View:
As filed with the Securities and Exchange Commission on
May 29, 2001
File No. 70-9867
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
APPLICATION ON FORM U-1
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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WESTERN RESOURCES, INC.
818 South Kansas Avenue
Topeka, Kansas 66612
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(Name of companies filing this statement and
address of principal executive offices)
WESTERN RESOURCES, INC.
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(Name of top registered holding company
parent of each applicant or declarant)
Richard D. Terrill
Executive Vice President and General Counsel
Western Resources, Inc.
818 South Kansas Avenue
Topeka, Kansas 66612
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(Name and address of agent for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
William S. Lamb LeBoeuf, Lamb,
Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-4513
TABLE OF CONTENTS
Page
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS...............................1
A. Description of the Parties and Facilities..........................1
1. Western Resources, Inc. ......................................1
2. Westar Generating, Inc.........................................2
3. The Empire District Electric Company...........................2
B. State Line Generation Station......................................2
C. Description of Applicant's Requests................................4
ITEM 2. FEES, COMMISSIONS AND EXPENSES.....................................5
ITEM 3. APPLICABLE STATUTORY PROVISIONS....................................5
A. Approval of the Proposed Transactions..............................6
1. Section 10(b)(1)...............................................6
a. Interlocking Relationships.................................6
b. Concentration of Control...................................6
2. Section 10(b)(2)...............................................7
3. Section 10(b)(3)...............................................8
4. Section 10(c)(1)...............................................8
5. Section 10(c)(2)...............................................9
6. Section 10(f).................................................10
B. Exemption Under Section 3(a)......................................10
ITEM 4. REGULATORY APPROVALS..............................................11
ITEM 5. PROCEDURE.........................................................11
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.................................11
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS...........................12
Western Resources, Inc. hereby submits Pre-Effective Amendment No. 2 to and
restates in its entirety the application in File 70-9867 (the "Application")
under Sections 9(a)(2) and 10 of the Public Utility Holding Company Act of 1935,
as amended (the "Act"), to acquire an interest in a public utility company as
described in the Application.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
A. Description of the Parties and Facilities
1. Western Resources, Inc.
Western Resources, Inc. ("WRI" or "Applicant") is a public utility holding
company claiming exemption from all provisions of the Act except Section 9(a)(2)
under Section 3(a)(1) pursuant to Rule 2 of the Act. WRI, through its KPL1
division, is engaged in the production, purchase, transmission, distribution and
sale of electric energy in the State of Kansas. WRI's assets include security
company holdings through its ownership of Protection One, Inc. ("Protection
One"), which has more than 1.3 million security customers in North America. Its
utility operations, conducted through KPL and WRI's subsidiary, Kansas Gas and
Electric Company ("KGE"), provide electric service to approximately 636,000
customers in 432 communities in the State of Kansas.2 KGE owns a 47% interest in
Wolf Creek Nuclear Operating Corporation3 which operates the Wolf Creek
Generating Station on behalf of its owners. Through its ownership interest in
ONEOK Inc., an Oklahoma corporation, WRI has an approximately 45% economic
interest4 in the eighth largest natural gas distribution company in the nation,
serving more than 1.4 million customers. For the 12 months ended March 31, 2001,
WRI reported consolidated revenues of approximately $2,447,518,000 and
consolidated utility revenues of $1,941,630,000 WRI's net income reported for
the same period was $86,448,000, and WRI's utility operating income was
$277,744,000. Consolidated assets and consolidated utility assets of WRI at
March 31, 2001 were $7,576,118,000 and $4,541,884,000 respectively.
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1 "KPL" is the trade name for WRI's electric business.
2 KGE has disposed of its retail gas distribution business and no longer has
retail gas customers. Other than its investment in ONEOK, WRI is not engaged in
any gas utility businesses.
3 Wolf Creek Nuclear Operating Corporation relies on a no-action letter issued
by the Commission's Staff in 1995 for the proposition that it is not a utility
company. See Wolf Creek Operating Corp., SEC No-Action Letter (June 26, 1995).
4 Comprised solely of up to 9.9% of the voting stock and shares of nonvoting
convertible preferred stock of ONEOK. WRI has relied on a no-action letter
issued by the Commission's Staff in 1997 for the proposition that ONEOK is not a
subsidiary of WRI and that WRI does not control ONEOK. See Western Resources,
Inc., SEC No-Action Letter (Nov. 24, 1997).
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WRI's other subsidiaries include: Westar Generating, Inc., which is
described in greater detail below; The Wing Group, Limited Co., a Delaware
corporation and wholly owned subsidiary of Westar Industries, Inc. ("Westar
Industries"), which holds an interest in Wing Turkey, Inc.; Western Resources
(Bermuda) Limited, a Bermuda limited liability company, indirectly holding
interests in four power plants in China; Wing Turkey, Inc., a Delaware holding
company, owning a power project in Turkey; and Westar Industries, a Kansas
corporation and wholly owned subsidiary of WRI, a holding company for certain
non-regulated business subsidiaries of WRI including, among others, Protection
One, a Delaware holding company for monitored security alarm businesses, of
which approximately 85% is held by Westar Industries, Protection One
International, Inc. and Protection One (UK) plc, wholly owned subsidiaries which
offer home security services in the United Kingdom and continental Europe
respectively, and Westar Communications, Inc., a Kansas corporation and wholly
owned subsidiary of Westar Industries, providing paging services. Westar
Industries also holds the interest in ONEOK, described above. Westar Industries
currently owns 14,368,996 shares of WRI common stock, which at the time the
shares were acquired constituted 16.9% of the issued and outstanding common
stock of WRI. Westar Industries received this common stock in February of 2001
in exchange for an intercompany receivable and may acquire additional shares in
the conversion of additional intercompany receivables owed to it by WRI.
2. Westar Generating, Inc.
Westar Generating, Inc. ("Westar Generating"), a wholly owned subsidiary of
WRI, is a Kansas corporation that will hold an undivided 40% ownership interest
in a 2X1 F class combined cycle generation facility that is under construction
at The Empire District Electric Company State Line station near Joplin, Missouri
- - the facility is the subject of this Application. Westar Generating holds this
interest directly in the real property and assets that make up the generating
station. The Empire District Electric Company, an unaffiliated company, holds
the remaining undivided 60% ownership interest and operates the facility
pursuant to the Agreement for the Construction, Ownership and Operation of State
Line Combined Cycle Generating Facility ("Operating Agreement"). See Exhibit
B-1. Westar Generating and Empire (collectively the "Owners") hold their
interests as tenants in common.
3. The Empire District Electric Company
The Empire District Electric Company's ("Empire") Form 10-K for the year
ended December 31, 1999 states that Empire, a Kansas corporation organized in
1909, is an operating public utility engaged in the generation, purchase,
transmission, distribution and sale of electricity in parts of Missouri, Kansas,
Oklahoma and Arkansas. The territory served by the Company's electric operations
embraces an area of about 10,000 square miles with a population of over 330,000.
The service territory is located principally in Southwestern Missouri and also
includes smaller areas in Southeastern Kansas, Northeastern Oklahoma and
Northwestern Arkansas.
B. State Line Generation Station
Pursuant to the Operating Agreement, Empire is constructing a 2X1 F class
combined cycle generating facility on the Missouri side of the Kansas-Missouri
state line just west of Joplin, MO ("State Line"). This site also houses another
generating facility, Unit 1, in which WRI and its subsidiaries do not have an
interest. State Line is not currently operative, and is being upgraded from its
original configuration of a single Westinghouse 501-F.C. turbine installed in
1997 to a Westinghouse 501-F.D1. Empire is adding another 501-F.D2, two heat
recovery steam generators, a steam turbine, a cooling tower, and associated
equipment to create the 2X1 F facility. The new combined cycle facility will
have a nominal rating of 500 MW. State Line began operations in June 1997 and
was removed from service on September 11, 2000 to facilitate the conversion.
Westar Generating will acquire its interest in State Line in two phases. In
the first phase, which has already occurred, Westar Generating acquired a 40%
interest in the portion of State Line's assets under construction. The second
phase, Westar Generating's acquisition of a 40% interest in the portion of the
State Line assets that existed prior to the start of construction, will occur
prior to State Line's resumption of commercial operation. The Operating
Agreement prohibited Westar Generating's acquisition of its 40% interest in the
assets that existed prior to the start of construction until all state
regulatory approvals had been obtained and "exhaust from the Existing CT is
utilized in its associated heat recovery steam generators." See Exhibit B-1.
These prerequisites have been met - the regulatory approvals were obtained and
exhaust from the Existing CT was utilized in the associated heat recovery steam
generators during testing. Now that these contractual requirements have been
fulfilled, Westar Generating will acquire its 40% interest prior to the start of
commercial operation.
The Owners began testing the new configuration in March 2001 and depending
upon the success of the trials, anticipate resuming commercial operation as
early as May 31, 2001. Westar Generating also owns a 34% share in non-utility
facilities such as offices, maintenance buildings and fire protection equipment.
Westar Generating's cost associated with acquiring its interest in State
Line, including its 34% interest in non-utility facilities, will be equal to its
share of the costs of constructing State Line. These costs will be approximately
$104,292,841.
WRI entered into the Operating Agreement on July 26, 1999 as a means of
acquiring a generation source to meet the generation needs of KPL, the division
of WRI operating as a public utility. State Line will provide reliable,
inexpensive power to WRI. WRI and Westar Generating have entered into a power
purchase agreement under which Westar Generating will sell its entire 40%
entitlement to the output of State Line to WRI under a cost-based tariff ("Power
Purchase Agreement") which the Federal Energy Regulatory Commission ("FERC")
accepted subject to refund on April 27, 2001. In turn, WRI will sell State
Line's output to KPL's retail and other customers. All of KPL and KGE's retail
customers are located within Kansas.
Pursuant to the Accounting Manual, an addendum to the Accounting and Cash
Flow Memorandum, which is an exhibit to the Operating Agreement, Westar
Generating and Empire must make arrangements for the proper utilization and
transmission of energy generated during testing. In compliance, Westar
Generating has entered into contractual agreements to utilize its share of State
Line's output. Power generated during testing prior to May 1, 2001 was retained
by Empire in trade for energy that would otherwise have been delivered to Empire
by WRI under a pre-existing purchase and transmission agreement between Empire
and WRI. Power generated during testing after May 1, 2001 is received by WRI
pursuant to the Power Purchase Agreement.
WRI will receive State Line's output at the high voltage side of State
Line's step-up transformer. This power will then be transmitted to WRI's
electric grid (a distance of approximately 30 miles) by the Southwest Power Pool
("SPP") under the SPP's FERC approved Regional Transmission Tariff ("SPP
Tariff"). The SPP is a regional power pool that has filed an application at FERC
to become a regional transmission organization. SPP administers transmission
service over the transmission systems of its members which include WRI, KGE and
Empire. The SPP's region encompasses WRI, KGE and Empire's transmission systems,
and no other contracts are needed to unite State Line and WRI. Exhibit E
portrays the SPP. Transmission across the SPP is easily accomplished through a
single tariff. WRI has reserved 200 MW of firm transmission capacity beginning
May 1, 2001 for ten years under the SPP Tariff for this transaction. This is
enough capacity for the entirety of Westar Generating's 40% share of State
Line's expected 500 MW nominal output. Power generated during testing after May
1, 2001 is transmitted to WRI via this same route.
C. Description of Applicant's Requests
WRI is seeking authority to retain its 40% indirect interest in State Line
when the plant resumes commercial operation. Because State Line is not presently
operating commercially, Westar Generating is not an "electric utility" as
defined by Section 2(a)(3) of the Act.5 However, upon State Line's resumption of
commercial operations, Westar Generating will become an electric utility. WRI
will qualify as an affiliate of Westar Generating under the Act, and WRI is
already an affiliate, as that term is defined in the Act6, of KGE and ONEOK.
Retaining the securities of Westar Generating is equivalent to acquiring the
security of a public utility company and requires prior Commission authorization
under Sections 9(a)(2) and 10.
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5 Several Commission no-action letters describe circumstances in which the
Commission has effectively concluded that generation facilities under
construction or conducting tests prior to commercial operation were not electric
utilities. See e.g. ISO & PX Restructuring Trusts, SEC No-Action Letter, July
25, 1997 (facilities under construction); Midland Cogeneration Venture Limited,
SEC No-Action Letter, December 19, 1989 (facilities generating power for sale
during testing). The Commission reached a similar conclusion in Ocean State
Power II, in which the Commission evaluated Ocean State Power, a general
partnership formed to construct, own and operate the first unit ("First Unit")
of a combined cycle electric generating facility and as part of its analysis
under Section 9(a)(2) stated that "[w]hen the First Unit commences commercial
operation, [Ocean State Power] will be an electric utility company within the
meaning of section 2(a)(3) of the Act." Ocean State Power II, Holding Co. Act
Release No. 24960 (Sept. 28, 1989).
6 Section 2(a)(11)(B) of the Act states that affiliates include "any company
five per centum or more of whose outstanding voting securities are owned,
controlled, or held with power to vote, directly or indirectly, by such
specified company."
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Westar Industries is not included as an applicant herein because Westar
Industries is not a holding company under Section 2(a)(7) or an affiliate under
Section 2(a)(11)(A) of the Act with respect to WRI since it does not own any
voting securities of WRI. Therefore, it is not indirectly becoming an affiliate
of Westar Generating under Section 2(a)(11)(A) of the Act as a result of WRI's
ownership of Westar Generating. Specifically, Section 2(a)(17) of the Act
provides that a voting security is "any security presently entitling the owner
or holder thereof to vote in the direction or management of the affairs of a
person". Due to the operation of Kansas law, the shares of WRI which Westar
Industries owns are not voting securities, as defined above. Specifically,
Section 17-610(c) of the Kansas General Corporation Code states that "shares of
[a corporation's] own capital stock belonging to the corporation or to another
corporation, if a majority of the other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor counted
for quorum purposes". Westar Industries would be required to obtain approval
under Sections 9(a)(2) and 10 were it to become an affiliate within the meaning
of Section 2(a)(11)(A) of the Act with respect to Westar Generating or any other
public utility company at a time when it remains an affiliate of another public
utility.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
WRI estimates that, in connection with the proposed transactions, they will
pay fees, commissions and expenses of:
Legal Fees.....................................................$25,000
Miscellaneous..................................................$10,000
Total........................................$35,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 9(a)(2) and 10 of the Act are directly or indirectly applicable to
the authority requested in this Application.
A. Approval of the Proposed Transactions
Section 9(a)(2) makes it unlawful, without approval of the Commission under
Section 10, "for any person . . . to acquire, directly or indirectly, any
security of any public utility company, if such person is an affiliate . . . of
such company and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate." The proposed transactions
comply with all of the applicable provisions of Section 10.
1. Section 10(b)(1)
Section 10(b)(1) directs the Commission to approve an acquisition that
meets the requirements of subsection (f) unless it finds that the 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."
a. Interlocking Relationships
State Line is essentially a new facility owned by Empire and Westar
Generating. Retention of Westar Generating's interest after State Line resumes
commercial operations will not create any interlocking relations between
previously unaffiliated utilities. Rather Western Generating and Empire hold
their respective interests as tenants in common and are dividing State Line's
output and construction costs. This type of arrangement is not harmful to the
Act's protected interests.
b. Concentration of Control
Section 10(b)(1) requires the Commission, before blocking an acquisition,
to find that control is "of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers." The framers of the Act
sought through Section 10(b)(1) to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicative facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by
certain combinations. American Electric Power Co., Inc., Holding Co. Act Release
No. 20633 (July 21, 1978). In applying Section 10(b)(1) to utility acquisitions,
the Commission must determine whether the acquisition will create "the type of
structures and combinations at which the Act was specifically directed." Vermont
Yankee Nuclear Corp., Holding Co. Act Release No. 15958 (Feb. 6, 1968). State
Line will provide a new reliable source of power for KPL's utility businesses
and does not involve a combination of previous separate utilities. Thus, rather
than create prohibited corporate structures, State Line will serve KPL's utility
customers by providing reliable inexpensive power.
In addition, other regulatory agencies will review the concentration of
control and any potential anticompetitive effects.1 In Northeast Utilities,
Holding Co. Act Release No. 25221 (Dec. 21, 1990), the Commission stated that
"antitrust ramifications of an acquisition must be considered in light of the
fact that public utilities are regulated monopolies and that federal and state
administrative agencies regulate the rates charged consumers." The staff of the
Missouri Public Service Commission ("Missouri Commission") has determined that
the State Line project is necessary or convenient for the public service, and
the Missouri Commission granted Westar Generating a certificate of convenience
and necessity to "construct, install, own, operate, control, manage and
maintain" State Line. See Exhibits D-1 and D-2. A newly constructed generation
facility that is necessary or convenient for the public service impliedly does
not threaten to create anticompetitive effects. The State Corporation Commission
of the State of Kansas ("Kansas Commission") also has jurisdiction over the
operation of WRI and its utility businesses but did not have jurisdiction over
construction of State Line or Westar Generating's acquisition of a 40% interest.
However, the Kansas Commission will review the costs of State Line proposed to
be charged to KPL's retail electric customers. Thus, the proposed transactions
do not create the kind of structures that the Act's framers were attempting to
avoid.
Finally, the rates under which State Line provides its output to KPL will
be fully reviewed by FERC pursuant to Section 205 of the Federal Power Act.
Accordingly, because State Line is located just across the Missouri border
and because other regulatory agencies have evaluated and approved the proposed
transactions, the Commission should find that the proposed transactions do not
create the type of concentration of control prohibited by Section 10(b)(1).
2. Section 10(b)(2)
Section 10(b)(2) requires the Commission to determine whether the
consideration to be paid in connection with the proposed transactions, including
all fees, commissions and other remuneration, is reasonable and whether it bears
a fair relation to, investment in and earning capacity of the underlying utility
assets.
Westar Generating's share of State Line's construction costs will be
approximately $104,292,841. These costs are the product of arm's-length
negotiations between Empire and/or Westar Generating and service providers.
These negotiations were preceded by due diligence, analysis and evaluation of
the assets, liabilities and business prospects of State Line. As recognized by
the Commission in Northeast Utilities, Holding Co. Act Release No. 25221 (Dec.
21, 1990) citing Ohio Power Co., 44 SEC 340, 346 (1970), prices arrived at
through arm's-length negotiations are particularly persuasive evidence that
Section 10(b)(2) is satisfied.
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1 In prior applications under Section 9 in which the Commission evaluated the
anticompetitive effects of combining existing utility businesses, the Commission
often considered the determinations of the FERC under the Federal Power Act and
Federal Trade Commission ("FTC") and Department of Justice ("DOJ") under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act").
See American Electric Power Company, Inc. and Central and South West
Corporation, Holding Co. Act Release No. 27186 (June 14, 2000). The proposed
retention of Westar Generating's securities is functionally equivalent to a
construction contract for new assets and does not pose the same antitrust and
competitive risks as the combination of previously unrelated independent
businesses. Congress did not give the FERC, FTC or DOJ authority over the
proposed transaction, and the Commission may consider Congress's determination
in its evaluation under Section 10(b)(1).
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As set forth in Item 2 of this Application, WRI expects to incur a combined
total of approximately $35,000 in fees, commissions and expenses. WRI believes
that the estimated fees and expenses in this matter bear a fair relation to the
value of the transactions and the strategic benefits to be achieved, and further
that the fees and expenses are fair and reasonable in light of the complexity of
the transactions. See Northeast Utilities, Holding Co. Act Release No. 25548
(June 3, 1992), modified on other grounds, Holding Co. Act Release No. 25550
(June 4, 1992) (noting that fees and expenses must bear a fair relation to the
value of the company to be acquired and the benefits to be achieved in
connection with the acquisition). Based on construction costs of $104,292,841,
the total estimated fees and expenses represent approximately .03% of the value
of the consideration. This percentage of fees and expenses is less than that of
other transactions approved by the Commission. See Entergy Corp., Holding Co.
Act Release No. 25952 (Dec. 17, 1993) (fees and expenses represented
approximately 1.7% of the value of the consideration paid to the shareholders of
Gulf States Utilities); Northeast Utilities, Holding Co. Act Release No. 25548
(June 3, 1992) (approximately 2% of the value of the assets to be acquired).
3. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether the proposed
transactions will unduly complicate the capital structure of WRI or will be
detrimental to the public interest, the interest of investors or consumers or
the proper functioning of the WRI system. The construction of State Line was
financed through existing financing sources and did not involve issuance of new
securities. In addition, the acquisition of State Line will not be detrimental
to the interest of consumers or the functioning of the WRI system because state
and federal regulators have jurisdiction over the sale of State Line's output.
The rate WRI pays for State Line's output is fixed by the Power Purchase
Agreement, which is reviewed by FERC, and the rates KPL's retail consumers pay
are governed by the Kansas Commission.
4. Section 10(c)(1)
Section 10(c)(1) provides that the Commission may not approve a transaction
that is "unlawful under the provisions of section 8 or is detrimental to the
carrying out of the provisions of section 11." Together these sections relate to
the corporate simplification standards of Section 11(b)(2), which require that
each registered holding company take the necessary steps to ensure that the
corporate or continued existence of any company in the holding-company system
does not unduly or unnecessarily complicate the structure of such
holding-company system. Sections 8 and 11, by their terms, only apply to
registered holding companies, and WRI will be exempt from registration under
Section 3(a), pursuant to Rule 2.
5. Section 10(c)(2)
Section 10(c)(2) requires that any acquisition not be approved 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."
Section 2(a)(29)(A) defines an "integrated public utility system" as
applied to electric utility companies 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
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.
As discussed in Item 1, WRI and Westar Generating have entered into a power
purchase agreement under which Westar Generating will sell its entire 40%
entitlement to the output of State Line under a cost-based tariff which will be
approved by the FERC. WRI will receive State Line's output at the high voltage
side of State Line's step-up transformer and, via a thirty-mile 200 MW firm
ten-year contract path with the SPP, transmit it to WRI's electric grid. In
prior applications, the Commission has found a contract path sufficient to
interconnect utilities. See American Electric Power Company, Inc. and Central
and South West Corporation, Holding Co. Act Release No. 27186 (June 14, 2000);
WPL Holdings, Inc., Holding Co. Act Release No. 26856 (Apr. 14, 1998) aff'd sub
nom Madison Gas and Electric Co. v. SEC, 168 F.3d 1337, 1341-42 (D.C. Cir.
1999). WRI will dispatch State Line using the same mechanisms and same system
operator as it does to operate its existing generation and thereby meets the
Commission's requirements for economical operation. See Conectiv, Inc., Holding
Co. Act Release No. 26832 (Feb. 25, 1998). WRI's utility businesses are located
in Kansas, and State Line is being built in neighboring Missouri. Accordingly,
the proposed acquisitions comply with the single area or region requirement of
10(c)(2).
As previously described in Item 3A, the Missouri Commission approved Westar
Generating's acquisition of its 40% interest in State Line and granted Westar
Generating a certificate of convenience and necessity for State Line. See
Exhibits D-1 and D-2. After consummation of the proposed transactions, WRI will
continue to be subject to regulation by the Kansas Commission and Westar
Generating will also be regulated by the Missouri Commission. The Commission has
previously found that state regulation is not impaired when a holding company's
utility subsidiaries remain subject to the same state regulators as prior to a
transaction. See Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25,
1998). Accordingly, the proposed transactions do not impair effective state
regulation. Finally, since State Line is located just across the Missouri
border, the proposed transactions will not impair the effectiveness of local
management.
As part of its analysis under Section 10(c)(2) the Commission also
considers whether the operation of the proposed integrated public utility system
will generate economies and efficiencies. WRI's application to retain the
securities of Westar Generating differs from the majority of applications the
Commission reviews under Section 9 in that the proposed acquisition is of a
utility company that will hold only generation assets and does not have retail
customers and extensive management. Accordingly, the transaction will not result
in synergistic savings stemming from the elimination of duplicate personnel as
found in other applications. See e.g. Exelon Corporation, Holding Co. Act
Release No. 27256 (Oct. 19, 2000) as supplemented by Holding Co. Act Release No.
27259 (Oct. 20, 2000); CP&L Energy, Inc., Holding Co. Act Release No. 27284
(Nov. 27, 2000). Nonetheless, retention of Westar Generation's securities will
generate economic benefits. WRI anticipates increased demand for electricity.
State Line's output will increase the WRI system's indigenous generation
capacity and create corresponding increases in reliability. Because State Line
is located in close proximity to the WRI system and because WRI has contracted
for firm transmission to move State Line's output to KPL, State Line's output is
more reliable than energy purchased from a third-party supplier that must be
transmitted across greater distances using non-firm transmission. Additionally,
the availability of State Line's output will decrease the WRI system's exposure
to price volatility in the power purchase market to which the WRI system must
turn when its own generation does not meet demand. WRI expects State Line to be
one of the most efficient generation facilities in WRI's pool of generation
assets, producing more KWh per BTU than any other generation unit. The addition
of State Line to WRI's fleet of generation assets will allow WRI to broaden the
units available to service its demand and dispatch its generation assets in a
manner that WRI anticipates will provide lower cost electricity than if State
Line's output was not available. These types of less quantifiable benefits are
appropriately considered by the Commission under Section 10(c)(2). See CP&L
Energy, Inc., Holding Co. Act Release No. 27259 (Oct. 20, 2000).
6. Section 10(f)
Section 10(f) prohibits the Commission from approving the proposed
transactions unless the Commission is satisfied that the they will be undertaken
in compliance with applicable state laws. All the required state regulatory
approvals have been obtained as described in Item 4, and WRI shall undertake to
complete the transaction in a manner consistent with the laws of the States of
Kansas and Missouri.
B. Exemption Under Section 3(a)
WRI claims exemption, under Section 3(a), pursuant to Rule 2, from all
provisions of the Act except Section 9(a)(2). WRI will continue to be entitled
to this exemption after State Line commences commercial operation.
ITEM 4. REGULATORY APPROVALS
The Missouri Commission has previously approved Empire's transfer, and
Westar Generating's acquisition of, a 40% interest in State Line and also
granted Westar Generating a certificate of convenience and necessity to
"construct, install, own, operate, control, manage and maintain" the State Line
facility. See Exhibits D-1 and D-2. The Kansas Commission does not have
jurisdiction over the transactions proposed in this Application but does have
jurisdiction over the retail rates of KPL. The FERC, pursuant to Section 205 of
the Federal Power Act has jurisdiction over the rates of the sales between
Westar Generating and WRI. FERC does not have jurisdiction over WRI's
acquisition of an interest in Westar Generating or Westar Generating's
acquisition of the 40% interest in State Line . FERC's jurisdiction is limited
to the wholesale rates under which Westar Generating will sell output from its
share in State Line. On April 27, 2001, FERC issued an order accepting Westar
Generating's Power Purchase Agreement with WRI for filing and making the rates
contained in the Power Purchase Agreement effective retroactively as of March
19, 2001, subject to refund. Under a schedule adopted by FERC, hearings
concerning the Power Purchase Agreement are scheduled to be held in December
2001 with an initial decision by a FERC Administrative Law Judge anticipated
early in 2002.
ITEM 5. PROCEDURE
On April 18, 2001, the Commission published the requisite notice under Rule
23 with respect to the filing of this Application, such notice specifying a date
not later than May 14, 2001 as the date after which an order granting and
permitting this Application to become effective may be entered by the
Commission.
No recommended decision by a hearing officer or other responsible officer
of the Commission is necessary or required in this matter. The Division of
Investment Management of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no thirty-day waiting
period between the issuance and effective date of any order issued by the
Commission in this matter, and WRI respectfully requests that any such order be
made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Articles of Incorporation of Westar Generating, Inc, as amended
(Previously Filed)
B-1 Agreement for the Construction, Ownership and Operation of State
Line Combined Cycle Generating Facility by and among The Empire
District Electric Company, as an Owner, Westar Generating, Inc.,
as an Owner, and The Empire District Electric Company, as Agent
dated July 26, 1999, as amended, (Previously Filed on Form SE)
D-1 Application to the Missouri Public Service Commission (Previously
Filed)
D-2 Order of the Missouri Public Service Commission (Previously
Filed)
E Map of Service Territories and the SPP (Filed on Form SE)
F-1 Opinion of Counsel
F-2 "Past Tense" Opinion of Counsel (To be filed by amendment)
H-1 Form of Notice (Previously Filed)
H-2 WRI's 2000 Annual Report (filed on April 2, 2001 (File No.
1-3523) and incorporated by reference herein).
B. Financial Statements
FS-1 Consolidated Balance Statement and Statement of Income of WRI for
the year ended December 31, 2000 (filed with Form 10-K on April
2, 2001 (File No. 1-3523) and incorporated by reference herein).
FS-2 WRI's Consolidated Statement of Income for the Preceding Three
years (filed with Form 10-K on April 2, 2001 (File No. 1-3523)
and incorporated by reference herein).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this Application 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. None of the proposed transactions that are the subject
of this Application will result in changes in the operation of WRI that will
have an impact on the environment. WRI is not aware of any federal agency which
has prepared or is preparing an environmental impact statement with respect to
the transactions proposed herein.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned has duly caused this application and declaration to be
signed on their behalf by the undersigned thereunto duly authorized.
WESTERN RESOURCES, INC.
By: /s/ Richard D. Terrill
------------------------------------
Name: Richard D. Terrill
Title: Executive Vice President and
General Counsel
May 29, 2001
EXHIBIT F-1
Letterhead of Richard D. Terrill
May 29, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Western Resources Inc.'s Acquisition of Securities of an
Electric Utility Company, File 70-9867
Dear Sir or Madam:
As Executive Vice President and General Counsel of Western Resources, Inc.
("WRI"), a Kansas corporation, I have acted as counsel to WRI with respect to
the application (the "Application") on Form U-1 to the Securities and Exchange
Commission ("Commission") in File No. 70-9867. I am furnishing this opinion to
you in connection with the Application and consent to its use as an exhibit to
the Application.
Westar Generating, Inc. ("Westar Generating"), a wholly owned subsidiary of
WRI, is a Kansas corporation that holds an undivided 40% ownership interest in a
2X1 F class combined cycle generation facility that is under construction at The
Empire District Electric Company State Line station near Joplin, Missouri
("State Line"). In the Application, WRI seeks authority under the Public Utility
Holding Company Act of 1935, as amended, ("1935 Act"), to retain the securities
of Westar Generating after construction of the State Line facility is completed.
Westar Generating's consideration for its 40% interest in State Line was its
share of the construction costs, which was financed through existing financing
sources.
I am familiar with the nature and character of the transaction proposed in
the Application. I am a member of the bar of the State of Kansas, the state in
which WRI and Westar Generating are incorporated. I am not a member of the bar
of the State of Missouri and do not hold myself out as an expert in the laws of
the State of Missouri.
In connection with this opinion, I have examined or caused to be examined
the Application and the various exhibits thereto, the minutes of various
meetings of the Board of Directors of WRI, applicable state law, the articles of
incorporation and bylaws of WRI and Westar Generating and such other documents
as I deemed necessary for the purpose of this opinion. I have relied upon the
advice of outside counsel when appropriate. I assume that the Board of Directors
of WRI and the officers and other representatives of WRI will take all future
corporate action necessary to authorize and implement the transaction proposed
in the Application. I also assume that the Commission will issue a valid order
under the 1935 Act authorizing the transaction proposed in the Application.
Based upon the foregoing and subject to the assumptions, qualifications,
limitations, conditions and exceptions set forth herein, I am of the opinion
that, in the event the transaction proposed in the Application is consummated in
accordance with the Application:
(a) all state laws applicable to the proposed transaction will have
been complied with;
(b) WRI and Westar Generating are each dul formed or incorporated
under the laws of the State of Kansas;
(c) WRI will legally acquire any securitie or assets subject to this
Application, and;
(d) the consummation of the transaction proposed in the Application
will not violate the legal rights of the holder of any securities
issued by WRI or by any associate company thereof.
Very truly yours,
/s/ Richard D. Terrill
Richard D. Terrill
Executive Vice President and General Counsel