-----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, AOY2FqXQhWEAzc02ylMAoLUM0akUTp/u9YqzxxbAnUcaeDQXd/57olOiIQQQSAG/ 1G5dwmup4RprEmWqYgxWaA== 0000899652-05-000154.txt : 20050823 0000899652-05-000154.hdr.sgml : 20050823 20050823160357 ACCESSION NUMBER: 0000899652-05-000154 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20050823 DATE AS OF CHANGE: 20050823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-10254 FILM NUMBER: 051043776 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5132872644 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET STREET 2: P.O BOX 960 CITY: CINCINATI STATE: OH ZIP: 45202 U-1/A 1 fileno7010254amend4.txt As filed with the Securities and Exchange Commission on August 23, 2005. File No. 070-10254 SECURITIES AND EXCHANGE COMMISSION 450 FIFTH STREET WASHINGTON, D.C. 20549 ------------------------------------------ AMENDMENT NO. 4 TO FORM U-1 DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 -------------------------------------------- CINERGY CORP. THE CINCINNATI GAS & ELECTRIC COMPANY 139 East Fourth Street Cincinnati, Ohio 45202 (Name 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 East Fourth Street Cincinnati, Ohio 45202 (Name and address of agent for service) Please direct communications to: George Dwight II William C. Weeden Associate General Counsel Skadden Arps Slate Meagher & Flom Cinergy Corp. 1400 New York Avenue, N.W. 139 East Fourth Street, 25 AT2 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 The Declaration as previously amended is hereby amended and restated in its entirety (other than with respect to all exhibits and financial statements previously filed) to read as follows: Item 1. Description of Proposed Transactions A. Requested Authorization Cinergy Corp.("Cinergy"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"), and its subsidiary, The Cincinnati Gas & Electric Company ("CG&E"; and together with Cinergy, "Applicants"), request Commission authorization for CG&E to transfer (the "Transfer"), at net book value as of closing, its ownership interest in three electric generating facilities, including certain realty and other improvements, equipment, assets, properties, facilities and rights associated therewith or ancillary thereto having a total nameplate capacity of 1105 megawatts ("MW") (collectively, the "Plants") to its subsidiary, The Union Light, Heat and Power Company ("ULH&P").(1) At December 31, 2004, the Plants had a net book value of approximately $351 million (not including construction work in progress of approximately $19.9 million).(2) The Transfer meets the goal of the Kentucky Public Service Commission ("KPSC") that ULH&P acquire physical generating assets to serve its retail electric customers. Historically, those customers have been served entirely through long-term supply contracts between CG&E and ULH&P, in part from power generated from these Plants. The KPSC approved the transaction in December 2003, finding it in the best interests of ULH&P's customers and urging this Commission to give consideration to its findings.(3) B. Parties 1. Cinergy Cinergy was created in connection with the October 1994 merger between CG&E and the then-parent company of PSI Energy, Inc. ("PSI").(4) Through CG&E, ULH&P and PSI,(5) Cinergy provides retail electric and/or natural gas service to customers in southwestern Ohio, northern Kentucky and most of Indiana. In addition to its Midwestern-based utility business, Cinergy has numerous non-utility subsidiaries engaged in a variety of energy-related businesses. As of and for the year ended December 31, 2004, Cinergy reported consolidated total assets of approximately $15.0 billion and consolidated total operating revenues of approximately $4.7 billion. For further information regarding Cinergy, reference is made to Cinergy's Annual Report on Form 10-K for 2004. 2. CG&E CG&E is a combination electric and gas public utility holding company formed under Ohio law and engaged in the production, transmission, distribution and sale of electric energy and the sale and transportation of natural gas in the southwestern portion of Ohio and, through ULH&P, northern Kentucky. CG&E is exempt from registration under the Act pursuant to Section 3(a)(2) and Rule 2(b). The area served with electricity, gas, or both covers approximately 3,200 square miles, has an estimated population of 2.0 million people, and includes the cities of Cincinnati and Middletown in Ohio and Covington and Newport in Kentucky.(6) Cinergy directly holds all the outstanding common stock of CG&E. The Public Utilities Commission of Ohio ("PUCO") regulates CG&E's retail sales of electricity and natural gas.(7) CG&E's wholesale power sales and transmission services are regulated by the Federal Energy Regulatory Commission ("FERC") under the Federal Power Act ("FPA"). CG&E currently provides ULH&P full requirements electric service under a long-term power sales agreement, FERC Rate Schedule No. 56 (the "Full Requirements PPA"). As of and for the year ended December 31, 2004, CG&E reported consolidated total operating revenues of approximately $2.5 billion and consolidated total assets of approximately $6.2 billion. For further information regarding CG&E, reference is made to CG&E's Annual Report on Form 10-K for 2004. 3. ULH&P CG&E directly holds all the outstanding common stock of ULH&P. Formed under Kentucky law, ULH&P is engaged in the transmission, distribution, and sale of electric energy and the sale and transportation of natural gas in northern Kentucky. The area served with electricity, gas, or both covers approximately 500 square miles, has an estimated population of 330,000 people, and includes the cities of Covington and Newport in northern Kentucky. ULH&P owns no electric generating facilities, but rather historically has relied on CG&E for its full requirements of electric supply to serve its retail customers. ULH&P's retail sales of electricity and natural gas are regulated by the KPSC. ULH&P has no wholesale customers. As of and for the year ended December 31, 2004, ULH&P reported total operating revenues of approximately $355 million and total assets of approximately $468 million. For further information regarding ULH&P, reference is made to ULH&P's Annual Report on Form 10-K for 2004. C. Terms of Transfer CG&E proposes to transfer, and ULH&P intends to acquire, the Plants, which comprise CG&E's right, title and interest in and to the following three electric generating stations, together in each case with certain realty and other improvements, equipment, assets, properties, facilities (e.g., inventories of fuel, supplies, materials and spare parts) associated with or ancillary to each Plant. CG&E will retain all transmission facilities and generation step-up transformers ("GSUs") or other FERC-jurisdictional facilities physically connected to the Plants. East Bend. ULH&P will acquire CG&E's entire ownership share (447 MW nameplate rating) in the East Bend Generating Station ("East Bend"), a 648 MW (nameplate rating) coal-fired baseload station located in Rabbit Hash, Kentucky. East Bend is jointly owned by CG&E (69 percent) and The Dayton Power & Light Company ("DP&L") (31 percent). At December 31, 2004, the net book value of CG&E's ownership interest in East Bend was approximately $193 million (not including construction work in progress ("CWIP") of $5,347,342). Miami Fort 6. ULH&P also proposes to acquire Miami Fort Unit 6 ("Miami Fort 6"), a 168 MW (nameplate rating) coal-fired intermediate load generating unit located in North Bend, Ohio. Miami Fort 6 is wholly-owned by CG&E, but is part of the larger Miami Fort Generating Station, which is jointly owned by CG&E and DP&L. At December 31, 2004, Miami Fort 6 had a net book value of approximately $18 million (not including CWIP of $9,171). Woodsdale. Finally, ULH&P proposes to acquire the Woodsdale Generating Station ("Woodsdale"), a 490 MW (nameplate rating) dual-fuel combustion-turbine peaking station that operates on either natural gas or propane and is located in Trenton, Ohio. Woodsdale is wholly-owned by CG&E. At December 31, 2004, Woodsdale had a net book value of approximately $140 million (not including CWIP of $14,577,793). The Plants will be transferred at net book value at the closing of the Transfer, pursuant to the terms of separate, but substantially identical Asset Transfer Agreements.(8) The Plants are in good operating condition and are directly interconnected to the Cinergy joint transmission system. Following the acquisition, ULH&P will also operate East Bend and Woodsdale,(9) with assistance, provided at cost, (i) from Cinergy Services, Inc., Cinergy's service company subsidiary, in accordance with its Commission-approved utility service agreement and (ii) from CG&E, on an as-needed basis, pursuant to the exemption under Rule 87(a)(3). D. Financing of Transfer In structuring the financing for the Transfer, the parties' goal was to transfer an appropriate amount of equity and debt associated with the Plants in a tax-efficient manner, while maintaining the strong investment grade ratings of CG&E and ULH&P.(10) To that end, at the closing of the transfer of the Plants, the consideration for the transfer is expected to consist of: (i) an assumption by ULH&P of certain short-and long-term debt of CG&E (in an aggregate principal amount estimated to be in the range of $140-160 million);(11) (ii) a further equity contribution by CG&E to ULH&P (estimated to be in the range of $160-180 million); and (iii) the transfer from CG&E to ULH&P of certain accumulated deferred income taxes and accumulated deferred income tax credits (estimated at December 31, 2004 to total approximately $68 million).(12) The debt to be assumed at closing by ULH&P will consist of (x) all debt related specifically to the Plants (comprised of long-term tax exempt debt in an aggregate principal amount of $75 million, the proceeds of which were loaned by the issuing authorities to CG&E in connection with financing for the construction or improvement of East Bend)(13) and (y) certain short-term debt of CG&E (short-term debt being generally speaking the most flexible form of debt for ULH&P to assume and ultimately to refund). It should be noted that -- as is typically the case with any assumption agreement -- the mere assumption as such by ULH&P of CG&E's obligations will not thereby operate to effect a release or novation of CG&E from its obligations to the counterparty on the assumed debt. However, as between CG&E and ULH&P, from and after the effective date of the assumption, ULH&P will have responsibility for repayment of the debt (including by prompt reimbursement of CG&E of amounts of principal and interest due and payable with respect to such assumed debt), as evidenced by a note payable on the books of ULH&P. Further, Cinergy commits to this Commission that not later than two years after the closing of the Transfer, all of the CG&E debt assumed by ULH&P will be repaid by ULH&P (as it comes due or by prepayment, redemption or otherwise), including by one or more refinancings effected by ULH&P, fully satisfying or otherwise extinguishing all of CG&E's liability on such debt. The assumption by ULH&P of such debt of CG&E at closing will also be evidenced by one or more Assignment and Assumption Agreements between CG&E and ULH&P; a form of an Assignment and Assumption Agreement for such purpose is filed herewith. Further, reference is made to the exhibit filed herewith showing the actual and pro forma capitalization of CG&E (on a consolidated basis) and ULH&P as of December 31, 2004. E. FERC 205 Agreements In connection with the Transfer, CG&E and ULH&P will enter into (and in the case of the Full Requirements PPA terminate) certain FERC-jurisdictional agreements pursuant to Section 205 of the FPA (collectively, "FERC 205 Agreements"). More specifically, the Purchase, Sale and Operation Agreement between CG&E and ULH&P ("PSOA") provides the terms and conditions pursuant to which the Plants will continue to be jointly dispatched with the generation resources of CG&E and PSI. Importantly, by virtue of the PSOA, following the Transfer, the Plants will continue to be dispatched in exactly the same manner as they are today, i.e., jointly with CG&E's remaining generating facilities and PSI's generation. The Facilities Operation Agreement between CG&E and ULH&P provides the terms and conditions under which CG&E will provide ULH&P with the use of the various GSUs owned by CG&E and interconnected with the Plants. Finally, CG&E and ULH&P filed a notice of cancellation of the Full Requirements PPA with FERC to be effective upon closing of the transaction, as ULH&P no longer will require power under that agreement once it owns the Plants.(14) By orders dated March 2, 2005 (Docket No. ER04-1249-000) and March 3, 2005 (Docket Nos. ER04-1248-000, ER04-1248-001 & ER04-1247-000), the FERC has accepted for filing the PSOA and the Facilities Operation Agreement and has accepted for cancellation the Full Requirements PPA. F. Rationale for Transfer Although separately incorporated, ULH&P and CG&E have always been operated and planned effectively as a single company. For a number of reasons, all of the generating facilities for the combined companies have been placed in CG&E. CG&E's generation portfolio thus has been planned and operated to meet the power needs of retail customers in the Greater Cincinnati/Northern Kentucky area, the combined CG&E/ULH&P service territories, not just for CG&E load. ULH&P has paid for power from the Plants and CG&E's other generation assets under a number of long-term agreements, including currently under the Full Requirements PPA. However, the KPSC has stated on a number of occasions, dating back to 2001, that it believes an alternative structure should be adopted to serve load in Kentucky, i.e., that ULH&P should own physical generation assets. The KPSC is concerned that reliance on purchased power to serve ULH&P's entire load unduly exposes ULH&P's retail customers to the volatility of market prices for power.(15) In light of these concerns, CG&E and ULH&P determined to enter into the proposed transactions. Preliminary to that determination, ULH&P examined various alternatives for meeting the KPSC's goals. ULH&P concluded that a request for proposals ("RFP") would not benefit its retail customers, and thus chose not to initiate such a process. Among other things, the financial problems that had resulted in significant downgrades in the credit ratings of numerous electric industry participants increased credit risk associated with purchases from many potential third parties. In its December 2003 order authorizing the Transfer, the KPSC agreed with ULH&P's determination that an RFP would not benefit ULH&P's customers.(16) ULH&P also concluded that constructing new generation was not a viable alternative for a number of reasons, including the cost of construction and difficulties in siting new plants. Finally, entering into new purchase agreements to serve ULH&P's load would do nothing to further the KPSC's goal of ending ULH&P's total reliance on purchases. ULH&P and CG&E also analyzed a number of possible transfers of plants from CG&E to ULH&P. The Transfer is the result of that analysis. ULH&P determined that the Plants, taken together, will adequately meet ULH&P's retail load requirements. As the KPSC has found, this mix of generating assets (base load, intermediate and peaking) reasonably matches ULH&P's expected load shape over the long-run.(17) Further, each of the Plants is directly interconnected to the Cinergy joint transmission system, reducing ULH&P's exposure to electric supply interruptions caused by the implementation of transmission loading relief procedures on other systems. ULH&P also determined that acquiring the Plants at their net book value would be the least cost alternative for meeting its long-term retail load requirements. Finally, ULH&P determined, in consultation with ICF Consulting, a recognized expert in the field, that the market value of the Plants exceeds their net book value. Item 2. Fees, Commissions and Expenses Total fees and expenses in connection with the preparation and filing of this application, and receipt of the Commission's order with respect thereto, are estimated not to exceed $5,000, consisting chiefly of outside counsel fees and expenses. Item 3. Applicable Statutory Provisions A. Provisions Applicable to Transfer Sections 9(b)(1), 12(b), 12(d) and 12(f) of the Act and Rules 43, 44, 45 and 54 thereunder are or may be applicable to the proposed transactions. The KPSC Order exempts ULH&P's acquisition of the Plants from Commission jurisdiction under Sections 9(a) and 10 pursuant to Section 9(b)(1). With respect to the transfer by CG&E, Section 12(d) and Rule 44, taken together, provide, as relevant here, that no registered holding company shall, directly or indirectly (emphasis added), sell to any person any utility assets -- "in contravention of such rules and regulations or orders regarding the consideration to be received for such sale, maintenance of competitive conditions, fees and commissions, accounts, disclosure of interest, and similar matters as the Commission deems necessary or appropriate in the public interest or for the protection of investors or consumers or to prevent the circumvention of the provisions of this title or the rules, regulations, or orders thereunder." The Transfer clearly satisfies these criteria. The Transfer will be effected at "cost" (i.e., net book value of the Plants at closing), which is fair and reasonable consideration from the perspective of both parties. As discussed above (see Item 1.D, "Rationale for Transfer"), in reviewing the transaction, the KPSC agreed with ULH&P's determination that an RFP would not have benefited ULH&P's customers. The KPSC found the Transfer in the best interests of ULH&P and its ratepayers, and urged this Commission to give weight to its findings. B. Rule 54 Statement 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 exempt wholesale generator ("EWG") or a foreign utility company ("FUCO"), or (as in the present case) 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's aggregate investment in EWGs and FUCOs currently falls within the "safe harbor" afforded by Rule 53(a). At December 31, 2004, Cinergy's "aggregate investment" (as defined in Rule 53(a)(1)) was approximately $785 million and Cinergy's "consolidated retained earnings" (also as defined in Rule 53(a)(1)) were approximately $1,570 million. Accordingly, at December 31, 2004, Cinergy's aggregate investment did not exceed 50% of its consolidated earnings and was within the "safe harbor" limitation contained in Rule 53(a). 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. Finally, rule 53(c) by its terms is inapplicable since the proposed transactions do not involve the issue or sale of a security to finance the acquisition of an EWG or FUCO. Item 4. Regulatory Approval With the exception of the KPSC which has issued its approval, no state or federal commission (other than this Commission), has jurisdiction over the Transfer.(18) Item 5. Procedure Applicants request that the Commission issue a notice of and order authorizing the proposed transactions as soon as practicable. Applicants waive a recommended decision by a hearing officer or other responsible officer of the Commission; consent that the Division of Investment Management may assist in the preparation of the Commission's order, unless the Division opposes the matters proposed herein; and request that there be no waiting period between the issuance of the Commission's order and its effectiveness. Item 6. Exhibits and Financial Statements (a) Exhibits A Not applicable B Form of Asset Transfer Agreement (previously filed) C Not applicable D-1 Application, dated July 21, 2003, filed by ULH&P with KPSC in Case No. 2003-00252 (excluding exhibits thereto) (previously filed) D-2 Amended Application, dated October 29, 2003, in Case No. 2003-00252 (excluding exhibits thereto) (previously filed) D-3 Order of KPSC, dated December 5, 2003, in Case No. 2003-00252 (previously filed) E Not applicable F Preliminary opinion of counsel (previously filed) G-1 Revised Form of Federal Register notice (previously filed) H Response of Cinergy Corp. to Motion to Intervene and Protest, and in the Alternative, Motion for Hearing of the Ohio Consumer's Counsel (previously filed) I Letter of Public Utilities Commission of Ohio dated May11, 2005 (conformed copy) (previously filed) J Capitalization of CG&E and ULH&P K Form of Assignment and Assumption Agreement (b) Financial Statements FS-1 Consolidated balance sheet of Cinergy as of June 30, 2004 (filed as a part of and hereby incorporated by reference from Cinergy's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004) (previously filed) FS-2 Consolidated statement of income of Cinergy for the six months ended June 30, 2004 (filed as a part of and hereby incorporated by reference from Cinergy's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004) (previously filed) FS-3 Consolidated balance sheet of CG&E as of June 30, 2004 (filed as a part of and hereby incorporated by reference from CG&E's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004) (previously filed) FS-4 Consolidated statement of income of CG&E for the six months ended June 30, 2004 (filed as a part of and hereby incorporated by reference from CG&E's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004) (previously filed) FS-5 Journal Entries with respect to the Transfer 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. SIGNATURE Pursuant to the requirements of the Act, each of the undersigned companies has duly caused this Declaration on Form U-1 to be signed on its behalf by the officer indicated below. Dated: August 23, 2005 CINERGY CORP. By: /s/Wendy L. Aumiller Wendy L. Aumiller Vice President and Treasurer THE CINCINNATI GAS & ELECTRIC COMPANY By: /s/Wendy L. Aumiller Wendy L. Aumiller Vice President and Treasurer (1) By virtue of the KPSC Order (defined below), ULH&P's acquisition of the Plants is exempt from Commission jurisdiction under Sections 9(a)(1) and 10 of the Act. See Section 9(b)(1) of the Act, 15 U.S.C. ss. 79i(b)(1). (2) "Net book value" as used herein means original cost less accumulated depreciation. At closing, ULH&P shall also (i) compensate CG&E at cost for inventories, as of the closing date, of fuels, supplies, materials and spare parts of CG&E located at or in transit to the Plants and (ii) reimburse CG&E for all transaction costs incurred by CG&E or any of its affiliates in connection with the Transfer. (3) See In the Matter of the Application of The Union Light Heat and Power Company for a Certificate of Public Convenience to Acquire Certain Generation Resources and Related Property; for Approval of Certain Purchase Power Agreements; for Approval of Certain Accounting Treatment; and for Approval of Deviation from Requirements of KRS 278.2207 and 278.2213(6), Case No. 2003-00252, at n. 1 (Dec. 5, 2003) ("KPSC Order"). (4) See Cinergy Corp., HCAR No. 26146, Oct. 21, 1994. (5) PSI is engaged in the production, transmission, distribution, and sale of electric energy in north central, central, and southern Indiana, serving an estimated population of 2.1 million people located in 69 of the state's 92 counties, including the cities of Bloomington, Columbus, Kokomo, Lafayette, New Albany, and Terre Haute. Cinergy directly holds all the outstanding common stock of PSI. PSI's retail electric services are regulated by the Indiana Utility Regulatory Commission, and its wholesale electric sales and transmission services are regulated by the Federal Energy Regulatory Commission. PSI will not acquire or divest any assets as a result of, nor will it otherwise participate in or be affected by, the Transfer. (6) In August 2004, CG&E consummated the sale to a nonaffiliate of its gas utility subsidiary, Lawrenceburg Gas Company, which provides local distribution service in and around Lawrenceburg, Indiana. See Cinergy Corp., et al., HCAR No. 27880, July 29, 2004. In addition to ULH&P, CG&E has one other utility subsidiary, Miami Power Corporation, whose business is limited to ownership of a 138 kilovolt transmission line extending from the Miami Fort Generating Station along the Ohio River in southwestern Ohio to a point near Madison, Indiana. CG&E has several immaterial nonutility subsidiaries. (7) Pursuant to Ohio's electric customer choice legislation which went into effect in January 2001, the PUCO has no approval authority over the Transfer. See Exhibit H for further information with respect to the absence of approval authority of the PUCO with respect to the Transfer, including in the context of CG&E's "corporate separation" plan (as described therein). (8) At closing, ULH&P shall also (i) compensate CG&E at cost for inventories, as of the closing date, of fuels, supplies, materials and spare parts of CG&E located at or in transit to the Plants and (ii) reimburse CG&E for all transaction costs incurred by CG&E or any of its affiliates in connection with the Transfer. (9) CG&E will continue to operate Miami Fort 6. (10) At December 31, 2004, each of CG&E's and ULH&P's senior unsecured debt was rated BBB+ by Fitch Ratings, Baa1 by Moody's Investors Service and BBB by Standard & Poor's Ratings Service. Applicants do not believe it would be feasible for ULH&P, consistent with the fundamental goal of maintaining its current strong investment grade ratings, to finance an acquisition of this magnitude entirely with the proceeds of debt. Conversely, the specific manner in which the parties have structured the financing of the acquisition -- essentially as a 50/50 debt/equity-financed acquisition -- not only should have no adverse impact on ULH&P's ratings but, again consistent with the overriding objective of maintaining both companies' strong ratings, should likewise have no adverse impact on CG&E's ratings. (11) On April 13, 2005, the KPSC issued an order in Case No. 2005-00027 authorizing a financing program of up to $900 million through 12/31/06 for ULH&P. Among other things, the order authorizes ULH&P "to assume debt of CG&E as the transferor of generation assets, in an aggregate principal amount of up to $200 million, as partial payment of its generation acquisition." The KPSC does not have jurisdiction over borrowings by ULH&P with maturities of two years or less but does over (among other things) borrowings with maturities of greater than two years (and thus its order would encompass the contemplated assumption of long-term tax-exempt debt of $75 million described in the text). Cinergy and ULH&P will be requesting authority in a separate file (File No. 70-10303) for UHL&P to increase its borrowing authority for borrowings maturing in two years or less to (among other purposes) accommodate the contemplated assumption of short-term debt in connection with the Transfer as described in the text. (12) The accumulated deferred income taxes result from the difference in book and tax basis of the transferred assets. A basis difference exists because different depreciation conventions are used for book purposes than are used for tax purposes. The investment tax credit ("ITC") is simply the unamortized portion of ITC that is associated with the assets being transferred. (13) Under the relevant contracts relating to this $75 million in long-term tax-exempt debt, the only feasible way in which this debt ultimately can be refinanced by ULH&P is through an initial assumption of this debt by ULH&P from CG&E. (14)Also, pursuant to a Back-up Power Sale Agreement between CG&E and ULH&P, CG&E will sell back-up power to ULH&P in the event of a scheduled or forced outage at East Bend or Miami Fort 6. (Woodsdale is not covered by the Back-up Agreement because, as a peaking facility it will not operate for most hours of the year, and thus will not be relied on to meet ULH&P's base load requirements.) ULH&P has determined to bid out its back-up requirements for East Bend and Miami Fort 6, and thus CG&E will only file for FERC approval of the Back-up Agreement in the event that it is the winning bidder. (15) See, e.g., KPSC Order, supra, at 3-4 ("Background"). (16) The KPSC noted that the cost of the units is no greater than the market price; that "[a]ttempting to acquire an entire generation fleet through a single transaction is unprecedented in the electric utility industry"; and that uncertainty in the market supported the approach adopted by ULH&P. Id. at 10-11. (17) Id. at 12 (finding "ULH&P's analysis of supply-side resource options to be reasonable."). (18) The FERC has jurisdiction over (and has issued orders authorizing) the FERC 205 Agreements but not the Transfer. EX-99 2 file07010254debtassumpexhk.txt Exhibit K DEBT ASSUMPTION AGREEMENT THIS DEBT ASSUMPTION AGREEMENT (this "Agreement") is made and entered into as of the ___ day of _____, 2005, by and between THE CINCINNATI GAS & ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of Ohio ("CG&E"), and THE UNION LIGHT, HEAT AND POWER COMPANY, a corporation organized and existing under the laws of the Commonwealth of Kentucky ("ULH&P"), with reference to the matters set forth below: A. The County of Boone, Kentucky (the "Issuer") has previously issued and sold $16,000,000 in aggregate principal amount of its Floating Rate Monthly Demand Pollution Control Revenue Refunding Bonds, 1985 Series A (The Cincinnati Gas & Electric Company Project) (the "1985 Series A Bonds") pursuant to a trust indenture, dated as of February 1, 1985 between the Issuer and The Fifth Third Bank (as trustee). The Issuer has loaned the proceeds of the sale of the 1985 Series A Bonds to CG&E pursuant to a loan agreement dated as of February 1, 1985 (the "1985 Series A Loan Agreement") between the Issuer and CG&E for use in refunding bonds previously issued to pay the cost of acquiring, constructing, installing and equipping certain facilities for CG&E. The 1985 Series A Loan Agreement obligates CG&E to make payments to the Issuer in such amounts and at such times as will provide for the payment of the principal and interest on the Bonds as the same become due and payable. B. The County of Boone, Kentucky has previously issued and sold $48,000,000 in aggregate principal amount of its 5 1/2% Collateralized Pollution Control Revenue Refunding Bonds, 1994 Series A (The Cincinnati Gas & Electric Company Project) (the "1994 Series A Bonds") pursuant to a trust Indenture, dated as of January 1, 1994 between the Issuer and The Bank of New York (as trustee). The Issuer has loaned the proceeds of the sale of the 1994 Series A Bonds to CG&E pursuant to a loan agreement dated as of January 1, 1994 (the "1994 Series A Loan Agreement") between the Issuer and CG&E for use in refunding bonds previously issued to pay the cost of acquiring, constructing, installing and equipping certain facilities for CG&E. The 1994 Series A Loan Agreement obligates CG&E to make payments to the Issuer in such amounts and at such times as will provide for the payment of the principal and interest on the Bonds as the same become due and payable. C. The County of Boone, Kentucky has previously issued and sold $48,000,000 in aggregate principal amount of its 6.5% Collateralized Pollution Control Revenue Refunding Bonds, 1992 Series A (The Dayton Power and Light Company Project) (the "1992 Series A Bonds") pursuant to an indenture of trust, dated as of November 15, 1992 between the Issuer and The Bank of New York (as trustee). The Issuer has loaned the proceeds of the sale of the 1992 Series A Bonds to The Dayton Power and Light Company ("DP&L") pursuant to a loan agreement dated as of November 15, 1992 (the "1992 Series A Loan Agreement") between the Issuer and DP&L for use in refunding bonds previously issued to pay the cost of acquiring, constructing, installing and equipping certain facilities for DP&L. The 1992 Series A Loan Agreement obligates DP&L to make payments to the Issuer in such amounts and at such times as will provide for the payment of the principal and interest on the 1992 Series A Bonds as the same become due and payable. CG&E and DP&L entered into a Repayment Agreement dated as of December 23, 1992 (the "Repayment Agreement") under which CG&E agreed, among other matters, to pay to DP&L a portion of the amounts due from time to time as debt service on the 1992 Series A Bonds and to pay the costs of redemption, as appropriate, of the 1992 Series A Bonds in the principal amount of $12,720,663 (the "Specified Bonds"). D. CG&E owes payables to certain affiliate companies in the amount of $______________ (the "Payables"). E. Pursuant to and consistent with Cinergy Corp.'s intercompany "Money Pool" arrangement, as approved by the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935, CG&E owes short-term debt to Cinergy Corp. in the amount of _________________ (the "Short-Term Debt"). F. Pursuant to those three certain Asset Transfer Agreements by and between CG&E and ULH&P dated as of _____________, 2005 (the "Transfer Agreements"), CG&E and ULH&P desire that CG&E assign to ULH&P and that ULH&P assume all of CG&E's obligations under the 1985 Series A Loan Agreement, the 1994 Series A Loan Agreement, the Repayment Agreement, and further that CG&E assign to ULH&P and ULH&P assume a portion of CG&E's obligations with respect to the Payables in the amount of $_____________ (a schedule of which is attached hereto as Exhibit A) and a portion of CG&E obligations with respect to the Short-Term Debt in the amount of $___________, for a combined amount of $_________________ of CG&E's Payables and Short-Term Debt (the "Assumed Payables and Short-Term Debt"). G. ULH&P is agreeable to and is expected to satisfy all liabilities thereby assumed, whether or not CG&E has been relieved of such liability. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby covenant and agree as follows: Section 1 Representations by CG&E. CG&E makes the following representations: (a) Corporate Organization and Power. CG&E is a corporation duly authorized, validly existing and in good standing under the laws of the State of Ohio, and is duly qualified to transact business as a foreign corporation in the Commonwealth of Kentucky. (b) Agreements Are Legal and Authorized. The execution and delivery by CG&E of this Agreement and the compliance by CG&E with all of the provisions hereof and with respect to the 1985 Series A Loan Agreement, the 1994 Series A Loan Agreement, the Repayment Agreement and CG&E's obligations with respect to the Assumed Payables and Short-Term Debt are within the purposes, corporate powers and authority of CG&E and have been duly authorized by all necessary corporate action on the part of the CG&E. (c) Governmental Consent. Neither CG&E nor any of its business or properties, nor any relationship between CG&E and any other person, nor any circumstances in connection with the execution, delivery and performance by CG&E of this Agreement is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of CG&E (other than any governmental approvals previously obtained). (d) No Defaults. To CG&E's knowledge, no event has occurred and no condition exists with respect to CG&E that would constitute an event of default under the 1985 Series A Loan Agreement, the 1994 Series A Loan Agreement, the Repayment Agreement or CG&E's obligations with respect to the Assumed Payables and Short-Term Debt. Section 2 Representations by ULH&P. ULH&P makes the following representations as the basis for the undertakings on its part herein contained: (a) Corporate Organization and Power. ULH&P is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Kentucky. (b) Agreements are Legal and Authorized. The execution and delivery by ULH&P of this Agreement and the compliance by ULH&P with all of the provisions hereof and with respect to the 1985 Series A Loan Agreement, the 1994 Series A Loan Agreement, the Repayment Agreement and ULH&P's obligations with respect to the Assumed Payables and Short-Term Debt are within the purposes, corporate powers and authority of ULH&P and have been duly authorized by all necessary corporate action on the part of ULH&P. (c) Governmental Consent. Neither ULH&P nor any of its business or properties, nor any relationship between ULH&P and any other person, nor any circumstances in connection with the execution, delivery and performance by ULH&P of this Agreement is such as to require the consent, approval or authorization of, or the filing, registration or qualification with, any governmental authority on the part of ULH&P (other than any governmental approvals previously obtained). Section 3 Assumed Obligations. Effective as of the date hereof, CG&E assigns all of its rights, duties and obligations under the 1985 Series A Loan Agreement, the 1994 Series A Loan Agreement, the Repayment Agreement and with respect to the Assumed Payables and Short-Term Debt to ULH&P (collectively, the "Assumed Obligations"), including, but not limited to, the obligation to make the remaining payments due with respect to the Assumed Obligations, and ULH&P assumes all rights, and agrees to perform all duties and obligations of CG&E with respect to the Assumed Obligations and otherwise in connection with the 1985 Series A Bonds, the 1994 Series A Bonds, and the Specified Bonds, including, but not limited to, the obligation to make the remaining payments due with respect to the Assumed Obligations. ULH&P acknowledges that it has agreed to, and is expected to, fully satisfy the liabilities thereby assumed, whether or not CG&E has been relieved of such liability. Section 4 Cooperation By CG&E. CG&E agrees to promptly provide to ULH&P copies of all notices and communications received with respect to the Assumed Obligations, and to cooperate with ULH&P to the extent necessary to enable ULH&P to perform all of the rights, duties and obligations with respect to the Assumed Obligations. Section 5 Indemnification by ULH&P. ULH&P shall indemnify, defend and hold CG&E harmless from and against all losses, damages and expenses (including, without limitation, reasonable attorneys' fees) imposed upon or incurred by it as a result of any failure by ULH&P to perform its obligations with respect to the Assumed Obligations or otherwise under this Agreement. Section 6 Counterparts. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 7 Captions. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provision of this Agreement. Section 8 Notices. Notice hereunder shall be given to: The Cincinnati Gas & Electric Company 221 East Fourth Street, Suite 2500 Cincinnati, Ohio 45202 Attention: Treasurer The Union Light, Heat and Power Company 221 East Fourth Street, Suite 2500 Cincinnati, OH 45202 Attention: Treasurer Section 9 Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Ohio. IN WITNESS WHEREOF, CG&E and ULH&P have caused this Agreement to be executed in their respective corporate names all as of the date first written above. THE CINCINNATI GAS & ELECTRIC COMPANY By: _______________________________________ Name: Title: THE UNION LIGHT, HEAT AND POWER COMPANY By: _______________________________________ Name: Title: Schedule A List of Assumed Payables EX-99 3 fileno07010254extfs5.txt Financial Statement FS-5 Transfer of Cincinnati Gas & Electric Company Electric Production Plants East Bend, Woodsdale, and Miami Fort Unit 6 to The Union Light, Heat & Power Company Union Light, Heat & Power Company Entries December 31, 2004 Entry # Account Account Title Debit Credit 1 102 Electric Plant Purchased or Sold 372,489,229 154 Plant Materials and Operating Supplies 10,076,409 151 Fuels 8,191,475 255 Accumulated Deferred Investment Tax Credit 5,973,000 282 Accumulated Deferred Income Taxes 62,522,000 233 Notes Payable to CGE 150,000,000.00 211 Paid in Capital 172,262,113.00 To record ULHP's acquisition of production plants,fuel, deferred taxes and related inventory. 2 101/106 Electric Plant In Service / Completed Construction Not Classified 720,293,051 107 Constuction Work In Progress 23,921,101 102 Electric Plant Purchased or Sold 744,214,152 To transfer the original cost of production plants to accounts 101,106, and 107. 3 102 Electric Plant Purchased or Sold 371,724,923 108 Accumulated Provision for Depreciation of Electric Utility Plant 371,724,923 To transfer accumulated provision for depreciation of production plant to account 108. ------------- ------------- 1,506,696,188 1,506,696,188 ============= ============= Note: These numbers are based on December 31, 2004 balances and are subject to change. Deferred taxes are estimated as of March 31, 2005. Sale of Cincinnati Gas & Electric Company Electric Production Plants East Bend, Woodsdale, and Miami Fort Unit 6 to The Union Light, Heat & Power Company Cincinnati Gas & Electric Company December 31, 2004 Entry # Account Account Title Debit Credit 1 233 Notes Payable to Affiliated Companies 150,000,000.00 123 Investment in ULH&P 172,262,113.00 255 Accumulated Deferred Investment Tax Credit 5,973,000.00 282 Accumulated Deferred Income Taxes 62,522,000.00 102 Electric Plant Purchased or Sold 372,489,229 154 Plant Materials and Operating Supplies 10,076,409 151 Fuels 8,191,475 To record CGE's sale of the production plants, fuel, and related inventory. 2 102 Electric Plant Purchased or Sold 744,214,152 101/106 Electric Plant In Service / Completed Construction Not Classified 720,293,051 107 Construction Work In Progress 23,921,101 To transfer the original cost of production plants out of accounts 101, 106 and 107. 3 108 Accumulated Provision for Depreciation of Electric Utility Plant 371,724,923 102 Electric Plant Purchased or Sold 371,724,923 To transfer accumulated provision for depreciation of production plant out of account 108. -------------- ------------- 1,506,696,188 1,506,696,188 ============== ============= Note: These numbers are based on the December 31, 2004 balances and are subject to change. Deferred taxes are estimated as of March 31, 2005. EX-99 4 fileno07010254exhj.txt Exhibit J THE UNION LIGHT, HEAT AND POWER COMPANY Schedule of Capitalization As Of December 31, 2004 (000s) "50/50" Scenario* 100% Debt Scenario* Current Proforma Current Proforma Long-term debt due within one year $ - $ - $ - $ - Notes payable and other short-term obligations - - - - Notes payable to affiliated companies 11,246 150,000 161,246 11,246 322,262 333,508 Long-term debt 94,340 94,340 94,340 94,340 Capital leases 9,137 9,137 9,137 9,137 - - - - Total Debt $114,723 $150,000 $264,723 $114,723 $322,262 $436,985 Preferred Stock - - - - Common Stock Equity 192,511 172,262 364,773 192,511 - 192,511 Total Capitalization $307,234 $322,262 $629,496 $307,234 $322,262 $629,496 ============================== ========================== Total Debt 37.3% 42.1% 37.3% 69.4% Preferred Stock 0.0% 0.0% 0.0% 0.0% Common Stock Equity 62.7% 57.9% 62.7% 30.6% Total Capitalization 100.0% 100.0% 100.0% 100.0% ========= ========= ======== ======== *Does not reflect additional consideration of $68 million being transferred from CG&E to Union Light in the form of deferred income taxes and deferred investment tax credits. THE CINCINNATI GAS & ELECTRIC COMPANY Consolidated Schedule of Capitalization As Of December 31, 2004 (000s) "50/50" Scenario 100% Debt Scenario* Current Proforma Current Proforma Long-term debt due within one year $ - $ - $ - $ - Notes payable and other short-term obligations - - - - Notes payable to affiliated companies 180,116 180,116 180,116 - 180,116 Long-term debt 1,612,097 1,612,097 1,612,097 1,612,097 Capital leases 40,128 40,128 40,128 40,128 - - - - Total Debt $1,832,341 $1,832,341 $1,832,341 $ - $1,832,341 Preferred Stock 20,485 20,485 20,485 20,485 Common Stock Equity 1,918,713 1,918,713 1,918,713 - 1,918,713 Total Capitalization $3,771,539 $ - $3,771,539 $3,771,539 $ - $3,771,539 ============================ ========================== Total Debt 48.6% 48.6% 48.6% 48.6% Preferred Stock 0.5% 0.5% 0.5% 0.5% Common Stock Equity 50.9% 50.9% 50.9% 50.9% Total Capitalization 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ======== -----END PRIVACY-ENHANCED MESSAGE-----