U-1 1 holdcou1.txt File No. 70- SECURITIES AND EXCHANGE COMMISSION 450 FIFTH STREET WASHINGTON, D.C. 20549 ------------------------------------------ FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 -------------------------------------------- Cinergy Corp. Cinergy Investments, Inc. Cinergy Global Resources, Inc. CinTec LLC Cinergy Technologies, Inc. Cinergy Wholesale Energy, Inc. 139 East Fourth Street Cincinnati, Ohio 45202 (Names of companies filing this statement and addresses of principal executive offices) Cinergy Corp. (Name of top registered holding company) Wendy L. Aumiller Treasurer Cinergy Corp. 139 E. 4th St. Cincinnati, Ohio 45202 (Name and address of agent for service) Please direct communications to: George Dwight II, William C. Weeden Assoc. Gen. Counsel Skadden Arps Slate Meagher & Flom Cinergy Corp. 1400 New York Avenue, N.W. 139 E. 4th Str., 25AT2 Washington, D.C. 20005 Cincinnati, Ohio 45202 202-371-7877 (ph) 513-287-2643 (ph) 202-371-7012 (f) 513-287-3810 (f) wweeden@skadden.com gdwight@cinergy.com Item 1. Description of Proposed Transactions A. Background By order dated March 1, 1999 in File No. 70-9319 (HCAR No. 26984) (the "1999 Order"), the Commission authorized Cinergy Corp. ("Cinergy"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"), together with its nonutility subsidiaries, Cinergy Investments, Inc. ("Cinergy Investments") and Cinergy Global Resources, Inc. ("Cinergy Global Resources"), from time to time through December 31, 2003, to establish one or more special-purpose subsidiaries (referred to therein as "Intermediate Parents") to hold Cinergy's direct or indirect interests in existing and future nonutility subsidiaries and to engage in various financing and related transactions involving (i) internal reorganizations among Intermediate Parents and the nonutility subsidiaries, (ii) the provision of certain services by Intermediate Parents to each other and the nonutility subsidiaries, (iii) payments of dividends out of capital and unearned surplus by Intermediate Parents and the nonutility subsidiaries, and (iv) the issuance by Cinergy of guarantees in respect of Intermediate Parents, the nonutility subsidiaries and certain other subsidiaries of Cinergy. By order dated June 23, 2000 in File No. 70-9577 (HCAR No. 27190) (the "June 2000 Order"), the Commission granted Cinergy, among other things, authority to issue guarantees from time to time through June 23, 2005 subject to the terms and conditions set forth therein, superseding the guarantee authority granted under the 1999 Order. Cinergy and the other applicants now propose to replace and supersede, effective upon the issuance of the Commission's order, the remaining authority granted under the 1999 Order by the authority requested in this application, as more specifically set forth below. The proposed transactions are consistent with the applicable transactions approved in the 1999 Order and are largely of a technical nature, intended to assist Cinergy in efficiently and flexibly managing and administering its authorized nonutility businesses. The Commission has routinely granted similar authority to many other registered holding company systems. B. Description of Cinergy and other Applicants Cinergy directly or indirectly owns all the outstanding common stock of five public utility companies, PSI Energy, Inc., The Cincinnati Gas & Electric Company, The Union Light, Heat and Power Company, Lawrenceburg Gas Company and Miami Power Corporation (collectively, the "Utility Subsidiaries"). Together, the Utility Subsidiaries provide electric and gas service to approximately 1.6 million retail and wholesale customers in parts of Indiana, Ohio and Kentucky. Cinergy also owns numerous nonutility businesses, which it holds through the other parties to this application, Cinergy Investments, Cinergy Global Resources, CinTec LLC, Cinergy Technologies, Inc. and Cinergy Wholesale Energy, Inc. (collectively, together with Cinergy, the "Applicants"), each of which is a direct, wholly-owned nonutility subsidiary of Cinergy formed to act as an Intermediate Parent.1 Pursuant to Commission orders, applicable provisions of the Act and rules thereunder, Cinergy has authority to invest in a variety of nonutility businesses, including: o exempt wholesale generators (as defined in Section 32 of the Act) (each, an "EWG");2 o foreign utility companies (as defined in Section 33 of the Act) (each, a "FUCO");3 o exempt telecommunications companies (as defined in Section 34 of the Act) (each, an "ETC"); o energy-related companies (as defined in Rule 58) (each, a "Rule 58 Company"); o companies providing certain infrastructure services (each, an "IS Company")4; o companies providing energy management services and energy-related consulting services outside the United States;5 o companies brokering and marketing energy commodities in Canada and Mexico;6and o certain nonutility energy-related assets (each, an "Energy-Related Asset").7 As used in this application, (i) an "Authorized Nonutility Business" means any nonutility business in which Cinergy is currently authorized or may hereafter become authorized under the Act to invest, and includes, without limitation, the types of nonutility businesses enumerated immediately above; (ii) a "Nonutility Subsidiary" means any associate company of Cinergy (including any "Intermediate Subsidiary" (as defined below)) now in existence or hereafter formed for the purpose of engaging in an Authorized Nonutility Business; and (iii) a "Nonutility Investment" means any Authorized Nonutility Business in which Cinergy now or hereafter invests, but which investment does not thereby cause such Authorized Nonutility Business to become an associate company of Cinergy. C. Overview of Requested Approvals As set forth in more detail below, Cinergy and the other Applicants request authority for the following transactions relating to Authorized Nonutility Businesses, in each case to conduct these transactions at any time from and after the date of the Commission's order herein: 1. Intermediate Subsidiaries. Applicants request authority to acquire the securities of Intermediate Subsidiaries (as defined below). 2. Nonutility Reorganizations. Applicants request authority to undertake internal corporate reorganizations or restructurings of Nonutility Subsidiaries and Nonutility Investments. 3. Dividends out of Capital or Unearned Surplus. Applicants request authority for Nonutility Subsidiaries to declare and pay dividends out of capital or unearned surplus, subject to certain conditions. 4. Section 13(b) Exemption. Finally, Applicants request an exemption under Section 13(b) from the cost standards of Rules 90 and 91 for Nonutility Subsidiaries to enter into agreements to perform services or construction work for, and sell goods to, certain specified categories of Nonutility Subsidiaries, consistent with Commission precedent, at fair market values determined without regard to cost. D. Description of Requested Approvals 1. Intermediate Subsidiaries Applicants request authority to acquire the securities of corporations, limited liability companies, partnerships, trusts or other entities that would be formed exclusively to acquire, hold, finance or facilitate the acquisition of, and/or sell goods, services or construction to Nonutility Subsidiaries and/or Nonutility Investments, whether directly or indirectly through one or more subsidiaries thereof formed exclusively for the same purpose (each, an "Intermediate Subsidiary").8 An Intermediate Subsidiary may be organized, among other things: (1) in order to facilitate the making of bids or proposals to develop or acquire an interest in any EWG, FUCO, ETC or other nonutility company which, upon acquisition, would qualify as a Rule 58 Company or other Authorized Nonutility Business; (2) after the award of such a bid proposal, in order to facilitate closing on the purchase or financing of such acquired company; (3) at any time subsequent to the consummation of an acquisition of an interest in any such company in order, among other things, to effect an adjustment in the respective ownership interests in such business held by Cinergy and non-affiliated investors; (4) to facilitate the sale of ownership interests in one or more acquired Authorized Nonutility Businesses; (5) to comply with applicable laws of foreign jurisdictions limiting or otherwise relating to the ownership of domestic companies by foreign nationals; (6) as a part of tax planning in order to limit Cinergy's exposure to U.S. and foreign taxes; (7) to further insulate Cinergy's and the Utility Subsidiaries from operational or other business risks that may be associated with investments in Authorized Nonutility Businesses; or (8) for other lawful business purposes. Investments in Intermediate Subsidiaries may take the form of (a) purchases of capital shares, partnership interests, membership interests in limited liability companies, trust certificates or other forms of voting or non-voting equity interests; (b) capital contributions; (c) loans; or (d) guarantees issued, provided or arranged in respect of the securities or other obligations of any Intermediate Subsidiaries. Cinergy will obtain funds for initial and subsequent investments in Intermediate Subsidiaries from available internal sources or external sources involving issuances of its securities pursuant to the June 2000 Order (or any future order supplementing or superseding that order in whole or in part). The other Applicants will obtain funds for initial and subsequent investments in Intermediate Subsidiaries from available cash, capital contributions or loans from Cinergy, or external borrowings or sales of capital stock. To the extent that Cinergy provides funds directly or indirectly to an Intermediate Subsidiary that are used for an investment in an EWG or FUCO, a Rule 58 Company, an IS Company or an Energy-Related Asset, the amount of such funds will be included in Cinergy's "aggregate investment" in such entity, as calculated in accordance with Rule 53 or Rule 58, as applicable, or the terms of the Commission order authorizing Cinergy's investment in such IS Company or Energy-Related Asset, as applicable. In addition to the 1999 Order, the Commission has approved proposals for similar intermediate subsidiaries for nonutility investments in numerous other instances.9 2. Nonutility Reorganizations Cinergy has direct or indirect interests in numerous Authorized Nonutility Businesses. Cinergy and the other Applicants seek authority to effect corporate reorganizations or restructurings of Nonutility Subsidiaries and Nonutility Investments, so that Cinergy can flexibly and efficiently manage these investments. Specifically, Cinergy and the other Applicants request authority, to the extent such approval is required,10 (a) for each Nonutility Subsidiary to sell or otherwise transfer the securities or assets (in whole or in part) of any Nonutility Subsidiary or Nonutility Investment to any other Nonutility Subsidiary or Nonutility Investment, and (b) for each such Nonutility Subsidiary to acquire such securities or assets. Alternatively, transfers of such securities or assets may be effected by share exchanges, share distributions or dividends followed by contribution of such securities or assets to the receiving entity, or by mergers or liquidations, or otherwise, and Cinergy and the other Applicants request approval for such forms of restructuring transactions as well. These corporate reorganizations or restructurings of Nonutility Subsidiaries and Nonutility Investments would be undertaken in order to eliminate corporate complexities, to combine related business segments for staffing and management purposes, to eliminate administrative costs, to achieve tax savings, or for other ordinary and necessary business purposes. None of these reorganizations or restructurings will involve the sale or other disposition of any utility assets of the Utility Subsidiaries or any corporate reorganization involving the Utility Subsidiaries. Nor does the approval sought in this subsection extend to the acquisitions of any new businesses or activities not constituting an Authorized Nonutility Business. In addition to the 1999 Order, the Commission has approved proposals for similar authority to restructure authorized nonutility businesses in many instances.11 3. Dividends out of Capital or Unearned Surplus To the extent not otherwise exempt under the Act, Applicants request authority for each Nonutility Subsidiary to declare and pay dividends out of capital or unearned surplus to its respective parent company, where permitted under applicable corporate law, and where such dividend will not be detrimental to the financial integrity or working capital of any company in the Cinergy holding company system. In addition to the authority granted to Cinergy's nonutility subsidiaries under the 1999 Order, the Commission has authorized nonutility subsidiaries of numerous other registered holding company systems to declare and pay dividends out of capital and unearned surplus.12 4. Section 13(b) Exemption Finally, consistent with recent orders issued in respect of other registered holding company systems13, Applicants request authority for Nonutility Subsidiaries to enter into agreements to perform services or construction work for, and sell goods to, any Nonutility Subsidiary within any of the five categories enumerated immediately below at fair market prices determined without regard to cost, and therefore request an exemption with respect thereto (to the extent that Rule 90(d) of the Act does not apply)14 under Section 13(b) from the cost standards of Rules 90 and 91: (1) a FUCO or an EWG that derives no part of its income, directly or indirectly, from the generation, transmission, or distribution of electric energy for sale within the United States; (2) an EWG that sells electricity at market-based rates which have been approved by the Federal Energy Regulatory Commission ("FERC") or an appropriate state public utility commission, provided that the purchaser of the EWG's electricity is not an affiliated public utility or an affiliate that re-sells such power to an affiliated public utility; (3) a "qualifying facility" ("QF"), as defined under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"), that sells electricity exclusively at rates negotiated at arm's length to one or more industrial or commercial customers purchasing such electricity for their own use and not for resale, or to an electric utility company other than an affiliated electric utility at the purchaser's "avoided cost" determined under PURPA; (4) an EWG or a QF that sells electricity at rates based upon its costs of service, as approved by FERC or any state public utility commission having jurisdiction, provided that the purchaser of the electricity is not an affiliated public utility; or (5) a Nonutility Subsidiary that is a Rule 58 Company or any other Nonutility Subsidiary that (a) is partially owned, provided that the ultimate purchaser of goods or services is not an affiliated public utility, (b) is engaged solely in the business of developing, owning, operating and/or providing services or goods to Nonutility Subsidiaries described in (1) through (4) above or (c) does not derive, directly or indirectly, any part of its income from sources within the United States and is not a public-utility company operating within the United States. Item 2. Fees, Commissions and Expenses Applicants estimate total fees and expenses not to exceed approximately $10,000, consisting chiefly of outside counsel fees and expenses, in connection with the preparation, filing and Commission review of the instant application. Item 3. Applicable Statutory Provisions Applicants consider that Sections 6(a), 7, 9(a), 10, 12(b), 12(c), 12(f), 13, 32, 33 and 34 of the Act and Rules 43, 45, 46, 54, 83, 87, 90 and 91 thereunder are or may be applicable to the proposed transactions. Rule 54 provides that in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an EWG or a FUCO, or other transactions by such registered holding company or its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the registered holding company if paragraphs (a), (b) and (c) of Rule 53 are satisfied. Cinergy currently does not meet the conditions of Rule 53(a). At June 30, 2003, Cinergy's "aggregate investment" (as defined in Rule 53(a)(1)) was approximately $919 million. At June 30, 2003, Cinergy's "consolidated retained earnings" (also as defined in Rule 53(a)(1)) were approximately $1,444 million. Accordingly, at June 30, 2003, Cinergy's aggregate investment exceeded 50% of its consolidated earnings, the "safe harbor" limitation contained in Rule 53(a). However, the May 2001 Order authorized Cinergy to increase its aggregate investment to an amount equal to the sum of (1) 100% of consolidated retained earnings plus (2) $2,000,000,000 (excluding any investments subject to the Restructuring Limit, as defined therein). Accordingly, at June 30, 2003, Cinergy had all requisite authority under the Act for an aggregate investment totaling $3,444 million. Therefore, although Cinergy's aggregate investment at such date exceeded the 50% "safe harbor" limitation of Rule 53, it is well within the higher investment level granted by the May 2001 Order. With respect to capitalization, there has been no material adverse impact on Cinergy's consolidated capitalization resulting from Cinergy's investments in EWGs and FUCOs. At December 31, 2000, the most recent period for which financial statement information was evaluated in the May 2001 Order, Cinergy's consolidated capitalization consisted of 40.4% equity and 59.6% debt. At June 30, 2003, Cinergy's consolidated capitalization consisted of 45.5% equity and 54.5% debt. Further, at June 30, 2003, Cinergy's senior unsecured debt was rated "investment grade" by all the major rating agencies. Under the June 2000 Order, Cinergy has committed to maintain a 30% consolidated common equity ratio (subject to certain qualifications), and the proposed transactions will have no adverse impact on Cinergy's ability to meet that commitment. At June 30, 2003, Cinergy's consolidated common equity ratio was 41.2%. Cinergy satisfies all of the other conditions of paragraphs (a) and (b) of Rule 53. With reference to Rule 53(a)(2), Cinergy maintains books and records in conformity with, and otherwise adheres to, the requirements thereof. With reference to Rule 53(a)(3), no more than 2% of the employees of Cinergy's domestic public utility companies render services, at any one time, directly or indirectly, to EWGs or FUCOs in which Cinergy directly or indirectly holds an interest. With reference to Rule 53(a)(4), Cinergy will concurrently provide a copy of this application to each regulator referred to therein, and will otherwise comply with the requirements thereof concerning the furnishing of information. With reference to Rule 53(b), none of the circumstances enumerated in subparagraphs (1), (2) and (3) thereunder have occurred. Item 4. Regulatory Approval No state or federal commission, other than this Commission, has jurisdiction over the proposed transactions. Item 5. Procedure Applicants request that the Commission publish the public notice with respect to this Application-Declaration as soon as practicable and issue an order as soon as practicable following expiration of the public notice period granting and permitting this Application-Declaration to become effective. Applicants waive a recommended decision by a hearing officer or other responsible officer of the Commission; consent that the Staff of the Division of Investment Management may assist in the preparation of the Commission's order; and request that there be no waiting period between the issuance of the Commission's order and its effectiveness. Applicants will submit the following information to the Commission pursuant to certificates filed pursuant to Rule 24 under the Act, on a semi-annual basis, for the six-month periods ended June 30 and December 31 of each year (such reports to be submitted within 60 days after the end of the preceding semi-annual period, commencing with the first full semi-annual period following the issuance of the Commission's order herein): (i) an organizational chart showing all of the Intermediate Subsidiaries and Nonutility Subsidiaries as of the end of the preceding semi-annual period, together with identification of any new Intermediate Subsidiaries and Nonutility Subsidiaries formed during such semi-annual period; (ii) a consolidated balance sheet and income statement for each of Cinergy's first-tier Intermediate Subsidiaries as of the end of the preceding semi-annual period and for the year-to-date period then-ended; (iii) information regarding any nonutility corporate reorganizations effected during such preceding semi-annual period; and (iv) information regarding any transactions effected during such preceding semi-annual period pursuant to the exemption from Section 13(b) requested herein. Item 6. Exhibits and Financial Statements (a) Exhibits A-1 Certificate of Incorporation of Cinergy Corp., as amended May 10, 2001 (filed as an exhibit to and hereby incorporated by reference from the Cinergy Corp. March 31, 2001 Form 10-Q) A-2 By-laws of Cinergy Corp., as amended on July 23, 2003 (filed as an exhibit to and hereby incorporated by reference from the Cinergy Corp. June 30, 2003 Form 10-Q) B Inapplicable C Inapplicable D Inapplicable E Inapplicable F Opinion of Counsel G Form of Public Notice H Organizational Chart of Cinergy holding company system as of June 30, 2003 (b) Financial Statements FS-1 Consolidated balance sheet of Cinergy Corp. as of June 30, 2003 (filed as a part of and hereby incorporated by reference from the Cinergy Corp. June 30, 2003 Form 10-Q) FS-2 Consolidated statement of income of Cinergy Corp. for the period ended June 30, 2003 (filed as a part of and hereby incorporated by reference from the Cinergy Corp. June 30, 2003 Form 10-Q) Item 7. Information as to Environmental Effects (a) The Commission's action in this matter will not constitute any major federal action significantly affecting the quality of the human environment. (b) No other federal agency has prepared or is preparing an environmental impact statement with regard to the proposed transactions. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] SIGNATURE Pursuant to the requirements of the Act, the undersigned companies have duly caused this application to be signed on their behalf by the undersigned, thereunto duly authorized. Dated: September 25, 2003 CINERGY CORP. By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer CINERGY INVESTMENTS, INC. By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer CINERGY GLOBAL RESOURCES, INC. By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer CINTEC LLC By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer CINERGY TECHNOLOGIES, INC. By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer CINERGY WHOLESALE ENERGY, INC. By: /s/Wendy L. Aumiller Wendy L. Aumiller Treasurer -------- 1 Certain of these "Intermediate Parents" were formed prior to the 1999 Order pursuant to express authorization of the Commission as noted in the 1999 Order and the amended application in File No. 70-9319. Certain very minor nonutility subsidiaries (pre-dating the consummation of the Cinergy merger in 1994) are held by PSI Energy, Inc. and The Cincinnati Gas & Electric Company. 2 See order dated May 18, 2001 in File No. 70-9577 (HCAR No. 27400) (the "May 2001 Order"). 3 See id. 4 See order dated October 23, 2002 in File No. 70-10015 (HCAR No. 27581). 5 See order dated May 4, 2001 in File No. 70-9803 (HCAR No. 27393). 6 See orders in File No. 70-9803 dated May 21, 2002 (HCAR No. 27506) and May 4, 2001 (HCAR No. 27393). 7 See order dated August 29, 2003 in File No. 70-9803 (HCAR No. 27717). 8 As used in this application, the term "Intermediate Subsidiary" also includes any Intermediate Parents formed pursuant to the 1999 Order and any other nonutility subsidiaries performing a corresponding function formed by Cinergy pursuant to prior Commission orders. 9 See, e.g., FirstEnergy Corp., et al., HCAR No. 27694, June 30, 2003 ("FirstEnergy"); Exelon Corporation, et al., HCAR No. 27545, June 27, 2002 ("Exelon"); SCANA Corporation, et al., HCAR No. 27649, Feb. 12, 2003 ("SCANA"). 10 For example, the "sell" side of these transactions may in certain cases be exempt under Rule 43(b). 11 See, e.g., FirstEnergy, supra; Exelon, supra; SCANA, supra. 12 See, e.g., FirstEnergy, supra; SCANA, supra. 13 See FirstEnergy, supra; Entergy Corporation, et al., HCAR No. 27626, Dec. 20, 2002; Alliant Energy Corporation, et al., HCAR No. 27448, Oct. 3, 2001. 14 Under Rule 90(d)(1), the price of services, construction or goods is not limited to cost if neither the buyer nor the seller of such services, construction or goods is (i) a public-utility holding company, (ii) an investment or similar company as defined in the Rule, (iii) a company in the business of selling goods to associate companies or performing services or construction (i.e., a "service company") or (iv) any company controlling an entity described in (i), (ii) or (iii). In general, therefore, goods, services or construction provided from one Nonutility Subsidiary to other Nonutility Subsidiaries (other than any service company) are not subject to the cost restrictions and may be priced at market, which may be above or below cost. A Nonutility Subsidiary would generally be permitted to make such sales of goods, services or construction to another Nonutility Subsidiary under Rule 87(b).