-----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, MH05WhsREdUMh1YyASAq3JJN/9zH1NVC6q52+ZS0o5ynlOoH26kh6+QBAw4GCQS0 3VlNBvLO74rSdcRD5AGovQ== /in/edgar/work/0000950172-00-001920/0000950172-00-001920.txt : 20001121 0000950172-00-001920.hdr.sgml : 20001121 ACCESSION NUMBER: 0000950172-00-001920 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AES CORPORATION CENTRAL INDEX KEY: 0000874761 STANDARD INDUSTRIAL CLASSIFICATION: [4991 ] IRS NUMBER: 541163725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: SEC FILE NUMBER: 070-09779 FILM NUMBER: 773864 BUSINESS ADDRESS: STREET 1: 1001 N 19TH ST STREET 2: STE 2000 CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7035221315 U-1/A 1 0001.txt AMENDMENT NO. 1 TO FORM U-1 As filed with the Securities and Exchange Commission on November 20, 2000 File No. 70-9779 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------- AMENDMENT NO. 1 TO FORM U-1 APPLICATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 -------------------------------------------- The AES Corporation 1001 North 19th Street Arlington, VA 22209 (Name of company or companies filing this statement and address of principal executive offices) -------------------------------------------- William R. Luraschi General Counsel and Secretary The AES Corporation 1001 North 19th Street Arlington, VA 22209 (Name and addresses of agents for service) -------------------------------------------- TheCommission is requested to send copies of all notices, orders and communications in connection with this Application to: Clifford (Mike) M. Naeve, Esq. J. A. Bouknight, Jr., Esq. Judith A. Center, Esq. Steptoe & Johnson LLP Paul Silverman, Esq. 1330 Connecticut Avenue, N.W. William C. Weeden Washington, D.C. 20036 Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 AES hereby amends and restates its Application to read as follows: APPLICATION FOR AUTHORIZATION TO ACQUIRE SECURITIES UNDER SECTIONS 9(A)(2) AND 10 AND FOR AN EXEMPTION PURSUANT TO SECTION 3(A)(5) OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 INTRODUCTION AND REQUEST FOR COMMISSION ACTION The AES Corporation ("AES") requests that the Securities and Exchange Commission ("SEC" or "Commission") approve under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935, as amended ("PUHCA" or the "Act") AES's proposal to acquire all of the equity securities of IPALCO Enterprises, Inc. ("IPALCO"), a public utility holding company exempt from all provisions of the Act, other than Sections 9(a)(2) and 10, pursuant to Section 3(a)(1) in accordance with Rule 2 under the Act. AES is a public utility holding company exempt by Commission order from all provisions of the Act other than Sections 9(a)(2) and 10 pursuant to Section 3(a)(5). AES Corp., Holding Co. Act Release No. 27063 (Aug. 20, 1999) ("AES"). AES also requests that the Commission issue an order determining that following the acquisition, AES and each of its subsidiaries will continue to be exempt from the provisions of the Act, other than Sections 9(a)(2) and 10, under Section 3(a)(5).(1) ITEM 1. DESCRIPTION OF THE TRANSACTION A. SUMMARY OF THE TRANSACTION Under an Agreement and Plan of Share Exchange dated as of July 15, 2000, between AES and IPALCO ("Share Exchange Agreement"), IPALCO and AES will effect a share exchange in which IPALCO will become a wholly-owned subsidiary of AES (the "Transaction"). Each outstanding share of IPALCO common stock will be converted into the right to receive shares of AES common stock with a market value of $25.00 (subject to adjustment as described in the Share Exchange Agreement). The Share Exchange Agreement is attached to this Application as Annex A to Exhibit C-1. Following the Transaction, AES will hold IPALCO as a first-tier, direct subsidiary, and IPALCO's subsidiaries will retain their current direct or indirect relationship with IPALCO. IPALCO will continue - --------------- (1) Some AES subsidiaries also will continue to be exempt from the Act as exempt wholesale generators ("EWGs"), under Section 32 of the Act, as foreign utility companies ("FUCOs"), under Section 33 of the Act, or as qualifying facilities ("QFs"), under Section 210(e) of the Public Utility Regulatory Policies Act of 1978, and Part 292 of Title 18 of the Code of Federal Regulations. as an Indiana corporation with its principal executive offices in Indianapolis, Indiana, and AES will continue to be a Delaware corporation with its principal executive offices in Arlington, Virginia. The Transaction offers important benefits to IPALCO's utility customers and shareholders. AES's international and diversified experience in competitive power markets will supply IPALCO's public utility subsidiary, Indianapolis Power & Light Company ("IPL") with substantial additional resources needed to provide efficient and reliable service in the increasingly competitive electric utility industry. The Transaction also will provide significant benefits to AES and its current utility subsidiary, Central Illinois Light Company ("CILCO"). These potential benefits include strengthening AES's ability to compete in the changing electric utility industry by expanding the scope of its operations and customer base; adding to its operations some of the most efficient coal fired electric generating plants in the Midwest; and gaining a highly respected brand name. Both IPALCO and CILCORP will benefit from resulting economies of scale in the generation and retail segments of their business. In light of these potential benefits, the AES board of directors unanimously determined that the Transaction is in the best interests of AES and its stockholders and should thus proceed. The IPALCO Board of Directors made a similar unanimous determination and resolved to recommend that the IPALCO shareholders vote to approve the Transaction.(2) The Share Exchange Agreement is subject to the approval of IPALCO's shareholders and is expected to be approved at a special meeting of IPALCO shareholders to be held on October 20, 2000. The Transaction also requires the approval of the Federal Energy Regulatory Commission ("FERC"). AES and IPALCO filed an application for such approval on November 14, 2000. The Transaction also is subject to the notification and reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). AES and IPALCO made the required HSR Act filings on November 8, 2000. - --------------- (2) The Transaction does not require AES stockholder approval because the number of shares to be issued in the Transaction does not exceed 20% of the number of AES shares outstanding immediately prior to the Transaction. The Transaction is not subject to the jurisdiction of the Indiana Utility Regulatory Commission ("IURC"). Section 8-1-2-83(a) of the Indiana Code states that "no public utility . . . shall sell, assign, transfer, lease or encumber its franchise, works, or system . . . without approval of the [IURC]." The Indiana Supreme Court has held that transfers of securities of public utility holding companies are exempt from this approval requirement. Indiana Bell Tel. Co. v. Indiana Util. Regulatory Comm'n, 715 N.E.2d 351 (Ind. 1999). Because the Transaction involves the acquisition of securities of a holding company rather than a direct acquisition of assets covered by Section 8-1-2-83(a), it is the type of transaction that the Indiana Supreme Court has ruled does not require IURC approval. A state commission certification in accordance with the requirements of Section 33(a)(2) of the Act will be sought from the IURC. Receipt of this certification is a precondition to completion of the Transaction. The IURC issued this certification on September 28, 2000. Upon consummation of the Transaction, AES will own IPALCO, an intrastate exempt holding company under Section 3(a)(1) of the Act, and its direct and indirect subsidiaries, including IPL, a utility subsidiary principally engaged in the generation, transmission, distribution and sale of electric energy in central Indiana and the sale of steam in Indianapolis, Indiana. After giving effect to the Transaction, IPALCO will remain predominantly an intrastate holding company that will not derive any material part of its income from an out-of-state utility subsidiary. Accordingly, IPALCO will continue to claim an exemption from registration under Section 3(a)(1) and Rule 2. AES currently owns all of the common stock of CILCORP Inc. ("CILCORP"), an Illinois public utility holding company exempt from regulation under the Act by reason of an exemption under Section 3(a)(1) of the Act by Rule 2 under the Act, and the parent of CILCO, an electric and gas utility company. As discussed more fully below, if required by the Commission as a condition to issuance of the requisite orders, AES will commit to enter into an agreement with an unaffiliated person within three years from completion of the Transaction to divest its ownership of all utility assets of CILCO subject to the jurisdiction of the Commission. Following completion of this divestiture process, if mandated by the Commission, IPL would be the only public utility subsidiary of AES. For the reasons set forth below, AES will qualify for an exemption from registration under Section 3(a)(5) of the Act. B. DESCRIPTION OF PARTIES TO THE TRANSACTION 1. THE AES CORPORATION AES, incorporated in Delaware, is a United States-based multinational electric power generation and energy distribution company, with operations in 17 countries worldwide. AES is engaged principally in the development, ownership, and operation of electric generating plants and electric and gas distribution companies, all of which, with the exception of CILCO, either are QFs or are owned by either EWGs or FUCOs. On an actual pro rata consolidated basis as of December 31, 1999, AES received over 97 percent of its revenues from electric generation and distribution activities in 1999.(3) AES's remaining revenues during 1999 came from such energy-related activities as the sale of steam and other commodities connected with its cogeneration operations, as well as operational, construction and project development services, and gas and power marketing.(4) As the indirect owner of CILCO, AES is a public utility holding company under the Act. It is exempt from all provisions of the Act other than Section 9(a)(2) pursuant to an exemption under Section 3(a)(5) granted by the Commission in an order dated August 20, 1999. AES, supra. Exhibit K-2 lists all AES subsidiaries and their respective jurisdictions of organization. AES has grown since its founding in 1981 to become one of the largest global electricity suppliers, if not the largest. As of June 30, 2000, AES owns and/or operates (entirely or in part) a diverse international portfolio of electric power plants with a total capacity of 40,442 megawatts ("MW"), including plants that are part of distribution companies in which AES has an interest. Of that total, 7,786 MW (19 plants) are located in the United States, 5,763 MW (6 plants) are in the United Kingdom, 885 MW (6 plants) are in Argentina, 754 MW (8 plants) are in China, 1,281 MW (3 plants) are in Hungary, 9,256 MW (52 plants) are in Brazil,7,774 MW (7 plants) are in Kazakhstan, 210 MW (1 plant) are in the Dominican Republic, 110 MW (1 plant) are in Canada, 695 MW (2 plants) are in Pakistan, 1,254 MW (3 plants) are in Australia,405 MW (1 plant) are in the Netherlands, 2,265 MW (7 plants) are in Venezuela, 420 MW (1 plant) are in India, 823 MW (3 plants) are in the Republic of Georgia, 484 MW (1 plant) are in Mexico, and 277 MW (4 plants) are in Panama. Of the total capacity, 32,656 MW of AES's generating capacity is located outside the United States.(5) - --------------- (3) Of this amount, on a pro forma basis and assuming ownership of CILCO by AES for the entire year of 1999, 89 percent of revenues came from operations that are exempt from Commission jurisdiction. (4) AES Power, a wholly owned subsidiary of AES active in power marketing, generated less than 1 percent of AES's 1999 net income. CEMIG, a Brazilian utility in which AES has an equity investment, has operated a small gas distribution company, Gasmig, since 1995. AES also owns NewEnergy Inc., an energy services provider, Titan Energy, a natural gas marketing company, one wholly-owned telecommunications subsidiary, AES Redibol, and a 50 percent interest in three other telecommunications subsidiaries, AES Vant, Eletronet, and Infovias. AES Altai engages in heat distribution operations in Kazakhstan. As discussed elsewhere in this Application, CILCO engages in retail gas operations. Finally, AES owns and operates the Lyukobanya Coal Mine in Hungary. The mine has an output of approximately one million tons per year of brown coal and is the sole supplier of AES Borsod, which generates electricity in Hungary. (5) On a net equity basis, i.e., actual ownership interest, AES has 30,809 MW of capacity, of which 23,023 MW is foreign-based. As noted above, AES also owns partial interests (both majority and minority) in companies that distribute and sell electricity directly to commercial, industrial, governmental, and residential customers. In addition to its 100 percent interest in CILCORP, AES has majority ownership in 3 distribution companies in Argentina, 1 in Brazil, 1 in the Republic of Georgia, 1 in Kazakhstan, 2 in El Salvador, 1 in Venezuela, and 1 in the Dominican Republic; a 50 percent interest in a distribution company in India; and less than majority ownership in 3 distribution companies in Brazil. AES's 14 foreign distribution companies serve a total of approximately 16 million customers with sales of nearly 132,000 gigawatt-hours. On a net equity basis, AES's ownership in these companies represents approximately 5.3 million foreign customers and approximately 39,800 gigawatt-hours. AES has grown rapidly throughout this decade. In 1990, the year before it went public, AES had total assets of $1.1 billion, revenues of $190.2 million and net income of $15.5 million.(6) By the end of 1999, total assets grew by approximately 1,800 percent to $20.9 billion, revenues grew by approximately 1,600 percent to $3.3 billion, and net income grew by nearly 1,400 percent to $228 million.(7) Excluding the effects of non-cash foreign currency losses, net income for 1999 was $378 million, which would represent a growth from 1990 of 2,339 percent. From the end of 1999 to the end of 2000, it is expected that AES's total assets will have expanded by approximately 45 percent to approximately $30.3 billion, revenues will have risen approximately 102 percent to approximately $6.6 billion, and net income will have grown approximately 187 percent to approximately $655 million.(8) Excluding the effects of non-cash foreign currency transaction losses in 1999, net income will have grown approximately 73 percent. In the 10 year period between year-end 1990 and 2000, AES's growth in total assets, revenues and net income is expected to be approximately 2,655 percent, 3,353 percent and 4,124 percent, respectively. - --------------- (6) Determined in accordance with Generally Accepted Accounting Principles ("GAAP"). (7) See AES Annual Report on Form 10-K for the fiscal year ended December 31, 1999 at Exhibit G-5. (8) This application includes certain forward-looking information concerning AES that involves risk and uncertainty, including certain assumptions regarding the future performance of AES. Actual results and trends may differ materially depending upon a variety of factors applicable to AES. Specifically, statements regarding AES's expected assets, revenues, and income are forward-looking statements and subject to fluctuation, are not guarantees of future performance, and are subject to risks, uncertainties, and other important factors, including those that could cause actual results to differ materially from expectations. In any event, this particular forward-looking statement conservatively assumes AES growth only from AES projects under development which are expected to be operational in this period and from existing projects which AES already has committed to acquire during this period. AES has continued its growth in 2000. Thus far in 2000, AES has acquired or achieved commercial operations for 7 power plants totaling 2,265 MW in Venezuela, a 600 MW plant in the Republic of Georgia, a 1,000 MW plant in Argentina, a 360 MW plant in the United Kingdom, and a 360 MW plant in Bangladesh. In 2000, AES also expects to achieve financial closing on its acquisition of a 1,580 MW plant in the U.S., a 120 MW plant in the Dominican Republic, a 1,200 MW plant in the U.S., a 250 MW plant in Poland, a 670 MW plant in Bulgaria, a 160 MW electric generating plant in Sri Lanka, a 450 MW plant in Bangladesh, and a 112 MW plant in Tanzania. Also in 2000, AES is expected to complete construction of and/or begin operating, a 600 MW plant in Brazil. Combining the 131 power plants currently in operation, planned for acquisition in 2000 or projected to begin operations in 2000, AES is expected to have a minimum of 44,342 MW of generating capacity by the end of the current calendar year.(9) As a result, the power generation capacity of companies in which AES has an interest will have grown by 5,009 percent in 9 years. (10) The growth of AES's distribution business also has been fast-paced. In 1996, AES purchased its first interests in a distribution company. By the end of 1999, companies in which AES had an interest served approximately 15.9 million customers in the U.S. and abroad and sold over 123,000 gigawatt-hours of power.(11) Thus far in 2000, AES has acquired 87 percent of an electric distribution company serving 1.13 million customers in Venezuela and 100 percent of three electric distribution companies in El Salvador that together serve approximately 3.5 million customers. AES's market capitalization has mirrored its growth over the decade. AES's public offering in 1991 valued the company at $750 million. At present, AES's market capitalization has risen to approximately $28 billion, an increase of 3,600 percent in approximately 9 years. Exhibit K-12 lists the AES subsidiary companies which own generation facilities currently in operation, and also includes company operating locations, power generation capacities, AES net equity interests, and the regulatory status of the companies and/or generating facilities (i.e., whether QF, EWG, or FUCO). Exhibit K-12 also lists the distribution companies in which AES owns an interest, including location, regulatory status and the nature of AES's interest. Exhibit K-4 depicts the locations of AES's current generation and distribution businesses worldwide. - --------------- (9) Of this 44,342 MW, 34,976 MW will be foreign. On a net equity basis, AES is expected to have a generating capacity of 33,825 MW at year-end 2000; 24,459 MW of which will be foreign. (10) 4,543 percent on a net equity basis. (11) Approximately 4.3 million customers and 31,244 gigawatt-hours on a net equity basis. 2. IPALCO ENTERPRISES, INC. IPALCO was incorporated as a utility holding company in the State of Indiana in 1983. It has two first-tier subsidiaries: IPL and Mid-America Capital Resources, Inc. ("Mid-America"). For 1999, IPALCO's consolidated assets, revenues and net income were $2.316 billion, $835 million and $129 million, respectively. As noted above, IPALCO is an exempt holding company under Section 3(a)(1) pursuant to Rule 2. IPL is the electric utility company subsidiary of IPALCO. It engages primarily in generating, transmitting, distributing and selling electric energy in the city of Indianapolis and neighboring cities, towns, communities, and adjacent rural areas, all within the state of Indiana, the most distant point being about 40 miles from Indianapolis. It also produces, distributes and sells steam within a limited area in Indianapolis. As of December 31, 1999, IPL served approximately 433,025 retail electric customers. At the end of 1999, the electric utility assets of IPL were $1.9 billion. In 1999, IPL received $800.4 million in electric utility revenues. IPL owns and operates three primarily coal-fired electric generating plants, one steam production plant that is coal and gas-fired, and a separately sited gas-fired combustion turbine. These facilities have total gross nameplate ratings of 3,104 MW, their winter capability is 3,136 MW and their summer capability is 3,035 MW. They also have a gross steam generation capacity of 1,990 Mlbs. (thousands of pounds) per hour. At the end of 1999, IPL's transmission system included 457 circuit miles of 345,000 volt lines, 359 circuit miles of 138,000 volt lines and 269 circuit miles of 34,500 volt lines. Above-ground distribution and service facilities include 19,892 wire miles of conductor. Underground distribution and service facilities include 686 miles of conduit and 6,487 wire miles of conductor. Underground street lighting facilities include 108 miles of conduit and 760 wire miles of conductor. Also included in the system are 73 bulk power substations and 69 distribution substations. Steam distribution properties include 22 miles of mains with 238 customer connections. At the end of 1999, IPL had total assets, operating revenues and net income of $2.0 billion, $834.7 million and $143.0 million, respectively. In March 2000, IPL entered into an agreement to sell all of its steam system assets to Citizens Gas & Coke Utility. Mid-America is the holding company for IPALCO's unregulated activities. Its subsidiaries are Mid-America Energy Resources, Inc. ("Energy Resources"), Indianapolis Campus Energy, Inc. ("ICE"), Cleveland Thermal Energy Corporation ("Cleveland Thermal") and Cleveland District Cooling Corporation ("Cleveland Cooling"). Energy Resources operates a district cooling system in downtown Indianapolis, Indiana. ICE owns and operates an energy system under contract to Eli Lilly and Company to provide cooling capacity to the Lilly Technology Center, in Indianapolis, Indiana. Agreement was reached in March 2000 to sell these Energy Resources and ICE facilities to Citizens Gas & Coke Utility. Cleveland Thermal owns and operates a district heating system in Cleveland, Ohio. Cleveland Cooling owns and operates a district cooling system also located in Cleveland. Cleveland Thermal and Cleveland Cooling conduct business jointly under the name Cleveland Energy Resources. As of December 31, 1999 Mid-America also had investments in Internet Capital Group, Inc. ("ICG") and EnerTech Capital Partners II L.P. ("EnerTech"), a venture capital fund. At December 31, 1999, Mid-America held 1,030,600 shares of ICG. During 2000, it sold all but 5,100 of those shares. During 1999, Mid-America made a commitment to invest $15 million in EnerTech. At December 31, 1999, Mid-America had funded $1.5 million of that commitment and expects to fund the balance during 2000. As of December 31, 1999, Mid-America and its subsidiaries had 82 employees. It had 1999 revenues of $34.3 million. 3. TERMS OF TRANSACTION Under the Share Exchange Agreement, IPALCO's shareholders will be entitled to receive shares of AES common stock in exchange for each share of IPALCO common stock they own in accordance with an exchange ratio specified in the Share Exchange Agreement. Subject to adjustment as described below, the exchange ratio will be determined by dividing $25.00 ("Per Share Amount") by the average of the daily closing sale price per share of AES common stock as reported on the New York Stock Exchange Composite Tape on each of the 20 trading days ending on the date immediately prior to the fifth trading day before the closing of the share exchange, provided that the average trading price is greater than or equal to $31.50. If the average closing price is below $31.50, the exchange ratio will be determined by dividing the Per Share Amount by $31.50. Accordingly, subject to an adjustment described below, each IPALCO shareholder will receive a maximum of 0.794 shares of AES common stock in exchange for each share of IPALCO common stock. AES will pay cash in lieu of issuing any fractional shares. If the value of AES common stock to be received by IPALCO's shareholders is below $21.00, IPALCO has the right to terminate the transaction. The Per Share Amount, however, may be adjusted upon the occurrence of certain events. If the share exchange occurs after the Trigger Date (as defined below), the Per Share Amount will be increased by $0.15 plus a daily increase equal to $0.375 per calendar quarter (the equivalent of $0.00411 per day). The Trigger Date is defined as the latest of (i) March 31, 2001, (ii) the date which is 30 days after certification to the Commission required from the IURC under Section 33(a)(2) of the Act is issued, or (iii) the date on which all the conditions to closing (other than receipt approval by the Commission of the share exchange and the exemption of AES from registration as a holding company under PUHCA) have been satisfied or waived by AES. Notwithstanding the foregoing, the Trigger Date will not occur if the approval required by the FERC is not received until after the receipt of the Commission's approval referred to above. Under the terms of the Share Exchange Agreement, each option to purchase a share of IPALCO stock outstanding and unexercised at the effective time of the share exchange will be assumed by AES and will thereafter be deemed to constitute an option to acquire shares of AES common stock. The number of shares of AES common stock that will be subject to the assumed stock options will be determined by multiplying the number of shares of IPALCO common stock subject to the stock option by the exchange ratio, rounded to the nearest whole share. The exercise price of such assumed stock options will be the exercise price per share of IPALCO common stock under the original stock option divided by the exchange ratio. The assumed stock options will otherwise be subject to the same terms as the existing stock options. ITEM 2. FEES, COMMISSIONS AND EXPENSES The fees, commissions and expenses to be paid or incurred, directly or indirectly, by all parties in connection with the Transaction are estimated to total approximately $28 million. ITEM 3. APPLICABLE STATUTORY PROVISIONS Sections 9(a)(2), 10, and 3(a)(5) of the Act are directly or indirectly applicable to the proposed Transaction. Section 9(a)(2) makes it unlawful for any person to acquire, directly or indirectly, the securities of a public utility company without Commission approval under the standards of Section 10, if the acquisition would cause that person to become an affiliate of that public utility and any other public utility or holding company. The term "affiliate" for this purpose means any person that directly or indirectly owns, controls, or holds with power to vote, five percent or more of the outstanding voting securities of the specified company. As a result of the Transaction, AES will acquire indirectly more than five percent of the voting securities of IPL, a public utility company, and following the Transaction, AES will be affiliated with two public utilities - IPL and CILCO.(12) Accordingly, the Transaction requires Commission approval under the standards of Section 10. AES believes, for reasons explained below, that following the Transaction it will qualify for an exemption under Section 3(a)(5) of the Act. Accordingly it requests that the Commission issue an order granting an exemption under that provision. Section 3(a)(5) requires the Commission to exempt any holding company from the provisions of the Act if that company is not, and does not derive any material part of its income from a subsidiary that is, a company whose principal business within the U.S. is - --------------- (12) Mr. Dennis W. Bakke, AES's President and Chief Executive Officer, and Mr. Roger W. Sant, the Chairman of the Board of Directors, own as individuals 8.31 percent and 9.94 percent, respectively, of AES's common stock. These individuals are thus indirect affiliates of CILCO and through the Transaction would become indirect affiliates of IPL. They therefore require Commission authorization under Sections 9(a)(2) and 10 to acquire, through AES, an interest in IPL. However, the Commission has found in Atlee M. Kohl, Holding Co. Act Release No. 22440 (April 1, 1982), that while individuals are subject to Sections 9(a)(2) and 10, they are not required to satisfy the standards of Section 10 to the same degree that a company would under similar circumstances. In particular, unless the Commission declares under Sections 2(a)(7)(B) and 2(b) that an individual is a holding company, neither Section 11(b)(1) nor Section 10(c)(2) will apply to acquisitions by that individual of 5 percent or more of the voting securities of more than one public utility company. This means that issues related to system integration for the most part are excluded from any Section 10 analysis relating to acquisitions by individuals. The issues relevant to those acquisitions arise primarily under Section 10(b), i.e., interlocking relations or concentrations of control, reasonableness of consideration, and complexity of capital structure. These matters are discussed in Item 3.A.1 of this Application, and the indirect acquisitions by Messrs. Bakke and Sant do not alter the analysis presented there. Given the inapplicability of Sections 11(b)(1) and 10(c)(2) to Messrs. Bakke and Sant, authorizing AES to acquire IPALCO would a fortiori demonstrate that their indirect acquisitions satisfy the requirements of Sections 9(a)(2) and 10. AES therefore requests that the Commission grant Messrs. Bakke and Sant authorization under Sections 9(a)(2) and 10 at the same time that it grants AES such authorization. It should be emphasized that there is no need for the Commission separately to assess compliance with Section 9(a)(2) with respect to these individuals, as it has full jurisdiction over a corporate entity, AES, whose request to acquire IPALCO and IPL is the primary subject of this application. that of a public utility company, unless and except insofar as the Commission finds the exemption detrimental to the public interest or the interest of investors or consumers. A. SECTION 10 Sections 10(b), 10(c) and 10(f) of the Act set forth the statutory standards to be considered by the Commission in evaluating the Transaction. 1. SECTION 10(B). Under Section 10(b) of the Act, the Commission must approve the Transaction unless it finds that: (1) the Transaction will tend towards interlocking relations or the concentration of control of public-utility companies, of a kind or to an extent detrimental to the public interest or the interest of investors or consumers; (2) the consideration, including all fees, commissions and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with the acquisition of securities or utility assets 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) the Transaction will unduly complicate the capital structure of the holding-company system of AES or will be detrimental to the public interest or the interest of investors or consumers or the proper functioning of that holding company system. (A) DETRIMENTAL "INTERLOCKING RELATIONS" OR "CONCENTRATION OF CONTROL." The Transaction will not result in detrimental interlocking relations or concentration of control. AES and IPALCO currently have no common directors, but following consummation of the Transaction there may be common directors and officers of AES, IPALCO, and IPL. These potential interlocking relationships, however, would serve to integrate the merging companies effectively and efficiently and can be found in virtually every merger transaction subject to Section 9(a). They would thus conform with industry practice accepted by the Commission and would not be detrimental to consumers, investors or the public. The Transaction also will not result in a detrimental concentration of control. The expected increase in size of AES's public utility operations resulting from the Transaction will not make the combined companies large in the aggregate. Instead, the Transaction will place two small utilities under common ownership, with their combined operations remaining, as explained further below, small by local, regional, and national standards. The utility operations of the combined companies would continue to be much smaller than almost all of its neighboring utilities and holding company systems such as Ameren Corporation, American Electric Power Company, and Cinergy Corp., which are among the largest utilities in the country.(13) As a consequence, the merged company will not be able to dominate the region. Following the Transaction, AES will have total utility assets of $2.6 billion, total utility revenues of $1.4 billion, and will serve approximately 622,000 electric customers and 197,000 gas customers. The utility activities of AES following the Transaction will be confined exclusively to the States of Illinois and Indiana. The Commission has approved a number of transactions which resulted in holding companies of a much larger size.(14) Moreover, as previously noted, should the Commission require it, AES will commit to enter into an agreement with an unaffiliated person within three years of completion of the Transaction to divest all assets of CILCO subject to Commission jurisdiction. Following the possible divestiture, AES's activities and assets subject to Commission jurisdiction would be limited to those of IPL, all of which are confined to Indiana. Section 10(b)(1) also requires the Commission to consider possible anticompetitive effects of a proposed merger. The Commission has concurrent jurisdiction with the Department of Justice (the "DOJ"), the Federal Trade Commission (the "FTC"), and FERC in this case to consider the competitive effects of the Transaction. As required by the HSR Act, AES and IPALCO filed Notification and Report Forms with the DOJ and the FTC on November 8, 2000 describing how the Transaction will affect competition. The applicable waiting period under the HSR Act must expire or be terminated by the FTC before AES can proceed to complete the Transaction. In addition, AES and IPALCO filed with FERC on November 14, 2000 an application for approval of the merger under Section 203 of the Federal Power Act. FERC has immediate jurisdiction over both CILCO's and IPL's - --------------- (13) As of December 31, 1999, Ameren had consolidated assets of $9.2 billion and operating revenues of $3.5 billion, AEP had consolidated assets of $21.5 billion and consolidated operating revenues of $6.9 billion, and Cinergy had consoli dated assets of $9.6 billion and consolidated operating revenues of $5.2 billion. (14) See, e.g., TUC Holding Co., Holding Co. Act Release No. 26749 (Aug. 1, 1997) ("TUC Holding"). TUC Holding has utility assets of approximately $19.6 billion, operating utility revenues of approximately $6.9 billion and approxi mately 2.7 million utility customers. See also NIPSCO Industries, Inc. Holding Co. Act Release No. 26975 (Feb. 10 1999); CINergy Corp., Holding Co. Act Release No. 26146 (Oct. 21, 1994); National Grid Group plc, Holding Co Act Release No. 27154 (March 15, 2000) ("National Grid"). utility operations and will assess the competitive effects of the Transaction. This filing, which is attached as Exhibit D-1, contains a detailed explanation of why the Transaction will not produce any adverse competitive effects. FERC will not approve the Transaction absent a finding that it is in the public interest and will not adversely affect competition. The analysis performed by Dr. William Hieronymus of the consulting firm of PHB/Hagler Bailly in connection with the FERC application, attached to this Application as part of Exhibit D-1, explains why the combination of AES and IPALCO will not have anticompetitive effects. This analysis considers the impact on competition of combining IPL's generation and transmission assets with those of CILCO and other capacity of AES relevant to FERC competition analysis. Dr. Hieronymus found that approximately 3,900 MW of additional capacity owned by AES, located primarily in New England, New York, Ontario, PJM, and SPP was too remote from the relevant markets to have significance for analyzing the Transaction's effects on competition. He concluded that the Transaction would not increase either AES's or IPALCO's ability or incentive to exercise anticompetitive market power in wholesale electric markets. He found that the Transaction would not result in any violation of the "safe harbor" limits contained in the merger guidelines used by the FERC. This conclusion is not surprising given the relatively small presence of CILCO and IPL within the region and their historical lack of interaction. CILCO owns or controls only about 1,150 MW of generating capacity, while there are about 58,000 MW in the reliability region in which it operates, the Mid-American Interconnected Network. The peak summer capacity of IPL's generation is approximately 3,035 MW, while there are about 110,000 MW in its region, the East Central Area Reliability Council. The combined company will own less than 3 percent of the total capacity in the Mid-America Interconnected Network and the East Central Area Reliability Coordination Agreement regions. Dr. Hieronymus also found that the Transaction would not adversely affect competition in the transmission market. CILCO is a member of the Midwest Independent System Operator (the "MISO"), a FERC-approved independent system operator that is scheduled to begin operations on June 1, 2001. AES also has committed that IPL, as an AES subsidiary, will join a regional transmission organization ("RTO") if the FERC deems it necessary to avoid an evidentiary hearing in its review of the Transaction. The Commission can thus conclude that the Transaction will not adversely affect competition. Indeed, for the reasons stated below, the Commission may conclude that the Transaction will facilitate even greater competition in electric wholesale and retail markets. Recent developments in the U.S. electric industry demonstrate a clear transition from a system of regulated monopolies to one of market competition. FERC already has introduced competition into wholesale electric markets through its many orders authorizing market-based rates for wholesale power sales and a series of orders mandating non-discriminatory access to electric transmission facilities and encouraging the formation of regional transmission organizations. Moreover, AES commits to enter into an agreement with an unaffiliated person within three years of completion of the Transaction to divest its ownership of all assets of CILCO which are subject to regulation under the Act, if required by the Commission as a condition of receipt of the requested orders. This would reduce the size of AES's public utility holdings and correspondingly diminish any concerns about the size and market share of AES's utility business. Additional benefits accompanying the Transaction are outlined in Item 3(A)(2)(b) of this Application, and are benefits which the Commission has weighed against any concerns about concentration of control it has had in other transactions. See American Electric Power Co., Holding Co. Act Release No. 20633 (July 21, 1978). For all of these reasons, AES maintains that the Transaction will not result in a concentration of control that will be detrimental to the public interest. On the contrary, it will facilitate an actual increase in competition in regional electricity markets. (B) FAIRNESS OF CONSIDERATION. Section 10(b)(2), as applied to the Transaction, provides that the Commission shall approve the Transaction unless it finds that the consideration paid by AES to the shareholders of IPALCO is not reasonable or does not bear a fair relation to the earning capacity of the utility assets underlying the IPALCO shares. In determining whether the consideration for an acquisition meets the fair and reasonable test of Section 10(b)(2), the Commission has considered whether the price resulted from arm's-length negotiations and whether each party's Board of Directors has approved the purchase price.(15) The Commission also considers the opinions of investment bankers and the earnings, dividends, and book and market value of the shares of the company to be acquired.(16) - --------------- (15) American Natural Gas Co., Holding Co. Act Release No. 15620 (Dec. 12, 1966)(holding that evidence of arm's-length negotiations can provide support for concluding that proposed consideration is just and reasonable); Consolidated Natural Gas Co., Holding Co. Act Release No. 25040 (Feb. 14, 1990) (holding that approval of an acquisition by the Boards of Directors of the parties can provide support for concluding that proposed consideration is just and reasonable). (16) National Grid (finding that opinions of investment bankers of the parties provide support for concluding that consideration is fair from a financial point of view). Under the Share Exchange Agreement, each owner of pre-Transaction IPALCO common stock will be entitled to receive shares of AES common stock, and cash in lieu of fractional shares of AES common stock, in accordance with the provisions of the Share Exchange Agreement described above. The consideration to be paid to IPALCO shareholders was the result of arm's-length negotiations between the management and financial and legal advisors of AES and IPALCO over a period of several months, as explained in detail at pages 18 through 21 of the Registration Statement. (Exhibit. C-1) The Boards of Directors of AES and IPALCO approved the Transaction in separate meetings. As noted in the Registration Statement, a nationally-recognized investment banking firm retained by IPALCO, UBS Warburg, LLC, reviewed extensive information concerning IPL and analyzed the respective conversion ratios employing several valuation methodologies for purposes of evaluating the fairness to IPALCO's shareholders of the consideration offered by AES. In connection with the approval of the Share Exchange Agreement, IPALCO's Board of Directors considered UBS Warburg's opinion to the effect that the aggregate consideration to be received by IPALCO common shareholders in connection with the Transaction is fair to such holders from a financial point of view. This fairness opinion is attached to this Application as Annex B to Exhibit C-1 and incorporated herein by reference. In rendering its fairness opinion, UBS Warburg performed a number of analyses relevant to the fairness of the Transaction consideration, including comparing select historical and projected operating performance data of IPALCO with that of similar companies and discounted cash flow analyses. In preparing its opinion, UBS Warburg reviewed, among other things, both public and non-public historical and projected financial information and forecasts related to the earnings, assets, business, dividends, cash flow, and prospects of IPALCO, and comparable companies. A detailed summary of the financial opinions is contained at pages 23 to 30 of the Registration Statement (Exhibit C-1). Moreover, following the receipt of the Registration Statement containing this fairness opinion, IPALCO's common shareholders will vote on whether to approve the Transaction at a meeting to be held on October 20, 2000. An affirmative vote of the shareholders will be further evidence that the consideration they will receive is fair. In light of the fairness opinion of UBS Warburg and considering all relevant factors, AES believes that the aggregate consideration to be paid is reasonable and bears a fair relation to the earnings capacity of the utility assets underlying IPALCO's shares. Accordingly, the consideration to be paid by AES meets the standards of Section 10(b)(2). (C) REASONABLENESS OF FEES. AES submits the overall fees, commissions, and expenses incurred and to be incurred in connection with the Transaction to be reasonable and fair, given the relative size and complexity of the Transaction and its anticipated benefits to the public, investors, and consumers and thus meet the standards of Section 10(b)(2). This conclusion is supported by the consistency of these fees, commissions, and expenses with recent Commission precedent. As stated in Item 2 above, the parties expect to incur a total of approximately $28 million in fees, commissions and expenses in connection with the Transaction. This amount compares favorably with the fees associated with recent transactions approved by the Commission.(17) (D) CAPITAL STRUCTURE AND THE PUBLIC INTEREST Section 10(b)(3) requires the Commission to determine whether the Transaction will unduly complicate AES's capital structure or would be detrimental to the public interest, the interests of investors or consumers, or the proper functioning of AES's system. Following the Transaction, AES will have a capital structure which is substantially similar to capital structures which the Commission has approved in other orders.(18) Upon completion of the Transaction, AES will own 100 percent of the shares of IPALCO Common Stock and will continue to own 100 percent of the shares of CILCORP Common Stock. The Transaction - --------------- 17 See TUC Holding Co. (estimated fees and expenses of $37 million); Kansas Power & Light Co., Holding Co. Act Release No. 25465 (Feb. 5, 1992) (estimated fees and expenses of approximately $30 million); New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (estimated fees and expenses of $23.5 million). 18 See, e.g., TUC Holding Co.; CINergy Corp., Holding Co. Act Release No. 26146 (Oct. 21, 1994); Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993); American Electric Power Co. and Central and South West Corp., Holding Co. Act Release No. 27186 (June 14, 2000); New Century Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000). In each of these orders, the Commission approved mergers which resulted in a holding company acquiring 100 percent of a utility operating company's common stock. will not affect the outstanding securities of IPALCO. For these reasons, AES believes that the Transaction will not unduly complicate its capital structure. Set forth below are summaries of the historical capital structures of AES (including CILCORP) and IPALCO as of June 30, 2000, and the pro forma consolidated capital structures of AES and IPALCO as of that date: Table 1 AES (Including CILCORP) and IPALCO Historical Capital Structures as of June 30, 2000 (dollars in millions) (unaudited) AES IPALCO Common Stock Equity.... $3,990 17.4% $666 42.8% Preferred Stock of - 0.0% $59 3.8% Subsidiary Preferred Securities $1,528 6.7% - 0.0% Minority Interest $1,720 7.5% - 0.0% Long-term Debt $15,720 68.5% $824 53.0% Short-term Debt - 0.0% $6 0.4% Total Capitalization $22,958 100.0% $1,555 100.0% AES's Post-Transaction Consolidated Capital Structure As of June 30, 2000 (dollars in millions) (unaudited) AES Common Stock Equity $4,656 19.0% Preferred Securities $1,528 6.2% Minority Interest $1,779 7.3% Long-term Debt $16,544 67.5% Short-term Debt $6 0.0% Total Capitalization $24,513 100.0% The ratio of consolidated common equity to total capitalization of the combined companies will be, on an unaudited pro forma basis, 19 percent. This figure is less than the ratio of approximately 30 percent that the Commission has deemed traditionally acceptable on policy grounds. This requirement, however, applies to registered holding companies and is based on requirements that the Commission finds conducive to good public utility management. AES, however, is predominantly a non-utility energy provider, and its shareholders are accustomed to levels of debt that exceed the traditional Commission standard, which in any event applies to registered, rather than exempt, holding companies. In addition, the level of debt assumed by AES does not represent a risk to IPL ratepayers, who will remain unaffected by it. IPL will retain a level of common equity well above the level that the Commission deems prudent for traditional public utility companies, and its financings will continue to be subject to IURC jurisdiction. In addition, as discussed earlier in Item 1(B)(1), AES believes that the Transaction, by achieving efficiencies and economies, will benefit the interests of the public, consumers and investors and will not impair the proper functioning of the holding company system. In the event that the Commission requires AES to divest its interest in CILCORP's assets subject to Commission jurisdiction under the Act, set forth below are summaries of the historical capital structures of AES, excluding CILCORP's jurisdictional utility assets, and IPALCO as of June 30, 2000, and the pro forma consolidated capital structures of AES and IPALCO as of that date: Table 2 AES (Excluding CILCORP PUHCA-Jurisdictional Assets) and IPALCO Historical Capital Structures as of June 30, 2000 (dollars in millions) AES IPALCO Common Stock Equity $3,990 17.4% $666 42.8% Preferred Stock of - 0.0% $59 3.8% Subsidiary Preferred Securities $1,528 6.7% - 0.0% Minority Interest $1,720 7.5% - 0.0% Long-term Debt $15,720 68.5% $824 53.0% Short-term Debt - 0.0% $6 0.4% Total Capitalization $22,958 100.0% $1,555 100.0% AES's Post-Transaction Consolidated Capital Structure as of June 30, 2000 (dollars in millions) (unaudited) AES Common Stock Equity $4,656 19.0% Preferred Securities $1,528 6.2% Minority Interest $1,779 7.3% Long-term Debt $16,544 67.5% Short-term Debt $6 0.0% Total Capitalization $24,513 100.0% Table 2 does not differ from Table 1 as the potential divestiture of CILCORP's jurisdictional utility assets, if required by the Commission, is not expected to impact the capital structure of AES. Debt associated with the acquisition of CILCORP is expected to remain with AES. Moreover, AES at this time is unable to predict with any degree of accuracy any potential gain or loss resulting from such a divestiture, which would be the only item associated with the divestiture to impact AES's common stock equity. Therefore, AES has concluded that any change in the capital structure would be minimal and is not recorded in the above table. 2. SECTION 10(C). (A) SECTION 10(C)(1). Under Section 10(c)(1), the Commission must not approve an acquisition which is "unlawful under the provisions of Section 8" or "detrimental to the carrying out of the provisions of Section 11." Section 8 prohibits an acquisition by a registered holding company of an interest in an electric utility and a gas utility serving substantially the same territory without the express approval of the state commission when state law prohibits or requires approval of the acquisition. Section 8 applies only to registered holding companies and is thus inapplicable to the Transaction. The Transaction does not require any approvals under Indiana law and is not unlawful under the laws of that state. Section 11(b)(1) requires a registered holding company, with limited exceptions, to limit its operations to a "single integrated public-utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system." Section 2(a)(29) provides separate definitions for "integrated public-utility system" for gas and electric companies. For electric utility companies, the term means: 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 . . . . For gas utilities, the term means: a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its operations to a single area or region . . . [p]rovided, that gas utility companies deriving natural gas from a common source of supply may be deemed to be included in a single area or region. With respect to either type of company, the system must be: confined in its operations to a single area or region, in one or more States, not so large as to impair (considering the state of the art and the area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation. . . .(19) Section 11(b)(1) permits the acquisition and retention of more than one integrated utility system only if the requirements of Section 11(b)(1)(A),(B) and (C) are satisfied. The Commission consistently has recognized that strict compliance with the standards of Section 11 is not required where the resulting holding company is exempt under Section 3. See, e.g., Gaz Metropolitain, Inc., Holding Co. Act Release No. 26170, 58 SEC 189 (Nov. 23, 1994) ("Gaz Metropolitain"). Nonetheless, in applying Section 10(c)(1) to an exempt holding company, the Commission focuses on whether the acquisition would be detrimental to the core concerns of Section 11, namely the protection of the public interest and the interests of investors and consumers. WPL Holdings, Holding Co. Act Release No. 24590 (Feb. 26, 1988), aff'd in part and rev'd in part sub nom. Wisconsin Environmental Decade, Inc. v. S.E.C., 882 F.2d 523 (D.C. Cir. 1989); WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998). In addition: The Commission has previously determined that a holding company may acquire utility assets that will not, when combined with its existing utility assets, make up an integrated system or comply fully with the ABC clauses, provided that there is a de facto integration of contiguous utility properties and the holding company will be exempt from registration under section 3 of the Act following the acquisition. WPS Resources Corp., Holding Co. Act Release No. 26922 (Sept. 28, 1998) (citing BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998); TUC Holding; Gaz Metropolitain.). The Transaction is fully consistent with the standards of Section 10(c)(1) as applied to exempt holding companies. It will combine, via common ownership by AES, CILCO's electric and gas system with IPL's electric system, producing a combined enterprise that will better serve the needs of its customers and the interests of its investors by offering more efficient energy supply and delivery service in competitive markets. The Transaction will not impede the ability of the Illinois Commerce Commission ("ICC") or the IURC to carry out their statutory responsibilities with respect to the utility activities of CILCO or IPL. The utility operations of the combined enterprise will continue to be regulated by the ICC and the IURC after the merger. - --------------- (19) For gas companies, utilities deriving natural gas from a common source of supply may be deemed to be included in a single area or region. CILCO's existing gas and electric systems meet the de facto integration standard. The service territories of CILCO's existing gas and electric systems overlap. Moreover, the gas and electric systems have been combined for many years and share corporate services. The CILCO and IPL electric systems will be coordinated primarily through common ownership by AES during the period of that ownership and through application of the considerable expertise that AES is able to contribute to their operations. The acquisition of IPALCO by AES can result in increased operating efficiency at IPALCO and CILCORP by utilizing economies of scale in the generation and retail segments of the business. Areas such as fuel procurement, environmental compliance, labor relations, billing, customer service and marketing are targeted for improvement. The efficiencies may come from either the elimination of duplicated resources or improved unit costs resulting from spreading common fixed costs over a larger customer base. Although the CILCO and IPL electric systems will not be a single integrated system under the Commission's current interpretation as it is applied to registered holding companies, an exempt company need not satisfy the standards of Section 11, nor the requirements of the ABC clauses. WPS Resources (approving merger of two electric systems which are not jointly dispatched and which do not constitute a single integrated system); Sierra Pacific Resources, Holding Co. Act Release No. 27054 (July 26, 1999) (same). First, although the utility systems of CILCO and IPL will "lack[] economic joint dispatch, the two systems will be coordinated . . . ." WPS Resources, at 11. CILCO and IPL will be able to integrate many services, including accounting and finance, information services, external relations, legal and executive administration, customer service, and marketing and sales. Second, while the electric service territories of the CILCO and IPL public utility systems do not overlap, they are in close proximity. Id. at 12. Finally, as noted above, the Transaction will produce a combined entity that will be able to compete more efficiently and effectively in providing energy services to customers. Thus, the Commission should find that the Transaction would not be detrimental to the interest of Section 11, and thereby satisfies the requirements of Section 10(c)(1). (B) SECTION 10(C)(2). Section 10(c)(2) requires that the Commission not approve an acquisition unless "the Commission finds that such acquisition will serve the public interest by tending towards the economical and efficient development of an integrated public-utility system." The Commission has interpreted Section 10(c)(2) to permit the approval of acquisitions resulting in more than one integrated system. "[W]e have indicated in the past that acquisitions may be approved even if the combined system will not be a single integrated system. Section 10(c)(2) requires only that the acquisition tend 'towards the economical and the efficient development of an integrated public-utility system.'"(20) The Commission has held that "where a holding company will be exempt from registration under Section 3 of the Act following an acquisition of non-integrating utility assets, it suffices for purposes of Section 10(c)(2) to find benefits to one integrated system."(21) - --------------- 20 Gaz Metropolitain, 58 SEC at 192 (quoting Union Electric Company, Holding Co. Act Release No. 18368, 45 SEC 489, 504-06 (April 10, 1974), aff'd without op. sub nom. City of Cape Girardeau v. SEC, 521 F.2d 324 (D.C. Cir. 1975)). 21 TUC Holding Co., supra. In this case, both the CILCO and IPL utility systems will realize a number of benefits from the Transaction. The Transaction will combine via AES ownership two companies with complementary operations and expertise, and provide important strategic, financial and other benefits to the merging companies, shareholders and customers. The Transaction will have a number of operational benefits that will result in economic efficiencies for both utility systems. As discussed above, economies will result from combining and coordinating operations of CILCO and IPL with respect to corporate functions, including accounting and finance, human resources, information services, external relations, legal and executive administration. In addition, AES expects that the Transaction will result in various cost savings through the integration of corporate programs (e.g., insurance, advertising), customer support functions (e.g., customer service, marketing and sales) and an increased ability to meet competition in energy markets. A number of recent Commission orders have noted the importance such benefits have for satisfying the Act's integration requirements. New Century Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000); American Electric Power Co., Holding Co. Act Release No. 27186 (June 14, 2000). The Transaction also will allow CILCO and IPL to offer a greater range of services to customers, making them more competitive, and will provide significantly increased financial resources to both companies, making them better able to meet customer needs. The Commission previously has found that similar benefits satisfied the affirmative finding required under Section 10(c)(2). See, e.g., WPL Holdings, Inc., Holding Co. Act Release No. 25096; 50 S.E.C. 233, 237 (May 25, 1990) (benefits supporting Section 10(c)(2) finding include "[a] structure that could more effectively address the growing national competition in the energy industry, refocus various utility activities, facilitate selective diversification into non-utility business . . . and provide additional flexibility for financing . . ."). Accordingly, the Commission should find that the requirements of Section 10(c)(2) are satisfied with regard to the Transaction. 3. SECTION 3(A)(5) Under Section 3(a)(5), a holding company and its subsidiaries will be exempt from the provisions of the Act (except for Section 9(a)(2)) if the holding company is not and does not derive any material part of its income from a subsidiary whose principal business within the U.S. is that of a public utility company. As the Commission has noted, the Section 3(a)(5) exemption is meant to be available to a holding company system with foreign operations whose U.S. utility operations "account for no material part of the holding company's income" and are "small in size." Gaz Metropolitain, (quoting and citing Electric Bond and Share Company, Holding Co. Act Release No. 11004, 1952 WL 1058 (Feb. 6, 1952) ("Electric Bond and Share")). For the reasons set forth below, AES will qualify for a Section 3(a)(5) exemption upon completion of the Transaction. (A) MATERIALITY OF CILCO/IPL REVENUES In the relatively few cases decided under Section 3(a)(5) where the Commission has addressed the materiality of the U.S. utility subsidiary, the Commission has considered the relative size of the U.S. utility subsidiary's operations, expressed as a percentage of the applicant holding company's total operations, based upon a variety of financial yardsticks. See, e.g., Gaz Metropolitain (citing to U.S. utility contributions to holding company total consolidated revenues, net income, and net utility plant); TransCanada Pipelines Ltd, Holding Co. Act Release No. 25647 (Oct. 6, 1992) (citing to percentages of holding company total revenues and net assets); Consumers' Gas Co., Holding Co. Act Release No. 14956 (Oct. 17, 1963) (comparing U.S. utility and holding company revenues, net income, and net assets). Most recently, the Commission has stated that it usually relies on a comparison of gross revenues, referred to as the "gross-to-gross" test, which may be adjusted to account for specific features of a particular situation. NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10, 1999) ("NIPSCO"); AES. The Commission similarly has no strict test for determining materiality of income under Section 3(a)(5), and it has noted that "factors other than mere percentages must be taken into consideration" when applying the materiality standard. AES, slip opinion at 30 (citing the discussion of the Section 3(a)(1) exemption found in NIPSCO, supra). The Commission has also stated that its "interpretation of the term 'material' under each section of 3(a) must be informed by the underlying policy concerns that exemption addresses." AES at 15. It should be noted that the Commission Staff has recommended that the Commission adopt a more flexible standard for exemptions under Section 3(a), urging the agency to take into account the ability of affected state commissions to "adequately protect utility consumers against any detriment that might be associated with certain activities of exempt holding companies." The Regulation of Public-Utility Holding Companies (June 1995), pp. 119-120. As explained below, the ICC and IURC have such ability here. The Commission has granted Section 3(a)(5) exemptions where the U.S. utility subsidiary represented less than approximately 5 percent of total holding company revenues. See, e.g., Gaz Metropolitain; TransCanada Pipelines. The Commission also has indicated that a holding company that derived approximately 46 percent of its total business revenues from a utility subsidiary (in the form of fees for underwriting services) received a material amount of income from such subsidiary. H.M. Byllesby & Co., Holding Co. Act Release No. 1882 (Jan. 15, 1940). See also Cities Service Co., Holding Co. Act Release No. 2444, 8 SEC 318 (Dec. 23, 1940) ("Cities Service") (noting in dicta that U.S. utility subsidiary contributions to holding company of approximately 30 percent of gross revenues and 45 percent of net fixed assets would be considered material). See also NIPSCO (in the Section 3(a)(1) context, the Commission has emphasized that there is no strict percentage test for assessing materiality under Section 3(a)(1)). Most recently, in AES the Commission found on the basis of factors that included the absence of abuses that the Act was intended to prevent, the Commission's reporting requirements, and regulatory authority of the state in question, that 10.35 percent of net operating revenues was not material for the purposes of a Section 3(a)(5) exemption.(22) AES at 15-16. A review of the combined contributions of CILCO and IPL to AES's total operations (including CILCORP and IPALCO), from the perspective of a variety of financial indicators, reveals that total utility activities and assets constitute a relatively small percentage of AES's overall business, a percentage that will become increasingly minor over time, as the size of AES's business continues to grow. Set forth below in Table 3 are the percentages, on a pro forma basis for 1998-2000, of gross revenues;(23) operating income (expressed as earnings before interest and taxes); net income; unleveraged net income (expressed as post tax income, excluding interest expense); and net assets of CILCO and IPL, to the total gross revenues; operating income; net income; unleveraged net income; and net assets of AES as a whole. - --------------- 22 In NIPSCO, the Commission observed that the "[c]omponents of gross revenues are different for electric and gas utilities" and that "pass-through costs" (e.g., purchased gas and fuel for electric generation) constitute a larger part of gross revenues for a gas utility than for an electric utility. The Commission thus concluded that where a predominantly electric system (such as NIPSCO, AES) acquired an exclusively gas system (Bay State, CILCO), a reliance on gross revenues comparisons would distort the relative sizes of the merging companies. 23 Because the proposed Transaction would combine a predominantly electric company (AES, including CILCORP) with an exclusively electric company (IPL), a net operating revenues percentage would not differ materially from a gross revenues percentage. Table 3 CILCO and IPL Contributions To AES/IPALCO Consolidated Holding Company (Proportional Consolidation Basis) ($Millions) - ---------------------------------------------------------------------------- 1998 1999 2000** - ---------------------------------------------------------------------------- GROSS REVENUES* 26.37% 24.31% 16.02% CILCO 538 562 578 CILCORP (excluding CILCO) 21 19 11 IPL 786 800 839 IPALCO (excluding IPL) 35 34 34 AES (excluding CILCORP and IPALCO) 3,640 4,189 7,388 AES/CILCORP/IPALCO 5,020 5,604 8,850 - --------------------------------------------------------------------------- OPERATING INCOME 26.23% 20.83% 16.26% CILCO 93 55 112 CILCORP (excluding CILCO) (1) (14) (8) IPL 261 268 271 IPALCO (excluding IPL) (1) - 2 AES (excluding CILCORP and IPALCO) 997 1,242 1,977 AES/CILCORP/IPALCO 1,349 1,551 2,354 - --------------------------------------------------------------------------- NET INCOME 39.61% 42.94%*** 24.15% CILCO 41 16 51 CILCORP (excluding CILCO) (25) (17) (38) IPL 140 137 139 IPALCO (excluding IPL) (10) (9) (6) AES (excluding CILCORP and IPALCO) 311 229 642 AES/CILCORP/IPALCO 457 356 788 - --------------------------------------------------------------------------- UNLEVERAGED NET INCOME**** 23.52% 16.56% 11.55% CILCO 59 34 70 CILCORP (excluding CILCO) (17) 9 10 IPL 179 176 177 IPALCO (excluding IPL) 16 18 16 AES (excluding CILCORP and IPALCO) 775 1,031 1,871 AES/CILCORP/IPALCO 1,012 1,268 2,144 - --------------------------------------------------------------------------- NET ASSETS 19.87% 12.10% 9.18% CILCO 1,024 1,056 1,056 CILCORP (excluding CILCO) 288 775 775 IPL 1,953 1,979 1,935 IPALCO (excluding IPL) 166 337 335 AES (excluding CILCORP and IPALCO) 11,550 20,928 28,484 AES/CILCORP/IPALCO 14,981 25,075 32,585 - --------------------------------------------------------------------------- * In calculating the gross revenues percentage, the numerator is equal to the total gross business revenues of IPALCO and CILCO, excluding all revenues from non-utility activities. The denominator is comprised of all business revenues (including revenues from all IPALCO/IPL and CILCORP non-utility activities) plus all of AES's business revenues. ** Projected. *** During 1999, the Brazilian Real experienced a significant devaluation relative to the U.S. Dollar, resulting in significant foreign currency transaction losses during 1999. As a result, AES recorded approximately $150 million, after taxes, of noncash foreign currency transaction losses on its investments in Brazilian affiliates during 1999. Absent these developments, AES net income excluding CILCORP and IPALCO would have been $379 million, yielding a 30.2% contribution to net income by IPALCO and IPL. **** See discussion infra regarding impact of AES leveraged capital structure on net income calculations. The AES data contained in Table 3 is compiled on a proportional consolidation basis rather than in accordance with GAAP. On a proportional consolidation basis, revenues and assets are allocated to AES on a pro rata basis in proportion to the ownership percentages held by AES in each of the projects/companies in which it has an equity interest. AES holds a less-than-50 percent equity interest in a number of projects that generate substantial revenues.(24) On a proportional consolidation basis, revenues from sales made by these less than majority-owned investments are included as revenues in statements of operations. On financial statements prepared in accordance with GAAP, on the other hand, returns from less than majority-owned projects are not reported as revenues, but instead are reported as equity in earnings of affiliates (gross of income taxes). Thus, although GAAP-based data is the appropriate data for use in other contexts, using GAAP-based data here would understate the revenues AES earns from its electric business. The proportional consolidation data provides a more accurate representation of the size of AES's generation and distribution business relative to that of IPL's business for purposes of the Commission's materiality analysis. Commission precedent supports appropriate adjustments to financial data reported on the basis of prescribed, conventional accounting treatments, where, in light of the policies underlying the Act, they would more accurately represent the company's operations, revenues, or other pertinent criteria. For example, on several occasions, the Commission has considered proportional consolidation data. See, e.g., Northern New England Co., Holding Co. Act Release No. 11711 (Feb. 13, 1953) (applying proportional consolidation approach to re-state and allocate income and balance sheet amounts to reflect ownership percentages) and Sioux City Gas and Electric Co., Holding Co. Act Release No. 9303 (Sept. 8, 1949) (applying proportional consolidation approach to evaluation of dividend coverage ratios). See also Consolidated Cities Light, Power & Traction Co., Holding Co. Act Release No. 4130 (Feb. 23, 1943) (consideration of company's "indirect" sources of income, such as payments by another company of its interest and sinking fund requirements on outstanding debt). In AES the Commission agreed that use of proportional consolidation was appropriate for determining whether income from CILCO was material for purposes of Section 3(a)(5). The Commission noted in this connection that it has "traditionally focused on revenues, rather than net income, in measuring the materiality of a subsidiary under Section 3(a)" and that proportional consolidation would allow the Commission "to consider the revenues generated by companies whose results are reflected on AES's financial statements under the equity method." AES at 14. - --------------- (24) AES holds majority equity interests in a number of projects/companies. Under GAAP, revenues and income from such projects are included in AES's consolidated financial statements in the same manner as wholly-owned projects. However, the revenue impact of these holdings is far outweighed by the exclusion of minority-owned projects from the calculation of AES's GAAP-based gross revenues. In addition, proportional consolidation is consistent with the status of the minority-interest businesses as subsidiary companies of AES. AES owns at least 10 percent of the voting securities of such companies, and as noted above, participates in their management and operation. Therefore, it is appropriate to allocate the revenues and assets of these companies to AES on a pro-rata basis. To do otherwise would underestimate significantly the extent of AES's foreign operations.(25) Although Table 3 includes data for 1998, 1999, and 2000, given AES's phenomenal growth, the 2000 data is by far the most relevant for purposes of comparing the relative size of IPL and CILCO with AES. As the description in Item 1, Section B above notes, AES's revenues increased approximately 1,600 percent between 1990 and 1999. A projection of AES shows that AES's revenues will increase approximately 76 percent between 1999 and 2000. Unlike a traditional utility company, whose financial results are relatively static over time or who has year-to-year variations (perhaps attributable to weather conditions, or one-time extraordinary changes) that can best be viewed over a several-year period, AES has experienced and will continue to experience rapid growth through project development and acquisitions. In fact, in light of its rapid growth, AES will be quite a different company at the end of 2000 than it was in 1999. As reflected in Table 3, a projection of AES shows that between the end of 1998 and the end of 2000 on a proportional consolidated basis its gross revenues will have grown 103 percent, from $3,640 million to $7,388 million; operating income will have grown 98 percent, from $997 million to $1,977 million; net income will have grown 106 percent, from $311 million to $642 million; unleveraged net income will have grown 141 percent, from $775 million to $1,871 million; and net assets will have grown 147 percent, from $11,550 million to $28,484 million.(26) Therefore, in light of AES's significant growth from the years 1998 through 2000, the financial data for 1998 and 1999 do not provide an accurate picture of the relative size of AES in relation to utility operations of CILCO and IPL. - --------------- (25) AES also has calculated the percentages set forth in Table 3 in accordance with GAAP. Such calculations are set forth in Exhibit K-4. As explained above, however, use of this GAAP-based data understates the size of AES's worldwide business relative to CILCO and IPL, whereas data compiled on a proportional consolidation basis provides a more accurate comparison of the size of IPL and CILCO to the size of the AES/CILCORP/IPALCO merged company. (26) Similarly, use of an average of financial information for the years 1998 through 2000 also significantly understates the extent of AES's operations and therefore also proves inadequate. A projection of AES shows that AES's 2000 gross revenues are 88.7 percent greater than the average of AES's gross revenues for the years 1998 through 1999. Further, AES' 2000 operating income is 76.5 percent greater than the two-year average; 2000 net income is 137.7 percent greater than the two-year average; and 2000 net assets are 75.4 percent greater than the two-year average. Table 3 sets forth the relative sizes of the combined utility business of CILCO and IPL and the merged AES/CILCORP/IPALCO holding company based on five financial yardsticks. In this instance, because AES, CILCO and IPL are all engaged primarily in electric generation, transmission and distribution operations, the analysis does not present data concerning net operating revenues. A comparison of AES and CILCO/IPL net income may obscure the true scope of IPL's business vis-a-vis that of AES. Net income is sensitive to differences in capital structure, and AES, on the one hand, and CILCO and IPL, on the other, have disparate capital structures driven by differences in their respective business operations. AES uses project financing for much of its investment, and thus has proportionally larger interest expenses than does either CILCO or IPL. Comparing the unleveraged net incomes of CILCO and IPL to the unleveraged net income of the AES holding company provides a better understanding of the relative size of the CILCO and AES holding company business operations. For example, as reflected in Table 3, a projection of AES shows that CILCO and IPL would represent 11.6 percent of 2000 total holding company unleveraged net income, compared to 24.2 percent of 2000 total holding company net income. Since interest is deducted before calculating net income, comparisons based on net income may result merely from differences in capital structure rather than differences in size or scope of business operations. This issue is present in the case of AES, CILCO and IPL, as AES maintains a more highly leveraged capital structure than does either CILCO or IPL. A more accurate comparison of the scope of the businesses of CILCO and IPL, on the one hand, to that of AES after the Transaction, on the other, is achieved by comparing gross revenues, operating income and net assets. As reflected in Table 3, a projection of AES shows that for 2000, CILCO's and IPL's contributions to AES's gross revenues; operating income; unleveraged net income, and net assets were 16.02, 16.26, 11.55, and 9.18 percent, respectively. While these data show that the relative size of AES and the combined utility operations of IPL and CILCO somewhat exceeds previous Commission rulings on Section 3(a)(5) exemptions, AES's rapid current and projected growth demonstrates that current Commission standards will be met in the very near future. Moreover, Commission precedent supports a temporary relaxation of strict requirements under the Act where "'the overall consequence . . . is to make nearer the ultimate goal of compliance." Kansas Power & Light Co., Holding Co. Act Release No. 25465 (Feb. 5, 1992) (citing Electric Bond & Share Co., Holding Co. Act Release No. 11004 (Feb. 6, 1952)). In this instance, because of the differing nature of AES's, CILCO's, and IPL's operations, certain of the financial yardsticks, particularly net income, tend to overstate the two utility companies' contributions to the merged AES/CILCORP/IPALCO system. Thus, as explained below, the Table 3 data comparing gross revenues, operating income, unleveraged net income and net assets present the most accurate representation of the relative size of CILCO and IPL to the merged AES/CILCORP/IPALCO system. It should be emphasized that the Commission has noted that Section 3(a)(1) "has no specific numerical tests to guide a finding that a public-utility subsidiary is material" and that the Commission has not "embraced any numerical bright-line test of materiality under section 3(a)(1)." See NIPSCO, slip op. at 34-35. Instead, the Commission noted that "factors other than mere percentages must be taken into consideration in determining the application of the materiality standard of section 3(a)(1)" and noted the Division of Investment Management's recommendation (set forth in its 1995 study, supra) that the Commission "adopt a more flexible standard for exemptions under section 3(a) that would consider the facts and circumstances of each situation and take into account the ability of the affected state regulators to adequately protect the interests of utility consumers."(27) Id. (B) MATERIALITY OF IPL REVENUES As noted previously, should the Commission deem the combined revenues of IPL and CILCO to be a material portion of AES's total revenues, AES will commit to enter into an agreement with an unaffiliated person within three years of completion of the Transaction to divest its ownership of the assets and business of CILCO that are subject to Commission jurisdiction under the Act. Table 4 below sets forth IPL's contribution to AES's revenues, other than revenues contributed by CILCO's PUHCA-jurisdictional utility activities.(28) - --------------- (27) Although Section 3(a)(1) sets forth a different standard for exemption than Section 3(a)(5), both Section 3(a)(5) and Section 3(a)(1) incorporate the concept of "materiality." The Act does not suggest that the term would have different meanings in the two sections. Thus, the Commission's analysis of materiality in the Section 3(a)(1) context does provide insight into the concept of materiality in the Section 3(a)(5) context. (28) Exhibit K-4 sets forth the percentages for IPL contributions in accordance with GAAP. Table 4 IPL Contributions To AES/IPALCO Consolidated Holding Company (Proportional Consolidation Basis) ($MM) - ------------------------------------------------------------------------------ 1998 1999 2000** - ------------------------------------------------------------------------------ GROSS REVENUES* 16.71% 15.39% 9.87% IPL 786 800 839 IPALCO 35 34 34 AES (excluding CILCO PUHCA-jurisdictional activities) 3,883 4,365 7,634 AES/IPALCO 4,704 5,200 8,507 - ------------------------------------------------------------------------------ OPERATING INCOME 20.23% 17.68% 11.83% IPL 261 268 271 IPALCO (1) - 2 AES (excluding CILCO PUHCA-jurisdictional activities) 1,029 1,248 2,014 AES/IPALCO 1,288 1,516 2,287 - ------------------------------------------------------------------------------ NET INCOME 32.49% 39.57% 18.36% IPL 140 137 139 IPALCO (10) (9) (6) AES (excluding CILCO PUHCA-jurisdictional activities) 301 218 624 AES/IPALCO 431 346 757 - ------------------------------------------------------------------------------ UNLEVERAGED NET INCOME 19.23% 14.64% 8.43% IPL 179 176 177 IPALCO 16 18 16 AES (excluding CILCO PUHCA-jurisdictional activities) 736 1,008 1,907 AES/IPALCO 931 1,202 2,100 - ------------------------------------------------------------------------------ NET ASSETS 13.41% 8.02% 6.01% IPL 1,953 1,979 1,935 IPALCO 166 337 335 AES (excluding CILCO PUHCA-jurisdictional activities) 12,449 22,346 29,902 AES/IPALCO 14,568 24,662 32,172 - ------------------------------------------------------------------------------ * In calculating the gross revenues percentage, the numerator is equal to the total gross business revenues of IPL, excluding all revenues from non-utility activities (nearly all of which are from steam sales). The denominator is comprised of all business revenues (including revenues from all IPALCO and IPL non-utility activities) plus all of AES's business revenues (including projected revenues from CILCO's generation, which is expected to be held by AES as an EWG). ** Projected. Table 4 shows that the acquisition of IPL, without CILCO PUHCA- jurisdictional businesses, fully falls within existing Commission precedent. In this case for the year 2000, a projection of AES shows that IPL revenues represent 9.87 percent of AES's gross revenues, 11.83 percent of its operating income, 8.43 percent of unleveraged net income, and 6.01 percent of its net assets. On the basis of prior Commission determinations, these contributions clearly are not a material portion of AES's income. (C) SIZE OF UTILITY OPERATIONS In Gaz Metropolitain, the Commission stated that the standard under which a foreign holding company system could be exempted under Section 3(a)(5) included, in addition to an inquiry into materiality, an assessment of whether U.S. utility operations were "small in size."(29) This concern about size under Section 3(a)(5) was articulated in Cities Service, where the Commission stated, based on the legislative history of the Act, that the size standard was established in order to prevent abuse of the Section 3(a)(5) exemption by holding companies that had very large, non-utility domestic businesses. The Commission emphasized that the fact that a holding company's domestic utility income is not material to its total income is irrelevant if the holding company is so large that domestic utility activity is still large in an absolute sense. Cities Service, 8 SEC at 334-335. The Commission reiterated this point in AES. AES at 17-18. The merged AES/CILCORP/IPALCO system will satisfy both the "small in size" standard and the policy concern underlying the standard. CILCO's and IPL's U.S. utility operations, considered in the aggregate, clearly are "small in size," both in terms of prior Commission precedent and as compared to other state, regional and U.S. utilities today. Moreover, AES has significant foreign operations, and its existing domestic activity consists of owning and operating EWG and QF facilities, and engaging in energy marketing. The context of this transaction is sharply different from those that confronted the Commission in early cases such as Electric Bond and Share and Cities Service. There the applicants seeking exemption under Section 3(a)(5) were companies with little or no foreign business of any sort, and with very large domestic non-utility businesses. As the Commission pointed out, granting a Section 3(a)(5) exemption under such circumstances would necessarily mean that the exemption "[w]ould not be contingent on the existence in the system of foreign operations and an exemption would be afforded even where the holding company system has no foreign interest, a result obviously not intended by Congress." Electric Bond and Share, 1952 WL 1058 at *20. In denying exemptions to Electric Bond and Share and Cities Service, the Commission also expressed its concern that Section 3(a)(5) not be used as an exemption for large U.S. non-utility enterprises that could not qualify for exemption under Section 3(a)(3). Unlike either Electric Bond and Share or Cities Service, AES has very significant and growing foreign electric generation and distribution operations and is without question a global provider of electric services. AES has electric generation and/or distribution operations in 17 foreign countries. AES owns and/or operates (entirely or in part) 32,656 MW of generating capacity located outside of the United States.(30) As demonstrated on Exhibit K-12, this foreign generation capacity constitutes a significant portion of AES's total generating capacity. In addition, AES owns partial interests (both majority and minority) in 14 companies located outside of the United States that sell electricity directly to commercial, industrial, governmental, and residential - -------- (29) Gaz Metropolitain, 58 SEC at 193 (quoting Electric Bond and Share). (30) 23,023 MW on a net equity basis. customers. These 14 companies serve a total of approximately 16 million foreign customers with sales of approximately 132,000 gigawatt-hours. On a net equity basis, AES's ownership in these companies represents approximately 5.3 million foreign customers and foreign sales of approximately 39,800 gigawatt-hours. AES's projections for the year 2000 show that its operations continue to be predominantly foreign. Specifically, its foreign operations will contribute, on a proportional consolidation basis, 79 percent of AES's gross revenues and 70 percent of AES's operating income. As the facts set forth in this Application demonstrate, AES continues to be a global energy company whose present business, both domestic and foreign, is primarily the "exempt utility" business - i.e., the business of EWGs, QFs and power marketers in the United States and EWGs and FUCOs outside the United States. Given that its business and experience has always been within the utility industry, primarily the deregulated and competitive sectors of that industry, it is, as the Commission affirmed in AES, the type of company for which the 3(a)(5) exemption was designed.(31) As with its acquisition of CILCO, AES's acquisition of IPALCO is a natural outgrowth and consequence of AES's corporate focus, i.e., a natural outgrowth of AES's business of being a global energy provider. For example, AES has extensive business expertise in competitive domestic and foreign energy markets which will enable both CILCO and IPL to compete more effectively in restructured energy markets. This distinguishes AES from Electric Bond and Share and Cities Service, each non-utility (and non-exempt utility) companies seeking to own large domestic utility companies even though as a non-utility each had, at best, limited experience with the utility industry, domestic or foreign. Granting AES the exemption in connection with its acquisition of IPL will ensure that the Section 3(a)(5) exemption continues to be available to those companies for which it was intended, and not to those companies that seek exemption under Section 3(a)(5) as a means of evading the restriction on exemption under Section 3(a)(3). See Electric Bond and Share; Cities Service. - --------------- (31) For example, in 1999, AES earned 92 percent of its pro-forma revenues on a proportional consolidation basis, from exempt utility operations. On a pro-forma GAAP basis, AES earned 89 percent of its revenues from its exempt utility business. (On an actual, as reported, basis, these amounts were 98 percent and 97 percent from proportional consolidation and GAAP, respectively.) In 1999, a combined AES/IPALCO (including CILCO) would have earned 79 percent of its revenues on a proportional consolidation basis from exempt utility operations. On a GAAP basis, a combined AES/IPALCO would have earned 74 percent of its gross revenues from exempt utility operations. (On a combined AES/IPALCO basis, only giving effect to the actual results of CILCO during 1999, these amounts would be 83 percent and 78 percent for proportional consolidation and GAAP, respectively). The U.S. utility operations of CILCO and IPL are small in size, both in terms of prior Commission precedent and when compared to other regional and U.S. utilities. In denying the Cities Service exemption application, the Commission held that Cities Service and its utility subsidiaries: (i) comprised "one of the most important public utility holding company systems in the United States," (ii) "controlled a far-flung utility empire with assets valued at more than $400,000,000," and (iii) had operations that extended to "20 states and Canada with an estimated population in the areas served of approximately 4,500,000." Cities Service at 336. In Electric Bond and Share, Electric Bond and Share Company ("Electric Bond") sought to be relieved of its commitment to dispose of the common stock it held in United Gas Corporation ("United"), its gas utility subsidiary, through exemptions under, inter alia, Section 3(a)(5) of PUHCA. Applying the "small in size" standard developed in Cities Service, the Commission held that the gas utility operations of United, a recently acquired subsidiary of Electric Bond, were "very substantial" in magnitude and, therefore, rejected the application. Electric Bond and Share, 1952 WL 1058 at *16. The Commission focused on the fact that United operated the second largest gas distribution operations in its region, and accounted "for a large and significant part of the natural gas distribution business in the United States." Id. The Commission cited the following facts in its analysis of the magnitude of United's gas utility operations: o United's non-industrial gas distribution operations were "approximately twice as large as those carried on in the entire State of Mississippi, slightly greater than those in the State of Louisiana, and about 25 percent of those in the State of Texas. With one exception, there [was] no company whose residential and commercial gas distribution operations in the three (3) state area [were] as large as those of United." o Within the three-state region in which it operated, United served "approximately 21.1 percent of all residential and commercial customers, with approximately 18.2 percent of all the residential and commercial gas consumed and accounted for approximately 19.2 percent of the total gross residential and commercial gas revenues." o United's gas distribution operations were large in relation to other gas distributors in the United States. The absolute size of CILCO's and IPL's combined utility business clearly is smaller when compared to modern utility companies than the utility businesses of Electric Bond and Cities Service in their day. Electric Bond's gas operations served 21.2 percent of all customers in the states where it did business, provided 18.2 percent of all gas consumed and accounted for 19.2 percent of total gas reserves. CILCO and IPL, on the other hand, serve only 3.9 percent of all utility customers served by utilities doing business in Illinois and Indiana and account for only 3.5 percent of all utility assets and only 3.6 percent of total utility revenues (see Exhibit K-5). In Gaz Metropolitain, on the other hand, the Commission granted a Section 3(a)(5) exemption to Gaz Metropolitain, whose domestic utility subsidiary, Vermont Gas Systems, Inc., had a state-wide franchise to sell natural gas at retail and appeared at that time to deliver nearly all of the natural gas sold at retail in Vermont. In addition, there are seven utility companies larger than CILCO and IPL combined in Illinois and Indiana in terms of revenues and assets and nine that are larger in terms of customers (see Exhibit K-5), while only one gas company was larger than Electric Bond in its three-state service area. Cities Service, in sharp contrast to CILCO and IPL, had operations in 19 states, compared to CILCO's and IPL's operations in only two states. It also should be noted that an analysis of the size of CILCO's and IPL's utility activities should reflect the realities of today's public utility markets. Since the time of Cities Service and Electric Bond, utility operations have become larger enterprises commensurate with growth in population and number of utility customers, as well as increased electricity and gas consumption per utility customer. Recently, the size of public utility companies has grown and will continue to grow in the wake of consolidations undertaken in response to increased competition and restructuring initiatives. It is clear from Commission precedent, in particular Electric Bond and Share, that the Commission is concerned with the size of the holding company's U.S. utility operations as compared to state, regional and national competitors. The utility operations of CILCO and IPL are small in size relative to other utilities, whether on a state, regional(32), or national basis. The data establishes that the activities of CILCO and IPL are small in scale. (D) SIZE OF COMBINED CILCO/IPL OPERATIONS Exhibit K-6 compares CILCO/IPL's combined electric and gas utility activities to other regional combination electric and gas - --------------- (32) The Region for these purposes is defined as the States of Illinois and Indiana and the six states bordering them - Iowa, Kentucky, Michigan, Missouri, Ohio, and Wisconsin. utilities, again in terms of revenues, assets and customers.(33) According to all three measures, CILCO/IPL's combined electric and gas utility business accounts for: o 2.9 percent of the Region's combination electric and gas utility revenue, o 2.8 percent of the Region's combination electric and gas utility assets, and o 2.7 percent of the Region's combination electric and gas utility customers.(34) Out of 19 combination electric and gas utilities in the Region, CILCO/IPL is ranked 15th in terms of assets and customers and 14th in terms of revenue. The 14 combination companies larger than CILCO/IPL in terms of assets and customers hold 93.7 percent of the assets and serve 93.8 percent of the customers. The 13 combination companies larger than CILCO/IPL in terms of revenue have 91.8 percent of the all regional revenues. Only 5.3 percent of the Region's combination electric and gas utility revenues are earned by combination electric and gas utility companies with less revenues than CILCO/IPL; only 3.5 percent of the Region's combination electric and gas utility assets are owned by combination electric and gas utility companies with fewer assets than CILCO/IPL; and only 3.5 percent of the Region's combination electric and gas utility customers are served by combination electric and gas utilities with fewer customers than CILCO/IPL. Exhibit K-7 compares CILCO/IPL's total utility activities to all other regional utilities (electric, gas and combination electric and gas), again in terms of assets, - --------------- (33) The data contained in Exhibit K-6 through K-12 was analyzed, organized and graphed by LECG, Inc. ("LECG"), an economic consulting service located in Washington, DC. The source of LECG's data was Resource Data International, Inc., which utilizes Federal Energy Regulatory Commission Form 1 filings and Securities and Exchange Commission Forms 10-K and 10-Q filings as sources. At the time this Application was filed, the most recent data that had been collected and evaluated related to conditions as of December 31, 1998. AES will update this Application with more recent data as it becomes available, but it believes that the data submitted remains valid for purposes of ordinal classification and relative comparisons. (34) The Commission found in AES that CILCO's gas utility revenues, assets, and customers are small on a state, regional, and national basis. Since that determination in August 1999, no transactions or other market developments have occurred that have altered the absolute or relative size of CILCO's gas operations to any material degree. Because its proposed acquisition of IPALCO does not affect the size of AES's gas utility operations, this Application does not treat this matter in any greater detail. revenues and customers. According to all three measures, CILCO/IPL's combined electric and gas utility business accounts for: o 1.8 percent of Region's utility revenues, o 1.7 percent of Region's utility assets, and o 1.8 percent of Region's utility customers. Out of 45 investor-owned utilities in the Region, CILCO/IPL would be ranked 17th in terms of revenue, 19th in terms of assets, and 21st in terms of customers. The 16 largest utilities in terms of revenue earn 87.2 percent of the utility revenues, the 18 largest utilities in terms of assets have 91.1 percent of the utility assets, and the 20 largest utilities in terms of customers serve 92.2 percent of the utility customers. Only 10.9 percent of the Region's total utility revenues are earned by utility companies with less revenues than CILCO/IPL; only 7.2 percent of the Region's total utility assets are owned by utility companies with fewer assets than CILCO/IPL; and only 6 percent of the Region's total utility customers are served by utilities with fewer customers than CILCO/IPL. Exhibit K-8 compares CILCO/IPL's combined electric and gas utility activities to all U.S. combination electric and gas utilities, again in terms of revenues, assets and customers. According to all three measures, CILCO/IPL's combined electric and gas utility business accounts for: o 1.1 percent of U.S. combination electric and gas utility revenue, o 1.1 percent of U.S. combination electric and gas utility assets, and o 1.0 percent of U.S. combination electric and gas utility customers. In terms of revenues, CILCO/IPL would rank 31st of combined gas and electric companies in the U.S. The 30 companies larger than CILCO/IPL in terms of revenue earn 91.7 percent of combined gas and electric company revenues. In terms of assets, CILCO/IPL also is ranked 32nd. The 31 companies larger than CILCO/IPL in terms of assets have 92.4 percent of the assets. In terms of customers, CILCO/IPL is ranked 31st. The 30 companies larger than CILCO/IPL in terms of customers serve 91.5 percent of the customers. Only 7.2 percent of U.S. combination electric and gas utility revenues are earned by combination electric and gas utility companies with fewer revenues than CILCO/IPL; only 6.5 percent of U.S. combination electric and gas utility assets are owned by combination electric and gas utility companies with fewer assets than CILCO/IPL; and only 7.4 percent of U.S. combination electric and gas utility customers are served by combination electric and gas utilities with fewer customers than CILCO/IPL. Exhibit K-9 further compares CILCO/IPL's total utility activities to all other U.S. utilities (electric, gas and combination electric and gas), again in terms of revenues, assets and customers. According to all three measures, CILCO/IPL's combined electric and gas utility business accounts for: o 0.6 percent of U.S. utility revenues, o 0.5 percent of U.S. utility assets, and o 0.5 percent of U.S. utility customers. In terms of revenue, CILCO/IPL would be ranked 50th of investor-owned utilities. The 49 companies larger than CILCO/IPL in terms of revenue earn 84.2 percent of utility revenues. In terms of assets, CILCO/IPL ranks 52nd. The 51 companies larger than CILCO/IPL in terms of assets have 86.4 percent of utility assets. In terms of customers, CILCO/IPL is ranked 51st. The 50 companies larger than CILCO/IPL serve 69.3 percent of utility customers. Only 15.2 percent of U.S. utility revenues are earned by utility companies with fewer revenues than CILCO/IPL; only 13.1 percent of U.S. utility assets are owned by utility companies with fewer assets than CILCO/IPL; and only 15.1 percent of U.S. utility customers are served by utilities with fewer customers than CILCO/IPL. (E) SIZE OF IPL OPERATIONS If the Commission were to require AES to divest CILCO assets subject to Commission jurisdiction, the absolute and relative size of AES's utility operations would drop correspondingly. Exhibit K-10 compares IPL's electric utility activities to other Indiana electric utilities in terms of assets, revenues and customers. According to all three measures, IPL's electric utility business accounts for: o 4.3 percent of Indiana electric utility revenues; o 4.9 percent of Indiana electric utility assets, and o 6.0 percent of Indiana electric utility customers. Out of six investor-owned electric utility companies in Indiana, IPL is ranked fourth in terms of assets and revenues and number three in terms of customers. The three largest electric utility companies in Indiana in terms of revenues and assets earn 91.5 percent of electric utility revenues and have 92.1 percent of the electric utility assets. The two largest electric utility companies in Indiana in terms of customers serve 86.4 percent of all electric utility customers. Only 4.1 percent of Indiana electric utility revenues are earned by electric utility companies with less revenues than IPL; only 3.0 percent of Indiana' electric utility assets are owned by electric utility companies with fewer assets than IPL; and only 1.7 percent of Indiana electric utility customers are served by electric utilities with fewer customers than IPL. Exhibit K-11 compares IPL's electric utility activities to other regional electric utilities in terms of assets, revenues and customers. According to all three measures, IPL's electric utility business accounts for: o 1.7 percent of the Region's electric utility revenues, o 1.5 percent of the Region's electric utility assets, and o 2.0 percent of the Regions's electric utility customers. Out of 18 investor-owned electric utility companies in the Region, IPL is ranked number 13 based on revenues and assets and customers. The electric utility companies in the Region larger than IPL earn 94.8 percent of electric utility revenues, have 95.7 percent of electric utility assets and serve 94.6 percent of electric utility customers. Only 3.5 percent of the Region's electric utility revenues are earned by electric utility companies with fewer revenues than IPL; only 2.8 percent of the Region's electric utility assets are owned by electric utility companies with fewer assets than IPL; and only 3.5 percent of the Region's electric utility customers are served by electric utilities with fewer customers than IPL. The Exhibits described above clearly indicate that IPL's utility operations are small in size, particularly when compared to other utilities in the state and the Region. Comparing the size of IPL's utility operations to all United States utilities, again in terms of revenues, assets and customers, makes it even clearer that IPL's utility operations are small in size. Exhibit K-12 compares IPL's electric utility activities to all other United States electric utilities in terms of assets, revenues and customers. According to all three measures, IPL's electric utility business accounts for: o 0.4 percent of U.S. electric utility revenues, o 0.4 percent of U.S. electric utility assets, and o 0.5 percent of U.S. electric utility customers. In terms of revenue, IPL is ranked 61st of electric utilities. The 60 electric utility companies larger than IPL earn 94 percent of electric utility company revenues. In terms of assets, IPL ranks 66th. The 65 electric utility companies larger than IPL own 95.9 percent of electric utility assets. In terms of customers, IPL is ranked 58th. The 57 companies larger than IPL in terms of customers serve 92.7 percent of electric utility customers. Only 5.6 percent of U.S. electric utility revenues are earned by electric utility companies with less revenues than IPL; only 3.7 percent of United States electric utility assets are owned by electric utility companies with fewer assets than IPL; and only 6.8 percent of United States electric utility customers are served by electric utilities with fewer customers than IPL. The above data demonstrates clearly that IPL is small in size, measured by all relevant yardsticks. For this reason, AES's acquisition of IPL complies fully with Commission precedent applying Section 3(a)(5). D. PUBLIC INTEREST Under the "unless and except" clause of Section 3(a), the Commission has the authority to deny a request for exemption if it were to determine that granting the exemption would be "detrimental to the public interest or the interest of investors or consumers." No such concerns, however, are presented with respect to this Transaction and request for exemption. The Transaction will result in a holding company which will be well-equipped to respond effectively to the changing nature of the electric and gas industries, thus promoting the interests of both investors and ratepayers. The Transaction is subject to approval by the FERC, which to issue its approval will examine whether the Transaction (1) will adversely affect competition; (2) will adversely affect the wholesale rates of IPL and CILCO; and (3) will have an adverse effect on federal or state regulation. AES and IPALCO filed an application for approval with the FERC on November 14, 2000. The IURC must confirm to the Commission under Section 33(a)(2), that it has the authority and resources to protect Indiana consumers and that it intends to exercise such authority. It did so in a letter to the Commission dated September 28, 2000. After AES's acquisition of IPALCO, IPL's operations will continue to be subject to regulation by the FERC and the IURC, both of which regulate utility transactions with affiliates. With respect to the IURC, the Indiana Code specifically grants the IURC jurisdiction over affiliate transactions with electric and gas public utilities "to the extent of access to all accounts and records of joint or general expenses, any portion of which may be applicable to such transactions, and to the extent of authority to require such reports to be submitted by such affiliated interests, as the [IURC] may prescribe." Ind. Code section 8-1-2-49(2). Thus, the IURC has broad authority to access the books and records of any member of the AES corporate family, wherever located, if such AES entity engages in transactions with IPL or if any costs associated with such entity are allocated to IPL. In addition, the Indiana Code requires that management, construction, engineering, or similar contracts that a utility makes with an affiliated interest must be filed with the IURC and will not be effective until filed. The IURC may disapprove any contract that it finds, after investigation and a hearing, not to be in the public interest. After AES's acquisition of IPALCO, CILCO's operations will continue to be subject to regulation by the FERC and the ICC, both of whom regulate utility transactions with affiliates. With respect to the ICC, the Illinois Public Utilities Act specifically grants the ICC jurisdiction over affiliate transactions with electric and gas public utilities, "to the extent of access to all accounts and records of such affiliated interest relating to such transactions, including access to accounts and records of joint and general expenses with the electric or gas public utility any portion of which is related to such transactions; and to the extent of authority to require such reports with respect to such transactions to be submitted by such affiliated interests, as the [ICC] may prescribe". Illinois Public Utilities Act, Section 7-101(2)(ii). Thus, the ICC has broad authority to access the books and records of any member of the AES corporate family, wherever located, if such AES entity engages in transactions with CILCO or if any costs associated with such entity are allocated to CILCO. In addition, the ICC recently has adopted rules and regulations governing the relationship between electric utilities and their affiliates. See 83 Illinois Administrative Code Part 450. Pursuant to such rules, transactions between electric utilities and their affiliates are prohibited from subsidizing the affiliate. To that end, transfers of goods and services between electric utilities and their affiliates must be approved by the ICC (unless approval has been waived by statute or ICC rule). In addition, the ICC has access to the electric utility's books and records regarding affiliate transactions and electric utilities must conduct biennial internal audits regarding affiliate transactions, which provide assurance that non-utility activities are not subsidized by the electric utility or its customers. Furthermore, AES will file certificates with the Commission under Rule 24, within 60 days after the end of each calendar quarter beginning January 1, 2001, for a period of three years, and then every six months thereafter, that provide to the Commission the following information: o a statement of income and balance sheet, for the 12-month period then ending, of (i) AES, (ii) IPALCO and (iii) IPL, (iv) CILCORP, and (v) CILCO; o updated Table 3 and 4 (see pages 28 and 34 supra) ----- o for AES, IPALCO, and CILCORP: (i) the total number of megawatts of generating capacity; (ii) the revenues earned from such generating capacity; (iii) the change in such capacity and revenues since the filing of the previous certificate and (iv) the location of any additional capacity; o for both AES, IPALCO, and CILCORP: (i) the amount of electric transmission and electric and gas distribution assets owned; (ii) the revenues from such assets and (iii) the change in such assets since the filing of the previous certificate; o information regarding any sale or transfer of any CILCO or IPL electric and/or gas utility assets to any affiliate company in the AES system; and o copies of any applications to and orders from the ICC that relate to AES's ownership of or oversight over the operation of CILCORP and/or CILCO, and copies of any applications to and orders from the IURC that relate to AES's ownership of or oversight over the operation of IPALCO and/or IPL. ITEM 4. REGULATORY APPROVAL The Share Exchange Agreement is subject to the approval of IPALCO's shareholders and is expected to be approved by IPALCO's shareholders at a special meeting to be held October 20, 2000. The Transaction also is subject to approval by the FERC. AES and IPALCO filed an application for this approval on November 14, 2000. The Transaction is subject to the notification and reporting requirements of the HSR Act. AES and IPALCO made the necessary filings under this statute on November 14, 2000. Section 33(a)(2) of the Act requires that the IURC must make a certification to the Commission under that section in connection with the Transaction. The IURC made that certification in a letter to the Commission dated September 28, 2000. ITEM 5. PROCEDURE AES respectfully requests that the Commission issue and publish not later than November 30, 2000, the requisite notice under Rule 23 with respect to the filing of this Application, such notice to specify a date not later than December 24, 2000, by which comments may be entered and a date not later than December 31, 2000, as a date after which an order of the Commission granting and permitting this Application to become effective may be entered by the Commission. AES hereby (i) waives a recommended decision by a hearing officer, (ii) waives a recommended decision by any other responsible officer or the Commission, (iii) consents that the Division of Investment Management may assist in the preparation of the Commission's decision and (iv) waives a 30-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS A-1 Articles of Incorporation of AES (Exhibit 3.1 to AES's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed August 14, 1998, File No. 1-12291, and incorporated herein by reference) A-2 By-Laws of AES (Exhibit 3.2 to AES's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, filed August 14, 1998, File No. 1-12291, and incorporated herein by reference) A-3 Articles of Incorporation of IPALCO (Exhibit 3.1 to IPALCO's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, filed August 13, 1997, File No. 1-8644, and incorporated herein by reference) A-4 By-Laws of IPALCO (Exhibit 3.2 to IPALCO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (Exhibit G-4 hereto), filed May 14, 1999, File No. 1-8644, and incorporated herein by reference) B-1 Agreement and Plan of Share Exchange (Annex A to Exhibit C-1 hereto) C-1 Registration Statement of AES on Form S-4, as amended (File No. 333-43908, filed August 16, 2000, and amended September 1 and September 14, 2000, and incorporated herein by reference) D-1 Application to FERC together with testimony and exhibits E-1 AES organization chart (to be filed by amendment) E-2 IPALCO organization chart (to be filed by amendment) E-3 Combined company organization chart after the Transaction (to be filed by amendment) F-1 Opinions of AES and IPALCO Counsel (to be filed by amendment) F-2 Past Tense Opinion of Counsel (to be filed by amendment with Rule 24 certificate) G-1 AES's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-12291, filed March 30, 1999, and incorporated herein by reference) G-2 AES's Quarterly Report on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999 (File No. 1-12291 and incorporated herein by reference) G-3 IPALCO's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-8644, filed February 25, 1999, and incorporated herein by reference) G-4 IPALCO's Quarterly Report on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999 (File No. 1-8644 and incorporated herein by reference) G-5 AES's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 0-19281, filed March 30, 2000, and incorporated herein by reference) G-6 IPALCO's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-8644, filed March 1, 2000, and incorporated herein by reference) H-1 Proposed Form of Notice (previously filed) K-1 AES Subsidiaries (previously filed) K-2 Generating Plants in Operation (previously filed) K-3 Global Map of Generating Plants and Distribution Companies K-4 GAAP Basis Presentation of CILCO/IPL and IPL Contributions To AES Consolidated Holding Company K-5 Market Shares for Utilities in Illinois and Indiana (previously filed) K-6 Market Shares for Gas and Electric Utilities in Illinois, Indiana and Bordering States (previously filed) K-7 Market Shares for Utilities in Illinois, Indiana and Bordering States (previously filed) K-8 Market Shares for Gas and Electric Utilities in the US (previously filed) K-9 Market Shares for Utilities in the US K-10 Market Shares for Electric Utilities in Indiana (previously filed) K-11 Market Shares for Electric Utilities in Indiana and Bordering States (previously filed) K-12 Market Shares for Electric Companies in the US (previously filed) K-13 IURC Letter to the Securities and Exchange Commission B. FINANCIAL STATEMENTS FS-1 AES Consolidated Balance Sheet as of December 31, 1998 (previously filed with the Commission in AES's Annual Report on Form 10-K for the year ended December 31, 1998 (Exhibit G-1 hereto), filed March 30, 1999, File No. 1-12291, and incorporated herein by reference) FS-2 AES Consolidated Balance Sheet as of September 30, 1999 (previously filed with the Commission in AES's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (Exhibit G-2 hereto), filed November 15, 1999, File No.1-12291, and incorporated herein by reference) FS-3 AES Consolidated Statement of Income for the 12 months ended December 31, 1998 (previously filed with the Commission in AES's Annual Report on Form 10-K for the year ended December 31, 1998 (Exhibit G-1 hereto), filed March 30, 1999, File No. 1-12291, and incorporated herein by reference) FS-4 AES Consolidated Statement of Income for the 9 months ended September 30, 1999 (previously filed with the Commission in AES's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (Exhibit G-2 hereto), filed November 15, 1999, File No. 1-12291, and incorporated herein by reference) FS-5 IPALCO Consolidated Balance Sheet as of December 31, 1998 (previously filed with the Commission in IPALCO's Annual Report on Form 10-K for the year ended December 31, 1998 (Exhibit G-3 hereto), filed February 25, 1999, File No. 1-8644, and incorporated herein by reference) FS-6 IPALCO Consolidated Balance Sheet as of September 30, 1999 (previously filed with the Commission in IPALCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (Exhibit G-4 hereto), filed November 12, 1999, File No. 1-8644, and incorporated herein by reference) FS-7 IPALCO Consolidated Statement of Income for the 12 months ended December 31, 1998 (previously filed with the Commission in IPALCO's Annual Report on Form 10-K for the year ended December 31, 1998 (Exhibit G-3 hereto), filed February 25, 1999, File No. 1-8644, and incorporated herein by reference) FS-8 IPALCO Consolidated Statement of Income for the 9 months ended September 30, 1999 (previously filed with the Commission in IPALCO's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (Exhibit G-4 hereto), filed November 12, 1999, File No. 1-8644, and incorporated herein by reference) FS-9 AES Consolidated Balance Sheet as of December 31, 1999 (previously filed with the Commission in AES's Annual Report on Form 10-K for the year ended December 31, 1999 (Exhibit G-5 hereto), filed March 30, 2000, File No. 1-12291, and incorporated herein by reference) FS-10 AES Consolidated Statement of Income for the 12 months ended December 31, 1999 (previously filed with the Commission in AES's Annual Report on Form 10-K for the year ended December 31, 1999 (Exhibit G-5 hereto), filed March 30, 2000, File No. 1-12291, and incorporated herein by reference) FS-11 IPALCO Consolidated Balance Sheet as of December 31, 1999 (previously filed with the Commission in IPALCO's Annual Report on Form 10-K for the year ended December 31, 1999 (Exhibit G-6 hereto), filed March 1, 2000, File No. 1-8644, and incorporated herein by reference) FS-12 IPALCO Consolidated Statement of Income for the 12 months ended December 31, 1999 (previously filed with the Commission in IPALCO's Annual Report on Form 10-K for the year ended December 31, 1999 (Exhibit G-6 hereto), filed March 1, 2000, File No. 1-8644, and incorporated herein by reference) [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned company has duly caused this Application to be signed on its behalf by the undersigned thereunto duly authorized. The AES Corporation By: /s/ Barry J. Sharp ----------------------------------- Name: Barry J. Sharp Title: Senior Vice President and Chief Financial Officer Date: November 20, 2000 EX-99.1 2 0002.txt EXHIBIT D-1 DIRECT DIAL (202) 371-7878 DIRECT FAX (202) 371-7939 EMAIL ADDRESS mfarren@skadden.com November 14, 2000 David P. Boergers Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426 Re: The AES Corporation and IPALCO Enterprises, Inc. Docket No. EC01- -000 ------------------------------------------------ Dear Mr. Boergers: Pursuant to section 203 of the Federal Power Act ("FPA"), 16 U.S.C. section 824b (1994 and Supp. 1997), and Part 33 of the Commission's regulations, 18 C.F.R. Part 33 (2000), The AES Corporation ("AES") and IPALCO Enterprises, Inc. ("IPALCO") on behalf of their respective FPA-jurisdictional subsidiaries (collectively, "Applicants") hereby apply for all approvals necessary to consummate AES's acquisition of IPALCO. Applicants respectfully request that the Commission approve the proposed transaction by February 15, 2001. The Application consists of one volume and contains the affidavit of Dr. William H. Hieronymus of PA Consulting Group ("PA"). In addition, the work papers for Dr. Hieronymus are contained on a CD-ROM. Also included is a CD-ROM containing Competitive Analysis Screening model ("CASm"), a proprietary computer model used by Dr. Hieronymus to conduct his competitive analysis. Applicants request confidential treatment pursuant to 18 C.F.R. section 388.112 for the CASm model. Intervenors in this proceeding may obtain a copy of the CASm model after entering into a confidentiality agreement with PA, which is attached to this transmittal letter. Finally, a diskette containing the form of notice is enclosed. Sincerely, Mary Margaret Farren Enclosures Confidentiality Agreement This Confidentiality Agreement is dated __________________ WHEREAS PA Consulting Group ("PA") has developed the Competitive Analysis Screening model ("CASm") for the specific purpose of performing analyses related to Appendix A of the FERC Merger Policy Statement, Order No. 592; WHEREAS CASm is confidential and valuable proprietary property of PA, and is considered to be a trade secret; WHEREAS in connection with the application of The AES Corporation and IPALCO Enterprises, Inc. ("Applicants") (before the Federal Energy Regulatory Commission, Docket No. EC01-__-000) (the "Application"), ____________________________ requires disclosure of CASm (the "Confidential Information") to certain of its staff and to outside technical experts (collectively, the "Recipients"), and agrees that such disclosure will be subject to the terms and conditions set forth in this Confidentiality Agreement; and WHEREAS, in consideration of the disclosure of CASm, the undersigned Recipient is willing to keep the Confidential Information confidential in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, PA and the undersigned Recipient hereby agree as follows: 1. CONFIDENTIALITY. The Recipient agrees to hold CASm in strict confidence, not to disclose, distribute or disseminate it in any way to any third party who has not already signed a copy of this Agreement, and not to use CASm for its own benefit or the benefit of others, except in connection with the consideration of the Application as expressly authorized in this Agreement. This Agreement does not extend to the results of runs performed by Recipient using CASm. In order to comply with this obligation, the Recipient further agrees to make only two copies of CASm, and to restrict the access to CASm to only those persons who have a need to know and who specifically agree in writing to the terms of this Agreement. The obligations set forth herein do not apply to information which is (1) publicly known or becomes publicly known through no fault or unauthorized act of the Recipient, (2) received from a third party not bound to secrecy to PA, or (3) independently developed by the Recipient without use of PA's proprietary property so long as such independent development can be clearly documented and verified. 2. RETURN OF CASM. Upon completion of its review of the Application, the Recipient agrees to return all copies of CASm it received or made, and any and all derivatives thereof, to PA. Nothing in this Agreement shall require the Recipient to return to PA any of the runs performed by Recipient using CASm. 3. NO FURTHER RIGHTS. Nothing contained in this Agreement shall be construed as granting or conferring any rights by license or otherwise in CASm, except as expressly provided herein. 4. INJUNCTIVE RELIEF. The Recipient acknowledges and agrees that CASm is the confidential, proprietary property of PA, and that the unauthorized use or disclosure of CASm could cause irreparable harm and significant injury to PA for which PA would have no adequate remedy at law. Therefore, PA shall have the right, in addition to any other rights PA may have at law or in equity, to seek immediate injunctive relief enjoining any breach or potential breach of this Agreement by the Recipient. The Recipient hereby waives the necessity of posting any form of bond relating to the issuance of injunctive relief. 5. NO MODIFICATIONS. This Agreement may only be modified by a written document executed by authorized representatives of the parties. 6. OTHER AGREEMENTS. Nothing in this Agreement provides for the disclosure of information that Applicants contend is privileged and confidential. To the extent that the disclosure of CASm-related data files includes the disclosure of Applicants' privileged or confidential information, the Recipients must obtain all necessary approvals for the disclosure of such information from the Applicants prior to PA's disclosure of CASm-related data files. IN WITNESS WHEREOF, PA and the undersigned Recipient have each caused this Agreement to be signed and delivered as of the date first set forth above. PA CONSULTING GROUP THE RECIPIENT By:_____________________________ By:________________________________ Name:__________________________ Name:______________________________ Title:____________________________ Title:_______________________________ UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION THE AES CORPORATION ) DOCKET NO. EC01-___-000 IPALCO ENTERPRISES, INC. ) APPLICATION FOR AUTHORIZATION UNDER SECTION 203 OF THE FEDERAL POWER ACT FOR DISPOSITION OF JURISDICTIONAL FACILITIES J. A. Bouknight, Jr. Mike Naeve Gary A. Morgans Mary Margaret Farren Steptoe & Johnson, LLP Skadden, Arps, Slate, Meagher 1330 Connecticut Avenue, N.W. & Flom LLP Washington, D.C. 20036-1795 1440 New York Avenue, N.W. (202) 429-6222 Washington, D.C. 20005-2111 (202) 429-3902 (fax) (202) 371-7070 lbouknight@steptoe.com (202) 371-7939 (fax) gmorgans@steptoe.com mnaeve@skadden.com mfarren@skadden.com Counsel for IPALCO Counsel for AES Bryan G. Tabler William R. Luraschi Marline R. Breece Robert A. Venerus IPALCO Enterprises, Inc. The AES Corporation One Monument Circle 1001 N. 19th Street, 20th Floor Indianapolis, IN 46204 Arlington, VA 22209 (317) 261-5134 (703) 522-1315 (317) 261-8288 (fax) (703) 528-4510 (fax) btabler@ipalco.com mbreece@ipalco.com TABLE OF CONTENTS I. INTRODUCTION..........................................................2 II. DESCRIPTION OF APPLICANTS.............................................4 A. AES.............................................................4 B. IPALCO..........................................................7 III. DESCRIPTION OF THE PROPOSED TRANSACTION...............................9 IV. THE PROPOSED TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST.............................................................11 A. The Transaction Will Have No Adverse Effect On Competition.....11 B. The Transaction Will Have No Adverse Effect On Rates...........22 C. The Transaction Will Have No Adverse Effect On Regulation......23 V. INFORMATION REQUIRED BY 18 C.F.R. section 33.2.......................24 VI. EXHIBITS REQUIRED BY 18 C.F.R. section 33.3..........................28 VII. REQUEST FOR EXPEDITED CONSIDERATION..................................32 VIII. CONCLUSION...........................................................33 Attachments & Exhibits Attachment 1: Affidavit of William Hieronymus and Exhibits Attachment 2: AES Affiliates and Subsidiaries (other than CILCO) Attachment 3: Form of Notice Exhibit B: Statement of Measure of Control Exhibit H: Agreement and Plan of Share Exchange Exhibit I: Maps UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION THE AES CORPORATION ) DOCKET NO. EC01-___-000 IPALCO ENTERPRISES, INC. ) JOINT APPLICATION FOR AUTHORIZATION UNDER SECTION 203 OF THE FEDERAL POWER ACT FOR DISPOSITION OF JURISDICTIONAL FACILITIES Pursuant to section 203 of the Federal Power Act ("FPA"), 16 U.S.C. section 824b (1994 and Supp. 1997), and Part 33 of the Commission's regulations, 18 C.F.R. Part 33 (2000), The AES Corporation ("AES") and IPALCO Enterprises, Inc. ("IPALCO") on behalf of their respective FPA-jurisdictional subsidiaries (collectively, "Applicants") hereby apply for all approvals necessary to consummate AES's acquisition of IPALCO.(1) Applicants respectfully request that the Commission approve the proposed transaction by February 15, 2001. - --------------- (1) Each Applicant owns one traditional utility subsidiary; AES owns Central Illinois Light Company ("CILCO") and IPALCO owns Indianapolis Power & Light Company ("IPL"). In addition, as described in Section II, both Appli cants own entities authorized by the Commission to make wholesale sales of power at market-based rates. I. INTRODUCTION IPALCO and AES have agreed to a share exchange under which IPALCO will become a wholly-owned subsidiary of AES. Under the agreement, each outstanding share of IPALCO's common stock will be converted into the right to receive shares of AES common stock with a market value of $25.00 per share (subject to adjustment as described below). As a result of this transaction, IPALCO's and AES's traditional public utility subsidiaries, CILCO and IPL, will become affiliated. A description of the Applicants is set forth in Section II below, and a more detailed description of the transaction is set forth in Section III below. The Commission considers three factors in evaluating proposed mergers and other dispositions under FPA section 203: the proposed transaction's effect on (i) competition, (ii) rates and (iii) regulation.(2) As detailed in Section IV below, the proposed transaction easily satisfies the Commission's section 203 review criteria, and the Commission should find that the transaction is in the public interest. The affidavit of William H. Hieronymus, attached as Attachment 1, demonstrates that the transaction will have no adverse effect on competition in any relevant market. Dr. Hieronymus found that in every destination market studied, the transaction did not result in any violation of the thresholds used by the Commission to determine whether further analysis is necessary. Similarly, Dr. Hieronymus concluded that the transaction will have no adverse effect on vertical market power related to control over transmission facilities.(3) Dr. Hieronymus also determined that no other vertical market power concerns are present. The transaction also will have no adverse effect on rates because IPL's only wholesale requirements customer, Wabash Valley Power Association ("Wabash"), and CILCO's only wholesale requirements customer, the Village of Riverton, Illinois ("Riverton"), are subject to fixed rate contracts. Regarding transmission rates, Applicants are committing to not seek to include in their respective transmission revenue requirements any transaction-related transmission costs that are not fully offset by transaction-related transmission savings. Finally, the transaction will not lead to the formation of a registered public utility holding company and, consequently, will not alter the effectiveness of state or federal regulation over Applicants. IPL and CILCO will continue to be subject to the same state and FERC jurisdiction as they are now. For the foregoingreasons, and as further explained below, the transaction is in the public interest and should be approved expeditiously without a formal hearing.(4) - --------------- (2) Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act; Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (Dec. 30, 1996), III FERC Stats. & Regs. paragraph 31,044 (1996), recons. denied, 79 FERC paragraph 61,321 (1997) (codified at 18 C.F.R. section 2.26) ("Merger Policy Statement"). (3) As discussed below in Section IV.A.2, CILCO is a member of the Midwest Independent System Operator ("MISO"), and AES commits that IPL, as an AES subsidiary, will join a Regional Transmission Organization ("RTO") as a condition of the transaction if necessary to avoid an evidentiary hearing. (4) In support of their request, Applicants are submitting this Application, including the statements and exhibits required under Part 33 of the Commis sion's regulations, and the direct testimony and work papers of Dr. Hieronymus of PA Consulting Group ("PA"), supporting Applicants' Appen dix A screen analysis. Applicants also are submitting electronically the data required by Appendix B of the Merger Policy Statement. The data inputs used in Dr. Hieronymus' testimony and his supporting work papers are contained in a CD-ROM format enclosed with this Joint Application. Parties desiring to receive a copy of this CD-ROM should contact counsel for Applicants. A second CD-ROM containing PA's CASm model, which is proprietary, is being filed with the Commission pursuant to 18 C.F.R. section 388.112. Applicants request privileged treatment for this second CD-ROM. Intervenors in this proceeding may obtain a copy of the CASm model after entering into a confidentiality agreement with PA, which is attached to the transmittal letter accompanying this filing. II. DESCRIPTION OF APPLICANTS A. AES AES, a Delaware corporation, is a public utility holding company exempt from registration under the Public Utility Holding Company Act of 1935 ("PUHCA") by reason of Section 3(a)(5) of PUHCA.(5) AES is a United States-based multinational electric power generation and distribution company with operations in 20 countries worldwide. It is engaged principally in the development, ownership and operation of electric generating plants and electric distribution companies, and owns or operates more than 49,000 MW of electric generation world-wide. A description of AES's domestic generation facilities and power marketing activities is set forth in Attachment 2. Other activities include the sale of steam and other commodities related to the company's generation operations, as well as operating, construction and project development services and gas and power marketing. AES recently acquired CILCORP, Inc. ("CILCORP"), the parent company of CILCO. CILCO is a combination gas and electric company organized in the state of Illinois. CILCO is a "public utility" within the meaning of FPA Section 201 (e), 16 U.S.C. section 824(e). Its principal place of business is 300 Liberty Street, Peoria, Illinois 61602.(6) CILCO's parent, CILCORP, was acquired last year by AES, making CILCO a wholly-owned indirect subsidiary of AES.(7) - --------------- (5) 15 U.S.C. section 79c(a)(5). See The AES Corporation, SEC Rel. No. 35-27063 (1999). (6) In addition to its ownership interest in CILCO, CILCORP, through subsidiar ies, holds two non-operating investments in electric generating facilities: (1) Springerville Unit 1. CILCORP Lease Management Inc. ("CLM") owns a 7.4257% undivided interest in Springerville Unit 1, a 380-MW coal-fired power plant located in Springerville, Arizona. The plant is operated by Tucson Electric Power ("TEP") and is leased to TEP under a long-term leveraged lease. The lease expires in 2015. CLM is a wholly-owned subsid iary of CILCORP Investment Inc. ("CIM"), which, in turn, is a wholly-owned subsidiary of CILCORP Inc. CLM has no involvement in the operation of Springerville Unit 1; (2) Energy Investors Fund, L.P. CIM Energy Invest ments Inc., a wholly-owned subsidiary of CIM, owns a 3.13% limited partnership interest in Energy Investors Fund, L.P. (the "Fund"). The Fund holds interests in 18 independent power projects. CIM Energy, as a limited partner, has no operating control of the Fund or of the Fund's investments. All of these interests are passive investments. (7) Central Illinois Light Co. and The AES Corporation, 87 FERC paragraph 61,293 (1999). CILCO provides retail electric service to approximately 193,000 customers in central and east central Illinois and provides retail gas service to approximately 202,000 customers in central and east central Illinois. CILCO distributes electricity in Peoria, Pekin and Lincoln, Illinois, and provides natural gas distribution service in Peoria, Pekin and Springfield, Illinois and numerous other communities in central and east central Illinois. CILCO's natural gas service is exempt from the Commission's jurisdiction under the Hinshaw Amendment to the Natural Gas Act. The Illinois Commerce Commission ("ICC") has jurisdiction over the rates, terms and conditions of the retail electric and gas service provided by CILCO. CILCO also provides wholesale electric sales service pursuant to cost- based(8) and market-based(9) tariffs on file with the Commission.(10) CILCO owns about 1,210 MW of generation. CILCO owns approximately 350 miles of 345-kV, 138-kV and 34.5-kV lines which are functionalized as transmission facilities. CILCO is part of the Mid-American Interconnected Network ("MAIN") and is a member of the Midwest Independent Transmission System Operator, Inc. ("MISO"). - --------------- (8) CILCO's cost-based tariff was approved by the Commission's unpublished letter order issued April 25, 1995, in Docket No. ER95-602-000. (9) CILCO's market-based tariff was approved by the Commission's order in Docket No. ER98-2440-000 issued on June 2, 1998. Central Illinois Light Co., 83 FERC paragraph 61,252 (1998). (10) CILCO provides full requirements sales service to one customer, the Village of Riverton, Illinois, pursuant to a contract approved in Docket No. ER96- 1365-000. CILCO provides open access transmission service under a tariff which was approved by the Commission in Docket Nos. OA96-36-000 and OA97-612-000. B. IPALCO IPALCO, an Indiana corporation, is a public utility holding company exempt from registration under PUHCA by reason of Section 3(a)(1) of that Act. IPALCO has two principal wholly-owned subsidiaries, IPL and Mid-America Capital Resources, Inc. IPL operates as an integrated electric utility primarily engaged in the generation, transmission and distribution of reliable and economical electric power to more than 430,000 retail customers in metropolitan Indianapolis and portions of other central Indiana communities in surrounding counties. IPL owns three primarily coal-fired electric generating stations with total net generating capacity of 2,957 MW, one gas-fired peaking plant with a net generating capability of 79 MW, and one steam generating plant with a net generating capability of 19 MW.(11) IPL's electric transmission system consists of 345 kV, 138 kV and 34.5 kV lines designed and constructed to transfer IPL's generation to serve retail load. A map of IPL's transmission system is attached as Exhibit I. IPL's open access transmission tariff has been accepted for filing by FERC.(12) IPL operates its transmission system as a control area within the East Central Area Reliability Council, and is a party to ECAR's Inadvertent Settlement Tariff.(13) IPL engages in transactions in wholesale markets for the purposes of maintaining overall system reliability and minimizing the cost of electric service to its own retail customers. IPL has received FERC authorization to make wholesale sales of electric energy at market-based rates.(14) IPL also owns and operates a district steam service system in downtown Indianapolis, which, in addition to IPL's steam generating plant, IPL has contracted to sell to Citizens. Mid-America Capital Resources, Inc., the holding company for IPALCO's unregulated subsidiaries, was created in April 1984. After a two-year venture in cablevision, Mid-America launched district cooling systems which provide chilled water for air-conditioning services in Indianapolis and Cleveland. A Mid-America subsidiary also produces and distributes steam in Cleveland. Mid- America owns no electric generation or transmission facilities, and is not engaged in the electric energy business. - --------------- (11) The steam generating plant is the Perry K Steam Plant, which is being sold to the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, as trustee of public charitable trust, d/b/a Citizens Gas & Coke Utility ("Citizens"). The Commission approved IPL's transfer of jurisdictional facilities to Citizens by order issued September 26, 2000. Indianapolis Power & Light Co., 92 FERC paragraph 62,257 (2000). Upon consum mation of IPL's sale of Perry K to Citizens, IPL will purchase the generation under a five-year contract. The Perry K generation is included in Dr. Hieronymus' analysis as an IPL facility. (12) Indianapolis Power & Light Co., 90 FERC paragraph 61,180 (2000), settlement approved, 92 FERC paragraph 61,236 (2000). (13) East Central Area Reliability Council, 91 FERC paragraph 61,197 (2000). (14) Id. III. DESCRIPTION OF THE PROPOSED TRANSACTION On July 15, 2000, IPALCO and AES entered into an Agreement and Plan of Share Exchange (the "Share Exchange Agreement") whereby AES will acquire IPALCO for $25.00 per share in a stock-for-stock transaction valued at approximately $2.15 billion plus the assumption of approximately $890 million of debt and preferred stock. As a result of the transaction, IPL will become affiliated with AES's public utility subsidiaries, including CILCO.(15) Under the terms of the Share Exchange Agreement, upon closing, each share of IPALCO common stock will be exchanged for a number of AES shares such that IPALCO shareholders will receive a fixed value of $25.00 per IPALCO share, subject to adjustment as described below. The final exchange ratio will be determined five business days prior to closing, based upon the average daily closing prices of AES common stock for the preceding twenty trading days, and is capped at 0.794 AES shares per IPALCO share, subject to adjustment as described below. If the effective price at the closing per IPALCO share would be less than $21, IPALCO has the right to terminate the transaction. The transaction is expected to be tax free to IPALCO shareholders. Upon closing, IPALCO will become a wholly-owned subsidiary of AES with its headquarters remaining in Indianapolis. The transaction is subject to certain conditions, including receipt of the approval of IPALCO shareholders and receipt of the regulatory approval of the Commission and the Securities and Exchange Commission ("SEC"),(16) and expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended). AES also must obtain a certification from the Indiana Utility Regulatory Commission pursuant to Section 33 of PUHCA relating to its investments in foreign utility companies.(17) The parties anticipate receiving regulatory approvals and closing the transaction by early 2001. If the closing of the transaction is delayed beyond March 31, 2001, because of delay in receiving SEC regulatory approvals, and all other conditions are satisfied, the $25.00 purchase price per IPALCO share will be increased by $0.15 plus a daily increase equal to $0.375 per calendar quarter. - --------------- (15) IPALCO shareholders voted on October 20, 2000 in favor of this transaction. (16) AES also has committed, if required by the SEC as a condition to issuance of the requisite orders, to enter into an agreement with an unaffiliated person within three years of completion of the transaction to divest all assets of CILCO subject to SEC jurisdiction. See The AES Corporation, Form U-1 Application, SEC File No. 70-9779, filed Oct. 27, 2000, at 3, 12. (17) The Indiana Utility Regulatory Commission provided this certification by letter dated September 28, 2000. IV. THE PROPOSED TRANSACTION IS CONSISTENT WITH THE PUBLIC INTEREST The Commission's Merger Policy Statement provides that it will consider the effects of potential mergers on competition, rates, and regulation. A. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON COMPETITION As summarized below and explained fully in Dr. Hieronymus' testimony, the analysis demonstrates that the proposed transaction will have no adverse effect on competition. In reaching this conclusion, Dr. Hieronymus applied the thresholds adopted by the antitrust agencies and FERC. If these thresholds are not exceeded, it is generally concluded that the transaction will not adversely impact competition and that no further review of the transaction is necessary. Here, Dr. Hieronymus found no violation of the thresholds in any market or time period. To test the robustness of this result, Dr. Hieronymus conducted a number of sensitivities and found that the results basically are unchanged, suggesting that the conclusions are valid under different assumptions regarding data inputs and market structure. Dr. Hieronymus analyzed the competitive effects of the proposed transaction by following the approach outlined by FERC in the Merger Policy Statement and Appendix A. There, the Commission stated that it has adopted the Department of Justice/Federal Trade Commission ("DOJ/FTC") Horizontal Acquisition Guidelines ("Guidelines") as the appropriate analytical framework for evaluating the effects of an acquisition on competition. Dr. Hieronymus, therefore, also has drawn on his understanding of the Guidelines in performing his analysis. Dr. Hieronymus utilized PA's Competitive Analysis Screening model ("CASm") to perform his analysis, which implements the delivered price test and other calculations required in Appendix A. The primary focus of Dr. Hieronymus' testimony is the potential horizontal market power effects arising from the combination of Applicants' electric generating assets. He examines whether the transaction could result in creating or enhancing Applicants' ability to increase prices in the electricity market. Dr. Hieronymus also evaluated potential vertical market power concerns between the electric generation and transmission stages of production. 1. HORIZONTAL MARKET POWER a. PRODUCT MARKETS AND TIME PERIODS The first step in the Commission's analysis is to identify one or more products sold by the combining entities. Consistent with prior cases and Commission policies, Dr. Hieronymus concluded that the product markets relevant to the analysis of competition in this case included a single market for non-firm energy and short term capacity, which was evaluated with respect to economic capacity and available economic capacity over a broad range of prices. Dr. Hieronymus concluded that long-term capacity need not be analyzed as a separate product, because he finds no barriers to entry in the long-term capacity market and that Applicants could not erect any barriers to such entry. Dr. Hieronymus examined 11 time periods for both the economic capacity and available economic capacity measures; the periods were selected to reflect a broad range of system conditions. These time periods include: three summer super-peak periods, super-peak periods for the winter and shoulder seasons, and on-peak and off-peak periods for the summer, winter and shoulder seasons. Each of these markets is distinguished based upon season and market price. Dr. Hieronymus evaluated conditions assuming destination market prices ranging from $15/MWh in the winter and shoulder off-peak periods to $100/MWh in the summer highest peak period. This broad range of prices and time periods should be reflective of a sufficient range of system conditions, thus capturing a full picture of the transaction's effect on competition. b. DESTINATION MARKETS To examine geographic markets, the Commission traditionally has focused on those electric customers that are directly connected to Applicants (or the utility system where Applicants' generating resources are located). Each utility (or grouping of utilities in a holding company or regional transmission organization with "non-pancaked" transmission rates) that is directly interconnected to Applicants' system is considered a separate "destination market" for which pre- and post- transaction market concentration levels are computed. Additionally, the Commission has indicated that indirectly connected utilities who historically (within two years)have been customers of Applicants also are potential "destination markets." Merger Policy Statement at 30,130. Dr. Hieronymus analyzed ten destination markets that potentially could be affected by the transaction: CILCO (including CILCO-TDU); Ameren, Commonwealth Edison ("ComEd"), Illinois Power ("IP") and Springfield, Illinois City Water Power & Light ("CWLP") (all of which are first-tier utilities of CILCO); IPL (including IPL-TDU); and American Electric Power ("AEP"), Cinergy, Hoosier Energy Rural Electric Cooperative ("Hoosier") and Southern Indiana Gas & Electric ("SIGE"). The two other utilities with which IPL is interconnected, Indiana Municipal Power Agency ("IMPA"), and Wabash Valley Power Association ("Wabash"), were included as part of the Cinergy-TDU node. Based on a review of Applicants' sales during 1998 and 1999, Dr. Hieronymus found no other potential destination markets in which Applicants made more than de minimis sales. c. RESULTS OF HORIZONTAL ANALYSIS (1) ECONOMIC CAPACITY Dr. Hieronymus analyzed the competitive impact of combining the generation resources (owned or controlled) of AES/CILCO and IPL. Again, CILCO owns about 1,210 MW of generation and IPL owns about 3,055 MW of generation. Dr. Hieronymus also attributed to Applicants any generation purchased pursuant to long-term contract. Also included in Dr. Hieronymus' analysis is about 4,500 MW of additional capacity owned by AES either in operation or planned to be operating within the next few years in the Eastern Interconnection. Nearly all that capacity is located in New England, New York, PJM, California, Ontario and SPP and is too remote from the relevant markets in this instance to be a significant factor in the market power analysis. As noted in Attachment 2, most of the output from these AES units is committed to third parties under long-term contracts. However, as a conservative assumption, Dr. Hieronymus has attributed all of the capacity from these units to AES in his analysis. This conservative treatment was done principally to avoid the Commission having to review the specific long-term contracts. CILCO is modeled as a member of the MISO. Dr. Hieronymus modeled the competitive impacts of the merger under several different assumptions regarding IPL's RTO membership. In the base case (Exhibit WHH-2), IPL is assumed not to be a member of any RTO. Dr. Hieronymus evaluated the impact of IPL joining the MISO or the Alliance RTO in two ways. First, he assumed IPL was a member of the relevant RTO based on existing RTO membership lists. See Exhibits WHH-4 (IPL joining MISO) and WHH-5 (IPL joining Alliance). Second, Dr. Hieronymus performed the same analysis, except that he assumed that Illinois Power and Commonwealth Edison switched from the MISO to the Alliance RTO. See Exhibits WHH-5 (IPL joining MISO) and WHH-6 (IPL joining Alliance).(18) - --------------- (18) Illinois Power and Commonwealth Edison recently announced their intention to switch to the Alliance RTO. Dr. Hieronymus explains that he did not include Ameren as a member of the Alliance RTO, despite its recently- announced intention to join the Alliance RTO, because the resulting RTO configuration would not appear to be sustainable. While the final RTO configurations in the region are unclear at this time, Dr. Hieronymus believes that the sensitivity analyses he conducted provide indicators of the impact of the transaction under a broad range of alternative RTO configurations. The results for the base case analysis (IPL not a member of an RTO), show that the largest HHI changes are 14 in the concentrated CILCO market and 11 in the concentrated IPL market. These HHI changes are well below the safe-harbor threshold of 50. The impact of the transaction on other destination markets is de minimis in all time periods studied; the highest HHI change is 4. Dr. Hieronymus explains that these results are not surprising given the relatively small size of the Applicants and their historical lack of interaction. CILCO owns or controls 1,210 MW, while there are about 58,000 MW in the MAIN NERC region. IPALCO owns 3,055 MW, while there are about 110,000 MW in the ECAR NERC region. Thus, the combined company will own less than three percent of the combined capacity of the two NERC regions (ECAR and MAIN) to which they belong. As described above, Dr. Hieronymus conducted four RTO sensitivity analyses and found that these differing RTO assumptions did not significantly change the results of his base case analysis. See Exhibits WHH-4, 5, 6, and 7. Dr. Hieronymus also performed transmission sensitivity analyses to test his results. First, he assumed zero transmission rates, which shows the effects of market enlargement. Second, he assumed that full TTCs, rather than ATCs, were available to interconnect markets. In both scenarios, he found that the proposed transaction raised no competitive concerns. See Exhibits WHH-16 and 17. (2) AVAILABLE ECONOMIC CAPACITY Dr. Hieronymus also analyzed the effects of the transaction on competition using the available economic capacity measure. The only difference between the economic capacity measure and available economic capacity measure is that the latter accounts for retained load obligations. Dr. Hieronymus believes that the available economic capacity measure is losing its usefulness and, at least in the case of this transaction, an analysis requires speculative and potentially contentious assumptions concerning, inter alia, the pace of elimination of retail native load obligations for utilities throughout the affected regions.(19) Noting the Commission's concerns about the use of hypothetical assumptions regarding the extent of retail access,(20) Dr. Hieronymus assumes that each utility retains its full, historic load responsibility. The results of this analysis, set forth in Exhibit WHH-3, show that all of the indicators are well below the Commission's safe harbor levels. - --------------- (19) The Commission has stated that it has "not concluded that available economic capacity is a superior measure upon which to base our merger review deci sions" and, rather, has based its analysis on economic capacity. Ohio Edison Co., 81 FERC paragraph 61,110, at 61,405 (1997). (20) See EME Homer City Generation, L.P., 86 FERC paragraph 61,016 (1999). (3) TOTAL CAPACITY Dr. Hieronymus also conducted an analysis using the total capacity measure, which is the total capacity owned or controlled by a supplier.(21) Under the total capacity measure, capacity owned by a supplier that is committed under long- term contracts is subtracted from the amount of capacity owned by a supplier.(22) Dr. Hieronymus explains that the Commission's traditional hub-and-spoke methodology could not be used directly in this instance because neither CILCO or IPL would qualify as being in common markets, given the transmission network around Applicants. He constructed the narrowest possible geographic market by including CILCO, IPL and their directly interconnected utilities. The results of this analysis, set forth in Exhibit WHH-18, show that Applicants' combined market share is about five percent and the change in market concentration (using the HHI indicator) is 9, which is well below the Commission's safe harbor levels. - --------------- (21) The Commission has stated that the total capacity measure, while providing a sense of the overall size of a supplier in a market, "does not account for native load obligations and does not capture the availability or cost of genera tion, and thus is not useful for a delivered price test analysis." Merger Policy Statement at 30,132. (22) As discussed above, throughout his analysis, Dr. Hieronymus did not subtract capacity sold by Applicants under long-term contracts from Applicants' owned capacity. This is a conservative assumption because it results in Applicants being attributed capacity which they do not control. (4) UNCOMMITTED CAPACITY Uncommited capacity is the amount of capacity owned or controlled by a supplier minus the capacity that is committed to serve native load and firm contractual obligations. Merger Policy Statement at 30,132. Dr. Hieronymus concludes that the proposed transaction raises no competitive issues regarding uncommitted capacity because neither CILCO nor IPL has uncommitted capacity, even assuming conservative reserve margins. See Exhibit WHH-19. Dr. Hieronymus notes that the uncommitted capacity measure, which is developed by subtracting a utility's native load obligation, may not be a reliable indicator in cases, as here,(23) where retail restructuring may reduce or eliminate a utility's native load obligation.(24) - --------------- (23) CILCO's service territory, located in Illinois, is undergoing retail restructuring. (24) See EME Homer City Generation, L.P., 86 FERC paragraph 61,016, at 61,039 (1999). 2. VERTICAL MARKET POWER Dr. Hieronymus concludes that this transaction does not raise any significant vertical market power concerns. First, regarding control over transmission, AES's only transmission-owning company, CILCO, is a member of the FERC-approved MISO, which is scheduled to begin operations in November 2001. CILCO has committed to creating an independently owned and governed institution under the MISO to which it will turn over its retained control area operator functions. IPALCO's transmission-owning utility, IPL, currently is not a member of an RTO and, as explained in its Order 2000 compliance filing, has elected not to participate in an RTO at this time. However, if necessary to avoid an evidentiary hearing, AES commits that IPL, as an AES subsidiary, will join an RTO as a condition of the transaction. These RTO commitments should be sufficient to extinguish any vertical market power issues arising from control of transmission. Second, Dr. Hieronymus concludes that neither Applicant controls significant fuels supplies or fuels delivery systems that could be used to exercise market power. IPL does not own or control any fuel supply or transportation resources that could be used to prevent entry. CILCO does provide natural gas transportation service to electric generating facilities, however, the units served by CILCO also are owned by CILCO and do not confer any additional ability for CILCO to exercise market power. See Exhibit WHH-10. Dr. Hieronymus concludes that CILCO's natural gas transportation assets do not warrant even a threshold concern regarding vertical foreclosure. Third, neither Applicant possesses a monopoly over potential generation sites that would impact the Commission's prior finding that the long-term market for generation is competitive.(25) Dr. Hieronymus finds substantial evidence that additional entry of more than 17,000 MW of planned new generating capacity either has entered the market or is planned to enter service by around 2001 in just ECAR and MAIN.(26) - --------------- (25) Order No. 888, at 31,649 n.86. (26) In the delivered price test, Dr. Hieronymus included about 6,500 MW of planned generation capacity, representing only those units that are most likely to be installed, given milestones reached to date. B. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON RATES In the Merger Policy Statement, the Commission states that it "will focus on ratepayer protection."(27) IPL has one wholesale requirements and transmission customer, Wabash Valley Power Association. IPL's contract with Wabash has fixed demand and energy rates during the term of the contract and does not give IPL section 205 rights to alter those rates. In these circumstances, the Commission has found that no ratepayer protection mechanisms are necessary.(28) AES has no captive customers. In its 1999 order approving the AES/CILCO merger, the Commission found that the merger would not adversely affect (i) the rates of CILCO's one wholesale requirement customer, Riverton, which is subject to a fixed rate contract, (ii) the transmission rates of Corn Belt Electric Cooperative, a transmission dependent utility of CILCO, which also is subject to a fixed rate contract, or (iii) the rates charged by AES affiliates owning QFs and EWGs, which AES cannot change unilaterally.(29) The Commission should reach the same conclusion here. Regarding transmission rates, AES committed in its merger with CILCO that CILCO would not seek and increase in its transmission rates or its MISO rates for four years following the merger consummation. IPL commits to not seek to include in its transmission revenue requirement any transaction-related transmission costs that are not fully offset by transaction-related transmission savings for five years following consummation of the transaction. CILCO also commits that when the MISO transmission tariff goes into effect, it will notify the MISO of any such transaction-related costs not offset by transaction-related transmission savings so that the MISO can exclude such costs from CILCO's zonal rates and for computation of MISO average rates. - --------------- (27) Merger Policy Statement, at 30,123. (28) See Union Electric Co. and Central Illinois Public Service Co., 81 FERC paragraph 61,011, at 61,066 (1997). (29) Central Illinois Light Co. and The AES Corp., 87 FERC paragraph 61,293, at 62,161 (1999). C. THE TRANSACTION WILL HAVE NO ADVERSE EFFECT ON REGULATION Because IPL will retain its independent corporate form, the transaction will not result in the loss of jurisdiction over retail rates and terms and conditions of service for the only state that regulates it, Indiana. Similarly, IPL's wholesale sales and transmission services will remain fully subject to this Commission's jurisdiction following the transaction. The transaction also will not affect the Commission's continuing jurisdiction over AES's power marketers or CILCO. Nor will the transaction affect state or FERC jurisdiction over CILCO. AES will not become a registered holding company as a result of the transaction and, thus it will not affect the jurisdiction of the Commission to regulate Applicants or their subsidiaries in relation to possible regulation by the SEC. V. INFORMATION REQUIRED BY 18 C.F.R. SECTION 33.2 (a) THE EXACT NAMES AND ADDRESSES OF THE PRINCIPAL BUSINESS OFFICES OF APPLICANTS: The AES Corporation IPALCO Enterprises, Inc. 1001 N. 19th Street, 20th Floor One Monument Circle Arlington, VA 22209 Indianapolis, IN 46204 (b) NAME AND ADDRESS OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS IN RESPECT TO APPLICATION William R. Luraschi Bryan G. Tabler General Counsel and Secretary Marline R. Breece The AES Corporation IPALCO Enterprises, Inc. 1001 N. 19th Street, 20th Floor One Monument Circle Arlington, VA 22209 Indianapolis, IN 46204 Mike Naeve J. A. Bouknight, Jr. Mary Margaret Farren Gary A. Morgans Skadden, Arps, Slate, Meagher Steptoe & Johnson LLP & Flom LLP 1330 Connecticut Avenue, N.W. 1440 New York Avenue, N.W. Washington, D.C. 20036-1795 Washington, D.C. 20005-2111 (c) DESIGNATION OF TERRITORIES SERVED, BY COUNTY AND STATE. CILCO provides electric service entirely within the state of Illinois, in the following counties: Fulton, Knox, McLean, Marshall, Mason, Peoria, Putnam, Stark, Tazewell, Woodford, Champaign, DeWitt, Douglas, Edgar, Logan, Moultrie, Piatt, Sangamon and Vermilion. None of AES's other United States subsidiaries have franchised service territories. IPL provides electric service entirely within the state of Indiana. IPL renders service in all or parts of the following counties in central Indiana: Boone, Hamilton, Hancock, Hendricks, Johnson, Marion, Morgan, Owen, Putnam, and Shelby. (d) GENERAL STATEMENT BRIEFLY DESCRIBING THE FACILITIES OWNED OR OPERATED FOR TRANSMISSION OF ELECTRIC ENERGY IN INTERSTATE COMMERCE OR THE SALE OF ELECTRIC ENERGY AT WHOLESALE IN INTERSTATE COMMERCE. See Section II above. (e) WHETHER THE APPLICATION IS FOR DISPOSITION OF FACILITIES BY SALE, LEASE, OR OTHERWISE, A MERGER OR CONSOLIDATION OF FACILITIES, OR FOR PURCHASE OR ACQUISITION OF SECURITIES OF A PUBLIC UTILITY, ALSO A DESCRIPTION OF THE CONSIDERATION, IF ANY, AND THE METHOD OF ARRIVING AT THE AMOUNT THEREOF. Applicants request any approvals that may be needed under the FPA to effectuate the acquisition of IPALCO by AES. Section III above describes the consideration for the transaction. (f) A STATEMENT OF FACILITIES TO BE DISPOSED OF, CONSOLIDATED, OR MERGED, GIVING A DESCRIPTION OF THEIR PRESENT USE AND OF THEIR PROPOSED USE AFTER DISPOSITION, CONSOLIDATION OR MERGER INCLUDING ALL THE OPERATING FACILITIES OF THE PARTIES TO THE TRANSACTION. Section II above describes IPL's facilities. Under the terms of the Share Exchange Agreement, AES will acquire all of the operating facilities of IPL. All affected jurisdictional facilities will be operated after the consummation of the proposed transaction in substantially the same manner as they are operated currently. (g) A STATEMENT (IN THE FORM PRESCRIBED BY THE COMMISSION'S UNIFORM SYSTEM OF ACCOUNTS FOR PUBLIC UTILITIES AND LICENSEES) OF THE COST OF THE FACILITIES INVOLVED IN THE SALE, LEASE, OR OTHER DISPOSITION OR MERGER OR CONSOLIDATION. IF ORIGINAL COST IS NOT KNOWN, AN ESTIMATE OF ORIGINAL COST BASED, INSOFAR AS POSSIBLE, UPON RECORDS OR DATA OF THE APPLICANT OR ITS PREDECESSORS MUST BE FURNISHED, TOGETHER WITH A FULL EXPLANATION OF THE MANNER IN WHICH SUCH ESTIMATE HAS BEEN MADE, AND A DESCRIPTION AND STATEMENT OF THE PRESENT CUSTODY OF ALL EXISTING PERTINENT DATA AND RECORDS. The transaction will involve all of IPL's jurisdictional facilities. The jurisdictional facilities of Applicants that are accounted for pursuant to the Commission's Uniform System of Accounts will continue to be accounted for in that manner following the transaction. Original cost is the basis for the valuation on Applicants' books and records of Applicants' utility plant in service. Statements of the utility plant in service and the cost thereof were filed by Applicants with the Commission as part of their Form 1 data, and Applicants request a waiver of the requirement that this data be filed again as part of this Application. (h) A STATEMENT AS TO THE EFFECT OF THE PROPOSED TRANSACTION UPON ANY CONTRACT FOR THE PURCHASE, SALE, OR INTERCHANGE OF ELECTRIC ENERGY. Applicants do not expect the transaction to have any effect upon any existing contracts for the purchase, sale or interchange of electric energy. (i) A STATEMENT AS TO WHETHER OR NOT ANY APPLICATION WITH RESPECT TO THE TRANSACTION OR ANY PART THEREOF IS REQUIRED TO BE FILED WITH ANY OTHER FEDERAL OR STATE REGULATORY BODY. The transaction requires: (i) approval of the SEC, pursuant to Section 9(a)(2) of PUHCA; (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) a certification from the Indiana Utility Regulatory Commission pursuant to Section 33 of PUHCA relating to AES's investments in foreign utility companies; and (iv) approval of the Federal Communications Commission for the transfer of FCC licenses. Also, AES is seeking an SEC determination that, following the transaction, AES and each of its subsidiaries will continue to be exempt from the provisions of PUHCA, other than Sections 9(a)(2) and 10, under Section 3(a)(5). (j) THE FACTS RELIED UPON BY APPLICANTS TO SHOW THAT THE PROPOSED DISPOSITION, MERGER, OR CONSOLIDATION OF FACILITIES OR ACQUISITION OF SECURITIES WILL BE CONSISTENT WITH THE PUBLIC INTEREST. The instant application, with accompanying attachments and exhibits, provides the facts relied upon by Applicants to show that the transaction will be consistent with the public interest. (k) A BRIEF STATEMENT OF FRANCHISES HELD, SHOWING DATE OF EXPIRATION IF NOT PERPETUAL. IPL does not hold any franchises. IPL possesses an indeterminate permit pursuant to Indiana Code section 8-1-2 under which the utility provides retail electric service and is the exclusive electricity supplier in its assigned service area established pursuant to Indiana Code section 8-1-2.3. CILCO holds a franchise for the retail sale of electricity in Illinois. (1) A FORM OF NOTICE SUITABLE FOR PUBLICATION IN THE FEDERAL REGISTER, AS WELL AS A COPY OF THE SAME NOTICE IN ELECTRONIC FORMAT. A form of notice suitable for publication in the Federal Register is set forth at Attachment 3 to this Application and a diskette copy is included. VI. EXHIBITS REQUIRED BY 18 C.F.R. SECTION 33.3 The following exhibits are attached pursuant to Section 33.3 of the Commission's Regulations: EXHIBIT A. COPIES OF ALL RESOLUTIONS OF DIRECTORS AUTHORIZING THE PROPOSED DISPOSITION, MERGER, OR CONSOLIDATION OF FACILITIES, OR ACQUISITION OF SECURITIES, IN RESPECT TO WHICH THE APPLICATION IS MADE, AND, IF APPROVAL OF STOCKHOLDERS HAS BEEN OBTAINED, COPIES OF THE RESOLUTIONS OF THE STOCKHOLDERS SHOULD ALSO BE FURNISHED SECURING ANY OBLIGATION OF EACH PARTY TO THE TRANSACTION. Applicants respectfully request a waiver of the requirement to file the corporate resolutions called for by Exhibit A of the Commission's regulations. 18 C.F.R. section 33.3 (1999). Such resolutions would not be required by the Merger NOPR.(30) - --------------- (30) Merger NOPR at 33,364. EXHIBIT B. A STATEMENT OF THE MEASURE OF CONTROL OR OWNERSHIP EXERCISED BY OR OVER EACH PARTY TO THE TRANSACTION AS TO ANY PUBLIC UTILITY, OR BANK, TRUST COMPANY, BANKING ASSOCIATION, OR FIRM THAT IS AUTHORIZED BY LAW TO UNDERWRITE OR PARTICIPATE IN THE MARKETING OF SECURITIES OF A PUBLIC UTILITY, OR ANY COMPANY SUPPLYING ELECTRIC EQUIPMENT TO SUCH PARTY. WHERE THERE ARE ANY INTERCORPORATE RELATIONSHIPS THROUGH HOLDING COMPANIES, OWNERSHIP OF SECURITIES OR OTHERWISE, THE NATURE AND EXTENT OF SUCH RELATIONSHIP; ALSO STATE WHETHER ANY OF THE PARTIES TO THE TRANSACTION HAVE OFFICERS OR DIRECTORS IN COMMON. IF NOT A MEMBER OF ANY HOLDING COMPANY SYSTEM, INCLUDE A STATEMENT TO THAT EFFECT. Attached at Exhibit B. EXHIBIT C. BALANCE SHEETS AND SUPPORTING PLANT SCHEDULES FOR THE MOST RECENT 12 MONTH PERIOD ONLY, ON AN ACTUAL BASIS AND ON A PRO FORMA BASIS IN THE FORM PRESCRIBED FOR STATEMENT A AND B OF THE FPC ANNUAL REPORT FORM NO. 1, PRESCRIBED BY SECTION 141.1 OF THIS CHAPTER. THE ADJUSTMENTS NECESSARY TO ARRIVE AT THE PRO FORMA STATEMENTS SHOULD BE CLEARLY IDENTIFIED. In the Merger NOPR, the Commission proposed to limit the accounting data to be supplied with an application to: proposed accounting entries showing the effect of the transaction with sufficient detail to indicate the effects on all account balances (including amounts transferred on an interim basis), the effect on the income statement, and the effects on other relevant financial statements. Proposed Section 33.5, IV FERC Stats. and Regs. paragraph 32,528 at 33,398. Because the transaction will not affect either IPL's or CILCO's account balances, Applicants request a waiver of the requirement to file accounting entries. Applicants request that the Commission waive the filing of any other information that may be required by the existing merger regulations. Most of such information was filed by Applicants with the Commission as part of their Form 1, and is available both to the Commission and the general public. EXHIBIT D. A STATEMENT OF ALL KNOWN CONTINGENT LIABILITIES EXCEPT MINOR ITEMS SUCH AS DAMAGE CLAIMS AND SIMILAR ITEMS INVOLVING RELATIVELY SMALL AMOUNTS, AS OF THE DATE OF THE APPLICATION. For the reasons described above, Applicants request waiver of the requirement to file such information. EXHIBIT E. INCOME STATEMENT FOR THE MOST RECENT 12 MONTH PERIOD ONLY, ON AN ACTUAL BASIS AND ON A PRO FORMA BASIS IN THE FORM PRESCRIBED FOR STATEMENT C OF THE FPC ANNUAL REPORT FORM NO. 1 PRESCRIBED BY SECTION 141.1 OF THIS CHAPTER. THE ADJUSTMENTS NECESSARY TO ARRIVE AT THE PRO FORMA STATEMENTS SHOULD BE CLEARLY IDENTIFIED. For the reasons described above, Applicants request waiver of the requirement to file such information. EXHIBIT F. AN ANALYSIS OF RETAINED EARNINGS FOR THE PERIOD COVERED BY THE INCOME STATEMENTS REFERRED TO IN EXHIBIT E. For the reasons described above, Applicants request waiver of the requirement to file such information. EXHIBIT G. A COPY OF EACH APPLICATION AND EXHIBIT FILED WITH ANY OTHER FEDERAL OR STATE REGULATORY BODY IN CONNECTION WITH THE PROPOSED TRANSACTION, AND IF ACTION HAS BEEN TAKEN THEREON, A CERTIFIED COPY OF EACH ORDER RELATING THERETO. In its Merger NOPR, the Commission suggested that it would not be necessary for Applicants to submit copies of their applications filed with other regulatory agencies provided that copies of the orders in response to the applications are filed when received. Merger NOPR at 33,364. Because the provisions of the Merger NOPR are not yet implemented, Applicants request a waiver of the requirement to file any applications that may be filed before other agencies. Applicants will, consistent with the Merger NOPR, provide the Commission with copies of any other regulatory approvals. EXHIBIT H. A COPY OF ALL CONTRACTS IN RESPECT TO THE SALE, LEASE, OR OTHER PROPOSED DISPOSITION, MERGER OR CONSOLIDATION OF FACILITIES, OR PURCHASE OF SECURITIES, AS THE CASE MAY BE, TOGETHER WITH COPIES OF ALL OTHER WRITTEN INSTRUMENTS ENTERED INTO OR PROPOSED TO BE ENTERED INTO BY THE PARTIES TO THE TRANSACTION PERTAINING THERETO. A copy of the Agreement and Plan of Share Exchange is attached at Exhibit H. EXHIBIT I. A GENERAL OR KEY MAP ON A SCALE OF NOT MORE THAN 20 MILES TO THE INCH SHOWING IN SEPARATE COLORS THE PROPERTIES OF EACH PARTY TO THE TRANSACTION, AND DISTINGUISHING SUCH PARTS OF THEM AS ARE INCLUDED IN THE PROPOSED DISPOSITION, CONSOLIDATION OR MERGER. THE MAP SHOULD ALSO CLEARLY INDICATE ALL INTERCONNECTIONS AND THE PRINCIPAL CITIES OF THE AREA SERVED. WHENEVER POSSIBLE, THE MAP SHOULD NOT BE OVER 30 INCHES IN ITS LARGEST DIMENSION. Maps of the utility service territories is provided at Exhibit I. VII. REQUEST FOR EXPEDITED CONSIDERATION As discussed above, this transaction raises no significant issues regarding competition, rates, or the effectiveness of federal or state regulation. The Commission recognized in its Merger Policy Statement that "as the pace of industry change increases, market participants require greater regulatory certainty and expedition of regulatory action in order to respond quickly to rapidly changing market conditions." III FERC Stats. & Regs. at 30,111. Because this transaction will have no adverse effects on competition, rates or regulation, to attain the benefits of certainty at the earliest practicable time, and to meet the scheduled time for consummation, Applicants respectfully request that the Commission grant the instant application. Applicants respectfully request that the Commission approve the proposed transaction by February 15, 2001. VIII. CONCLUSION For the reasons set forth above, Applicants respectfully request that the Commission grant this application by February 15, 2001. Respectfully submitted, ------------------------- J. A. Bouknight, Jr. Mike Naeve Gary A. Morgans Mary Margaret Farren Steptoe & Johnson, LLP Skadden, Arps, Slate, Meagher 1330 Connecticut Avenue, N.W. & Flom LLP Washington, D.C. 20036-1795 1440 New York Avenue, N.W. (202) 429-6222 Washington, D.C. 20005-2111 (202) 429-3902 (fax) (202) 371-7070 lbouknight@steptoe.com (202) 371-7939 (fax) gmorgans@steptoe.com mnaeve@skadden.com mfarren@skadden.com Counsel for IPALCO Counsel for AES Bryan G. Tabler William R. Luraschi Marline R. Breece Robert A. Venerus IPALCO Enterprises, Inc. The AES Corporation One Monument Circle 1001 N. 19th Street, 20th Floor Indianapolis, IN 46204 Arlington, VA 22209 (317) 261-5134 (703) 522-1315 (317) 261-8288 (fax) (703) 528-4510 (fax) btabler@ipalco.com mbreece@ipalco.com ATTACHMENT 1 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION THE AES CORPORATION ) ) DOCKET NO. EC01-___-000 ) AND ) ) IPALCO ENTERPRISES, INC. ) ) JOINT APPLICATION OF THE AES CORPORATION AND IPALCO ENTERPRISES, INC. FOR APPROVAL OF MERGER PREPARED DIRECT TESTIMONY AND EXHIBITS OF WILLIAM H. HIERONYMUS ON BEHALF OF APPLICANTS DIRECT TESTIMONY OF WILLIAM H. HIERONYMUS TABLE OF CONTENTS I. INTRODUCTION II. PURPOSE AND DESCRIPTION OF APPLICANTS' PROPOSAL AND SUMMARY OF ANALYSIS AND CONCLUSIONS PURPOSE.......................................................... APPLICANTS' MERGER PROPOSAL...................................... SUMMARY OF ANALYSIS AND CONCLUSIONS.............................. ORGANIZATION OF TESTIMONY........................................ III. DESCRIPTION OF THE PARTIES AES.............................................................. IPALCO........................................................... IV. FRAMEWORK FOR THE ANALYSIS V. DESCRIPTION OF METHODOLOGY VI. IMPACT OF THE MERGER ON COMPETITION HORIZONTAL MARKET POWER.......................................... ECONOMIC CAPACITY................................................ AVAILABLE ECONOMIC CAPACITY...................................... TOTAL CAPACITY................................................... UNCOMMITTED CAPACITY............................................. VERTICAL MARKET POWER............................................ OTHER POTENTIAL MARKET POWER ISSUES.............................. VII. CONCLUSION 1. INTRODUCTION Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is William H. Hieronymus. My business address is PA Consulting Group ("PA"), One Memorial Drive, Cambridge, Massachusetts 02142. Q. BY WHOM ARE YOU EMPLOYED? A. I am a Member of the Management Group of PA. PA is a leading management, systems and technology consultancy. Q. WHAT IS YOUR EDUCATIONAL BACKGROUND AND WORK EXPERIENCE? A. I received my Bachelor's degree from the University of Iowa in 1965, my Master's degree in economics in 1967 and a Doctoral degree in economics in 1969 from the University of Michigan, where I was a Woodrow Wilson Fellow and National Science Foundation Fellow. After serving in the U.S. Army, I began my consulting career. In 1973, I joined Charles River Associates Inc. as a specialist in antitrust economics. By the mid-1970s my focus was principally on the economics of energy and network industries. In 1978, I joined Putnam Hayes & Bartlett, Inc., where my consulting practice has focused almost exclusively on network industries, particularly electric utilities. Putnam, Hayes & Bartlett, Inc. merged with Hagler Bailly, Inc. in 1998. Hagler Bailly was acquired by PA in October, 2000. During the past 25 years, I have completed numerous assignments for electric utilities; state and federal government agencies and regulatory bodies; energy and equipment companies; research organizations and trade associations; independent power producers and investors; international aid and lending agencies; and foreign governments. While I have worked on most economics-related aspects of the utility sector, a major theme has been public policies and their relation to the operation of utility companies. Since about 1988, the main focus of my consulting has been on electric utility industry restructuring, regulatory innovation and privatization. In that year, I began work on the restructuring and privatization of the electric utility industry of the United Kingdom. I also led a major study of the reorganization of the New Zealand electricity sector, focusing mainly on competition issues in the generating sector. Following privatization of the U.K. industry in 1990, I continued to work in the United Kingdom and was involved in restructuring studies concerning the former Soviet Union, Eastern Europe, the European Union and specific European countries. In 1993, I returned to the United States, where I have worked primarily on utility restructuring and regulatory reform. In this context, I have testified before FERC and state commissions on market power issues concerned with several electric utility mergers (including convergence mergers), Regional Transmission Organization ("RTO") tariff filings, sale and purchase of jurisdictional assets and market rate applications. More generally, I have testified before state and federal regulatory commissions, federal and state courts and legislatures on numerous matters concerning the electric utility and other network industries. My resume is included as Exhibit No. WHH-1. 2. PURPOSE AND DESCRIPTION OF APPLICANTS' PROPOSAL AND SUMMARY OF ANALYSIS AND CONCLUSIONS PURPOSE Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. I have been asked by The AES Corporation ("AES") and IPALCO Enterprises, Inc. ("IPALCO") (collectively, the "Applicants") to determine the potential competitive impact of their proposed transaction on electricity markets (for ease of reference, I will refer to the Applicants' proposed transaction as a merger). I performed the Competitive Analysis Screen described in Appendix A to the Commission's Merger Policy Statement ("Order No. 592"),(1) which in turn is intended to comport with the Department of Justice and Federal Trade Commission ("DOJ/FTC") Horizontal Merger Guidelines ("Guidelines"). As appropriate, my testimony also takes into consideration the Commission's Notice of Proposed Rulemaking ("Merger NOPR").(2) - ---------------- 1 Order No. 592, Inquiry Concerning the Commission's Merge Policy Under the Federal Power Act: Policy Statement, FERC Stats. & Regs. (Regulations Preambles) paragraph 31,044 (1996), on reconsideration, Order No. 592-A, 79 FERC paragraph 61,321 (1997). 2 Revised Filing Requirements Under Part 33 of the Commission's Regulations ("Merger NOPR"), 83 FERC paragraph 61,027, FERC Stats. & Regs. paragraph 32,528 (1998), 63 Fed. Reg. 20340 (April 24, 1998). APPLICANTS' MERGER PROPOSAL Q. PLEASE DESCRIBE THE APPLICANTS' MERGER PROPOSAL. A. On July 15, 2000, IPALCO and AES entered into an Agreement and Plan of Share Exchange (the "Share Exchange Agreement") whereby AES will acquire IPALCO for $25.00 per share in a stock-for-stock transaction valued at approximately $2.15 billion plus the assumption of $890 million of debt and preferred stock. Upon closing, IPALCO will become a wholly-owned subsidiary of AES with its headquarters remaining in Indianapolis. As a result of the transaction, IPALCO's principal subsidiary, Indianapolis Power and Light ("IPL"), will become affiliated with AES' existing regulated and unregulated affiliates in the electric business, including AES' wholly owned subsidiary, Central Illinois Light Company ("CILCO"). AES commits that IPL, as an AES subsidiary, will join an RTO as a condition of the transaction if the Commission deems that this is necessary to avoid an evidentiary hearing on this Application. However IPL is not otherwise committed to join any RTO at this time. Summary of Analysis and Conclusions Q. PLEASE PROVIDE AN OVERVIEW OF YOUR ANALYSIS. A. I have analyzed the competitive impacts of combining the resources of AES and IPALCO. As noted, AES' principal subsidiary in the region is CILCO, which owns both generation (about 1,200 MW) and transmission assets in Illinois and is part of the Mid-American Interconnected Network ("MAIN") NERC region. CILCO also provides natural gas in its service territory in Illinois to end-users, including to some electric generating facilities, as discussed below. AES also has about 4,600 MW of generating assets either in operation or planned to be operating within the next few years in the Eastern Interconnection that I have included in the analysis. Nearly all of this capacity is remote from IPALCO, chiefly located in New England, New York and PJM. The majority of this capacity is committed under long-term contractual arrangements to other parties. Under the analysis procedures specified by the Commission in Order No. 592, capacity dedicated to third parties by long-term contracts is not deemed to be controlled by Applicants. Despite this guidance, however I have attributed all of the capacity from these units to AES in my analysis. This conservative treatment was done principally to avoid the Commission having to review specific contractual provisions for these units. IPL is a vertically integrated utility that owns approximately 3050 MW(3) of generation as well as transmission and distribution assets in Indiana. IPL is a member of the East Central Area Reliability Council ("ECAR"). IPL owns and controls no other generation, nor does any existing affiliate of it. - --------------- 3 Of this amount, 19 MW of generation (net generating capability) is located at the IPL Perry K Steam Plant, which is being sold to the Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, as trustee of public charitable trust, d/b/a Citizens Gas & Coke Utility ("Citizens"). The Commission approved IPL's transfer of jurisdictional facilities to Citizens by order issued September 26, 2000. Indianapolis Power & Light Co., 92 FERC paragraph 62,257 (2000). Upon consummation of IPL's sale of Perry K to Citizens, IPL will purchase the generation under a five-year contract, declaring the Perry K generation as a Network Resource. The Perry K generation is included in this analysis as an IPL resource. I modeled CILCO as a member of the Midwest Independent Transmission System Operator, Inc. ("MISO"), which CILCO has committed to join. The MISO is expected to be operational in November 2001. IPL has not committed to join an RTO. AES commits, however, that IPL, as an AES subsidiary, will join an RTO as a condition of the transaction if the Commission deems that this is necessary to avoid an evidentiary hearing on this Application. I modeled the competitive impacts of the merger under different assumptions regarding IPL's RTO membership in order to evaluate the competitive impacts of each of the outcomes. For the base case results presented in my analysis, I assumed that IPL is not a member of any RTO. I also evaluated alternative analyses where I assumed (1) that IPL joins the MISO,(4) and (2) that IPL joins the Alliance RTO.(5) In both of the analyses where IPL joins an RTO, I conducted the analyses in two ways: First, I assumed that IPL was a member of the MISO or Alliance RTO both pre-and post-merger, and assumed the current membership in the relevant RTO.(6) In my second - ------------------- 4 As of October 17, 2000, seventeen transmission owners had signed the MISO agreement. They are Alliant Energy, Ameren, American Transmission Company (Milwaukee, WI) CILCO, Cinergy, Commonwealth Edison, Hoosier Energy Rural Electric Cooperative, Illinois Power, LG&E Energy, Madison Gas & Electric, Northwestern Wisconsin Electric, Southern Illinois Power Cooperative, Southern Indiana Gas & Electric, Wabash Valley Power Association, Wisconsin Electric Power and Wisconsin Public Service Corporation,, and Xcel Energy (formerly Northern States Power). (Source: http://www.midwestiso.org/newsroom.shtml). 5 The Alliance RTO currently consists of AEP, Consumers Energy, Detroit Edison, FirstEnergy, and Virginia Electric & Power. (http://www.alliancerto.com/PARTICIP.HTM) 6 In addition to the existing members, there have recently been additional proposed changes to the membership of each RTO, including Otter Tail Power and UtiliCorp joining the MISO and Dayton Power and Light and NIPSCo joining the Alliance RTO. Including the other utilities in each of the relevant RTOs, such as Otter Tail Power, would generally have the effect of reducing transmission costs for distant suppliers to the West and East of the relevant destination markets. Thus, excluding these newly announced additions is conservative and they are not included in either RTO for any of the analyses. analysis, I again assumed that IPL was a member of the MISO or Alliance RTO, but assumed that Illinois Power ("IP") and Commonwealth Edison ("ComEd") switch from the MISO to the Alliance RTO, as they have indicated their intention to do.(7) In both cases, I assumed that IPL's commitment was not merger related and that IPL was a member of the relevant RTO both before and after the merger. This analysis provides a direct evaluation of combining Applicants' resources absent changes in the market due to transmission rate changes.(8) - -------------- 7 According to news reports published November 9, 2000, Ameren has announced that it plans to switch from the MISO to the Alliance RTO as well. I did not revise my RTO sensitivity analysis to reflect this most recent potential change as it may yet be followed by further membership changes and because it requires additional changes in the RTO sensitivity analysis. Specifically, if Ameren, in addition to IP and ComEd, became a member of the Alliance RTO, CILCO would no longer have any direct interconnections with other MISO members. While the final RTO configurations in the region are unclear at this time, the RTO sensitivity analysis that I did perform, along with an additional analysis assuming all transmission rates are zero (discussed below), provides indicators of the impact of the merger under a broad range of alternative RTO configurations. 8 I also conducted a sensitivity analysis assuming that al transmission rates were zero, except for incremental losses, and a sensitivity analysis on transmission capacity. These analyses are discussed below. The primary focus of my testimony is the potential horizontal market power effects (i.e., those arising from the combination of electric generating assets) of the merger. I have also evaluated potential vertical market power concerns arising from Applicants' control over transmission and their control over gas supplies and delivery systems. Finally, I have also evaluated Applicants' ability to raise other barriers to entry that might undercut the presumption that long-run generation markets are competitive, such as might arise from Applicants' control over potential generating sites. Q. DOES YOUR ANALYSIS INDICATE THAT THIS MERGER WILL INCREASE THE ABILITY OR INCENTIVE OF THE APPLICANTS TO EXERCISE MARKET POWER? A. No, I have found that the proposed merger will not increase Applicants' ability or incentive to exercise market power. I base this conclusion on a market power analysis that I performed, which I summarize below, and a more general review of the basic facts concerning the electricity market in the region where the companies operate. As discussed more fully below, the Commission, in Order No. 592, has adopted an analytic framework and related safe harbor thresholds used to determine whether a merger is unlikely to adversely impact competition. If these thresholds are met, then the Commission has stated that it generally will conclude that the merger will not adversely impact competition and that no further review is necessary to allow the merger to go forward. I have conducted an analysis using the framework adopted by the Commission to determine whether these thresholds are violated by the combination of AES and IPALCO. I find that they are not. A full description of the analysis and results is provided later in my testimony and in workpapers supporting this testimony. Q. PLEASE SUMMARIZE YOUR FINDINGS REGARDING HORIZONTAL MARKET POWER. A. Using the Commission's framework, I have found that the merger will not impact the ability or incentive of the combined firm to exercise market power. There are no instances in which the safe-harbor thresholds are violated. I also conducted a number of sensitivities to test the robustness of this result and have found that the results are basically unchanged, suggesting that the conclusions are valid under different assumptions regarding data inputs and market structure. This result is not surprising. These are two small utilities in a region characterized by much larger utilities that surround them and lie between them. There is substantial transmission available to move power within the region. Because of the size of Applicants relative to the amount of generation located in the region, combining them has a very minor effect on the structure of the power market. Q. PLEASE SUMMARIZE THE RESULTS OF YOUR BASE CASE ANALYSIS. A. Because there are no changes in the market, other than the combination of Applicants' shares, the merger's impact on the structure of power markets is simply a combination of Applicants' pre-merger market shares and examining how concentration in each of the relevant markets is affected. This analysis is generally referred to as the "2AB method."(9) It is essentially an analysis of a merger where there are no changes resulting from a merger - no transmission rate impact, no change in transmission for integration purposes, etc. This is the proper type of analysis to evaluate how concentration in each market changes and is consistent with standard antitrust analysis. - ------------ 9 "2AB" refers to the change in HHI resulting from the merger of company a (with market share A) and Company b (with market share B). This formula is derived from the HHI calculation as follows: Applicants' pre-merger HHI = A2 + B2 Applicants' post-merger HHI = (A+B)2 = A2 + B2 2AB Thus, the change in HHI resulting from the merger equals 2AB. Exhibit No. WHH-2 shows that Applicants' market shares, pre-and post-merger, in each of the destination markets for my base case analysis using the Economic Capacity measure. The largest HHI change in the CILCO market is 14 in a concentrated market (HHI over 1,800). This change is well below the safe-harbor thresholds (50) and is the result of adding about 4 MW of IPL's power to AES' power. Thus, I conclude that no further investigation is required for the CILCO market. The largest HHI change in the IPL market is 11 in a concentrated market, again well below the safe-harbor thresholds. It is the result of adding about 8 MW from AES to IPL's generation and is not indicative of any market power concerns. The impact of the merger on other destination markets is de minimis; the highest HHI change is 4. The Available Economic Capacity measure also indicates that there are no competitive concerns from the merger. To conduct this analysis, I assumed all utilities retained their historical native load obligations and Exhibit No. WHH-3 shows the results for the same destination markets as were evaluated for the Economic Capacity measure. Again there are no screen violations in any market. The largest HHI change in the CILCO market is 7 in an unconcentrated market (HHI less than 1,000). The largest HHI change in the IPL market is 26 in a moderately concentrated market (HHI between 1,000 and 1,800). In other destination markets, the change in concentration are again de minimis; the largest HHI change is 5. Q. PLEASE SUMMARIZE THE RESULTS OF YOUR ALTERNATIVE ANALYSES. A. I conducted additional analyses assuming different RTO membership for IPL and have again found no competitive concerns from the merger. As noted earlier, I evaluated the impact of IPL joining the MISO or Alliance RTOs in two ways. First, I assumed IPL was a member of the relevant RTO both pre- and post-merger, based on the existing RTO membership lists. These results are shown in Exhibit No. WHH-4 for the MISO and Exhibit No. WHH-5 for the Alliance RTO and are very similar to those described above for the base case analysis; there are no screen violations in any market. Second, I performed the same analyses as those presented in Exhibit Nos. WHH-4 and WHH-5, except that I assumed that Illinois Power ("IP") and Commonwealth Edison ("ComEd") switched from the MISO to the Alliance RTO, as discussed earlier. These results are shown in Exhibit Nos. WHH-6 and WHH-7. Again, there are no screen violations in any market. Q. ARE THESE RESULTS CONSISTENT WITH YOUR UNDERSTANDING OF THE MARKET IN THE REGIONS WHERE THE APPLICANTS OPERATE? A. Yes. As noted briefly above, the analytical finding tha the merger would not remove a significant competitor, and therefore not raise market power concerns, follows from the relatively small size of the Applicants in the regions where they operate and their historical lack of interaction. As noted earlier, AES' CILCO subsidiary owns or controls about 1,200 of the roughly 58,000 MW in the MAIN NERC region.(10) IPL owns about 3,050 MW of the roughly 110,000 MW in the ECAR NERC region.(11) The combined company will own less than 3 percent of the total capacity in each of these NERC regions.(12) - ------------ 10 http://www.maininc.org/bod/2000/SATF2000r.pdf 11 http://www.ecar.org/publications/GRP/00-GRP-33.pdf 12 As noted, AES does own or control additional capacity in other parts of the Eastern Interconnection (about 4,600 MW). This capacity is located in New England, New York, Ontario, PJM and SPP and is too remote from the relevant markets in this instance to be a significant factor in the market power analysis. (These units were, however, included in the delivered price test analysis.) In addition, most of the output from these units is committed to other entities under long-term contractual arrangements. Exhibit No. WHH-8 shows the relevant transmission networ around CILCO and IPL. CILCO and IPL are not major participants in each other's market or in common third markets, as discussed below. Indeed, my review of historic sales and purchase data demonstrates that CILCO trades primarily with other utilities in Illinois and IPL trades primarily with other utilities in Indiana. The paucity of longer distance trades likely is due to the very similar production costs across the region. Most of the generation is coal-based and has similar incremental costs. AES owns other generation in the U.S. besides that owned by its CILCO subsidiary. However, all of its other generation is located a significant distance from markets to this merger, principally in New York, New England, and California, and plays an insignificant role in price determination in Illinois and Indiana. The findings using the Commission's delivered price test are consistent with historical trade data, which show little overlap in the relevant markets. Exhibit No. WHH-9 shows the purchase and sales made by CILCO and IPL for the most recent two years available (1998 and 1999).(13) As shown, CILCO sells primarily to Illinois utilities and IPL sells mostly to Indiana utilities. The only common customers of both companies are American Electric Power ("AEP"), Cinergy and ComEd. In each case, at least one of the companies had very minor sales to this customer and, when combined, these sales are a very small share of the purchases of these companies, supporting my conclusion that the combination will not eliminate a significant market participant. - ----------- 13 Sales information is based on FERC Form 1 data. Q. PLEASE SUMMARIZE YOUR FINDINGS REGARDING VERTICAL MARKET POWER. A. The proposed merger does not raise any significant vertical market power issues. As noted earlier, AES' only transmission-owning company (CILCO) is a member of the MISO, an ISO that has been approved by the FERC and is currently scheduled to begin operations in November 2001. The combined company will lack the requisite control over CILCO's transmission to impede competition, even if it had the incentive to do so. IPL has not proposed to join an RTO in its Order 2000 compliance filing. As IPL explains in that filing, IPL cannot justify participation in either the MISO or Alliance RTO at this time because these RTO proposals present regulatory, commercial and operational uncertainty, and IPL's analysis indicates that its participation presently is not cost-justified. IPL operates its transmission system in accordance with Orders 888 and 889, and its open access transmission tariff has been accepted for filing by FERC.(2145) - --------------- 14 Indianapolis Power & Light Co., 90 FERC paragraph 1,180, settlement approved, 92 FERC paragraph 61,236 (2000). IPL is a geographically very small utility surrounded by much larger utilities. IPL is an incidental transmission owner, and none of the larger utilities that surround IPL needs to use the IPL transmission system to reach any other utility. IPL's retail service territory is wholly surrounded by Cinergy's and both Cinergy and other utilities wishing to access the Cinergy system can do so without reserving capacity on the IPL system. Indeed, IPL's transmission system can be accurately described as either a high-voltage distribution system or a local area transmission system. Thus, any attempt by IPL to foreclose a supplier from markets, including specifically markets where its merger partner, CILCO, sells power could be easily thwarted; the supplier could simply use an alternative (and generally more straightforward) route to the market. While Applicants do not believe that this merger creates vertical issues in the absence of an RTO commitment, and I agree with that assessment, AES commits that IPL, as an AES subsidiary, will join an RTO as a condition of the transaction if the Commission deems that this is necessary to avoid an evidentiary hearing on this Application. Neither utility controls significant fuels supplies or fuels delivery systems that can be used to exercise market power. IPL does not own or control any fuel supply or transportation resources that can be used to prevent entry.(15) As noted earlier, CILCO does provide natural gas transportation service to electric generating facilities, however the units served by CILCO are also owned by CILCO and do not confer any additional ability for CILCO to exercise market power.(16) Regardless, the merger with IPL does not add any ability or incentive to foreclose gas supplies since, as demonstrated by the horizontal analysis, power from the CILCO area is an inconsequential share of the markets in which IPL competes. Moreover, as the Commission noted in its order in the NIPSCO-Columbia merger, gas almost never is on the margin in this area.(17) Hence, a hypothetical foreclosure of a small amount of gas-fired generation located on CILCO's system would have little, if any, effect on power prices received by IPL. Thus, I conclude that CILCO's natural gas transportation assets do not warrant even a threshold concern regarding vertical foreclosure. - --------------- 15 IPALCO does own some undeveloped coal reserves. As IPL stated in its application for market-based rates, IPL owns the mineral rights to several thousand acres of land, and has leased a small portion of this acreage to an independent coal company for the purpose of mining at some future date. Application of Indianapolis Power & Light Co., Docket No. ER00-1026, Exhibit J at 2 (Jan. 6, 2000). 16 These units are shown in Exhibit No. WHH-10. As shown i that Exhibit, CILCO only serves three facilities with natural gas transportation service, and it owns each of these units (Sterling Avenue (30 MW), Indian Trails (12 MW), and Medina Valley (36 MW)). CILCO also provides small amounts of gas for flame stabilization for two units whose primary fuel is either distillate oil or coal. 17 92 FERC paragraph 61,068 (2000) Finally, neither utility possesses a monopoly over potential generation sites that would affect the Commission's prior finding that the long-term market for generation is competitive. ORGANIZATION OF TESTIMONY Q. HOW IS THE REMAINDER OF YOUR TESTIMONY ORGANIZED? A. In Section III, I outline Applicants' business operations. Section IV describes the economic framework used in the analysis as set out in the Commission's Order No. 592. A description of the methodology I used in conducting the analysis is included in Section V. My analysis of the merger's impact on competition is included in Section VI. Section VII contains my conclusions. 3. DESCRIPTION OF THE PARTIES AES Q. PLEASE DESCRIBE AES. A AES is a global power company. In the United States, AE owns generation assets throughout the country. Exhibit No. WHH-11 shows the generating units owned by AES included in the analysis, including planned generation. CILCO is the only subsidiary that operates in the region near IPL and the majority of CILCO's existing generation is coal-fired. AES' generation in Northeast and Southwest Power Pool ("SPP") is generally committed under long-term contracts and a description of AES' contracts is contained in an appendix to Applicants' Section 203 Application. CILCO is the only transmission-owning subsidiary of AES in the United States. As noted earlier, CILCO is a member of the MISO and will relinquish control of its transmission facilities to that organization. CILCO is interconnected to Ameren, ComEd (Exelon), IP an CWLP. It is not a significant transmission provider in the region, largely because its first-tier utilities are generally also directly connected with each other. These utilities can transact directly and do not have to rely on CILCO's facilities. CILCO's only wholesale requirements customer is the Village of Riverton, Illinois ("Riverton"). Riverton has a long-term fixed rate contract and, therefore, is immunized from any price effects hypothetically arising from this merger. CILCO is undergoing restructuring as part of the deregulation process in Illinois. At the end of 1997, the Illinois General Assembly passed the Customer Choice Law as part of electric restructuring in the state. Retail competition for large business customers (over 4 MW load) and for a percentage of non-residential customers began October 1, 1999. By December 31, 2000 retail choice will be available to all non-residential customers. Full retail competition (including residential customers) will be effective by May 1, 2002. IPALCO Q. PLEASE DESCRIBE IPALCO . A. IPL is one of the two the principal subsidiaries of IPALCO. IPL operates as an integrated electric utility primarily engaged in the generation, transmission and distribution of electric power to more than 430,000 retail customers in metropolitan Indianapolis and portions of other central Indiana communities in surrounding counties. Like CILCO, the majority of IPL's capacity is coal-fired, although it has recently developed a new gas-fired peaking facility in its own service territory.(18) IPL's generation assets are shown in Exhibit No. WHH-11. IPL also owns and operates a district steam service system in downtown Indianapolis, which IPL has contracted to sell to Citizens. - --------------- 18 IPL recently participated in developing new peaking facilities (Georgetown units) that became operational last summer. IPL owns one approximately 80 MW peaker, while DTE Energy owns two similar peakers at the facility. I have included this capacity in my analysis. IPL's open access transmission tariff has been accepted for filing by FERC(19) and IPL operates its transmission system as a control area within ECAR. IPL has received FERC authorization to make wholesale sales of electric energy at market-based rates.(20) IPALCO's other principal subsidiary is Mid-America Capital Resources, Inc. ("Mid-America"). Mid-America is a holding company for IPALCO's unregulated subsidiaries, which are engaged in various business enterprises. Neither Mid-America nor its subsidiaries own any electric generation or transmission facilities, and they are not engaged in the electric energy business. IPL is interconnected principally to AEP, Cinergy, Hoosier Energy Rural Electric Cooperative ("Hoosier"), and SIGE.(21) As discussed earlier, IPL is an incidental transmission owner, and none of the larger utilities that surround IPL needs to use the IPL transmission system to reach any other utility. IPL's retail service territory is wholly surrounded by Cinergy's and both Cinergy and other utilities wishing to access the Cinergy system can do so without reserving capacity on the IPL system. - ---------------- 19 Indianapolis Power & Light Co., 90 FERC paragraph 61,180 (2000). 20 Id. 21 IPL also has interconnection agreements in place with Indiana Municipal Power Agency ("IMPA") and Wabash Valley Power Association, Inc. ("Wabash"), and accesses both IMPA and Wabash by way of IPL's interconnections with the Cinergy transmission system. IMPA jointly owns with Cinergy certain transmission facilities in the Cinergy transmission system, as does Wabash. I have modeled IMPA and Wabash as TDUs connected to Cinergy, largely because of the lack of OASIS postings on transmission capacity for these entities. This modeling does not significantly impact the results of my analysis. IPL's only wholesale requirements customer is Wabash. Wabash has a long-term fixed rate contract and, therefore, is protected from any price effects hypothetically arising from the merger. 4. FRAMEWORK FOR THE ANALYSIS Q. WHAT ARE THE GENERAL MARKET POWER ISSUES RAISED BY MERGE PROPOSALS? A. Market power analysis of a merger proposal examines whether the merger would cause a material increase in the merging firms' market power or a significant reduction in the competitiveness of relevant markets. Market power is defined as the ability of a firm or group of firms to sustain profitably a significant increase in the price of their products above a competitive level. In merger analyses, the critical issue is the change in market competitiveness due to the merger. While the pre-merger competitiveness of markets may, as under the DOJ/FTC Guidelines, affect the amount of such change that is acceptable, the focus remains on the change in market competitiveness caused by the merger. This focus on the effects of the merger means that the merger analysis examines those business areas where the merging firms are competitors. In most instances, the merger will not affect competition in markets in which the merging firms do not compete. Analysis of the effects of a merger on market power in businesses in which the merging firms both participate is sometimes referred to as horizontal market power assessment. In the proposed merger of AES and IPALCO, therefore, the focus is properly on those markets in which both firms are actual or potential competitors. The analysis is intended to measure the adverse impact, if any, of the elimination of a competitor as a result of the combination. Vertical market effects of the merger relate to the merging firms' ability and incentives to use their market position over a product or service to affect competition in a related business or market. For example, vertical effects could result if the merger of two electric utilities created an opportunity and incentive to operate transmission in a manner that created market power for the generation activity of the merged company that did not exist previously. The Commission has identified market power as also arising from dominant control over potential generation sites or over fuels supplies and delivery systems. These are issues that could undercut the presumption that long-run generation markets are competitive. Q. WHAT ARE THE MAIN ELEMENTS IN DEVELOPING AN ANALYSIS OF MARKET POWER? A. Understanding the competitive impact of a merger require defining the relevant market (or markets) in which the merging firms participate. Participants in a relevant market include all suppliers and, in some instances potential suppliers, who can compete to supply the products produced by the merging parties and whose ability to do so diminishes the ability of the merging parties to increase prices. Hence, determining the scope of a market is fundamentally an analysis of the potential for competitors to respond to an attempted price increase. Typically, markets are defined in two dimensions: geographic and product. Thus, the relevant market is composed of companies that can supply a given product (or its close substitute) to customers in a given geographic area. Q. HOW HAS THE COMMISSION TYPICALLY EXAMINED PROPOSED MERGERS INVOLVING ELECTRIC UTILITIES? A. Historically, the Commission examined mergers by focusin on specific product markets and by using a "hub-and-spoke" screening test to evaluate whether a further examination of potential market power was warranted. With the issuance of Order No. 592 in December 1996, the Commission changed its analytic approach and adopted a "delivered price test." Appendix A (the "Competitive Analysis Screen") of Order No. 592 outlines a detailed analytic method that applicants are required to follow in their applications and that the Commission will use in screening the competitive impact of mergers. If a proposed merger raises no market power concerns (i.e., passes the Appendix A screen), the inquiry is generally complete. If a proposed merger raises potential market power concerns, applicants can propose mitigation measures at the time of application. Q. WHAT PRODUCTS HAS THE COMMISSION GENERALLY CONSIDERED? A. The Commission generally has defined the relevant produc markets to be long-term capacity, short-term capacity and non-firm energy. The Commission has used four measures to evaluate these products. These are Total Capacity ("TC"), Uncommitted Capacity ("UC"), Economic Capacity ("EC"), and Available Economic Capacity ("AEC").(22) The Commission has determined that long-term capacity markets are presumed to be competitive, unless special factors exist that limit the ability of new generation to be sited or receive fuel.(23) - ------------------- 22 Total Capacity refers to a supplier's total generation capacity, not accounting for any load obligations or the cost of the generation. Uncommitted Capacity is computed by subtracting load obligations from the supplier's Total Capacity and adjusting for long-term firm obligations and any required reserve margin. Economic Capacity is capacity from generating units whose variable costs are such that they can deliver energy to the relevant destination market, after paying all applicable transmission and ancillary service costs, at a price near the market's competitive price. Available Economic Capacity is the same as Economic Capacity, except that the supplier's lowest cost resources are "covered" by any load obligations of the supplier. 23 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. paragraph 31,036 at 31,657 (1996). The Commission also has considered vertical issues that might affect competition in the wholesale electricity market. Specifically, it has considered whether control over transmission by one merging entity might be used to increase the profits earned by its merger partner in selling energy. Similarly, it has considered whether control over gas transmission could be used to raise the prices received by a generation-owning merger partner. Q. HOW HAS THE COMMISSION ANALYZED GEOGRAPHIC MARKETS? A. To examine geographic markets, the Commission traditionally has focused on the utilities that are directly interconnected to the applicant companies. This "destination market" approach was continued in Order No. 592. Each utility that is directly interconnected to the applicants is considered a separate "destination market." Additionally, the Commission has suggested that utilities who historically have been customers of applicants are also potential "destination markets," and requires that applicants analyze the effects of mergers on such markets where their sales are material. If the Appendix A analysis shows that a company will not be able to exercise market power in its first-tier destination markets, it generally follows that the applicants will not have market power in more broadly defined and more geographically remote markets. The supply alternatives to each destination market are defined using the "delivered price test," which identifies suppliers that can reach a destination market at a cost no more than 5 percent over the pre-merger market price. Formally, the supply is considered economic if a supplier's generation can be delivered to a destination market, including delivery costs (which include transmission rates, transmission losses and ancillary services), at a cost that is within 105 percent of the destination market price. Physical transmission constraints also are taken into consideration in determining the potential supply to the destination market. Thus, unlike the "hub-and-spoke" methodology, competing suppliers are no longer defined by bright lines. Competing suppliers are defined as those who have capacity (energy) that is physically and economically deliverable to the destination market. Their importance in the market (i.e., their market share) is determined by the amount of such capacity. This test is intended to be a conservative screen to determine whether further analysis of market power is necessary. The screen is the first step in determining whether there is a need for further investigation. If the screening test is not passed, leaving open the issue of whether the merger will create market power, applicants are invited to provide further information to demonstrate that the merger will not adversely affect competition. The Commission also invites applicants to propose mitigation remedies targeted to reduce potential anti-competitive effects to safe harbor levels. If it remains unpersuaded that the merger is competitively benign, the Commission will undertake a proceeding to determine whether unmitigated market power concerns mean that the merger is contrary to the public interest. Q. WHAT FRAMEWORK DOES THE COMMISSION USE TO DETERMINE WHETHER A MERGER POSES POTENTIAL MARKET POWER CONCERNS? A. In Order No. 592, the Commission adopted the DOJ/FTC Guidelines for measuring market concentration levels by the HHI. A key part of the Guidelines is a market power screen. To determine whether a proposed merger will have a significant anti-competitive impact, the DOJ and FTC consider the level of the HHI after the merger (the post-merger HHI) and the change in the HHI that results from the combination of the market shares of the merging entities. Markets with a post-merger HHI of less than 1000 are considered "unconcentrated." The DOJ and FTC generally consider mergers in such markets to have no anti-competitive impact. Markets with post-merger HHIs of 1000 to 1800 are considered "moderately concentrated." In those markets, mergers that result in an HHI change of 100 points or fewer are considered unlikely to have anti-competitive effects. Finally, post-merger HHIs of more than 1800 are considered to indicate "highly concentrated" markets. The Guidelines suggest that in these markets, mergers that increase the HHI by 50 points or fewer are unlikely to have a significant anti-competitive impact, while mergers that increase the HHI by more than 100 points are considered likely to reduce market competitiveness. These are the screening thresholds (or "safe-harbor" levels) that I have used in my analysis. 5. DESCRIPTION OF METHODOLOGY Q. PLEASE SUMMARIZE THE METHODOLOGY THAT YOU USED TO ANALYZE THE COMPETITIVE EFFECTS OF THE MERGER. A. I evaluated the competitive effects of the merger using the methodology described in Appendix A, as summarized above. I used PA Consulting's Competitive Analysis Screening model ("CASm")(24), which implements the delivered price test and other calculations required in Appendix A, to do the required analyses. The source and methodology for the data required to conduct the delivered price test in CASm are described in Exhibit No. WHH-12. A technical description of CASm is provided in Exhibit No. WHH-13. Given the number of periods, destination markets, and sensitivity analyses, described in detail below, I have evaluated about 880 separate measure/markets using the delivered price test. In addition, I also analyzed the Total Capacity and Uncommitted Capacity measures. - ----------------- 24 CASm was developed by predecessor companies, PHB and PHB-Hagler Bailly, and has been used in analyzing numerous mergers and power plant acquisitions in proceedings before the Commission. Q. WHAT DESTINATION MARKETS DID YOU ANALYZE? A. I examined 10 destination markets that could potentially be impacted by the merger.25 I included the first-tier utilities of CILCO and IPL. A noted earlier, CILCO's first-tier utilities are Ameren, ComEd, IP, and CWLP and IPL's first-tier utilities are AEP, Cinergy, Hoosier, and SIGE. Appendix A instructs Applicants to also include as destination markets historical customers. Based on a review of Applicants' sales during 1998 and 1999 reported in their respective FERC Form 1's, there are no markets that Applicants made more that a de minimis amount of sales to outside of each utilities' directly interconnected utilities.(26) - ---------------- 25 Exhibit No. WHH-14 includes a list of the entities (and corresponding abbreviations used in other exhibits), included in the analysis. 26 I excluded certain categories of customers as destinatio markets. First, I excluded power marketers, for the obvious reason that they do not comprise control areas. Similarly, I excluded municipals, cooperatives and TDUs which do not comprise a control area; instead, utility control areas that are destination markets are proxies for the competitive alternatives faced by these customers. Finally, I excluded markets where the Applicants sold an insignificant amount of energy (less than $100,000 for this purpose). For 1998, this would include Alliant (WPL), Wisconsin Electric Power, and IMPA. For 1999, this would also include DP&L. Note these markets are not between CILCO and IPL and the indicators of the merger's impact will be less than that shown in the markets analyzed. Q. DID YOU ANALYZE A DESTINATION MARKET FOR APPLICANTS' TDU CUSTOMERS? A. Yes. The CILCO and IPL home destination markets are reasonable proxies for any of Applicants' TDU customers. Q. WHAT TIME PERIODS DID YOU ANALYZE? A. For each destination market, I examined eleven time periods for both the Economic Capacity and Available Economic Capacity measures, selected to reflect a broad range of system conditions. I evaluated hourly load data to aggregate similar hours.(27) I defined periods within three seasons (Summer, Winter and Shoulder) to reflect the differences in unit availability and transmission capacity as well as base flows on the network, as reflected in ATC values. The periods evaluated (and the designations used to refe to these periods in exhibits) are: SUMMER (June-July-August) SUPER PEAK 1 (S_SP1): Top 25 load hours SUPER PEAK 2 (S_SP2): Next 125 load hours SUPER PEAK 3 (S_SP3): Next 350 load hours PEAK (S_P): Remaining peak hours(28) OFF-PEAK (S_OP): All off-peak hours WINTER (December-January-February) SUPER PEAK (W_SP): Top 150 load hours PEAK (W_P): Remaining peak hours OFF-PEAK (W_OP): All off-peak hours SHOULDER (March-April-May-September-October-November). SUPER PEAK (SH_SP): Top 150 load hours PEAK (SH_P): Remaining peak hours OFF-PEAK (SH_OP): All off-peak hours - --------------- 27 IPL's hourly load data was used as the basis for aggregating similar hours. The results would not differ significantly if this aggregation was done using a different reference utility. 28 Peak and off-peak hours were defined based on NERC's definition, except that I considered only non-holiday Monday-Friday as peak days, whereas NERC defines the peak days as non-holiday Monday-Saturday. See ftp://www.nerc.com/pub/sys/all_updl/oc/opman/apdx1f.doc . Q. WHAT COMPETITIVE PRICE LEVELS DID YOU ANALYZE? A. For each destination market, I evaluated conditions assuming destination market prices ranging from $15/MWh in the Winter and Shoulder Off-Peak periods (W_OP and SH_OP) to $100/MWh in the Summer Super Peak 1 period (S_SP1). This broad range of prices, in combination with the time periods, should be reflective of a sufficient range of system conditions such that a full picture of the merger's effects is captured. Q. DID YOU TAKE SYSTEM LAMBDAS AND OTHER PUBLICLY AVAILABLE PRICING INFORMATION INTO CONSIDERATION IN CHOOSING THE PRICE LEVELS TO ANALYZE? A. Broadly yes. Exhibit No. WHH-15 shows the relevant system lambda and Power Markets Week information. Both sources are subject to well known limitations. System lambda data are subject to the vagaries of the source utility's methodology. For example, a number of utilities report a constant system lambda on a year-round basis, while other utilities in the region show significant differences depending on season. However, I did take the system lambda data into account in selecting the prices to analyze, particularly to identify the lower range of price to be analyzed. Reported power market prices are subject to potential sampling error; they represent a fairly limited number of trades in relevant regions; they are not necessarily consistent with all the underlying data used in the Appendix A analysis (e.g., in Appendix A transmission rates are assumed to be the maximum filed-rates, while the market prices would reflect actual transmission costs incurred); and there are far fewer pricing "hubs" for reported market data than there are destination markets. The purpose of considering varying conditions (prices, seasons and load levels) in Appendix A analyses is to test whether a merger that might be benign under particular market conditions (e.g., at peak load) would be less benign under other, frequently occurring, conditions. Thus, the key requirement is to span the full range of likely conditions. Ultimately, I concluded that a range of prices from $15 per MWh in off-peak periods to $100 in the summer super peak was sufficient to fully explore possible differences in expected competitive conditions throughout the year. The $15 price is the lowest typical price that can be anticipated on a non-transitory basis. While transactions data (and some occasional system lambda data) demonstrate that prices can sometimes exceed $100 per MWh, modeling higher prices would not change my results. At $100 per MWh, essentially all of the capacity of all of the market participants in all of the relevant markets is economic (the incremental costs even of inefficient peaking units is less than $105/MWh), so the supply of economic energy would not be different at higher prices. Q. PLEASE DESCRIBE THE BASIC MODEL ARCHITECTURE YOU USED IN ANALYZING THIS MERGER. A. Briefly, CASm is a linear programming model developed specifically to perform the calculations required in undertaking the delivered price test. The model includes each potential supplier as a distinct "node" or area that is connected via a transportation (or "pipes") representation of the transmission network. Each link in the network has its own non-simultaneous limit and cost. Potential suppliers are allowed to use all economically and physically feasible links or paths to reach the destination market. In instances where more generation meets the economic facet of the delivered price test than can actually be delivered on the transmission network, scarce transmission capacity is allocated based on the relative amount of economic generation that each party controls at a constrained interface. I represented simultaneous imports into a destination market based on a "common limiting element" approach consistent with the Commission's approach outlined in Ohio Edison Co.(29) - --------------- 29 Ohio Edison Co., et al., 80 FERC paragraph 61,039 at 61,107 (1997) (joint application to form FirstEnergy Corp.). Q. WHAT REPRESENTATIVE YEAR DID YOUR ANALYSIS COVER? A. Order No. 592 requires that the analysis be forward looking. I intend my analysis to approximate conditions in 2001 as a representative near-term future year. I used control area to control area limits (ATCs and TTCs) from current OASIS postings to represent the transfer capacity between each area in the model.(30) These are the most recently available data. (The analysis is conducted in year 2000 dollars.) Where appropriate, I adjusted other relevant data to approximate 2001 conditions. As described in Exhibit No. WHH-12, this includes load, generation costs and a conservative amount of confirmed new construction. - --------------- 30 The OASIS data were retrieved during July and August and generally provide postings from August 2000 to August 2001. The data from each month were averaged to derive seasonal values in the analysis, as described in Exhibit No. WHH-12. 6. IMPACT OF THE MERGER ON COMPETITION HORIZONTAL MARKET POWER Q. WHAT SPECIFIC ANALYSES DID YOU CONDUCT TO EVALUATE THE POTENTIAL EFFECTS ARISING FROM THE COMBINATION OF GENERATION ASSETS? A. Consistent with the guidance in Order No. 592, I analyzed Economic Capacity and Available Economic Capacity, focusing on the combination of Applicants' generation. Given the status of restructuring in Illinois and surrounding regions, the Economic Capacity analysis is the measure most relevant to this merger. As discussed infra, the Available Economic Capacity analyses does not provide a fully reliable and useful insight into future market conditions since the native load that distinguishes this analysis from the Economic Capacity analysis is changing at unpredictable rates. I have also analyzed Total Capacity and Uncommitted Capacity, although these measures are not required explicitly by Order No. 592 or the Merger NOPR. Under the normal application of the Commission's "hub-and-spoke" analysis of Total and Uncommitted Capacity Applicants' would not be in the same market due to their geographical configuration. Nevertheless, I did perform an analysis of these two measures including only the directly interconnected utilities of CILCO and IPL. This is the narrowest, feasible geographic market that can be defined that includes both CILCO and IPL.(31) - --------------- 31 If the market were defined to also include AES' units in other parts of the Eastern Interconnection, such as New York, the resulting market shares would be even lower than those reported since the market would also include all of the other capacity located between ECAR and New York. ECONOMIC CAPACITY Q. PLEASE SUMMARIZE THE ECONOMIC CAPACITY MEASURE. A. My analysis of Economic Capacity shows that there are no screen failures in any relevant market. As noted earlier, this is principally due to the presence of several much larger suppliers in the Applicants' region that can compete in the energy market, including AEP, Ameren, Cinergy and ComEd, as well as other suppliers at approximately the scale of Applicants. It is also due to the relatively limited transmission capacity into and out of Applicants' principal electric generating companies. Exhibit No. WHH-2 shows that Applicants' market shares, pre- and post-merger, in each of the destination markets. As noted earlier, I assumed in my base case analysis that IPL was not a member of any RTO both pre- and post-merger. All of the results are less than the safe-harbor thresholds, indicating that there are no competitive concerns raised by the merger. Exhibit Nos. WHH-4 through WHH-7, Exhibit No. WHH-16, and Exhibit No. WHH-17 are sensitivity analyses performed using the Economic Capacity measure. These analyses are described under "Sensitivities" below. These analyses contain no screen violations, and indicate no competitive concerns associated with the merger. AVAILABLE ECONOMIC CAPACITY Q. PLEASE SUMMARIZE THE AVAILABLE ECONOMIC CAPACITY MEASURE A. For the Available Economic Capacity analysis, I conducte my analysis using the base case assumptions, as described above regarding the Economic Capacity analysis. The only difference between the Economic Capacity measure and the Available Economic Capacity measure is that the latter accounts for retained load obligations. I based each supplier's load on information for 1999 retail loads, escalating those loads based on projected growth in electric demands throughout the region.(32) I assumed that each utility retains its full, historic load responsibility (i.e., I made no assumption about retail access for this analysis). In a slightly different context,(33) the Commission has indicated its distaste for hypothetical assumptions about the extent of retail access in markets where such access has begun. To avoid such hypothetical assumptions, I simply have assumed that retail access will not materially affect the amount that the various suppliers can make available to the wholesale market. In the Midwestern markets that are most likely to be problematic based on the Economic Capacity analysis, retail access either has not yet begun or is just now beginning. Hence, the zero access assumption for suppliers to these markets likely is not far off the mark.(34) The results of the analysis are shown in Exhibit No. WHH-3. The analysis shows that all of the indicators are well below the Commission's safe-harbor levels, again supporting my conclusion that the merger raises no competitive concerns. - --------------- 32 See Exhibit No. WHH-12 for further details. 33 EME Homer City Generation, L.P., 86 FERC paragraph 61,016 (1999). 34 CILCO has not lost a significant amount of load to date due to restructuring in Illinois. Thus, the zero access assumption is applicable for CILCO. SENSITIVITIES Q. PLEASE DESCRIBE THE SENSITIVITY ANALYSES YOU UNDERTOOK USING THE ECONOMIC CAPACITY MEASURE. A. The key variables in the FERC's delivered price test in this instance are related to transmission rates and transmission capacity. Since the Applicants are not contiguous and, in fact do not even have any common interconnections, these items are significant determinants of whether the companies appear as significant potential competitors in any destination market under the delivered price test.(35) I performed sensitivity analysis on RTO configurations, as described earlier. I also performed an analysis using increased transmission capacity. In the first RTO configuration sensitivity, I assumed that IPL was a member of the MISO or Alliance RTO pre and post-merger. This assumption does not significantly impact the results, as shown in Exhibit No. WHH-4 and Exhibit No. WHH-5. In these analyses, I assumed that Illinois Power and Commonwealth Edison were members of the MISO. In the second RTO sensitivity, I again assumed that IPL was a member of the MISO or Alliance RTO, but assumed that Illinois Power and Commonwealth Edison switch from the MISO to the Alliance RTO. This analysis again does not significantly impact the results. These results are shown in Exhibit No. WHH-6 and Exhibit No. WHH-7. I also conducted an additional sensitivity analysis wher I assumed all transmission rates were zero, except for incremental losses. This sensitivity is intended to be a limiting case showing the effects of market enlargement on the competitive effects of the merger. Again, even under this extreme assumption, the results were not significantly different than those found in the base case. These results are shown in Exhibit No. WHH-16. In the transmission capacity sensitivity, I assumed that full TTC values, rather than ATCs, were available to interconnect markets. This increases the ability of Applicants, and other potential suppliers, to deliver into the destination markets. Again, the results indicate that the merger raises no competitive concerns. These results are shown in Exhibit No. WHH-17. My conclusions are further supported by these sensitivit analyses. - --------------- 35 Note that since the delivered price test does not accoun for opportunity costs, even if the analysis did find evidence of the Applicants' potentially serving common markets, it would not necessarily indicate any competitive concern, but rather that further investigation is required. TOTAL CAPACITY Q. PLEASE DESCRIBE THE RESULTS OF THE TOTAL CAPACITY ANALYSIS. A. The Commission's traditional "hub-and-spoke" methodology could not be used directly in this instance since neither CILCO nor IPL would qualify as being in common markets, given the transmission network around the Applicants. Thus, I constructed the narrowest possible geographic market by including CILCO, IPL and their directly interconnected utilities. If the safe-harbor thresholds are met for the Total Capacity measure under this unrealistically narrow market definition, the Commission can be very certain that there are no competitive concerns arising from this measure from any other credible market definition.(36) The results are shown in Exhibit No. WHH-18. As shown, Applicants' combined market share is about 5 percent and the change in market concentration, as defined using the HHI indicator, is about 11. - --------------- 36 I also excluded merchant capacity for purposes of this analysis. Including planned and operational merchant facilities would further reduce the Applicants' reported market shares. UNCOMMITTED CAPACITY Q. PLEASE DESCRIBE THE RESULTS OF THE UNCOMMITTED CAPACITY ANALYSIS. A. The proposed merger raises no competitive issues regarding Uncommitted Capacity. First, IPL has no Uncommitted Capacity, even assuming conservative reserve margins, as shown in Exhibit No. WHH-19. Thus, there can be no merger effect under this measure. Similarly, based on historic load obligations CILCO does not have any uncommitted capacity, as shown in Exhibit No. WHH-19. Thus, there are no competitive concerns raised by my evaluation of the Uncommitted Capacity measure. VERTICAL MARKET POWER Q. PLEASE DESCRIBE YOUR ANALYSIS OF VERTICAL MARKET POWER. A. I evaluated two vertical relationships in order to examine whether the proposed combination would facilitate vertical market power. First, I evaluated the combination of the companies' electric generating resources with their electric transmission assets. This merger should raise no vertical market power concerns in this respect. CILCO has committed to join the MISO and to creating an independently owned and governed institution under MISO to which it will turn over its retained control area operator functions. In addition, AES has committed that IPL, as an AES subsidiary, will join an RTO if necessary to avoid an evidentiary hearing on this Application. Furthermore, even absent the RTO commitments, Order Nos. 888 and 889 ensure that transmission owners such as Applicants will not be able to foreclose access to any essential transmission facilities, including connecting new merchant plants to their grids. In its Order 2000 compliance filing, IPL explains that it is an incidental transmission owner, and its system can be accurately described as either a high voltage distribution system or a local area transmission system. Neither Cinergy, nor any other utility directly interconnected with IPL, needs to use the IPL transmission system to reach any other utility. IPL has no TDUs that are not contractually covered with long-term contracts with IPL There is no schedule for retail access in Indiana that could create a market opportunity for competitors to serve IPL's retail customers. OTHER POTENTIAL MARKET POWER ISSUES Q. ARE THERE ANY OTHER ISSUES THAT WOULD AFFECT COMPETITION IN THE RELEVANT MARKETS? A. As noted earlier, I have not formally analyzed competition in long-term markets which the Commission has found to be presumptively competitive (although I discuss entry in this section as well). In addition, in Order No. 888, the Commission in referring to a decision in Entergy Services, Inc. noted that "after examining generation dominance in many different cases over the years, we have yet to find an instance of generation dominance in long-run bulk power markets."(37) In the Merger NOPR, the Commission stated that "[a]s restructuring in the wholesale and retail electricity markets progresses, short-term markets appear to be growing in importance. The role of long-term capacity markets appears to be diminishing."(38) The possible exceptions to this presumption arise from vertical issues, such as control over transmission, fuels supplies or generating sites, that might block entry in the long-term. As discussed above, the RTO commitments of CILCO and AES (on behalf of IPL as an AES subsidiary) and the facts specific to IPL's transmission ensure that they cannot use their control over transmission to block entry into the long-run market. - --------------- 37 Order No. 888 at 31,649 n.86 (citation omitted) 38 Merger NOPR, FERC Stats. & Regs. paragraph 32,528 at 33,367. Q. WHAT IS THE ISSUE CONCERNING AN APPLICANT'S CONTROL OVER ESSENTIAL FUELS OR DELIVERY SYSTEMS? A. In the context of long-term capacity markets, the issue is whether the merging parties can foreclose or impede the entry of competing generators. As discussed above, CILCO is not in a position to foreclose current competitors. This review examines whether the merger would allow the combined company to impede entry by new competitors through the use of fuel supply inputs. Q. DO THESE APPLICANTS HAVE THE ABILITY TO FRUSTRATE ENTRY DUE TO THEIR CONTROL OVER FUELS OR FUEL DELIVERY SYSTEMS? A. No. As noted earlier, CILCO's natural gas transportatio assets serve basically only a small amount of CILCO owned facilities. Similarly, IPL's ownership of undeveloped coal reserves does not convey any ability of IPL to frustrate entry. Q. DO APPLICANTS EXERCISE CONTROL OVER THE AVAILABLE GENERATION SITES? A. No. I was unable to identify any special barriers to entry in this regard. While IPL and CILCO own a few potential generating sites, there are numerous other sites available, as shown by actual recent entry in the area. The geographic areas served by these Applicants are relatively small and the geographic area that must be included in any market definition that contains both Applicants encompasses quite a large region and includes many control areas. Entrants who could compete in areas potentially affected by this merger would not need to locate new facilities in Applicants' service areas or connect to Applicants' transmission systems. This is especially true given Applicants' open access transmission, overseen by the Commission, and the RTO membership and commitments discussed above. Q. IS THERE ANY EVIDENCE THAT THERE WILL BE ENTRY INTO THE MAIN AND ECAR MARKETS WITHIN THE NEXT FEW YEARS? A. Yes. First, entry can be accomplished in far shorter periods of time than were required with the large coal and nuclear generation facilities that used to be the chosen technology. According to the Department of Energy, conventional and advanced combined cycle generating units have a lead time of three years, and combustion turbines (i.e., peaking capacity) have a lead time of only two years.(39) There is substantial evidence that additional entry will occur and, in fact, is already taking place. For example, I identified more than 17,000 MW of planned new generating capacity that has either entered service or is planned to enter service by around 2001 in just ECAR and MAIN.(40) There is also evidence of entry in the specific regions where IPL and CILCO operate. For example, in the past year, DTE Energy has located two combustion turbines in IPL's control area, and an affiliate of Enron Power Marketing has interconnected with the transmission systems of both IPL and Cinergy near Wheatland, Indiana. In Illinois, there were proposals for over 2,400 MW of new generation from a variety of suppliers during the first quarter of this year.(41) - --------------- 39 Assumptions to the Annual Energy Outlook 1999, Energy Information Administration, U.S. Department of Energy, December 1998, p. 59. 40 In my analyses, I included only about 6,500 MW of this generating capacity, representing only those units that are most likely to be in-service given the milestones that they have reached to date. These units are shown in workpapers. 41 See Power Generation Markets Quarterly (1st quarter, 2000), page 48. 7. CONCLUSION Q. PLEASE SUMMARIZE YOUR RECOMMENDATION. A. I recommend that the Commission determine that this merger will not have an adverse effect on competition in markets subject to its jurisdiction. Q. DOES THIS COMPLETE YOUR TESTIMONY? A. Yes. EXHIBITS Exhibit No. WHH-1 Resume of William H. Hieronymus Exhibit No. WHH-2 Economic Capacity - Base case Exhibit No. WHH-3 Available Economic Capacity - Base case Exhibit No. WHH-4 Economic Capacity - IPL in MISO Pre and Post-Merger (IP and ComEd in MISO) Exhibit No. WHH-5 Economic Capacity - IPL in Alliance Pre and Post-Merger (IP and ComEd in MISO) Exhibit No. WHH-6 Economic Capacity - IPL in MISO Post-Merger (IP and ComEd in Alliance) Exhibit No. WHH-7 Economic Capacity - IPL in Alliance Post-Merger (IP and ComEd in Alliance) Exhibit No. WHH-8 Transmission Network Around CILCO and IPL Exhibit No. WHH-9 Purchases and Sales - 1998-1999 Exhibit No. WHH-10 Natural Gas Units Served By CILCO Exhibit No. WHH-11 AES / IPL Generating Units Included In The Analysis Exhibit No. WHH-12 Data and Methodology Exhibit No. WHH-13 Description of Competitive Analysis Screening Model ("CASm") Exhibit No. WHH-14 Abbreviations Used In Exhibit Exhibit No. WHH-15 Destination Market Price Data Exhibit No. WHH-16 Economic Capacity - No Transmission Rates Sensitivity Exhibit No. WHH-17 Economic Capacity - Increased Transmission Capacity Sensitivity Exhibit No. WHH-18 Total Capacity Analysis Exhibit No. WHH-19 Uncommitted Capacity Analysis Exhibit No. WHH-1 WILLIAM H. HIERONYMUS MEMBER OF THE MANAGEMENT GROUP William Hieronymus has consulted extensively to managements of electricity and gas companies, their counsel, regulators and policy makers. His principal areas of concentration are the structure and regulation of network utilities and associated management, policy and regulatory issues. He has spent the last several years working on restructuring and privatization of utility systems internationally and on changing regulatory systems and management strategies in mature electricity systems. In his twenty-plus years of consulting to this sector he also has performed a number of more specific functional tasks including the selection of investments, determining procedures for contracting with independent power producers, assistance in contract negotiation, tariff formation, demand forecasting and fuels market forecasting. Dr. Hieronymus has testified frequently on behalf of utility clients before regulatory bodies, federal courts and legislative bodies in the United States and United Kingdom. Dr. Hieronymus was previously a Senior Vice President of Putnam, Hayes and Bartlett (PHB), which merged with Hagler Bailly, Inc. in 1998. Hagler Bailly, Inc. was purchased by the PA Consulting Group in October 2000. A brief description of projects that he has led or contributed to include the following. ELECTRICITY SECTOR STRUCTURE, REGULATION AND RELATED MANAGEMENT AND PLANNING ISSUES U.S. ASSIGNMENTS 1. Dr. Hieronymus served as an advisor to a western electric utility on restructuring and related regulatory issues and has worked with senior management in developing strategies for shaping and adapting to the emerging competitive market in electricity. As a part of this general assignment he helped develop, and testified respecting, a settlement with the state regulatory commission staff that provides, among other things, for accelerated recovery of strandable assets. He also prepared numerous briefings for the senior management group on various topics related to restructuring. 1. For several utilities seeking merger approval he has prepared and testified to market power analyses at FERC and before state commissions. He also has assisted in discussions with the Antitrust Division of the Department of Justice and in responding to information requests. The analyses he has sponsored cover the destination market-oriented traditional FERC tests, Justice Department-oriented market structure tests similar to the Order 592 required analyses, behavioral tests of the ability to raise prices and examination of vertical market power arising from ownership of transmission and generation and from ownership of distribution facilities in the context of retail access. The mergers on which he has testified include both electricity mergers and combination mergers involving electricity and gas companies. 1. For utilities and power pools preparing structural reforms, he has assisted in examining various facets of proposed reforms. This analysis has included both features of the proposals affecting market efficiency and those that have potential consequences for market power. Where relevant, the analysis also has examined the effects of alternative reforms on the client's financial performance and achievement of other objectives. 1. For the New England Power Pool he examined the issue of market power in connection with its movement to market-based pricing for energy, capacity and ancillary services. He also assisted the New England utilities in preparing their market power mitigation proposal. The main results of his analysis were incorporated in NEPOOL's market power filing before FERC. 1. As part of a large PHB team he assisted a midwest utility in developing an innovative proposal for electricity industry restructuring. This work formed the basis for that utility's proposals in its state's restructuring proceeding. 1. Dr. Hieronymus has contributed substantially to PHB's activities in the restructuring of the California electricity industry. In this context he also is a witness in California and FERC proceedings on the subject of market power and mitigation. 1. He has testified in state securitization and stranded cost quantification proceedings, primarily in forecasting the level of market prices that should be used in assessing the future revenues and the operating contribution earned by the owner of the utilities' assets in energy and capacity markets. The market price analyses are tailored to the specific features of the market in which the utility will operate and reflect transmission-constrained trading over a wide geographic area. He also has testified in rebuttal to other parties' testimony concerning stranded costs and assisted companies in internal stranded cost and asset valuation studies. 1. He has contributed to the development of benchmarking analyses for U.S. utilities. These have been used in work with PHB's clients to develop regulatory proposals, set cost reduction targets, restructure internal operations and assess merger savings. 1. Dr. Hieronymus was a co-developer of a market simulation package that PHB has tailored to region-specific applications. He and other PHB personnel have provided numerous multi-day training sessions using the package to help our utility clients in educating management personnel in the consequences of wholesale and retail deregulation and in developing the skills necessary to succeed in this environment. 1. Dr. Hieronymus has made numerous presentations to U.S. utility managements on the U.K. electricity system and has arranged meetings with senior executives and regulators in the U.K. for the senior managements of U.S. utilities. 1. For a task force of utilities, regulators, legislators and other interested parties created by the Governor's office of a northeastern state he prepared background and briefing papers as part of a PHB assignment to assist in developing a consensus proposal for electricity industry restructuring. 1. For an East Coast electricity holding company, he prepared and testified to an analysis of the logic and implementation issues concerning utility-sponsored conservation and demand management programs. 1. In connection with nuclear generating plants nearing completion, he has testified in Pennsylvania, Louisiana, Arizona, Illinois, Missouri, New York, Texas, Arkansas, New Mexico and before the Federal Energy Regulatory Commission in plant-in-service rate cases on the issues of equitable and economically efficient treatment of plant cost for tariff setting purposes, regulatory treatment of new plants in other jurisdictions, the prudence of past system planning decisions and assumptions, performance incentives and the life-cycle costs and benefits of the units. In these and other utility regulatory proceedings, Dr. Hieronymus and his colleagues have provided extensive support to counsel, including preparation of interrogatories, cross-examination support and assistance in writing briefs. 1. On behalf of utilities in the states of Michigan, Massachusetts, New York, Maine, Indiana, Pennsylvania, New Hampshire and Illinois, he has submitted testimony in regulatory proceedings on the economics of completing nuclear generating plants that are currently under construction. His testimony has covered the likely cost of plant completion, forecasts of operating performance and extensive analyses of ratepayer and shareholder impacts of completion, deferral and cancellation. 1. For utilities engaged in nuclear plant construction, Dr. Hieronymus has performed a number of highly confidential assignments to support strategic decisions concerning continuing the construction projects. Areas of inquiry included plant cost, financial feasibility, power marketing opportunities, the impact of potential regulatory treatments of plant cost on shareholders and customers and evaluation of offers to purchase partially completed facilities. 1. For an eastern Pennsylvania utility that suffered a nuclear plant shutdown due to NRC sanctions relating to plant management, he filed testimony regarding the extent to which replacement power cost exceeded the costs that would have occurred but for the shutdown. 1. For a major midwestern utility, he headed a team that assisted senior management in devising its strategic plans including examination of such issues as plant refurbishment/life extension strategies, impacts of increased competition and diversification opportunities. 1. On behalf of two West Coast utilities, he testified in a needs certification hearing for a major coal-fired generation complex concerning the economics of the facility relative to competing sources of power, particularly unconventional sources and demand reductions. 1. For a large western combination utility, Dr. Hieronymus participated in a major 18-month effort to provide it with an integrated planning and rate case management system. His specific responsibilities included assisting the client in design and integration of electric and gas energy demand forecasts, peak load and load shape forecasts and forecasts of the impacts of conservation and load management programs. 1. For two midwestern utilities, he prepared an analysis of intervenor-proposed modifications to the utilities' resource plans. He then testified on their behalf before a legislative committee. 1. For a major combination electric and gas utility, he directed the adaptation of a PHB-developed financial simulation model for use in resource planning and evaluation of conservation programs. U.K. ASSIGNMENTS 1. Following promulgation of the White Paper setting out the general framework for privatization of the electricity industry in the United Kingdom, Dr. Hieronymus participated extensively in the task forces charged with developing the new market system and regulatory regime. His work on behalf of the Electricity Council and the twelve regional electricity councils focused on the proposed regulatory regime, including the price cap and regulatory formulas, and distribution and transmission use of system tariffs. He was an active participant in industry-government task forces charged with creating the legislation, regulatory framework, initial contracts and rules of the pooling and settlements system. He also assisted the regional companies in the valuation of initial contract offers from the generators, including supporting their successful refusal to contract for the proposed nuclear power plants that subsequently were canceled as being non-commercial. 1. During the preparation for privatization, he assisted several of the U.K. individual electricity companies in understanding the evolving system, in development of use of system tariffs, and in developing strategic plans and management and technical capabilities in power purchasing and contracting. He continued to advise a number of clients, including regional companies, power developers, large industrial customers and financial institutions on the U.K. power system for a number of years after privatization. 1. Dr. Hieronymus assisted four of the regional electricity companies in negotiating equity ownership positions and developing the power purchase contracts for an 1,825 megawatt combined cycle gas station. He also assisted clients in evaluating other potential generating investments including cogeneration and non-conventional resources. 1. He also has consulted on the separate reorganization and privatization of the Scottish electricity sector. PHB's role in that privatization included advising the larger of the two Scottish companies and, through it, the Secretary of State on all phases of the restructuring and privatization, including the drafting of regulations, asset valuation and company strategy. 1. He has assisted one of the Regional Electricity Companies in England and Wales in the 1993 through 1995 regulatory proceedings that reset the price caps for its retailing and distribution businesses. Included in this assignment have been policy issues such as incentives for economic purchasing of power, the scope of the price control, and the use of comparisons among companies as a basis for price regulation. His model for determining network refurbishment needs was used by the regulator in determining revenue allowances for capital investments. 1. He assisted this same utility in its defense against a hostile takeover, including preparation of its submission to the Cabinet Minister who had the responsibility for determining whether the merger should be referred to the competition authority. ASSIGNMENTS OUTSIDE THE U.S. AND U.K. 1. Dr. Hieronymus has assisted a large state-owned European electricity company in evaluating the impacts of the 1997 EU directive on electricity that inter alia requires retail access and competitive markets for generation. The assignment includes advice on the organizational solution to elements of the directive requiring a separate transmission system operator and the business need to create a competitive marketing function. 1. For the European Bank for Reconstruction and Development he performed analyses of least cost power options, evaluation of the return on a major plant investment that the Bank was considering and forecasts of electricity prices in support of assessment of a major investment in an electricity intensive industrial plant. 1. For the OECD he performed a study of energy subsidies worldwide and the impact of subsidy elimination on the environment, particularly on greenhouse gases. 1. For the Magyar Villamos Muvek Troszt, the electricity company of Hungary, he developed a contract framework to link the operations of the different entities of an electricity sector in the process of moving from a centralized command and control system to a decentralized, corporatized system. 1. For Iberdrola, the largest investor-owned Spanish electricity company, he assisted in development of their proposal for a fundamental reorganization of the electricity sector, its means of compensating generation and distribution companies, its regulation and the phasing out of subsidies. He also has assisted the company in evaluating generation expansion options and in valuing offers for imported power. 1. Dr. Hieronymus contributed extensively to a project for the Ukrainian Electricity Ministry, the goal of which is to reorganize the Ukrainian electricity sector and prepare it for transfer to the private sector and the attraction of foreign capital. The proposed reorganization will be based on regional electricity companies, linked by a unified central market, with market-based prices for electricity. 1. At the request of the Ministry of Power of the USSR, Dr. Hieronymus participated in the creation of a seminar on electricity restructuring and privatization. The seminar was given for 200 invited Ministerial staff and senior managers for the USSR power system. His specific role was to introduce the requirements and methods of privatization. Subsequent to the breakup of the Soviet Union, he continued to advise the Russian energy and power ministry and government-owned generation and transmission company on restructuring and market development issues. 1. On behalf of a large continental electricity company he analyzed the proposed directives from the European Commission on gas and electricity transit (open access regimes) and on the internal market for electricity. The purpose of this assignment was to forecast likely developments in the structure and regulation of the electricity sector in the common market and assist the client in understanding their implications. 1. For the electric utility company of the Republic of Ireland, he assessed the likely economic benefit of building an interconnector between Eire and Wales for the sharing of reserves and the interchange of power. 1. For a task force representing the Treasury, electric generating and electricity distribution industries in New Zealand, he undertook an analysis of industry structure and regulatory alternatives for achieving economically efficient generation of electricity. The analysis explored how the industry likely would operate under alternative regimes and their implications for asset valuation, electricity pricing, competition and regulatory requirements. TARIFF DESIGN METHODOLOGIES AND POLICY ISSUES 1. Dr. Hieronymus participated in a series of studies for the National Grid Company of the United Kingdom and for ScottishPower on appropriate pricing methodologies for transmission, including incentives for efficient investment and location decisions. 1. For a U.S. utility client, he directed an analysis of time-differentiated costs based on accounting concepts. The study required selection of rating periods and allocation of costs to time periods and within time periods to rate classes. 1. For EPRI, he directed a study that examined the effects of time-of-day rates on the level and pattern of residential electricity consumption. 1. For the EPRI-NARUC Rate Design Study, Dr. Hieronymus developed a methodology for designing optimum cost-tracking block rate structures. 1. On behalf of a group of cogenerators, he filed testimony before the Energy Select Committee of the UK Parliament on the effects of prices on cogeneration development. 1. For the Edison Electric Institute (EEI), he prepared a statement of the industry's position on proposed federal guidelines on fuel adjustment clauses. He also assisted EEI in responding to the U.S. Department of Energy (DOE) guideline on cost-of-service standards. 1. For private utility clients, he assisted in the preparation of comments on draft Federal Energy Regulatory Commission (FERC) regulations and in preparing their compliance plans for PURPA Section l33. 1. For the EEI Utility Regulatory Analysis Program, he co-authored an analysis of the DOE position on the purposes of the Public Utilities Regulatory Policies Act of 1978. The report focused on the relationship between those purposes and cost-of-service and ratemaking positions under consideration in the generic hearings required by PURPA. 1. For a state utilities commission, Dr. Hieronymus assessed its utilities' existing automatic adjustment clauses to determine their compliance with PURPA and recommended modifications. 1. For the DOE, he developed an analysis of automatic adjustment clauses currently employed by electric utilities. The focus of this analysis was on efficiency incentive effects. 1. For the commissioners of a public utility commission, he assisted in preparation of briefing papers, lines of questioning and proposed findings of fact in a generic rate design proceeding. SALES FORECASTING METHODOLOGIES FOR GAS AND ELECTRIC UTILITIES 1. For the White House Sub-Cabinet Task Force on the future of the electric utility industry, Dr. Hieronymus co-directed a major analysis of "least-cost planning studies" and "low-growth energy futures." That analysis was the sole demand-side study commissioned by the task force and formed an important basis for the task force's conclusions concerning the need for new facilities and the relative roles of new construction and customer side-of-the-meter programs in utility planning. 1. For a large eastern utility, he developed a load forecasting model designed to interface with the utility's revenue forecasting system- planning functions. The model forecasts detailed monthly sales and seasonal peaks for a 10-year period. 1. For the DOE, he directed the development of an independent needs assessment model for use by state public utility commissions. This major study developed the capabilities required for independent forecasting by state commissions and constructed a forecasting model for their interim use. 1. For several state regulatory commissions, Dr. Hieronymus has consulted in the development of service area level forecasting models of electric utility companies. 1. For EPRI, he authored a study of electricity demand and load forecasting models. The study surveyed state-of-the-art models of electricity demand and subjected the most promising models to empirical testing to determine their potential for use in long-term forecasting. 1. For a midwestern electric utility, he has provided consulting assistance in improving its load forecast and has testified in defense of the revised forecasting models. 1. For an East Coast gas utility, he testified with respect to sales forecasts and provided consulting assistance in improving the models used to forecast residential and commercial sales. OTHER STUDIES PERTAINING TO REGULATED AND ENERGY COMPANIES 1. In a number of antitrust and regulatory matters, Dr. Hieronymus has performed analyses and litigation support tasks. These include both Sherman Act Section One and Two cases, contract negotiations, generic rate hearings, ITC hearings and a major asset valuation suit. In a major antitrust case, he testified with respect to the demand for business telecommunications services and the impact of various practices on demand and on the market share of a new entrant. For a major electrical equipment vendor he has testified on damages with respect to alleged defects and associated fraud and warranty claims. In connection with mergers for which he is the market power expert, he is assisting clients in responding to the Antitrust Division of the U.S. Department of Justice's Hart-Scott-Rodino requests. 1. For a private client, he headed a project that examined the feasibility and value of a major synthetic natural gas project. The study analyzed both the future supply costs of alternative natural gas sources and the effects of potential changes in FPC rate regulations on project viability. The analysis was used in preparing contract negotiation strategies. 1. For a industrial client considering development and marketing of a total energy system for cogeneration of electricity and low-grade heat, he developed an estimate of the potential market for the system by geographic area. 1. For the U.S. Environmental Protection Agency (EPA), Dr. Hieronymus was the principal investigator in a series of studies for forecasting future supply availability and production costs for various grades of steam and metallurgical coal to be consumed in process heat and utility uses. Dr. Hieronymus has addressed a number of conferences on such issues as market power, industry restructuring, utility pricing in competitive markets, international developments in utility structure and regulation, risk analysis for regulated investments, price squeezes, rate design, forecasting customer response to innovative rates, intervenor strategies in utility regulatory proceedings, utility deregulation and utility-related opportunities for investment bankers. Before joining PHB, Dr. Hieronymus was program manager for Energy Market Analysis at Charles River Associates. Previously, he served as a project director at Systems Technology Corporation and as an economist while serving in the U.S. Army. He is a present or past member of the American Economics Association and the International Association of Energy Economists, and a past member of the Task Force on Coal Supply of the New England Energy Policy Commission. He is the author of a number of reports in the field of energy economics and has been an invited speaker at numerous conferences. Dr. Hieronymus received a B.A. from the University of Iowa and M.A. and Ph.D. degrees in economics from the University of Michigan. Exhibit No. WHH-2
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8 CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8 CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8 CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10 CILCO S_OP 20 1120 45.50% 0 0.00% 2516 1120 45.50% 2516 0 CILCO W_SP 25 1019 41.50% 0 0.00% 2222 1019 41.50% 2222 0 CILCO W_P 20 1019 41.90% 0 0.00% 2317 1019 41.90% 2317 0 CILCO W_OP 15 330 19.50% 0 0.00% 1476 330 19.50% 1476 0 CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14 CILCO SH_P 25 911 38.80% 0 0.00% 2037 911 38.80% 2037 0 CILCO SH_OP 15 294 17.90% 0 0.00% 1465 294 17.90% 1465 0 IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP3 50 4 0.10% 2658 50.40% 2801 2662 50.50% 2809 8 IPL S_P 30 5 0.10% 2440 49.60% 2747 2446 49.70% 2757 10 IPL S_OP 20 5 0.10% 2440 49.60% 2755 2445 49.70% 2765 10 IPL W_SP 25 8 0.10% 2450 40.00% 2041 2458 40.20% 2051 11 IPL W_P 20 6 0.10% 2450 40.10% 2159 2456 40.20% 2167 8 IPL W_OP 15 0 0.00% 2450 40.40% 2327 2450 40.40% 2327 0 IPL SH_SP 40 6 0.10% 2382 40.40% 2031 2389 40.50% 2039 9 IPL SH_P 25 8 0.10% 2177 39.20% 2039 2185 39.40% 2050 11 IPL SH_OP 15 0 0.00% 2177 39.70% 2207 2177 39.70% 2207 0 AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1 AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1 AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1 AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2 AEP S_OP 20 207 0.30% 1763 2.90% 1496 1970 3.20% 1498 2 AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1 AEP W_P 20 157 0.30% 1628 2.60% 1526 1785 2.90% 1528 1 AEP W_OP 15 111 0.20% 0 0.00% 2042 111 0.20% 2042 0 AEP SH_SP 40 90 0.20% 1965 3.40% 1344 2054 3.60% 1345 1 AEP SH_P 25 89 0.20% 1822 3.20% 1401 1912 3.40% 1402 1 AEP SH_OP 15 94 0.20% 0 0.00% 2094 94 0.20% 2094 0 AMEREN S_SP1 100 452 2.00% 68 0.30% 2088 520 2.30% 2089 1 AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1 AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1 AMEREN S_P 30 463 2.10% 77 0.40% 2004 540 2.50% 2005 2 AMEREN S_OP 20 492 2.60% 65 0.40% 2375 558 3.00% 2377 2 AMEREN W_SP 25 350 1.50% 76 0.30% 1576 426 1.80% 1576 1 AMEREN W_P 20 156 0.70% 0 0.00% 1630 156 0.70% 1630 0 AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0 AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1 AMEREN SH_P 25 321 1.50% 65 0.30% 1533 386 1.80% 1534 1 AMEREN SH_OP 15 45 0.20% 0 0.00% 1514 45 0.20% 1514 0 CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1 CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1 CIN S_P 30 30 0.10% 942 4.10% 1840 972 4.20% 1841 1 CIN S_OP 20 14 0.10% 941 4.20% 1997 955 4.30% 1998 1 CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1 CIN W_P 20 24 0.10% 727 3.30% 2006 751 3.40% 2006 1 CIN W_OP 15 0 0.00% 0 0.00% 2496 0 0.00% 2496 0 CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1846 1 CIN SH_P 25 34 0.20% 728 3.40% 1803 762 3.50% 1804 1 CIN SH_OP 15 0 0.00% 0 0.00% 2258 0 0.00% 2258 0 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0 COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0 COMED S_OP 20 126 0.70% 14 0.10% 6713 140 0.80% 6713 0 COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0 COMED W_P 20 121 0.70% 18 0.10% 6752 138 0.80% 6752 0 COMED W_OP 15 1 0.00% 0 0.00% 6771 1 0.00% 6771 0 COMED SH_SP 40 108 0.50% 17 0.10% 4758 125 0.50% 4758 0 COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6182 0 COMED SH_OP 15 1 0.00% 0 0.00% 6420 1 0.00% 6420 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2 CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2 CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 2 CWLP W_SP 25 85 8.60% 2 0.20% 2065 87 8.80% 2069 4 CWLP W_P 20 67 6.70% 0 0.00% 2072 67 6.70% 2072 0 CWLP W_OP 15 0 0.00% 0 0.00% 1016 0 0.00% 1016 0 CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3 CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.70% 1963 4 CWLP SH_OP 15 2 0.30% 0 0.00% 998 2 0.30% 998 0 HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1 HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1 HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1 HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1 HEC S_OP 20 2 0.10% 189 5.70% 1768 191 5.80% 1769 1 HEC W_SP 25 2 0.10% 134 4.10% 1841 137 4.20% 1842 1 HEC W_P 20 2 0.00% 134 4.10% 1879 136 4.20% 1880 0 HEC W_OP 15 0 0.00% 0 0.00% 2008 0 0.00% 2008 0 HEC SH_SP 40 2 0.10% 137 4.50% 1687 138 4.50% 1687 1 HEC SH_P 25 2 0.10% 137 4.50% 1715 139 4.60% 1716 1 HEC SH_OP 15 0 0.00% 0 0.00% 1843 0 0.00% 1843 0 IP S_SP1 100 435 4.10% 38 0.40% 1878 473 4.40% 1881 3 IP S_SP2 75 435 4.10% 38 0.40% 1873 473 4.40% 1875 3 IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3 IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4 IP S_OP 20 439 4.90% 0 0.00% 1926 439 4.90% 1926 0 IP W_SP 25 267 2.30% 65 0.60% 1386 332 2.80% 1389 3 IP W_P 20 120 1.10% 0 0.00% 1488 120 1.10% 1488 0 IP W_OP 15 2 0.00% 0 0.00% 1475 2 0.00% 1475 0 IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3 IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4 IP SH_OP 15 3 0.00% 0 0.00% 1420 3 0.00% 1420 0 SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1 SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1 SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1 SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1 SIGE S_OP 20 1 0.10% 96 6.00% 3572 97 6.00% 3573 1 SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1 SIGE W_P 20 0 0.00% 75 4.70% 3577 75 4.70% 3577 0 SIGE W_OP 15 0 0.00% 0 0.00% 3677 0 0.00% 3677 0 SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0 SIGE SH_P 25 1 0.10% 74 4.90% 3202 76 5.00% 3202 1 SIGE SH_OP 15 0 0.00% 0 0.00% 3438 0 0.00% 3438 0
Exhibit No. WHH-3
BASE MERGER AES HHI AHHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 203 12.00% 2 0.10% 488 204 12.10% 491 3 CILCO S_SP2 75 203 12.00% 2 0.10% 473 205 12.10% 476 3 CILCO S_SP3 50 178 10.80% 0 0.00% 470 178 10.80% 470 0 CILCO S_P 30 320 18.20% 3 0.20% 785 323 18.40% 792 7 CILCO S_OP 20 377 22.50% 0 0.00% 1017 377 22.50% 1017 0 CILCO W_SP 25 161 10.70% 0 0.00% 434 161 10.70% 434 0 CILCO W_P 20 248 16.10% 0 0.00% 736 248 16.10% 736 0 CILCO W_OP 15 11 0.80% 0 0.00% 1288 11 0.80% 1288 0 CILCO SH_SP 40 108 7.10% 0 0.00% 399 108 7.10% 399 0 CILCO SH_P 25 170 11.10% 0 0.00% 622 170 11.10% 622 0 CILCO SH_OP 15 12 0.90% 0 0.00% 1188 12 0.90% 1188 0 IPL S_SP1 100 21 0.80% 140 5.10% 469 161 5.80% 477 8 IPL S_SP2 75 23 0.80% 140 5.10% 474 162 5.90% 482 8 IPL S_SP3 50 32 1.20% 0 0.00% 552 32 1.20% 552 0 IPL S_P 30 41 1.50% 221 8.20% 698 262 9.70% 723 25 IPL S_OP 20 23 0.80% 513 17.20% 1007 535 17.90% 1032 26 IPL W_SP 25 60 1.60% 0 0.00% 701 60 1.60% 701 0 IPL W_P 20 39 1.00% 322 8.40% 1011 362 9.40% 1028 17 IPL W_OP 15 0 0.00% 593 15.10% 2346 593 15.10% 2346 0 IPL SH_SP 40 41 1.20% 0 0.00% 508 41 1.20% 508 0 IPL SH_P 25 41 1.10% 239 6.70% 670 280 7.80% 685 15 IPL SH_OP 15 0 0.00% 594 16.00% 2761 594 16.00% 2761 0 AEP S_SP1 100 334 1.10% 134 0.50% 486 469 1.60% 487 1 AEP S_SP2 75 337 1.20% 134 0.50% 494 471 1.60% 495 1 AEP S_SP3 50 331 1.20% 0 0.00% 539 331 1.20% 539 0 AEP S_P 30 424 1.50% 214 0.80% 821 638 2.30% 824 2 AEP S_OP 20 454 1.50% 496 1.70% 1044 950 3.20% 1049 5 AEP W_SP 25 330 1.40% 0 0.00% 758 330 1.40% 758 0 AEP W_P 20 288 1.10% 311 1.20% 867 599 2.30% 869 3 AEP W_OP 15 276 1.30% 0 0.00% 1575 276 1.30% 1575 0 AEP SH_SP 40 334 1.40% 0 0.00% 507 334 1.40% 507 0 AEP SH_P 25 363 1.60% 231 1.00% 778 595 2.60% 781 3 AEP SH_OP 15 257 1.40% 0 0.00% 1836 257 1.40% 1836 0 AMEREN S_SP1 100 322 2.50% 24 0.20% 269 346 2.70% 270 1 AMEREN S_SP2 75 323 2.60% 0 0.00% 261 323 2.60% 261 0 AMEREN S_SP3 50 235 1.90% 0 0.00% 300 235 1.90% 300 0 AMEREN S_P 30 441 3.40% 36 0.30% 474 477 3.70% 476 2 AMEREN S_OP 20 426 4.20% 0 0.00% 796 426 4.20% 796 0 AMEREN W_SP 25 434 3.50% 0 0.00% 355 434 3.50% 355 0 AMEREN W_P 20 361 2.50% 0 0.00% 574 361 2.50% 574 0 AMEREN W_OP 15 266 1.90% 0 0.00% 662 266 1.90% 662 0 AMEREN SH_SP 40 169 1.20% 0 0.00% 280 169 1.20% 280 0 AMEREN SH_P 25 231 1.80% 40 0.30% 444 271 2.10% 445 1 AMEREN SH_OP 15 242 2.30% 0 0.00% 635 242 2.30% 635 0 CIN S_SP1 100 126 0.80% 135 0.80% 477 260 1.60% 478 1 CIN S_SP2 75 139 0.90% 135 0.90% 487 274 1.70% 489 2 CIN S_SP3 50 160 1.00% 0 0.00% 571 160 1.00% 571 0 CIN S_P 30 200 1.40% 213 1.50% 843 413 2.80% 847 4 CIN S_OP 20 96 0.70% 415 3.00% 1149 511 3.70% 1153 4 CIN W_SP 25 232 1.90% 0 0.00% 1078 232 1.90% 1078 0 CIN W_P 20 97 0.90% 133 1.20% 1042 230 2.00% 1044 2 CIN W_OP 15 5 0.00% 0 0.00% 1499 5 0.00% 1499 0 CIN SH_SP 40 166 1.20% 0 0.00% 647 166 1.20% 647 0 CIN SH_P 25 141 1.10% 165 1.30% 1047 306 2.40% 1050 3 CIN SH_OP 15 0 0.00% 0 0.00% 2283 0 0.00% 2283 0 COMED S_SP1 100 119 1.30% 5 0.00% 1266 124 1.30% 1266 0 COMED S_SP2 75 127 1.40% 5 0.10% 1140 131 1.40% 1140 0 COMED S_SP3 50 43 0.50% 0 0.00% 1159 43 0.50% 1159 0 COMED S_P 30 68 0.60% 9 0.10% 1982 77 0.70% 1982 0 COMED S_OP 20 246 3.60% 13 0.20% 3017 259 3.80% 3019 1 COMED W_SP 25 52 1.00% 0 0.00% 1081 52 1.00% 1081 0 COMED W_P 20 67 1.10% 8 0.10% 2338 74 1.20% 2338 0 COMED W_OP 15 15 0.20% 0 0.00% 3943 15 0.20% 3943 0 COMED SH_SP 40 30 0.30% 0 0.00% 1008 30 0.30% 1008 0 COMED SH_P 25 42 0.70% 14 0.20% 1559 56 1.00% 1560 0 COMED SH_OP 15 14 0.20% 0 0.00% 3412 14 0.20% 3412 0 CWLP S_SP1 100 31 4.20% 1 0.10% 1067 31 4.30% 1068 1 CWLP S_SP2 75 31 4.30% 1 0.10% 1066 32 4.40% 1067 1 CWLP S_SP3 50 28 4.00% 0 0.00% 920 28 4.00% 920 0 CWLP S_P 30 42 5.50% 1 0.20% 1367 43 5.70% 1369 2 CWLP S_OP 20 53 7.80% 0 0.00% 1092 53 7.80% 1092 0 CWLP W_SP 25 25 3.50% 0 0.00% 791 25 3.50% 791 0 CWLP W_P 20 5 0.70% 0 0.00% 1065 5 0.70% 1065 0 CWLP W_OP 15 0 0.00% 0 0.00% 1137 0 0.00% 1137 0 CWLP SH_SP 40 12 1.60% 0 0.00% 969 12 1.60% 969 0 CWLP SH_P 25 26 3.60% 4 0.60% 810 30 4.20% 814 4 CWLP SH_OP 15 7 1.40% 0 0.00% 1083 7 1.40% 1083 0 HEC S_SP1 100 13 0.50% 35 1.40% 649 48 2.00% 651 1 HEC S_SP2 75 13 0.50% 36 1.50% 683 49 2.00% 685 2 HEC S_SP3 50 14 0.60% 0 0.00% 783 14 0.60% 783 0 HEC S_P 30 17 0.60% 55 2.10% 1129 72 2.70% 1132 3 HEC S_OP 20 16 0.60% 106 4.00% 1210 122 4.60% 1215 5 HEC W_SP 25 22 0.90% 0 0.00% 1156 22 0.90% 1156 0 HEC W_P 20 13 0.50% 86 3.40% 876 99 4.00% 880 4 HEC W_OP 15 0 0.00% 0 0.00% 1307 0 0.00% 1307 0 HEC SH_SP 40 15 0.70% 0 0.00% 735 15 0.70% 735 0 HEC SH_P 25 25 1.00% 45 1.90% 888 70 2.90% 891 4 HEC SH_OP 15 0 0.00% 0 0.00% 1329 0 0.00% 1329 0 IP S_SP1 100 211 2.70% 14 0.20% 522 225 2.90% 523 1 IP S_SP2 75 213 2.80% 0 0.00% 523 213 2.80% 523 0 IP S_SP3 50 199 2.70% 0 0.00% 556 199 2.70% 556 0 IP S_P 30 177 2.40% 0 0.00% 701 177 2.40% 701 0 IP S_OP 20 180 2.80% 0 0.00% 908 180 2.80% 908 0 IP W_SP 25 147 1.60% 0 0.00% 501 147 1.60% 501 0 IP W_P 20 149 1.60% 0 0.00% 695 149 1.60% 695 0 IP W_OP 15 25 0.30% 0 0.00% 1054 25 0.30% 1054 0 IP SH_SP 40 86 1.00% 0 0.00% 384 86 1.00% 384 0 IP SH_P 25 117 1.50% 33 0.40% 542 150 1.90% 543 1 IP SH_OP 15 27 0.40% 0 0.00% 972 27 0.40% 972 0 SIGE S_SP1 100 4 0.60% 11 1.60% 546 15 2.20% 548 2 SIGE S_SP2 75 5 0.70% 11 1.60% 565 16 2.30% 567 2 SIGE S_SP3 50 5 0.70% 0 0.00% 650 5 0.70% 650 0 SIGE S_P 30 6 0.90% 18 2.60% 793 24 3.40% 797 5 SIGE S_OP 20 2 0.30% 36 4.90% 874 38 5.20% 877 3 SIGE W_SP 25 7 1.00% 0 0.00% 973 7 1.00% 973 0 SIGE W_P 20 1 0.20% 19 3.00% 745 20 3.20% 746 1 SIGE W_OP 15 0 0.00% 0 0.00% 1456 0 0.00% 1456 0 SIGE SH_SP 40 5 0.70% 0 0.00% 793 5 0.70% 793 0 SIGE SH_P 25 6 0.90% 14 2.00% 857 20 3.00% 860 4 SIGE SH_OP 15 0 0.00% 0 0.00% 1200 0 0.00% 1200 0
Exhibit No. WHH-4
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8 CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8 CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8 CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10 CILCO S_OP 20 1120 45.50% 3 0.10% 2516 1123 45.60% 2527 11 CILCO W_SP 25 1019 41.40% 6 0.20% 2212 1025 41.60% 2231 19 CILCO W_P 20 1019 41.90% 0 0.00% 2318 1019 41.90% 2318 0 CILCO W_OP 15 330 19.50% 0 0.00% 1482 330 19.50% 1482 0 CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14 CILCO SH_P 25 911 38.70% 6 0.20% 2027 916 38.90% 2046 19 CILCO SH_OP 15 294 17.90% 0 0.00% 1471 294 17.90% 1471 0 IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2962 8 IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2962 8 IPL S_SP3 50 4 0.10% 2658 50.40% 2801 2662 50.50% 2809 8 IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2757 10 IPL S_OP 20 5 0.10% 2440 49.80% 2766 2445 49.90% 2776 10 IPL W_SP 25 8 0.10% 2450 40.00% 2039 2458 40.20% 2050 11 IPL W_P 20 7 0.10% 2450 41.10% 2209 2457 41.20% 2219 10 IPL W_OP 15 0 0.00% 2450 41.50% 2356 2450 41.50% 2356 0 IPL SH_SP 40 6 0.10% 2382 40.40% 2031 2389 40.50% 2040 9 IPL SH_P 25 7 0.10% 2177 39.30% 2040 2185 39.40% 2050 11 IPL SH_OP 15 0 0.00% 2177 40.50% 2218 2177 40.50% 2218 0 AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1 AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1 AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1 AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2 AEP S_OP 20 207 0.30% 1764 2.90% 1496 1971 3.20% 1498 2 AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1 AEP W_P 20 157 0.30% 1752 2.80% 1520 1909 3.10% 1521 1 AEP W_OP 15 111 0.20% 1485 2.90% 1967 1597 3.10% 1969 1 AEP SH_SP 40 90 0.20% 1964 3.40% 1344 2054 3.60% 1345 1 AEP SH_P 25 89 0.20% 2099 3.70% 1392 2188 3.90% 1393 1 AEP SH_OP 15 94 0.20% 1174 2.70% 1974 1268 2.90% 1975 1 AMEREN S_SP1 100 452 2.00% 68 0.30% 2088 520 2.30% 2089 1 AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1 AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1 AMEREN S_P 30 463 2.10% 77 0.40% 2004 540 2.50% 2005 2 AMEREN S_OP 20 493 2.60% 77 0.40% 2373 569 3.10% 2375 2 AMEREN W_SP 25 350 1.50% 76 0.30% 1576 426 1.80% 1576 1 AMEREN W_P 20 80 0.30% 74 0.30% 1630 154 0.70% 1630 0 AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0 AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1 AMEREN SH_P 25 321 1.50% 66 0.30% 1533 386 1.80% 1534 1 AMEREN SH_OP 15 45 0.20% 0 0.00% 1514 45 0.20% 1514 0 CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1 CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1 CIN S_P 30 30 0.10% 942 4.10% 1840 972 4.20% 1841 1 CIN S_OP 20 14 0.10% 942 4.20% 2006 955 4.30% 2007 1 CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1 CIN W_P 20 26 0.10% 727 3.20% 1999 753 3.40% 1999 1 CIN W_OP 15 0 0.00% 729 3.80% 2380 729 3.80% 2380 0 CIN SH_SP 40 29 0.10% 744 3.10% 1846 773 3.20% 1846 1 CIN SH_P 25 37 0.20% 728 3.40% 1803 765 3.50% 1804 1 CIN SH_OP 15 0 0.00% 735 4.00% 2148 735 4.00% 2148 0 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0 COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0 COMED S_OP 20 126 0.70% 16 0.10% 6713 142 0.80% 6713 0 COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0 COMED W_P 20 121 0.70% 20 0.10% 6752 140 0.80% 6752 0 COMED W_OP 15 1 0.00% 6 0.00% 6772 7 0.00% 6772 0 COMED SH_SP 40 108 0.50% 17 0.10% 4758 125 0.50% 4758 0 COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6182 0 COMED SH_OP 15 1 0.00% 7 0.00% 6420 8 0.10% 6420 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2 CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2 CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 3 CWLP W_SP 25 85 8.60% 3 0.30% 2065 88 8.80% 2069 4 CWLP W_P 20 67 6.70% 1 0.10% 2072 68 6.80% 2073 1 CWLP W_OP 15 0 0.00% 3 0.50% 1013 3 0.50% 1013 0 CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3 CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.80% 1963 4 CWLP SH_OP 15 2 0.30% 4 0.60% 994 5 0.90% 994 0 HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1 HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1 HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1 HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1 HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1 HEC W_SP 25 3 0.10% 83 2.50% 1906 86 2.60% 1906 0 HEC W_P 20 2 0.10% 83 2.50% 1891 85 2.60% 1891 0 HEC W_OP 15 0 0.00% 139 4.20% 1881 139 4.20% 1881 0 HEC SH_SP 40 2 0.10% 85 2.80% 1734 87 2.80% 1735 0 HEC SH_P 25 2 0.10% 83 2.70% 1759 85 2.80% 1760 0 HEC SH_OP 15 0 0.00% 142 4.60% 1729 142 4.60% 1729 0 IP S_SP1 100 435 4.10% 38 0.40% 1878 473 4.40% 1881 3 IP S_SP2 75 435 4.10% 38 0.40% 1873 473 4.40% 1875 3 IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3 IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4 IP S_OP 20 438 4.90% 42 0.50% 1910 481 5.40% 1915 5 IP W_SP 25 267 2.30% 66 0.60% 1386 333 2.90% 1389 3 IP W_P 20 58 0.50% 69 0.60% 1487 127 1.10% 1488 1 IP W_OP 15 2 0.00% 0 0.00% 1475 2 0.00% 1475 0 IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3 IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4 IP SH_OP 15 3 0.00% 0 0.00% 1422 3 0.00% 1422 0 SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1 SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1 SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1 SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1 SIGE S_OP 20 1 0.10% 84 5.20% 3456 85 5.20% 3457 1 SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1 SIGE W_P 20 1 0.10% 75 4.70% 3568 76 4.70% 3568 1 SIGE W_OP 15 0 0.00% 75 4.60% 3502 75 4.60% 3502 0 SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0 SIGE SH_P 25 1 0.10% 74 4.90% 3202 76 5.00% 3202 1 SIGE SH_OP 15 0 0.00% 74 4.90% 3229 74 4.90% 3229 0
Exhibit No. WHH-5
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 44.70% 2 0.10% 2409 1212 44.80% 2417 8 CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8 CILCO S_SP3 50 1185 44.20% 2 0.10% 2369 1188 44.30% 2377 8 CILCO S_P 30 1160 43.70% 3 0.10% 2335 1163 43.80% 2345 10 CILCO S_OP 20 1120 45.50% 5 0.20% 2515 1124 45.60% 2533 17 CILCO W_SP 25 1019 41.40% 6 0.20% 2212 1025 41.60% 2232 20 CILCO W_P 20 1019 41.90% 0 0.00% 2317 1019 41.90% 2317 0 CILCO W_OP 15 330 19.40% 0 0.00% 1465 330 19.40% 1465 0 CILCO SH_SP 40 975 39.50% 4 0.20% 1958 980 39.60% 1971 14 CILCO SH_P 25 911 38.70% 6 0.30% 2026 917 38.90% 2047 20 CILCO SH_OP 15 294 18.00% 0 0.00% 1478 294 18.00% 1478 0 IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP3 50 4 0.10% 2658 50.40% 2800 2662 50.50% 2808 8 IPL S_P 30 5 0.10% 2440 49.60% 2749 2445 49.70% 2759 10 IPL S_OP 20 5 0.10% 2440 49.80% 2764 2446 49.90% 2774 11 IPL W_SP 25 8 0.10% 2450 40.10% 2042 2458 40.20% 2053 11 IPL W_P 20 8 0.10% 2450 40.10% 2028 2458 40.20% 2038 10 IPL W_OP 15 9 0.10% 2450 40.10% 2154 2459 40.20% 2165 12 IPL SH_SP 40 6 0.10% 2382 40.40% 2029 2388 40.50% 2037 9 IPL SH_P 25 7 0.10% 2177 39.30% 2036 2184 39.40% 2046 10 IPL SH_OP 15 8 0.10% 2177 39.40% 2197 2185 39.60% 2208 11 AEP S_SP1 100 152 0.20% 1678 2.60% 1434 1831 2.90% 1435 1 AEP S_SP2 75 153 0.20% 1679 2.60% 1434 1832 2.90% 1435 1 AEP S_SP3 50 155 0.20% 1665 2.60% 1436 1821 2.90% 1437 1 AEP S_P 30 182 0.30% 1761 2.80% 1482 1943 3.10% 1484 2 AEP S_OP 20 207 0.30% 1764 2.90% 1496 1971 3.20% 1498 2 AEP W_SP 25 105 0.20% 2003 3.00% 1375 2108 3.20% 1376 1 AEP W_P 20 157 0.30% 1628 2.60% 1526 1785 2.90% 1528 1 AEP W_OP 15 111 0.20% 1286 2.50% 1947 1398 2.70% 1948 1 AEP SH_SP 40 90 0.20% 1965 3.40% 1344 2054 3.60% 1345 1 AEP SH_P 25 89 0.20% 2099 3.70% 1392 2188 3.90% 1393 1 AEP SH_OP 15 94 0.20% 1337 3.10% 1972 1431 3.30% 1974 1 AMEREN S_SP1 100 452 2.00% 68 0.30% 2089 520 2.30% 2090 1 AMEREN S_SP2 75 452 2.10% 68 0.30% 2051 520 2.40% 2052 1 AMEREN S_SP3 50 452 2.10% 68 0.30% 2026 521 2.40% 2027 1 AMEREN S_P 30 463 2.10% 77 0.40% 2002 540 2.50% 2003 2 AMEREN S_OP 20 493 2.60% 78 0.40% 2373 571 3.10% 2375 2 AMEREN W_SP 25 350 1.50% 77 0.30% 1576 427 1.80% 1576 1 AMEREN W_P 20 155 0.70% 0 0.00% 1630 155 0.70% 1630 0 AMEREN W_OP 15 37 0.20% 0 0.00% 1515 37 0.20% 1515 0 AMEREN SH_SP 40 314 1.40% 60 0.30% 1463 374 1.60% 1464 1 AMEREN SH_P 25 321 1.50% 67 0.30% 1533 387 1.80% 1534 1 AMEREN SH_OP 15 46 0.20% 0 0.00% 1514 46 0.20% 1514 0 CIN S_SP1 100 22 0.10% 968 3.70% 2001 990 3.80% 2001 1 CIN S_SP2 75 22 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 23 0.10% 941 3.70% 1933 964 3.80% 1934 1 CIN S_P 30 30 0.10% 942 4.10% 1839 972 4.20% 1841 1 CIN S_OP 20 14 0.10% 942 4.20% 2006 955 4.30% 2007 1 CIN W_SP 25 35 0.20% 727 3.20% 1903 762 3.30% 1904 1 CIN W_P 20 26 0.10% 727 3.20% 1999 753 3.40% 1999 1 CIN W_OP 15 0 0.00% 0 0.00% 2469 0 0.00% 2469 0 CIN SH_SP 40 29 0.10% 744 3.10% 1846 773 3.20% 1846 1 CIN SH_P 25 37 0.20% 728 3.40% 1803 765 3.50% 1804 1 CIN SH_OP 15 0 0.00% 0 0.00% 2297 0 0.00% 2297 0 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 13 0.10% 5227 130 0.50% 5227 0 COMED S_P 30 117 0.50% 14 0.10% 5153 131 0.50% 5153 0 COMED S_OP 20 126 0.70% 16 0.10% 6713 142 0.80% 6713 0 COMED W_SP 25 110 0.60% 20 0.10% 6424 129 0.70% 6425 0 COMED W_P 20 121 0.70% 17 0.10% 6752 138 0.80% 6752 0 COMED W_OP 15 1 0.00% 24 0.10% 6772 25 0.10% 6772 0 COMED SH_SP 40 108 0.50% 18 0.10% 4754 126 0.50% 4754 0 COMED SH_P 25 104 0.60% 20 0.10% 6181 124 0.70% 6181 0 COMED SH_OP 15 1 0.00% 21 0.10% 6422 22 0.10% 6422 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2894 2 CWLP S_P 30 98 9.40% 1 0.10% 2907 99 9.50% 2909 2 CWLP S_OP 20 98 10.60% 1 0.10% 2405 99 10.70% 2408 3 CWLP W_SP 25 85 8.60% 3 0.30% 2065 88 8.80% 2069 5 CWLP W_P 20 67 6.70% 4 0.40% 2071 71 7.10% 2076 5 CWLP W_OP 15 0 0.00% 0 0.00% 1016 0 0.00% 1016 0 CWLP SH_SP 40 82 7.80% 2 0.20% 2413 83 8.00% 2416 3 CWLP SH_P 25 80 8.50% 2 0.20% 1959 82 8.80% 1963 4 CWLP SH_OP 15 2 0.30% 0 0.00% 998 2 0.30% 998 0 HEC S_SP1 100 2 0.00% 187 5.60% 1770 188 5.70% 1771 1 HEC S_SP2 75 2 0.00% 187 5.60% 1768 189 5.70% 1769 1 HEC S_SP3 50 2 0.00% 183 5.50% 1757 184 5.60% 1757 1 HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.70% 1754 1 HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1 HEC W_SP 25 2 0.10% 134 4.10% 1836 137 4.20% 1836 1 HEC W_P 20 2 0.10% 135 4.10% 1848 136 4.10% 1848 0 HEC W_OP 15 0 0.00% 105 3.20% 1889 105 3.20% 1889 0 HEC SH_SP 40 2 0.10% 137 4.50% 1687 138 4.50% 1687 1 HEC SH_P 25 2 0.10% 137 4.50% 1710 139 4.50% 1711 1 HEC SH_OP 15 0 0.00% 106 3.50% 1736 106 3.50% 1736 0 IP S_SP1 100 435 4.10% 38 0.40% 1877 473 4.40% 1880 3 IP S_SP2 75 435 4.10% 38 0.40% 1872 473 4.40% 1875 3 IP S_SP3 50 435 4.10% 38 0.40% 1897 473 4.50% 1900 3 IP S_P 30 436 4.40% 42 0.40% 1782 478 4.80% 1785 4 IP S_OP 20 439 4.90% 8 0.10% 1923 447 5.00% 1924 1 IP W_SP 25 267 2.30% 66 0.60% 1387 333 2.90% 1389 3 IP W_P 20 115 1.00% 0 0.00% 1488 115 1.00% 1488 0 IP W_OP 15 2 0.00% 0 0.00% 1476 2 0.00% 1476 0 IP SH_SP 40 438 4.00% 41 0.40% 1314 479 4.40% 1317 3 IP SH_P 25 438 4.40% 47 0.50% 1364 485 4.80% 1368 4 IP SH_OP 15 3 0.00% 0 0.00% 1425 3 0.00% 1425 0 SIGE S_SP1 100 1 0.00% 100 5.50% 3931 101 5.50% 3932 1 SIGE S_SP2 75 1 0.00% 100 5.50% 3931 101 5.50% 3931 1 SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3880 1 SIGE S_P 30 1 0.10% 96 5.90% 3446 97 5.90% 3447 1 SIGE S_OP 20 1 0.10% 96 5.90% 3457 97 5.90% 3457 1 SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3485 1 SIGE W_P 20 1 0.10% 75 4.70% 3568 76 4.70% 3569 1 SIGE W_OP 15 0 0.00% 8 0.50% 3692 8 0.50% 3692 0 SIGE SH_SP 40 1 0.00% 76 4.80% 3352 77 4.90% 3352 0 SIGE SH_P 25 1 0.10% 74 4.90% 3201 76 5.00% 3202 1 SIGE SH_OP 15 0 0.00% 6 0.40% 3430 6 0.40% 3430 0
Exhibit No. WHH-6
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9 CILCO S_SP2 75 1210 46.70% 3 0.10% 2523 1213 46.80% 2532 9 CILCO S_SP3 50 1185 46.20% 3 0.10% 2483 1188 46.30% 2492 10 CILCO S_P 30 1160 45.70% 4 0.10% 2486 1164 45.80% 2498 13 CILCO S_OP 20 1120 45.20% 3 0.10% 2488 1123 45.30% 2499 11 CILCO W_SP 25 1019 42.70% 6 0.30% 2154 1026 42.90% 2177 23 CILCO W_P 20 1019 43.40% 0 0.00% 2266 1019 43.40% 2266 0 CILCO W_OP 15 330 20.20% 0 0.00% 1131 330 20.20% 1131 0 CILCO SH_SP 40 975 41.30% 5 0.20% 2009 980 41.50% 2026 17 CILCO SH_P 25 911 39.90% 6 0.30% 1958 917 40.20% 1981 23 CILCO SH_OP 15 294 18.40% 0 0.00% 1118 294 18.40% 1118 0 IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP3 50 4 0.10% 2658 50.40% 2799 2662 50.40% 2807 8 IPL S_P 30 5 0.10% 2440 49.60% 2745 2445 49.70% 2754 10 IPL S_OP 20 5 0.10% 2440 49.80% 2763 2445 49.90% 2773 9 IPL W_SP 25 8 0.10% 2450 40.00% 2075 2458 40.20% 2086 11 IPL W_P 20 6 0.10% 2450 41.00% 2206 2456 41.10% 2214 8 IPL W_OP 15 0 0.00% 2450 41.50% 2357 2450 41.50% 2357 0 IPL SH_SP 40 6 0.10% 2382 40.40% 2030 2389 40.50% 2039 9 IPL SH_P 25 7 0.10% 2177 39.20% 2039 2185 39.40% 2049 10 IPL SH_OP 15 0 0.00% 2177 40.50% 2220 2177 40.50% 2220 0 AEP S_SP1 100 196 0.30% 1671 2.60% 1386 1866 2.90% 1388 2 AEP S_SP2 75 196 0.30% 1672 2.60% 1386 1868 2.90% 1388 2 AEP S_SP3 50 81 0.10% 1662 2.60% 1400 1743 2.70% 1401 1 AEP S_P 30 93 0.10% 1761 2.80% 1460 1854 2.90% 1461 1 AEP S_OP 20 204 0.30% 1765 2.90% 1496 1969 3.20% 1498 2 AEP W_SP 25 105 0.20% 2003 3.00% 1377 2108 3.20% 1378 1 AEP W_P 20 157 0.30% 1755 2.80% 1518 1912 3.10% 1519 1 AEP W_OP 15 111 0.20% 1486 2.90% 1967 1597 3.10% 1969 1 AEP SH_SP 40 89 0.20% 1963 3.40% 1332 2053 3.50% 1333 1 AEP SH_P 25 89 0.20% 2101 3.70% 1392 2190 3.90% 1393 1 AEP SH_OP 15 94 0.20% 1174 2.70% 1973 1268 2.90% 1975 1 AMEREN S_SP1 100 452 2.00% 66 0.30% 2067 518 2.30% 2068 1 AMEREN S_SP2 75 452 2.00% 66 0.30% 2029 518 2.30% 2031 1 AMEREN S_SP3 50 452 2.10% 67 0.30% 2005 519 2.40% 2006 1 AMEREN S_P 30 464 2.10% 75 0.30% 1997 539 2.50% 1999 1 AMEREN S_OP 20 492 2.60% 74 0.40% 2347 566 3.00% 2349 2 AMEREN W_SP 25 484 2.00% 79 0.30% 1592 564 2.40% 1593 1 AMEREN W_P 20 273 1.20% 0 0.00% 1619 273 1.20% 1619 0 AMEREN W_OP 15 37 0.20% 0 0.00% 1529 37 0.20% 1529 0 AMEREN SH_SP 40 266 1.10% 56 0.20% 1464 322 1.40% 1464 1 AMEREN SH_P 25 461 2.10% 60 0.30% 1528 521 2.40% 1529 1 AMEREN SH_OP 15 45 0.20% 0 0.00% 1540 45 0.20% 1540 0 CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2002 1 CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 22 0.10% 941 3.70% 1934 963 3.80% 1934 1 CIN S_P 30 33 0.10% 942 4.10% 1839 975 4.20% 1840 1 CIN S_OP 20 14 0.10% 942 4.20% 2003 956 4.30% 2004 1 CIN W_SP 25 36 0.20% 727 3.20% 1903 763 3.30% 1904 1 CIN W_P 20 15 0.10% 727 3.20% 2000 742 3.30% 2000 0 CIN W_OP 15 0 0.00% 729 3.80% 2369 729 3.80% 2369 0 CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1847 1 CIN SH_P 25 38 0.20% 728 3.40% 1804 766 3.60% 1805 1 CIN SH_OP 15 0 0.00% 734 4.00% 2102 735 4.00% 2102 0 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 13 0.10% 5228 130 0.50% 5228 0 COMED S_P 30 115 0.50% 14 0.10% 5154 129 0.50% 5154 0 COMED S_OP 20 126 0.70% 15 0.10% 6694 141 0.80% 6694 0 COMED W_SP 25 110 0.60% 18 0.10% 6415 128 0.70% 6415 0 COMED W_P 20 99 0.50% 15 0.10% 6742 115 0.60% 6742 0 COMED W_OP 15 1 0.00% 19 0.10% 6758 20 0.10% 6758 0 COMED SH_SP 40 107 0.50% 16 0.10% 4755 123 0.50% 4755 0 COMED SH_P 25 105 0.60% 18 0.10% 6172 123 0.70% 6172 0 COMED SH_OP 15 7 0.00% 29 0.20% 6413 36 0.20% 6413 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3043 102 9.50% 3045 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3041 102 9.50% 3043 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2896 101 9.70% 2898 2 CWLP S_P 30 97 9.40% 1 0.10% 2913 99 9.50% 2915 2 CWLP S_OP 20 98 10.60% 1 0.10% 2411 99 10.70% 2414 3 CWLP W_SP 25 85 8.60% 2 0.30% 2075 87 8.80% 2079 4 CWLP W_P 20 67 6.80% 2 0.20% 2109 69 7.00% 2112 3 CWLP W_OP 15 0 0.00% 2 0.30% 1021 2 0.30% 1021 0 CWLP SH_SP 40 81 7.80% 2 0.20% 2425 83 8.00% 2428 3 CWLP SH_P 25 79 8.50% 2 0.20% 1975 82 8.80% 1979 4 CWLP SH_OP 15 1 0.30% 2 0.40% 1008 3 0.60% 1008 0 HEC S_SP1 100 2 0.00% 187 5.60% 1771 188 5.70% 1771 1 HEC S_SP2 75 2 0.10% 187 5.60% 1769 189 5.70% 1769 1 HEC S_SP3 50 2 0.10% 183 5.50% 1757 184 5.60% 1758 1 HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.80% 1755 1 HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.70% 1763 1 HEC W_SP 25 2 0.10% 134 4.10% 1835 137 4.20% 1836 1 HEC W_P 20 1 0.00% 135 4.10% 1849 136 4.10% 1849 0 HEC W_OP 15 0 0.00% 139 4.20% 1879 139 4.20% 1879 0 HEC SH_SP 40 2 0.10% 137 4.50% 1686 139 4.50% 1687 1 HEC SH_P 25 2 0.10% 137 4.50% 1710 140 4.50% 1711 1 HEC SH_OP 15 0 0.00% 142 4.60% 1728 142 4.60% 1728 0 IP S_SP1 100 277 2.60% 39 0.40% 1854 317 3.00% 1856 2 IP S_SP2 75 278 2.60% 39 0.40% 1849 317 3.00% 1851 2 IP S_SP3 50 276 2.60% 39 0.40% 1874 315 3.00% 1876 2 IP S_P 30 275 2.70% 44 0.40% 1775 319 3.20% 1778 2 IP S_OP 20 438 4.90% 0 0.00% 1936 438 4.90% 1936 0 IP W_SP 25 266 2.30% 61 0.50% 1367 327 2.80% 1369 2 IP W_P 20 17 0.20% 54 0.50% 1494 71 0.60% 1494 0 IP W_OP 15 5 0.00% 0 0.00% 1437 5 0.00% 1437 0 IP SH_SP 40 438 4.00% 42 0.40% 1315 480 4.40% 1318 3 IP SH_P 25 439 4.40% 47 0.50% 1364 486 4.80% 1368 4 IP SH_OP 15 14 0.10% 0 0.00% 1422 14 0.10% 1422 0 SIGE S_SP1 100 1 0.00% 88 4.80% 3934 89 4.90% 3934 0 SIGE S_SP2 75 1 0.00% 88 4.80% 3934 89 4.90% 3934 0 SIGE S_SP3 50 1 0.00% 85 4.70% 3880 86 4.80% 3881 0 SIGE S_P 30 1 0.10% 84 5.10% 3446 85 5.20% 3447 1 SIGE S_OP 20 1 0.00% 84 5.20% 3456 85 5.20% 3456 0 SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1 SIGE W_P 20 0 0.00% 75 4.70% 3568 75 4.70% 3568 0 SIGE W_OP 15 0 0.00% 75 4.60% 3501 75 4.60% 3501 0 SIGE SH_SP 40 1 0.10% 76 4.80% 3352 77 4.90% 3352 0 SIGE SH_P 25 1 0.10% 74 4.90% 3202 75 4.90% 3202 1 SIGE SH_OP 15 0 0.00% 74 4.90% 3228 74 4.90% 3228 0
Exhibit No. WHH-7
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9 CILCO S_SP2 75 1210 46.70% 3 0.10% 2523 1213 46.80% 2532 9 CILCO S_SP3 50 1185 46.20% 3 0.10% 2483 1188 46.30% 2492 10 CILCO S_P 30 1160 45.70% 4 0.10% 2486 1164 45.80% 2498 13 CILCO S_OP 20 1120 45.20% 4 0.10% 2488 1123 45.30% 2501 13 CILCO W_SP 25 1019 42.70% 7 0.30% 2154 1026 42.90% 2178 24 CILCO W_P 20 1019 43.20% 5 0.20% 2253 1024 43.40% 2271 18 CILCO W_OP 15 330 20.20% 7 0.40% 1129 338 20.60% 1146 18 CILCO SH_SP 40 975 41.30% 5 0.20% 2009 980 41.50% 2026 17 CILCO SH_P 25 911 39.90% 7 0.30% 1958 918 40.20% 1982 24 CILCO SH_OP 15 294 18.40% 6 0.40% 1117 300 18.70% 1130 13 IPL S_SP1 100 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP2 75 4 0.10% 2844 52.10% 2954 2848 52.10% 2961 8 IPL S_SP3 50 4 0.10% 2658 50.40% 2799 2662 50.40% 2806 8 IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2756 10 IPL S_OP 20 5 0.10% 2440 49.80% 2761 2446 49.90% 2772 11 IPL W_SP 25 8 0.10% 2450 40.00% 2040 2458 40.20% 2050 10 IPL W_P 20 7 0.10% 2450 40.00% 2021 2457 40.10% 2030 10 IPL W_OP 15 9 0.10% 2450 40.10% 2153 2459 40.20% 2165 12 IPL SH_SP 40 6 0.10% 2382 40.40% 2028 2388 40.50% 2037 9 IPL SH_P 25 7 0.10% 2177 39.20% 2035 2184 39.40% 2045 10 IPL SH_OP 15 8 0.10% 2177 39.40% 2201 2185 39.60% 2212 11 AEP S_SP1 100 196 0.30% 1671 2.60% 1386 1866 2.90% 1388 2 AEP S_SP2 75 196 0.30% 1672 2.60% 1386 1868 2.90% 1388 2 AEP S_SP3 50 81 0.10% 1662 2.60% 1400 1743 2.70% 1401 1 AEP S_P 30 93 0.10% 1761 2.80% 1460 1854 2.90% 1461 1 AEP S_OP 20 204 0.30% 1764 2.90% 1496 1969 3.20% 1498 2 AEP W_SP 25 105 0.20% 2001 3.00% 1381 2106 3.20% 1382 1 AEP W_P 20 157 0.30% 1630 2.60% 1524 1787 2.90% 1526 1 AEP W_OP 15 111 0.20% 1287 2.50% 1947 1398 2.70% 1948 1 AEP SH_SP 40 89 0.20% 1964 3.40% 1332 2053 3.50% 1333 1 AEP SH_P 25 89 0.20% 2053 3.60% 1393 2142 3.80% 1395 1 AEP SH_OP 15 94 0.20% 1337 3.10% 1972 1431 3.30% 1974 1 AMEREN S_SP1 100 452 2.00% 66 0.30% 2067 518 2.30% 2068 1 AMEREN S_SP2 75 452 2.00% 66 0.30% 2029 518 2.30% 2031 1 AMEREN S_SP3 50 452 2.10% 67 0.30% 2005 519 2.40% 2006 1 AMEREN S_P 30 464 2.10% 75 0.30% 2002 539 2.50% 2004 1 AMEREN S_OP 20 492 2.60% 76 0.40% 2351 568 3.00% 2353 2 AMEREN W_SP 25 484 2.00% 79 0.30% 1592 564 2.40% 1593 1 AMEREN W_P 20 273 1.20% 75 0.30% 1618 349 1.50% 1619 1 AMEREN W_OP 15 37 0.20% 0 0.00% 1528 37 0.20% 1528 0 AMEREN SH_SP 40 266 1.10% 56 0.20% 1464 322 1.40% 1465 1 AMEREN SH_P 25 461 2.10% 60 0.30% 1528 521 2.40% 1529 1 AMEREN SH_OP 15 46 0.20% 0 0.00% 1541 46 0.20% 1541 0 CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2002 1 CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 22 0.10% 941 3.70% 1934 963 3.80% 1934 1 CIN S_P 30 33 0.10% 942 4.10% 1839 975 4.20% 1840 1 CIN S_OP 20 14 0.10% 942 4.20% 2003 956 4.30% 2004 1 CIN W_SP 25 36 0.20% 727 3.20% 1903 763 3.30% 1904 1 CIN W_P 20 15 0.10% 727 3.20% 1999 742 3.30% 2000 0 CIN W_OP 15 0 0.00% 0 0.00% 2468 0 0.00% 2468 0 CIN SH_SP 40 30 0.10% 744 3.10% 1846 773 3.20% 1847 1 CIN SH_P 25 38 0.20% 728 3.40% 1804 766 3.60% 1805 1 CIN SH_OP 15 0 0.00% 0 0.00% 2243 0 0.00% 2243 0 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.10% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 13 0.10% 5228 130 0.50% 5228 0 COMED S_P 30 115 0.50% 14 0.10% 5154 129 0.50% 5154 0 COMED S_OP 20 126 0.70% 15 0.10% 6694 141 0.80% 6694 0 COMED W_SP 25 110 0.60% 18 0.10% 6415 128 0.70% 6415 0 COMED W_P 20 99 0.50% 18 0.10% 6742 118 0.60% 6742 0 COMED W_OP 15 1 0.00% 11 0.10% 6758 12 0.10% 6758 0 COMED SH_SP 40 107 0.50% 16 0.10% 4755 123 0.50% 4755 0 COMED SH_P 25 105 0.60% 18 0.10% 6172 123 0.70% 6172 0 COMED SH_OP 15 7 0.00% 11 0.10% 6413 18 0.10% 6413 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3043 102 9.50% 3045 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3041 102 9.50% 3043 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2896 101 9.70% 2898 2 CWLP S_P 30 97 9.40% 1 0.10% 2913 99 9.50% 2915 2 CWLP S_OP 20 98 10.60% 1 0.10% 2411 99 10.70% 2414 3 CWLP W_SP 25 85 8.60% 3 0.30% 2075 87 8.80% 2079 4 CWLP W_P 20 67 6.80% 2 0.20% 2108 69 7.00% 2111 3 CWLP W_OP 15 0 0.00% 0 0.00% 1028 0 0.00% 1028 0 CWLP SH_SP 40 81 7.80% 2 0.20% 2425 83 8.00% 2428 3 CWLP SH_P 25 79 8.50% 2 0.20% 1974 82 8.80% 1979 4 CWLP SH_OP 15 1 0.30% 0 0.00% 1014 1 0.30% 1014 0 HEC S_SP1 100 2 0.00% 187 5.60% 1771 188 5.70% 1771 1 HEC S_SP2 75 2 0.10% 187 5.60% 1769 189 5.70% 1769 1 HEC S_SP3 50 2 0.10% 183 5.50% 1757 184 5.60% 1758 1 HEC S_P 30 2 0.10% 189 5.70% 1754 191 5.80% 1755 1 HEC S_OP 20 2 0.10% 189 5.70% 1763 191 5.80% 1764 1 HEC W_SP 25 2 0.10% 134 4.10% 1835 137 4.20% 1835 1 HEC W_P 20 1 0.00% 135 4.10% 1847 136 4.10% 1847 0 HEC W_OP 15 0 0.00% 105 3.20% 1888 105 3.20% 1888 0 HEC SH_SP 40 2 0.10% 137 4.50% 1686 139 4.50% 1687 1 HEC SH_P 25 2 0.10% 137 4.50% 1710 140 4.50% 1710 1 HEC SH_OP 15 0 0.00% 106 3.50% 1734 106 3.50% 1734 0 IP S_SP1 100 277 2.60% 39 0.40% 1854 317 3.00% 1856 2 IP S_SP2 75 278 2.60% 39 0.40% 1849 317 3.00% 1851 2 IP S_SP3 50 276 2.60% 39 0.40% 1874 315 3.00% 1876 2 IP S_P 30 275 2.70% 44 0.40% 1775 319 3.20% 1778 2 IP S_OP 20 438 4.90% 44 0.50% 1935 482 5.40% 1940 5 IP W_SP 25 266 2.30% 61 0.50% 1366 328 2.80% 1369 2 IP W_P 20 17 0.20% 62 0.50% 1493 80 0.70% 1494 0 IP W_OP 15 5 0.00% 0 0.00% 1437 5 0.00% 1437 0 IP SH_SP 40 438 4.00% 42 0.40% 1315 480 4.40% 1318 3 IP SH_P 25 439 4.40% 47 0.50% 1364 486 4.80% 1368 4 IP SH_OP 15 14 0.10% 0 0.00% 1422 14 0.10% 1422 0 SIGE S_SP1 100 1 0.00% 100 5.50% 3931 100 5.50% 3932 0 SIGE S_SP2 75 1 0.00% 100 5.50% 3931 100 5.50% 3931 0 SIGE S_SP3 50 1 0.00% 97 5.40% 3880 97 5.40% 3881 0 SIGE S_P 30 1 0.10% 96 5.90% 3447 97 5.90% 3448 1 SIGE S_OP 20 1 0.00% 96 5.90% 3457 96 5.90% 3457 1 SIGE W_SP 25 1 0.10% 75 4.60% 3484 76 4.70% 3484 1 SIGE W_P 20 0 0.00% 75 4.70% 3568 75 4.70% 3568 0 SIGE W_OP 15 0 0.00% 8 0.50% 3691 8 0.50% 3691 0 SIGE SH_SP 40 1 0.10% 76 4.80% 3352 77 4.90% 3352 0 SIGE SH_P 25 1 0.10% 74 4.90% 3202 75 4.90% 3202 1 SIGE SH_OP 15 0 0.00% 6 0.40% 3429 6 0.40% 3429 0
Exhibit No. WHH-8 Exhibit No. WHH-8 CASm Transmission Network CILCO and IPL Interconnections Summer Peak ATC [GRAPHICS OMITTED] Exhibit No. WHH-9
1998 CILCO IPL Other Party Purchase Sales Notes Purchase Sales Notes AEP MWh 800 16,000 26,296 851,886 $ $ 48,000 $ 344,000 $ 906,624 $17,195,226 Ameren MWh 48320 2320 LF (P) $ $1,776,604 $ 346,998 CIN MWh 35 71 23023 215,181 $ $ 507 $ 77,107 $ 613,775 $5,552,932 City Water, Light and Power 10959 16446 $ $ 319,274 $ 375,827 ComEd MWh 52491 155,301 27,500 $ $1,627,384 $3,038,424 $ 497,206 Hoosier MWh 4,775 281,195 $ $ 90,214 $5,986,836 IMPA MWh 749 $ $ 21,726 IP MWh 10861 27,315 $ $ 255,613 $ 636,205 SIGE MWh 5689 189540 $ $ 201,646 3866890 WABASH MWh 18,316 $ $ 353,521 WPL MWh 1600 $ $ 28,400 WEP MWh 200 694 $ $ 2,950 $ 14,582
Notes: Purchase column represents purchases made by CILCO / IPL from other party. Sales column represents sales made by CILCO / IPL from other party. All transactions are non-firm (classified as "OS") unless otherwise noted. Source: Sales - FERC Form 1, pages 310-311. Purchases - FERC Form 1, pages 326-327.
1999 CILCO IPL Other Party Purchase Sales Notes Purchase Sales Notes AEP MWh 25 835,019 $ $ 800 $15,809,462 Alliant MWh 74 788 $ $ 1,260 $ 23,090 Ameren MWh 127,752 9,505 LF (P) $ $1,812,806 $ 289,274 CIN 58,580 IF 41,338 147,552 $ $1,341,482 $ 697,377 $3,888,910 City Water, Light and Power MWh 2,027 1,384 $ $ 47,083 $ 32,920 ComEd MWh 141,777 26,065 104 $ $3,042,752 $ 979,747 $ 1,993 Corn Belt MWh 17,842 SF $ $ 665,688 DPL MWh 3,925 2,608 $ $1,076,623 $ 68,050 Hoosier MWh 1,412 348,876 $ $ 44,977 $7,461,364 IMPA MWh 104,187 28 $ $7,515,712 $ 741 IP MWh 55,517 22,543 $ $1,830,993 $ 619,726 NIPSCO MWh 50 $ $ 1,250 OKGE MWh 100 $ $ 9,850 SIGE MWh 13,621 182,954 $ $ 484,330 $3,639,094 WABASH MWh 1,145 34,711 $ $ 445,610 $ 603,641 WEP MWh 681 $ $ 12,463
Notes: Purchase column represents purchases made by CILCO / IPL from other party. Sales column represents sales made by CILCO / IPL from other party. All transactions are non-firm (classified as "OS") unless otherwise noted. Source: Sales - FERC Form 1, pages 310-311. Purchases - FERC Form 1, pages 326-327. Exhibit No. WHH-10
Owner Plant Name Location Control Area Capacity (MW) Primary Fuel Central Illnois Light Sterling Avenue Peoria County, IL CILCO 30 NG Central Illnois Light Indian Trails Pekin, IL CILCO 16 NG Central Illnois Light Medina Valley Mossville, IL CILCO 36 NG Total: 82
Exhibit No. WHH-11
Dispatch Capacity Price Primary Unit Plant Name Location Control Area CASm Node MW ($/MW) Fuel Type AES Endeavor AES Thames Montville, CT New England ISO AES_NY 181 $17.09 Coal CT AES Jennison Bainbridge, NY New York Power Pool AES_NY 71 $23.27 Coal ST AES Somerset Barker, NY New York Power Pool AES_NY 676 $15.19 Coal ST AES Westover Johnson City, NY New York Power Pool AES_NY 126 $17.67 Coal ST AES Greenidge Dresden, NY New York Power Pool AES_NY 161 $16.79 Coal ST AES_NY Corning, NY New York Power Pool AES_NY 85 $19.81 Coal ST AES Cayuga Lansing, NY New York Power Pool AES_NY 306 $15.80 Coal ST AES Kingston Ontario Ontario AES_NY 110 $29.46 Gas CC AES Connecticut Yankee Haddam, CT New England ISO AES_NY 700 $21.40 NG CC AES Enterprise AES Beaver Valley Monaca, PA PJM AES_APS 125 $12.81 Coal ST AES Warrior Run Cumberland, MD PJM AES_APS 180 $12.81 Coal ST AES Ironwood Lebanon, PA PJM AES_PJM 720 $23.75 Gas CC AES Red Oak Sayreville, NJ PJM AES_PJM 830 $23.75 Gas CC AES Great Plains/AES CILCO AES Shady Point Poteau, OK Oklahoma Gas & Electric AES_OKGE 320 $11.27 Coal ST Total (AES - other generation): 4591 E D Edwards3 Central Illinois Light Co. CILCO 361 $15.39 COAL ST E D Edwards2 Central Illinois Light Co. CILCO 262 $15.84 COAL ST E D Edwards1 Central Illinois Light Co. CILCO 117 $16.27 COAL ST Duck Creek1 Central Illinois Light Co. CILCO 366 $18.03 COAL ST AES Indian Trails Central Illinois Light Co. CILCO 12 $28.36 NG CT AES Medina Valley Central Illinois Light Co. CILCO 36 $28.36 NG GT Sterling Avenue1 Central Illinois Light Co. CILCO 15 $39.57 NG GT Sterling Avenue2 Central Illinois Light Co. CILCO 15 $39.57 NG GT New Capacity 2001 Central Illinois Light Co. CILCO 26 $59.09 FO2 IC CILCO Total: 1210 IPALCO Petersburg4 Indianapolis Power & Light IPL 515 $12.01 COAL ST PetersburgST1 Indianapolis Power & Light IPL 232 $12.01 COAL ST PetersburgST2 Indianapolis Power & Light IPL 407 $12.01 COAL ST PetersburgST3 Indianapolis Power & Light IPL 510 $12.01 COAL ST Elmer W Stout5 Indianapolis Power & Light IPL 106 $13.85 COAL ST Elmer W Stout6 Indianapolis Power & Light IPL 106 $13.85 COAL ST Elmer W Stout7 Indianapolis Power & Light IPL 435 $13.85 COAL ST H T Pritchard3 Indianapolis Power & Light IPL 43 $14.70 COAL ST H T Pritchard4 Indianapolis Power & Light IPL 56 $14.70 COAL ST H T Pritchard5 Indianapolis Power & Light IPL 62 $14.70 COAL ST H T Pritchard6 Indianapolis Power & Light IPL 99 $14.70 COAL ST Perry K4 Indianapolis Power & Light IPL 16 $14.86 COAL ST Perry KHS Indianapolis Power & Light IPL 3 $14.86 COAL ST Elmer W StoutGT4 Indianapolis Power & Light IPL 82 $33.22 NG GT Elmer W StoutGT5 Indianapolis Power & Light IPL 82 $33.22 NG GT Georgetown1 Indianapolis Power & Light IPL 79 $33.22 NG CT PetersburgIC1 Indianapolis Power & Light IPL 3 $52.43 FO2 IC PetersburgIC2 Indianapolis Power & Light IPL 3 $52.43 FO2 IC PetersburgIC3 Indianapolis Power & Light IPL 2 $52.43 FO2 IC H T PritchardIC1 Indianapolis Power & Light IPL 3 $54.28 FO2 IC Elmer W StoutGT1 Indianapolis Power & Light IPL 20 $56.65 FO2 GT Elmer W StoutGT2 Indianapolis Power & Light IPL 20 $56.65 FO2 GT Elmer W StoutGT3 Indianapolis Power & Light IPL 20 $56.65 FO2 GT Elmer W Stout3 Indianapolis Power & Light IPL 35 $57.06 FO2 ST Elmer W Stout4 Indianapolis Power & Light IPL 35 $57.06 FO2 ST H T Pritchard2 Indianapolis Power & Light IPL 39 $57.28 FO2 ST H T PritchardST1 Indianapolis Power & Light IPL 39 $57.28 FO2 ST Elmer W StoutIC1 Indianapolis Power & Light IPL 3 $59.35 FO2 IC IPL Total: 3055
Exhibit No. WHH-12 DATA AND METHODOLOGY Table of Contents INTRODUCTION............................................................ REGIONS MODELED......................................................... ESTIMATING SUPPLY RESOURCES FOR EACH NODE............................... SUPPLY CAPACITY SUPPLY COST TRANSMISSION NETWORK.................................................... TRANSMISSION CAPACITY TRANSMISSION RATES ALLOCATION OF LIMITED TRANSMISSION SIMULTANEOUS IMPORT CAPABILITY LOAD DATA AND TIME PERIODS ANALYZED..................................... LOAD DATA FOR AVAILABLE ECONOMIC CAPACITY PERIOD DEFINITIONS BASED ON HOURLY LOAD DATA PRICE DATA INTRODUCTION This appendix describes the data required to conduct the market power analyses as well as the source and methodology used to collect and input the necessary data. The delivered price test requires estimating the generating resources for each of the potential suppliers in the model, specifying the transmission network that these suppliers can use to reach the relevant destination market, load in each market and the destination market price. All of the relevant data used in the analyses is included in my workpapers. PA Consulting's Competitive Analysis Screening model ("CASm") was used to conduct the delivered price test. A complete description of CASm is provided in Exhibit No. WHH-13. Briefly, CASm is a linear programming model developed specifically to perform the calculations required in undertaking the delivered price test. The model includes each potential supplier as a distinct "node" or area that is connected via a transportation (or "pipes") representation of the transmission network. Each link in the network has its own non-simultaneous limit and cost. This limit is the control area to control area limit. Flow restrictions can also be applied across sets of links to capture any relevant simultaneous limits. Potential suppliers are allowed to use all economically and physically feasible links or paths to reach the destination market. In instances where more generation meets the economic criterion of the delivered price test than can actually be delivered on the transmission network, scarce transmission capacity is allocated based on a proration method described below. REGIONS MODELED The list of utilities (and corresponding abbreviations used in other exhibits) is included in Exhibit No. WHH-14. Included in the analysis are utilities from each of the following NERC regions:(1) o East Central Area Reliability Coordination Agreement ("ECAR") o Mid-America Interconnected Network ("MAIN") o Mid-Atlantic Area Council ("MAAC", which is PJM) o Southeastern Electric Reliability Council ("SERC") o Southwest Power Pool ("SPP") o Mid-Continent Area Power Pool ("MAPP") o NYISO portion of the Northeast Power Coordinating Council ("NPCC") This list of candidate suppliers does not pre-judge the question of the geographic scope of the specific destination market, which is determined via the delivered price test.(2) - --------------- (1) PJM, NYPP regions were aggregated into single areas. AES' generation in NEPOOL and Ontario Hydro were conservatively included as part of the NYPP region. (2) This list was selected in recognition of the Commission's guidance regarding the number of wheels a potential supplier can realistically travel and still be considered a player in the destination market. For example, in FirstEnergy, the Commission limited the number of wheels "a supplier could reasonably travel to reach the destination market," recognizing that "[m]ore distant suppliers would face considerable losses and transmission costs." 80 FERC paragraph 61,039 at 61,104. In FirstEnergy, the Commission limited the potential suppliers to those within four wheels. Ibid. Also, the request for comments on the use of computer models in merger analysis suggests that "three wheels has been deemed adequate." Inquiry Concerning the Commission's Policy on the Use of Computer Models in Merger Analysis, Notice of Request for Written Comments and Intent to Convene a Technical Conference, Docket No. PL98-6-000, April 16, 1998, page 24. Including a broader geographic region implies adding additional potential suppliers not controlled by the Applicants; thus, defining the set of potential suppliers in this manner is conservative. ESTIMATING SUPPLY RESOURCES FOR EACH NODE Supply curves, consisting of a price and quantity for each node, are developed and entered into CASm.(3) - --------------- (3) I analyzed market participants as if the electric utility mergers pending before the Commission had been approved and mergers consummated. SUPPLY CAPACITY The main source for data on generating plant capability, including non-utility generators ("NUGs"), is the Form EIA-411. I used the publications dated April 2000 (the most up-to-date data available), supplemented by earlier editions as necessary. The EIA-411 provides data on summer and winter capacity, planned retirements and additions and jointly-owned units. For jointly-owned plants, shares were assigned to each of the respective owners. Summer ratings were used for the summer and shoulder periods and winter ratings for the winter period. The data were adjusted to reflect planned retirements and capacity additions through 2001, as detailed in the EIA-411 forms. I included those utility and merchant plants that are scheduled to enter service by 2001. However, I limited these new plants to those that have passed project, regulatory or financial hurdles (e.g., interconnection agreements, financing, regulatory approvals or site permits), or which have started construction. The specific merchant plants included are sho n in workpapers. Each supplier's generating resources also were adjusted to reflect long-term capacity purchase and sales.(4) Purchases and sales (of one year or more duration) were identified from publicly available information, such as FERC Form 1 and EIA Form 412 filings (or databases based on these forms), Form EIA-411, individual utility resource plans and NERC's Electricity Supply and Demand ("ES&D") database. These public data on purchases and sales, however, are not entirely complete or consistent across sources. To the extent a utility has sold capacity under a long-term agreement, ownership over that resource is assumed to pass to the buyer.(5) Accordingly, as with jointly-owned units, generation ownership was adjusted to reflect the transfer of control by assuming that the sale resulted in a decrease in capacity for the seller and a corresponding increase in capacity for the buyer. Consistent with guidance provided in Appendix A, it was assumed that system power sales were comprised of the lowest-cost supply for the seller unless a more representative price could be identified.(6) To the extent that long-term sales could be identified specifically as unit sales, the capacity of the specific generating unit was adjusted and the variable element of the purchase price attributed to the sale was the variable cost of the unit. The dispatch price for system purchases was based on the energy price reported for long-term purchases in the FERC Form 1 where such purchases could be identified and a variable cost price determined.(7) The capacity representing firm purchases and sales and shares of jointly-owned units was "moved" in the model from its actual physical location to the geographic location of the buyer. This treatment is consistent with using the public source ATC transmission data that represent the incremental amount of capacity available for conducting trades after accounting for base flows on the system. Thus, the methodology is consistent with the transmission data that was used to reflect available transmission capacity. Since the delivered price test is intended to evaluate energy products, the capacity (in MWs) reported in the Form EIA-411 was de-rated to approximate the actual availability of the units in each period. That is, it was assumed that generation capacity would be unavailable during some hours of the year for either (planned) maintenance or forced (unplanned) outages. Data reported in the most recent NERC Generating Availability Data System was used to calculate the "average equivalent availability factor" to estimate total outages, and the "average equivalent forced outage rate" to estimate forced outages for fossil and nuclear plants.(8) Scheduled maintenance was assumed to occur only during the non-peak (shoulder) seasons and forced outages were assumed to occur uniformly throughout the year. This treatment of generating availability is designed to account for the fact that resource availability changes by season. It is consistent with how the time periods evaluated were defined (based on similar load hours in each season, rather than by similar load hours for the entire year), and with specifying transmission capacity by season, as discussed below.(9) - --------------- (4) This treatment does not include requirements contracts. (5) utility. (6) "[T]he lowest running cost units are used to serve native load and other firm contractual obligations" (Appendix A, p. 11). The lowest-cost supply that was available year-round (i.e., excluding hydro) was used. (7) In instances where the purchases could not be matched with FERC Form 1 data, the dispatch price was estimated. (8) These data were supplemented, where necessary, by data from other public sources such as NERC and Electric Power Research Institute. (9) A spreadsheet detailing the capacity and price of the units in the model is included in a set of workpapers filed with the application. SUPPLY COST In calculating the supply curves, supply from each unit was assumed to be available at any price above its incremental cost (the delivered price test assumes supply is economic if its cost is up to 105% of the competitive market price). The incremental cost is calculated by multiplying the fuel cost for the unit by the unit's efficiency (heat rate) and adding any additional variable costs that may apply, such as costs for variable operations and maintenance and costs for environmental controls.(10) Data were taken from the following sources: o Heat rates - EIA Form 860, supplemented in a few instances by data from Form EIA-411. (Note that the most recently available data is from the 1995 Form 860.) IPL does not report any data in the EIA Form 860, therefore estimates from RDI's PowerDat database were used for the IPL units reported in PowerDat. In other instances where information is not available, an estimate is applied based on unit type. o Fuel costs - Form 423. The estimated dispatch cost is based on spot or interruptible fuel prices for a twelve month period ending March 2000. Seasonal estimates were derived from the monthly data and applied to derive dispatch costs by season. To the extent all fuel purchases in that period had been made under contract rather than at spot prices, an incremental price based on reported spot or interruptible prices in the relevant region was estimated. Fuel prices were escalated to 2001 based on the forecasts in the EIA Annual Energy Outlook. o Variable O&M - $1/MWh for gas and oil steam units, $3/MWh for scrubbed coal-fired units and $2/MWh for other coal-fired units (generic estimates based on trade and industry sources). Additional VO&M adders for other unit types are shown in workpapers. o SO2 adder - $162/ton. The adder was applied to all relevant units assuming that Phase 2 had been implemented as planned; all units are assumed to pay an adder based on the SO2 content of the fuel burned. - --------------- (10) For NUGs, the incremental costs were estimated based on the energy price reported in relevant regulatory filings, if available. Otherwise, NUGs were assumed to be must-run and the variable costs set to zero. New merchant capacity included in the analysis was priced assuming a heat rate of 10,000 Btu/kWh for combustion turbines and 7,000 Btu/kWh for combined cycle plants. Variable O&M was also applied to the new units consistent with the assumptions for existing units. TRANSMISSION NETWORK Appendix A specified that the transmission system be modeled on the basis of inter-control area ATCs or TTCs using transmission prices based on transmission providers' maximum non-firm OATT rates except where lower rates could be clearly documented. This dictated a transportation representation of the transmission network and the structure of CASm was designed to conform to Appendix A. This representation remains appropriate for portions of the United States, where transmission service is generally provided under each transmission provider's Open Access tariff. Basing tariffs on OATT rates is increasingly undercut by RTO transmission pricing arrangements, however, and the Commission has instructed applicants to account for them.(11) Also, proposed regional transmission organizations that are not yet operating, such as the Midwest ISO and Alliance RTO, will reduce pancaking of control area to control area transmission rates by charging only one rate to travel through or out of their systems. Finally, some pricing systems, such as MAPP's flow-based method for determining transmission rates, create a more complex matrix of transmission prices that is not wholly consistent with a transportation model. Nonetheless, with some simplification, each of these alternative arrangements can be modeled in CASm, as described below. - --------------- (11) Merger NOPR, page 29. TRANSMISSION CAPACITY Limits were placed on the amount of capacity that could be transferred over the transmission network by both non-simultaneous control area to control area limits and simultaneous interface limits. Control area-to-control area limits are still applicable in most of the regions modeled. In the SPP and MAPP regions, however, transmission reservations are no longer based solely on control area to control area limits, but consider the impact of any particular transfer on key elements of the network (termed "flowgates"). Control area to control area transmission capability was taken primarily from postings on the Open Access Same-Time Information System or "OASIS." OASIS reports Total Transmission Capability ("TTC"), firm Available Transmission Capability ("ATC") and non-firm ATC. Data generally are provided monthly for a twelve-month period starting with the next month. Monthly non-firm ATCs postings from the third quarter of 2000 were used in most instances.(12) Seasonal differences in transmission capability were captured by using the average of June-August postings to represent a summer capability; the average of December-February postings to represent a winter capability; and the average of remaining months to represent a shoulder capability.(13) Using an ATC value, as opposed to a TTC value, is appropriate given the manner in which generating resources were moved to each node to reflect for jointly-owned units and long-term purchases and sales. Non-firm ATCs are the appropriate input assumption for transfer capability since Economic Capacity and Available Economic Capacity are intended to reflect competition in non-firm energy.(14) I did analyze results using TTCs as a sensitivity, as discussed in my testimony. As noted above, the SPP and MAPP regions are now providing the public OASIS postings for its member companies on the basis of flowgates rather than posting point-to-point ATCs. Data from June 1999 were used for the SPP region. For MAPP, some of the individual companies still list control area to control area limits and for these links, data retrieved during the third quarter 2000 were available. For the remaining MAPP links, data from the fourth quarter of 1998 was used.(15) - --------------- (12) The exception is for some interfaces in MAPP and the SPP, as discussed below. (13) In instances where two parties post different capability for the same path, the lower of the reported values was generally used. This assumption was made on the basis that if a party sought use of a particular path, the lower of the reported values would be applicable unless the utilities at both the receipt and delivery points could agree differently. In addition, third-party postings, i.e., ATCs from one utility to another utility that it is not directly interconnected with, were not included in the analyses. (14) In reality, utilities frequently post the same value for both firm and non-firm ATCs. (15) Given that data is generally reported for the next 12 months, this implies that the fourth quarter 1998 data covered through the winter of 2000. TRANSMISSION RATES The Commission's Appendix A guidelines implicitly assume a depiction of the transmission system wherein control area to control area transactions occur using each of the relevant control area's Open Access (Order 888) tariffs. Appendix A also instructs applicants to model any applicable discounts that are systematically available, and to account for regional transmission organizations as they arise. In implementing transmission rates into the analysis, regardless of the transmission regime, it has been assumed that transmission charges would be incurred for the transmission system where the generator is located and for wheeling the power through intermediate systems, but not for the destination market. No transmission charge is included for the transmission system in which the load is located. This has no impact on the analysis, since including this charge (the transmission charge included in the bundled rate of the transmission provider in the area where the customer is located, or the "zonal" or postage stamp charges in the case of an RTO) would symmetrically raise the delivered cost for each supply to reach the destination market by the same amount. Thus, the relative economics would not be impacted.(16) Losses, which are assumed to be 3.0 percent, are assessed for each wheel incurred along the path to deliver power to the destination market but are not added for the final wheel into the destination market. In the regions potentially impacted by this merger, there are significant regional transmission arrangements that can alter the cost of transmission (indeed, lowering the costs in each instance), either by providing for lower rates or by eliminating pancaking of transmission rates. The MISO and Alliance RTOs, which are assumed to exist in all of the scenarios that I analyzed, reduces the cost of transmission by eliminating pancaking. Additionally, SPP and MAPP both have distance sensitive rates available that allow users to transact under lower transmission costs than control area to control area pancaked 888 rates. (17) These alternative transmission tariffs were incorporated into CASm, with some simplifying assumptions described below. - --------------- (16) Likewise, distinctions between "bundled and unbundled" transactions, which affect the price paid for the final delivery of power, do not affect the relative delivered prices of competing supplies. (17) MAPP has in place a regional tariff that allows parties to transact using rates based on the impact of each trade on various transmission facilities throughout the affected network, rather than the traditional contract path methodology. The MAPP rate structure was implemented in CASm by assuming that the MAPP utilities scheduled and paid for transmission service along a contract path basis. SPP has a regional tariff that provides for distance sensitive rates. The SPP tariff lists rates between any two eligible members and, like the MAPP rate, was implemented along a contract path. In CASm, discounts were applied to specific paths in the SPP and by season based on the historical discount rates applied since the SPP tariff went into effect. Order 888 Tariffs Consistent with Order No. 592, the ceiling rates in Exhibit 8 (Non-Firm Point-to-Point Transmission Service) of each utility's Order No. 888 filings were used for utilities that are not part of RTO arrangements.(18) In many instances, utilities report both on-peak and off-peak ceiling rates in its Order No. 888 filing. If so, then the applicable transmission rate for the on- and off-peak periods were used. If not, then the filed ceiling rate was applied for all periods. Ancillary service charges from Exhibits 1 (Scheduling, System Control and Dispatch Service) and 2 (Reactive Supply and Voltage Control from Generation Sources Service) of Order No. 888 filings were added where applicable to determine the final rates. - --------------- (18) In some cases, individual utility rates also are relevant to the zonal rates and for computing "through and out" rates within RTOs. In instances where transmission data were not reported in dollars per MWh, the $/MW rates were converted to $/MWh rates using the "Appalachian" method. 39 FERC paragraph 61,296 at 61,965. Midwest ISO and Alliance RTO Two rates were derived for each of the RTOs included in the analysis. First, a weighted average tariff rate was calculated and applied for transactions that travel "through" and "out" of the RTO and is applied for all paths from a RTO member to a non-RTO member. This rate is calculated as the weighted average of all of the RTO members rates using publicly available data for the weights and tariff data from the individual company's Order 888 tariffs.(19) The second rate, the "in" and "within" rate, is applicable for trades into and within the RTO. This rate is based on the zone where the load is located. As discussed earlier, the final import rate is not applied in CASm; thus the zonal RTO rates are not used in the analyses. The applicable RTO rates change depending upon which utilities are included in each RTO and a full derivation of the applicable RTO rates is provided in workpapers. - --------------- (19) The RTO rate derivations were based on an illustrative calculation shown in a MISO filing with FERC, which shows a unified tariff rather than a calculation based on weighted averages per se. This should differ from the methodology that I have used only in that the inter-system diversity (about 2 percent) would be taken into account using the methodology shown in the filing. ALLOCATION OF LIMITED TRANSMISSION Appendix A notes that there are various methods for allocating transmission, and that Applicants should support the method used.(20) There are two basic approaches to allocating limited transmission capacity: economic and pro rata. Under an economic allocation, available transmission is assigned on the basis of the cost of the capacity (energy) competing to use limited transmission capability. The lowest cost capacity is assumed to have a priority in using the transmission. Higher cost generation is excluded, despite its having costs below 105 percent of the destination market price. In contrast, pro rata methods of allocation treat all generation that meets the delivered price test equally in allocating scarce transmission. The paradigm lying behind the proration required by the Order No. 592 delivered price test (whether economic or pro rata methods are used) can be likened to a tree, for which the root is the destination market. At the furthest extremes are small branches, each one of which is connected to a single larger branch and so on until the trunk and root are reached. There is no ambiguity concerning the path. Hence, at every node (joining with a large branch), all of the capacity that can access the limited capacity of the branch can be calculated; each small branch's capacity is reduced proportionately to the capacity of the branch. This can be repeated successively, moving inward to the destination market. Even taking into account the simplifications required by a "transportation" representation of transmission, real world transmission systems are more complex. The "small branch" distant utilities have multiple paths by which a destination market can be reached. In some cases, paths may first be in a direction away from the destination market, looping around onto another path to it. An analysis that takes this important complexity into account is computationally very difficult. Allocation methods differ partly in terms of how the problem is simplified in order to make computation tractable. This is described further in Exhibit No. WHH-13. The major drawback of using an economic allocation is that it tends to continually reallocate the same low cost energy, principally hydro and nuclear energy (and non-dispatchable NUG capacity) over and over to each destination market in the Economic Capacity measure. This occurs partly because Appendix A does not take into consideration the opportunity cost of supplying alternative markets to the destination market being analyzed,(21) but primarily because each destination market is analyzed separately. This allows the same low cost supplies to be allocated to each of the destination markets. While this is not wholly inappropriate, since the purpose of Appendix A is to measure potentially competing supply to each destination market, it does mean that the very low cost supplies can travel far and wide and occupy a highly disproportionate share of available transmission. This repeated allocation of the same energy is particularly troublesome given the large area involved in the analysis in the instant case. This flaw is less severe in the Available Economic Capacity measure, where the native load obligations absorb each control area's lowest cost resources. For purposes of this analysis, I allocated limited transmission capacity using a "squeeze-down" method, so-named because it seeks to prorate capacity at each node. I believe it to be the closest approximation to what the Commission applied in the FirstEnergy merger(22) that is computationally feasible. Under this method, shares of available transmission are allocated at each interface, diluting as they get closer to the destination market. When there is economic supply (i.e., having a delivered cost less than 105 percent of the destination market price) competing to get through a constrained transmission interface into a control area, the transmission capability is allocated to the suppliers in proportion to the amount of economic supply each supplier has outside the interface. Shares on each transmission path are based on the shares of deliverable energy at the source node for the particular path being analyzed. The calculations start at the outside of a network defined with the destination market as its center and end at the destination market itself. A series of decision rules are required to accomplished this proration. The purpose of these decision rules is limited to assigning a unique power flow direction to each link for any given destination market analysis. Once the links are given a direction, the complex network can be solved. CASm implements a series of rules to determine the direction of the path. The first rule (and the one expected to be applied most frequently) is based on the direction of the flow under an economic allocation of transmission capacity. Other options take into consideration the predominant flow on the line based on desired volume (the amount of economic capacity seeking to reach the destination market, the number of participants seeking to use a path in a particular direction and the path direction that points toward the destination market. The model proceeds to assign each supplier at each node a share equal to their maximum supply capability. At each node, "new" suppliers (those located at the node outside of the next interface) are given a share equal to their supply capability and the shares of more distant suppliers (those who have had to pass through interfaces more remote from the destination market in order to reach the node) are scaled down to match the line capacity into the node. Ultimately, the shares at the destination market represent the prorated shares of economic capacity that is economically and physically feasible. - --------------- (20) Order No. 592, paragraph 31,044 at 30,133. ("In many cases, multiple suppliers could be subject to the same transmission path limitation to reach the same destination market and the sum of their economic generation capacity could exceed the transmission capability available to them. In these cases, the ATC must be allocated among the potential suppliers for analytic purposes. There are various methods for accomplishing this allocation. Applicants should support the method used.") (21) Indeed, if opportunity costs were taken into account, and one was considering a regional dispatch, available transmission capacity appropriately would be allocated on the basis of economics. (22) Ohio Edison Company, et al., 80 FERC paragraph 61,039 at 61,107. ("When there was more economic capacity (or available economic capacity) outside of a transmission interface than the unreserved capability would allow to be delivered into the destination market, the transmission capability was allocated to the suppliers in proportion to the amount of economic capacity each supplier had outside the interface.") SIMULTANEOUS IMPORT CAPABILITY In order to determine simultaneous transmission limitations, I utilized data from various NERC transmission assessment reports. These reports indicate common limiting facilities for multiple transmission interconnections into a single market. For those instances where a common facility limits imports over multiple paths, I assumed that the maximum import capability was no greater than the maximum of the individual path limits. This is consistent with the Commission's approach outlined in the FirstEnergy decision.(23) All of the simultaneous limits applied in the model are included in my workpapers. - --------------- (23) 80 FERC paragraph 61,039 at 61,104. LOAD DATA AND TIME PERIODS ANALYZED The most up-to-date hourly load data filed with the Commission (generally covering 1999 calendar year) was used for two purposes: (1) as a measure of native load responsibility for the Available Economic Capacity measure and (2) to determine the correct seasonal time periods to evaluate (i.e., to group similar hours). LOAD DATA FOR AVAILABLE ECONOMIC CAPACITY For the Available Economic Capacity measure, I generally used hourly load data from FERC Form 714 for the most recent period available at the time this analysis was undertaken. For the few utilities that do not file Form 714s (e.g., some cooperatives and municipal utilities) or whose data were otherwise unavailable, data from the EIA-411 along with a load shape based on those of similar utilities for which data were available were used.(24) As noted in my testimony, this analysis did not assume any load loss due to retail access. Nor did it assume that the divestitures available economic capacity; rather generation and historic (i.e., pre-divestiture) loads were matched up. - --------------- (24) The load data were escalated to 2001, based on the projected energy growth rate reported in the EIA-411 or FERC Form 714. If such data were not available, a regional growth rate reported for the relevant NERC region was used. PERIOD DEFINITIONS BASED ON HOURLY LOAD DATA Appendix A requires applicants to evaluate the merger's impact on competition under different system conditions. For example, aggregating summer peak and shoulder peak conditions may mask important differences in unit availability and therefore a merger could potentially impact competition differently in these seasons. Thus, applicants are directed to evaluate enough sufficiently different conditions to show the merger's impact across a range of system conditions. On the other hand, the Merger Guidelines discuss the ability to "sustain" a price increase, and a finding that a structural test (HHI) that violates the safe harbor for some sub-set of hours during the year may not be indicative of any market power problems. Therefore, there is a trade-off between defining enough periods to capture the merger's impact under different system conditions and defining periods so narrowly as to make the resulting concentration statistics irrelevant to an evaluation of whether a price increase could be sustained. The data and methodology I used are described in my testimony. PRICE DATA In order to select the appropriate price bands to analyze, I prepared a comparison of system lambda and price data in Power Markets Week. These data are summarized in Exhibit No. WHH-15 and described in my testimony. Exhibit No. WHH-13 COMPETITIVE ANALYSIS SCREENING MODEL (CASm) PA Consulting developed the Competitive Analysis Screening model ("CASm_v87") to perform the calculations required in order to conduct a market power analysis under Appendix A of the FERC Merger Policy Statement ("Order No. 592" or "Appendix A").(1) The delivered price test specified in Appendix A requires an analysis of market concentration for a large number of markets under a number of different conditions. CASm facilitates this process by performing the required calculations. The primary requirement of Appendix A is to assess potential suppliers to a market using a "delivered price test". This test involves comparing variable generation costs plus delivery costs (transmission rates, transmission losses and ancillary services) to a "market price." If the delivered cost of generation is less than 105 percent of the market price, the generation is considered economic. Economic generation is further limited to the amount that can be delivered into the market, given transmission capability and constraints. CASm implements the prescribed delivered price test by determining -- for each destination market, for each relevant time period, and for each relevant supply measure -- potential supply to the destination market both pre- and post-merger. In effect, CASm determines the relevant geographic market by applying the delivered price test, based on the economics of production and delivery (transmission rates, transmission losses and ancillary services), and also based on the physical transmission capacity available to the competing suppliers on an open access basis. This requires a delivery route for the energy on the established transmission paths, each of which has a capability, transmission rate and transmission losses associated with it. CASm finds the supply that can be delivered to the destination market consistent with cost minimization and the delivered price test. As a formal matter, CASm minimizes the production and transmission costs of supplying demand in the destination market. Any shortfall in demand is filled by a hypothetical generator located in the destination market that can produce an unlimited amount of energy at 105 percent of the market price. On this basis, any supplier who can profitably supply energy to the destination market will do so, to the maximum extent that their cost structure and the transmission system allow. This formulation ensures that no supplied generation is uneconomic; the hypothetical generator will undercut all such suppliers. CASm determines pre- and post-merger market shares and calculates concentration (as measured by the Herfindahl-Hirschman Index, or HHI) and the change in HHIs. To undertake these analyses, CASm solves a series of scenarios involving a network of interconnected suppliers. By limiting suppliers based on the economics of generation and delivery, or by limiting the interconnections between those suppliers based on the transmission capability, each Appendix A analysis can be completed. CASm includes a simplified depiction of the transmission system, essentially a system of "pipes" with independent, fixed capacity between and among utilities. The following sections describe: 1. What data inputs are required to operate CASm 1. How different analyses are undertaken in CASm 2. What outputs CASm produces; and 3. How CASm is implemented. - --------------- (1) CASm was developed by predecessor companies, PHB and PHB-Hagler Bailly, and has been used in analyzing numerous mergers and power plant acquisitions in proceedings before the Commission. INPUT DATA MARKET PARTICIPANTS The largest element of the required data for CASm relates to individual market participants, which generally are utilities with both generating capacity and load obligations. In addition, some market participants may have load obligations but no generating capacity (e.g., transmission dependent utilities, or TDUs) or have generating capacity but no load obligations (e.g., merchant capacity). CASm regards all distinct market participants as having the ability to both supply and consume electricity. The particular circumstances of each analysis will determine the extent to which each activity is possible. Nodes In CASm, a node is a location where electricity is generated or consumed, or where it may "split" or change direction. All market participants are defined as having a unique node, and hence unique location in the transportation network. Total simultaneous import limits can be imposed at each node to mirror reliability restrictions. Output Capability Each market participant may have generating ability, which is defined generically in terms of any number of "tranches" of generation having both a quantity (MW) and dispatch cost ($/MWh). This output capability and cost may differ over time, for example because of planned and unplanned outage rates and fuel prices. CASm has a number of data inputs available for modifying the underlying physical availability of generating assets to get the relevant "supply curve" for any given model period. CASm can also cover generation tranches to account for load obligations at each node (used for the Available Economic Capacity measure, as discussed below). Destination Market Prices For each destination market, a prevailing market price is defined. The destination market price is used to calculate a threshold price that potential suppliers must meet to be included in the market for economic-based analyses (that is, the "delivered price test"). INTERCONNECTIONS Interconnections represent the network that links market participants together. These interconnections are represented as a "transportation" network, where flows are specifically directed. Lines A line between two nodes in CASm may represent either a single line, or the combined effect of a number of lines. Each line has an upper limit on the flow, and losses may occur on the line. Since capacity on the line may represent physical limits less firm commitments, limits are allowed to be different, depending on the direction of the flow. Limits on the simultaneous flow on combinations of lines can be imposed to simulate the effect of loopflow or reliability constraints. SCENARIOS The final input area for CASm is related to scenario definition. Scenarios define which parties are considering merging, which load periods are relevant, and so on. In effect, the scenarios define a number of individual analyses to be performed, and how they should be compared to each other for reporting purposes. ACCOUNTING FOR OWNERSHIP It is sometimes necessary to merge the results for several nodes, or to split them, based on ownership changes between scenarios. CASm has a "report as" function that will merge the results of several nodes into a single to correctly account for ownership. REQUIRED CALCULATIONS Appendix A's delivered price test defines two different supply measures to evaluate: 4. ECONOMIC CAPACITY is the amount of capacity that can reach a market at a cost (including transmission rates, transmission losses and ancillary services) no more than 105 percent of the destination market price. 5. AVAILABLE ECONOMIC CAPACITY is the amount of Economic Capacity that is available after serving native load and other net firm commitments with the lowest cost units. For every analysis, the following process is undertaken: First, a Linear Programming (LP) problem is solved. The LP construction is slightly different, depending on the underlying assumptions of each of the supply measures. CASm includes two options for allocating scarce transmission capacity. CASm has a "proration" option, which is called "squeeze-down". This is discussed in detail below. Another option is an economic allocation of limited transfer capability. Under this option, where available supply exceeds the ability of the network to deliver that capacity to the destination market, the least-cost supply is allocated the available transmission capacity.(2) The final step involves calculating what can be delivered to the destination market, after accounting for line losses. CASm allocates total system losses amongst suppliers on the basis on how much they injected, and how far away (how many wheels) they are from the destination market. - --------------- (2) CASm can be modified to apply different proration method when appropriate for some analyses. ECONOMIC CAPACITY For the Economic Capacity analysis, CASm solves an LP with the following form: minimize cost for supplies at the destination market subject to: supply cost at destination < system lambda + 5%, for all suppliers supply < quantity(3), for each node and tranche supply + flows in = flows out + "demand", for each node line flows are adjusted for losses, for all interconnections line flows < available limit, for all interconnections (constrained network only) sum over lines (flow * simultaneous factor) <= simultaneous limit, for all limits sum over nodes (net injection * flowgate factor) <= flowgate limit, for all limits The objective is slightly different when transmission capacity is to be prorated. The objective then becomes: minimize cost for supplies at the destination market; and minimize divergence from calculated pro rata "share", for each supplier - --------------- (3) Available quantity may be modified. See discussion in the Output Capacity section. AVAILABLE ECONOMIC CAPACITY For the Available Economic Capacity analysis, CASm solves an LP with the following form: minimize cost for supplies at the destination market subject to: supply cost at destination < system lambda + 5%, for all suppliers supply < quantity (less native load), for each node and tranche supply + flows in = flows out + "demand", for each node line flows are adjusted for losses, for all interconnections line flows < available limit, for all interconnections (constrained network only) sum over lines (flow * simultaneous factor) <= simultaneous limit, for all limits sum over nodes (net injection * flowgate factor) <= flowgate limit, for all limits This is different from the economic capacity analysis only to the extent that potential suppliers are required to meet their load obligations prior to participating in the market. When transmission capacity is to be prorated the objective becomes: minimize cost for supplies at the destination market; and minimize divergence from calculated pro rata "share", for each supplier OUTPUTS The primary output from CASm is a report that summarizes the results of different analyses. For each destination market, load period and FERC analysis type, CASm reports the following for both pre- and post-merger: 6. Supplied MW 7. Market Share 8. HHIs This report also shows the change in HHIs post-merger compared to pre-merger. CASm also produces a transmission report that shows the detail of each node, and the injections and flows between them. Finally, a summary of the results for each market is also produced. "SQUEEZE-DOWN" PRORATION In the "squeeze-down" proration algorithm, prorated shares on each line are based on the weighted shares of deliverable energy at the source node for that line. As discussed below more fully below, weighted shares at the destination market node are calculated by a recursive algorithm that starts at the "outside" of the network, calculating shares on each line until it reaches the "middle". Specifically, where available supply exceeds the ability of the network to deliver that capacity to the destination market, suppliers are allocated shares at each node, and hence each outgoing line, based on the results of an algorithm that considers both supply and transfer capability at each node. Starting at the "outside" of the network, CASm calculates a share at each node that is based on a proportion of the incoming transfer capability (and the share of that capability allocated to each supplier), and the maximum economic supply available at that node. When the algorithm reaches the destination market, a total share of the incoming transfer capability has been determined. This algorithm requires that all possible paths are simultaneously feasible, which, in turn, requires that each line be assigned a unique "direction". The steps of the proration algorithm include: 1. A C++ program enumerates all possible paths to the destination, the cost of transmission on each path and the maximum possible flow on the path. A "wheel limit", or maximum number of point-to-point links, may be imposed on paths. 2. The minimum "entry cost" for each supplier is calculated. This cost is the injection cost of the cheapest generator that has capacity for possible delivery to the destination. 3. Paths for which the entry cost plus the transmission cost are higher than 105% of the destination market price are rejected as being uneconomic. 4.To the extent remaining paths are not simultaneously feasible (because, for example, suppliers can seek to use the paths in both directions), a series of decision rules for determining the direction of the line are undertaken (in the following order): o Instructions can be manually input as to the chosen direction of a line. o Merger-case decisions should be consistent with base-case decisions. o The direction of the line as determined in an economic allocation of available transmission is applied. o The direction heading toward a destination market, if it is clear, is chosen. o The direction that retains the maximum potential volume-weighted flow on the line (calculated from the paths that depend on this line) is chosen. o The direction on which the maximum number of economic paths depend is chosen. If these other options fail to reach a feasible solution, manual input will be required. 5. Proration begins at nodes furthest from the destination market (where only exports, and no imports are being attempted). Suppliers at these nodes are assigned a "share" equal to their maximum economic supply capability. 6. Proration continues at the next set of nodes, that should consist only of nodes with inflows from "resolved" nodes from step 5. Suppliers at these nodes are assigned a "share" equal to their maximum economic supply capability. Suppliers from the "resolved" nodes have their shares scaled down to match the transmission capacity into the node. 7. To the extent an iteration of the algorithm does not resolve any additional nodes and the destination market has not yet been reached (i.e., a loop is detected), flow is disallowed from any unresolved node to the furthest and smallest node affected by a loop. 8. The proration has been completed when the destination market node has been resolved. At that point, the "shares" at the destination market represent the prorated shares of deliverable energy. 9. Injections for each supplier are "capped" at the calculated shares, and these injections are then checked for economic feasibility. While suppliers need not deliver their energy to the destination in exactly the way that their share was calculated, the solution is still both economically and physically feasible. The final solution represents the least-cost method of delivering these supplies. CASm IMPLEMENTATION CASm_v87 has been implemented using GAMS (Generalized Algebraic Modeling System), release 2.5. GAMS is a programming language which supports both data manipulation and calls to many mainstream mathematical modeling systems. The linear programming problems generated by CASm are solved by BDMLP. The path enumeration program has been written in Microsoft Visual C++ version 5. Exhibit No. WHH-14
NERC Supplier Node Control Area ECAR AEP Generating Co AEP American Electric Power Co., Inc. u ECAR AEP Generating Co TDU AEP_TDU American Electric Power Co., Inc. t ECAR AES Plants in Allegheny Power Systems Control Area AES_APS Allegheny Energy, Inc. m ECAR American Municipal Power - Ohio AMPO American Electric Power Co., Inc. t ECAR Allegheny Energy, Inc. APS Allegheny Energy, Inc. u ECAR Big Rivers Electric Corp. BREC Big Rivers Electric Corp. u ECAR Big Rivers Electric Corp. TDU BREC_TDU Big Rivers Electric Corp. t ECAR Cincinnati Gas & Electric CIN Cinergy Services, Inc. u ECAR Cinergy's Share of Trenton Plant CIN_MER Cinergy Services, Inc. m ECAR Cincinnati Gas & Electric TDU CIN_TDU Cinergy Services, Inc. t ECAR Coastal Power Midland Cogeneration Venture COAST_CP Michigan Electric Power Coordination Center m ECAR CMS Comstock COM_CMS Consumer's Power m ECAR Consumer's Power Comant CP Michigan Electric Power Coordination Center u ECAR Detroit Edison Company DECO Michigan Electric Power Coordination Center u ECAR Duquesne Light DLCO Duquesne Light Co. u ECAR Dominion Resources Plants in APS DOM_APS Alegheny Energy m ECAR Dayton Power & Light DPL Dayton Power & Light Co. u ECAR Dominion Muskingum County Plant DRI_AEP American Electric Power Co., Inc. m ECAR DTE Energy Georgetown DTE_IPL Indianapolis Power & Light Co. m ECAR Duke's Madison Plant DUK_AEP American Electric Power Co., Inc. m ECAR Duke's Share of Trenton Plant DUK_CIN Cinergy Services, Inc. m ECAR Duke's DeSoto Plant DUK_SOTO Cinergy Services, Inc. m ECAR Dynegy's BlueGrass Generation DYN_LGE Louisville Gas & Electric m ECAR East Kentucky Power Coop. EKPC East Kentucky Power Coop, Inc. u ECAR Enron's Wheatland Plant in Cinergy and IPL ENR_CIN Cinergy and Indianapolis Power & Light Co. m ECAR First Energy FENER First Energy u ECAR CMS Gaylord GAY_CMS Consumer's Power m ECAR Hoosier Energy Coop. HEC Hoosier Energy Rural Electric Coop, Inc. u ECAR City of Holland HLND Michigan Electric Power Coordination Center t ECAR Indianapolis Power & Light IPL Indianapolis Power & Light Co. u ECAR Lansing, City of LANS Michigan Electric Power Coordination Center t ECAR LG&E Energy Corp. LGE LG&E Energy Corp. u ECAR Midland Cogeneration Venture MCV_CP Michigan Electric Power Coordination Center m ECAR Michigan Electric Power Coordination Center (Consumers Power and Detroit Edison MECS Michigan Electric Power Coordination Center u ECAR Michigan Electric Power Coordination Center TDU MECS_TDU Michigan Electric Power Coordination Center t ECAR Northern Indiana Public Service NIPS Northern Indiana Public Service Co. u ECAR Ohio Valley Electric Corp. OVEC Ohio Valley Electric Corp. u ECAR CMS Rouge Steel RS_CMS Michigan Electric Power Coordination Center m ECAR Southern Indiana Gas & Electric SIGE Southern Indiana Gas & Electric Co. u MAAC AES Plants in PJM AES_PJM PJM-East m MAAC Pennsylvania, New Jersey, Maryland PJM PJM u MAIN Wisconsin Power & Light Co ALLIANT_E Alliant East u MAIN Ameren Corp. AMEREN Ameren Corp. u MAIN Ameren Corp. TDU AMRN_TDU Ameren Corp. t MAIN Constellation University Park BGE_COMED Commonwealth Edison Co. m MAIN Central Illinois Light Co CILCO Central Illinois Light Co. u MAIN Commonwealth Edison Co. COMED Commonwealth Edison Co. u MAIN Unicom's Holiday Hills and North Chicago Plants COMED_MER Commonwealth Edison Co. m MAIN Columbia City Of CWL Columbia Water & Light Dept. u MAIN Columbia City Of TDU CWL_TDU Columbia Water & Light Dept. t MAIN Springfield City Of CWLP Springfield Water, Light & Power u MAIN Duke Audrain Plant DUK_AMRN Ameren Corp. m MAIN Duke Lee County Plant DUK_COMED Commonwealth Edison Co. m MAIN Dynegy's Purchase from Minooka Energy Center DYN_COMED Commonwealth Edison Co. m MAIN Electric Energy, Inc. EEI Electric Energy, Inc. u MAIN Enron Corp.'s Lincoln Energy Center ENR_COMED Commonwealth Edison Co. m MAIN El Paso and Coastal Purchases in ComEd EPE_COMED Commonwealth Edison Co. m MAIN Houston Industries Power Generation HIPG_IP Illinois Power Co. m MAIN Illinois Municipal Elec Agency IMEA Ameren Corp. t MAIN Illinois Power Co IP Illinois Power Co. u MAIN Illinois Power TDU IP_TDU Illinois Power Co. t MAIN LSP Plant in ComEd LSP_COMED Commonwealth Edison Co. m MAIN Marquette City Of MARQ Upper Peninsula Power Co. t MAIN Madison Gas & Electric Co MGE Madison Gas & Electric Co. u MAIN MidAmerican Energy Co. MIDAM MidAmerican Energy Co. u MAIN MidAmerican Energy Co. TDU MIDAM_TDU MidAmerican Energy Co. t MAIN Minnesota Power's Purchase from LSP's Kendall Cnty Plant MP_COMED Commonwealth Edison Co. m MAIN Manitowoc Public Utilities MPU Manitowic Public Utilities u MAIN AmerGen's Clinton Purchase PECO_IP Illinois Power Co. m MAIN Reliant's McHenry County Plant REL_HEN Commonwealth Edison Co. m MAIN Southern Illinois Power Coop SIPC Southern Illinois Power Coop u MAIN Soyland Power Coop Inc SOY Illinois Power Co. t MAIN Upper Peninsula Power Co UPP Upper Peninsula Power Co. u MAIN Wisconsin Electric Power Co WEP Wisconsin Electric Power Co. u MAIN Wisconsin Public Service Corp WPS Wisconsin Public Service Corp. u MAIN Wisconsin Public Service TDU WPS_TDU Wisconsin Public Service t MAPP Alliant Energy - West ALLIANT_W Alliant West u MAPP Alliant Energy - West TDU ALTW_TDU Alliant West t MAPP Basin Electric Power Cooperative BEPC Basin Electric Power Cooperative u MAPP Dairyland Power Coop/Coop Power Assn DPC Dairyland Power Coop u MAPP Dairyland Power Coop TDU DPC_TDU Dairyland Power Coop t MAPP Lincoln Electric System LES Lincoln Electric System u MAPP Montana-Dakota Utilities Co MDU Otter Tail Power Co. t MAPP Municipal Energy Agency of NE MEAN Nebraska Public Power District t MAPP Minnesota Power, Inc. MP Minnesota Power, Inc. u MAPP Minnkota Power Coop Inc MPC Minnkota Power Coop Inc u MAPP Muscatine Power & Water MPW Muscatine Power & Water u MAPP Nebraska Public Power District NPPD Nebraska Public Power District u MAPP Nebraska Public Power District TDU NPPD_TDU Nebraska Public Power District t MAPP Northern States Power Company NSP Northern States Power Co. u MAPP Northern States Power Company TDU NSP_TDU Northern States Power Co. t MAPP Northwestern Public Service Co NWPS WAPA Billings East (UM-East) t MAPP Omaha Public Power District OPPD Omaha Public Power District u MAPP Omaha Public Power District TDU OPPD_TDU Omaha Public Power District t MAPP Otter Tail Power Company OTP Otter Tail Power Co. u MAPP Southern Minnesota Mun P Agny SMMP Southern Minnesota Municipal Power Agency u MAPP Southern Minnesota Mun P Agny TDU SMMP_TDU Southern Minnesota Municipal Power Agency t MAPP St. Joseph Light & Power STJO St. Joseph Light & Power Co. u MAPP United Power Assn UPA United Power Association u MAPP United Power Assn TDU UPA_TDU United Power Association t MAPP Western Area Power Administration WAPA WAPA Billings East (UM-East) u MAPP Western Area Power Administration TDU WAPA_TDU WAPA Billings East (UM-East) t MAPP Wisconsin Public Power Inc Sys WPPI Wisconsin Electric Power Co. t NA Reporting Node for CMS CMS NA r NA AES Reporting Node AES NA r NA Alliant Energy ALLIANT NA r NA Aquila Energy Reporting Node AQU NA R NA Constellation Energy Reporting Node BGE NA R NA Calpine/Skygen Energy Reporting Node CALPINE NA r NA Cogentrix Reporting Node COG NA r NA Carolina Power & Light and Florida Progress CPL NA r NA Dominion Resources (Reporting Node) DRI NA r NA Dynegy DYN NA r NA Enron Corp. ENRON NA r NA El Paso Energy and Coastal Corp. Reporting Node EPE NA r NA Exelon Energy (Unicom and PECO Energy) Reporting Node EXELON NA R NA LS Power LSP NA r NA NIPSCO and Columbia Energy NISOURCE NA r NA PG&E Energy Trading, L.P. Reporting Node PGE NA r NA Reliant Energy Reporting Node RELIANT NA r NA Tenaska Reporting Node TEN NA r NA Williams Energy Reporting Node WILL NA r NA Utilicorp UTILCOR NA r NPCC AES Plants in New York and New England AES_NY New York Power Pool m NPCC New York Power Pool NYPP New York Power Pool u SERC Associated Electric Coop Inc AECI Associated Electric Coop, Inc. u SERC Associated Electric Coop Inc TDU AECI_TDU Associated Electric Coop, Inc. t SERC Alabama Electric Coop Inc ALEC Alabama Electric Coop, Inc. u SERC LS Power's Share of Batesville BATE_LS Tennessee Valley Authority m SERC Cajun Electric Power Coop Inc CAJN Cajun Electric Power Coop, Inc. u SERC Carolina Power & Light Co CAPO Carolina Power & Light Co. u SERC CAPO's Monroe County Plant CAPO_SOCO Southern Company m SERC Carolina Power & Light Co TDU CAPO_TDU Carolina Power & Light Co. t SERC CELE's St. Landry Plant CLECO_LAND Entergy Corp. (Entergy Electric System) m SERC Cogentrix South Haven Plant COG_ENT Entergy Corp. (Entergy Electric System) m SERC Cogentrix Plants in TVA COG_TVA Tennessee Valley Authority m SERC Conoco Orange County Plant CONO_ENT Entergy Corp. (Entergy Electric System) m SERC Coral Energy's Sowega Plant COR_SOCO Southern Company m SERC Duke Hinds and Attala Energy Plants DUK_ENT Entergy Corp. (Entergy Electric System) m SERC Duke Power Co DUKE Duke Energy Corp. u SERC Duke Power Co TDU DUKE_TDU Duke Energy Corp. t SERC Rockingham Plant DYN_DUKE Duke Energy Corp. m SERC Dynegy Lake Charles Plant DYN_ENT Entergy Corp. (Entergy Electric System) m SERC Dynegy's Heard County Plant DYN_SOCO Southern Company m SERC Enron Plant in SOCO ENR_SOCO Southern Company m SERC Enron Plants in TVA ENR_TVA Tennessee Valley Authority m SERC Entergy ENT Entergy Corp. (Entergy Electric System) u SERC Entergy Arkansas Inc TDU ENT_TDU Entergy Corp. (Entergy Electric System) t SERC Skygen's Hog Bayou Plant HOG_SOCO Southern Company m SERC LS Power Batesville plant LSP_TVA Tennessee Valley Authority and Entergy Electric System SERC Municipal Electric Authority of Georgia MEAG Southern Company t SERC Morgan Stanley Smiths Plant MS_SOCO Southern Company m SERC Old Dominion Electric Power Coop ODEC Virginia Electric & Power Co. (Virginia Power) t SERC Oglethorpe Power Corp OPC Southern Company t SERC Oglethorpe Power Corp's Sewell County and Smarr Plants OPC_SOCO Southern Company m SERC Tenaska Frontier Plant (Grimes County, TX) PECO_ENT Entergy Corp. (Entergy Electric System) m SERC Tenaska's Heard County Plant PECO_SOCO Tennessee Valley Authority m SERC South Carolina Electric & Gas Co. SCEG South Carolina Electric & Gas Co. u SERC South Carolina Public Service Authority SCPSA South Carolina Public Service Authority u SERC South Carolina Public Service Authority TDU SCPSA_TDU South Carolina Public Service Authority t SERC Southeastern Power Administration SEPA Southeastern Power Administration u SERC Skygen's Pine Bluff Plant SKY_ENT Entergy Corp. (Entergy Electric System) m SERC South Mississippi El Pwr Assn SMEPA South Mississippi Electric Power Association u SERC Southern Company SOCO Southern Company u SERC Southern Company TDU SOCO_TDU Southern Company t SERC Tractebel Red Hills TRAC_TVA Tennessee Valley Authority m SERC Tennessee Valley Authority TVA Tennessee Valley Authority u SERC Virginia Electric & Power Co VP Virginia Electric & Power Co. (Virginia Power) u SERC Cleco Evangeline Plant WILL_ENT Entergy Corp. (Entergy Electric System) m SPP AES Shady Point Plant AES_OKGE Oklahoma Gas & Electric Co. m SPP Aquila's Cass County Plant AQU_MPS Missouri Public Service m SPP Independence City of CIMO Independence Power & Light Dept. u SPP CLECO Corporation CLECO Cleco Corp. u SPP Cogentrix Green County Energy Project COG_GREEN Oklahoma Gas & Electric m SPP CSW Energy's Eastex Cogen CSW_MER Central & South West SPP m SPP Central & South West SPP CSW_SPP Central & South West SPP u SPP Central & South West SPP TDU CSW_TDU Central & South West SPP t SPP Duke Power's Share of St. Francis Plant DUK_AECI Associated Electric Coop, Inc. m SPP Duke McCain Plant DUK_OKGE Oklahoma Gas & Electric Co. m SPP Empire District Electric Co EDE Empire District Electric Co. u SPP Grand River Dam Authority GRRD Grand River Dam Authority u SPP Golden Spread Electric Coop GSEC Southwestern Public Service Co. t SPP Kansas City City of KACY Kansas City Board of Public Utilities u SPP KAMO Electric Coop Inc KAMO Grand River Dam Authority t SPP Kansas City Power & Light Co KCPL Kansas City Power & Light Co. u SPP Lafayette City of LAFA Lafayette Utilities System u SPP Louisiana Energy & Power Auth LEPA Louisiana Energy & Power Authority u SPP OKEOK's Logan County Plant LOGAN Oklahoma Gas & Electric Co. m SPP LS Power's Share of Mustang Station LSP_SWPS Southwestern Public Service Co. m SPP Midwest Energy Inc MIDW MidWest Energy, Inc. u SPP UtiliCorp United Inc (MPS) MPS Missouri Public Service Co. u SPP Oklahoma Gas & Electric Co OKGE Oklahoma Gas & Electric Co. u SPP Oklahoma Municipal Power Auth OMPA Central & South West SPP t SPP PANDA's Coweta Plant PANDA Oklahoma Gas & Electric Co. m SPP Conoco Orange County Plant (PG&E purchase) PGE_ENT Entergy Corp. (Entergy Electric System) m SPP Sunflower Electric Power Corp SEC Sunflower Electric Power Corp., Inc. u SPP Sikeston City of SIKE Southwestern Power Administration t SPP Springfield City of SPRM Southwestern Power Administration t SPP Southwestern Power Administration SWEPA Southwestern Power Administration u SPP Southwestern Public Service Co SWPS Southwestern Public Service Co. u SPP Western Farmers Elec Coop Inc WEFA Western Farmers Electric Coop u SPP UtiliCorp United (West Plains Energy) WEPL West Plains Energy u SPP Western Resources WR Western Resources u
Exhibit No. WHH-15
Area Around IPL System Lambda Data - FERC 714 Power Markets Week Data AEP CIN IPL SIGE HEC Into Destination Lambda Lambda Lambda Lambda Lambda Northern Market Price Period (1999) (1999) (1999) (1999) (1999) Into Cynergy ECAR Analyzed S_SP1 $ 19 $ 24 $ 41 $ 44 $ 1,912 $ 140 $ 109 $ 100 S_SP2 $ 16 $ 26 $ 25 $ 39 $ 316 $ 140 $ 109 $ 75 S_SP3 $ 15 $ 17 $ 15 $ 30 $ 112 $ 140 $ 109 $ 50 S_P $ 13 $ 14 $ 12 $ 20 $ 67 $ 140 $ 109 $ 30 S_OP $ 12 $ 14 $ 11 $ 18 $ 30 na $ 15 $ 20 W_SP $ 14 $ 14 $ 14 $ 20 $ 23 $ 20 $ 22 $ 25 W_P $ 13 $ 13 $ 12 $ 14 $ 22 $ 20 $ 22 $ 20 W_OP $ 20 $ 13 $ 10 $ 13 $ 17 na $ 15 $ 15 SH_SP $ 14 $ 15 $ 17 $ 20 $ 41 $ 22 $ 23 $ 40 SH_P $ 14 $ 13 $ 12 $ 16 $ 26 $ 22 $ 23 $ 25 SH_OP $ 12 $ 13 $ 10 $ 14 $ 18 na $ 14 $ 15
Area Around CILCO System Lambda Data - FERC 714 Power Markets Week Data Ameren CILCO ComEd CWLP Destination Lambda Lambda Lambda Lambda Into Main Into Main Market Price Period (1999) (1999) (1999) (1999) Into ComEd (Southern) (Northern) Analyzed S_SP1 $ 1,745 $ 14 $ 52 $ 61 $ 168 $ 130 $ 105 $ 100 S_SP2 $ 323 $ 13 $ 38 $ 43 $ 168 $ 130 $ 105 $ 75 S_SP3 $ 97 $ 13 $ 24 $ 23 $ 168 $ 130 $ 105 $ 50 S_P $ 64 $ 13 $ 13 $ 16 $ 168 $ 130 $ 105 $ 30 S_OP $ 28 $ 12 $ 12 $ 14 na na na $ 20 W_SP $ 38 $ 14 $ 22 $ 16 $ 21 $ 22 $ 26 $ 25 W_P $ 21 $ 13 $ 13 $ 14 $ 21 $ 22 $ 26 $ 20 W_OP $ 17 $ 13 $ 10 $ 13 na na na $ 15 SH_SP $ 41 $ 14 $ 20 $ 16 $ 22 $ 23 $ 24 $ 40 SH_P $ 27 $ 13 $ 16 $ 13 $ 22 $ 23 $ 24 $ 25 SH_OP $ 17 $ 13 $ 10 $ 12 na na na $ 15
Sources: System lambda data from 1999 FERC Form 714 filings. Hours aggregated based on IPL's load. Power Markets Week data is for CY1999 ("Index price"). For some regions, PMW reports both a peak and off-peak value, in others just a peak value. NA refers to regions where PMW reports only a peak price. Note: Illinois Power is not shown since they did not file lambda data in 1999. See http://www.ferc.fed.us/electric/f714/1999list.htm Exhibit No. WHH-16
BASE MERGER AES HHI HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1210 46.70% 3 0.10% 2525 1213 46.80% 2534 9 CILCO S_SP2 75 1210 44.70% 2 0.10% 2406 1212 44.80% 2414 8 CILCO S_SP3 50 1185 46.10% 3 0.10% 2483 1188 46.30% 2492 10 CILCO S_P 30 1160 43.70% 3 0.10% 2325 1163 43.80% 2334 10 CILCO S_OP 20 1120 44.80% 4 0.20% 2409 1124 44.90% 2423 15 CILCO W_SP 25 1019 40.50% 6 0.20% 2120 1025 40.80% 2139 19 CILCO W_P 20 1019 40.50% 6 0.20% 2136 1025 40.80% 2155 19 CILCO W_OP 15 331 18.20% 7 0.40% 1286 338 18.60% 1300 15 CILCO SH_SP 40 975 39.40% 4 0.20% 1955 980 39.60% 1969 14 CILCO SH_P 25 911 37.80% 6 0.20% 1940 917 38.10% 1959 19 CILCO SH_OP 15 294 16.50% 8 0.40% 1227 302 16.90% 1241 14 IPL S_SP1 100 4 0.10% 2844 52.10% 2955 2848 52.10% 2962 7 IPL S_SP2 75 4 0.10% 2844 52.10% 2955 2848 52.10% 2962 7 IPL S_SP3 50 4 0.10% 2658 50.40% 2800 2662 50.40% 2807 7 IPL S_P 30 5 0.10% 2440 49.60% 2747 2445 49.70% 2756 9 IPL S_OP 20 5 0.10% 2440 49.60% 2745 2445 49.70% 2754 10 IPL W_SP 25 8 0.10% 2450 40.00% 2073 2458 40.10% 2083 11 IPL W_P 20 8 0.10% 2450 40.00% 2033 2458 40.10% 2044 10 IPL W_OP 15 6 0.10% 2450 40.00% 2069 2456 40.10% 2077 8 IPL SH_SP 40 6 0.10% 2382 40.40% 2022 2389 40.50% 2030 9 IPL SH_P 25 8 0.10% 2177 39.20% 2027 2186 39.40% 2039 12 IPL SH_OP 15 5 0.10% 2177 39.20% 2052 2183 39.30% 2060 8 AEP S_SP1 100 83 0.10% 1842 2.70% 1318 1924 2.80% 1319 1 AEP S_SP2 75 83 0.10% 1844 2.70% 1318 1927 2.80% 1319 1 AEP S_SP3 50 84 0.10% 1836 2.70% 1320 1919 2.80% 1320 1 AEP S_P 30 97 0.10% 1977 2.90% 1358 2074 3.10% 1359 1 AEP S_OP 20 187 0.30% 1778 2.90% 1483 1964 3.20% 1485 2 AEP W_SP 25 100 0.10% 1993 3.00% 1339 2093 3.10% 1340 1 AEP W_P 20 105 0.20% 1994 3.00% 1351 2099 3.10% 1351 1 AEP W_OP 15 108 0.20% 2011 3.30% 1442 2118 3.50% 1443 1 AEP SH_SP 40 87 0.20% 1940 3.40% 1330 2027 3.50% 1331 1 AEP SH_P 25 103 0.20% 2091 3.60% 1354 2194 3.80% 1356 1 AEP SH_OP 15 89 0.20% 1815 3.40% 1389 1904 3.50% 1390 1 AMEREN S_SP1 100 451 2.10% 29 0.10% 2270 480 2.30% 2271 1 AMEREN S_SP2 75 451 2.10% 30 0.10% 2230 480 2.30% 2231 1 AMEREN S_SP3 50 451 2.20% 30 0.10% 2202 481 2.30% 2202 1 AMEREN S_P 30 451 2.20% 33 0.20% 2175 484 2.40% 2176 1 AMEREN S_OP 20 475 2.60% 30 0.20% 2524 505 2.80% 2525 1 AMEREN W_SP 25 472 1.90% 80 0.30% 1504 551 2.30% 1505 1 AMEREN W_P 20 492 2.00% 80 0.30% 1474 572 2.30% 1475 1 AMEREN W_OP 15 47 0.20% 85 0.40% 1292 132 0.60% 1293 0 AMEREN SH_SP 40 268 1.10% 59 0.30% 1463 327 1.40% 1464 1 AMEREN SH_P 25 322 1.40% 66 0.30% 1456 388 1.70% 1457 1 AMEREN SH_OP 15 52 0.20% 75 0.40% 1280 126 0.60% 1280 0 CIN S_SP1 100 21 0.10% 968 3.70% 2001 989 3.80% 2001 1 CIN S_SP2 75 21 0.10% 968 3.70% 1989 990 3.80% 1990 1 CIN S_SP3 50 22 0.10% 941 3.70% 1932 963 3.80% 1933 1 CIN S_P 30 24 0.10% 943 4.10% 1838 967 4.20% 1838 1 CIN S_OP 20 31 0.10% 943 4.10% 1852 974 4.20% 1853 1 CIN W_SP 25 30 0.10% 728 3.10% 1867 758 3.30% 1868 1 CIN W_P 20 31 0.10% 727 3.10% 1871 759 3.30% 1872 1 CIN W_OP 15 19 0.10% 731 3.20% 1913 749 3.30% 1913 1 CIN SH_SP 40 26 0.10% 744 3.10% 1843 770 3.20% 1843 1 CIN SH_P 25 35 0.20% 727 3.30% 1774 763 3.50% 1775 1 CIN SH_OP 15 18 0.10% 732 3.40% 1809 750 3.50% 1810 1 COMED S_SP1 100 119 0.50% 13 0.00% 5300 131 0.50% 5300 0 COMED S_SP2 75 119 0.50% 13 0.00% 5244 131 0.50% 5244 0 COMED S_SP3 50 117 0.50% 12 0.00% 5227 130 0.50% 5227 0 COMED S_P 30 116 0.50% 14 0.10% 5153 130 0.50% 5153 0 COMED S_OP 20 191 1.00% 15 0.10% 6696 206 1.10% 6696 0 COMED W_SP 25 110 0.60% 20 0.10% 6414 130 0.70% 6414 0 COMED W_P 20 110 0.60% 21 0.10% 6740 131 0.70% 6740 0 COMED W_OP 15 2 0.00% 25 0.10% 6755 27 0.10% 6755 0 COMED SH_SP 40 108 0.50% 16 0.10% 4754 124 0.50% 4754 0 COMED SH_P 25 105 0.60% 23 0.10% 6177 128 0.70% 6177 0 COMED SH_OP 15 2 0.00% 21 0.10% 6419 24 0.10% 6419 0 CWLP S_SP1 100 101 9.40% 1 0.10% 3038 102 9.50% 3040 1 CWLP S_SP2 75 101 9.40% 1 0.10% 3036 102 9.50% 3038 1 CWLP S_SP3 50 100 9.70% 1 0.10% 2892 101 9.80% 2893 2 CWLP S_P 30 99 9.60% 1 0.10% 2883 100 9.70% 2885 2 CWLP S_OP 20 109 11.80% 1 0.10% 2413 110 11.90% 2416 3 CWLP W_SP 25 85 8.60% 3 0.30% 2059 88 8.80% 2063 4 CWLP W_P 20 85 8.60% 3 0.30% 2060 88 8.80% 2064 4 CWLP W_OP 15 0 0.10% 3 0.60% 1023 4 0.70% 1023 0 CWLP SH_SP 40 137 13.00% 2 0.10% 2485 138 13.20% 2488 4 CWLP SH_P 25 80 8.50% 2 0.20% 1951 82 8.70% 1955 4 CWLP SH_OP 15 0 0.10% 3 0.50% 1015 3 0.60% 1015 0 HEC S_SP1 100 2 0.10% 189 5.70% 1788 191 5.80% 1788 1 HEC S_SP2 75 2 0.10% 189 5.70% 1785 191 5.80% 1786 1 HEC S_SP3 50 2 0.10% 185 5.60% 1772 187 5.60% 1772 1 HEC S_P 30 3 0.10% 192 5.80% 1766 194 5.90% 1767 1 HEC S_OP 20 3 0.10% 192 5.80% 1770 195 5.90% 1771 1 HEC W_SP 25 3 0.10% 134 4.10% 1840 137 4.20% 1840 1 HEC W_P 20 3 0.10% 134 4.10% 1842 137 4.20% 1842 1 HEC W_OP 15 1 0.00% 138 4.20% 1856 139 4.20% 1856 0 HEC SH_SP 40 2 0.10% 139 4.50% 1713 141 4.60% 1713 1 HEC SH_P 25 3 0.10% 140 4.60% 1727 143 4.70% 1728 1 HEC SH_OP 15 1 0.00% 144 4.70% 1720 145 4.70% 1720 0 IP S_SP1 100 435 4.00% 38 0.40% 1838 473 4.40% 1841 3 IP S_SP2 75 435 4.10% 38 0.40% 1866 474 4.50% 1869 3 IP S_SP3 50 436 4.10% 38 0.40% 1889 474 4.50% 1892 3 IP S_P 30 435 4.20% 42 0.40% 1703 478 4.70% 1707 4 IP S_OP 20 437 4.70% 44 0.50% 1742 481 5.10% 1746 4 IP W_SP 25 266 2.20% 69 0.60% 1323 335 2.80% 1326 3 IP W_P 20 267 2.20% 69 0.60% 1339 336 2.80% 1342 3 IP W_OP 15 6 0.00% 74 0.60% 1330 80 0.70% 1330 0 IP SH_SP 40 256 2.30% 47 0.40% 1237 303 2.70% 1239 2 IP SH_P 25 252 2.40% 55 0.50% 1295 308 2.90% 1297 3 IP SH_OP 15 4 0.00% 52 0.50% 1305 56 0.50% 1305 0 SIGE S_SP1 100 1 0.00% 88 4.80% 3937 89 4.90% 3937 0 SIGE S_SP2 75 1 0.00% 88 4.80% 3936 89 4.90% 3937 0 SIGE S_SP3 50 1 0.00% 85 4.70% 3893 86 4.80% 3893 0 SIGE S_P 30 1 0.10% 84 5.10% 3461 85 5.20% 3462 1 SIGE S_OP 20 1 0.10% 84 5.10% 3446 85 5.20% 3447 1 SIGE W_SP 25 1 0.10% 75 4.60% 3470 76 4.70% 3471 1 SIGE W_P 20 1 0.10% 75 4.60% 3467 76 4.70% 3468 1 SIGE W_OP 15 0 0.00% 75 4.60% 3470 75 4.60% 3470 0 SIGE SH_SP 40 1 0.10% 76 4.80% 3365 77 4.90% 3365 0 SIGE SH_P 25 1 0.10% 74 4.90% 3211 75 4.90% 3212 1 SIGE SH_OP 15 0 0.00% 74 4.90% 3207 74 4.90% 3207 0
Exhibit No. WHH-17
BASE MERGER AES IPL HHI AES HHI HHI Market Period Price MW Mkt Share MW Mkt Share Pre-Merger MW Mkt Share Post-Merger Change CILCO S_SP1 100 1110 41.10% 2 0.10% 2138 1112 41.10% 2145 7 CILCO S_SP2 75 1110 41.10% 2 0.10% 2134 1112 41.10% 2141 7 CILCO S_SP3 50 1085 40.50% 2 0.10% 2099 1088 40.60% 2106 7 CILCO S_P 30 1060 40.00% 3 0.10% 2070 1063 40.10% 2079 9 CILCO S_OP 20 1020 40.40% 0 0.00% 2229 1020 40.40% 2229 0 CILCO W_SP 25 1019 40.40% 6 0.30% 2116 1026 40.60% 2136 20 CILCO W_P 20 1020 40.50% 0 0.00% 2177 1020 40.50% 2177 0 CILCO W_OP 15 331 19.00% 0 0.00% 1446 331 19.00% 1446 0 CILCO SH_SP 40 975 39.50% 5 0.20% 1978 980 39.70% 1994 16 CILCO SH_P 25 911 39.30% 6 0.30% 2084 917 39.60% 2104 20 CILCO SH_OP 15 294 18.30% 0 0.00% 1509 294 18.30% 1509 0 IPL S_SP1 100 5 0.10% 2794 54.50% 3164 2799 54.60% 3174 10 IPL S_SP2 75 5 0.10% 2794 54.50% 3163 2799 54.60% 3174 10 IPL S_SP3 50 5 0.10% 2608 52.80% 2997 2613 52.90% 3007 11 IPL S_P 30 6 0.10% 2390 52.20% 2938 2397 52.30% 2952 14 IPL S_OP 20 5 0.10% 2390 52.20% 2946 2396 52.30% 2958 12 IPL W_SP 25 8 0.10% 2400 39.40% 1989 2408 39.50% 2000 11 IPL W_P 20 5 0.10% 2400 39.40% 2040 2405 39.50% 2047 7 IPL W_OP 15 0 0.00% 2400 40.50% 2201 2400 40.50% 2201 0 IPL SH_SP 40 11 0.20% 2332 37.80% 1898 2343 38.00% 1911 13 IPL SH_P 25 9 0.20% 2127 36.60% 1846 2136 36.70% 1857 11 IPL SH_OP 15 0 0.00% 2127 37.70% 1998 2127 37.70% 1998 0 AEP S_SP1 100 138 0.20% 1953 2.70% 1162 2092 2.90% 1163 1 AEP S_SP2 75 139 0.20% 1957 2.70% 1163 2097 2.90% 1164 1 AEP S_SP3 50 145 0.20% 1947 2.70% 1166 2093 2.90% 1167 1 AEP S_P 30 174 0.20% 2095 2.90% 1226 2269 3.20% 1227 1 AEP S_OP 20 110 0.20% 1837 2.80% 1316 1947 3.00% 1317 1 AEP W_SP 25 101 0.20% 1984 3.10% 1389 2086 3.20% 1390 1 AEP W_P 20 152 0.20% 1628 2.60% 1455 1780 2.90% 1456 1 AEP W_OP 15 99 0.20% 0 0.00% 1945 99 0.20% 1945 0 AEP SH_SP 40 126 0.20% 2006 3.40% 1276 2132 3.60% 1277 1 AEP SH_P 25 106 0.20% 2052 3.60% 1293 2158 3.70% 1294 1 AEP SH_OP 15 102 0.20% 0 0.00% 1883 102 0.20% 1883 0 AMEREN S_SP1 100 354 1.60% 51 0.20% 1939 405 1.90% 1939 1 AMEREN S_SP2 75 354 1.70% 51 0.20% 1900 405 1.90% 1901 1 AMEREN S_SP3 50 354 1.70% 51 0.20% 1876 405 1.90% 1877 1 AMEREN S_P 30 363 1.70% 55 0.30% 1894 418 2.00% 1895 1 AMEREN S_OP 20 322 1.70% 57 0.30% 2080 379 2.00% 2081 1 AMEREN W_SP 25 281 1.20% 90 0.40% 1409 371 1.50% 1409 1 AMEREN W_P 20 228 1.00% 0 0.00% 1501 228 1.00% 1501 0 AMEREN W_OP 15 53 0.20% 0 0.00% 1386 53 0.20% 1386 0 AMEREN SH_SP 40 320 1.40% 82 0.40% 1361 403 1.80% 1362 1 AMEREN SH_P 25 324 1.50% 87 0.40% 1408 412 1.90% 1409 1 AMEREN SH_OP 15 36 0.20% 0 0.00% 1351 36 0.20% 1351 0 CIN S_SP1 100 26 0.10% 1063 4.10% 1864 1089 4.20% 1864 1 CIN S_SP2 75 26 0.10% 1063 4.10% 1852 1089 4.20% 1853 1 CIN S_SP3 50 27 0.10% 1036 4.10% 1794 1063 4.20% 1795 1 CIN S_P 30 31 0.10% 967 4.00% 1751 999 4.20% 1752 1 CIN S_OP 20 12 0.10% 967 4.20% 1872 979 4.20% 1873 0 CIN W_SP 25 30 0.10% 756 3.20% 1842 786 3.30% 1843 1 CIN W_P 20 22 0.10% 757 3.30% 1924 779 3.40% 1924 1 CIN W_OP 15 1 0.00% 0 0.00% 2356 1 0.00% 2356 0 CIN SH_SP 40 32 0.10% 728 3.00% 1682 760 3.20% 1683 1 CIN SH_P 25 36 0.20% 708 3.10% 1695 743 3.30% 1696 1 CIN SH_OP 15 0 0.00% 0 0.00% 2161 0 0.00% 2161 0 COMED S_SP1 100 106 0.40% 12 0.10% 6003 118 0.50% 6003 0 COMED S_SP2 75 105 0.40% 13 0.10% 5951 118 0.50% 5951 0 COMED S_SP3 50 104 0.40% 13 0.10% 5936 117 0.50% 5936 0 COMED S_P 30 103 0.40% 14 0.10% 5868 117 0.50% 5868 0 COMED S_OP 20 111 0.60% 14 0.10% 6717 126 0.70% 6717 0 COMED W_SP 25 105 0.50% 20 0.10% 6338 124 0.60% 6338 0 COMED W_P 20 115 0.60% 17 0.10% 6653 131 0.70% 6653 0 COMED W_OP 15 2 0.00% 0 0.00% 6667 2 0.00% 6667 0 COMED SH_SP 40 183 0.80% 19 0.10% 5491 202 0.90% 5491 0 COMED SH_P 25 101 0.60% 22 0.10% 6322 123 0.70% 6322 0 COMED SH_OP 15 1 0.00% 0 0.00% 6565 1 0.00% 6565 0 CWLP S_SP1 100 92 8.20% 1 0.10% 2769 93 8.30% 2770 1 CWLP S_SP2 75 92 8.20% 1 0.10% 2767 93 8.30% 2768 1 CWLP S_SP3 50 91 8.30% 1 0.10% 2632 92 8.40% 2633 1 CWLP S_P 30 88 8.10% 1 0.10% 2642 90 8.20% 2643 2 CWLP S_OP 20 89 9.10% 1 0.10% 2195 90 9.20% 2197 2 CWLP W_SP 25 82 8.20% 3 0.30% 2048 84 8.50% 2052 4 CWLP W_P 20 64 6.40% 0 0.00% 2050 64 6.40% 2050 0 CWLP W_OP 15 0 0.00% 0 0.00% 961 0 0.00% 961 0 CWLP SH_SP 40 82 7.60% 2 0.20% 2340 84 7.90% 2343 3 CWLP SH_P 25 80 8.30% 3 0.30% 1893 82 8.60% 1897 4 CWLP SH_OP 15 2 0.30% 0 0.00% 965 2 0.30% 965 0 HEC S_SP1 100 2 0.10% 198 5.80% 1719 200 5.90% 1719 1 HEC S_SP2 75 2 0.10% 198 5.80% 1717 200 5.90% 1717 1 HEC S_SP3 50 2 0.10% 194 5.70% 1705 196 5.80% 1705 1 HEC S_P 30 3 0.10% 199 5.90% 1708 202 5.90% 1709 1 HEC S_OP 20 3 0.10% 199 5.90% 1719 202 5.90% 1720 1 HEC W_SP 25 2 0.10% 145 4.20% 1762 147 4.30% 1762 1 HEC W_P 20 2 0.10% 144 4.30% 1816 146 4.30% 1817 0 HEC W_OP 15 0 0.00% 0 0.00% 1897 0 0.00% 1897 0 HEC SH_SP 40 3 0.10% 140 4.30% 1539 143 4.40% 1540 1 HEC SH_P 25 3 0.10% 138 4.20% 1566 141 4.30% 1566 1 HEC SH_OP 15 0 0.00% 0 0.00% 1726 0 0.00% 1726 0 IP S_SP1 100 435 3.90% 46 0.40% 1621 482 4.30% 1624 3 IP S_SP2 75 435 3.90% 47 0.40% 1616 482 4.30% 1619 3 IP S_SP3 50 435 3.90% 47 0.40% 1634 482 4.30% 1638 3 IP S_P 30 438 4.20% 0 0.00% 1584 438 4.20% 1584 0 IP S_OP 20 440 4.70% 0 0.00% 1920 440 4.70% 1920 0 IP W_SP 25 254 2.20% 66 0.60% 1473 320 2.70% 1476 2 IP W_P 20 229 2.00% 0 0.00% 1565 229 2.00% 1565 0 IP W_OP 15 3 0.00% 0 0.00% 1527 3 0.00% 1527 0 IP SH_SP 40 257 2.30% 52 0.50% 1348 309 2.70% 1350 2 IP SH_P 25 253 2.40% 55 0.50% 1452 309 3.00% 1455 3 IP SH_OP 15 3 0.00% 0 0.00% 1527 3 0.00% 1527 0 SIGE S_SP1 100 1 0.00% 105 5.70% 4020 105 5.70% 4021 0 SIGE S_SP2 75 1 0.00% 105 5.70% 4020 105 5.70% 4020 0 SIGE S_SP3 50 1 0.00% 101 5.50% 3977 102 5.60% 3978 1 SIGE S_P 30 1 0.10% 101 6.10% 3557 102 6.10% 3557 1 SIGE S_OP 20 1 0.10% 101 6.20% 3697 102 6.20% 3697 1 SIGE W_SP 25 1 0.10% 75 4.50% 3552 76 4.60% 3553 1 SIGE W_P 20 0 0.00% 75 4.60% 3667 75 4.60% 3667 0 SIGE W_OP 15 0 0.00% 0 0.00% 3752 0 0.00% 3752 0 SIGE SH_SP 40 1 0.10% 72 4.50% 3409 73 4.50% 3409 1 SIGE SH_P 25 2 0.10% 70 4.50% 3255 71 4.60% 3256 1 SIGE SH_OP 15 0 0.00% 0 0.00% 3494 0 0.00% 3494 0
Exhibit No. WHH-18
AES (CILCO) and Indianapolis Power and Light (IPL) Market Assumes Only Applicants' Direct Interconnections Are Included In Market 2001 AES (CILCO) 1,210 IPL 3,055 Total: AES (CILCO) and IPL 4,265 First-Tier Interconnections Via AES(CILCO) AMEREN 11,810 ComEd 20,968 CWLP 610 Dynergy (IP) 4,539 Sub-Total: AES (CILCO) First-Tier 37,927 Via IPL AEP 24,498 CIN 11,135 SIGE 1,222 HOOSIER 1,244 Sub-Total: IPL First-Tier 38,099 Total Installed Capacity in Market 80,291 Applicants' Share of Total Installed Capacity Pre-Merger AES (CILCO) 1.5% IPL 3.8% Post-Merger Post-Merger Market Share 5.3% Post-Merger HHI Change 11 Sources: CASm database. Excludes Merchant capacity and IMPA and Wabash capacity.
Exhibit No. WHH-19
CILCO 2001 2002 2003 (1) Demand 1,285 1,285 1,285 (2) Interruptible Load included in Peak Demand -90 -90 -90 (3) Firm Purchase (from Ameren) -100 -100 -100 (4) Adjusted Demand 1,095 1,095 1,095 Generation: (5) Capacity 1,210 1,210 1,210 (6) Sales 0 0 0 (7) Net Capacity Resources 1,210 1,210 1,210 (8) Reserve Margin 15% 15% 15% (9) Capacity Required to meet Reserve Requirements 1,259 1,259 1,259 (10) Uncommitted Capacity -49 -49 -49
Source: (1), (2), and (3) CILCO (4) = (1) + (2) + (3) (5) CILCO (6) CILCO (7) = (5) + (6) (8) Assumption (9) = [1+(8)]*(4) (10) = (7)-(9) Note: CILCO assumes reserve margin of 15-17%. CILCO assumes lost load from Illinois restructuring is equal to planned growth during 2001-2003 timeframe.
IPL 2001 2002 2003 (1) Net Internal Demand 2,965 3,015 3,064 Generation: (2) Capacity 3,055 3,055 3,055 (3) Purchases 50 0 0 (4) Sales 0 0 0 (5) Net Capacity Resources 3,105 3,055 3,055 (6) Reserve Margin 12% 12% 12% (7) Capacity Required to meet Reserve Requirements 3,321 3,377 3,432 (8) Uncommitted Capacity -216 -322 -377
Source: (1), (2), (3), (4) IPL (5) = (2)+(3)-(4) (6) Assumption (7) = [1+(6)]*(1) (8) = (5) - (7) Note: IPL has a 50 MW contract for summer 2001 only. ATTACHMENT 2: AES AFFILIATES AND SUBSIDIARIES I. AES'S DOMESTIC MERCHANT GENERATING INTERESTS The AES Corporation ("AES") currently owns, or is in the process of acquiring, interests in approximately 10,200 MW of electric generation in the United States and its territories. Listed below are the domestic facilities in which AES owns an interest: (1) AES indirectly owns a 100 percent interest in the 320 MW coal-fired Shady Point generating facility ("Shady Point") located in the State of Oklahoma. The entire capacity of Shady Point is committed to Oklahoma Gas & Electric Company pursuant to a long-term contract that expires in 2007. The Shady Point facility is a qualifying facility ("QF") under section 210 of the Public Utility Regulatory Policies Act, 16 U.S.C. section 824a-3 (1994).(1) (2) AES indirectly owns a 100 percent interest in the 125 MW coal-fired Beaver Valley generating facility ("Beaver Valley") located in the Commonwealth of Pennsylvania. The entire output of Beaver Valley is committed to West Penn Power Company pursuant to a long term contract that expires December 31, 2016. The Beaver Valley facility is a QF.(2) (3) AES indirectly owns a 100 percent interest in the 720 MW gas-fired Ironwood generating facility ("Ironwood") to be constructed and operated in the Commonwealth of Pennsylvania. Ironwood is expected to be operational in the second quarter of 2001. Once operational, the entire output of Ironwood will be committed to Williams Energy Marketing and Trading Company, a subsidiary of Williams Companies, Inc., pursuant to a 20 year long-term contract. AES Ironwood LLC, the owner of the Ironwood facility, is an exempt wholesale generator ("EWG").(3) (4) AES indirectly owns a 100 percent interest in the 180 MW coal-fired Warrior Run generating facility ("Warrior Run") located in the State of Maryland. The entire capacity of Warrior Run is committed to the Potomac Edison Power Company pursuant to long-term contract that expires February 10, 2030. The Warrior Run facility is a QF.(4) (5) AES indirectly owns a 100 percent interest in the 143 MW coke-fired Deepwater generating facility ("Deepwater") located in the State of Texas. Deepwater is committed to TXU Electric Company ("TXU") under a power purchase agreement that gives TXU dispatch rights for 140 MW of Deepwater's capacity through the end of 2001. The Deepwater facility is a QF.(5) (6) AES indirectly owns a 100 percent interest in the 181 MW Thames generating facility ("Thames") located in the State of Connecticut. The entire output of Thames is committed to Connecticut Light & Power Company pursuant to a long-term contract that expires March 5, 2015. The Thames facility is a QF.(6) (7) AES indirectly own 100 percent of the Alamitos (2,083 MW), Huntington Beach (563 MW), and Redondo Beach (1,310 MW) generating facilities for an aggregate generating capacity of approximately 3,956 MW located in the State of California (collectively, the "Southland" facilities). The entire output of the Southland facilities is committed to Williams Energy Services Company pursuant to a long-term contract that expires May 31, 2018. The Commission has granted AES Southland authority to make wholesale power sales at market-based rates.(7) (8) AES indirectly owns a 100 percent interest in the 120 MW Placerita generating facility ("Placerita") located in the State of California. The output of the Placerita facilities presently is sold on a daily basis in to the California market. AES Placerita, Inc. has received market-based rate authorization.(11) (9) AES indirectly owns a 100 percent interest in the 180 MW Hawaii generating facility ("Hawaii") located in the State of Hawaii. The entire output of the Hawaii facility is committed to Hawaii Electric Company pursuant to a long-term contract that expires in 2021. The Hawaii facility is a QF.(12) (10) AES indirectly owns a 100 percent interest in six coal-fired generating facilities - Somerset (675 MW), Cayga (306 MW), Westover (126 MW), Greenidge (161 MW), Hinkling (85 MW) and Jennison (71 MW) - with an aggregate generating capacity of approximately 1,424 MW located in the State of New York ("AES NY Facilities").(13) The Commission has granted AES NY, LLC authority to make wholesale power sales at market-based rates.(14) (11) AES indirectly owns a 100 percent interest in the 454 MW coal-fired Puerto Rico generating facility ("Puerto Rico") located in the Territory of Puerto Rico. The entire output produced by the Puerto Rico facility is committed to The Puerto Rico Electric Power Authority pursuant to a 25 year long term contract signed in 1994. The Puerto Rico facility is a QF.(15) (12) AES indirectly owns a 100 percent interest in the 832 MW gas-fired Red Oak generating facility ("Red Oak") which is to be constructed and operated in the State of New Jersey. The entire output of Red Oak will be committed under a long-term contract that expires in 2022. The facility is expected to become operational in 2002.(16) (13) AES owns, through its subsidiary AES Kingston ULC, a 50 percent interest in The Kingston Cogen Limited Partnership ("Kingston Cogen LP"). The remaining 50 percent of Kingston Cogen LP is owned 25 percent by Pacific Kingston Energy, Inc. and 25 percent by PanCanadian Petroleum Limited. Kingston Cogen LP owns a 110 MW gas-fired combined-cycle cogeneration facility located in Loyalist Township, Ontario. The entire output of the Kingston facility is committed to Ontario Electricity Financial Corporation through January 31, 2017. (14) On October 27, 2000, AES Mohave, LLC, an indirect subsidiary of AES, received Commission authorization to acquire a combined 70 percent interest in the 1,106 MW coal-fired Mohave generating station ("Mohave") located in Laughlin, Nevada.(17) On September 28, 2000, AES Mohave, LLC filed an application with the Commission requesting authorization to sell wholesale power from Mohave at market-based rates. That application is pending in Docket No. ER00-3783-000. (15) AES owns a 100 percent interest in AES Londonderry LLC, a 720 MW natural gas-fired combined cycle power plant currently under construction in Londonderry, New Hampshire. The Plant is expected to be operational in June of 2002 and is an EWG. II. AES'S POWER MARKETING ACTIVITIES AES owns interests in several power marketers, as described below: (1) AES owns a 100 percent interest in AES Power, Inc., which is not currently marketing electric energy. (2) AES owns a 100 percent interest in QST Energy Trading, Inc. ("QST"), a power marketer authorized to sell wholesale power at market-based rates.(18) QST is no longer operational. (3) AES owns a 100 percent interest in New Energy Ventures, and indirectly owns a 100 percent interest in NEV East, L.L.C., NEV California, L.L.C. and NEV Midwest, L.L.C.(19) AES also owns a 100 percent membership interest in New Energy Partners, L.L.C., a power marketer authorized to sell wholesale power at market-based rates.(20) - --------------- Footnotes: (1) AES Shady Point, Inc., 39 FERC paragraph 62,162 (1987). (2) BV Partners, 33 FERC paragraph 62,074 (1985). (3) AES Ironwood LLC, 86 FERC paragraph 62,247 (1999). (4) AES WR Ltd. Partnership, 69 FERC paragraph 62,082 (1994). (5) The AES Corp., 59 FERC paragraph 62,148 (1992). (6) AES Thames, Inc., 34 FERC paragraph 62,079 (1986). (7) See AES Huntington Beach, 83 FERC paragraph 61,100 (1998) (order granting wholesale market rate authority); AES Redondo Beach, 83 FERC paragraph 61,358 (1998) (order granting authority to engage in sales of ancillary services at market rates). (11) AES Placerita, Inc., 89 FERC paragraph 61,202 (1999). (12) AES Barbers Point, Inc., 45 FERC paragraph 62,002 (1988). (13) AES recently purchased the AES NY Facilities from New York State Electric & Gas Corporation. New York State Elec. & Gas Corp., 86 FERC paragraph 62,079 (1999). The Hinkling and Jennison facilities have just recently been placed in long-term cold standby mode. (14) See AES NY LLC, 86 FERC paragraph 61,002 (1999); AES 2 LLC, Docket No. ER99-2284, Delegated Letter Order (Apr. 23, 1999). AES has also formed several EWG's to maintain and operate these facilities. AES Jennison LLC, 86 FERC paragraph 62,147 (1999), AES Hickling LLC, 86 FERC paragraph 62,148 (1999); AES Westover LLC, 86 FERC paragraph 62,149 (1999); AES Somerset LLC, 86 FERC paragraph 62,150 (1999); AES Greenidge LLC, 86 FERC paragraph 62,151 (1999). (15) AES Puerto Rico, LP, 75 FERC paragraph 62,051 (1996). (16) AES Red Oak, LLC, 89 FERC paragraph 62,094 (1999). (17) See Southern California Edison Co., 93 FERC paragraph 62,066 (2000) (authorizing AES Mohave, LLC's acquisition of 70 percent ownership interest in Mohave facility). (18) QST Energy Trading Inc., 74 FERC paragraph 61,282 (1996). (19) See NEV, L.L.C. 81 FERC paragraph 61,186 (1997) (authorizing AES's acquisition of New Energy Ventures). (20) See Rockingham Power et al., 86 FERC paragraph 61,337 (1999) (authorizing New Energy Partners, L.L.C. to sell wholesale power at market-based rates). Attachment 3 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION The AES Corporation ) Docket No. EC01- ___ - 000 IPALCO Enterprises, Inc. ) NOTICE OF FILING Take notice that on November 14, 2000, The AES Corporation ("AES") and IPALCO Enterprises, Inc. ("AES") (collectively, "Applicants") filed with the Federal Energy Regulatory Commission an application pursuant to section 203 of the Federal Power Act requesting authorization for AES to acquire IPALCO. Applicants request that the Commission approve the application by February 15, 2001. Applicants state that copies of this filing have been served on the Indiana Utility Regulatory Commission and the Illinois Commerce Commission. Any person desiring to be heard or to protest such filing should file a motion to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 C.F.R. 385.211 and 385.214). All such motions and protests should be filed on or before __________. Protests will be considered by the Commission to determine the appropriate action to be taken, but will not serve to make protestants parties to the proceedings. Any person wishing to become a party must file a motion to intervene. Copies of this filing are on file with the Commission and are available for public inspection. This filing may also be viewed on the Internet at http://www.ferc.fed.us/online/rims.htm (Call 202-208-2222 for assistance). David P. Boergers Secretary EXHIBIT B THE AES CORPORATION AES, a Delaware corporation, is a public utility holding company exempt from registration under the Public Utility Holding Company Act of 1935 ("PUHCA") by reason of section 3(a)(5) thereof 15 U.S.C. section 79c(a)(5) (1994).(1) No ownership or control is exercised by or over AES as to any bank, trust company, banking association, or firm that is authorized by law to underwrite or participate in the marketing of securities of a public utility, or any company supplying electric equipment to such party. AES does not have any trustees who are directors of commercial banks or of companies that are authorized to underwrite or participate in the marketing of securities. There is no intercorporate relationship between AES and IPALCO, or their affiliates. AES and its affiliates have no officers or directors in common with IPALCO or its affiliates. - --------------- (1) See The AES Corp., HCAR No. 35-27063 (1999). EXHIBIT B STATEMENT OF MEASURE OF CONTROL OR OWNERSHIP Indianapolis Power & Light Company is wholly owned by IPALCO Enterprises, Inc. an exempt holding company. The Board of Directors for Utilities of the Department of Public Utilities of the City of Indianapolis, Indiana is the trustee of a public charitable trust, d/b/a Citizens Coke & Gas Utility. Exhibit H - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF SHARE EXCHANGE DATED AS OF JULY 15, 2000 BETWEEN THE AES CORPORATION AND IPALCO ENTERPRISES, INC. - ---------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE I THE EXCHANGE...............................................................2 Section 1.1 The Exchange............................................2 Section 1.2 Closing.................................................2 Section 1.3 Effective Time..........................................2 Section 1.4 Effects.................................................2 Section 1.5 Articles of Incorporation and By-laws...................3 Section 1.6 Directors...............................................3 ARTICLE II EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES.........................3 Section 2.1 Effect on Capital Stock.................................3 Section 2.2 Per Share Amount Adjustments............................4 Section 2.3 Exchange of Certificates................................5 Section 2.4 Stock Option Plans......................................7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................9 Section 3.1 Organization, Standing and Power........................9 Section 3.2 Capital Structure......................................11 Section 3.3 Authority; Execution and Delivery; Enforceability......12 Section 3.4 No Conflicts; Consents.................................13 Section 3.5 SEC Documents..........................................15 Section 3.6 Absence of Certain Changes or Events...................15 Section 3.7 Absence of Undisclosed Liabilities.....................16 Section 3.8 Litigation.............................................16 Section 3.9 Compliance with Applicable Laws........................16 Section 3.10 Company Rights Agreement...............................17 Section 3.11 Taxes..................................................17 Section 3.12 Employee Matters; ERISA................................20 Section 3.13 Environmental Matters..................................27 Section 3.14 Title to Real Property.................................30 Section 3.15 Assets Other than Real Property Interests..............30 Section 3.16 Intellectual Property..................................31 Section 3.17 Transactions with Affiliates...........................31 Section 3.18 Brokers; Schedule of Fees and Expenses.................32 Section 3.19 Opinion of Financial Advisor...........................32 Section 3.20 Capacity to Serve Peak Demand..........................32 Section 3.21 Accounting Matters.....................................32 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..................................32 Section 4.1 Organization, Standing and Power.......................33 Section 4.2 Certificate of Incorporation and By-laws...............33 Section 4.3 Capital Structure......................................33 Section 4.4 Authority; Execution and Delivery; Enforceability......34 Section 4.5 SEC Documents..........................................34 Section 4.6 No Conflicts; Consents.................................35 Section 4.7 Compliance with Applicable Laws........................36 Section 4.8 Absence of Undisclosed Liabilities.....................36 Section 4.9 Stockholder Approval...................................37 Section 4.10 Litigation.............................................37 Section 4.11 Absence of Certain Changes or Events...................37 Section 4.12 Brokers................................................37 Section 4.13 Ownership of Company Common Stock......................37 Section 4.14 Regulatory Status......................................37 Section 4.15 Tax-Free Reorganization................................38 Section 4.16 Accounting Matters.....................................38 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.................................38 Section 5.1 Conduct of Business....................................38 Section 5.2 No Solicitations.......................................45 Section 5.3 Conduct of Business by Parent..........................48 ARTICLE VI ADDITIONAL AGREEMENTS.....................................................48 Section 6.1 Preparation of Joint Registration/Proxy Statement; Shareholders Meeting...................................50 Section 6.2 Access to Information; Confidentiality.................50 Section 6.3 Reasonable Efforts; Notification; Filings..............50 Section 6.4 Employee Benefit Plans.................................53 Section 6.5 Directors' and Officers' Indemnification and Insurance..............................................54 Section 6.6 Expenses...............................................56 Section 6.7 Public Announcements...................................56 Section 6.8 Transfer Taxes.........................................56 Section 6.9 Restructuring..........................................56 Section 6.10 Rights Agreement; Consequences if Rights Triggered.....56 Section 6.11 Conduct of Business of Parent..........................57 Section 6.12 Certain Employee Matters; Headquarters.................57 Section 6.13 Charitable Giving......................................57 Section 6.14 Asset Sale.............................................57 Section 6.15 Tax Treatment..........................................58 Section 6.16 Regional Transmission Organization.....................58 Section 6.17 Pooling-of-Interest....................................58 Section 6.18 Affiliate Letters......................................58 ARTICLE VII CONDITIONS PRECEDENT......................................................59 Section 7.1 Conditions to Each Party's Obligation to Effect the Exchange...........................................59 Section 7.2 Conditions to Obligation of Parent.....................60 Section 7.3 Conditions to Obligation of the Company................62 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.........................................63 Section 8.1 Termination............................................63 Section 8.2 Effect of Termination..................................66 Section 8.3 Expenses and Fees......................................66 Section 8.4 Amendment..............................................66 Section 8.5 Extension; Waiver......................................67 Section 8.6 Procedure for Termination, Amendment, Extension or Waiver.................................................67 ARTICLE IX GENERAL PROVISIONS........................................................67 Section 9.1 Nonsurvival of Representations and Warranties..........67 Section 9.2 Notices................................................67 Section 9.3 Definitions............................................69 Section 9.4 Interpretation.........................................69 Section 9.5 Severability...........................................70 Section 9.6 Counterparts...........................................70 Section 9.7 Entire Agreement; No Third-Party Beneficiaries.........70 Section 9.8 Governing Law..........................................70 Section 9.9 Assignment.............................................71 Section 9.10 Enforcement............................................70 Section 9.11 Further Assurances.....................................71 Exhibits Exhibit A . . . . Form of Tax Opinion Representation Letter of Parent Exhibit B . . . . Form of Tax Opinion Representation Letter of the Company Exhibit C . . . . Form of Indiana Certification Exhibit D . . . . Form of Affiliate Letters AGREEMENT AND PLAN OF SHARE EXCHANGE AGREEMENT AND PLAN OF SHARE EXCHANGE, dated as of July 15, 2000, by and between The AES Corporation, a Delaware corporation ("Parent"), and IPALCO Enterprises, Inc., an Indiana corporation (the "Company"). W I T N E S S E T H: WHEREAS, the respective Boards of Directors of Parent and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the respective Boards of Directors of Parent and the Company have approved the mandatory share exchange (the "Exchange") whereby all of the issued and outstanding shares of Common Stock, no par value, of the Company ("Company Common Stock") shall be acquired by Parent in exchange for shares of validly issued, fully paid and nonassessable common stock, par value $0.01 per share, of Parent ("Parent Common Stock") on the terms and subject to the conditions set forth in this Agreement; WHEREAS, for accounting purposes, it is intended that the transactions contemplated hereby be accounted for as a pooling-of-interests under United States generally accepted accounting principles ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC"); WHEREAS, for United States federal income tax purposes, it is intended that the transactions contemplated hereby qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall be, and is hereby, adopted as a plan of reorganization for purposes of Section 368 of the Code; and WHEREAS, Parent and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Exchange and also to prescribe various conditions to the Exchange. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein the parties hereto agree as follows: ARTICLE I THE EXCHANGE Section 1.1 The Exchange. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Business Corporation Law of the State of Indiana (the "BCL"), at the Effective Time (as defined in Section 1.3), (i) Parent and the Company shall effect the Exchange, and (ii) the Company shall become a wholly owned Subsidiary of Parent. Section 1.2 Closing. The closing (the "Closing") of the Exchange shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, N.W., Washington, D.C. 20005 at 10:00 a.m., local time, on or prior to the fifth business day following the satisfaction (or, to the extent permitted by Law (as defined in Section 3.4), waiver by all parties) of the conditions set forth in Section 7.1, or, if on such day any condition set forth in Section 7.2 or 7.3 has not been satisfied (or, to the extent permitted by Law, waived by the party or parties entitled to the benefits thereof), as soon as practicable after all the conditions set forth in Article VII have been satisfied (or, to the extent permitted by Law, waived by the parties entitled to the benefits thereof), or at such other place, time and date as shall be agreed in writing between Parent and the Company. The date on which the Closing occurs is referred to in this Agreement as the "Closing Date." Section 1.3 Effective Time. Prior to the Closing, Parent and the Company shall prepare and, on the Closing Date or as soon as practicable thereafter, shall file with the Secretary of State of the State of Indiana, the articles of share exchange or other appropriate documents (in any such case, the "Articles of Share Exchange") executed in accordance with the relevant provisions of the BCL and shall make all other filings or recordings required under the BCL. The Exchange shall become effective at such time as the Articles of Share Exchange are duly filed with the Secretary of State of the State of Indiana, or at such other time as Parent and the Company shall agree and specify in the Articles of Share Exchange (the time the Exchange becomes effective being the "Effective Time"). Section 1.4 Effects. (a) The Exchange shall have the effects set forth in Section 23-1-40-6 of the BCL. (b) The parties hereto acknowledge and agree that the consummation of the Exchange and no other event in connection with this Agreement constitutes "an acquisition of control" or a "change in control." Section 1.5 Articles of Incorporation and By-laws. The Articles of Incorporation and By-laws of the Company as in effect immediately prior to the Effective Time shall continue to be the Articles of Incorporation and By-laws of the Company until thereafter changed or amended as provided therein or by applicable Law. Section 1.6 Directors. All of the directors of the Company as of immediately prior to the Effective Time shall resign effective as of the Effective Time and Parent shall thereafter have the right to appoint directors in accordance with the BCL. ARTICLE II EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Exchange and without any action on the part of the holder of any shares of Company Common Stock: (a) Cancellation of Treasury Stock. Each share of Company Common Stock that is owned immediately prior to the Effective Time by the Company or Parent shall automatically be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor. (b) Exchange of Company Common Stock. Subject to Section 2.1(a), each issued share of Company Common Stock outstanding immediately prior to the Effective Time shall be exchanged for such number (the "Exchange Ratio") of shares of Parent Common Stock calculated as follows: (i) if the Average Trading Price (as defined below) of a share of Parent Common Stock is greater than or equal to $31.50, the Exchange Ratio shall equal a quotient (rounded to the third decimal place) determined by dividing (x) $25.00 (the "Per Share Amount"), subject to adjustment in accordance with Section 2.2 (as adjusted, the "Adjusted Per Share Amount"), by (y) the Average Trading Price of a share of Parent Common Stock; and (ii) if the Average Trading Price of a share of Parent Common Stock is less than $31.50, the Exchange Ratio shall equal a quotient (rounded to the third decimal place) determined by dividing (x) the Per Share Amount or Adjusted Per Share Amount, as applicable, by (y) $31.50. "Average Trading Price" shall be equal to the average of the daily closing prices per share of Parent Common Stock on the New York Stock Exchange ("NYSE") Composite Transactions Reporting System, as reported in The Wall Street Journal, for the twenty trading days ending on the date immediately prior to the fifth full NYSE trading day immediately preceding the Closing Date. The Exchange Ratio shall be subject to appropriate adjustment in the event of any stock split, stock dividend or recapitalization after the date of this Agreement applicable to shares of Parent Common Stock or Company Common Stock. The number of shares of Parent Common Stock issuable by Parent upon consummation of the Exchange in accordance with this Article II, together with any cash payable in lieu of fractional shares in accordance with Section 2.3(h), is referred to collectively as the "Exchange Consideration." (c) Parent shall acquire and become the sole holder and owner of each issued and outstanding share of Company Common Stock so exchanged. Section 2.2 Per Share Amount Adjustments. (a) In the event the Closing occurs after the Trigger Date (as defined below), then the Per Share Amount shall be increased by an amount equal to $0.00411 per share per day from the date after the Trigger Date through the earliest of (but not including) (x) the Closing Date and (y) the Termination Date (as defined in Section 8.1(b)(i)). In addition, on the Trigger Date, if the Closing has not yet occurred, the Per Share Amount shall be increased, on a one-time basis, by an amount equal to $0.15 per share. (b) For purposes of this Agreement, the "Trigger Date" shall be the latest of (x) March 31, 2001, (y) the date which is 30 days after the Indiana Certification (as defined in Section 6.3(a)) has been issued and (z) the date on which all the conditions set forth in Section 7.1 and in Sections 7.2(c), 7.2(d), 7.2(h), and clauses (i), (ii) and (iii) of Section 7.2(i) have been satisfied or waived by Parent and the conditions set forth in Sections 7.2(a) and 7.2(b) would have been satisfied if the Closing had occurred on such date. Notwithstanding the foregoing the Trigger Date shall not occur in the event the condition set forth in Section 7.1(d) is not satisfied until following the satisfaction of the condition set forth in Section 7.2(e). For purposes of determining the Trigger Date, the Company shall deliver, as promptly as reasonably practicable, a certificate of an executive officer of the Company setting forth the date of the proposed Trigger Date. In the event Parent disagrees with the date set forth in such certificate, Parent shall notify the Company in writing within five business days of receipt of such certificate, specifying the reason for the nature of such disagreement. The parties agree to negotiate in good faith to promptly resolve any differences with respect to the date of the Trigger Date as set forth in the certificate of the Company's executive officer. Section 2.3 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective Time, Parent shall select a bank or trust company, which shall be reasonably satisfactory to the Company, to act as exchange agent (the "Exchange Agent") for exchange in accordance with this Article II of the Exchange Consideration upon surrender of certificates representing Company Common Stock. Immediately prior to or at the Effective Time, Parent shall deposit with the Exchange Agent, for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article II, (i) certificates representing the shares of Parent Common Stock issuable upon consummation of the Exchange and (ii) cash funds estimated to be sufficient to make payment for any fractional shares pursuant to Section 2.3(h) (such shares of Parent Common Stock and cash funds together being hereinafter referred to as the "Exchange Fund"). (b) Exchange Procedure. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates (the "Certificates") that immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were exchanged for the Exchange Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Exchange Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate or certificates representing that whole number of shares of Parent Common Stock which such holder has the right to receive pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, exchange may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and shall be accompanied by evidence satisfactory to the Exchange Agent that any transfer or other Taxes (as defined in Section 3.11(a)) required by reason of such payment in a name other than that of the registered holder of such Certificate or instrument either has been paid or is not payable. Until surrendered as contemplated by this Section 2.3, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Exchange Consideration. (c) No Further Ownership Rights in Company Common Stock. The Exchange Consideration delivered in accordance with the terms of this Article II upon exchange of any shares of Company Common Stock shall be deemed to have been delivered in full satisfaction of all rights pertaining to such shares of Company Common Stock, subject, however, to the Company's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the Company on such shares of Company Common Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books of the Company of shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any certificates formerly representing shares of Company Common Stock are presented to the Company or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article II. (d) Termination of Exchange Fund. Promptly after the date which is six months after the Effective Time, the Exchange Agent shall deliver to Parent certificates, cash and other documents in its possession relating to the transactions contemplated hereby, and the Exchange Agent's duties shall terminate, and any holder of Company Common Stock who has not theretofore complied with this Article II shall thereafter look only to the Company (subject to applicable abandoned property, escheat and similar laws) for payment of its claim for the Exchange Consideration but only as general creditors thereof. (e) No Liability. None of Parent, the Company or the Exchange Agent shall be liable to any person in respect of any shares or funds delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. (f) Investment of Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent. (g) Withholding Rights. Parent, the Company and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent, the Company or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by Parent, the Company or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent, the Company or the Exchange Agent. (h) No Fractional Shares. No fractional shares of Parent Common Stock will be issued to holders of Company Common Stock upon surrender of shares of Company Common Stock in exchange for the Exchange Consideration and any such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a holder of Company Common Stock. In lieu thereof, Parent shall pay to such holders otherwise entitled to a fractional share cash in an amount equal to the product of such fraction and the Average Trading Price. For purposes of this Section 2.3(h), all fractional shares to which a single record holder would be entitled shall be aggregated. Section 2.4 Stock Option Plans. (a) Immediately prior to the Effective Time, the Company shall have adopted such resolutions, taken such actions and obtained any necessary consents (including the consent of individual option holders, if necessary) as may be required to provide that each option to acquire shares of Company Common Stock (the "Company Stock Options") shall be assumed by Parent as of the Effective Time and shall thereafter be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Company Stock Option immediately prior to the Effective Time, the number (rounded to the nearest whole number) of shares of Parent Common Stock determined by multiplying the number of shares of Company Common Stock subject to such Company Stock Option immediately prior to the Effective Time by the Exchange Ratio, at a price per share (rounded to the nearest whole cent) equal to the exercise price per share of Company Common Stock otherwise purchasable pursuant to such Company Stock Option divided by the Exchange Ratio; provided, however, that with respect to any Company Stock Option that is an incentive stock option within the meaning of the Code, such substitution shall be effected in accordance with Section 424(a) of the Code. (b) The Company and, to the extent applicable, Parent shall take all actions necessary (including obtaining the consent of individual award holders, if necessary) to provide that (i) each award or account (including each share of restricted or performance stock granted under the Company Option Plans, stock equivalents and stock units, but excluding Company Stock Options) outstanding as of the date of this Agreement (a "Company Stock Award") that has been established, made or granted under any employee incentive or benefit plans, programs or arrangements and non-employee director plans maintained by the Company on or prior to the date hereof which provide for grants of equity-based awards or equity-based accounts shall be amended or converted into a similar instrument of and assumed by Parent as of the Effective Time in accordance with its terms and conditions as in effect immediately prior to the Effective Time, in each case with such adjustments to the terms and conditions of such Company Stock Awards as are appropriate to preserve the value inherent in such Company Stock Awards with no detrimental effects on the holders thereof, and (ii) any holder of a Company Stock Award may elect to authorize the Company to retain a number of shares of Company Common Stock from such grant having an aggregate fair market value equal to any withholding taxes applicable to the vesting of such grant, in lieu of the payment of such amount in cash. (c) Except as otherwise agreed to by the parties, (i) the Company shall take all actions necessary to provide that the provisions in any other plan, program or arrangement providing for the issuance or grant by the Company or any of its Subsidiaries of any interest in respect of the capital stock of the Company or any of its Subsidiaries shall be deleted, and (ii) the Company shall ensure that following the Effective Time no holder of Company Stock Options or any participant in the Company Option Plans or any other such plan, program or arrangement providing for the issuance or grant by the Company or any of its Subsidiaries of any interest in respect of the capital stock of the Company or any of its Subsidiaries shall have any right thereunder to acquire any equity securities of the Company or any Subsidiary thereof unless otherwise agreed by Parent and such holder or participant. (d) Parent shall take all actions necessary to reserve for issuance, from and after the Effective Time, a sufficient number of shares of Parent Common Stock for delivery pursuant to the terms set forth in this Section 2.4. On or before the Effective Time, Parent shall cause to be filed with the SEC a registration statement on an appropriate form or a post-effective amendment to a previously filed registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to shares of Parent Common Stock subject to options and other equity-based awards issued pursuant to this Section 2.4, and shall use reasonable efforts to maintain the current status of the prospectus contained therein, as well as to comply with any applicable state securities or "blue sky" laws, for so long as such options or other equity-based awards remain outstanding. (e) By adopting or approving this Agreement, the Board of Directors of the Company (the "Company Board") shall be deemed to have approved and authorized, and the shareholders of the Company shall be deemed to have approved and ratified, each and every amendment to any of the Company Option Plans, Company Stock Options or Company Stock Awards as the officers of the Company may deem necessary or appropriate to give effect to the provisions of Sections 2.4(a) and 2.4(b). ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent that except as set forth in the Company SEC Documents (as defined in Section 3.5) filed and publicly available prior to the date of this Agreement and except as set forth in the disclosure schedule delivered by the Company to Parent concurrent with the execution of this Agreement (the "Company Disclosure Schedule"): Section 3.1 Organization, Standing and Power. (a) Each of the Company, each Subsidiary of the Company (a "Company Subsidiary") and each Company Joint Venture (as defined in Section 9.3) is a corporation or other entity duly organized, validly existing and, if applicable, in good standing under the laws of the jurisdiction in which it is incorporated or organized and has full corporate power and authority and has been duly authorized by all necessary approvals and orders, including possessing all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, operate, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect (as defined below). The term "Company Material Adverse Effect" means an event, change, cause or effect which is materially adverse to the business, operations, properties, assets, liabilities, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole or of the consummation of the transactions contemplated hereby. The Company and each Company Subsidiary is duly qualified and, if applicable, in good standing, to do business in each jurisdiction where the nature of its business or their ownership or leasing of its assets and properties make such qualification necessary, other than the failure to so qualify and be in good standing, which together with all other such failures, has not had and would not have a Company Material Adverse Effect. The Company has made available to Parent true and complete copies of the articles of incorporation of the Company, as amended to the date of this Agreement (as so amended, the "Company Charter"), and the By-laws of the Company, as amended to the date of this Agreement (as so amended, the "Company Bylaws"), and the comparable charter and organizational documents of each Company Subsidiary, in each case as amended through the date of this Agreement. (b) Section 3.1(b) of the Company Disclosure Schedule sets forth a list of all the Company Subsidiaries and the Company Joint Ventures, as of the date of this Agreement, including the name of each such entity, a brief description of the principal line or lines of business conducted by each such entity and the interest of the Company and the Company Subsidiaries therein and the authorized, issued and outstanding capital stock of each of the Company Subsidiaries. The Company is a "holding company" (as defined in the Public Utility Holding Company Act of 1935, as amended ("PUHCA")) exempt from all provisions (other than Section 9(a)(2)) of PUHCA, pursuant to Section 3(a)(1) of PUHCA in accordance with Rule 2 under PUHCA. The Company is not a "public utility company" within the meaning of Section 2(a)(5) of PUHCA. With the exception of Entity I, no Company Subsidiary or Company Joint Venture is a "holding company" or a "public utility company" within the meaning of Sections 2(a)(7) and 2(a)(5) of PUHCA, respectively, nor, except with respect to their relationship with the Company, are any of such entities an "affiliate" or a "subsidiary company" of a holding company within the meaning of Sections 2(a)(11) and 2(a)(8) of PUHCA, respectively. All of the issued and outstanding shares of capital stock of each Company Subsidiary are validly issued, fully paid, nonassessable and free of preemptive rights and to the extent owned, directly or indirectly, by the Company, are owned free and clear of any liens, claims, encumbrances, security interests, charges and options of any nature whatsoever ("Liens"), and there are no outstanding subscriptions, options, calls, contracts, voting trusts, proxies or other pledges, security interests, commitments, understandings, restrictions, arrangements, rights or warrants (including any right of conversion or exchange under any outstanding security, instrument or other agreement), obligating the Company or any Company Subsidiary to issue, deliver or sell, pledge, grant a security interest on or encumber, or cause to be issued, delivered or sold, pledged or encumbered or a security interest to be granted on, shares of capital stock of any Company Subsidiary or obligating the Company or any Company Subsidiary to grant, extend or enter into any such agreement or commitment. Section 3.2 Capital Structure. (a) The authorized capital stock of the Company consists solely of 290,000,000 shares of Company Common Stock, no par value, and no shares of preferred stock. As of the date of this Agreement, 85,722,469 shares of Company Common Stock were issued and outstanding, 31,056,356 shares were held in the treasury of the Company, and the only shares reserved for issuance as of such date consisted of 120,000,000 shares which were reserved for issuance under the Rights Agreement dated as of June 28, 1998, by and between the Company and First Chicago Trust Company of New York, as Rights Agent (the "Company Rights Agreement"), pursuant to which the Company has issued 116,778,825 rights (the "Company Rights") to purchase 116,778,825 shares of Company Common Stock; 2,785,952 shares which were reserved or held for issuance under the Company's 1997 Stock Option Plan; 636,000 shares which were reserved or held for issuance under the Company's 1991 Directors' Stock Option Plan; 584,528 shares which were reserved or held for issuance under the Company's 1990 Stock Option Plan; 1,477,500 shares which were reserved or held for issuance under the Company's 1999 Stock Incentive Plan; and 2,456,141 shares which were reserved or held for issuance under the Company's Long-Term Performance and Restricted Stock Incentive Plan (such plans, the "Company Option Plans"). The total number of shares of Company Common Stock subject to outstanding options granted under any Company Option Plan (whether or not the option is exercisable) equals 4,360,980, with a weighted average exercise of $15.83 per share. Except as set forth above, as of the date of this Agreement, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. All outstanding shares of Company Common Stock are, and all such shares that may be issued prior to the Effective Time will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the BCL, the Company Charter, the Company By-laws or any Contract (as defined in Section 3.4) to which the Company is a party or otherwise bound. There are not issued or outstanding bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Stock may vote ("Voting Company Debt"). Except as set forth above and in the Company Benefit Plans (as defined in Section 3.12(a)), as of the date of this Agreement, there are not issued or outstanding options, calls, voting trusts, proxies, warrants, rights, convertible or exchangeable securities, "phantom" stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, other pledges, security interests, encumbrances, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, pledge, grant a security interest on or encumber or cause to be issued, delivered or sold, pledged or encumbered or a security interest to be granted on shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or of any Company Subsidiary or any Voting Company Debt or (ii) obligating the Company or any Company Subsidiary to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking. As of the date of this Agreement, there are not any outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary or to make any investment in (in the form of a loan, capital contribution or otherwise) or purchase any equity interest or make contributions to, or otherwise fund the operations, expenses or capital of, any Company Subsidiary or any other person. (b) Indebtedness. Section 3.2(b) of the Company Disclosure Schedule sets forth a true and complete statement of the borrowing limit as of June 30, 2000 under all loan agreements (including indentures) of the Company and its Subsidiaries existing on June 30, 2000, and Section 3.2(b) of the Company Disclosure Schedule sets forth a true and complete statement of the total indebtedness of the Company and its Subsidiaries outstanding on June 30, 2000 under such agreements. Section 3.3 Authority; Execution and Delivery; Enforceability. (a) The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject to receipt of the Company Shareholder Approval (as defined in Section 3.3(c)). The Company has duly executed and delivered this Agreement and this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) The Company Board, at a meeting duly called and held, duly and unanimously adopted resolutions (i) approving this Agreement and the Exchange, (ii) determining that the terms of the Exchange are fair to and in the best interests of the shareholders of the Company and (iii) recommending that the Company's shareholders adopt this Agreement. The Company has taken all necessary actions so that neither the supermajority voting provisions of Article X of the Company Charter nor the provisions of Chapter 42 and Chapter 43 of the BCL will, before the termination of this Agreement, apply to this Agreement or the Exchange. (c) The only vote of holders of any class or series of Company Common Stock necessary to approve and adopt this Agreement and the Exchange is the adoption of this Agreement by the holders of a majority of the outstanding Company Common Stock (the "Company Shareholder Approval"). The shareholders of the Company are not entitled to dissenters' or appraisal rights under applicable Law. Section 3.4 No Conflicts; Consents. (a) The execution and delivery by the Company of this Agreement do not, and the consummation of the Exchange and compliance with the terms hereof and the consummation of the other transactions contemplated hereby will not, conflict with, or result in any violation of, or breach of any provisions of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary or the imposition of any other penalty or fee or result in any obligation by the Company or any Company Subsidiary to pay money to, or guarantee the performance or obligations of, any person, including in connection with obtaining the Company Required Consents (as defined below) under, any provision of (i) the Company Charter, the Company By-laws or the comparable charter or organizational documents of any Company Subsidiary, (ii) subject to obtaining the third party consents set forth in Section 3.4 of the Company Disclosure Schedule for the Exchange and other transactions contemplated hereby (the "Company Required Consents"), any contract, lease, license, indenture or deed of trust, note, mortgage, bond, agreement of any kind, permit, concession, franchise or other instrument (a "Contract") to which the Company, any Company Subsidiary or Company Joint Venture is a party or by which any of their respective properties or assets is bound, or (iii) subject to the filings and other matters referred to in Section 3.4(b), and subject to obtaining the Company Shareholder Approval, any judgment, order, decree, injunction, writ, permit or license of any court, federal, state, local or foreign governmental or regulatory body ("Judgment") or statute, law, ordinance, rule or regulation ("Law") existing on the date of this Agreement applicable to the Company or any Company Subsidiary or their respective properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that have not had and would not in the aggregate have a Company Material Adverse Effect. (b) Assuming the accuracy of the representation of Parent contained in Section 4.14, and assuming compliance by Parent with its agreement contained in Section 6.9, no consent, approval, license, permit, order or authorization ("Consent") of, or registration, declaration or filing with, or permit from, any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity") is required to be obtained or made by or with respect to the Company or any Company Subsidiary in connection with the execution, delivery and performance of this Agreement or the consummation of the Exchange and the transactions contemplated hereby, other than (i) compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing with the SEC of (A) a proxy or information statement relating to the adoption of this Agreement by the Company's shareholders (together with amendments thereof and supplements thereto, the "Proxy Statement"), and (B) such reports under Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the Exchange, (iii) the filing of the Articles of Share Exchange with the Secretary of State of the State of Indiana and appropriate documents with the relevant authorities of the other jurisdictions in which the Company is qualified to do business, (iv) the approval of the Federal Energy Regulatory Commission (the "FERC") under Section 203 and any directly related section of or regulation under, the Federal Power Act (the "Power Act") for the sale or disposition of jurisdictional facilities of the Company, or an order under the Power Act disclaiming jurisdiction over the Exchange, (v) the filing with the Federal Communications Commission (the "FCC") of the applications required under Section 310(d) of the Communications Act of 1934, as amended, and approval by the FCC thereof, (vi) such filings as may be required in connection with the Taxes described in Section 6.8, (vii) filings under any applicable state takeover Law and (viii) such other items (A) required solely by reason of the participation of Parent (as opposed to any third party) in the Exchange or (B) that, individually or in the aggregate, would not prevent the consummation of the transactions contemplated hereby and that, individually or in the aggregate, would not have a Company Material Adverse Effect. Section 3.5 SEC Documents. The filings required to be made by the Company and the Company Subsidiaries under the Securities Act and the Exchange Act, as the case may be, have been filed and complied, as of their respective dates, in all material respects with all applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations thereunder. The Company has made available to Parent a true and complete copy of each report, schedule, registration statement and definitive proxy statement and all amendments thereto filed with the SEC by the Company or the Company Subsidiaries (or their predecessors) pursuant to the requirements of the Securities Act or the Exchange Act since January 1, 1998 (as such documents have since the time of their filing been amended, the "Company SEC Documents"). As of its respective date, each Company SEC Document complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of the Company and the unaudited interim financial statements included in the Company SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 3.6 Absence of Certain Changes or Events. From December 31, 1999 to the date of this Agreement, the Company has conducted its business only in the ordinary course consistent with past practice, and during such period (i) there has not been any event, change, effect or development that, individually or in the aggregate, has had or would have a Company Material Adverse Effect, (ii) there has not been any material election with respect to Taxes by the Company or any of the Company Subsidiaries or any settlement or compromise of any material Tax liability or refund of the Company or any of the Company Subsidiaries, and (iii) there has not been any material change in accounting methods, principles or practices by the Company or any of the Company Subsidiaries, except insofar as may have been required by a change in GAAP or SEC accounting regulations or guidelines or applicable Law. Section 3.7 Absence of Undisclosed Liabilities. Except for liabilities, obligations or contingencies which would not, in the aggregate, have a Company Material Adverse Effect, or which are accrued or reserved against in the consolidated financial statements of the Company or reflected in the notes thereto for the year ended December 31, 1999, or the quarter ended March 31, 2000, or which were incurred after December 31, 1999 in the ordinary course of business, neither the Company nor any Company Subsidiary, nor, to the knowledge of Company, any Company Joint Venture, has any liabilities or obligations (whether absolute, accrued, contingent or otherwise and including margin loans) which are material to the Company and the Company Subsidiaries taken as a whole. Section 3.8 Litigation. As of the date of this Agreement, there is no suit, claim, action, investigation or proceeding pending, or to the knowledge of the Company threatened, from any governmental authority, including any regulatory body or commission, against the Company or any Company Subsidiary that, individually or in the aggregate, has had or would have a Company Material Adverse Effect, nor is there any Judgment of any governmental authority or any arbitrator outstanding against the Company or any Company Subsidiary that has had or would have a Company Material Adverse Effect. Section 3.9 Compliance with Applicable Laws. Neither the Company nor any of the Company Subsidiaries is in violation of, or to the knowledge of the Company under investigation with respect to any violation of, or has been given written notice of or been formally charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment, permit, license, concession or franchise of any Governmental Entity, including PUHCA, the Power Act and applicable state, municipal, local and other laws, including franchise and public utility laws and regulations, and all documents, exhibits, amendments and supplements pertaining thereto have been filed by the Company and the Company Subsidiaries with the SEC, the FERC and the appropriate Indiana or other appropriate Governmental Entities, except for violations or failures to comply with Environmental Laws (which are the subject of Section 3.13) or with respect to Taxes (which are the subject of Section 3.11) and except for violations and failures to file which individually or in the aggregate have not had and would not have a Company Material Adverse Effect. The Company and each of the Company Subsidiaries is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by the Company or the Company Subsidiary under (i) the Company Charter, the Company By-laws or other organizational documents or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which the Company or the Company Subsidiary is bound or to which any of its property is subject, except, in the case of clause (ii) above, for violations, breaches or defaults which individually or in the aggregate have not had and would not have a Company Material Adverse Effect. Section 3.10 Company Rights Agreement. The Company and the Company Board have taken all action necessary to (i) render the Company Rights Agreement inapplicable to this Agreement and the Exchange and (ii) ensure that (A) neither Parent nor any of its affiliates or associates is or will become an "Acquiring Person" (as defined in the Company Rights Agreement) by reason of this Agreement or the Exchange, (B) a "Distribution Date" (as defined in the Company Rights Agreement) shall not occur by reason of this Agreement or the Exchange, and (C) all outstanding Company Rights shall be canceled upon the Effective Time. Section 3.11 Taxes. (a) For purposes of this Agreement: (i) "Taxes" (including, with correlative meaning, the word "Tax") shall include any and all (x) federal, state, county, local, foreign or other taxes, charges, imposts, rates, fees, levies or other assessments, including, all net income, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, license, estimated, stamp, custom duties, severance, withholding or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and penalties (civil or criminal) on or additions to any such taxes, (y) liability for the payment of any of the amounts of the type described in clause (x) as a result of being a member of an affiliated, consolidated, combined or unitary group, and (z) liability for the payment of any amounts as a result of being a party to any Tax sharing agreement or as a result of any express or implied obligation to indemnify any other person with respect to the payment of any amounts of the types described in clause (x) or (y), (ii) "Taxing Authority" means any Governmental Entity or any subdivision, agency, court, commission, instrumentality or official thereof or any quasi-governmental body having jurisdiction over the assessment, determination, collection, imposition or administration of any Tax (including the Internal Revenue Service (the "IRS")) and (iii) "Tax Return" means any return, report, information return, schedule, certificate, statement or other document (including any related or supporting information) required to be filed with or supplied to, or, where none is required to be filed with or supplied to a Taxing Authority, the statement or other document issued by, a Taxing Authority in connection with any Tax (including any combined, consolidated or unitary returns for any group of entities that includes the Company or any Company Subsidiary). (b) Filing of Timely Tax Returns. The Company and each of the Company Subsidiaries have timely filed (or there has been timely filed on their behalf) all Tax Returns required to be filed by or on behalf of each of them under applicable law and all such Tax Returns were and are in all material respects true, complete and correct, except to the extent that any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect. (c) Payment of Taxes. The Company and each of the Company Subsidiaries have, within the time and in the manner prescribed by law, paid or adequately reserved for all Taxes that are due and payable from them, except to the extent that any failure to pay or reserve, individually or in the aggregate, has not had and would not have a Company Material Adverse Effect. (d) Tax Reserves. The accrual for Taxes on the most recent Company SEC Documents reflects an adequate reserve in accordance with GAAP for all Taxes payable by the Company and the Company Subsidiaries for all Tax periods (and portions thereof) accrued on or before the date of such financial statements except to the extent that any failure to have an adequate reserve, individually or in the aggregate, has not had and would not have a Company Material Adverse Effect. (e) Tax Liens. There are no Tax liens upon the assets, properties or business of the Company or any of the Company Subsidiaries except liens for Taxes not yet due or being contested in good faith through appropriate proceedings and for which adequate reserves have been established in the Company SEC Documents or liens for Taxes that, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect. (f) Withholding Taxes. The Company and each of the Company Subsidiaries have complied in all material respects with the provisions of the Code and all other applicable laws relating to the payment and withholding of Taxes, including, the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3406 and 6041 through 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper Taxing Authorities all amounts required, except to the extent that a failure to comply, withhold or pay, individually or in the aggregate, has not had and would not have a Company Material Adverse Effect. (g) Extensions of Time for Filing Tax Returns. Neither the Company nor any of the Company Subsidiaries has requested any extension of time within which to file any Tax Return, which Tax Return has not since been timely filed unless such extension has not expired. (h) Waivers of Statute of Limitations. Neither the Company nor any of the Company Subsidiaries has executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns, except for waivers or comparable consents for any Taxes or Tax Returns that, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect. (i) Expiration of Statute of Limitations. The statutes of limitations for the assessment of all Taxes with respect to all Tax Returns of the Company and the Company Subsidiaries for all Tax periods have expired. To the knowledge of the Company, no deficiency for any Taxes has been proposed, asserted or assessed against the Company or any of the Company Subsidiaries that has not been resolved and paid in full, except for any deficiency that, individually or in the aggregate, has not had and would not have a Company Material Adverse Effect. (j) Audit, Administrative and Court Proceedings. No audits or other proceedings by any Taxing Authority are presently pending, or to the knowledge of the Company, have been threatened with regard to any Taxes or Tax Returns of the Company or any of the Company Subsidiaries that are not adequately reserved for except to the extent that any audits or other proceedings, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect. (k) Consolidated Tax Returns. Neither the Company nor any of the Company Subsidiaries has ever been a member of an affiliated group of corporations (within the meaning of Code Section 1504(a)) filing consolidated Tax Returns, other than the affiliated group of which the Company is the common parent. (l) Code Section 355. Neither the Company nor any of the Company Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock outside of the affiliated group of which the Company is the common parent qualifying or intended to qualify for tax-free treatment under Section 355(a) of the Code (A) in the two years prior to the date of this Agreement or (B) in a distribution that could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Exchange. (m) Availability of Tax Returns. Upon request the Company has made available to Parent complete and accurate copies of (i) all Tax Returns for open years, and any amendments thereto, filed by or on behalf of the Company or any of the Company Subsidiaries, (ii) all audit reports or written proposed adjustments (whether formal or informal) received from any Taxing Authority relating to any Tax Return filed by or on behalf of the Company or any of the Company Subsidiaries, and (iii) any Tax ruling or request for a Tax ruling applicable to the Company or any of the Company Subsidiaries entered into by the Company or any of the Company Subsidiaries. (n) Tax Treatment. As of the date of this Agreement, neither the Company nor any of the Company Subsidiaries knows of any fact that is reasonably likely to prevent the Exchange, if consummated as of the date of this Agreement, from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Section 3.12 Employee Matters; ERISA. (a) Section 3.12(a) of the Company Disclosure Schedule contains a true and complete list of each deferred compensation and each bonus or other incentive compensation, stock purchase, stock option and other equity compensation plan, program, agreement or arrangement; each severance or termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each profit-sharing, stock bonus or other "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by the Company or a Company Subsidiary or by any trade or business, whether or not incorporated (an "ERISA Affiliate"), that together with the Company or a Company Subsidiary would be deemed a "single employer" within the meaning of Section 4001(b) of ERISA, or to which the Company or a Company Subsidiary or an ERISA Affiliate is party, whether written or oral, for the benefit of any employee or former employee of the Company or any Company Subsidiary (the "Company Benefit Plans"). Section 3.12(a) of the Company Disclosure Schedule identifies each of the Plans of the Company or any Company Subsidiary or any ERISA Affiliate (a "Title IV Plan") that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company, any Company Subsidiary nor any ERISA Affiliate has any commitment or formal plan, whether legally binding or not, to create any additional employee benefit plan or modify or change any existing Company Benefit Plan that would affect any employee or former employee of the Company or any Company Subsidiary. (b) With respect to each Company Benefit Plan, the Company has heretofore delivered or made available to Parent true and complete copies of each of the following documents: (i) a copy of the Company Benefit Plan and any amendments thereto (or if the Company Benefit Plan is not a written plan, a description thereof); (ii) a copy of the two most recent annual reports and actuarial reports, if required under ERISA, and the most recent report prepared with respect thereto in accordance with Statement of Financial Accounting Standards No. 87; (iii) a copy of the most recent Summary Plan Description required under ERISA with respect thereto; (iv) if the Company Benefit Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement and the latest financial statements thereof; and (v) the most recent determination letter received from the IRS with respect to each Company Benefit Plan intended to qualify under Section 401 of the Code. (c) No material liability under Title IV or Section 302 of ERISA has been incurred by the Company, a Company Subsidiary or any ERISA Affiliate that has not been satisfied in full, and to the knowledge of the Company no condition exists that presents a material risk to the Company, a Company Subsidiary or any ERISA Affiliate of incurring any such liability, other than liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been paid when due). Insofar as the representation made in this Section 3.12(c) applies to Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with respect to any employee benefit plan, program, agreement or arrangement subject to Title IV of ERISA to which the Company, a Company Subsidiary or any ERISA Affiliate made, or was required to make, contributions during the eight-year period ending on the last day of the most recent plan year ended prior to the Effective Time. (d) The PBGC has not instituted proceedings to terminate any Title IV Plan and to the knowledge of the Company no condition exists that presents a material risk that such proceedings will be instituted. (e) With respect to each Title IV Plan, the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. (f) No Title IV Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each Title IV Plan ended prior to the Effective Time. (g) All contributions required to be made with respect to any Company Benefit Plan on or prior to the Closing Date have been timely made or are reflected on the balance sheet of the Company. There has been no amendment to, written interpretation of or announcement (whether or not written) by the Company, any Company Subsidiary, or any ERISA Affiliate relating to, or change in employee participation or coverage under, any Company Benefit Plan that would increase materially the expense of maintaining such Company Benefit Plan above the level or expense incurred in respect thereof for the most recent fiscal year ended prior to the date hereof. (h) No Title IV Plan is a "multiemployer pension plan," as defined in Section 3(37) of ERISA, nor is any Title IV Plan a plan described in Section 4063(a) of ERISA. If any Title IV Plan is a "multiemployer pension plan," except as it has not had and would not have a Company Material Adverse Effect, (i) neither the Company, a Company Subsidiary nor any ERISA Affiliate has made or suffered a "complete withdrawal" or a "partial withdrawal," as such terms are respectively defined in Sections 4203 and 4205 of ERISA (or any liability resulting therefrom has been satisfied in full), (ii) no event has occurred that presents a material risk of a partial withdrawal, (iii) neither the Company, a Company Subsidiary nor any ERISA Affiliate has any contingent liability under Section 4204 of ERISA, and (iv) no circumstances exist that present a material risk that any such plan will go into reorganization. If any Title IV Plan is a "multiemployer pension plan," the aggregate withdrawal liability of the Company, the Company Subsidiaries and their ERISA Affiliates, computed as if a complete withdrawal by the Company, the Company Subsidiaries and the ERISA Affiliates had occurred under each such Plan on the date hereof, would not cause a Company Material Adverse Effect. (i) Neither the Company or any Company Subsidiary, any ERISA Affiliate, any Company Benefit Plan, any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which the Company or any Company Subsidiary, any Company Benefit Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any Company Benefit Plan or any such trust would be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code. (j) Each Company Benefit Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including ERISA and the Code, other than any noncompliance that has not had and would not have a Company Material Adverse Effect. (k) Each Company Benefit Plan intended to be "qualified" within the meaning of Section 401(a) of the Code has received a determination letter from the IRS to the effect that it is so qualified and the trusts maintained thereunder are exempt from taxation under Section 501(a) of the Code. Each Company Benefit Plan intended to satisfy the requirements of Section 501(c)(9) has satisfied such requirements. (l) No Company Benefit Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of the Company or any Company Subsidiary for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by applicable law, (ii) death benefits under any "pension plan," or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). No condition exists that would prevent the Company, any Company Subsidiary or any ERISA Affiliate from amending or terminating any Company Benefit Plan providing health or medical benefits in respect of any active employee of the Company or any Company Subsidiary other than limitations imposed under the terms of collective bargaining agreements. (m) No amounts payable under the Company Benefit Plans will fail to be deductible for federal income tax purposes by virtue of Section 162(a)(1), 162(m) or 280G of the Code. (n) (i) (A) Section 3.12(n) of the Company Disclosure Schedule sets forth the estimated maximum sum of the change in control payments and entitlements (including accelerated vesting of the Company Stock Options or other equity-based awards and increased benefits which are summarized) which any employee, former employee, or other person who is party to a Termination Benefits Agreement with the Company and its Subsidiaries, may be entitled to receive now or in the future (including upon termination of such person's employment) in connection with the Exchange or any of the other transactions contemplated by this Agreement (whether alone or in combination with some other event) based on the assumptions specified therein; and (B) Section 3.12(n) of the Company Disclosure Schedule sets forth, in the aggregate with respect to current or former employees or officers of the Company, any Company Subsidiary or any ERISA Affiliate, the estimated maximum sum of severance pay, unemployment compensation or any other payment, acceleration in the time of payment or vesting, or increase in the amount of compensation to which any such employees or officers will become entitled upon the announcement or consummation of the transactions contemplated by this Agreement, either alone or in combination with some other event (other than the Company's involuntary termination of an employee's employment after the Closing); (ii) No payment (including any cash payment or accelerated vesting of the Company Stock Options or other equity-based awards) which would reasonably be expected to constitute "excess parachute payments" within the meaning of Section 280G of the Code will be payable in connection with the Exchange or the other transactions contemplated by this Agreement (whether alone or in combination with some other event) to any employee, former employee or other person who is or was providing services to the Company or any of the Company Subsidiaries; (iii) Neither the Company nor any of the Company Subsidiaries is a party to any consulting contract with any person who prior to entering into such contract was a director or officer of the Company or any of the Company Subsidiaries or any similar material plan, agreement, arrangement or understanding; (iv) There have occurred no events since January 1, 1999, that have had (or are reasonably expected to have in the future) a material adverse effect on the funded status of the Employees' Retirement Plan of Entity I; (v) Section 3.12(n) of the Company Disclosure Schedule sets forth the maximum amount of benefits that will become payable under the Company's Unfunded Deferred Compensation Plan for Officers and Directors by reason of the Exchange, or any of the other transactions contemplated by this Agreement (whether alone or in combination with some other event); and (vi) Section 3.12(n) of the Company Disclosure Schedule sets forth the maximum amount which represents the excess of (x) the total amount of payments that would be due as of the date of this Agreement under Section 4.01 of the Company's Supplemental Retirement Plan and Trust Agreement for a Select Group of Management Employees assuming all participants in such plan terminated employment as of the date of this Agreement and elected immediate payment, in the form of a lump-sum distribution (if the participant is eligible thereof) as of the date of this Agreement over (y) the assets held as of the date of this Agreement in the trust fund established under such plan, and the aggregate amount of any Tax Distribution (as defined in such plan) that would be payable under Section 4.03 of such plan if a contribution of $4,600,000 were made to such plan as of the date of this Agreement (and allocated so as to fund benefits under the plan on the basis described in the foregoing clause (n)(vii)(x)) would not exceed $8,100,000. (o) (i) There has been no material failure of a Company Benefit Plan that is a group health plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of Section 4980B(f) of the Code with respect to a qualified beneficiary (as defined in Section 4980B(g) of the Code). Neither the Company nor any Company Subsidiary or ERISA Affiliate has contributed to a nonconforming group health plan (as defined in Section 5000(c) of the Code). Neither the Company nor any Company Subsidiary or ERISA Affiliate has incurred a tax under Section 5000(e) of the Code which is or could become a liability of the Company or a Company Subsidiary; (ii) The Company will not be required after the Closing to make any contribution to the IPALCO Enterprises, Inc. Voluntary Employees Beneficiary Association; (iii) After the Closing, the Company will have no obligation (other than any it first establishes after the Closing or that may be mandated pursuant to Part 6 of Subtitle B of Title I of ERISA) to provide medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of the Company or any Company Subsidiary for periods extending beyond their retirement or other termination of service in excess of such benefits that can be funded with assets held from time to time in the IPALCO Enterprises, Inc. Voluntary Employees Beneficiary Association; and (iv) The Company believes, after consultation with its independent accountants and actuaries, that there is no material financial statement effect with respect to the IPALCO Enterprises, Inc. Voluntary Employees Beneficiary Association resulting from the attainment of the Company Shareholder Approval beyond the contribution of $7.5 million within thirty days of obtaining the Company Shareholder Approval. (p) To the knowledge of the Company, there are no pending, threatened or anticipated claims by or on behalf of or against any Company Benefit Plan, by any employee or beneficiary covered under any such Company Benefit Plan, or otherwise involving any such Company Benefit Plan (other than routine claims for benefits). (q) Labor Agreements. As of the date of this Agreement, neither the Company nor any of the Company Subsidiaries is a party to or bound by any collective bargaining agreement or other labor agreement with any union or labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company or any of the Company Subsidiaries. To the knowledge of the Company, as of the date of this Agreement, there is no current union representation question involving employees of the Company or any of the Company Subsidiaries, nor does the Company know of any activity or proceeding of any labor organization (or representative thereof) or employee group to organize any such employees. There is no (i) grievance pending or, to the knowledge of the Company, threatened, arising out of any collective bargaining agreement or other grievance procedure, unfair labor practice, employment discrimination or other investigation, charge or complaint against the Company or any of the Company Subsidiaries, which has or would have a Company Material Adverse Effect, (ii) strike, dispute, slowdown, work stoppage or lockout pending, or, to the knowledge of the Company, threatened, against or involving the Company or any of the Company Subsidiaries which has or would have a Company Material Adverse Effect and during the past five years there has not been any such action, (iii) as of the date of this Agreement, proceeding, claim, suit, action or governmental investigation pending or, to the knowledge of the Company, threatened, in respect of which any director, officer, employee or agent of the Company or any of the Company Subsidiaries is or may be entitled to claim indemnification from the Company pursuant to the Company Charter or the Company By-laws (or such other organizational documents) or as provided in the Indemnification Agreements listed in Section 3.12(q) of the Company Disclosure Schedule. The Company and the Company Subsidiaries have complied in all material respects with all laws relating to the employment of labor, including any provisions thereof relating to wages, hours, collective bargaining and the payment of social security and similar Taxes, and no person has, to the knowledge of the Company, asserted that the Company or any of the Company Subsidiaries is liable in any material amount for any arrears of wages or any Taxes or penalties for failure to comply with any of the foregoing, other than any noncompliance that has not had and would not have a Company Material Adverse Effect. Since the enactment of the Worker Adjustment and Retraining Notification Act (the "WARN Act"), neither the Company nor any of the Company Subsidiaries has effectuated, without complying with the applicable requirements of the WARN Act, (a) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company or any of the Company Subsidiaries; or (b) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company or any of the Company Subsidiaries; nor has the Company or any of the Company Subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state, local or foreign law or regulation without complying with the applicable requirements of such law or regulation. From the date of the most recent audited financial statements included in the Company SEC Documents to the date of this Agreement, there has not been any adoption or amendment in any material respect by the Company or any Company Subsidiary of any collective bargaining agreement or any Company Benefit Plan. Section 3.13 Environmental Matters. (a) The Company and each Company Subsidiary is and has been in compliance with all applicable Environmental Laws (as defined below) except where the failure to be in such compliance, individually or in the aggregate, would not have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any written communication from any person or Governmental Entity that alleges that the Company or any Company Subsidiary is not or has not been in compliance with applicable Environmental Laws, except for communications with respect to such matters which, if adversely determined against the Company or any Company Subsidiary, individually or in the aggregate, have not had and would not have a Company Material Adverse Effect. (b) The Company and each Company Subsidiary have obtained all permits and other governmental authorizations (collectively, the "Environmental Permits") necessary under applicable Environmental Laws for the construction of its facilities and the conduct of its operations as currently conducted, as applicable, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and the Company and each Company Subsidiary are in compliance with all terms and conditions of the Environmental Permits except where the failure to be in such compliance, individually or in the aggregate, would not have a Company Material Adverse Effect. (c) There is no Environmental Claim (as defined below) pending, or, to the knowledge of the Company, threatened: (i) against the Company or any Company Subsidiary; (ii) to the knowledge of the Company, against any person or entity whose liability for any such Environmental Claim the Company or any Company Subsidiary has retained or assumed either contractually or by operation of law; or (iii) against any real or personal property or operations which the Company or any Company Subsidiary owns, leases or manages, in whole or in part; in each case, except for such Environmental Claims that, individually or in the aggregate, would not have a Company Material Adverse Effect. (d) To the knowledge of the Company, there have not been any Releases (as defined below) of any Hazardous Material (as defined below) that would be reasonably likely to form the basis of any Environmental Claim against the Company or any Company Subsidiary, or against any person whose liability for any Environmental Claim the Company or any Company Subsidiary has retained or assumed by contract or by operation of law in each case, except for such Releases that, individually or in the aggregate, would not have a Company Material Adverse Effect. (e) Neither the Company nor any of the Company Subsidiaries has entered into any agreements with any non-governmental persons requiring the Company or any Company Subsidiary to indemnify, reimburse or provide contribution to such other person for any matter related to Environmental Laws, Hazardous Materials, or the environment, except for such matters that (i) have been fully resolved and where the Company or any Company Subsidiary has no further monetary or non-monetary obligation or (ii) the enforcement of which, individually or in the aggregate, would not have a Company Material Adverse Effect. (f) To the knowledge of the Company, compliance with all applicable Environmental Laws (including proposed regulations) will not require the Company or any Company Subsidiary to incur material expenditures beyond that currently budgeted in the five Company fiscal years beginning with January 1, 2000 (as disclosed in Section 3.13(f) or Section 5.1 of the Company Disclosure Schedule), including the costs of pollution control equipment required or reasonably contemplated to be required in the future. (g) From January 1, 1997, to the date of this Agreement, the Company and the Company Subsidiaries have not received any written requests for information pursuant to Section 114(a) of the federal Clean Air Act or any state analogue to the federal Clean Air Act, from any Governmental Entity with respect to the Company's or any Company Subsidiary's compliance with the new source review requirements under the federal Clean Air Act, any state analogue to the federal Clean Air Act, or any regulations promulgated thereunder. (h) In this Agreement: "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demand letters, directives, claims, liens, investigations or written notices by any person or entity (including any Governmental Entity) alleging potential liability (including potential responsibility for or liability for enforcement, investigatory costs, cleanup costs, spent fuel or waste disposal costs, decommissioning costs, governmental response costs, removal costs, remediation costs, natural resources damages, property damages, personal injuries or civil or criminal penalties) arising out of, based on or resulting from (A) the presence, Release or threatened Release into the environment of any Hazardous Materials at any location or (B) circumstances forming the basis of any violation or alleged violation of any Environmental Law or (C) any and all claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence or Release of any Hazardous Materials. "Environmental Laws" means all federal, state and local laws, principles of common laws, rules, regulations, ordinances, orders and directives, relating to pollution or protection of the environment (including indoor or ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health as it relates to the environment, including laws and regulations relating to Releases or threatened Releases of Hazardous Materials, or otherwise relating to the manufacture, processing, generation, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "Hazardous Materials" means any petroleum or petroleum products, radioactive materials, asbestos, polychlorinated biphenyls, and any other chemical, material, substance or waste, regulated under any applicable Environmental Law. "Release" means any release, spill, emission, leaking, injection, deposit, disposal, discharge, dispersal or leaching or migration into or through the environment. Section 3.14 Title to Real Property. Section 3.14 of the Company Disclosure Schedule lists all real property owned or leased by the Company or the Company Subsidiaries as of the date of this Agreement, with a book value in excess of $2,000,000. Except as has not had and would not have a Company Material Adverse Effect, the Company and each Company Subsidiary: (i) owns and has good, valid and marketable title in fee simple to the real property owned by such party, free and clear of Liens, except for (A) minor imperfections of title, easements and rights of way, none of which, individually or in the aggregate, materially detracts from the value of or materially impairs the use of the affected property or materially impairs the operations of the Company or any Company Subsidiary, (B) Liens for current Taxes not yet due and payable and (C) Liens disclosed on the Company Disclosure Schedule ((A), (B) and (C) are collectively referred to as "Permitted Company Liens"); (ii) is in peaceful and undisturbed possession of the space and/or estate under each lease under which it is a tenant, and there are no material defaults by it as tenant thereunder; and (iii) has good and valid rights of ingress and egress to and from all the real property owned or leased by such party from and to the public street systems for all usual street, road and utility purposes. The failure to hold any easements or rights of way will not have a Company Material Adverse Effect. Section 3.15 Assets Other than Real Property Interests. Other than as would not have a Company Material Adverse Effect, the Company or a Company Subsidiary has good and valid title to all material assets reflected on the most recent balance sheet included in the Company SEC Reports (the "Balance Sheet") or thereafter acquired, except those sold or otherwise disposed of for fair value since the date of the Balance Sheet in the ordinary course of business consistent with past practice and not in violation of this Agreement, in each case free and clear of all mortgages, liens, security interests or encumbrances of any kind except (i) mechanics', carriers', workmen's, repairmen's or other like liens arising or incurred in the ordinary course of business, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business and that may thereafter be paid without penalty, (ii) mortgages, liens, security interests and encumbrances which secure debt that is reflected as a liability on the Balance Sheet and the existence of which is indicated in the notes thereto, and (iii) other imperfections of title or encumbrances, if any, which do not, individually or in the aggregate, materially impair the continued use and operation of the assets to which they relate in the business of the Company and each of the Company Subsidiaries as presently conducted or which, individually or in the aggregate, would not have a Company Material Adverse Effect. Each item of material tangible personal property of the Company and the Company Subsidiaries is in all material respects in good working order and is adequate and sufficient for the Company's current use, ordinary wear and tear excepted and except for any failures which, individually or in the aggregate, would not have a Company Material Adverse Effect. All leased personal property of the Company and its Subsidiaries is in the condition required of such property by the terms of the lease applicable thereto during the term of the lease and upon the expiration thereof, except for any failures which, individually or in the aggregate, would not have a Company Material Adverse Effect. Section 3.16 Intellectual Property. The Company and each of the Company Subsidiaries own, or possess licenses or other valid rights to use, all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, service mark rights, trade secrets, applications to register, and registrations for, the foregoing trademarks, service marks, know-how and other proprietary rights and information (collectively, "Intellectual Property") necessary in connection with the business of the Company and the Company Subsidiaries as currently conducted, except where the failure to possess such rights or licenses or valid rights to use would not have a Company Material Adverse Effect. The conduct of the business of the Company and each of the Company Subsidiaries as currently conducted does not infringe upon any Intellectual Property of any third party except where such infringement would not result in a Company Material Adverse Effect, and no person is infringing upon any Intellectual Property of the Company or any Company Subsidiary except where such infringement would not have a Company Material Adverse Effect. Section 3.17 Transactions with Affiliates. Other than contracts with respect to the provision of steam or electricity which have been approved by the IURC (as defined in Section 6.3), Section 3.17 of the Company Disclosure Schedule lists, as of the date of this Agreement, all the agreements, contracts or other arrangements between the Company and any Company Subsidiary, on the one hand, and any affiliate (other than the Company or such Company Subsidiary), on the other hand, the amount of which exceeds $60,000 annually, or in the aggregate. Each such agreement or arrangement was negotiated on an arms-length basis and is no less favorable to the Company or such Company Subsidiary than the Company or such Company Subsidiary could have obtained from an unaffiliated third party. Section 3.18 Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than UBS Warburg LLC and Goldman, Sachs & Co., the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Company. The estimated fees to be paid pursuant to this Section 3.18 are set forth in Section 3.18 of the Company Disclosure Schedule. Section 3.19 Opinion of Financial Advisor. The Company has received the opinion of UBS Warburg LLC, dated the date of this Agreement, to the effect that, as of such date, the consideration to be received in the Exchange by the holders of Company Common Stock is fair from a financial point of view, a signed copy of which opinion has been delivered to Parent promptly following the execution of this Agreement. Section 3.20 Capacity to Serve Peak Demand. Section 3.20 of the Company Disclosure Schedule sets forth a schedule of the purchase power contracts or commitments entered by the Company prior to the date of this Agreement for the summer of the year 2000. The Company believes, as of the date of this Agreement, that these contracts, commitments and its own generation capacity are adequate to meet its expected peak demand for such period. Section 3.21 Accounting Matters. As of the date of this Agreement, the Company, after consultation with its independent public accountants, believes that no conditions exist that would preclude the Company from being a party to a transaction accounted for as a pooling-of-interests for accounting purposes in accordance with GAAP and applicable SEC regulations, including the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to the Company that, except as set forth in the Parent SEC Documents (as defined in Section 4.5) and except as set forth in the disclosure schedule delivered by Parent to the Company concurrent with the execution of this Agreement (the "Parent Disclosure Schedule"): Section 4.1 Organization, Standing and Power. Parent is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized and has all requisite power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not have a Parent Material Adverse Effect. The term "Parent Material Adverse Effect" means an event, change, cause or effect which is materially adverse to the business, operations, properties, assets, liabilities, prospects, condition (financial or otherwise) or results of operations of Parent or the ability of Parent to consummate the Exchange and the transactions contemplated hereby. Section 4.2 Certificate of Incorporation and By-laws. The copies of Parent's Certificate of Incorporation (the "Parent Charter") and By-laws (the "Parent By-laws") that are referenced as exhibits to Parent's Form 10-K for the year ended December 31, 1999, are complete and correct copies thereof. The Parent Charter and the Parent By-laws are in full force and effect. Section 4.3 Capital Structure. The authorized capital stock of Parent consists of (a) 1,200,000,000 shares of Parent Common Stock par value one cent and (b) 50,000,000 shares of preferred stock with no par value, none of which is outstanding. As of July 12, 2000, (i) 453,725,231 shares of Parent Common Stock were issued and outstanding, (ii) no shares of Parent Common Stock were held in the treasury of Parent, and (iii) 1,200,000 shares of Parent Common Stock were reserved for issuance under Parent's various option and benefit plans. Except as set forth above, as of the date of this Agreement, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. All outstanding shares of Parent Common Stock are, and all such shares that may be issued prior to the Effective Time and that will be issued in connection with payment of the Exchange Consideration will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the General Corporation Law of the State of Delaware, the Parent Charter, the Parent By-laws or any Contract to which Parent is a party or otherwise bound. There are no issued or outstanding bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Parent Common Stock may vote ("Voting Parent Debt"). Except as set forth above and in the Parent benefit plans, as of the date of this Agreement, there are not issued or outstanding options, calls, voting trusts, proxies, warrants, rights, convertible or exchangeable securities, "phantom" stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, other pledges, security interests, encumbrances, arrangements or undertakings of any kind to which Parent is a party or by which any of them is bound (i) obligating Parent to issue, deliver or sell, pledge, grant a security interest on or encumber or cause to be issued, delivered or sold, pledged or encumbered or a security interest to be granted on shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in Parent or any Voting Parent Debt or (ii) obligating Parent to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking. As of the date of this Agreement, there are not any contractual obligations of Parent to repurchase, redeem or otherwise acquire any shares of capital stock of Parent or to make any investment (in the form of a loan, capital contribution or otherwise) in any other person. Section 4.4 Authority; Execution and Delivery; Enforceability. Parent has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Exchange. The execution and delivery by Parent of this Agreement and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent. Parent has adopted this Agreement. Parent has duly executed and delivered this Agreement, and assuming the due authorization and delivery thereof by the Company, this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 4.5 SEC Documents. The filings required to be made by Parent under the Securities Act and the Exchange Act, as the case may be, have been filed and complied, as of their respective dates, in all material respects with all applicable requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations thereunder. Parent has made available to the Company a true and complete copy of each report, schedule, registration statement and definitive proxy statement and all amendments thereto filed with the SEC by Parent pursuant to the requirements of the Securities Act or the Exchange Act since January 1, 1998 (as such documents have since the time of their filing been amended, the "Parent SEC Documents"). As of its respective date, each Parent SEC Document complied in all material respects with its requirements, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements of Parent and the unaudited interim financial statements included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules, and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Parent and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 4.6 No Conflicts; Consents. (a) The execution and delivery by Parent of this Agreement does not, and the consummation of the Exchange and compliance with the terms hereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its Subsidiaries under, any provision of (i) the charter or organizational documents of Parent or any of its Subsidiaries, (ii) subject to obtaining the third party consents (the "Parent Required Consents") set forth in Section 4.6(a) of the Parent Disclosure Schedule, any Contract to which Parent or any of its Subsidiaries is a party or by which any of their respective properties or assets is bound, or (iii) subject to the filings and other matters referred to in Section 4.6(b), any Judgment or Law existing on the date hereof applicable to Parent or any of its Subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not have a Parent Material Adverse Effect. (b) No Consent of, or registration, declaration or filing with, any Governmental Entity is required to be obtained or made by or with respect to Parent or any of its Subsidiaries in connection with the execution, delivery and performance of this Agreement or the consummation of the Exchange, other than (i) compliance with and filings by Parent under the HSR Act, (ii) the filing with the SEC of such reports under Section 13 of the Exchange Act as may be required in connection with this Agreement and the Exchange, (iii) the filing of the Articles of Share Exchange with the Secretary of State of the State of Indiana, (iv) the approval of the FERC under Section 203 and any directly related section of or regulation under the Power Act for the sale or disposition of jurisdictional facilities of the Company, or an order under the Power Act disclaiming jurisdiction over the Exchange, (v) the approval by the SEC pursuant to Section 9(a)(2) of PUHCA, (vi) the filing with the FCC of the applications required under Section 310(d) of the Communications Act of 1934, as amended, and approval by the FCC thereof, (vii) such filings as may be required in connection with the taxes described in Section 6.8, (viii) filings under any applicable state takeover Law, (ix) the filing of the Joint Registration/Proxy Statement (as defined below) with the SEC on Form S-4, (x) the listing of Parent Common Stock with the NYSE, (xi) the filing of a registration statement with the SEC as contemplated by Section 2.4(d), (xii) compliance with state blue sky laws, and (xiii) such other items (A) required solely by reason of the participation of the Company (as opposed to any third party) in the Exchange or (B) that, individually or in the aggregate, would not prevent the consummation of the transactions hereby and have not had and would not have a Parent Material Adverse Effect. Section 4.7 Compliance with Applicable Laws. Parent is not in violation of, or to its knowledge, under investigation with respect to any violation of, or has been given written notice of or been formally charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment, permit, license, concession or franchise of any Governmental Entity, except for violations which individually or in the aggregate have not had and would not have a Parent Material Adverse Effect. Parent is not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by Parent under (i) the Parent Charter or the Parent By-laws or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which Parent is bound or to which any of its property is subject, except, in the case of clause (ii) above, for violations, breaches or defaults which individually or in the aggregate have not had and would not have a Parent Material Adverse Effect. Section 4.8 Absence of Undisclosed Liabilities. Except for liabilities, obligations or contingencies which would not, in the aggregate, have a Parent Material Adverse Effect, or which are accrued or reserved against in the consolidated financial statements of Parent or reflected in the notes thereto for the year ended December 31, 1999, or the quarter ended March 31, 2000, or which were incurred after December 31, 1999 in the ordinary course of business, Parent has no liabilities or obligations (whether absolute, accrued, contingent or otherwise and including margin loans) which are material to Parent and its Subsidiaries taken as a whole. Section 4.9 Stockholder Approval. As long as Parent is not required to issue 20% or more of the number of shares of Parent Common Stock outstanding as of the Effective Time in connection with the Exchange, the issuance of shares of Parent Common Stock in connection with the Exchange does not, and the transactions contemplated hereby do not, require approval by the stockholders of Parent. Section 4.10 Litigation. As of the date of this Agreement, there is no suit, action or proceeding pending or, to the knowledge of Parent, threatened against Parent, any of its Subsidiaries or any of their affiliated entities that, individually or in the aggregate, has had or would have a Parent Material Adverse Effect, nor is there any Judgment outstanding against Parent, any of its Subsidiaries or any of their affiliated entities that has had or would have a Parent Material Adverse Effect. Section 4.11 Absence of Certain Changes or Events. From December 31, 1999 to the date of this Agreement, Parent has conducted its business only in the ordinary course consistent with past practice, and during such period (i) there has not been any event, change, effect or development that, individually or in the aggregate, has had or would have a Parent Material Adverse Effect, (ii) there has not been any material election with respect to Taxes by Parent or any settlement or compromise of any material Tax liability or refund of Parent, and (iii) there has not been any material change in accounting methods, principles or practices by Parent, except insofar as may have been required by a change in GAAP or SEC accounting regulations or guidelines or applicable law. Section 4.12 Brokers. No broker, investment banker, financial advisor or other person, other than Lehman Brothers Inc., is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the Exchange based upon arrangements made by or on behalf of Parent. Section 4.13 Ownership of Company Common Stock. As of the date of this Agreement, none of Parent or any of Parent's Subsidiaries or other affiliates, either individually or as part of a group for purposes of Rule 13d-3 under the Exchange Act, beneficially owns such number of shares of Company Common Stock so as to constitute an "interested shareholder" within the meaning of Section 23-1-43-10 for purposes of Section 23-1-43-18 under the BCL or Art. 10 of the Company Charter. Parent is not an "Acquiring Person" within the meaning of the Company Rights Plan. Section 4.14 Regulatory Status. Neither Parent nor any "subsidiary company" or "affiliate" (as such terms are defined in PUHCA) of Parent is a "public utility company" within the meaning of PUHCA, other than, as of the date of this Agreement, Entity C. Section 4.15 Tax-Free Reorganization. As of the date of this Agreement, Parent knows of no fact that is reasonably likely to prevent the Exchange, if consummated as of the date of this Agreement, from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Section 4.16 Accounting Matters. As of the date of this Agreement, Parent, after consultation with its independent public accountants, believes that no conditions exist that would preclude Parent from being a party to a transaction accounted for as a pooling-of-interests for accounting purposes in accordance with GAAP and applicable SEC regulations including the transactions contemplated hereby. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.1 Conduct of Business. (a) Conduct of Business by the Company. Except for matters set forth in the Company Disclosure Schedule or otherwise contemplated by this Agreement, from the date of this Agreement to the Effective Time or earlier termination of this Agreement the Company shall, and shall cause each Company Subsidiary to, conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted and use all reasonable efforts to preserve intact, its current business organization, maintain or renew or cause to be renewed the current rates and rate schedules, keep available the services of its current officers and employees and keep its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them, including regulators, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. In addition, and without limiting the generality of the foregoing, except for matters set forth in Section 5.1(a) of the Company Disclosure Schedule, or as otherwise required by Law (including Environmental Law) and in such event by giving prior notice to Parent, or otherwise contemplated by this Agreement, from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following without the prior written consent of Parent: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than (1) dividends and distributions by a direct or indirect wholly owned Subsidiary of the Company to its parent, (2) regular quarterly cash dividends of not more than $0.163 on the Company Common Stock, with usual declaration, record and payment dates and in accordance with the Company's past dividend policy, and (3) dividends and distributions declared and paid by partially owned Subsidiaries, (B) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities except for open market purchases under the Company's Power Invest Dividend Reinvestment and Direct Stock Purchase Plan or the Employees' Thrift Plan of the Company; (ii) issue, deliver, sell or grant (A) any shares of its capital stock, (B) any Voting Company Debt or other voting securities, (C) any securities convertible into or exchangeable for, or any options, warrants or rights to acquire, any such shares, Voting Company Debt, voting securities or convertible or exchangeable securities or (D) any "phantom" stock, "phantom" stock rights, stock appreciation rights or stock-based performance units, other than (1) the issuance of Company Common Stock (and associated Company Rights) upon the exercise of Company Stock Options outstanding on the date of this Agreement and in accordance with their present terms, (2) the issuance of up to an additional 30,000 Company Stock Options at an exercise price no less than the fair market value of the Company Common Stock as of the date of the grant and pursuant to the Company Option Plans existing as of the date of this Agreement and in accordance with their present terms and in the ordinary course of the Company's business consistent with its past practice, and the issuance of Company Common Stock (and associated Company Rights) upon the exercise of such Company Stock Options, and (3) the issuance of Company Common Stock upon the exercise of Company Rights; (iii) amend the articles of incorporation, by-laws or other comparable charter or organizational documents of the Company or Entity I; (iv) acquire, publicly propose to acquire, or agree to acquire (A) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof, or (B) any assets that are material, individually or in the aggregate, to the Company and the Company Subsidiaries, taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice, which in any case has a fair market value of less than $10,000,000 and except for capital expenditures if such capital expenditures would be permitted under Section 5.1(a)(ix) or Section 6.3(f); (v) (A) grant to any officer, director or employee of the Company or any Company Subsidiary any increases in compensation, except in the ordinary course of business consistent with prior practice, that do not, individually or in the aggregate for all officers, directors and employees, exceed $3,000,000 per annum, excluding any increases consistent with the terms of existing collective bargaining agreements and the Company Benefit Plans, (B) grant to any officer or director of the Company or any Company Subsidiary any increase in severance or termination pay, except to the extent required under any agreement in effect as of the date of the most recent audited financial statements included in the Company SEC Documents, (C) enter into or amend any severance or termination agreement with any officer or director of the Company or Company Subsidiary, (D) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Company Benefit Plan or (E) take any action to accelerate any rights or benefits, or make any material determinations not in the ordinary course of business consistent with prior practice, under any collective bargaining agreement or Company Benefit Plan, in any such case except for such new contracts, adoptions, amendments, terminations or increases that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company and its Subsidiaries, taken as a whole; (vi) make any change in accounting methods, principles or practices materially affecting the reported consolidated assets, liabilities or results of operations of the Company, except insofar as may have been required by a change in GAAP or by order of a competent regulatory authority; (vii) sell, lease (as lessor), license or otherwise dispose of or subject to any Lien any properties or assets of the Company or the Company Subsidiaries, except for (A) excess or obsolete assets sold or otherwise disposed in the ordinary course of business consistent with past practice with a fair market value of not more than $100,000 per transaction (not to exceed $5,000,000 in the aggregate) in sales price and indebtedness assumed by the acquiring party and its affiliates, or (B) other sales or dispositions at fair market value of not more than $2,000,000 per transaction (not to exceed $8,000,000 in the aggregate) in sales price, and (C) except as set forth in Section 6.14; (viii) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any Company Subsidiary, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for (A) drawings under credit lines existing at the date of this Agreement, or renewals or replacements thereof that do not increase the maximum available borrowings thereunder, (B) obligations evidenced by debt securities issued by a Company Subsidiary for the purpose of financing investments or capital expenditures permitted under this Agreement or refinancing existing indebtedness or preferred stock obligations of such Company Subsidiary on terms no less favorable to such Company Subsidiary, or (C) any incurrences in an aggregate principal amount not exceeding $20,000,000 outstanding at any time; (ix) make or agree to make any capital expenditure or expenditures that, in the aggregate, are in excess of 110% of the currently contemplated capital expenditures as provided in Section 5.1(a)(ix) of the Company Disclosure Schedule; provided, however, that any additional capital expenditure in excess of $10,000,000 shall not be commenced or committed without prior consultation with Parent; provided, further, that, notwithstanding the foregoing, the Company shall not make, without the consent of Parent, which consent shall not be unreasonably withheld, any capital expenditures related to (i) the compliance obligations of the Company or any of its Subsidiaries related to NOx emissions (subject to Section 6.3(f)) or (ii) the refurbishment of the Petersburg turbine generating station; provided, further, that, notwithstanding the foregoing, the Company may make any emergency capital expenditure or expenditures it deems necessary in its reasonable judgment to restore or maintain the provision of energy to firm wholesale and retail customers; (x) enter into a collective bargaining agreement or other labor agreement with any union or labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company or any of the Company Subsidiaries; or (xi) authorize any of, or commit or agree to take any of, the foregoing actions. (a) Tax Matters. The Company shall, and shall cause each of the Company Subsidiaries to (i)(A) promptly notify Parent upon the earlier of (x) receipt of notice of any suit, claim, action, investigation, proceeding or audit (collectively, "Actions") pending against or with respect to the Company or any Company Subsidiary in respect of any material Tax (which is material at the time of such notice) and (y) any such Action becoming material to the Company and the Company Subsidiaries and (B) not settle or compromise any such material Action without Parent's consent; (ii) not make any material Tax election without Parent's consent; (iii) provide Parent with draft consolidated federal income Tax Returns at least ten days before such Tax Returns are due; and (iv) not make any material change in tax accounting methods, principles or practices except insofar as may have been required by a change in GAAP or SEC accounting regulations or guidelines or applicable law. The Company shall not, and shall not permit any Company Subsidiary to, enter into, amend or modify any Tax sharing agreement. (b) Transactions with Affiliates. The Company shall not, and shall cause the Company Subsidiaries not to, enter into any agreement or arrangement with any of their respective affiliates (other than intra-company agreements) other than such agreements and arrangements as are entered into in the usual, ordinary and regular course of business and which have been negotiated on an arms'-length basis and are no less favorable to the Company or a Company Subsidiary than the Company or such Company Subsidiary would have obtained from an unaffiliated third party, and provided that the Company shall have notified Parent in writing prior to entering into any such affiliate transaction with respect to transactions where the amount involved exceeds $60,000 (other than power sale and distributions to customers in the ordinary course of the Company's business). (c) Rate Matters. The Company shall, and shall cause the Company Subsidiaries to, discuss with Parent any changes and proposed changes in its or the Company Subsidiaries' rates or charges (including those with respect to fuel adjustment charges), standards of service or accounting from those in effect on the date hereof and consult with Parent prior to making any filing (or any amendment thereto), or effecting any agreement, commitment, arrangement or consent, whether written or oral, formal or informal, with respect thereto; provided, however, that in no event shall the Company be obligated to discuss or consult with Parent with respect to any of the foregoing if, in the opinion of the Company's outside counsel, to do so would be inconsistent with applicable Law. Except as provided in Section 5.1(d) of the Company Disclosure Schedule, the Company shall not, and shall cause the Company Subsidiaries not to, make any filing to change its rates on file with the FERC or any applicable state utility commission, except as may be required by applicable law, that would have a Company Material Adverse Effect. (d) Contracts. Except as set forth in Section 5.1(e) of the Company Disclosure Schedule, the Company shall not, and the Company shall not permit any Company Subsidiary to (i) enter into, modify, amend, terminate or renew any contract or agreement to which the Company or any Company Subsidiary is a party (or waive, release or assign any material rights or claims therein) if such contract or contracts are material to the Company and the Company Subsidiaries taken as a whole or if the term of such new contract or agreement, or the existing contract following and as a result of such amendment, modification or renewal, is or would exceed twenty-four months, or (ii) enter into, modify, amend or renew any contract or agreement to which the Company or any Company Subsidiary is a party (or waive, release or assign any material rights or claims therein) if the dollar amount of such new contract or agreement, or the existing contract or agreement following and as a result of such amendment, modification or renewal is or would be in excess of $10,000,000, except, in the case of clauses (i) and (ii) above, for (A) contracts entered into in the ordinary course of business consistent with past practice if such contracts relate to the sale of energy to firm wholesale and retail customers, the sale of transmission capacity, or the purchase of limestone, coal, gas or oil, (B) contracts for acquisitions if such contracts would be permitted under Section 5.1(a)(iv), contracts for sales, leases or dispositions if such contracts would be permitted under Section 5.1(a)(vii), contracts for incurrences of indebtedness if such incurrences would be permitted under Section 5.1(a)(viii), contracts for capital expenditures if such contracts would be permitted under Section 5.1(a)(ix) or Section 6.3(f) and contracts to buy or sell energy, energy futures or forward contracts or energy transportation futures or forward contracts, or options on any of the foregoing, if such contracts would be permitted under Section 5.1(m), and (C) contracts required by Law. (e) Insurance. The Company shall, and shall cause each Company Subsidiary to, self-insure in accordance with customary industry practices or maintain with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary in all material respects for companies engaged in the electric and gas utility industry and employing such methods of generating electric power and fuel sources similar to the methods employed and fuels used by the Company or the Company Subsidiaries. (f) Permits. The Company shall, and shall cause each Company Subsidiary to, use reasonable best efforts to maintain in effect all existing governmental permits which are material to the operations of the Company or any of the Company Subsidiaries. (g) Discharge of Liabilities. The Company shall not, and the Company shall not permit any Company Subsidiary to, pay, discharge, settle, compromise or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) material to the Company and the Company Subsidiaries, taken as a whole, other than any such payment, discharge, settlement, compromise or satisfaction (i) of the applicable claim, liability or obligation in accordance with its terms or, (ii) in the ordinary course of business consistent with past practice (which includes the payment of final and unappealable judgments), of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements or the notes thereto of the Company SEC Documents filed prior to the date hereof, or incurred in the ordinary course of business consistent with past practice. (h) Staffing. Except as set forth in Sections 5.1(i) and 5.1(l) of the Company Disclosure Schedule, the Company shall not, and shall not permit any the Company Subsidiary to, make any increase in staffing levels over those in effect on the date hereof other than increases in staffing levels such that the aggregate number of employees of Entity I is no greater than 1900 and the aggregate number of employees of the Company and the Company Subsidiaries (other than Entity I) is no greater than 100. (i) Tax-Exempt Status. The Company shall not, nor shall the Company permit any Company Subsidiary to, take any action that, to the knowledge of the Company would likely jeopardize the qualification of any material amount of the Company's outstanding revenue bonds which qualify as of the date of this Agreement under Section 142(a) of the Code as "exempt facility bonds" or as tax-exempt industrial development bonds under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the Tax Reform Act of 1986. (j) WARN Act. The Company shall not take any action that would give rise to a claim under the WARN Act or any similar state law or regulation because of a "plant closing" or "mass layoff" (each as defined in the WARN Act). (k) New Lines of Business. Except as disclosed in Section 5.1(l) of the Company Disclosure Schedule, the Company shall not, nor shall the Company permit any Company Subsidiary to, enter into a new line of business or make any change in the line of business in which it engages as of the date of this Agreement, except that the Company may establish a new wholly owned Subsidiary to take over the operation and maintenance of a steam plant, as disclosed on Section 5.1(l) of the Company Disclosure Schedule, but shall not in connection therewith hire any personnel. (l) Hedging. Except as set forth in Section 5.1(m) of the Company Disclosure Schedule, the Company shall not, and shall not permit any Company Subsidiary to, buy or sell any energy futures or forward contracts or energy transportation futures or forward contracts, or options on any of the foregoing, other than as incidental to the business of generating, purchasing and selling energy to firm wholesale and retail customers and other than sales of transmission capacity as required by law. (m) Other Actions. The Company and Parent shall not, and shall not permit any of their respective Subsidiaries to, take any action that would, or that would reasonably be expected to, result in (i) any of the representations and warranties of such party set forth in this Agreement that is qualified as to materiality becoming untrue, (ii) any of such representations and warranties that is not so qualified becoming untrue in any material respect, or (iii) except as otherwise permitted by Section 5.2, any condition to the Exchange set forth in Article VII not being satisfied. Section 5.2 No Solicitations. (a) From and after the date hereof, (i) the Company will not, and will not authorize or permit any of its Representatives to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing information) or take any other action knowingly to facilitate any inquiries or the making of any proposal which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as defined in Section 5.2(b)) from any person, or engage in any discussion or negotiations relating thereto and (ii) neither the Company Board nor any committee thereof shall (A) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the approval or recommendation by the Company Board or such committee of the Exchange or this Agreement, (B) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal, or (C) cause the Company or any Company Subsidiary to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, an "Acquisition Agreement") related to any Acquisition Proposal; provided, however, that the Company may, at any time prior to receipt of the Company Shareholders' Approval (the "Company Applicable Period"), (i) in response to an Acquisition Proposal which was not solicited by it or its Representatives and which did not otherwise result from a breach of this Section 5.2, if the Company Board reasonably believes in good faith, after consultation with its financial advisors, that an Acquisition Proposal could reasonably lead to a transaction meeting the requirements of a Superior Proposal (as defined in Section 5.2(b)), and subject to providing Parent with prior written notice of its decision to take such action (the "Company Notice") and compliance with Section 5.2(c), (1) furnish information with respect to the Company and the Company Subsidiaries to any person making such Acquisition Proposal (pursuant to a customary confidentiality agreement) and (2) participate in discussions or negotiations regarding such Acquisition Proposal, (ii) comply with Rule 14e-2 promulgated under the Exchange Act with regard to a tender or exchange offer (provided that, except in connection with a termination of this Agreement pursuant to clause (iii) of this proviso, neither the Company nor the Company Board nor any committee thereof shall withdraw or modify, or propose publicly to withdraw or modify, its position with respect to this Agreement or the Exchange or approve or recommend, or propose publicly to approve or recommend, an Acquisition Proposal), and/or (iii) in the event that during the Company Applicable Period the Company Board reasonably believes in good faith, after consultation with its financial advisors and outside counsel, that it has received an Acquisition Proposal that constitutes a Superior Proposal, by action of the Company Board (subject to this sentence and Section 8.1(d)(ii)), the Company may terminate this Agreement (and, following the exercise of such termination right, the Company Board may withdraw or modify in any adverse manner its approval or recommendation of this Agreement or the Exchange, and approve or recommend any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any such Company Subsidiary, other than the transactions contemplated by this Agreement), but only at a time that is during the Company Applicable Period and is after the third business day following Parent's receipt of written notice advising Parent that the Company Board is prepared to accept a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal. The Company shall immediately cease and terminate any existing solicitation, initiation, encouragement, activity, discussion or negotiation with any persons conducted heretofore by the Company or its Representatives with respect to any of the foregoing. (b) As used herein, (i) "Acquisition Proposal" shall mean any inquiry, proposal or offer from any person relating to any direct or indirect acquisition or purchase of a business (a "Material Business") that constitutes 15% or more of the net revenues, net income or the assets (including equity securities) of the Company and the Company Subsidiaries, taken as a whole, or 15% or more of any class of voting securities of the Company or any Company Subsidiary owning, operating or controlling a Material Business, any tender offer or exchange offer that if consummated would result in any person beneficially owning 15% or more of any class of voting securities of the Company or any such Company Subsidiary, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any such Company Subsidiary, other than the transactions contemplated by this Agreement; provided, however, that no transaction permitted pursuant to Section 5.1(a)(vii) or a transaction contemplated in Section 6.14 shall be deemed an Acquisition Proposal for any purpose, (ii) a "Superior Proposal" shall mean any proposal made by a third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction, more than 50% of the combined voting power of the shares of the Company Common Stock then outstanding or all or substantially all the assets of the Company which the Company Board determines in its good faith judgment, after consultation with its financial advisors and outside counsel, to be clearly and materially more favorable to the Company's shareholders (taking into account any changes to the financial terms of this Agreement proposed by Parent in response to such proposal and all financial and commercial considerations, including relevant regulatory and other aspects of the proposal and the third party making such proposal and the conditions and the prospects for completion of such proposal, and any changes to this Agreement proposed by Parent in response to such proposal) than the Exchange and the other transactions contemplated by this Agreement, and (iii) "Representative" shall mean any officer, director, employee, financial advisor, investment banker, attorney, accountant, agent, consultant or other representative of the Company or Company Subsidiaries. (c) The Company shall promptly advise Parent orally and in writing of the receipt of any Acquisition Proposal or Superior Proposal and of the receipt of any inquiry with respect to or which the Company reasonably believes could lead to any Acquisition Proposal or Superior Proposal. The Company shall promptly advise Parent orally and in writing of the identity of the person making any such Acquisition Proposal or Superior Proposal or inquiry and of the material terms of any such Acquisition Proposal or Superior Proposal and of any material changes thereto. Section 5.3 Conduct of Business by Parent. Except for matters set forth in the Parent Disclosure Schedule or otherwise contemplated by this Agreement, from the date of this Agreement to the Effective Time or earlier termination of this Agreement, Parent shall conduct its business in the usual, regular and ordinary course in substantially the same manner as previously conducted and use all reasonable efforts to preserve intact, its current business organization, keep available the services of its current officers and employees and keep its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them, including regulators, to the end that its goodwill and ongoing business shall be unimpaired at the Effective Time. In addition, and without limiting the generality of the foregoing, except for matters set forth in Section 5.3 of the Parent Disclosure Schedule, or as otherwise required by Law (including Environmental Law), or otherwise contemplated by this Agreement, from the date of this Agreement to the Effective Time, Parent shall not do any of the following: (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock; or (ii) amend the Parent Charter or the Parent By-laws in a manner that adversely would affect the rights of the holders of Parent Common Stock. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Preparation of Joint Registration/Proxy Statement; Shareholders Meeting. (a) As soon as possible after the date of this Agreement, (i) the Company shall prepare and file with the SEC the Proxy Statement and (ii) Parent shall prepare and file with the SEC a registration statement on Form S-4 (together with all amendments thereto, the "Registration Statement") in which the Proxy Statement shall be included as a prospectus (the "Prospectus"), in connection with the registration under the Securities Act of shares of Parent Common Stock to be issued in the Exchange. The parties shall cooperate and consult with each other in the preparation of the Proxy Statement and the Prospectus (together, the "Joint Registration/Proxy Statement"). Parent shall have the lead drafting role with respect to the preparation of the Joint Registration/Proxy Statement. Each of the Company and Parent shall use its reasonable best efforts to respond as promptly as practicable to any comments of the SEC with respect thereto. Each party shall notify the other promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Joint Registration/Proxy Statement or for additional information and shall supply the other with copies of all correspondence between such party or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Joint Registration/Proxy Statement. If at any time prior to the Effective Time, there shall occur any event with respect to Parent or the Company that should be set forth in an amendment or supplement to the Joint Registration/Proxy Statement, Parent or the Company, as the case may be, shall promptly notify the other, and Parent and the Company shall cooperate in preparing and mailing to the Company's shareholders such an amendment or supplement. The Company shall not mail any Joint Registration/Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. The Company shall, as soon as practicable after the date of this Agreement, (i) distribute to its shareholders the Joint Registration/Proxy Statement as promptly as practicable after filing with the SEC in accordance with applicable federal and state law and with the Company Charter and the Company By-laws; (ii) duly call, give notice of, convene and hold a meeting of its shareholders (the "Company Shareholders Meeting") for the purpose of seeking the Company Shareholder Approval; (iii) subject to compliance with Section 5.2, recommend to its shareholders the approval of the Exchange, this Agreement and the transactions contemplated hereby, and (iv) cooperate and consult with Parent with respect to each of the foregoing matters. Each of the parties shall use its respective best efforts to take such steps as are necessary to hold the Company Shareholders Meeting within ninety days of the date of this Agreement. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to this Section 6.1 shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any Acquisition Proposal. (b) Each of the parties hereto shall furnish all information concerning itself which is required as customary for inclusion in the Joint Registration/Proxy Statement. The information provided by any party for use in the Joint Registration/Proxy Statement shall be true and correct in all material respects without omission of any material fact which is required to make such information not false or misleading. The Joint Registration/Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that as of the date the Joint Registration/Proxy Statement is declared effective, no representation, covenant or agreement is made by any party with respect to information supplied by the other party for inclusion in the Joint Registration/Proxy Statement. Section 6.2 Access to Information; Confidentiality. Each party shall, and shall cause each of its Subsidiaries to, afford to the other party, and, at the other party's request, to the other party's officers, directors, employees, accountants, counsel, financial advisors and other representatives, (i) reasonable access during normal business hours during the period prior to the Effective Time to all its respective properties (including access to its facilities, office space and information system), books, contracts, commitments, personnel and records, budgets, forecasts and other information (including, but not limited to Tax Returns) and, during such period, each party shall, and shall cause each of its Subsidiaries to, except as prohibited by law, furnish promptly to the other party (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws, or filed with or sent to the SEC, the FERC, the public utility commission of any state, (ii) reasonable access to all information concerning the Company, the Company Subsidiaries, directors, officers and shareholders, properties, facilities or operations owned, operated or otherwise controlled by the Company, (iii) such additional information relating to Taxes as either party shall from time to time reasonably request (or, where applicable, to cooperate with Parent in collecting such information), including, with respect to the Company, information relating to (a) Tax basis of the stock of the Company Subsidiaries, (b) earnings and profits, (c) material Tax elections, (d) net operating loss carryovers and Tax credit carryovers, (e) intercompany transactions, (f) reconciliation of book and Tax items, (g) the rollout of any deferred Tax items, (h) ongoing audits (including copies of any IRS 4564 or other similar information document requests), and (i) the Tax years for which examinations have been completed, are being conducted, and have not yet been initiated and (iv) with respect to the Company, reasonable office space and equipment at the Company's headquarters for the purposes of designing a transition plan in conjunction with the Company's Representatives. All information exchanged pursuant to this Section 6.2 shall be subject to the confidentiality agreements dated April 24, 2000, and July 5, 2000, between the Company and Parent (together the "Confidentiality Agreement"). Section 6.3 Reasonable Efforts; Notification; Filings. (a) Upon the terms and subject to the conditions set forth in this Agreement, unless and to the extent permitted by Section 5.2, the Company Board approves or recommends a Superior Proposal, each of the parties shall use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Exchange including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings, including filings with Governmental Entities (including complying with the filing and approval requirements of the FERC, the SEC Exemption Order, the SEC Approval Order and the certification from the Indiana Utility Regulatory Commission (the "IURC") addressed to the SEC pursuant to Section 33(a)(2) of PUHCA (the "Indiana Certification") substantially in the form as attached as Exhibit C hereto or in a form otherwise reasonably satisfactory to Parent), and the taking of all reasonable steps as may be necessary to obtain the Company Required Consents, the Parent Required Consents and an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity and that may be necessary to consummate the transactions contemplated hereby, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Exchange, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (iv) the execution and delivery of any additional instruments necessary to consummate the Exchange and to fully carry out the purposes of this Agreement. (b) Each party hereto shall file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed under the HSR Act, and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. (c) Parent and the Company will use commercially reasonable efforts to coordinate such filings and any responses thereto, to make such filings promptly and to respond promptly to any requests for additional information made by either of such agencies. Parent and the Company agree that they will consult with each other with respect to the obtaining of all such necessary or advisable permits, consents, approvals and authorizations of Governmental Entities; provided, however, that it is agreed that (x) the Company shall have primary responsibility for the preparation and filing of any applications with or notifications to applicable Indiana regulatory authorities and (y) Parent shall have primary responsibility for the preparation and filing of any applications with or notifications to applicable state regulatory authorities for states other than Indiana and applicable federal regulatory authorities for approval of the Exchange. Each of Parent and the Company shall have the right to review and approve in advance drafts of all such necessary applications, notices, petitions, filings and other documents made or prepared in connection with the transactions contemplated by this Agreement, which approval shall not be unreasonably withheld or delayed. In connection with and without limiting the foregoing, the Company and the Company Board shall (i) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Exchange or this Agreement and (ii) if any state takeover statute or similar statute or regulation becomes applicable to this Agreement, take all action necessary to ensure that the Exchange may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Exchange. Nothing in this Agreement shall be deemed to require any party to waive any substantial rights or agree to any substantial limitation on its operations or to dispose of any significant asset or collection of assets. Notwithstanding the foregoing, the Company and its Representatives shall not be prohibited under this Section 6.3 from taking any action permitted by Section 5.2. (d) The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement, and (iii) any change or event which, individually or in the aggregate, has had or would have a Company Material Adverse Effect; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (e) Parent agrees that, prior to the Closing, Parent shall not, and shall cause its Subsidiaries not to, acquire significant electric generation assets of clearly sufficient magnitude in the relevant market, for purposes of FERC's analysis of the Exchange, so as to directly and significantly impair the ability of the parties to obtain the Required Approval (as defined in Section 7.1(d)). (f) Parent and the Company shall use their reasonable best efforts to develop jointly by no later than October 15, 2000, a plan for the Company to comply with emission limits that may be imposed as a result of the United States Environmental Protection Agency's NOx SIP Call, which plan may include capital expenditure outlays in addition to those contemplated by this Agreement and the Company Disclosure Schedule. The Company may make any such capital expenditures in accordance with such plan. Section 6.4 Employee Benefit Plans. (a) Parent shall cause individuals who were employed by the Company or any Company Subsidiary immediately before the Effective Time and who continue employment with the Company or such Company Subsidiary after the Effective Time ("Covered Employees") to be provided employee benefits that are substantially equivalent in the aggregate, at Parent's discretion, to either (i) those provided under the Company Benefit Plans immediately before the Effective Time, or (ii) those provided by Parent or its Subsidiaries to their similarly situated employees from time to time; provided, however, that nothing contained herein shall be construed as requiring Parent or the Company after the Closing to continue any specific plan or as preventing Parent or the Company after the Closing from establishing and, if necessary, seeking shareholder approval to establish, any other benefit plans in respect of all or any Covered Employee or any other employee, or amending the Company Benefit Plans. After the Closing, Parent does not intend to offer compensation plans to officers of the Company and its Subsidiaries that are comparable to those historically available to such persons. (b) Parent shall credit, or cause to be credited, to the Covered Employees all service with the Company and/or its Subsidiaries (and all service credited to such Covered Employees by the Company and/or its Subsidiaries or under the Company Benefit Plans) for all purposes, under any and all benefit plans, programs or arrangements in which the Covered Employees may participate or from which the Covered Employees may receive benefits from and after the Effective Time, to the same extent as if rendered to Parent, the Company or any of their Subsidiaries, provided that no such service credited shall require the Company and/or its Subsidiaries to provide for duplication of benefits. Parent shall cause to be waived any waiting period or pre-existing condition limitation under its (or, after the Closing, the Company's or their Subsidiaries') welfare plans that might otherwise apply to any Covered Employee (to the extent that such Covered Employee was not affected by the waiting period or pre-existing condition limitation under the applicable Company Benefit Plans as of the Effective Time). Parent agrees to recognize, or cause to be recognized, the dollar amount of all expenses incurred by the Covered Employees during the calendar year in which the Effective Time occurs for purposes of satisfying such calendar year deductibles and co-payments limitations under the Company Benefit Plans and/or any relevant benefit plans, programs or arrangements of Parent, the Company or their Subsidiaries. (c) From and after the Effective Time, Parent shall and shall cause the Company to honor, in accordance with its express terms, each then existing employment, change of control, severance and termination agreement between the Company or any of its Subsidiaries and an officer, director or employee of such Company or Subsidiary. Section 6.5 Directors' and Officers' Indemnification and Insurance. (a) From and after the Effective Time, Parent and the Company shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, a director or officer of the Company or any of its Subsidiaries (the "Indemnified Parties") against all losses, claims, damages, costs and expenses (including reasonable attorneys' fees), liabilities, judgments and, subject to the proviso of this sentence, settlement amounts that are paid or incurred in connection with any claim, action, suit, proceeding or investigation (whether civil, criminal, administrative or investigative and whether asserted or claimed prior to, at or after the Effective Time) that is (i) based on, or arises out of, the fact that such Indemnified Party is or was a director or officer of the Company or any of its Subsidiaries, and (ii) based on, or arising out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case to the fullest extent a corporation is permitted under applicable law to indemnify its own directors or officers, as the case may be ("Indemnified Liabilities"); provided, however, that neither Parent nor the Company shall be liable for any settlement of any claim effected without its written consent. Without limiting the foregoing, in the event that any such claim, action, suit, proceeding or investigation is brought against any Indemnified Party (whether arising prior to or after the Effective Time), (w) the Company following the Effective Time will pay expenses of the final disposition of any such claim, action, suit, proceeding or investigation to each Indemnified Party to the full extent permitted by applicable law promptly after statements therefor are received and otherwise advance to such Indemnified Party upon request reimbursement of documented expenses reasonably incurred, in either case to the extent not prohibited by the BCL; provided, however, that the person to whom expenses are advanced provides any undertaking required by applicable law to repay such advance if it is ultimately determined that such person is not entitled to indemnification; (x) the Indemnified Parties shall retain counsel reasonably satisfactory to the Company; (y) the Company following the Effective Time shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties (subject to the final sentence of this paragraph) promptly as statements therefor are received; and (z) the Company following the Effective Time shall use all commercially reasonable efforts to assist in the defense of any such matter. In the event of any dispute as to whether an Indemnified Party's conduct complies with the standards set forth under the BCL and the Company Charter or Company By-laws, a determination shall be made by independent counsel mutually acceptable to the Company following the Effective Time and the Indemnified Party (the "Independent Counsel"); provided, however, that the Company following the Effective Time shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld). The Indemnified Parties as a group seeking indemnification with respect to the same or a substantially related matter may retain only one law firm with respect to such matter except to the extent that under applicable standards of professional conduct, such counsel would have conflict representing such Indemnified Party and any other Indemnified Party or Indemnified Parties. (b) Except to the extent required by Law, the Company following the Effective Time shall not take any action so as to amend, modify, limit or repeal the provisions for indemnification of Indemnified Parties contained in the certificates or articles of incorporation or by-laws (or other comparable charter documents) of the Company following the Effective Time and its Subsidiaries (which as of the Effective Time shall be no more favorable to such individuals than those maintained by the Company and its Subsidiaries on the date hereof) in such a manner as would adversely affect the rights of any Indemnified Party to be indemnified by such corporations in respect of their serving in such capacities prior to the Effective Time. The Company following the Effective Time shall honor all of its indemnification obligations existing as of the Effective Time. (c) For a period of six years after the Effective Time, the Company shall cause to be maintained in effect policies of directors' and officers' liability insurance maintained by the Company as of the date of this Agreement; provided, however, that the Company may substitute therefor policies of at least the same coverage containing terms that are no less advantageous with respect to matters occurring prior to or at the Effective Time to the extent such liability insurance can be maintained annually at a cost to the Company not greater than 300% for annual premiums for such directors' and officers' liability insurance, which existing premium costs are set forth in Section 6.5(c) of the Company Disclosure Schedule; provided, further, that if such insurance cannot be so maintained or obtained at such cost, the Company shall maintain or obtain as much of such insurance as can be so maintained or obtained at a cost equal to 300% of the current annual premiums of Company for its directors' and officers' liability insurance. (d) The provisions of this Section are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and each party entitled to insurance coverage under Section 6.5(c), respectively, and his or her heirs and legal representatives, and shall be in addition to, and shall not impair, any other rights an Indemnified Party may have under the Company Charter or the comparable organization documents of the Company or any of its Subsidiaries, under the BCL or otherwise. Section 6.6 Expenses. Except as provided in Article VIII, all fees and expenses incurred in connection with the Exchange shall be paid by the party incurring such fees or expenses, whether or not the Exchange is consummated. Section 6.7 Public Announcements. Parent and the Company shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the Exchange and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange. Section 6.8 Transfer Taxes. Subject to Section 2.3(b), all stock transfer, real estate transfer, documentary, stamp, recording and other similar Taxes (including interest, penalties and additions to any such Taxes) ("Transfer Taxes") incurred in connection with the Exchange shall be paid by the Company, and the Company shall cooperate with Parent in preparing, executing and filing any Tax Returns with respect to such Transfer Taxes. In no case will Parent pay directly or indirectly any Transfer Tax incurred in connection with the Exchange. Section 6.9 Restructuring. Parent shall file an application with the SEC which commits Parent, if required by a regulatory order of the SEC, to enter into an agreement with a third party within three years of the Effective Time to divest its ownership interest in the PUHCA jurisdictional business of Entity C or comply with such other conditions as may be imposed by the SEC; provided, however, that Parent shall not be required to comply with any such condition that Parent reasonably believes would have a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby. Section 6.10 Rights Agreement; Consequences if Rights Triggered. The Company Board shall take all action requested in writing by Parent in order to render the Company Rights inapplicable to the Exchange. Except as approved in writing by Parent, the Company Board shall not (i) amend the Company Rights Agreement, (ii) redeem the Company Rights or (iii) take any action with respect to, or make any determination under, the Company Rights Agreement, except for any of the foregoing actions which the Company Board, after consultation with outside counsel, determines in good faith is required for the Company Board to comply with its fiduciary duties imposed by law. If any Distribution Date, Share Acquisition Date or Triggering Event occurs under the Company Rights Agreement at any time during the period from the date of this Agreement to the Effective Time, the Company and Parent shall make such adjustment to the Exchange Consideration as the Company and Parent shall mutually agree so as to preserve the economic benefits that the Company and Parent each reasonably expected on the date of this Agreement to receive as a result of the consummation of the Exchange. Section 6.11 Conduct of Business of Parent. Except as may be required by applicable law or as contemplated by Section 6.9, Parent and any Subsidiary of Parent shall not engage in any activities (including allowing or causing a change in the equity or other ownership of Parent) which would cause a change in Parent's or any equity owner's or affiliate's status under PUHCA or that would impair the ability of the Company, Parent, any Subsidiary of Parent or any equity owner or affiliate of Parent to claim any exemption under PUHCA or subject Parent, any Subsidiary of Parent or any equity owner or affiliate of Parent to regulation under PUHCA (other than Section 9(a)(2) or as an exempt holding company under PUHCA) following the Exchange or acquire such voting securities in a "public utility company" as defined under Section 2(a)(5) of PUHCA so as to become an affiliate of such public utility company within the meaning of Section 2(a)(11) of PUHCA. Section 6.12 Certain Employee Matters; Headquarters. (a) After the Closing, Parent will make available to employees of the Company employment opportunities within the domestic and international Parent group substantially equivalent to opportunities as are made available to other employees of Parent and its Subsidiaries. (b) After the Closing, the Company shall, and shall cause Entity I to, maintain for a period of at least three years following the Effective Time (i) its corporate headquarters in Indianapolis, Indiana, (ii) the name of Entity I and (iii) local decision-making authority. Section 6.13 Charitable Giving. After the Closing, Parent shall cause the Company to maintain a commitment to local social responsibility, community involvement and charitable giving at its current levels in accordance with its current practices. Section 6.14 Asset Sale. The Company shall use commercially reasonable efforts to take all actions necessary, including obtaining the required regulatory approvals, to sell (i) Cleveland District Cooling Corporation, Cleveland Thermal Energy Corporation, Mid America Energy Resources and Indianapolis Campus Energy, or the assets of each, each a direct or indirect Subsidiary of Mid America Capital Resources, and (ii) the steam generating and steam distribution assets of Entity I, prior to the Effective Time on terms and conditions reasonably acceptable to Parent. The terms and conditions of the Asset Sales Agreements, dated as of March 21, 2000, between the Company and Citizens Gas & Coke Utility are acceptable to Parent. Section 6.15 Tax Treatment. Parent and the Company intend that the Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Code. Parent and the Company shall each use reasonable efforts to cause the Exchange to qualify, and shall not knowingly take actions or cause actions to be taken that could reasonably be expected to prevent the Exchange from qualifying as a reorganization within the meaning of Section 368(a) of the Code. Section 6.16 Regional Transmission Organization. The Company shall not, and shall cause its Subsidiaries not to, join any regional transmission organization unless required by applicable law, otherwise consented to by Parent or necessary to avoid a Company Material Adverse Effect. Section 6.17 Pooling-of-Interest. The Company shall use its reasonable best efforts, and shall cause each of its Subsidiaries to use its reasonable best efforts, to take such actions as may be necessary to permit the parties to account for the Exchange, and shall not permit any of its Subsidiaries to take any actions that would, or would be reasonably likely to, prevent the parties from accounting for the Exchange, as a pooling-of-interests in accordance with GAAP and applicable SEC regulations. This section shall be null and void in the event (i) Parent determines to not seek such accounting treatment for the Exchange or (ii) Parent determines that such accounting treatment is not available, and, in either event Parent shall promptly notify the Company. Section 6.18 Affiliate Letters. Each party shall identify in a letter to the other all persons who are, as of the Closing Date, "affiliates" of such party as such term is used in Rule 145 under the Securities Act. Each party shall use reasonable best efforts to cause its respective affiliates to deliver to the other party on or prior to the Closing Date a written agreement substantially in the form attached as Exhibit D. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation to Effect the Exchange. The respective obligation of each party to effect the Exchange is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Shareholder Approval. The Company shall have obtained the Company Shareholder Approval. (b) Antitrust. The waiting period (and any extension thereof) applicable to the Exchange under the HSR Act shall have been terminated or shall have expired. Any consents, approvals and filings under any foreign antitrust Law, the absence of which would prohibit the consummation of Exchange, shall have been obtained or made. (c) No Injunctions or Restraints. No judgment, decree, statute, law, ordinance, rule, regulation, temporary restraining order, preliminary or permanent injunctions or other order enacted, entered, promulgated, enforced or issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Exchange shall be in effect; provided, however, that prior to asserting this condition, subject to Section 6.3, each of the parties shall have used all reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as possible any such judgment that may be entered. (d) FERC Approval. A Final Order of the FERC under the Power Act approving the disposition by the Company of facilities subject to the jurisdiction of the FERC (the "Required Approval") shall have been obtained. Parent shall reasonably believe that such Required Approval would not have a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby; provided, however, that neither of the following shall be deemed to have a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby: (i) any condition that affects the rates, terms or conditions of existing or future power sales transactions between Entity I or Parent or any Subsidiary of Parent (including Entity C), or which imposes a code of conduct on Entity I or Parent or any Subsidiary of Parent (including Entity C) similar to that imposed by FERC on regulated public utilities and their power marketer affiliates, or (ii) a condition that requires Entity I or Parent or any Subsidiary of Parent (including Entity C) to join a regional transmission organization. A "Final Order" means an action by the relevant Governmental Entity that has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by applicable law before the transactions contemplated hereby may be consummated has expired or been terminated, and as to which all conditions to the consummation of such transactions prescribed by applicable law, regulation or order have been satisfied. (e) Consents and Approvals. All consents, approvals and authorizations shall have been obtained from all Governmental Entities except for the approvals and authorizations contemplated by Sections 7.1(d), 7.2(e) and 7.2(i), except where the failure to obtain any such consents, approvals and authorizations would not cause a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby. (f) Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and no stop order suspending such effectiveness shall have been issued and remain in effect. (g) Listing of Shares. The shares of Parent Common Stock issuable pursuant to Article II shall have been approved for listing on the NYSE upon official notice of issuance. Section 7.2 Conditions to Obligation of Parent. The obligation of Parent to effect the Exchange is further subject to the following conditions: (a) Representations and Warranties. The representations and warranties of the Company in this Agreement that are qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date). Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. (c) Absence of a Company Material Adverse Effect. Except as disclosed in Section 7.2(c) of the Company Disclosure Schedule, since the date of this Agreement there shall not have been any event, change, effect or development that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect. (d) Company Required Consents. The Company Required Consents shall have been obtained. (e) PUHCA Exemption, Section 9(a)(2) Approval. The SEC shall have issued an order (i) granting Parent an exemption from registration as a holding company under PUHCA pursuant to Section 3(a)(5) of PUHCA (the "SEC Exemption Order"), and (ii) approving the Exchange under Section 9(a)(2) of PUHCA (the "SEC Approval Order"), and each such order shall be in full force and effect on the Closing Date. Parent shall be reasonably satisfied that neither the SEC Exemption Order nor the SEC Approval Order shall have a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby. (f) Closing Certificates. Parent shall have received a certificate signed by an executive officer of the Company, dated the Closing Date, to the effect that, to the best of such officer's knowledge, the conditions set forth in Sections 7.2(a), (b), (c), (d), (h) and (i) have been satisfied. (g) Parent Required Consents. The Parent Required Consents shall have been obtained. (h) Trigger of the Company Rights. No event has occurred or could occur pursuant to this Agreement or otherwise that would result in the triggering of any right or entitlement of the Company shareholders under the Company Rights Agreement, including a "flip-in" or "flip-over" or similar event commonly described in such rights plans which, in the reasonable judgment of Parent, would have or be reasonably likely to result in a Company Material Adverse Effect or materially change the number of outstanding equity securities of the Company, and the Company Rights shall not have become nonredeemable by the Company Board. (i) Indiana Utility Regulatory Commission. (i) The IURC shall have issued the Indiana Certification, (ii) any order of, approval by or result of any filing, hearing, proceeding, investigation or notice with, or required by the IURC, or any other Indiana state authority, does not have a Regulatory Adverse Effect (as defined below), (iii) no hearing, proceeding or investigation shall have been conducted or shall be currently pending before the IURC, or any other Indiana state authority, that was initiated by the IURC, or any other Indiana state authority, the outcome of which is reasonably likely to result in a Regulatory Adverse Effect, and (iv) no hearing, proceeding or investigation shall have been conducted or shall be currently pending before the IURC, or any other Indiana state authority, which was initiated by a party other than the IURC, or any other Indiana state authority, and the outcome of which is reasonably likely to result in a Regulatory Adverse Effect. For purposes of this Agreement, a "Regulatory Adverse Effect" shall mean an effect that is reasonably likely to have a Company Material Adverse Effect or an adverse effect on Parent which is material in the context of the transactions contemplated hereby. (j) Tax Opinion. Parent shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to Parent, dated as of the Closing Date, and in form and substance reasonably satisfactory to Parent to the effect that the Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Code. The issuance of such opinion shall be conditioned upon the receipt by such special tax counsel of customary representation letters dated as of the Closing Date from each of Parent and the Company, in each case, in substantially the form and substance attached hereto as Exhibit A and Exhibit B and in form and substance reasonably satisfactory to such counsel, which letters shall not have been modified or withdrawn. The opinion referred to in this Section 7.2(j) shall not be waivable after receipt of the Company Shareholder Approval referred to in Section 7.1(a), unless further shareholder approval is obtained with appropriate disclosure. (k) Director Resignations. Parent shall have received duly executed resignation letters from each of the directors of the Company in accordance with Section 1.6. Section 7.3 Conditions to Obligation of the Company. The obligation of the Company to effect the Exchange is further subject to the following conditions: (a) Representations and Warranties. The representations and warranties of Parent in this Agreement that are qualified as to materiality shall be true and correct and those not so qualified shall be true and correct in all material respects, as of the date of this Agreement and as of the Closing Date as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, on and as of such earlier date). The Company shall have received a certificate on behalf of Parent executed by its chief executive officer to such effect. (b) Performance of Obligations of Parent. Parent shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent executed by its chief executive officer to such effect. (c) Closing Certificates. The Company shall have received a certificate signed by an executive officer of Parent, dated the Closing Date, to the effect that, to the best of such officer's knowledge, the conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied. (d) Tax Opinion. The Company shall have received an opinion of Cravath, Swaine & Moore, special tax counsel to the Company, dated as of the Closing Date, and in form and substance reasonably satisfactory to the Company to the effect that the Exchange will qualify as a reorganization within the meaning of Section 368(a) of the Code. The issuance of such opinion shall be conditioned upon the receipt by such special tax counsel of customary representation letters dated as of the Closing Date from each of Parent and the Company, in each case, in substantially the form and substance attached hereto as Exhibit A and Exhibit B and in form and substance reasonably satisfactory to such counsel, which letters shall not have been modified or withdrawn. The opinion referred to in this Section 7.3(d) shall not be waivable after receipt of the Company Shareholder Approval referred to in Section 7.1(a), unless further shareholder approval is obtained with appropriate disclosure. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of Company Shareholder Approval: (a) without payment of a termination fee by mutual written consent of Parent and the Company; (b) by either Parent or the Company: (i) if the Exchange is not consummated by the fifteen- month anniversary of the date of this Agreement (the "Termination Date") without payment of a termination fee; provided, however that the Termination Date shall automatically be extended for three additional months if any of the conditions set forth in Section 7.1(d), 7.1(e), 7.2(e) or 7.2(i) have not been satisfied; and provided, further, that the failure to consummate the Exchange shall not be the result of a breach of this Agreement by the party seeking to terminate this Agreement; (ii) if, upon a vote at a duly held meeting to obtain the Company Shareholder Approval, the Company Shareholder Approval is not obtained. In the event this Agreement is terminated pursuant to this Section 8.1(b)(ii) and if an Acquisition Proposal has been publicly proposed during the Company Applicable Period and at or within twelve months of the date of the Company Shareholders Meeting, the Company enters into any agreement with respect to such Acquisition Proposal then, within ten business days after the execution of such agreement, the Company shall immediately pay in cash to Parent by wire transfer of same day funds a termination fee in an amount equal to $60 million (the "Acquisition Termination Fee"). In addition, the Company shall reimburse Parent of up to $10 million in reasonable fees and expenses incurred by Parent in connection with the transactions contemplated hereby from June 22, 2000, which fees and expenses shall be documented and which documentation shall be provided to the Company (the "Parent Expenses"); and (iii) if any court of competent jurisdiction or other competent Governmental Entity shall have issued an order, which has the effect as supported by the written opinion of outside counsel, of making illegal or otherwise restricting, preventing or prohibiting the Exchange and such order shall have become final and nonappealable. (c) by Parent under any of the following circumstances: (i) by written notice to the Company, if (x) there shall have been a material breach of this Agreement by the Company or (y) there shall have been a wilful breach of this Agreement by the Company and such breaches, described in clauses (x) and (y) hereof shall not have been remedied within thirty days after receipt by the Company of notice in writing from Parent, specifying the nature of such breach and requesting that it be remedied; provided, however, that the Company shall not be entitled to expend more than $10 million to cure any and all such breaches without the prior written approval of Parent or (z) if the Company Board (or any committee thereof) (A) shall have withdrawn or modified in a manner adverse to Parent its approval or recommendation of this Agreement and the transactions contemplated hereby or its recommendation to its shareholders regarding the approval of this Agreement, (B) shall fail to reaffirm such approval or recommendation upon the request of Parent within five full business days of receipt of written request to do so by Parent, (C) shall approve or recommend any Acquisition Proposal or (D) shall resolve to take any of the actions specified in clauses (A), (B) or (C). In the event this Agreement is terminated pursuant to clause (x) of this Section 8.1(c)(i), the Company shall reimburse the Parent Expenses. In the event this Agreement is terminated pursuant to clause (z) of this Section 8.1(c)(i), the Company shall pay Parent a termination fee in an amount equal to $60 million, plus reimbursement of the Parent Expenses. All such payments referred to above shall be made in cash by wire transfer of same day funds within ten business days of such termination notice. (d) by the Company under any of the following circumstances: (i) by written notice to Parent, if (x) there shall have been any material breach of this Agreement by Parent or (y) there shall have been a wilful breach of this Agreement by Parent and such breaches described in clauses (x) and (y) hereof shall not have been remedied within thirty days after receipt by Parent of notice in writing from the Company, specifying the nature of such breach and requesting that it be remedied. In the event this Agreement is terminated pursuant to clause (x) of this Section 8.1(d)(i), Parent shall reimburse the Company up to $10 million in reasonable fees and expenses incurred by the Company in connection with the transactions contemplated hereby from June 22, 2000, which fees and expenses shall be documented and which documentation shall be provided to Parent (the "Company Expenses"); (ii) in accordance with clause (iii) of the proviso to the first sentence of Section 5.2(a), by written notice to Parent; provided that, in order for the termination of this Agreement pursuant to this subparagraph (ii) to be deemed effective, the Company shall have complied with all provisions of Section 5.2. In the event this Agreement is terminated pursuant to this Section 8.1(d)(ii), the Company shall pay Parent within ten days in cash by wire transfer of same day funds a termination fee in an amount equal to the Acquisition Termination Fee. In addition, the Company shall reimburse Parent the Parent Expenses; and (iii) by written notice to Parent, if the Average Trading Price of a share of Parent Common Stock as determined in accordance with Section 2.1(b) multiplied by the Exchange Ratio results in an amount which is less than $21.00. Section 8.2 Effect of Termination. In the event of termination of this Agreement by either the Company or Parent as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent or the Company, other than Section 5.2, the last sentence of Section 6.2, Section 8.1, this Section 8.2, Section 8.3 and Article IX which provisions shall survive such termination; provided, however, that nothing herein shall relieve any party from liability for a wilful breach of its representations, warranties or covenants set forth in this Agreement (including liability of the Company if this Agreement is terminated by Parent under Section 8.1(c)(i)(y) and liability of Parent if this Agreement is terminated by the Company under Section 8.1(d)(i)(y)). Section 8.3 Expenses and Fees. Notwithstanding anything to the contrary contained in this Agreement, if one party fails to promptly pay to the other any fee or expense due under Article VIII, in addition to any amounts paid or payable pursuant to such Section, the party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date such fee was required to be paid. Section 8.4 Amendment. This Agreement may be amended by the Board of Directors of the parties at any time before or after receipt of the Company Shareholder Approval; provided, however, that after receipt of the Company Shareholder Approval, there shall be made no amendment that by Law requires further approval by the shareholders of the Company or Parent, without further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. Section 8.5 Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.4, waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. Section 8.6 Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.1, an amendment of this Agreement pursuant to Section 8.4 or an extension or waiver pursuant to Section 8.5 shall, in order to be effective, require in the case of Parent or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. ARTICLE IX GENERAL PROVISIONS Section 9.1 Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except as otherwise provided in this Agreement. Section 1.4(b) shall survive the Effective Time. Section 9.2 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given upon receipt by the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent, to The AES Corporation 1001 N. 19th Street 20th Floor Arlington, VA 22209 Attention: Paul D. Stinson Vice President Telephone: 603-253-8048 Facsimile: 603-387-6043 with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, DC 20005 Attention: Ronald C. Barusch, Esq. Pankaj K. Sinha, Esq. Telephone: 202-371-7000 Facsimile: 202-393-5760 (b) if to the Company, to IPALCO Enterprises, Inc. One Monument Circle Indianapolis, IN 46204 Attention: Bryan G. Tabler, Esq. Vice President, Secretary and General Counsel Telephone: 317-261-5134 Facsimile: 317-261-8288 with a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019 Attention: Richard Hall, Esq. Telephone: 212-474-1000 Facsimile: 212-474-3700 Section 9.3 Definitions. For purposes of this Agreement: An "Affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person. "Entity C" shall mean Central Illinois Light Company, an indirect Subsidiary of Parent. "Entity I" shall mean Indianapolis Power & Light Company, a direct Subsidiary of the Company. A "Person" means any individual, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. A "Subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. A "Joint Venture" of any person shall mean any corporation or other entity (including partnerships and other business associations and joint ventures) in which such person directly or indirectly owns an equity interest that is less than a majority of any class of the outstanding voting securities or equity of any such entity, other than equity interests held for passive investment purposes which are less than 5% of any class of the outstanding voting securities or equity of any such entity, and the term "Company Joint Venture" shall mean a Joint Venture of the Company. Section 9.4 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 9.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. Section 9.6 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 9.7 Entire Agreement; No Third-Party Beneficiaries. This Agreement, taken together with the Company Disclosure Schedule and the Parent Disclosure Schedule, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the Exchange, other than the Confidentiality Agreement, and, except for the provisions of Article II, Section 6.4(c) and Section 6.5, is not intended to, and shall not, confer upon any person other than the parties any rights, claims or remedies. Section 9.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof and except to the extent the provisions of this Agreement (including the documents or instruments referred to herein) are expressly governed by or derive their authority from the BCL. Section 9.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, except that Parent may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to any direct or indirect wholly owned Subsidiary of Parent, but no such assignment shall relieve Parent of any of its obligations under this Agreement. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 9.10 Enforcement. Each of the parties agrees that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any New York state court or any federal court in the state of New York, this being in addition to any other remedy to which they are entitled at law or at equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York State court in the County of New York in the event any dispute arises out of this Agreement or the Exchange, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (c) agrees that it will not bring any action relating to this Agreement or the Exchange in any court other than any New York state court or any federal court sitting in the State of New York or any New York State court sitting in the County of New York, and (d) waives any right to trial by jury with respect to any action related to or arising out of this Agreement or the Exchange. Section 9.11 Further Assurances. Each party will execute such further documents and instruments and take such further actions as may reasonably be requested by any other party in order to consummate the Exchange in accordance with the terms hereof. IN WITNESS WHEREOF, Parent and the Company have duly executed this Agreement, all as of the date first written above. The AES Corporation By: /s/ Paul Stinson --------------------------------- Name: Paul D. Stinson Title: Vice President IPALCO Enterprises, Inc. By: /s/ John R. Hodowal --------------------------------- Name: John R. Hodowal Title: Chairman of the Board EXHIBIT A [Letterhead of Parent] [Closing Date] Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019-7475 Ladies and Gentlemen: In connection with the opinions to be delivered pursuant to Sections 7.2(j) and 7.3(d) of the Agreement and Plan of Share Exchange (the "Exchange Agreement"), dated as of July 15, 2000, among The AES Corporation, a Delaware corporation ("Parent"), and IPALCO Enterprises, Inc., an Indiana corporation (the "Company"), whereby all the issued and outstanding shares of common stock of the Company will be acquired by Parent in exchange for shares of common stock of the Parent (the "Exchange"), and in connection with the filing with the Securities and Exchange Commission (the "SEC") of the registration statement on Form S-4 (the "Registration Statement"), which includes the Joint Proxy Statement of Parent and the Company, each as amended or supplemented through the date hereof, the undersigned certifies and represents on behalf of the Parent, after due inquiry and investigation, as follows (any capitalized term used but not defined herein having the meaning given to such term in the Exchange Agreement): 1. The facts, representations and covenants relating to the Exchange and related transactions as described in the Exchange Agreement, Registration Statement and the other documents described in the Registration Statement (including all exhibits and attachments thereto) are, insofar as such facts pertain to the Parent, true, correct and complete in all material respects. The Exchange will be consummated in accordance with the Exchange Agreement. 2. The formula set forth in the Exchange Agreement pursuant to which each issued and outstanding share of Company Common Stock will be converted into fully paid and nonassessable shares of Parent Common Stock is the result of arm's length bargaining. 3. The fair market value of the Parent Common Stock received by the shareholders of the Company will be, at the Effective Time, approximately equal to the fair market value of the Company Common Stock surrendered in the Exchange. 4. In the Exchange, all of the Company Common Stock will be exchanged solely for Parent Common Stock (except for cash paid in lieu of fractional shares of Parent Common Stock). The Company has no class of stock outstanding other than the Company Common Stock. No shares or other securities of the Company will be issued to the shareholders of the Company pursuant to the Exchange. For purposes of this representation, any share of the Company Common Stock redeemed or exchanged in the Exchange for cash or other property originating, directly or indirectly, with the Parent or any of its subsidiaries will not be considered as exchanged solely for Parent Common Stock. Further, no liabilities of the Company or any shareholder of the Company will be assumed by the Parent in the Exchange, nor will any of the Company Common Stock acquired by Parent in the Exchange be subject to any liabilities. 5. Following the Exchange, Parent has no plan or intention to sell, transfer or dispose of any stock of the Company or to cause the Company to issue additional shares of its stock that would in either case result in Parent failing to own after the Exchange, directly or indirectly, at least 80 percent of the total combined voting power of all classes of Company stock entitled to vote and at least 80 percent of the total number of shares of all other classes of Company stock. 6. If cash payments are made to holders of Company Common Stock in lieu of fractional shares of Parent Common Stock that would otherwise be issued to such holders in the Exchange, such payments will be made for the purpose of saving Parent the expense and inconvenience of issuing and transferring fractional shares of Parent Common Stock, and will not represent separately bargained for consideration. The total cash consideration that will be paid in the Exchange to holders of Company Common Stock in lieu of fractional shares of Parent Common Stock will not exceed one percent of the total consideration that will be issued in the Exchange to shareholders of Company in exchange for their shares of Company Stock. 7. (i) To the knowledge of Parent, neither the Company nor any corporation related to the Company (as defined in Treasury Regulation Section 1.368- 1(e)) has purchased, exchanged, redeemed, or otherwise acquired or has any plan or intention to purchase, exchange, redeem, or otherwise acquire any Company stock in contemplation of the Exchange, or otherwise as part of a plan of which the Exchange is a part. (ii) Neither Parent nor any corporation related to Parent (as defined in Treasury Regulation Section 1.368-1(e)) has any plan or intent to purchase, exchange, redeem, or otherwise acquire any of the Parent stock issued in the Exchange, either directly or through any transaction, agreement or arrangement with any other person (excluding any fractional shares of the Parent Common Stock exchanged for cash in the Exchange). To the knowledge of Parent, neither the Company nor any corporation related to the Company (as defined in Treasury Regulation Section 1.368- 1(e)) has any plan or intention to purchase, exchange, redeem, or otherwise acquire any of the Parent stock issued in the Exchange, either directly or through any transaction, agreement or arrangement with any other person. For purposes of this representation letter, a person is considered to own or acquire stock owned or acquired (as the case may be) by a partnership in which such person is a partner in proportion to such person's interest in the partnership. 8. The Company has not made, and does not have any plan or intention to make, any distributions prior to, in contemplation of or otherwise in connection with, the Exchange (other than dividends made in the ordinary course of business). 9. Parent has no plan or intention to, following the Exchange, liquidate the Company, merge the Company with or into another corporation in which the Company is not the survivor, sell or otherwise dispose of shares of the Company, cause the Company to distribute to Parent or any of its subsidiaries any assets of the Company or the proceeds of any borrowings incurred by the Company, or cause the Company to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business transfers of assets permitted under Section 368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-1(d) or 1.368-2(k), and the sale of Cleveland District Cooling Corporation, Cleveland Thermal Energy Corporation, Mid America Energy Resources and Indianapolis Campus Energy, or the assets of each, for an amount of cash or other consideration with a fair market value equal to that of the assets sold in exchange therefor. 10. Parent will pay its expenses, if any, incurred in connection with the Exchange. Parent has not paid (directly or indirectly) or agreed to assume any expense or other liability, whether fixed or contingent, of the Company or any of its subsidiaries or any holder of Company Stock. 11. The Company shall pay all transfer taxes attributable to the Exchange out of the Company's own funds (and not out of funds provided, directly or indirectly, by Parent). 12. Except as specifically set forth in Section 3.2 of the Exchange Agreement, immediately prior to the time of the Exchange, the Company will not have outstanding any warrants, options, convertible securities or any other type of right pursuant to which any person could acquire Company stock. Simultaneously with the Exchange, all outstanding warrants, options, convertible securities, and related stock appreciation rights, if any, to purchase or acquire a share of Company stock granted under employee incentive or benefits plans, programs or arrangements and non- employee director plans presently maintained by the Company, together with all other outstanding awards granted under such plans, will be canceled or converted into similar instruments of Parent. Immediately following the Exchange, the only class of Company stock outstanding will be the Company Common Stock held by Parent. 13. Following the Exchange, Parent intends to cause the Company to continue its "historic business" or to use a significant portion of its "historic business assets" in a business (as such terms are defined in Treasury Regulation Section 1.368- 1(d)). To the knowledge of Parent, the Company has not sold, transferred, or otherwise disposed of any of its assets so as to prevent the Parent or members of its "qualified group" from continuing the "historic business" of the Company or using a significant portion of the Company's "historic business assets" in a business after the Exchange (within the meaning of such terms in Treasury Regulation section 1.368-1(d)). 14. Parent is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 15. The Parent will not take, and will not cause Company to take, any position on any Federal, state or local income or franchise tax return, or take any other tax reporting position, that is inconsistent with the treatment of the Exchange as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Section 1313(a)(1) of the Code) or by applicable state or local tax law (and then only to the extent required by such applicable state or local tax law). 16. None of the compensation received (or to be received) by any stockholder-employee or stockholder-independent contractor of the Company is (or will be) separate consideration for, or is (or will be) allocable to, any of such person's Company Common Stock surrendered in the Exchange. None of the Parent Stock that will be received by any stockholder-employee or stockholder-independent contractor of the Company in the Exchange represents separately bargained-for consideration which is allocable to any employment agreement or arrangement. The compensation paid to any stockholder-employee or stockholder-independent contractor pursuant to any agreement entered into in connection with the Exchange will be for services actually rendered, will be commensurate with amounts paid to third parties bargaining at arm's length for similar services or covenants, and will be determined independent of the determination of the consideration to be paid for the Company Common Stock. 17. There is no intercorporate indebtedness existing between Parent (or any of its subsidiaries) and the Company (or any of its subsidiaries) that was issued, acquired or will be settled at a discount. 18. Parent is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 19. Neither Parent nor any person related to the Parent (within the meaning of Treasury Regulation section 1.368-1(e)(3)) owns, directly or indirectly, nor have they owned during the past five years, directly or indirectly, any shares of the stock of the Company. 20. Parent shall satisfy the information reporting requirements of Treasury Regulation section 1.368-3 with respect to the Exchange. 21. Parent Common Stock entitles the holder to vote for the board of directors of Parent. 22. The Exchange Agreement, the Registration Statement and the other documents described in the Registration Statement (including all exhibits and attachments thereto) represents the entire understanding between the Parent and the Company regarding the Exchange, and there are no other written or oral agreements between the Parent and the Company regarding the Exchange. 23. The Exchange is being undertaken for purposes of enhancing the business of the Company and for other good and valid business purposes of the Company. 24. On the date of the Exchange, the fair market value of the assets of the Company will exceed the sum of its liabilities, plus the amount of liabilities, if any, to which such assets are subject. 25. No holders of Company stock have appraisal or dissenters' rights with respect to the Exchange under any applicable law. 26. The undersigned is authorized to make all the representations set forth herein on behalf of Parent. The undersigned acknowledges that (i) the opinions to be delivered pursuant to Sections 7.2(j) and 7.3(d) of the Exchange Agreement will be based on the accuracy and completeness of the representations set forth herein and on the accuracy and completeness of the representations and warranties and the satisfaction of the covenants and obligations contained in the Exchange Agreement and the various other documents related thereto, and (ii) such opinions will be subject to certain limitations and qualifications including that it may not be relied upon if any such representations or warranties are not accurate and complete or if any of such covenants or obligations are not satisfied in all material respects. Parent understands that Skadden, Arps, Slate, Meagher & Flom LLP and Cravath, Swaine & Moore have not undertaken to independently verify the facts providing the basis of this letter nor have they been asked to do so. The undersigned acknowledges that such opinions will not address any tax consequences of the Exchange or any action taken in connection therewith except as expressly set forth in such opinions. Very truly yours, The AES Corporation By: ------------------------- Name: Title: EXHIBIT B [Letterhead of Company] [Closing Date] Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue New York, NY 10019-7475 Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005-2111 Ladies and Gentlemen: In connection with the opinions to be delivered pursuant to Sections 7.2(j) and 7.3(d) of the Agreement and Plan of Share Exchange (the "Exchange Agreement"), dated as of July 15, 2000, among The AES Corporation, a Delaware corporation ("Parent"), and IPALCO Enterprises, Inc., an Indiana corporation (the "Company"), whereby all the issued and outstanding shares of common stock of the Company will be acquired by Parent in exchange for shares of common stock of the Parent (the "Exchange"), and in connection with the filing with the Securities and Exchange Commission (the "SEC") of the registration statement on Form S-4 (the "Registration Statement"), which includes the Joint Proxy Statement of Parent and the Company, each as amended or supplemented through the date hereof, the undersigned certifies and represents on behalf of the Company, after due inquiry and investigation, as follows (any capitalized term used but not defined herein having the meaning given to such term in the Exchange Agreement): 1. The facts, representations, and covenants relating to the Exchange and related transactions as described in the Exchange Agreement, Registration Statement and the other documents described in the Registration Statement (including all exhibits and attachments thereto) are, insofar as such facts pertain to the Company, true, correct and complete in all material respects. The Exchange will be consummated in accordance with the Exchange Agreement. 2. The formula set forth in the Exchange Agreement pursuant to which each issued and outstanding share of Company Common Stock will be converted into fully paid and nonassessable shares of Parent Common Stock, is the result of arm's length bargaining. 3. The fair market value of the Parent Common Stock received by the shareholders of the Company will be, at the Effective Time, approximately equal to the fair market value of the Company Common Stock surrendered in the Exchange. 4. In the Exchange, all of the Company Common Stock will be exchanged solely for Parent Common Stock (except for cash paid in lieu of fractional shares of Parent Common Stock). The Company has no class of stock outstanding other than the Company Common Stock. No shares or other securities of the Company will be issued to the shareholders of the Company pursuant to the Exchange. For purposes of this representation, any share of the Company Common Stock redeemed or exchanged in the Exchange for cash or other property originating, directly or indirectly, with the Parent or any of its subsidiaries will not be considered as exchanged solely for Parent Common Stock. Further, no liabilities of the Company or any shareholder of the Company will be assumed by the Parent in the Exchange, nor will any of the Company Common Stock acquired by Parent in the Exchange be subject to any liabilities. 5. Following the Exchange, the Company has no plan or intention to issue additional shares of its stock that would result in Parent failing to own after the Exchange, directly or indirectly, at least 80 percent of the total combined voting power of all classes of Company stock entitled to vote and at least 80 percent of the total number of shares of all other classes of Company stock. To the best knowledge of the Company, Parent has no plan or intention to sell, transfer or dispose of any stock of the Company or to cause the Company to issue additional shares of its stock that would in either case result in Parent failing to own after the Exchange, directly or indirectly, at least 80 percent of the total combined voting power of all classes of Company stock entitled to vote and at least 80 percent of the total number of shares of all other classes of Company stock. 6. If cash payments are made to holders of Company Common Stock in lieu of fractional shares of Parent Common Stock that would otherwise be issued to such holders in the Exchange, such payments will be made for the purpose of saving Parent the expense and inconvenience of issuing and transferring fractional shares of Parent Common Stock, and will not represent separately bargained for consideration. The total cash consideration that will be paid in the Exchange to holders of Company Common Stock in lieu of fractional shares of Parent Common Stock will not exceed one percent of the total consideration that will be issued in the Exchange to shareholders of Company in exchange for their shares of Company Stock. 7. (i) Neither the Company nor any corporation related to the Company (as defined in Treasury Regulation Section 1.368-1(e)) has purchased, exchanged, redeemed, or otherwise acquired or has any plan or intention to purchase, exchange, redeem, or otherwise acquire any Company stock in contemplation of the Exchange, or otherwise as part of a plan of which the Exchange is a part. (ii) The Company is not aware of any plan or intention on the part of Parent or any corporation related to Parent (as defined in Treasury Regulation Section 1.368-1(e)) to purchase, exchange, redeem, or otherwise acquire any of the Parent stock issued in the Exchange, either directly or through any transaction, agreement or arrangement with any other person (excluding any fractional shares of the Parent Common Stock exchanged for cash in the Exchange). The Company has no plan or intention, nor is the Company aware of any plan or intention on the part of any person related to the Company (as defined in Treasury Regulation Section 1.368-1(e)) to acquire or redeem any of the Parent stock issued in the Exchange, either directly or through any transaction, agreement or arrangement with any other person. For purposes of this representation letter, a person is considered to own or acquire stock owned or acquired (as the case may be) by a partnership in which such person is a partner in proportion to such person's interest in the partnership. 8. The Company has not made, and does not have any plan or intention to make, any distributions prior to, in contemplation of or otherwise in connection with, the Exchange (other than dividends made in the ordinary course of business). 9. The Company is not aware of any plan or intention on the part of Parent to, following the Exchange, liquidate the Company, merge the Company with or into another corporation in which the Company is not the survivor, sell or otherwise dispose of shares of the Company, cause the Company to distribute to Parent or any of its subsidiaries any assets of the Company or the proceeds of any borrowings incurred by the Company or cause the Company to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business, transfers of assets permitted under Section 368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-1(d) or 1.368-2(k), and the sale of Cleveland District Cooling Corporation, Cleveland Thermal Energy Corporation, Mid America Energy Resources and Indianapolis Campus Energy, or the assets of each, for an amount of cash or other consideration with a fair market value equal to that of the assets sold in exchange therefor. 10. Except as specifically contemplated under Section 6.8 of the Exchange Agreement, the Company and its shareholders will pay their respective expenses, if any, incurred in connection with the Exchange. The Company has neither paid (directly or indirectly) nor agreed to assume any expense or other liability, whether fixed or contingent, incurred or to be incurred by any holder of Company Stock in connection with or as part of the Exchange or any related transactions. 11. The Company shall pay all Transfer Taxes attributable to the Exchange out of the Company's own funds (and not out of funds provided, directly or indirectly, by Parent). 12. Except as specifically set forth in Section 3.2 of the Exchange Agreement, immediately prior to the time of the Exchange, the Company will not have outstanding any warrants, options, convertible securities or any other type of right pursuant to which any person could acquire Company stock. Simultaneously with the Exchange, all outstanding warrants, options, convertible securities, and related stock appreciation rights, if any, to purchase or acquire a share of Company stock granted under employee incentive or benefits plans, programs or arrangements and non-employee director plans presently maintained by the Company, together with all other outstanding awards granted under such plans, will be canceled or converted into similar instruments of Parent. Immediately following the Exchange, the only class of Company stock outstanding will be the Company Common Stock held by Parent. 13. No assets of the Company have been sold, transferred or otherwise disposed of which would prevent Parent or members of its "qualified group" from continuing the "historic business" of the Company or from using a significant portion of the "historic business assets" of the Company in a business following the Exchange (as such terms are defined in Treasury Regulation section 1.368-1(d)). 14. The Company is not an investment Company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 15. The Company will not take, and, to the knowledge of the Company, there is no plan or intention by stockholders of Company to take, any position on any Federal, state or local income or franchise tax return, or take any other tax reporting position, that is inconsistent with the treatment of the Exchange as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Section 1313(a)(1) of the Code) or by applicable state or local tax law (and then only to the extent required by such applicable state or local tax law). 16. None of the compensation received (or to be received) by any stockholder-employee or stockholder-independent contractor of the Company is (or will be) separate consideration for, or is (or will be) allocable to, any of such person's Company Common Stock surrendered in the Exchange. None of the Parent Stock that will be received by any stockholder-employee or stockholder-independent contractor of the Company in the Exchange represents separately bargained for consideration which is allocable to any employment agreement or arrangement. The compensation paid to any stockholder-employee or stockholder-independent contractor pursuant to any agreement entered into in connection with the Exchange will be for services actually rendered, will be commensurate with amounts paid to third parties bargaining at arm's length for similar services or covenants, and will be determined independent of the determination of the consideration to be paid for the Company Common Stock. 17. There is no intercorporate indebtedness existing between Parent (or any of its subsidiaries) and the Company (or any of its subsidiaries) that was issued, acquired or will be settled at a discount. 18. The Company is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 19. To the knowledge of the Company, neither Parent nor any person related to the Parent (within the meaning of Treasury Regulation section 1.368-1(e)(3)) owns, directly or indirectly, nor have they owned during the past five years, directly or indirectly, any shares of the stock of the Company. 20. The Company will satisfy the information reporting requirements of Treasury Regulation section 1.368-3 with respect to the Exchange. 21. The Exchange Agreement, the Registration Statement and the other documents described in the Registration Statement (including all exhibits and attachments thereto) represents the entire understanding between the Parent and the Company regarding the Exchange, and there are no other written or oral agreements between the Parent and the Company regarding the Exchange. 22. The Exchange is being undertaken for purposes of enhancing the business of the Company and for other good and valid business purposes of the Company. 23. On the date of the Exchange, the fair market value of the assets of the Company will exceed the sum of its liabilities, plus the amount of liabilities, if any, to which such assets are subject. 24. No holders of Company stock have appraisal or dissenters' rights with respect to the Exchange under any applicable law. 25. The undersigned is authorized to make all the representations set forth herein on behalf of the Company. The undersigned acknowledges that (i) the opinions to be delivered pursuant to Sections 7.2(j) and 7.3(d) of the Exchange Agreement will be based on the accuracy and completeness of the representations set forth herein and on the accuracy and completeness of the representations and warranties and the satisfaction of the covenants and obligations contained in the Exchange Agreement and the various other documents related thereto, and (ii) such opinions will be subject to certain limitations and qualifications including that it may not be relied upon if any such representations or warranties are not accurate and complete or if any of such covenants or obligations are not satisfied in all material respects. The Company understands that Cravath, Swaine & Moore and Skadden, Arps, Slate, Meagher & Flom LLP have not undertaken to independently verify the facts providing the basis of this letter nor have they been asked to do so. The undersigned acknowledges that such opinions will not address any tax consequences of the Exchange or any action taken in connection therewith except as expressly set forth in such opinions. Very truly yours, IPALCO Enterprises, Inc. By: ________________________ Name: Title: EXHIBIT C __________, 2000 Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Ladies and Gentlemen: We are writing with respect to Indianapolis Power & Light Company, its parent, IPALCO Enterprises, Inc., and the pending transaction involving IPALCO Enterprises, Inc. and The AES Corporation. We have been advised that The AES Corporation, through its subsidiaries (other than IPALCO Enterprises, Inc. and its subsidiaries), affiliates, or through other entities, currently holds, and intends to continue to hold and acquire ownership interests in electric and natural gas facilities in one or more foreign countries. We submit this letter pursuant to the requirements of Section 33(a)(2) of the Public Utility Holding Company Act of 1935, as amended. The Indiana Utility Regulatory Commission hereby certifies to you that it has the authority and resources to protect ratepayers subject to its jurisdiction and that it intends to exercise that authority. Sincerely, William D. McCarty Chairman EXHIBIT D-1 Form of Parent Affiliate Letter Dear Sirs: The undersigned refers to the Agreement and Plan of Share Exchange (the "Share Exchange Agreement") dated as of July 15, 2000, between The AES Corporation, a Delaware corporation, and IPALCO Enterprises, Inc., an Indiana corporation. Capitalized terms used but not defined in this letter have the meanings given to such terms in the Share Exchange Agreement. The undersigned, a holder of shares of Parent Common Stock, acknowledges that the undersigned may be deemed an "affiliate" of Parent within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act or Accounting Series Releases 130 and 135, as amended, of the SEC (the "Releases"), although nothing contained herein should be construed as an admission of such fact. The undersigned hereby represents to and covenants with Parent that the undersigned will not, from the date hereof, reduce its risk (within the meaning of the Releases) with respect to any Parent Common Stock held by it until after such time as a report (the "Report") including results covering at least 30 days of combined operations of the Company and Parent has been published by Parent. Parent will publish the Report as promptly as practicable following the Share Exchange and in any event within 30 days following the end of the first full calendar month following the Share Exchange. The undersigned acknowledges that (i) the undersigned has carefully read this letter and understands the requirements hereof and the limitations imposed upon the distribution, sale, transfer or other disposition of Parent Common Stock and (ii) the receipt by Parent of this letter is an inducement and a condition to Parent's obligations to consummate the Share Exchange. Very truly yours, Dated: EXHIBIT D-2 Form of Company Affiliate Letter Dear Sirs: The undersigned refers to the Agreement and Plan of Share Exchange (the "Share Exchange Agreement") dated as of July 15, 2000, among The AES Corporation, a Delaware corporation, and IPALCO Enterprises, Inc., an Indiana corporation. Capitalized terms used but not defined in this letter have the meanings given to such terms in the Share Exchange Agreement. The undersigned, a holder of shares of Company Common Stock, is entitled to receive in connection with the Share Exchange shares of Parent Common Stock. The undersigned acknowledges that the undersigned may be deemed an "affiliate" of the Company within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act or Accounting Series Releases 130 and 135, as amended, of the SEC (the "Releases"), although nothing contained herein should be construed as an admission of such fact. If in fact the undersigned were an affiliate under the Securities Act, the undersigned's ability to sell, assign or transfer the Parent Common Stock received by the undersigned in exchange for any shares of Company Common Stock pursuant to the Share Exchange may be restricted unless such transaction is registered under the Securities Act or an exemption from such registration is available. The undersigned (i) understands that such exemptions are limited and (ii) has obtained advice of counsel as to the nature and conditions of such exemptions, including information with respect to the applicability to the sale of such securities of Rules 144 and 145(d) promulgated under the Securities Act. The undersigned hereby represents to and covenants with Parent that the undersigned will not sell, assign or transfer any of the Parent Common Stock received by the undersigned in exchange for shares of Company Common Stock pursuant to the Share Exchange except (i) pursuant to an effective registration statement under the Securities Act or (ii) in a transaction that, in the opinion of counsel (the reasonable fees of which counsel will be paid by Parent) or as described in a "no-action" or interpretive letter from the Staff of the SEC, is not required to be registered under the Securities Act. The undersigned further represents to and covenants with Parent that (i) the undersigned will not, between the date hereof and the Closing Date, reduce its risk (within the meaning of the Releases) with respect to any shares of Company Common Stock held by it and (ii) the undersigned will not reduce its risk (within the meaning of the Releases) with respect to, any Parent Common Stock received by it in the Share Exchange until after such time as a report (the "Report") including results covering at least 30 days of combined operations of the Company and Parent have been published by Parent. Parent will publish the Report as promptly as practicable following the Share Exchange and in any event within 30 days following the end of the first full calendar month following the Share Exchange. In the event of a sale or other disposition by the undersigned pursuant to Rule 145 of Parent Common Stock received by the undersigned in the Share Exchange, the undersigned will supply Parent with evidence of compliance with such Rule, in the form of a letter in the form of Annex I hereto and the opinion of counsel or no-action letter referred to above. The undersigned understands that Parent may instruct its transfer agent to withhold the transfer of any Parent Common Stock disposed of by the undersigned, but that upon receipt of such evidence of compliance the transfer agent shall effectuate the transfer of the Parent Common Stock sold as indicated in the letter. The undersigned acknowledges and agrees that appropriate legends will be placed on certificates representing Parent Common Stock received by the undersigned in the Share Exchange or held by a transferee thereof, which legends will be removed by delivery of substitute certificates upon receipt of an opinion in form and substance reasonably satisfactory to Parent from counsel (the reasonable fees of which counsel will be paid by Parent) to the effect that such legends are no longer required for purposes of the Securities Act. The undersigned acknowledges that (i) the undersigned has carefully read this letter and understands the requirements hereof and the limitations imposed upon the distribution, sale, transfer or other disposition of Parent Common Stock and (ii) the receipt by Parent of this letter is an inducement and a condition to Parent's obligations to consummate the Share Exchange. Very truly yours, Dated: ANNEX I TO EXHIBIT D The AES Corporation On , the undersigned sold the securities of The AES Corporation ("Parent") described below in the space provided for that purpose (the "Securities"). The Securities were received by the undersigned in connection with the Share Exchange between Parent and the Company . Based upon the most recent report or statement filed by Parent with the Securities and Exchange Commission, the Securities sold by the undersigned were within the prescribed limitations set forth in Rule 144(e) promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The undersigned hereby represents that the Securities were sold in "brokers' transactions" within the meaning of Section 4(4) of the Securities Act or in transactions directly with a "market maker" as that term is defined in Section 3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned further represents that the undersigned has not solicited or arranged for the solicitation of orders to buy the Securities, and that the undersigned has not made any payment in connection with the offer or sale of the Securities to any person other than to the broker who executed the order in respect of such sale. Very truly yours, Dated: [Space to be provided for description of securities.] Exhibit I MAPS [GRAPHICS OMITTED] EX-99.2 3 0003.txt EXHIBIT K-3 MAP [GRAPHICS OMITTED] EX-99.3 4 0004.txt EXHIBIT K-4 EXHIBIT K-4 CILCO AND IPL CONTRIBUTIONS TO AES/IPALCO CONSOLIDATED HOLDING COMPANY (U.S. GAAP BASIS) ($MILLIONS) 1998 1999 2000 - ------------------------------------------------------------------------------- GROSS REVENUES 35.04% 29.96% 19.05% CILCO 538 562 578 CILCORP (excluding CILCO) 21 19 11 IPL 786 800 839 IPALCO (excluding IPL) 35 34 34 AES (excluding CILCORP and IPALCO) 2,398 3,132 5,979 AES/CILCORP/IPALCO 3,778 4,547 7,441 - ------------------------------------------------------------------------------- OPERATING INCOME 32.63% 27.07% 18.27% CILCO 93 55 112 CILCORP (excluding CILCO) (1) (14) (8) IPL 261 268 271 IPALCO (excluding IPL) (1) - 2 AES (excluding CILCORP and IPALCO) 733 884 1,719 AES/CILCORP/IPALCO 1,085 1,193 2,095 - ------------------------------------------------------------------------------- NET INCOME 39.61% 42.94% 24.15% CILCO 41 16 51 CILCORP (excluding CILCO) (25) (17) (38) IPL 140 137 139 IPALCO (excluding IPL) (10) (9) (6) AES (excluding CILCORP and IPALCO) 311 229 642 AES/CILCORP/IPALCO 457 356 788 - ------------------------------------------------------------------------------- UNLEVERAGED NET INCOME 23.52% 19.34% 12.29% CILCO 59 34 70 CILCORP (excluding CILCO) (17) 9 10 IPL 179 176 177 IPALCO (excluding IPL) 16 18 16 AES (excluding CILCORP and IPALCO) 775 855 1,740 AES/CILCORP/IPALCO 1,012 1,092 2,013 NET ASSETS 20.95% 13.08% 9.18% CILCO 1,024 1,056 1,056 CILCORP (excluding CILCO) 288 775 775 IPL 1,953 1,979 1,935 IPALCO (excluding IPL) 166 337 335 AES (excluding CILCORP and IPALCO) 10,781 19,049 28,484 AES/CILCORP/IPALCO 14,212 23,196 32,585 - -------------------------------------------------------------------------------
IPL CONTRIBUTIONS TO AES/IPALCO ENTERPRISES CONSOLIDATED HOLDING COMPANY (U.S. GAAP BASIS) ($MILLIONS) 1998 1999 2000 - ----------------------------------------------------------------------------------------------- GROSS REVENUES 22.70% 19.32% 11.83% IPL 786 800 839 IPALCO 35 34 34 AES (excluding CILCO PUHCA-jurisdictional activities) 2,641 3,309 6,225 AES/IPALCO 3,462 4,144 7,098 - ----------------------------------------------------------------------------------------------- OPERATING INCOME 25.49% 23.14% 13.34% IPL 261 268 271 IPALCO (1) - 2 AES (excluding CILCO PUHCA-jurisdictional activities) 765 890 1,755 AES/IPALCO 1,024 1,158 2,028 - ----------------------------------------------------------------------------------------------- NET INCOME 32.49% 39.57% 18.36% IPL 140 137 139 IPALCO (10) (9) (6) AES (excluding CILCO PUHCA-jurisdictional activities) 301 218 624 AES/IPALCO 431 346 757 - ----------------------------------------------------------------------------------------------- UNLEVERAGED NET INCOME 18.81% 16.92% 8.99% IPL 179 176 177 IPALCO 16 18 16 AES (excluding CILCO PUHCA-jurisdictional activities) 757 846 1,776 AES/IPALCO 952 1,040 1,969 - ----------------------------------------------------------------------------------------------- NET ASSETS 14.81% 8.69% 6.01% IPL 1,953 1,979 1,935 IPALCO 166 337 335 AES (excluding CILCO PUHCA-jurisdictional activities) 11,070 20,467 29,902 AES/IPALCO 13,189 22,783 32,172 - -----------------------------------------------------------------------------------------------
EX-99.4 5 0005.txt EXHIBIT K-9
Market Shares for Utilities in the U.S. Combined Combined Portion of Market IPALCO- IPALCO- Number of Served by Combined Cilcorp's Cilcorp's Larger IPALCO-Cilcorp and Parameter Units Statistics Share Companies Larger Companies Customers thousands 820 0.5% 50 69.7% Assets $millions 3,575 0.5% 51 86.9% Revenues $millions 1,327 0.6% 49 84.8%
Comparison of Combined IPALCO-Cilcorp to Larger Utilities Parameter Units Number of Utilities Average Size Ratio of These Utilities Necessary for 50% of of These to Combined IPALCO U.S. Utilities Cilcorp Customers thousands 26 3,269 3.99 Assets $millions 17 19,502 5.46 Revenues $millions 18 6,643 5.01 Number of Utilities Average Size Necessary for 80% of of These Parameter Units U.S. Utilities Customers thousands 79 1,697 2.07 Assets $millions 42 12,684 3.55 Revenues $millions 43 4,361 3.29
Market Shares for Utilities in the United States Companies Sorted by Assets Assets Share of Cumulative Holding Company (millions of $) Rank Total Share PG&E Corp. 30,096 1 4.5% 4.5% AEP-C&SW 26,599 2 4.0% 8.6% Unicom Corp. 26,223 3 4.0% 12.5% Southern Company 25,367 4 3.8% 16.4% Entergy Corp. 21,348 5 3.2% 19.6% Edison International 21,121 6 3.2% 22.8% TXU 20,540 7 3.1% 25.9% FirstEnergy Corp. 20,311 8 3.1% 28.9% Duke Energy Corp. 17,692 9 2.7% 31.6% Dominion Resources, Inc. 17,095 10 2.6% 34.2% FPL Group, Inc. 16,643 11 2.5% 36.7% Consolidated Edison, Inc. 16,436 12 2.5% 39.2% Niagara Mohawk Holdings, Inc. 15,722 13 2.4% 41.6% Public Service Enterprise Group, Inc. 15,239 14 2.3% 43.9% DTE Energy Co. 14,333 15 2.2% 46.0% PECO Energy Co. 13,409 16 2.0% 48.1% GPU, Inc. 13,361 17 2.0% 50.1% KeySpan Energy 12,960 18 2.0% 52.0% Northeast Utilities 12,033 19 1.8% 53.9% PacifiCorp 11,624 20 1.8% 55.6% Cinergy Corp. 10,650 21 1.6% 57.2% Reliant Energy, Inc. 10,333 22 1.6% 58.8% CMS Energy Corp. 9,716 23 1.5% 60.3% PP&L Resources, Inc. 9,373 24 1.4% 61.7% Ameren Corp. 9,225 25 1.4% 63.1% Carolina Power & Light Co. 9,139 26 1.4% 64.4% Constellation Energy Group, Inc. 9,091 27 1.4% 65.8% New Century Energies, Inc. 8,751 28 1.3% 67.1% Western Resources, Inc. 8,543 29 1.3% 68.4% Northern States Power Co. 8,110 30 1.2% 69.7% Illinova Corp. 7,803 31 1.2% 70.8% Columbia-NiSource 6,667 32 1.0% 71.8% Pinnacle West Capital Corp. 6,528 33 1.0% 72.8% Allegheny Energy, Inc. 6,426 34 1.0% 73.8% Potomac Electric Power Co. 6,078 35 0.9% 74.7% Puget Sound Energy, Inc. 6,010 36 0.9% 75.6% Conectiv 5,739 37 0.9% 76.5% Wisconsin Energy Corp. 5,651 38 0.9% 77.3% Vectren 5,501 39 0.8% 78.2% Citizens Utilities Co. 5,129 40 0.8% 79.0% Florida Progress Corp. 5,123 41 0.8% 79.7% Sempra Energy 5,009 42 0.8% 80.5% Sierra Pacific Resources 4,815 43 0.7% 81.2% Alliant Energy Corp. 4,756 44 0.7% 81.9% DQE, Inc. 4,624 45 0.7% 82.6% Energy East Corp. 4,439 46 0.7% 83.3% MidAmerican Energy Holdings Co. 4,371 47 0.7% 84.0% UtiliCorp United, Inc. 4,291 48 0.6% 84.6% New England Electric System 4,114 49 0.6% 85.2% LG&E Energy Corp. 4,056 50 0.6% 85.8% DPL, Inc. 3,625 51 0.5% 86.4% Combined IPALCO-Cilcorp 3,575 52 0.5% 86.9% All others combined 86,543 13.1% Total 661,956
Market Shares for Utilities in the United States Companies Sorted by Revenue Revenue Share of Cumulative Holding Company (millions of $) Rank Total Share AEP-C&SW 10,618 1 4.5% 4.5% Southern Company 9,763 2 4.2% 8.7% PG&E Corp. 9,077 3 3.9% 12.6% Public Service Enterprise Group, Inc. 7,429 4 3.2% 15.8% Edison International 7,383 5 3.2% 19.0% TXU 7,327 6 3.1% 22.1% Entergy Corp. 7,205 7 3.1% 25.2% Unicom Corp. 7,136 8 3.1% 28.2% Consolidated Edison, Inc. 6,690 9 2.9% 31.1% Dominion Resources, Inc. 6,135 10 2.6% 33.7% FPL Group, Inc. 6,132 11 2.6% 36.4% Cinergy Corp. 5,406 12 2.3% 38.7% PECO Energy Co. 5,266 13 2.3% 40.9% FirstEnergy Corp. 5,264 14 2.3% 43.2% DTE Energy Co. 4,841 15 2.1% 45.2% PacifiCorp 4,834 16 2.1% 47.3% Northeast Utilities 4,541 17 1.9% 49.3% Duke Energy Corp. 4,529 18 1.9% 51.2% Reliant Energy, Inc. 4,350 19 1.9% 53.1% GPU, Inc. 4,028 20 1.7% 54.8% Niagara Mohawk Holdings, Inc. 3,828 21 1.6% 56.4% CMS Energy Corp. 3,649 22 1.6% 58.0% PP&L Resources, Inc. 3,624 23 1.6% 59.5% Ameren Corp. 3,403 24 1.5% 61.0% New Century Energies, Inc. 3,248 25 1.4% 62.4% Carolina Power & Light Co. 3,167 26 1.4% 63.7% Northern States Power Co. 3,087 27 1.3% 65.1% New England Electric System 2,774 28 1.2% 66.3% Constellation Energy Group, Inc. 2,672 29 1.1% 67.4% Florida Progress Corp. 2,648 30 1.1% 68.5% Columbia-NiSource 2,636 31 1.1% 69.7% Allegheny Energy, Inc. 2,614 32 1.1% 70.8% Conectiv 2,461 33 1.1% 71.8% Sempra Energy 2,360 34 1.0% 72.8% Wisconsin Energy Corp. 2,108 35 0.9% 73.7% Illinova Corp. 2,069 36 0.9% 74.6% Potomac Electric Power Co. 2,064 37 0.9% 75.5% Energy East Corp. 2,013 38 0.9% 76.4% Pinnacle West Capital Corp. 1,911 39 0.8% 77.2% Puget Sound Energy, Inc. 1,892 40 0.8% 78.0% Alliant Energy Corp. 1,888 41 0.8% 78.8% Vectren 1,792 42 0.8% 79.6% LG&E Energy Corp. 1,660 43 0.7% 80.3% BEC Energy 1,617 44 0.7% 81.0% MidAmerican Energy Holdings Co. 1,600 45 0.7% 81.7% TECO Energy, Inc. 1,581 46 0.7% 82.3% Sierra Pacific Resources 1,551 47 0.7% 83.0% KeySpan Energy 1,441 48 0.6% 83.6% Houston Industries, Inc. 1,368 49 0.6% 84.2% Combined IPALCO-Cilcorp 1,327 50 0.6% 84.8% All others combined 35,543 15.2% Total 233,547
Market Shares for Utilities in the United States Companies Sorted by Number of Customers Customers Share of Cumulative Holding Company (thousands) Rank Total Share PG&E Corp. 8,438 1 5.0% 5.0% Sempra Energy 6,772 2 4.0% 9.1% AEP-C&SW 4,690 3 2.8% 11.9% Edison International 4,284 4 2.6% 14.4% Consolidated Edison, Inc. 4,068 5 2.4% 16.9% TXU 3,902 6 2.3% 19.2% Southern Company 3,761 7 2.2% 21.4% Dominion Resources, Inc. 3,701 8 2.2% 23.6% FPL Group, Inc. 3,615 9 2.2% 25.8% Public Service Enterprise Group, Inc. 3,487 10 2.1% 27.9% Unicom Corp. 3,445 11 2.1% 29.9% DTE Energy Co. 3,249 12 1.9% 31.9% CMS Energy Corp. 3,167 13 1.9% 33.8% Columbia-NiSource 3,144 14 1.9% 35.7% New Century Energies, Inc. 2,579 15 1.5% 37.2% Entergy Corp. 2,482 16 1.5% 38.7% KeySpan Energy 2,185 17 1.3% 40.0% FirstEnergy Corp. 2,161 18 1.3% 41.3% Houston Industries, Inc. 2,107 19 1.3% 42.5% Niagara Mohawk Holdings, Inc. 2,078 20 1.2% 43.8% GPU, Inc. 2,030 21 1.2% 45.0% Northern States Power Co. 2,006 22 1.2% 46.2% Duke Energy Corp. 1,968 23 1.2% 47.4% Northeast Utilities 1,910 24 1.1% 48.5% PECO Energy Co. 1,903 25 1.1% 49.6% Cinergy Corp. 1,871 26 1.1% 50.7% Nicor, Inc. 1,865 27 1.1% 51.9% Ameren Corp. 1,803 28 1.1% 52.9% Constellation Energy Group, Inc. 1,636 29 1.0% 53.9% Reliant Energy, Inc. 1,596 30 1.0% 54.9% Wisconsin Energy Corp. 1,523 31 0.9% 55.8% PacifiCorp 1,454 32 0.9% 56.6% Puget Sound Energy, Inc. 1,414 33 0.8% 57.5% Allegheny Energy, Inc. 1,410 34 0.8% 58.3% AGL Resources, Inc. 1,405 35 0.8% 59.2% UtiliCorp United, Inc. 1,404 36 0.8% 60.0% Florida Progress Corp. 1,341 37 0.8% 60.8% Alliant Energy Corp. 1,287 38 0.8% 61.6% MidAmerican Energy Holdings Co. 1,270 39 0.8% 62.3% PP&L Resources, Inc. 1,250 40 0.7% 63.1% Carolina Power & Light Co. 1,169 41 0.7% 63.8% LG&E Energy Corp. 1,119 42 0.7% 64.4% Vectren 1,106 43 0.7% 65.1% Energy East Corp. 1,053 44 0.6% 65.7% Conectiv 1,043 45 0.6% 66.4% New England Electric System 1,009 46 0.6% 67.0% Southern Union Co. 1,006 47 0.6% 67.6% Illinova Corp. 968 48 0.6% 68.1% Peoples Energy Corp. 955 49 0.6% 68.7% Sierra Pacific Resources 928 50 0.6% 69.3% Combined IPALCO-Cilcorp 820 51 0.5% 69.7% All others combined 25,341 15.1% Total 167,516
EX-99.5 6 0006.txt EXHIBIT K-13 EXHIBIT K-13 [LETTERHEAD OF THE INDIANA UTILITY REGULATORY COMMISSION] September 28, 2000 Mr. Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Dear Mr. Katz: We are writing with respect to Indianapolis Power & Light Company, its parent, IPALCO Enterprises, Inc. and The AES Corporation. We have been advised that The AES Corporation, through its subsidiaries (other than IPALCO Enterprises, Inc. and its subsidiaries), affiliates, or through other entities, currently holds, and intends to continue to hold and acquire ownership interests in electric and natural gas facilities in one or more foreign countries. We submit this letter pursuant to the requirements of Section 33(a)(2) of the Public Utility Holding Company Act of 1935, as amended. The Indiana Utility Regulatory Commission hereby certifies to you that it has the authority and resources to protect ratepayers subject to its jurisdiction and that it intends to exercise that authority. Sincerely, /s/ William D. McCarty ---------------------------------------- William D. McCarty Chairman -----END PRIVACY-ENHANCED MESSAGE-----