already possesses in the relevant geographic market, and that the transaction will not have an adverse effect on rates. Lastly, WEPCO claims that the proposed transfer will not have an adverse affect on state or Federal regulation. In this regard, WEPCO asserts that as the seller of the assets, it will continue to be subject to Commission regulation with respect to all wholesale sales and transmission services provided to its existing customers, and Wisconsin Transco will be a public utility subject to the jurisdiction of the Commission. Furthermore, WEPCO will continue to be subject to the Wisconsin Commission with respect to retail rates it charges either as a provider of electricity or a provider of electric delivery services for unbundled retail electricity sales. III. Notice of Filing, Interventions, and Protests *3) Notice of WEPCO's filing was published in the Federal Register, 65 Fed. Reg. 2156 (2000), with comments, protests, and interventions due on or before January 31, 2000. On January 21, 2000, Wisconsin Commission filed a notice of intervention, reserving the right to comment on any changes proposed by the applicants. On January 24, 2000, Wisconsin Public Power, Inc. (WPPI) filed a motion to intervene raising no substantive issues. On January 27, 2000, Dairyland Power Cooperative (Dairyland) filed a motion to intervene and protest. Dairyland claims that it was denied an opportunity to participate in the development of Wisconsin Transco, and maintains this is contrary to the collaborative process under Order No. 2000. Dairyland asks that the Commission: (1) consolidate this docket with other applications involving the transfer of transmission assets to Wisconsin Transco; (2) delay final action on WEPCO's filing until details on Wisconsin Transco are filed with the Commission; and (3) approve WEPCO's application on the condition that Wisconsin Transco join the Midwest ISO. -3- On January 31, 2000, PG&E Generating Company (PGC) filed a motion to intervene and request for conditions. PGC states that it does not oppose WEPCO's application to transfer transmission assets to Wisconsin Transco, but asks that the Commission approve WEPCO's application on the condition that: (1) Wisconsin Transco join an RTO that operates by December 15, 2001; and (2) pending requests of PGC through its affiliates to interconnect and receive transmission from WEPCO not be adversely affected by the asset transfer. IV. Discussion A. Procedural Matters Under Rule 214 of the Commission's Rules of Practice and Procedure, 18 C.F.R. (S) 385.214 (1998), the timely, unopposed notice of intervention of the Wisconsin Commission and the timely, unopposed motions to intervene of WPPI, Dairyland, PGC serve to make them parties to this proceeding. B. Standard of Review Under Section 203 Section 203(a) of the FPA provides, in relevant part, as follows: No public utility shall sell, lease, or otherwise dispose of the whole of its facilities subject to the jurisdiction of the Commission, or any part thereof of a value in excess of $50,000, or by any means whatsoever, directly or indirectly, merge or consolidate such facilities or any part thereof with those of any other person, or purchase, acquire, or take any security of any public utility, without first having secured an order of the Commission authorizing it to do so. 16 U.S.C. (S) 824b(a) (1994). In 1996, the Commission issued a Merger Policy Statement updating and clarifying its procedures, criteria, and policies applicable to public utility mergers. [FN8] The Merger Policy Statement provides that the Commission will generally take account of three factors in analyzing proposed mergers: (a) the effect on competition; (b) the effect on rates; and (c) the effect on regulation. C. Analysis of the Application *4) The Commission has reviewed the application under the criteria discussed in the Commission's Merger Policy Statement. For the reasons discussed below, we find that WEPCO's transfer of its proposed jurisdictional facilities is consistent with -4- the public interest. Accordingly, we will approve the transfer without further investigation. D. Effect on Competition, Rates, and Regulation While the proposed transfer results in a change of ownership and control of jurisdictional transmission facilities, WEPCO states it does not involve any transfer of generating assets. Therefore, there is no change in the concentration of generation assets. In addition, we agree with WEPCO that the transfer of transmission assets to Wisconsin Transco will result in a separation of transmission from generation assets that exceeds the Commission's functional unbundling requirements. Thus, the transfer to Wisconsin Transco will facilitate greater competition in wholesale power markets. Therefore, we conclude the proposed transfer will have no adverse effect on competition. With respect to the effect of the proposed transfer on rates, we note that the rates charged for generation-based ancillary services provided by WEPCO under its open access transmission tariff will remain unchanged. In addition, Wisconsin Transco will be free to purchase ancillary services from other suppliers where such services are cheaper. Therefore, rates for ancillary services will remain the same or decline. WEPCO contends that transmission customer's rights will not be affected by the proposed transfer. WEPCO commits that its "transmission-dependent customers will have the right to remain under their existing grandfathered agreements at the same rates, or at their option, can contract with Wisconsin Transco for unbundled transmission service." Therefore, we conclude that the proposed transfer will not adversely effect the wholesale electric rates charged by WEPCO. We agree with WEPCO and are satisfied that the proposed transfer of assets will not adversely affect Federal or state regulation. Wisconsin Transco will remain subject to our jurisdiction. We also note that the proposed transfer is consistent with the Wisconsin law that encourages WEPCO to transfer ownership of its transmission assets to Wisconsin Transco. Therefore, we conclude that the transfer will not impair regulation. Dairyland asks that the Commission approve WEPCO's application on the condition that Wisconsin Transco join the Midwest ISO. Dairyland also asks that the Commission delay action on WEPCO's instant filing until further details are filed with the Commission, and that the Commission consolidate this docket with other applications involving the transfer of transmission assets to Wisconsin Transco. Lastly, Dairyland contends that it was denied an opportunity to participate in the development of Wisconsin Transco. PGC asks that the Commission approve WEPCO's application on condition that Wisconsin Transco join an RTO, and that PGC's pending requests to interconnect and receive transmission from WEPCO will not be adversely affected by the asset transfer. *5) Although Dairyland requests that we approve WEPCO's application on the condition that Wisconsin Transco join the Midwest ISO, we note that under -5- Wisconsin law, Wisconsin Transco must transfer all of its transmission facilities to the Midwest ISO or a successor organization. In addition, PGC requests that we approve WEPCO's application on the condition that Wisconsin Transco join an RTO. As stated above, we find the application is consistent with the public interest and therefore it is unnecessary to impose any conditions on the approval of the transfer and we will deny Dairyland's and PGC's requests. Since we are authorizing WEPCO's proposed transfer of assets without a hearing, we will deny Dairyland's request that we consolidate this docket with other dockets. We also find that WEPCO has provided us with sufficient information to demonstrate that the transfer of jurisdictional facilities is in the public interest. We clarify that we are not here evaluating the instant proposal under the functions and characteristics established in Order No. 2000. Therefore, we will also deny Dairyland's request that we delay authorization of this application. Furthermore, we find that Dairyland's contention that it was denied an opportunity to participate in developing Wisconsin Transco is an issue that is beyond the scope of this filing. [FN9] Likewise, PGC's request that we approve WEPCO's application on condition that PGC's interconnection and transmission requests will not be adversely affected is an issue that is beyond the scope of this filing. WEPCO's Section 203 application and our approval of the application affect only the proposed disposition of WEPCO's jurisdictional facilities. [FN10] Consistent with the Commission's criteria, we have found that the proposed transfer of jurisdictional facilities will not have an adverse effect on competition, rates, or impair regulation. Moreover, we find that PGC's concern that WEPCO may not provide it with service is based on conjecture and is premature. If in the future PGC believes that WEPCO has unlawfully denied service, PGC can then file a complaint with the Commission. E. Accounting Treatment The transfer of transmission facilities to Wisconsin Transco by WEPCO should be accounted for in accordance with Electric Plant Instruction No. 5 and Account 102 of the Uniform System of Accounts. [FN11] Both Wisconsin Transco and WEPCO should file their journal entries to clear Account 102 within six months of the date of the sale. The filing should include detailed journal entries and any narrative statements necessary to explain the proposed accounting. The Commission orders: (A) The proposed transfer of WEPCO's jurisdictional facilities is hereby approved, as discussed in the body of this order. (B) The Commission retains authority under Section 203(b) of the FPA to issue supplemental orders as appropriate. -6- (C) Both Wisconsin Transco and WEPCO are directed to account for the transaction in accordance with the Uniform System of Accounts and file journal entries to clear Account 102 within six months of the closing date of the transaction. *6) (D) The foregoing authorization is without prejudice to the authority of this Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimates or determinations of costs, or any other matter whatsoever now pending or which may come before the Commission. (E) Nothing in this order shall be construed to imply acquiescence in any estimate or determination of cost or any valuation of property claimed or asserted. (F) WEPCO is hereby directed to notify the Commission when the transfer of jurisdictional facilities is completed, within 10 days of the sale. FN1 Midwest ISO's public utilities include: Cincinnati Gas & Electric Company, Commonwealth Edison Company, Commonwealth Edison Company of Indiana, Illinois Power Company, PSI Energy, Inc., Wisconsin Electric Power Company, Union Electric Company, Central Illinois Public Service Company, Louisville Gas & Electric Company, and Kentucky Utilities Company. FN2 See Midwest Independent Transmission System Operator, Inc., et al., 84 FERC P 61,231, order on reconsideration, 85 FERC P 61,250, order on reh'g, 85 FERC P 61,372 (1998). FN3 For purposes of defining the transmission facilities to be transferred to Wisconsin Transco, a transmission facility is defined under the Wisconsin statute to mean a facility that is not a radial facility and is designed to operate above 130 kV. A facility from 50 kV through 130 kV that is not a radial facility is presumed to be a transmission facility unless it is demonstrated to the Wisconsin Commission that the facility is not a transmission facility. Radial facilities or those facilities designed to operate at 50 kV or less are presumed not to be transmission facilities unless the contrary is demonstrated. FN4 Regional Transmission Organizations, Order No. 2000, 65 Fed. Reg. 809 (January 6, 2000), FERC Statutes and Regulations P 31,089 (1999), order on reh'g, Order No. 2000-A, 90 FERC P 61,201 (2000). FN5 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 (May 10, 1996), FERC Statutes and Regulations, Regulations Preambles January 1991-June 1996 P 31,036 (1996), order on reh'g, Order No. 888-A, 62 Fed. Reg. 12,274 (March 14, 1997), FERC Statutes and Regulations P -7- 31,048 (1997), order on reh'g, Order No. 888-B, 81 FERC P 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC P 61,046 (1998). FN6 See Open Access Same-Time Information System (Formerly Real-Time Information Networks) and Standards of Conduct, Order No. 889, 61 Fed. Reg. 21,737 (May 10, 1996), FERC Statutes and Regulations, Regulations Preambles January 1991-June 1996 P 31,035 (1996), order on reh'g, Order No. 889-A, 62 Fed. Reg. 12,484 (March 14, 1997), FERC Statutes and Regulations P 31,049 (1997), order on reh'g, Order No. 889-B, 81 FERC P 61,253 (1997). FN7 Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Statutes and Regulations, Regulations Preambles January 1991-June 1996 P 31,044 (1996), order on reconsideration, Order No. 592-A, 62 Fed. Reg. 33,341 (1997), 79 FERC P 61,321 (1997) (Merger Policy Statement). FN8 Id. FN9 WEPCO says that the formation of the Wisconsin Transco is a the first step in the development of an RTO for the region. For that reason, we encourage discussions and negotiations regarding formation of the Wisconsin Transco that are open to all transmission owning utilities in Wisconsin. FN10 See, e.g., New England Power Company, et al., 83 FERC P 61,275, at p. 62,148 (1998). FN11 Electric Plant Instruction No. 5, Electric Plant Purchased or Sold, and Account 102, Electric Plant Purchased or Sold, 18 C.F.R. Part 101 (1999). Federal Energy Regulatory Commission 90 FERC P 61,346, 2000 WL 337608 (F.E.R.C.) -8- EX-99.D4 5 0005.txt ORDER OF FERC REGARDING EDISON SAULT APPLICATION Exhibit D-4 Commission Opinions, Orders and Notices Edison Sault Electric Company Docket No. EC00-131-000 Order Authorizing Disposition of Jurisdictional Facilities (Issued November 9, 2000) Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt H (acute)ebert, Jr. I. Introduction On August 28, 2000, Edison Sault Electric Company (Edison Sault) filed an application pursuant to Section 203 of the Federal Power Act (FPA), 16 U.S.C. (S) 824(b) (1994), for Commission authorization to transfer ownership and operational control of certain jurisdictional transmission assets (Divestiture) Transaction) to American Transmission Company LLC (ATC). [FN1] Pursuant to the Divestiture Transaction, these jurisdictional transmission assets comprise the integrated, high-voltage (50 kV and above) transmission system that Edison Sault currently owns and operates. As discussed below, we will authorize the transfer of jurisdictional facilities as consistent with the public interest. II. Background A. Description of the Parties to the Transaction Edison Sault is a public utility operating company that owns electric generation, transmission, and distribution facilities located in the State of Michigan. It provides retail electric service to approximately 22,000 customers located on Michigan's Eastern Upper Peninsula. Edison Sault also transmits and sells electric energy at wholesale. It is a member of the East Central Area Reliability Council. Currently, Edison Sault's only transmission customer, Cloverland Electric Cooperative (Cloverland), takes service under a pre-Order No. 888 transmission agreement. Edison Sault proposes to assign this contract to ATC, which will take over Edison Sault's rights and responsibilities to provide and receive transmission service under the contract. [FN2] ATC is a for-profit transmission company created by Wisconsin law that will be owned by Edison Sault and certain other utilities. [FN3] ATC will take ownership and operational control of the contributing transmission systems in Eastern Wisconsin (i.e., that part of Wisconsin that is within the Mid-American Interconnected Network, Inc.) and in limited areas of Michigan and Illinois. All but one of the Participating Entities are investor-owned utilities and will receive equity ownership in ATC in proportion to the net book value of the transmission facilities each utility contributes. [FN4] ATC and its member utilities will join the Midwest Independent Transmission System Operator, Inc. (Midwest ISO) and transfer operational control of the ATC transmission assets to the Midwest ISO as soon as the Midwest ISO begins operations. [FN5] Until the Midwest ISO begins operations, ATC will provide transmission service and ancillary services under its own Order No. 888 Open Access Transmission Tariff (OATT). After the Midwest ISO begins operating, ATC's transmission customers will become transmission customers of the Midwest ISO. At that time, the Midwest ISO will become the Transmission Provider and provide service under its OATT. B. Description of the Proposed Transaction Edison Sault requests Commission authorization to transfer its transmission assets to ATC in exchange for an equity interest in ATC. The jurisdictional assets being transferred include all of Edison Sault's transmission facilities rated 50 kV and above (including transmission lines, transformers and substations), as well as related books, records, contracts, tariffs and rate) schedules pursuant to which Edison Sault provides transmission service at wholesale. ATC will acquire ownership and operational control over these assets as a result of the transfer. The application states that in order to avoid potential adverse tax consequences, Edison Sault may choose not to directly transfer its transmission assets to ATC, but instead to transfer those assets first to an affiliated company that would then ultimately transfer those assets to ATC. C. Applicant's Statement of Public Interest Edison Sault argues that the proposed transfer of transmission assets is consistent with the public interest. Edison Sault points out that its proposed transfer is the same as the proposed transfers by other utilities that have already been approved by the Commission. [FN6] Edison Sault contends that the proposed transaction will have a beneficial effect on competition in the electric generation market and no adverse impact on the regulated transmission market. Edison Sault argues that the proposed transaction goes beyond the requirements of Order No. 888 because it is corporate unbundling. Edison Sault notes that generation markets should become less concentrated once ATC transfers operation and control of the transmission facilities to the Midwest ISO because this will expand the geographic scope of relevant generation markets, providing greater sources of supply. Edison Sault also notes that the proposed transaction does not involve the disposition of ) any generating assets. Edison Sault also contends that the proposed transaction will have a beneficial or neutral impact on rates. Edison Sault claims that rates for transmission service on the facilities will remain the same or decline, and the rates charged for generation-based ancillary services will also be unchanged. Finally, Edison Sault contends that the proposed transaction will have no negative impact on regulation at either the state or Federal level. Edison Sault will continue to be subject to Commission jurisdiction for wholesale sales. The proposed transaction will not result in the formation of a registered holding company. Edison Sault points out further that ATC will also be a public utility subject to the Commission's authority. Edison Sault also notes that it will continue to be fully subject to the jurisdiction of the Michigan Public Service Commission for its retail rates. Edison Sault also claims that the transfer is consistent with Order No. 2000 because it will facilitate greater separation of generation and transmission ownership, and will allow Edison Sault to meet all of the RTO criteria set out in Order No. 2000 through its membership in the Midwest ISO. [FN7] III. Notice of Filing, Interventions, Protests and Answers Notice of the filing was published in the Federal Register, 65 Fed. Reg. 55,235 (2000), with comments, protests, and interventions due on or before September 18, 2000. ATC, Consumers Energy Company (Consumers Energy), and Wisconsin Electric Power Company (Wisconsin Electric) filed timely motions to intervene raising no issues. The Michigan Public Service Commission (Michigan Commission) filed a notice of intervention and the State of Michigan filed a motion to intervene. Cloverland filed a timely motion to intervene and protest. On October 3, 2000, Edison Sault filed an answer to Cloverland's motion to intervene and protest. Cloverland is a rural electric cooperative and a borrower from Rural Utilities Services, and therefore is exempt from the Commission's jurisdiction under the FPA. Cloverland and Edison Sault are parties to a Transmission Coordination Agreement (Agreement) through which their transmission facilities operate as a single integrated system. Each party invests in the combined, integrated transmission system in proportion to its capacity requirements. Cloverland supports Edison Sault's participation in ATC. However, Cloverland believes that the application should address the effects of the proposed transaction on Cloverland's and Edison Sault's Agreement. Cloverland requests the Commission to condition its approval to ensure that Cloverland's transmission costs will be treated the same as the transmission costs of other ATC participants. Cloverland also requests the Commission to impose a condition to ensure that Cloverland's facilities will be treated the same as Edison Sault's facilities under the applicable OATTs vis-a-vis transmission credits, a share of revenues for transmission service, or other similar recognition of Edison Sault's facilities. Finally, Cloverland requests the Commission to condition its approval upon a requirement that Cloverland and its transmission facilities be treated the same as those of other ATC participants. In its answer, Edison Sault argues that Cloverland's concerns should be addressed in ATC's pending Section 205 application in Docket No. ER00-3316-000 and not in this proceeding. Edison Sault contends that the methodology of computing cost responsibility under the Agreement will not change once Edison Sault's facilities are transferred to ATC. Edison Sault contends further that, if there are circumstances in which Cloverland believes it is entitled to transmission credits or other revenues, Edison Sault will be willing to discuss such circumstances with Cloverland. Edison Sault also notes that Cloverland may seek redress from the Commission in another proceeding for any transmission credits or other revenues to which it believes it is entitled. Edison Sault points out that Cloverland is free to transfer its transmission assets to ATC and become an ATC participating member. It concludes that Cloverland's concerns about its ability to participate in ATC do not relate to the Commission's approval of Edison Sault's application in this proceeding. IV. Discussion A. Procedural Matters Under Rule 214 of the Commission's Rules of Practice and Procedure, [FN8] the notice of intervention of the Michigan Commission and the timely, unopposed motions to intervene of ATC, Consumers Energy, Wisconsin Electric, Cloverland and the State of Michigan serve to make them parties to this proceeding. Rule 213 of the Commission's Rules of Practice and Procedure [FN9] prohibits answers unless otherwise permitted by the decisional authority. We find that good cause exists to allow Edison Sault's answer because it provides additional information that assists us in the decision-making process. B. Standard of Review and Analysis of the Application Section 203(a) of the FPA provides that the Commission must approve a disposition if it finds it "will be consistent with the public interest." [FN10] The Commission's Merger Policy Statement provides that the Commission will generally take account of three factors in its analysis: (1) the effect on competition; (2) the effect on rates; and (3) the effect on regulation. [FN11] For the reasons discussed below, we find that the proposed transaction is consistent with the public interest. Accordingly, we will approve the proposed disposition of facilities. While the proposed transfer results in a change of ownership and control of jurisdictional transmission facilities, it does not involve any transfer of generating facilities. No party alleges an adverse effect on competition as a result of this disposition. Therefore, we conclude the proposed transfer will have no adverse effect on competition. We find that the proposed transaction will not adversely affect rates. Cloverland, Edison Sault's only transmission customer, and ATC can coordinate their operations under the coordinated transmission system in the same fashion as was done in the pre-Order No. 888 Agreement between Edison Sault and Cloverland. We find no evidence that Cloverland's rates for transmission service will increase. The rates charged for generation-based ancillary services provided by Edison Sault under the WEC Operating Companies' OATT will also be unchanged. Therefore, we conclude that the proposed transfer will not adversely affect rates. We also agree with Edison Sault and are satisfied that the proposed transfer will not adversely affect Federal or state regulation. Edison Sault will remain subject to our jurisdiction. We also note that Edison Sault will continue to be subject to the jurisdiction of the Michigan Commission with respect to retail rates charged by Edison Sault, either as a provider of electricity or as a provider of electric delivery services for unbundled retail electricity sales. To the extent that the Michigan Commission loses jurisdiction over the transmission component of Edison Sault's retail sales, that component will continue to be subject to Commission regulation and thus will not fall into a regulatory gap. Finally, we note that the proposed transfer also is consistent with the Wisconsin law that encourages utilities to transfer ownership of their transmission assets to ATC. Therefore, we conclude that the transfer will not impair regulation. Cloverland asked the Commission to impose conditions relating to the treatment of Cloverland's transmission costs and transmission facilities and to impose a requirement that Cloverland and its facilities be treated the same as those of any other participant in ATC. We decline to do so. Cloverland may transfer its transmission assets to ATC and become a participating entity in ATC on its own initiative, and the Commission will review at that time ATC's acquisition of Cloverland's facilities. We find further that, if Cloverland has any concerns regarding its ability to participate in the ATC on the same terms as ATC's other participating members, Cloverland should raise those concerns in ATC's pending Section 205 application in Docket No. ER00-3316-000. C. Accounting Treatment Edison Sault's transmission facilities will betransferred to ATC at a net book value determined on the basis of the regulated books of the account at the time of the transfer. The transfer should be accounted for in accordance with Electric Plant Instruction No. 5 (Electric Plant Purchased or Sold) and Account 102 (Electric Plant Purchased or Sold) of the Uniform System of Accounts, 18 C.F.R Part 101 (1999). Edison Sault should file journal entries to clear Account 102 within six months of the date of the sale. The filing should include detailed journal entries and any narrative statements necessary to explain the proposed accounting. The Commission orders: (A) The proposed transfer of Edison Sault's jurisdictional facilities is hereby approved, as discussed in the body of this order. (B) The Commission retains authority under Sections 203(b) and 309 of the Federal Power Act to issue supplemental orders as appropriate. (C) Edison Sault is directed to account for the transaction in accordance with the Uniform System of Accounts and file journal entries to clear Account 102 within six months of the closing date of the transaction. (D) The foregoing authorization is without prejudice to the authority of the Commission or any other regulatory body with respect to rates, service, accounts, valuation, estimates or determinations of cost, or any other matter whatsoever now pending or which may come before the Commission. (E) Nothing in this order shall be construed to imply acquiescence in any estimate or determination of cost or any valuation of property claimed or asserted. (F) Edison Sault is hereby directed to notify the Commission when the transfer of jurisdictional facilities is completed, within 10 days of the transfer. FN1 ATC is a Wisconsin limited liability company created pursuant to the State of Wisconsin's Reliability 2000 legislation for the purpose of owning and operating a high voltage transmission system in Wisconsin. FN2 Edison Sault notes, however, that Cloverland may choose to transfer its transmission assets to ATC and become a participating entity in ATC. FN3 The six companies besides Edison Sault that are initially transferring their transmission assets to ATCare Wisconsin Electric Power Company (WEPCO), Wisconsin Power & Light Company (WPL), Wisconsin Public Service Corporation (WPS), South Beloit Water, Gas and Electric Company (SBWGE), Madison Gas & Electric Company (MGE), and Wisconsin Public Power, Inc. (WPPI). Collectively, all seven utilities are called the Participating Entities. FN4 WPPI, a municipal joint action agency that provides bulk power energy and other services to its municipal member-owners, does not own any transmission facilities. It will contribute cash to ATC, andwill receive an equity ownership interest in ATC approximately in proportion to the cash it contributes. FN5 Edison Sault filed with the Commission on December 29, 1999 a request to become a member of the Midwest ISO in Docket No. EC98-24-000. The Midwest ISO will begin operations on November 1, 2001. Edison Sault represents that the Midwest ISO intends to qualify itself as an RTO. FN6 See Wisconsin Electric Power Co., 90 FERC P 61,346 (2000); and Wisconsin Power & Light Co., 90 FERC P 61,347 (2000). FN7 Order No. 2000, 65 Fed. Reg. 809 (January 6, 2000); FERC Statutes and Regulations P 31,089 (December 20, 1999); and Order No. 2000-A, 65 Fed. Reg. 12,088 (March 8, 2000); FERC Statutes and Regulations P 31,092 (February 25, 2000). FN8 18 C.F.R. (S) 385.214 (2000). FN9 18 C.F.R. (S) 385.213(a) (2000). FN10 16 U.S.C. (S) 824(b) (1994). ) FN11 See Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Statutes and Regulations P 31,044 (1996), order on reconsideration, Order No. 592-A, 62 Fed. 33,341 (1997), 79 FERC P 61,321 (1997) (Policy Statement). Federal Energy Regulatory Commission 93 FERC P 61,146, 2000 WL 1687158 (F.E.R.C.) END OF DOCUMENT EX-99.D5 6 0006.txt APPLICATION OF EDISON SAULT TO MICHIGAN PSC Exhibit D-5 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) EDISON SAULT ELECTRIC COMPANY ) for classification of its transmission and ) Case No. U-12690 distribution facilities and related ) transactions ) APPLICATION ----------- Edison Sault Electric Company ("Edison Sault") requests Michigan Public Service Commission ("MPSC" or "Commission") approval of the classification of its transmission and distribution facilities and related transactions, saying in support of its request that: 1. Edison Sault is a Michigan corporation with principal offices located in Sault Ste. Marie, Michigan, and is engaged in the generation, purchase, transmission, distribution and sale of electric energy. Edison Sault is a wholly owned subsidiary of Wisconsin Energy Corporation and, therefore an affiliate of Wisconsin Electric Power Company ("Wisconsin Electric"). Edison Sault provides retail electric service to approximately 22,000 customers located on Michigan's Upper Peninsula. Edison Sault owns approximately 340 miles of transmission facilities with ratings from 69 kilovolts ("kV") to 138 kV. Edison Sault's transmission facilities are interconnected with the transmission facilities of Cloverland Electric Cooperative, Consumers Energy Company, and Wisconsin Electric . 2. Edison Sault and other participating entities are forming the American Transmission Company LLC ("ATC LLC"). The other participating entities in the formation of the ATC LLC are expected to include Wisconsin Electric, Wisconsin Power & Light Company, Wisconsin Public Service Corporation, South Beloit Water Gas and Electric Company, Madison Gas & Electric Company and Wisconsin Public Power Inc. Other utilities may also join in the formation of the ATC LLC. 3. FERC Order No. 888, issued on April 24, 1996, stated a policy goal of "remove[ing] impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation's electricity consumers." This policy was reiterated by FERC in its adoption on December 20, 1999 of Order No. 2000, "Advancement of the Formation of Regional Transmission Organization." FERC Order 888 also encouraged public utilities and their state regulatory authorities to attempt to agree to utility specific transmission classifications and allocations which the utilities could file with the FERC. 4. The participating entities of the ATC LLC predominately serve electric customers in either the State of Wisconsin or the Upper Peninsula of Michigan. In Wisconsin, the State Legislature took the first step toward the creation of more competitive electric markets with the adoption of 1997 Wisconsin Act 204 ("Act 204"), effective May 1, 1998. Act 204 required Wisconsin public utilities to transfer control of their transmission facilities to either an independent system operator ("ISO") or an independent transmission owner ("ITO") by June 30, 2000. The general policy thrust of Act 204 B creation of an electric transmission system that promotes open access with non-discriminatory rates and terms - had already been adopted by FERC. 5. The Wisconsin Legislature in 1999 continued the direction of its policies with the adoption of Reliability 2000, or "R2K" which contained provisions regarding the creation of a transmission company in the State of Wisconsin. R2K was adopted as part of the 1999 budget bill, which was signed into law as 1999 Wisconsin Act 9 on October 27, 1999. 6. In furtherance of implementing the policy objectives of the FERC and the state of Wisconsin, Wisconsin Electric filed with the FERC on January 6, 2000, its Application For Authorization to Transfer Jurisdictional Transmission Assets Pursuant to Section 203 of the FPA. On March 31, 2000, the FERC issued in Docket No. EC00-45-000 its Order Authorizing Disposition of Jurisdictional Facilities. The jurisdictional transmission assets of Wisconsin Electric to be transferred to a transmission company pursuant to the FERC will be determined based upon the classification of such assets by the Public Service Commission of Wisconsin ("PSCW") in Docket 05-E1-119 and the MPSC. On August 28, 2000, Edison Sault filed with FERC in Docket No. EC-131-000 a similar request for authority to transfer its transmission assets to the ATC LLC. 7. Act 9 included legislative policy directions to guide the PSCW in classifying transmission facilities. For example, based on the participating utility network system, Act 9 states that any facilities designed and operated at a nominal voltage of 50kV, including radials, are presumed to be transmission. A copy of Act 9 is attached as Attachment A hereto. Following notice and participation by interested parties, the PSCW issued its Final Decision on July 13, 2000 in Docket 05-E1-119 classifying Wisconsin Electric's transmission facilities. 8. Effective June 5, 2000, 1939 PA 3 was amended by 2000 PA 141 ("Act 141") to permit all retail electric customers in the state of Michigan to have a choice of electric suppliers. No later than January 1, 2002, the Commission must issue orders establishing the rates, terms and conditions to allow all retail customers to choose an alternative electric supplier. In order to facilitate the implementation of customer choice provided for in Act 141, it is necessary for the MPSC to classify Edison Sault's transmission and distribution facilities. 9. Transmission lines with voltages of 50 kV or higher are generally used for the transmission of electricity in the Upper Peninsula of Michigan. The bulk of Edison Sault's transmission system consists of 69 kV voltage, with 138 kV lines also being used. The decision of the PSCW to classify facilities with voltages of 50 kV or higher as transmission is suitable for use by Edison Sault as that is the manner in which electricity is transmitted in the Upper Peninsula. Such a classification would also treat Edison Sault's transmission assets which will be transferred to the ATC LLC, in a manner identical to the assets being transferred by the predominate Wisconsin based utilities. Edison Sault is requesting that the MPSC similarly classify its facilities of 50 kV or higher as transmission facilities. Edison Sault proposes to file with this Commission within 90 days of the MPSC's final order in this case, an inventory of all its facilities, classified in the manner prescribed by this Commission. All utility assets classified as transmission facilities will be conveyed to ATCLLC at net book value (original cost less accumulated book depreciation). 10. Edison Sault is also requesting that the MPSC authorize any other approvals that may be needed to facilitate transfer of such transmission facilities to the ATC LLC. When the exact facilities to be transferred are determined Edison Sault will provide the dollar value of the facilities to be transferred. 11. Pursuant to the Commission's May 3, 2000 Order in Case No. U-11916, Edison Sault is required to notify the Commission in writing of certain asset transfers. To the extent such Order is applicable, the instant Application is intended to provide the required notification. 12. Further, the Michigan Uniform System of Accounts for Electric Utilities requires MPSC approval of proposed journal entries to record the transfer of certain property with an original cost of over $100,000. To the extent the Uniform System of Accounts is applicable, Edison Sault requests approval of its proposed journal entries as reflected in Attachment B. 13. Edison Sault represents that approval of this Application without hearings will save the time and expense the MPSC would otherwise be required to devote to this proceeding, will eliminate regulatory delay, and will allow Edison Sault to begin the implementation of customer choice in a timely manner. Moreover, Edison Sault represents that there is no legal requirement for notice and hearing because approval of the Application does not increase the cost of service or rates for its electric customers in Michigan. WHEREFORE, Edison Sault Electric Company requests the Commission to approve of the classification of the Company's facilities of 50 kV or higher as transmission facilities, and grant any other approvals that may be needed to facilitate transfer of such assets to the ATC LLC. Respectfully submitted, EDISON SAULT ELECTRIC COMPANY Dated: October 27, 2000 By: _______________________________ Harvey J. Messing (P 23309) Loomis, Ewert, Parsley Davis & Gotting, P.C. 232 S. Capitol Ave., Suite 1000 Lansing, Michigan 48933 (517) 482-2400 Attorney for EDISON SAULT ELECTRIC COMPANY EX-99.D6 7 0007.txt APPLICATION OF WISCONSIN ELECTRIC TO MICHIGAN PSC Exhibit D-6 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) WISCONSIN ELECTRIC POWER COMPANY ) for classification of its transmission and ) Case No. U-12691 and distribution facilities and related ) transactions ) ) APPLICATION ----------- Wisconsin Electric Power Company ("Wisconsin Electric") requests Michigan Public Service Commission ("MPSC" or "Commission") approval of the classification of its transmission and distribution facilities and related transactions, saying in support of its request that: 1. Wisconsin Electric is a public utility that owns electric generation, transmission and distribution facilities in the States of Wisconsin and Michigan, as well as natural gas distribution facilities located in the State of Wisconsin. Wisconsin Electric provides retail electric service to approximately one million customers located throughout portions of southeastern, central and northern Wisconsin and the Upper Peninsula of Michigan. Wisconsin Electric also provides retail natural gas service to approximately 380,000 customers located in the State of Wisconsin. Wisconsin Electric's retail operations in the State of Wisconsin are subject to the jurisdiction of the Public Service Commission of Wisconsin ("PSCW") and in the State of Michigan to the Commission. Wisconsin Electric also transmits and sells electric energy at wholesale subject to the jurisdiction of the Federal Energy Regulatory Commission ("FERC") under Part II of the Federal Power Act ("FPA"). 2. Wisconsin Electric's public utility operations are located primarily in the state of Wisconsin. Revenues during 1999 from electric retail customers of Wisconsin Electric in the state of Michigan were approximately $105 million, representing only 6.2% of total electric utility operating revenues. 3. In addition to its generating assets, Wisconsin Electric owns approximately 2,760 miles of transmission facilities with ratings from 69 kV to 345 kV. These facilities are interconnected with Edison Sault Electric Company, Commonwealth Edison Company, Madison Gas and Electric Company, Marquette Board of Public Utilities, Northern States Power-Wisconsin, Upper Peninsula Power Company, Wisconsin Power and Light Company, Wisconsin Public Power Inc. and Wisconsin Public Service Corporation. Wisconsin Electric is a member of the Mid- American Interconnected Network and is a participant in the Midwest ISO. 4. FERC Order No. 888, issued on April 24, 1996, stated a policy goal of "remove[ing] impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation's electricity consumers." This policy was reiterated by FERC in its adoption on December 20, 1999 of Order No. 2000, "Advancement of the Formation of Regional Transmission Organizations." FERC Order 888 also encouraged public utilities and their state regulatory authorities to attempt to agree to utility specific transmission classifications and allocations which the utilities could file with the FERC. 5. In Wisconsin, the State Legislature took the first step toward this end with the adoption of 1997 Wisconsin Act 204 ("Act 204"), effective May 1, 1998. Act 204 required Wisconsin public utilities to transfer control of their transmission facilities to either an independent system operator ("ISO") or an independent transmission owner ("ITO") by June 30, 2000. The general policy thrust of Act 204 - creation of an electric transmission system that promotes open access with non-discriminatory rates and terms - had already been adopted by FERC. 6. The Wisconsin Legislature in 1999 continued the direction of its policies with the adoption of Reliability 2000, or "R2K" which contained provisions regarding the creation of a transmission company in the State of Wisconsin. R2K was adopted as part of the 1999 budget bill, which was signed into law as 1999 Wisconsin Act 9 on October 27, 1999. The bulk of the provisions relating to Wisconsin Electric are found in (s) 196.485. The deadline provisions for the transfer of certain assets to a transmission company in Wisconsin were subsequently modified by 1999 Senate Bill 481, which was signed into law on May 12, 2000, as 1999 Wisconsin Act 75. Act 75 created the current January 1, 2001, Operational Deadline. 7. In furtherance of implementing the policy objectives of the FERC and the state of Wisconsin, Wisconsin Electric filed with the FERC on January 6, 2000, its Application For Authorization to Transfer Jurisdictional Transmission Assets Pursuant to Section 203 of the FPA (Attachment A). On March 31, 2000, the FERC issued in Docket No. EC00-45-000 its Order Authorizing Disposition of Jurisdictional Facilities (Attachment B). Accordingly, the jurisdictional electric transmission assets of Wisconsin Electric will be transferred to a transmission company, the American Transmission Company LLC ("ATCLLC"), pursuant to the FERC Order based upon the classification of such assets by the PSCW in Docket 05-E1-119 and the MPSC in the instant case. 8. Act 9 included legislative policy directions to guide the PSCW in classifying transmission facilities. For example, based on the participating utility network system, Act 9 states that any facilities designed and operated at a nominal voltage of 50kV, including radials, are presumed to be transmission. Following notice and participation by interested parties, the PSCW issued its Final Decision on July 13, 2000 in docket 05-E1-119 classifying Wisconsin Electric's transmission facilities. A copy of Act 9 is attached as Attachment C. A copy of the Final Decision in docket 05-E1-119 is attached as Attachment D. 9. Effective June 5, 2000, 1939 PA 3 was amended by 2000 PA 141 ("Act 141") to permit all retail electric customers in the state of Michigan to have a choice of electric suppliers. No later than January 1, 2002, the Commission must issue orders establishing the rates, terms and conditions to allow all retail customers to choose an alternative electric supplier. In order to facilitate the implementation of customer choice provided for in Act 141, it is necessary for the Commission to classify Wisconsin Electric's transmission and distribution facilities. 10. Approximately ninety percent of Wisconsin Electric's electric assets and services are within state of Wisconsin. In order to maintain consistency across the system, Wisconsin Electric seeks to classify and transfer control of its Michigan assets on the same basis as it is classifying and transferring control of its Wisconsin assets. Pursuant to the Final Decision of July 13, 2000, Wisconsin Electric filed with the PSCW on October 11, 2000, an inventory of all of the facilities it uses for the transmission of electricity, classified in the manner prescribed by the Final Decision; the inventory classifies Wisconsin Electric's facilities as located in both the states of Wisconsin and Michigan. A copy of the inventory is attached as Attachment E. Wisconsin Electric respectfully requests the Commission to classify its Michigan facilities in the manner set forth in the inventory submitted to the PSCW. All utility assets classified as transmission facilities will be conveyed to ATCLLC at net book value (original cost less accumulated book depreciation). When the exact facilities to be transferred are determined, Wisconsin Electric will provide the dollar value of the facilities to be transferred. 11. Pursuant to the Commission's May 3, 2000 Order in Case No. U-11916, Wisconsin Electric is required to notify the Commission in writing of certain asset transfers. To the extent such Order is applicable, the instant Application is intended to provide the required notification. 12. Further, the Michigan Uniform System of Accounts for Electric Utilities requires MPSC approval of proposed journal entries to record the transfer of certain property with an original cost of over $100,000. To the extent the Uniform System of Accounts is applicable, Wisconsin Electric requests approval of its proposed journal entries as reflected in Attachment F. 13. Wisconsin Electric represents that approval of this Application without hearings will save the time and expense the MPSC would otherwise be required to devote to this proceeding, will eliminate regulatory delay, and will allow Wisconsin Electric to begin the implementation of customer choice in a timely manner. Moreover, Wisconsin Electric represents that there is no legal requirement for notice and hearing because approval of the Application does not increase the cost of service or rates for its electric customers in Michigan. WHEREFORE, Wisconsin Electric Power Company requests the Commission to approve of the classification of its transmission and distribution facilities as determined by the Public Service Commission of Wisconsin and the associated journal entries to record the transfer of transmission assets to the American Transmission Company LLC. Respectfully submitted, WISCONSIN ELECTRIC POWER COMPANY Dated: October 27, 2000 By: _________________________________ Harvey J. Messing (P 23309) Loomis, Ewert, Parsley Davis & Gotting, P.C. 232 S. Capitol Ave., Suite 1000 Lansing, Michigan 48933 (517) 482-2400 Attorney for WISCONSIN ELECTRIC POWER COMPANY EX-99.D7 8 0008.txt ORDER OF MICHIGAN PSC REGARDING WISCONSIN ELECTRIC Exhibit D-7 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of WISCONSIN ELECTRIC POWER COMPANY for the classification of its transmission and Case No. U-12691 distribution facilities and related transactions. At the December 20, 2000 meeting of the Michigan Public Service Commission in Lansing, Michigan. PRESENT:Hon. John G. Strand, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner OPINION AND ORDER On October 27, 2000, Wisconsin Electric Power Company (Wisconsin Electric) filed an application requesting ex parte approval of the classification of its electric transmission and distribution facilities located in Michigan. The application states that Wisconsin Electric is a public utility that owns electric generation, transmission, and distribution facilities in the states of Wisconsin and Michigan. As represented in its application, 90% of Wisconsin Electric's assets are located in Wisconsin and only 6.2% of its total 1999 electric utility operating revenues are derived from Michigan. The application further represents that Wisconsin Electric owns approximately 2,760 miles of transmission facilities with ratings from 69 kilovolts (kV) to 345 kV. According to the application, as a result of Federal Energy Regulatory Commission (FERC) Order No. 888 and recent legislation passed by the state of Wisconsin, Wisconsin Electric filed an application with the FERC on January 6, 2000 for authorization to transfer its jurisdictional transmission assets to the American Transmission Company LLC (ATCLLC) pursuant to Section 203 of the Federal Power Act. Further, on March 31, 2000, the FERC issued an order in Docket No. EC00-45-000 authorizing the disposition of its jurisdictional facilities. Therefore, the jurisdictional electric transmission assets of Wisconsin Electric will be transferred to ATCLLC based on the classification of such assets by the Public Service Commission of Wisconsin (PSCW) and this Commission. According to Wisconsin Electric, on July 13, 2000, the PSCW issued an order in Docket No. 05-E1-119 classifying Wisconsin Electric's transmission facilities. Further, Wisconsin Electric states that its application in this proceeding seeks to classify its Michigan assets on the same basis as its Wisconsin assets have been classified. Wisconsin Electric indicates that its application constitutes notice of the transfer of its assets that is required by the guidelines for affiliate transfers established by the Commission in its May 3, 2000 order in Case No. U- 11916. Wisconsin Electric also maintains that its application includes the submission of preliminary journal entries in accordance with the requirements of the Uniform System of Accounts (USOA). Effective June 5, 2000, Public Act 141 of 2000 (Act 141) became law. Act 141 permits all retail electric customers in Michigan to have the choice of electric suppliers. By no later than January 1, 2002, the Commission must issue orders establishing rates, terms, and conditions to allow all retail customers to choose an alternative electric supplier. In order to facilitate the implementation of customer choice provided for in Act 141, it is necessary and appropriate for the Commission to classify utility transmission and distribution facilities. However, the Commission is concerned that Wisconsin Electric filed its Section 203 application with the FERC on August 28, 2000, or approximately two months prior to seeking a determination by this Commission of the Michigan assets that were to be categorized as transmission assets. In so doing, Wisconsin Electric presumed a Michigan result in its FERC filing that was different from prior rulings this Commission had made in cases concerning The Detroit Edison Company(1), Consumers Energy Company(2), and Alpena Power Company(3). For regulatory expediency, and without passing upon the merits of the Wisconsin methodology, the Commission finds that it should approve Wisconsin Electric's application. However, in the future, Wisconsin Electric must be cognizant of and operate consistent with both Michigan and Wisconsin law where the two jurisdictions require coordinated approaches. Future disregard of this Commission's authority will be handled in a manner consistent with Michigan law. The Commission has reviewed the application and concludes that Wisconsin Electric's proposal for the classification of its Michigan transmission facilities is reasonable and in the public interest, and should be approved. Further, although the Commission has reviewed Wisconsin Electric's preliminary journal entries, because those entries may change, the Commission finds that it should reserve judgment until final journal entries are filed. Approval of Wisconsin Electric's application will not increase its current rates and charges. Further, approval of this application will not result in an increase in the cost of service to its Michigan customers. Therefore, pursuant to MCL 460.6a; MSA 22.13(6a), the Commission may approve the application without providing notice or opportunity for hearing. The Commission FINDS that: a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; MSA 22.151 et seq.; 1919 PA 419, as amended, MCL 460.51 et seq.; MSA 22.1 et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.; MSA 22.13(1) et seq.; 1969 PA 306, as amended, MCL 24.201 et seq.; MSA 3.560(101) et seq.; and the Commission's Rules of Practice and Procedure, as amended, 1992 AACS, R 460.17101 et seq. b. Wisconsin Electric's proposal to classify its transmission facilities located in Michigan in the manner proposed in its application is reasonable and in the public interest, and should be approved. c. Judgment on Wisconsin Electric's accounting journal entries is reserved pending the filing of final journal entries. d. Ex parte approval of the application is appropriate. THEREFORE, IT IS ORDERED that: A. Wisconsin Electric Power Company's application for classification of its transmission and distribution facilities is approved. B. Wisconsin Electric Power Company shall, within 90 days, file an inventory classifying its transmission facilities located in the state of Michigan in the manner approved by this order. C. Wisconsin Electric Power Company shall, within six months after the asset transfer to the American Transmission Company LLC, file with the Commission for approval its final journal entries. The Commission reserves jurisdiction and may issue further orders as necessary. Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL 462.26; MSA 22.45. MICHIGAN PUBLIC SERVICE COMMISSION /s/ John G. Strand Chairman ( S E A L ) /s/ David A. Svanda Commissioner /s/ Robert B. Nelson Commissioner By its action of December 20, 2000. /s/ Dorothy Wideman Its Executive Secretary The Commission reserves jurisdiction and may issue further orders as necessary. Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL 462.26; MSA 22.45. MICHIGAN PUBLIC SERVICE COMMISSION Chairman Commissioner Commissioner By its action of December 20, 2000. Its Executive Secretary In the matter of the application of) WISCONSIN ELECTRIC POWER COMPANY ) for the classification of its transmission and)Case No. U-12691 distribution facilities and related transactions.) ) Suggested Minute: "Adopt and issue order dated December 20, 2000 approving the application filed by Wisconsin Electric Power Company for the classification of its transmission and distribution facilities, as set forth in the order." 1. January 14, 1998 order in Case No. U-11337. 2. January 14, 1998 order in Case No. U-11283. 3. March 8, 1999 order in Case No. U-11856. EX-99.D8 9 0009.txt ORDER OF MICHIGAN PSC REGARDING EDISON SAULT Exhibit D-8 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of) EDISON SAULT ELECTRIC COMPANY) for the classification of its transmission and) Case No. U-12690 distribution facilities and related transactions.) At the December 20, 2000 meeting of the Michigan Public Service Commission in Lansing, Michigan. PRESENT: Hon. John G. Strand, Chairman Hon. David A. Svanda, Commissioner Hon. Robert B. Nelson, Commissioner OPINION AND ORDER On October 27, 2000, Edison Sault Electric Company (Edison Sault) filed an application requesting ex parte approval of the classification of its electric transmission and distribution facilities. The application states that Edison Sault, a Michigan corporation with principal offices located in Sault Ste. Marie, Michigan, is a wholly-owned subsidiary of Wisconsin Energy Corporation and an affiliate of Wisconsin Electric Power Company (Wisconsin Electric) that is engaged in the generation, purchase, transmission, distribution, and sale of electric energy. The application represents that Edison Sault owns approximately 340 miles of transmission facilities with ratings from 69 kilovolts (kV) to 138 kV. According to the application, Edison Sault and Wisconsin Electric have joined in the formation of the American Transmission Company LLC (ATCLLC).(1) Further, on August 28, 2000, Edison Sault filed an application with the Federal Energy Regulatory Commission for authorization to transfer jurisdictional transmission assets to the ATCLLC.(2) Because Wisconsin Electric made a similar filing with the FERC and received authority to transfer its transmission assets to the ATCLLC and because the Public Service Commission of Wisconsin (PSCW) classified Wisconsin Electric's facilities that are designed and operated at a nominal voltage of 50 kV or higher as transmission facilities, Edison Sault seeks approval from this Commission to classify and transfer control of its assets on the same basis as prescribed by the PSCW for Wisconsin Electric.(3) According to Edison Sault, if this Commission were to classify all of its facilities with voltages of 50 kV or higher as transmission facilities, then all assets transferred to the ATCLLC by Edison Sault and Wisconsin Electric would be subject to consistent treatment. Additionally, Edison Sault indicates that its application constitutes notice of the transfer of its assets that is required by the guidelines for affiliate transactions established by the Commission in its May 3, 2000 order in Case No. U-11916. Edison Sault also maintains that its application includes the submission of preliminary journal entries in accordance with the requirements of the Uniform System of Accounts (USOA). Finally, Edison Sault represents that all utility assets classified as transmission facilities will be conveyed to the ATCLLC at net book value. Effective June 5, 2000, Public Act 141 of 2000 (Act 141) became law. Act 141 permits all retail electric customers in Michigan to have the choice of electric suppliers. By no later than January 1, 2002, the Commission must issue orders establishing rates, terms, and conditions to allow all retail customers to choose an alternative electric supplier. In order to facilitate the implementation of customer choice provided for in Act 141, it is necessary and appropriate for the Commission to classify utility transmission and distribution facilities. However, the Commission is concerned that Edison Sault filed its Section 203 application with the FERC on August 28, 2000, or approximately two months prior to seeking a determination by this Commission of the Michigan assets that were to be categorized as transmission assets. In so doing, Edison Sault presumed a Michigan result in its FERC filing that was different from prior rulings this Commission had made in cases concerning The Detroit Edison Company,(4) Consumers Energy Company,(5) and Alpena Power Company.(6) For regulatory expediency, and without passing upon the merits of the Wisconsin methodology, the Commission finds that it should approve Edison Sault's application. However, in the future, Edison Sault must be cognizant of and operate consistent with both Michigan and Wisconsin laws where the two jurisdictions require coordinated approaches. Future disregard of this Commission's authority will be handled in a manner consistent with Michigan law. Specifically, the Commission concludes the proposal to classify Edison Sault's facilities with voltages of 50 kV or higher as transmission is reasonable and in the public interest, and should be approved. Further, although the Commission has reviewed Edison Sault's preliminary journal entries, because those entries may change, the Commission finds that it should reserve judgment until final entries are filed. Approval of Edison Sault's application will not increase its current -2- rates and charges. Further, approval of this application will not result in an increase in the cost of service to its customers. Therefore, pursuant to MCL 460.6a; MSA 22.13(6a), the Commission may approve the application without providing notice or opportunity for hearing. The Commission FINDS that: a. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; MSA 22.151 et seq.; 1919 PA 419, as amended, MCL 460.51 et seq.; MSA 22.1 et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.; MSA 22.13(1) et seq.; 1969 PA 306, as amended, MCL 24.201 et seq.; MSA 3.560(101) et seq.; and the Commission's Rules of Practice and Procedure, as amended, 1992 AACS, R 460.17101 et seq. b. Edison Sault's proposal to classify its facilities with voltages of 50 kV or higher as transmission is reasonable and in the public interest, and should be approved. c. Judgment on Edison Sault's accounting journal entries is reserved pending the filing of final journal entries. d. Ex parte approval of the application is appropriate. THEREFORE, IT IS ORDERED that: A. Edison Sault Electric Company's application for classification of its transmission and distribution facilities is approved. B. Edison Sault Electric Company shall, within 90 days, file an inventory classifying its facilities with voltages of 50 kilovolts or higher as transmission facilities. C. Edison Sault Electric Company shall, within six months after the asset transfer to the American Transmission Company LLC, file with the Commission for approval its final journal entries. The Commission reserves jurisdiction and may issue further orders as necessary. Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL 462.26; MSA 22.45. MICHIGAN PUBLIC SERVICE COMMISSION /s/ John G. Strand Chairman ( S E A L ) /s/ David A. Svanda Commissioner /s/ Robert B. Nelson Commissioner By its action of December 20, 2000. /s/ Dorothy Wideman Its Executive Secretary C. Edison Sault Electric Company shall, within six months after the asset transfer to the American Transmission Company LLC, file with the Commission for approval its final journal entries. The Commission reserves jurisdiction and may issue further orders as necessary. Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL 462.26; MSA 22.45. MICHIGAN PUBLIC SERVICE COMMISSION Chairman Commissioner Commissioner By its action of December 20, 2000. Its Executive Secretary In the matter of the application of) EDISON SAULT ELECTRIC COMPANY ) for the classification of its transmission and) Case No. U -12690 distribution facilities and related transactions.) Suggested Minute: "Adopt and issue order dated December 20, 2000 approving the application filed by Edison Sault Electric Company for classification of its transmission and distribution facilities, as set forth in the order." -3- 1. Wisconsin legislation, 1997 Act 204, requires Wisconsin public utilities to transfer control of their transmission facilities to either an independent system operator or an independent transmission owner. 2. See, FERC Docket No. EC-131-000, which involves Edison Sault's application pursuant to Section 203 of the Federal Power Act to transfer transmission assets to ATCLLC. 3. See, the PSCW's July 13, 2000 order in Docket No. 05-E1-119. 4. January 14, 1998 order in Case No. U-11337. 5. January 14, 1998 order in Case No. U-11283. 6. March 8, 1999 order in Case No. U-11856. -4- EX-99.F1 10 0010.txt PRELIMINARY OPINION OF QUARLES & BRADY LLP. EXHIBIT F-1 December 28, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Application of Wisconsin Energy Corporation and Wisconsin Electric Power Company on Form U-1 Under the Public Utility Holding Company Act of 1935 (File No. 70-9741) Ladies and Gentlemen: We are furnishing this opinion to the Securities and Exchange Commission (the "Commission") at the request of Wisconsin Energy Corporation, a Wisconsin corporation ("WEC"), and Wisconsin Electric Power Company, a Wisconsin corporation ("Wisconsin Electric"), in connection with their Application/Declaration on Form U-1, as amended (File No. 70-9741) (the "Application"), under the Public Utility Holding Company Act of 1935, as amended (the "Act"). The Application requests that the Commission authorize a proposed transaction, as further described in the Application (the "Transaction"), in which: (i) Wisconsin Electric will transfer ownership and control over its transmission assets to American Transmission Company LLC ("ATC" or the "Transco"), a Wisconsin limited liability company formed on June 12, 2000, which will be a single-purpose transmission company; (ii) Edison Sault Electric Company ("Edison Sault"), a wholly-owned subsidiary of WEC and an electric utility company as defined by the Act, will transfer ownership and control over its transmission assets to the Transco; (iii) Wisconsin Electric and Edison Sault will receive, in exchange for such transfer, member units of the Transco in proportion to the value of the transmission assets contributed; (iv) Wisconsin Electric will purchase Class A shares of ATC Management Inc. (the "Corporate Manager"), a Wisconsin corporation formed on June 12, 2000, in proportion to the value of the transmission assets contributed to the Transco by itself and Edison Sault; and (v) Wisconsin Electric will purchase one Class B share of the Corporate Manager. WEC also requests an order from the Commission affirming its continued Section 3(a)(1) exemption from registration under the Act following the Transaction. Securities and Exchange Commission December 28, 2000 Page 2 In connection with this opinion, we have examined such corporate records, certificates and other documents, and such questions of fact and matters of law, as we have deemed necessary for purposes of this opinion. The opinions expressed below with respect to the Transaction are subject to and rely upon the following assumptions and conditions: (a) All required approvals, authorizations, consents, certificates, rulings and orders of, and all filings and registrations with, all applicable federal and state commissions and regulatory authorities with respect to the Transaction shall have been obtained or made, as the case may be (including the approval and authorization of the Commission under the Act), and the Transaction shall have been accomplished in accordance with all such approvals, authorizations, consents, certificates, orders, filings and registrations. (b) All corporate formalities required by state law for the consummation of the Transaction shall have been taken. (c) The parties shall have obtained all consents, waivers and releases, if any, required for the Transaction under all applicable governing corporate documents, contracts, agreements, debt instruments, indentures, franchises, licenses and permits. (d) The representations and warranties of the parties to the Transaction in the documents providing for the Transaction are true and correct in all material respects. Based upon the foregoing, and subject to the assumptions and conditions set forth herein, it is our opinion that: 1. Each of WEC, Wisconsin Electric and the Corporate Manager is a corporation validly existing under the laws of the State of Wisconsin. Edison Sault is a corporation validly existing under the laws of the State of Michigan. The Transco is a limited liability company validly existing under the laws of the State of Wisconsin. 2. Upon the Transaction being consummated as contemplated by the Application: (a) All State laws applicable to the Transaction will have been complied with; Securities and Exchange Commission December 28, 2000 Page 3 (b) (i) When acquired by Wisconsin Electric pursuant to the Transaction for the agreed consideration, the shares of the Corporate Manager's Class A common stock and Class B common stock so acquired will be validly issued, fully paid and (except as otherwise provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially interpreted) nonassessable, and Wisconsin Electric will be entitled to the rights and privileges appertaining thereto set forth in the Restated Articles of Incorporation of the Corporate Manager; (ii) When acquired by Wisconsin Electric and Edison Sault pursuant to the Transaction for the agreed consideration, the member units representing membership interests in the Transco so received will be validly issued, fully paid and nonassessable, and Wisconsin Electric and Edison Sault will be entitled to the rights and privileges appertaining thereto set forth in the articles of organization and operating agreement of the Transco; (c) Wisconsin Electric will legally acquire the shares of Class A common stock and Class B common stock of the Corporate Manager being acquired by it. Wisconsin Electric and Edison Sault will legally acquire the membership interests in the Transco being acquired by each of them; and (d) The consummation of the Transaction will not violate the legal rights of the holders of any securities issued by WEC, Wisconsin Electric or any associate company thereof. We are attorneys licensed to practice law in the State of Wisconsin. In rendering this opinion, we have relied as to matters of Michigan law on the opinion of Loomis, Ewert, Parsley, Davis & Gotting, P.C. We hereby consent to the filing of this opinion as an exhibit to the Application. Very truly yours, /s/ QUARLES & BRADY LLP ----------------------- QUARLES & BRADY LLP EX-99.I 11 0011.txt DESCRIPTION AND VALUATION OF TRANSFERRED ASSETS. EXHIBIT I WISCONSIN ELECTRIC POWER COMPANY Transmission Assets to be Transferred to American Transmission Company at 12/31/00 (Adjusted to account for Deferred Income Taxes) GROSS PLANT VALUE AT 10/31/00 $372,901,555.00 ACCUMULATED DEPRECIATION RESERVE AT 10/31/00 $190,560,829.49 ---------------- NET BOOK VALUE AT 10/31/00: Plant in Service, Transmission Only $182,340,725.51 Land and Easements 19,340,299.84 Construction Work in Progress, Transmission Lines 8,493,647.93 Construction Work in Progress, Substations 6,690,340.29 --------------- Subtotal 216,865,013.57 ADJUSTMENTS: Electric Service Operations 2000 Property Additions to CWIP - Current Estimate $29,367,000.00 Less: 2000 Property Additions to CWIP Year to Date Through 10/31/00 - Actual 15,191,971.18 --------------- Remainder of Year 2000 Estimate 14,175,028.82 11/00 Straight Line Depreciation - Estimate (870,156.00) 12/00 Straight Line Depreciation - Estimate (870,156,00) --------------- Total 229,299,730.39 =============== Rounded: $230,000,000.00 =============== Estimated Deferred Taxes (15,938,000.00) Estimated Contribution Value $214,062,000.00 ===============
EXHIBIT I EDISON SAULT ELECTRIC COMPANY Transmission Assets to be Transferred to American Transmission Company at 12/31/00 (Adjusted to account for Deferred Income Taxes) GROSS PLANT VALUE $40,990,991.00 ACCUMULATED DEPRECIATION RESERVE $ 9,575,318.00 --------------- NET BOOK VALUE $31,415,673.00 ADJUSTMENTS Estimated Deferred Taxes (1,425,321.00) Estimated Contribution Value 29,990,352.00 ===============
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