FILE NO. 70-10013
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4 TO FORM U-1 APPLICATION/DECLARATION
UNDER SECTION 3(b) AND
RULE 10 OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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DUKE ENERGY CORPORATION
526 S. Church Street
Charlotte, North Carolina 28202
(Name of the company filing this application and
address of its principal executive office)
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David L. Hauser
Senior Vice President and
Treasurer
Duke Energy Corporation
526 S. Church Street
Charlotte, North Carolina 28202
(Name and address of agent for service)
Please also submit copies of all correspondence to:
Adam Wenner, Esq.
Catherine O'Harra, Esq.
Vinson & Elkins L.L.P.
The Willard Office Building
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-1008
J. Curtis Moffatt, Esq.
Van Ness Feldman
A Professional Corporation
1050 Thomas Jefferson St.
Washington, D.C. 20007-3877
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
Applicant Duke Energy Corporation ("Duke Energy"), a North Carolina
corporation, has entered into an Amended and Restated Combination Agreement with
Westcoast Energy Inc. ("Westcoast"), a corporation organized under the laws of
Canada, pursuant to which Duke Energy will acquire the stock of Westcoast(1) in
exchange for $3.5 billion in cash and stock and the assumption of approximately
$5 billion in Westcoast debt (the "Acquisition"). Duke Energy intends to
finance the cash portion of the consideration to be paid for the Acquisition
primarily through the sale of equity-linked securities. Duke Energy hereby
applies under Section 3(b) of the Public Utility Holding Company Act of 1935, as
amended ("1935 Act"), for an order exempting certain foreign companies that will
be acquired by Duke Energy in conjunction with the Acquisition.(2)
Westcoast has three subsidiaries that are public-utility companies
operating exclusively outside the United States ("Non-U.S. Utilities").(3) None
of the Non-U.S. Utilities, either before or after the Acquisition, will serve
customers in the United States, nor will the Non-U.S. Utilities derive any
income directly or indirectly from sources within the United States.(4) The
Non-U.S. Utilities are as follows:
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1 The stock of Westcoast is traded on the New York Stock Exchange under the
ticker symbol "WE."
2 The Commission issued notice of the Acquisition on February 1, 2002, with
comments due by February 26, 2002. No comments were filed.
3 Westcoast previously had an interest in one other subsidiary that is a
public-utility company that is operating exclusively outside the United States:
Shanghai WEI-Gang Energy Company Ltd., ("WEI-Gang") a 50%-owned, indirect
subsidiary company of Westcoast, which is engaged in the generation and sale of
electric power to industrial customers in Shanghai, China. Westcoast has, but
prior to the completion of this Application will sell, interests in Centra Gas
British Columbia Inc., a wholly-owned, indirect subsidiary company of Westcoast,
which is engaged in the transportation of natural gas and the distribution of
natural gas to residential, commercial and industrial customers in British
Columbia, Canada, and Centra Gas Whistler Inc., a wholly-owned, indirect
subsidiary company of Westcoast, which is engaged in the transportation of
natural gas and the distribution of natural gas to residential, commercial and
industrial customers in British Columbia, Canada. On March 6, 2002, Westcoast
sold its interest in WEI-Gang. As indicated in Exhibit 13, Duke Energy will
submit evidence of the sale by Westcoast of its ownership interest in these
entities.
4 Although the facilities of Union Gas Limited ("Union Gas") are located
within Ontario, Canada, Union Gas provides storage service in Canada on behalf
of several U.S. customers. This stored gas is owned by Union Gas's customers,
and, when released, is delivered to pipelines in Canada for transportation
within Canada and into the United States. Union Gas also provides
transportation service to customers within the United States, by transporting
natural gas in Canada up to the Canadian border with the United States. Union
Gas does not, however, provide transportation service into or in the United
States. As with storage service, Union Gas's transportation service is limited
to transporting gas owned by its customers only within Canada. Union Gas does
not sell any natural gas in the United States and Union Gas never acquires title
to natural gas that may be subsequently transported into and sold in the United
States. The only natural gas bought by Union Gas, i.e., to which it takes
title, is that which Union Gas sells to its customers in Ontario, Canada. In
addition, Union Gas does not provide either storage or transportation service in
the United States to any affiliate of Duke Energy or Westcoast. Pursuant to
Commission precedent, these activities of Union Gas do not result in Union Gas's
deriving income from U.S. sources. See e.g., Emera Incorporated, HCAR No. 27445
(Oct. 1, 2001) (electric utility company's sales of power at the Canadian border
do not make the company ineligible for foreign utility company ("FUCO") status.
Section 33 of the 1935 Act, which relates to FUCOs, contains an analogous
restriction on sales in or into the United States.). To the extent that a
marketer affiliate of Union Gas may sell natural gas in the United States, such
marketer does not own or
(continued)
1
1. Union Gas, a wholly-owned, direct(5) subsidiary of Westcoast, is
engaged in the transportation and storage of natural gas and the distribution of
natural gas to residential, commercial and industrial customers in Ontario,
Canada;
2. Pacific Northern Gas Ltd. ("Pacific Northern"), a 40.04%-owned,
direct subsidiary company of Westcoast,(6) is engaged in the transportation of
natural gas and the distribution of natural gas to residential, commercial, and
industrial customers in British Columbia, Canada; and
3. P.T. Puncakjaya Power ("PJP"), a 42.86%-owned, indirect subsidiary
company of Westcoast, is engaged in the generation and sale of electric power to
industrial customers in Irian Jaya, Indonesia.
Union Gas is a public company. Westcoast directly owns 100% of the voting
common shares of Union Gas stock. The public holds 100% of the Class A, Class B
and Class C preferred, non-voting shares of Union Gas stock. The preferred
shares of Union Gas trade on the Toronto Stock Exchange. The voting common
shares are not listed. After acquiring Westcoast, Duke Energy, through its
ownership interest in Westcoast, will indirectly own 100% of the voting shares
of Union Gas stock. The public will continue to hold the Class A, Class B and
Class C preferred, non-voting shares.
Pacific Northern is a public company and has Class A Non-Voting Common
Shares with a par value of $2.50 each and 6.75% Cumulative Redeemable Preferred
Shares with a par value of $25.00 each that trade on the Toronto Stock Exchange.
Westcoast currently owns 40.04% of the non-voting Class A Common shares of
Pacific Northern and 100% of the voting Class B Common shares, without
intermediate subsidiaries. The public owns the balance of the Class A Common
shares and all (200,000 shares) of the 6.75% Preferred shares. After the
transaction, Pacific Northern will be a 40.04%-owned, indirect subsidiary
company of Duke Energy. The remainder of Pacific Northern's stock will continue
to be owned by the public.
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(continued)
operate any facilities used for the retail distribution of natural gas, and is
consequently not a "gas utility company" within the meaning of the 1935 Act.
Moreover, even if any income from the above-described storage and
transportation services were considered to be derived from U.S. sources, Union
Gas's income from such sources clearly is not material. The income Union Gas
derives from the above-described activities constitutes only 2.40 percent of its
net income, 1.28 percent of its gross revenue, and 2.6 percent of its total
margin. The Commission previously has held that with regards to Section 3(a)(1)
of the 1935 Act, net income within 10.8 and 11.2 percent of a utility's total
net income does not rise to the level of being "material." See NIPSCO
Industries, Inc., HCAR No. 26975 (Feb. 10, 1999). Although the Commission has
not considered "materiality" with respect to Section 3(b), its determinations
with respect to other subsections of Section 3 should apply equally in this
matter.
5 Westcoast directly owns all of the common shares of Union Gas. Union Gas
is currently 100% owned by Centra Gas Utilities Inc., which is 100% owned by
Centra Gas Holdings Inc., which is 100% owned by Westcoast Gas Inc., which is
100% owned by Westcoast Gas Holdings Inc., which is 100% owned by Westcoast.
However, these four intermediate companies will be amalgamated into Westcoast
prior to closing.
6 Westcoast directly owns 40.04% of the non-voting Class A Common stock and
100% of the voting Class B Common stock of Pacific Northern.
2
Westcoast indirectly owns, through Westcoast (PJP) Holdings, Inc., a
corporation organized under the laws of Canada, a 42.86% share of PJP.
Westcoast (PJP) Holdings, Inc., is a wholly-owned, direct subsidiary company of
Westcoast.
Duke Energy also currently indirectly owns a 42.86% share of PJP through
Duke Energy International PJP Holdings (Maruritius), Ltd. ("Duke PJP Holdings"),
an Indonesian company. Duke PJP Holdings is a wholly-owned subsidiary company of
Duke Energy International PJP Holdings Ltd., a company established under the
laws of Bermuda. Duke Energy International PJP Holdings Ltd. is a wholly-owned
subsidiary company of Duke Energy International Asia Pacific Ltd. ("Duke Energy
Asia Pacific"), which was also established under the laws of Bermuda. Duke
Energy Group, Inc., a Delaware corporation, holds a 32% interest in Duke Energy
Asia Pacific. Texas Eastern (Bermuda), Ltd., a company established under the
laws of Bermuda, which is a wholly-owned subsidiary company of Duke Energy
Group, Inc., holds the remaining 68% interest in Duke Energy Asia Pacific. Duke
Energy Group, Inc. is a wholly-owned subsidiary company of Duke Energy
International, LLC, a Delaware limited liability company, which is a
wholly-owned subsidiary company of Duke Energy Global Markets, Inc., a Nevada
corporation. Duke Energy Global Markets, Inc. is a wholly-owned subsidiary
company of Duke Energy Services, Inc., a Delaware corporation, which is a
wholly-owned subsidiary company of PanEnergy Corp., a Delaware Corporation,
which is a wholly-owned subsidiary company of Duke Capital Corporation ("Duke
Capital"), a Delaware corporation.
The remaining 14.28% interest in PJP is owned by P.T. Austindo Nusantara
Jaya, a limited liability company established under the laws of the Republic of
Indonesia. After Duke Energy's acquisition of Westcoast, PJP will be an
85.72%-owned, indirect subsidiary company of Duke Energy. P.T. Austindo
Nusantara Jaya will continue to own its 14.28% interest.
Upon and after the effective date of the Acquisition, Duke Energy may, for
tax, legal, regulatory or administrative reasons, restructure the corporate
organization described above. If this restructuring involves the creation of
any special purpose subsidiary company, such company will meet the requirements
for exemption under the 1935 Act.
APPLICANT'S STATEMENTS IN SUPPORT OF APPLICATION
In support hereof, the Applicant states:
(1) Duke Energy is a publicly held corporation organized under
North Carolina law with its principal offices located at 526 S. Church Street,
Charlotte, North Carolina 28202. Duke Energy engages directly and indirectly in
the generation, transmission, distribution and sale of electric energy to retail
and wholesale customers in the States of North Carolina and South Carolina. Duke
Energy is an electric utility company and a public-utility company as such terms
are defined in the 1935 Act. Because Duke Energy operates in a divisional
structure, it is not a holding company under the 1935 Act. Consequently, it is
not regulated as a holding company under the 1935 Act, nor is any Duke Energy
subsidiary company or affiliate regulated as such under the 1935 Act. Duke
Energy's senior debt is currently rated Standard & Poors' Corporation - A+;
Moody's Investor Service - A1; and Fitch - A+.
(2) Union Gas is organized under the laws of Ontario, Canada.
Pacific Northern is organized under the laws of British Columbia, Canada. PJP is
organized under the laws of the Republic of Indonesia. The Non-U.S. Utilities
will not engage in any business other than the acquisition of Canadian or
Indonesian public-utility companies, the supervision of Duke
3
Energy's investments in Canada or Indonesia, and the participation in the
management and operation of Canadian or Indonesian public-utility companies.
(3) The Non-U.S. Utilities derive no material part of their
income, either directly or indirectly, from sources within the United States.
Each of the Non-U.S. Utilities operate exclusively, in all respects, outside the
United States. The Non-U.S. Utilities are not qualified to do business in any
state of the United States, nor is any Non-U.S. Utility a public-utility company
operating in the United States. The Non-U.S. Utilities have no plan to derive
any income from United States operations, from any company qualified to do
business in any state of the United States, or from any public-utility company
operating in the United States. None of the Non-U.S. Utilities nor any of their
subsidiary companies is a public-utility company operating in the United States.
(4) Section 3(b) of the 1935 Act provides that the Commission
"shall exempt any subsidiary company, as such, from any provision or provisions
of [the 1935 Act]. . . if such subsidiary company derives no material part of
its income, directly or indirectly, from sources within the United States, and
neither it nor any of its subsidiary companies is a public-utility company
operating in the United States," provided that the Commission finds that the
application of the 1935 Act to such subsidiary company is "not necessary in the
public interest or for the protection of investors. . ."
(5) The proposed investment will not affect the Non-U.S.
Utilities' status as public utility companies subject to regulation by the laws
of the jurisdiction in which the Non-U.S. Utilities are organized and operate.
As explained below, regulation of the Non-U.S. Utilities under the 1935 Act is
not necessary in the public interest, or for the protection of investors or
consumers. Therefore, as in the following cases, each of the Non-U.S. Utilities
satisfies the standards of Section 3(b) and should be accorded an unqualified
exemption, as a subsidiary company, from all provisions of the 1935 Act. See
Public Service Company of Colorado, HCAR No. 26671 (Feb. 19, 1997) ("PSC
Colorado"); UtiliCorp United, Inc., HCAR No. 26353 (Aug. 7, 1995) ("UtiliCorp
1995"); UtiliCorp United, Inc., HCAR No. 26919 (Sept. 28, 1998) ("UtiliCorp
1998").
(6) Although the Non-U.S. Utilities would satisfy the requirements
under Section 33(a)(3) of the 1935 Act and become a FUCO as defined therein upon
the filing of a notice on Form U-57, the capitalization limits established by
Section 33(f) would restrict the ability of Duke Energy to finance the
acquisition of the Non-U.S. Utilities as FUCOs.(7) The Commission has previously
recognized that Section 3(b) provides an alternative route for foreign
acquisitions in identical circumstances. See PSC Colorado; UtiliCorp 1995;
UtiliCorp 1998.
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7 In 1994, Duke Energy submitted a Notification of Foreign Utility Company
Status on behalf of PJP. Form U-57, December 16, 1994. Upon obtaining the
exemption requested herein and prior to acquiring the stock of Westcoast, Duke
Energy will withdraw the Notification of Foreign Utility Company Status and PJP
will no longer be a FUCO.
Through its subsidiaries, Westcoast previously owned an interest in another
FUCO, WEI-Gang. On January 23, 2002, WEI-Gang filed an application with the
Federal Energy Regulatory Commission ("FERC") for a determination of exempt
wholesale generator ("EWG") status. As discussed above, Westcoast has sold its
interest in WEI-Gang to a third party.
4
(These opinions were issued after October 24, 1992, the date upon which Section
33 was added to the 1935 Act.)
(7) The legislative history of the Energy Policy Act of 1992,
through which Section 33 became law, makes clear that Section 33 was to be read
in a permissive -not a restrictive -manner. Senator Donald Riegle, the Chairman
of the Senate Banking Committee and a primary Senate proponent of the Section 33
legislation, stated that "[w]hile section 33 is important, we must remember that
international activities by utilities is permitted by current law. Specifically,
under current law, the Securities and Exchange Commission has the authority to
permit, on a case-by-case basis, utility functions outside the United
States. . . The provisions of section 33 supplement these foreign options for
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utility operations and do not in any way limit the ability to pursue the SEC
approval under current law. . .We must remember that the purpose of section 33
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is to facilitate foreign investment, not burden it." Congressional Record, 102nd
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Cong., Oct. 8, 1992, 138 Cong. Rec. S. 17625 (emphasis supplied). See also
Energy Policy Act of 1992, H.R. Conf. Report No. 102-1018 at 388, 1992
U.S.C.C.A.N. 2472, 2479 (1992); Entergy Corp. et al., HCAR No. 25706 (Dec. 14,
1992).
(8) Duke Energy will not seek recovery through higher rates to its
domestic regulated utility customers for any possible loss it might sustain by
reason of the proposed investment in the Non-U.S. Utilities or for any
inadequate returns on that investment. Duke Energy's domestic utility customers
will not be put at risk of any adverse financial effects resulting from the
operations of the Non-U.S. Utilities, nor will the ability of the state public
utility commissions of North Carolina and South Carolina, which have regulatory
jurisdiction over the retail rates of Duke Energy to protect the interests of
consumers in their respective states, be adversely affected. The domestic
utility customers of Duke Energy will not be put at risk of any adverse
financial effects resulting from the operations of the Non-U.S. Utilities.
(9) Duke Energy has filed herewith, as Exhibits 3 and 4,
respectively, its October 10, 2001 application to the North Carolina Utilities
Commission ("NCUC") and its October 12, 2001 application to the Public Service
Commission of South Carolina ("SCPSC") (collectively, the "State Commissions"),
as amended. Both applications sought approval of the Acquisition and the
issuance of Duke Energy stock in connection with the Acquisition. Among other
things, these applications sought (i) approval of Duke Energy's indirect
acquisition of the Non-U.S. Utilities, and (ii) a determination by the State
Commissions that Duke Energy's stock issuance will be compatible with the public
interest, will be necessary and appropriate for, and consistent with, the proper
performance by Duke Energy of its service to the public as a utility, will not
impair its ability to perform that service, and will be reasonably necessary and
appropriate for such purpose. Submitted as Exhibits 7 and 8, respectively, are
the State Commissions' rulings approving the Acquisition. As more thoroughly
provided below, the orders of the State Commissions provide that they have the
authority and resources to protect ratepayers subject to their jurisdiction and
that they intend to exercise their authority.(8)
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8 See Exhibit 7 at 3; Exhibit 8 at 3. Also, both the North Carolina and
South Carolina Public Service Commissions have previously issued letters to the
SEC with regard to Duke Energy, stating that each Commission "has the authority
and resources to protect ratepayers subject to its jurisdiction and that it
intends to exercise its authority." These certifications, which appear in
Exhibit 6 to the Application, are not limited to any specific non-U.S.
acquisition, and thus represent the State Commissions' generally applicable
views as to their ability to protect
(continued)
5
(10) Duke Energy has also filed herewith as Exhibit 10, its
December 14, 2001, application to the FERC for approval, pursuant to Section 203
of the Federal Power Act, for its proposed change in control over Engage Energy
America LLC ("Engage Energy") and Frederickson Power L.P. ("Frederickson
Power"), both of which are subsidiary companies of Westcoast.(9) Engage Energy
is a power marketer with market-based rate approval from the FERC.(10)
Frederickson Power is an EWG with market-based rate authority.(11) On February
27, 2002, FERC issued an order granting the section 203 application.(12)
(11) Duke Energy's domestic utility operations are, and will
continue to be, fully separated from Duke Energy's foreign operations.
Moreover, since Duke Energy is a publicly-traded company subject to the
continuous disclosure requirements of the Securities Exchange Act of 1934, as
amended, regulation under the federal securities laws offers significant
additional protections for the interest of investors. As a result of the
Acquisition, each of the Non-U.S. Utilities will be a "subsidiary company" of
Duke Energy within the meaning of Section 2(a)(8) of the 1935 Act. Regulation
of the Non-U.S. Utilities as subsidiaries of a holding company is not necessary
for either the public interest or for the protection of investors.
(12) Duke Energy will maintain separate books of account for the
Non-U.S. Utilities and any of its subsidiaries that may control the Non-U.S.
Utilities and will commit to provide access to those books and records to each
State Commission with retail rate jurisdiction to the extent not already
required under state law. Duke Energy commits that it will maintain corporate
separation from the Non-U.S. Utilities.
(13) Section 33(f) of the 1935 Act relates to the acquisition of
FUCOs. This transaction does not involve the acquisition of any FUCOs or
interests in FUCOs. Section 33(f)(2)(C) considers the relationship of the
"transaction" in which a FUCO is acquired to the capitalization of the acquiring
public-utility company. This section does not indicate whether the percentage
should be limited to the costs associated with the FUCO being acquired, where
the FUCO is a subsidiary company of a non-FUCO entity, or should reflect the
entire purchase. In order to address both of these approaches, Applicant
provides this information (1) based on the entire acquisition of Westcoast,
including all of its subsidiary companies, and (2) based on just Westcoast's
subsidiary public-utility companies.
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(continued)
ratepayers and their intent to do so. The Commission has relied on similar
certifications granting exemptions under Section 3(b) of the 1935 Act. See,
e.g., PSC Colorado.
9 Duke Energy's application describes Engage Energy and Frederickson Power
on pages 9-12.
10 Newco US, L.P., Docket No. ER97-654-000 (Dec. 30, 1996) (unpublished
Letter Order).
11 See Frederickson Power L.P., 95 FERC P. 62,151 (2001) (granting EWG
determination); Frederickson Power L.P., Docket No. ER01-2262-000 (Feb. 21,
2002) (unpublished Letter Order) (granting market-based rate authority).
12 See Exhibit 11, filed herewith.
6
(a) The acquisition of Westcoast, including all of its
subsidiary companies:
Duke Energy is acquiring Westcoast for $8.5 billion, including
assumption of debt; $3.5 billion without debt. Of the amount Duke Energy
will pay Westcoast for its stock, 50% will be in cash and 50% will be in
Duke Energy stock. The cash portion is estimated to equal 2.79 billion
Canadian dollars. Using the approximate exchange rate of 1.54 Canadian
dollars to 1 U.S. dollar (the actual exchange rate will be the rate on the
date Duke Energy acquires Westcoast), Duke Energy will pay approximately
$1.8 billion in cash to Westcoast. The value of the stock portion is also
approximately $1.8 billion. Duke Energy's total market capitalization is
presently $43 billion, consisting of $28 billion in equity and $15 billion
in debt as of December 31, 2001. The total purchase price (cash and stock)
for the acquisition of Westcoast (not taking into account the assumption of
Westcoast debt) represents approximately 13% of the value of the equity of
Duke Energy. If the debt of the two companies is considered, the total
purchase price represents approximately 20% of the total market
capitalization of Duke Energy.
(b) The acquisition of Union Gas, Pacific Northern, and PJP:
The portion of the total purchase price (cash and stock) paid by Duke
Energy for Westcoast relating to Union Gas, Pacific Northern, and PJP (not
taking into account the assumption of a proportionate amount of Westcoast
debt) represents approximately 3% of the value of the equity of Duke Energy
(2% for Union Gas, less than 1% for Pacific Northern and less than 1% for
PJP). As indicated in Exhibit H, this information is based on an allocation
of the total purchase price based on the book value of these companies.(13)
Including a proportionate amount of the assumed Westcoast debt, the
acquisition of Union Gas, Pacific Northern, and PJP represents
approximately 6% of the current market capitalization of Duke Energy (5%
for Union Gas, less than 1% for Pacific Northern and less than 1% for PJP).
(14) The tables below show the capitalization of Duke Energy and
Westcoast (including its interests in the Non-U.S. Utilities) as of September
30, 2001, December 31, 2000, and December 31, 1999, respectively, as well as the
anticipated pro forma capitalization of Duke Energy post-Acquisition, according
to U.S. GAAP.
DUKE ENERGY
BALANCE SHEET DATA 9/30/01 12/31/00 12/31/99
Total Assets 50,463 58,176 33,409
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Capitalization
Notes Payable and Commercial Paper 951 1,826 267
Long-Term Debt (including current portion)(a) 12,390 11,489 9,198
Guaranteed Preferred Beneficial Interests
in Subordinated Notes of DEC or Subsidiaries 1,407 1,406 1,404
Preferred and Preference Stock 247 247 280
Minority Interest 2,528 2,435 1,200
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13 These calculations are based on data for Westcoast's most recent fiscal
year end, December 31, 2001.
7
Total Common Stock Equity 12,501 10,056 8,998
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Total Capitalization 30,024 27,459 21,347
WESTCOAST (U.S. DOLLAR/CANADIAN GAAP)
BALANCE SHEET DATA 9/30/01 12/31/00 12/31/99
Total Assets 9,345 10,088 8,156
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Capitalization
Notes Payable 371 556 539
Long-Term Debt (including current portion) 3,936 4,121 4,066
Guaranteed Preferred Beneficial Interests in
Subordinated Notes of DEC or Subsidiaries - - -
Preferred and Preference Stock 548 577 599
Minority Interest 108 111 115
Total Common Stock Equity 1,925 1,843 1,659
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Total Capitalization 6,889 7,208 6,979
PRO FORMA
BALANCE SHEET DATA 9/30/01
Total Assets 62,224
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Capitalization
Notes Payable and Commercial Paper 1,012
Long-Term Debt (including current portion)(b) 18,783
Guaranteed Preferred Beneficial Interests in
Subordinated Notes of DEC or Subsidiaries 1,407
Preferred and Preference Stock 247
Minority Interest 3,325
Total Common Stock Equity 14,108
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Total Capitalization(c) 38,882
(a) Includes $875 million in mandatorily convertible securities (equity
units). Each equity unit contains a purchase contract obligating the investors
to purchase shares of Duke Energy Common Stock in 2004. An equity unit consists
of two components: a purchase contract and a Duke Capital Senior Note. The
purchase contract obligates the investor to purchase newly issued shares of Duke
Energy common stock in approximately three years from the date of issue of the
purchase contract according to a settlement rate. The senior note is issued to
the investor coincidently with the purchase contract and serves as collateral
for the investor to fulfill his obligation. The senior note is issued for a
period of five years; however, in year three, the senior note is remarketed for
a remaining two-year period. During the first three years of the security's
life, the investor receives semi-annual coupon payments consisting of an
interest payment on the senior notes and a contract adjustment payment
associated with the purchase contract. In the last two years, the investor of
the senior note will receive interest payments.
(b) For purposes of the pro forma financial statements, it was assumed that
$1,834 in mandatorily convertible equity units would be issued to fund the
portion of the purchase price that is payable in cash, for a total of $2,709
million in mandatorily convertible securities at September 30, 2001.
(c) These pro forma financial statements indicate that equity will comprise
37% of the capitalization of the combined companies. If, however, it were
assumed that all of the mandatorily convertible equity units are converted to
common shares, approximately $2 billion in debt would become equity. Under this
assumption, the capitalization of the combined companies would be 42% equity.
8
(15) On the basis of the facts set forth in this
Application/Declaration, the Commission should grant the Non-U.S. Utilities the
exemption without qualification provided for by Section 3(b) of the 1935 Act.
(16) If the Non-U.S. Utilities are exempt without qualification
under Section 3(b) of the 1935 Act, then Duke Energy and each of its respective
subsidiary companies that directly or indirectly hold interests in the Non-U.S.
Utilities (the "Intermediate Subsidiary Companies") would be entitled to the
exemption provided for by Rule 10 of the 1935 Act. Duke Energy and the
Intermediate Subsidiary Companies will rely upon Rule 10(a)(1) to provide an
exemption insofar as each is a holding company. Duke Energy and the
Intermediate Subsidiary Companies will rely upon Rule 11(b)(1) to provide an
exemption from the approval requirements of Sections 9(a)(2) and 10 to which
they would otherwise be subject.
(17) Duke Energy hereby consents to file with the Commission
reports under Rule 24 of the Commission's regulations, on a quarterly basis.
Duke Energy will submit its first such report within sixty days of the end of
the first calendar quarter after the date the Commission issues its order
granting the requests sought in this Application/Declaration. Duke Energy will
then submit updated reports within sixty days after the end of each of the first
three calendar quarters, and one hundred twenty days after the end of the last
calendar quarter, or year end. Duke Energy will provide the following
information in those reports: (1) the capitalization of Duke Energy according to
U.S. GAAP (total capitalization is to include all current maturities and all
short-term indebtedness and commercial paper); and (2) the most recent senior
debt ratings of Duke Energy as published by a nationally recognized statistical
ratings organization ("NRSRO"). In addition, if since the end of the last
calendar quarter, either (1) there has been a 10% or greater decline in Duke
Energy's common stock equity for U.S. GAAP purposes; or (2) an NRSRO has
downgraded the senior debt ratings of Duke Energy by one full rating level
(e.g., from A to BBB), Duke Energy consents to file a report informing the
Commission of the event within ten business days of its occurrence.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
An estimate of the fees and expenses to be paid or incurred by the
Applicants in connection with the proposed transaction is set forth below:
Counsel Fees. . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 3(b), 9(a)(2), and 10 and Rules 10 and 11(b)(1) of the 1935 Act
are or may be applicable to the proposed transaction described herein. To the
extent any other sections of the 1935 Act may be applicable to the proposed
transaction, Applicant hereby requests appropriate orders thereunder.
ITEM 4. REGULATORY APPROVAL
In addition to the approval of the Commission under Section 3(b) requested
in this Application/Declaration, Duke Energy has sought approval by the North
Carolina Utilities
9
Commission ("NCUC"), Public Service Commission of South Carolina ("SCPSC"), the
New York Public Service Commission ("NYPSC"), the Federal Energy Regulatory
Commission ("FERC"), and the Federal Trade Commission ("FTC"). The Acquisition
also requires the approval of the British Columbia Utilities Commission ("BCUC")
and other agencies of the Canadian government under the Competition Act of
Canada and the Investment Canada Act. These approvals are necessary for Duke
Energy's acquisition of Westcoast, its indirect acquisition of the Non-U.S.
Utilities and its issuance of stock in order to carry out the Acquisition.
The NCUC approved the Acquisition as being in the public interest and also
authorized Duke Energy to issue securities in connection with the Acquisition.
The NCUC found that the Acquisition and the issuance by Duke Energy of its
securities in connection therewith would not adversely affect Duke Energy's
retail rates, would be consistent with the proper performance by Duke Energy of
its service to the public, would not impair Duke Energy's ability to perform
that service, would be compatible with the public interest, and would be
justified by the public convenience and necessity.
The SCPSC similarly approved the Acquisition as being in the public
interest and authorized Duke Energy to issue stock in connection with the
Acquisition. The SCPSC concluded that the purpose of the issue of securities is
proper, the property to be acquired by the issue is appropriately valued, and
the amount of such securities is reasonably necessary for the acquisition of
Westcoast. The SCPSC found that the proposed acquisition would not have any
adverse effect on Duke Energy's electric rates. The SCPSC also found that a
settlement agreement between Duke Energy and Consumer Advocate for South
Carolina protects South Carolina retail customers from any detrimental effect of
the Acquisition on retail rates and charges.
The NYPSC approved the Joint Petition for Approval of Stock Acquisition
submitted by Duke Energy, Westcoast, and 3946509 Canada Inc.(14) Pursuant to
Section 70 of the New York Public Service Law, the acquisition of Westcoast by
Duke Energy is subject to NYPSC jurisdiction because Westcoast indirectly owns
the Empire State Pipeline, which provides natural gas to distribution companies,
power plants and marketers in western New York. The NYPSC found that the
Acquisition is in the public interest and would not impair the NYPSC's ability
to exercise its jurisdictional authority over Empire State Pipeline.
Based on the FERC's review of the Acquisition under Section 203 of the
Federal Power Act and the requirements of the Merger Policy Statement,(15) the
FERC concluded that the Acquisition would not adversely affect competition,
rates or regulation.(16) The FERC reviewed the impact of the Acquisition on
competition in affected electric power and "upstream" natural
----------------
14 3946509 Canada Inc. is an indirect, wholly-owned subsidiary company of
Duke Energy.
15 See 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),
FERC Stats. and Regs. Regulations Preambles P. 31,044 at 30,117-18 (1996),
reconsideration denied, Order No. 592-A, 62 Fed. Reg. 33,341 (June 19, 1997), 79
FERC P. 61,321 (1997).
16 Engage Energy America, LLC, Frederickson Power L.P., Duke Energy
Corporation, 98 FERC P. 61,207 (2002).
10
gas and natural gas pipeline markets and on Duke Energy's wholesale rates, and
concluded that the Acquisition is consistent with the public interest.
Under the Hart-Scott-Rodino Antitrust Improvements Act ("HSR") and related
rules, the Acquisition may not be consummated prior to the expiration or
termination of the applicable waiting period. The waiting period applicable to
the Acquisition pursuant to the HSR was terminated on March 1, 2002. Under the
HSR, the FTC and the Antitrust Division of the U.S. Department of Justice review
mergers and acquisitions to determine whether the effect of the transaction, in
any line of commerce or in any activity affecting commerce in any section of the
country, may be substantially to lessen competition, or tend to create a
monopoly.
Under the Competition Act of Canada, the Acquisition may not be completed
before the expiration or earlier termination of the applicable waiting period
after notice of the Acquisition, together with certain prescribed information,
has been provided to the Commissioner of Competition. This waiting period
expired on November 1, 2001. The Commissioner reviews the effects of a proposed
transaction on competition in Canada. With respect to the Acquisition, the
Commissioner issued a "no action letter" on January 4, 2002, concluding that
there were no grounds at that time to challenge the Acquisition.
The Utilities Commission Act provides that the Acquisition cannot be
consummated without the approval of the BCUC. The BCUC may not give its
approval unless it determines that the Acquisition will not detrimentally affect
any Canadian public utility or the users of the service of any Canadian public
utility. The BCUC concluded that the Acquisition will not detrimentally affect
the public utilities subject to its jurisdiction or the users of the services of
those utilities.
Under the Investment Canada Act, Duke Energy cannot acquire the Westcoast
Common Shares unless it has first received the approval of the federal Industry
Minister. The Minister will approve the Acquisition if he is satisfied that it
is likely to be of net benefit to Canada. Duke Energy is seeking the Minister's
approval of the Acquisition in early March 2002 (to be filed as Exhibit 14).
The Supreme Court of British Columbia declared under section 192 of the
Canada Business Corporations Act (the "CBCA") that the terms and conditions of
the Acquisition were substantively and procedurally fair and reasonable to the
persons affected. In addition, the Court ordered that the Acquisition was
approved pursuant to section 192 of the CBCA and would upon filing of articles
of arrangement and the issuance of a certificate of arrangement be effective in
accordance with its terms. The Court order included a stipulation that it would
take effect only upon the filing by Westcoast of a confirmation (in the form
attached to the order) that all regulatory approvals that are conditions
precedent to the consummation of the transaction contemplated by the amended and
restated combination agreement among Westcoast, Duke Energy, 3058368 Nova Scotia
Company and 3946509 Canada Inc. have been obtained.
Under the Federal Law on Economic Competition of Mexico, the Federal
Competition Commission must be notified of and approve the Acquisition. The
Federal Competition Commission issued its approval on December 7, 2001, finding
that the Acquisition did not reduce, impair or prevent competition in Mexico.
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Except as discussed above, no other state or federal commission has
jurisdiction over this Acquisition.
ITEM 5. PROCEDURE
Applicant requested that the Commission issue and publish no later than
February 1, 2002, the requisite notice under Rule 23 with respect to the filing
of this Application/Declaration, such notice to specify a date not later than
February 26, 2002 as the date after which an order granting and permitting this
Application/Declaration to become effective may be entered by the Commission,
and that, in order not to delay the closing date for the Transaction, the
Commission enter not later than March 6, 2002, an appropriate order granting and
permitting this Application/Declaration to become effective. The Commission
issued notice of the Acquisition on February 1, 2002, with comments due by
February 26, 2002.
Duke Energy hereby waives a hearing with respect to this
Application/Declaration and requests that there be no 30-day waiting period
between the issuance of the Commission's order and the date on which it is to
become effective. Duke Energy hereby waives a recommended decision by a hearing
officer or other responsible officer of the Commission and hereby consents that
the Division of Investment Management may assist in the preparation of the
Commission's decision and/or order.
ITEM 6. EXHIBITS
The following exhibits are hereby filed as a part of this
Application/Declaration:
EXHIBIT 1 Form of Notice.
EXHIBIT 2 Opinion of Counsel (filed herewith).
EXHIBIT 3 Application of Duke Energy to the North Carolina Utilities
Commission, dated October 10, 2001, as amended.
EXHIBIT 4 Application of Duke Energy to the Public Service Commission
of South Carolina, dated October 12, 2001, as amended.
EXHIBIT 5 Joint Petition of Duke Energy, Westcoast and 3946509 Canada
Inc. for Approval of Stock Acquisition to the New York State
Public Service Commission, filed October 16, 2001.
EXHIBIT 6 Duke Energy Form U-57, Notification of Foreign Utility
Company Status, July 15, 1998.
EXHIBIT 7 Order of the North Carolina Utilities Commission, dated
February 8, 2002 (filed herewith).
EXHIBIT 8 Order of the Public Service Commission of South Carolina,
dated January 29, 2002 (filed herewith).
EXHIBIT 9 Order of the New York State Public Service Commission, dated
January 28, 2002 (filed herewith).
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EXHIBIT 10 Application of Engage Energy America LLC and Frederickson
Power L.P. and Duke Energy Corporation for Approval of
Change in Upstream Control and Resulting Disposition of
Jurisdictional Facilities Pursuant to Section 203 of the
Federal Power Act, dated December 14, 2001.
EXHIBIT 11 Order of the Federal Energy Regulatory Commission (filed
herewith).
EXHIBIT 12 No action letter from the Federal Trade Commission, pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act (to be
filed by amendment).
EXHIBIT 13 Evidence of the sale by Westcoast of Centra Gas British
Columbia Inc., Centra Gas Whistler Inc., and Shanghai
WEI-Gang Energy Company Ltd. (to be filed by amendment).
EXHIBIT 14 Approval under the Investment Canada Act (to be filed on
Form SE).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The proposed transaction does not involve major federal action having a
significant effect on the environment and to the best of the Applicant's
knowledge, no federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
It is requested that copies of all orders, notices and communications with
respect to the above Application/Declaration be served as follows:
David L. Hauser
Vice President and
Treasurer
Duke Energy Corporation
526 S. Church Street
Charlotte, North Carolina 28202
Adam Wenner, Esq. J. Curtis Moffatt, Esq.
Catherine O'Harra, Esq. Van Ness Feldman
Vinson & Elkins L.L.P. 1050 Thomas Jefferson St.
The Willard Office Building Washington, D.C. 20007-3877
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-1008
WHEREFORE, Duke Energy respectfully requests that the Commission issue an
order herein determining that the Non-U.S. Utilities are entitled to the
exemption without qualification provided for by Section 3(b) of the 1935 Act.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Application/Declaration to be
signed on its behalf by the undersigned thereunto duly authorized.
Respectfully submitted,
DUKE ENERGY CORPORATION
By: /s/ David L. Hauser
--------------------------------
David L. Hauser
Vice President and
Treasurer
Dated: March 7, 2002
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