As filed with the Securities and Exchange Commission on March 23, 2001
File No. 70-9779
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM U-1 APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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The AES Corporation
Dennis W. Bakke
Roger W. Sant
1001 North 19th Street
Arlington, VA 22209
(Name of company or companies filing this statement
and address of principal executive offices)
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William R. Luraschi
General Counsel and Secretary
The AES Corporation
1001 North 19th Street
Arlington, VA 22209
(Name and addresses of agents for service)
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The Commission is requested to send copies of all notices, orders
and communications in connection with this Application to:
Clifford (Mike) M. Naeve, Esq. J. A. Bouknight, Jr., Esq.
Judith A. Center, Esq. Steptoe & Johnson LLP
Paul Silverman, Esq. 1330 Connecticut Avenue, N.W.
William C. Weeden Washington, D.C. 20036
Skadden, Arps, Slate,
Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
AES hereby amends and restates its Application to read as follows:
APPLICATION FOR AUTHORIZATION TO ACQUIRE SECURITIES UNDER
SECTIONS 9(a)(2) AND 10 AND FOR AN EXEMPTION PURSUANT
TO SECTION 3(a)(5) OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Introduction and Request For Commission Action
The AES Corporation ("AES"), Dennis W. Bakke and Roger W. Sant request
that the Securities and Exchange Commission ("SEC" or "Commission") approve
under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935,
as amended ("PUHCA" or the "Act") AES's proposal to acquire all of the equity
securities of IPALCO Enterprises, Inc. ("IPALCO"), a public utility holding
company exempt from all provisions of the Act, other than Sections 9(a)(2) and
10, pursuant to Section 3(a)(1) in accordance with Rule 2 under the Act. AES is
a public utility holding company exempt by Commission order from all provisions
of the Act other than Sections 9(a)(2) and 10 pursuant to Section 3(a)(5). AES
Corp., Holding Co. Act Release No. 27063 (Aug. 20, 1999) ("AES"). AES also
requests that the Commission issue an order determining that following the
acquisition, AES and each of its subsidiaries will continue to be exempt from
the provisions of the Act, other than Sections 9(a)(2) and 10, under Section
3(a)(5).1 Mr. Bakke and Mr. Sant request approval under Sections 9(a)(2) and 10
in connection with the proposed transaction.
ITEM 1. DESCRIPTION OF THE TRANSACTION
A. Summary of the Transaction
Under an Agreement and Plan of Share Exchange dated as of July 15,
2000, between AES and IPALCO ("Share Exchange Agreement"), IPALCO and AES will
effect a share exchange in which IPALCO will become a wholly-owned subsidiary of
AES (the "Transaction"). Each outstanding share of IPALCO common stock will be
converted into the right to receive shares of AES common stock with a market
value of $25.00 (subject to adjustment as described in the Share Exchange
Agreement). The Share Exchange Agreement is attached to this Application as
Annex A to Exhibit C-1.
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1 Some AES subsidiaries also will continue to be exempt from the Act as
exempt wholesale generators ("EWGs"), under Section 32 of the Act, as
foreign utility companies ("FUCOs"), under Section 33 of the Act, or as
qualifying facilities ("QFs"), under Section 210(e) of the Public Utility
Regulatory Policies Act of 1978, and Part 292 of Title 18 of the Code of
Federal Regulations.
Following the Transaction, AES will hold IPALCO as a first-tier,
direct subsidiary, and IPALCO's subsidiaries will retain their current direct or
indirect relationship with IPALCO. IPALCO will continue as an Indiana
corporation with its principal executive offices in Indianapolis, Indiana, and
AES will continue to be a Delaware corporation with its principal executive
offices in Arlington, Virginia.
The Transaction offers important benefits to IPALCO's utility
customers and shareholders. AES's international and diversified experience in
competitive power markets will supply IPALCO's public utility subsidiary,
Indianapolis Power & Light Company ("IPL") with substantial additional resources
needed to provide efficient and reliable service in the increasingly competitive
electric utility industry. The Transaction also will provide significant
benefits to AES and its current utility subsidiary, Central Illinois Light
Company ("CILCO"). These potential benefits include strengthening AES's ability
to compete in the changing electric utility industry by expanding the scope of
its operations and customer base; adding to its operations some of the most
efficient coal fired electric generating plants in the Midwest; and gaining a
highly respected brand name. Both IPL and CILCO will benefit from resulting
economies of scale in the generation and retail segments of their business. In
light of these potential benefits, the AES board of directors unanimously
determined that the Transaction is in the best interests of AES and its
stockholders and should thus proceed. The IPALCO Board of Directors made a
similar unanimous determination and resolved to recommend that the IPALCO
shareholders vote to approve the Transaction.2
The Share Exchange Agreement is subject to the approval of IPALCO's
shareholders and was approved at a special meeting of IPALCO shareholders held
on October 20, 2000. The Transaction also requires the approval of the Federal
Energy Regulatory Commission ("FERC"). AES and IPALCO filed an application for
such approval on November 14, 2000. The FERC approved the Transaction in an
order issued on March 8, 2001. The Transaction also is subject to the
notification and reporting requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). AES and IPALCO made the required HSR
Act filings on November 8, 2000. In a letter dated November 20, 2000, AES
received notice from the Federal Trade Commission ("FTC") granting an early
termination of the waiting period under the HSR Act.
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2 The Transaction does not require AES stockholder approval because the
number of AES shares to be issued in the Transaction does not exceed 20% of
the number of AES shares outstanding immediately prior to the Transaction.
The Transaction is not subject to the jurisdiction of the Indiana
Utility Regulatory Commission ("IURC"). Section 8-1-2-83(a) of the Indiana Code
states that "no public utility . . . shall sell, assign, transfer, lease or
encumber its franchise, works, or system . . . without approval of the [IURC]."
The Indiana Supreme Court has held that transfers of securities of public
utility holding companies are exempt from this approval requirement. Indiana
Bell Tel. Co. v. Indiana Util. Regulatory Comm'n, 715 N.E.2d 351 (Ind. 1999).
Because the Transaction involves the acquisition of securities of a holding
company rather than a direct acquisition of assets covered by Section
8-1-2-83(a), it is the type of transaction that the Indiana Supreme Court has
ruled does not require IURC approval. A state commission certification in
accordance with the requirements of Section 33(a)(2) of the Act was sought from
the IURC. Receipt of this certification is a precondition to completion of the
Transaction. The IURC issued this certification on September 28, 2000.
Upon consummation of the Transaction, AES will own IPALCO, an
intrastate exempt holding company under Section 3(a)(1) of the Act, and its
direct and indirect subsidiaries, including IPL, a utility subsidiary
principally engaged in the generation, transmission, distribution and sale of
electric energy in central Indiana. After giving effect to the Transaction,
IPALCO will remain predominantly an intrastate holding company that will not
derive any material part of its income from an out-of-state utility subsidiary.
Accordingly, IPALCO will continue to claim an exemption from registration under
Section 3(a)(1) and Rule 2.
AES currently owns all of the common stock of CILCORP Inc.
("CILCORP"), an Illinois public utility holding company exempt from regulation
under the Act by reason of an exemption under Section 3(a)(1) of the Act by Rule
2 under the Act, and the parent of CILCO, an electric and gas utility company.
As discussed more fully below, AES will commit to enter into an agreement with
an unaffiliated person within two years from completion of the Transaction to
divest its ownership of all utility assets of CILCO subject to the jurisdiction
of the Commission. AES has had preliminary discussions with potential acquirors
of CILCO's utility assets subject to the Commission's jurisdiction. Following
completion of such a divestiture process, IPL would be the only public utility
subsidiary of AES. For the reasons set forth below, AES will qualify for an
exemption from registration under Section 3(a)(5) of the Act.
B. Description of Parties to the Transaction
1. The AES Corporation
AES, incorporated in Delaware, is a United States-based multinational
electric power generation and energy distribution company, with operations in 17
countries worldwide. AES is engaged principally in the development, ownership,
and operation of electric generating plants and electric and gas distribution
companies, all of which, with the exception of CILCO, either are QFs or are
owned by either EWGs or FUCOs. On an actual pro rata consolidated basis as of
December 31, 2000, AES received over 92 percent of its revenues from electric
generation and distribution activities in 2000. Of this amount, approximately
89.66 percent of revenues came from operations exempt from Commission
jurisdiction. AES's remaining revenues during 2000 came from such energy-related
activities as the sale of steam and other commodities connected with its
cogeneration operations, as well as operational, construction and project
development services, and gas and power marketing.3
As of December 31, 2000, CILCORP had consolidated assets of $1.9
billion. For the year ending December 31, 2000, it had revenues and net income
of $724 million and $11 million, respectively. CILCO is engaged in the
generation, transmission, distribution and sale of electric energy in an area of
approximately 3,700 square miles in central and east-central Illinois, and the
purchase, distribution, transportation and retail sale of natural gas in an area
of approximately 4,500 square miles also in central and east-central Illinois.
As of December 31, 2000, CILCO served approximately 193,000 retail electric
customers and 201,000 gas customers, including 140 industrial, commercial and
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3 AES Power, a wholly owned subsidiary of AES active in power marketing,
generated less than 1 percent of AES's 1999 net income. CEMIG, a Brazilian
utility in which AES has an equity investment, has operated a small gas
distribution company, Gasmig, since 1995. AES also owns NewEnergy Inc., an
energy services provider, Power Direct, a retail energy marketing company,
Titan Energy, a natural gas marketing company, two wholly-owned
telecommunications subsidiaries, AES Redibol and AES Communications Ltd,
and a 50 percent interest in two other telecommunications subsidiaries,
Eletronet, and Infovias. Altai engages in heat distribution operations in
Kazakhstan. As discussed elsewhere in this Application, CILCO engages in
retail gas operations. Finally, AES owns and operates the Lyukobanya Coal
Mine in Hungary. The mine has an output of approximately one million tons
per year of brown coal and is the sole supplier of AES Borsod, which
generates electricity in Hungary.
residential gas transportation customers that purchase gas directly from
suppliers for transportation through CILCO's system.4 For the year ending
December 31, 2000, it had revenues and net income of $724 million and $11
million, respectively. As of December 31, 2000, CILCO had total assets of $1.1
billion. Electric utility assets were $800 million and gas utility assets were
$300 million. For the year ended December 31, 2000, CILCO had gross utility
revenues and net income of $636 million and $45 million, respectively. In 2000,
CILCO earned $399 million in electric utility revenues (63% of total operating
revenues) and $237 million in gas utility revenues (37% of total operating
revenues).5 CILCO is subject to regulation by the Illinois Commerce Commission
("ICC").
As the indirect owner of CILCO, AES is a public utility holding
company under the Act. It is exempt from all provisions of the Act other than
Section 9(a)(2) pursuant to an exemption under Section 3(a)(5) granted by the
Commission in an order dated August 20, 1999. AES, supra. Exhibit K-2 lists all
AES subsidiaries and their respective jurisdictions of organization.
AES has grown since its founding in 1981 to become one of the largest
global electricity suppliers, if not the largest. As of December 31, 2000, AES
owns and/or operates (entirely or in part) a diverse international portfolio of
electric power plants with a total capacity of 45,839 megawatts ("MW"),
including plants that are part of distribution companies in which AES has an
interest. Of that total, 7,630 MW (17 plants) are located in the United States,
6,123 MW (7 plants) are in the United Kingdom, 1885 MW (7 plants) are in
Argentina, 780 MW (8 plants) are in China, 1,281 MW (3 plants) are in Hungary,
9,706 MW (52 plants) are in Brazil,7,774 MW (7 plants) are in Kazakhstan, 797 MW
(2 plants) are in the Dominican Republic, 110 MW (1 plant) are in Canada, 695 MW
(2 plants) are in Pakistan, 1,247 MW (3 plants) are in Australia, 405 MW (1
plant) are in the Netherlands, 2,265 MW (7 plants) are in Venezuela, 420 MW (1
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4 Some CILCO customers receive both gas and electric service from the
company, an others receive only one of these services. CILCO's total number
of customers thus is less than the sum of gas and electric customers.
5 CILCORP is also the parent of three first-tier nonutility subsidiaries: QST
Enterprises, Inc., a company formed to facilitate CILCORP's expansion into
nonregulated energy and related services businesses; CILCORP Investment
Management Inc., which invests in long-term financial investments,
including leveraged leases, energy-related projects and affordable
residential housing; and CILCORP Ventures Inc., which primarily invests in
energy-related projects and services.
plant) are in India, 823 MW (3 plants) are in the Republic of Georgia, 484 MW (1
plant) are in Mexico, and 277 MW (4 plants) are in Panama, 1,404 MW (3 plants)
are in Colombia and 1,733 MW (13 plants) are in Chile. Of the total capacity,
38,209 MW of AES's generating capacity is located outside the United States.6
AES has continued its growth in 2000. In 2000, AES acquired or achieved
commercial operations for 7 power plants totaling 2,265 MW in Venezuela, a 600
MW plant in the Republic of Georgia, a 1,000 MW plant in Argentina, a 360 MW
plant in the United Kingdom, and a 360 MW plant in Bangladesh. Combining the 131
power plants in operation AES had minimum of 42,000 MW of generating capacity at
December 31, 2000.7 As a result, the power generation capacity of companies in
which AES has an interest will have grown by 5,269 percent in 9 years.8
As noted above, AES also owns partial interests (both majority and
minority) in companies that distribute and sell electricity directly to
commercial, industrial, governmental, and residential customers. In addition to
its 100 percent interest in CILCORP, AES has majority ownership in 3
distribution companies in Argentina, 1 in Brazil, 1 in the Republic of Georgia,
1 in Kazakhstan, 2 in El Salvador, 1 in Venezuela, and 1 in the Dominican
Republic; a 50 percent interest in a distribution company in India; and less
than majority ownership in 3 distribution companies in Brazil. AES's 14 foreign
distribution companies serve a total of approximately 17 million customers with
sales of over 139,000 gigawatt-hours. On a net equity basis, AES's ownership in
these companies represents approximately 6.8 million foreign customers and
approximately 49,369 gigawatt-hours.
AES has grown rapidly throughout this decade. In 1990, the year before
it went public, AES had total assets of $1.1 billion, revenues of $190.2 million
and net income of $15.5 million.9 By the end of 1999, total assets grew by
approximately 1,800 percent to $ 20.9 billion, revenues grew by approximately
1,600 percent to $3.3 billion, and net income grew by nearly 1,400 percent to
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6 On a net equity basis, i.e., actual ownership interest, AES has 36,981 MW
of capacity, of which 29,351 MW is foreign-based.
7 Of this 42,000 MW, 35,072 MW is foreign. On a net equity basis, AES had a
generating capacity of 35,400 MW at year-end 2000; 27,770 MW of which is
foreign.
8 5,173 percent on a net equity basis.
9 Determined in accordance with Generally Accepted Accounting Principles
("GAAP").
$228 million.10 Excluding the effects of non-cash foreign currency losses, net
income for 1999 was $378 million, which would represent a growth from 1990 of
2,339 percent. AES's total assets expanded by approximately 49 percent to
approximately $31 billion, revenues increased approximately 106 percent to
approximately $6.7 billion, and net income grew approximately 181 percent to
approximately $641 million. Excluding the effects of non-cash foreign currency
transaction losses in 1999, net income increased approximately 78 percent. In
the 10 year period between year-end 1990 and 2000, AES's growth in total assets,
revenues and net income was approximately 2,652 percent, 3,417 percent and 4,029
percent, respectively.
The growth of AES's distribution business also has been fast-paced. In
1996, AES purchased its first interests in a distribution company. By the end of
2000, companies in which AES had an interest served approximately 17.4 million
customers in the U.S. and abroad and sold over 139,000 gigawatt-hours of
power.11 In 2000, AES has acquired 87 percent of an electric distribution
company serving 1.13 million customers in Venezuela and 100 percent of three
electric distribution companies in El Salvador that together serve approximately
3.5 million customers.
AES's market capitalization has mirrored its growth over the decade.
AES's public offering in 1991 valued the company at $750 million. At December
31, 2000, AES's market capitalization had risen to approximately $25 billion, an
increase of 3,600 percent in approximately 9 years.
Exhibit K-12 lists the AES subsidiary companies which own generation
facilities currently in operation, and also includes company operating
locations, power generation capacities, AES net equity interests, and the
regulatory status of the companies and/or generating facilities (i.e., whether
QF, EWG, or FUCO). Exhibit K-12 also lists the distribution companies in which
AES owns an interest, including location, regulatory status and the nature of
AES's interest. Exhibit K-4 depicts the locations of AES's current generation
and distribution businesses worldwide.
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10 See AES Annual Report on Form 10-K for the fiscal year ended December 31,
1999 at Exhibit G-5.
11 Approximately 6.6 million customers and 55,100 gigawatt-hours on a net
equity basis.
2. Messrs. Bakke and Sant
While not parties to the Transaction, Messrs. Dennis W. Bakke and
Roger W. Sant seek Commission approval under Sections 9(a)(2) and 10 in
connection with it. Mr. Bakke is AES's President and Chief Executive Officer.
Mr. Sant is AES's the Chairman of the Board of Directors. Each of these
individuals owns more than five percent, but less than ten percent, of AES's
common stock.
3. IPALCO Enterprises, Inc.
IPALCO was incorporated as a utility holding company in the State of
Indiana in 1983. It has two first-tier subsidiaries: IPL and Mid-America Capital
Resources, Inc. ("Mid-America"). For 2000, IPALCO's consolidated assets,
revenues, and net income were $1.983 billion, $858 million, and $155 million,
respectively. As noted above, IPALCO is an exempt holding company under Section
3(a)(1) pursuant to Rule 2.
IPL is the electric utility company subsidiary of IPALCO. It engages
primarily in generating, transmitting, distributing and selling electric energy
in the city of Indianapolis and neighboring cities, towns, communities, and
adjacent rural areas, all within the state of Indiana, the most distant point
being about 40 miles from Indianapolis. Prior to the sale of IPL's steam system
assets to Citizens Gas & Coke Utility on November 28, 2000, IPL also produced,
distributed and sold steam within a limited area in Indianapolis. As of December
31, 2000, IPL served approximately 438,933 retail electric customers. In 2000,
IPL received $831 million in electric utility revenues. At the end of 2000, IPL
had total assets, operating revenues and net income of $1.9 billion, $858.5
million and $80.2 million, respectively. IPL owns and operates two primarily
coal-fired electric generating plants, one combination coal and gas-fired
electric generating plant and a separately sited gas-fired combustion turbine.
These facilities have total gross nameplate ratings of 3,118 MW, their winter
capability is 3,129 MW, and their summer capability is 3,036 MW.
At the end of 2000, IPL's transmission system included 457 circuit
miles of 345,000 volt lines, 359 circuit miles of 138,000 volt lines and 269
miles of 34,500 volt lines. Underground distribution and service facilities
include 623 miles of conduit and 6,789 wire miles of conductor. Underground
street lighting facilities include 94 miles of conduit and 2,053 wire miles of
conductor. Also included in the system are 75 bulk power substations and 69
distribution substations.
Mid-America is the holding company for IPALCO's unregulated
activities. Its subsidiaries are Mid-America Energy Resources, Inc. ("Energy
Resources"), Indianapolis Campus Energy, Inc. ("ICE"), Cleveland Thermal Energy
Corporation ("Cleveland Thermal") and Cleveland District Cooling Corporation
("Cleveland Cooling"). In conjunction with the sale of IPL's steam assets,
IPALCO also sold the assets of Energy Resources and ICE to Citizens Gas & Coke
Utility on November 20, 2000. Prior to this sale, Energy Resources operated a
district cooling system in downtown Indianapolis, Indiana, and ICE owned and
operated an energy system under contract to the Lilly Technology Center in
Indianapolis, Indiana. Cleveland Thermal owns and operates a district heating
system in Cleveland, Ohio. Cleveland Cooling owns and operates a district
cooling system also located in Cleveland. Cleveland Thermal and Cleveland
Cooling conduct business jointly under the name Cleveland Energy Resources
("CER"). On November 2, 2000, IPALCO signed an agreement with Dominion Cleveland
Thermal, Inc., a subsidiary of Dominion Energy, Inc. to sell the assets of CER.
The sale is subject to certain approvals and is expected to be completed in the
first quarter of 2001.
As of December 31, 2000, Mid-America also had investments in Internet
Capital Group, Inc. ("ICG") and EnerTech Capital Partners II L.P. ("EnerTech"),
a venture capital fund. At December 31, 1999, Mid-America held 1,030,600 shares
of ICG. During 2000, it sold all but 5,100 of those shares. During 1999,
Mid-America made a commitment to invest $15 million in EnerTech. At December 31,
2000, Mid-America had funded $2.25 million of that commitment.
As of December 31, 2000, Mid-America and its subsidiaries had 55
employees. It had 2000 revenues of $31.9 million.
C. Terms of the Transaction
Under the Share Exchange Agreement, IPALCO's shareholders will be
entitled to receive shares of AES common stock in exchange for each share of
IPALCO common stock they own in accordance with an exchange ratio specified in
the Share Exchange Agreement. Subject to adjustment as described below, the
exchange ratio will be determined by dividing $25.00 ("Per Share Amount") by the
average of the daily closing sale price per share of AES common stock as
reported on the New York Stock Exchange Composite Tape on each of the 20 trading
days ending on the date immediately prior to the fifth trading day before the
closing of the share exchange, provided that the average trading price is
greater than or equal to $31.50. If the average closing price is below $31.50,
the exchange ratio will be determined by dividing the Per Share Amount by
$31.50. Accordingly, subject to an adjustment described below, each IPALCO
shareholder will receive a maximum of 0.794 shares of AES common stock in
exchange for each share of IPALCO common stock. AES will pay cash in lieu of
issuing any fractional shares. If the value of AES common stock to be received
by IPALCO's shareholders is below $21.00, IPALCO has the right to Terminate the
Transaction.
The Per Share Amount, however, may be adjusted upon the occurrence of
certain events. If the share exchange occurs after the Trigger Date (as defined
below), the Per Share Amount will be increased by $0.15 plus a daily increase
equal to $0.375 per calendar quarter (the equivalent of $0.00411 per day). The
Trigger Date is defined as the latest of (i) March 31, 2001, (ii) the date which
is 30 days after certification to the Commission required from the IURC under
Section 33(a)(2) of the Act is issued, or (iii) the date on which all the
conditions to closing (other than receipt approval by the Commission of the
share exchange and the exemption of AES from registration as a holding company
under PUHCA) have been satisfied or waived by AES. Notwithstanding the
foregoing, the Trigger Date will not occur if the necessary FERC approval is not
received until after the receipt of the Commission's approval referred to above.
The FERC approval was received on March 8, 2001.
Under the terms of the Share Exchange Agreement, each option to
purchase a share of IPALCO stock outstanding and unexercised at the effective
time of the share exchange will be assumed by AES and will thereafter be deemed
to constitute an option to acquire shares of AES common stock. The number of
shares of AES common stock that will be subject to the assumed stock options
will be determined by multiplying the number of shares of IPALCO common stock
subject to the stock option by the exchange ratio, rounded to the nearest whole
share. The exercise price of such assumed stock options will be the exercise
price per share of IPALCO common stock under the original stock option divided
by the exchange ratio. The assumed stock options will otherwise be subject to
the same terms as the existing stock options.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, by all parties in connection with the Transaction are estimated to
total approximately $30 million.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 9(a)(2), 10, and 3(a)(5) of the Act are directly or
indirectly applicable to the proposed Transaction.
Section 9(a)(2) makes it unlawful for any person to acquire, directly
or indirectly, the securities of a public utility company without Commission
approval under the standards of Section 10, if the acquisition would cause that
person to become an affiliate of that public utility and any other public
utility or holding company. The term "affiliate" for this purpose means any
person that directly or indirectly owns, controls, or holds with power to vote,
five percent or more of the outstanding voting securities of the specified
company.
As a result of the Transaction, AES will acquire indirectly more than
five percent of the voting securities of IPL, a public utility company, and
following the Transaction, AES will be affiliated for a limited period of time
with two public utilities - IPL and CILCO. Accordingly, the Transaction requires
Commission approval under the standards of Section 10. In addition to AES,
Messrs. Bakke and Sant and Sant seek this approval.12 However, AES's commitment
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12 Mr. Bakke and Mr. Sant each own as individuals more than five percent, but
less than ten percent, of AES's common stock. These individuals are thus
indirect affiliates of CILCO and through the Transaction would become
indirect affiliates of IPL. They therefore require Commission authorization
under Sections 9(a)(2) and 10 to acquire, through AES, an interest in IPL.
However, the Commission has found in Atlee M. Kohl, Holding Co. Act Release
No. 22440 (April 1, 1982), that while individuals are subject to Sections
9(a)(2) and 10, they are not required to satisfy the standards of Section
10 to the same degree that a company would under similar circumstances. In
particular, unless the Commission declares under Sections 2(a)(7)(B) and
2(b) that an individual is a holding company, neither Section 11(b)(1) nor
Section 10(c)(2) will apply to acquisitions by that individual of 5 percent
or more of the voting securities of more than one public utility company.
This means that issues related to system integration for the most part are
excluded from any Section 10 analysis relating to acquisitions by
individuals. The issues relevant to those acquisitions arise primarily
under Section 10(b), i.e., interlocking relations or concentrations of
control, reasonableness of consideration, and complexity of capital
structure. These matters are discussed in Item 3.A.1 of this Application,
and the indirect acquisitions by Messrs. Bakke and Sant do not alter the
analysis presented there. Given the inapplicability of Sections 11(b)(1)
and 10(c)(2) to Messrs. Bakke and Sant, authorizing AES to acquire IPALCO
would a fortiori demonstrate that their indirect acquisitions satisfy the
requirements of Sections 9(a)(2) and 10.
Messrs. Bakke and Sant therefore request that the Commission grant them
authorization under Sections 9(a)(2) and 10 at the same time that it grants
AES such authorization. It should be emphasized that there is no need for
the Commission separately to assess compliance with Section 9(a)(2) with
respect to these individuals, as it has full jurisdiction over a corporate
entity, AES, whose request to acquire IPALCO and IPL is the primary subject
of this application.
to enter into an agreement with an unaffiliated person within two years of
completing the Transaction to divest its ownership of all CILCO PUHCA
jurisdictional assets should diminish the need for a showing of strict
compliance with Sections 9(a)(2) and 10 this case. This is particularly true
with respect to issues of system integration. The limited period during which
IPL and CILCO will be affiliates of AES under the Act should obviate the need to
provide a detailed demonstration of how their systems will achieve integration,
although AES is confident, as explained below, that the Acts's integration
requirements, nonetheless, will be met during that period.
AES believes, for reasons explained below, that following the
Transaction it will qualify for an exemption under Section 3(a)(5) of the Act.
Accordingly it requests that the Commission issue an order granting an exemption
under that provision. Section 3(a)(5) requires the Commission to exempt any
holding company from the provisions of the Act if that company is not, and does
not derive any material part of its income from a subsidiary that is, a company
whose principal business within the U.S. is that of a public utility company,
unless and except insofar as the Commission finds the exemption detrimental to
the public interest or the interest of investors or consumers.
A. Section 10
Sections 10(b), 10(c) and 10(f) of the Act set forth the statutory
standards to be considered by the Commission in evaluating the Transaction.
1. Section 10(b).
Under Section 10(b) of the Act, the Commission must approve the
Transaction unless it finds that:
(1) the Transaction will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to an
extent detrimental to the public interest or the interest of investors or
consumers;
(2) the consideration, including all fees, commissions and other
remuneration, to whomsoever paid, to be given, directly or indirectly, in
connection with the acquisition of securities or utility assets is not
reasonable or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the utility assets
underlying the securities to be acquired; or
(3) the Transaction will unduly complicate the capital structure of
the holding-company system of AES or will be detrimental to the public
interest or the interest of investors or consumers or the proper
functioning of that holding company system.
(a) Detrimental "Interlocking Relations" or "Concentration of
Control."
The Transaction will not result in detrimental interlocking relations
or concentration of control. AES and IPALCO currently have no common directors,
but following consummation of the Transaction there may be common directors and
officers of AES, IPALCO, and IPL. These potential interlocking relationships,
however, would serve to integrate the merging companies effectively and
efficiently and can be found in virtually every merger transaction subject to
Section 9(a). They would thus conform with industry practice accepted by the
Commission and would not be detrimental to consumers, investors or the public.
The Transaction also will not result in a detrimental concentration of
control. The expected increase in size of AES's public utility operations
resulting from the Transaction will not make the combined companies large in the
aggregate. Instead, the Transaction will place two small utilities under common
ownership, with their combined operations remaining, as explained further below,
small by local, regional, and national standards. The utility operations of the
combined companies would continue to be much smaller than almost all of its
neighboring utilities and holding company systems such as Ameren Corporation,
American Electric Power Company, and Cinergy Corp., which are among the largest
utilities in the country.13 As a consequence, the merged company will not be
able to dominate the region. Following the Transaction, AES will have total
utility assets of $2.6 billion, total utility revenues of $1.4 billion, and will
serve approximately 622,000 electric customers and 197,000 gas customers. The
utility activities of AES following the Transaction will be confined exclusively
to the States of Illinois and Indiana. The Commission has approved a number of
transactions which resulted in holding companies of a much larger size.14
Moreover, as previously noted, AES will commit to enter into an agreement with
an unaffiliated person within two years of completion of the Transaction to
divest all assets of CILCO subject to Commission jurisdiction. Following such a
divestiture, AES's activities and assets subject to Commission jurisdiction
would be limited to those of IPL, all of which are confined to Indiana.
Section 10(b)(1) also requires the Commission to consider possible
anticompetitive effects of a proposed merger. The Commission has concurrent
jurisdiction with the Department of Justice (the "DOJ"), the FTC, and FERC in
this case to consider the competitive effects of the Transaction. As required by
the HSR Act, AES and IPALCO filed Notification and Report Forms with the DOJ and
the FTC on November 8, 2000 describing how the Transaction will affect
competition. The applicable waiting period under the HSR Act must expire or be
terminated by the FTC before AES can proceed to complete the Transaction. In a
letter dated November 20, 2000, AES received notice from the FTC granting an
early termination of the waiting period under the HSR Act. In addition, AES and
IPALCO filed with FERC on November 14, 2000 an application for approval of the
merger under Section 203 of the Federal Power Act. FERC has immediate
jurisdiction over both CILCO's and IPL's utility operations and will assess the
---------------
13 As of December 31, 1999, Ameren had consolidated assets of $9.2 billion and
operating revenues of $3.5 billion, AEP had consolidated assets of $21.5
billion and consolidated operating revenues of $6.9 billion, and Cinergy
had consolidated assets of $9.6 billion and consolidated operating revenues
of $5.2 billion.
14 See, e.g., TUC Holding Co., Holding Co. Act Release No. 26749 (Aug. 1,
1997) ("TUC Holding"). TUC Holding has utility assets of approximately
$19.6 billion, operating utility revenues of approximately $6.9 billion and
approximately 2.7 million utility customers. See also NIPSCO Industries,
Inc. Holding Co. Act Release No. 26975 (Feb. 10 1999); CINergy Corp.,
Holding Co. Act Release No. 26146 (Oct. 21, 1994); National Grid Group plc,
Holding Co Act Release No. 27154 (March 15, 2000) ("National Grid").
competitive effects of the Transaction. This filing, which is attached as
Exhibit D-1, contains a detailed explanation of why the Transaction will not
produce any adverse competitive effects. FERC will not approve the Transaction
absent a finding that it is in the public interest and will not adversely affect
competition. On March 8, 2001, FERC issued an order approving the Transaction.
The analysis performed by Dr. William Hieronymus of the consulting
firm of PHB/Hagler Bailly in connection with the FERC application, attached to
this Application as part of Exhibit D-1, explains why the combination of AES and
IPALCO will not have anticompetitive effects. This analysis considers the impact
on competition of combining IPL's generation and transmission assets with those
of CILCO and other capacity of AES relevant to FERC competition analysis. Dr.
Hieronymus found that approximately 3,900 MW of additional capacity owned by
AES, located primarily in New England, New York, Ontario, PJM, and SPP was too
remote from the relevant markets to have significance for analyzing the
Transaction's effects on competition. He concluded that the Transaction would
not increase either AES's or IPALCO's ability or incentive to exercise
anticompetitive market power in wholesale electric markets. He found that the
Transaction would not result in any violation of the "safe harbor" limits
contained in the merger guidelines used by the FERC.
This conclusion is not surprising given the relatively small presence
of CILCO and IPL within the region and their historical lack of interaction.
CILCO owns or controls only about 1,150 MW of generating capacity, while there
are about 58,000 MW in the reliability region in which it operates, the
Mid-American Interconnected Network. The peak summer capacity of IPL's
generation is approximately 3,035 MW, while there are about 110,000 MW in its
region, the East Central Area Reliability Council. The combined company will own
less than 3 percent of the total capacity in the Mid-America Interconnected
Network and the East Central Area Reliability Coordination Agreement regions.
Dr. Hieronymus also found that the Transaction would not adversely
affect competition in the transmission market, and the FERC agreed that the
Transaction would not have an adverse impact on competition. See The AES
Corporation, 94 FERC para. 61,240 (2001). CILCO is a member of the Midwest
Independent System Operator (the "MISO"), a FERC-approved independent system
operator that is scheduled to begin operations on June 1, 2001. (CILCO
previously filed for FERC authorization to withdraw from the MISO due to
concerns regarding the proposed withdrawal of other MISO transmission
participants. However, CILCO has withdrawn this request for withdrawal subject
to FERC approval of a settlement in that proceeding.) In addition, IPL has
agreed to become a transmission owner/member of the MISO, subject to FERC
approval of the CILCO settlement, receipt of all regulatory approvals required
to complete the Transaction, and completion of the Transaction. The Commission
thus can conclude that the Transaction will not adversely affect competition.
Indeed, for the reasons stated below, the Commission may conclude that the
Transaction will facilitate even greater competition in electric wholesale and
retail markets.
Recent developments in the U.S. electric industry demonstrate a clear
transition from a system of regulated monopolies to one of market competition.
FERC already has introduced competition into wholesale electric markets through
its many orders authorizing market-based rates for wholesale power sales and a
series of orders mandating non-discriminatory access to electric transmission
facilities and encouraging the formation of regional transmission organizations.
Moreover, AES commits to enter into an agreement with an unaffiliated
person within two years of completion of the Transaction to divest its ownership
of all assets of CILCO which are subject to regulation under the Act. This would
reduce the size of AES's public utility holdings and correspondingly diminish
any concerns about the size and market share of AES's utility business.
Additional benefits accompanying the Transaction are outlined in Item
3(A)(2)(b) of this Application, and are benefits which the Commission has
weighed against any concerns about concentration of control it has had in other
transactions. See American Electric Power Co., Holding Co. Act Release No. 20633
(July 21, 1978).
For all of these reasons, AES maintains that the Transaction will not
result in a concentration of control that will be detrimental to the public
interest. On the contrary, it will facilitate an actual increase in competition
in regional electricity markets.
(b) Fairness of Consideration.
Section 10(b)(2), as applied to the Transaction, provides that the
Commission shall approve the Transaction unless it finds that the consideration
paid by AES to the shareholders of IPALCO is not reasonable or does not bear a
fair relation to the earning capacity of the utility assets underlying the
IPALCO shares. In determining whether the consideration for an acquisition meets
the fair and reasonable test of Section 10(b)(2), the Commission has considered
whether the price resulted from arm's-length negotiations and whether each
party's Board of Directors has approved the purchase price.15 The Commission
also considers the opinions of investment bankers and the earnings, dividends,
and book and market value of the shares of the company to be acquired.16
Under the Share Exchange Agreement, each owner of pre-Transaction
IPALCO common stock will be entitled to receive shares of AES common stock, and
cash in lieu of fractional shares of AES common stock, in accordance with the
provisions of the Share Exchange Agreement described above. The consideration to
be paid to IPALCO shareholders was the result of arm's-length negotiations
between the management and financial and legal advisors of AES and IPALCO over a
period of several months, as explained in detail at pages 18 through 21 of the
Registration Statement. (Exhibit C-1) The Boards of Directors of AES and IPALCO
approved the Transaction in separate meetings.
As noted in the Registration Statement, a nationally-recognized
investment banking firm retained by IPALCO, UBS Warburg, LLC, reviewed extensive
information concerning IPL and analyzed the respective conversion ratios
employing several valuation methodologies for purposes of evaluating the
fairness to IPALCO's shareholders of the consideration offered by AES. In
connection with the approval of the Share Exchange Agreement, IPALCO's Board of
Directors considered UBS Warburg's opinion to the effect that the aggregate
consideration to be received by IPALCO common shareholders in connection with
the Transaction is fair to such holders from a financial point of view. This
fairness opinion is attached to this Application as Annex B to Exhibit C-1 and
incorporated herein by reference.
In rendering its fairness opinion, UBS Warburg performed a number of
analyses relevant to the fairness of the Transaction consideration, including
comparing select historical and projected operating performance data of IPALCO
with that of similar companies and discounted cash flow analyses. In preparing
its opinion, UBS Warburg reviewed, among other things, both public and
---------------
15 American Natural Gas Co., Holding Co. Act Release No. 15620 (Dec. 12, 1966)
(holding that evidence of arm's-length negotiations can provide support for
concluding that proposed consideration is just and reasonable);
Consolidated Natural Gas Co., Holding Co. Act Release No. 25040 (Feb. 14,
1990) (holding that approval of an acquisition by the Boards of Directors
of the parties can provide support for concluding that proposed
consideration is just and reasonable).
16 National Grid (finding that opinions of investment bankers of the parties
provide support for concluding that consideration is fair from a financial
point of view).
non-public historical and projected financial information and forecasts related
to the earnings, assets, business, dividends, cash flow, and prospects of
IPALCO, and comparable companies. A detailed summary of the financial opinions
is contained at pages 23 to 30 of the Registration Statement (Exhibit C-1).
Moreover, following the receipt of the Registration Statement
containing this fairness opinion, IPALCO's common shareholders votedr to approve
the Transaction at a meeting held on October 20, 2000. This affirmative vote of
the IPALCO shareholders is further evidence that the consideration they will
receive is fair.
In light of the fairness opinion of UBS Warburg and considering all
relevant factors, AES believes that the aggregate consideration to be paid is
reasonable and bears a fair relation to the earnings capacity of the utility
assets underlying IPALCO's shares. Accordingly, the consideration to be paid by
AES meets the standards of Section 10(b)(2).
(c) Reasonableness of Fees.
AES submits the overall fees, commissions, and expenses incurred and
to be incurred in connection with the Transaction to be reasonable and fair,
given the relative size and complexity of the Transaction and its anticipated
benefits to the public, investors, and consumers and thus meet the standards of
Section 10(b)(2). This conclusion is supported by the consistency of these fees,
commissions, and expenses with recent Commission precedent.
As stated in Item 2 above, the parties expect to incur a total of
approximately $30 million in fees, commissions and expenses in connection with
the Transaction. This amount compares favorably with the fees associated with
recent transactions approved by the Commission.17
---------------
17 See TUC Holding Co. (estimated fees and expenses of $37 million); Kansas
Power & Light Co., Holding Co. Act Release No. 25465 (Feb. 5, 1992)
(estimated fees and expenses of approximately $30 million); New Century
Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (estimated
fees and expenses of $23.5 million).
(d) Capital Structure and the Public Interest
Section 10(b)(3) requires the Commission to determine whether the
Transaction will unduly complicate AES's capital structure or would be
detrimental to the public interest, the interests of investors or consumers, or
the proper functioning of AES's system.
Following the Transaction, AES will have a capital structure which is
substantially similar to capital structures which the Commission has approved in
other orders.18 Upon completion of the Transaction, AES will own 100 percent of
the shares of IPALCO Common Stock and 100 percent of the shares of CILCORP
common stock. The Transaction will not affect the outstanding securities of
IPALCO. For these reasons, AES believes that the Transaction will not unduly
complicate its capital structure.
Set forth below are summaries of the historical capital structures of
AES (including CILCORP) and IPALCO as of December 31, 2000, and the pro forma
consolidated capital structures of AES and IPALCO as of that date:
---------------
18 See, e.g., TUC Holding Co.; CINergy Corp., Holding Co. Act Release No.
26146 (Oct. 21, 1994); Entergy Corp., Holding Co. Act Release No. 25952
(Dec. 17, 1993); American Electric Power Co. and Central and South West
Corp., Holding Co. Act Release No. 27186 (June 14, 2000); New Century
Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000). In each
of these orders, the Commission approved mergers which resulted in a
holding company acquiring 100 percent of a utility operating company's
common stock.
Table 1
AES (Including CILCORP) and IPALCO Historical
Capital Structures as of December 31, 2000 (dollars in millions)
(audited)
AES IPALCO
Common Stock Equity $ 4,727 18.5% $450 39.6%
Preferred Stock of Subsidiary - 0.0% $59 5.2%
Preferred Securities $ 1,228 4.8% - 0.0%
Minority Interest $ 1,382 5.4% - 0.0%
Long-term Debt $18,164 71.3% $622 54.7%
Short-term Debt - 0.0% $6 0.5%
Total Capitalization $25,501 100.0% $1,137 100.0%
AES's Post-Transaction Consolidated Capital Structure
As of December 31, 2000
(dollars in millions)
(unaudited)
AES
Common Stock Equity $5,177 19.0%
Preferred Securities $1,228 5.0%
Minority Interest $1,441 5.0%
Long-term Debt $18,786 71.0%
Short-term Debt $6 0.0%
Total Capitalization $26,638 100.0%
The ratio of consolidated common equity to total capitalization of the
combined companies will be, on an unaudited pro forma basis, 19 percent. This
figure is less than the ratio of approximately 30 percent that the Commission
has deemed traditionally acceptable on policy grounds. This requirement,
however, applies to registered holding companies and is based on requirements
that the Commission finds conducive to good public utility management. AES,
however, is predominantly a non-utility energy provider, and its shareholders
are accustomed to levels of debt that exceed the traditional Commission
standard, which in any event applies to registered, rather than exempt, holding
companies. In addition, the level of debt assumed by AES does not represent a
risk to IPL ratepayers, who will remain unaffected by it. IPL will retain a
level of common equity well above the level that the Commission deems prudent
for traditional public utility companies, and its financings will continue to be
subject to IURC jurisdiction. In addition, as discussed earlier in Item 1(B)(1),
AES believes that the Transaction, by achieving efficiencies and economies, will
benefit the interests of the public, consumers and investors and will not impair
the proper functioning of the holding company system.
Set forth below are summaries of the historical capital structures of
AES, excluding CILCORP's PUHCA jurisdictional utility assets, and IPALCO as of
June 30, 2000, and the pro forma consolidated capital structures of AES and
IPALCO as of that date:
Table 2
AES (Excluding CILCORP PUHCA-Jurisdictional Assets) and IPALCO Historical
Capital Structures as of December 31, 2000
(dollars in millions)
AES IPALCO
Common Stock Equity $4,727 18.5% $450 39.6%
Preferred Stock of Subsidiary - 0.0% $59 5.2%
Preferred Securities $1,228 4.8% - 0.0%
Minority Interest $1,382 5.4% - 0.0%
Long-term Debt $18,164 71.3% $622 54.7%
Short-term Debt - 0.0% $6 0.5%
Total Capitalization $25,501 100.0% $1,555 100.0%
AES's Post-Transaction Consolidated Capital Structure
as of December 31, 2000
(dollars in millions)
(unaudited)
AES
Common Stock Equity $5,177 19.0%
Preferred Securities $1,228 5.0%
Minority Interest $1,441 5.0%
Long-term Debt $18,786 71.0%
Short-term Debt $6 0.0%
Total Capitalization $26,638 100.0%
Table 2 does not differ from Table 1, as a divestiture of CILCORP's
jurisdictional utility assets is not expected to impact the capital structure of
AES. Debt associated with the acquisition of CILCORP is expected to remain with
AES. Moreover, AES at this time is unable to predict with any degree of accuracy
any potential gain or loss resulting from the divestiture, which would be the
only item associated with the divestiture to impact AES's common stock equity.
Therefore, AES has concluded that any change in the capital structure would be
minimal and is not recorded in the above table.
2. Section 10(c).
(a) Section 10(c)(1).
Under Section 10(c)(1), the Commission must not approve an acquisition
which is "unlawful under the provisions of Section 8" or "detrimental to the
carrying out of the provisions of Section 11." Section 8 prohibits an
acquisition by a registered holding company of an interest in an electric
utility and a gas utility serving substantially the same territory without the
express approval of the state commission when state law prohibits or requires
approval of the acquisition. Section 8 applies only to registered holding
companies and is thus inapplicable to the Transaction. The Transaction does not
require any approvals under Indiana law and is not unlawful under the laws of
that state.
Section 11(b)(1) requires a registered holding company, with limited
exceptions, to limit its operations to a "single integrated public-utility
system, and to such other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of such integrated
public-utility system."
Section 2(a)(29) provides separate definitions for "integrated
public-utility system" for gas and electric companies. For electric utility
companies, the term means:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility
assets, whether owned by one or more electric utility companies, are
physically interconnected or capable of physical interconnection and
which under normal conditions may be economically operated as a single
interconnected and coordinated system . . . .
For gas utilities, the term means:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its
operations to a single area or region . . . [p]rovided, that gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region.
With respect to either type of company, the system must be:
confined in its operations to a single area or region, in one or more
States, not so large as to impair (considering the state of the art
and the area or region affected) the advantages of localized
management, efficient operation, and the effectiveness of
regulation.19
Section 11(b)(1) permits the acquisition and retention of more than
one integrated utility system only if the requirements of Section
11(b)(1)(A),(B) and (C) are satisfied.
---------------
19 For gas companies, utilities deriving natural gas from a common source of
supply may be deemed to be included in a single area or region.
The Commission consistently has recognized that strict compliance with
the standards of Section 11 is not required where the resulting holding company
is exempt under Section 3. See, e.g., Gaz Metropolitain, Inc., Holding Co. Act
Release No. 26170, 58 SEC 189 (Nov. 23, 1994) ("Gaz Metropolitain").
Nonetheless, in applying Section 10(c)(1) to an exempt holding company, the
Commission focuses on whether the acquisition would be detrimental to the core
concerns of Section 11, namely the protection of the public interest and the
interests of investors and consumers. WPL Holdings, Holding Co. Act Release No.
24590 (Feb. 26, 1988), aff'd in part and rev'd in part sub nom. Wisconsin
Environmental Decade, Inc. v. S.E.C., 882 F.2d 523 (D.C. Cir. 1989); WPL
Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998). In addition:
The Commission has previously determined that a holding company may
acquire utility assets that will not, when combined with its existing
utility assets, make up an integrated system or comply fully with the
ABC clauses, provided that there is a de facto integration of
contiguous utility properties and the holding company will be exempt
from registration under section 3 of the Act following the
acquisition.
WPS Resources Corp., Holding Co. Act Release No. 26922 (Sept. 28, 1998) (citing
BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998); TUC Holding;
Gaz Metropolitain.).
Because of AES's commitment to enter into an agreement with an
unaffiliated person within two years of completion of the Transaction to divest
its ownership of CILCO's utility assets and business that are subject to
Commission jurisdiction under the Act, it should not be necessary to establish
strict compliance with Section 10(c)(1) in detail in this case. As a general
matter, the Transaction is fully consistent with the de facto integration
standards of Section 10(c)(1) that the Commission has applied to exempt holding
companies in a number of cases. CILCO's existing gas and electric systems meet
the de facto integration standard. The service territories of CILCO's existing
gas and electric systems overlap. Moreover, the gas and electric systems have
been combined for many years and share corporate services. IPL operates a
single, integrated electric system. The service territories of IPL and CILCO are
in close geographical proximity, and the two systems can be coordinated
administratively. Their combination will not give rise to any of the abuses,
like ownership of scattered utility properties, inefficient operations, lack of
local management or evasion of state regulation, that section 11(b)(1) and the
Act was intended to address. The Transaction will have no effect upon the
ability of state ratemaking authorities to carry out their statutory duties.
Thus the Commission should find that the Transaction will not be detrimental to
the intent of Section 11 and thereby satisfies the requirements of Section
10(c)(1).
(b) Section 10(c)(2).
Section 10(c)(2) requires that the Commission not approve an
acquisition unless "the Commission finds that such acquisition will serve the
public interest by tending towards the economical and efficient development of
an integrated public-utility system."
The Commission has interpreted Section 10(c)(2) to permit the approval
of acquisitions resulting in more than one integrated system. "[W]e have
indicated in the past that acquisitions may be approved even if the combined
system will not be a single integrated system. Section 10(c)(2) requires only
that the acquisition tend 'towards the economical and the efficient development
of an integrated public-utility system.'"20 The Commission has held that "where
a holding company will be exempt from registration under Section 3 of the Act
following an acquisition of non-integrating utility assets, it suffices for
purposes of Section 10(c)(2) to find benefits to one integrated system."21
CILCO has derived substantial benefits from its affiliation with AES,
including the enhancement of its ability to compete in wholesale power markets
and in its administrative capabilities generally. AES expects that its expertise
and resources likewise will bring substantial benefits to IPL. For example, the
Transaction can provide important strategic, financial and other benefits to IPL
and its customers, including enhancements in accounting and finance, human
resources, information services, external relations, legal and executive
administration. Areas such as fuel procurement, environmental compliance, labor
relations, billing, customer service and marketing are targeted for improvement.
In addition, AES's expertise will benefit IPL by creating various
opportunities for cost savings through the integration of certain business
functions (e.g., insurance, advertising), customer support functions (e.g.,
customer service, marketing and sales) and an increased ability to meet
---------------
20 Gaz Metropolitain, 58 SEC at 192 (quoting Union Electric Company, Holding
Co. Act Release No. 18368, 45 SEC 489, 504-06 (April 10, 1974), aff'd
without op. sub nom. City of Cape Girardeau v. SEC, 521 F.2d 324 (D.C. Cir.
1975)).
21 TUC Holding Co., supra.
competition in energy markets. A number of recent Commission orders have noted
the importance such benefits have for satisfying the Act's integration
requirements. See, e.g., National Grid; New Century Energies, Inc., Holding Co.
Act Release No. 26748 (Aug. 1, 1997); American Electric Power Co., Holding Co.
Act Release No. 27186 (June 14, 2000). WPL Holdings, Inc., Holding Co. Act
Release No. 25096; 50 S.E.C. 233, 237 (May 25, 1990) ("WPL Holdings"). The
efficiencies may come from either the elimination of duplicated resources or
improved unit costs resulting from economies of scale. The Commission previously
has found that similar benefits satisfied the affirmative finding required under
Section 10(c)(2). See, e.g., WPL Holdings (benefits supporting Section 10(c)(2)
finding include "[a] structure that could more effectively address the growing
national competition in the energy industry, refocus various utility activities,
facilitate selective diversification into non-utility business . . . and provide
additional flexibility for financing . . ."). Accordingly, the Commission should
find that the requirements of Section 10(c)(2) are satisfied with regard to the
Transaction.
3. Section 3(a)(5)
Under Section 3(a)(5), a holding company and its subsidiaries will be
exempt from the provisions of the Act (except for Section 9(a)(2)) if the
holding company is not and does not derive any material part of its income from
a subsidiary whose principal business within the U.S. is that of a public
utility company. As the Commission has noted, the Section 3(a)(5) exemption is
meant to be available to a holding company system with foreign operations whose
U.S. utility operations "account for no material part of the holding company's
income" and are "small in size." Gaz Metropolitain, (quoting and citing Electric
Bond and Share Company, Holding Co. Act Release No. 11004, 1952 WL 1058 (Feb. 6,
1952) ("Electric Bond and Share")). For the reasons set forth below, AES will
qualify for a Section 3(a)(5) exemption upon completion of the Transaction.
(a) Materiality of CILCO/IPL Revenues
In the relatively few cases decided under Section 3(a)(5) where the
Commission has addressed the materiality of the U.S. utility subsidiary, the
Commission has considered the relative size of the U.S. utility subsidiary's
operations, expressed as a percentage of the applicant holding company's total
operations, based upon a variety of financial yardsticks. See, e.g., Gaz
Metropolitain (citing to U.S. utility contributions to holding company total
consolidated revenues, net income, and net utility plant); TransCanada Pipelines
Ltd, Holding Co. Act Release No. 25647 (Oct. 6, 1992) (citing to percentages of
holding company total revenues and net assets); Consumers' Gas Co., Holding Co.
Act Release No. 14956 (Oct. 17, 1963) (comparing U.S. utility and holding
company revenues, net income, and net assets). Most recently, the Commission has
stated that it usually relies on a comparison of gross revenues, referred to as
the "gross-to-gross" test, which may be adjusted to account for specific
features of a particular situation. NIPSCO Industries, Inc., Holding Co. Act
Release No. 26975 (Feb. 10, 1999) ("NIPSCO"); AES.
The Commission similarly has no strict test for determining
materiality of income under Section 3(a)(5), and it has noted that "factors
other than mere percentages must be taken into consideration" when applying the
materiality standard. AES, slip opinion at 30 (citing the discussion of the
Section 3(a)(1) exemption found in NIPSCO, supra). The Commission has also
stated that its "interpretation of the term 'material' under each section of
3(a) must be informed by the underlying policy concerns that exemption
addresses." AES at 15. It should be noted that the Commission Staff has
recommended that the Commission adopt a more flexible standard for exemptions
under Section 3(a), urging the agency to take into account the ability of
affected state commissions to "adequately protect utility consumers against any
detriment that might be associated with certain activities of exempt holding
companies." The Regulation of Public-Utility Holding Companies (June 1995), pp.
119-120. As explained below, the ICC and IURC have such ability here.
The Commission has granted Section 3(a)(5) exemptions where the U.S.
utility subsidiary represented less than approximately 5 percent of total
holding company revenues. See, e.g., Gaz Metropolitain; TransCanada Pipelines.
The Commission also has indicated that a holding company that derived
approximately 46 percent of its total business revenues from a utility
subsidiary (in the form of fees for underwriting services) received a material
amount of income from such subsidiary. H.M. Byllesby & Co., Holding Co. Act
Release No. 1882 (Jan. 15, 1940). See also Cities Service Co., Holding Co. Act
Release No. 2444, 8 SEC 318 (Dec. 23, 1940) ("Cities Service") (noting in dicta
that U.S. utility subsidiary contributions to holding company of approximately
30 percent of gross revenues and 45 percent of net fixed assets would be
considered material). See also NIPSCO (in the Section 3(a)(1) context, the
Commission has emphasized that there is no strict percentage test for assessing
materiality under Section 3(a)(1)). Most recently, in AES the Commission found
on the basis of factors that included the absence of abuses that the Act was
intended to prevent, the Commission's reporting requirements, and regulatory
authority of the state in question, that 10.35 percent of net operating revenues
was not material for the purposes of a Section 3(a)(5) exemption.22 AES at
15-16.
Although AES has committed to divest CILCO's PUHCA jurisdictional
assets, a review of the combined contributions of CILCO and IPL to AES's total
operations (including CILCORP and IPALCO), from the perspective of a variety of
financial indicators, reveals that total utility activities and assets
constitute a relatively small percentage of AES's overall business, a percentage
that will become increasingly minor over time, as the size of AES's business
continues to grow. Set forth below in Table 3 are the percentages, on a pro
forma basis for 1998-2000, of gross revenues; operating income; net income; and
net assets of CILCO and IPL, to the total gross revenues; operating income; net
income; and net assets of AES as a whole.
---------------
22 In NIPSCO, the Commission observed that the "[c]omponents of gross revenues
are different for electric and gas utilities" and that "pass-through costs"
(e.g., purchased gas and fuel for electric generation) constitute a larger
part of gross revenues for a gas utility than for an electric utility. The
Commission thus concluded that where a predominantly electric system (such
as NIPSCO, AES) acquired an exclusively gas system (Bay State, CILCO), a
reliance on gross revenues comparisons would distort the relative sizes of
the merging companies.
Table 3
CILCO and IPL Contributions To
AES/IPALCO Consolidated Holding Company
(Proportional Consolidation Basis)
($Millions)
1998 1999 2000
--------------------------------------------------------------------------------
Gross Revenues* 26.37% 24.31% 16.94%
CILCO 538 562 636
CILCORP (excluding CILCO) 21 19 87
IPL 786 800 831
IPALCO (excluding IPL) 35 34 28
AES (excluding CILCORP and IPALCO) 3,640 4,189 7,079
AES/CILCORP/IPALCO 5,020 5,604 8,661
--------------------------------------------------------------------------------
Operating Income 26.23% 20.83% 14.20%
CILCO 93 55 97
CILCORP (excluding CILCO) (1) (14) 12
IPL 261 268 205
IPALCO (excluding IPL) (1) - (36)
AES (excluding CILCORP and IPALCO) 997 1,242 1,849
AES/CILCORP/IPALCO 1,349 1,551 2,127
--------------------------------------------------------------------------------
Net Income 39.61% 42.94% 15.99%
CILCO 41 16 45
CILCORP (excluding CILCO) (25) (17) (33)
IPL 140 137 82
IPALCO (excluding IPL) (10) (9) 73
AES (excluding CILCORP and IPALCO) 311 229 629
AES/CILCORP/IPALCO 457 356 797
--------------------------------------------------------------------------------
Net Assets 19.87% 12.10% 8.49%
CILCO 1,024 1,056 1,107
CILCORP (excluding CILCO) 288 775 841
IPL 1,953 1,979 1,905
IPALCO (excluding IPL) 166 337 -
AES (excluding CILCORP and IPALCO) 11,550 20,928 31,626
AES/CILCORP/IPALCO 14,981 25,075 35,479
--------------------------------------------------------------------------------
* In calculating the gross revenues percentage, the numerator is equal to the
total gross business revenues of IPALCO and CILCO, including all revenues
from non-utility activities. The denominator is comprised of all business
revenues (including revenues from all IPALCO/IPL and CILCORP non-utility
activities) plus all of AES's business revenues.
The AES data contained in Table 3 is compiled on a proportional
consolidation basis rather than in accordance with GAAP. On a proportional
consolidation basis, revenues and assets are allocated to AES on a pro rata
basis in proportion to the ownership percentages held by AES in each of the
projects/companies in which it has an equity interest. AES holds a less-than-50
percent equity interest in a number of projects that generate substantial
revenues.23 On a proportional consolidation basis, revenues from sales made by
these less than majority-owned investments are included as revenues in
statements of operations. On financial statements prepared in accordance with
GAAP, on the other hand, returns from less than majority-owned projects are not
reported as revenues, but instead are reported as equity in earnings of
affiliates (gross of income taxes). Thus, although GAAP-based data is the
appropriate data for use in other contexts, using GAAP-based data here would
understate the revenues AES earns from its electric business. The proportional
consolidation data provides a more accurate representation of the size of AES's
generation and distribution business relative to that of IPL's business for
purposes of the Commission's materiality analysis.
Commission precedent supports appropriate adjustments to financial
data reported on the basis of prescribed, conventional accounting treatments,
where, in light of the policies underlying the Act, they would more accurately
represent the company's operations, revenues, or other pertinent criteria. For
example, on several occasions, the Commission has considered proportional
consolidation data. See, e.g., Northern New England Co., Holding Co. Act Release
No. 11711 (Feb. 13, 1953) (applying proportional consolidation approach to
re-state and allocate income and balance sheet amounts to reflect ownership
percentages) and Sioux City Gas and Electric Co., Holding Co. Act Release No.
9303 (Sept. 8, 1949) (applying proportional consolidation approach to evaluation
of dividend coverage ratios). See also Consolidated Cities Light, Power &
Traction Co., Holding Co. Act Release No. 4130 (Feb. 23, 1943) (consideration of
company's "indirect" sources of income, such as payments by another company of
its interest and sinking fund requirements on outstanding debt). In AES the
Commission agreed that use of proportional consolidation was appropriate for
determining whether income from CILCO was material for purposes of Section
3(a)(5). The Commission noted in this connection that it has "traditionally
focused on revenues, rather than net income, in measuring the materiality of a
subsidiary under Section 3(a)" and that proportional consolidation would allow
the Commission "to consider the revenues generated by companies whose results
are reflected on AES's financial statements under the equity method." AES at 14.
---------------
23 AES holds majority equity interests in a number of projects/companies.
Under GAAP, revenues and income from such projects are included in AES's
consolidated financial statements in the same manner as wholly-owned
projects. However, the revenue impact of these holdings is far outweighed
by the exclusion of minority-owned projects from the calculation of AES's
GAAP-based gross revenues.
In addition, proportional consolidation is consistent with the status
of the minority-interest businesses as subsidiary companies of AES. AES owns at
least 10 percent of the voting securities of such companies, and as noted above,
participates in their management and operation. Therefore, it is appropriate to
allocate the revenues and assets of these companies to AES on a pro-rata basis.
To do otherwise would underestimate significantly the extent of AES's foreign
operations.24
Although Table 3 includes data for 1998, 1999, and 2000, given AES's
phenomenal growth, the 2000 data is by far the most relevant for purposes of
comparing the relative size of IPL and CILCO with AES. As the description in
Item 1, Section B above notes, AES's revenues increased approximately 1,600
percent between 1990 and 1999. AES's revenues increased over 200% between 1999
and 2000. Unlike a traditional utility company, whose financial results are
relatively static over time or who has year-to-year variations (perhaps
attributable to weather conditions, or one-time extraordinary changes) that can
best be viewed over a several-year period, AES has experienced and will continue
to experience rapid growth through project development and acquisitions. As
reflected in Table 3, between the end of 1998 and the end of 2000 on a
proportional consolidated basis its gross revenues have grown 95 percent, from
$3,640 million to $7,079 million; operating income has grown 85 percent, from
$997 million to $1,849 million; net income has grown 102 percent, from $311
million to $629 million; and net assets have grown 174 percent, from $11,550
million to $31,626 million.25 Therefore, in light of AES's significant growth
from the years 1998 through 2000, the financial data for 1998 and 1999 do not
provide an accurate picture of the relative size of AES in relation to utility
operations of CILCO and IPL.
Table 3 sets forth the relative sizes of the combined utility business
of CILCO and IPL and the merged AES/CILCORP/IPALCO holding company based on four
---------------
24 AES also has calculated the percentages set forth in Table 3 in accordance
with GAAP. Such calculations are set forth in Exhibit K-4. As explained
above, however, use of this GAAP-based data understates the size of AES's
worldwide business relative to CILCO and IPL, whereas data compiled on a
proportional consolidation basis provides a more accurate comparison of the
size of IPL and CILCO to the size of the AES/CILCORP/IPALCO merged company.
25 Similarly, use of an average of financial information for the years 1998
through 2000 also significantly understates the extent of AES's operations
and therefore also proves inadequate. AES's 2000 gross revenues are 81
percent greater than the average of AES's gross revenues for the years 1998
through 1999. Further, AES' 2000 operating income is 65 percent greater
than the two-year average; 2000 net income is 133 percent greater than the
two-year average; and 2000 net assets are 95 percent greater than the
two-year average.
financial yardsticks. In this instance, because AES, CILCO and IPL are all
engaged primarily in electric generation, transmission and distribution
operations, the analysis does not present data concerning net operating
revenues.
A comparison of AES and CILCO/IPL net income may obscure the true
scope of IPL's business vis-a-vis that of AES. Net income is sensitive to
differences in capital structure, and AES, on the one hand, and CILCO and IPL,
on the other, have disparate capital structures driven by differences in their
respective business operations. AES uses project financing for much of its
investment, and thus has proportionally larger interest expenses than does
either CILCO or IPL. Comparing the unleveraged net incomes of CILCO and IPL to
the unleveraged net income of the AES holding company provides a better
understanding of the relative size of the CILCO and AES holding company business
operations. Since interest is deducted before calculating net income,
comparisons based on net income may result merely from differences in capital
structure rather than differences in size or scope of business operations. This
issue is present in the case of AES, CILCO and IPL, as AES maintains a more
highly leveraged capital structure than does either CILCO or IPL. A more
accurate comparison of the scope of the businesses of CILCO and IPL, on the one
hand, to that of AES after the Transaction, on the other, is achieved by
comparing gross revenues, operating income and net assets.
As reflected in Table 3, for 2000, CILCO's and IPL's contributions to
AES's gross revenues, operating income, net income and net assets were 16.94,
14.20, 15.99 and 8.49 percent, respectively.
While these data show that the relative size of AES and the combined
utility operations of IPL and CILCO somewhat exceeds previous Commission rulings
on Section 3(a)(5) exemptions, AES's rapid current and projected growth
demonstrates that current Commission standards will be met in the very near
future. Moreover, Commission precedent supports a temporary relaxation of strict
requirements under the Act where "'the overall consequence . . . is to make
nearer the ultimate goal of compliance." Kansas Power & Light Co., Holding Co.
Act Release No. 25465 (Feb. 5, 1992) (citing Electric Bond & Share Co., Holding
Co. Act Release No. 11004 (Feb. 6, 1952)). In this instance, because of the
differing nature of AES's, CILCO's, and IPL's operations, certain of the
financial yardsticks, particularly net income, tend to overstate the two utility
companies' contributions to the merged AES/CILCORP/IPALCO system. Thus, as
explained below, the Table 3 data comparing gross revenues, operating income,
net income and net assets present the most accurate representation of the
relative size of CILCO and IPL to the merged AES/CILCORP/IPALCO system.
It should be emphasized that the Commission has noted that Section
3(a)(1) "has no specific numerical tests to guide a finding that a
public-utility subsidiary is material" and that the Commission has not "embraced
any numerical bright-line test of materiality under section 3(a)(1)." See
NIPSCO, slip op. at 34-35. Instead, the Commission noted that "factors other
than mere percentages must be taken into consideration in determining the
application of the materiality standard of section 3(a)(1)" and noted the
Division of Investment Management's recommendation (set forth in its 1995 study,
supra) that the Commission "adopt a more flexible standard for exemptions under
section 3(a) that would consider the facts and circumstances of each situation
and take into account the ability of the affected state regulators to adequately
protect the interests of utility consumers."26 Id.
(b) Materiality of IPL Revenues
As noted previously, AES will commit to enter into an agreement with
an unaffiliated person within two years of completion of the Transaction to
divest its ownership of the utility assets and business of CILCO that are
subject to Commission jurisdiction under the Act. Table 4 below sets forth IPL's
contribution to AES's revenues,27 other than revenues contributed by CILCO's
PUHCA-jurisdictional utility activities.28
---------------
26 Although Section 3(a)(1) sets forth a different standard for exemption than
Section 3(a)(5), both Section 3(a)(5) and Section 3(a)(1) incorporate the
concept of "materiality." The Act does not suggest that the term would have
different meanings in the two sections. Thus, the Commission's analysis of
materiality in the Section 3(a)(1) context does provide insight into the
concept of materiality in the Section 3(a)(5) context.
27 Because the proposed Transaction would combine a predominantly electric
company (AES, including CILCORP) with an exclusively electric company
(IPL), the net operating revenues percentage does not differ materially
from a gross revenues percentage; net operating revenues calculated for
2000 is approximately 10.08 percent.
28 Exhibit K-4 sets forth the percentages for IPL contributions in accordance
with GAAP.
Table 4
IPL Contributions To
AES/IPALCO Consolidated Holding Company
(Proportional Consolidation Basis)
($MM)
---------------------------------------------------------------------------------
1998 1999 2000
Gross Revenues* 16.71% 15.39% 10.06%
IPL 786 800 831
IPALCO 35 34 28
AES (excluding CILCO PUHCA-jurisdictional activities) 3,883 4,365 7,404
AES/IPALCO 4,704 5,200 8,263
---------------------------------------------------------------------------------
Operating Income 20.23% 17.68% 10.73%
IPL 261 268 205
IPALCO (1) - (36)
AES (excluding CILCO PUHCA-jurisdictional activities) 1,029 1,248 1,741
AES/IPALCO 1,288 1,516 1,910
---------------------------------------------------------------------------------
Net Income 32.49% 39.57% 10.91%
IPL 140 137 82
IPALCO (10) (9) 73
AES (excluding CILCO PUHCA-jurisdictional activities) 301 218 600
AES/IPALCO 431 346 755
---------------------------------------------------------------------------------
Net Assets 13.41% 8.02% 5.49%
IPL 1,953 1,979 1,905
IPALCO 166 337 -
AES (excluding CILCO PUHCA-jurisdictional activities) 12,449 22,346 32,781
AES/IPALCO 14,568 24,662 34,686
---------------------------------------------------------------------------------
* In calculating the gross revenues percentage, the numerator is equal to the
total gross business revenues of IPL, including all revenues from
non-utility activities. The denominator is comprised of all business
revenues (including revenues from all IPALCO and IPL non-utility
activities) plus all of AES's business revenues.
Table 4 shows that the acquisition of IPL, without CILCO
PUHCA-jurisdictional businesses, fully falls within existing Commission
precedent. In this case for the year 2000, IPL revenues represent 10.06 percent
of AES's gross revenues, 10.73 percent of its operating income, 10.91 of its net
income and 5.49 percent of its net assets. On the basis of prior Commission
determinations, these contributions clearly are not a material portion of AES's
income.
(c) Size of Utility Operations
In Gaz Metropolitain, the Commission stated that the standard under
which a foreign holding company system could be exempted under Section 3(a)(5)
included, in addition to an inquiry into materiality, an assessment of whether
U.S. utility operations were "small in size."29 This concern about size under
Section 3(a)(5) was articulated in Cities Service, where the Commission stated,
based on the legislative history of the Act, that the size standard was
established in order to prevent abuse of the Section 3(a)(5) exemption by
holding companies that had very large, non-utility domestic businesses. The
Commission emphasized that the fact that a holding company's domestic utility
income is not material to its total income is irrelevant if the holding company
is so large that domestic utility activity is still large in an absolute sense.
Cities Service, 8 SEC at 334-335. The Commission reiterated this point in AES.
AES at 17-18.
The merged AES/CILCORP/IPALCO system will satisfy both the "small in
size" standard and the policy concern underlying the standard. CILCO's and IPL's
U.S. utility operations, considered in the aggregate, clearly are "small in
size," both in terms of prior Commission precedent and as compared to other
state, regional and U.S. utilities today. Moreover, AES has significant foreign
operations, and its existing domestic activity consists of owning and operating
EWG and QF facilities, and engaging in energy marketing.
The context of this transaction is sharply different from those that
confronted the Commission in early cases such as Electric Bond and Share and
Cities Service. There the applicants seeking exemption under Section 3(a)(5)
were companies with little or no foreign business of any sort, and with very
large domestic non-utility businesses. As the Commission pointed out, granting a
Section 3(a)(5) exemption under such circumstances would necessarily mean that
the exemption "[w]ould not be contingent on the existence in the system of
foreign operations and an exemption would be afforded even where the holding
company system has no foreign interest, a result obviously not intended by
Congress." Electric Bond and Share, 1952 WL 1058 at *20. In denying exemptions
to Electric Bond and Share and Cities Service, the Commission also expressed its
concern that Section 3(a)(5) not be used as an exemption for large U.S.
non-utility enterprises that could not qualify for exemption under Section
3(a)(3).
Unlike either Electric Bond and Share or Cities Service, AES has very
significant and growing foreign electric generation and distribution operations
and is without question a global provider of electric services. AES has electric
generation and/or distribution operations in 18 foreign countries. AES owns
and/or operates (entirely or in part) 35,072 MW of generating capacity located
---------------
29 Gaz Metropolitain, 58 SEC at 193 (quoting Electric Bond and Share).
outside of the United States.30 As demonstrated on Exhibit K-12, this foreign
generation capacity constitutes a significant portion of AES's total generating
capacity. In addition, AES owns partial interests (both majority and minority)
in 15 companies located outside of the United States that sell electricity
directly to commercial, industrial, governmental, and residential customers.
These 15 companies serve a total of approximately 17 million foreign customers
with sales of approximately 139,000 gigawatt-hours. On a net equity basis, AES's
ownership in these companies represents approximately 6.4 million foreign
customers and foreign sales of approximately 48,318 gigawatt-hours. AES's
operations continue to be predominantly foreign. Specifically, its foreign
operations will contribute, on a proportional consolidation basis, 68 percent of
AES's gross revenues and 63 percent of AES's operating income.
As the facts set forth in this Application demonstrate, AES continues
to be a global energy company whose present business, both domestic and foreign,
is primarily the "exempt utility" business - i.e., the business of EWGs, QFs and
power marketers in the United States and EWGs and FUCOs outside the United
States. Given that its business and experience has always been within the
utility industry, primarily the deregulated and competitive sectors of that
industry, it is, as the Commission affirmed in AES, the type of company for
which the 3(a)(5) exemption was designed.31
As with its acquisition of CILCO, AES's acquisition of IPALCO is a
natural outgrowth and consequence of AES's corporate focus, i.e., a natural
outgrowth of AES's business of being a global energy provider. For example, AES
has extensive business expertise in competitive domestic and foreign energy
markets which will enable both CILCO and IPL to compete more effectively in
restructured energy markets. This distinguishes AES from Electric Bond and Share
and Cities Service, each non-utility (and non-exempt utility) companies seeking
to own large domestic utility companies even though as a non-utility each had,
at best, limited experience with the utility industry, domestic or foreign.
Granting AES the exemption in connection with its acquisition of IPL will ensure
that the Section 3(a)(5) exemption continues to be available to those companies
---------------
30 27,771 MW on a net equity basis.
31 For example, in 2000, AES earned 91 percent of its revenues on a
proportional consolidation basis, from exempt utility operations. On a GAAP
basis, AES earned 87 percent of its revenues from its exempt utility
business. In 2000, a combined AES/IPALCO (including CILCO) would have
earned 82 percent of its revenues on a proportional consolidation basis
from exempt utility operations. On a GAAP basis, a combined AES/IPALCO
would have earned 79 percent of its gross revenues from exempt utility
operations.
for which it was intended, and not to those companies that seek exemption under
Section 3(a)(5) as a means of evading the restriction on exemption under Section
3(a)(3). See Electric Bond and Share; Cities Service.
The U.S. utility operations of CILCO and IPL are small in size, both
in terms of prior Commission precedent and when compared to other regional and
U.S. utilities. In denying the Cities Service exemption application, the
Commission held that Cities Service and its utility subsidiaries: (i) comprised
"one of the most important public utility holding company systems in the United
States," (ii) "controlled a far-flung utility empire with assets valued at more
than $400,000,000," and (iii) had operations that extended to "20 states and
Canada with an estimated population in the areas served of approximately
4,500,000." Cities Service at 336.
In Electric Bond and Share, Electric Bond and Share Company ("Electric
Bond") sought to be relieved of its commitment to dispose of the common stock it
held in United Gas Corporation ("United"), its gas utility subsidiary, through
exemptions under, inter alia, Section 3(a)(5) of PUHCA. Applying the "small in
size" standard developed in Cities Service, the Commission held that the gas
utility operations of United, a recently acquired subsidiary of Electric Bond,
were "very substantial" in magnitude and, therefore, rejected the application.
Electric Bond and Share, 1952 WL 1058 at *16. The Commission focused on the fact
that United operated the second largest gas distribution operations in its
region, and accounted "for a large and significant part of the natural gas
distribution business in the United States." Id. The Commission cited the
following facts in its analysis of the magnitude of United's gas utility
operations:
o United's non-industrial gas distribution operations were
"approximately twice as large as those carried on in the entire State
of Mississippi, slightly greater than those in the State of Louisiana,
and about 25 percent of those in the State of Texas. With one
exception, there [was] no company whose residential and commercial gas
distribution operations in the three (3) state area [were] as large as
those of United."
o Within the three-state region in which it operated, United served
"approximately 21.1 percent of all residential and commercial
customers, with approximately 18.2 percent of all the residential and
commercial gas consumed and accounted for approximately 19.2 percent
of the total gross residential and commercial gas revenues."
o United's gas distribution operations were large in relation to other
gas distributors in the United States.
The absolute size of CILCO's and IPL's combined utility business
clearly is smaller when compared to modern utility companies than the utility
businesses of Electric Bond and Cities Service in their day. Electric Bond's gas
operations served 21.2 percent of all customers in the states where it did
business, provided 18.2 percent of all gas consumed and accounted for 19.2
percent of total gas reserves. CILCO and IPL, on the other hand, serve only 3.9
percent of all utility customers served by utilities doing business in Illinois
and Indiana and account for only 3.5 percent of all utility assets and only 3.6
percent of total utility revenues (see Exhibit K-5). In Gaz Metropolitain, on
the other hand, the Commission granted a Section 3(a)(5) exemption to Gaz
Metropolitain, whose domestic utility subsidiary, Vermont Gas Systems, Inc., had
a state-wide franchise to sell natural gas at retail and appeared at that time
to deliver nearly all of the natural gas sold at retail in Vermont. In addition,
there are seven utility companies larger than CILCO and IPL combined in Illinois
and Indiana in terms of revenues and assets and nine that are larger in terms of
customers (see Exhibit K-5), while only one gas company was larger than Electric
Bond in its three-state service area. Cities Service, in sharp contrast to CILCO
and IPL, had operations in 19 states, compared to CILCO's and IPL's operations
in only two states. It also should be noted that an analysis of the size of
CILCO's and IPL's utility activities should reflect the realities of today's
public utility markets. Since the time of Cities Service and Electric Bond,
utility operations have become larger enterprises commensurate with growth in
population and number of utility customers, as well as increased electricity and
gas consumption per utility customer. Recently, the size of public utility
companies has grown and will continue to grow in the wake of consolidations
undertaken in response to increased competition and restructuring initiatives.
It is clear from Commission precedent, in particular Electric Bond and
Share, that the Commission is concerned with the size of the holding company's
U.S. utility operations as compared to state, regional and national competitors.
The utility operations of CILCO and IPL are small in size relative to other
utilities, whether on a state, regional32, or national basis. The data
establishes that the activities of CILCO and IPL are small in scale.
---------------
32 The Region for these purposes is defined as the States of Illinois and
Indiana and the six states bordering them - Iowa, Kentucky, Michigan,
Missouri, Ohio, and Wisconsin.
(d) Size of Combined CILCO/IPL Operations
Exhibit K-6 compares CILCO/IPL's combined electric and gas utility
activities to other regional combination electric and gas utilities, again in
terms of revenues, assets and customers.33 According to all three measures,
CILCO/IPL's combined electric and gas utility business accounts for:
o 2.9 percent of the Region's combination electric and gas utility
revenue,
o 2.8 percent of the Region's combination electric and gas utility
assets, and
o 2.7 percent of the Region's combination electric and gas utility
customers.34
Out of 19 combination electric and gas utilities in the Region, CILCO/IPL is
ranked 15th in terms of assets and customers and 14th in terms of revenue. The
14 combination companies larger than CILCO/IPL in terms of assets and customers
hold 93.7 percent of the assets and serve 93.8 percent of the customers. The 13
combination companies larger than CILCO/IPL in terms of revenue have 91.8
percent of the all regional revenues. Only 5.3 percent of the Region's
combination electric and gas utility revenues are earned by combination electric
and gas utility companies with less revenues than CILCO/IPL; only 3.5 percent of
---------------
33 The data contained in Exhibit K-6 through K-12 was analyzed, organized and
graphed by LECG, Inc. ("LECG"), an economic consulting service located in
Washington, DC. The source of LECG's data was Resource Data International,
Inc., which utilizes Federal Energy Regulatory Commission Form 1 filings
and Securities and Exchange Commission Forms 10-K and 10-Q filings as
sources. At the time this Application was filed, the most recent data that
had been collected and evaluated related to conditions as of December 31,
1998. AES will update this Application with more recent data as it becomes
available, but it believes that the data submitted remains valid for
purposes of ordinal classification and relative comparisons.
34 The Commission found in AES that CILCO's gas utility revenues, assets, and
customers are small on a state, regional, and national basis. Since that
determination in August 1999, no transactions or other market developments
have occurred that have altered the absolute or relative size of CILCO's
gas operations to any material degree. Because its proposed acquisition of
IPALCO does not affect the size of AES's gas utility operations, this
Application does not treat this matter in any greater detail.
the Region's combination electric and gas utility assets are owned by
combination electric and gas utility companies with fewer assets than CILCO/IPL;
and only 3.5 percent of the Region's combination electric and gas utility
customers are served by combination electric and gas utilities with fewer
customers than CILCO/IPL.
Exhibit K-7 compares CILCO/IPL's total utility activities to all other
regional utilities (electric, gas and combination electric and gas), again in
terms of assets, revenues and customers. According to all three measures,
CILCO/IPL's combined electric and gas utility business accounts for:
o 1.8 percent of Region's utility revenues,
o 1.7 percent of Region's utility assets, and
o 1.8 percent of Region's utility customers.
Out of 45 investor-owned utilities in the Region, CILCO/IPL would be ranked 17th
in terms of revenue, 19th in terms of assets, and 21st in terms of customers.
The 16 largest utilities in terms of revenue earn 87.2 percent of the utility
revenues, the 18 largest utilities in terms of assets have 91.1 percent of the
utility assets, and the 20 largest utilities in terms of customers serve 92.2
percent of the utility customers. Only 10.9 percent of the Region's total
utility revenues are earned by utility companies with less revenues than
CILCO/IPL; only 7.2 percent of the Region's total utility assets are owned by
utility companies with fewer assets than CILCO/IPL; and only 6 percent of the
Region's total utility customers are served by utilities with fewer customers
than CILCO/IPL.
Exhibit K-8 compares CILCO/IPL's combined electric and gas utility
activities to all U.S. combination electric and gas utilities, again in terms of
revenues, assets and customers. According to all three measures, CILCO/IPL's
combined electric and gas utility business accounts for:
o 1.1 percent of U.S. combination electric and gas utility revenue,
o 1.1 percent of U.S. combination electric and gas utility assets, and
o 1.0 percent of U.S. combination electric and gas utility customers.
In terms of revenues, CILCO/IPL would rank 31st of combined gas and electric
companies in the U.S. The 30 companies larger than CILCO/IPL in terms of revenue
earn 91.7 percent of combined gas and electric company revenues. In terms of
assets, CILCO/IPL also is ranked 32nd. The 31 companies larger than CILCO/IPL in
terms of assets have 92.4 percent of the assets. In terms of customers,
CILCO/IPL is ranked 31st. The 30 companies larger than CILCO/IPL in terms of
customers serve 91.5 percent of the customers. Only 7.2 percent of U.S.
combination electric and gas utility revenues are earned by combination electric
and gas utility companies with fewer revenues than CILCO/IPL; only 6.5 percent
of U.S. combination electric and gas utility assets are owned by combination
electric and gas utility companies with fewer assets than CILCO/IPL; and only
7.4 percent of U.S. combination electric and gas utility customers are served by
combination electric and gas utilities with fewer customers than CILCO/IPL.
Exhibit K-9 further compares CILCO/IPL's total utility activities to
all other U.S. utilities (electric, gas and combination electric and gas), again
in terms of revenues, assets and customers. According to all three measures,
CILCO/IPL's combined electric and gas utility business accounts for:
o 0.6 percent of U.S. utility revenues,
o 0.5 percent of U.S. utility assets, and
o 0.5 percent of U.S. utility customers.
In terms of revenue, CILCO/IPL would be ranked 50th of investor-owned utilities.
The 49 companies larger than CILCO/IPL in terms of revenue earn 84.2 percent of
utility revenues. In terms of assets, CILCO/IPL ranks 52nd. The 51 companies
larger than CILCO/IPL in terms of assets have 86.4 percent of utility assets. In
terms of customers, CILCO/IPL is ranked 51st. The 50 companies larger than
CILCO/IPL serve 69.3 percent of utility customers. Only 15.2 percent of U.S.
utility revenues are earned by utility companies with fewer revenues than
CILCO/IPL; only 13.1 percent of U.S. utility assets are owned by utility
companies with fewer assets than CILCO/IPL; and only 15.1 percent of U.S.
utility customers are served by utilities with fewer customers than CILCO/IPL.
(e) Size of IPL Operations
Following divestiture of CILCO's PUHCA-jurisdictional assets, the
absolute and relative size of AES's utility operations would drop
correspondingly. Exhibit K-10 compares IPL's electric utility activities to
other Indiana electric utilities in terms of assets, revenues and customers.
According to all three measures, IPL's electric utility business accounts for:
o 4.3 percent of Indiana electric utility revenues;
o 4.9 percent of Indiana electric utility assets, and
o 6.0 percent of Indiana electric utility customers.
Out of six investor-owned electric utility companies in Indiana, IPL is ranked
fourth in terms of assets and revenues and number three in terms of customers.
The three largest electric utility companies in Indiana in terms of revenues and
assets earn 91.5 percent of electric utility revenues and have 92.1 percent of
the electric utility assets. The two largest electric utility companies in
Indiana in terms of customers serve 86.4 percent of all electric utility
customers. Only 4.1 percent of Indiana electric utility revenues are earned by
electric utility companies with less revenues than IPL; only 3.0 percent of
Indiana' electric utility assets are owned by electric utility companies with
fewer assets than IPL; and only 1.7 percent of Indiana electric utility
customers are served by electric utilities with fewer customers than IPL.
Exhibit K-11 compares IPL's electric utility activities to other
regional electric utilities in terms of assets, revenues and customers.
According to all three measures, IPL's electric utility business accounts for:
o 1.7 percent of the Region's electric utility revenues,
o 1.5 percent of the Region's electric utility assets, and
o 2.0 percent of the Regions's electric utility customers.
Out of 18 investor-owned electric utility companies in the Region, IPL is ranked
number 13 based on revenues and assets and customers. The electric utility
companies in the Region larger than IPL earn 94.8 percent of electric utility
revenues, have 95.7 percent of electric utility assets and serve 94.6 percent of
electric utility customers. Only 3.5 percent of the Region's electric utility
revenues are earned by electric utility companies with fewer revenues than IPL;
only 2.8 percent of the Region's electric utility assets are owned by electric
utility companies with fewer assets than IPL; and only 3.5 percent of the
Region's electric utility customers are served by electric utilities with fewer
customers than IPL.
The Exhibits described above clearly indicate that IPL's utility
operations are small in size, particularly when compared to other utilities in
the state and the Region. Comparing the size of IPL's utility operations to all
United States utilities, again in terms of revenues, assets and customers, makes
it even clearer that IPL's utility operations are small in size.
Exhibit K-12 compares IPL's electric utility activities to all other
United States electric utilities in terms of assets, revenues and customers.
According to all three measures, IPL's electric utility business accounts for:
o 0.4 percent of U.S. electric utility revenues,
o 0.4 percent of U.S. electric utility assets, and
o 0.5 percent of U.S. electric utility customers.
In terms of revenue, IPL is ranked 61st of electric utilities. The 60 electric
utility companies larger than IPL earn 94 percent of electric utility company
revenues. In terms of assets, IPL ranks 66th. The 65 electric utility companies
larger than IPL own 95.9 percent of electric utility assets. In terms of
customers, IPL is ranked 58th. The 57 companies larger than IPL in terms of
customers serve 92.7 percent of electric utility customers. Only 5.6 percent of
U.S. electric utility revenues are earned by electric utility companies with
less revenues than IPL; only 3.7 percent of United States electric utility
assets are owned by electric utility companies with fewer assets than IPL; and
only 6.8 percent of United States electric utility customers are served by
electric utilities with fewer customers than IPL.
The above data demonstrates clearly that IPL is small in size,
measured by all relevant yardsticks. For this reason, AES's acquisition of IPL
complies fully with Commission precedent applying Section 3(a)(5).
D. Public Interest
Under the "unless and except" clause of Section 3(a), the Commission
has the authority to deny a request for exemption if it were to determine that
granting the exemption would be "detrimental to the public interest or the
interest of investors or consumers." No such concerns, however, are presented
with respect to this Transaction and request for exemption. The Transaction will
result in a holding company which will be well-equipped to respond effectively
to the changing nature of the electric and gas industries, thus promoting the
interests of both investors and ratepayers.
The FERC approved the Transaction on March 8, 2001. In issuing its
approval, FERC examined whether the Transaction (1) will adversely affect
competition; (2) will adversely affect the wholesale rates of IPL and CILCO; and
(3) will have an adverse effect on federal or state regulation. In its order,
FERC stated that it found no adverse effects with respect to any of these
matters. See The AES Corporation, 94 FERC para. 61,240 (2001).
The IURC must confirm to the Commission under Section 33(a)(2), that
it has the authority and resources to protect Indiana consumers and that it
intends to exercise such authority. It did so in a letter to the Commission
dated September 28, 2000.
After AES's acquisition of IPALCO, IPL's operations will continue to
be subject to regulation by the FERC and the IURC, both of which regulate
utility transactions with affiliates. With respect to the IURC, the Indiana Code
specifically grants the IURC jurisdiction over affiliate transactions with
electric and gas public utilities "to the extent of access to all accounts and
records of joint or general expenses, any portion of which may be applicable to
such transactions, and to the extent of authority to require such reports to be
submitted by such affiliated interests, as the [IURC] may prescribe." Ind. Code
section 8-1-2-49(2). Thus, the IURC has broad authority to access the books and
records of any member of the AES corporate family, wherever located, if such AES
entity engages in transactions with IPL or if any costs associated with such
entity are allocated to IPL. In addition, the Indiana Code requires that
management, construction, engineering, or similar contracts that a utility makes
with an affiliated interest must be filed with the IURC and will not be
effective until filed. The IURC may disapprove any contract that it finds, after
investigation and a hearing, not to be in the public interest.
After AES's acquisition of IPALCO, CILCO's operations will continue to
be subject to regulation by the FERC and the ICC, both of whom regulate utility
transactions with affiliates. With respect to the ICC, the Illinois Public
Utilities Act specifically grants the ICC jurisdiction over affiliate
transactions with electric and gas public utilities, "to the extent of access to
all accounts and records of such affiliated interest relating to such
transactions, including access to accounts and records of joint and general
expenses with the electric or gas public utility any portion of which is related
to such transactions; and to the extent of authority to require such reports
with respect to such transactions to be submitted by such affiliated interests,
as the [ICC] may prescribe". Illinois Public Utilities Act, Section
7-101(2)(ii). Thus, the ICC has broad authority to access the books and records
of any member of the AES corporate family, wherever located, if such AES entity
engages in transactions with CILCO or if any costs associated with such entity
are allocated to CILCO.
In addition, the ICC recently has adopted rules and regulations
governing the relationship between electric utilities and their affiliates. See
83 Illinois Administrative Code Part 450. Pursuant to such rules, transactions
between electric utilities and their affiliates are prohibited from subsidizing
the affiliate. To that end, transfers of goods and services between electric
utilities and their affiliates must be approved by the ICC (unless approval has
been waived by statute or ICC rule). In addition, the ICC has access to the
electric utility's books and records regarding affiliate transactions and
electric utilities must conduct biennial internal audits regarding affiliate
transactions, which provide assurance that non-utility activities are not
subsidized by the electric utility or its customers.
Furthermore, AES will file certificates with the Commission under Rule
24, within 60 days after the end of each calendar quarter beginning January 1,
2001, for a period of three years, and then every six months thereafter, that
provide to the Commission the following information:
o a statement of income and balance sheet, for the 12-month period then
ending, of (i) AES, (ii) IPALCO and (iii) IPL, (iv) CILCORP, and (v)
CILCO;
o updated Table 3 and 4 (see pages 28 and 34 supra)
o for AES, IPALCO, and CILCORP: (i) the total number of megawatts of
generating capacity; (ii) the revenues earned from such generating
capacity; (iii) the change in such capacity and revenues since the
filing of the previous certificate and (iv) the location of any
additional capacity;
o for both AES, IPALCO, and CILCORP: (i) the amount of electric
transmission and electric and gas distribution assets owned; (ii) the
revenues from such assets and (iii) the change in such assets since
the filing of the previous certificate;
o information regarding any sale or transfer of any CILCO or IPL
electric and/or gas utility assets to any affiliate company in the AES
system; and
o copies of any applications to and orders from the ICC that relate to
AES's ownership of or oversight over the operation of CILCORP and/or
CILCO, and copies of any applications to and orders from the IURC that
relate to AES's ownership of or oversight over the operation of IPALCO
and/or IPL.
ITEM 4. REGULATORY APPROVAL
The Share Exchange Agreement is subject to the approval of IPALCO's
shareholders and was approved by IPALCO's shareholders at a special meeting held
October 20, 2000. The Transaction also is subject to approval by the FERC. AES
and IPALCO filed an application for this approval on November 14, 2000, and FERC
issued an order approving the Transaction on March 8, 2001. The Transaction is
subject to the notification and reporting requirements of the HSR Act. In a
letter dated November 20, 2000, AES received notice from the FTC granting an
early termination of the waiting period under the HSR Act. AES and IPALCO made
the necessary filings under this statute on November 14, 2000. Section 33(a)(2)
of the Act requires that the IURC must make a certification to the Commission
under that section in connection with the Transaction. The IURC made that
certification in a letter to the Commission dated September 28, 2000.
ITEM 5. PROCEDURE
The Commission issued and published a notice with respect to the
filing of this Application on December 29, 2000. That notice specified a date of
not later than January 23, 2001 by which comments may be entered. AES requests
that the Commission enter not later than March 23, 2001 an order granting and
permitting this Application to become effective.
AES hereby (i) waives a recommended decision by a hearing officer,
(ii) waives a recommended decision by any other responsible officer or the
Commission, (iii) consents that the Division of Investment Management may assist
in the preparation of the Commission's decision and (iv) waives a 30-day waiting
period between the issuance of the Commission's order and the date on which it
is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A-1 Articles of Incorporation of AES (Exhibit 3.1 to AES's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998, filed August
14, 1998, File No. 1-12291, and incorporated herein by reference)
A-2 By-Laws of AES (Exhibit 3.2 to AES's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, filed August 14, 1998, File No.
1-12291, and incorporated herein by reference)
A-3 Articles of Incorporation of IPALCO (Exhibit 3.1 to IPALCO's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, filed August
13, 1997, File No. 1-8644, and incorporated herein by reference)
A-4 By-Laws of IPALCO (Exhibit 3.2 to IPALCO's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 (Exhibit G-4 hereto), filed
May 14, 1999, File No. 1-8644, and incorporated herein by reference)
B-1 Agreement and Plan of Share Exchange (Annex A to Exhibit C-1 hereto)
C-1 Registration Statement of AES on Form S-4, as amended (File No.
333-43908, filed August 16, 2000, and amended September 1 and
September 14, 2000, and incorporated herein by reference)
D-1 Application to FERC together with testimony and exhibits (previously
filed)
D-2 FERC Order
E-1 AES organization chart (filed through incorporating by reference the
information contained in AES's Rule 24 certificate filed on March 1,
2001 in File No. 70-9465)
E-2 CILCORP organization chart
E-3 IPALCO organization chart
F-1 Opinion of AES Counsel
F-2 Opinion of IPALCO Counsel
F-2 Past Tense Opinion of Counsel (to be filed by amendment with Rule 24
certificate)
G-1 AES's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 1-12291, filed March 30, 1999, and incorporated
herein by reference)
G-2 AES's Quarterly Report on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999 (File No. 1-12291 and
incorporated herein by reference)
G-3 IPALCO's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 (File No. 1-8644, filed February 25, 1999, and incorporated
herein by reference)
G-4 IPALCO's Quarterly Report on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999 (File No. 1-8644 and
incorporated herein by reference)
G-5 AES's Annual Report on Form 10-K for the fiscal year ended December
31, 1999 (File No. 0-19281, filed March 30, 2000, and incorporated
herein by reference)
G-6 IPALCO's Annual Report on Form 10-K for the fiscal year ended December
31, 1999 (File No. 1-8644, filed March 1, 2000, and incorporated
herein by reference)
H-1 Proposed Form of Notice (previously filed)
K-1 AES Subsidiaries (previously filed)
K-2 Generating Plants in Operation (previously filed)
K-3 Global Map of Generating Plants and Distribution Companies (previously
filed)
K-4 GAAP Basis Presentation of CILCO/IPL and IPL Contributions To AES
Consolidated Holding Company (previously filed)
K-5 Market Shares for Utilities in Illinois and Indiana (previously filed)
K-6 Market Shares for Gas and Electric Utilities in Illinois, Indiana and
Bordering States (previously filed)
K-7 Market Shares for Utilities in Illinois, Indiana and Bordering States
(previously filed)
K-8 Market Shares for Gas and Electric Utilities in the US (previously
filed)
K-9 Market Shares for Utilities in the US (previously filed)
K-10 Market Shares for Electric Utilities in Indiana (previously filed)
K-11 Market Shares for Electric Utilities in Indiana and Bordering States
(previously filed)
K-12 Market Shares for Electric Companies in the US (previously filed)
K-13 IURC Letter to the Securities and Exchange Commission (previously
filed)
B. Financial Statements
FS-1 AES Consolidated Balance Sheet as of December 31, 1998 (previously
filed with the Commission in AES's Annual Report on Form 10-K for the
year ended December 31, 1998 (Exhibit G-1 hereto), filed March 30,
1999, File No. 1-12291, and incorporated herein by reference)
FS-2 AES Consolidated Balance Sheet as of September 30, 1999 (previously
filed with the Commission in AES's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999 (Exhibit G-2 hereto), filed
November 15, 1999, File No. 1-12291, and incorporated herein by
reference)
FS-3 AES Consolidated Statement of Income for the 12 months ended December
31, 1998 (previously filed with the Commission in AES's Annual Report
on Form 10-K for the year ended December 31, 1998 (Exhibit G-1
hereto), filed March 30, 1999, File No. 1-12291, and incorporated
herein by reference)
FS-4 AES Consolidated Statement of Income for the 9 months ended September
30, 1999 (previously filed with the Commission in AES's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 (Exhibit
G-2 hereto), filed November 15, 1999, File No. 1-12291, and
incorporated herein by reference)
FS-5 IPALCO Consolidated Balance Sheet as of December 31, 1998 (previously
filed with the Commission in IPALCO's Annual Report on Form 10-K for
the year ended December 31, 1998 (Exhibit G-3 hereto), filed February
25, 1999, File No. 1-8644, and incorporated herein by reference)
FS-6 IPALCO Consolidated Balance Sheet as of September 30, 1999 (previously
filed with the Commission in IPALCO's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999 (Exhibit G-4 hereto), filed
November 12, 1999, File No. 1-8644, and incorporated herein by
reference)
FS-7 IPALCO Consolidated Statement of Income for the 12 months ended
December 31, 1998 (previously filed with the Commission in IPALCO's
Annual Report on Form 10-K for the year ended December 31, 1998
(Exhibit G-3 hereto), filed February 25, 1999, File No. 1-8644, and
incorporated herein by reference)
FS-8 IPALCO Consolidated Statement of Income for the 9 months ended
September 30, 1999 (previously filed with the Commission in IPALCO's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
(Exhibit G-4 hereto), filed November 12, 1999, File No. 1-8644, and
incorporated herein by reference)
FS-9 AES Consolidated Balance Sheet as of December 31, 1999 (previously
filed with the Commission in AES's Annual Report on Form 10-K for the
year ended December 31, 1999 (Exhibit G-5 hereto), filed March 30,
2000, File No. 1-12291, and incorporated herein by reference)
FS-10 AES Consolidated Statement of Income for the 12 months ended December
31, 1999 (previously filed with the Commission in AES's Annual Report
on Form 10-K for the year ended December 31, 1999 (Exhibit G-5
hereto), filed March 30, 2000, File No. 1-12291, and incorporated
herein by reference)
FS-11 IPALCO Consolidated Balance Sheet as of December 31, 1999 (previously
filed with the Commission in IPALCO's Annual Report on Form 10-K for
the year ended December 31, 1999 (Exhibit G-6 hereto), filed March 1,
2000, File No. 1-8644,, and incorporated herein by reference)
FS-12 IPALCO Consolidated Statement of Income for the 12 months ended
December 31, 1999 (previously filed with the Commission in IPALCO's
Annual Report on Form 10-K for the year ended December 31, 1999
(Exhibit G-6 hereto), filed March 1, 2000, File No. 1-8644,, and
incorporated herein by reference)
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Application to be signed
on its behalf by the undersigned thereunto duly authorized, and the undersigned
individuals have signed this Application on their own behalf.
The AES Corporation
By: /s/ William R. Luraschi
-----------------------------------
Name: William R. Luraschi
Title: Vice President and
Secretary
/s/ Dennis W. Bakke
-----------------------------------
Dennis W. Bakke
By: /s/ Roger W. Sant
-----------------------------------
Roger W. Sant
Date: March 23, 2001