File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Entergy Corporation Entergy Services, Inc.
639 Loyola Avenue 639 Loyola Avenue
New Orleans, LA 70113 New Orleans, LA 70113
Entergy Arkansas, Inc. Entergy Gulf States, Inc.
425 West Capitol 350 Pine Street
Little Rock, AR 72201 Beaumont, TX 77701
Entergy Louisiana, Inc. Entergy Mississippi, Inc.
4809 Jefferson Highway 308 East Pearl Street
Jefferson, LA 70121 Jackson, MS 39201
Entergy New Orleans, Inc.
1600 Perdido Building
New Orleans, Louisiana 70112
(Names of companies filing this statement and
addresses of principal executive offices)
Entergy Corporation
(Name of top registered holding company parent)
Steven C. McNeal
Vice President and Treasurer
Entergy Services, Inc.
639 Loyola Avenue
New Orleans, Louisiana 70113
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
Ann G. Roy, Esq. William T. Baker, Jr., Esq.
Entergy Services, Inc. Thelen Reid & Priest LLP
639 Loyola Avenue 40 West 57th Street
New Orleans, Louisiana 70113 New York, New York 10019
Item 1. Description of Proposed Transaction.
(A) Introduction
Entergy Corporation ("Entergy Corp.") is a registered
holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"). Its public-utility subsidiaries are
Entergy Arkansas, Inc. ("Entergy Arkansas"), Entergy Gulf States,
Inc. ("Entergy Gulf States"), Entergy Louisiana, Inc. ("Entergy
Louisiana"), Entergy Mississippi, Inc. ("Entergy Mississippi")
and Entergy New Orleans, Inc. ("Entergy New Orleans") (Entergy
Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy
Mississippi and Entergy New Orleans are hereinafter collectively
referred to as the "Operating Companies"). Entergy Services, Inc.
("Entergy Services") provides general executive, advisory,
administrative, accounting, legal, engineering and other services
to the Operating Companies (Entergy Corp., Entergy Services and
the Operating Companies are hereinafter collectively referred to
as "Entergy", and Entergy Corp. and its subsidiary companies are
hereinafter referred to as the "Entergy System"). The principal
executive offices of the applicants are located at the addresses
set forth on the cover page hereof.
Entergy proposes to create an independent, incentive-driven
transmission company ("Transco") as a Delaware limited liability
company ("LLC"), the assets of which will consist initially of
the Operating Companies' and Entergy Services' transmission
system and related assets and ultimately may include
transmission assets of other non-affiliated entities. In
accordance with the independence requirements of the Federal
Energy Regulatory Commission ("FERC") under its transmission
system ownership and operation rules, including FERC Order No.
2000 described below, Transco will be independent of, and not
affiliated with, the Entergy System.
Entergy expects to effect the transfer of the Entergy
System Transmission Assets to Transco through one or more
intermediate entities which will be newly-created subsidiary
companies of Entergy and may be limited liability companies,
corporations and/or partnerships (collectively, the "Intermediate
Entity"). Transco will enter into an arrangement with the
Southwest Power Pool (the "SPP"), an independent not-for-profit
regional entity, to establish a regional transmission
organization (the "SPP Partnership RTO"). Under the resulting SPP
Partnership RTO, the SPP proposes to perform certain operational
and oversight functions for the Transco transmission assets,
including those of the Entergy System under its control, as well
as such transmission assets of the current or future members of
the SPP (presently SPP consists of fifty-one (51) members located
in Arkansas, Kansas, Louisiana, Mississippi, Missouri, New
Mexico, Oklahoma and Texas) as these utilities may place under
the management of the SPP Partnership RTO. Although Transco will
operate under the oversight, and within the umbrella, of the SPP
Partnership RTO, a separate Delaware corporation, the managing
member (the "Managing Member"), will manage the day-to-day
business affairs of Transco. The Managing Member will be governed
by a board of seven (7) directors independent of any Market
Participant, including the Entergy System companies.
The Intermediate Entity will be the vehicle through which
the Entergy System Transmission Assets are transferred to
Transco. The Operating Companies will transfer the Entergy System
Transmission Assets to the Intermediate Entity and the
Intermediate Entity, in turn, will transfer those assets to
Transco. The Intermediate Entity will assume debt and other
obligations of the Operating Companies, associated with the
transferred assets. The Intermediate Entity will use a portion of
the funds raised through its external financing to repay all of
the assumed debt and other assumed obligations of the Operating
Companies. The Intermediate Entity may obtain financing through
the issuance of debt and equity securities and may assume or
guarantee indebtedness. Debt or preferred stock incurred or
issued by the Intermediate Entity will be assumed by and/or
assigned to Transco upon transfer to Transco of the related
Entergy System Transmission Assets. Upon completion of the
transfer to Transco, all of the obligations of the Intermediate
Entity with respect to the transferred assets and the associated
financing will terminate. The Intermediate Entity may receive
services from Entergy Services. The Intermediate Entity expects
that it may be required to pay dividends out of capital, rather
than retained earnings.
The Applicants request authorization under the Act from the
Securities and Exchange Commission (the "Commission"), to the
extent not otherwise exempted under the Act, or authorized by
order of the Commission, for (i) Entergy Corp. and the Operating
Companies to form, hold interests in, and acquire equity
securities of, the Intermediate Entity; (ii) Entergy Services to
transfer the Entergy Services Assets to the Operating Companies;
(iii) the Operating Companies to transfer their respective
Transmission Assets to the Intermediate Entity; (iv) (a) the
Intermediate Entity to effect financing, including assuming
obligations of the Operating Companies; and (b) the Intermediate
Entity to use a portion of the proceeds received from its
external financing to repay assumed debt and other obligations of
the Operating Companies; (v) Entergy Corp. and the Operating
Companies to transfer, directly, or indirectly through the
Intermediate Entity, ownership and operational control over the
Entergy System Transmission Assets to Transco; (vi) Entergy Corp.
and the Operating Companies to receive, directly or indirectly,
in exchange for such transfers, passive member units in Transco
("Class B Interests"); (vii) Entergy Corp. and the Operating
Companies to exchange, at such time as they elect, their
respective Class B Interests for shares of the Class B Common
Stock of the Managing Member ("Class B Common Stock") and to
sell Class B Interests and Class B Common Stock; (viii) the
Operating Companies and the Intermediate Entity to pay dividends
out of capital; and (ix) Entergy Services to provide services to
the Intermediate Entity and possibly to provide services to
Transco on a limited basis.
(B) Transco
(1) Transco Operations, Organization and Ownership
(a) General
Transco, an independent LLC, will have the duty and
authority to provide transmission service in geographic areas
formerly served by Transco members, including the Operating
Companies. Transco's functions will be to operate, maintain and
enhance the Transco system including: (1) responding to requests
for transmission service across the Transco system; (2)
evaluating the requests for interconnection to the Transco
system; and (3) developing and implementing the expansion plan
for the Transco system. Transco will operate within the SPP
Partnership RTO and under its oversight.
(b) Transco Operating Agreements and Agency Agreements
Transco members, including the Operating Companies, may
transfer ownership and control of their transmission assets to
Transco in exchange for Class B Interests. Other non-affiliated
entities and/or the Operating Companies may enter into agreements
("Operating Agreement") with Transco relating to the operation of
their transmission assets. A form of the Operating Agreement,
which is subject to FERC approval, is filed as Exhibit B-1
hereto. The Operating Agreement authorizes Transco to exercise
functional operational control over transmission assets covered
by the Operating Agreement and to incorporate the revenue
requirement associated with such assets into the Transco
transmission rate schedules. Consequently, the Transco will
exercise its operating authority in two ways: it will directly
control transmission facilities contributed to it in return for
Class B Interests, and it will control transmission facilities
subject to its operational control under the Operating Agreement,
by directly controlling or by directing the transmission asset
owners to take actions relating to those assets. Finally, the
Operating Companies may also enter into a separate agreement
("Agency Agreement") which authorizes Transco to provide
transmission and wholesale distribution services on behalf of
Transco members over non-transferred facilities. A form of Agency
Agreement, which is subject to FERC approval, is filed as Exhibit
B-2 hereto. In the event that certain of the Operating Companies'
Transmission Assets have not been transferred to Transco, as of
January 1, 2002, Transco will assume operational control of those
Transmission Assets through the Operating and/or Agency Agreement
with the respective Operating Companies (see footnote 3 above).
(c) Independence of Transco and Managing Member from the Entergy
System
The transmission assets transferred to Transco, including
the Entergy System Transmission Assets, will be pooled into one
system, which will be governed by the Managing Member under the
Limited Liability Company Agreement of Transco (the "Transco LLC
Agreement"). A copy of the Transco LLC Agreement is filed as
Exhibit A-1 hereto. The Managing Member's board of directors will
manage the business affairs of Transco. In addition, the SPP
Partnership RTO, in its oversight of Transco, will serve as
security coordinator and will be responsible, among other things,
for the dispute resolution and market monitoring functions. This
two-pronged governing structure promotes Transco's independence
as an entity separate from Entergy System control.
The Managing Member will manage Transco's business affairs
and employ the personnel necessary to carry out its
responsibilities. No employee of the Entergy System will be an
employee of Transco unless such employee has terminated his/her
employment with other entities within the Entergy System and
divested all stock ownership in any member or Market Participant
within six months of employment with Transco, except for benefit
plans the value of which do not vary with the performance of the
member or Market Participant. The Managing Member will initially
have a seven (7) member board of directors with the expertise
necessary for running an independent transmission company and
accessing capital markets.
The initial board of directors will be chosen through a
procedure designed to satisfy requirements that the board be
independent from Market Participants, including the Entergy
System. The passive owners will select one national search firm
from the following three: Korn Ferry International, Heidrick &
Struggles International and Russell Reynolds, or their
successors. The selected search firm will then identify fourteen
(14) candidates that satisfy the board member qualifications set
forth in the plan under which Transco is created (the "Transco
Implementation Plan"). A copy of the Transco Implementation Plan
is filed as Exhibit A-5 hereto. The search firm will provide the
names and qualifications of the candidates to a board selection
committee (the "Board Selection Committee").
The Board Selection Committee will consist of two
representatives from the group of utilities that have given
notice of their intent to transfer their transmission facilities
to Transco, one representative from the group of entities that
have given notice of their intent to execute an Operating
Agreement with Transco, two representatives from the group of the
cooperatives, municipalities and federal power marketing agencies
that sell electricity at retail or at wholesale within the area
served by the proposed members of Transco, and two
representatives from the group of the power marketers, brokers,
industrial consumers, and entities that are developing generation
facilities that are, or will be, connected to the transmission
grid owned by Transco. Each Market Participant group will be
responsible for identifying its representatives. Each
representative on the Board Selection Committee will have one
vote. The Board Selection Committee will then select seven (7)
directors from the fourteen (14) candidates identified by the
search firm. At least 4 of the 7 must have been president, chief
executive officer, chief operating officer or a director of at
least one other publicly-traded company and at least two must
have had experience in the electric utility industry.
Transco officers and employees must also be independent of
any Market Participant and must have no affiliation with, nor
financial interest in, any Market Participant, including the
Entergy System companies. Former officers or employees of a
Market Participant may become officers or employees of Transco;
provided that they divest all stock ownership in their former
employer within six months of employment with Transco, and they
sever all financial interest in their former employers, except
for benefit plans the value of which do not vary with the
performance of the former employer. Employees of the Operating
Companies and Entergy Services that transfer to Transco will
terminate their employment with any entity within the Entergy
System. The transmission owners that contribute their assets to
Transco will initially appoint, subject to ratification by the
Managing Member's board of directors, Transco's chief executive
and senior officers. In addition, under Transco's Code of Conduct
(the "Code of Conduct"), the directors, officers and employees of
Transco are precluded from providing preferential treatment or
preferential access to information to any Market Participant,
including any Entergy System company. See the Code of Conduct
which is filed herewith as Exhibit 1 to the Transco LLC Agreement
which is filed as Exhibit A-1 hereto.
The Managing Member will initially own a nominal interest in
Transco but will control 100% of the interests that have full
power to vote ("Class A Interests"). The Managing Member's board
of directors will run the business affairs of Transco. Market
Participants, including Entergy System companies, will own the
Class B Interests, which are passive investment interests. Class
B Interests share in Transco's profits and losses, and have
certain limited voting rights for protection of the holders'
investment interests, as described below. Transco cannot require
Class B Interest holders to contribute additional capital,
although under limited circumstances, a Class B Interest holder
may voluntarily make an additional capital contribution.
Consequently, Transco expects it will have to raise additional
capital, from parties other than Entergy System companies, for
its financing needs. The Managing Member will be the vehicle used
to access the markets and raise the necessary capital, through
bank lines of credit, the issuance of commercial paper, and/or
the issuance of securities, through public offerings or, through
private placements. As the Managing Member contributes this
additional capital to Transco, its ownership interest in Transco
will increase.
Until such time as there is public and/or private investment
in Transco, the members of the initial board of directors will
fill all vacancies when a director's term expires or a seat
otherwise becomes vacant. Directors, officers and employees of
the Managing Member are subject to the same restrictions on their
relationships with the Entergy System or other Market
Participants as Transco directors, officers and employees are
under the Code of Conduct. Once the Managing Member has sold
stock through an initial public offering, the board of directors
will be selected by the investors holding voting interests as
with any public company. In the event that there is an interim
period of time when there is only private investment in the
Managing Member, the private investors will be provided voting
rights proportionate to their investment. Moreover, the Managing
Member has been structured to prohibit any Market Participant
from owning Class A shares which are, as discussed below, the
"voting securities" of the Managing Member within the meaning of
Section 2(a)(7) of the Act. As a result, subsequent to the
election of the initial board of directors, Market Participants
will be precluded from selecting the board of directors of the
Managing Member. Having the board of directors selected in this
fashion provides another level of independence and further
ensures that no Market Participant is directly, or indirectly,
controlling the activities of Transco.
The Managing Member will have available for issuance two
classes of equity securities. The first, the Class A Common
Stock, with full power to vote, will be issued to the directors
and to non-Market Participant capital investors. The second,
the Class B Common Stock, with limited voting rights, as discussed
below, will be issued to those persons or entities that are
Market Participants or those persons or entities that, in
consideration for the issuance of such shares, will transfer to
the Managing Member all or any portion of their Class B
Interests. The Operating Companies may convert their Class B
Interests into Class B Common Stock or sell such Class B
Interests or Class B Common Stock to other entities.
Transco will operate under the oversight of the SPP. As
delineated in the SPP Partnership RTO Memorandum of Understanding
("MOU"), the SPP will be responsible for: (1) acting as the
regional security coordinator for the SPP and Transco systems;
(2) performing available transfer capability/total transfer
capability ("ATC/TTC") calculations for the SPP and Transco,
subject to the conditions of the MOU; (3) fostering full and
complete input by all Market Participants into the SPP
Partnership RTO's and the Transco's policies; (4) overseeing the
regional transmission expansion planning process; and (5)
providing an appropriate forum for market monitoring and dispute
resolution. Certain functions will be performed by the SPP and by
Transco.
The operation of Transco under SPP oversight provides an
additional level of independence for Transco. For example, this
structure allows the SPP to perform certain essential functions
such as the calculation of ATC/TTC. This removes these important
calculations from any possible control by Entergy or other Market
Participants in Entergy's region. In addition, the SPP provides
additional oversight for the functions that are actually
performed by Transco. That is, the SPP is responsible for
monitoring the markets. For instance, this monitoring plan will
ensure that Transco does not engage in actions or behaviors that
are inconsistent with the SPP Partnership RTO transmission
tariff.
Furthermore, the Transco structure itself eliminates
vertical integration for purposes of transmission and eliminates
the distinction between bundled native load and customers
purchasing network transmission service. Transco will operate its
system independently of its predecessor utilities. Once Transco
is established, the Operating Companies will take service under
the SPP Partnership RTO transmission tariff.
The Managing Member's ownership interest in Transco will
grow as a result of the conversion mechanism incorporated into
Transco's structure. As previously discussed, this conversion
mechanism allows the passive members of Transco to convert their
Class B Interests, from passive interests in Transco to Class B
Common Stock of the Managing Member, and, as a result, for the
Managing Member to increase its ownership interest in Transco.
Reference is made to the forms of the Transco LLC Agreement,
the Certificate of Incorporation of the Managing Member, the By-
Laws of the Managing Member and the Class B Common Stock, the
Transco Implementation Plan, the Operating Agreement and the MOU,
filed as Exhibits A-1 through A-4, B-1 and B-3, respectively,
hereto and Item 3 for further information on the structure,
organization and voting powers of the members of Transco and the
Managing Member.
(2) Transco and FERC Requirements
The transfer of the Entergy System Transmission Assets to
Transco, with Transco operating as part of the SPP Partnership
RTO is being done in accordance with FERC Orders Nos. 2000 and
2000-A.
FERC Orders No. 2000 and 2000-A identify four minimum
characteristics that a transmission entity must meet and eight
minimum functions that a transmission entity must perform to
qualify as a regional transmission organization ("RTO")
thereunder. The four minimum characteristics include: (i)
independence, (ii) scope and configuration, (iii) operational
authority, and (iv) short-term reliability. The eight minimum
functions require the RTO to: (i) be the sole administrator of
its own transmission tariff and employ a pricing system that will
promote efficient use and expansion of transmission and
generation facilities, (ii) ensure the development and operation
of market mechanisms to manage transmission congestion, (iii)
develop and implement procedures to address parallel path flow
issues within its region and with other regions, (iv) serve as
the provider of last resort for the ancillary services required
by FERC Order No. 888, (v) be the single OASIS site administrator
for all transmission facilities under its control and
independently calculate ATC/TTC, (vi) provide for objective
monitoring of markets it operates or administers, (vii) be
responsible for planning, directing or arranging, necessary
transmission expansions, additions, and upgrades that will enable
it to provide efficient, reliable and non-discriminatory
transmission service and coordinate these efforts with the
appropriate state authorities, and (viii) ensure the integration
of reliability practices within an interconnection and market
interface practices among regions. FERC Orders 2000 and 2000-A
further require that RTOs (i) engage in a collaborative process
with stakeholders in the region in designing the RTO, (ii) be
designed in accordance with the "open architecture" principle so
that it can evolve over time, and (iii) accommodate, and report
on their efforts to include, public power.
The design of Transco and the Managing Member entities, and
their operations under the oversight of the SPP, will comply with
the above requirements as described in Entergy's application to
FERC filed herewith as Exhibit D-1.
(3) Transmission Assets Being Transferred
(a) Entergy System Transmission Assets
The Operating Companies propose to transfer ownership and/or
control of their respective Transmission Assets to Transco,
directly or indirectly, through the Intermediate Entity.
Transco will acquire from the Operating Companies all of
their transmission facilities that operate at or above 69 kV. The
Transmission Assets proposed to be transferred include:
- Transmission lines (including towers, poles and conductors)
and transmission substations;
- Transformers providing transformation within the bulk
system;
- System control center and operating facilities;
- Lines providing connections to generation sources and step-
up (plant) substations;
- Radial taps from the transmission system up to, but not
including, the facilities that establish the final connection to
distribution facilities or retail customers;
- Common facilities in substations that provide primarily a
transmission function;
- Voltage control devices and power flow control devices
directly connected to the transmission system; and
- Other transmission-related assets comprising the Entergy
Services Assets (see footnote 1).
The Operating Companies' Transmission Assets will be
transferred at net book value. The net book value for the Entergy
Arkansas Transmission Assets, the Entergy Gulf States
Transmission Assets, the Entergy Louisiana Transmission Assets,
the Entergy Mississippi Transmission Assets, and the Entergy New
Orleans Transmission Assets, including the Entergy Services
Assets, as of December 31, 1999, would have been approximately
$522,000,000, $516,000,000, $348,000,000, $382,000,000 and
$25,000,000, respectively. Since the end of 1999, as a result of
ongoing capital expenditures, the amount of the Entergy System
Transmission Assets to be transferred to Transco, has been
increasing in an annual amount of approximately $250,000,000.
(b) Transmission Assets of Non-Affiliated Entities
Transco also may acquire transmission assets from entities
other than the Operating Companies.
(C) Financing and Redemption, Retirement or Repurchase of
Securities and Sale of Class B Interests and Class B Common Stock
and Provision of Services
(1) Intermediate Entity Financing
In connection with the transfer to the Intermediate Entity
of the Entergy System Transmission Assets, the Intermediate
Entity will assume a proportionate share of the debt of the
Operating Companies associated with the Transmission Assets. Each
Operating Company will be granted a security interest in its
transferred Transmission Assets to secure the repayment of the
debt assumed by the Intermediate Entity. Separate agreements will
be executed with respect to each Operating Company.
The Operating Companies will effect releases of their
respective Transmission Assets from the liens of their respective
mortgage indentures and immediately thereafter contribute those
assets to the Intermediate Entity in exchange for the
Intermediate Entity's assumption of debt and an ownership
interest in the Intermediate Entity. First Mortgage Bonds, as
well as other long-term debt and liabilities, including pollution
control revenue bonds, and a variety of contracts and leases,
will be allocated to the transmission assets with corresponding
assumptions of debt by the Intermediate Entity. The Intermediate
Entity will assume its allocated portion of Operating Company
debt and liabilities pursuant to assumption agreements relating,
respectively, to each of the Operating Companies (collectively,
hereinafter referred to as the "Assumption Agreement"). A form of
Assumption Agreement is filed as Exhibit B-4 hereto. Reference is
also made to footnote 15 for further information relating to the
debt assumption arrangements.
When the Intermediate Entity obtains independent financing,
it will use the proceeds to repay the amounts owed under the
Assumption Agreement and then transfer transmission assets and
new debt to Transco receiving passive ownership interests
therein. Although it is intended that the refinancing by the
Intermediate Entity be immediate, such that the Assumption
Agreement is immediately defeased, it may be the case that
immediate refinancing will be impossible or inadvisable because
of economic, capital market or other business reasons, and the
Assumption Agreement may need to remain in place for a separation
period (the "Separation Period") which in no event will be longer
than one year from the date of the transfer of the Operating
Company Transmission Assets to the Intermediate Entity, which
transfer is expected to be December 15, 2001.
Under the Assumption Agreement, the Intermediate Entity must
simultaneously execute Mortgage, Deed of Trust and Security
Agreements relating, respectively, to each of the Operating
Companies (collectively, hereinafter referred to as the "Security
Agreement") that grants each Operating Company a first priority
lien on the transmission assets it transferred to the
Intermediate Entity to protect the Operating Company in the event
of a default by the Intermediate Entity under the Assumption
Agreement. A form of Security Agreement is filed as Exhibit B-5
hereto.
The Intermediate Entity proposes, from time to time, through
June 30, 2004, to issue short-term debt consisting of borrowings
under one or more credit agreements ("Facility"), to issue
commercial paper or to use other forms of short-term financing.
The maturity of such debt will not exceed one year. The
Intermediate Entity intends to use a portion of the funds raised
through this external financing to repay all of the debt and
other assumed obligations of the Operating Companies.
The Intermediate Entity may sell commercial paper, from time
to time, in established domestic or European commercial paper
markets to dealers at the prevailing discount rate per annum, or
at the prevailing coupon rate per annum, at the date of issuance.
It is expected that the dealers acquiring commercial paper from
the Intermediate Entity will re-offer such paper at a discount to
corporate, institutional and, with respect to European commercial
paper, to individual investors.
Such commercial paper issuances may be backed by bank lines
of credit for 100% of the outstanding amount of commercial paper,
if necessary, to assure the desired credit rating from the rating
agencies. Loans under the Facility will be at rates generally
available to borrowers of similar credit quality at the time the
Facility is established.
The Intermediate Entity also may issue from time to time,
through June 30, 2004, long-term debt consisting of secured
bonds, unsecured debentures, medium-term notes, convertible debt,
subordinated debt, bank borrowings, other debt securities or
other forms of long-term financing, whether secured or unsecured.
Any long-term debt security would have a maturity ranging from
one to 50 years. Debentures, medium-term notes and secured bonds
will be issued under an indenture.
Any short-term or long-term debt security or Facility would
have such designation, aggregate principal amount, interest
rate(s) or methods of determining the same, terms of payment of
interest, redemption provisions, non-refunding provisions,
sinking fund terms, conversion or put terms and other terms and
conditions as the Intermediate Entity may determine at the time
of issuance.
In addition, the Intermediate Entity may issue equity
securities, capital shares, partnership interests, limited
liability company interests, member interests, trust certificates
or other forms of equity interests.
The Intermediate Entity may also raise funds through (1)
capital contributions or (2) loans.
The amount of short-term and long-term debt outstanding at
any time, including debt under the Facility, will not exceed, in
the aggregate, $1.9 billion ("Debt Limit") and, together with the
equity securities outstanding, will not exceed, in the aggregate
$3.8 billion ("Finance Limit"). Entergy requests authorization
for the Intermediate Entity, to the extent not otherwise exempt,
or authorized by Commission order, under the Act, to issue and to
have outstanding at any one time, debt up to the amount of the
Debt Limit and to issue and to have outstanding, in the
aggregate, debt and equity up to the amount of the Finance Limit.
Entergy may need to guarantee, lend its credit in support of, or
assume obligations of, the securities of the Intermediate Entity
and requests authorization, to the extent not otherwise
authorized under the Act, for such guaranties, support, or
assumption of obligations, up to the Finance Limit.
Intermediate Entity debt and equity securities may be issued
and sold pursuant to purchase agreements or standard underwriting
agreements. Public distribution may be effected through private
negotiations with underwriters, dealers or agents, or through
competitive bidding among underwriters. In addition, such
securities may be issued and sold through private placements or
other non-public offerings to one or more persons. All such debt
instruments and stock sales will be at rates or prices and under
conditions negotiated, or based upon, or otherwise determined by,
competitive capital markets. In no event, however, will the
effective cost of money on short-term debt exceed the greater of
(a) 500 basis points over the London Interbank Offered Rate
("LIBOR") for the relevant interest rate period, and (b) a gross
spread over U.S. Treasury securities that is consistent with
similar securities of comparable credit quality and maturities
issued by other companies. The interest rate on long-term debt
will not exceed at the time of issuance the greater of (a) 500
basis points over U.S. Treasury securities having a remaining
term comparable to the term of such series, if issued at a fixed
rate, or 500 basis points over LIBOR for the relevant interest
rate period, if issued at a floating rate, and (b) a gross
underwriting spread that is consistent with similar securities of
comparable credit quality and maturities issued by other
companies.
The Intermediate Entity also requests authorization, to the
extent not otherwise authorized under the Act, to enter into
interest rate hedging transactions with respect to existing
indebtedness ("Interest Rate Hedges"), subject to certain
limitations and restrictions, in order to reduce or manage
interest rate cost. Interest Rate Hedges would only be entered
into with counterparties ("Approved Counterparties") whose senior
debt ratings, or the senior debt ratings of the parent companies
of the counterparties, as published by Standard and Poor's
Ratings Group, are equal to or greater than BBB, or an equivalent
rating from Moody's Investors Service or Fitch.
Interest Rate Hedges will involve the use of financial
instruments commonly used in today's capital markets, such as
interest rate swaps, caps, collars, floors, and structured notes
(i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury obligations. The
transactions would be for fixed periods and stated notional
amounts. Fees, commissions and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option
payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for
parties of comparable credit quality.
In addition, the Intermediate Entity requests authorization,
to the extent not otherwise authorized under the Act, to enter
into interest rate hedging transactions with respect to
anticipated debt offerings ("Anticipatory Hedges"), subject to
certain limitations and restrictions. Such Anticipatory Hedges
would only be entered into with Approved Counterparties, and
would be utilized to fix and/or limit the interest rate risk
associated with any new issuance through (i) a forward sale of
exchange-traded U.S. Treasury futures contracts, U.S. Treasury
obligations and/or a forward swap (each a "Forward Sale"), (ii)
the purchase of put options on U.S. Treasury obligations (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination
with the sale of call options on U.S. Treasury obligations (a
"Zero Cost Collar"), (iv) transactions involving the purchase or
sale, including short sales, of U.S. Treasury obligations, or (v)
some combination of a Forward Sale, Put Options Purchase, Zero
Cost Collar and/or other derivative or cash transactions,
including, but not limited to structured notes, caps and collars,
appropriate for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-
Exchange Trades") with brokers through the opening of futures
and/or options positions traded on the Chicago Board of Trade
("CBOT"), the opening of over-the-counter positions with one or
more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. The Intermediate
Entity will determine the optimal structure of each Anticipatory
Hedge transaction at the time of execution. The Intermediate
Entity may decide to lock in interest rates and/or limit its
exposure to interest rate increases. All open positions under
Anticipatory Hedges will be closed on or prior to the date of the
new issuance and the Intermediate Entity will not, at any time,
take possession or make delivery of the underlying U.S. Treasury
Securities.
The Intermediate Entity will comply with existing and future
financial disclosure requirements of the Financial Accounting
Standards Board associated with hedging transactions.
(2) Financing of Multiple Intermediate Entities, Intra Entergy
System Financing and Restructuring
In the event that the Intermediate Entity is composed of one
or more corporations, limited liability companies or
partnerships, Entergy requests authority, to the extent not
otherwise exempted, or authorized by Commission order, under the
Act, for any such Intermediate Entity or Entities to extend
credit to, or to guarantee the obligations of, or indemnify,
other such Intermediate Entities and to loan to, to acquire
securities of, or borrow from, other such Intermediate Entities
up to the Debt or Finance Limit, as appropriate. One or more of
such Intermediate Entities may also assume obligations or
securities of the Operating Companies incurred in connection with
the Entergy System Transmission Assets, and Entergy requests
authority for such assumption up to the amount of the Debt Limit
to the extent not otherwise authorized by order, or exempt under
the Act. In addition, Entergy Corp. requests authority, to the
extent not otherwise exempt, or authorized by order, under the
Act, to acquire the securities of, and/or make loans to, one or
more entities comprising the Intermediate Entity up to the
Finance or Debt Limit, as appropriate.
It may be necessary to reorganize and restructure the
Intermediate Entity, from time to time, into different entities
or ownership structures. Entergy requests authority to the extent
not otherwise exempt, or otherwise authorized, under the Act for
such internal reorganization and restructuring and, to the extent
not otherwise exempt, or otherwise authorized, possibly to sell
interests in the Intermediate Entity to non-affiliates, including
the assignment of Intermediate Entity obligations.
(3) Redemption, Retirement and/or Repurchase of Securities and
Sale of Class B Interests and Class B Common Stock
The Operating Companies request authority, to the extent not
otherwise exempt under the Act, to direct the use of a portion of
the proceeds received from the Intermediate Entity for the
retirement, redemption or repurchase of their debt and/or equity
securities in accordance with the terms of the instruments under
which those securities were issued.
Entergy and the Operating Companies, to the extent not
otherwise exempt under the Act, request authority to sell Class B
Interests and Class B Common Stock.
(4) Dividends Out of Capital
One or more of the newly created entities comprising the
Intermediate Entity may need to pay dividends to its immediate
parent company out of capital. To the extent not otherwise
authorized under the Act, these entities request authority to pay
such dividends out of capital. Moreover, to rebalance their
capital structures after repayment of assumed debt by the
Intermediate Entity, the Operating Companies may need to pay
dividends out of capital to Entergy Corp., including dividends of
and out of their interests in Transco. The Operating Companies
request authority for such dividends.
(5) Provision of Services
Entergy Services may need to provide administrative and/or
corporate services to the Intermediate Entity. All of such
services will be provided "at cost" in accordance with the
requirements of Rules 87, 90 and 91 under the Act and will be
performed under a service agreement, a form of which is filed as
Exhibit J-1 hereto. Further, Entergy Services may provide to
Transco certain services, which will be limited in scope and in
conformity with the FERC's independence requirements.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses incurred or to be
incurred in connection with the transactions proposed herein will
be filed by amendment.
Item 3. Applicable Statutory Provisions.
The following Sections of, or Rules under, the Act may apply
to the proposed transactions to the extent not otherwise exempted
or previously authorized under the Act. To the extent that other
Sections or Rules are deemed to apply, the Applicants also
request authority under such Sections and/or Rules.
Section and/or Rule Transaction
Sections 2(a)(8), 2(a)(11) and Transco and Managing
2(a)(17) Member not being
"subsidiary companies" or
"affiliates" of Entergy
Corp.
Sections 6 and 7 Issuance of securities by
Intermediate Entity, from
time to time
Sections 9 and 10 Acquisition of securities
of one or more entities
comprising the
Intermediate Entity,
Transco and the Managing
Member, from time to time
Section 12(b) and Rule 45 Guaranties, or extensions
of credit, to or by one
or more entities
comprising the
Intermediate Entity, from
time to time
Section 12(c) and Rule 46 Dividends out of capital
of the Intermediate
Entity and the Operating
Companies
Section 12(d) and Rules 43 or Redemption, retirement or
44 repurchase of securities
by the Operating
Companies; transfer of
Entergy Services Assets
to the Operating
Companies; transfer of
ownership of Entergy
System Transmission
Assets to Intermediate
Entity and to Transco;
reorganization and
restructuring of
Intermediate Entity;
possible sale of
interests in Intermediate
Entity including transfer
of Intermediate Entity
obligations; sale of
Class B Interests and
Class B Common Stock
Section 13 Provision of services to
the Intermediate Entity
and possibly to Transco
Sections 32 and 33 and Rules Aggregate investments in
53 and 54 exempt wholesale
generators ("EWGs") and
foreign utility companies
("FUCOs")
(A) Sections 2(a)(8), 2(a)(11) and 2(a)(17)
In accordance with FERC Order No. 2000, the Transco and the
Managing Member will be independent from any Market Participant.
The structure of the Transco and the Managing Member have been
set up to ensure independence from the Entergy System. Moreover,
this independence also satisfies the Commission's tests for
determining that an entity is not an "affiliate" or a "subsidiary
company" in a holding company system within the meaning of
Sections 2(a)(8) and 2(a)(11) of the Act, since among other
matters, the Entergy System's security interests in Transco and
the Managing Member are not "voting securities" within the
meaning of Section 2(a)(17).
There are four aspects of the independence of Transco from
the Entergy System: (1) the oversight by the non-affiliated
entity, the SPP Partnership RTO, of Transco; (2) the complete
separation between Transco and the Entergy System of interlocking
directors, officers and employees; (3) the Code of Conduct
prohibiting the grant of any preferential treatment to Entergy
System companies by Transco; and (4) the passive nature of the
Entergy System's investment in Transco and its limited voting
rights. The same is true for any interest in the Managing Member
that Entergy may acquire; moreover, as described above, the
process for selecting directors of the Managing Member, who will
have control of the Managing Member and over the voting of the
Class A Interests (the securities with principal voting power),
is designed, specifically, to ensure independence from the
Entergy System. The Entergy System will not have any contracts or
arrangements to exercise control over Transco or the Managing
Member and, as discussed below, the Entergy System's voting
rights will be limited.
Voting Rights
In several recent no-action letters, the Commission's staff
(the "Staff") has concurred that various securities having
limited voting rights are not "voting securities" under Section
2(a)(17) of the Act, including rights to vote on major corporate
or partnership transactions, such as mergers, or dissolutions.
These voting rights, if the investor is in a passive role and
does not otherwise exercise a "controlling influence" over the
entity invested, through control or other arrangement, are
granted merely to protect the investment.
Two recent Commission no-action letters are S.W.
Acquisition, L.P. ("TNP Letter"), and Berkshire Hathaway, Inc.
("MidAmerican Letter") are instructive on the issue of limited
voting power and control. The TNP letter involved the going
private transaction of TNP Enterprises, Inc. ("TNP"), an exempt
holding company. Equity investors formed a limited partnership
("TNLP") to acquire TNP. The general partner of TNLP, a limited
partnership controlled by one individual, was to manage the day-
to-day affairs of TNLP. Initial financing for the buyout was
provided through the sale of limited partnership interests and
preferred stock with limited voting rights and from bridge loans.
The preferred stock had voting rights similar to the voting
rights permitted to preferred stockholders of utility companies
under the SEC's Statement of Policy Regarding Preferred Stock,
Holding Co. Act. Rel. No. 13106; 1956 SEC Lexis 515 (1956). Under
long-standing Commission interpretation, these rights did not
render the preferred stock a "voting security" or, otherwise give
the holders a "controlling influence" over the issuing
corporation.
The TNP Letter focused on the extent of the voting rights of
the limited partners. Counsel, in their letter request to the
Staff, indicated that the TNLP limited partner rights were of a
kind previously determined by the Staff (in the context of
independent power projects) not to constitute a "controlling
influence" or a "voting security" under the Act. Various events
required the consent of the holders of 51% of the TNLP limited
partnership interests to protect their investments. In addition,
unanimous approval of the limited partners was necessary to
reorganize or recapitalize TNLP to the detriment of any limited
partner.
The MidAmerican no-action letter involved a going private
transaction in which a package of common stock and preferred
stock, with limited voting power, was sold to a corporate
investor without affecting the corporate acquiror's status under
the Act. Berkshire Hathaway, Inc., and its affiliates
(collectively "BH"), joined three individuals, including the
Chairman of the Board, the President and a Director of
MidAmerican Energy Holdings Company ("MEHC"), in acquiring MEHC
and, indirectly, its only public-utility subsidiary, MidAmerican
Energy Company, a combination electric and gas utility company.
Under the going private structure, BH was to purchase
approximately 9.7% (but not more than 9.9%) of the outstanding
shares of MEHC's voting common stock, up to $800 million in
aggregate principal amount of MEHC Trust Preferred Stock ("Trust
Preferred") and approximately $1.21 billion of MEHC Zero Coupon
Convertible Preferred Stock ("CV Preferred"). The balance of
MEHC's common stock, approximately 90.3%, was to be purchased by
the three individuals, with one individual and his family to own
approximately 86%. Upon completion of the transaction, BH was to
own approximately 81%, the family group, 18%, and the other
individuals, 1%, out of the total of MEHC equity (excluding the
Trust Preferred). Since the management shareholders were to
continue in management, would control a majority of the
outstanding common shares and could elect directors, the Staff
agreed that BH was not in a position to control MEHC. Moreover,
BH had had no prior dealings with MEHC and intended to exercise
its rights only as an investor but not as a manager of MEHC.
The MidAmerican Letter request focused on the rights of
the CV Preferred to determine whether or not that security was a
"voting security" or otherwise gave BH the right to exercise a
"controlling influence" over MEHC (the Trust Preferred had no
voting rights). BH, as holder of the CV Preferred, had the right
to elect 2 directors (out of 10) to MEHC's Board of Directors.
All actions of the Board of Directors required a simple majority
vote of a quorum. The CV Preferred had no rights to appoint or
remove officers of MEHC (other than consent rights to the
appointment or removal of MEHC's Chief Executive Officer). The CV
Preferred was given approval rights over certain major events,
similar to but less than the TNLP limited partner rights
discussed above, to protect the holders' investments. Under these
circumstances the Staff agreed that BH was not a "holding
company" and MEHC was not a "subsidiary company" of a "holding
company".
Entergy's limited voting rights in Transco through
acquisition of Class B Interests and, if exercised, in the
Managing Member through acquisition of Class B Common Stock
provide the Entergy System with a lesser package of, and
certainly no more than, the voting rights in SW Acquisition L.P.
and Berkshire Hathaway, Inc.
For the reasons described above in part I(B)(1)(c) and in
this Item 3, no Entergy System company will own or control,
directly or indirectly, a "voting security", within the meaning
of Section 2(a)(17) of the Act, of Transco or the Managing Member
nor exercise a "controlling influence" over Transco or the
Managing Member. While the Class B Interests and Class B Common
Stock, which Entergy System companies may own, do have limited
voting rights to veto certain major transactions, these rights do
not lead to the Entergy System companies holding a "voting
security" of, or exercising a "controlling influence" over,
Transco or the Managing Member, both within the meaning of
Sections 2(a)(17), 2(a)(8) and 2(a)(11) of the Act, defining
"voting security", "subsidiary company" and "affiliate"
respectively. In the case of Transco, this conclusion is further
supported by the ability of a separate entity unaffiliated with
the Entergy System, the SPP, to control various day-to-day
operations of Transco. Consequently, neither Transco nor the
Managing Member will be, nor should be declared to be, a
"subsidiary company" or an "affiliate" of any company in the
Entergy System within the meaning of Sections 2(a)(8) and
2(a)(11) of the Act.
(B) Section 10
Since the Operating Companies and Entergy Corp. will be
acquiring the securities of the Intermediate Entity and Transco
and may be acquiring the securities of the Managing Member, the
proposed transactions will be subject to Section 9(a) of the Act.
Thus, the proposed transactions cannot proceed without the
approval of the Commission pursuant to Section 10 of the Act. The
relevant statutory standards to be satisfied are set forth in
Sections 10(b), 10(c) and 10(f) of the Act.
(1) SECTION 10(b)
Section 10(b) of the Act provides that, if the requirements
of Section 10(f) are satisfied, the Commission shall approve an
acquisition under Section 9(a) unless the Commission finds that:
(1) such acquisition 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) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions,
and other remuneration, to whomsoever paid, to be given,
directly or indirectly, in connection with such acquisition
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) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or
will be detrimental to the public interest or the interest
of investors or consumers or the proper functioning of such
holding company system.
(a) Section 10(b)(1)
The proposed transactions will not 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.
Since the ultimate result of the proposed transactions is to
shift to third parties the control of the Entergy System over its
Transmission Assets in accordance with FERC requirements, the
proposed transactions will not tend toward any "concentration of
control of public utility companies" that is detrimental to the
public interest or the interest of consumers or investors.
(b) Section 10(b)(2)
(i) Fairness of Consideration. Section 10(b)(2) of the Act
requires the Commission to determine whether the consideration in
connection with a proposed acquisition of securities is
reasonable and whether it bears a fair relation to the investment
in and the earning capacity of the utility assets underlying the
securities being acquired. Each Entergy System company that
transfers assets to Transco will receive an interest based on the
value of the assets that it contributes as a proportion of all
the assets contributed to Transco. With respect to such
transfers, the transmission facilities will be transferred at
their net book value, and the transferring entity will receive
its interest based on that value. The Applicants believe that
such consideration bears a fair relation to the investment in and
the earning capacity of the transmission assets to be transferred
because it is based on the net book value of those assets.
Because the Transco's rates will also be subject to FERC
approval, it can be expected that those rates (which will largely
also be based on the same net book value) will permit the Transco
to earn a fair return on them as well. This being the case, all
members of Transco, including the Operating Companies, can expect
to earn a fair return on their investment.
(ii) Reasonableness of Fees. An estimate of the fees
and expenses to be paid in connection with the proposed
transactions will be set forth in Item 2 hereof. The estimated
amounts to be paid are fees required to be paid to governmental
bodies, fees for necessary professional services, and other
expenses incurred or to be incurred in connection with carrying
out the proposed transactions.
(c) Section 10(b)(3)
Capital Structure. Section 10(b)(3) requires that the
Commission determine whether the proposed transactions will
unduly complicate the Operating Companies' or the Intermediate
Entity's capital structures or will be detrimental to the public
interest, the interests of investors or consumers or the proper
functioning of the Operating Companies or the Intermediate
Entity.
The corporate capital structures of the Operating Companies
and the Intermediate Entity after the consummation of the
proposed transactions will not be unduly complicated. The
proposed transactions, when outside financing is undertaken by
the Intermediate Entity, will ultimately result in a reduction of
the size of the capital structure of each of the Operating
Companies, although debt/equity ratios will remain approximately
the same. In addition, the securities to be issued by the
Intermediate Entity are of types and amounts comparable to those
of other financing entities in registered holding company
systems. See The Southern Company, Holding Co. Act Release Nos.
27061 and 27134 (Aug. 18, 1999 and Feb. 9, 2000). Moreover, the
assumption of the Intermediate Entity's securities by Transco
upon the transfer of Entergy System Transmission Assets
effectively removes the Intermediate Entity as a possibly
complicating factor in the structure of the Entergy System.
(2) SECTION 10(c)
Section 10(c) of the Act provides that:
Notwithstanding the provisions of subsection (b), the
Commission shall not approve:
(1) an acquisition of securities or utility assets, or of
any other interest, which is unlawful under the provisions
of Section 8 or is detrimental to the carrying out of the
provisions of Section 11; or
(2) the acquisition of securities or utility assets of a
public utility or holding company 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 . . . .
(a) Section 10(c)(1)
Consistent with the standards set forth in Section
10(c)(1) of the Act, the proposed acquisition of securities will
not be unlawful under the provisions of Section 8 of the Act, or
detrimental to the carrying out of the provisions of Section 11
of the Act.
Section 8 prohibits a registered holding company or any of
its subsidiaries from acquiring, owning interests in or operating
both a gas utility company and an electric utility company
serving substantially the same area if prohibited by state law,
and is thus not applicable to the transactions contemplated
herein.
Section 11(a) of the Act requires the Commission to examine
the corporate structure of registered holding companies to
ensure, among other things, that unnecessary complexities are
eliminated and voting powers are fairly and equitably
distributed. The Entergy System is organizing, and will be
granted limited voting powers in, the Managing Member and Transco
consistent with FERC requirements. Consequently, this structure
and Entergy's voting powers should be consistent with the
requirements of Section 11(a).
(b) Section 10(c)(2)
As the following discussion will demonstrate, the proposed
transactions will serve the public interest by tending towards
the economical and efficient development of an integrated public
utility system, as required by Section 10(c)(2) of the Act.
(i) Efficiencies and Economies. As described more
fully above, the proposed transactions tend towards the required
efficiencies and economies by tying together control, planning,
maintenance and financial responsibilities for the Entergy System
Transmission Assets into a single company, Transco, all in
accordance with FERC requirements. Moreover, in conjunction with
its participation in the SPP Partnership RTO, Transco, in which
the Entergy System will have a passive investment interest, will
have an independent, streamlined and cost-efficient business that
will create synergies and result in better service in the Entergy
System region and non-discriminatory access for all transmission
users.
(ii) Integrated Public Utility System. As applied to
electric utility companies, the term "integrated public utility
system" is defined in Section 2(a)(29)(A) of the Act as:
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 confined
in its operation 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.
The Commission has previously taken notice of developments
that have occurred in the electric business in recent years, and
has interpreted the Act and analyzed proposed transactions in
light of these changed and changing circumstances. See, e.g.,
American Electric Power Co., Holding Co. Act Release No. 27186
(June 14, 2000) ("AEP Order").
On the basis of the statutory definition above, the
Commission has established four standards that must be met before
the Commission will find that an integrated public utility system
will result from a proposed transaction:
(1) the utility assets of the system are physically
interconnected or capable of physical interconnection;
(2) the utility assets, under normal conditions, may be
economically operated as a single interconnected and
coordinated system;
(3) the system must be confined in its operations to a
single area or region; and
(4) the system must not be 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.
Environmental Action, Inc. v. SEC, 895 F.2d 1255, 1263 (9th Cir.
1990), quoting In re Electric Energy, Inc., 38 S.E.C. 658, 668
(1958).
The proposed transactions satisfy all four of these
requirements. In examining proposed transactions to determine
whether the integration requirements have been satisfied, the
Commission has "interpreted the Act and analyzed transactions in
the light of . . . changed and changing circumstances." AEP
Order. Applicants believe that the recent FERC Order No. 2000, as
well as the competition legislation enacted in both Arkansas and
Texas, constitutes such changing circumstances which the
Commission must consider when evaluating the proposed
transactions.
PHYSICAL INTERCONNECTION. In view of the above, the facts
presented clearly support a finding that the utility assets of
the Transco will be "physically interconnected or capable of
physical interconnection" within the meaning of Section
2(a)(29)(A) of the Act once the transactions contemplated herein
are completed through the ability of the Operating Companies to
transmit power to each other over the open-access transmission
facilities of the Transco to which they are connected.
SINGLE INTERCONNECTED AND COORDINATED SYSTEM. Section
2(a)(29)(A) of the Act requires that the utility assets, under
normal circumstances, may be "economically operated as a single
interconnected and coordinated system." The Commission has
interpreted this language to refer, in the changing electric
utility environment, to the ability to coordinate the electric
operations, through access to independent transmission between
two electric systems. See Energy East, Corp., Holding Co. Act
Release No. 27224 (Aug. 31, 2000); Exelon Corporation, Holding
Co. Act Release No. 27256 (Oct. 19, 2000); and Carolina Power &
Light Company, Holding Co. Act Release No. 27284 (November 27,
2000).
SINGLE AREA OR REGION. The existing Entergy System will
continue to define the geographic parameters of Entergy's
integrated system since Transco will not be an "affiliate" of
Entergy and, consequently, any additions to the Transco system
from non-affiliated parties will not be part of Entergy's
integrated electric system.
LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE
REGULATION. The proposed transactions will not impair localized
management, efficient operation or regulation since the Operating
Companies will continue to be managed from their headquarters in
Arkansas, Louisiana, Texas and Mississippi, to be subject to the
jurisdiction of the public service commissions in those states
and the Council of the City of New Orleans (the "Council") and to
have their operations coordinated by Entergy Services.
(3) SECTION 10(f)
Section 10(f) provides that
The Commission shall not approve any acquisition as to
which an application is made under this section unless it
appears to the satisfaction of the Commission that such
State laws as may apply in respect of such acquisition have
been complied with, except where the Commission finds that
compliance with such State laws would be detrimental to the
carrying out of the provisions of section 11.
The Operating Companies are currently and will remain
subject, respectively, to the jurisdiction of the APSC, the
Louisiana Public Service Commission (the "LPSC"), the Mississippi
Public Service Commission (the "MPSC"), the Public Utility
Commission of Texas (the "PUCT") and the Council. Transco is
being created in accordance with Arkansas, Louisiana, Mississippi
and Texas law. In addition, certain aspects of the transactions
proposed herein are subject to approval by the ASPC, the LPSC,
the MPSC, the PUCT, and the Council. Thus, the requirements of
Section 10(f) are satisfied.
Rules 53 and 54. The proceeds to be received from the
proposed transactions will not be used to invest directly or
indirectly in an EWG or FUCO.
The transactions proposed herein are also subject to Rule
54. In determining whether to approve the issue or sale of a
security by a registered holding company for purposes other than
the acquisition of an EWG or FUCO, or transactions by such
registered holding company or its subsidiaries other than with
respect to EWGs or FUCOs, the Commission shall not consider the
effect of the capitalization or earnings of any subsidiary which
is an EWG or FUCO upon the registered holding company system if
Rules 53(a), (b) and (c) are satisfied. In that regard, assuming
consummation of the transactions proposed in this application,
all of the conditions set forth in Rule 53(a) are, and will be
satisfied, and none of the conditions set forth in Rule 53(b)
exists or, as a result thereof, will exist.
Entergy Corp. states that for purposes of Rule 53(a)(1) its
"aggregate investment" in all EWGs and FUCOs was approximately
$448,143,645, representing approximately 15.2% of Entergy Corp.'s
consolidated retained earnings as of September 30, 2000.
Furthermore, Entergy Corp. has complied with and will continue to
comply with the record keeping requirements of Rule 53(a)(2)
concerning affiliated EWGs and FUCOs. In addition, as required by
Rule 53(a)(3), no more than 2% of the employees of the Operating
Companies will render services to affiliated EWGs and FUCOs.
Finally, none of the conditions set forth in Rule 53(b), under
which the provisions of Rule 53 would not be available, have been
met.
Item 4. Regulatory Approvals.
Entergy filed an application with the FERC on October 16,
2000 seeking authorization to transfer the Entergy System
Transmission Assets to Transco, which application is pending. In
addition, on December 29, 2000, Entergy filed an application with
the FERC requesting approval of the transmission rate schedule
pursuant to which transmission service will be provided over
Transco's transmission assets, which application is pending. In
January 2000, Entergy Gulf States filed a business separation
plan with the PUCT and amended such plan in June 2000. In July
2000, the PUCT issued an interim order to approve the amended
business separation plan. Entergy Gulf States will make any
additional filings with the PUCT that are necessary to establish
Transco. In addition, the APSC, the Council, the LPSC and the
MPSC must approve certain aspects of the transactions
contemplated herein. The necessary applications have been filed
with these commissions. No other state commission, and no other
Federal commission, has jurisdiction over the proposed
transactions.
Item 5. Procedure.
The Commission is requested to publish a notice under Rule
23 with respect to the filing of this Application/Declaration as
soon as practicable. The Applicants request that the Commission's
Order be issued as soon as practicable after the notice period
and in any event not later than September 30, 2001. This will
facilitate meeting the December 15, 2001 deadline contemplated by
FERC Order No. 2000 for the commencement of Transco operations
and the timely completion of the transfers of the Entergy System
Transmission Assets.
The Applicants further request that there not be a 30-day
waiting period between issuance of the Commission's order and the
date on which the order is to become effective, hereby waive a
recommended decision by a hearing officer or any other
responsible officer of the Commission, and consent that the
Division of Investment Management may assist in the preparation
of the Commission's decision and/or order, unless the Division
opposes the matters proposed herein.
Item 6. Exhibits and Financial Statements.
(A) Exhibits.
A-1 Form of Limited Liability Company Agreement of Transco.
A-2 Form of Certificate of Incorporation of the Managing
Member.
A-3 Form of By-Laws of the Managing Member.
A-4 Transco Implementation Plan.
A-5 Form of Articles of Organization of Intermediate Entity.*
A-6 Form of By-Laws of Intermediate Entity.*
B-1 Form of Operating Agreement.
B-2 Form of Agency Agreement.
B-3 SPP Partnership RTO Memorandum of Understanding.
B-4 Form of Assumption Agreement.
B-5 Form of Security Agreement.*
C Not Applicable.
D-1 Application Of Entergy Services, Inc. For Approval Of A
Regional Transmission Organization And Approval Of The
Transfer Of Transmission Assets To A Regional Transmission
Organization - submitted on behalf of Entergy Arkansas,
Entergy Gulf States, Entergy Louisiana, Entergy Mississippi
and Entergy New Orleans to the FERC.
D-2 Order of the FERC regarding Entergy Services, Inc. For
Approval Of A Regional Transmission Organization And
Approval Of The Transfer Of Transmission Assets To A
Regional Transmission Organization.*
D-3 Application By Entergy Arkansas For Approval To Transfer
Transmission Assets to the APSC.
D-4 Order of the APSC regarding Application By Entergy Arkansas
For Approval To Transfer Transmission Assets.*
D-5 Application of Entergy Gulf States, Inc. For Approval Of
Its Business Separation Plan Pursuant To
Subst.R.25.272(b)(3) to the PUCT.*
D-6 Interim Order Approving Business Separation Plan of the
PUCT regarding Entergy Gulf States' business separation
plan.*
D-7 Joint Application On Behalf Of Entergy Gulf States, Inc.
And Entergy Louisiana, Inc. For Official Action Of
Approval Of Or Non-Opposition To A Transfer Of Ownership
And/Or Control Of Certain Transmission Assets to the LPSC.
D-8 Order of the LPSC regarding Joint Application On Behalf Of
Entergy Gulf States, Inc. And Entergy Louisiana, Inc. For
Official Action Of Approval Of Or Non-Opposition To A
Transfer Of Ownership And/Or Control Of Certain
Transmission Assets.*
D-9 Application of Entergy Mississippi to the MPSC.
D-10 Order of the MPSC regarding Entergy Mississippi.*
D-11 Joint Application Of Entergy New Orleans, Inc. And Entergy
Louisiana, Inc. For Official Action Of Approval Of Or Non-
Opposition To A Transfer Of Ownership And/Or Control Of
Certain Transmission Assets to the Council.
D-12 Order of the Council regarding Entergy New Orleans, Inc.
And Entergy Louisiana, Inc. For Official Action of Approval
Of Or Non-Opposition To A Transfer Of Ownership And/Or
Control Of Certain Transmission Assets.*
F-1 Opinion of Friday, Eldredge & Clark, LLP.*
F-2 Opinion of Orgain, Bell & Tucker, LLP.*
F-3 Opinion of Ann G. Roy - Associate General Counsel,
Corporate and Securities of Entergy Services, Inc. for
Entergy Louisiana, Entergy Mississippi and Entergy New
Orleans.*
F-4 Opinion of Thelen Reid & Priest LLP.*
G Not applicable.
H Form of Notice.*
J-1 Form of Service Agreement between the Intermediate Entity
and Entergy Services.*
* To be filed by amendment.
(B) Financial Statements.
1.1 Balance Sheet of Entergy Consolidated, as of September 30,
2000 (incorporated by reference to the Quarterly Report on
Form 10-Q of Entergy Corp. and its consolidated
subsidiaries for the quarter ended September 30, 2000)
(File No. 1-11299).
1.2 Statement of Income of Entergy Consolidated, as of
September 30, 2000 (incorporated by reference to the
Quarterly Report on Form 10-Q of Entergy Corp. and its
consolidated subsidiaries for the quarter ended September
30, 2000) (File No. 1-11299).
1.3 Balance Sheet of Entergy Arkansas, as of September 30, 2000
(incorporated by reference to the Quarterly Report on Form
10-Q of Entergy Arkansas for the quarter ended September
30, 2000) (File No. 1-10764).
1.4 Statement of Income of Entergy Arkansas for the period
ended September 30, 2000 (incorporated by reference to the
Quarterly Report on Form 10-Q of Entergy Arkansas for the
quarter ended September 30, 2000) (File No. 1-10764).
1.5 Balance Sheet of Entergy Gulf States, as of September 30,
2000 (incorporated by reference to the Quarterly Report on
Form 10-Q of Entergy Gulf States for the quarter ended
September 30, 2000) (File No. 1-27031).
1.6 Statement of Income of Entergy Gulf States for the period
ended September 30, 2000 (incorporated by reference to the
Quarterly Report on Form 10-Q of Entergy Gulf States for
the quarter ended September 30, 2000) (File No. 1-27031).
1.7 Balance Sheet of Entergy Louisiana, as of September 30,
2000 (incorporated by reference to the Quarterly Report on
Form 10-Q of Entergy Louisiana for the quarter ended
September 30, 2000) (File No. 1-8474).
1.8 Statement of Income of Entergy Louisiana, as of September
30, 2000 (incorporated by reference to the Quarterly Report
on Form 10-Q of Entergy Louisiana for the quarter ended
September 30, 2000) (File No. 1-8474).
1.9 Balance Sheet of Entergy Mississippi, as of September 30,
2000 (incorporated by reference to the Quarterly Report on
Form 10-Q of Entergy Mississippi for the quarter ended
September 30, 2000) (File No. 0-320).
1.10 Statement of Income of Entergy Mississippi, as of September
30, 2000 (incorporated by reference to the Quarterly Report
on Form 10-Q of Entergy Mississippi for the quarter ended
September 30, 2000) (File No. 0-320).
1.11 Balance Sheet of Entergy New Orleans, as of September 30,
2000 (incorporated by reference to the Quarterly Report on
Form 10-Q of Entergy New Orleans for the quarter ended
September 30, 2000) (File No. 0-5807).
1.12 Statement of Income of Entergy New Orleans, as of September
30, 2000 (incorporated by reference to the Quarterly Report
on Form 10-Q of Entergy New Orleans for the quarter ended
September 30, 2000) (File No. 0-5807).
1.13 Balance Sheet of Entergy Services, as of September 30,
2000.*
1.14 Statement of Income of Entergy Services, as of September
30, 2000.*
* To be filed by amendment.
Item 7. Information as to Environmental Effects.
None of the matters that are the subject of this
Application/Declaration involve a "major federal action" nor do
they "significantly affect the quality of the human environment"
as those terms are used in section 102(2)(C) of the National
Environmental Policy Act. The transaction that is the subject of
this Application/Declaration will not result in changes in the
operation of the Applicants that will have an impact on the
environment. The Applicants are not aware of any federal agency
that has prepared or is preparing an environmental impact
statement with respect to the transactions that are the subject
of this Application/Declaration.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned companies have
duly caused this Application/Declaration filed herein to be
signed on their behalf by the undersigned thereunto duly
authorized.
Entergy Corporation
Entergy Services, Inc.
Entergy Arkansas, Inc.
Entergy Gulf States, Inc.
Entergy Louisiana, Inc.
Entergy Mississippi, Inc.
Entergy New Orleans, Inc.
By: /s/ Steven C. McNeal
Name: Steven C. McNeal
Title: Vice President and Treasurer
Date: March 2, 2001
_______________________________
Entergy Arkansas, Entergy Gulf States, Entergy Louisiana,
Entergy Mississippi and Entergy New Orleans own and operate
transmission assets comprising, respectively, 4,827, 5,562,
2,689, 2,743, and 206 miles of transmission facilities, and
associated substations, real property interests and related
assets (separately, hereinafter called the "Entergy Arkansas
Transmission Assets", the "Entergy Gulf States Transmission
Assets", the "Entergy Louisiana Transmission Assets", the
"Entergy Mississippi Transmission Assets", and the "Entergy New
Orleans Transmission Assets" and, collectively, the "Operating
Companies' Transmission Assets"). Entergy Services owns various
assets (the "Entergy Services Assets") which are related to the
operation of, and ancillary to, the Operating Companies'
Transmission Assets. Entergy Services will transfer the Entergy
Services Assets, with a depreciated book cost which is estimated
to be at this time approximately $1,000,000 to the Operating
Companies and these assets will become part of the transmission
assets transferred to Transco (collectively, the Operating
Companies' Transmission Assets and the Entergy Services Assets,
are referred to, hereinafter, as the "Entergy System Transmission
Assets").
As to Entergy Gulf States, the transactions may be accomplished
under Texas merger law which provides for allocations of assets
and obligations rather than transfers, assignments or
assumptions. To the extent that Entergy Gulf States uses the
Texas merger law, the phrases "transfer", "assignment" or
"assumption" in this Application refer, as well, to allocations
of assets or obligations.
Market Participant is defined in FERC Order 2000 to include
any entity that, either directly or through an affiliate, sells
or brokers electric energy, or provides ancillary services to a
regional transmission organization ("RTO"), unless the FERC finds
that such entity does not have economic or commercial interests
that would be significantly affected by such RTO's actions or
decisions; and any other entity that the FERC finds has economic
or commercial interests that would be significantly affected by
the RTO's actions or decisions. See 18 C.F.R. Section
35.34(b)(2).
Entergy anticipates that the transfer of ownership of Entergy
System Transmission Assets through the Intermediate Entity to
Transco may occur simultaneously in one or more transfer
transactions. In this event, certain transactions for which
approval is sought in this filing may be exempt or otherwise
authorized by order of the Commission. In addition, if only the
right to direct the operation of Entergy System Transmission
Assets is transferred to Transco, no regulatory approval is
necessary under the Act.
The final percentage ownership interests, as well as the
definitive number of Class B Interests and shares of Class B
Common Stock to be acquired, will depend upon the actual
participants in the Transco and the value of the transmission
assets transferred to Transco by such participants, all as
described below.
Under the Managing Member's By-Laws, directors must own a
minimum of ten (10) shares of Class A Common Stock (which means
that the directors will collectively own a minimum of seventy
(70) shares of Class A Common Stock and have the voting power
over such shares). Under the Voting Trust Agreement (which is an
exhibit to the Transco Implementation Plan) each director must
vote his/her shares of the Managing Member in accordance with the
decisions of the majority of the directors. During the period
prior to a Managing Member public offering, any person who
acquires Class A Common Stock in the Managing Member will be
required to be a party to, and accept the terms of, the Voting
Trust Agreement. Directors and all members of their immediate
families, may not have any financial interest in, including
owning the securities of, any Market Participant, except
indirectly through certain mutual funds.
Class B Common Stock may be converted into Class A Common
Stock by a holder thereof unless the holder is a Market
Participant. Consequently, no company in the Entergy System will
be permitted to convert its Class B Common Stock into Class A
Common Stock unless and until the Entergy System ceases to be a
Market Participant.
The SPP Partnership RTO will administer a single tariff and a
joint Open Access Same-Time Information System ("OASIS") site
that will apply to transmission service within the SPP and
Transco. Transco will have control over those portions of the
tariff that affect the commercial terms and conditions of
transmission service over Transco's facilities. Transco will be
responsible for conducting studies and scheduling transactions on
Transco's system and will be the provider of last resort for
ancillary services in accordance with FERC Orders 888 and 2000.
The SPP and Transco agree to use the Vacar, Southern and TVA
model for calculating ATC/TTC. The SPP Partnership RTO will
perform all ATC/TTC calculations utilizing a methodology that is
mutually agreed to between Transco and the SPP. In designing
transmission rates, the SPP and Transco agree there will be no
"pancaked" rates for transmission service with respect to
transactions using both the Transco and the SPP systems.
Once retail access is implemented in Texas, the load serving
entities will take service under the SPP Partnership RTO
transmission tariff.
The proposed terms and conditions of the Interest Rate Hedges
and Anticipatory Hedges are substantially the same as the
Commission has approved in other cases. See New Century
Energies, Inc., et al., Holding Co. Act Release No. 27000 (April
7, 1999); and SCANA Corporation., et al., Holding Co. Act Release
No. 27137 (February 14, 2000).
Available April 12, 2000; 2000 SEC No-Act. Lexis 1028.
Available March 10, 2000; 2000 SEC No-Act. Lexis 368.
These events included:
(i) transactions involving conflicts between TNLP and any
partner;
(ii) distributions to the partners under the TNLP Agreement
(relating to the economics of the transaction) and advisory
fees paid to any affiliated party;
(iii) a public offering of any securities of TNLP or its
subsidiaries (other than any normal financing activities of the
utility subsidiary);
(iv) TNP's voting of the shares of common stock of its
subsidiaries in extraordinary circumstances including mergers,
sales of significant assets or changes in charter documents;
(v) approving changes in the aggregate greater than 15% to the
business plan and annual operating budget;
(vi) modification of the name of TNLP and changes in TNLP's
principal place of business or amendments to the formation
documents of TNLP or TNP;
(vii) entering into contracts for goods and services in
excess of $1,000,000 other than in accordance with the then
current business plan and annual operating budget;
(viii)a merger, joint venture, partnership or similar
transaction or liquidation or dissolution (after five years the
limited partners can force a public offering of TNLP shares);
(ix) disposing of any significant business or assets (such as
generating plants or transmission systems) or acquiring any
stock or assets of another entity or entering into any new line
of business;
(x) creating or issuing any Partnership Interests or new class
of equity securities of TNP, or its utility subsidiary, or
options or other securities convertible or exchangeable into
partnership Interests;
(xi) declaring distributions in respect of any capital stock of
TNP or any subsidiary of TNLP which is not wholly owned by
TNLP;
(xii) voluntary incurrence of indebtedness in excess of
$1,000,000 except to the extent consistent with any then
current annual capital or operating budget and business plan;
(xiii)making capital expenditures that vary from those
provided for in the budget by $5,000,000 per event or series of
related events but otherwise not cumulatively;
(xiv) making any material change in accounting practices or
a change in TNLP's accountant;
(xv) commencing any bankruptcy or receivership proceeding;
(xvi) initiating certain actions or suits in excess of
$1,000,000 or taking action with respect to transfers of
Partnership Interests; and
(xvii)adopting or amending any employee stock option plan
or any other material employee benefit plan or the employment
agreement of the chief executive officer.
In the absence of cumulative voting, BH could not elect any
director based, solely, on its 9.9% common stock share interest.
Class B Interests in Transco held by the Entergy System are
passive investment securities which share in the profits and
losses of Transco, but have no right to vote on the day-to-day
business affairs of Transco, except with respect to certain
fundamental rights affecting the investment value of their
passive interests. The Class A Interests in Transco which are
held by the Managing Member have the full voting rights and
control over the day-to-day operations of Transco. In similar
fashion, Class A Common Stock in the Managing Member has full
voting rights, controls the Managing Member and is held and voted
by the non-market participants. The Class B Common Stock which
the Entergy System may own upon conversion of Class B Interests
has basically the same limited voting rights on fundamental
matters as the Class B Interests and represents a passive
investment in the Managing Member.
Transco Class B Interest holders and Managing Member Class B
Common Stock holders will have certain limited voting rights.
With respect to these limited voting rights, holders of Transco
Class B Interests and Managing Member Class B Common Stock will
vote together with holders of Managing Member Class A Common
Stock as a single class. A Super Majority of 75% shall be
required for approval of: (1) any proposal to issue more than 10%
of any outstanding class or series of securities of the Managing
Member to one or more affiliates of the Managing Member, other
than those issuances of securities, including distributions
thereof, that are made on the same terms to all stockholders of
the Managing Member; (2) any transaction that would result in a
change of control of the Managing Member, the sale, transfer,
lease or exchange of substantially all of the Managing Member's
assets and any merger or consolidation of the Managing Member
with any other entity when all or a portion of the consideration
received is cash; (3) any acquisition or business development
opportunity that is not directly or indirectly related to the
provision of electric transmission service; (4) any proposal to
have the Managing Member adjudicated insolvent, seek
reorganization, consent to an appointment of a receiver or make
an assignment for the benefit of the Managing Member's creditors;
and (5) any proposal to amend the Managing Member's Certificate
of Incorporation that ultimately affects the rights of the Class
B Common Stock holders, including the right to convert upon
dissolution to Class A Common Stock. The Class B Interest holders
in Transco will have the right to vote on these matters
concerning the management affairs of the Managing Member if they
own at least one (1) share of Class B Common Stock in the
Managing Member. As a result of owning at least one (1) share in
the Managing Member, the Transco Interest holders will be awarded
the votes corresponding to their share(s) of Class B Common Stock
plus the votes corresponding to their Transco Class B Interests,
as if they had been converted into shares of Class B Common
Stock.
Holders of Transco Class B Interests will also have limited
voting rights with respect to Transco matters; such rights will
be similar to their voting rights with respect to Managing Member
matters described in clauses (2) through (5) in the immediately
preceding paragraph. Holders of Transco Class A and B Interests
will vote together as a single class with respect to such Transco
matters. In addition, approval by a Super Majority of the Transco
Class A and B Interest holders, voting together as a single
class, will be necessary in the following matters with respect to
the business decisions of Transco: (1) any proposal to amend
certain terms of the Transco LLC Agreement or to amend the Voting
Trust Agreement in the Transco Implementation Plan; and (2) any
transfer of a Member Interest in Transco to a transferee. Changes
in the Managing Member's By-Laws must be approved by either a
Super Majority of 75% of the Class A and Class B Common Stock
holders, voting together as a single class, or a majority of the
entire board of directors then in office. Note that Transco Class
B Interest holders may only vote with respect to changes to the
By-Laws of the Managing Member to the number of shares they own
in the Managing Member and may not vote their interests in
Transco convertible into Class B Common Stock of the Managing
Member.
The transfer of the Operating Companies Transmission Assets to
the Intermediate Entity will temporarily result in additional
leverage at the Operating Companies. The Operating Companies will
have offsetting assets, however, associated with the debt assumed
pursuant to the Assumption Agreement. This additional leverage
will exist only until that debt is repaid, which could occur
immediately, or to the end of the Separation Period at the
latest. Once the Intermediate Entity raises external debt and
uses it to pay assumption debt and a corresponding amount of
Operating Company debt, the Operating Companies ratio of debt to
total capital will temporarily decline. The Operating Companies'
capital ratios will return to approximately their original level
when the Operating Companies ultimately dividend their ownership
interests in Transco to Entergy Corp.