U-1/A 1 0001.txt FORM U-1/A As filed with the Securities and Exchange Commission on August 16, 2000 File No. 70-9539 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 4 TO FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 New Century Energies, Inc. Northern States Power Company 1225 Seventeenth Street 414 Nicollet Mall Denver, Colorado 80202 Minneapolis, Minnesota 55401 (Name of companies filing this statement and address of principal executive offices) ------------------------------------------------------------------ New Century Energies, Inc. 1225 Seventeenth Street Denver, Colorado 80202 (Name of registered holding company parent of each applicant or declarant) ------------------------------------------------------------- Wayne H. Brunetti James J. Howard Chairman of the Board, Chairman of the Board, President and President and Chief Executive Officer Chief Executive Officer New Century Energies, Inc. Northern States Power Company 1225 Seventeenth Street 414 Nicollet Mall Denver, Colorado 80202 Minneapolis, Minnesota 55401 (Name and addresses of agents for service) ---------------------------------- The Commission is requested to send copies of all notices, orders and communications in connection with this Application-Declaration to: Paul J. Bonavia Gary R. Johnson Senior Vice President and Vice President and General Counsel General Counsel Scott M. Wilensky William M. Dudley Senior Attorney Associate General Counsel Northern States Power Company New Century Energies, Inc. 414 Nicollet Mall 1225 Seventeenth Street Minneapolis, Minnesota 55401 Denver, Colorado 80202 Joanne C. Rutkowski Peter D. Clarke LeBoeuf, Lamb, Greene & MacRae, L.L.P. Gardner, Carton & Douglas 1875 Connecticut Avenue, N.W. 321 North Clark Street, Suite 3400 Washington, D.C. 20009 Chicago, Illinois 60610 Item 1. Description of Proposed Transaction...................................1 A. Introduction.......................................................1 B. Overview of the Transaction........................................3 C. Description of the Parties to the Merger...........................4 1. NCE and its Subsidiaries.......................................4 2. NSP and its Subsidiaries.......................................8 D. Description of the Merger.........................................12 E. Operations of the Combined Company................................14 Item 2. Fees, Commissions and Expenses.......................................14 Item 3. Applicable Statutory Provisions......................................15 A. Merger Analysis -- Overview.......................................16 1. Introduction..................................................16 2. Section 9(a)(2)...............................................17 B. Section 10(b).....................................................18 1. Section 10(b)(1)..............................................18 2. Section 10(b)(2)..............................................23 3. Section 10(b)(3)..............................................25 C. Section 10(c).....................................................28 1. Section 10(c)(1)..............................................28 (a) The Merger will be lawful under Section 8...............28 (b) The Merger will not be detrimental to carrying out the provisions of Section 11..........................29 (i) Integration of Electric Operations.................30 (a) Interconnection.........................................50 (b) Coordination............................................54 (c) Single Area or Region...................................59 (d) Size....................................................63 (ii) Retention of Combined Gas System..................66 (iii) Coordinated Operations of Combined Gas Properties.71 (a) Loss of economies.......................................73 (b) Same state or adjoining states..........................78 (c) Size....................................................78 (iv) Retention of Other Businesses...................81 2. Section 10 (c)(2).............................................85 D. Section 10(f).....................................................88 E. Intra-system Transactions.........................................88 1. New Century Services, Inc. (to be renamed Xcel Energy Services Inc.)............................................88 2. Services, Goods, and Assets Involving the Utility Operating Companies.................................................91 3. Non-Utility Sale of Goods and Services to EWGs, FUCOs, and QFs...................................................92 F. Capitalization of New NSP.........................................94 Item 4. Regulatory Approvals.................................................94 A. Antitrust.........................................................94 B. Federal Power Act.................................................94 C. Atomic Energy Act.................................................95 D. State Public Utility Regulation...................................95 E. Other.............................................................98 Item 5. Procedure.............................................................98 Item 6. Exhibits and Financial Statements.....................................99 A. Exhibits..........................................................99 B. Financial Statements.............................................103 Item 7. Information as to Environmental Effects..............................104 New Century Energies, Inc. and Northern States Power Company hereby amend and restate in its entirety their Application-Declaration in File No. 70-9539, as previously amended, and file additional exhibits thereto. Item 1. Description of Proposed Transaction A. Introduction This Application-Declaration seeks approvals relating to the proposed combination (the "Merger") of New Century Energies, Inc., a Delaware corporation ("NCE"), and Northern States Power Company, a Minnesota corporation ("NSP"). Upon receipt of all necessary approvals, NCE will be merged with and into NSP, which will be renamed Xcel Energy Inc. ("Xcel"). Also as part of the Merger, NSP intends to transfer all of its existing electric and natural gas utility facilities and operations currently conducted directly by NSP at the parent company level to a newly formed, wholly-owned subsidiary (referred to herein as "New NSP"). Following the consummation of the Merger, Xcel will register with the Securities and Exchange Commission (the "Commission") as a holding company under the Public Utility Holding Company Act of 1935, as amended (the "1935 Act" or the "Act")./1 The combination of NSP and NCE, two well-run, mid-sized, mid-continent energy companies, will result in a financially strong and competitive regional energy company. A key motivating factor for the proposed transaction is the shared vision by the senior managements of both NSP and NCE (the "Applicants") concerning the changes that are occurring in the utility industry and the actions needed to respond effectively to those changes. The Merger will produce substantial benefits to the public, consumers and investors and will meet all applicable standards of the Act. Among other things, the Applicants believe that the Merger offers significant strategic and financial benefits to each company and to their respective shareholders, as well as to their employees, customers and the communities in which they do business. These benefits include, among others: (i) increased scope, providing an infrastructure capable of supporting more efficient utility operations, non-utility business activities and corporate services; (ii) increased stability and competitiveness of rates resulting from fuel diversification and operating efficiencies, thus improving Applicants' ability to meet the challenges of the increasingly competitive environment in the utility industry; (iii) integration of corporate and administrative functions and programs, including centralized management and coordination and operation of utility systems; ---------- 1 Prior to completion of the Merger, NSP and NCE expect to file one or more additional applications-declarations under the Act with respect to ongoing activities (including financing activities) and other matters pertaining to Xcel after the Merger. ---------- (iv) savings from the coordinated dispatch and operation of the combined generating assets of the Applicants; (v) enhanced financial stability and strength through increased market capitalization and a stronger balance sheet, improving access to capital markets, and capability to support the growth objectives established for non-utility businesses, including NSP's largest non-utility subsidiary, NRG Energy; (vi) increased geographic diversity of service territories, reducing exposure to local changes in economic, competitive and climatic conditions, enabling Xcel to withstand risk and volatility better than either NSP or NCE on a stand-alone basis; (vii) greater purchasing power for items such as fuel and transportation services, and streamlining of inventories; (viii) expanded management resources and ability to select leadership from a larger and more diverse management pool; (ix) continued ability to play a strong role in the economic development efforts of the communities that the Applicants now serve; and (x) a strong global presence, with operations in the United Kingdom, Central Europe, Australia and South America. In summary, Applicants believe the Merger will significantly improve their competitive positions and create an enhanced platform for growth for all segments of their businesses. Applicants estimate that efficiencies created by the Merger will generate cost savings of approximately $1.1 billion (net of costs to achieve) in the first ten years following the Merger. The expected Merger benefits are discussed in further detail in Item 3.C.2. below. The shareholders of NCE and NSP approved the Merger on June 28, 1999, with more than 83% of the votes cast by the shareholders of each corporation voting in favor of the Merger. Various aspects of the Merger and the transactions relating thereto have been submitted for review and approved by: (i) the Arizona Corporation Commission (the "Arizona Commission"), (ii) the Kansas Corporation Commission (the "Kansas Commission"), (iii) the Minnesota Public Utilities Commission (the "Minnesota Commission"), (iv) the New Mexico Public Regulation Commission (the "New Mexico Commission"), (v) the North Dakota Public Service Commission (the "North Dakota Commission"), (vi) the Public Utilities Commission of the State of Colorado (the "Colorado Commission"), (vii) the Public Utility Commission of Texas (the "Texas Commission"), (viii) the Wyoming Public Service Commission (the "Wyoming Commission"), (ix) the Federal Energy Regulatory Commission (the "FERC") and (x) the Nuclear Regulatory Commission (the "NRC"). Completion of the Merger is also subject to the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which expired on March 1, 2000. Approval will also be necessary from the Federal Communications Commission (the "FCC") in connection with various licenses. In addition, NSP possesses various franchises, permits and licenses granted by local and state authorities that NSP may need to assign, renew or replace as a result of the Merger. The status of these approvals, including the approvals by FERC/2 and each state commission, is explained in detail in Item 4 below. Apart from the approval of the Commission under the Act, the foregoing approvals are the only governmental approvals required for the Merger. In order to permit timely consummation of the Merger and the realization of the substantial benefits it is expected to produce, the Applicants request that the Commission's review of this Application-Declaration commence and proceed as expeditiously as practicable. B. Overview of the Transaction NCE and NSP have entered into an Agreement and Plan of Merger, dated as of March 24, 1999 (the "Merger Agreement"), which provides for a strategic business combination involving NCE and NSP in a "merger-of-equals" transaction. Pursuant to the Merger Agreement, NCE will merge with and into NSP. NSP, as the surviving corporation, will change its name to Xcel. Also, as part of the Merger, NSP is expected to transfer its existing utility operations that are being conducted directly by NSP at the parent company level to New NSP, which will be a wholly-owned subsidiary of Xcel./3 Upon completion of the Merger, Xcel will have the following public-utility subsidiary companies: Southwestern Public Service Company, a New Mexico corporation ("SPS"/)4; Public Service Company of Colorado, a Colorado corporation ("PSCo"); Cheyenne Light, Fuel and Power Company, a Wyoming corporation ("Cheyenne"); Northern States Power Company, a Minnesota corporation ("New NSP"); and Northern States Power Company, a Wisconsin corporation ("NSP-W"). Black Mountain Gas Company ("BMG"), which currently operates in Arizona as a division of NSP, is also to become a public-utility subsidiary of Xcel./5 New Century Services, Inc., the existing service company for the NCE system, will be the service company for the Xcel system under Section 13 of the Act, although it is expected to be renamed Xcel Energy Services Inc. In addition, Xcel will continue to own all of NSP's existing non-utility subsidiaries and will acquire all of the outstanding capital stock of the non-utility subsidiaries of NCE. See Exhibit E-12 for the resulting corporate structure of Xcel./6 ----------- 2 Northern States Power Company, 90 FERC P. 61,020 (2000) (herein, the "FERC Merger Order"). 3 The Merger Agreement provides that NSP shall not be obligated to undertake the above restructuring if it would cause an NSP Material Adverse Effect as defined in that document, and, if an NSP Material Adverse Effect would result, the parties must negotiate in good faith an alternative to the restructuring. 4 As noted below, SPS is required to restructure to comply with restructuring legislation enacted in Texas and New Mexico. However, it is expected that such restructuring will take place subsequent to the Commission's action on this application. Any necessary authorizations of the Commission to implement the SPS restructuring will be requested at the appropriate time in a separate application. 5 Presently pending before the Commission is NSP's application for approval to transfer the assets and operations of BMG to a subsidiary of NSP (File No. 70-09337). NSP's intent is to accomplish the transfer of such assets promptly upon receipt of the necessary regulatory approvals. If these approvals are obtained prior to consummation of the Merger, BMG will be Xcel's sixth public-utility subsidiary company. 6 In the event that a different corporate structure is adopted, Applicants will file a revised version of EXHIBIT E-12 by amendment. Moreover, to give the Xcel system maximum flexibility to reorganize its non-utility operations in the future and to eliminate unnecessary burden on the Commission, Applicants intend through a separate application to make a request for blanket authority to reorganize Xcel's non-utility subsidiaries and to establish new intermediate holding companies, similar to what the Commission has authorized for other registered systems. See Columbia Energy Group, Holding Co. Act Release No. 27099 (Nov. 5, 1999). ---------- A copy of the Merger Agreement is incorporated by reference as Exhibit B-1. C. Description of the Parties to the Merger 1. NCE and its Subsidiaries NCE is a registered public utility holding company formed in 1997 pursuant to Commission order. New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (herein, the "1997 NCE Order"). NCE has three public-utility subsidiaries, PSCo, SPS and Cheyenne, which are referred to herein collectively as the "NCE Operating Companies." PSCo serves approximately 1.2 million electric customers and approximately 1.0 million gas customers in the state of Colorado. SPS serves approximately 385,000 electric customers in portions of the states of Texas, New Mexico, Oklahoma and Kansas. Cheyenne serves approximately 35,000 electric customers and 28,000 gas customers in and around Cheyenne, Wyoming. Maps of the electric and gas service areas of the NCE Operating Companies are filed as Exhibits E-4.1 and E-4.2. PSCo's transmission facilities are located in Colorado. PSCo is a member of the Western Systems Coordinating Council ("WSCC"), an interstate network of transmission facilities that are owned by public entities and investor-owned utilities. WSCC is the regional reliability coordinating organization for member electric power systems in the entire western electric grid (the "Western Interconnect") of the United States. PSCo is also a member of the Western Systems Power Pool ("WSPP"), an economic power pool that operates an electronic bulletin board and acts as a clearinghouse for bulk power transactions among over 90 member utilities and marketers. The WSPP arrangement provides for short-term energy and capacity exchanges at market-based prices for most members and electronic bulletin board posting of available power and energy. PSCo's transmission system is directly interconnected with Western Area Power Administration ("WAPA") in the WSCC. PSCo is also directly interconnected with Basin Electric Power Cooperative, PacifiCorp, Platte River Power Authority and Tri-State Generation and Transmission Cooperative. Nearby PSCo are the two high voltage direct current ("HVDC") interconnections between the WSCC and the eastern electrical grid (the "Eastern Interconnect"): 100 MW at Stegal (owned by Tri-State) and 200 MW at Sidney (owned by WAPA). For 1999, PSCo's peak load was 4,951 MW at a time when its net capability was 5,259 MW, including 1,856 MW of long-term purchase contracts. PSCo's 2000 projected peak load is 5,114 MW, and its net capability, including 2,019 MW of long-term purchase contracts, is 5,704 MW. Cheyenne's transmission facilities are located in Wyoming. These facilities are very limited, consisting of two 115 kV transmission line segments that total 25.5 miles in length. The primary purpose of these transmission lines is to interconnect Cheyenne's distribution system with the WAPA transmission system to enable Cheyenne to purchase its power requirements from other parties to serve its retail load. At present, PacifiCorp is Cheyenne's full requirements supplier. Unlike PSCo and SPC, Cheyenne does not have any wholesale load. Like PSCo, Cheyenne is a member of the WSCC. SPS's transmission system is located in parts of Texas, New Mexico, Oklahoma and Kansas. SPS is a member of the Southwest Power Pool ("SPP"), the regional reliability council for member electric power systems in an area that encompasses portions of the South, the Southwest, and the Great Plains. SPS is also a member of WSPP. SPS's transmission system is interconnected with two SPP-member utilities, Public Service Company of Oklahoma (an operating company within the Central and South West system) and West Plains Energy-Kansas (a division of UtiliCorp United Inc.), which enables it to purchase or sell energy from power producers in the Eastern Interconnect. It is also interconnected with the WSCC via a 200 MW HVDC tie near Clovis, New Mexico (Public Service Company of New Mexico) and a 200 MW HVDC tie at Artesia, New Mexico (El Paso Electric Company and Texas-New Mexico Power Company), which allows SPS to purchase and sell energy from power producers in the Western Interconnect. For 1999, SPS's peak load was 3,946 MW at a time when its net capability was 4,647 MW, including 396 MW of long-term purchase contracts. SPS's 2000 projected peak load is 4,332 MW, and its net capability, including 670 MW of long-term purchase contracts, is 5,024 MW. In connection with their 1997 merger, PSCo and SPS stated their intent to construct a new tie line to interconnect their combined electric systems within five years after the consummation of that merger. Following a joint planning process that involved input from over fifty participants, the final project was selected in August 1998. In early January 1999, after further evaluation, PSCo and SPS announced plans for the phased approach for the implementation of this project and the construction of additional transmission facilities to alleviate transmission constraints, increase reliability and provide energy supply alternatives in SPS's present service territory in anticipation of competition. This expansion is expected to be completed in a phased approach and will require various regulatory approvals. The first phase will involve construction of a 230-mile, 345 kV line from Amarillo, Texas to Holcomb, Kansas (the "Amarillo-Holcomb line") and is expected to be completed in the third quarter of 2001./7 The second phase will consist of construction of a 100-mile, 345 kV line from Holcomb, Kansas to Lamar, Colorado and an HVDC facility that would interconnect the PSCo and SPS systems, as well as the WSCC and SPP regional transmission grids. This second phase will establish the fifth HVDC interconnection between the Western Interconnect and Eastern Interconnect./8 While not directly related to the interconnection of the PSCo and SPS systems, the third phase of this project will involve construction of an approximately 275-mile, 345 kV line from Amarillo, Texas to Oklahoma City, Oklahoma. The completion of this line is not expected before 2004. Further information on the utility assets and operations of the NCE Operating Companies is included in Annex A. ---------- 7 The phased approach for the tie-line will enable PSCo to comply with the procedural requirements of the Colorado Commission. In a recent order, the Colorado Commission has made clear that PSCo must seek its approval to construct the portion of the tie-line to be located in Colorado in a certificate of public convenience and necessity proceeding. PSCo anticipates filing the necessary CPCN application with the Colorado Commission by September 29, 2000. Applicants have included as Exhibit K to this Application a memorandum detailing the steps that NCE has taken towards fulfilling its interconnection obligations under the 1997 NCE Order, and the steps that NCE expects to take, including those necessary to meet Colorado regulatory requirements, to finish the second phase of the tie-line, thereby completing the tie-line project. In the 1997 NCE Order, the Commission noted that: "In the event that New Century Energies at any time determines not to construct the tie, or the tie is not substantially completed within five years of the date of consummation of the [PSCo/SPS] merger, New Century Energies will file a post-effective amendment concerning the measures it will take to ensure that the requirements of section 2(a)(29)(A) are satisfied." The Applicants believe that completion of first phase (the Amarillo Holcomb line) will result in substantial completion of the tie line. Nevertheless, NCE intends to file a post-effective amendment in File No. 70-8787 to update the record regarding the NCE System's plans to complete the tie-line project. 8 In April 1999, SPS submitted an application to the Kansas Commission requesting a siting permit in Kansas for construction of both the Amarillo-Holcomb line and the Holcomb-Lamar line. Kansas is the state where the longest portion of the two lines will be constructed. SPS has completed the detailed routing and environmental assessment of the proposed location of the lines. Public conferences have been held in Colorado, Kansas, Oklahoma and Texas to present information to affected landowners and receive their input. Hearings on the Kansas application were held in June 1999 and, on July 16, 1999, the Hearing Examiner in the proceeding recommended to the Kansas Commission that the location of the lines was reasonable. The Hearing Examiner recommended approval of the requested Siting Permit, KCC Docket No. 99-SWPE-764-MIS. The Kansas Commission recently affirmed the Hearing Examiner's order. In the Matter of the Application of Southwestern Public Service Company for a Siting Permit, Docket No. 99-SWPE-764-MIS (KCC July 19, 1999). ---------- PSCo is subject to regulation as a public utility under the Colorado Public Utilities Law as to retail electric and gas rates and other matters by the Colorado Commission. As a public utility under the laws of the states of Texas, New Mexico, Kansas and Oklahoma, SPS is regulated as to retail electric and certain other matters by the Texas Commission, New Mexico Commission, Kansas Commission and Oklahoma Commission, respectively. Cheyenne is subject to regulation in connection with its electric and gas retail sales and other matters by the Wyoming Commission. The NCE Operating Companies are also subject to regulation by FERC pursuant to the Federal Power Act, as amended, with respect to the classification of accounts, rates for any wholesale sales of electricity,/9 the interstate transmission of electric power and energy, interconnection agreements, the licensing of certain hydro-electric facilities, acquisitions and sales of certain utility properties, and various other matters. In addition, PSCo and Cheyenne are subject to regulation by FERC under the Natural Gas Act of 1935, as amended ("NGA") with regard to certain transportation or sale of natural gas for resale. ---------- 9 As noted above, Cheyenne currently makes no wholesale sales of electricity. ---------- NCE, directly or indirectly, owns all the outstanding common stock of the following non-utility subsidiary companies: New Century Services, the NCE system service company under Section 13 of the Act; WestGas InterState, Inc. ("WGI"), a natural gas company subject to FERC jurisdiction under the NGA; and NC Enterprises, Inc. ("NC Enterprises"), a holding company for NCE's foreign operations and most of its non-utility businesses. PSCo also holds various non-utility subsidiaries. These subsidiaries primarily operate in support of PSCo's operations. The non-utility operations of the NCE System have all been previously authorized under the 1935 Act or have been established by rule or pursuant to statutory exemption. A further description of the non-utility subsidiaries of NCE is set forth in Annex C. New Century Services has entered into a separate service agreement with NCE and each of the NCE Operating Companies (the "Utility Service Agreement"). A copy of the form of the Utility Service Agreement as well as an appendix entitled "Description of Services and Determination of Charges for Services" is filed as Exhibit B-2. PSCo's service agreement has a section and attachment to reflect state merger commitments made at the time it sought Colorado Commission approval to merge with SPS. New NSP and NSP-W will also enter into the Service Agreement with New Century Services. New Century Services has also entered into separate service agreements (the "Non-Utility Service Agreements") with the non-utility subsidiary companies of NCE. New Century Services will similarly enter into one or more separate service agreements with the direct and indirect non-utility subsidiaries of NSP. A copy of the form of Non-Utility Service Agreement as well as an appendix entitled "Description of Services and Determination of Charges for Services" is filed as Exhibit B-3./10 ---------- 10 While no changes have been made to the existing Utility Service Agreement or the existing Non-Utility Service Agreement of New Century Services, Applicants did make several changes as part of the merger integration process to the appendix to Exhibit B-2 and Exhibit B-3 entitled "Description of Services and Determination of Charges for Services." ---------- The NCE Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE"). The authorized capital stock of NCE consists of 260,000,000 shares of NCE Common Stock and 20,000,000 shares of NCE preferred stock. As of the close of business on June 30, 2000, 116,755,134 shares of NCE Common Stock and no shares of NCE preferred stock were issued and outstanding. Pertinent financial information regarding NCE's utility operations for the year ended December 31, 1999 may be summarized as follows ($ in millions): Electric Utility Revenues Gas Utility Revenues SPS $926 -- PSCo 1,561 $658 Cheyenne 41 19 The consolidated assets of NCE, as of December 31, 1999, were approximately $8.3 billion, representing $4.9 billion in net electric utility property, plant and equipment ($1.8 billion for SPS, $3.1 billion for PSCo and $47 million for Cheyenne); $903 million in net gas utility property, plant and equipment ($877 million for PSCo and $26 million for Cheyenne); $435 million in non-utility subsidiary property, plant and equipment; and $2.1 billion in other corporate assets. Pertinent financial information regarding NCE's utility operations for the twelve months ended June 30, 2000, may be summarized as follows ($ in millions): Electric Utility Revenues Gas Utility Revenues SPS $972 --- PSCo 1,661 $672 Cheyenne 42 19 The consolidated assets of NCE, as of June 30, 2000, were approximately $8.4 billion, representing $5.2 billion in net electric utility property, plant and equipment ($1.8 billion for SPS, $3.3 billion for PSCo and $49 million for Cheyenne); $1.0 billion in net gas utility property, plant and equipment ($1.0 billion for PSCo and $28 million for Cheyenne); $39 million in non-utility subsidiary property, plant and equipment; and $2.0 billion in other corporate assets. NCE and the NCE Operating Companies are all financially strong companies. The Moody long-term debt ratings of SPS and PSCo are A3 and Aa2, respectively. More detailed information concerning NCE and its subsidiaries is contained in (i) NCE's Annual Report on Form 10-K for the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-26 and H-33, respectively; (ii) PSCo's Annual Report on Form 10-K for the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-29 and H-36, respectively; and (iii) SPS's Annual Report on Form 10-K for the year ended December 31, 1999 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-30 and H-31, respectively. 2. NSP and its Subsidiaries NSP, which was incorporated in 1909, is a public-utility company and a holding company exempt from registration pursuant to Commission order under Section 3(a)(2) of the Act. Northern States Power Company, Holding Co. Act Release No. 22334 (Dec. 23, 1981). NSP owns all of the outstanding common stock of NSP-W, a Wisconsin corporation, which is a public-utility company under the Act. Maps of the electric and gas service areas of NSP and NSP-W are filed as Exhibits E-3.1 and E-3.2. NSP is engaged primarily in the generation, transmission and distribution of electricity throughout a 30,000 square mile service area in Minnesota, North Dakota and South Dakota. NSP also purchases, distributes and sells natural gas to retail customers and transports customer-owned gas in approximately 118 communities in Minnesota, North Dakota, South Dakota and Arizona. Of the more than 2.5 million people served by NSP, the majority are in the Minneapolis-St. Paul metropolitan area. In 1999, more than 73% of the electric retail revenue of NSP was derived from sales in the Minneapolis-St. Paul metropolitan area, and more than 67% of its retail gas revenue was derived from sales in the St. Paul metropolitan area. NSP provides both electric and gas utility service in Minnesota, North Dakota and South Dakota but only gas utility service in Arizona. NSP provides retail electric utility service to approximately 1,240,000 customers and gas utility service to approximately 400,000 customers. NSP-W is engaged in the generation, transmission, and distribution of electricity to approximately 210,400 retail customers in an area of approximately 18,900 square miles in northwestern Wisconsin, to approximately 9,100 electric retail customers in an area of approximately 300 square miles in the western portion of the Upper Peninsula of Michigan and to 10 wholesale customers in the same general area. NSP-W purchases, distributes and sells natural gas to retail customers or transports customer-owned natural gas in the same service territory to approximately 78,000 customers in Wisconsin and 5,000 customers in Michigan. For the year ended December 31, 1999, NSP-W provided approximately 15% of NSP's consolidated revenues. The electric transmission system of NSP and NSP-W (the "NSP System") is located throughout the service territories that NSP and NSP-W serve in Minnesota, North Dakota, South Dakota, Michigan and Wisconsin. NSP and NSP-W are directly connected with each other through numerous transmission lines that they own, including one 345 kV transmission line, two 115 kV transmission lines and two 69 kV transmission lines. NSP and NSP-W are members of the Mid-Continent Area Power Pool ("MAPP"), the regional reliability council for numerous electric providers in portions of the Midwest. The NSP System is interconnected with 19 other utility systems, including utilities in MAPP (Basin Electric Power Cooperative, Great River Energy, Otter Tail Power Co., WAPA, Southern Minnesota Municipal Power Agency, Interstate Energy Co., IES Utilities, MidAmerican Energy Co., Minnesota Power Co., Dairyland Power Cooperative and Manitoba Hydro-Electric Board at the United States/Canada border) and utilities in Mid-America Interconnected Network ("MAIN") (Ameren, Wisconsin Public Service Corporation, Wisconsin Electric Power Company and Wisconsin Power and Light). NSP also participates in two 345 kV lines that give it limited purpose contractual interconnections with six additional utilities. The "East 345 Line" runs between Minneapolis-St. Paul and St. Louis and includes as participants operating companies of Alliant Energy, Inc. (IES Utilities Inc. and Interstate Energy Company), Ameren (Union Electric) as well as MidAmerican Energy Company and NSP. The "West 345 Line" runs between Minneapolis-St. Paul and Kansas City and includes as participants Kansas City Power and Light, Interstate Energy Company, MidAmerican Energy Company, Omaha Public Power District and St. Joseph Light and Power. The combined net generating capability (considering purchases and sales) of NSP and NSP-W is projected to be 8,411 MW in 2000, against a net demand of 7,171 MW./11 Given MAPP's minimum reliability reserve margin requirement of 15 percent, NSP has 164 MW of uncommitted capacity in 2000. In 1998 and in 1999, NSP was a net purchaser of power, and it anticipates being a significant purchaser in future years. In the past, NSP relied increasingly on the short-term energy market to meet increased customer demand for energy. On June 28, 1999, NSP filed a request for proposals ("RFP") with the Minnesota Commission. In this request, NSP identified a need for a long-term capacity and energy to meet the increased requirements of customers beginning in 2003. The RFP identifies the need to have from 200 to 1200 additional MW of generation resources in service for 2003 or earlier. The range is intended to provide an opportunity to look at a wide variety of potential future conditions. The RFP permits both acceleration or delay of the in-service date. Further information on the utility assets and operations of NSP and NSP-W is included in Annex B. ---------- 11 The electric production and transmission costs of NSP and NSP-W are shared by them. The cost-sharing arrangement between the companies is referred to as the Interchange Agreement. It is a FERC-regulated agreement and has been accepted by the Wisconsin Commission and the Minnesota Commission for determination of costs recoverable by NSP-W and NSP in rate cases. ---------- Retail sales rates, services and other aspects of NSP's retail operations are subject to the jurisdiction of the Minnesota Commission, the North Dakota Commission, the South Dakota Commission and the Arizona Commission within their respective states. The Minnesota Commission also possesses regulatory authority over aspects of NSP's financial activities, including security issuances, property transfers when the asset value is in excess of $100,000, mergers with other utilities, and transactions between NSP and affiliates. In addition, the Minnesota Commission reviews and approves NSP's electric resource and gas supply capacity plans for meeting customers' future energy needs. NSP-W is subject to regulation of similar scope by the Wisconsin Commission and the Michigan Commission, except that the Michigan Commission does not regulate NSP-W's issuances of securities. In addition, a state commission generally must certify the need for new generating plants and transmission lines of designated capacities to be located within such state before they may be sited and built. Wholesale rates for electric energy sold in interstate commerce, the classification of accounts, the interstate transmission of electric power and energy, interconnection agreements, issuances of securities not regulated by state commissions, acquisitions and sales of certain utility properties and certain other activities of NSP and NSP-W (including the licensing of certain hydro-electric facilities) are subject to the jurisdiction of FERC. The operation and construction of NSP's Prairie Island and Monticello nuclear facilities are subject to regulation by the NRC. In addition, NSP and NSP-W are subject to FERC jurisdiction under the NGA with regards to transportation or sale of natural gas for resale. NSP is also engaged, directly and through subsidiary companies, in non-utility businesses. NSP directly provides: (i) an appliance services program for its residential customers; (ii) construction of natural gas distribution systems for third parties (primarily end-users and municipal gas systems); (iii) sale of steam to industrial customers in NSP's service territory; (iv) installation and maintenance of street lighting for municipalities and other customers; (v) propane sales and services; (vi) fuel oil services; and (vii) installation and maintenance of distributed generation on customer's facilities. In addition, NSP owns directly the interests of the following non-utility subsidiary companies: Viking Gas Transmission Company ("Viking"), an interstate natural gas pipeline subject to FERC jurisdiction under the NGA; NRG Energy, Inc. ("NRG"), a holding company for many of NSP's non-utility businesses, including significant investments in independent power projects and foreign operations; Energy Masters International, Inc. ("EMI"), an energy services company; Seren Innovations, Inc. ("Seren"), a company that provides cable, telephone and high-speed internet access system; Ultra Power Technologies, Inc. ("Ultra Power"), a company currently in the process of winding up its affairs and formerly in the business of marketing power cable testing technology; Eloigne Company ("Eloigne"), an investor in projects that qualify for low-income housing tax credits; NSP Financing I, a special purpose business trust; First Midwest Auto Park, Inc. ("FMAP"), an owner of a parking garage; United Power and Land Company ("UP&L"), a real estate investment company; Reddy Kilowatt Corporation ("Reddy Kilowatt"), the owner of certain intellectual property rights; Natrogas, Inc., a provider of propane services; Nuclear Management Company ("NMC"), a limited liability company that will provide services to the nuclear operations of its members; NSP Nuclear Corporation, a subsidiary formed to hold NSP's interest in NMC; and Private Fuel Storage L.L.C. ("PFS"), a consortium of electric power companies that has applied to the Nuclear Regulatory Commission for a license to build a temporary storage facility for spent nuclear fuel in Utah. NSP owns 100% of all of the foregoing businesses, except that NSP owns 25% of the membership interests in NMC, 12.5% of the membership interests in PFS and, as a result of the issuance of equity by NRG, currently has an 82% interest in NRG. A further description of the non-utility subsidiaries of NSP is set forth on Annex D hereto. NSP-W owns directly all of the outstanding common stock of Clearwater Investments, Inc. ("Clearwater"), an investor in housing projects that qualify for low-income housing tax credits, and NSP Lands, Inc. ("NSP Lands"), a real estate investment company. NSP-W also owns 75.86% of Chippewa and Flambeau Improvement Company ("C&F"), a company that builds and operates dams and reservoirs for hydro-electric plants. A further description of the non-utility subsidiaries of NSP-W is also set forth on Annex D hereto. NSP Common Stock is listed on the NYSE and the Chicago and Pacific Stock Exchanges. As of the close of business on June 30, 2000, there were 157,286,793 shares of NSP Common Stock and 1,050,000 shares of NSP cumulative preferred stock issued and outstanding. NSP-W does not have any preferred stock outstanding, and all of its common stock is owned by NSP. Copies of the Articles of Incorporation of NSP and NSP-W are incorporated by reference as Exhibit A-1 and Exhibit A-2. Pertinent financial information regarding NSP's utility revenues for the year ended December 31, 1999, may be summarized as follows (before intercompany eliminations)/12: ($ in millions) Electric Gas NSP $2,267 $372 NSP-W $ 337 $ 82 Consolidated assets of NSP and its subsidiaries as of December 31, 1999 were approximately $9.8 billion, consisting of $3.6 billion in net electric utility property, plant and equipment ($2.9 billion for NSP and $637 million for NSP-W); $476 million in net gas utility property, plant and equipment ($411 million for NSP and $65 million for NSP-W); $3.9 billion in non-utility subsidiary assets; and $1.7 billion in other corporate assets. Pertinent financial information regarding NSP's utility revenues for the twelve months ended June 30, 2000, may be summarized as follows (before intercompany eliminations)/13: ($ in millions) Electric Gas NSP $2,293 $411 NSP-W $ 343 $ 90 ---------- 12 In this table, Electric Utility revenues are the revenues derived by NSP and NSP-W from each company's operations as an "electric utility company" as defined in Section 2(a)(3) under the Act, and Gas Utility revenues are the revenues derived by NSP and NSP-W from each company's operations as a "gas utility company" under Section 2(a)(4) of the Act. These amounts do not conform to NSP's consolidated financial statements, as the consolidated financial statements reflect eliminations of intercompany revenues among NSP and its consolidated subsidiaries, and NSP reports, in its consolidated financial statements: (i) the revenues of its wholly-owned regulated natural gas interstate pipeline (Viking) as part of Gas Utility revenues, (ii) the revenues of its other consolidated subsidiaries as part of "Other Income (Deductions)," and (iii) the results of the operations of its non-consolidated subsidiaries under "Equity in Earnings of Unconsolidated Affiliates." 13 Id. ---------- Consolidated assets of NSP and its subsidiaries as of June 30, 2000 were approximately $11.9 billion, consisting of $3.6 billion in net electric utility property, plant and equipment ($2.9 billion for NSP and $611 million for NSP-W); $484 million in net gas utility property, plant and equipment ($418 million for NSP and $66 million for NSP-W); $6.0 billion in non-utility subsidiary assets; and $1.8 billion in other corporate assets. Like NCE, NSP is a financially strong company. The Moody long-term credit ratings of NSP and NSP-W are both Aa3. More detailed information concerning NSP and its subsidiaries is contained in (i) NSP's Annual Report on Form 10-K for the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-25 and H-32, respectively; (ii) NSP-W's Annual Report on Form 10-K for the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-27 and H-34, respectively; and (iii) NRG's Annual Report on Form 10-K for the year ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by reference as Exhibits H-28 and H-35, respectively. D. Description of the Merger The Merger Agreement provides for the merger of NCE with and into NSP pursuant to which: (a) each share of NCE Common Stock issued and outstanding immediately prior to the effective time of the Merger, together with any NCE Rights,/14 shall be converted into the right to receive 1.55 shares (the "Conversion Ratio") of duly authorized, validly issued, fully paid and nonassessable NSP Common Stock; (b) each issued and outstanding share of NSP Common Stock and each share of preferred stock of NSP issued and outstanding immediately prior to the effective time of the Merger shall remain outstanding; and (c) each share of NCE Common Stock, together with any NCE Rights, that is owned by NSP or any of its subsidiaries or held in the treasury of NCE will be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor. As noted previously, NSP will change its name to Xcel at or prior to the Merger. Based upon the capitalization of NCE and NSP on March 24, 1999 (the date the Merger Agreement was signed) and the Conversion Ratio, NCE shareholders would own 54 percent and NSP shareholders would own 46 percent of the common equity of Xcel if the Merger had been consummated as of such date. ---------- 14 Each NCE Right entitles the registered holder to purchase from NCE one one-hundredth of a share of Series A Junior Participating Preferred Stock. The NCE Rights were distributed as a dividend on each outstanding share of NCE Common Stock as part of NCE's shareholder rights plan which was approved by the Commission in New Century Energies, Holding Co. Act Release No. 26751 (Aug. 1, 1997). ---------- Except as set forth below, if any holder of NCE Common Stock would be entitled to receive a number of shares of NSP Common Stock that includes a fraction, then in lieu of a fractional share, such holder will be entitled to receive a cash payment determined by multiplying the fractional share interest by the average of the last reported sales price, regular way, per share of NSP Common Stock on the NYSE Composite Tape for the ten business days prior to and including the last business day on which NSP Common Stock was traded on the NYSE, without any interest thereon. Fractional shares of NCE Common Stock held in accounts under the dividend reinvestment plans and employee benefit plans of NCE will be converted into the applicable number of shares (or fractional shares) of NSP Common Stock under corresponding plans of NSP, in accordance with the Conversion Ratio. The Merger is subject to customary closing conditions, including the receipt of the requisite shareholder approvals of NCE and NSP and all necessary governmental approvals, including the approval of the Commission. The Merger is designed to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. NSP and NCE believe the Merger will be treated as a "pooling of interests" for accounting purposes and, as a condition under the Merger Agreement to the closing of the Merger, each of NSP and NCE must receive a letter of its independent accountants stating in substance that it is appropriate to account for the Merger as a pooling of interests under Opinion 16 of the Accounting Principles Board. The Merger Agreement contains certain covenants relating to the conduct of business by the parties pending the consummation of the Merger. Generally, the parties must carry on their businesses in the ordinary course consistent with past practice, may not increase common stock dividends beyond specified levels and may not issue capital stock except as specified. The Merger Agreement also contains restrictions on, among other things, charter and bylaw amendments, capital expenditures, acquisitions, dispositions, incurrence of indebtedness, certain increases in employee compensation and benefits, and affiliate Mergers. The Merger Agreement provides that, after the effectiveness of the Merger, Xcel's principal corporate office will be located in Minneapolis, Minnesota. Xcel will also maintain significant operating offices in Denver, Colorado; Amarillo, Texas; and Eau Claire, Wisconsin. Xcel's board of directors (classified into three classes) will consist of an even number of up to 14 persons, half of whom will be designated by NSP and half of whom will be designated by NCE. Mr. James J. Howard, the current Chairman, Chief Executive Officer and President of NSP, will be entitled to serve as Chairman of the Board of Xcel until the first anniversary of the effectiveness of the Merger of NCE and NSP. Mr. Wayne H. Brunetti, the Chairman, Chief Executive Officer and President of NCE, will be entitled to serve as President and Chief Executive Officer of Xcel upon the effectiveness of the Merger, and thereafter will assume the position of Chairman when Mr. Howard ceases to be Chairman. The balance of the Xcel executive management is expected to consist of current executives of NCE and NSP as follows: Paul Bonavia (currently NCE General Counsel and President - International Business), Head of Energy Markets; Dick Kelly (currently NCE Executive Vice President and Chief Financial Officer), Head of Corporate Development and Strategy/Unregulated Subsidiaries; Gary Johnson (currently NSP Senior Vice President and General Counsel), General Counsel; Cyndi Lesher (currently NSP President - Gas Utility Operations), Chief Administrative Officer; James McIntyre (currently NSP Senior Vice President and Chief Financial Officer), Chief Financial Officer; Toni Petillo (currently NCE President - Retail Services), Head of Retail Operations; Larry Taylor (currently NSP President - Delivery Services), Head of Energy Delivery; and David Wilks (currently SPS President and Head of the Delivery Business Unit), Head of Energy Supply. E. Operations of the Combined Company As explained more fully in Item 3.C.1(b), the gas operations of Xcel will constitute a single, integrated gas-utility system, and the electric operations (with the exception of Cheyenne, which the Commission has already found to be a permissible additional system) will similarly form a single, integrated electric-utility system. There will be significant savings and synergies as a result of these integrated operations. As noted previously and as described in Item 3.C.2 below, the benefits are estimated to exceed $1.1 billion over the next ten years. Item 2. Fees, Commissions and Expenses The fees, commissions and expenses to be paid or incurred, directly or indirectly, in connection with the Merger, including the solicitation of proxies, registration of securities of Xcel under the Securities Act of 1933, and other related matters, are estimated as follows: Commission filing fee for the Joint Registration Statement on Form S-4........................................................$1,145,707.50 Accountants' fees........................................................243,000 Legal fees and expenses relating to the Act...........................11,001,048 Shareholder communication and proxy solicitation.......................2,308,194 NYSE listing fee.........................................................517,500 Exchanging, printing, and engraving of stock certificates................438,000 Investment bankers' fees and expenses SG Barr Devlin........................................................12,686,000 The Blackstone Group..................................................14,791,721 Consulting fees related to the Merger..................................6,213,597 Miscellaneous..........................................................2,664,375 TOTAL................................................................$52,009,142 =========== Item 3. Applicable Statutory Provisions The following sections of the Act and the Commission's rules thereunder are or may be directly or indirectly applicable to the proposed Merger: Section of the Act Transactions to which section or rule may be applicable: ------------------ -------------------------------------------------------- 4, 5 Registration of Xcel as a holding company following consummation of the Merger. 6(a), 7 Issuance of Xcel Common Stock in the Transaction in exchange for shares of NCE Common Stock; formation and capitalization of New NSP. 9(a)(1), 10 Acquisition by Xcel of stock of New Century Services and of non-utility subsidiaries of NCE. 9(a)(2), 10(a), Acquisition by Xcel of common stock of NCE and NCE (b), (c) and (f) Operating Companies; acquisition by Xcel of common stock of New NSP. 8, 9(c)(3), Retention by Xcel of the retail gas utility operations of 11(b), 21 NSP, NSP-W, PSCo and Cheyenne; retention of other businesses of NSP and NCE and their direct and indirect subsidiaries. 12(d) Sale by NCE of securities of NCE Operating Companies. 13 Approval of the services to be provided by New Century Services to New NSP, NSP-W, BMG and Xcel in accordance with the Utility Service Agreement; approval of services to be provided thereunder by New Century Services to the direct and indirect non-utility subsidiaries of NSP in accordance with the Non-Utility Service Agreement; approval of the performance of certain services between Xcel system companies; and exemption from at-cost standards with respect to certain services between Xcel system companies. 44 Sale by NCE of securities of NCE Operating Companies. 80-92 Affiliate transactions, generally. 88 Expansion of the activities of New Century Services to the Xcel System. To the extent that other sections of the Act or the Commission's rules thereunder are deemed to be applicable to the Merger, such sections and rules should be considered to be set forth in this Item 3. A. Merger Analysis -- Overview 1. Introduction The Commission must find that Section 10 of the Act is satisfied to approve the Merger. The Section 10 analysis is presented in detail below. The highlight of the analysis is whether the Merger will tend toward the economical and the efficient development of an integrated public utility system. Applicants believe that it will. The future of the electric utility industry will be much different from its past. The utility market model, with generation functionally unbundled from transmission and distribution, is supplanting the vertically integrated monopoly model. Applicants recognize these changes and believe that the Merger forms an integrated public utility system positioned for competition in the utility industry of the future. FERC's Order No. 888 and its recent Order No. 2000, described below, will further the development of the market model by making transmission access available on a regional basis at non-pancaked rates, thereby promoting the growth of larger and more competitive regional wholesale power markets. More buyers and sellers participate in broader bulk power markets, and this increased competition will tend to produce lower prices for the benefit of consumers. As these markets expand, opportunities also expand for integration between what were previously viewed as distant utilities. For example, the NSP companies and SPS are presently located to the north and south, respectively, of the Midwest Independent System Operator, Inc. ("MISO"), a FERC-approved independent system operator. Pursuant to FERC directives as part of the Merger, they will join MISO, increasing its regional market size and competition within bulk power markets. Moreover, PSCo and SPS continue to work toward the completion of a physical interconnection to link their systems, and PSCo, consistent with FERC policy, is working with its neighbors to establish an ISO in the Rocky Mountain/High Plains region, which would neighbor MISO. The 1935 Act was intended, among other things, to prevent the evils that arise "when the growth and extension of holding companies bears no relation to the economy of management and operation or the integration and coordination of related operating properties . . ."/15 In contrast, the Xcel system is an example of growth that promotes economies and coordination of related operating properties within a single region in a manner consistent not only under the policies of the Act, but also with the policies of both FERC and with state regulatory initiatives. For these reasons, the Merger should be authorized by this Commission. ---------- 15 Section 1(b)(4). ---------- Section by Section Analysis 2. Section 9(a)(2) 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." Under the definition set forth in Section 2(a)(11), an "affiliate" of a specified company means "any person that directly or indirectly owns, controls, or holds with power to vote, 5 per centum or more of the outstanding voting securities of such specified company," and "any company 5 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." As a result of the proposed Merger, Xcel will acquire all of the outstanding voting securities of the NCE Operating Companies. Also in connection with the Merger, Xcel will acquire all of the outstanding securities of New NSP. The Merger therefore requires prior Commission approval under the standards of Section 10./16 In this regard, the relevant standards are set forth in Sections 10(b), 10(c) and 10(f) of the Act. ---------- 16 Similarly, to the extent that NCE could be deemed to sell utility securities or assets, it would require approval under Section 12. ---------- As set forth more fully below, the Merger complies with all of the applicable provisions of Section 10 of the Act and should be approved by the Commission. Thus: o the consideration to be paid in the Merger is fair and reasonable; o the Merger will not create detrimental interlocking relations or concentration of control; o the Merger will not result in an unduly complicated capital structure for the Xcel system; o the Merger is in the public interest and the interests of investors and consumers; o the Merger is consistent with Section 8 and not detrimental to carrying out the provisions of Section 11 of the Act; o the Merger tends toward the economical and efficient development of both integrated electric and gas systems; and o the Merger will comply with all applicable state laws. Furthermore, the Merger also provides an opportunity for the Commission to follow certain of the interpretive recommendations made by the Division of Investment Management (the "Staff") in its report issued in June 1995 entitled "The Regulation of Public Utility Holding Companies" (the "1995 Report"), in particular the Staff's overall recommendation that the Commission act administratively to modernize and simplify holding company regulation and minimize regulatory overlap, while protecting the interests of consumers and investors. B. Section 10(b) Section 10(b) 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 interests 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 interests of investors or consumers or the proper functioning of such holding-company system. 1. Section 10(b)(1) The standards of Section 10(b)(1) are satisfied because the proposed Merger 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 interests of investors or consumers." By its nature, any merger results in new links between previously unrelated companies. The Commission has recognized that such interlocking relationships are permissible in the interest of efficiencies and economies. Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990), as modified, Holding Co. Act Release No. 25273 (Mar. 15, 1991), aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 1992) ("interlocking relationships are necessary to integrate [the two merging entities]"). The links that will be established as a result of the Merger are not the types of interlocking relationships targeted by Section 10(b)(1), which was primarily aimed at preventing business combinations unrelated to operating synergies. The Merger Agreement provides for the Board of Directors of Xcel to consist of up to 14 members, one-half designated by NSP and one-half designated by NCE./17 In addition, a variety of contractual arrangements among the companies in the Xcel system will be established, including the following: ---------- 17 The Applicants acknowledge the requirements of Section 17(c) of the Act and Rule 70 thereunder with respect to limitations upon directors and officers of registered holding companies and subsidiary companies thereof having affiliations with commercial banking institutions and investment bankers and undertake that, upon completion of the Merger, they will be in compliance with the applicable provisions thereof. ---------- o New NSP and NSP-W will each enter into the Utility Service Agreement with New Century Services. Likewise, NSP's direct and indirect non-utility subsidiaries will enter into the Non-Utility Service Agreement with New Century Services. Through the consolidation of functions into New Century Services, the Xcel system will achieve substantial economies and efficiencies. By entering into these service agreements, NSP and its direct and indirect subsidiaries will receive services from New Century Services and effectively avail themselves of these economies and efficiencies, just as the NCE system companies presently do. o New NSP and NSP-W may enter into service agreements with Utility Engineering, Inc. ("UE") to obtain engineering and construction services. UE was authorized to provide the NCE Operating Companies such services in the 1997 NCE Order. These arrangements should enable New NSP and NSP-W to achieve further efficiencies, just as the NCE Operating Companies have. o New NSP, NSP-W, PSCo and SPS will enter into a Joint Operating Agreement (the "Joint Operating Agreement"), which provides for coordinated operation and dispatch of their electric generation plants, joint planning and coordinated production-related activities including inter-system sales of electric capacity and energy. This agreement, which has been approved by FERC conditioned only on Merger closing, is discussed further below. o New NSP, NSP-W, PSCo, SPS and Cheyenne will enter into a joint open-access transmission tariff (the "Xcel Tariff") pursuant to which they will offer transmission services over their individual systems and over the combined Xcel system. This tariff has been approved by FERC conditioned only on Merger closing. These arrangements, which work to integrate NSP and NCE into the Xcel system, will be in the public interest and the interest of investors and consumers. Forging such relationships is beneficial to the protected interests under the Act and, thus, is not prohibited by Section 10(b)(1). Moreover, because substantial benefits will accrue to the public, investors and consumers from the combination of NCE and NSP, whatever interlocking relationships may arise from the combination are not detrimental. In applying Section 10(b)(1) to utility acquisitions, the Commission must further determine whether the acquisition will create "the type of structures and combinations at which the Act was specifically directed." Vermont Yankee Nuclear Power Corp., Holding Co. Act Release No. 15958 (Feb. 6, 1968). The NSP-NCE strategic alliance will not create a "huge, complex and irrational system" but, rather, will afford the opportunity to achieve economies of scale and efficiencies for the benefit of investors and consumers. See American Electric Power Company, Inc., Holding Co. Act Release No. 20633 (July 21, 1978) ("AEP"). As explained in the Joint Proxy Statement and Prospectus of NSP and NCE (the "Joint Proxy Statement") (a copy of which is included as Exhibit C-2), the primary objective of the Merger is to position the companies to participate in the growing and increasingly competitive energy markets. Specifically, the Merger will combine the strengths of the two companies, thus enabling them to offer customers a broader array of energy products and services more efficiently and cost-effectively than could either company acting alone, and at the same time create a larger and more diverse asset and customer base, with enhanced opportunities for operating efficiencies and risk diversification. Xcel will be a mid-size registered holding company, and its operations will not exceed the economies of scale of current electric generation and transmission technology or provide undue market power or control to Xcel in the region in which it will provide service. While the combination of NCE and NSP will result in a larger utility system, it certainly will not be one that exceeds the economies of scale of current electric generation and transmission technology, on the one hand, and gas transportation technology on the other. If approved, the Xcel system will serve approximately 3.0 million electric customers and 1.5 million gas customers in twelve states. As of December 31, 1999 and June 30, 2000, the combined consolidated assets of the Applicants totaled approximately $18.0 billion and $20.2 billion, respectively, and, for the twelve months ended December 31, 1999 and June 30, 2000, combined operating revenues totaled approximately $6.9 billion and $7.8 billion, respectively. As of December 31, 1999, the combined owned summer generating capacity of the regulated utility operations of NSP, NSP-W, PSCo and SPS totaled approximately 15,170 MW. The following table shows the Xcel system's relative size as compared to other registered systems in terms of assets, operating revenues and customers/18: Total Assets Operating Revenues Electric Customers System ($ Millions) ($ Millions) (Thousands) ------ ------------ ------------ ----------- Southern $38,396 $11,585 3,871 AEP 21,488 6,315 3,017 Entergy 22,985 8,773 2,522 CSW 14,162 5,537 1,763 GPU 21,718 4,757 2,063 Xcel 20,228 7,792 3,000 Based on publicly available similar information/19 as of December 31, 1998, NCE ranked as the 25th largest system in terms of electric operating revenues, the 30th largest system in terms of total assets and the 22nd largest system in terms of U.S. electric customers. NSP meanwhile ranked as the 27th, 31st and 21st such largest systems. The Xcel combined system would have ranked as the 10th largest system in terms of electric operating revenues, the 13th largest system in terms of total assets and the 8th largest system in terms of U.S. electric customers, and would account for less than 3.5% of the total share of all investor owned utilities. Thus, the data clearly shows that there will be a number of larger utility systems, including several combinations that have recently been approved by the Commission. ----------- 18 Source: Form 10-K for the year ended December 31, 1999 for each company listed. 19 Source: Based on study prepared by Navigant Consulting, Inc. (see Exhibits L-1 through L-3). ---------- Moreover, the Commission has approved a number of acquisitions involving larger and similarly-sized operating utilities. See, e.g., American Electric Power Company, Inc., Holding Co. Act Release No. 27186 (June 14, 2000) (herein the "AEP/CSW Order") (acquisition of Central and South West Corporation; combined assets at anticipated time of closing in excess of $35 billion); Entergy Corporation, Holding Co. Act Release No. 25952 (Dec. 17, 1993) (acquisition of Gulf States Utilities; combined assets at time of acquisition in excess of $22 billion); TUC Holding Company, Holding Co. Act Release No. 26749 (Aug. 1, 1997) (combination of Texas Utilities Company and ENSERCH Corporation; combined assets at time of acquisition of $24.0 billion); Houston Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997) (combination of Houston Industries Incorporated and NorAm Energy Corp., combined assets at time of acquisition of $16.0 billion); Northeast Utilities, supra (acquisition of Public Service Company of New Hampshire; combined assets at time of acquisition of approximately $9 billion); Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986) (combination of Cleveland Electric Illuminating and Toledo Edison; combined assets at time of acquisition of approximately $9.1 billion); AEP, supra (acquisition of Columbus and Southern Ohio Electric; combined assets at time of acquisition of close to $9 billion). Furthermore, at a time of consolidation in the industry, the combined assets of Xcel will be less than the combined assets of certain existing registered holding companies: AEP ($19.4 billion at December 31, 1998), Southern Company ($36.2 billion at December 31, 1998), Entergy Corporation ($22.8 billion at December 31, 1998) and GPU, Inc. ($16.3 billion at December 31, 1998). The Commission has rejected a mechanical size analysis under Section 10(b)(1) in favor of assessing the size of the resulting system with reference to the economic efficiencies that can be achieved through the integration and coordination of utility operations. See, e.g., AEP, supra. The Commission in AEP noted that, although the framers of the Act were concerned about "the evils of bigness, they were also aware that the combination of isolated local utilities into an integrated system afforded opportunities for economies of scale, the elimination of duplicate facilities and activities, the sharing of production capacity and reserves and generally more efficient operations...[and] [t]hey wished to preserve these opportunities." Id. By virtue of the Merger, Xcel will be in a position to realize precisely these types of benefits. Among other things, the Merger is expected to yield labor cost savings, corporate and administrative and purchasing savings, cost of fuel and purchased gas savings. These expected economies and efficiencies from the combined utility operations are described in greater detail in Item 3.C.2., below. Finally, Section 10(b)(1) also requires the Commission to consider possible anticompetitive effects of a proposed combination. As the Commission noted in Northeast Utilities, the "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 to customers." NCE and NSP have filed Notification and Report Forms with the Department of Justice and the Federal Trade Commission pursuant to the HSR Act describing the effects of the Merger on competition in the relevant market, and the applicable waiting period under the HSR Act expired on March 1, 2000. The competitive impact of the Merger was also extensively considered by FERC in unconditionally approving the Merger. In proceedings under Section 203 of the Federal Power Act involving utility mergers, FERC, under well-established policy, must evaluate the competitive effects of a proposed merger before deciding whether to approve the merger as "consistent with the public interest," the applicable standard of review./20 Accordingly, as part of their merger application to FERC, Applicants submitted the testimony of Dr. Heironymus and Dr. Gilbert submitted in support of the FERC application (filed as Exhibits D-1.1 and D-1.2 hereto), Dr. Heironymus analyzed the horizontal effects of the Merger (i.e., those that result from combining the companies generating resources) and Dr. Gilbert analyzed the vertical effects (i.e., those that result from consolidating the companies' gas delivery and generation facilities). Based on those analyses, Applicants believe that there is no adverse impact on competition resulting from the consolidation of the pre-merger market shares of Applicants. While Applicants have acknowledged that their post-merger integration plans will affect their post-merger market shares, they explained to FERC that these occur as a result of joining an RTO and through exercise of rights under FERC Order No. 888 and that they do not reflect any overall anti-competitive effects of the Merger./21 ---------- 20 16 U.S.C. ss.824b(a). The factors that FERC focuses on in making this public interest determination are set out in its Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), reconsideration denied, Order No. 592-A, 62 Fed. Reg. 33,341 (1997). 21 While Applicants have committed to certain market mitigation in the NSP destination market, this was done to allay any potential concerns about the impact of the Merger on competition. ---------- The FERC Merger Order effectively validated Applicants' conclusion regarding the lack of competitive impacts. After considering various intervenor comments and protests, and performing its own extensive analysis of competitive effects, FERC concluded that the Merger was unlikely to have an adverse effect on competition (both horizontal and vertical analysis) and that there were no issues regarding the Merger that warranted a hearing. FERC thus summarily approved the Merger. The analysis on which FERC based this conclusion relied heavily on the commitment of NSP and SPS to join MISO. "We find the Applicants' commitment to join the MISO alleviates any concern regarding the merger's impact on competition and is sufficient to support our approval of the merger. Our approval of the merger is based on Applicants' participation in the MISO."/22 FERC also concluded that it believed that the Merger did not raise vertical competitive issues./23 The Commission has found, and the courts have agreed, that it may appropriately rely upon FERC with respect to such findings. See City of Holyoke v. SEC, supra at 363-64, quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527 (D.C. Cir. 1989). For these reasons, the Merger will not "tend toward interlocking relations or the concentration of control" of public utility companies, of a kind or to the extent detrimental to the public interest or the interests of investors or customers within the meaning of Section 10(b)(1). ---------- 22 FERC Merger Order, slip op. at 23 (emphasis added). 23 Id. at 21. ---------- 2. Section 10(b)(2) Section 10(b)(2) precludes approval of an acquisition if the consideration to be paid in connection with the combination, including all fees, commissions and other remuneration, is "not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of...the utility assets underlying the securities to be acquired." The Commission has found "persuasive evidence" that the standards of Section 10(b)(2) are satisfied where, as here, the agreed consideration for an acquisition is the result of arm's-length negotiations between the managements of the companies involved, supported by opinions of financial advisors. See Southern Company, Holding Co. Act Release No. 24579 (Feb. 12, 1988). First, the Merger is a pure stock-for-stock exchange that is to qualify for treatment as a pooling of interests./24 The Merger will therefore involve no "acquisition adjustment" or other write-up of the assets of NCE or NSP. ---------- 24 Twelve specific conditions must be met to qualify for treatment as a pooling of interests. The Merger should meet those criteria as follows: (1) Both NSP and NCE were autonomous and were not a subsidiary or division of another corporation within two years before the plan of combination was initiated; (2) at the date of the merger initiation and at the date of consummation NSP and NCE are independent of each other; (3) NSP and NCE will undertake a course of action which will attempt to complete the Merger within one year in accordance with a specific plan, or completed in a single transaction. Litigation or proceedings of a governmental authority that delay the completion of a plan are excepted from the one-year rule, provided they are beyond the control of the combining companies; (4) at the consummation date of the plan, NSP will offer and issue its majority class of stock (voting rights) for no less than 90% of the voting common stock interests of NCE. The 90% or more of the voting common stock interests being acquired is determined at the date the plan is consummated; (5) no changes in the equity interests of the voting common stock of NSP or NCE were to be made in contemplation of a pooling of interests ("this restriction is for a period beginning two years prior to the initiation date of the plan of combination and for the period between the initiation date and the consummation date); (6) NSP and NCE will not reacquire any of its voting common stock in substance or form to effect a business combination ("any reacquisition must be a normal amount as evidenced by both companies' patterns of reacquisition prior to the merger"; (7) each NSP and NCE common stockholder will receive a voting common stock interest exactly in proportion to his or her voting common stock interest prior to the combination; (8) the NSP and NCE common shareholders will receive the rights they are entitled to and will not be deprived or restricted in any way from exercising those rights; (9) the entire merger agreement will not be effected on the date of consummation; (10) subsequent to consummation of the merger, NSP will not agree to reacquire or retire any of the stock which was issued to effect the Merger; (11) NSP will not enter into any agreements to the benefit of the former shareholders of NSP or NCE, such as loan guarantees; and (12) NSP will not plan to dispose of substantial amounts of assets of NSP or NCE within two years of the date of the combination other than routine transactions in the ordinary course of business or to eliminate excess capacity. ---------- Second, as explained on pages 41 and 47 of the Joint Proxy Statement (EXHIBIT C-2 hereto), the historical price data, high and low, for NSP and NCE Common Stock provide support for the consideration of 1.55 shares of NSP Common Stock for each share of NCE Common Stock. Third, the Conversion Ratio is the product of extensive and vigorous arm's-length negotiations between NCE and NSP. These negotiations were preceded by extensive due diligence, analysis and evaluation of the assets, liabilities and business prospects of each of the respective companies. This process is described in "Background of the Merger" at pages 30 to 35 of the Joint Proxy Statement. As recognized by the Commission in Ohio Power Co., Holding Co. Act Release No. 16753 (June 8, 1970), prices arrived at through arm's-length negotiations are particularly persuasive evidence that Section 10(b)(2) is satisfied. Fourth, nationally-recognized investment bankers for NCE and NSP have reviewed extensive information concerning the companies, analyzed the Conversion Ratio employing a variety of valuation methodologies and opined that the Conversion Ratio is fair to the respective holders of NCE Common Stock and NSP Common Stock as of the date of the Merger Agreement and as of the date the Joint Proxy Statement was mailed to stockholders of NSP and NCE. The investment bankers' analyses and opinions are described in detail on pages 40 to 53 of the Joint Proxy Statement. The assistance of independent consultants in setting considerations has been recognized by the Commission as evidence that the requirements of Section 10(b)(2) have been met. Southern Company, supra. Finally, the Merger was submitted to, and approved by, the affected public shareholders, i.e., the common shareholders of NCE and the common and preferred shareholders of NSP. Holders of approximately 93% of NCE's common stock represented at the meeting approved the Merger, and holders of approximately 83% of NSP's common and preferred stock represented at the meeting approved the Merger. A further consideration under Section 10(b)(2) is the overall fees, commissions and expenses to be incurred in connection with the Merger. NCE and NSP believe that these items are reasonable and fair in light of the size and complexity of the Merger relative to other utility mergers and acquisitions, and the anticipated benefits of the Merger to the public, investors and consumers are consistent with recent precedent and meet the standards of Section 10(b)(2). As set forth in Item 2 of this Application-Declaration, NSP and NCE together expect to incur a combined total of approximately $52 million in fees, commissions and expenses in connection with the Merger, including the financial advisory fees to SG Barr Devlin and The Blackstone Group. By contrast, the total transaction fees and regulatory processing fees in the AEP/CSW Order were approximately $73 million. The Cincinnati Gas and Electric Company and PSI Resources incurred $47.12 million in fees in connection with their reorganization as subsidiaries of CINergy; Northeast Utilities alone incurred $46.5 million in fees and expenses in connection with its acquisition of Public Service of New Hampshire; and Entergy alone incurred $38 million in fees in connection with its acquisition of Gulf States Utilities -- which amounts all were approved as reasonable by the Commission. CINergy, Holding Co. Act Release No. 26146 (Oct. 21, 1994); Northeast Utilities, Holding Co. Act Release No. 25548 (June 3, 1992); and Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993). The Applicants believe that the estimated fees and expenses in this matter bear a fair relation to the value of their respective companies and the benefits to be achieved by the Merger, and further that the fees and expenses are fair and reasonable in light of the complexity of the Merger. See Northeast Utilities, supra (noting that fees and expenses must constitute normal costs and represent a minor part of the overall acquisition). Based on a $20.1875 price per share of NSP Common Stock, which was the closing price per share as reported on the NYSE-Composite Transaction of NSP Common Stock June 30, 2000, the Merger would be valued at approximately $3.7 billion. The total estimated fees and expenses of $52 million represent approximately 1.4% of the value of the consideration to be paid, and are consistent with (or lower than) percentages previously approved by the Commission. See, e.g., Entergy Corp., supra (fees and expenses represented approximately 1.7% of the value of the consideration paid to the shareholders of Gulf States Utilities); Northeast Utilities, supra (fees and expenses represented approximately 2% of the value of the assets to be acquired); AEP/CSW Order (fees and expenses represented approximately 1.1% of the value of the consideration paid by AEP). 3. Section 10(b)(3) Section 10(b)(3) requires the Commission to determine whether the Merger will "unduly complicate the capital structure" or be "detrimental to the public interest or the interest of investors or consumers or the proper functioning" of the Xcel system. The capital structure of Xcel will be substantially similar to capital structures approved by the Commission in other orders. See, e.g., Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997); CINergy Corp; Holding Co. Act Release No. 26934 (Nov. 2, 1998); and Centerior Energy Corp., Holding Co. Act Release No. 24073 (April 29, 1986). Xcel's capital structure will also be similar to the capital structures of existing registered holding company systems. See, e.g., Ameren, supra; the 1997 NCE Order, supra; and American Electric Power, Holding Co. Act Release No. 21433 (Feb. 13, 1980). The shareholders of NCE will receive Xcel (i.e., NSP) Common Stock. Xcel will own 100% of the common stock of NSP-W, New NSP, BMG, SPS, PSCo and Cheyenne, and there will be no minority common stock interest in any of those companies. Each outstanding share of NSP preferred stock will remain outstanding without change as preferred stock of Xcel. The Commission has found previously that the existence of preferred stock under facts similar to those of the present case does not violate the standards of the Act. Illinois Power Company, Holding Co. Act Release No. 16574 (Jan. 2, 1970) (finding that "adequate safeguards were afforded by the dividend and liquidation preferences and other protective provisions that are applicable to such stock). See also, New Century Energies, Inc., Holding Co. Act Release No. 26751 (Aug. 1, 1997) and The Columbia Gas System, Inc., Holding Co. Act Release No. 26361 (Aug. 25, 1995) (each authorizing preferred stock in a registered holding company). The existing debt securities of NSP, NSP-W, SPS, PSCo and Cheyenne will likewise remain outstanding without change, except that, with the merger of NCE into NSP, the debt of NCE will become the debt of Xcel, and the existing debt of NSP will be transferred to New NSP. The only voting securities of Xcel that will be publicly held after the Merger will be NSP's existing Preferred Stock (which, as noted above, will become Preferred Stock of Xcel) and Xcel Common Stock. The outstanding NSP (i.e., Xcel) preferred stock will consist of 1.05 million shares, consisting of 6 series. Each share of such preferred stock is entitled to one vote per share on all matters presented to stockholders with the exception of $3.60 series consisting of 275,000 shares, which is entitled to three votes per share./25 ---------- 25 This Application only requests authorization to retain such preferred stock. Any proposed issuance of additional preferred stock will be addressed in a separate application. ---------- Xcel will have the ability to issue, subject to the approval of the Commission, preferred stock, the terms of which may be set by Xcel's Board of Directors. See, e.g., Columbia Gas System, Inc., Holding Co. Act Release No. 26361 (Aug. 25, 1995) (approving restated charter, including preferred the terms of which, including voting rights, can be established by the board of directors). The only outstanding classes of voting securities of Xcel's direct non-utility subsidiaries will be common stock or limited liability company interests and, in each case, all issued and outstanding shares of such common stock or limited liability company interests will be held by Xcel (other than as noted above for C&F, which is 75.86% owned; NMC, which is 25% owned; PFS, which is 12.5% owned; and NRG, which is 82% owned.) Set forth below are summaries of the capital structures of NSP and NCE as of December 31, 1999, and the pro forma consolidated capital structure of Xcel (assuming the Merger occurred on December 31, 1999): NSP and NCE Historical Capital Structures (dollars in millions) NSP NCE Common stock equity $2,557 39.5 $2,733 44.2% Preferred stock 305 4.1 294 4.8 Long-term debt 3,453 46.6 2,374 38.5 Short-term debt* 1,094 14.8 770 12.5 ----- ----- ----- ----- Total $7,409 100.0% $6,171 100.0% --------------- * Includes current portion of long-term debt. Xcel Pro Forma Consolidated Capital Structure (dollars in millions) (unaudited) Common stock equity $5,245 38.8% Preferred stock 599 4.4 Long-term debt 5,827 43.0 Short-term debt* 1,864 13.8 ------- ------ Total $13,535 100.0% --------------- * Includes current portion of long-term debt. Set forth below are summaries of the capital structures of NSP and NCE as of June 30, 2000, and the pro forma consolidated capital structure of Xcel (assuming the Merger occurred on June 30, 2000). NSP and NCE Historical Structures (dollars in millions) NSP NCE Common stock equity $2,761 30.6% $2,790 44.3% Preferred stock 305 3.4 294 4.7 Long-term debt 4,839 53.7 2,249 35.7 Short-term debt* 1,113 12.3 968 15.3 -------- ------ --------- ------ Total $9,018 100.0% $6,301 100.0% --------------- * Includes current portion of long-term debt. Xcel Pro Forma Consolidated Capital Structure (dollars in millions) (unaudited) Common stock equity* $ 5,485 36.0% Preferred stock 599 3.9 Long-term debt 7,088 46.5 Short-term debt** 2,081 13.6 ----- ------ Total $15,253 100.0% --------------- * A pro forma adjustment of $66 million has been made to the common stock equity listed to reflect deferred Merger costs assumed to be written off. ** Includes current portion of long-term debt. Xcel's pro forma consolidated common equity to total capitalization ratio of 38.8% as of December 31, 1999, and 36.0% as of June 30, 2000, exceeds the "traditionally acceptable 30% level."/26 Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990). Accordingly, the proposed Merger will not unduly complicate the capital structure of the resulting holding company. ---------- 26 Under section 7(d)(1) of the Act, the Commission generally has required a registered holding company system and its public-utility subsidiaries to maintain a 65/30 debt/common equity ratio, the balance generally being preferred equity. Such debt/equity capitalization requirement was included in rule 52, as originally adopted, as applied to securities issued by public-utility subsidiaries, but was eliminated in 1992. ---------- Section 10(b)(3) also requires the Commission to determine whether the proposed combination will be detrimental to the public interest, the interests of investors or consumers or the proper functioning of the combined Xcel system. The combination of NSP and NCE is entirely consistent with the proper functioning of a registered holding company system. NSP's and NCE's utility operations will be fully integrated. Further, the combination will result in substantial, otherwise unavailable, savings and benefits to the public and to consumers and investors of both companies, and the integration of NSP and NCE will improve the efficiency of their respective systems. The integration of NSP and NCE is described below in Item 3.C.1.(b) and the benefits and savings are described in Item 3.C.2. Finally, as indicated previously, consummation of the Merger is conditional upon receipt of numerous state and federal regulatory approvals. These regulatory approvals will assure that the interests of retail customers and wholesale customers are adequately protected. FERC's recent approval further assures that there will be no significant effect to competition resulting from the Merger. Moreover, as noted by the Commission in approving Entergy's acquisition of Gulf States Utilities, "concerns with respect to investors' interests have been largely addressed by developments in the federal securities laws and the securities market themselves." Entergy Corp., Holding Co. Act Release No. 25952 (Dec. 17, 1993). Xcel, New NSP, NSP-W, PSCo, SPS and NRG will be reporting companies subject to the continuous disclosure requirements of the 1934 Act following the completion of the Merger. The various reports previously filed by NSP and NCE under the 1934 Act contain readily available information concerning the Merger. For these reasons, the Applicants believe that the Merger will be in the public interest and the interest of investors and consumers and will not be detrimental to the proper functioning of the resulting holding company system. C. Section 10(c) Section 10(c) of the Act provides that, notwithstanding the provisions of Section 10(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 the efficient development of an integrated public utility system. 1. Section 10(c)(1) (a) The Merger will be lawful under Section 8 Section 10(c)(1) first requires that the Merger be lawful under Section 8. That section was intended to prevent holding companies, by the use of separate subsidiaries, from circumventing state restrictions on common ownership of gas and electric operations. The Merger will not result in any new situations of common ownership of so-called "combination" systems within a given state. Post-Merger, New NSP, as successor to NSP, will continue to provide electric and gas utility services in Minnesota, North Dakota and South Dakota. NSP-W will provide electric and gas utility services in Wisconsin and Michigan; BMG will provide gas and propane service in Arizona; PSCo will provide gas and electric utility service in Colorado; and Cheyenne will provide gas and electric utility service in Wyoming. Since Minnesota, Michigan, Wisconsin, Wyoming, Colorado, South Dakota and North Dakota law all permit combination gas and electric utilities serving the same area, the Merger does not raise any issue under Section 8 or, accordingly, the first clause of Section 10(c)(1). (b) The Merger will not be detrimental to carrying out the provisions of Section 11 Section 10(c)(1) also requires that the Merger not be "detrimental to the carrying out of the provisions of Section 11." Section 11(b)(1) directs the Commission generally to limit a registered holding company "to a single integrated public-utility system." In the 1997 NCE Order, the Commission found that the combined Colorado, New Mexico, Texas, Oklahoma and Kansas electric operations constituted a single, integrated electric utility system (the "Primary System"),/27 and that the Wyoming electric operations (the "Cheyenne Electric System") and the combined Wyoming and Colorado gas operations (the "Gas System") were each a permissible additional system under the A-B-C clauses of Section 11(b)(1). At issue is whether the further addition of NSP and NSP-W, each of which is a combination electric and gas utility, will result in a system that is "detrimental to the carrying out of the provisions of Section 11." In the early years of its administration of the Act, the Commission construed Section 11(b)(1) to preclude significant geographic expansion by holding company systems. However, as the Commission has acknowledged, the Act "creates a system of pervasive and continuing economic regulation that must in some measure at least be fashioned from time to time to keep pace with changing economic and regulatory climates."/28 In recent decisions, the Commission has cited U.S. Supreme Court and Circuit Court of Appeals cases that recognize that an agency is not required to "establish rules of conduct to last forever,"/29 but must "adapt [its] rules and policies to the demands of changing circumstances"/30 and to "treat experience not as a jailer but as a teacher."/31 Consequently, the Commission has attempted to "respond flexibly to the legislative, regulatory and technological changes that are transforming the structure and shape of the utility industry" as recommended in the Staff's 1995 Report. Indeed, with specific reference to the integration requirements of the Act, the 1995 Report explains: The statute recognizes . . . that the application of the integration standards must be able to adjust in response to changes in "the state of the art." As discussed previously, the Division believes the SEC must respond realistically to the changes in the utility industry and interpret more flexibly each piece of the integration equation./32 Moreover, the ultimate determination has always been whether, on the facts of a given matter, the proposed transaction "will lead to a recurrence of the evils the Act was intended to address."/33 See also AEP/CSW Order, Sempra Energy, Holding Company Act Release No. 26971 (Feb. 1, 1999), in which the Commission acknowledged that "we have taken notice of developments that have occurred in the gas industry, and have interpreted the Act and analyzed proposed transactions in light of these changed and changing circumstances."/34 ---------- 27 The Commission's decision was predicated on the completion of the tie line between the SPS and PSCo systems or on the parties' otherwise satisfying the requirements of section 10(c)(1). The status of the tie line has been discussed above. 28 Union Electric Co., Holding Co. Act Release No. 18368, n. 52 (1974), quoted in Consolidated Natural Gas Co., Holding Co. Act Release No. 26512 (April 30, 1996) (authorizing international joint venture to engage in energy marketing activities); Eastern Utilities Associates, Holding Co. Act Release No. 26232 (Feb. 15, 1995) (removing restrictions on energy management activities); and Southern Co., Holding Co. Act Release No. 25639 (Sept. 23, 1992) (approving acquisition of foreign public-utility subsidiary company). 29 Rust v. Sullivan, 500 U.S. 173 (1991); American Trucking Assns., Inc. v. Atchison, T.&S.F.R. Co., 387 U.S. 397 (1967); Shawmut Assn. v. SEC, 146 F.2d, 791 (1st Cir. 1945); Sempra Energy, Holding Company Act Release No. 27095 (Oct. 25, 1999). 30 NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10, 1999) [hereinafter "NIPSCO"], citing Rust v. Sullivan at 186-187. Accord, Sempra Energy, Holding Co. Act Release No. 26971 n.23 (Feb. 1, 1999) (interpreting the integration standards of the 1935 Act in light of developments in the gas industry). 31 NIPSCO, supra, citing Shawmut Assn. v. SEC at 796-97. 32 1995 Report at 71. 33 Union Electric, supra. 34 Cf., Sempra Energy, Holding Company Act Release No. 27095 (Oct. 25, 1999) ("The application notes that the concept of a 'common source of supply' is susceptible of a different understanding today than in 1935."). ---------- As explained more fully below, the combination of the Primary System of NCE and the electric operations of NSP and NSP-W (the "NSP Electric System") will result in a single, integrated electric utility system (the "Xcel Electric System"). Integration will result primarily from the Joint Operating Agreement, which will provide the framework for the coordinated operation and dispatch of the resources of the operating companies of Xcel, a 100 MW firm transmission path from 2002 through 2004 between SPS and the NSP companies which will facilitate transactions among the Xcel Operating Companies and by the Xcel Operating Companies on a joint basis with third parties/35 and the common utilization by NSP, NSP-W, PSCo and SPS of New Century Services for numerous procurement, operational, administrative and general services. Integration also will be facilitated by NSP, NSP-W and SPS joining MISO./36 The combination of the NCE Gas System and the NSP gas operations also will result in a single, integrated gas utility system (the "Xcel Gas System"). Consequently, the Commission should find that the Xcel Electric System will be the primary integrated public-utility system for purposes of Section 11(b)(1), and the Xcel Gas System and the Cheyenne Electric System are permissible systems under the A-B-C clauses of that section./37 ---------- 35 PSCo will be interconnected with the combined SPS and NSP company systems upon the completion of its announced tie-line with SPS. 36 In the FERC Merger Order, the FERC stated "Upon joining MISO following consummation of the merger, Xcel Energy's northern zone, consisting of New NSP Utility and NSP-W, will be physically interconnected with its southern zone, consisting of SPS, through the transmission system of MISO." 37 The Applicants further believe that the Commission could find (i) that the Xcel Gas System is the primary integrated system and that the NCE Primary System, the Cheyenne Electric System and the NSP Electric Operations are retainable additional systems, or (ii) that the Xcel Gas and Electric Systems together constitute a single integrated public utility system within the meaning of Section 11(b)(1) of the Act, and the Cheyenne Electric System is a retainable additional system. The Applicants reserve the right to supplement this Application-Declaration to develop these arguments fully in the event that the Commission or the Staff reject the argument that the Xcel Electric System will be the primary integrated public-utility system for purposes of Section 11(b)(1), and the Xcel Gas System and the Cheyenne Electric System are permissible systems under the A-B-C clauses of that section. ---------- (i) Integration of Electric Operations The threshold question is whether the Primary System of NCE can be combined with the electric operations of NSP to form a single integrated public utility system. The term, as applied to electric utility companies, means: a system consisting of one or more units of generating plants and/or transmission lines and/or distributing facilities, whose utility assets, whether owned by one or more electric utility companies, are physically interconnected or capable of physical interconnection and which under normal conditions may be economically operated as a single interconnected and coordinated system confined in its operations to a single area or region, in one or more States, not so large as to impair (considering the state of the art and the area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation. Section 2(a)(29)(A). As the definition suggests, and the Commission has observed, Section 11 is not intended to impose "rigid concepts" but rather creates a "flexible" standard designed "to accommodate changes in the electric utility industry." UNITIL Corp., Holding Co. Act Release No. 25524 (April 24, 1992); see also Yankee Atomic Electric. Co., Holding Co. Act Release No. 13048 (Nov. 25, 1955) ("We think it is clear from the language of Section 2(a)(29)(A), which defines an integrated public utility system, that Congress did not intend to imposed [sic] rigid concepts with respect thereto.") (citations omitted). See also Madison Gas and Electric Company v. SEC, 168 F.3d. 1337 (D.C. Cir. 1999) ("section 10(c)(1) does not require that new acquisitions comply to the letter with section 11")./38 Section 2(a)(29)(A) expressly directs the Commission to consider the "state of the art" in analyzing the integration requirement. As indicated above, the Commission is not constrained by its past decisions interpreting the integration standards based on what was then the "state of the art." See AEP, supra (noting that the state of the art -- technological advances in generation and transmission, unavailable thirty years prior -- served to distinguish a prior case and justified "large systems spanning several states"). The concept of an integrated public utility system has evolved in light of the dramatic changes in the law, technology and structure of the industry since the passage of the 1935 Act over 60 years ago. Since the enactment of the Act, the "state of the art" has changed enormously, so as to include within the scope of integrated operations a broader range of utility contractual relationships and activities. A review of these changes seems appropriate in view of the Commission's stated goal of interpreting the Act to reflect and accommodate changes in the industry. Historically, electric utilities have been single corporate entities engaged in three vertically-integrated businesses: (i) generation of electricity (i.e., the ownership and operation of power plants that produce electricity); (ii) transmission of electricity (i.e., the ownership and operation of the high voltage facilities that transport electric energy in bulk from one point to another, generally from a utility's generating units to its distribution facilities); and (iii) distribution of electricity (the ownership and operation of the lower voltage facilities that deliver electric energy from the transmission system to most end users). Until recently, electric utilities operated as regulated monopolies "predicated on the concept that a central source of power supplied by efficient, low-cost utility generation, transmission, and distribution was a natural monopoly."/39 These utilities generally built generating facilities in the proximity of their customers, and transmission was treated essentially "as an incidental service."/40 ---------- 38 The Commission interprets the 1935 Act and its integration standards "in light of . . . changed and changing circumstances." Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1, 1999) (interpreting the integration standards of the 1935 Act in light of developments in the gas industry). Accord, NIPSCO. 39 Energy Information Administration, Department of Energy, The Changing Structure of the Electric Power Industry: An Update at 5. 40 See Comments by Commissioner Curtis L. Hebert, New Orleans, LA ISO Conf., F.E.R.C. Docket No. PL 98-5-000, Tr. at 2 (June 1, 1998); 1995 SEC Staff Report on the Regulation of Public Utility Holding Companies at 59. See also Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Notice of Proposed Rulemaking, FERC Stats. & Regs., Proposed Regulations, P. 32,514 (1995) ("Mega-NOPR"), wherein FERC described the electric industry in 1935, the year of enactment of both the Act and the Federal Power Act, which was a companion piece of legislation to the Act, as follows: The Federal Power Act was enacted in an age of mostly self-sufficient, vertically integrated electric utilities, in which generation, transmission, and distribution facilities were owned by a single entity and sold as part of a bundled service (delivered electric energy) to wholesale and retail customers. Most electric utilities built their own power plants and transmission systems, entered into interconnection and coordination arrangements with neighboring utilities, and entered into long-term contracts to make wholesale requirements sales (bundled sales of generation and transmission) to municipal, cooperative, and other investor-owned utilities (IOUs) connected to each utility's transmission system. Each system covered limited service areas. This structure of separate systems arose naturally due primarily to the cost and technological limitations on the distance over which electricity could be transmitted. Mega-NOPR at 33,059. ---------- In the decades following the enactment of the Act, the transmission sector of the electric utility industry significantly expanded. The total miles of high voltage (230 kV and above) transmission lines tripled in the 1950s and tripled again in the 1960s./41 Utilities had originally constructed transmission facilities to transmit power from their own plants to their customers. Subsequent to the enactment of the 1935 Act, utilities increasingly developed interconnections with their neighboring utilities to obtain and provide assistance in emergency situations, to improve reliability, and to reduce the costs of power supply through long-term capacity transactions and economy transactions with their neighbors./42 Technological advances in transmission have also occurred, making it possible to transmit electric power economically over long distances at higher voltages. In today's world, "improved transmission and monitoring technologies have increased the feasible geographic bounds for supply choice; a geographic radius of 1,000 miles or more is currently considered reasonable for choosing among supply options."/43 ---------- 41 There were 2,974 miles of high voltage transmission in 1940, 8,174 miles in 1950, 22,379 miles in 1960, and 65,370 miles in 1970. Peter Fox-Penner, Electric Utility Restructuring, A Guide to the Competitive Era (1997) at 130. 42 See William J. Baumol & J. Gregory Sidak, Transmission Pricing and Stranded Costs in the Electric Power Industry (1995) at 13. 43 Technological advances have occurred with respect to the "size" of transmission lines (345 kV to 765 kV lines) which have allowed for the transfer of large amounts of power over great distances. Technological advances have also occurred with respect to the "type" of transmission lines. High-voltage direct current ("HVDC") technology provides the ability to transmit bulk power over longer distances with less energy loss and normally with a smaller investment than with alternating current ("AC") transmission lines. This technology provides an economical way to interconnect separated AC power grids and enables power transfers to occur between these systems, thus improving economies and reliability. The application of phase shifting transformers, series compensation, and flexible alternating current transmission system ("FACTS") technology has also provided the ability to improve and control the transfer of power and energy across expansive transmission networks. New flexible alternating FACTS technology can increase the capacity of existing transmission lines by approximately 20 to 40 percent. Electricity: Innovation and Competition, Hearing Before the Subcomm. of Energy and Power of the House Comm. on Commerce, 105th Cong. 38 (1997) (statement of Robert B. Schainker, Manager, Substations, Transmissions and Substation Business Area Power Delivery Group, Electric Power Research Institute). Such technology "help[s] electric utilities operate their bulk power networks closer to their inherent thermal limits, while maintaining and/or improving network security and reliability." Id. Advances in telecommunications and computer technology have improved the ability to economically dispatch power systems and control power flow across such systems. Improvements in telecommunication technology and the growth in coverage area of telecommunications systems have allowed for the quick and reliable transfer of data necessary to control and dispatch from a single location generation that can be scattered over large geographic areas. The improvements provided by fast and reliable telecommunication networks allow for the control and economic dispatch of power systems that extend over large geographic areas, providing system operators an almost real time ability to monitor and control the power system. Significant improvements in transmission and resource planning have also occurred since 1935. There are several software packages available today that enable the system planner to model the operation of most of the equipment used on a power system. Studies can be performed that not only evaluate power transfer capabilities, but also allow the system planner to add different types of equipment to determine their impact on increasing power transfer capabilities. Development of such software has enabled the system planner to determine what equipment functions best as well as where and when it should be installed. Further technological advances can be expected in the future as "power engineers" explore the potential for computers to optimize the efficiency and reliability of the North American power network. Leslie Lamarre, The Digital Revolution, EPRI Journal, (Jan./Feb. 1998). ---------- Interconnections have proven so beneficial that every utility in the continental United States is interconnected with one of three Interconnects: the Eastern Interconnect, which encompasses utilities in the eastern United States and Canada from the Atlantic Ocean to the High Plains; the Western Interconnect, which encompasses utilities from the High Plains/Rocky Mountain region to the Pacific Ocean; and ERCOT, which encompasses most of the State of Texas. FERC has described the present state of the transmission sector of the electric utility industry as follows: The transmission facilities of any one utility in a region are part of a larger, integrated transmission system. From an electric engineering perspective, each of the three interconnections in the United States (the Eastern, Western and ERCOT) operates as a single "machine." Regional Transmission Organizations, Notice of Proposed Rulemaking, IV FERC Stats. & Regs. P. 32,541 (1999) ("RTO NOPR") at 33,697. See also, Regional Transmission Organizations, FERC Stats. & Regs. P. 31,089, Order No. 2000 (1999) ("Order No. 2000") at p. 31,003 /44, order on rehearing, FERC Stats. & Regs., P. 31,092 (2000). The generation sector of the electric utility industry is also very different than it was in 1935. Concern over the nation's energy future, in conjunction with other factors, led to the first significant legislative development at the federal level affecting the electric utility industry since the enactment of the Act and the FPA: the enactment of the Public Utility Regulatory Policies Act of 1978 ("PURPA"). PURPA requires utilities to purchase the output of qualifying facilities ("QFs") at avoided cost rates established by state commissions./45 An effect of PURPA was to begin to separate generation from the transmission and distribution functions of utility operations, or to put it another way, to broaden the scope of integrated electric operations to include purchases from third parties as well as a utility's own production of electricity. Consistent with the intent of PURPA, in some states significant QF resources were added in lieu of utility generation./46 ---------- 44 FERC has noted that "the entire Eastern interconnection is, as the name indicates, interconnected." North American Electric Reliability Council, 87 FERC P. 61,161 (1999). 45 PURPA Section 210. 16 U.S.C. ss. 824a-3. 46 PSCo, which has installed capacity of more than 3,000 MW, purchases over 600 MW of capacity and associated energy from QFs pursuant to long-term agreements. ---------- Following the enactment of PURPA and the development of the QF industry, independent power producers ("IPPs") emerged as another type of generation supplier. IPPs operate without a franchised service territory or an established customer base and seek to sell the output of their generating facilities in the wholesale market, typically to a single utility. With many traditional utilities wary of investing in new generation for a variety of reasons, IPPs in some instances found a ready market. IPPs were further spurred by the great latitude that FERC afforded them in rate setting. In fact, FERC initially developed its market-based rate standards in the context of IPPs./47 However, the development of IPPs was formerly inhibited by their lack of access to essential transmission facilities to reach a broader customer base, as well as ownership restrictions effectively created by the integration requirements of the Act. Recognizing these obstacles and desiring to promote greater development of wholesale power markets generally, Congress passed the Energy Policy Act of 1992 ("EPACT")./48 EPACT amended the FPA to permit any entity selling power at wholesale to request FERC to order a transmission-owning utility to provide transmission services./49 EPACT also created a new exemption under Section 32 of the 1935 Act for exempt wholesale generators ("EWGs"). The EWG exemption ensures that the 1935 Act's integration requirements will not thwart the development of IPPs participating in the wholesale market, an implicit acknowledgment that the economic operation of a utility system depends on contractual relationships as well as facilities ownership. Since EPACT, the competitive electric supply wholesale market has developed rapidly. This progress has been facilitated by FERC's willingness to permit the sale of electric capacity and energy at market-based rates. This change in regulatory policy applies not only to IPPs, but to power marketers (many of which are affiliated with utilities) - a relatively new class of wholesale market participant that purchases and sells power produced by third parties, not from their own resources. This new policy also applies to utilities directly, who have increasingly focused on their own wholesale marketing efforts. It is now the rare utility that does not have either market-based rate authority or an active wholesale power marketing affiliate./50 Notwithstanding these initiatives, FERC concluded that due to the lack of third-party transmission access, and preferential access that utilities accorded to their own marketing efforts, unequal transmission access continued to impede the development of fully competitive bulk power markets that FERC sought to promote./51 On that basis, within three years of the enactment of EPACT, FERC commenced the so-called "Mega-NOPR" proceeding, Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities./52 This notice of proposed rulemaking culminated approximately a year later with FERC's issuance of Order No. 888./53 ---------- 47 See, e.g., Commonwealth Atlantic Limited Partnership, 51 F.E.R.C.P. 61,368 (1990). 48 Pub. L. No. 102-486, 106 Stat. 2776 (1992). 49 PURPA also included a provision that allowed the Commission to order wheeling for power generated by a third party under certain narrowly-defined circumstances. However, FERC quickly interpreted this already limited authority very conservatively. See Southeastern Power Administration v. Kentucky Utilities Co., 20 F.E.R.C. P. 61,204 (1983) (holding that the Commission could not order wheeling if the wheeling order would result in a disturbance of existing market patterns, and holding that Section 211 of the FPA, as added by PURPA, was not designed to remedy a utility's anticompetitive conduct). EPACT amended sections 211 and 212 of the FPA to expand the Commission's authority to order wheeling upon application. 16 U.S.C. Sections 824j, 824k. 50 The NSP companies, PSCo and SPS all have been granted market rate authority and participate actively in wholesale markets. The NCE system also has a wholesale power marketer, e prime. 51 One commentator has described this unequal transmission access as follows: For more than 100 years, electric companies operated as separate, regulated monopolies producing, transmitting and distributing electricity to their own customers or native load. The utilities were virtual islands unto themselves with no competition and minimal risk. To help ensure a reliable supply of electricity when generators were down for maintenance or during period of peak demand for electricity and other shortages, neighboring utilities installed connections between their individual transmission systems or control areas. Power could now flow from one neighboring utility to another. As these connections expanded, they eventually formed a complex "grid" of transmission systems or control areas capable of transmitting electricity across much longer distances. Utilities also faced another challenge, wholesale competition. Suddenly your neighboring utilities could buy electricity at potentially lower prices from another, more distant supplier. That meant lost business and lost income from your company. One way to reduce this threat was to set the price for access to your company's transmission system so high that it discouraged other utilities from wheeling power across your territory. The result was that distant power suppliers often found it difficult if not physically impossible to wheel their electricity to your neighbors. You could also thwart competition by withholding information about transmission pricing and availability, or the hours when your system had sufficient capacity to handle the additional flow of electricity. Nelson, Kenneth C., "The New World of Power Marketing," Management Quarterly, v. 40, pages 13-42 (Spring 1999). 52 70 FERC P. 61,357 (1995). 53 Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Service by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, FERC Stats. and Regs., Regulations Preambles, P. 31,036 (1996) ("Order No. 888"), order on rehearing, FERC Stats. & Regs., Regulations Preambles, P. 31,048 (1997) ("Order 888-A"), order on rehearing, 81 FERC P. 61,248 (1997) ("Order 888-B"), order on rehearing, 82 FERC P. 61,046 (1998) ("Order 888-C"). ---------- Order No. 888 requires all transmission owners to (1) offer comparable open-access transmission service for wholesale transactions under a tariff of general applicability on file at FERC/54 and (2) take transmission service for their own wholesale sales under their open-access tariff. Order No. 888 was intended to facilitate third-party utilization of the transmission grid as the vehicle for developing a competitive wholesale bulk power market. Under Order No. 888, a utility must wheel power for third parties upon their request, on either a firm or a non-firm basis./55 If the transmitting utility does not have sufficient transmission capacity to transmit on a firm basis, it must either offer to expand its transmission system to accommodate the request, or, if appropriate, to redispatch generation to relieve constraints and thereby make transmission capacity available. In the interim, a utility must offer transmission on a non-firm basis to the requesting entity./56 ---------- 54 FERC has explained what it means by comparability: an open access tariff that is not unduly discriminatory or anticompetitive should offer third parties access on the same or comparable basis, and under the same or comparable terms and conditions, as the transmission provider's uses of its system. 67 FERC at 61,490. 55 "Wheeling" is the provision of transportation by a hub operator from one system to another system. 56 Moreover, FERC in Order No. 888 required tight power pools (or their individual members) both to file open-access transmission tariffs and to file revised pooling agreements by December 31, 1996. With respect to the latter requirement, FERC required that the reformulated power pooling agreements establish, among other things, open, non-discriminatory membership provisions, that would allow any bulk power market participant to join a power pool, irrespective of its type, affiliations with other entities, or geographic location. In Order No. 888, FERC expressly noted that the reformation of tight power pools could be achieved through the establishment of an ISO to supplant the tight power pool. As a result of this encouragement and FERC's requirements, the three primary tight power pools - Pennsylvania-New Jersey-Maryland Interconnection ("PJM"), New York Power Pool ("NYPP"), and New England Power Pool ("NEPOOL") - have restructured into ISOs, and have significantly modified their operations. ---------- Prior to Order No. 888, electric utilities typically needed to construct direct interconnections to facilitate capacity and energy transfers. Now, as a matter of right under Order No. 888, two utilities can contractually arrange for interconnection: by contract, they can acquire either a firm or a non-firm transmission path that would allow power transfers between their separate systems. Moreover, Order No. 888's companion order, Order No. 889,/57 requires public utilities to functionally separate their transmission and reliability functions from their wholesale power marketing functions. In this connection, Order No. 889 required public utilities to develop and maintain an Open Access Same-Time Information System ("OASIS") to give transmission users the same access to transmission information that the wholesale merchant function of a utility enjoys. The fundamental purpose of an OASIS is to ensure that transmission customers have access to transmission information, through electronic means, that will enable them to obtain open-access transmission service on a basis comparable to a transmitting utility's own use of its system./58 Generally stated, a utility's wholesale merchant function is limited to receiving from a utility's transmission and reliability function only such transmission information that is posted on an OASIS, and is thereby publicly available on a simultaneous basis to third-party transmission customers. Thus, while FERC in Order Nos. 888 and 889 did not require actual corporate divestiture or legal separation of generation and transmission functions within utilities, on an operational basis there has been a de facto separation of these functions in response to these orders. ----------- 57 Open Access Same-Time Information System (formerly Real-Time Information Network) and Standards of Conduct, Order No. 889, [1991-1996 Transfer Binder] F.E.R.C. Stats. & Regs., Regs. Preambles P. 31,035, at 31,585 (1996), order on reh'g, Order No. 889-A, III F.E.R.C. Stats. & Regs., Regs. Preambles P. 61,253 (1997). 58 The information to be posted on an OASIS includes the following: transmission capability that is available on both a firm and nonfirm (i.e., interruptible) basis; descriptive information regarding specific transmission requests and transactions including the point of receipt and delivery on the transmitting utility's system, the term of service, the level (i.e., number of MWs) and quality (i.e., firm or nonfirm) of service, and whether the service is provided for the benefit of a transmitting utility's associated wholesale merchant function or to an affiliate; whether any transmission services have been offered at a discounted rate; and notices regarding transmission curtailments or interruptions. See 18 C.F.R. ss.37.6. ---------- The comparable transmission service and functional unbundling that FERC has required in Order Nos. 888 and 889 initially may appear to contradict the integrated operation of electric systems required under Section 11. Taken together, the two orders require utilities to deprive themselves of any benefit associated with the consolidation of ownership of transmission and generation facilities. Instead, under the concepts supporting Order Nos. 888 and 889, such benefits are created by the competitive marketplace that results from open access. As FERC stated in Order No. 888, "[i]ncreasingly, customers are demanding the benefits of competition in the growing electric commodity market." FERC estimated quantitative benefits of its rule of $3.8-$5.4 billion a year, in addition to expected non-quantifiable benefits such as better use of existing assets and institutions, new market mechanisms, technical innovation and less rate distortion. According to FERC, the continuing competitive changes in the industry and the prospect of these benefits to customers made it imperative that FERC ensure nondiscriminatory transmission access through Order Nos. 888 and 889./59 Thus, FERC has recognized that the economic operation of utility systems can be achieved, and indeed is perhaps best achieved, through contractual relationships in a competitive marketplace, and not simply through ownership of facilities. EPACT, Order Nos. 888 and 889, and other FERC policies and initiatives have had a tremendous impact on the development of competitive bulk power markets. Utilities have increased their own in-house wholesale marketing efforts and the number of entities with whom they trade. To illustrate by example, PSCo's non-requirements wholesale sales (including short-term firm and economy sales) have increased from 306,920 MWh in 1993 to 7,873,800 MWh in 1998. Moreover, whereas PSCo's past wholesale marketing efforts were largely limited to economy energy sales made by its dispatchers in the former Inland Power Pool, New Century Services now has a marketing group that makes sales on behalf of PSCo throughout the entire western region. Similarly, NSP's revenues from sales for resale have increased by 70% from 1996 to 1999. While trades were typically made within MAPP and MAIN in the past, NSP has found it economical to trade in markets such as Ohio and Florida. Moreover, power marketers are an increasingly important presence in the industry. The top ten power marketers sold in excess of 1 billion MWh in 1999. These entities typically arbitrage remaining price differentials by buying in one market and selling in another. The effect is to minimize margins to be gained in these interregional sales and therefore to drive electric supply market prices closer to a regional-wide marginal (or incremental) cost. As prices move to marginal cost, rate differentials arising from historical embedded cost will begin to disappear./60 IPPs also are becoming a more significant sector of the electric utility industry. Nationwide, plans to build new plants have exploded. In the Northeast Power Coordinating Council region alone, an additional 30,000 MWs has been announced, almost all of it from IPPs./61 Similar plant additions have been announced by IPPs and EWGs in the mid-continent area as well. These significant plant additions lessen the impact of historical embedded utility-specific price differentials by changing the cost structure of the industry as a whole. ---------- 59 Order No. 888. 60 One commentator has recently described the ramifications of the more competitive wholesale markets resulting from the enactment of EPACT and the issuance of Order Nos. 888 and 889 as follows: What resulted is a highly competitive and sophisticated 24-hour power market . . . Next we examine what happens in "real-time" . . . . Economic power schedulers, working in the front office, monitor the utility's entire real-time system, making sure that the planners have accurately matched the power supply assets with the hourly demand or native load. Economic power schedulers also make sure that the planners have utilized the least expensive power supply assets. Schedulers may also make adjustments to the power plan in order to maximize the goals of reducing costs, providing customers with the lowest possible wholesale prices. To make these adjustments, economic power schedulers rely on available power supply assets and the hourly or "spot" market. Unexpected changes in the weather, mechanical problems at the generating station and congestion on the transmission grid are only a few of the factors that can result in deviations from the planner's schedule. Let's assume the scheduler needs an additional 10 MW of power for two hours, one hour from now. He or she, depending on the level of sophistication of the company, may consult a data screen that displays the real-time spot-market price and the incremental cost of generation or the cost of producing the additional or next 10 MW of electricity. If the incremental cost of generation is less than the market price, the power scheduler may ask the generating plant to increase production or start a peaking unit. If the price of power from pre-existing contracts is less than the spot market price or generation, the scheduler may draw upon the amount of electricity stipulated in the contract. But if the spot market price is less than the incremental cost of generation or contract power, the scheduler may notify the traders in the "front office." They immediately go to the spot market and begin the buying process. The economic power scheduler may also find that the utility is "long" on power or has excess capacity for several hours. The traders may now begin the selling process. Trading in the spot market has the same requirements as day-ahead, weekly and monthly trading except that it happens at a much faster pace. Spot market trading averages less than 20 minutes for securing a buyer or seller scheduling transmission or obtaining an NERC tag, applying competitive intelligence and price and credit risk management, confirming the trade and notifying billing, finance and accounting in the "back office." Nelson, Kenneth C., "The New World of Power Marketing," Management Quarterly, v. 40, pp. 13-32 (Spring 1999). 61 Order No. 2000 at p. 30,996. ---------- FERC's commitment to expand wholesale markets was reinforced in its Order No. 2000, FERC's final rule on regional transmission organizations ("RTOs"). RTOs are intended to create regional planning and operation of transmission systems to allow greater efficiency in the market as well as to eliminate pancaked rates, making the transmission grid more like the interstate freeway system and thereby enabling power to flow cheaply over longer distances. Order No. 2000 sets out FERC's expectation that all transmission owners will join RTOs on a voluntary basis. To that end, FERC announced a timetable for every jurisdictional utility to either join in an RTO filing, or, alternatively, to submit a filing describing its efforts to join in an RTO, the reasons for not participating in an RTO proposal and any obstacles to participation, and its plans for further work toward participation. This timetable is aggressive, requiring that utilities not already participating in a FERC-approved RTO make such initial filing by October 15, 2000. Order 2000 states that an RTO must provide the following functions at a minimum: (i) tariff administration and design; (ii) congestion management; (iii) parallel path flow management; (iv) supplier of last resort for ancillary services; (v) OASIS site administration and the determination of total transmission capability and available transmission capacity; (vi) market monitoring; (vii) system planning and expansion; and (viii) interregional coordination./62 These minimum characteristics and functions are intended to have the effect of turning the nation's transmission facilities into independently owned and operated "common carriers" that offer comparable service to all would-be users. FERC expects that RTOs will promote economic efficiency as well as operational efficiency. A significant barrier to equalizing the trading price of a more distant utility with a nearby utility is the cost of transmission, which is hampered by the "pancaking" of rates under the current transmission pricing scheme. Simply stated, if a transaction requires movement of power across the transmission system of multiple, non-affiliated public utilities: [the] transmission customer pays separate, additive access charges every time its contract path crosses the boundary of a transmission owner. By raising the cost of transmission, pancaking reduces the size of geographic power markets. This, in turn, can result in concentrated electricity markets. Balkanization of electricity markets hurts electricity consumers, in general, by forcing them to pay higher prices than they would in a larger, more competitive, bulk power market./63 As such, wholesale generators or customers seeking to buy competitively priced generation in more distant markets must pay transmission costs that may exceed the benefits of the transaction. Among other benefits, an RTO price structure eliminates rate pancaking, allowing power on the most distant edges of an ISO to be transmitted at market price with no additional cost for transmission than would exist for a nearby transaction or even the generation-to-end-user within a utility's own service area. FERC has explained this benefit: The Commission has long recognized that transmission pricing reform is most effectively accomplished on a regional basis. An RTO would have the geographic scope needed to eliminate pancaked transmission rates within its region. This would broaden the generation market and could result in more potential suppliers and less concentrated generation markets, thereby fostering more competitive markets and lower prices to consumers./64 Because RTOs will offer service to customers on a system-wide basis under a single FERC-approved tariff, customers will have available "'one stop shopping' for regional transmission service . . . resulting in simpler and more efficient procedures for transmission users to transmit power over greater distances."/65 ---------- 62 FERC added the interregional coordination function in Order No. 2000 in order to assure that "seams" issues between RTOs (or between RTOs and areas where there is not yet an RTO) are adequately addressed. As FERC stated in Order No. 2000, "[c]oordination of activities among regions is a significant element in maintaining a reliable bulk transmission system and for the development of competitive markets." Order No. 2000 at p. 31,167. 63 RTO NOPR at 33,703. 64 RTO NOPR at 33,716 (footnote omitted). 65 RTO NOPR at 33,717. ---------- Due to these and other developments at the federal level, the landscape of the electric industry is changing rapidly. Wholesale power markets have developed from a balkanized, utility-specific, cost-based structure to a more competitive market-based structure./66 The effect of these developments on SEC merger policy is both direct and profound. The emergence of RTOs, at the direction of FERC, will further facilitate wholesale competition, moving the industry further from the vertically-integrated utility model under which utilities relied substantially on their own resources to serve their loads. Because NSP and NCE can, pursuant to Order No. 888 and now Order 2000 obtain transmission rights that allow them to procure energy from more distant markets at prices equivalent to or better than nearby markets in which they do business, direct physical interconnection is no longer necessary for the utilities to transact with, or act in unison with, one another to achieve operational efficiency. For example, in situations where two non-contiguous utilities in the same RTO wish to transact with each other, they can arrange necessary transmission services using a contract path or the RTO's non-pancaked tariff. Moreover, using either a contract path or a regional tariff, two non-contiguous utilities in the same RTO may reach common suppliers or hubs to both sell and purchase electricity collectively. The net effect of these regulatory and market changes is to require a re-evaluation of the meaning of integration in light of the present structure of the electric utility industry and regulatory environment, which have changed dramatically since the passage of the Act./67 The Commission already has recognized many of these changes in its decisions in UNITIL Corp., Holding Co. Act Release No. 25524 (April 24, 1992) and Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25, 1998). ---------- 66 Indeed, FERC in Order No. 888 invoked the widely-differing cost of utility-generated electricity across the major regions of the country as evidence of the need for reform. Order No. 888 at 31,651-52. 67 See also Order No. 2000 at p. 31,174 ("A main reason that an RTO can expand the marketplace for generation to a large region is that an RTO can implement non-pancaked rates for each transaction. A wider area served by a single rate means more generation is economically available to any customer which means greater competition for energy.") ---------- Regulatory changes at the state level have paralleled those at the federal level and have been equally dramatic. Concurrent with or subsequent to the implementation of PURPA, states began developing integrated resource planning requirements that mandate that utilities focus on both supply-side and demand-side resources and that require local utilities competitively bid their resource requirements to obtain the lowest cost resources possible. Under these resource procurement requirements, utilities must purchase power from third parties (rather than provide for their own generation) if to do so would result in lower costs to consumers. Typically, special evaluation procedures apply to assure the fairness of the bidding process where a utility desires to pursue a self-build option or where an affiliate desires to submit a proposal. The bidding process has also become the manner in which QF suppliers are chosen for avoided cost sales. For example, the Colorado Commission has adopted integrated resource planning rules that require that utilities in Colorado conduct a competitive resource procurement process for all additions of capacity to their systems, except in very narrow circumstances, e.g., capacity and/or energy from the generation facilities of other utilities or from non-utility generators pursuant to agreements for less than one year term or for less than ten megawatts of capacity. In the event that a Colorado utility wishes to pursue a self-build option of greater than 10 MW, it must submit a proposal in the competitive process. SPS and NSP are likewise subject to competitive procurement procedures./68 Thus, the state regulators have recognized that the economic operation of a utility system must include the benefits of integration through the marketplace and not just the effects of a vertically-integrated ownership structure. Moreover, virtually every state, either at the legislative level or the state regulatory commission level, has implemented or is actively considering retail competition. One consequence of such actions has been the divestiture by utilities of large amounts of generating assets to relieve stranded costs or in response to a state mandate. Since August 1997, approximately 50,000 MW of generating capacity have been sold (or are under contract to be sold) by utilities, and an additional 30,000 MW is currently for sale. In total, this represents more than 10 percent of U.S. generating capacity./69 The combination of state restructuring efforts and federal unbundling of transmission from generation makes it clear that utilities will not be encouraged to achieve saving from mergers through the combination of generating facilities. The lowest cost supply of power will be achieved in the market, and consumers will directly access that market. ---------- 68 As stated previously under Item 1.C.2., NSP recently submitted a request for bids for up to 1,200 MW of capacity. 69 Order No. 2000 at 30,997. ---------- The two states in which SPS principally operates, Texas and New Mexico, vividly illustrate the trend towards retail electric competition. Both Texas and New Mexico in 1999 enacted restructuring legislation requiring that historically integrated utilities, including SPS, unbundle their transmission and distribution operations from their energy supply operations (including the generation function) through corporate reorganizations or divestitures of assets to facilitate retail competition in those states. To elaborate, New Mexico SB-428, which was enacted in 1999, will require the corporate separation of SPS's generation and competitive energy operations from its regulated transmission and distribution operations in New Mexico. Texas SB-7, which also was enacted in 1999, will require the corporate separation of SPS's generation, retail marketing, and transmission and distribution operations in Texas. Moreover, SB-7 requires Texas utilities to sell at auction, at least sixty days before customer choice is to begin in Texas, entitlements to at least fifteen percent of their jurisdictional installed capacity, and further limits the amount of installed generating capacity that a generating company in Texas, including those formed through the corporate separation of existing integrated utilities, may own. Texas SB-7 establishes a 20 percent limit on the amount of capacity that any entity can own or control in a power region. Both New Mexico SB-428 and Texas SB-7 require utilities to submit compliance or "transition" plans for state commission approval. In New Mexico, SPS must file its transition plan by June 1, 2000, seeking New Mexico Commission approval by December 1, 2000. In Texas, SPS on January 10, 2000 filed its plan to separate its retail, generation, and transmission and distribution businesses. By December 1, 2000, SPS must file its market power mitigation plan. Moreover, in its order setting the Merger for hearing, the Texas Commission requested that SPS file supplemental direct testimony addressing the structural and operational changes that SPS would make to comply with SB-7. In addition to addressing various merger-related issues, SPS reached agreement in its merger proceeding in Texas with respect to several of the restructuring requirements of Texas SB-7. In order to address vertical market power issues, SPS agreed to join the SPP transmission tariff immediately after Texas approval of the merger, as an interim measure until FERC's formal approval for SPS to join the MISO. In addition, in order to address horizontal market power issues, SPS agreed to provide economic dispatch and reliability pooling on a comparable and non-discriminatory basis at FERC-regulated cost-based rates to loads in SPS's service area. Such service will be offered beginning June 1, 2001 and will continue until the later of the date on which FERC approves market-based rates for ancillary services supplied in the SPS service area or when the PUCT certifies that SPS operates in a competitive power region. Also to address horizontal market power, SPS and its affiliates agreed to divest approximately 2,864 megawatts of generation capacity in the SPS service area. This amounts to about 64 percent of the 4,472 megawatts of capacity owned by SPS and its affiliates at 13 plants in Texas and New Mexico. The agreement also provides that SPS may sell 3,191 megawatts or 71 percent of its capacity, if the Texas Commission deems the larger amount necessary for SPS to be certified as operating in a qualified power region. The agreements to sell capacity are subject to the pooling of interests requirements and sufficient participation of bidders in the divestiture sale to permit reasonable competition and multiple purchasers. To summarize, the ongoing corporate restructuring of the U.S. utility industry reflects the effects of emerging FERC policy on transmission (including Order Nos. 888 and 889 requiring open-access transmission on comparable terms and the functional unbundling of the transmission and wholesale merchant functions), the formation of ISOs and Order No. 2000. It is also the product of many recent state laws mandating competitive resource procurement and retail electric competition, and the functional separation (and in some states, divestiture) of generation from transmission and distribution operations. Layered on these changes are both rapid developments in technology and the emergence and growth of the power marketing and energy trading businesses, both of which facilitate efficient and competitive low-cost electric markets. Perhaps most notable among all of these changes is the recent evolution of ISOs/RTOs. These entities facilitate trading regions with no economic constraints on transmission access and with the ability to manage and plan for new transmission on a regional basis to help alleviate transmission constraints, thereby providing entities with both the requisite physical and economic means to integrate their systems. The cumulative effect of these regulatory, technological and economic changes has dramatically altered the "state of the art" that Congress directed the Commission to consider more than sixty years ago. * * * * * It is against this backdrop of rapid change in the electric utility industry and the regulatory framework that Applicants have developed a plan to integrate the NCE and NSP systems. There are two primary components to this plan in addition to the common utilization by the NCE and NSP systems of New Century Services for numerous procurement, operational, administrative and general services. First, Applicants have completed the process of arranging a 100 MW south to north firm transmission path from 2002 through 2004 between SPS and the NSP. This contract path will integrate the Xcel operating companies by permitting cost savings from power transfers between NSP and SPS initially and later between NSP and PSCo. Second, the Xcel operating companies will be parties to the Joint Operating Agreement, which FERC has already approved in the FERC Merger Order. The Joint Operating Agreement provides the basis for the coordination of the Xcel operating companies generating resources, and sets out the contractual framework for them to transact with each other and to transact with third parties on a joint basis. This integration plan will be facilitated by NSP, NSP-W and SPS joining the same ISO, namely MISO. The contract path, the Joint Operating Agreement and MISO are explained below, followed by a showing how the Xcel Electric System will be an integrated electric utility system within the meaning of Section 2(a)(29)(A). The Contract Path For at least three years following consummation of the Merger, NCE and NSP will interconnect their systems through three firm transmission service agreements, which provide a firm 100 MW unidirectional path from SPS to NSP (through the SPS, SPP and Ameren transmission systems), to flow 100 MW from points of receipt located at SPS's generating stations to a point of delivery at the interconnection between Ameren and NSP transmission systems (the "Northbound Path"). At least 60 days prior to the expiration of the Northbound Path, Applicants commit to file a post-effective amendment that either: (i) notifies the Commission that the duration of the Northbound Path has been extended or (ii) explains how the Xcel operating companies will continue to satisfy the interconnection requirement when their rights with respect to the Northbound Path terminate. The Northbound Path will enable the operating companies to move 100MW of power from SPS generation to the NSP's service territory 365 days a year. The Northbound Path is a firm transmission arrangement that Applicants have arranged under the open-access transmission tariffs of the Southwest Power Pool ("SPP") and Ameren. Specifically, power under this path will leave the SPS system from its generation facilities and flow to the border between the SPS transmission system and the transmission system of Public Service Company of Oklahoma ("PSO") (an operating company of Central and South West Corporation ("CSW")). These PSO/CSW facilities are subject to the regional transmission tariff of the SPP. To comply with the requirements of the SPS open-access transmission tariff, the SPS wholesale merchant function has arranged for service from the SPS transmission function under the SPS open-access transmission tariff for the delivery of power to the interface of the SPS and PSO/CSW transmission system, which consists of the Elk City and Oklaunion substations. (See the orange lines on Exhibit 3.4). SPS owns the 345 kV line to Oklaunion and owns the 230 kV line to the Texas border with an interest in the right to use the capacity of such 230 kV line from the Texas/Oklahoma border to Elk City./70 ---------- 70 SPS, like many transmission owners such as Public Service Company of Oklahoma, owns both the assets and the rights to use transmission capacity beyond its service area boundary. Thus the SPS transmission system is appropriately viewed as extending to both the Elk City and Oklaunion substations. ---------- On February 22, 2000, SPS entered a transmission agreement with the SPP, acting as tariff administrator for PSO/CSW, to provide transmission service over facilities of PSO/CSW to the Ameren border. The contract is for a three year period. Although the SPP does not require a specific facility route, primary paths are on a 138 kV line from Elk City to the Cimarron substation near Oklahoma City and on a 345 kV line from Oklaunion to the Mustang substation, also near Oklahoma City. The Northbound Path continues on a 345 kV system to the Ameren border near the Bolivar Burns substation around Springfield, Missouri, at the southwest corner of the Ameren system (see the green lines on Exhibit 3.4). On January 25, 2000, NSP reserved 100 MW of firm capacity to move power from any point on the Ameren system (in this case, the SPP border with Ameren) to the Montgomrey substation in eastern Missouri (see the blue line on Exhibit 3.5). This path is needed to move power across the Ameren system to the NSP transmission system, which extends from the Minneapolis/St. Paul area to the Montgomrey substation. This contract is also for a period of three years and is coterminous with the SPP contract. NSP will utilize its rights under the Minneapolis/St. Paul, Iowa, St. Louis 345 kV Interconnection Agreement (the "East Line Agreement") to move power from the Montgomrey, Missouri substation to the NSP service area. The East Line is jointly owned by NSP, Ameren, Alliant and Mid American. Each party owns a physical portion of the line and has the right to use the entire line. Specifically, under the East Line Agreement, NSP owns 100% of the portion of the line from the Twin Cities to the Adams substation at the Minnesota/Iowa border and has a 27% interest in the right to use the line's transmission capacity from designated points all along the line from the Twin Cities to St. Louis. In this case, the point at which NSP has elected to receive power pursuant to its right to use the entire East Line is at the Montgomrey substation, from which point it will deliver the power to any point in NSP's service area, typically to Minneapolis/St. Paul, Minnesota area/71 (see the red line on Exhibit 3.5). The combinations of these agreements provide a single contract path (via two distinct contracts) by which SPS can move 100 MW of power from its transmission system to NSP's transmission system. The Northbound Path is approximately 500 miles (from the Elk City substation to the Montgomrey substation)./72 The Xcel operating companies have all rights needed to move power from the border of the SPS system (either at Elk City or Oklaunion) to the border of the NSP system at the Montgomrey substation in Missouri. ---------- 71 Like the SPS and PSO/CSW transmission systems, NSP's transmission system extends beyond its service area border. 72 The distance from the Oklaunion substation to the Montgomrey substation is approximately 550 miles. ---------- The Northbound Path will provide NSP, which is a net purchaser of energy in both summer and winter seasons, the opportunity to import power from SPS to NSP during those seasons (as well as throughout the year during periods when the incremental cost of SPS generation is lower than NSP's) pursuant to the Joint Operating Agreement. The Northbound Path interconnects and integrates the NCE and NSP systems in the same manner as the contract path found acceptable by the Commission in the AEP/CSW Order. At 100 MW, the Northbound Path represents a slightly greater proportion of Xcel's total utility generating capacity than the amount reserved between AEP and CSW. NSP and NCE selected the Northbound Path as the most expeditious means of creating a firm transmission arrangement between both companies. The companies explored a variety of potential paths by submitting requests over the Open Access Same-Time Information System ("OASIS") as required by FERC rules. Transmission owners over each of the potential routes determined that Available Transfer Capability ("ATC") was not available to meet the requests absent upgrades to the transmission system. In rejecting the requests, transmission owners must perform system impact studies to determine the upgrades needed to meet the request for transmission capacity. The Northbound Path presented the fewest upgrades, making it the most feasible path from a timing and siting perspective. For example, each proposed route (other than the Northbound Path) would have required construction of new power lines, which can be delayed by state siting processes or certificate of need processes. NSP and SPS abandoned efforts to secure transmission over the routes requiring these major upgrades. The constraint identified on the Northbound Path was on the PSO system with tariff administration delegated to the SPP. Because NSP and SPS did not agree with the results of the system impact study (which initially required additional facilities that could potentially add to the lead time), SPS challenged the study and worked with SPP to determine the upgrades necessary to facilitate the transaction. The final system impact study of the SPP identifies an upgrade of the Elk City 230/138 autotransformer from a 215 MVA unit to a 440 MVA unit. The time for completing this type of project is 18 months. This made late 2001 the earliest possible start date. In addition, NSP committed to upgrade three 161kV lines in its market area to mitigate market power concerns identified in its FERC filing as a result of the Northbound Path. Efforts to reconducter these lines are currently under way as well and will not be completed until the later part of 2001. The need for these upgrades is the reason that actual utilization of the Northbound Path will not commence until January 1, 2002. NSP and SPS currently have secure contractual rights to the Northbound Path and have made deposits and provided letters of credit of nearly $2.2 million in order to ensure performance under these agreements. The Applicants initially proposed that the Northbound Path be a 200 MW firm path, as compared to 100 MW firm path, as 200 MW could be physically moved between the two systems on a firm basis and would result in additional savings. However, preliminary analysis of this scenario indicated that the loss in available capacity in the NSP destination market was likely significant enough to cause a potential screen failure under FERC's guidelines related to market power, which could have resulted in NSP being required to divest a portion of its generation assets. Because NSP is currently acquiring additional generation resources, divestiture would be inconsistent with its growing need for energy and capacity to serve its customers. Thus, the Applicants chose to have the Northbound Path be a 100 MW firm path from SPS to NSP, which does not result in the same concern./73 The 100 MW Northbound Path will serve to reduce the operating costs by allowing for firm power transfers from SPS to NSP, creating projected savings of $24 million over the next ten years. Pending commencement of the utilization of the Northbound Path on January 1, 2002 and as explained further below, the Operating Companies will be required to exchange power under the Joint Operating Agreement when it is economical to do so subject to availability of transmission. To increase the likelihood of transmission being available, Applicants will seek to reserve a 100 MW contract path on a non-firm basis from SPS to NSP at all times prior to December 31, 2001. These reservations will be made through a series of requests for non-firm transmission on a monthly, weekly and, if necessary and when economical, on a daily and hourly basis. Accordingly, Applicants commit to take all reasonable steps to maximize the periods of time prior to December 31, 2001, during which they have reservations to transmit 100 MW on a non-firm basis from SPS and NSP. The Joint Operating Agreement The Joint Operating Agreement will integrate the generating resources of NSP, NSP-W, PSCo and SPS (individually, an "Operating Company" and collectively, the "Operating Companies"). More specifically, the Joint Operating Agreement sets out the framework for the coordinated planning, operations, and maintenance of generation resources (both owned and purchased), and coordinated wholesale marketing activities of the Operating Companies./74 It also provides for the allocation of associated costs and benefits. ---------- 73 Also, the Northbound Path (like virtually every firm contract path) has some market concentrating effects as a result of the loop-flows, as well as market de-concentrating effects. For this reason, Applicants initially supported the Northbound Path as a separate option from MISO in their filing for FERC approval of the Merger. If FERC had not approved the Northbound Path without a hearing, the Applicants would have requested FERC and the SEC to approve the Merger without the Northbound Path. The issue is now moot as the FERC unconditionally approved the Merger without a hearing. 74 Cheyenne is not a part to the Joint Operating Agreement as it does not operate any generation assets or make any wholesale sales. Thus, Cheyenne has no owned generation resources subject to integration as a result of the Merger. ---------- An Operating Committee will have overall responsibility for administering the Joint Operating Agreement. The Operating Committee will be comprised of a representative of each of the Operating Companies and New Century Services, which will act as the agent for the Operating Companies. In accordance with the terms of the Joint Operating Agreement, New Century Services will undertake a number of activities involving the coordination of the generating resources of the Operating Companies, including the following: (a) evaluating and making recommendations concerning additions of generating facilities or capacity to be owned by, or under long-term contract, to an Operating Company ("Generation Resources") in order to meet the load requirements of the Operating Companies; (b) coordinating the planning and design of Generating Resources to be installed or acquired by the Operating Companies; (c) coordinating the operation and maintenance of Operating Companies Generating Resources; (d) coordinating the economic dispatch of Generating Resources for the Operating Companies; (e) conducting system purchases and sales and off-system marketing on behalf of the Operating Companies; (f) developing all bills and billing information among the Operating Companies under the Joint Operating Agreement; (g) acquiring and coordinating the provision of transmission and ancillary services from affiliated and non-affiliate transmission providers for use with respect to transactions by or among Operating Companies; (h) operating and maintaining a central generating control center to achieve these purposes, and such additional generation control centers as the Operating Companies may require; and (i) reassigning transmission services obtained for wholesale merchant purposes on behalf of any Operating Company. Section 7.2 of the Joint Operating Agreement provides for the coordinated operation of each of the Operating Companies' resources. While preserving the pre-Merger dispatch priorities applicable to each company's resources to allay any possible state regulatory concern regarding cost-shifts among the Operating Companies, this section further provides that "the Control Areas will be dispatched on a coordinated basis in real time to minimize total generation costs for the Operating Companies, subject to the availability of Firm Transmission Entitlements or other transmission arrangements linking the Operating Companies' Control Areas or other transmission services." Thus, the Operating Companies will be obligated to exchange power when economic subject to the foregoing conditions. These transactions will be facilitated by the Northbound Path and, prior to its inception, through the reservations described above of a 100 MW non-firm path. The Joint Operating Agreement also contains service schedules providing for actual power transactions among the Operating Companies or by the Operating Companies acting jointly with non-affiliated third parties. Specifically, Service Schedule A provides for the sale of capacity and associated energy sales by one Operating Company to another. Service Schedule B provides for energy-only sales by one Operating Company to another. Service Schedule C provides for system sales and purchases, and off-system marketing (i.e., not involving the generating resources of the Operating Companies) with non-affiliated third parties. Service Schedule D provides for the allocation of costs and revenues associated with any firm transmission paths that the Operating Companies may obtain to link their systems. Applicants note that NSP and NSP-W currently coordinate the planning, construction, operations and maintenance of their electric supply facilities on an integrated basis and operate as a single coordinate electric system pursuant to an Interconnection and Interchange Agreement dated September 17, 1984, as subsequently modified and supplemented (the "NSP Interchange Agreement). For this reason, NSP and NSP-W are treated as a single Operating Company under the Joint Operating Agreement for virtually all purposes. The Joint Operating Agreement is intended to be in addition to, and not in lieu of, the NSP Interchange Agreement. Yet, in the event of an inconsistency, the Joint Operating Agreement will control. Applicants submitted the Joint Operating Agreement to FERC concurrently with their application to merge. FERC in the FERC Merger Order accepted the Joint Operating Agreement for filing without modification, only conditional on the consummation of the Merger. FERC has jurisdiction over the actual power transactions set out in the Joint Operating Agreement. The costs for various non-power transaction activities (e.g., for joint planning) will likely be incurred at the service company level and allocated in accordance with the SEC-jurisdictional service agreements. MISO MISO is a voluntary non-profit corporation and, as FERC has recognized, MISO is unique in that it "began through a consensual process and was not driven by a pre-existing institution."/75 MISO's participants include various transmission-owning electric utilities ("Transmission Owners") located in the Midwest. The initial Transmission Owners currently are Ameren Corporation (which includes Central Illinois Public Service Company and Union Electric Company), Central Illinois Light Company, Cinergy Corporation (which includes PSI Energy, Inc., Cincinnati Gas & Electric Company and Union Light, Heat and Power Company), Commonwealth Edison Company, Hoosier Energy Rural Electric Cooperative, Illinova Corp., LG&E Energy Corp. (which includes Louisville Gas and Electric Company and Kentucky Utilities Company), Southern Illinois Power Cooperative, Southern Indiana Gas & Electric Company, Wabash Valley Power Association and Wisconsin Electric Power Company. MISO is expected to commence operations in mid-2001. As presently constituted (excluding the NSP companies and SPS), MISO will have a service territory that includes portions of Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio and Wisconsin and two regional reliability councils (East Central Area Reliability Coordination Agreement ("ECAR") and Mid-American Interconnected Network ("MAIN")). MISO will control 45,000 miles of transmission facilities which represent approximately $6.5 billion in capital investments, and approximately 70,000 MW of generation assets will be located within the MISO region. With the addition of the NSP companies and SPS, MISO's transmission facilities will expand significantly to include portions of Minnesota, North Dakota, South Dakota, Texas, New Mexico, Oklahoma and Kansas, and generation assets in the MISO region will exceed 80,000 MW. Also, Alliant Corporation, on behalf of Wisconsin Power & Light Company, Interstate Power Company, IES Utilities, Inc. and South Beloit, Water, Gas and Electric Company, is seeking FERC approval to become a participant in MISO. On September 16, 1998, FERC conditionally approved the formation of MISO by authorizing the transfer of jurisdictional facilities from the Transmission Owners to MISO, and accepting the MISO Tariff and MISO Agreement for filing./76 ---------- 75 RTO NOPR at 33,693. 76 Midwest Independent Transmission System Operator, Inc., 84 FERC P. 61,231 ("MISO Order"), reconsidered and clarified, 85 FERC P. 61,250 ("MISO Clarification"), order on rehg, 85 FERC P. 61,372 (1998) ("MISO Rehearing Order"). In accordance with Order No. 2000, those utilities participating in MISO, individually or jointly with other entities, must submit a filing with FERC by January 15, 2001 explaining how MISO has the characteristics and performs the functions of RTOs as set out in the final RTO rule. See Order No. 2000 at 31,223. ---------- MISO will develop all necessary operating procedures and have authority over approving transmission requests, implementing curtailment of transmission or requiring redispatch of generation with transmission. MISO's duties will include calculating available transmission capability and maintaining OASIS information. MISO will monitor real-time data to determine whether any control areas are experiencing generation capacity deficiencies. MISO also will control transmission maintenance. Integration of generation will be facilitated at the MISO level through various methods/77 and through coordinating the maintenance (outage schedules) of generating units to assure that they minimize the impact on transmission capability. Thus, entities participating in the MISO will interconnect and integrate their systems in a joint effort to promote regional deployment of certain operating functions, security and redispatch functions and scheduling functions so as to enhance efficiencies across this broad regional market. In joining MISO, New NSP, NSP-W and SPS will transfer control of their respective transmission systems to MISO and become subject to the MISO Tariff and Bylaws. Thus, like the tight power pool arrangements that formed the basis for findings of integration by the Commission in UNITIL and Conectiv, the transmission facilities of these entities will be under common management and control along with those of other MISO members. Transmission will be centrally coordinated so as to maximize transmission capacity. Further, transmission constraints will be alleviated through regional redispatch of generation so that the system can operate at maximum efficiency. Transmission upgrades will be planned on a regional basis to assure the most economic means of relieving constraints over the long-run are achieved. The greater the transmission capacity, the greater the ability the NSP companies and the NCE Operating Companies will have to obtain low cost sources of generation throughout the MISO region and to arrange for power transfers from one another. Finally, removal of rate pancaking throughout the MISO regional tariff, which provides for a single regional rate, will remove economic barriers in reaching more distant sources of generation supply. Thus, the efficiency of centralized transmission management and pricing will directly create greater purchasing efficiencies in obtaining power for Xcel's customers./78 ---------- 77 MISO will have some control over the generation of the Transmission Owners. As stated by the Transmission Owners of MISO in their application to FERC, MISO will possess authority over generation to the extent "generation affects transmission." In particular, MISO will solve transmission congestion through curtailments, generation redispatch and (as a last resort) load shedding. MISO will use redispatch to prevent the curtailment of scheduled firm and network transmission service and the costs of redispatch will be shared among all load including bundled native load on a pro rata basis rather than directly assigned to specific transmission customers. MISO members that own generation will be required to offer redispatch service pursuant to cost-based rates on file with FERC, and MISO will select the least-cost option for redispatch. When requests for new firm service cannot be accommodated under current operating conditions, MISO will facilitate transmission capacity reassignment (by posting bids electronically on a real-time basis) and transmission capacity expansion by generation redispatch (by identifying generators that could relieve the constraint by increasing or decreasing their output). When a system emergency arises, however, MISO will take whatever actions are necessary to maintain the reliability of the Transmission System, including curtailments. MISO Order at 62,162. 78 As noted previously, this result was recognized by FERC in its Order No. 2000 at p. 31,174, where FERC stated: "A main reason that an RTO can expand the marketplace for generation to a large region is that an RTO can implement non-pancaked rates for each transaction. A wider area served by a single rate means more generation is economically available to any customer which means greater competition for energy." ---------- The impact of joining MISO on Applicants' combined operations is best demonstrated by way of an example. Currently, NSP buys power from the market to meet its customers' energy needs. A key limiting factor in all purchases is the need to arrange for and the associated cost of transmission. It is common for NSP to arrange a purchase from the Cinergy hub, which is a liquid market that permits critical hedging against volatile price swings. However, because of transmission cost differentials, NSP typically finds nearby power more economical by the time delivery is expected. NSP then sells its position in Cinergy and buys from neighboring markets at a higher energy price but a lower overall price (energy plus pancaked transmission). Under MISO, NSP will be able to keep and to take delivery from Cinergy, as there will be no incremental transmission cost to make transmission uneconomical. With SPS in the same RTO, the purchase could be made jointly and dispatched to the entity whose load requirements indicate a need for the energy. Again, there would be no transmission price differential, and the power could flow freely to either NSP or SPS. In this way, both operating companies achieve economies associated with access to low-cost power as well as efficiencies in the economic use of this power supply. Without common MISO membership, pancaked transmission rates would create differences in the ultimate purchase decision that would make such coordinated arrangements more difficult and less efficient. Moreover, MISO membership will permit the necessary transmission arrangements to be made with MISO as the sole transmission provider. Accordingly, when the NSP companies and SPS become members of MISO, they will be able to transmit power between their two systems at nonpancaked rates - specifically, at an incremental cost which is the same per unit cost involved in shipping power within their respective systems./79 Since all market participants in MISO can similarly move power at no additional cost of transport, the MISO Tariff makes choice of power supply across a broad region economically feasible for the Applicants. As this occurs, Applicants' integration of generation will be efficiently accomplished in the marketplace, through the ability to access potentially 100,000 MW of generating capacity rather than merely seeking opportunities to exchange power with one another. When the NSP companies and SPS believe such opportunities exist, they will successfully lower their total energy costs to customers through their joint participation in energy markets. ----------- 79 There are gaps in the contiguous borders of MISO; however, any charges incurred for flows across those borders would produce a relatively small cost differential when compared with a traditional rate pancake across multiple service territories; as a consequence, the transactions will still be economically feasible. In fact, there is currently an intervening utility between SPS and MISO. As explained below, SPS intends to obtain a contract path across the intervening utility service area so that it is interconnected directly with MISO, although the need for this path may be obviated in the event that the presently contemplated combination of MISO and SPP reaches fruition. ---------- As noted above, Applicants anticipate that MISO will have attracted additional members by the time it becomes fully operational, which will permit SPS to be directly interconnected with MISO through intervening utilities. For example, if the Southwest Power Pool (i.e., SPP) becomes part of MISO, there would be a contiguous MISO transmission region between SPS and NSP. Alternatively, if MAPP members join MISO consistent with recent agreements between the two, there may be a direct link to Sunflower Electric Cooperative, Inc. through the Holcomb-Potter segment of the tie-line if Sunflower and other directly connected members elect to participate in MISO. However, in the event that SPS does not become directly interconnected with another MISO member, SPS intends to obtain a firm, 200 MW bi-directional transmission path from the point at which its system interconnects with Public Service Company of Oklahoma ("PSO") to the point at which PSO interconnects with Ameren and MISO. This path is referred to herein as the "MISO Interconnection." SPS has contracted for this path from the SPP under its open-access transmission tariff. Absent anticipated changes that result in a direct interconnection between SPS and another MISO member, Applicants will implement their plans and agreements already executed for the MISO Interconnection. In the event that Applicants need to establish the MISO Interconnection, they will attempt to enter into arrangements with PSO or the SPP to facilitate third-party use. Specifically, they will attempt to make arrangements so that the interconnection path will be treated as part of SPS's system, and therefore subject to MISO's tariff. Transmission customers would then be able to arrange service over the path through MISO. * * * * * The foregoing discussion was intended to provide background and overview of how NSP and NCE will be integrated through a contract path and through the Joint Operating Agreement and how that integration will be facilitated through the common membership of the NSP companies and SPS in MISO. Each of the four integration standards of Section 2(a)(29)(A) is discussed specifically below. (a) Interconnection The first requirement for an integrated electric utility system is that the electric generation and/or transmission and/or distribution facilities comprising the system be "physically interconnected or capable of physical interconnection." Historically, the Commission has focused on physical interconnection through facilities that the parties owned or, by contract, controlled./80 As early as 1978, however, the Commission indicated that joint participation in a power pool could be the basis for a finding of integration./81 To date, the Commission has found interconnection through memberships in "tight" power pools and ISOs./82 These findings are consistent with the recommendation of the 1995 Study that the Commission "adopt a more flexible interpretation of the geographic and physical integration standards, with more emphasis on whether an acquisition will be economical and subject to effective regulation." ---------- 80 See, e.g., Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990) ("Northeast Utilities") at n.85, supplemented, Holding Co. Act Release No. 25273 (Mar. 15, 1991), aff'd sub nom. City of Holyoke v. SEC., 972 F.2d 358 (1992) (Northeast had the right to use a Vermont Electric line for ten years, with automatic two-year extensions, subject to termination upon two years notice, in order to provide power to a Northeast affiliate.); Centerior Energy Corp., Holding Co. Act Release No. 24073 (1986) (Cleveland Electric Illuminating Company and Toledo Edison Company were connected by a line owned by Ohio Edison. All three were members of the Central Area Power Coordination Group ("CAPCO"). The line connecting Cleveland Electric, Ohio Edison and Toledo was a CAPCO line with segments owned by each of the three named utilities.); Cities Service Power & Light. Co., 14 S.E.C. 28, 53 n.44 (1943) (two companies in the same holding company system were found to be interconnected where energy was transmitted between two separated parts of the system over a transmission line owned by the United States Bureau of Reclamation, under an arrangement which afforded the system the privilege of using the line). 81 See AEP, supra ("The pooling issue is one aspect of the major debate, . . . as to what should be the future structure of the electric utility industry. We will not undertake to resolve these issues since they are beyond our mandate in this case and because they are within the province of the Congress and the Department of Energy."). 82 See, e.g., UNITIL Corp., supra (interconnection through NEPOOL), and Conectiv, Inc., Holding Co. Act Release No. 26382 (Feb. 25, 1998) (interconnection through PJM, Inc.). See also Yankee Atomic Elec. Co., 36 S.E.C. 552, 565 (1955); Connecticut Yankee Atomic Power Co., 41 S.E.C. 705, 710 (1963) (authorizing various New England companies to acquire interests in a commonly-owned nuclear power company and finding the interconnection requirement met because the New England transmission grid already interconnected the companies). ---------- The 1995 Report further recommended that the Commission should increasingly rely on an acquisition's demonstrated economies and efficiencies, rather than upon physical interconnection, to meet the integration standard. The Report noted that the 1935 Act provides the necessary flexibility and that the application of the integration standards must be able to adjust in response to changes in the state of the art. The Report concluded that it would be a logical extension of prior orders for the Commission to find that wheeling and other forms of sharing power (such as reliability councils and proposed regional transmission groups) also qualify as interconnection. This recommendation is particularly significant in view of the recent RTO Order, which will cause the development of regional transmission grids that will bring even more distant utilities closer together. As explained above, the NSP Electric System and the Primary System of NCE will be "physically interconnected or capable of physical interconnection" through membership in MISO and by means of the Northbound Path. The Northbound Path, in and of itself, satisfies the physical interconnection requirement of Section 2(a)(29)(A). The Commission in the past "has reasonably construed this requirement to be satisfied in cases... 'on the basis of contractual rights to use a third-party's transmission lines...'" Madison Gas and Electric Company v SEC, supra at 1340. See also Centerior, supra (The physical interconnection requirements of [Section 2(a)(29)(A)] are met if the two service areas are connected by power transmission lines that the companies have the right to use whenever needed."). Dicta in a series of Commission decisions states that contract rights cannot be relied on to integrate two "distant" systems. See, e.g., WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998), citing UNITIL Corp., supra; Northeast Utilities, Holding Co. Act Release No. 25273 (March 15, 1991); Centerior Energy Corp., supra. In the Applicants' view, it would be incorrect to interpret these statements to mean that a firm contract path might not meet the "physical interconnection" requirement because of its length. In both UNITIL and Northeast Utilities, the Commission explained that the reason a contract path might not "integrate" two distant utilities was due to the "single area or region" requirement of Section 2(a) (29)(A). UNITIL, supra at n.30; Northeast Utilities, supra at n.75. The Commission did not hold in any of these cases that the length of a firm contract path was relevant in determining whether the "physically interconnected or capable of physical interconnection" requirement of Section 2(a)(29)(A) was met. Such a holding would be contrary to the literal language of Section 2(a)(29)(A), and would ignore both the technological and commercial developments in the industry that have occurred since the enactment of the Act. The Commission recently confirmed the Applicants' view on this issue in the AEP/CSW Order, in which the Commission stated: "We did not hold in any of these prior cases that the length of a contract path was relevant in determining whether the interconnection requirement of Section 2(a)(29)(A) was met. Such an approach would be inappropriate in view of the express language of Section 2(a)(29)(A) as well as technological and commercial developments that have made feasible the transmission of power over longer distances." Applicants note that utilization of the Northbound Path will not commence until January 1, 2002. Applicants do not believe that this affects whether the NSP Electric System and the Primary System of NCE will meet the physical interconnection requirement because the two systems will be "capable of physical interconnection" under existing Commission precedent. The meaning of the phrase "capable of physical interconnection" was addressed by the Commission in the 1997 NCE Order. The issue in the 1997 NCE Order was whether the proposal of PSCo and SPS to construct a tie-line to connect their two electric systems within five years of their proposed merger met the "capable of physical integration" standard. The Commission stated: At issue is whether the combined properties are "capable of physical interconnection" within the meaning of Section 2(a)(29)(A) of the Act. The Commission has previously found this requirement to be satisfied if physical interconnection is "contemplated or...possible within the reasonably near future," rather than an event that "might occur in the remote future, and whose occurrence has not been foreshadowed by any facts shown in the record." The Commission finds that the combined PSCo and SPS electric properties are capable of physical interconnection. Subsequent to the 1997 NCE Order, the Commission found in the AEP/CSW Order that the two systems in question were "physically interconnected" through a contract path coupled with a commitment to find alternatives should the contract path not be renewed. Thus, as a result of the 1997 NCE Order and the AEP/CSW Order, Applicants believe that two companies are "capable of physical interconnection" if a firm contract path is "contemplated or possible within the reasonably near future" and the companies commit to find alternatives if the contract is not renewed. In the present case, Applicants have in place a 100 MW firm contract path (i.e. the Northbound Path) and have committed to find alternatives if the contract is not renewed. The Northbound Path is more than "contemplated or possible." It is already in place, as the contracts creating the rights to transfer power on the Northbound Path have been executed, and power transfers will commence pursuant to these executed contracts on January 1, 2002 and extend through December 31, 2004. As explained above, the delay in the commencement of transfers of power on the Northbound Path is due to the need for construction of upgrades along the path. NSP and NCE also will be "physically interconnected or capable of physical interconnection" through their common membership in MISO. Commission precedent supports a finding of interconnection through an ISO such as MISO./83 In 1992, the Commission approved the merger of UNITIL Corporation with Fitchburg Gas and Electric Light Company, based on their common membership in NEPOOL,/84 a regional power pool that was the basis for a FERC approved ISO and associated power exchange./85 UNITIL and Fitchburg were not connected through transmission lines that they owned. Rather, as the Commission noted in its order: ---------- 83 Such findings would also appear consistent with Applicants' position in their FERC application and the following statement in the FERC Merger Order: "Upon joining MISO following consummation of the merger, Xcel Energy's northern zone, consisting of New NSP Utility and NSP-W, will be physically interconnected with its southern zone, consisting of SPS, through the transmission system of MISO." 84 New England Power Pool, 79 FERC P. 61,374 (1997); New England Power Pool, 83 FERC P. 61,045 (1998). 85 MISO differs from how NEPOOL was initially structured as a tight power pool in that NEPOOL provided for centralized dispatch, within a single routed area, of the generating assets of the NEPOOL members. However, as explained below, this difference is not relevant to whether two entities are "physically interconnected or capable of physical interconnection." ---------- Access to and use of the regional transmission network, which is owned by the larger New England utilities, is provided by the NEPOOL Agreement and by transmission rate schedules and contracts filed with the Federal Energy Regulatory Commission. In this matter, the Companies are indirectly interconnected through NEPOOL-designated transmission facilities ("PTF") and other nonaffiliate transmission facilities pursuant to the NEPOOL Agreement and other separate agreements with nonaffiliate companies. The Commission has previously found a system to be "capable of physical interconnection" on the basis of contractual rights to use a third-party's transmission lines. This matter differs from prior orders in that there will be no particular line through which transfers of power will be made among the Companies. Instead, power will be delivered through a nonaffiliate system and a transmission charge will be paid to the owner of the facilities. On the facts of this matter, the Commission is satisfied that the Companies' contractual arrangements for transmission service establish that the UNITIL electric system will satisfy the physical interconnection requirement of the Act. With respect to the "other separate agreements with nonaffiliate companies" described above, the Commission by footnote explained that Fitchburg obtained primary transmission service from New England Power Company ("NEPCO") under the NEPOOL Agreement and through NEPCO's FERC Tariff Number 3, which provided for non-firm service. The Commission went on to note that Fitchburg was eligible to use NEPCO's FERC Tariff No. 4/86 should Fitchburg and UNITIL Power conduct more power sales or swaps. In 1998, based on UNITIL, the Commission found that Delmarva Power & Light Company and Atlantic Energy, Inc. met the physical interconnection requirements of Section 2(a)(29)(A) through their common membership in PJM Interconnection, LLC ("PJM"), which was a regional power pool and the first FERC-approved, operational ISO./87 Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25, 1998). The facts of this case similarly establish physical interconnection under the UNITIL precedent and its progeny. Access by NSP and SPS to the regional transmission network of MISO will be provided by the MISO Agreement and MISO Tariff, which have been filed with FERC. Also, like UNITIL Power and Fitchburg, NSP and SPS will have "other separate agreements with nonaffiliate companies" - namely; the firm Northbound Path for 100 MW, and the nonfirm arrangements that Applicants may arrange as described below under "Coordination." In particular, MAPP has an open-access transmission tariff, Schedule F, that may provide an alternative path for transactions between SPS and the NSP companies. Moreover, in the present case and like UNITIL, "power will be delivered through a nonaffiliate system" (i.e., MISO) and "a transmission charge will be paid to the owner of the facilities". As noted above, MISO will have functional control over the transmission systems of NSP, NSP-W, SPS and other members of the MISO. As was the case in UNITIL, the NSP companies and SPS will be able to readily obtain transmission services at non-pancaked rates to exchange energy with each other or to access the market collectively as either a buyer or a seller. For these reasons, Applicants believe that the Xcel Electric System will be "physically interconnected or capable of physical interconnection." As shown by Exhibit E-13, the powers and responsibilities of MISO over the transmission assets of members of MISO will be virtually identical to those today of NEPOOL and PJM over the transmission assets of their respective members. Applicants note that MISO differs from NEPOOL in UNITIL and from PJM in Conectiv in that NEPOOL and PJM were both "tight" power pools at the time of the Commission's decisions, in that the generation assets of all members of NEPOOL and PJM were centrally dispatched and controlled. Applicants acknowledge the relevance of generation control for purposes of evaluating whether the system is operated as "a single interconnected and coordinated system" under Section 2(a)(29)(A), but do not believe it is relevant as to whether the system is "physically interconnected or capable of physical interconnection."/88 ---------- 86 Under FERC Tariff No. 4, Fitchburg would receive firm transmission service. Amendment No. 11 to Form U-1 of UNITIL Corporation, File No. 70-7628, at 55. 87 Pennsylvania - New Jersey - Maryland Interconnection, 81 FERC P. 61,257 (1998). 88 The relationship between physical interconnection and coordinated system is examined in The North American Co., 11 S.E.C. 194, at 241-42 (1942). The only physical interconnection between four small service areas and a North American subsidiary, Illinois Iowa Power Co., was through facilities operated by Central Illinois Public Service Co., a nonaffiliated company. The small properties were held to be physically interconnected with the subsidiary but not part of a coordinated system because most or all of the power for sale in these service areas was purchased from Central Illinois and there was no central control: "Thus, even though we find physical interconnection exists or may be effected, evidence is necessary that in fact the isolated territories are or can be so operated in conjunction with the remainder of the system that central control is available for the renting of power." Moreover, as previously noted, NEPOOL and PJM have restructured into ISOs. Indeed, both organizations have established or are in the process of establishing associated power exchanges. ---------- (b) Coordination Historically, the Commission has interpreted the requirement that an integrated electric system be economically operated under normal conditions as a single interconnected and coordinated system, "to refer to the physical operation of utility assets as a system in which, among other things, the generation and/or flow of current within the system may be centrally controlled and allocated as need or economy directs." See, e.g., Conectiv, supra, citing The North American Company, Holding Co. Act Release No. 3466 (April 14, 1942), aff'd, 133 F.2d 148 (2d Cir. 1943), aff'd on constitutional issues, 327 U.S. 686 (1946). The Commission has noted that, through this standard, Congress "intended that the utility properties be so connected and operated that there is coordination among all parts, and that those parts bear an integral operating relationship to one another." Id., (citations omitted). Applicants submit that the coordination requirement is satisfied, as evidenced by the AEP/CSW Order, through such measures as coordinated generation operations; coordinated transmission operations, coordinated marketing efforts, both as a buyer and seller of electricity; the integration of administrative and general services and programs; and gas/electric convergence type measures, which will lead to lower costs for gas as a fuel for the generation of electricity. This is not a matter of first impression. Nearly a decade ago, the Commission found, and the courts agreed, that the coordination requirement could be satisfied even if power never flowed between two parts of the system. Environmental Action, Inc. v. SEC, 895 F.2d 1255 (9th Cir. 1990). Environmental Action involved the acquisition by a holding company of an interest in an electric generating plant ("GenCo"). The intervenors argued that the acquisition did not satisfy the standards of the 1935 Act because, among other things, the system's existing electric utility company ("UtilCo") had represented that it might purchase up to twenty percent of GenCo's capacity if, and only if, the price of such power was competitive in the market. The Court of Appeals noted that the GenCo might not purchase any of GenCo's output but, nonetheless, concluded that the Commission had correctly found that UtilCo and GenCo could be operated as part of a coordinated system, within the meaning of the Act. Id. at 1264-65, citing Electric Energy, Inc., Holding Co. Act Release No., 13871 (Nov. 28, 1958) (the companies sponsoring the construction of a generating plant only pledged to buy any surplus energy remaining after the plant had supplied the needs of the major purchaser, a nonaffiliated government agency). More recently, the Commission found similar types of coordinated operational and administrative functions to constitute "de facto" integration. Sierra Pacific Resources, Holding Co. Act Release No. 27054 (1999). Moreover, the coordination of administrative functions and joint marketing activities were crucial factors in the Commission's determination that the coordination requirement was satisfied in Sempra and NIPSCO. Moreover, in applying the integration standard, the Commission looks beyond simply the coordination of the generation and transmission within a system to the coordination of other activities. See, e.g., General Public Utilities Corp., Holding Co. Act Release No. 13116 (Mar. 2, 1956) (integration is accomplished through power dispatching by a central load dispatcher as well as through coordination of maintenance and construction requirements); Middle South Utilities, Inc., Holding Co. Act Release No. 11782 (Mar. 20, 1953), petition to reopen denied, Holding Co. Act Release No. 12978 (Sept. 13, 1955), rev'd sub nom. Louisiana Public Service Comm'n v. SEC, 235 F.2d 167 (5th Cir. 1956), rev'd, 353 U.S. 368 (1957), reh'g denied, 354 U.S. 928 (1957) (integration is accomplished through an operating committee which coordinates not only the scheduling of generation and system dispatch, but also makes and keeps records and necessary reports, coordinates construction programs and provides for all other interrelated operations involved in the coordination of generation and transmission); North American Company, Holding Co. Act Release No. 10320 (Dec. 28, 1950) (economic integration is demonstrated by the exchange of power, the coordination of future power demand, the sharing of extensive experience with regard to engineering and other operating problems, and the furnishing of financial aid to the company being acquired). See also NIPSCO, supra (functional merger of Bay States and NIPSCO gas supply department through NIPSCO Services, "a service company subsidiary of NIPSCO that provides financial, accounting, tax, purchasing, natural gas portfolio management, and other administrative services to associate companies.") Applicants will satisfy the coordination requirement in several ways. First, in light of the developments that have occurred in the electric utility industry and the regulatory framework that applies to it, which have been detailed above, the coordination of utilities can occur through the market and contractual arrangements. The Joint Operating Agreement will provide the contractual operating framework for the Xcel Operating Companies to coordinate and transact with each other. Under the agreement, the generating systems of the Xcel Electric System will be operated as a single interconnected and coordinated system. Specifically, New Century Services, as agent for the Operating Companies, will coordinate the planning, operation and maintenance of generating capacity resources and the dispatch of electricity throughout the combined system of NSP and NCE. This will be accomplished through a central generation control center that, through a common software system, will direct the dispatch of the entire Xcel Electric System. Under this arrangement, the system dispatcher will dispatch the generation units of the Xcel Operating Companies and those plants under long-term contract to which the companies effectively dispatch generation, as needed to meet native load and will arrange for economy energy sales (provided for in Schedule B of the Joint Operating Agreement) between Operating Companies where such sales will lower the operating costs of the purchasing Operating Company. Although such dispatch will be facilitated by the completion of the tie-line between PSCo and SPS, it will be possible to perform such dispatch and exchange power under the Joint Operating Agreement even prior to the completion of the tie-line. New Century Services will be able to obtain both firm (mostly short-term) and non-firm transmission between the PSCo and SPS systems needed to engage in transactions under the Joint Operating Agreement, once it becomes effective. For example, in the past, PSCo and SPS exchanged power over a transmission tie owned by Public Service Company of New Mexico. The current transmission and exchange of power between PSCo and SPS is facilitated by their participation in the Western Systems Power Pool ("WSPP"), which, as noted previously, is an economic power pool that operates an electronic bulletin board and acts as a clearinghouse for bulk power transactions among more than ninety member utilities and marketers./89 To allay any concerns that state commissions and FERC may have, such intra-system sales will not be made if the purchasing Operating Company has a better purchase opportunity, or the selling Operating Company has a better sales opportunity. Schedule A of the Joint Operating Agreement likewise provides for short-term capacity and associated energy sales between Xcel Operating Companies, subject to the same limitations. The Joint Operating Agreement also provides for joint generation planning and the common procurement of resources, although again the agreement addresses potential state concerns by making explicit that any resource additions will comply with applicable state procurement requirements. Additionally, the Joint Operating Agreement also vests the agent, New Century Services, with the responsibility of arranging joint sales and purchases of electricity, as described below, and makes provision for the allocation of associated costs and revenues./90 The Joint Operating Agreement, with its protections, also will benefit customers as more and more power is purchased from the market. Currently, both NSP and PSCo are capacity short and will have opportunities to coordinate contracting of purchases to meet the energy needs of their customers. The Joint Operating Agreement will allow joint procurement to take advantage of weather and economic diversity as well as scheduling of plant outages. ---------- 89 While the completion of the tie-line between PSCo and SPS will fully integrate their two systems, Applicants note that PSCo and SPS have been operating on a coordinated basis since the completion of their merger in 1997 that resulted in the formation of NCE. As stated in the Form U-1 relating to the combination of SPS and PSCo (File No. 70-8787), SPS and PSCo estimated net savings from their combination over a ten-year period commencing in 1997 in excess of $500 million exclusive of savings that would result from the tie-line. These savings were to be derived from combined corporate programs, joint procurement of fuel and non-fuel items and labor cost savings. NCE is on target to achieve these savings. Today, through New Century Services and a joint electric trading operation, SPS and PSCo are being run on a combined basis, with the only significant exception being that their generating assets are not being jointly dispatched on an economic basis. Currently, PSCo and SPS load and generation data is located in Denver where traders can evaluate purchase and sale decisions to optimize generation assets. 90 This philosophy is consistent with the treatment of affiliate transactions involving non-power goods and services, which are subject to the Commissions' jurisdiction under Section 13 of the Act. See, e.g., Rule 88(a) (service companies required to be so organized as to be able to provide services, construction, or goods "at a reasonable saving over the cost of comparable services or construction performed or goods sold by independent persons"). ---------- Second, the Xcel Operating Companies will coordinate through joint marketing efforts, both as a buyer and seller. System dispatchers will continually monitor the generation needs and capacity of the NSP and NCE systems. This will include the NSP companies, SPS and PSCo. The Xcel Operating Companies already have the ability to reach common suppliers, purchasers, and trading hubs in various combinations. The rapidly evolving wholesale power markets surrounding the energy industry will allow NSP and NCE to operate their generation assets as a single system by buying and selling power to decrease the overall production costs of the two systems. The diversity of weather, time, fuel supply and localized economic conditions will create opportunities to allocate resources more efficiently. This can be accomplished without the need to actually move power from the NSP system or NCE system to the other company's system. Power can be delivered to and from the systems by third parties using their transmission systems. The 100 MW Northbound Path will facilitate the ability of the entities to coordinate their systems by assuring the ability to move power even when there are transmission constraints. The Northbound Path is not the only means for NSP and NCE to engage in these efforts: the NSP companies, SPS and PSCo presently trade in other common markets, which can be accessed post-merger. For example, the NSP companies and NCE Operating Companies both hold capacity contracts with Basin Electric Cooperative. In 1998, NCE purchased 200MW of capacity from the Laramie River Station. PSCo recently added an additional 136 MW. NSP contracted for 65 MW of seasonal capacity from Basin as well as entering into an ongoing energy only agreement which allows NSP to purchase system energy from Basin. Because Laramie River Station is located at the intersection of the Eastern and Western Interconnections, it is equipped to sell power in both directions. In the future, joint purchases could be made and dispatched to the operating companies that would provide the greater benefit. Weather diversity would make these purchases more economically efficient as changes in daily and hourly load forecasts can be accommodated by joint purchasing and coordinated dispatch. In addition to Basin, both PSCo and NSP have made significant purchases from WAPA in the past. In 1997, NSP purchased 252,332 MWh from WAPA. During this same time period, the NCE Operating Companies purchased 559,121 MWh from WAPA. Given WAPA's location on the border of the Eastern and Western Interconnects, it will serve as a market for coordinated trading activities. This ability to diversify supply over a broader region with diverse weather and time zones is how companies can best achieve the benefits of economic integration in a market-based commodity like electricity. The NSP companies and NCE Operating Companies also anticipate making use of the burgeoning power markets and their associated volatility to maximize efficiency and coordination on their systems. Again, the Joint Operating Agreement provides the framework for these types of activities. Pursuant to Schedule C (System Sales and Purchases, and Off-System Marketing), New Century Services as the Agent will have responsibility to engage in wholesale sales and purchases on behalf of the Xcel Operating Companies on an individual company and collective basis. The coordination of these activities under the Joint Operating Agreement is expected to result in savings for the Xcel Operating Companies and their customers./91 ---------- 91 The Joint Operating Agreement (Schedule D) also vests New Century Services as the Agent under the Joint Operating Agreement with the authority to acquire the necessary transmission services for wholesale marketing activities with non-affiliates and the system transactions described above. ---------- These marketing efforts will be further facilitated by the common participation of the NSP companies and SPS in MISO. For example, NSP and NCE will be able to use the diversity between their systems to buy and sell in common MISO markets such as Ameren to optimize their use of this market, acting, in effect, like their own trading hub. Third, as explained further below, the Xcel Operating Companies will be able to achieve efficiencies in the management of their natural gas portfolios. Because PSCo, SPS, and NSP use natural gas to generate electricity, these efficiencies are expected to translate to lower cost for gas as a fuel for electric production, which will benefit electric customers. Fourth, the combined system in this matter will be coordinated in a variety of ways beyond simply the coordination of the generation and transmission within the system. Among other things, numerous operational matters and virtually all administrative and general services will be performed for the Xcel System by New Century Services. In addition, the accounting functions of the combined system will be prepared and consolidated through the use of a single system. Xcel will have a single accounting organization which will be managed by a single team in one or more locations. The coordination and integration of the combined system is expected to be further achieved through the coordination and integration of information system networks; customer service; procurement organizations; organizational structures for power generation, energy delivery (which include transmission) and customer relations; and support services. Many of the foregoing functions will be performed by various business units within New Century Services. For example, the Xcel Energy Markets unit will have the responsibility under the Joint Operating Agreement of conducting the joint marketing and trading for all generating resources of PSCo, SPS, NSP and NSP-W. The Enterprise Business unit of New Century Services, with the assistance of Xcel's chief financial officer, will centralize asset management policy decisions, provide an integrated approach to financial decisions and develop an appropriate allocation of resources between new capital investment and routine operation. The Xcel Energy Delivery unit will include a transmission organization, a distribution organization, customer service organization, a planning and budgeting services group, and a customer and community services organization. The Corporate Development unit of New Century Services will provide direction to the Xcel System in areas such as integration, best practices and business re-engineering. Also, as has already been discussed, the operation of the transmission systems of the NSP companies and SPS as a single interconnected and coordinated system will be enhanced through joint membership and participation in MISO. Among other things, MISO will develop operating procedures and schedules, approve transmission requests and direct the operation of the transmission grid for all MISO participants. MISO also will coordinate maintenance and planning of the transmission facilities as well as certain generation functions within the MISO system. This degree of coordination and integration of transmission assets is comparable to that presented to, and accepted by, the Commission in UNITIL and Conectiv, supra. Moreover, the availability of transmission under MISO will provide the means to coordinate operations and engage in the joint marketing efforts that are described above./92 ---------- 92 Section 2(a)(29)(A) might appear to require that the holding company, and not a third-party such as MISO, must coordinate the operations of the integrated system. However, such an interpretation of Section 2(a)(29)(A) would be incorrect as shown by UNITIL in which the Commission stated: "While the definition reflects an assumption that the holding company would coordinate the operations of the integrated system, the Commission has recognized that "Congress did not intend to impose rigid concepts but instead expressly included flexible considerations" to accommodate changes in the electric utility industry. Thus, the Commission has considered advances in technology and the particular operating circumstances in applying the integration standards. Most recently, in its decision approving the acquisition of PSNH by Northeast Utilities, the Commission noted that "the operation of the generating and transmitting facilities of PSNH and the Northeast operating companies is coordinated and centrally dispatched under the NEPOOL Agreement." Accordingly, we conclude that the combined electric utility assets in this matter may be economically operated as a single interconnected and coordinated system through the Companies' participation in NEPOOL." ---------- As indicated by the language under Section 2(a)(29)(A) that the coordinated system be "economically operated," the Commission further analyzes whether the coordinated operation of the system results in economies and efficiencies. The question whether a combined system will be economically operated under Section 10(c)(2) and Section 2(a)(29)(A) was recently addressed by the Court of Appeals in Madison Gas and Electric Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999). In that case, the court determined that in analyzing whether a system will be economically coordinated, the focus must be on whether the acquisition "as a whole" will "tend toward efficiency and economy." Id. at 1341. The Merger will clearly meet this standard. As explained in Item 3.C.2. below, NSP and NCE estimate that the net savings from the Merger will exceed $1.1 billion over 10 years. In the recent AEP/CSW Order, the Commission found that the combined AEP and CSW electric systems (the "New AEP System") met the requirement of economic and coordinated operation under Section 2(a)(29)(A). In response to an argument from an intervenor that the New AEP System would be coordinated solely through a 250 MW contract path, the Commission noted that the contract path was only one of several ways that the proposed combined system would be coordinated and by footnote explained: ". . . the Umbrella Agreements will permit control and coordination of the New AEP System. Our finding of economic and coordinated operation is also supported by other proposed measures: potential intrasystem transfers of capacity and energy; joint trading and marketing; and corporate and administrative coordination." AEP/CSW Order at fn. 86. Each of these factors exists in the present case. In addition to the 100 MW Northbound Path, the Joint Operating Agreement, like the Umbrella Agreement in the AEP/CSW Order, will permit control and coordination of the Xcel Electric System. There will be potential transfers of capacity and energy and joint trading and marketing among PSCo, SPS, NSP and NSP-W. Finally, numerous corporate, administrative and operational matters will be performed on behalf of the Xcel system by NCE Services. In short, all aspects of the combined system will be centrally and efficiently planned and operated. As with other merger applications approved by the Commission, the combined system will be capable of being economically operated as a single interconnected and coordinated system as demonstrated by the variety of means through which its operations will be coordinated and the efficiencies and economies expected to be realized by the proposed transaction. (c) Single Area or Region As required by Section 2(a)(29)(A), the operations of the Xcel Electric System will be confined to a "single area or region in one or more States." While the terms "area" and "region" are not defined in the 1935 Act, the "single area or region" requirement does not mandate that a system's operations be confined to a small geographic area or a single state./93 The Commission has specifically found that the combining systems need not be contiguous in order for the requirement to be met./94 Rather, the Commission has found that the single area or region test should be applied flexibly when doing so does not undercut the policies of the 1935 Act against "'scatteration' -- [that is,] the ownership of widely dispersed utility properties which do not lend themselves to efficient operation and effective state regulation." NIPSCO, supra (applying single area or region requirement with respect to gas utility system); accord, Sempra, supra./95 ---------- 93 In considering size, the Commission has consistently found that utility systems spanning multiple states satisfy the single area or region requirement of the 1935 Act. For example, the Entergy system covers portions of four states (Entergy, supra), the Southern system provides electric service to customers in portions of four states (Southern Co., Holding Co. Act Release No. 24579 (Feb. 12, 1988)), and the principal integrated system of NCE covers portions of five states (with all of its electric operations serving customers in six states) (1997 NCE Order, supra). As early as 1945, the Commission found that the operations of American Electric Power in seven states were confined to a single region or area. American Gas and Electric Co., Holding Co. Act Release No. 6333 (Dec. 26, 1945). 94 See, e.g., Connectiv, supra; cf. 1997 NCE Order, supra (integration test was met where entities planned to build a 300 mile transmission line to interconnect the systems which operated in noncontiguous territories). 95 In Gaz Metropolitain, Inc., the Commission agreed that a single area or region could include areas across international borders. Holding Co. Act Release No. 26170 (Nov. 23, 1994). ---------- Moreover, the Staff has recommended that the Commission "interpret the 'single area or region' requirement flexibly, recognizing technological advances, consistent with the purposes and provisions of the Act" and that the Commission place "more emphasis on whether an acquisition will be economical." 1995 Report at 66, 69. The Staff has recognized that "recent institutional, legal and technological changes . . . have reduced the relative importance of . . . geographical limitations by permitting greater control, coordination and efficiencies" and "have expanded the means for achieving the interconnection and economic operation and coordination of utilities with non-contiguous service territories." 1995 Report at 69. It has also recognized that the concept of "geographic integration" has been affected by "technological advances on the ability to transmit electric energy economically over longer distances, and other developments in the industry, such as brokers and marketers." Id. Such advances and developments are breaking down traditional boundaries and concepts of regions. The Commission has confirmed its support for the Staff's Report, citing, in particular, the Staff's recommendation that the Commission "continue to interpret the 'single area or region' requirement of [the 1935 Act] to take into account technological advances." NIPSCO, supra; accord, Sempra, supra. The Applicants believe that the Xcel Electric system will satisfy "single area or region" requirement. The Xcel Operating Companies all have their electric operations in the Mid-Continent area of the United States in states that adjoin - Michigan, Wisconsin, Minnesota, North Dakota, South Dakota, Wyoming, Colorado, New Mexico, Texas, Oklahoma and Kansas. Three of the primary Xcel Operating Companies (SPS, NSP and New NSP) will be part of MISO, which will be tasked with operating the regional grid, and the other primary system, PSCo, will be directly interconnected upon completion of NCE's commitments in the 1997 NCE Order. An RTO, such as MISO, effectively defines a region from both an operational and economic standpoint. To reiterate, FERC is promoting RTOs due to operational and economic inefficiencies that presently exist. Generally, from an operational perspective, RTOs will place transmission services in a larger regional market, which is necessary to achieve short-term and long-term reliability, including the authority to direct transmission maintenance schedules and to redispatch generation to ensure the integrity and operation efficiency of the electric grid. The RTO will also ensure proper evaluation of ATC, proper transmission congestion management and proper management of loop flows. By virtue of common membership in MISO, the electric operations of the NSP companies and SPS will be part of the same region. Likewise, RTOs create an economic region due to the pancaking of transmission rates and the burden to transmission customers of having to arrange service from multiple providers that would otherwise exist. The result is that RTOs will likely become the primary trading region for RTO members. FERC has recognized the key of RTOs in establishing a trading region among utilities: The Commission has long recognized that transmission pricing reform is most effectively accomplished on a regional basis. An RTO would have the geographic scope needed to eliminate pancaked transmission rates within its region. This would broaden the generation market...thereby fostering more competitive markets and lower prices./96 MISO is organized to be extremely effective in achieving this objective. Quite simply, joint membership in MISO makes all of its members, at the most, one-wheel away./97 That is, the elimination of pancaked transmission rates throughout the MISO region will create a broad wholesale market readily accessible to all members. ---------- 96 RTO NOPR, FERC Stats & Regs at 33,716. See also Order No. 2000 at 31,174, where FERC stated: "A main reason that an RTO can expand the marketplace for generation to a large region is that an RTO can implement non-pancaked rates for each transaction. A wider area served by a single rate means more generation is economically available to any customer which means greater competition for energy." 97 In fact, under the MISO bylaws it may be possible for NSP and SPS to be part of a single zone in which case there would be no incremental cost of transmission (or no wheel) for exchanges of power between them. ---------- Thus, through a common RTO, the NSP companies and SPS will be in the same operational and economic region. These regions created by RTOs are larger than those in the electrical regions of the past for a variety of reasons. First, as previously discussed the technological advances and additions to the transmission network that have occurred since 1935 now permit trading to occur over 1000 mile distances. Second, as explained in detail previously, a large region is necessary to address the inefficiencies and inequities that FERC is seeking to remedy through RTOs. Moreover, although PSCo will not be in the same RTO as SPS and the NSP companies, it nonetheless should be considered to be in the same economic region, in light of the historic pattern of trading with Basin Cooperative and WAPA as described above. Upon the completion of Phase II of the tie line, trades into MAPP by PSCo will be further facilitated, and, more importantly, because the interconnection will place PSCo on the border of MISO, PSCo will be able to directly access the MISO region, including NSP, at non-pancaked rates. The conclusion that the Xcel Electric System will constitute a single area or region is further supported by the logic of the Commission's definition of "region" used for purposes of its size analysis under Section 10(b)(1). In Entergy, supra, the Commission adopted the applicants' definition of the relevant region for purposes of Section 10(b)(1) to include themselves and those electric utilities directly interconnected with either or both, which, at the time, were their most accessible markets. This region consisting of utilities within "one-wheel" of the merging utilities made sense in light of the barrier that rate pancaking presented in trying to access more distant markets. In today's increasingly competitive world, NSP and NCE do not operate as isolated companies, and their geographic region should be analyzed in terms of their most accessible market, which will be MISO. With the elimination of rate pancaking and with central control of their transmission assets in MISO, the Xcel Electric system will primarily compete within and access the MISO market and will be within "one wheel" of each other under the MISO Tariff. At the time PSCo interconnects its system with SPS, it will be one-wheel away from both SPS and NSP thereby satisfying the test set forth in Entergy. The Commission's recent decision in Sempra Energy is also relevant for a commodity business such as the evolving electricity industry. In that decision, the SEC approved Sempra's acquisition of a 90 percent interest in Frontier Energy LLC of North Carolina and considered the combined system to be an integrated system under the Act./98 In that decision the SEC affirmed the existence of a national natural gas commodity market. The SEC pointed out that, when the Act was drafted in the 1930s, the common source requirement meant the same source at the city gate. Now, however, with the changing gas market, it means obtaining gas from the same supply basins. Thus, even though the two systems in Sempra were 3,000 miles apart, the SEC said that its decision did not undercut the Act because the acquisition did not raise the concerns that prompted its enactment. ---------- 98 Sempra Energy, Holding Co. Act Release No. 26890 (June 26, 1998). ---------- The logic of this decision is directly applicable to electric mergers because the electric industry is in rapid transition to becoming both a commodity market and an extended retail consumer services industry. As demonstrated above, there are numerous instances where NCE and NSP purchase and sell commodity energy in the same market. These instances will increase with continued growth in wholesale electric power market competition. In Sempra, the SEC concluded that because Sempra and the North Carolina distribution company it was acquiring purchased some natural gas from the same supply basin, they were integrated utilities for Section 11 purposes under the Act. Extending the logic of Sempra to the evolving electricity markets, the systems of NSP and NCE are in a "single area or region" because they purchase and sell energy into the same regional and national commodity markets. Moreover, the combination of the NSP companies and the NCE Operating Companies does not contravene the policy of the Act against "scatteration" - the ownership of widely dispersed utility properties that do not lend themselves to efficient operation. As stated in Sempra, supra, "The Act is directed against the growth and extension of holding companies [that] bear no relation to economy of management and operation or the integration and coordination of related operating properties". In the AEP/CSW Order, the Commission found that the combined operations of the AEP and CSW systems would be confined to a single area or region due to the presence of the following four factors: (i) the combined system would be interconnected and susceptible of economic and coordinated operations, (ii) no adverse finding on anticompetitive grounds was necessary under Section 10(b)(1), (iii) the size of the combined system would not impair efficient operation, localized arrangement or effective regulation, and (iv) the merger would result in economies and efficiencies under Section 10(c)(2). These same factors are present in this case. As demonstrated above, the Primary System of NCE and the electric operations of NSP and NSP-W will be economically operated as a single interconnected and coordinated system and no adverse finding is required on anticompetitive grounds under Section 10(b)(1). As demonstrated below, the size of the combined system will not have an adverse effect upon localized management, efficient operation or effective regulation and the Merger will result in economies and efficiencies under Section 10(c)(2). Finally, Applicants retained the Pacific Economics Group to determine whether the service territories of NSP and NCE constitute a single region under traditional economic theories. The report of the Pacific Economies Group, filed as EXHIBIT K-1, demonstrates that the companies operate in a single, unified economic region. Pacific Economics Group used a gravity model to demonstrate a high degree of economic interaction in the region including NSP and NCE's service territories. Finally, Pacific Economics further found that the geographic Elzinga-Hogarty market analysis underscores this result, clearly identifying that the companies operate within a distinct economic region. For all of these reasons, the Applicants believe that the Xcel Electric System will be confined to a single area or region, within the meaning of the Act./99 ---------- 99 As explained below, the Xcel Gas System, which spans the same geographic expanse, is itself an integrated public utility system which by definition is confined "to a single area or region." ---------- (d) Size The final clause of Section 2(a)(29)(A) requires the Commission to look to the size of the combined system (considering the state of the art and the area or region affected) and its effect upon localized management, efficient operation and the effectiveness of regulation. In the instant matter, these standards are easily met. The size of the Xcel Electric System will not impair the advantages of localized management, efficient operation or the effectiveness of regulation. Instead, the Merger will actually increase the efficiency of operations. Localized Management -- The Commission has found that an acquisition does not impair the advantages of localized management where the new holding company's "management [would be] drawn from the present management" (Centerior, supra), or where the acquired company's management would remain substantially intact (AEP, supra). The Commission has noted that the distance of corporate headquarters from local management was a "less important factor in determining what is in the public interest" given the "present-day ease of communication and transportation." AEP, supra. The Commission also evaluates localized management in terms of whether a merged system will be "responsive to local needs." AEP, supra. The management of Xcel will be drawn primarily from the existing management of NSP and NCE and their subsidiaries. NSP will continue to maintain its corporate headquarters in Minneapolis and will maintain the management structure of its combined subsidiary companies (including the electric operating and other subsidiary companies of NCE) essentially intact. The electric utility subsidiaries will continue to operate through the regional offices with local service personnel and line crews available to respond to customers' needs. Xcel will preserve the well-established delegations of authority -- currently in place at NSP and NCE -- which permit the local, district and regional management teams to budget for, operate and maintain the electric distribution system, to procure materials and supplies and to schedule work forces in order to continue to provide the high quality of service which the customers of NSP and NCE have enjoyed in the past. In short, the management structures of NSP and NCE, which are responsive to local needs, will be left essentially intact after the Merger. Accordingly, the advantages of localized management will not be impaired. Efficient Operation -- As discussed above in the analysis of Section 10(b)(1), the size of Xcel will not impede efficient operation; rather, the Merger will result in significant economies and efficiencies as described in Item 3.C.2 below. Operations (as described in Item 1.E.) are more efficiently performed on a centralized basis because of economies of scale, standardized operating and maintenance practices and closer coordination of system-wide matters. Effective Regulation -- The Merger will not impair the effectiveness of regulation at either the state or federal level. The utility subsidiaries of NCE will continue to be regulated by the state commissions of Colorado, Texas, Wyoming, Oklahoma, New Mexico and Kansas with respect to retail rates, service and related matters. The electric utility subsidiaries of NSP will continue to be regulated by the state commissions of Minnesota, North Dakota, South Dakota, Michigan and Wisconsin with respect to retail rates, service and related matters./100 On the federal level, Xcel will be fully regulated as a registered holding company. The electric utility subsidiaries of Xcel will continue to be regulated by FERC with respect to interstate electric sales for resale, transmission services and other matters, by the NRC with respect to the operation of nuclear facilities, and by the FCC with respect to certain communications licenses. The jurisdiction of other federal regulators is similarly not affected. Moreover, the Merger Agreement requires approvals from most of the regulatory authorities having jurisdiction over the Xcel Operating Companies as a condition to the consummation of the Merger. Applicants are working closely with such regulators (both state and federal) to obtain the required approvals (as described below in Item 4). Presumably, if the Merger results in an impairment of regulatory authority, the state commissions will not approve it./101 ---------- 100 The NSP and NCE management structures are designed to facilitate communications with state regulators. Each company has established State offices which have responsibility for regulatory, environmental, and corporate communications and have other external relations purposes. These state offices provide a single point of contact with each of the state regulatory and environmental offices and have the responsibility for handling all regulatory contacts, including making regulatory filings and answering customer inquiries to the regulatory commissions. It is expected that these offices will be left essentially intact after the Merger. 101 In fact, a key aspect of the merger applications is to explain why no such impairment of regulatory authority occurs. ---------- Also, the FERC Merger Order addressed the potential impact of the Merger on regulation. The FERC stated: As explained in the Policy Statement, the Commission's primary concern with the effect on regulation of a proposed merger involves possible changes in the Commission's jurisdiction when a registered holding company is formed, thus invoking the jurisdiction of the Securities and Exchange Commission (SEC). We are also concerned with the effect on state regulation where a state does not have the authority to act on a merger. . . With respect to state regulation, Applicants note that the transaction will be reviewed by the state public utility commissions of Minnesota, North Dakota, Arizona, New Mexico, Colorado, Wyoming and Texas and will not impair regulation in any of these state jurisdictions. In addition, Applicants state that although the public utility commissions of Kansas, Wisconsin, Michigan, Oklahoma, and South Dakota do not have direct authority to approve the merger transaction, each state commission has authority to protect retail customers from the effects of the merger. Applicants maintain that their operating companies will continue to be subject to state regulation after the transaction in each of these jurisdictions. Intervenors, including the public utility commissions of the states of Wisconsin, South Dakota, North Dakota, and Minnesota, raise no issues of adverse impact on regulation. Accordingly, in light of the facts and commitments stated above, we are satisfied that the proposed merger will not have an adverse effect on regulation./102 ---------- 102 FERC Merger Order at 26. ---------- Summary The cumulative effect of the regulatory, technological and economic changes discussed above have significantly changed what is now the "state of the art" in the electric industry. The Commission must respond to these changes realistically in a manner that furthers the national and local energy policies that have developed. A rigid reading of the integration requirement was undoubtedly appropriate at a time when ownership or control of the intervening lines was the only way that a utility could move power from its generation assets to its distribution systems. The need for this type of firm physical interconnection has been reduced, if not eliminated, as the distribution systems now routinely contract for power with nonaffiliates and move the purchased commodity power over independently operated or owned transmission lines -- or eliminate the requirement for physical movement of power from the generator to the utility system through use of market swaps, power displacement or other similar techniques. Indeed, a narrow reading of the integration standard could force merging parties to a "Hobson's choice," by requiring unnecessary interconnections that could cause a merger to fail to satisfy FERC's standards for approval. In the 1995 Report, the Division recommended that the Commission focus on whether the resulting system will be subject to effective regulation. The Study emphasized that "open access under FERC Order No. 636, wholesale wheeling under the Energy Policy Act [and FERC Order No. 888] and the development of an increasingly competitive and interconnected market for wholesale power have expanded the means for achieving the interconnection and the economic operation and coordination of utilities with non-contiguous service territories." The Study further expressed concern that the Act "not serve as an artificial barrier where other energy regulators have determined that an acquisition will benefit utility consumers." Accordingly, the Study concluded that "[w]hen considering any proposed acquisition, the SEC should consider whether the resulting system will impair the effectiveness of regulation. Where the affected state and local regulators concur, the SEC should interpret the integration standard flexibly to permit non-traditional systems if the standards of the Act are otherwise met." (Emphasis added.) Under this approach, if the affected States approve a proposed transaction (a condition precedent to the instant Merger), the "effectiveness of regulation" standard would be met. In summary, the Applicants believe that the Merger will result in an integrated electric system under the current "state of the art" in the electric industry. The NCE and NSP systems will be physically interconnected through both the 100 MW Northbound Path and common membership in MISO. Either is sufficient to meet the physically interconnected standard. The two systems will be economically operated as a single interconnected and coordinated system primarily through the Joint Operating Agreement and New Century Services. The two systems will be in the same area or region. Finally, the Merger will not impair localized management, efficient operation or effective regulation. The Merger also will benefit investors, consumers and the public interest and will not give rise to the evils against which the Act is addressed. Accordingly, for the reasons set forth above, the Commission should find that the Xcel Electric System comprises a single, integrated electric-utility system within the meaning of the Act. (ii) Retention of Combined Gas System Because the Commission has interpreted the term "integrated public-utility system" to mean a system that is either gas or electric, but not both, it is necessary to qualify the combined gas operations of NSP and NCE (the "Xcel Gas System") under the "A-B-C" clauses of Section 11(b)(1). Under those provisions, a registered holding company can own "one or more" additional integrated systems if certain conditions are met. Specifically, the Commission must find that (A) the additional system "cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system," (B) the additional system is located in one state or adjoining states, and (C) the combination of systems under the control of a single holding company is not so large . . . as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." As shown below, the Xcel Gas System will constitute a single, integrated public utility system. Section 2(a)(29)(B) defines an "integrated public utility system" as applied to gas utility companies as: a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its 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: Provided, that gas utility companies deriving natural gas from a common source of supply may be deemed to be included in a single area or region. The combined gas operations of NSP and NCE satisfy this definition. First, both the Commission's precedent and current technological realities indicate that the Xcel Gas System will operate as a coordinated system confined in its operation to a single area or region because it will derive natural gas from common sources of supply, and utilize common transportation and storage facilities. The gas utility operations of NSP and NCE will operate in a single area or region, as those operations are in the adjoining states of Michigan, Wisconsin, Minnesota, North Dakota, South Dakota, Wyoming, Colorado and Arizona. The Commission has not traditionally required that the pipeline facilities of an integrated gas system be physically interconnected. See, Penzoil Company, Holding Co. Act Release No. 15963 (Feb. 7, 1968) (finding an integrated gas utility system where some gas utility properties were not connected with the rest of the system, but with the facilities of an unaffiliated transmission company from which the system purchased all natural gas supplied to those properties, but not each other). See also, American Natural Gas Company, Holding Co. Act Release No. 15620 n.5 (Dec. 12, 1966) ("It is clear the integrated or coordinated operations of a gas system under the Act may exist in the absence of such interconnection"). Instead, the Commission has looked to such issues as from whom the distribution companies within the system receive much, although not all, of their gas supply. See, e.g., Philadelphia Company and Standard Power and Light Company, Holding Co. Act Release No. 8242 (June 1, 1948) ("most of the gas used by these companies in their operations is obtained from common sources of supply"); Consolidated Natural Gas Company, Holding Co. Act Release No. 25040 (Feb. 14, 1990) (finding integrated system where each company derived natural gas from two transmission companies, although one such company also received gas from other sources); Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1, 1999) (finding an integrated system where each utility would derive "a significant amount" of gas from two basins and noting that gas can now be obtained by more flexible and efficient means, due to the development of market centers, hubs and pooling points). The Commission also has considered obtaining gas from a common pipeline, North American Company, Public Holding Co. Act Release No. 11530 (finding Panhandle Eastern pipeline to be a common source of supply): NIPSCO Industries, Holding Co. Act Release No. 26975 (Feb. 10, 1999) (finding an integrated system where the applicants had contracted capacity on only one common long-haul pipeline and ten of sixteen individual interstate pipelines on which the applicants' systems had contract capacity intersected at and formed industry-recognized trading hubs), as well as from different pipelines when the gas originates from the same gas field in determining a common source of supply. See, Central Power Company and Northwestern Public Service Company, Holding Co. Act Release No. 2471 (Jan. 6, 1941), in which the Commission declared an integrated system to exist where two entities purchase from different pipeline companies since "both pipelines run out of the Otis field, side by side, and are interconnected at various points in their transmission system; and that they are within two miles of each other at Kearney." See also, MCN Corporation, Holding Co. Act Release No. 26576 (Sept. 17, 1996) (finding an integrated system where one gas utility would receive 70-90% of its gas supply from the same basin from which two affiliates received 46% and 55% of their supply). Since the time of most of these decisions, the state of the art in the industry has developed to allow efficient operation of systems whose gas supplies derive from many sources. The NSP and NCE gas operations today purchase gas from multiple basins and transport gas on multiple pipelines in order to enhance supply competition and provide increased reliability. However, NSP and NCE purchase significant quantities of natural gas from common supply basins as shown below. As shown below, approximately 75% of the 324.7 Bcf of natural gas purchased by the combined NSP/NCE gas operations during 1998 were from common supply sources (i.e., the MidContinent, Permian and Rocky Mountain basins), with NCE deriving more than 92% of its gas supplies and NSP deriving approximately 36% of its gas supplies from such common sources. The majority of these supplies were delivered off of the Northern Natural Gas Company ("NNG") and Colorado Interstate Gas Company ("CIG") pipeline systems to NSP and NCE, respectively. The pipeline systems of NNG and CIG are directly connected in two locations in the Mid Continent supply basin (i.e., the Hugoton and Anadarko supply basins). Together NCE and NSP hold over 1.5 Bcf of daily capacity and receive peak day deliveries in excess of 1.7 Bcf from the NNG and CIG pipeline systems. NSP and NCE purchase gas from the following major supply basins: NATURAL GAS NCE NSP FIELD/BASIN (Bcf) NCE % (Bcf) NSP % ----------- --- ----- --- ----- Mid Continent 33.7 14.8 27.7 28.5 Permian 58.5 25.7 5.3 5.5 Rocky Mountain 118.7 52.2 1.7 1.8 San Juan 2.9 1.2 - - Denver-Julesburg 13.8 6.1 - - Alberta - - 41.9 43.2 Other - - 20.4 21.0 ----- ----- ---- ----- Total 227.6 100.0 97.0 100.0 In addition to the above, NCE and NSP own or have contracted for significant underground gas storage and own local gas peak shaving capacity at numerous locations throughout Colorado, Minnesota, Texas and other Midwestern states. The vast majority of this storage and peak shaving capacity is directly linked or accessible to the NNG and CIG pipeline systems. As a result, these operationally flexible assets have the ability to further integrate the common sources of supply for NCE and NSP. Access to the various storage facilities and pipelines forms a grid upon which the companies can source supply to take advantage of relative shifts in market conditions among the various producing basins. The concept of a "common source of supply" is susceptible to a different understanding today than in 1935, when the "single area or region" was generally defined in terms of the pipeline delivery points (i.e., the city gate), where system LDCs purchased their gas. Sempra Energy, Holding Co. Act Release No. 26971 (Feb. 1, 1999). In Sempra, the Commission recognized "that the relevant inquiry today is whether the system LDCs purchase substantial quantities of gas produced in the same supply basins, and whether that gas is 'deliverable' - in other words, whether there is sufficient transportation capacity available in the marketplace to assure delivery on an economical and reliable basis." See also NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (February 10, 1999) (NIPSCO Industries' acquisition of Bay State Gas Company, in which case the Commission held that "[a]lthough the intervening territory between the NIPSCO Operating Companies is significant, we do not believe that the distance contravenes the policy of the Act against scatteration -- the ownership of widely dispersed utility properties which do not lend themselves to efficient operation and effective state regulation"). In NIPSCO Industries' acquisition of Bay State Gas Company, the Commission recognized that the "state of the art" in the gas industry continues to evolve and change, primarily as a result of decontrol of wellhead prices, the continuing development of an integrated national gas transportation network, the emergence of marketers and brokers, and the "unbundling" of the commodity and transportation functions of the interstate pipelines in response to various FERC initiatives, in particular Order 636,/103 which has dramatically altered the way in which local gas distribution companies purchase and ship their required gas supplies. NIPSCO, supra. ---------- 103 See 1995 Report, pp. 29-31. ---------- The Commission has also considered and recognized that another important development affecting the "state of the art" in the natural gas industry has been the creation of a national network of trading hubs and market centers. The development of trading hubs and market centers was a natural outgrowth of FERC Order 436 and 636, which, as indicated, required interstate pipelines to separate, or "unbundle," the commodity and transportation and storage functions of the interstate pipelines. In this regard, it is significant to note that 6 of the 12 individual interstate pipelines (long-haul and regional) on which the NCE and NSP companies have contracted capacity intersect at and form industry recognized trading hubs. These include: Name of Hub Location Intersecting Pipelines MidContinent Market Greensburg, Kansas ANR Pipeline Co. Center KN Energy, Inc. Natural Gas Pipeline Co. Northern Natural Gas Co. Panhandle Eastern PipeLine Co. Williams Gas Pipelines Chalk Bluffs near Cheyenne, Wyoming Colorado Interstate Gas Co. KN Energy, Inc. Westgas Interstate, Inc. Williams Gas Pipelines Wyoming Interstate Co. Trailblazer Pipeline Co. Buffalo Wallow near Amarillo, Texas ANR Pipeline Co. Reliant (NorAm) Gas Transmission Co. KN Energy, Inc. Natural Gas Pipeline Co. Panhandle Eastern PipeLine Co. Transwestern Pipeline Co. Trading hubs (including all of those listed above) essentially function as physical transfer points between intersecting pipelines, where shippers (i.e., buyers and sellers) and traders can sell, exchange or trade gas or pipeline capacity or redirect deliveries to a different pipeline. Further, various types of unbundled services are typically available at trading hubs, such as parking, loaning, and wheeling of gas and, in some instances, title transfer./104 Because of the role played today by market hubs and market centers, coordination of the operations of two non-contiguous gas companies is no longer dependent solely upon having contractual capacity on the same interstate pipelines, so long as the two companies both have access to one or more common trading hubs. ---------- 104 "Parking" is essentially a short-term interruptible storage service. "Loaning" is a service by which a party with gas will provide the gas to another party with a specific date for the return of such gas at either that location or another location under mutually agreeable terms and conditions (in effect, the inverse of parking). "Wheeling" is the provision of transportation by a hub operator from one system to another system. Finally, "title transfer" services allow parties to exchange title to gas that is already within a pipeline system for gas at different points on the same pipeline system or for gas that is on another pipeline system, without the requirement of physical movement. Title transfer in itself allows the shippers to minimize transportation costs. ---------- Importantly, trading hubs now allow gas distribution companies operating in a much larger area or region of the country to realize operating economies and efficiencies from coordinated operations that were once thought to be achievable only by contiguous or nearly contiguous gas companies supplied by the same interstate pipelines. In fact, as discussed below, the opportunities to achieve operating economies may be even greater where the two companies seeking to combine have significantly different load profiles (e.g., non-coincident seasonal peaks, a substantially different customer mix, etc.) or where, as in this case, the two companies are located in two different major gas market centers, experience non-coincident peak demands, and are served (to a degree) from common supply basins. Because NSP and NCE share access through their respective pipeline transporters to several industry-recognized market and supply-area hubs, they will have the ability to physically coordinate and manage their portfolios of gas supply, transportation, storage and peak shaving. Each of the hubs or market centers is served by a significant number of competing pipeline transporters, further expanding the potential supply options available to the merged company. In addition, as customers of hub services, NSP and NCE are among an even larger number of other customers of such services such as natural gas marketers, local distribution companies, and other wholesale customers. For example, the ANR and NNG pipelines, which transport gas to NSP, and the KN and Williams pipelines, which transport gas to NCE, all intersect at the MidContinent Market Center hub located at Greensburg, Kansas. At the MidContinent Market Center hub, NSP can arrange and consummate direct physical purchases and trades of gas and/or transportation capacity with NCE or with any other shipper having access to the MidContinent Market Center hub. NSP and NCE also have access to the Waha Permian Basin hub near Odessa, Texas via contracted capacity on the NNG and El Paso pipelines. The Waha Permian Basin hub is a recognized center for western natural gas index price futures trading in the U.S. Through four interstate and six intrastate pipeline interconnections, market participants such as NSP and NCE can physically support, if necessary and if permitted by state regulatory bodies, the utilization of financial derivatives as a means of managing price volatility. Moreover, through its contracted capacity on the CIG and KN pipelines, NCE would have access to the storage capacity held by NSP on NNG and ANR. Such access will enhance Xcel's ability to manage price volatility. These facilities would also provide NSP and NCE with an important gas balancing capability, which will allow them to manage fluctuating weather-related load profiles of each other's system. Finally, NSP and NCE would have direct access to the Chicago market center hub, which is expected to become an increasingly important source of gas for all eastern U.S. markets. In the current natural gas industry, limitations on the deliverability of gas in most areas of the country have disappeared. Under Section 2(a)(29)(B), these "state of the art" changes in the industry are directly relevant to the issue of the appropriate size of the "area or region" in which an "integrated" gas system may operate. (iii) Coordinated Operations of Combined Gas Properties NSP and NCE currently manage similar physical properties and contractual assets (gas supply, pipeline transportation, and storage contracts of varying types and duration). Each company maintains a professional staff that performs essential portfolio management functions. After the Merger, the gas supply departments of NSP and NCE,/105 which provide both gas supply planning and gas acquisition services, will be consolidated and become part of NCE Services. NCE Services will provide financial, accounting, tax, purchasing, and other services to associate companies, including gas supply planning and gas acquisition services to the gas utility operations of the Xcel system. The gas supply planning function will perform portfolio design and strategy./106 The gas acquisition function will implement this strategy on behalf of the Xcel gas operating companies through scheduling and supply procurement,/107 storage optimization,/108 price risk management,/109 and contract adminstration./110 As explained below, NCE and NSP have identified specific components of their gas management strategies which, through joint management and coordination, will enable the combined companies to enhance opportunities for savings in the marketplace. ---------- 105 The gas supply department of NSP currently consists of 9 individuals. NCE gas supply department consists of eight individuals. 106 Portfolio design includes the development of demand forecasts and modeling of the appropriate combination of portfolio components (e.g., the optimum levels of "firm" transportation and long-term gas purchases, short-term transportation and supply, and sportmarket transactions) to meet projected demand and the negotiation of all transportation and storage contracts. Portfolio strategy involves the development of strategies to optimize the daily and seasonal utilization of portfolio assets through the correlation of supply area and market area pricing activity with the load requirements and pressures of each individual company. 107 Procurement involves daily and short-term (less than three months) gas purchases in supply basis, market centers, pooling points, and other markets, based on the plan developed by the portfolio strategy group. 108 Storage optimization involves maximizing the "value" of storage contracts and storage that is owned through coordination and management of injection and withdrawal volumes and rates. 109 Price risk management implements strategies, using both physical and financial contracts, within guidelines approved by the board of directors. 110 Contract administration is responsible for contract administration and accounting functions, scheduling/nomination of gas shipments, and state regulatory reporting and support functions. ---------- The two gas supply planning departments will be unified under common management and, through use of common software (known as SENDOUT(TM)), will provide a consistent approach for planning and designing supply portfolios, including upstream resources of transportation and storage. The gas acquisition function will also be under common management and it is planned that the group will utilize a common software program for the gas acquisition functions described above. The gas departments of NSP (except for BMG) and NCE will also be linked upon consolidating their Gas Supervisory Control and Data Acquisition ("SCADA") systems. This system electronically communicates gas flow and gas pressure, and gas equipment set point data thereby monitoring the adequacy and reliability of gas supplies being delivered at the individual-town border stations serving NSP or NCE retail distribution systems. Consolidated SCADA operations (which will take some time to implement to assure gas reliability) will promote efficiencies and coordination among the NCE and NSP gas systems. Through the coordination and use of supply/demand information, NSP and NCE will be able to maximize revenues and minimize costs in such areas as pipeline capacity and storage utilization following the Merger. Several illustrations of how the merger of the gas departments will result in coordination of gas supply to the NCE and NSP systems were discussed above and include: - Using the data gathered and analyzed by the common management and the planned software tools, NCE Services will be able to make supply acquisition decisions that lower overall gas costs. With knowledge of available storage capacity at any moment, and weather conditions and other factors affecting anticipated demand, NCE Services will be able to make coordinated decisions for both systems, buying or selling firm capacity or, as explained above, diverting gas from the company with excess supply to the company in need of such supply. - At the MidContinent Market Center hub, NCE Services can arrange and consummate direct physical purchases and trades of gas and/or transportation capacity with NCE or NSP or with any other shipper having access to the MidContinent Market Center hub as two key pipelines serving the companies (Northern Natural and KN Energy) intersect there. - New NSP will increase the maximum daily production at one of its peak-shaving facilities by approximately 40%. NSP has already made significant investment on this project in anticipation of the completion of the Merger. When system demand conditions on the NCE system require, NSP would increase the output of this facility and serve NSP loads with peak shaving gas, and deliver NSP pipeline gas to the NCE system. This arrangement would reduce consolidated reserve margin needs while preserving reliability. In addition, on days when the peak shaving capacity is needed by NSP customers, New NSP would be able to increase the output of the facility to serve the firm supply needs of NSP gas customers. (This is quite similar to the coordination provided by the 100 MW contract path between SPS and NSP as that path will allow energy produced by SPS to be transferred to NSP just as the peak-shaving expansion creates a similar transfer of New NSP gas supply to NCE on days when it is most needed by NCE). Other aspects of coordinated operations will be common performance measurements and strategies to meet performance targets that will be implemented by the Xcel gas distribution companies. This coordinated management through NCE Services, with operational implementation through localized management, will assure the gas distribution companies are well maintained and managed throughout the NSP/NCE system. As indicated in Item 3.C.2 below, combination and coordination of the NCE and NSP gas operations will result in significant economies and savings. The estimated dollar value of synergies from the combination of the two gas systems is expected to exceed $100 million over the 10-year period from 2001-2010, of which $77.4 is expected to be derived from natural gas supply savings. The natural gas supply savings are based in large part on the coordinated activities discussed above, including gas transport and storage capacity reductions, gas reserve margin reductions, field transportation reductions and capacity release savings. Finally, as discussed below in detail in Item 3.c.1.(b).(iii).(c). in the context of Section 11(b)(1)(c) of the Act, the system will not be so large as to impair the advantages of localized management or the effectiveness of regulation. Localized management will be preserved. It is expected that the centralized functions of the Xcel gas system will be managed from one location, and the local functions will continue to be handled from several regional offices. Management will, accordingly, remain close to the gas operations, thereby preserving the advantages of local management. And, from a regulatory standpoint, there will be no impairment of regulatory effectiveness. The same state regulators currently overseeing these gas operations will continue to have jurisdiction after the proposed transaction is completed. Those same state regulators are already regulating multi-jurisdictional gas or combination gas/electric utilities. For all of these reasons, we believe that the Xcel gas operations will satisfy the integration requirements of Section 2(a)(29)(B). (a) Loss of economies Historically, the Commission had considered the question of whether a registered electric system could retain a separate gas system under a strict standard that required showing a loss of substantial economies before retention would be permitted. New England Electric System, 41 S.E.C. 888 (1964). In its affirmation of that decision, the U.S. Supreme Court declared that a loss of substantial economies could be demonstrated by the inability of the separate gas system to survive on a stand-alone basis. SEC v. New England Electric System, 384 U.S. 176, 181 (1966). This rigid interpretation of the requirements of Section 11(b)(1) has been explicitly eased by the Commission in its most recent decisions under Sections 9(a) and 10 of the Act both with respect to exempt holding companies (TUC Holding Company, Holding Co. Act Release No. 26749 (Aug. 1, 1997) and Houston Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997)) and newly formed registered companies (e.g., SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000); 1997 NCE Order). In these recent decisions, the Commission acknowledged that as a result of the transformation of utilities' status as franchised monopolies with captive ratepayers to competitors and also as a result of the convergence of the electric and gas industries that was then underway (and which continues today), the historical standards of review had become outdated and that separated electric and gas companies might be weaker competitors than they would be together in the same market. SCANA Corp., supra.; 1997 NCE Order; Houston Industries Incorporated, Holding Co. Act Release No. 26744 (July 24, 1997). Thus, newer transactions such as the Merger should be evaluated on the basis of new Commission precedent and policy in light of changing industry standards. Applicants believe that the Commission should allow the retention of the NSP-NCE gas operations as a matter of policy and as a matter of law. The Commission already has acknowledged that the electric and gas industries are converging and that combination companies may be more effective competitors in a given market. This trend towards, and the need for, convergence of the former separate electric utility function and gas utility function into one energy service company was recently recognized by the Commission in Consolidated Natural Gas Company, Holding Co. Act Release No. 26512 (April 30, 1996) (hereinafter, the "CNG Order"), where the Commission stated: "It appears that the restructuring of the electric industry now underway will dramatically affect all United States energy markets as a result of the growing interdependence of natural gas transmission and electric generation, and the interchangeability of different forms of energy, particularly gas and electricity." See also UNITIL Corp., Holding Co. Act Release No. 26527 (May 31, 1996); SEI Holdings, Inc., Holding Co. Act Release No. 26581 (Sept. 26, 1996); and Dominion Resources, Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999). In the instant situation, the lost economies that would follow from denying the retention of the NSP-NCE gas operations are substantial, both quantitatively and qualitatively. Divestiture of the NSP and NCE gas properties either into one company or into separate companies would result in the loss to consumers of the cost-saving benefits of the economies offered by the "energy services" approach of NSP and NCE to the utility business. While the losses cannot now be fully quantified, they are substantial. At the center of the energy services company concept is the idea that providing gas and electric services and products is only the start of the utility's job. In addition, the utility must provide enhanced service to the consumer by providing an entire package of both energy products and services. In this area, NSP's and NCE's efforts are part of a trend by utilities to organize themselves as energy service companies; that is, as providers of a total package of energy services rather than merely suppliers of gas and electric products. The goal of an energy service company is to retain its current customers and obtain new customers in an increasingly competitive environment by meeting customers' needs better than the competition. An energy service company can provide the customer with a low cost energy (i.e., gas, electricity or conservation) option without inefficient subsidies. As the Commission recognized in SCANA, WPL Holdings, TUC Holdings and the 1997 NCE Order, there are significant economies and competitive advantages inherent in a combined gas and electric utility as contrasted to a utility offering only electricity or gas. Besides the loss of these inherent economies, other substantial economies would be lost by the separation of the electric systems from the gas systems. These lost economies would include decreased efficiencies from separate meter reading, meter testing and billing operations, as well as decreased efficiencies in customer service operations, savings in facilities maintenance and emergency work coordination, and other administrative operations. As a result, the stand alone gas company (or separate gas companies) would have greater operating costs per unit sold and would, therefore, realize a lesser amount of any increased revenue on its bottom line. A final consideration, also raised by the Commission in the 1997 NCE Order, is that the gas and electric properties of NCE and NSP have long been under common control, and approval of the Merger will not alter the status quo with respect to these operations. While the Applicants believe that the foregoing is sufficient to permit retention under the standard established in SCANA, supra., Applicants also can demonstrate loss of economies under a more traditional analysis. Historically, the Commission has given consideration to four ratios, which measure the projected loss of economies as a percentage of: (1) total utility operating revenues; (2) total utility expense or "operating revenue deductions"; (3) gross utility income; and (4) net utility operating income. Although the Commission has declined to draw a bright-line numerical test under Section 11(b)(1)(A), it has indicated that cost increases resulting in a 6.78% loss of operating revenues, a 9.72% increase in operating revenue deductions, a 25.44% loss of gross gas income and a 42.46% loss of net income would afford an "impressive basis for finding a loss of substantial economies." Engineers Public Service Co., Holding Co. Act Release No. 1632 (Sept. 16, 1942). Direct Loss of Economies. NSP and NCE have each prepared separate studies of their respective gas utility operations that analyze the lost economies that their gas utility operations would suffer upon divestiture when compared to their retention pursuant to the Merger. These studies are attached to this Application as Exhibit J-1 and Exhibit J-2/111 (the "Gas Studies"). As set forth in the Gas Studies, if the gas operations of NSP and NCE were operated on a stand-alone basis, lost economies from the need to replicate services, the loss of economies of scale, the costs of reorganization, and other factors would be immediate and substantial. In the absence of rate relief, those lost economies would substantially injure the shareholders of NSP and NCE upon the divestiture of those gas operations. As the studies further show, if rate relief were granted with respect to the lost economies, then consumers would bear those substantial costs over what they would have to pay if the properties were retained as contemplated by the Merger. ---------- 111 As described below, the Applicants have also jointly prepared an analysis of the effects of combining their gas properties into one company prior to divestiture, which is filed as Exhibit J-3. ---------- As set forth in the Gas Studies, divestiture of the gas operations of PSCo, Cheyenne, NSP and NSP-W into stand-alone companies would result in lost economies of $25,807,000 for NSP, $7,629,000 for NSP-W, $55,862,000 for PSCo, and $1,417,000 for Cheyenne. The table below shows the 1998 gas operating revenues, gas operating revenue deductions, gas gross income and gas net income of NSP, NSP-W, PSCo and Cheyenne. ================================================================================ Gas 000s Gas Gas Operating Gas Operating Gross Net Company Revenues Revenue Deductions Income Income NSP $360,567 $330,578 $29,989 $23,432 NSP-W $78,800 $73,510 $5,290 $3,691 PSCo $682,289 $585,557 $96,732 $73,321 Cheyenne $20,995 $18,574 $2,421 $1,857 ================================================================================ On a percentage basis, the lost economies amount to 76.19% of 1998 gas net income for PSCo, 76.35% for Cheyenne, 110.14% of gas net income for NSP and 206.69% of gas net income for NSP-W -- far in excess of the loss of net income in UNITIL, where the Commission allowed the retention of gas utility operations, and the 30% loss in New England Electric System that the Commission has described as the highest loss of net income in any past divestiture order./112 As a percentage of 1998 gas operating revenues, these lost economies described in the Gas Studies amount to 8.19% for PSCo, 6.75% for Cheyenne, 7.16% for NSP and 9.68% for NSP-W--losses substantially higher than the losses in any past divestiture order./113 As a percentage of 1998 expenses or operating revenue deductions, the lost economies described in the Gas Studies would amount to 9.54% for PSCo, 7.63% for Cheyenne, 7.81% for NSP, and 10.38% for NSP-W, higher than the losses in any past divestiture order and, in Entergy Corporation, Holding Co. Act Release No. 25952 (Dec. 17, 1993), another case in which the Commission authorized the retention of gas operations. As a percentage of 1998 gross income, the lost economies described in the Gas Studies amount to 57.75% for PSCo, 58.53% for Cheyenne, 86.05% for NSP and 144.22% for NSP-W, far in excess of the highest loss of gross income in any divestiture order. ---------- 112 See UNITIL Corp., supra ("The Commission has required divestment where the anticipated loss of income of the stand-alone company was approximately 30%..." or "29.9% of net income before taxes"), citing SEC v. New England Electric System, 390 U.S. 207, 214 n.11 (1968). 113 The highest loss of operating revenues in any case ordering divestiture is commonly said to be 6.58%. See, e.g., UNITIL Corp., supra ("[o]f cases in which the Commission has required divestment, the highest estimated loss of operating revenues of a stand-alone company was 6.58%..."). ---------- In order to recover these estimated lost economies, PSCo would need to increase rate revenue by $57,738,000 or 8.53%, Cheyenne would need to increase revenue by $1,615,000 or 7.69%, NSP would need to increase revenues by $26,723,000 or 7.41% and NSP-W would need to increase rate revenue by $7,812,000 or 9.91%. These increases in rate revenues would have a direct and immediate negative impact on the rates charged to customers for gas services. In addition, the customers of NCE and NSP gas businesses who are also customers of their respective electric utility businesses will experience a doubling of their postage costs to pay separate bills. The total estimated increase in such postage costs is $3.96 per customer per year or $6,026,733 in the aggregate ($1,523,000 for NSP gas customers, $326,000 for NSP-W gas customers, $4,065,000 for PSCo gas customers, and $113,000 for Cheyenne gas customers.) It is the intention of the Applicants that their separate gas properties be integrated and operated as a single economic system in conjunction with Applicants' electric system in order to better provide competitive comprehensive energy services to Applicants' customers. Because today the properties of NSP and NCE are operated as separate entities and Section 11(b)(1)(A), (B) and (C) appear to require an analysis of "[e]ach such additional system," the Gas Studies described above looked at divestiture of four separate gas systems, preserving their present status of being separate from one another, which produced annual lost economies that are estimated to be $90.7 million per annum. The Applicants have also prepared a study that evaluates the economic impact of a divestiture of the natural gas assets of NSP and NCE into a single stand-alone gas holding company ("BigGasCo"), Exhibit J-3. While this alternative form of divestiture would allow some of the savings of the Merger (primarily in natural gas supply procurement and transportation management) to be realized, the combination of the gas operations under Xcel would facilitate and enhance the efficiency of the gas operations to a much greater degree than divestiture to a stand-alone BigGasCo gas utility operation. In addition, the increased costs to the remaining Xcel electric utility operations are not mitigated in any way, thus reducing the predicted merger savings to the Xcel electric utility operations from the merger. The lost savings to combined NSP and NCE electric ratepayers would be $110,447,000 or 2.89%. As set forth in EXHIBIT J-3, combining the Applicants' gas properties into one company prior to divestiture would still result in lost economies of $55,115,000, assuming no rate adjustments to recover the lost economies and associated income taxes. On a percentage basis, this is equivalent to 4.8% of total operating revenue, 5.47% of total operating revenue deductions, 41% of gross income, and 53.88% of 1998 net income. These lost economies are greater (in three of the four measures) than those found adequate to support retention in New England Electric System, 41 S.E.C. 888 (1964), rev'd SEC v. New England Electric System, 346 F.2d 399 (1st Cir. 1966), rev'd and remanded, 384 U.S. 176 (1965), on remand, 376 F.2d 107 (1st Cir. 1967), rev'd, 390 U.S. 2-7 (1968) ("NEES") (approving retention on measures of 4.8% of operating revenues, 6% of operating revenue deductions (excluding federal income tax), 23.3% of gross income (before federal income taxes) and 29.9% of net income (before taxes). The fact that the lost economies are below the levels in NEES for one measure is not significant because the Commission has established that retention may be warranted when the "cost increases that would result from severance of the gas properties would in most instances be consistent with [the established] thresholds." Dominion Resources, Inc., Holding Co. Act Release No. 27133 (Dec. 15, 1999) (emphasis added) (citing NEES with approval). In the case of divestiture, BigGasCo's customers would pay $58,156,000 or 5.1% more in rates to offset these losses. In comparison, if the Merger were implemented as proposed, gas ratepayers would save $20,736,000 or 1.82%. In addition, both NSP's and NCE's gas customers would incur increased personal costs, such as postage on a separate envelope and additional check costs to mail payments to two utilities. Finally, the earnings contribution relating to NSP and NCE's combined gas businesses would be decreased by approximately 54%. Such a decline would make ownership of shares in this stand-alone gas company unattractive. In summary, divestiture of BigGasCo would result in a loss or necessary rate increase of $168,000,000 annually ($58 million in annual gas revenue plus $110 million in annual revenue increases for the remaining Xcel electric companies). These negative consequences do not tend toward the economical and efficient development of an integrated public utility system. The lost economies occurring from both divestiture of NCE and NSP's gas utilities as separate businesses and as a combined stand-alone company are substantial in an industry in which there are already many companies competing with Applicants for the provision of comprehensive energy services in Applicants' service territories and, where there is not yet competition, lost economies may well result in increased retail rates. Competition between energy suppliers can only benefit consumers. Increasingly, the competitors are themselves suppliers of comprehensive energy services just like NCE, NSP, TUC Holding Company and Reliant Energy Inc. Accordingly, it is Applicants' view that the standards of Clause A are satisfied in light of the increased expenses and the potential loss of competitive advantages that could result from separation from the gas system. Against this background, Applicants believe that the Commission should find the standards of Clause A satisfied with respect to the gas systems of NCE, NSP and NSP-W. (b) Same state or adjoining states The proposed Merger does not raise any issue under Section 11(b)(1)(B) of the Act. The Commission has paraphrased Clause B as follows: "All of such additional systems are located in a state in which the single integrated public utility system operates, or in states adjoining such a state, or in a foreign country contiguous thereto." Engineers Public Service Company, Holding Co. Act Release No. 2897 (July 23, 1941), rev'd on other grounds, 138 F.2d 936 (D.C. Cir. 1943), vacated as moot, 332 U.S. 788 (1947). The Xcel Gas System is located in the same states as the Xcel Electric System, plus Arizona, and Arizona adjoins Colorado, a state in which the Xcel Electric System operates. Thus, the requirement that each additional system is located in one state or adjoining states is satisfied. (c) Size Further, retention of the combined gas operations of NCE and NSP as an additional integrated system raises no issue under Section 11(b)(1)(c) of the Act. The combination of the systems under the control of a single holding company will not be "not so large . . . as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." As the Commission has recognized elsewhere, the determinative consideration is not size alone or size in an absolute sense, either big or small, but size in relation to its effect, if any, on localized management, efficient operation and effective regulation. From these perspectives, it is clear that the continued combination of the gas operations under Xcel is not too large. Even after the combination, the gas utility operations of New NSP, NSP-W, BMG, PSCo and Cheyenne, with some 1.5 million gas customers combined in seven states, will be smaller than Reliant Energy (the parent of Minnegasco) which, through subsidiaries, has 2,700,000 gas customers, 630,000 of which are in Minnesota. This company is among NSP's and NCE's primary natural gas competitors in the region. Based on data through December 31, 1998, and giving effect to the Merger, the combined gas assets will represent only 8.6% of the total assets of Xcel, whereas the electric assets will represent 51.6%; operating revenues for the gas operations will be 16.5% of total Xcel's revenues as compared with 74.1% for the electric operations; and customers of the gas operations will constitute 33.3% of all Xcel's customers, while electric operations will represent 67.6%. With respect to localized management, this issue is discussed for the Merger as a whole under Item 3.C.1.(b)(i)(a) below. Applied solely to the gas operations, the current NSP, NSP-W, BMG, PSCo and Cheyenne gas systems enhance localized management within the larger corporate structure and will continue to do so after the Merger is completed. After the Merger, certain centralized gas functions of Xcel will be managed by New Century Services from a centralized location, and the local functions will continue to be handled from regional offices. No reduction in customer service or support crews is expected. Management will therefore remain geographically close to the gas operations, thereby preserving the advantages of localized management. From the standpoint of regulatory effectiveness, NSP already operates a combined gas and electric utility in Minnesota, North Dakota and South Dakota, as does NSP-W in Wisconsin and Michigan, PSCo in Colorado and Cheyenne in Wyoming. In addition, several other gas utilities in the region serve customers in several states. Thus, the regulatory agencies in the seven states are currently regulating multi-jurisdictional gas utilities and will be able to effectively regulate the gas utility operations of Xcel after the Merger. In addition, the historical joint gas and electric utility operations of NSP have never raised regulatory concerns in Minnesota and North Dakota, and NSP has requested the Minnesota, North Dakota and Arizona regulatory authorities to make findings that the retention of the existing gas system of NSP would not impair their ability to regulate these systems effectively./114 With respect to efficient operation, as described below, as part of the Xcel system, the gas operations of New NSP, NSP-W, PSCo and Cheyenne are expected to reduce purchased gas costs by $77.4 million from 2001 to 2010, which will be flowed through to customers via lower rates in accordance with state commission approved purchased gas adjustment clauses. Far from impairing the advantages of efficient operation, the combination of the gas operations under Xcel will facilitate and enhance the efficiency of gas operations. ---------- 114 In approving the merger of PSCo and SPS into NCE, the Colorado Commission similarly supported the retention by PSCo of its gas operations, and the Wyoming Commission similarly supported the retention by Cheyenne of its gas operations. ---------- As in the 1997 NCE Order and WPL Holdings, the proposed combination of NCE and NSP offers Applicants a means to compete more effectively in the emerging energy services business. Further, as discussed above, the Merger will give rise to none of the abuses, such as ownership of scattered utilities properties, inefficient operations, lack of local management or evasion of state regulation, that section 11(b)(1) and the Act generally were intended to prohibit. While Applicants believe that the Xcel Gas Operations constitute a single, integrated public utility system under that is retainable under Section 11(b)(1) of the Act, Applicants assert, in the alternative, that the Commission could find that Xcel will have two integrated gas systems, the first consisting of its Arizona gas operations (the "BMG System") and the second, the combined gas operations of NSP and NCE other than BMG. The rationale for the NSP-NCE gas operations being an integrated system entitled to retention under Section 11(b)(1) is explained above. The rationale for the retention of the BMG System is explained below. As explained previously, NSP currently has pending before the Commission an Application in File No. 70-9337 for approval to transfer the assets and operations of BMG to a subsidiary of NSP. As explained in detail in that application and as a background in this filing, NSP acquired BMG on July 24, 1998 pursuant to a merger in which BMG was merged into NSP with NSP as the surviving corporation./115 The shareholders of the common stock of BMG approved the merger of BMG with and into NSP at a special meeting of BMG's shareholders on May 21, 1998. The BMG Merger was approved by the Arizona Commission, the Minnesota Commission and the North Dakota Commission. In addition, NSP obtained approval from the Arizona Commission, the Minnesota Commission and the North Dakota Commission to drop the BMG assets into a new wholly-owned entity that will be a first-tier subsidiary of Xcel. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") has expired. ---------- 115 Pursuant to an Agreement and Plan of Merger, dated as of December 29, 1997 (the "BMG Merger Agreement"), on July 24, 1998, BMG merged into NSP with NSP as the surviving corporation. A copy of the Merger Agreement is incorporated by reference as Exhibit B-4. Pursuant to the BMG Merger Agreement, each issued and outstanding share of common stock, no par value, of BMG ("BMG Common Stock) (except shares owned by BMG as treasury stock) was canceled and converted into the right to receive a fraction of a share of common stock, $2.50 par value, of NSP ("NSP Common Stock") equal to the quotient (hereinafter, the "Exchange Ratio") derived by dividing (A) $17,750,000 by (B) the product of (i) the volume weighted average of the closing prices for NSP Common Stock on the New York Stock Exchange for the twenty full trading days ending on the third full trading day prior to July 24, 1998, the date the Merger became effective (the "Average NSP Share Price") and (ii) the number of shares of BMG Common Stock issued and outstanding immediately prior to July 24, 1998. Pursuant to the BMG Merger Agreement an additional number of shares of NSP Common Stock equal to the quotient derived by dividing $1,500,000 by the Average NSP Share Price was placed in escrow to satisfy any indemnification claims of NSP under the BMG Merger Agreement. Such additional shares, net of any indemnification claims, were distributed pro rata to the former holders of BMG Common Stock on or about July 24, 1999, the first anniversary of the closing of the Merger. ---------- BMG was incorporated under the laws of Arizona in 1965. Prior to its acquisition by NSP, BMG was an Arizona public service corporation providing natural gas distribution to an area of approximately 100 square miles in Maricopa County, Arizona, and providing propane gas distribution to an area of approximately 20 square miles in Coconino County, Arizona, pursuant to certificates of convenience and necessity issued by the Arizona Commission. As of the year ended December 31, 1999, BMG provided utility services to approximately 7,800 customers. Most of its customers are residential. Non-residential customers include two school districts, three resorts and multiple light commercial customers. BMG's operations are not subject to regulation under the jurisidiction of the FERC. The rates charged by BMG (operating as a division of NSP) to customers are regulated by the Arizona Commission. BMG's total operating revenues for the years ended December 31, 1997, 1998 and 1999 were approximately $6.2 million, $6.3 million and $6.4 million, respectively. For the same peiods, BMG's net income was approximately $1.3 million, $365,000 and $855,000, respectively. BMG's assets as of December 31, 1997, 1998 and 1999 were approximately $10.3 million, $15.5 million and $16.6 million, respectively. More detailed information concerning BMG is contained in the Proxy Statement of BMG dated April 23, 1998, incorporated by reference as Exhibit C-4. For the reasons set forth in detail in its Application in File No. 70-09337, NSP believes that its gas utility system, including the BMG System, constitutes an integrated gas utility system under Section 2(a)(29)(B) of the Act. Yet, given its small size and proximity to the primary Xcel Electric System and the other additional systems, the BMG System also readily satisfies the standards for retention under the "A-B-C" clauses of Seciton 11(b)(1). Under those provisions, a registered holding company can own "one or more" additional integrated systems if certain conditions are met. Specifically, the Commission must find that the additional system "cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system," (B) the additional system is located in one state or adjoining states, and (C) the combination of systems under the control of a single holding company is not so large ... as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." Each of those conditions is satisfied with respect to the BMG System. The Commission has recently addressed the retention by a registered electric system of "very small" gas operations. At issue in Allegheny Energy, Inc., Holding Co. Act Release No. 27121 (Dec. 23, 1999), was the retention of gas assets with $23.7 million in gas revenues, significantly larger than those of the BMG System in this matter. Concerning the requirements of Clause A, the Commission stated: the Act does not prohibit ownership of combination gas and electric systems, but rather specifies the showings that must be made by an applicant to justify ownership of such properties. The Commission has addressed, in many cases, the question of retainability by electric registered holding company systems of additional integrated gas systems and has reached its findings under clause A on a case-by-case basis, in light of the particular facts. The principal issue under clause A is whether there would be a loss of substantial economies if the additional system were divested. Although Monongahela Power did not provide the Commission a formal analysis of the gas system as a separate system, the record permits a finding that there would be a loss of substantial economies if Monongahela Power were required to divest the gas properties. By any measure, the gas system is very small. As noted above, the WVP system serves 24,000 customers. The Commission finds the requirements of clause A are satisfied with respect to Monongahela Power's ownership of the gas properties of West Virginia Power as an additional integrated system. The gas operations in this matter are smaller in every respect than those at issue in Allegheny. In addition, association with a larger system is necessary to ensure the realization of the benefits and economies that lead to the acquisition by NSP of BMG in the first instance. These include corporate and administrative efficiencies, management and operational efficiencies, purchasing economies and enhanced technology and computer services. The BMG System also satisfies the requirements of Clauses (B) and (C). Specifically, Arizona is adjacent to New Mexico and contiguous to Colorado where the primary Xcel Electric System operates. For the reasons explained in detail elsewhere in this Application and in NSP's Application in File No. 90-09337, the combination of systems under the ownership of Xcel will not be "so large as to impair the advantages of localized management efficient operation, or the effectiveness of regulation." (iv) Retention of Other Businesses In the 1997 NCE Order, the Commission approved the retention by NCE of certain non-utility businesses of PSCo and SPS, as well as their direct and indirect subsidiary companies. Annex C sets forth those non-utility businesses. In addition Annex C lists and describes those non-utility businesses commenced by NCE following that merger. All such businesses have been established pursuant to a Commission order or an applicable exception. As noted previously, the non-utility businesses of NSP were listed and described on Annex D. At issue in this transaction, is whether Xcel may retain the non-utility businesses of NSP and the new non-utility businesses of NCE. The non-utility interests of NSP are fully retainable. As a result of the Merger, the non-utility businesses and interests of NSP and NCE described in Item 1.C. above will become businesses and interests of Xcel. Corporate charts showing the subsidiaries, including non-utility subsidiaries of NSP and NCE, are filed as Exhibits E-10 and E-11. A corporate chart showing the projected arrangement of these subsidiaries under Xcel is filed as Exhibit E-12./116 Standard for retention: Section 11(b)(1) permits a registered holding company to retain "such other businesses as are reasonably incidental, or economically necessary or appropriate, to the operations of [an] integrated public utility system." The Commission has historically interpreted this provision to require an operating or "functional" relationship between the non-utility activity and the system's core non-utility business. See, e.g. Michigan Consolidated Gas Co., Holding Co. Act Release No. 16763 (June 22, 1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971); United Light and Railways Co., Holding Co. Act Release No. 12317 (Jan. 22, 1954); CSW Credit, Inc., Holding Co. Act Release No. 25995 (March 2, 1994); and Jersey Central Power and Light Co., Holding Co. Act Release No. 24348 (March 18, 1987). The Commission retreated from this historical position and "has sought to respond to developments in the industry by expanding its concept of a functional relationship."/117 This shift culminated in the adoption of Rule 58. The Commission added "that various considerations, including developments in the industry, the Commission's familiarity with the particular non-utility activities at issue, the absence of significant risks inherent in the particular venture, the specific protections provided for consumers and the absence of objections by the relevant state regulators, made it unnecessary to adhere rigidly to the types of administrative measures" used in the past. Id. Furthermore, in the 1995 Report, the SEC Staff recommended that the Commission replace the use of bright-line limitations with a more flexible standard that would take into account the risks inherent in the particular venture and the specific protections provided for consumers./118 In regards to NCE's non-utility subsidiaries, the Applicants are only requesting that Xcel inherit NCE's existing authority, except as noted otherwise in the body of this Application. The description provided in Annex C merely describes the existing businesses that are retainable pursuant to statute, rule or order and is not a request for expansion or modification of that authority. Xcel's acquisition of NCE's non-utility subsidiaries should be approved because the indirect ownership of these businesses by Xcel in no way affects their functional relationship with Xcel's electric business following the Merger. Xcel may retain NSP's non-utility subsidiaries because, as detailed in Annex D, they meet the statutory requirements of ownership. ---------- 116 As noted before, as part of the merger integration process, Applicants are currently trying to determine the optimal corporate structure for Xcel. The structure reflected in EXHIBIT E-12 is thus tentative. In the event that Applicants decide to revise the proposed structure, they will file it by amendment. 117 Exemption of Acquisition by Registered Public-utility Holding Companies of Securities of Non-utility Companies Engaged in Certain Energy-related and Gas-related Activities, Holding Co. Act Release No. 26667 (Feb. 14, 1997) ("Rule 58 Release"). 118 1995 Report at 81-87, 91-92. ---------- In the past, the Commission has approved the acquisition or retention of non-utility businesses in a merger between two companies, one of which was an independent public utility company not subject to the 1935 Act and the other was an exempt holding company. See 1997 NCE Order, supra. As noted above, Annex C sets forth the non-utility business of PSCo and SPS approved for retention. Applicants submit that the statutory requirements for ownership of NCE's new non-utility businesses and NSP's non-utility businesses are satisfied, as detailed in Annexes C and D hereto. In approving NCE's retention of other businesses, the Commission also excluded such businesses from the limitation upon investment in energy-related companies under Rule 58, noting that the restrictions of Section 11(b)(1) are applicable to registered holding companies and not to exempt holding companies. Rule 58 provides in section (a)(1)(ii) that investments in non-utility activities that are exempt under Rule 58 cannot exceed 15% of the consolidated capitalization of the registered holding company. In its statement supporting the adoption of the Rule, the Commission stated: The Commission believes that all amounts that have actually been invested in energy-related companies pursuant to commission order prior to the date of effectiveness of the Rule should be excluded from the calculation of aggregate investment under Rule 58. The Commission also believes it is appropriate to exclude from the calculation all investments made prior to that date pursuant to available exemptions. Holding Co. Act Release No. 26667 at 50-51. Because NSP was not yet a registered holding company, none of the investments in non-utility activities that are described in Annex D hereto were pursuant to Commission order. However, since the non-utility investments of NSP, as an exempt holding company, were exempt under the Act, investments made by it prior to the effective date of Rule 58 which will continue as part of Xcel after consummation of the merger, should not count in the calculation of the 15% maximum. See 1997 NCE Order, supra (Commission order granting exclusion of non-utility energy-related investments of SPS, an independent utility, and PSCo an exempt holding company, from calculations of the 15% maximum investment allowed under Rule 58). Besides the non-utility businesses of NSP subsidiaries that are described in Annex B, NSP is directly engaged at the parent company level in the following non-utility businesses: (i) an appliance services program for its residential customers, (ii) construction of natural gas distribution systems for third parties (primarily end-users and municipal gas systems), (iii) sale of steam to industrial customers in NSP's service territory, (iv) installation and maintenance of street lighting for municipalities and other customers, (v) propane sales, (vi) fuel oil sales, and (vii) distributed generation services. New NSP intends to continue to engage in these businesses. The following chart shows the reasons based on Commission orders or rules that retention of such businesses should be permitted: Business Description Authority Appliance services program Mississippi Power and Light Company, Holding Co. Act Release No. 25140 (August 30, 1990); Rule 58(b)(1)(iv) Construction of natural gas National Fuel Gas Company, distribution systems for third Holding Co. Act Release No. parties; installation and 24381 (May 1, 1987); Rule 58(b)(1)(vii) maintenance of street lighting Sale of steam New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997); Cinergy Corp., Holding Co. Act Release No. 26474 (Feb. 20, 1996); Rule 58(b)(1)(vi) Propane sales SCANA Corporation, Holding Co. Act Release No. 27133 (Feb. 9, 2000) Fuel oil sales Rule 58(b)(1)(ix) Distributed generation services Rule 58(b)(1)(iv) Similarly, PSCo, prior to the merger with SPS into NCE, also was directly engaged in various non-utility businesses, namely: (i) thermal energy; (ii) the commercialization of electro-technologies; (iii) electric and gas vehicle products and services; and (iv) the sale and servicing of electric and gas appliances. The Commission in the 1997 NCE Order authorized the retention of these businesses. From its experience in marketing these services, NCE is aware that there are certain advantages of having a utility be able to offer these types of services directly to customers, as opposed to through an affiliate. Based on this experience, Applicants request the following authorization: where either PSCo or the NSP companies are directly engaged in a line of business, the retention of which the Commission either in the 1997 NCE Order or in its order in this proceeding has authorized, the other Xcel Operating Companies should likewise be authorized to engage in that business, subject to any limitations or requirements imposed by state law or state commission order or rule. In addition, the Commission in the 1997 NCE Order authorized SPS, PSCo, and other associate companies of NCE to lease office or other space to other associate companies (with such leases to be in accordance with Rules 87, 90 and 91) or to third parties. Applicants request that the Commission extend this authority to apply to the Xcel system and NSP and its direct and indirect subsidiaries. 2. Section 10 (c)(2) Because the Merger is expected to result in substantial cost savings and synergies, it will tend toward the economical and efficient development of an integrated public utility system, thereby serving the public interest, as required by Section 10(c)(2) of the Act. The Merger will produce economies and efficiencies more than sufficient to satisfy the standards of Section 10(c)(2) of the Act. Although some of the anticipated economies and efficiencies will be fully realizable only in the longer term, they are properly considered in determining whether the standards of Section 10(c)(2) have been met. See AEP, supra. Some potential benefits cannot be precisely estimated, nevertheless they too are entitled to be considered. "[S]pecific dollar forecasts of future savings are not necessarily required; a demonstrated potential for economies will suffice even when these are not precisely quantifiable." Centerior, supra. NSP and NCE have estimated the nominal dollar value of synergies from the Merger to be approximately $1.1 billion (net costs to achieve) over the 10-year period from 2001-2010. The Merger is expected to yield several types of presently quantifiable benefits and savings, which are identified by area below: (1) corporate and operations support; (2) corporate and administration programs; (3) nonfuel purchasing economies; and (4) production savings, including savings for fuel procurement, production dispatch and natural gas supply. The total amount of savings currently estimated in each of these categories, on a nominal dollar basis is summarized in the table below: Merger Synergies in Nominal Dollars ------------------------------------------------------------------ Category Nominal Amount Corporate and Operations Support $691.3 million Corporate and Administrative Programs $344.4 million Non-Fuel Purchasing Economies $203.7 million Production Savings (Electric and Gas) $95.9 million ------------------------------------------------------------------ Total Savings $1,334.7 million Less: Costs to Achieve ($149.5 million) Pre-merger Initiatives ($92.9 million) ------------------------------------------------------------------- Net Savings $1,092.3 million ------------------------------------------------------------------- These expected savings will meet or exceed the anticipated savings in a number of recent acquisitions approved by the Commission./119 See, e.g., NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10, 1999) (expected savings of $57.45 million over ten years); Sempra Energy, Holding Co. Act Release No. 26890 (June 26, 1998) (expected savings of $1.2 billion over ten years); BL Holding Corp., Holding Co. Act Release No. 26875 (May 15, 1998) (expected savings of $1.1 billion over ten years); LG&E Energy Corp., Holding Co. Act Release No. 26866 (April 20, 1998) (expected savings of $687.3 million over ten years); WPL Holdings, Holding Co. Act Release No. 26856 (April 14, 1998) (expected savings of $680 million over ten years); Conectiv, Holding Co. Act Release No. 26856 (Feb. 25, 1998) (expected savings of $500 million over ten years); Ameren Corporation, supra (expected savings of $686 million over ten years); 1997 NCE Order, supra (expected savings of $770 million over ten years); TUC Holding Company, supra (expected savings of $505 million over ten years); Northeast Utilities, supra (expected savings of $837 million over eleven years); Entergy Corporation, Holding Co. Act Release No. 25952 (Dec. 17, 1993) (expected savings of $1.67 billion over ten years); Northeast Utilities, Holding Co. Act Release No. 25221 (Dec. 21, 1990) (expected savings of $837 million over eleven years); Kansas Power and Light Co., Holding Co. Act Release No. 25465 (Feb. 5, 1992) (expected savings of $140 million over five years); IE Industries, Holding Co. Act Release No. 25325 (June 3, 1991) (expected savings of $91 million over ten years); Midwest Resources, Holding Co. Act Release No. 25159 (Sept. 26, 1990) (expected savings of $25 million over five years); CINergy Corp., Holding Co. Act Release No. 26146 (Oct. 21, 1994) (expected savings of approximately $1.5 billion over ten years). These savings categories are described in greater detail below. ---------- 119 Further, the Applicants anticipate an additional $24 million in operating efficiencies due to the integration plans as described below. ---------- Corporate and Operations Support: NCE and NSP estimate that a net reduction in labor costs of approximately $691 million over ten years can be achieved as a result of the Merger through elimination of approximately 780 full time equivalent duplicative positions (including 105 contract workers) in certain corporate, administrative and technical support functions. Corporate and Administrative Programs: NSP and NCE estimate a reduction in nonlabor corporate and administrative programs and expenses through the consolidation of overlapping or duplicative programs and expenses of $344 million over ten years. Specific areas in which savings are expected to occur include information systems, professional services, demand-side management administration, benefits administration, insurance, regulatory expenses, advertising and shareholder services. Nonfuel Purchasing Economies: NSP and NCE estimate savings of $203.7 million through the combined procurement of material and supplies, inventory reduction from standardization, and limited sharing of parts and components and from economies of scale from the aggregation of related work activities and increased purchasing power over service providers. Production Savings: NSP and NCE estimate production savings of approximately $96 million over a ten-year period. Two main components make up total production savings: efficiencies in procurement of fossil fuel and efficiencies in procurement and management of natural gas supply. The Applicants estimate fossil fuel savings of $18.5 million, stemming from an increase in coal procurement and coal transportation volumes and greater leverage during contract negotiations. NSP and NCE estimate natural gas supply savings of approximately $77.4 million, based on gas transport and storage capacity reductions, gas reserve margin reductions, field transportation reductions and capacity release savings through the contemplated gas supply coordinated dispatch agreement. The foregoing amounts do not include an additional $24 million in operating efficiencies that the Applicants expect to achieve over ten years as a result of the integration of the NSP and NCE electric generation systems through the 100 MW firm path from SPS to NSP. Through the use of this contract path, the Applicants estimate approximately $31 million in production cost savings and an additional $10 million in benefits resulting from increased opportunity sales. The firm path would also provide a secure source of additional low-cost supply to NSP during NSP's peak periods, protecting NSP from some predicted energy price volatility. These expected benefits are offset by anticipated transmission costs, resulting in an expected net benefit of $24 million over the ten-year period. As noted before, in their application to FERC, Applicants reserved the right to forego this firm path in the event that FERC believed that competitive concerns related to the path raised material issues of fact that would require a hearing. For this reason, these additional $24 million of savings have not been included in the $1.1 billion of savings presented in the chart above. Because the FERC Merger Order did not require that Applicants forego this path, these additional savings should also be achievable. Additional Expected Benefits: In addition to the benefits described above, there are other benefits which, while presently difficult to quantify, are nonetheless substantial. These other benefits include maintenance of competitive rates, expanded management resources, more diverse service territory and continued community involvement. Maintenance of Competitive Rates: A combined NSP/NCE will be able to meet the challenges of the increasingly competitive environment in the utility industry more effectively than either NCE or NSP standing alone. The Merger will create the opportunity for strategic, financial and operational benefits for customers in the form of lower rates over the long term and for shareholders in the form of greater financial strength and financial flexibility. NCE and NSP have proposed in filings with the various state regulatory commissions that regulate their retail sales of electricity various mechanisms to share in contemplated benefits, including a three- to five-year rate freeze. The rate freezes are subject to certain exceptions regarding matters beyond the NSP's or NCE's control. Further, ratepayers will receive 100% of the benefit of reductions in Xcel's fuel costs, except that customers of PSCo will receive 50% of such benefit. Expanded Management Resources: A combined NCE and NSP entity will be able to draw on a larger and more diverse mid- and senior-level management pool to lead the new company forward in an increasingly competitive environment for the delivery of energy, and should be better able to attract and retain the most qualified employees. The employees of Xcel should also benefit from new opportunities in the expanded organization. More Diverse Service Territory: The combined service territories of NSP and NCE will be larger and more diverse than either of the service territories of NSP or NCE as independent entities. This increased geographical diversity will mitigate the risk of changes in economic, competitive or climatic conditions in any given sector of the combined service territory. Community Involvement: Xcel will continue to play a strong role in the economic development efforts of the communities NSP and NCE now serve. The philanthropic and volunteer programs currently maintained by the two companies will be continued. D. 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. As described below under Item 4. "Regulatory Approvals," and as evidenced by the filings before the Minnesota Commission, the North Dakota Commission, the Colorado Commission, the Arizona Commission, the New Mexico Commission, the Texas Commission, and the Wyoming Commission, NSP and NCE intend to comply with all applicable state laws related to the proposed Merger. E. Intra-system Transactions The Xcel system companies will engage in a variety of affiliate transactions for the provision of goods, services, and construction. Certain of these transactions are elaborated upon below. In some instances, the Applicants simply request extension of the authorizations granted in the 1997 NCE Order, with respect to the NCE system, to the Xcel system. The provision of goods, services and construction by Xcel system companies to other Xcel system companies will be carried out in accordance with the requirements and provisions of Rules 87, 90 and 91 unless otherwise authorized by the Commission by order or by rule./120 ---------- 120 As stated previously, the electric production and transmission costs of NSP and NSP-W are shared by them in accordance with the Interchange Agreement, which is a FERC-regulated agreement that has also been accepted by the Wisconsin Commission and the Minnesota Commission for determination of costs recoverable in rates by NSP-W and NSP in rate cases. ---------- 1. New Century Services, Inc. (to be renamed Xcel Energy Services Inc.) Rule 88(b) provides that "[a] finding by the Commission that a subsidiary company of a registered holding company. . .is so organized and conducted, or to be so conducted, as to meet the requirements of Section 13(b) of the Act with respect to reasonable assurance of efficient and economical performance of services or construction or sale of goods for the benefit of associate companies, at cost fairly and equitably allocated among them (or as permitted by [Rule] 90), will be made only pursuant to a declaration filed with the Commission on Form U-13-1, as specified in the instructions for that form, by such company or the persons proposing to organize it." Notwithstanding the foregoing language, the Commission in the 1997 NCE Order made findings under Section 13(b) based on information set forth in an Application-Declaration on Form U-1, without requiring the formal filing of a Form U-13-1. In this Application-Declaration, Applicants are submitting substantially the application information as would have been submitted in a Form U-13-1. Moreover, in this application, Applicants are not requesting authorization to establish a new service company, but rather are requesting that the Commission authorize an existing, Commission-approved service company, New Century Services, to extend its activities to NSP and its direct and indirect subsidiaries following the consummation of the Merger and the formation of the Xcel system. Accordingly, it is submitted that it is appropriate to find that New Century Services will be so organized and shall be so conducted as to meet the requirements of Section 13(b), and that the filing of a Form U-13-1 is unnecessary, or, alternatively, that this Application-Declaration should be deemed to constitute a filing on Form U-13-1 for purposes of Rule 88. New Century Services will be the service company subsidiary for the Xcel system. Specifically, New Century Services will provide Xcel, New NSP, NSP-W, BMG, PSCo, SPS, and Cheyenne, pursuant to the Utility Service Agreement, and the non-utility subsidiaries of the NSP/NCE system pursuant to the Non-Utility Service Agreement, with one or more of the following: administrative, management and support services, including services relating to support of electric and gas plant operations (i.e., energy supply management of the bulk power and natural gas supply, procurement of fuels, dispatch of generating units, coordination of electric and natural gas distribution systems, maintenance, construction and engineering work); customer bills, and related matters; materials management; facilities; real estate; rights of way; human resources; finance; accounting; internal auditing; information systems; corporate planning and research; public affairs; corporate communications; legal; environmental matters; and executive services. In accordance with the Service Agreement, services provided by New Century Services will be directly assigned, distributed or allocated by activity, project, program, work order or other appropriate basis. To accomplish this, employees of New Century Services will record their labor and expenses to bill the appropriate subsidiary company. Costs of New Century Services will be accumulated in accounts of the service company and be directly assigned, distributed, or allocated to the appropriate client company in accordance with the guidelines set forth in the Utility Service Agreement and the Non-Utility Service Agreement and the procedures in the "Procedures Manual" included but not incorporated with Exhibits B-2 and B-3. As part of the merger integration process, Applicants evaluated the existing forms of service agreement and the allocation methodologies currently being used by New Century Services to determine whether they should be revised to reflect the introduction of New NSP, NSP-W, or any of NSP's present subsidiaries as recipients of services. While Applicants did not alter the forms of service agreements, some revisions were made to the allocation methodologies and are reflected in the "Procedures Manual" referenced above. There will be an internal audit group which, among other things, will audit the assignment of service company charges to client companies. It is anticipated that New Century Services will be staffed primarily by existing personnel and by transferring personnel from the current employee rosters of NSP and its subsidiaries. New Century Services's accounting and cost allocation methods and procedures are structured so as to comply with the Commission's standards for service companies in registered holding company systems and were approved by the Commission in the 1997 NCE Order. It is expected that New Century Services will conduct substantial operations in Minneapolis and St. Paul, Minnesota; Eau Claire, Wisconsin; Denver, Colorado; and Amarillo, Texas, where the headquarters of NSP, NSP-W, PSCo and SPS are located. Merger transition teams are presently considering where specific operations of the combined company will be headquartered. As compensation for services, both the Utility and Non-Utility Service Agreements provide that "each Client Company shall pay to Service Company [i.e., New Century Services] the cost to Service Company of rendering such services for or on its behalf." Where more than one company is involved in or has received benefits from a service performed, the Service Agreement will provide that the "methods of assigning, distributing, or allocating Service Company costs to each Client Company, as well as to other associate companies, are set forth in Appendix A. . . . Such methods of assignment, distribution or allocation of costs may be modified or changed by Service Company without the necessity of an amendment to this Service Agreement provided that in such instance, all services rendered hereunder shall be at actual cost thereof, fairly and equitably assigned, distributed or allocated, all in accordance with the requirements of the [Public Utility Holding Company] Act and any orders thereunder." Thus, charges for all services provided by New Century Services to affiliated utility companies will be as determined under Rules 90 and 91 of the Act. The Non-Utility Service Agreement contains provisions similar to those of the Service Agreement, except as set forth in detail below in this Item 3.E.3. The Non-Utility Service Agreement also will permit charges for certain services to be at fair market value to the extent authorized by the 1997 NCE Order, or hereafter by the Commission. Thus, except for the prior exemptions in the 1997 NCE Order and the requested exceptions discussed below, services provided by New Century Services to non-utility affiliates pursuant to the Non-Utility Service Agreement will also be charged as determined under Rules 90 and 91 of the Act. For further information regarding the accounting and cost assignment procedures of New Century Services, reference is made to EXHIBITS B-2 and B-3 hereto./121 ---------- 121 NSP's agreement with a subsidiary, NMC, states that services provided to NMC or received from NMC be at the higher of cost or market, or lower the cost or market, respectively. However, that agreement also deems market to equal cost and thus is consistent with SEC requirements. ---------- Moreover, the Utility and Non-Utility Service Agreements provide that no change in the organization of New Century Services, the type and character of the companies to be serviced, the methods of allocating costs to associate companies, or in the scope or character of the services to be rendered subject to Section 13 of the Act, or any rule, regulation or order thereunder, shall be made unless and until New Century Services shall first have given the Commission written notice of the proposed change not less than 60 days prior to the proposed effectiveness of any such change. If, upon the receipt of any such notice, the Commission shall notify New Century Services within the 60-day period that a question exists as to whether the proposed change is consistent with the provisions of Section 13 of the Act, or of any rule, regulation or order thereunder, then the proposed change shall not become effective unless and until New Century Services shall have filed with the Commission an appropriate declaration regarding such proposed change and the Commission shall have permitted such declaration to become effective. Applicants believe that the Utility Service Agreement and the Non-Utility Service Agreement are structured so as to comply with Section 13 of the Act and the Commission's rules and regulations thereunder. NCE Services will be operational on the date the Merger is effective. However, in order to integrate NSP and NCE operations and personnel, Applicants seek authority to delay, for a period not later than March 31, 2001, the full implementation of all expected services to be provided by NCE Services and/or full implementation of required accounting systems and cost allocation methodologies. Such delay would be to accommodate the need to develop systems to fully implement the desired accounting requirements or for other reasons making full implementation more costly or complex than if a short delay were allowed. 2. Services, Goods, and Assets Involving the Utility Operating Companies PSCo, SPS, Cheyenne, New NSP, NSP-W and BMG may provide to one another and other associate companies services incidental to their utility businesses, including but not limited to, power plant maintenance overhauls, power plant and storm outage emergency repairs, and services of personnel with specialized expertise related to the operation of the utility (i.e., services by an industrial lighting specialist or waste disposal specialist). These services will be provided in accordance with Rules 87, 90 and 91. Moreover, in accordance with Rules 87, 90 and 91, certain goods may be provided through a leasing arrangement or otherwise by one utility operating company to one or more associate companies, and certain assets may be used by one utility operating company for the benefit of one or more other associate companies. In addition to the foregoing, NSP and NSP-W are currently providing goods and services to, or receiving goods and services from, affiliates in accordance with agreements approved by the Minnesota Commission and/or the Wisconsin Commission. Each of these contracts (including the parties) is described in Annex E. To the extent necessary, Applicants request that the Commission grandfather these pre-existing arrangements to enable the provision of goods and services to continue post-Merger. As indicated in Annex E, Applicants believe that the pricing of such transactions is in compliance with, or exempt from, the Commission's rules. Accordingly, Applicants are not seeking an exemption for the pricing of such transactions from the Commission's at-cost standard under Section 13(b) of the Act./122 In addition to the contracts listed in Annex E, New NSP will obtain nuclear plant operations services from Nuclear Management Company, LLC ("NMC"), a Wisconsin limited liability company. NMC was formed in February 1999 by three unaffiliated companies, namely, NSP, WEC Nuclear Corp., a subsidiary of Wisconsin Energy Corporation, and WPS Nuclear Corporation, a subsidiary of WPS Resources, which own (or whose affiliates own) nuclear power plant units located in Wisconsin and Minnesota (the "NMC Plant Owners") for the purpose of consolidating into one service organization the specialized nuclear power plant personnel and resources of such companies. NSP owns a 25% interest in NMC through an affiliate, NSP Nuclear Corporation, that was formed to hold this interest. NMC is providing to, and receiving from, NMC Plant Owners various services pursuant to two agreements. First, the NMC Services Agreement lists ten categories of support services, such as fuel procurement and maintenance, from which NMC may provide the NMC Plant Owners support services on a centralized basis. Each NMC Plant Owner has the right not to take services under the Services Agreement and NMC may offer additional services to the NMC Plant Owners. Second, as an NMC Plant Owner, NSP, in accordance with an Employee Lease Agreement, is providing NMC services and specialized personnel to facilitate its provision of services back to it and the other NMC Plant Owners. All services under these agreements are provided to the recipient of the services at cost in accordance with Rules 90 and 91. NSP has received Minnesota Commission approval of the Services Agreement and Employee Lease Agreement./123 Also by order dated October 26, 1999 (Holding Co. Act Release No. 27096), the Commission authorized Alliant Energy Corporation to acquire a 25% membership interest in NMC, and IES Utilities, Inc., a subsidiary of Alliant Energy, to enter into the Service Agreement and the Employee Lease Agreement. Applicants seek permission for New NSP (as successor of NSP) to engage in business with NMC under the NMC Services Agreement and the NMC Employee Lease Agreement as grandfathered affiliate agreements approved by the Minnesota Commission, or alternatively, pursuant to the relief granted to Alliant Energy in the Commission's Release No. 27096. Additionally, NSP recently received Minnesota Commission approval of a Nuclear Power Plant Operating Services Agreement ("Operating Services Agreement")./124 When all necessary regulatory approvals for all NMC Plant Owners are received, NMC will provide operations, maintenance, capital improvement and decommissioning services to the NMC Plant Owners including New NSP under this agreement. NMC will provide these services at cost in accordance with Rules 90 and 91. By order dated May 10, 2000 (Holding Co. Act Release No. 27175), Alliant Energy has also requested approval of the Nuclear Power Plant Operating Services Agreement. Applicants request permission for New NSP to engage in business with NMC under the Operating Services Agreement as a grandfathered affiliate agreement approved by the Minnesota Commission or, alternatively, pursuant to the relief granted to Alliant Energy in the Commission's Release No. 27175. ---------- 123 Docket E-002\AI-99-618 (July 29, 1999). 124 Docket E-002\AI-99-1652 (February 4, 2000). ---------- Finally, in the 1997 NCE Order, the Commission authorized Utility Engineering Corporation ("UE") to perform engineering, development, design, construction, and other related services to operating companies within the NCE system on an at-cost basis. The Commission contemplated that UE may provide those services to individual operating companies pursuant to agreements with such companies, or may contract with New Century Services, which could in turn provide the services to associate companies including the operating companies. Applicants request that this authority be extended to enable UE to provide such services on an at-cost basis to the operating companies within the Xcel system. 3. Non-Utility Sale of Goods and Services to EWGs, FUCOs, and QFs The Commission has authorized the nonutility subsidiaries of NCE (including New Century Services), whether then existing or thereafter created, to provide goods and services to any "Client Company" under an exemption from the at-cost standard of Section 13(b) where: (i) the Client Company is a FUCO or foreign EWG which derives no part of its income, directly or indirectly, from the generation, transmission, or distribution of electric energy for sale within the United States; (ii) the Client Company is an EWG which sells electricity at market-based rates which have been approved by the Federal Energy Regulatory Commission ("FERC"), provided that the purchaser is not a utility operating company within the NCE system (a "Utility Subsidiary"); (iii) the Client Company is a QF within the meaning of the Public Utility Regulatory Policies Act of 1978 ("PURPA") that sells electricity exclusively (a) at rates negotiated at arms' length to one or more industrial or commercial customers purchasing that electricity for their own use and not for resale, and/or (b) to an electric utility company other than a Utility Subsidiary at the purchaser's "avoided cost" as determined in accordance with the regulations under PURPA; or (iv) the Client Company is a domestic EWG or QF that sells electricity at rates based upon its cost of service, as approved by FERC or any state public utility commission having jurisdiction, provided that the purchaser is not a Utility Subsidiary. See New Century Energies, Inc., Holding Company Act Release No. 35-27000 (issued in File No. 70-9397 on April 7, 1999) (reaffirming a similar exemption granted in the 1997 Order) (the "1999 Order"). Applicants request similar authorization for the nonutility subsidiaries of Xcel (whether now existing or hereafter created) to provide goods and services to Client Companies within the Xcel system meeting the above criteria under an exemption from the at-cost standard of Section 13(b). In File No. 70-9397 NCE had also requested that ETCs, Rule 58 subsidiaries, and nonutility subsidiaries that do not derive any part of their income from sales of goods, services or other property to a Utility Subsidiary be deemed Client Companies for purposes of this exemption. In the 1999 Order, the Commission reserved jurisdiction over that request. Applicants request that the Commission either (i) expand the exemption to apply to such companies as Client Companies within the Xcel system following the merger; or (ii) reserve jurisdiction over that request in this proceeding pending completion of the record. In addition to the general exemption from the at-cost standard described above, Applicants also, to the extent necessary, request a waiver of the at-cost standard with respect to services that UE and Quixx Power Services, Inc. ("QPS") may provide to a QF located at the Phillips Petroleum Refinery Complex near Borger, Texas, that will sell power to SPS pursuant to a power sale agreement (the "QF PPA"). This QF is held by a limited partnership in which Quixx Corporation ("Quixx"), an indirect subsidiary of NCE and therefore an affiliate of SPS, has a 50% interest. UE has provided and may in the future provide engineering and construction services for the facility. QPS, a subsidiary of Quixx, is providing operations and maintenance services to the facility at a negotiated market-based rate pursuant to an operating agreement. The Commission approved an exemption from the at-cost standard for these services in the 1997 NCE Order. The basis for the exemption was that SPS, utilizing a bidding process supervised by an independent bid examiner pursuant to guidelines of the Texas Commission, selected the QF PPA as the most economic manner to satisfy projected power needs. Applicants request that the Commission, as necessary, extend the existing exemption to the at-cost standard of section 13(b) to enable UE and QPS to provide services for the QF at negotiated terms and conditions (including prices) post-Merger. F. Capitalization of New NSP The Applicants request authority to organize a new utility subsidiary, New NSP, under the laws of Minnesota and to take the following actions in connection with the organization and capitalization of New NSP: New NSP proposes to assume the debt of NSP existing at the time of the Merger (approximately $2.0 billion) and issue shares of its capital stock to Xcel. The equity component will be derived by subtracting the total debt being assumed by New NSP from the total assets being transferred to New NSP. The result of the foregoing is that the overall equity/debt ratio New NSP will be approximately 50%, which is similar to that of NSP prior to consummation of the Merger. Applicants also request authority for Xcel to acquire the capital stock of New NSP and for NSP to transfer its debt to New NSP. Item 4. Regulatory Approvals Set forth below is a summary of the regulatory approvals that Applicants have obtained or expect to obtain in connection with the Merger. It is a condition to the consummation of the Merger that final orders approving the Merger be obtained from the Commission under the Act and from the various federal and state commissions described below on terms and conditions which would not have, or would not be reasonably likely to have, a material adverse effect on the business, assets, financial condition or results of operations of NCE and its subsidiaries taken as a whole, or on NSP and its subsidiaries taken as a whole. A. Antitrust The HSR Act and the rules and regulations thereunder prohibit certain transactions (including the Merger) until certain information has been submitted to the Antitrust Division of the Department of Justice ("DOJ") and Federal Trade Commission ("FTC") and the specified HSR Act waiting period requirements have been satisfied. The HSR Act waiting period expired on March 1, 2000. The expiration or earlier termination of the HSR Act waiting period does not preclude the DOJ or the FTC from challenging the Merger on antitrust grounds. Applicants believe that the Merger will not violate Federal antitrust laws. If the Merger is not consummated within twelve months after the expiration or earlier termination of the initial HSR Act waiting period, NSP and NCE will be required to submit new information to the DOJ and the FTC, and a new HSR Act waiting period would begin and have to expire or be terminated before the Merger could be consummated. B. Federal Power Act Section 203 of the Federal Power Act provides that no public utility shall sell or otherwise dispose of its jurisdictional facilities or directly or indirectly merge or consolidate such facilities with those of any other person or acquire any security of any other public utility, without first having obtained authorization from FERC. Under Section 203 of the Federal Power Act, FERC will approve a merger if it finds that merger "consistent with the public interest." In reviewing a merger, FERC generally evaluates: (i) whether the merger will adversely affect competition, (ii) whether the merger will adversely affect rates, and (iii) whether the merger will impair the effectiveness of regulation. On July 30, 1999, NSP and NCE filed a combined application with FERC requesting FERC to approve the Merger under Section 203 of the Federal Power Act. In connection with this Application, NSP and NCE also filed a joint Open Access Transmission Tariff to be effective upon completion of the Merger and Joint Operating Agreement and proposed Statement of Policy and Code of Conduct applicable to certain wholesale merchant function operations and various subsidiaries under Section 205 of the Federal Power Act, to become effective upon consummation of the Merger. As explained previously, on January 12, 2000, FERC issued its order approving the Merger under Section 203 of the Federal Power Act. As part of its order, the FERC also accepted the Joint Operating Agreement for filing without modification, the proposed Statement of Policy and Code of Conduct without modification and the Joint Open Access Transmission Tariff for filing, subject to a pending separate proceeding regarding SPS's rates. In addition, Applicants separately filed under 18 C.F.R. Part 37 proposed revised Standards of Conduct for NSP, PSCo, Cheyenne and SPS to be effective during the pendency of and after the proposed Merger. NSP also needed to obtain FERC's authorization under Part I of the Federal Power Act to transfer hydro-electric licenses held by it to New NSP, and to obtain FERC's authorization under Section 205 of the Federal Power Act to amend existing wholesale contracts to have New NSP assume NSP's responsibilities. These authorizations have been obtained, subject to a notice filing to be made within 30 days after closing of the Merger. C. Atomic Energy Act NSP holds NRC operating licenses in connection with its ownership and operation of the Prairie Island and Monticello nuclear generating facilities. The operating licenses authorize NSP to own and operate the facilities. PSCo holds NRC licenses in connection with its ownership of the Fort St. Vrain Nuclear Electric Generating Station. The Fort St. Vrain facility ceased operations on August 29, 1989 and is in the process of being decommissioned in accordance with the terms of orders issued by the NRC. The Atomic Energy Act provides that a license or any rights thereunder may not be transferred or in any manner disposed of, directly or indirectly, to any person through transfer of control unless the NRC finds that such transfer is in accordance with the Atomic Energy Act and consents to the transfer. Pursuant to the Atomic Energy Act, NSP has applied for approval from the NRC to reflect the fact that after the Merger, New NSP will own and operate the Prairie Island and Monticello facilities and will become the operating company subsidiary of such facilities. NRC approval of NSP's application occurred on May 12, 2000. D. State Public Utility Regulation NSP is currently subject to the jurisdiction of the Minnesota Commission, the North Dakota Commission, the South Dakota Commission and the Arizona Commission. NSP-W is subject to the jurisdiction of the Wisconsin Commission and the Michigan Commission. BMG is subject to the jurisdiction of the Arizona Commission. PSCo is subject to the jurisdiction of the Colorado Commission. Cheyenne is subject to the jurisdiction of the Wyoming Commission. SPS is subject to the jurisdiction of the New Mexico Commission, the Texas Commission, the Kansas Commission and the Oklahoma Commission. NSP and NCE have filed applications for approval of the Merger, including (where necessary) the issuance of securities, with the Minnesota Commission, the North Dakota Commission, the Arizona Commission, the Colorado Commission, the New Mexico Commission and the Wyoming Commission. Approval of the Merger is not required in Texas. However, unless the Texas Commission determines that the Merger is in the public interest, the Texas Commission may take its findings into account in future rate making proceedings. Thus, NSP and NCE also filed with the Texas Commission for a determination that the Merger is in the public interest. Approval of the Merger is not required in South Dakota, Wisconsin, Michigan, Kansas or Oklahoma. However, certain notice or similar filings were made in Kansas and Oklahoma. All necessary approvals associated with the Merger were obtained from the Arizona Commission on March 1, 2000, the Colorado Commission on February 16, 2000, the Kansas Commission on September 20, 1999, the North Dakota Commission on April 12, 2000, the Oklahoma Commission on December 21, 1999, the Wyoming Commission on March 13, 2000, the Minnesota Commission on June 12, 2000, the Texas Commission on May 30, 2000, and the New Mexico Commission on May 4, 2000. Copies of the orders evidencing these approvals are filed on Exhibits D-4.2, D-5.2, D-10, D-3.2, D-11, D-7.2, D-2.2, D-8.2 and D-6.2 hereto. No further approval of these commissions or any other state commission is expected or required in connection with the Merger. As indicated above, no filings or approvals pertaining to the Merger were necessary or were sought in Michigan, South Dakota or Wisconsin. Set forth below is a summary of each of the state orders: In an order, a copy of which is attached to the Application as Exhibit D-2.2 ("Minnesota Order"), the Minnesota Commission approved the Merger, and also approved certain settlement agreements among NSP, the Minnesota Department of Commerce, the Minnesota Office of Attorney General and other intervenors in the state proceeding. Among other things, the Minnesota Order and settlement agreements imposed certain conditions regarding (1) a prospective electric rate reduction to reflect certain non-fuel Merger savings; (2) pass-through of electric fuel, purchased power and purchased natural gas savings; (3) a rate increase moratorium, subject to certain conditions; (4) quality of service and reliability standards; (5) access to records and reporting requirements, including reports on generation cost unbundling, the viability of retail aggregation services, and strategies for mitigation of carbon dioxide emissions; (6) certain commitments regarding state regulatory review of rate recoverability of costs allocated to New NSP Utility; and (7) commitments to file tariff provisions to facilitate distributed generation and customer "sale back" supply services. The Minnesota Order includes a finding that retention by Xcel of the natural gas distribution operations of NSP would serve the public interest. In an order, a copy of which is attached to the Application as Exhibit D-3.2 ("North Dakota Order"), the North Dakota Commission approved the Merger and a settlement agreement between NSP and North Dakota Commission staff. Among other things, the North Dakota Order and settlement agreement imposed certain conditions regarding (1) a prospective electric rate reduction; (2) filing of an electric performance based regulation plan, including quality of service and reliability measures; (3) pass-through of electric fuel, purchased power and purchased natural gas savings; and (4) access to records and commitments regarding state regulatory review of rate recoverability of costs allocated to New NSP Utility. The North Dakota Order includes a finding that retention by Xcel of the natural gas distribution operations of NSP would serve the public interest. In an order, a copy of which is attached to the Application as Exhibit D-4.2 ("Arizona Order"), the Arizona Commission approved the Merger. Among other things, the Arizona Order imposed certain conditions regarding (1) access to records and commitments regarding state regulatory review of non-fuel Merger savings in a future BMG rate proceeding; and (2) certain reporting requirements. The Arizona Order includes a finding that retention by Xcel of the natural gas distribution operations of BMG would serve the public interest. In an order, a copy of which is attached to the Application as Exhibit D-5.2, the Colorado Commission approved a stipulation and agreement among PSCo, the staff of the Colorado Commission, the Colorado Office of Consumer Counsel, and various other parties recommending approval of the merger subject to various conditions. Among other things, PSCo has committed in this stipulation and agreement to reduce retail rates, to file a combined electric and gas rate case in early 2002 with the expectation that new rates will go into effect on January 1, 2003, and to continue its existing electric earnings sharing mechanism and quality of service plans. The Colorado Commission also approved a stipulation and agreement among PSCo, the Colorado Office of Consumer Counsel, and various other parties addressing issues related to low income customers. Based on its approval of these two stipulations and agreements, the Colorado Commission approved the Merger. In an order, a copy of which is attached to the Application as Exhibit D-10, the Kansas Commission approved an agreement among SPS, NSP, and the Staff of the Kansas Commission setting forth various commitments relating to the Merger, including an annual rate credit. In an order, a copy of which is attached to the Application as Exhibit D-6.2, the New Mexico Commission approved the Merger subject to various commitments by SPS. Among other things, SPS committed to credit or otherwise reflect in rates merger savings by a guaranteed amount to its New Mexico retail customers for a 54-month transition period and to hold its New Mexico retail customers harmless from any and all negative impacts of the Merger, including financial impacts. In an order, a copy of which is attached to the Application as Exhibit D-11, the Oklahoma Commission approved a stipulation which incorporated a regulatory plan relating to the Merger. In an order, a copy of which is attached to the Application as Exhibit D-8.2, the Texas Commission found the Merger to be consistent with the public interest subject to the conditions set out in a stipulation entered into by SPS, the staff of the Texas Commission, and certain other parties. In summary, the stipulation provides for the implementation of full retail customer choice by SPS in its Texas retail service territory consistent with the requirements of Texas SB-7. As previously discussed (see discussion in Item 3.C.1(b)(i)), such implementation will require the future divestiture of approximately 64-71% of the generation capacity owned by SPS and its affiliates in the SPS service area region. Additionally, the stipulation approved by the Texas Commission provides for SPS to guarantee merger savings credits through December 31, 2005, to retain its current fuel recovery mechanism to pass through fuel savings to retail customers, and to comply with various new service quality and reliability standards. In an order, a copy of which is attached to the Application as Exhibit D-7.2, the Wyoming Commission approved of the Merger based on the commitments agreed to by Cheyenne in a stipulation and agreement with the Wyoming Consumer Advocate Staff. Among other things, Cheyenne in this stipulation agreed to various measures to maintain its present level of autonomous and independent operations after the merger and to an electric and a gas base rate moratorium through January 1, 2004. E. Other The NSP and NCE Systems possess municipal franchises and environmental permits and licenses that they may need to assign or replace as a result of the Merger. NSP and NCE do not anticipate any difficulties obtaining such assignments, renewals and replacements. In addition, British regulatory approval may also be required in light of NCE's ownership interest in Yorkshire Electricity and NSP's indirect investments in the United Kingdom. Except as set forth above, no other state or local regulatory body or agency and no other Federal commission or agency has jurisdiction over the transactions proposed herein. Finally, pursuant to Rule 24 under the Act, the Applicants represent that the transactions proposed in this filing shall be carried out in accordance with the terms and conditions of, and for the purposes stated in, the declaration-application no later than December 31, 2004. Item 5. Procedure The Commission is respectfully requested to publish, not later than January 31, 2000, the requisite notice under Rule 23 with respect to the filing of this Application-Declaration, such notice to specify a date not later than February 28, 2000, by which comments must have been entered and a date on or after February 29, 2000, as the date when an order of the Commission granting and permitting this Application-Declaration to become effective may be entered by the Commission. It is submitted that a recommended decision by a hearing or other responsible officer of the Commission is not needed for approval of the proposed Merger. The SEC Staff may assist in the preparation of the Commission's decision. There should be no waiting period between the issuance of the Commission's order and the date on which it is to become effective. Item 6. Exhibits and Financial Statements A. Exhibits Exhibit Description Number A-1 Restated Articles of Incorporation of NSP (filed as EXHIBIT 3.01 to Form 10-Q of NSP for the quarter ended June 30, 1998, File No. 1-3034, and incorporated herein by reference) A-2 Restated Articles of Incorporation of NSP-W (filed as EXHIBIT 3.01 to Form 10-K of NSP-W for the year ended December 31, 1987, File No. 10-3140, and incorporated herein by reference) A-3 Restated Articles of Incorporation of NCE dated December 8, 1995 (filed as EXHIBIT 3(a) to Registration Statement No. 333-64951 on Form S-4, File No. 1-12927, and incorporated herein by reference) A-4 Amended and Restated Articles of Incorporation of PSCo dated July 10, 1998 (filed as EXHIBIT 3(a)1 to Form 10-K of PSCo for the year ended December 31, 1998, File No. 1-3280). A-5 Amended and Restated Articles of Incorporation of SPS (filed as EXHIBIT 3(a)2 to Form 10-K of SPS for the year ended December 31, 1997, File No. 1-3789). A-6 Certificate of Incorporation of NRG (filed as EXHIBIT 3.1 to Registration Statement on Form S-1 (as amended), File No. 333-33397). B-1 Agreement and Plan of Merger for NSP and NCE (Merger Agreement) (filed as Appendix A to Exhibit C-1, and incorporated herein by reference) B-2 Form of Service Agreement between New Century Services and utility affiliates (an appendix entitled "Description of Services and Determination of Charges for Services" is attached but not forming a part thereof.) B-3* Form of Service Agreement between New Century Services and non-utility affiliates (an appendix entitled "Description of Services and Determination of Charges for Services" is attached but not forming a part thereof) B-4 Agreement and Plan of Merger for NSP Acquisition of BMG (filed as Annex A to Registration Statement NO. 333-49529 on Form S-4 and incorporated herein by reference. C-1 Registration Statement of NSP on Form S-4 (as amended) (filed as Registration Statement No. 333-73989 and incorporated herein by reference) C-2 Joint Proxy Statement and Prospectus of NSP and NCE (included in EXHIBIT C-1) C-3 Registration Statement of NSP on Form S-4 (as amended) in connection with acquisition of BMG (filed as Registration Statement No. 333-49529 and incorporated herein by reference) C-4 Proxy Statement and Prospectus for NSP acquisition of BMG (included in Exhibit C-3) D-1.1* P Original testimony of Heironymus to FERC D-1.2* P Application of NSP and NCE before FERC D-1.3* P Order of FERC approving the Merger D-1.4* P Original testimony of Gilbert to FERC D-2.1* P Application of NSP before the Minnesota Commission D-2.2* P Order of the Minnesota Commission approving the Merger D-3.1* P Application of NSP before the North Dakota Commission D-3.2* P Order of the North Dakota Commission approving the Merger D-4.1* P Application of NSP before the Arizona Commission D-4.2* P Order of the Arizona Commission approving the Merger D-5.1* P Application of NCE before the Colorado Commission D-5.2* P Order of the Colorado Commission approving the Merger D-6.1* P Application of NCE before the New Mexico Commission D-6.2* P Order of the New Mexico Commission approving the Merger D-7.1* P Application of NCE before the Wyoming Commission D-7.2* P Order of the Wyoming Commission approving the Merger D-8.1* P Application of NCE before the Texas Commission D-8.2* P Order of the Texas Commission finding that the Merger is in the public interest D-9* P Order of the NRC finding that the transfer of certain operating licenses in connection with the Merger is in compliance with The Atomic Energy Act and consenting to such transfers D-10* P Order of the Kansas Commission D-11* P Order of the Oklahoma Commission E-1* P Map of service areas of NSP, NSP-W, PSCo, SPS and Cheyenne E-2* P Map showing interconnections of NSP, NSP-W PSCo, SPS and Cheyenne (see Exhibit E-1) E-3.1* P Map of NSP electric and gas service areas E-3.2* P Map of NSP-W electric and gas service areas E-3.3* P Map of NSP and NSP-W transmission systems E-3.4* P Map of southern portion of Northbound Path, including PSCo/SPS tie line E-3.5* P Map of northern portion of Northbound Path E-4.1* P Map of PSCo electric and gas service areas (including Cheyenne electric and gas service areas) E-4.2* P Map of SPS electric service areas (see Exhibit E-4.3) E-4.3* P Map of PSCo and SPS transmission systems (including Cheyenne transmission system) E-10* P NSP corporate chart E-11* P NCE corporate chart E-12* P Combined Company corporate chart (as revised) E-13* Chart comparing MISO, NEPOOL and PJM F-1.1* Preliminary opinion of counsel to NSP F-1.2** Past-tense opinion of counsel to NSP F-2.1* Preliminary opinon of counsel to NCE F-2.2** Past-tense opinion of counsel to NCE G-1 Opinion of SG Barr Devlin (filed as Annex B to Registration Statement No. 333-76989 on Form S-4 and incorporated herein by reference) G-2 Opinion of The Blackstone Group L.P. (filed as Annex C to Registration Statement No. 333-76989 on Form S-4 and incorporated herein by reference) H-1 Annual Report of NSP on Form 10-K for the year ended December 31, 1998 (File No. 1-3034 and incorporated herein by reference) H-2 Annual Report of NCE on Form 10-K for the year ended December 31, 1998 (File No. 1-23927 and incorporated herein by reference) H-3 Annual Report of NSP-W on Form 10-K for the year ended December 31, 1998 (File No. 1-3140 and incorporated herein by reference) H-4 Annual Report of NRG on Form 10-K for the year ended December 31, 1998 (File No. 333-33397 and incorporated herein by reference) H-5 Annual Report of PSCo on Form 10-K for the year ended December 31, 1998 (File No. 1-3780 and incorporated herein by reference) H-6 Annual Report of SPS on Form 10-K for the year ended December 31, 1998 (File No. 1-3789 and incorporated herein by reference) H-7 Quarterly Report of SPS on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-3789 and incorporated herein by reference) H-8 Quarterly Report of SPS on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-3789 and incorporated herein by reference) H-9 Quarterly Report of NSP on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-3034 and incorporated herein by reference) H-10 Quarterly Report of NSP on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-3034 and incorporated herein by reference) H-11 Quarterly Report of NCE on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-12927 and incorporated herein by reference) H-12 Quarterly Report of NCE on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-12927 and incorporated herein by reference) H-13 Quarterly Report of NSP-W on Form 10-Q for the quarter ended March 31, 1999 (File No. 10-3140 and incorporated herein by reference) H-14 Quarterly Report of NSP-W on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-3140 and incorporated herein by reference) H-15 Quarterly Report of NRG on Form 10-Q for the quarter ended March 31, 1999 (File No. 333-33397 and incorporated herein by reference) H-16 Quarterly Report of NRG on Form 10-Q for the quarter ended June 30, 1999 (File No. 333-33397 and incorporated herein by reference) H-17 Quarterly Report of PSCo on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-3280 and incorporated herein by reference) H-18 Quarterly Report of PSCo on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-3280 and incorporated herein by reference) H-19 Quarterly Report of NSP on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-3034 and incorporated herein by reference) H-20 Quarterly Report of NCE on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-12927 and incorporated herein by reference) H-21 Quarterly Report of NSP-W on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-3140 and incorporated herein by reference) H-22 Quarterly Report of NRG on Form 10-Q for the quarter ended September 30, 1999 (File No. 333-33397 and incorporated herein by reference) H-23 Quarterly Report of PSCo on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-3280 and incorporated herein by reference) H-24 Quarterly Report of SPS on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-3789 and incorporated herein by reference) H-25 Annual Report of NSP on Form 10-K for the year ended December 31, 1999 (File No. 1-3034 and incorporated herein by reference) H-26 Annual Report of NCE on Form 10-K for the year ended December 31, 1999 (File No. 1-23927 and incorporated herein by reference) H-27 Annual Report of NSP-W on Form 10-K for the year ended December 31, 1999 (File No. 1-3140 and incorporated herein by reference) H-28 Annual Report of NRG on Form 10-K for the year ended December 31, 1999 (File No. 333-33397 and incorporated herein by reference) H-29 Annual Report of PSCo on Form 10-K for the year ended December 31, 1999 (File No. 1-3780 and incorporated herein by reference) H-30 Annual Report of SPS on Form 10-K for the year ended December 31, 1999 (File No. 1-3789 and incorporated herein by reference) H-31 Quarterly Report of SPS on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-3789 and incorporated herein by reference) H-32 Quarterly Report of NSP on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-3034 and incorporated herein by reference) H-33 Quarterly Report of NCE on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-12927 and incorporated herein by reference) H-34 Quarterly Report of NSP-W on Form 10-Q for the quarter ended March 31, 2000 (File No. 10-3140 and incorporated herein by reference) H-35 Quarterly Report of NRG on Form 10-Q for the quarter ended March 31, 2000 (File No. 333-33397 and incorporated herein by reference) H-36 Quarterly Report of PSCo on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-3280 and incorporated herein by reference) I-1* Notice of the Transaction J-1* NSP and NSP-W Analysis of the Economic Impact of a Divestiture of the Gas Operations of NSP and NSP-W J-2* NCE Analysis of the Economic Impact of a Divestiture of NCE's Gas Operations J-3** Joint Analysis of the Economic Impact of a Divestiture of the Gas Operations of NCE, NSP and NSP-W K-1* Report of Pacific Economies Group K-2 Memorandum on Status of Tie-line between PSCo and SPS (Revised and filed with this Amendment) K-3 P Contracts Composing Northbound Path L-1* Market Share for Electric Companies in the United States sorted by Electric Revenues L-2* Market Share for Electric Companies in the United States sorted by Assets L-3* Market Share for Electric Companies in the United States sorted by Electric Customers ---------- * Previously filed ** To be filed by Amendment ---------- B. Financial Statements FS-1 Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet at December 31, 1999 (included Exhibit 99.03 of Form 10-K for the year ended December 31, 1999 of NSP (Exhibit H-25 hereto) at p. 80) FS-2 Unaudited Pro Forma Condensed Consolidated Statements of Income for each of the three years in the period ended December 31, 1999 (included in Form 10-K for the year ended December 31, 1999 of NSP (Exhibit H-25 hereto) at p. 77) FS-3 NSP Consolidated Balance Sheet as of December 31, 1999 see Annual Report of NSP on Form 10-K for the year ended December 31, 1999 (Exhibit H-25 hereto), at p. 37) FS-4 NSP Consolidated Statements of Income for its last three fiscal years (see Annual Report of NSP on Form 10-K for the year ended December 31, 1999 (Exhibit H-25 hereto), at p. 35) FS-5 NCE Consolidated Balance Sheet as of December 31, 1999 (see Annual Report of NCE on Form 10-K for the year ended December 31, 1998 (Exhibit H-26 hereto), at p. 49) FS-6 NCE Consolidated Statements of Income for its last three fiscal years (see Annual Report of NCE on Form 10-K for the year ended December 31, 1999 (Exhibit H-26 hereto), at p. 51) FS-7 NSP-W Consolidated Balance Sheet as of December 31, 1999 (see Annual Report of NSP-W on Form 10-K for the year ended December 31, 1998 (Exhibit H-27 hereto), at p. 15) FS-8 NSP-W Consolidated Statements of Income for its last three fiscal years (see Annual Report of NSP-W on Form 10-K for the year ended December 31, 1999 (Exhibit H-27) hereto), at p. 13) FS-9 NRG Consolidated Balance Sheet as of December 31, 1999 (see Annual Report of NRG on Form 10-K for the year ended December 31, 1999 (Exhibit H-28 hereto), at p. 33) FS-10 NRG Consolidated Statements of Income for its last three fiscal years (see Annual Report of NRG on Form 10-K for the year ended December 31, 1999 (Exhibit H-28 hereto), at p.31) FS-11 PSCo Consolidated Balance Sheet as of December 31, 1999 (see Annual Report of PSCo on Form 10-K for the year ended December 31, 1999 (Exhibit H-29 hereto), at p. 60) FS-12 PSCo Consolidated Statements of Income for its last three fiscal years (an Annual Report of PSCo on Form 10-K for the year ended December 31, 1999 (Exhibit H-29), at p. 63) FS-13 SPS Consolidated Balance Sheet as of December 31, 1999 (see Annual Report of SPS on Form 10-K for the year ended December 31, 1999 (Exhibit H-30 hereto), at p. 72) FS-14 SPS Consolidated Statements of Income for its last three fiscal years (see Annual Report of SPS on Form 10-K for the year ended December 31, 1999 (Exhibit H-30 hereto), at p.74) Item 7. Information as to Environmental Effects The Merger neither involves "major federal actions" nor "significantly [affects] the quality of the human environment" as those terms are used in Section (2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4332. The only federal actions related to the Merger pertain to the Commission's declaration of the effectiveness of the Joint Registration Statement, the approvals and actions described under Item 4 and Commission approval of this Application-Declaration. Consummation of the Merger will not result in changes in the operations of NSP, NSP-W or NCE that would have any impact on the environment. No federal agency is preparing an environmental impact statement with respect to this matter. SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, each of the undersigned companies has duly caused this Application-Declaration to be signed on its behalf by the undersigned thereunto duly authorized. NEW CENTURY ENERGIES, INC. NORTHERN STATES POWER COMPANY BY: /s/ Richard C. Kelly BY: /s/ E. J. McIntyre Richard C. Kelly E. J. McIntyre Executive Vice President and Vice President and Chief Financial Officer Chief Financial Officer Date: August 16, 2000 Annex A FURTHER DESCRIPTION OF UTILITY ASSETS AND OPERATIONS OF NCE 1. PSCo Electric Generation Property The PSCo electric generating stations expected to be available at the time of the anticipated 1999 net firm system peak demand during the summer season are as follows:
Name of Station and Location Installed Gross Capacity Net Dependable Capacity Major Fuel Source (MW) (MW) at Time of Anticipated 2000 Net Firm System Peak Demand* Steam: Arapahoe - 262.00 246.00 Coal Denver, Co. Cameo - near 77.00 72.70 Coal Grand Junction, Co. Cherokee - 779.00 717.00 Coal Denver, Co. Comanche - Near 725.00 660.00 Coal Pueblo, Co. Craig - near Craig, 87.00(a) 83.20 Coal Co. Hayden - near 259.00(b) 237.00 Coal Hayden, Co. Pawnee - near 530.00 505.00 Coal Brush, Co. Valmont - near 196.00 186.00 Coal Boulder, Co. (Unit 5) Zuni - Denver, Co. 115.00 86.00 Gas/Oil Total (Steam) 3,030.00 2,792.90 Other: Fort St. Vrain 514.00 466.60(f) Gas Combustion Turbines - near Platteville, Co. Combustion 209.00 159.00(g) Gas turbines (6 units- various locations) Hydro (14 units- 53.00 36.55(d) Hydro various locations (c). Cabin Creek 324.00(e) 210.00 Hydro Pumped Storage- near Georgetown, Co. Total (Steam and 4,136.35 3,669.05 Other)
Notes to Table: * A measure of the unit capability planned to be available at the time of the system peak load net of seasonal reductions in unit capability due to weather, stream flow, fuel availability and station horsepower, including requirements for air and water quality control equipment. (a) The gross maximum capability of Craig Units No. 1 and No. 2 is 894 Megawatts ("MW"), of which PSCo has a 9.72% undivided ownership interest. (b) The gross maximum capability of Hayden Units No. 1 and No. 2 is 202.01 MW and 285.96 MW, respectively, of which PSCo has a 75.5% and 37.4% undivided ownership interest, respectively. (c) Includes one station (two units) not owned by PSCo but operated under contract. (d) Seasonal Hydro Plant net dependable capabilities are based upon average water conditions and limitations for each particular season. The individual plant seasonal capabilities are sometimes limited by less than design water flow. (e) Capability at maximum load. (f) This represents the net dependable capacity during the summer peak. The net dependable capacity during the winter peak is 507.6 MW. (g) This represents the net dependable capacity during the summer peak. The net dependable capacity during the winter peak is 209 MW. Fort St. Vrain, PSCo's only nuclear plant, ceased operations on August 29, 1989, and on March 22, 1996, the physical decommissioning of the station was completed. The initial phase of the repowered gas-fired, combined-cycle steam electric generating station began commercial operations on May 1, 1996. Phase 2 began operations in May 1999. 2. SPS Electric Generation Property/125 The SPS electric generating stations expected to be available at the time of the anticipated 1999 net firm system peak demand during the summer season are as follows: ---------- 125 No information is presented for Cheyenne as it does not own any generating facilities. ----------
Name of Station and Location Installed Gross Net Dependable Capacity Major Fuel source Capacity (MW) (MW) at Time of Anticipated 2000 Net Firm System Peak Demand* Steam: Harrington - near 1,137.00 1,066.00 Coal Amarillo, TX Tolk - near Muleshoe, 1,130.00 1,080.00 Coal TX Jones - near Lubbock, TX 512.00 486.00 Gas Plant X - near Earth, TX 463.00 442.00 Gas Nichols - near Amarillo, TX 479.00 457.00 Gas Cunningham - near Hobbs, NM 281.00 267.00 Gas Maddox - near Hobbs, NM 123.00 118.00 Gas CZ-2 - near Pampa, TX 26.00 26.00 Purch. steam Moore County - near 51.00 48.00 Gas Sunray, TX Total (Steam) 4,202.00 3,990.00 Gas Turbine: Carlsbad - near Carlsbad, 16.00 13.00 Gas NM CZ-1 - near Pampa, TX 13.00 13.00 Hot nitrogen Maddox - near Hobbs, NM 76.00 66.00 Gas Riverview - near Borger, 25.00 23.00 Gas TX Cunningham - near Hobbs, 244.00 220.00 Gas NM Diesel Engine (1 unit) 15.00 0.00 Diesel Tucumcari, NM Total (Steam and Gas 4,591.00 4,325.00 Turbine)
Notes to Table: * Purchased Power Contracts: The NCE Operating Companies have contractual arrangements with regional utilities as well as QFs and EWGs to meet the energy needs of their customers. The NCE Operating Companies have capacity contracts in the following amounts at the time of the anticipated 1999 net firm system peak demand: NCE Operating Company MW PSCo 2,047 SPS 236 Cheyenne 150 ----- Total 2,433 3. NCE Electric Transmission and Distribution Properties PSCo: On December 31, 1999, PSCo's transmission system consisted of approximately 112 circuit miles of 345 kilovolt ("kV") overhead lines; 1,936 circuit miles of 230 kV overhead lines; 15 circuit miles of 230 kV underground lines; 65 circuit miles of 138 kV overhead lines; 1,005 circuit miles of 115 kV overhead lines; 20 circuit miles of 115 kV underground lines; 332 circuit miles of 69 kV overhead lines; 137 circuit miles of 44 kV overhead lines; and 1 circuit mile of 44 kV underground line. PSCo jointly owns with another utility approximately 342 circuit miles of 345 kV overhead lines and 359 miles of 230 kV overhead lines, of which PSCo's share is 112 miles and 147 miles, respectively, which shares are included in the amounts listed above. SPS: On December 31, 1999, SPS's transmission system consisted of approximately 319 circuit miles of 345 kV overhead lines; 1,604 circuit miles of 230 kV overhead lines; 2,579 circuit miles of 115 kV overhead lines; 1,750 circuit miles of 69 kV overhead lines; 1 circuit mile of 115 kV underground line; and 5 circuit miles of 69 kV underground lines. Cheyenne: Cheyenne's transmission facilities are located in Wyoming. These facilities are very limited, consisting of two 115kV transmission line segments that total 25.5 miles in length. The primary purpose of these transmission lines is to deliver power that Cheyenne purchases from its full requirements supplier, PacifiCorp. Power is wheeled from WAPA's transmission system, with which Cheyenne intersects, to Cheyenne's distribution substation for ultimate distribution to Cheyenne's retail customers. Like PSCo, Cheyenne is a member of the WSCC. The distribution system of NCE's electric utility subsidiary companies consists of both overhead lines and underground distribution systems. PSCo owns approximately 210 substations (30 of which are jointly-owned) having an aggregate transformer capacity of 20,365,000 kVa, of which, 4,867,000 kVa is step-up transformer capacity at generating stations. SPS owns approximately 319 substations having an aggregate transformer capacity of 20,597,935 kVa, of which 5,951,000 kVa is step-up transformer capacity. 4. NCE ENERGY SALES For the year ended December 31, 1998, PSCo, SPS and Cheyenne sold the following amounts of electric energy (at retail or wholesale) and distributed the following amounts of natural or manufactured gas at retail: Year ended December 31, 1999 PSCo Kwh of electric energy sold (including amounts delivered in 28,537 interchange) (millions of Kwh sales) Million ("MDth") of gas distributed at retail (including natural and manufactured gas) (millions of Dth Deliverables) 216.4 SPS MWh of electric energy sold (including amounts delivered in 22,744 interchange) (millions of Kwh sales) Cheyenne MWh of electric energy sold (including amounts delivered in 864,081 interchange) MMBTU of gas distributed at retail (including natural and manufactured gas) 4,663,278 5. NCE Gas Property The gas property of PSCo at December 31, 1999, consisted of approximately 16,709 miles of distribution mains ranging in size from 0.50 to 30 inches and related equipment. The Denver distribution system consisted of 9,249 miles of mains. Pressures in the system are varied to meet load requirements and individual house regulators are installed on each customer's premises to provide uniform flow of gas to appliances. PSCo also owns and operates four gas storage facilities. Annex B FURTHER DESCRIPTION OF UTILITY ASSETS AND OPERATIONS OF NSP 1. NSP Electric Generating Facilities As of December 31, 1999, NSP and NSP-W had a total net summer generating capability of 7,176 MW and NSP had a total summer net generating capacity of 6,311 MW available primarily from the following units: Sherburne County ("Sherco"): NSP owns two coal-fired generating units at its Sherco station in Minnesota with a combined net capability of 1,433 MW. NSP owns a 59% undivided interest in the third unit at the station ("Sherco 3"), of which NSP's share of the net capability of this unit is 514 MW. Prairie Island: NSP owns two nuclear generating units at its Prairie Island station in Minnesota with a combined net capability of 1,052 MW. Monticello: NSP owns one nuclear generating unit at its Monticello station in Minnesota with a net capability of 578 MW. King: NSP owns one coal-fired generating unit at its King station in Minnesota with a net capability of 571 MW. Black Dog: NSP owns four coal-fired generating units at its Black Dog station in Minnesota with a combined net capability of 462 MW. High Bridge: NSP owns two coal-fired generating units at its High Bridge station in Minnesota with a combined net capability of 267 MW. Riverside: NSP owns two coal-fired generating units at its Riverside station in Minnesota with a combined net capability of 380 MW. Anson: NSP owns two oil/gas-fired combustion turbine electric generating units at its Angus Anson station near Sioux Falls, South Dakota, with an aggregate net generating capability of 202 MW. Inver Hills: NSP owns eight oil/gas-fired combustion turbine electric generating units at its Inver Hills station located in Inver Grove Heights, Minnesota, with an aggregate net generating capability of 332 MW. NSP also owns numerous smaller generating units fueled with coal, natural gas, oil or waste, wind and one hydro-electric generating facility, with an aggregate net capability of 520 MW. As of December 31, 1999, NSP-W had a total net summer generating capability of 866 MW from the following units: Bay Front: NSP-W owns three steam electric generating units at its Bay Front station in Ashland, Wisconsin that are fueled with coal, wood and gas, with a combined net capability of 73 MW. French Island: NSP-W owns two steam electric generating units, fueled with wood and refuse derived fuel, and two oil-fired combustion turbine generating units at its French Island generating station in LaCrosse, Wisconsin with a combined net capability of 183 MW. Flambeau: NSP-W owns a gas/oil-fired combustion turbine electric generating unit at its Flambeau station in Park Falls, Wisconsin with a summer net generating capability of 12 MW. Wheaton: NSP-W owns six oil-fired combustion turbine electric generating units at its Wheaton station in Eau Claire, Wisconsin with a combined net capability of 346 MW. Hydro Plants: NSP-W also owns and operates 19 hydro-electric generating stations throughout northwestern Wisconsin with an aggregate net capability of 251 MW. NSP-W presently relies primarily on NSP for base load generation and purchases of power to meet the needs of NSP-W's customers. The electric operations of NSP and NSP-W are fully integrated and all generating units are centrally dispatched by NSP. The electric production and transmission costs of NSP and NSP-W are shared by the companies under an agreement which is called the "Agreement to Coordinate Planning and Operation and Interchange Power and Energy Between Northern States Power Company (Minnesota) and Northern States Power Company (Wisconsin)" (the "Interchange Agreement"). The Interchange Agreement was approved by FERC in Docket No. ER84-690-000, dated August 21, 1985. For the year ended December 31, 1999, the combined energy (Kwh) sales of NSP and NSP-W were produced 44% by coal-fired generation, 28% by nuclear generation, 26% by purchase and interchange and 2% from NSP's hydroelectric and other generation. The 1998 electric system peak load for NSP and NSP-W was 7,660 MW and occurred on July 14, 1998, exclusive of off-system sales. The 1999 electric system peak load for NSP and NSP-W was 7,990 MW and occurred on July 29, 1999, exclusive of off-system sales. For the year ended December 31, 1999, the fuel resources for NSP's and NSP-W's generation-based Kwh was 58% obtained from coal-fired generation, approximately 38% from nuclear generation, and approximately 4% from other fuels. 2. NSP Electric Transmission and Other Facilities As of December 31, 1999, NSP's electric transmission system included 265 circuit miles of 500 kV line, 751 circuit miles of 345 kV line, 287 circuit miles of 230 kV line, 59 circuit miles of 161 kV line, 1,304 circuit miles of 115 kV line and 1,710 circuit miles of transmission line under 115 kV. The bulk of NSP's high voltage transmission system is located in the State of Minnesota. As of December 31, 1999, NSP's transmission substations had a combined capacity of approximately 30,684 thousand KVA and the distribution substations totaled approximately 13,624 thousand KVA. Manitoba Hydro-Electric Board, Minnesota Power Company and NSP completed the construction of a 500 kV transmission interconnection between Winnipeg, Manitoba, Canada, and the Minneapolis-St. Paul, Minnesota, area in May 1980. NSP has a contract with Manitoba Hydro-Electric Board for 500 MW of firm power utilizing this transmission line. In addition, the Company is interconnected with Manitoba Hydro at the U.S./Canada border through a 230 kV transmission line completed in 1970. As of December 31, 1999, NSP-W's electric transmission system included 165 circuit miles of 345 kV line, 280 circuit miles of 161 kV line, 448 circuit miles of 115 kV line and 1,491 circuit miles of transmission line under 115 kV. As of December 31, 1999 NSP-W's transmission substations had a combined capacity of approximately 4,397 thousand KVA and the distribution substations totaled approximately 2,094 thousand KVA. Other assets owned by NSP and NSP-W include electric distribution systems located throughout its service area, and property, plant and equipment owned or leased supporting their electric and gas utility functions. NSP and NSP-W also own or lease other physical properties, including real property, and other facilities necessary to conduct their operations. 3. NSP Energy Sales For the year ended December 31, 1999, NSP and NSP-W sold the following amounts of electric energy (at retail only): Year ended December 31, 1998 NSP kwh of electric energy sold (including amounts 31,645,688 delivered in interchange) NSP-W kwh of electric energy sold (including amounts 5,433,619 delivered in interchange) 4. Gas Facilities NSP provides natural gas service at retail in the St. Paul metropolitan area and portions of southeast, northwest and central Minnesota, as well as eastern North Dakota, and in Arizona through its BMG division./126 NSP-W provides natural gas service in western and central Wisconsin as well as Ironwood in Michigan's Upper Peninsula. Both NSP and NSP-W are directly connected to various interstate pipelines and have separate contractual supply portfolios for transportation through pipelines and with suppliers of natural gas. The gas delivery operations of NSP, NSP-W and Viking are managed out of St. Paul, Minnesota, pursuant to a Supervisory Control and Data Acquisition Agreements among NSP, NSP-W and Viking (NSP's wholly-owned interstate pipeline subsidiary). Under these agreements, NSP manages the pressures of the various pipelines owned by these companies and the inflow and outflow of natural gas from these pipelines. These agreements were approved by the Minnesota Commission in Docket No. G002/AI-94-831, and the NSP/NSP-W agreement was approved by the Wisconsin Commission in Docket No. 4220-AU-117. ---------- 126 As noted above, a "spin down" of NSP's gas utility assets to a subsidiary (also called BMG) is pending Commission approval. The Minnesota Commission and the North Dakota Commission approved this transaction in April 1999; the Arizona Commission approved it in September 1999. Upon Commission approval, BMG would operate as a subsidiary of NSP until the Merger and would be utility operating company subsidiary of Xcel after the Merger. ---------- The gas properties of NSP include 7,943 miles of natural gas distribution and transmission mains, 52 miles of propane vapor distribution mains, the Westcott LNG plant with a storage capacity of 2.1 Bcf equivalent and five propane-air plants with a storage capacity of 1.4 Bcf equivalent to help meet the peak requirements of its firm residential, commercial and industrial customers. NSP-W's gas properties include approximately 1,811 miles of natural gas distribution mains, the Eau Claire and LaCrosse LNG plants, having a storage capacity of 0.4 Bcf equivalent, and three propane-air plant, with storage capacity of 0.02 Bcf equivalent. The gas properties of BMG include 361 miles of natural gas distribution mains and approximately 52 miles of propane vapor distribution mains. NSP and NSP-W are authorized to make certain sales of natural gas for resale under blanket authority granted by FERC under 18 CFR 284.402. For the year ended December 31, 1998, NSP, NSP-W and BMG distributed the following amounts of natural or manufactured gas at retail: Year-ended December 31, 1998 NSP Mcf of gas distributed at retail (including 75,609,804 natural and manufactured gas) NSP-W Mcf of gas distributed at retail (including 17,685,179 natural and manufactured gas) ANNEX C-1 NON-UTILITY SUBSIDIARIES OF NCE
Type of Name of Company Organization State Business Authority/1/ DIRECT NON-UTILITY SUBSIDIARIES OF NCE WestGas InterState, Inc. Corporation CO Gas pipeline company 1997 Order NC Enterprises, Inc. Corporation DE Non-utility holding 1997 Order company NON-UTILITY SUBSIDIARIES OF PUBLIC SERVICE COMPANY OF COLORADO 1480 Welton, Inc. Corporation CO Utility real estate 1997 Order P.S.R. Investments, Inc. Corporation CO Employee life insurance 1997 Order PS Colorado Credit Corporation CO Financing/factoring 1997 Order Corporation company Green and Clear Lakes Corporation NY Hydroelectric water 1997 Order Company storage Fuel Resources Development Corporation CO Natural gas exploration 1997 Order Co. Baugh Lateral Ditch Company Corporation CO Ditch company 1997 Order The Beeman Ditch Company Corporation CO Ditch company 1997 Order Consolidated Extension Corporation CO Ditch company 1997 Order Canal Company East Boulder Ditch Company Corporation CO Ditch company 1997 Order Enterprise Irrigating Corporation CO Ditch company 1997 Order Ditch Company Fisher Ditch Company Corporation CO Ditch company 1997 Order Hillcrest Ditch and Corporation CO Ditch company 1997 Order Reservoir Company Jones and Donnelly Ditch Corporation CO Ditch company 1997 Order Company Las Animas Consolidated Corporation CO Ditch company 1997 Order Canal Company ---------------- 1 "1997 Order" refers to New Century Energies, Inc., Holding Co. Act Release No. 26748 (1997), wherein the Commission approved the creation of the NCE system through the merger of Public Service Company of Colorado and Southwestern Public Service Company, including the retention of their non-utility businesses. C-1-1 United Water Company Corporation CO Ditch Company 1997 Order Colorado Natural Fuels LLC Limited liability CO Compressed gas NCE, HCAR company 27116 Natural Fuels Company LLC Limited liability DE Compressed gas NCE, HCAR company 27116 NON-UTILITY SUBSIDIARIES OF NC ENTERPRISES NC Enterprises, Inc. Corporation DE Non-utility holding 1997 Order company New Century International, Corporation DE FUCO/EWG holding company 1997 Order Inc. Yorkshire Power Group Corporation UK FUCO holding company 1997 Order Limited Yorkshire Holdings plc Corporation UK FUCO holding company 1997 Order Yorkshire Electricity Corporation UK Section 3(b) 1997 Order Group plc subsidiary; expected FUCO The Independent Power Corporation UK Expected FUCO 1997 Order Corporation plc Independent Power Corporation Jersey Isles EWG Section 32 International Corp. Corporation Independiente Corporation Argentina EWG Section 32 de Energia S.A. Central Piedra Buena S.A. Corporation Argentina EWG Section 32 NCE Communications, Inc./2/ Corporation DE ETC 1997 Order Northern Colorado Limited liability CO ETC ETC Telecommunications, LLC company New Century-Cadence, Inc. Corporation CO Energy-related company Rule 58(b)(1(i), NCE, HCAR 27124 Cadence Network LLC Limited liability DE Energy-related company Rule 58(b)(1(i), company NCE, HCAR 27124 Natural Station Equipment Limited liability DE Commercialization of NCE, HCAR 27116 LLC company compressed natural gas Natural/Total Limited Limited liability WY Commercialization of 1997 Order Liability Company company compressed natural gas Natural/Total/KN Limited Limited partnership CO Commercialization of 1997 Order Partnership compressed natural gas ---------------- 2 Formerly e prime Telecom, Inc., a subsidiary of e prime, inc. C-1-2 Natural/Peoples Limited Limited liability WY Commercialization of 1997 Order Liability Company company compressed natural gas Utility Engineering Corporation TX Engineering services 1997 Order Corporation and construction management Precision Resource Company Corporation TX Human resource services 1997 Order Quixx Corporation Corporation TX IPP & cogeneration 1997 Order development; railcar services; water rights; other non-utility investments BCH Energy, Limited Limited Partnership DE QF ownership - Inactive 1997 Order Partnership (Limited Partner) Quixx Carolina, Inc. Corporation TX QF holding company 1997 Order Carolina Energy, Limited Limited partnership DE QF ownership 1997 Order Partnership (General Partner) Carolina Energy, Limited Limited partnership DE QF ownership - Inactive 1997 Order Partnership (Limited Partner) Mosbacher Power Group, Limited liability DE EWG and FUCO 1997 Order L.L.C. company development and ownership Mosbacher Power Limited liability DE EWG and FUCO 1997 Order International, L.L.C. company development and ownership Quixxlin Corp. Corporation DE QF holding company 1997 Order Quixx Linden, L.P. Limited partnership DE QF ownership 1997 Order (General Partner) Quixx Linden, L.P. Limited partnership DE WF ownership 1997 Order (Limited Partner) Quixx Borger Cogen, Inc. Corporation DE QF holding company 1997 Order Borger Energy Associates, Limited partnership DE QF ownership 1997 Order L.P. (General Partner) Borger Energy Associates, Limited partnership DE QF ownership 1997 Order L.P. (Limited Partner) Borger Funding Corporation Corporation DE Financing Subsidiary 1997 Order Quixx Mustang Station, Inc. Corporation DE EWG 1997 Order Denver City Energy Limited partnership DE EWG ownership 1997 Order Associates, L.P. (General Partner) Denver City Energy Limited partnership DE EWG ownership 1997 Order Associates, L.P. (Limited Partner) C-1-3 Quixx WPP94, Inc. Corporation TX QF holding company 1997 Order Windpower Partners 1994, Limited partnership DE QF ownership 1997 Order L.P. (General Partner) Windpower Partners 1994, Limited partnership DE QF ownership 1997 Order L.P. (Limited Partner) Quixx Mountain Holdings, Limited liability DE Expected EWG Section 32 LLC company Front Range Energy Limited liability TX IPP cogeneration 1997 Order Associates, LLC company operation and maintenance services Quixx Power Services, Inc. Corporation DE Expected EWG Section 32 Quixx Resources, Inc. Corporation NV Ownership of water 1997 Order rights, QF, and EWG Quixx WRR, L.P. (Limited Limited partnership TX QF ownership and 1997 Order Partner) ownership of water rights Quixx WRR, L.P. (General Limited partnership TX QF ownership and 1997 Order Partner) ownership of water rights Quixx Louisville, LLC Limited liability DE steam generation 1997 Order company The Planergy Group, Inc. Corporation TX Energy-related company Rule 58(b)(1)(i) Planergy (Delaware), Inc. Corporation DE Energy-related company Rule 58(b)(1)(i) Planergy Services, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i) Planergy Services of Corporation CA Energy-related company Rule 58(b)(1)(i) California, Inc. Cogeneration Capital Corporation CA Energy-related company Rule 58(b)(1)(i) Associates, Incorporated Planergy Energy Services Corporation DE Energy-related company Rule 58(b)(1)(i) Corporation Planergy Services of Corporation DE Energy-related company Rule 58(b)(1)(i) Houston, Inc. Planergy Services USA, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i) Planergy Services of Corporation DE Energy-related company Rule 58(b)(1)(i) Texas, Inc. Planergy New York, Inc. Corporation NY Energy-related company Rule 58(b)(1)(i) Planergy, Inc. Corporation TX Energy-related company Rule 58(b)(1)(i) Planergy Limited Corporation Canada Energy-related company Rule 58(b)(1)(i) USA-Planergy LLC Corporation TX Energy-related company Rule 58(b)(1)(i) C-1-4 First American Energy Corporation NC Energy-related company Rule 58(b)(1)(i) Alliance, LLC Planergy Power II, Inc. Corporation DE Energy-related company Rule 58(b)(1)(i) New Century O&M Services, Corporation CO Ownership, operation & NCE, HCAR Inc. maintenance of military No. 27048 base assets e prime, inc. Corporation CO Energy services; IPP, 1997 Order cogeneration, and ETC ownership Texas-Ohio Pipeline, Inc. Corporation TX Natural gas pipeline 1997 Order e prime Florida, Inc Corporation FL Energy-related company Rule 58(b)(2)(i) e prime Georgia Inc. Corporation GA Energy-related company Rule 58(b)(2)(i) Young Gas Storage Company Corporation DE Natural gas storage 1997 Order Young Gas Storage Company, Limited partnership CO Natural gas storage 1997 Order Ltd. New Century WYCO, Inc. Corporation CO Natural gas NCE, HCAR 27106, transportation NCE, HCAR 27068, NCE, HCAR 27034 WYCO Development LLC Limited liability CO Natural gas NCE, HCAR 27106, company transportation NCE, HCAR 27068, NCE, HCAR 27034
C-1-5 ANNEX C-2 SUPPLEMENTAL DESCRIPTION OF NCE NON-UTILITY BUSINESSES NCE engages directly and indirectly in various non-utility activities. Many of these activities were approved in New Century Energies, Holding Act Release No. 26748 (Aug. 1, 1997) ("1997 NCE Order") or more recent orders. NCE engages in other activities pursuant to exemptions granted by the Act or by Commission rule. A. Direct Non-Utility Subsidiaries of NCE 1. West Gas InterState, Inc. ("WGI"): a gas pipeline company that operates in Colorado and Wyoming transports gas from the PSC gas system to Cheyenne./3/ At December 31, 1999 and December 31, 1998, NCE's investment in WGI represented approximately .03% and .03%, respectively, of the consolidated book value of the assets of NCE and its subsidiaries. WGI had aggregate net earnings of approximately $82,327 in fiscal year 1999, $85,750 in fiscal 1998, and $75,623 in fiscal 1997. 2. NC Enterprises, Inc. is a holding company for non-utility interests./4/ At December 31, 1999 and December 31, 1998, NCE's investment in NC Enterprises, Inc. represented approximately 8.51% and 7.08%, respectively, of the consolidated book value of the assets of NCE and its subsidiaries. NC Enterprises, Inc. had aggregate net earnings of approximately $35,966,000 in fiscal year 1999, $28,861,000 in fiscal 1998. B. Public Service Company of Colorado ("PSC") 1. Direct activities of PSC: (a) Thermal energy: PSC is engaged in the thermal energy business in its service territory, primarily in the downtown Denver area. Although much of the steam is supplied from boilers at PSC's Denver steam plant, the steam system is connected to the utility's Zuni steam electric generating plant as well, and approximately one-quarter of the steam heating business requirements are met through steam produced by this plant in the course of its ordinary operation. PSC also provides chilled water service to customers in the downtown Denver area, and offers related services to maintain customers' heating and cooling plants./5/ ---------------- 3 1997 NCE Order. 4 1997 NCE Order. 5 1997 NCE Order. C-2-1 (b) Electrotechnologies: PSC markets products and services developed through its utility operations. For example, PSC provides relay testing services for customers, and proposes to lease or sell surge protection equipment to nonassociates as well as install, own and operate photovoltaic cells and commercialize other electrotechnologies that become available to it./6/ (c) Intellectual property: PSC proposes to sell or enter into royalty arrangements with regard to intellectual property owned or developed in its utility operations. If these arrangements are with affiliates, PSC will be paid 70% of the revenues from the marketing of the intellectual property until all programming and development costs are recovered, and 20% of such royalty revenues thereafter./7/ (d) Products and services related to electric and natural gas vehicles: PSC is engaged in a pilot program to develop fueling sites for natural gas vehicles. The fueling units are owned by PSC and are located at PSC and customer facilities. In addition, PSC leases gas compressors, which are used for vehicle fueling purposes, to certain alternative fuel customers located within its service territory. PSC proposes to expand its activities to include the ownership, operation, sale, installation and servicing of recharging and conversion equipment and facilities, and other types of promotion of electric powered vehicles./8/ (e) Sale and servicing of gas and electric appliances: PSC's appliance service operations provide repair services and warranties to customers in connection with certain household appliances and may involve the leasing of certain large appliances, such as heating, ventilation and air conditioning systems, lighting systems and chillers, to industrial customers./9/ PSC provides, and will continue to provide, customer financing in connection with this business./10/ 2. Subsidiaries of PSC: At December 31, 1999 and December 31, 1998 PSC's aggregate investment in its nonutility subsidiaries constituted 2.46%% and 2.34%, respectively, of the consolidated book value of the assets of PSC and its subsidiaries. PSC's non-utility subsidiaries had aggregate net earnings of approximately $16,589,000 in fiscal year 1999, $17,729,000 in fiscal 1998, and $(60,330,000) in fiscal 1997. The major subsidiaries and their interests and investments are described briefly below. ---------------- 6 1997 NCE Order. 7 1997 NCE Order. 8 1997 NCE Order. 9 1997 NCE Order. 10 NCE states that this financing will be furnished pursuant to the exemption afforded by rule 48 under the Act. C-2-2 (a) 1480 Welton, Inc. ("1480 Welton"): owns certain of PSC's real estate interests for use in its utility business./11/ 1480 Welton does not hold other interests in properties and does not offer services to nonassociates. (b) PSR Investments, Inc. ("PSRI") owns and manages certain company-owned employee life insurance policies, acquired prior to 1986, the benefits from which are used to provide future funding for general corporate purposes. The company does not intend to acquire any new policies or engage in any other active business./12/ (c) PS Colorado Credit Corporation ("PSCCC") engages in financing and factoring of PSC's fuel inventories and customer accounts receivable./13/ (d) Green and Clear Lakes Company ("Green and Clear Lakes") owns water rights and storage facilities for water used or formerly used at PSC's Georgetown Hydroelectric Station./14/ (e) Fuel Resources Development Co. ("Fuelco"): a corporation in dissolution under Colorado law. The company had been engaged in natural gas and oil exploration and production, principally in Colorado./15/ (f) Water and ditch companies: PSC has a majority interest in six water and ditch companies, East Boulder Ditch Company, Hillcrest Ditch and Reservoir Company, United Water Company, Consolidated Extension Canal Company, Enterprise Ditch Company and Las Animas Consolidated Canal Company, and has a less than 50% interest in four other such companies, namely, Fisher Ditch Water Company, Bough Lateral Ditch Company, Beenan Irrigating Ditch and Milling Company, and Jones and Donnelley Ditch Company./16/ (g) Colorado Natural Fuels LLC, directly and through its wholly-owned subsidiary Natural Fuels Company LLC, engages in the business of converting motor vehicles to permit their operation by compressed natural gas or propane, and the construction, ownership, and operation of compressed natural gas fueling stations./17/ ---------------- 11 1997 NCE Order. 12 1997 NCE Order. 13 1997 NCE Order. 14 1997 NCE Order. 15 1997 NCE Order. 16 1997 NCE Order. 17 New Century Energies, Inc., HCAR No. 27116 (Dec. 22, 1999). C-2-3 (i) Natural/Total Limited Liability Company ("Natural/Total"), in which Natural Fuels has a 50% ownership interest, is a Wyoming limited liability company that owns and operates natural gas fueling stations located at gas stations in Colorado./18/ (ii) Natural/Total/KN Limited Partnership, in which Natural/Total has a 67% ownership interest, owns the profits interests in the natural gas fueling stations located at gas stations in Colorado./19/ (iii) Natural/Peoples Limited Liability Company, in which Natural Fuels has a 50% profits interest (25% capital interest), is a Wyoming limited liability company that owns and operates one natural gas fueling station located in Castle Rock, Colorado./20/ C. Non-Utility Subsidiaries of NC Enterprises 1. NC Enterprises, Inc. is a holding company for various NCE non-utility subsidiaries./21/ 2. New Century International, Inc. ("NCI") was formed to hold NCE's foreign investments./22/ Specifically, it owns (i) a 50% interest in Yorkshire Power Group Limited, which indirectly through Yorkshire Holdings plc owns Yorkshire Electricity Group plc ("Yorkshire"), a regional electric company operating in the United Kingdom, and (ii) a 49% interest in Independent Power Corporation PLC ("IPC"), a British company that is in the business of developing, owning, and operating foreign generating plants. Xcel will qualify both Yorkshire and IPC as foreign utility companies within the meaning of Section 33 of the Act. In addition, NCI owns interests in three exempt wholesale generators, within the meaning of Section 32 of the Act, namely Independent Power International, Corporation Independiente de Energia S.A., and Central Piedra Buena S.A. 3. NCE Communications, Inc. ("NCEC") (formerly e prime Telecom, Inc.) was formed to provide long-haul fiber capacity using excess capacity on PSC's fiber system on a wholesale basis to nonassociate companies and to engage in other activities permitted for exempt telecommunications companies ("ETCs")./23/ It has been qualified as an ETC within the meaning of Sections 34 of the Act. In addition, NCEC has a 50% interest in Northern Colorado Telecommunications, LLC ("NCT"), which, among other things, will offer commercial customers in the Denver metropolitan area long distance, internet access, and private line services. NCT has likewise been qualified as an ETC. ---------------- 18 1997 NCE Order. 19 1997 NCE Order. 20 1997 NCE Order. 21 1997 NCE Order. 22 1997 NCE Order. 23 1997 NCE Order. C-2-4 4. New Century - Cadence, Inc. owns a 15% interest in Cadence Network, Inc. which is a business-to-business e-commerce provider of utility and other facility cost-reduction services for multi-location enterprises./24/ 5. Natural Station Equipment LLC is in the business of packaging and marketing compressed natural gas fueling facility equipment./25/ 6. Utility Engineering Corporation ("UE"): UE engages in some activities directly, and engages in other activities through subsidiaries. At December 31, 1999 and December 31, 1998, the total assets of UE were approximately $76.5 Million and $57.5 Million respectively, and total revenues for fiscal years 1999 and 1998 were $154.5 Million and $106.3 Million respectively. For fiscal years 1999 and 1998, approximately $12.2 Million and $27.1 Million or 12% and 18% respectively, of UE's revenues were derived from transactions with nonassociates. (a) Direct activities of UE: (i) UE provides general engineering, development, design, procurement, construction and other related services./26/ Except with respect to services provided EWGs and FUCOs, and except as provided in clause (ii) below, all of these activities are limited to the United States. UE will not engage in any activity that would cause it to be a "public utility" under the Act. (ii) UE provides directly, or indirectly through subsidiaries or joint ventures, project development, engineering, design, construction and construction management, pre-operational start-up, testing and commissioning, operating, fuel management and procurement, maintenance and power plant overhaul, management and supervision, technical and training, administrative support, and other similar managerial and technical services to foreign developers, operators and owners of power projects, utility systems and industrial concerns. UE also proposes to provide these services to foreign power projects that it may develop on its own or in collaboration with third parties./27/ UE will not engage in any activity that would cause it to be a "public utility" under the Act. (iii) UE works jointly with Quixx on cogeneration and other independent power and related projects, providing engineering, development, design, procurement, construction and related services./28/ ---------------- 24 Rule 58(b)(1)(i) and New Century Energies, Inc., HCAR No. 27124 (Jan. 11, 2000). 25 New Century Energies, Inc., HCAR No. 27116 (Dec. 22, 1999). 26 1997 NCE Order. 27 1997 NCE Order. 28 1997 NCE Order. C-2-5 (iv) UE owns thirty-one electric substations that it leases to fourteen industrial customers of SPS who use the leased substations to secure power from SPS under a favorable Texas transmission tariff. Annual revenues from the leases are approximately $2.7 million./29/ UE will attempt to renegotiate the terms of each of these leases so that, within five years after the date of consummation of the merger, each lease (and any other substation lease into which UE enters) qualifies for treatment as a capital lease under general accepted accounting principles. If any lease cannot be so amended, UE proposes to transfer to SPS, and SPS proposes to acquire, at a price equal to then net book value, the substation that is the subject of the lease. In the event of transfer, UE could continue to administer the lease arrangements for SPS. (b) Subsidiaries of UE: (i) Precision Resource Company ("PRC"): provides a technical personnel resource database service to both associates and nonassociates. The database is comprised of names of unaffiliated individuals who can be dispatched to provide temporary services for various projects, and is used by PRC to match customers and service personnel for a fee. Revenues from services provided to nonassociates will not exceed 49% of PRC's total annual revenues, unless otherwise authorized by the Commission./30/ (ii) Quixx: Quixx primarily engages in investment in, and development of, energy-related projects. At December 31, 1999 and December 31, 1998 Quixx's assets were $93.4 million and $88.7 million, respectively; and total revenues for calendar year, 1999 and calendar year, 1998 were $7.3 million and $13.7 million respectively. (a) Direct activities of Quixx: (i) Project development activities: Quixx forms and finances subsidiaries to invest in EWGs, FUCOs, qualifying facilities ("QFs") under the Public Utility Regulatory Policies Act ("PURPA"), and other energy related projects, and engages in preliminary development activities relating to energy related projects, including project due diligence and design, design review, market studies, site inspection, preparation of bid proposals (including the posting of bid bonds, cash deposits or similar instruments), applications for required permits or authorizations, acquisition of options on sites and other rights, negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors and other project contractors, negotiating of financing commitments with lenders and co-investors, and related activities./31/ Quixx will not acquire interests in projects ---------------- 29 1997 NCE Order. 30 1997 NCE Order. 31 1997 NCE Order. C-2-6 unless the acquisition is either approved by the Commission or is exempt from the requirement of obtaining such approval. (ii) Customer financing: Quixx has provided financing for heat pump acquisitions by SPS customers./32/ Although Quixx no longer makes new loans, it has a loan portfolio of approximately $13.5 million as of December 31, 1999. (b) Interests of Quixx in EWGs, FUCOs and QFs: (i) BCH Energy Limited Partnership, in which Quixx holds a 42% limited partnership interest, owns a waste-to-energy facility near Fayetteville, North Carolina./33/ Operation of the facility has been suspended and Quixx has written off its entire investment. (ii) Quixx Carolina, Inc., a wholly-owned subsidiary of Quixx, holds a 1% general partnership interest in Carolina Energy Limited Partnership, a waste-to-energy cogeneration facility. Quixx also holds a 32.33% limited partnership interest in this same partnership./34/ In June 1997, Quixx wrote off its investment of approximately $13.64 million in the Carolina Energy Limited Partnership. (iii) Mosbacher Power Group, L.L.C. and Mosbacher Power International, L.L.C., in which Quixx formerly held a 50% membership interest,/35/ are independent power development companies that have foreign interests in the developmental stage, all of which are expected to be EWGs or FUCOs. In early 1997, Quixx entered into a business arrangement with Mosbacher Power, a developer of power projects in the United States and foreign countries. Quixx relinquished its business relationship with Mosbacher Power in December, 1997 but retained investment rights in two international projects and four domestic projects. Since 1997 all but one of these development projects were terminated. The remaining project is an electric generating project under development in Cambodia with a contract to supply power to the national utility. (iv) Quixlin Corp., a wholly-owned subsidiary of Quixx, holds a 0.5% general partnership interest in Quixx Linden, L.P., which owns a 23 Mw natural gas fired cogeneration facility in Linden, New Jersey. This ---------------- 32 1997 NCE Order. 33 1997 NCE Order. 34 1997 NCE Order. 35 1997 NCE Order. C-2-7 facility commenced cogeneration operations in October 1999. It is estimated that final completion of this facility will be in early 2000. Quixx also directly holds a 49.5% limited partnership interest in Quixx Linden, L.P./36/ (v) Quixx Borger Cogen, Inc., a wholly-owned subsidiary of Quixx, holds a 0.45% general partnership interest in Borger Energy Associates, L.P., which owns Blackhawk Station, a cogeneration plant located at the Phillips Petroleum Refinery Complex near Borger, Texas and Borger Funding Corporation which is a co-issuer of bonds for construction of Blackhawk Station. Quixx Resources, Inc., a wholly-owned subsidiary of Quixx, holds a 44.55% limited partnership interest in this same partnership. This facility commenced Phase I electric operations in October 1998 and commenced Phase II cogeneration operations in June 1999./37/ (vi) Quixx Mustang Station, Inc., a wholly-owned subsidiary of Quixx, was created to hold Quixx's 0.5%, general partnership interest in Denver City Energy Associates, L.P., a partnership which owns a 50% interest in Mustang Station, a 488 Mw combined cycle generating facility which is scheduled for completion in early 2000. Quixx also holds a 49.5% limited partnership interest in Denver City Energy Associates, L.P., through Quixx Resources, Inc. a wholly-owned subsidiary of Quixx./38/ (vii) Quixx WPP94, Inc., a wholly-owned subsidiary of Quixx, holds a 0.33% general partnership interest in Windpower Partners, 1994 L.P. Windpower Partners, 1994 L.P. owns a 35 Mw wind generation facility in Culberson County, Texas. Quixx also directly holds a 24.67% limited partnership interest in Windpower Partners, 1994 L.P./39/ (viii) Quixx Mountain Holdings, LLC, a wholly-owned subsidiary of Quixx, holds a 50% interest in Front Range Energy Associates, LLC, which was incorporated to develop a gas-fired combustion turbine generation facility near Ft. Lupton, Colorado./40/ ---------------- 36 1997 NCE Order. 37 1997 NCE Order. 38 1997 NCE Order. 39 1997 NCE Order. 40 Section 32. C-2-8 (c) Other interests and businesses of Quixx: (i) Quixx Power Services, Inc. ("QPS"), a wholly-owned subsidiary of Quixx, provides operation and maintenance services for generation facilities in which Quixx holds an equity interest and for nonassociates./41/ (ii) Quixx Resources, Inc., a wholly-owned subsidiary of Quixx, holds a 44.55% limited partnership interest in Borger Energy Associates, L.P., a 49.5% limited partnership interest in Denver City Energy Associates, L.P., a general and a 99% limited partnership interest in Quixx WRR, L.P./42/ (iii) Quixx Louisville, L.L.C., (formerly Vedco Louisville, L.L.C.) a wholly-owned subsidiary of Quixx, owns a facility consisting of two gas-fired boilers providing steam to a DuPont plant in Louisville, Kentucky./43/ Royalty interests in coal and other minerals produced in New Mexico by a nonassociate company are held directly by Quixx./44/ 7. The Planergy Group, Inc. ("Planergy"), which was acquired April 1, 1998 (formerly known as Falcon Seaboard Energy Services, Inc.), was incorporated in 1990 under the laws of the State of Texas. Planergy provides energy management, consulting and demand side management services to commercial, industrial, utility and municipal customers. Planergy currently has two principal wholly-owned subsidiaries, Planergy (Delaware), Inc., and Planergy Services, Inc. Planergy (Delaware), Inc. provides energy-efficiency management, conservation programs and mass-market services. Planergy Services, Inc. specializes in industrial energy audits, and conservation reliability projects. It focuses on energy services for industrial and large commercial customers. The other subsidiaries in the planergy group are inactive or have no significant operations or employees./45/ Planergy group subsidiaries with no significant operations or employees or inactive subsidiaries: Planergy Services of California, Inc.; Cogeneration Capital Associates Incorporated; Planergy Energy Services Corporation; Planergy Services of Houston, Inc.; Planergy Services USA, Inc.; Planergy Services of Texas, Inc.; ---------------- 41 1997 NCE Order. 42 1997 NCE Order. 43 1997 NCE Order. 44 1997 NCE Order. 45 NCE system acquired the Planergy group pursuant to Rule 58(b)(1)(i), and has reported information regarding the Planergy Group on Form U-9C-3. C-2-9 Planergy New York, Inc.; Planergy, Inc.; Planergy Limited; USA-Planergy LLC; First American Energy Alliance, LLC; Planergy Power II, Inc.46 8. New Century O&M Services, Inc. was formed in 1999 to bid on and acquire facilities owned by the federal government on military enclaves which are used exclusively (i) in connection with the delivery and distribution of electricity, natural gas, water (including potable water and hot and chilled water), steam and other energy products, and (ii) for the collection, treatment, processing and disposal of solid and liquid wastes (collectively, the "Military Assets"). The Commission authorized the formation of NCO&M, but reserved jurisdiction pending completion of the record over all of its proposed activities except those with respect to the Fort Carson Military Base, which is located near Colorado Springs, Colorado./47/ 9. e prime, inc. ("e prime"): e prime engages in nonutility activities both directly and indirectly through subsidiaries. e prime does not, and in the future will not, own any facilities or engage in any activities that would cause it to be a public-utility within the meaning of section 2(a)(5) of the Act, unless authorized by the Commission. (a) Direct activities of e prime: (i) Energy marketing and brokering: e prime is directly engaged in purchasing and selling gas at negotiated rates reflecting market conditions./48/ e prime has also been authorized to act as a wholesale electric power marketer, but is not presently active in that business. In connection with its marketing activities, e prime employs risk management strategies./49/ e prime will not directly or indirectly engage in marketing or brokering activities outside of the United States without separate Commission authorization, and, unless authorized by the FERC, the marketing or brokering of power will not involve purchases from, and sales to, associate companies. (ii) Customer financing: e prime purchased a gas-fired air compressor used for making snow and leases it to a customer in conjunction with PSC's demand-side management program./50/ e prime will not engage in customer financing in the future unless it obtains Commission authorization or is exempt from the requirement of such prior approval. ---------------- 46 Rule 58(b)(1)(i). 47 New Century Energies, Inc., HCAR No. 27048 (July 9, 1999). 48 1997 NCE Order. 49 1997 NCE Order. 50 1997 NCE Order. C-2-10 (b) Subsidiaries of e prime: (i) Texas Ohio Pipeline, Inc. owns and operates a 900-foot FERC-regulated interstate gas pipeline that links the pipelines of Texas Eastern Transmission Corporation and Tennessee Gas Pipeline Company. The interest in this company was purchased in connection with e prime's purchase of Texas Ohio Gas./51/ (ii) e prime Florida, Inc. holds contract assets formerly owned by Texas Ohio Gas Incorporated./52/ (iii) e prime Georgia, Inc. holds contract assets formerly owned by Texas Ohio Gas Incorporated./53/ (iv) Young Gas Storage Company: holds a 47.5% general partnership interest in Young Gas Storage Company, Ltd., a limited partnership that owns an underground gas storage facility, primarily for use in PSC's gas operations./54/ The partnership provides services to PSC and to third parties, at FERC-determined rates. 10. New Century WYCO, Inc.: New Century WYCO owns a 50% interest in WYCO Development LLC ("WYCO") which is authorized to purchase Front Range Pipeline and Powder River Lateral Expansion pipeline project. The purpose of WYCO is to acquire, own and lease natural gas transportation facilities./55/ ---------------- 51 1997 NCE Order. 52 Rule 58(b)(2)(i). Texas Ohio Gas, Inc. was engaged in wholesale and retail gas marketing, participated in an electric retail pilot program in New York, marketed electric power at wholesale and used risk management tools in connection with its business, when it was sold, e prime Florida and e prime Georgia retained some of its gas marketing and risk management contracts as assets. 53 Rule 58(b)(2)(i). Texas Ohio Gas, Inc. was engaged in wholesale and retail gas marketing, participated in an electric retail pilot program in New York, marketed electric power at wholesale and used risk management tools in connection with its business, when it was sold, e prime Florida and e prime Georgia retained some of its gas marketing and risk management contracts as assets. 54 1997 NCE Order. 55 New Century Energies, Inc., HCAR Nos. 27106 (Nov. 22, 1999), 27068 (Aug. 24, 1999) and 27034 (May 28, 1999) C-2-11 ANNEX D-1 NSP NON-UTILITY BUSINESSES The vast majority of NSP's non-utility business are EWGs, FUCOs or QFs and therefore would be exempt from the Act. A registered holding company may acquire and hold an interest in an EWG and a FUCO without the need to apply for or receive approval from the Commission. ss.ss.32 and 33 of the Act. (The Commission retains jurisdiction over certain related transactions with prior entities.) The Commission has also authorized the formation and financing of a number of non-utility subsidiaries of registered holding companies in order to invest in and hold securities of QFs, FUCOs, and EWGs. See, e.g., Interstate Energy Corporation, Holding Co. Act Release No. 27069 (Aug. 26, 1999) (authorizing intermediate subsidiaries for holding EWGs, FUCOs, subsidiaries whose securities are acquired under Rule 58, and ETCs); Entergy Corporation, Holding Co. Act Release No. 27039 (June 22, 1999) (authorizing development activities, providing management services to associate EWGs, QFs and FUCOs, and providing consulting and O&M services); The Southern Company, Holding Co. Act Release No. 26212 (Dec. 30, 1994); Entergy Corp., Holding Co. Act Release No. 26322 (June 30, 1995); Northeast Utilities, Holding Co. Act Release No. 25977 (Jan. 24, 1994) (authorizing Charter Oak Energy and COE Development Corporation): Central and South West Corp., Holding Co. Act Release No. 26156 (Nov. 3, 1994) (authorizing CSW to form, acquire, finance and own securities of FUCOs); Central and South West Corporation, Holding Co. Act Release No. 26155 (Nov. 2, 1994) (authorizing investment in joint venture which will construct, own and operate QFs and EWGs). A registered holding company may acquire "energy-related companies" meeting the Rule 58 safe harbor conditions without the need for Commission approval. 17 C.F.R. ss. 250.58 (1999); Exemption of Acquisition by Registered Public-Utility Holding Companies of Non-Utility Companies Engaged in Certain Energy-Related Activities, Holding Co. Act Release No. 26667 (Feb. 14, 1997). Under Rule 58, an energy-related company is a company that derives or will derive substantially all of its revenues (exclusive of revenues from temporary investments) from one of the twelve businesses described in the Rule and from such other activities and investments as the Commission may approve under Section 10. Rule 58 lists the ownership of QFs as an energy-related activity under Rule 58(b)(1)(viii). Unless otherwise stated below, each of NSP's non-utility businesses that are not EWGs or FUCOs would be energy-related companies under the Commission's Rule 58 or prior Commission precedent. The non-utility subsidiary companies are further described below in tabular form, followed by a textual description of the larger non-utility subsidiary businesses. I. Subsidiaries of NSP
Location of Subsidiary Name Incorporation Description of Business Location in Annex D-2 --------------- ------------- ----------------------- --------------------- NSP Financing I Delaware Special purpose business trust D-2-6 P. B.9 Viking Gas Transmission Delaware Natural Gas Company (interstate D-2-3 Company transportation) P. B.1 Energy Masters Minnesota Energy services company D-2-5 International P. B.3 Eloigne Company Minnesota Investments in affordable housing D-2-6 projects which qualify for low P. B.8 income housing tax credits First Midwest Auto Minnesota Owns and operates parking garage D-2-3 Park, Inc. next to NSP HQs P. B.2. United Power & Land Minnesota Holds land adjacent to certain NSP D-2-3 Company operations, rents office space to P. B.2. NSP Nuclear Management Wisconsin Provides services to the nuclear D-2-7 Company operations of its members P. B.10 Reddy Kilowatt Montana Owns certain intellectual property D-2-6 Corporation rights P. B.7 Seren Innovations, Inc. Minnesota Provides cable, telephone and D-2-5 high-speed internet access system P. B.4 Ultra Power Technologies, Minnesota Markets power cable testing D-2-5 Inc. technology P. B.5 NRG Energy, Inc. Delaware Develops, organizes, owns and D-2-7 operates non-regulated P. B.14 energy-related businesses Private Fuel Storage L.L.C. Delaware Seeking a license from the Nuclear D-2-7 Regulatory Commission to build a P. B.13 temporary storage facility for spent nuclear fuel in Utah II. Subsidiaries of NSP-W Location of Subsidiary Name Incorporation Description of Business Authority --------------- ------------- ----------------------- --------- Clearwater Investments, Inc. Wisconsin Investment in affordable housing D-2-6 projects which qualify for low P. B.8 income housing tax credits under federal tax law NSP Lands Wisconsin Sells excess lands adjacent to D-2-3 certain NSP operations P. B.2. Chippewa & Flambeau Wisconsin Builds and operates dams and D-2-5 Improvement Company reservoirs B.6 III. Subsidiaries of NRG Location of Subsidiary Name Incorporation Description of Business Location in Annex D-2 --------------- ------------- ----------------------- --------------------- Arthur Kill Power LLC Delaware Entity holding title to Arthur Kill D-2-10 generating station in Staten Island, P. 14.B.1.(iv) New York Astoria Gas Turbine Power Delaware Entity holding title to Astoria D-2-9 LLC turbines in Staten Island, New York P. 14.B.1.(iii) Big Cajun I Peaking Power LLC Delaware Develop, own and operate the Cajun D-2-10 expansion project P. 14.B.2.(iii) Bioconversion Partners, L.P. California Supplies biomass fuel in California D-2-19 P. 14.C.15 B.L. England Power LLC Delaware Formed to acquire Connectiv assets D-2-17, 18 P. 14.C.1.(i) and C.5. Brimsdown Power Limited England Project company for peaking unit D-2-21 and Wales associated with Enfield Energy Centre P. 14.C.25 Limited in England Cabrillo Power I LLC Delaware Entity holding title to the Encina D-2-10 electric generation station in P. 14.B.3.(iii) Carlsbad, California Cabrillo Power II LLC Delaware Entity holding title to 17 SDG&E D-2-10 combustion turbines in San Diego, P. 14.B.3.(iv) California Cadillac Renewable Energy Delaware Owns wood-fired electric generation D-2-11 LLC plant in Cadillac, Michigan P. 14.B.6. Camas Power Boiler Limited Oregon Owns waste-wood-fired steam boiler in D-2-8 Partnership Camas paper mill in Washington P. 14.A.2.c. Camas Power Boiler, Inc. Oregon General partner in Camas Boiler Limited D-2-8 Partners P. 14.A.2.c. Carolina Energy, Limited Delaware Holds remaining non-generating assets D-2-19 Partnership of the Carolina Energy transfer station P. 14.C.17. and waste-to-energy facility in North Carolina Cobee Energy Development LLC Delaware Provides project development services D-2-22 in Latin America for NRG Energy, Inc. P. 14.C.35 and Vattenfall AB Cobee Holdings Inc. Delaware Domestic holding company for Tosli D-2-15 Investments N.V. P. 14.B.23 Cogeneration Corporation of Delaware Develops, owns and operates D-2-11 America cogeneration facilities in U.S. P. 14.B.4. Collinsville Operations Pty Australia Operates Collinsville coal-fired power D-2-14 Ltd. plant in Australia P. 14.B.18 Collinsville Power Joint (Unincorporated) Owns Collinsville coal-fired power D-2-13 Venture plant in Australia P. 14.B.18 Compania Electrica Central Bolivia Owner of generation assets for project D-2-15 Bulo Bulo S.A. in Bolivia P.P. 14.B.23 and 14.C.31. Compania Boliviana de Canada (Nova Scotia) Owns and/or operates 15 operating power D-2-15 Energia Electrica S.A. plants primarily hydroelectric, in P. 14.B.23 Bolivia Conemaugh Power LLC Delaware Formed to acquire Connectiv assets D-2-17 P. 14.C.1.(ii) Connecticut Jet Power LLC Delaware Own combustion turbines acquired from D-2-10 Connecticut Light and Power ("CL&P P. 14.B.1(vii) assets") Coniti Holding B.V. Netherlands International holding company for Bulo D-2-21 Bulo gas fired power plant in Bolivia P. 14.C.31. Croatia Power Group Cayman Islands Holding company for potential project D-2-22 in Croatia P. 14.C.34. Crockett Cogeneration, a California Owns Crockett cogeneration facility in D-2-11 California Limited California P. 14.B.8. Partnership Curtis/Palmer Hydroelectric New York Owns Curtis/Palmer hydroelectric power D-2-12 Company plant in New York P. 14.B.10. Deepwater Power LLC Delaware Formed to acquire Connectiv assets D-2-17, 18 P. 14.C.1.(iii) and C.5. Devon Power LLC Delaware Entity holding title to the Devon Power D-2-10 station in Connecticut P. 14.B.1.(viii) Dunkirk Power LLC Delaware Entity holding title to Dunkirk Power D-2-9 Station in New York P. 14.B.1.(i) ECK Generating, s.r.o. Czech Republic Expansion project for approximately 300 D-2-14 MW coal-fired power plant under P. 14.B.22. construction in Kladno facility El Segundo Power, LLC Delaware Entity holding title to the El Segundo D-2-10 power plant in El Segundo, California P. 14.B.3.(ii) Elk River Resource Recovery, Minnesota Proposed owner of Elk River waste D-2-20 Inc. processing facility in Minnesota P. 14.C.19(xi) Energeticke Centrum Kladno, Czech Republic Owns and operates a coal-fired power D-2-14. s.r.o. plant in Kladno, Czech Republic P. 14.B.22. Energy Developments Australia Develops, owns and operates power D-2-14 Limited (Queensland) generation and waste-to-energy projects P. 14.B.19 in Australia, New Zealand, Asia and England Energy Investors Fund, L.P. Delaware Domestic investment company which holds D-2-12, 15 limited partner interests in Crockett, P. 14.B.10,25 Curtis/Palmer, Windpower 87 and Windpower 88 projects; also a funding vehicle for numerous other unrelated projects in the U.S. Energy National, Inc. Utah Domestic holding company which holds D-2-15 limited partner interests in Crockett, P. 14.B.25 Curtis/Palmer, Maine Energy Recovery Company, Penobscot Energy Recovery Company, PowerSmith, Windpower 87, Windpower 88 projects; general partner in Penobscot Energy Recovery Co. Enfield Energy Centre England Owns Enfield gas fired power plant in D-2-13 Limited And Wales England P. 14.B.15 Enfield Holdings B.V. Netherlands International holding company for D-2-13, 20 Enfield Energy Centre Limited projects P.P. 14.B.15 and in England 14.C.24. Enfield Operations, L.L.C. England Operates Enfield Energy gas-fired power D-2-13 plant in England P. 14.B.15 Enfield Operations (UK) England Holds employees for Enfield Operations, D-2-13 Limited And Wales L.L.C. P. 14.B.15 ENI Chester, Limited Oregon Was limited partner in wood burning D-2-19 Partnership project in Maine P. 14.C.16. ENI Crockett Limited Oregon Limited partner in Crockett D-2-11 Partnership Cogeneration, A California Limited P. 14.B.8 Partnership ENI Curtis Falls, Limited Oregon Limited partner in Curtis/Palmer D-2-12 Partnership Hydroelectric Company P. 14.B.10 Enifund, Inc. Utah Holds property (house at Crockett D-2-20 cogeneration facility) and provides P. 14.C.19(v) consulting services to Maine Energy Recovery Company Enigen, Inc. Utah General Partner in The PowerSmith D-2-12 Cogeneration Project, Limited P. 14.B.9. Partnership ESOCO Crockett, Inc. Oregon Operates Crockett cogeneration facility D-2-18 in California P. 14.C.7. ESOCO Fayetteville, Inc. Oregon Proposed operator of Fayetteville D-2-19 waste-to-energy facility in North P. 14.C.19.(iii) Carolina ESOCO Molokai, Inc. Utah Proposed operator of Molokai biomass D-2-19 fueled power plant in Hawaii P. 14.C.19.(ii) ESOCO Orrington, Inc. Utah Operates Penobscot Energy Recovery D-2-9 Company in Maine P. 14.A.3.d. ESOCO Soledad, Inc. Utah Proposed operator of Soledad wood D-2-20 burning power plant in California P. 14.C.19.(iv) ESOCO Wilson, Inc. Oregon Proposed operator of Carolina Energy D-2-19 waste-to-energy facility and transfer P. 14.C.19.(i) station in North Carolina ESOCO, Inc. Utah Domestic holding company for individual D-2-9 Esoco O&M companies P. 14.A.3.d. Flinders (Gibraltar) Gibraltar Formed as holding company for D-2-20 Australian project P. 14.C.23. Flinders Labuan (No. 1) Ltd. Labuan Holding company for potential D-2-20 acquisition in Australia P. 14.C.23. Flinders Labuan (No. 2) Ltd. Labuan Holding company for potential D-2-20 acquisition in Australia P. 14.C.23. Four Hills, LLC Delaware Landfill gas collection system for D-2-24 Nashua project in New Hampshire P. 14.C.44.c. Gladstone Power Station (Unincorporated) Owns a 1,680MW coal-fired power D-2-13 Joint Venture generation facility in Australia P. 14.B.17. Graystone Corporation Minnesota General Partner in Louisiana Energy D-2-17 Services, L.P. P. 14.C.3. Gunwale B.V. Netherlands International holding company D-2-13 P. 14.B.16. Huntley Power LLC Delaware Entity holding title to the Huntley D-2-9 Power station in New York P. 14.B.1.(ii) Indian River Operations Inc. Delaware Provides operations and maintenance D-2-18 services for Indian River Power LLC P. 14.C.5.(xviii) Indian River Power LLC Delaware Formed to acquire Connectiv assets D-2-17 P. 14.C.1.(iv) Interenergy Limited Ireland Inactive - proposed provider of D-2-22 electric marketing services in eastern P. 14.C.36. and central Europe Inversiones Bulo Bulo S.A. Bolivia Bolivian holding company for Bulo Bulo D-2-21 gas-fired power plant in Bolivia P. 14.C.31. Jackson Valley Energy California Owns and operates waste D-2-25 Partners, L.P. lignite/cogeneration plant and lignite P. 14.C.46 mining and reclamation operation in California Kanel Kangal Elektrik Turkey Will own Kangal lignite fired power D-2-21 Limited Sirketi plant in Turkey P. 14.C.28. Keystone Power LLC Delaware Formed to acquire Connectiv assets D-2-17 P. 14.C.1.(v) Kiksis B.V. Netherlands Inactive - international holding D-2-22 company - hold for Estonia project P. 14.C.36. Killingholme Generation United Kingdom Project company for Killingholme Power D-2-12, 20 Limited Station P.P. 14.B.14 and 14.C.22. Killingholme Holdings Limited United Kingdom Holds interest in Killingholme power D-2-12 station P. 14.B.14 Killingholme Power Limited United Kingdom Project company for Killingholme power D-2-12 station P. 14.B.14 Kingston Cogeneration Canada Owns Kingston cogeneration facility in D-2-12 Limited Partnership (Ontario) Ontario, Canada P. 14.B.13. Kissimee Power Partners, Delaware Inactive D-2-17 Limited Partnership P. 14.C.2. Kladno Power (No. 1) B.V. Netherlands International holding company for D-2-14 Energeticke Centrum Kladno, s.r.o. P. 14.B.22. Kladno Power (No. 2) B.V. Netherlands International holding company for Matra D-2-14 Powerplant Holding B.V., in Czech P. 14.B.22. Republic Kraftwerk Schkopau GbR Germany Owns 960MW coal-fired power plant in D-2-14 Schkopau, Germany 14.B.20. Kraftwerk Schkopau Germany Operates in Germany Schkopau facility D-2-14 Betriebsgesellschaft mbH P. 14.B.20. KUSEL Kutahya Seyitomer Elektrik Turkey Formed to acquire 600 MW coal-fired D-2-21 Limited Sirketi power station in Turkey. No assets or P. 14.C.29 employees at this time. NRG ownership is 31.75% Lakefield Junction LLC Delaware Shell company, formerly owned peaking D-2-19 plant to be constructed in Minnesota P. 14.C.13. Lambique Beheer B.V. Netherlands International holding company for D-2-14 MIBRAG B.V. and Mitteldeutsche P. 14.B.21. Braunkohlengesellschaft mbH in Germany Langage Energy Park Limited United Kingdom Formed to develop Langage project D-2-21 P. 14.C.27. Landfill Power LLC Wyoming Owns and operates Flying Cloud landfill D-2-17 gas fueled power generation facility in P. 14.B.27.c. Eden Prairie, Minnesota Le Paz Incorporated Minnesota Limited partner in Louisiana Energy D-2-18 Services, L.P. P. 14.C.3. LFG Partners, LLC Delaware Landfill gas collection system for D-2-24 Yaworski project in Connecticut P. 14.C.44.d. Long Beach Generation LLC Delaware Owns gas-fired electric generation D-2-10 power plant in Long Beach, California P. 14.B.3.(i) Long Island Cogeneration, New York Holds contracts for Long Island D-2-20 L.P. cogeneration facility in New York which P. 14.C.19.(vi) was never constructed Louisiana Energy Services, Delaware Owns uranium enrichment facility under D-2-17 L.P. development in Louisiana P. 14.C.3. Louisiana Generating LLC Delaware Formed for the purpose of owning Cajun D-2-10 non-nuclear generating assets in P. 14.B.2.(i) Louisiana (including gas and coal-fired generation) Loy Yang Power Australia (Victoria) Operates Loy Yang coal-fired power D-2-13 Management Pty Ltd. plant in Australia P. 14.B.16(iii) Loy Yang Power Partners Australia Owns Loy Yang coal-fired plant in D-2-13 Australia P. 14.B.16.(i) Loy Yang Power Projects Pty Australia (Victoria) Provides technical services to Loy Yang D-2-13 Ltd coal fired power plant in Australia P. 14.B.16.(ii) Maine Energy Recovery Maine Owns Waste-to-Energy facility in D-2-9 Company Biddeford, Maine P. 14.A.3.b. Matra Powerplant Holding Netherlands International holding company for ECK D-2-14 B.V. Generating, s.r.o. in Czech Republic P. 14.B.22. MESI Fuel Station #1 L.L.C. Delaware Owns a synthetic coal processing D-2-25 facility in Catlettsburg, Kentucky P. 14.C.44.j. MIBRAG B.V. Netherlands Owns 99% of MIBRAG GmbH coal mines and D-2-14 coal-fired power plants in Germany P. 14.B.21 MIBRAG Industriekraftwerke Betriebs Germany Operates and maintains three coal-fired D-2-14 Gmbh power plants in Germany P. 14.B.21 MIBRAG Industriekraftwerke Gmbh & Co. Germany Owns three coal-fired power plants in D-2-14 KG Germany P. 14.B.21. MIBRAG Industriekraftwerke Germany Intermediate holding company for EWG D-2-14 Vermoegensverwaltungs und P. 14.B.21 Beteiligungs Gmbh Mid-Continent Power Delaware Owns Mid-Contingent Power Company D-2-19 Company, L.L.C. cogeneration facility in Oklahoma P. 14.C.14. Middletown Power LLC Delaware Own and/or operate portion of CL&P D-2-10 assets P. 14.B.1.(ix) Minnesota Methane Holdings Delaware Domestic holding company D-2-24 LLC P. 14.C.44.b. Minnesota Methane II LLC Delaware Owns and operates original 3 D-2-16 NEO/Ziegler landfill gas projects P. 14.B.27.c. (Edward Kraemer in Burnsville, MN; Flying Cloud in Eden Prairie, MN and Nashua in New Hampshire) Minnesota Methane LLC Wyoming Owns and operates 18 landfill gas D-2-16 projects in the U.S. financed by Lyon P. 14.B.27.a. Credit Minnesota Waste Processing Delaware Owns municipal solid waste processing D-2-9 Company, L.L.C. facility and transfer station in P. 14.A.3.a. Minnesota Mitteldeutsche Germany Operates coal mining, power generation D-2-14 Braunkohlengesellschaft and associated operations near Leipzig, P. 14.B.21 mbH Germany MM Albany Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in New York P. 14.B.27.a. MM Biogas Power LLC Delaware Domestic holding company - owns 100% D-2-16, 23 interest in landfill gas fueled power P.P. 14.B.27.b. and generation projects not yet financed 14.C.44.a. MM Burnsville Energy LLC Delaware Landfill gas fueled power generation D-2-16 for Edward Kraemer landfill in Minnesota P. 14.B.27.c.(i) MM Corona Energy LLC Delaware Landfill gas fueled power generation D-2-16 for O'Brien projects in California P. 14.B.27.b. MM Cuyahoga Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Cleveland, Ohio P. 14.B.27.a. MM El Sobrante Energy LLC Delaware Landfill gas fueled power generation D-2-23 for project in California P. 14.C.44.a.(vii) MM Erie Power LLC Delaware Landfill gas fueled power generation D-2-23 for project in Denver, Colorado P. 14.C.44.a.(i) MM Ft. Smith Energy LLC Delaware Formed to sell landfill gas to other D-2-24 companies in Arkansas - not a GENCO P. 14.C.44.h. MM Hackensack Energy LLC Delaware Landfill gas fueled power generation D-2-16 for HMDC/Balefill/Kingsland O'Brien P. 14.B.27.b. project in Lyndhurst, New Jersey MM Hartford Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Connecticut P. 14.B.27.a.(iii) MM Lopez Energy LLC Delaware Landfill gas fueled power generation D-2-16 for Lopez Canyon project in Los P. 14.B.27.a.(iv) Angeles, California MM Lowell Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Massachusetts P. 14.B.27.a.(v) MM Martinez Energy LLC Delaware Landfill gas fueled power generation D-2-23 for project in California P. 14.C.44.a.(ii) MM Nashville Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Tennessee P. 14.B.27.b.(iii) MM Northern Tier Energy Delaware Landfill gas fueled power generation D-2-23 LLC for project in Pennsylvania P. 14.C.44.a.(iii) MM Phoenix Energy LLC Delaware Landfill gas fueled power generation D-2-23 for project in Arizona P. 14.C.44.a.(iv) MM Prima Deshecha Energy Delaware Landfill gas fueled power generation D-2-16 LLC for project in Orange County, California P. 14.B.27.b.(iv) MM Prince William Energy Delaware Landfill gas fueled power generation D-2-16 LLC for project in Virginia P. 14.B.27.a.(vi) MM Riverside LLC Delaware Landfill gas fueled power generation D-2-23 for project in California P. 14.C.44.a.(v) MM San Diego LLC Delaware Landfill gas fueled power generation D-2-16 for Miramar project in California P. 14.B.27.a.(vii) MM SKB Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Pennsylvania P. 14.B.27.b.(v) MM Spokane Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Washington P. 14.B.27.a.(viii) MM Tacoma LLC Delaware Landfill gas fueled power generation D-2-16 for project in Washington P. 14.B.27.a.(ix) MM Tajiguas Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Santa Barbara, California P. 14.B.27.b.(vi) MM Taunton Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in Massachusetts P. 14.B.27.a.(x) MM Tomoka Farms Energy Delaware Landfill gas fueled power generation D-2-16 LLC for Volusia project in Florida P. 14.B.27.a.(xi) MM Tri-Cities Energy LLC Delaware Sale of landfill gas to industrial D-2-23 customer P. 14.C.44.a.(viii) MM Tulare Energy LLC Delaware Landfill gas fueled power generation D-2-16 for Visalia project in California P. 14.B.27.a.(xii) MM West Covina LLC Delaware Landfill gas fueled power generation D-2-16 for BKK project in California P. 14.B.27.a.(xiii) MM Woodville Energy LLC Delaware Landfill gas fueled power generation D-2-16 for project in California P. 14.B.27.b.(vii) MM Yolo Power LLC Delaware Landfill gas fueled power generation D-2-16 for project in California P. 14.B.27.a.(xiv) MMSB Transco Holdings Delaware Transport landfill gas for resale D-2-23 LLC P. 14.C.44.a.(vi) Montville Power LLC Delaware Own and/or operate a portion of the D-2-10 CL&P assets P. 14.B.1.(x) Mt. Poso Cogeneration California Owns Mt. Poso cogeneration facility in D-2-12 Company, a California California P. 14.B.12. Limited Partnership NEO Albany, L.L.C. Delaware Landfill gas collection system for D-2-24 project in New York P. 14.C.44.e.(i) NEO Burnsville, LLC Delaware Landfill gas collection system for D-2-24 Edward Kraemer landfill in Minnesota P. 14.C.44.g.(i) NEO Chester-Gen LLC Delaware Formed to acquire landfill gas project D-2-25 P. 14.C.44.m. NEO Corona LLC Delaware Landfill gas collection system for D-2-24 O'Brien project in California P. 14.C.44.g.(ii) NEO Corporation Minnesota Develops, owns and operates landfill D-2-15, 23 gas, hydroelectric and small P.P. 14.B.27 and cogeneration projects in the U.S. 14.C.44 NEO Cuyahoga, LLC Delaware Landfill gas collection system for D-2-24 project in Cleveland, Ohio P. 14.C.44.e.(ii) NEO ECO 11 LLC Delaware Formed to acquire landfill gas project D-2-25 P. 14.C.44.l NEO El Sobrante LLC Delaware Landfill gas collection system for D-2-24 project in California P. 14.C.44.h. NEO Erie LLC Delaware Landfill gas collection system for D-2-24 project in Denver, Colorado P. 14.C.44.g.(iii) NEO Edgeboro, LLC Delaware Landfill gas collection system for D-2-24 O'Brien project in New Jersey P. 14.C.44.e.(iii) NEO Fitchburg LLC Delaware Landfill gas collection system for D-2-24 project in Massachusetts P. 14.C.44.e.(iv) NEO Freehold-Gen LLC Delaware Formed to acquire landfill gas project D-2-25 P. 14.C.44.o. NEO Ft. Smith LLC Delaware Landfill gas collection system for D-2-24 project in Arkansas P. 14.C.44.g.(iv) NEO Hackensack, LLC Delaware Landfill gas collection system for D-2-24 HMDC/Balefill/Kingsland O'Brien P. 14.C.44.g.(v) projects in Lyndhurst, New Jersey NEO Hartford, LLC Delaware Landfill gas collection system for D-2-24 project in Connecticut P. 14C.44.e.(v) NEO Landfill Gas Holdings Delaware Domestic holding company - provides O&M D-2-24 Inc. services for landfill gas projects P. 14.C.44.f. NEO Landfill Gas Inc. Delaware Domestic holding company - holds 100% D-2-24 interest in landfill gas collection P. 14.C.44.e. system projects financed by Lyon Credit NEO Lopez Canyon LLC Delaware Landfill gas collection system for D-2-24 project in Los Angeles, California P. 14.C.44.e.(vi) NEO Lowell LLC Delaware Landfill gas collection system for D-2-24 project in Massachusetts P. 14.C.44.e.(vii) NEO Martinez LLC Delaware Landfill gas collection system for D-2-24 project in California P. 14.C.44.g.(vi) NEO MESI LLC Delaware Produce and sell synthetic fuel (coal D-2-25 briquettes) in Kentucky P. 14.C.44.j. NEO Nashville LLC Delaware Landfill gas collection system for D-2-24 project in Tennessee P. 14.C.44.g.(vii) NEO Northern Tier LLC Delaware Landfill gas collection system for D-2-24 project in Pennsylvania P. 14.C.44.g.(viii) NEO Phoenix LLC Delaware Landfill gas collection system for D-2-24 project in Arizona P. 14.C.44.g.(ix) NEO Prima Deshecha LLC Delaware Landfill gas collection system for D-2-24 project in Orange County, California P. 14.C.44.g.(x) NEO Prince William, LLC Delaware Landfill gas collection system for D-2-24 project in Virginia P. 14.C.44.e.(viii) NEO Riverside LLC Delaware Landfill gas collection system for D-2-24 project in California P. 14.C.44.g.(xi) NEO San Bernardino LLC Delaware Landfill gas collection system for D-2-25 project in California P. 14.C.44.i NEO San Diego LLC Delaware Landfill gas collection system for D-2-24 Miramar project in California P. 14.C.44.e.(ix) NEO SKB LLC Delaware Landfill gas collection system for D-2-24 project in Pennsylvania P. 14.C.44.g.(xii) NEO Spokane LLC Delaware Landfill gas collection system for D-2-24 project in Washington P. 14.C.44.e.(x) NEO Tacoma, L.L.C. Delaware Landfill gas collection system for D-2-24 project in Washington P. 14.C.44.e.(xi) NEO Tajiguas LLC Delaware Landfill gas collection system for D-2-24 project in Santa Barbara, California P. 14.C.44.g.(xiii) NEO Taunton LLC Delaware Landfill gas collection system for D-2-24 project in Massachusetts P. 14.C.44.e.(xii) NEO Toledo-Gen LLC Delaware Formed to acquire landfill gas project D-2-25 P. 14.C.44.n. NEO Tomoka Farms LLC Delaware Landfill gas collection system for D-2-24 Volusia project in Florida P. 14.C.44.e.(xiii) NEO Tri-Cities LLC Delaware Landfill gas collection system for D-2-24 project in California P. 14.C.44.h. NEO Tulare LLC Delaware Landfill gas collection system for D-2-24 Visalia project in California P. 14.C.44.e.(xiv) NEO West Covina LLC Delaware Landfill gas collection system for BKK D-2-24 project in California P. 14.C.44.e.(xv) NEO Woodville LLC Delaware Landfill gas collection for project in D-2-24 California P. 14.C.44.g.(xiv) NEO Yolo LLC Delaware Landfill gas collection system for D-2-24 project in California P. 14.C.44.e.(xvi) North American Thermal Ohio Develops district heating and cooling D-2-8 Systems Limited Liability projects in the U.S.; general partner P. 14.A.2.b. Company in Pittsburgh Thermal, Limited Partnership and San Francisco Thermal, Limited Partnership Northbrook Acquisition Corp. Delaware Domestic holding company in STS D-2-25 Hydropower Ltd. P. 14.C.44.k. Northbrook Carolina Hydro, Delaware Owns and operates hydroelectric power D-2-17 L.L.C. plants in North Carolina and South P. 14.B.27.e. Carolina Northbrook Energy, L.L.C. Delaware Develops hydroelectric power projects D-2-17 in the U.S. P. 14.B.27.d. Northbrook New York, L.L.C. Delaware Holds interest in Northbrook D-2-17, 25 Acquisition Corp. P.P. 14.B.27.f. and 14.C.44.k. Northeast Generation Holding Delaware Holds a 50% interest in NRG Northeast D-2-9 LLC Generating LLC P. 14.B.1. Norwalk Power LLC Delaware Entity holding title to the Norwalk D-2-10 generating station in Connecticut P. 14.B.1.(xi) NR (Gibraltar) Gibraltar Company utilized during the Enfield D-2-20 transactions in England P. 14.C.24 NRG Affiliate Services Inc. Delaware Sponsor and hold the contracts and 401k D-2-18 plans for CL&P, Somerset and other P. 14.C.9. entities NRG Artesia Operations Inc. Delaware Proposed operator for Artesia D-2-18 cogeneration facility in California P. 14.C.5. NRG Arthur Kill Operations Delaware Special purpose operating company to D-2-18. Inc. provide contract O&M services to Arthur P. 14.C.5.(viii) Kill Power LLC NRG Asia-Pacific, Ltd. Delaware Provides international business D-2-23 development services in Australia and P. 14.C.39 the Pacific Rim region NRG Astoria Gas Turbine Delaware Special purpose operating company to D-2-18 Operations Inc. provide contract O&M services to P. 14.C.5.(ix) Astoria Gas Turbine Power LLC NRG Cabrillo Power Delaware Special purpose operating company to D-2-18 Operations Inc. provide contract O&M services. P. 14.C.5.(vii) Currently inactive. NRG Cadillac Inc. Delaware Entity holding NRG's 50% interest in D-2-11 Cadillac Renewable Energy LLC P. 14.B.6. NRG Cadillac Operations Inc. Delaware Operating company for Cadillac wood D-2-18 fired power plant in Michigan P. 14.C.5. NRG Caymans-C Cayman Islands Holding company for interests in D-2-22 Scudder Latin American P. 14.C.34. Power I-C and II-C and II-Corp A and II-Corp B NRG Caymans Company Cayman Islands Holding company for Central and Eastern D-2-22 European Power Fund P. 14.C.34 NRG Caymans-P Cayman Islands Holding company for interests in D-2-22 Scudder Latin American P. 14.C.34 Power I-P and II-P NRG South Central Generating LLC Delaware Special purpose holding company entity D-2-10 to facility central pool financing P. 14.B.2. NRG Central U.S. LLC Delaware To hold 50% interest in NRG South D-2-10 Central Generating LLC P. 14.B.2. NRG Collinsville Operating Australia International holding company in D-2-13 Services Pty Ltd. Collinsville Operations Pty Ltd. P. 14.B.18 NRG Connecticut Affiliate Delaware House the payroll for the four D-2-18 Services Inc. Connecticut operations, sponsor the P. 14.C.9. Pension, 401(k), Welfare plans, etc. NRG Connecticut Generating Delaware Entity holding 100% of the ownership of D-2-20 LLC Devon Power LLC, Norwalk Power LLC, P. 14.C.19.(vii) Middletown Power LLC, Montville Power LLC and Connecticut Jet Power LLC NRG Development Company Delaware Entity created to limit development D-2-18 Inc. exposure on generation projects where P. 14.C.4. NRG Energy, Inc. is pursuing the transaction with certain types of partners NRG Devon Operations Inc. Delaware Special purpose operating company to D-2-18 provide contract O&M services to Devon P. 14.C.5. Power LLC NRG Dunkirk Operations Inc. Delaware Special purpose operating company to D-2-18 provide contract O&M services to P. 14.C.5. Dunkirk Power LLC NRG Eastern LLC Delaware To hold 50% interest in NRG Northeast D-2-9 Generating LLC P. 14.B.1. NRG El Segundo Operations Delaware Proposed operator for El Segundo D-2-18 Inc. gas-fired power plant in California P. 14.C.5.(iv) NRG Energeticke Provoz, Czech Republic Operates coal-fired power plants in D-2-15 s.r.o. Kladno, Czech Republic P. 14.B.22. NRG Energy Center Dover Delaware Owns and operates 18 MW cogeneration D-2-8 LLC facility in Delaware P. 14.A.2.a.(vii) NRG Energy Center Grand Delaware Owns assets in connection with a D-2-8 Forks LLC contract to provide steam at the Grand P. 14.A.2.a.(iv) Forks Air Force Base NRG Energy Center Harrisburg, Inc. Delaware Own cogeneration assets and sells steam D-2-8 to NRG Energy Center Harrisburg, Inc. P. 14.A.2.a.(viii) NRG Energy Center Delaware Owns and operates the district heating D-2-8 Minneapolis LLC and cooling system serving customers in P. 14.A.2.a.(i) the downtown Minneapolis area NRG Energy Center Paxton Inc. Delaware Provides steam to Harrisburg, D-2-8 Pennsylvania central business district P. 14.A.2.a.(viii) NRG Energy Center Delaware Eventually will own and operate the D-2-8 Pittsburgh LLC Pittsburgh Thermal district heating and P. 14.A.2.b. cooling plant which currently serves approx 25 customers in the Pittsburgh area NRG Energy Center Rock Delaware Owns assets in connection with the sale D-2-8 Tenn LLC of steam of Rock-Tenn Corporation in P. 14.A.2.a.(iii) St. Paul NRG Energy Center San Delaware Eventually will own and operate San D-2-8 Diego LLC Diego power and cooling, a chilled P. 14.A.2.a.(ii) plant serving downtown San Diego area NRG Energy Center San Delaware Eventually will own and operate the San D-2-8 Francisco LLC Francisco Thermal district heating and P. 14.A.2.b. cooling plant which currently serves customers in the San Francisco area NRG Energy Center Washco Delaware Owns assets in connection with the sale D-2-8 LLC of steam to Anderson Corporation and P. 14.A.2.a.(v) the State of Minnesota Correctional Facility NRG Energy CZ, s.r.o. Czech Republic Provides international business D-2-23 development services in the Czech P. 14.C.41 Republic and Europe NRG Energy Development Germany Provides international business D-2-23 GmbH development services in Germany and P. 14.C.40 Europe NRG Energy Jackson Valley California General partner in Jackson Valley D-2-25 I, Inc. Energy Partners, L.P. P. 14.C.46 NRG Energy Jackson California Limited partner in (i) Jackson Valley D-2-19 Valley II, Inc. Energy Partners, L.P., (ii) San Joaquin P. 14.C.15. Valley Energy Partners I, L.P., (iii) San Joaquin Valley Energy Partners IV, L.P. and (iv) Bioconversion Partners, L.P. NRG Energy Ltd. England and Wales Provides international business D-2-23 development services in the U.K. and P. 14.C.38 Europe NRG Energy PL Sp. z o.o. Warsaw, Poland Provides international business D-2-23 development services in Poland P. 14.C.42. NRG Gladstone Operating Australia Operates coal-fired Gladstone power D-2-13 Services Pty Ltd. plant in Australia P. 14.B.17. NRG Gladstone Australia Holds pension assets for employees of D-2-13 Superannuation Pty Ltd. Gladstone coal-fired power plant in P. 14.B.17. Australia NRG Huntley Operations Inc. Delaware Special purpose operating company to D-2-18 provide contract O&M services to P. 14.C.5. Huntley Power LLC NRG International II Inc. Delaware Domestic holding company D-2-20, 22 P.P. 14.C.22. and 37 NRG International, Inc. Delaware Domestic holding company D-2-12-15, 20, 23 P.P. 14.B.15, 17, 18, 23 and 14.C.20-22, 35, 39 NRG International Services Delaware Holds service agreements with D-2-20 Company expatriates and international P. 14.C.21 consultants related to energy services. NRG International Delaware Entity created to limit development D-2-18 Development Inc. exposure on generation projects where P. 14.C.4. NRG Energy, Inc. is pursuing the transaction with certain types of partners on international transactions NRG Lakefield Inc. Delaware Special purpose entity to hold NRG's D-2-19 50% member interest in Lakefield P. 14.C.13. Junction LLC NRG Lakefield Junction LLC Delaware Inactive D-2-19 P. 14.C.13 NRG Latin America Inc. Delaware Domestic holding company for Cobee D-2-22 Energy Development LLC P. 14.C.35. NRG Louisiana LLC Delaware Formed to acquire Koch Sterlington LLC D-2-20 P. 14.C.19.(viii) NRG Mextrans Inc. Delaware This entity will develop a transmission D-2-18 line from Palo Verde power station P. 14.C.8. through Arizona, into Mexico and back up into California, per a Presidential Permit NRG MidAtlantic Generating LLC Delaware Formed to acquire Connectiv assets D-2-17 P. 14.C.1. NRG Middletown Operations Delaware Special purpose operating company to D-2-18 Inc. provide O&M services contract to P. 14.C.5. Middletown Power LLC NRG Montville Operations Delaware Special purpose operating company to D-2-18 Inc. provide contract O&M services to P. 14.C.5. Montville Power LLC NRG Morris Operations Inc. Delaware Former operator for Millennium D-2-18 cogeneration facility in Illinois P. 14.C.5.(vi) NRG New Roads Generating, LLC Delaware Alternative domestic holding company D-2-20 for Cajun non-nuclear generating assets P. 14.C.19(ix) in Louisiana (including gas and coal-fired generation) NRG New Roads Holdings LLC Delaware Entity formed to hold title to certain D-2-10 Cajun assets that, due to federal P. 14.B.2.(ii) regulatory reasons could not be held by Louisiana Generating LLC NRG Northeast Affiliate Delaware Manage payroll and benefits for Huntley D-2-18 Services Inc. and Dunkirk (approximately 330 P. 14.C.9. employees) NRG Northeast Generating Delaware Special purpose holding company entity D-2-9 LLC to facilitate east coast pool financing P. 14.B.1. NRG Norwalk Harbor Delaware Special purpose operating company to D-2-18 Operations Inc. provide contract O&M services to P. 14.C.5. Norwalk Harbor LLC NRG Oklahoma Operations Delaware Proposed operator for Mid-Continent D-2-18 Inc. Power Company cogeneration facility in P. 14.C.5.(iii) Oklahoma NRG Operating Services, Inc. Delaware Currently provides O&M services for D-2-14, 18 Cadillac, Collinsville, and Gladstone P.P. 14.B.17, 18 and projects 14.C.5. NRG Oswego Harbor Power Delaware Special purpose operating company to D-2-18 Operations Inc. provide contract O&M services to Oswego P. 14.C.5. Power LLC NRG PacGen Inc. Delaware Domestic holding company which acquired D-2-8 100% of the stock of Pacific Generation P. 14.A.2.c. Company NRG Pittsburgh Thermal Inc. Delaware Limited Partner in Pittsburgh Thermal, D-2-8 Limited Partnership P. 14.A.2.b. NRG Power Marketing Inc. Delaware Holds power marketing license D-2-25 P. 14.C.45. NRG Rocky Road LLC Delaware Special purpose LLC formed to hold the D-2-11 50% membership interest in Rocky Road P. 14.B.5 LLC NRG San Francisco Thermal Delaware Special purpose entity to hold NRG's D-2-8 Inc. limited partnership ownership in SFTLP P. 14.A.2.b. NRG Services Corporation Delaware Provides payroll and benefits services D-2-18 through service agreements with P. 14.C.9. individual O&M companies NRG South Central Generating LLC Delaware Special purpose holding company entity D-2-10 to facility central pool financing P. 14.B.2. NRG Sunnyside Operations Delaware General Partner in Sunnyside Operations D-2-19 GP Inc. Associated L.P. P. 14.C.10 NRG Sunnyside Operations Delaware Limited Partner in Sunnyside Operations D-2-19 LP Inc. Associates L.P. P. 14.C.10. NRG Thermal Corporation Delaware The sole member of all the llcs under D-2-8 the new thermal restructuring P. 14.A.2.a. NRG Thermal Operating Delaware At this time has no assets or operations D-2-8 Services LLC P. 14.A.2.a.(vi) NRG Victoria I Pty Ltd. Australia International holding company in NRG D-2-14 Victoria II Pty Ltd. and NRG Victoria P. 14.B.19 III Pty Ltd. In Australia NRG Thermal Services, Inc. Delaware Holds chiller plant assets for NRG D-2-8 Energy Center Harrisburg, Inc. P. 14.A.2.a.(viii) NRG Victoria II Pty Ltd. Australia International holding company in NRG D-2-14 Victoria III Pty Ltd. In Australia P. 14.B.19 NRG Victoria III Pty Ltd. Australia International holding company for D-2-14 Energy Developments Limited P. 14.B.19 NRG West Coast Inc. Delaware To act as holding company for West D-2-10 coast limited liability companies P. 14.A.3. NRG Western Affiliate Delaware Handle payroll type issues for the D-2-18 Services Inc. Western Region operating companies P. 14.C.9. NRGenerating Energy Trading Ltd. United Kingdom International power marketing entity D-2-13 P. 14.b.14. NRGenerating Holdings Switzerland Swiss holding company D-2-15, 22 GmbH P.P. 14.B.24 and 14.C.34. NRGenerating Holdings Switzerland Formed as holding company for D-2-20 (No. 2) Gmbh Australian project. P. 14.C.23 NRGenerating Holdings Netherlands International holding company in D-2-13 (No. 1) B.V. Collinsville Power Joint Venture P. 14.B.18 NRGenerating Holdings Netherlands International holding company D-2-13 (No. 3) B.V. registered to do business in Australia P.P. 14.B.18. and 14.C.36 NRGenerating Holdings Netherlands International holding company in Loy D-2-13 (No. 4) B.V. Yang Power Partners, Loy Yang Power P. 14.B.16 Management Pty Ltd. and Loy Yang Power Projects Pty Ltd. NRGenerating Holdings Netherlands International holding company in NRG D-2-15 (No. 5) B.V. Energeticke Provoz, s.r.o. P. 14.B.22. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 6) B.V. registered to do business in Australia P. 14.C.36 NRGenerating Holdings Netherlands International holding company for West D-2-22 (No. 7) B.V. Java O&M company in formation in P. 14.C.36 Indonesia NRGenerating Holdings Netherlands International holding company for West D-2-21 (No. 8) B.V. Java O&M company in formation in P. 14.C.30. Indonesia NRGenerating Holdings Netherlands International holding company in Kanel D-2-21 (No. 9) B.V. Kangal Elektrik Limited Sirketi P. 14.C.28 NRGenerating Holdings Netherlands International holding company for D-2-21 (No. 11) B.V. Langage Park Project in England P. 14.C.26 NRGenerating Holdings Netherlands International holding company D-2-22 (No. 12) B.V. P. 14.C.37. NRGenerating Holdings Netherlands International holding company D-2-21 (No. 13) B.V. P. 14.C.27. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 14) B.V. P. 14.C.36 NRGenerating Holdings Netherlands International holding company D-2-12, 20 (No. 15) B.V. P.P. 14.B.14, and 14.C.22., and 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 16) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-21 (No. 17) B.V. P. 14.C.29. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 18) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 19) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 20) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 21) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 22) B.V. P. 14.C.36. NRGenerating Holdings Netherlands International holding company D-2-22 (No. 23) B.V. P. 14.C.36. NRGenerating International Netherlands International holding company D-2-12-14, 20-23 B.V. P.P. 14.B.14, 16-22 and 14.C.20, 22, 23, 25-30, 34, 36, 38, 40-43 NRGenerating, Ltd. United Kingdom Holding company for Killingholme D-2-12 structure in the UK P. 14.B.14. NRGenerating Luxembourg Luxembourg Formed as holding company for D-2-20 (No. 1) S.a.r.l Australian project P. 14.C.23. NRGenerating Luxembourg Luxembourg Formed as holding company for D-2-20 (No. 2) S.a.r.l Australian project P. 14.C.23 NRGenerating Rupali B.V. Netherlands International holding company for D-2-22 Rupali oil fired power plant bid in P. 14.C.36. Pakistan O'Brien Biogas (Mazzaro), Delaware Landfill gas collection system for D-2-16 Inc. project in Pennsylvania P. 14.B.27.b.(viii) O'Brien Biogas IV LLC Delaware Landfill gas fueled power generation D-2-16 for Edgeboro project in New Jersey P. 14.B.27.a.(xv) O'Brien California Cogen California Owns Artesia cogeneration facility in D-2-11 Limited California P. 14.B.7. O'Brien Cogeneration, Inc. II Delaware General Partner in O'Brien California D-2-11 Cogen Limited P. 14.B.7. O'Brien Standby Power Delaware Landfill gas fueled power generation D-2-23 Energy, Inc. for SKB project in Pennsylvania P. 14.C.44.a.(ix) Okeechobee Power I, Inc. Delaware Inactive D-2-17 P. 14.C.2. Okeechobee Power II, Inc. Delaware Inactive D-2-17 P. 14.C.2 Okeechobee Power III, Inc. Delaware Inactive D-2-17 P. 14.C.2. ONSITE Energy, Inc. Oregon Domestic holding company for ONSITE D-2-12 Soledad, Inc. and ONSITE Marianas P. 14.B.11 Corporation; also indirectly holds general partner interest in Mt. Poso project and limited partner interest in Turners Falls project ONSITE Funding Corporation Oregon Provides funding to various ONSITE D-2-20 projects P. 14.C.19.(xvi) ONSITE Limited Partnership Oregon Owned cogeneration facilities for D-2-19 No. 1 bakery in Los Angeles and dairy in P. 14.C.12. Michigan ONSITE Marianas Commonwealth of the Owned and operated Marianas solar D-2-20 Corporation Northern Marianas energy plant in the Commonwealth of P. 14.C.19.(xv) Islands Northern Mariana Islands in Pacific Ocean ONSITE Soledad, Inc. Oregon Owned and operated Soledad wood burning D-2-20 power plant in California P. 14.C.19(xiv) ONSITE/US Power Limited Oregon Owned Crossroads cogeneration facility D-2-19 Partnership No. 1 in New Jersey P. 14.C.12. Orrington Waste, Ltd. Limited Oregon Provides waste disposal services to D-2-9 Partnership municipalities to be delivered to waste P. 14.A.3.e. disposal operators in Maine, including Penobscot Energy Recovery Company Oswego Harbor Power LLC Delaware Formed for the purpose of acquiring, D-2-10 operating and owning the electric P. 14.B.1.(vi) generating plant in Oswego, New York OU Nrg Energy Est Estonia Formed as NRG's development office in D-2-23 Estonia P. 14.C.43. P.T. Dayalistrik Pratama Indonesia Formed to own and construct West Java D-2-21 coal-fired power plant in Indonesia P. 14.C.30. Pacific Crockett Energy, Inc. Utah General Partner in Crockett D-2-11 Cogeneration, A California Limited P.P. 14.B.8. Partnership Pacific Crockett Holdings, Oregon Domestic holding company for Pacific D-2-11 Inc. Crockett Energy, Inc. P. 14.B.8. Pacific Generation Company Oregon Domestic holding company acquired by D-2-8 NRG (formerly a wholly owned subsidiary P. 14.A.2.c. of PacifiCorp Holdings, Inc. which developed, built, owned, operated and managed energy production facilities); also a limited partner in Camas Power Boiler Limited Partnership Pacific Generation Oregon Provided domestic business development D-2-20 Development Company services P. 14.C.19.(xii) Pacific Generation Holdings Oregon Domestic holdings company for Pacific D-2-15, 19 Company Generation Funding and Pacific P.P. 14.B.26 and 14.C.17. Recycling Energy; holds limited partner interests in Carolina Energy, Limited Partnership and Project Finance Fund III; and indirectly holds general partner interest in Kingston Cogeneration Limited Partnership Pacific Generation Resources Oregon Domestic holding company which holds D-2-12 Company limited partner interest in Long Island P. 14.B.10. Cogeneration, L.P.; holds limited partner interest in Curtis/Palmer; general partner in ENI Chester, Limited Partnership Pacific Kingston Energy, Inc. Canada General Partner in Kingston D-2-12 (Ontario) Cogeneration Limited Partnership P. 14.B.13. Pacific Orrington Energy, Inc. Oregon Holds general and limited partner D-2-9 interests in Orrington Waste, Ltd., P. 14.A.3.e. Limited Partnership Pacific Recycling Energy, Inc. Oregon Provided business development services D-2-20 for waste-to-energy projects P. 14.C.19(xiii) Pacific-Mt. Poso Corporation Oregon General Partner in Mt. Poso D-2-12 Cogeneration Company, A California P. 14.B.12. Limited Partnership Penobscot Energy Recovery Maine Owns waste-to-energy facility in D-2-9 Company Orrington, Maine P. 14.A.3.C. Pittsburgh Thermal, Limited Delaware Provides district heating and cooling D-2-8 Partnership services in Pittsburgh P. 14.A.2.b. Power Operations, Inc. Delaware Provides O&M services for Cadillac, D-2-18 Newark and Parlin projects P. 14.C.b. Project Finance Fund III, L.P. Delaware Funding vehicle for various (primarily) D-2-15 international operating projects P. 14.B.26 P.T. Dayalistrik Pratarna Indonesia Formed to develop Cilegon project in D-2-21 Indonesia P. 14.C.30. P.T. NRG West Java Indonesia Formed to operate Cilegon project in D-2-21 Indonesia P. 14.C.30. Pyro-Pacific Operating California Operates Mt. Poso cogeneration facility D-2-19 Company in California P. 14.C.18. Rocky Road Power LLC Delaware Formed to hold ownership to generating D-2-11 facility in Dundee, Illinois P. 14.B.5 Saale Energie GmbH Germany International holding company for D-2-14 Kraftwerk Schkopau Betriebsgesellschaft P. 14.B.20. mbH, Kraftwerk Schkopau GbR and Saale Energie Services GmbH (Germany) Saale Energie Services GmbH Germany Provides consulting services to MIBRAG D-2-14 P. 14.B.20. Sachsen Holding B.V. Netherlands International holding company for P.T. D-2-21 Dayalistrik Pratama P. 14.C.30. San Bernardino Landfill Gas Delaware Partnership holding interest in QF D-2-25 Limited Partnership, a landfill gas project P. 14.C.44.i California limited partnership San Francisco Thermal, Delaware Provides district heating and cooling D-2-8 Limited Partnership services in San Francisco, California P. 14.A.2.b. San Joaquin Valley Energy I, California General Partner in San Joaquin Valley D-2-19 Inc. Energy Partners I, L.P. P. 14.C.15. San Joaquin Valley California General partner in San Joaquin Valley D-2-19 Energy IV, Inc. Energy Partners IV, L.P. and P. 14.C.15. Bioconversion Partners, L.P. San Joaquin Valley Energy California Owns and operates three biomass D-2-19 Partners I, L.P. waste-fuel power plants (Chowchilla II, P. 14.C.15. El Nido and Madera) in California San Joaquin Valley Energy California Holds remaining non-operating assets of D-2-19 Partners IV, L.P. biomass waste-fuel power plant P. 14.C.15 (Chowchilla I) in California Scoria Incorporated Minnesota Holds license for synthetic coal D-2-19 technology P. 14.C.11. Scudder Latin American Cayman Islands, Investment company which owns D-2-22 Power I-C L.D.C. British West Indies (primarily passive) investments in P. 14.C.34 Latin American power projects Scudder Latin American Cayman Islands, Investment company which owns D-2-22 Power I-P L.D.C. British West Indies (primarily passive) investments in P. 14.C.34. Latin American power projects Scudder Latin American Cayman Islands, Investment company which owns D-2-22 Power II-C L.D.C. British West Indies (primarily passive) investments in P. 14.C.34 Latin American power projects Scudder Latin American Cayman Islands, Investment company which is part of the D-2-22 Power II-Corporation A British West Indies holding company structure for P. 14.C.34 investments in Latin American power projects held by Scudder Latin American Power II-C and/or II-P Scudder Latin American Cayman Islands, Investment company which is part of the D-2-22 Power II-Corporation B British West Indies holding company structure for P. 14.C.34 investments in Latin American power projects held by Scudder Latin American Power II-C and/or II-P Scudder Latin American Cayman Islands, Investment company which owns D-2-22 Power II-P L.D.C. British West Indies (primarily passive) investments in P. 14.C.34 Latin American power projects Servicios Energeticos S.A. Bolivia Operator of 87 MW gas-fired power plant D-2-15 in Bolivia P. 14.B.23. Somerset Operations Inc. Delaware Operator for Somerset coal fired power D-2-18 plant in Massachusetts P. 14.C.5.(v) Somerset Power LLC Delaware Entity holding title to the electric D-2-10 generating plant in Somerset, P. 14.B.1.(v) Massachusetts South Central Generation Holding LLC Delaware Entity holding a 50% interest in NRG D-2-10 South Central Generating LLC (issuer in P. 14.B.2. the Cajun deal) Sterling (Gibraltar) Gibraltar This entity was formed to assist with D-2-20 the NRGenerating, Ltd./UK holding P. 14.C.22. structure through Luxembourg Sterling Luxembourg (No. 1) S.a.r.l. Luxembourg This entity was formed to hold Luxco2 D-2-12, 20 as a part of the NRGenerating, Ltd. P.P. 14.B.14 and 14.C.22. holding structure in the UK Sterling Luxembourg (No. 2) S.a.r.l. Luxembourg This entity was formed to hold the D-2-20 Swiss branch as a part of the P. 14.C.22. NRGenerating, Ltd. holding structure in the UK Sterling Luxembourg (No. 3) S.a.r.l. Luxembourg This entity was formed as a part of the D-2-20 Sterling holding structure in the UK P. 14.C.22. Sterling Luxembourg (No. 4) S.a.r.l. Luxembourg This entity was formed as a part of the D-2-20 Sterling holding structure in the UK P. 14.C.22. STS Hydropower Ltd. Michigan Owns and operates hydroelectric D-2-25 projects in California, Colorado, P. 14.C.44.k. Michigan, Virginia and Washington STS Turbine & Development, Delaware Provides turbine design and project D-2-25 L.L.C. development services P. 14.C.44.k. Suncook Energy LLC Delaware Landfill gas fueled power generation D-2-16 for Nashua project in New Hampshire P. 14.A.27.c.(ii) Sunnyside Operations Associates, L.P. Delaware Operated a waste coal power plant in D-2-19 Utah P. 14.C.10. Sunshine State Power (No. 2) Netherlands International holding company which D-2-13 B.V. holds a 17.5% undivided interest in P. 14.B.17. Gladstone Power Station Joint Venture Sunshine State Power B.V. Netherlands International holding company which D-2-13 holds a 20% undivided interest in P. 14.B.17. Gladstone Power Station Joint Venture Tacoma Energy Recovery Delaware Operate and manage power plant for City D-2-20 Company of Tacoma P. 14.C.19.(x) The PowerSmith Delaware Owns PowerSmith cogeneration facility D-2-11 Cogeneration Project, in Oklahoma P. 14.B.9. Limited Partnership Tosli (Gibraltar) B.V. Netherlands Company that serves as a funding D-2-21 vehicle for certain of NRG's Latin P. 14.C.32. American projects Tosli Acquisition B.V. Netherlands Company formed to assist with Cobee D-2-15 tender offer P. 14.B.23 Tosli Investments N.V. Netherlands International holding company for D-2-15 Compania Boliviana de Energia Electrica P.P. 14.B.23 and S.A. in Latin America 14.C.31, 33 Tosli Luxembourg (No. 1) Luxembourg Serves as a funding vehicle for NRG's D-2-21 s.a.r.l. Latin America projects P. 14.C.33. Tosli Luxembourg (No. 2) Luxembourg International holding company for Bulo D-2-21 s.a.r.l. Bulo project in Bolivia P. 14.C.33. Turners Falls Limited Massachusetts Owns Turners Falls cogeneration D-2-12 Partnership facility in Massachusetts P. 14.B.11. Vienna Operations Inc. Delaware Provides operations and maintenance D-2-17 services to Vienna Power LLC P. 14.C.1.(vi) Vienna Power LLC Delaware Formed to acquire Connectiv assets D-2-21 P. 14.C.26. Wainstones Power Limited England and Wales Formed to develop, build, own and D-2-10 operate 800MW combined cycle gas P.P. 14.B.3. turbine power plant on greenfield site at Langage England (f/k/a Plymouth Energy Centre) WCP (Generation) Holdings Delaware Jointly owned entity between the owners D-2-10 LLC and West Coast Power LLC P. 14.B.3. West Coast Power LLC Delaware West coast holding company entity D-2-10 designed to facilitate west coast asset P. 14.B.3. pool financing IV. Subsidiaries of Eloigne Company Location of Subsidiary Name Incorporation Description of Business Location in Annex D-2 --------------- ------------- ----------------------- --------------------- Safe Haven Homes LLC Delaware Owns partnership interest in four D-2-6 affordable housing projects P. B.8 within, or in close proximity to, the Company's service area Lauring Green Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Bemidji Townhouse Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Central Towers Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Driftwood Partners Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Colfax Prairie Homes Limited Wisconsin Affordable housing D-2-6 Partnership P. B.8 Cottage Court Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Ctg. Homesteads Hillcrest Minnesota Affordable housing D-2-6 Ltd. Ptsp. P. B.8 Cottages of Spring Lake Park Minnesota Affordable housing D-2-6 Ltd. Ptsp. P. B.8 Cottages of Vadnais Heights Minnesota Affordable housing D-2-6 Ltd. Ptsp. P. B.8 Ctg. Homesteads of Willow Minnesota Affordable housing D-2-6 Ponds Ltd. Ptsp. P. B.8 Albany Countryside Minnesota Affordable housing D-2-6 Townhomes Ltd. Ptsp. P. B.8 RWIC Credit Fund Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Marvin Gardens Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Crown Ridge Apartments Ltd. Minnesota Affordable housing D-2-6 Ptsp. P. B.8 Sioux Falls Housing Equity South Dakota Affordable housing D-2-6 Fund I Ltd. Ptsp. P. B.8 East Creek Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Edenvale Family Housing Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Granite Hill Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Groveland Terrace Minnesota Affordable housing D-2-6 Townhomes Ltd. Ptsp. P. B.8 Jefferson Heights Townhomes Minnesota Affordable housing D-2-6 Ltd. Ptsp. P. B.8 Lakeville Court Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Majestic View Apartments, South Dakota Affordable housing D-2-6 Ltd. Ptsp. P. B.8 Marsh Run Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Oakdale Leased Housing Ltd. Minnesota Affordable housing D-2-6 Ptsp. P. B.8 Wyoming Limited Partnership Minnesota Affordable housing D-2-6 P. B.8 J&D 14-93 Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Park Rapids Housing Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 MDI Ltd. Ptsp. #44 Minnesota Affordable housing D-2-6 P. B.8 Sioux Falls Partners Ltd. Ptsp. South Dakota Affordable housing D-2-6 P. B.8 806 N. Hazel Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Links Lane, A Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Polynesian Village 1994 Ltd. Minnesota Affordable housing D-2-6 Ptsp. P. B.8 Sioux River Ltd. Ptsp. South Dakota Affordable housing D-2-6 P. B.8 Stradford Flats Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Brooklyn Ctr. Leased Housing Minnesota Affordable housing D-2-6 Assc. LLC P. B.8 Fairview Ridge Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Tower Terrace Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 R & W Partners Ltd. Ptsp. Minnesota Affordable housing D-2-6 P. B.8 Mahtomedi Woodland Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Woodland Village Minnesota Affordable housing D-2-6 Townhomes Ltd. Ptsp. P. B.8 Chaska Brickstone Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Farmington Townhome Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Hearthstone Village Limited North Dakota Affordable housing D-2-6 Partnership P. B.8 Lyndale Avenue Townhomes Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Mankato Townhomes Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Moorehead Townhomes Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Oakwood Townhomes Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Rochester Townhome Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Rushford Housing Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 Shakopee Boulder Ridge Minnesota Affordable housing D-2-6 Limited Partnership P. B.8 Shenandoah Woods Limited Minnesota Affordable housing D-2-6 Partnership P. B.8 V. Subsidiaries of Clearwater Location of Subsidiary Name Incorporation Description of Business Location in Annex D-2 --------------- ------------- ----------------------- --------------------- D-2 Shoe Factory Holdings, LLC Wisconsin Affordable housing D-2-6 P. B.8 Woodsedge Eau Claire Wisconsin Affordable housing D-2-6 Limited Partnership P. B.8 Plover Limited Liability Co. Wisconsin Affordable housing D-2-6 P. B.8
Annex D-2 SUPPLEMENTAL DESCRIPTION OF NSP NON-UTILITY BUSINESSES NSP and NSP-W engage directly and indirectly in various non-utility activities. NSP directly provides: (i) an appliance services program for residential customers; (ii) construction and maintenance of natural gas distribution systems for third parties (primarily end-users and municipal gas systems); (iii) sale of steam to industrial customers in NSP's service territory; (iv) installation and maintenance of street lighting for municipalities; (v) propane sales and services; (vi) fuel oil services; and (vii) installation and maintenance of distributed generation on customer's facilities. In addition, NSP owns directly the interests of the following non-utility subsidiary companies: Viking Gas Transmission Company ("Viking"), an interstate natural gas pipeline subject to FERC jurisdiction under the NGA; NRG Energy, Inc. ("NRG"), a holding company for many of NSP's non-utility businesses, including significant investments in independent power projects and foreign operations; Energy Masters International, Inc. ("EMI"), an energy services company; Seren Innovations, Inc. ("Seren"), a company that provides cable, telephone and high-speed internet access system; Ultra Power Technologies, Inc. ("Ultra Power"), a company currently in the process of winding up its affairs and formerly in the business of marketing power cable testing technology; Eloigne Company ("Eloigne"), an investor in projects that qualify for low-income housing tax credits; NSP Financing I, a special purpose business trust; First Midwest Auto Park, Inc. ("FMAP"), the owner of a parking garage; United Power and Land Company ("UP&L"), a real estate investment company; Reddy Kilowatt Corporation ("Reddy Kilowatt"), the owner of certain intellectual property rights; Natrogas, Inc. ("Natrogas"), a provider of propane services; Nuclear Management Company ("NMC"), a limited liability company that will provide services to the nuclear operations of its members; and NSP Nuclear Corporation, a subsidiary formed to hold NSP's interest in the NMC. NSP owns 100% of all of the foregoing businesses, except that NSP owns 25% of the membership interests in NMC and as a result of the issuance of equity by NRG currently has an 84% ownership interest in NRG. NSP-W owns directly all of the outstanding common stock of Clearwater Investments, Inc. ("Clearwater"), an investor in housing projects that qualify for low-income housing tax credits, and NSP Lands, Inc. ("NSP Lands"), a real estate investment company. NSP-W also owns 75.86% of Chippewa and Flambeau Improvement Company ("C&F"), a company that builds and operates dams and reservoirs for hydro-electric plants. All of these non-utility activities are substantially similar to activities approved by the Commission in the past. Set forth below is a description of each of these activities along with authority cited in the footnotes that support retention of these non-utility activities. At December 31, 1999 and March 31, 2000, NSP's aggregate investment in its non-utility subsidiaries constituted less than 44 percent of its common stock equity. A. Direct Activities of NSP 1. Appliance Warranty and Repair Services: NSP provides an appliance warranty and repair program for residential customers (known as "NSP Advantage Service"). The service is similar to that offered by many other electric and/or gas utilities in the region. Appliances covered include heating and air conditioning systems, water heaters, refrigerators, dishwashers and clothes washers./1/ 2. Construction of Gas Pipelines: NSP directly constructs and maintains natural gas distribution systems for third parties, primarily end-users and municipal gas systems, that either want installation of new natural gas systems or want to expand the capacity or number of sources from which they receive natural gas./2/ 3. Production and Distribution of Steam: NSP supplies steam to commercial and industrial customers, which is obtained from NSP's generating stations./3/ 4. Installation and Maintenance of Street Lighting for Municipalities and Other Customers: NSP installs and maintains street lighting for more than 50 municipalities throughout its service territory in Minnesota, North Dakota and South Dakota./4/ This service consists of replacing the light bulbs and maintaining the light fixtures. ---------- 1 Rule 58(b)(1)(iv); see also Mississippi Power and Light Company, Holding Co. Act Release No. 25140 (August 30, 1990) (a subsidiary of a registered holding company allowed to create a "Space Conditioning Program" to market and sell "manufacturer's warranties or other maintenance agreements for space conditioning equipment such as water heaters and heat pumps and related weatherization, ductwork and wiring improvements"). 2 Construction of gas pipelines for third parties was approved in National Fuel Gas Company, Holding Co. Act Release No. 24381 (May 1, 1987), in which the Commission authorized Utility Constructors, Inc., a subsidiary of a registered holding company, to provide "pipeline construction and replacement...and related and auxiliary services" to subsidiaries and to non-associate companies; Rule 58(b)(1)(vii). 3 Rule 58(b)(1)(vi); see also CINergy Corp., Holding Co. Act Release No. 26474 (February 20, 1996) (Commission authorized the establishment of two new subsidiaries to engage in district heating and cooling businesses. Such businesses will deliver chilled and/or heated water and possibly steam to customers for heating and cooling purposes and supply such customers related services); The Southern Company, Holding Co. Act Release No. 26468 (Feb. 2, 1996) (Commission granted SEI Holdings, Inc. ("Holdings"), a new holding company that will hold investments in EWGs, FUCOs, companies that invest in EWGs and FUCOs, and companies that provide functions related to the operation of EWGs and FUCOs, authority to acquire an interest in, or the securities of, one or more companies that derive or will derive substantially all of its revenues from the production, conversion and distribution of steam); General Public Utility Corp., 32 SEC 807, 840-841 (1951) (Commission authorized retention of steam heating systems. Steam from such systems was used to generate electricity and sold to customers for heating purposes.); In re The North American Company, 11 SEC 194 (April 14, 1942) (Commission authorized retention of steam heating operations which provided steam heat to customers and was used in the generation of electricity); WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998) (delivery of steam to more than 200 residential and business customers. 4 Rule 58(b)(1)(vii). ---------- 5. Propane Services: NSP owns and operates approximately 13 million gallons of propane storage capacity (above ground tanks) installed for the purpose of meeting the peak day and winter season natural gas supply needs of its retail gas customers./5/ Other natural gas utilities in the NSP region similarly operate propane-air storage and injection facilities. (In controlled volumes, propane can be mixed with air to vaporize the liquid propane, and the vapor mixture is injected into the natural gas distribution system as a replacement for pipeline natural gas.) When propane storage capacity or supplies will not be needed to meet retail customer supply needs, NSP leases limited quantities of the storage capacity for a fee or may sell unused propane supplies./6/ A representative level of the propane storage or sale revenues is reflected when setting NSP's regulated natural gas rates. In addition, Black Mountain Gas Company (BMG) provides propane services at retail in Page, Arizona through its Page Division. BMG's retail propane service rates are regulated by the Arizona Commission. 6. Fuel Oil Services: NSP owns and operates fuel oil storage capacity (above ground tanks) at its Inver Hills electric generating plant in Minnesota. The fuel oil storage was installed during the oil shortages in the 1970s for the purpose of storing fuel inventory so the Inver Hills plant could be operated to meet the peak day electric service needs of NSP's retail and wholesale electric customers. In 1998, the Inver Hills plant was converted to use natural gas as its primary fuel, with fuel oil as a back-up fuel. When fuel oil storage capacity or supplies will not be needed to meet electric customer generation needs, NSP leases limited quantities of the storage capacity for a fee or may sell unused fuel oil supplies. 7. Distributed Generation Services: NSP has just recently begun to offer installation and maintenance services on the customer side of the meter for distributed generation services. The service is quite similar to the appliance sale and repair service except that it is focused on providing customers these maintenance services on distributed generation equipment purchased and operated by the customer./7/ B. Subsidiaries of NSP 1. Viking owns and operates a 500 mile interstate natural gas pipeline serving portions of Minnesota, Wisconsin and North Dakota with a capacity of approximately 550,000 Mcf per day. Viking is a regulated natural gas company under the Natural Gas Act of 1938, as amended (the "Natural Gas Act"). Viking currently operates exclusively as a transporter of natural gas for third-party shippers under FERC rate and tariff jurisdiction. The Viking pipeline currently transports natural gas for the gas utility operations of NSP and NSP-W and provides gas transportation services for numerous other customers./8/ Approximately 75% of NSP's and NSP- W's gas customers are located within 40 miles of the Viking pipeline. However, approximately 83% of Viking's firm capacity is held by non-affiliates. ---------- 5 Scana Corporation, Holding Co. Act Release No. 27133 (Feb. 9, 2000). 6 As described in Annex E, NSP entered into short term propane storage and sale agreements with its affiliate Natrogas in February 2000. The agreements expire in 2000. The agreements are pending Minnesota Commission approval in Docket No. G002/AI-00-258. The Minnesota Department of Commerce has recommended approval of the agreements. 7 Rule 58(b)(1)(iv). 8 New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997) (allowing retention of interstate pipeline that provided service to PSCo, Cheyenne and others); CNG Transmission Corp., Holding Co. Act Release No. 25239 (Jan. 9, 1991); Central and SouthWest Corp., Holding Co. Act Release No. 14555 (Dec. 28, 1961). ---------- 2. FMAP, UP&L and NSP Lands are engaged in various forms of land ownership associated with NSP's and NSP-W's utility operations. FMAP owns and operates a parking garage, which is directly adjacent to NSP's corporate headquarters. NSP owns FMAP primarily to ensure that NSP will have adjacent space, if needed, to expand its corporate headquarters. NSP leases from FMAP 92 parking spaces as well as 14,000 square feet of unimproved storage space on the first and second floor. The garage is primarily used by NSP employees and provides secure, close parking for NSP employees. It is anticipated that, in the event that additional facilities at NSP headquarters are necessary, the parking garage will be razed and the site will be used for such expansion. UP&L's land holdings include the Renaissance Square office facility directly adjacent to NSP's corporate headquarters, which NSP uses for utility business. NSP has long-term agreements to lease virtually all of the Renaissance Square facility./9/ Besides Renaissance Square, UP&L owns and holds additional real property typically surrounding or adjacent to property owned and used by NSP in its regulated operations. The majority of UP&L's land consists of property adjacent to land owned and used for NSP's Sherco and Monticello generating stations. UP&L receives rental revenue for some of the land, which is leased to third parties for agricultural purposes. UP&L provides a direct benefit to NSP. Real property needed by NSP for its utility operations can often only be obtained as part of purchases of larger tracts. In these cases, UP&L may acquire the property, transfer the useful portion to NSP, hold any potential useful portion for future use by NSP, and resell the remainder. Since UP&L is not subject to NSP's first mortgage indenture, it is easier to transfer real property through UP&L than to obtain a separate release from the mortgagee for each transaction./10/ ---------- 9 In previous orders, the Commission has approved the purchase of real estate which is incidentally related to the operations of a registered holding company. See American Electric Power Service Co., Holding Co. Act Release No. 19981 (April 12, 1977) (Commission allowed a subsidiary of American Electric Power to purchase employees' homes in conjunction with their transfer to a new position in a different geographical area.) Furthermore, FMAP's ownership of a parking garage and NSP's lease of the Renaissance Square facility can be distinguished from ownership of a commercial building brought into question in In re The North American Company, 11 SEC 194 (April 14, 1942). In North American, a registered holding company owned a twenty-five floor office building in downtown New York. However, only two whole floors and part of three other floors were occupied by North American, and the building was not within close proximity to the company's headquarters. Given the proximity of the parking garage to NSP's headquarters, the benefits to employees it currently provides, and its potential for future use, ownership of the garage is reasonably necessary to the operation of the utility business. Similarly, since virtually all of the Renaissance Square facility is used by NSP in its utility operations, UP&L should be allowed to retain its interest in the facility. The Minnesota Commission has approved both the NSP/FMAP lease and the NSP/UP&L lease. See also Jersey Central Power & Light Company, Holding Co. Act Release No. 24348 (March 18, 1987), in which the Commission held that "where the portion of the other business which is functionally related to the utility operations exceeds the portion which is not, the other business may be acquired or retained." 10 In UNITIL Corporation, Holding Co. Act Release No. 25524 (April 24, 1992), the Commission noted that UNITIL Realty Corporation, a subsidiary of the registered holding company, UNITIL, which acquired real estate to support utility operations, engaged in activities which were within the confines of the Act. UP&L's ownership of land adjacent to the Sherco and Monticello plant sites are necessary to support such plants' future operations. As stated previously, the land held by NSP Lands surrounded a hydro-electric generation facility previously owned by NSP-W and is in the process of being sold. Consequently, as the real estate held by UP&L and NSP Lands is substantially similar to that owned by UNITIL Realty Corporation, UP&L Lands should be allowed to retain their interests in such property. ---------- NSP Lands was created in 1992 to enable NSP-W to sell excess land adjacent to NSP-W's hydro reservoirs. Since the time of its creation, NSP Lands' primary focus has been to liquidate NSP-W's unused land adjacent to Lake Arbutus, the hydro reservoir at NSP-W's Hatfield hydro project./11/ 3. EMI provides value-added energy conservation and energy management services to retail customers, both inside NSP's service territory and on a national basis through offices in fifteen states./12/ Programs offered by EMI include: (i) installation of more efficient lighting systems; (ii) group relamping (systematic replacement of lamps before they burn out and cleaning of lens, reflective surfaces and fixtures); (iii) consolidated billing service and auditing of utility bills; (iv) performance contracting whereby EMI evaluates facilities and identifies energy- efficiency improvement opportunities; and (v) identification of water conservation opportunities. EMI is also a party to a joint venture with Energy Performance Services of King of Prussia, Pennsylvania, to provide energy savings performance services to the U.S. Department of the Army, Corps of Engineers. (Contract No. DACA87-97 D0073). 4. Seren provides cable television, high-speed cable internet, and local and long distance telephone service./13/ Seren has applied to the FCC for certification as an exempt telecommunications company under Section 34 of the Act. Seren has received franchises and is providing local competitive telecommunications services in the St. Cloud, Minnesota area (where NSP already provides retail electric and natural gas service) and the Contra Costa, California area. Seren is seeking telecommunications franchises in other communities, consistent with its business plan. Seren is also seeking to expand its business through the acquisition of other companies that are exempt telecommunications companies under Section 34 of the Act. ---------- 11 Id. 12 Rule 58(b)(1)(i); Allegheny Power System, Inc., Holding Co. Act Release No 26401 (Oct. 27, 1995); Central and South West Corporation, Holding Co. Act Release No. 26367 (Sept. 1, 1995). See also Columbia Energy Group, Holding Co. Act Release No. 26868 (May 6, 1998) as to consolidated billing services and auditing of bills. 13 Section 34 of the Act. ---------- 5. Ultra Power is currently in the process of winding up its affairs. It had been in the business of detecting problems and defects in underground cables from an above ground position, through a licensing agreement with Instrument Manufacturing Corp. ("IMC"), the developer and licensor of the technology used by Ultra Power to provide cable testing service. Effective June 22, 2000, Ultra Power transferred its rights to the technology back to IMC. NSP will continue to contract for cable testing services from IMC. Ultra Power will continue to exist as a subsidiary of NSP until the wind-up period is completed./14/ 6. C&F was formed in 1911 for the purpose of building, maintaining and operating dams and reservoirs on the Chippewa and Flambeau Rivers in Wisconsin. C&F owns and operates the Flambeau Dam and Reservoir and the land and equipment associated with the dam's and the reservoir's operations. C&F also owns the Chippewa Dam and associated land and leases and operates the Chippewa Reservoir. By providing a uniform flow of water to the downstream hydroplants, C&F helps ensure the consistent operation of the plants, including plants owned by NSP-W. Such leasing and operating activities are necessary to the operation of the plants./15/ 7. Reddy Kilowatt Corporation owns two trademarks, Reddy Kilowatt(R) (which has been associated with the electric industry for more than 30 years) and Reddy Flame(R), which has been a well-recognized symbol of the NSP gas utility business for a substantial period of time. These trademarks are being utilized to position NSP nationally as the electric and natural gas utility industry continues to restructure and move towards competition./16/ 8. Eloigne and Clearwater are engaged in the business of owning interests in affordable housing projects that qualify for affordable housing credits under the provisions of the Low Income Housing Tax Credit Program ("LIHTC") under Section 42 of the Internal Revenue Code. Eloigne and Clearwater Investments only consider investing in projects that have received tax credit allocations by the state authority. Eloigne and Clearwater own their interests in these projects through 53 subsidiaries which are enumerated in Appendix D to the Application. All of these investments are located in the combined service territories of NSP and NSP-W except for 10 properties that are located in the states served by NSP or NSP-W but are slightly outside such service territories. ---------- 14 NSP expects the wind-up period to be completed within 12 months. 15 Jersey Central Power and Light Co., Holding Co. Act Release No. 24664 (June 18, 1988) (sale and leaseback of dam, reservoir, pumps and related equipment); Wisconsin River Power Company, 27 S.E.C. 539 (1948) (subsidiary acquired "real estate and flowage rights necessary for the construction and operation of dams and hydroelectric plants"); WPL Holdings, Inc., Holding Co. Act Release No. 26856 (April 14, 1998) (13%-owned subsidiary managed and controlled waterflow through reservoirs and dams on Wisconsin River). 16 New Century Energies, Inc., supra, (approving the activity of selling or entering into "royalty arrangements with regard to intellectual property owned or developed" by PSCo). ---------- The principal objectives of Eloigne and Clearwater are to (i) assist the residents NSP and NSP-W's service area by providing funds for sound and affordable housing for income qualifying individuals and families; (ii) preserve and enhance Eloigne's and Clearwater's capital investments in its partnerships and projects; (iii) realize tax credits and other tax benefits which may be available through investments in the housing tax credit program; and(iv) achieve possible long term gains through the appreciation and future sale of their investments in partnerships and projects. The sole activities of Eloigne and Clearwater are investment oversight, and not development, management or operation of tax credit properties. They do not participate in the syndication, development and property management of tax credit properties. Their emphasis is on investment management to protect the tax credits and the physical properties. Investment management includes reviewing and analyzing financial statements generated by the third party property management firms against the approved budget for the investments and conducting due diligence assessments to determine that the properties remain in compliance with the provisions of the LIHTC. Investment management in this context also includes on-site inspections to determine that the physical structure and grounds are maintained as quality affordable housing./17/ 9. NSP Financing I is a special purpose subsidiary of trust that was formed solely for the purpose of facilitating a financing transaction. NSP Financing I issued $200 million of 7.875% preferred securities in 1997, the proceeds of which were loaned to NSP./18/ 10. NMC was formed to consolidate into one organization the talents and efforts of specialized employees of NSP and certain other unaffiliated nuclear power plant owners in order to make available to such plant owners a larger and more diverse pool of skilled workers and other specialized resources than would otherwise be available to them if they were to continue to manage their plants independently of each other. NMC renders operating services to its members and their utility affiliates that own interests in or operate nuclear generating units. The members of NMC are NSP Nuclear Corporation, a subsidiary of NSP; WEC Nuclear Corp., a subsidiary of Wisconsin Energy Corporation; WPS Nuclear Corporation, a subsidiary of WPS Resources; and Alliant Nuclear, a subsidiary of Alliant Energy Corp./19/ 11. Natrogas is a Minnesota corporation that provides retail propane service to approximately 15,000 customers in portions of Minnesota, Wisconsin and North and South Dakota. Natrogas is also engaged in certain ancillary propane appliance sales. A wholly-owned subsidiary of Natrogas, North American Energy, Inc., based in Hankinson, North Dakota, provides wholesale propane sales in portions of North Dakota, South Dakota and Minnesota./20/ ---------- 17 WPL Holdings, Inc., supra (permitting retention of Heartland Development and related subsidiaries engaged in investing in projects that qualify under the LIHTC). 18 New Century Energies, Inc., supra (approving the retention of Southwestern Public Service Capital I, as special purpose trust of SPS). 19 Alliant Energy Corporation, Holding Co. Act Release No. 27096 (Oct. 26, 1999). 20 Scana Corporation, Holding Co. Act Release No. 27133 (Feb. 9, 2000). ---------- 12. NSP Nuclear Corporation was formed to hold NSP's interest in NMC. The Minnesota Public Utility Corporation has approved an affiliate interest agreement pursuant to which NSP and NSP Nuclear Corporation can provide each other with administrative services./21/ 13. Private Fuel Storage L.L.C. is a consortium of electric power companies that has applied to the Nuclear Regulatory Commission for a license to build a temporary storage facility for spent nuclear fuel in Utah. Rule 58(b)(1)(ix). 14. NRG: NRG primarily engages in the acquisition, development, ownership and operation of power generation facilities and other energy-related projects. On June 5, 2000, NRG closed an initial public offering of its common stock. Additional detailed information regarding NRG is contained in Registration Statement No. 333-35096 on file with the Securities and Exchange Commission./22/ A. Direct activities of NRG: 1. Project development activities: NRG forms and finances subsidiaries to invest in EWGs, FUCOs, qualifying facilities ("QFs") under the Public Utility Regulatory Policies Act ("PURPA"), and other energy related projects, and engages in preliminary development activities relating to energy-related projects, including project due diligence and design, design review, market studies, site inspection, preparation of bid proposals (including the posting of bid bonds, cash deposits or similar instruments), applications for required permits or authorizations, acquisition of options on sites and other rights, negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors and other project contractors, negotiating of financing commitments with lenders and co-investors and related activities./23/ 2. Thermal Businesses: Through this division, NRG owns and operates district heating and cooling systems in the cities of Minneapolis, Minnesota; San Diego, California; San Francisco, California; and Pittsburgh, Pennsylvania. This division also owns four process steam operations, each of which delivers steam to one or more commercial or industrial customers./24/ ---------- 21 Alliant Energy Corporation, supra. 22 Sections 32 and 33 of the 1935 Act; Rule 58(b)(1)(viii). 23 Entergy Corporation, Holding Co. Act Release No. 27039 (June 22, 1999). 24 The production, sale, conversion and distribution of thermal energy product is exempt under Rule 58(b)(1)(vi). See also SEI Holdings, Inc., Holding Co. Act Release No. 26581 (Sept. 26, 1996). Intermediate subsidiaries holding subsidiaries whose securities are acquired under Rule 58 are exempt under Interstate Energy Corporation, Holding Co. Act Release No. 27069 (Aug. 26, 1999). With respect to NRG Energy Center Dover LLC, the 18 MW cogeneration facility is within Rule 58(b) and the 80 MW expansion project will be an EWG. ---------- a. NRG Thermal Corporation, in which NRG owns a 100% interest, owns 100% of the following: (i) NRG Energy Center Minneapolis LLC, owner of the Minneapolis Energy Center facility, which provides steam and chilled water to commercial customers in downtown Minneapolis, Minnesota; (ii) NRG Energy Center San Diego LLC, owner of the San Diego Power & Cooling facility, which provides chilled water to commercial customers in downtown San Diego, California; (iii) NRG Energy Center Rock-Tenn LLC, which owns a five mile closed loop steam/condensate line that delivers steam to the Rock-Tenn Company in St. Paul, Minnesota; (iv) NRG Energy Center Grand Forks LLC, which provides steam to the Grand Forks Air Force Base in Grand Forks, North Dakota; (v) NRG Energy Center Washco LLC, which provides steam to two commercial customers in Washington County, Minnesota; (vi) NRG Thermal Operating Services LLC, which has no assets or employees and is inactive; (vii) NRG Energy Center Dover LLC, which is currently inactive but which is expected to acquire an 18 MW cogeneration facility and an 80 MW expansion project in Dover, Delaware; and (viii) NRG Energy Center Paxton Inc., NRG Energy Center Harrisburg, Inc., and NRG Thermal Services, Inc. which were formed to hold certain steam assets which were acquired from Statoil Energy, Inc. on July 12, 2000. b. North American Thermal Systems LLC, in which NRG owns a 100% interest, is the 1% general partner of Pittsburgh Thermal LP and of San Francisco Thermal LP, which own the Pittsburgh and San Francisco heating and cooling systems, respectively. NRG's wholly-owned subsidiary, NRG Pittsburgh Thermal Inc., is the 99% limited partner of Pittsburgh Thermal LP and NRG's wholly-owned subsidiary, NRG San Francisco Thermal Inc., is the 50.1% limited partner of San Francisco Thermal L.P. NRG is a 48.9% limited partner of San Francisco Thermal L.P. Pending public utility commission approval, it is expected that the Pittsburgh and San Francisco heating and cooling systems will be transferred to NRG Energy Center Pittsburgh LLC and NRG Energy Center San Francisco LLC, respectively, which will be wholly-owned by NRG Thermal Corporation. c. Camas Power Boiler LP, in which NRG owns a 100% interest through Camas Power Boiler, Inc. (a 1% limited partner) and Pacific Generation Company (a 99% limited partner), owns a facility which delivers steam to an industrial customer. (Camas Power Boiler, Inc. is a wholly-owned subsidiary of Pacific Generation Company, which is a wholly-owned subsidiary of NRG PacGen Inc. NRG PacGen Inc. is wholly-owned by NRG.) 3. Resource Recovery Businesses: Through this division, NRG owns and operates a resource recovery facility in Newport, Minnesota and operates a second resource recovery facility in Elk River, Minnesota which is currently owned by NSP./25/ This division also manages and operates NSP's ash storage and disposal facility near Becker, Minnesota. In addition, this division owns interests in a waste transfer station in Minnesota, and in two waste-to-energy facilities and a waste disposal service in Maine. a. Minnesota Waste Processing Company LLC, in which NRG owns a 50% interest, owns a waste transfer station in Mankato, Minnesota./26/ b. Maine Energy Recovery Company, in which NRG owns a 16.25% limited partnership interest through Energy National, Inc. (an indirect wholly-owned subsidiary of NRG), owns a 22 MW refused derived fuel-fired QF facility and related waste processing facility located in Biddeford, Maine./27/ ---------- 25 Rule 58(b)(1)(ix). 26 Rule 58(b)(1)(ii). 27 QF; Rule 58(b)(1)(ix). ---------- c. Penobscot Energy Recovery Company, in which NRG owns a 28.72% general partnership interest through Energy National, Inc., owns a 25 MW refused derived fuel-fired QF facility and related waste processing facility located in Penobscot, Maine./28/ d. ESOCO Orrington, Inc., in which NRG owns a 100% interest through ESOCO, Inc. (an indirect wholly-owned subsidiary of NRG), provides operations and maintenance services to Penobscot Energy Recovery Company./29/ e. Orrington Waste, Ltd. Limited Partnership, in which NRG owns a 16.67% interest through Pacific Orrington Energy, Inc. (an indirect wholly-owned subsidiary of NRG), provides waste disposal services to various municipalities in Maine for processing at Penobscot Energy Recovery Company./30/ B. Interests of NRG in EWGs, FUCOs and QFs: 1. NRG Northeast Generating LLC,/31/ in which NRG owns a 100% interest through two wholly-owned limited liability companies (each of which owns a 50% interest in NRG Northeast Generating LLC), Northeast Generation Holding LLC/32/ and NRG Eastern LLC,/33/ owns 100% of the following EWGs: (i) Dunkirk Power LLC,/34/ owner of a 600 MW coal-fired facility located in Dunkirk, New York; (ii) Huntley Power LLC,/35/ owner of a 760 MW coal-fired facility located near Buffalo, New York; (iii) Astoria Gas Turbine Power LLC,/36/ owner of 11 gas-fired combustion turbines with a total capacity of 614 MW located on the same site in Queens, New York, (iv) Arthur Kill Power LLC,/37/ owner of an 842 gas/oil-fired facility located on Staten Island, New York; (v) Somerset Power LLC,/38/ owner of the 229 MW (160 MW of which is operational) oil/coal-fired ---------- 28 QF. 29 Rule 58(b)(1)(viii). 30 Rule 58(b)(1)(ix). 31 Interstate Energy Corporation, supra. (authorizing intermediate subsidiaries for the purpose of holding EWGs). 32 Interstate Energy Corporation, supra. (authorizing intermediate subsidiaries for the purpose of holding EWGs). 33 Interstate Energy Corporation, supra. (authorizing intermediate subsidiaries for the purpose of holding EWGs). 34 EWG (88 FERCP. 61,190). 35 EWG (88 FERCP. 61,190). 36 EWG (88 FERCP. 62,178). 37 EWG (88 FERCP. 62,072). 38 EWG (87 FERCP. 62,289). ---------- facility located in Somerset, Massachusetts, (vi) Oswego Harbor Power LLC,/39/ owner of a 1700 MW gas/oil-fired facility located in Oswego, New York; (vii) Connecticut Jet Power LLC,/40/ owner of six oil-fired combustion turbines with a total capacity of 127 MW located at 4 different sites in Connecticut; (viii) Devon Power LLC,/41/ owner of a 401 MW gas/oil- fired facility located in Milford, Connecticut; (ix) Middletown Power LLC,/42/ owner of an 856 MW gas/oil-fired facility located in Middleton, Connecticut; (x) Montville Power LLC,/43/ owner of a 498 MW gas/oil-fired facility located in Uncasville, Connecticut; and (xi) Norwalk Power LLC,/44/ owner of a 353 MW oil-fired facility located in Norwalk, Connecticut. 2. NRG South Central Generating LLC,/45/ in which NRG owns a 100% interest through two wholly-owned limited liability companies (each of which owns a 50% interest in NRG South Central Generating LLC), South Central Generation Holding LLC/46/ and NRG Central U.S. LLC,/47/ owns 100% of the following: (i) Louisiana Generating LLC,/48/ an EWG that owns a 220 MW gas-fired facility located in New Roads, Louisiana, and a 100% interest in two coal-fired units and a 58% interest in a third coal-fired until located in a separate facility also in New Roads, Louisiana; (ii) NRG New Roads Holdings LLC,/49/ owner of various equipment and of several parcels of land in Louisiana, some of which is leased to third parties for farming; and (iii) Big Cajun I Peaking Power LLC, which is currently inactive but was formed to develop, own and operate the Cajun expansion project. ---------- 39 EWG (89 FERCP. 62,177). 40 EWG (90 FERCP. 62,010). 41 EWG (90 FERCP. 62,036). 42 EWG (90 FERCP. 62,037). 43 EWG (90 FERCP. 62,043). 44 EWG (90 FERCP. 62,035). 45 Interstate Energy Corporation, supra. 46 Interstate Energy Corporation, supra. 47 Interstate Energy Corporation, supra. 48 EWG (90 FERC P. 61,311). 49 Entergy Corporation, supra. (These properties are being held pending future use by the EWGs and also appear retainable under UNITIL Corporation, Holding Co. Act Release No. 25524 (April 24, 1992)). To the extent any equipment is unrelated to energy business, it will be divested when the property is used by the EWG. ---------- 3. West Coast Power LLC,/50/ in which NRG owns a 50% interest through NRG's wholly-owned subsidiary NRG West Coast Inc./51/ (which owns 50% interest in WCP (Generation) Holdings LLC/52/ of which West Coast Power LLC is a wholly-owned limited liability company), owns 100% of the following EWGs: (i) Long Beach Generation LLC,/53/ owner of a 530 MW gas-fired facility located in Long Beach, California, (ii) El Segundo Power LLC,/54/ owner of a 1020 MW gas-fired facility located in El Segundo, California, (iii) Cabrillo Power I LLC,/55/ owner of a 954 MW gas-fired facility located in Encina, California and (iv) Cabrillo Power II LLC,/56/ owner of seventeen gas-fired generation turbines in San Diego County, California, with a combined capacity of 256 MW. 4. Cogeneration Corporation of America,/57/ in which NRG owns a 20% interest, owns the following through wholly-owned subsidiaries (i) a 100% interest in a 122 MW gas-fired cogeneration facility in Parlin New Jersey that is an EWG; (ii) a 100% interest in a 58 MW gas- fired cogeneration facility located in Newark, New Jersey that is a QF; (iii) a 100% interest in a 117 MW gas-fired cogeneration facility located in Pryor, Oklahoma that is a QF; (iv) a 100% interest in a 117 MW gas-fired cogeneration facility located in Morris, Illinois that is a QF; (v) a 50% interest in a 150 MW gas-fired cogeneration facility located in Philadelphia, Pennsylvania that is a QF; (vi) an 83% interest in two standby peak sharing facilities with an aggregate capacity of 22 MW located in Philadelphia, Pennsylvania, both of which are EWGs. 5. NRG Rocky Road LLC,/58/ in which NRG owns a 100% interest, owns 50% of Rocky Road Power LLC,/59/ an EWG that owns a 350 MW gas-fired facility located in East Dundee, Illinois. 6. NRG Cadillac, Inc.,/60/ in which NRG owns a 100% interest, owns 50% of Cadillac Renewable Energy LLC,/61/ owner of a 39 MW wood-fired facility located in Cadillac, Michigan that is a QF. 7. O'Brien Cogeneration, Inc. II,/62/ in which NRG owns a 100% interest, owns a 2% general partner interest in O'Brien California Cogen Limited, a California limited partnership, owner of a 34 MW gas-fired cogeneration facility located in Artesia, California that was a QF but that is not currently operating. ---------- 50 Interstate Energy Corporation, supra. 51 Interstate Energy Corporation, supra. 52 Interstate Energy Corporation, supra. 53 EWG (84 FERC P. 62,084). 54 EWG (82 FERC P. 62,169). 55 EWG (87 FERC P. 62,066). 56 EWG (87 FERC P. 62,080). 57 Rule 58(b) (1)(viii). 58 Interstate Energy Corporation, supra. 59 Interstate Energy Corporation, supra. 60 Rule 58(b)(1)(viii). 61 QF. 62 Rule 58(b)(1)(viii). ---------- 8. Crockett Cogeneration, a California Limited Partnership,/63/ in which NRG owns a 57.67% interest through Pacific Crockett Energy, Inc./64/ (wholly-owned by Pacific Crockett Holdings, Inc.,/65/ an indirect wholly-owned subsidiary of NRG) and ENI Crockett L.P./66/ (in which NRG owns a 74.73% general partner interest), owns a 240 MW gas-fired cogeneration facility located near San Francisco, California that is a QF. 9. The PowerSmith Cogeneration Project LP.,/67/ in which NRG owns an 8.75% interest through Energy National Inc./68/ (an indirect wholly-owned subsidiary of NRG) and ENIGEN, Inc./69/ (a wholly-owned subsidiary of Energy National Inc.), owns a 110MW gas-fired cogeneration facility located in Oklahoma City, Oklahoma that is a QF. 10. Curtis-Palmer Hydroelectric Company,/70/ in which NRG owns a 12.5% limited partnership interest through ENI Curtis Falls, LP./71/ (which is 68% owned by Pacific Generation Resources Company,/72/ an indirect wholly-owned subsidiary of NRG), and 32% owned by Energy Investors Fund LP,/73/ in which NRG has a 3.10% interest), owns a 58 MW hydroelectric facility in Corinth New York that is exempt under a no-action letter from the Securities and Exchange Commission. 11. Turners Falls Limited Partnership,/74/ in which NRG owns an 8.89% limited partnership interest through ONSITE Energy, Inc./75/ (an indirect wholly-owned subsidiary of NRG), owns a 20 MW coal-fired cogeneration facility in Turners Falls, Massachusetts that was a QF but that is not currently operating. 12. Mt. Poso Cogeneration Company, a California Limited Partnership,/76/ in which NRG owns a 39.10% general partnership interest through Pacific-Mt. Poso Corporation/77/ (an indirect wholly-owned subsidiary of NRG), owns a 50 MW coal-fired cogeneration facility located in Bakersfield, California that is a QF. 13. Kingston Cogeneration Limited Partnership,/78/ in which NRG owns a 25% general partnership interest through Pacific Kingston Energy, Inc./79/ (an indirect wholly-owned subsidiary of NRG), owns a 110 MW gas-fired EWG facility located in Kingston, Ontario (Canada). ---------- 63 QF. 64 Rule 58(b)(1)(viii). 65 Rule 58(b)(1)(viii). 66 Rule 58(b)(1)(viii). 67 Rule 58(b)(1)(viii). 68 Rule 58(b)(1)(viii) 69 Rule 58(b)(1)(viii) 70 QF. 71 Rule 58(b)(1)(viii). 72 Rule 58(b)(1)(vi) and (viii). 73 Rule 58(b)(1)(viii). 74 Rule 58(b)(1)(viii). 75 Rule 58(b)(1)(viii). 76 QF. 77 Rule 58(b)(1)(viii). 78 EWG (74 FERC P. 62,063). 79 Interstate Energy Corporation, supra. ---------- 14. NRGenerating Ltd./80/ - which is 100% owned by Sterling Luxembourg (No.1) s.a.r.l.,/81/ which is 100% owned by NRGenerating Holdings (No. 15) B.V.,/82/ which is 100% owned by NRGenerating International BV ("NRGIBV")/83/ - owns 100% of the following: (i) Killingholme Holdings Limited,/84/ which owns 100% of Killingholme Generation Limited,/85/ an EWG which owns 100% of Killingholme Power Limited,/86/ an EWG which owns a 680 MW gas- fired facility located in North Lincolnshire, England; and (ii) NRGenerating Energy Trading Ltd.,/87/ which carries on power marketing activities for NRG assets in the United Kingdom. 15. Enfield Holdings B.V./88/ which is 50% owned by NRGIBV, owns 50% of Enfield Energy Centre Limited,/89/ an EWG which owns a 396 MW gas-fired power station in Enfield, England. Enfield Operations LLC,/90/ which is owned 50% by Enfield Energy Centre Limited and 16.3% by NRG International, Inc./91/ ("NRGI"), is an EWG which operates the Enfield power station, and also owns 100% of Enfield Operations UK Ltd,/92/ which employs the employees of the Enfield power station. 16. NRGenerating Holdings (No.4) B.V.,/93/ which is 100% owned by NRGIBV, is an EWG which owns (i) a 25.37% partnership interest in Loy Yang Power Partners,/94/ the owner of the 2000 MW coal-fired Loy Yang power station and adjacent brown coal mine in the State of Victoria, Australia; (ii) 25.37% of Loy Yang Power Projects Pty Ltd.,/95/ which provides technical services to the Loy Yang project; and (iii) 25.37% of Loy Yang Power Management Pty Ltd.,/96/ which operates the Loy Yang project. NRGenerating Holdings (No.4) B.V./97/ also owns 100% of Gunwale B.V., a vehicle for investing shareholder loans and equity into the Loy Yang project which has no assets or employees and is inactive. -------- 80 Interstate Energy Corporation, supra. 81 Interstate Energy Corporation, supra. 82 Interstate Energy Corporation, supra. 83 Interstate Energy Corporation, supra. 84 Interstate Energy Corporation, supra. 85 EWG (90 FERC P. 61,194). 86 EWG (90 FERC P. 62,117). 87 Rule 58(b)(1)(v). 88 Interstate Energy Corporation, supra. 89 EWG (82 FERC P. 62,086). 90 EWG (82 FERC P. 62,087). 91 Interstate Energy Corporation, supra. 92 Interstate Energy Corporation, supra. 93 EWG (79 FERC P. 62,025). 94 Entergy Corporation, supra. 95 Entergy Corporation, supra. 96 Entergy Corporation, supra. 97 EWG (79 FERC P. 62,025). ---------- 17. Sunshine State Power (No.2) B.V./98/ and Sunshine State Power B.V.,/99/ which are EWGs and which are both 100% owned by NRGIBV, own 17.5% and 20%, respectively, of the unincorporated joint venture that owns the 1680 MW coal-fired Gladstone power station in Queensland, Australia. NRG Gladstone Operating Services Pty Ltd,/100/ which is 1% owned by NRGI and 99% owned by NRG Operating Services, Inc./101/ (both of which are 100% owned by NRG), is an EWG which operates the Gladstone facility, and owns 100% of NRG Gladstone Superannuation Pty Ltd.,/102/ which holds pension assets for the employees of the Gladstone project. 18. NRGenerating Holdings (No. 1) B.V.,/103/ which is 100% owned by NRGIBV, is a FUCO that owns a 50% interest in the unincorporated joint venture that owns the 192 MW coal-fired Collinsville power station in Queensland, Australia. NRG Collinsville Operating Services Pty Ltd.,/104/ which is 1% owned by NRGI and 99% owned by NRG Operating Services, Inc./105/ (both of which are 100% owned by NRG), is a FUCO that owns 50% of Collinsville Operations Pty Ltd,/106/ which operates the Collinsville facility. 19. NRG Victoria 1 Pty Ltd,/107/ which is 100% owned by NRGIBV, owns 100% of NRG Victoria II Pty Ltd./108/ These two entities own 33.33% and 66.67%, respectively, of NRG Victoria III Pty Ltd,/109/ which owns 35% of Energy Developments Limited,/110/ a FUCO which is a publicly listed Australian company that invests in landfill gas generation projects and related investments worldwide. ---------- 98 EWG (67 FERC P. 61,185). 99 EWG (67 FERC P. 61,186). 100 EWG (67 FERC P. 61,187). 101 Entergy Corporation, supra. 102 Entergy Corporation, supra. 103 FUCO. 104 Interstate Energy Corporation, supra. 105 Entergy Corporation, supra. 106 Interstate Energy Corporation, supra. 107 FUCO. 108 FUCO. 109 FUCO. 110 FUCO. ---------- 20. Saale Energie Gmbh,/111/ which is 50% owned by NRGIBV, owns the following interests in the following entities: (i) 41.1% of Kraftwerke Schkopau GbR,/112/ an EWG that owns the 960 MW Schkopau coal-fired power station in Germany; (ii) 44.4% of Kraftwerke Schkopau Betriebsgesellshcaft mbH,/113/ an EWG that operates the Schkopau power station; and (iii) 98% of Saale Energie Services Gmbh,/114/ which provides management services to the Schkopau plant (NRGIBVI also owns a direct 1% interest in this entity). 21. NRGIBV owns 33.33% of MIBRAG mbH, through a holding structure whereby NRGIBV owns 100% of Lambique Beheer BV;/115/ Lambique Beheer BV owns 33.3% of MIBRAG BV/116/ and 1% of MIBRAG mbH;/117/ and MIBRAG BV owns 99% of MIBRAG mbH. MIBRAG Gmbh, by itself and through its wholly-owned subsidiary MIBRAG Industriekraftwerke Vermoegensverwaltungs und Beteiligungs Gmbh, owns 1% of MIBRAG Industriekraftwerke Gmbh & Co KG, an EWG that owns three coal-fired power plants in Germany. MIBRAG Gmbh owns 99%, and MIBRAG B.V. owns 1% of MIBRAG Industriekraftwerke Betriebs Gmbh, an EWG which operates and maintains the power stations. 22. Kladno Power (No.2) BV,/118/ which is 100% owned by NRGIBV, owns 50% of Matra Powerplant Holding BV,/119/ which owns 89% of ECK Generating s.r.o.,/120/ a FUCO which owns a 300 MW coal-fired power station in Kladno, Czech Republic, and related businesses. Kladno Power (No.1) BV,/121/ which is 100% owned by NRGIBV, owns 44.26% of Energeticke Centrum Kladno, s.r.o.,/122/ is a FUCO which holds title to certain assets of the Kladno power station. NRGenerating Holdings (No.5) BV,/123/ which is 100% owned by NRG Energeticke Provoz, s.r.o.,/124/ is a FUCO which operates the Kladno power station. 23. Tosli Investments N.V.,/125/ in which NRG has a 50% interest through Cobee Holdings Inc.,/126/ a wholly-owned subsidiary of NRG International Inc. (see Paragraph 14.C.20), is an EWG which currently owns 98.9% of Compania Boliviana de Energia Electrica S.A. -- Bolivian Power Company Ltd.,/127/ an EWG which owns and/or operates 15 power plants in Bolivia, which in turn on an interim basis owns 99.9% of Compania Electrica Central Bulo Bulo S.A./128/ and 99.8% of Servicios Energeticos S.A., which are both EWGs and the owner and the operator, respectively, of an 87 MW gas-fired facility in Bolivia. Tosli Investments N.V. also currently owns a 0.002% interest in Compania Electrica Central Bulo Bulo S.A. and a 100% interest in Tosli Acquisition B.V., which is inactive. -------- 111 Entergy Corporation, supra. 112 EWG (73 FERC P. 61,318). 113 EWG (73 FERC P. 61,314). 114 Entergy Corporation, supra. 115 Interstate Energy Corporation, supra. 116 Interstate Energy Corporation, supra. 117 Entergy Corporation, supra. 118 FUCO. 119 Interstate Energy Corporation, supra. 120 FUCO. 121 FUCO. 122 FUCO. 123 FUCO. 124 FUCO. 125 EWG (78 FERC P. 62,165). 126 Interstate Energy Corporation, supra. 127 EWG (78 FERC P. 62,166). 128 EWG (90 FERC P. 62,193). ---------- 24. Scudder Latin American Power I/129/ and Scudder Latin American Power II/130/ are private equity funds in which NRG owns a 25% interest and 4.45860% interest, respectively, through NRGenerating Holdings GmbH (see paragraph 14.C.34). These funds invest in power generation projects in Latin America. All of the power generation projects in which these funds have invested are, or are expected to become, EWGs or FUCOs. 25. Energy Investors Fund, L.P.,/131/ in which NRG owns a 3.10% interest through Energy National, Inc./132/ (an indirect wholly-owned subsidiary of NRG), invests in power generation projects within the United States which are either EWGs or QFs. 26. Project Finance Fund III, L.P.,/133/ in which NRG owns a 6.87% interest through Pacific Generation Holdings Company/134/ (an indirect wholly-owned subsidiary of NRG), invests in power generation projects within and outside of the United States which are either EWGs or QFs. 27. NEO Corporation/135/ ("NEO," also discussed in Paragraph 14.C.44 below), in which NRG owns a 100% interest, owns and operates through its subsidiaries and affiliates, landfill gas electric generation projects, a synthetic coal processing facility and small hydroelectric projects. The following NEO subsidiaries and affiliates are QFs: a. Minnesota Methane LLC,/136/ in which NEO owns a 50% interest, owns 15 landfill gas ("LFG") electric generation projects, through the following 15 wholly-owned limited liability companies, which are all QFs:/137/ MM Albany Energy LLC, owner of a 1.9 MW LFG generation facility located in Albany, New York; (ii) MM Cuyahoga Energy LLC, owner of a 3.8 MW LFG generation facility located in Cleveland, Ohio; (iii) MM Hartford Energy LLC, owner of a 2.8 MW LFG generation facility and a thermal plant located in Hartford, Connecticut; (iv) MM Lopez Energy LLC, owner of a 6.1 MW LFG generation facility located in Lake View Terrace, California; (v) MM Lowell Energy LLC, owner of a 1.6 MW LFG generation facility located in Lowell, Massachusetts; (vi) MM Prince William Energy LLC, owner of a 1.9 MW LFG generation facility located in Prince William, Virginia, (vii) MM San Diego LLC, owner of a 6.5 MW LFG generation facility and a 3.8 MW LFG generation facility, both located in San Diego, California; (viii) MM Spokane Energy LLC, owner of a .9 MW LFG generation facility located in Spokane, Washington; (ix) MM Tacoma LLC, owner of a 1.9 MW LFG generation facility located in Tacoma, Washington; (x) MM Taunton Energy LLC, owner of a 1.9 MW LFG generation facility located in Taunton, Massachusetts, (xi) MM Tomoka Farms Energy LLC, owner of a 3.8 MW LFG generation facility located in Daytona Beach Florida; (xii) MM Tulare Energy LLC, owner of a 1.6 MW LFG generation facility located in Visalia, California; (xiii) MM West Covina LLC, owner of a 12 MW LFG generation facility located in West Covina, California; (xiv) MM Yolo Power LLC, owner of a 2.8 MW LFG generation facility located in Sacramento, California; and (xv) O'Brien Biogas IV LLC, owner of a 10.8 MW LFG generation facility located in Edgeboro, New Jersey. ---------- 129 Interstate Energy Corporation, supra. 130 Interstate Energy Corporation, supra. 131 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii). 132 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii). 133 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii). 134 Interstate Energy Corporation, supra. and Rule 58(b)(1)(viii). 135 Rule 58(b)(1)(vi) and (viii). 136 Rule 58(b)(1)(vi) and (viii). 137 In addition, each listed entity meets the requirements of Rule 58(b)(1)(vi). ---------- b. MM Biogas Power LLC,/138/ in which NEO owns a 50% interest, is the 100% owner of the following limited liability companies:/139/ (i) MM Corona Energy LLC, a QF which is the owner of a .6 MW LFG generation facility located in Corona, California; (ii) MM Hackensack Energy LLC, a QF which is the owner of 3.8 MW LFG generation facility and a 1.9 MW LFG generation facility, both located in Lyndhurst, New Jersey; (iii) MM Nashville Energy LLC, a QF which is the owner of a 1.9 MW LFG generation facility located in Nashville, Tennessee; (iv) MM Prima Deshecha Energy LLC, a QF which is the owner of a 6.1 MW LFG generation facility located in San Juan Capistrano, California; (v) MM SKB Energy LLC, a QF which is the owner of a 1.2 MW LFG generation facility located in Swedeland, Pennsylvania; (vi) MM Tajiguas Energy LLC, a QF which is the owner of a 3.0 MW LFG generation facility located in Santa Barbara, California expected to begin commercial operation in August, 2000; (vii) MM Woodville Energy LLC, a QF which is the owner of a .6 MW LFG generation facility located in Woodville, California; and (viii) O'Brien Biogas (Mazzaro) Inc., a QF which is the owner of a .4 MW LFG generation facility located in Imperial, Pennsylvania. c. Minnesota Methane II LLC ("MMII"),/140/ in which NEO owns a 50% interest, is the 100% owner of (i) MM Burnsville Energy LLC,/141/ a QF which is the owner of a 4.2 MW LFG generation facility located in Burnsville, Minnesota and (ii) Suncook Energy LLC,/142/ a QF which is the owner of a 3.0 MW LFG generation facility located in Nashua, New Hampshire. MMII is also the 50% owner of Landfill Power LLC,/143/ which is the owner of a 4.8 MW LFG generation facility located in Eden Prairie, Minnesota. d. Northbrook Energy LLC ("Northbrook"),/144/ in which NEO owns a 50% interest, owns the following hydroelectric projects, all of which are QFs: (i) .9 MW facility located at Lowell, Michigan; (ii) 1.4 MW facility located at Ada, Michigan; (iii) .8 MW facility located at Comstock, Michigan; (iv) 3.2 MW facility located at Dixon, Illinois; (v) 2.5 MW facility located at Leadville, Colorado; (vi) 1.6 MW facility located at Grand Rapids, Michigan; (vii) 1.2 MW facility located at Oroville, California; (viii) 1.8 MW facility located at Belleville, Michigan; (ix) 5 MW facility located at Zenia, California; (x) 4.4 MW facility located at Danville, Virginia; and (xi) 1.0 MW facility located at Deming, Washington. -------- 138 Rule 58(b)(vi) and (viii). 139 Each of the listed entities is a QF and meets the requirements of Rule 58(b)(1)(vi). 140 Rule 58(b)(1)(vi) and (viii). 141 QF and Rule 58(b)(1)(vi). 142 QF and Rule 58(b)(1)(vi). 143 QF. 144 Rule 58(b)(1)(viii). ---------- e. Northbrook Carolina Hydro LLC,/145/ in which Northbrook owns a 99% interest, owns the following hydroelectric projects, all of which are QFs: (i) 1.5 MW facility located at Laurens, South Carolina; (ii) 3.5 MW facility located at Honea Path, South Carolina; (iii) 2.4 MW facility located at Greenville, South Carolina; (iv) .64 MW facility located at Ranlo, North Carolina; (v) .6 MW facility located at Shelby, North Carolina, and (vi) 5.5 MW facility located at Mill Springs, North Carolina. f. Northbrook New York LLC, in which NEO owns a 50% interest, is a QF and the owner of a 32.6 MW hydroelectric facility located in Watertown, New York. C. Other 1. NRG MidAtlantic Generating LLC, in which NRG owns a 100% interest, owns 100% of the following entities which were formed to acquire certain assets from Conectiv: (i) B.L. England Power LLC, (ii) Conemaugh Power LLC, (iii) Deepwater Power LLC, (iv) Indian River Power LLC, (v) Keystone Power LLC and (vi) Vienna Power LLC. The Conectiv acquisition is expected to close later this year and, therefore, none of these entities currently owns any assets. 2. Okeechobee Power I., Inc./146/, Kissimmee Power Partners, L.P./147/, Okeechobee Power II Inc./148/ and Okeechobee Power III, Inc./149/ are inactive. These entities were formed in connection with a project that did not close. 3. Louisiana Energy Services, L.P.,/150/ in which NRG has a 0.52% general partner interest (through NRG's wholly-owned subsidiary Graystone Corporation/151/) and a 6.23% limited partner interest (though LePaz Incorporated,/152/ a wholly-owned subsidiary of Graystone Corporation), owns a uranium enrichment facility under development in Louisiana. 4. NRG Development Company Inc./153/ and NRG International Development Inc./154/ are wholly-owned subsidiaries of NRG which engage in development activities on behalf of NRG. (See paragraph 14.A.1 for a description of these activities.) -------- 145 Rule 58(b)(1)(viii). 146 Interstate Energy Corporation, supra. 147 Interstate Energy Corporation, supra. 148 Interstate Energy Corporation, supra. 149 Interstate Energy Corporation, supra. 150 Rule 58(b)(1)(vii). See also, New England Electric System, Holding Co. Act Release No. 26227 (April 26, 1995). 151 Rule 58(b)(1)(viii). 152 Rule 58(b)(1)(vii). 153 Entergy Corporation, supra. 154 Interstate Energy Corporation, supra. ---------- 5. NRG Operating Services, Inc.,/155/ in which NRG owns a 100% interest, has the following wholly-owned subsidiaries, each of which was formed to provide (and, if not currently inactive, does perform) operation and maintenance services to the NRG facility described in the paragraph set forth in parenthesis:/156/ (i) NRG Artesia Operations, Inc. (inactive); (ii) NRG Cadillac Operations Inc. (inactive); (iii) NRG Oklahoma Operations Inc. (inactive); (iv) NRG El Segundo Operations Inc. (Paragraph 14.B.3(iv)); (v) Somerset Operations Inc. (Paragraph 14.B.1(v)); (vi) NRG Morris Operations, Inc. (inactive); (vii) NRG Cabrillo Power Operations Inc. (inactive); (viii) NRG Arthur Kill Operations Inc. (Paragraph 14.B.1(iv)); (ix) NRG Astoria Gas Turbine Operations Inc. (Paragraph 14.B.1(iii)); (x) NRG Dunkirk Operations Inc. (Paragraph 14.B.1(i)); (xi) NRG Huntley Operations Inc. (Paragraph 14.B.1(ii)); (xii) NRG Oswego Harbor Power Operations Inc. (Paragraph 14.B1(vi)); (xiii) NRG Devon Operations Inc. (Paragraph 14.B.1(viii)); (xiv) NRG Middletown Operations Inc. (Paragraph 14.B.1(ix)); (xv) NRG Norwalk Harbor Operations Inc. (Paragraph 14.B.1(i); NRG Montville Operations Inc. (Paragraph 14.B.1(x)); (xvi) Deepwater Operations Inc. (inactive, see paragraph 14.C.1(iii)); (xvii) B.L. England Operations Inc. (inactive, see paragraph (i)); (xviii) Indian River Operations Inc. (inactive, see paragraph (iv)); and (xiv) Vienna Operations Inc. (inactive, see paragraph (vi)). 6. Power Operations, Inc.,/157/ in which NRG owns a 100% interest, provides operations and maintenance services to the Cadillac facility (see Paragraph 14.B.6) and various other NRG facilities. 7. ESOCO Crockett, Inc.,/158/ in which NRG owns a 100% interest, provides operations and maintenance services to the Crockett facility (see Paragraph 14.B.8). 8. NRG Mextrans Inc.,/159/ in which NRG owns a 100% interest, was formed to develop a transmission line in Arizona and currently has no assets or employees. 9. NRG Services Corporation,/160/ NRG Affiliate Services, Inc.,/161/ NRG Northeast Affiliate Services Inc.,/162/ NRG Western Affiliate Services Inc.,/163/ NRG Connecticut Affiliate Services Inc.,/164/ each of which is a wholly-owned subsidiary of NRG, provide payroll, benefits and other administrative services to various wholly-owned subsidiaries of NRG. ---------- 155 Entergy Corporation, supra. 156 Entergy Corporation, supra. 157 Entergy Corporation, supra. 158 Entergy Corporation, supra. 159 Entergy Corporation, supra. 160 Entergy Corporation, supra. 161 Entergy Corporation, supra. 162 Entergy Corporation, supra. 163 Entergy Corporation, supra. 164 Entergy Corporation, supra. ---------- 10. Sunnyside Operations Associates, L.P., in which NRG owns a 50% interest through NRG Sunnyside Operations G.P. Inc. (a 1% general partner) and NRG Sunnyside Operations L.P. Inc. (a 49% limited partner), is the former operator of a power generation facility in Utah. The Sunnyside facility has been sold and Sunnyside Operations Associates, L.P. has no assets or employees and is inactive. 11. Scoria Incorporated, in which NRG owns a 100% interest, has no assets (other than rights to certain synthetic coal technology) or employees and is inactive. 12. ONSITE Limited Partnership No. 1 and ONSITE /US Power Limited Partnership No. 1 are 100% owned indirect subsidiaries of NRG, have no assets or employees, and are inactive. 13. NRG Lakefield Inc. and NRG Lakefield Junction LLC, in which NRG owns a 100% interest, and Lakefield Junction LLC, in which NRG owns a 50% interest, have no assets or employees and are inactive. 14. Mid-Continent Power Company LLC, in which NRG owns a 50% interest, has no assets or employees and is inactive. 15. San Joaquin Valley Energy Partners I, L.P., which is 45% owned by NRG through San Joaquin Valley Energy I, Inc. (a 2% general partner) and NRG Energy Jackson Valley II, Inc. (a 43% limited partner), owns three biomass/waste fuel-fired facilities located in central California which have an aggregate capacity of 43 MW. These facilities, which were QFs, are no longer in operation and the plant and equipment is being liquidated. San Joaquin Valley Energy Partners IV, L.P. and Bioconversion Partners, L.P., each of which is 45% owned by NRG through San Joaquin Valley Energy IV, Inc. (a 2% general partner) and NRG Energy Jackson Valley II, Inc., (a 43% general partner), own a transformer and acted as a fuel supplier to San Joaquin Valley Energy Partners I, LP. These entities are inactive. 16. ENI Chester, LP, in which NRG has a 68.3% interest, has no assets or employees and is inactive. 17. Carolina Energy Limited Partnership, in which NRG has a 50% limited partnership interest through Pacific Generation Holdings Company, has no assets or employees and is inactive. 18. Pryo-Pacific Operating Company, in which NRG owns a 45% interest, has no assets or employees and is inactive. 19. The following entities, each of which is wholly-owned by NRG, have no assets or employees and are inactive: (i) ESOCO Wilson, Inc.; (ii) ESOCO Molokai, Inc.; (iii) ESOCO Fayetteville, Inc.; (iv) ESOCO Soledad, Inc.; (v) ENIFUND, Inc.; (vi) Long Island Cogeneration, L.P.; (vii) NRG Connecticut Generating LLC; (viii) NRG Louisiana LLC; (ix) NRG New Roads Generating LLC; (x) Tacoma Energy Recovery Company LLC; (xi) Elk River Resource Recovery, Inc.; (xii) Pacific Generation Development Company; (xiii) Pacific Recycling Energy, Inc.; (xiv) ONSITE Soledad, Inc.; (xv) ONSITE Marianas Corporation; (xvi) ONSITE Funding Corporation. 20. NRG holds its foreign investments either through NRG International, Inc./165/ ("NRGI"), which is 100% owned by NRG, or through NRGenerating International B.V./166/ ("NRGIBV"), a Netherlands holding company which is 100% owned by NRGI. 21. NRG International Services Company,/167/ which is 100% owned by NRGI, was formed to enter into servicing agreements with expatriates and international consultants. 22. Sterling Luxembourg (No.1) S.a.r.l.,/168/ which is 100% owned by NRGenerating Holdings (No. 15) B.V.,/169/ which is 100% owned by NRGIBV, owns 100% of Sterling Luxembourg (No.2) S.a.r.l.,/170/ which acts a vehicle for investing shareholder loans and equity in Killingholme Generation Limited,/171/ and which owns 100% of Sterling (Gibraltar)/172/ which was formed for the same purpose. NRG also formed Sterling Luxembourg (No.3) S.a.r.l./173/ as a vehicle for channeling debt financing to Killingholme Generation Limited; Sterling Luxembourg (No.3) S.a.r.l. is 100% owned by Sterling Luxembourg (No.4) S.a.r.l.,/174/ which is 50% owned by NRGI and 50% owned by NRG International II, Inc.,/175/ which are both 100% owned by NRG. ---------- 165 Interstate Energy Corporation, supra. 166 Interstate Energy Corporation, supra. 167 Interstate Energy Corporation, supra. 168 Interstate Energy Corporation, supra. 169 Interstate Energy Corporation, supra. 170 Interstate Energy Corporation, supra. 171 EWG (90 FERC P. 61,194). 172 Interstate Energy Corporation, supra. 173 Interstate Energy Corporation, supra. 174 Interstate Energy Corporation, supra. 175 Interstate Energy Corporation, supra. ---------- 23. Flinders Labuan (No. 1) Ltd. and Flinders Labuan (No. 2) Ltd. are each 100% owned by NRGenerating Holdings (No. 2) Gmbh, which is 100% owned by NRGenerating Luxembourg (No. 1) S.a.r.l., which is 100% owned by NRGIBV. NRGenerating Holdings (No. 2) Gmbh, Flinders Labuan (No. 1) Ltd. and Flinders Labuan (No. 2) Ltd. were formed to own 50%, 25% and 25%, respectively, of an as-yet-unformed partnership that will acquire certain power stations and related assets in South Australia for which NRG is currently bidding. NRGenerating Luxembourg (No. 1) also owns 100% of NRGenerating Luxembourg (No. 2), which owns 100% of Flinders (Gibraltar), both of which were formed to act as vehicles for making loans to the partnership. 24. (NR) Gibraltar, which is 100% owned by Enfield Holdings B.V. (see Paragraph 14.B.15), is an inactive entity with no employees or assets. 25. Brimsdown Power Limited, which is 100% owned by NRGIBV, was formed to develop a peaking unit at the Enfield power station, but it has no assets or employees and is currently inactive. (See Paragraph 14.B.15.) 26. Wainstones Power Limited, which is 100% owned by NRGIBV through its 100% ownership in NRGenerating Holdings (No.11) B.V., was formed to own the 800 MW gas-fired Langage power project in the UK, which is still in the development stage. It currently has no assets or employees. 27. Langage Energy Park Limited, which is 100% owned by NRGIBV through its 100% ownership in NRGenerating Holdings (No.13) B.V., was formed to acquire the site for the Langage project. It currently has no assets or employees. 28. NRGenerating Holdings (No.9) B.V., which is 100% owned by NRGIBV, owns 25% of Kanel Kangal Elektrik Limited Sirketi,/176/ which was formed to develop and acquire a 450 MW coal-fired power station in Turkey. It does not currently have any employees or assets. 29. NRGenerating Holdings (No. 17) B.V., which is 100% owned by NRGIBV, owns 31.75% of KUSEL Kutahya Seyitomer Elektrik Limited Sirketi, which was formed to develop and acquire a 600 MW coal-fired power station in Turkey. It does not currently have any employees or assets. 30. Sachsen Holding B.V., which is 100% owned by NRGIBV, owns 45% of P.T. Dayalistrik Pratama, was formed to develop a 400 MW coal-fired power station in Cilegon, Indonesia. It has no employees and owns no assets other than an undeveloped parcel of land that may serve as a site for a future power project. NRGenerating Holdings (No.7) B.V., and NRGenerating Holdings (No.8) B.V., which are both 100% owned by NRGIBV, respectively own 95% and 5% of P.T. NRG West Java, which was formed to operate the Cilegon power project in Indonesia, but which has no assets or employees and is currently inactive. 31. Inversiones Bulo Bulo S.A.,/177/ in which NRG owns a 30% interest through Tosli Investments N.V. (see paragraph 14.B.23) and through Coniti Holding B.V.,/178/ which is owned 100% by Tosli Investments N.V., is a holding company and is expected to eventually own a controlling interest in Compania Electrica Central Bulo Bulo S.A. (see paragraph 14.B.23). Coniti Holding B.V. also currently owns a 0.002% interest in Compania Electrica Central Bulo Bulo S.A. 32. Tosli (Gibraltar) BV,/179/ in which NRG owns a 50% interest through Coniti Holding B.V. (see paragraph 14.C.31) serves as a funding vehicle for certain of NRG's Latin American power projects. ---------- 176 Entergy Corporation, supra. 177 Interstate Energy Corporation, supra. 178 Interstate Energy Corporation, supra. 179 Entergy Corporation, supra. ---------- 33. Tosli Luxembourg (No.2) S.a.r.l.,/180/ in which NRG has a 50% interest through Tosli Luxembourg (No.1) S.a.r.l.,/181/ a wholly-owned subsidiary of Tosli Investments N.V. (see paragraph 14.B.23), serves as a funding vehicle for certain of NRG's Latin American power projects. 34. NRGenerating Holdings Gmbh,/182/ which is 100% owned by NRG through NRGenerating International B.V., owns 100% of NRG Caymans-C/183/ and NRG Caymans P./184/ Together NRG Caymans-C and NRG Caymans-P own (i) 25% of Scudder Latin American Power I/185/ (which is composed of Scudder Latin American Power I-P LDC/186/ and Scudder Latin American Power I-C LDC/187/) and (ii) 4.45860% of Scudder Latin American Power II/188/ (which is composed of Scudder Latin American Power II-P LDC/189/, Scudder Latin American Power II-C LDC/190/, Scudder Latin American Power II-Corporation A/191/ and Scudder Latin American Power II-Corporation B/192/) (see paragraph 14.B.24). NRGenerating Holdings Gmbh also owns 100% of NRG Caymans Company/193/, which owns 20% of Croatia Power Group/194/, a holding company created in connection with a potential investment in a power project in Croatia and a 36.4% interest in Central and Eastern Europe Power Fund, Ltd., a private equity fund designed to make investments in power projects in central and eastern Europe. Central and Eastern Europe Power Fund, Ltd. does not currently have any ownership interests in power projects. 35. Cobee Energy Development LLC, in which NRG has a 50% interest, through NRG Latin America, Inc.,/195/ a wholly-owned subsidiary of NRG International Inc. (see paragraph 14.C.20), is an inactive entity. ---------- 180 Interstate Energy Corporation, supra. 181 Interstate Energy Corporation, supra. 182 Interstate Energy Corporation, supra. 183 Interstate Energy Corporation, supra. 184 Interstate Energy Corporation, supra. 185 Interstate Energy Corporation, supra. 186 Interstate Energy Corporation, supra. 187 Interstate Energy Corporation, supra. 188 Interstate Energy Corporation, supra. 189 Interstate Energy Corporation, supra. 190 Interstate Energy Corporation, supra. 191 Interstate Energy Corporation, supra. 192 Interstate Energy Corporation, supra. 193 Interstate Energy Corporation, supra. 194 Interstate Energy Corporation, supra. 195 Interstate Energy Corporation, supra. ---------- 36. The following entities are 100% owned by NRGIBV, but at present are inactive shell entities: NRGenerating Holdings (No.3) B.V., NRGenerating Holdings (No.6) B.V., NRGenerating Holdings (No.7) B.V., NRGenerating Holdings (No.14) B.V., NRGenerating Holdings (No.16) B.V., NRGenerating Holdings (No.18) B.V., NRGenerating Holdings (No.19) B.V., NRGenerating Holdings (No.20) B.V., NRGenerating Holdings (No.21) B.V., NRGenerating Holdings (No.22) B.V., NRGenerating Holdings (No.23) B.V., Interenergy Limited, NRGenerating Rupali B.V., Kiksis B.V. 37. NRGenerating Holdings (No. 12) B.V., which is 50% owned by NRG International II, Inc., will be used as a holding company for international assets of NRG, but does not currently have any employees or assets./196/ 38. NRG Energy Ltd.,/197/ which is 100% owned by NRGIBV, serves as NRG's development office for the United Kingdom. It owns no utility assets. 39. NRG Asia-Pacific Ltd.,/198/ which is 100% owned by NRGI, serves as NRG's development office for power projects in Australia and Southeast Asia. It owns no utility assets. 40. NRG Energy Development GmbH,/199/ which is 100% owned by NRGIBV, serves as NRG's development office for power projects in Germany. It owns no utility assets. 41. NRG Energy CZ, s.r.o.,/200/ which is 100% owned by NRGIBV, serves as NRG's development office for power projects in the Czech Republic. It owns no utility assets. 42. NRG Energy PL Sp.z.o.o.,/201/ which is 100% owned by NRGIBV, serves as NRG's development office for power projects in Poland. It owns no utility assets. 43. OU Nrg Energy Est, which is 100% owned by NRGIBV, serves as NRG's development office for power projects in Estonia. It owns no utility assets. 44. NEO Corporation ("NEO," also discussed in paragraph 14.B.27, above), owns interests in the following subsidiaries and affiliates that are not QFs: ---------- 196 See New Century Energies, Inc., Holding Co. Act Release No. 27000 (April 7, 1999), in which the Commission permitted the formation of intermediate subsidiaries for the purpose of acquiring, financing and holding various non-utility companies. 197 Interstate Energy Corporation, supra. 198 Entergy Corporation, supra. 199 Interstate Energy Corporation, supra. 200 FUCO. 201 Interstate Energy Corporation, supra. ---------- a. MM Biogas Power LLC,/202/ in which NEO owns a 50% interest and which is itself a QF, is the 100% owner of the following limited liability companies:/203/ (i) MM Erie Power LLC, which currently is the Lessee under a Site Lease giving it rights to construct a LFG generation facility to be located in Denver, Colorado; (ii) MM Martinez Energy LLC, which currently is the Lessee under a Site Lease giving it rights to construct a LFG generation facility to be located in Contra Costa County, California; (iii) MM Northern Tier Energy LLC, which is currently the Lessee under a Site Lease giving it rights to construct a LFG generation facility to be located in Troy, Pennsylvania; (iv) MM Phoenix Energy LLC, which currently has rights to construct a LFG utilization project in Phoenix, Arizona; (v) MM Riverside LLC, which currently is the Lessee under a Site Lease giving it rights to construct a LFG generation facility to be located in Riverside, California; (vi) MMSB Transco Holdings LLC, which has no assets or employees and is inactive; (vii) MM El Sobrante Energy LLC, which currently has no assets or employees and is inactive; (viii) MM Tri-Cities Energy LLC, which currently has no assets or employees and is inactive; and (ix) O'Brien Standby Power Energy, Inc., the owner of an 8.4 MW Diesel generation facility located in Swedeland, Pennsylvania. b. Minnesota Methane Holdings, LLC, in which NEO owns a 50% interest, has no assets or employees and is inactive. c. Four Hills, LLC,/204/ in which NEO owns a 50% interest, is the owner of a LFG collection system in Nashua, New Hampshire. d. LFG Partners, LLC, in which NEO owns a 100% interest, has no assets or employees and is inactive. e. NEO Landfill Gas, Inc.,/205/ of which NEO owns 100%, is the 100% owner of the following limited liability companies, each of which owns a LFG collection system located as follows:/206/ (i) NEO Albany LLC (Albany, New York); (ii) NEO Cuyahoga LLC (Cleveland, Ohio); (iii) NEO Edgeboro LLC (Edgeboro, New Jersey); (iv) NEO Fitchburg LLC (Fitchburg, Massachusetts); (v) NEO Hartford LLC (Hartford, Connecticut); (vi) NEO Lopez Canyon LLC (Lake View Terrace, California); (vii) NEO Lowell LLC (Lowell, Massachusetts); (viii) NEO Prince William LLC (Prince William, Virginia); (ix) NEO San Diego LLC (San Diego, California); (x) NEO Spokane LLC (Spokane, Washington); (xi) NEO Tacoma LLC (Tacoma, Washington); (xii) NEO Taunton LLC (Taunton, Massachusetts); (xiii) NEO Tomoka Farms LLC (Daytona Beach, Florida); (xiv) NEO Tulare LLC (Visalia, California); (xv) NEO West Covina LLC (West Covina, California); and (xvi) NEO Yolo LLC (Sacramento, California). f. NEO Landfill Gas Holdings Inc.,/207/ has entered into an operations and maintenance agreement with Landfill Services LLC (an unrelated party) to provide operation and maintenance services for the facilities owned by the companies listed in paragraph 44(a), above. ---------- 202 Rule 58(b)(1)(vi) and (viii). 203 Each of the listed companies is exempt under Rule 58(b)(1)(vi). 204 Rule 58(b)(1)(vi). 205 Rule 58(b)(1)(vi) and Interstate Energy Corporation, supra. 206 Each of the listed companies is exempt under Rule 58(b)(1)(vi). 207 Rule 58(b)(1)(vi) and Entergy Corporation, supra. ---------- g. NEO owns 100% of each of the following limited liability companies, each of which owns a LFG collection system located as follows:/208/ (i) NEO Burnsville LLC (Burnsville, Minnesota); (ii) NEO Corona LLC (Corona, California); (iii) NEO Erie LLC (Denver, Colorado); (iv) NEO Ft. Smith LLC (Ft. Smith, Arkansas); (v) NEO Hackensack LLC (Lyndhurst, New Jersey); (vi) NEO Martinez LLC (Contra Costa County, California); (vii) NEO Nashville LLC (Nashville, Tennessee); (viii) NEO Northern Tier LLC (Troy, Pennsylvania); (ix) NEO Phoenix LLC (Phoenix, Arizona); (x) NEO Prima Deshecha LCC (San Juan Capistrano, California); (xi) NEO Riverside LLC (Riverside, California); (xii) NEO SKB LLC (Swedeland, Pennsylvania); (xiii) NEO Tajiguas LLC (Santa Barbara, California); and (xiv) NEO Woodville, LLC (Woodville, California). h. NEO El Sobrante LLC, NEO Tri-Cities LLC and MM Ft. Smith Energy LLC, each of which is 100% owned by NEO, have no assets or employees and are inactive. i. NEO San Bernardino LLC,/209/ of which NEO owns 100%, is a 100% profits and loss member and a 95% voting member of San Bernardino Landfill Gas Partnership,/210/ which owns LFG collection systems at four landfills located in San Bernardino County, California. j. NEO MESI LLC,/211/ of which NEO owns 100%, is a 50% owner of MESI Fuel Station #1 LLC,/212/ which is the owner of a synthetic coal processing facility located in Catlettsburg, Kentucky. k. Northbrook Acquisition Corp.,/213/ which is 100% owned by Northbrook New York LLC ("Northbrook,/214/" in which NEO owns a 50% interest), is the 100% owner of STS Hydropower, Ltd.,/215/ which provides operation and maintenance services for all of the hydroelectric projects in which NEO has an interest. STS Turbine Development LLC,/216/ in which Northbrook owns a 99% interest, provides turbine design, manufacturing and engineering services for hydroelectric facilities. l. NEO ECO 11 LLC,/217/ of which NEO owns 100%, has not assets or employees and is inactive. m. NEO Chester-Gen LLC/218/ was formed to own a cogeneration facility in Chester, Pennsylvania. It is currently inactive and intends to apply for EWG status before becoming active. -------- 208 Each of the listed companies is exempt under Rule 58(b)(1)(vi). 209 Rule 58(b)(1)(vi). 210 QF and Rule 58(b)(1)(vi). 211 Rule 58(b)(1)(vi). 212 Rule 58(b)(1)(vi). 213 Rule 58(b)(1)(viii). 214 Rule 58(b)(1)(viii). 215 QF. 216 QF and Rule 58(b)(1)(vi). 217 Rule 58(b)(1)(vi). 218 Rule 58(b)(1)(vi). ---------- n. NEO Toldeo-Gen LLC/219/ was formed to own a cogeneration facility in Toledo, Ohio. It is currently inactive and intends to apply for EWG status before becoming active. o. NEO Freehold-Gen LLC/220/ was formed to own a cogeneration facility in Freehold, New Jersey. It is currently inactive and intends to apply for EWG status before becoming active. 45. NRG Power Marketing Inc.,/221/ which is 100% owned by NRG, conducts power marketing and related activities on behalf of certain wholly-owned subsidiaries of NRG. 46. Jackson Valley Energy Partners, L.P.,/222/ in which NRG owns a 1% general partnership interest through NRG Energy Jackson Valley I, Inc.,/223/ and a 49% limited partnership interest through NRG Energy Jackson Valley II, Inc.,/224/ is in the process of liquidating its assets and conducts no power generation activities. ---------- 219 Rule 58(b)(1)(vi). 220 Rule 58(b)(1)(vi). 221 Rule 58(b)(1)(v). 222 Rule 58(b)(1)(x). 223 QF. 224 QF. ---------- Annex E AFFILIATE CONTRACTS SALE OF FUEL FOR ELECTRIC GENERATION NRG Energy Center Washco LLC has the option to sell wood by-product purchased from Andersen Corporation to NSP for use as fuel in generating facilities. The price for the wood by-product equals the average cost per MMBtu of solid fuel delivered to a NSP generating plant during the calendar year and, as a result such price is in compliance with Rule 90(d)(2) and Rule 92(b) under the 1935 Act. This contract was approved by the Minnesota Public Utility Commission ("MPUC") in Docket No. E002/M-86-775. NSP purchases refuse-derived fuel ("RDF") from NRG's Newport facility and Elk River Facility through a series of contracts, including a lease of land, an operating agreement, and a reimbursement agreement for additional pollution control equipment installed by NSP to burn RDF. In NSP's view, the proper characterization of the transaction is the sale by NRG of a good manufactured by it (i.e., RDF), and the price being paid is in compliance with Rule 90(d)(2) and Rule 92(b) under the 1935 Act. The various contracts associated with this transaction were approved by the MPUC in Docket Nos. E002/AI-93-821, E002/AI-94-950, E002/AI-93-770, and E002/AI-95-171. URANIUM FUEL ENRICHMENT SERVICES Louisiana Energy Services ("LES") is a joint venture which was to operate a nuclear enrichment facility in Louisiana. NSP's wholly owned subsidiary, NRG, owns 100% of Graystone Corporation (Graystone), an investor in uranium enrichment services. Graystone is a general partner in the LES venture, and also owns LePaz Inc., which is a limited partner in LES. Together, Graystone and LePaz own 6.74% of LES. Under the terms of the contract, LES was to supply 30% of NSP's enrichment services needs for the period October 1, 1995 through September 30, 2005. The agreement contained a term specifying that if LES could not perform, NSP would purchase equivalent amounts from Urenco, which is not affiliated with NSP but is the main investor in LES. Pursuant to this provision, NSP has purchased between $7 million and $8 million in enrichment services from Urenco, as LES has never performed under the agreement. NSP and LES have agreed to terminate this arrangement on December 31, 2000, and, in the interim, NSP will not make any purchases from LES. As a result, this transaction will not involve the sale of a good or service for a charge. The remainder of NSP's enrichment services needs are purchased on the spot market. This contract was approved by the MPUC in Docket No. E002/AI-92-1164. SALE OF STEAM NSP sells cold steam to NRG Energy Center Washco LLC (a subsidiary of NRG) from its King plant. The steam is then reheated and resold to Andersen Corporation and a Minnesota correctional facility. NRG pays approximately $700,000 per year for the steam, which is NSP's incremental cost of producing an equivalent amount of electricity (measured in BTUs) with the cold steam. As a result, such price is in compliance with Rule 90(d)(2) and Rule 92(b) under the Act. Alternatively, the sale of steam is conceivably exempt under Rule 81. In addition, NRG pays approximately $450,000 per year for NSP to operate the NRG boiler facilities based on NSP's fully allocated cost plus a small management fee (5%) required to reflect potential unaccounted-for overhead costs for state regulatory purposes to avoid subsidization. NSP believes that such pricing is in compliance with Rules 90 and 91 under the 1935 Act. This contract was approved by the MPUC in Docket No. E002/M-86-775. NSP maintains and operates NSP's Highbridge Units 3 and 4 boilers for NRG Energy Center Rock-Tenn, a subsidiary of NRG, so that NRG can produce steam to sell to RockTenn Corporation. NRG pays approximately $3 million per year at NSP's fully allocated cost, which includes a small management fee required to reflect the potential for unaccounted-for overhead costs for state regulatory purposes to avoid subsidization. NSP believes that such price is in compliance with Rules 90 and 91 under the 1935 Act. This contract was approved by the MPUC in Docket No. E002/CI-82-523. GAS SUPERVISORY CONTROL AND DATA ACQUISITION AND DISPATCHING SERVICES NSP supplies NSP-W and Viking with supervisory control and data acquisition ("SCADA") services for their gas businesses pursuant to separate contracts with Viking and NSP-W. NSP also supplies NSP-W gas dispatching and other services. NSP-W pays approximately $192,000 per year, while Viking pays approximately $256,000 per year. Both contracts were approved by the MPUC in Docket No. G002/AI-94-831, and the contract between NSP and NSP-W was approved by the PSCW in Docket No. 4220-AU-117. A SCADA system electronically communicates gas flow, gas pressure, and gas equipment set point data for the delivery system and records the data in a computerized data storage system for monitoring and control purposes. Gas dispatching includes monitoring and controlling the flow, pressures and operating conditions of a natural gas delivery system through the use of a SCADA system. The agreements enable NSP, NSP-W and Viking to share the costs of a single system rather than each owning and operating a SCADA system. The three companies are each allocated and billed a share of the actual operating costs incurred by NSP on a monthly basis based on the number of metering points monitored for each company. NSP believes that such pricing complies with Rules 90 and 91. MANAGEMENT OR LEASING OF LAND OR OTHER FACILITIES NSP manages the Renaissance Square Office Building for United Power & Land ("UP&L"). NSP provides this service in exchange for two percent (2%) of the building's gross annual rents. All direct costs of management are charged to UP&L under an administrative services agreement. These typically total approximately $1.1 million per year. NSP believes that such pricing complies with Rules 90 and 91. This contract was approved by the MPUC in Docket No. E002/AI-94-1188. UP&L leases office space on floors two through eleven of the Renaissance Square office building to NSP. NSP pays UP&L rent based on a square footage rate of approximately $3.6 million per year, consisting of a base rental fee on a per square foot basis and a separate fee for NSP's share of the actual costs of operating and maintaining the building. These terms were more favorable to NSP than other bids that NSP received and result in a situation equivalent to if NSP owned the building, as the UP&L target return in establishing the lease payments was NSP's regulated return on equity. This contract was approved by the MPUC in Docket No. E002/AI-90-845. UP&L also leases office space on the first floor and in the basement of the Renaissance Square office building to NSP. This contract was approved by the MPUC in Docket No. E002/AI-94-1056. NSP believes that its rental payments to UP&L comply with Rules 90 and 91 under the Act. First Midwest Auto Park ("FMAP") leases 14,000 square feet of unimproved storage area to NSP in the first and second floors of the parking garage directly adjacent to NSP's headquarters for approximately $100,000 per year. This contract was approved by the MPUC in Docket No. E002/AI-94-1043. FMAP also leases 92 parking spaces in the parking facility to NSP at an annual rent of approximately $220,00 per year. This contract was approved by the MPUC in Docket No. E002/AI-94-1042. NSP believes that the payments to FMAP comply with Rules 90 and 91 under the Act. Seren Innovations, Inc. ("Seren"), a wholly owned subsidiary of NSP, entered into a lease agreement with NSP that allows Seren to attach cable or similar telecommunications facilities to NSP's distribution poles, conduits, ducts and other properties. The lease is effective February 20, 1998 through December 31, 2018, and is applicable in Minnesota, South Dakota and North Dakota. NSP receives approximately $425,000 per year in lease payments from Seren, calculated pursuant to a formula rate outlined by the FCC. As a result, NSP believes that such transaction is exempt under Rule 81 or is determined in compliance with Rules 90 and 91 under the Act. This contract was approved by the MPUC in Docket No. E002/AI-98-377. Under the federal Telecommunications Act of 1996, NSP is obligated to provide access to its poles, etc., to telecommunications providers. NSP has entered into similar facility access lease agreements with several non-affiliated telecommunications providers. INTELLECTUAL PROPERTY Reddy Kilowatt Corporation ("RKC") is a wholly-owned subsidiary of NSP which owns and licenses use of the Reddy Kilowatt(R) and Reddy Flame(TM) trademarks ("Trademarks"). On October 1, 1999, NSP and RKC entered into a Trademark License Agreement allowing NSP to use the Trademarks for an annual fee. NSP pays Reddy Kilowatt Corporation $125,000 per year for its portion of the amortized cost of purchasing the Reddy trademark. NSP believes that such price is in compliance with Rules 90 and 91 under the 1935 Act. The MPUC approved the agreement effective October 1, 1999, in Docket No. G,E-002/AI-99-1418.