-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/OiH1RSA7FqrDjBpg409W1K+hzECc3vX2BHJ5sgqfMMTJ6XwcbULvr+LZ1paViV 2DzJDTFUdPV2eWYNXyFyLw== 0000899652-05-000053.txt : 20050203 0000899652-05-000053.hdr.sgml : 20050203 20050203115146 ACCESSION NUMBER: 0000899652-05-000053 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20050203 DATE AS OF CHANGE: 20050203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-10281 FILM NUMBER: 05572090 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5132872644 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET STREET 2: P.O BOX 960 CITY: CINCINATI STATE: OH ZIP: 45202 U-1 1 fucou12305.txt As filed with the Securities and Exchange Commission on February 3, 2005. File No. 070-_______ SECURITIES AND EXCHANGE COMMISSION 450 FIFTH STREET WASHINGTON, D.C. 20549 ------------------------------------------ APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 -------------------------------------------- CINERGY CORP. 139 East Fourth Street Cincinnati, Ohio 45202 (Name of company filing this statement and address of principal executive offices) CINERGY CORP. (Name of top registered holding company) Wendy L. Aumiller Vice President and Treasurer Cinergy Corp. 139 East Fourth Street Cincinnati, Ohio 45202 (Name and address of agent for service) Applicant requests that the Commission direct communications to: George Dwight II Cinergy Corp. William C. Weeden Associate General Counsel Skadden Arps Slate Meagher & Flom 139 East Fourth Street 1400 New York Avenue, N.W. Cincinnati, Ohio 45202 Washington, D.C. 20005 513-287-2643 (ph) 202-371-7877 (ph) 513-287-3810 (f) 202-371-7012 (f) gdwight@cinergy.com wweeden@skadden.com Item 1. Description of Proposed Transactions A. Introduction Cinergy Corp. ("Cinergy"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"), requests authorization in this Application-Declaration ("Application") to engage in various financing transactions over a multi-year period as described below. Cinergy directly or indirectly owns all the outstanding common stock of public utility companies operating in Ohio, Indiana and Kentucky, the most significant of which are PSI Energy, Inc. ("PSI") and The Cincinnati Gas & Electric Company ("CG&E"). PSI is a vertically integrated electric utility operating in Indiana, serving more than 700,000 customers in portions of 69 of the state's 92 counties. CG&E is a combination electric and gas public utility holding company exempt from registration pursuant to Rule 2(b) that provides electric and gas service in the southwestern portion of Ohio. CG&E's principal subsidiary is The Union Light, Heat and Power Company ("ULH&P" and together with PSI and CG&E, the "Operating Companies"), which provides electric and gas service in northern Kentucky. Cinergy also owns numerous nonutility subsidiaries engaged in businesses authorized under the Act, by Commission order or otherwise, including "exempt wholesale generators," as defined in Section 32 of the Act ("EWGs"), "foreign utility companies," as defined in Section 33 of the Act ("FUCOs"; and collectively with EWGs, "EWG/FUCO Projects"), "exempt telecommunications companies," as defined in Section 34 of the Act, and "energy-related companies," as defined in Rule 58 ("Rule 58 Companies"). The "Cinergy System" or "System" refers collectively to Cinergy and all of its subsidiaries. As of and for the nine months ended September 30, 2004, Cinergy reported consolidated total assets of approximately $14.2 billion and consolidated total operating revenues of approximately $3.5 billion. For further information regarding Cinergy, reference is made to Cinergy's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, June 30 and September 30, 2004 and Cinergy's 2003 Annual Report on Form 10-K. B. Prior Orders By order dated June 23, 2000, HCAR No. 27190 (the "Financing Order"), the Commission authorized Cinergy, subject to the terms and conditions set forth therein, through June 23, 2005: to increase Cinergy's total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) through issuance by Cinergy of any combination of debt and equity securities (including short-term notes, commercial paper, long-term notes, common stock, preferred securities and stock purchase contracts or units) in an aggregate amount not to exceed $5.0 billion; to manage interest rate risk associated with debt securities issued by Cinergy through the use of various instruments; to form special-purpose financing subsidiaries to issue and sell (and engage in related transactions with respect to) any of the authorized equity and debt securities on Cinergy's behalf; to issue guarantees and other credit support on behalf of Cinergy's subsidiaries or otherwise to further Cinergy's business in an aggregate amount not to exceed $2 billion at any time outstanding; and to invest financing proceeds in EWG/FUCO Projects in an aggregate amount not to exceed Cinergy's aggregate investment therein at the date of the Financing Order plus $1 billion. By order dated December 8, 2000, HCAR No. 27295 (the "Stock Plans Order"), the Commission authorized Cinergy to issue and sell up to 50 million shares of its common stock, from time to time through December 8, 2010, under Cinergy's stock-based employee benefit plans. By order dated May 18, 2001, HCAR No. 27400 (the "EWG/FUCO Order" and together with the Financing Order and the Stock Plans Order, the "Prior Orders"), the Commission replaced the EWG/FUCO investment authority granted in the Financing Order, authorizing Cinergy, through June 23, 2005, to apply financing proceeds for an aggregate investment in EWG/ FUCO Projects not to exceed (1) an amount equal to 100 percent of Cinergy's consolidated retained earnings (as defined in Rule 53) plus (2) $2.0 billion.1 C. Overview of Requested Authority In light of the impending expiration of the Financing and EWG/FUCO Orders, Cinergy proposes to replace and supersede the authority granted under the Prior Orders with the financing authority sought herein, with this new authority to become effective upon issuance of the Commission's order. The requested authority will enable Cinergy to continue to respond quickly and efficiently to its financing needs and available conditions in capital markets, thereby benefiting its shareholders and customers. Subject to the further limitations and conditions specified in Sections D, E and F below, Cinergy proposes to undertake the following financing transactions from time to time through December 31, 2008 (the "Authorization Period"), all without further authorization from the Commission, including with respect to the terms of issuance and sale: To increase Cinergy's total capitalization as in effect at September 30, 2004 (excluding retained earnings and accumulated other comprehensive income) by $5.0 billion through the issuance and sale of any combination of the equity and debt securities described below, whether directly or through one or more financing subsidiaries ("Aggregate Financing Limit"). At September 30, 2004, Cinergy's total capitalization (excluding retained earnings and accumulated other comprehensive income) was approximately $3.7 billion. To provide guarantees in an aggregate amount at any time outstanding not to exceed $3.0 billion ("Guarantees Limit"). At September 30, 2004, the aggregate amount of Cinergy's outstanding guarantees was $705 million. To form and utilize special-purpose financing subsidiaries to issue and sell equity and debt securities on Cinergy's behalf. To enter into transactions to manage interest rate and foreign currency exchange rate risk. To invest financing proceeds in EWG/FUCO Projects in an amount not to exceed (1) with respect to EWG/FUCO Projects other than those subject to the Restructuring Limit, an aggregate investment equal to (a) 100% of Cinergy's consolidated retained earnings plus (b) $2.0 billion ("EWG/FUCO Projects Limit"); and (2) solely with respect to the potential transfer of certain of CG&E's generating facilities to one or more EWG associate companies (each, a "Restructuring Subsidiary"), an aggregate investment equal to the net book value of the generating facilities at the time of transfer ("Restructuring Limit"; and together with the EWG/FUCO Projects Limit, the "EWG/FUCO Investments Limit").2 Pending completion of the record, Cinergy requests that the Commission reserve jurisdiction over any investments subject to the Restructuring Limit. D. Financing Parameters Subject to the other limitations and conditions specified in this Application, the following terms and conditions apply, where appropriate, to Cinergy's proposed issuance and sale of securities: 1. Common Equity Ratio At all times during the Authorization Period, Cinergy will maintain common equity (as reflected in Cinergy's most recent quarterly or annual report on Form 10-Q or Form 10-K) equal to at least 30% of Cinergy's consolidated capitalization (i.e., common stock equity, preferred stock equity, long-term debt and short-term debt) , except that, whether or not common equity comprises 30% of Cinergy's consolidated capitalization, Cinergy may issue common stock at any time during the Authorization Period, subject to the other applicable terms and conditions hereof ("Common Equity Condition"). At September 30, 2004, common equity comprised 41.1% of Cinergy's consolidated capitalization. 2. Investment Grade Ratings Except for common stock and securities issued to fund the Cinergy System money pool,3 Cinergy will not issue any guarantees or other securities pursuant to the authority requested in this Application ("Covered Securities") unless (a) the security to be issued, if rated, is rated investment grade by at least one nationally recognized credit rating agency, and (b) all outstanding securities of Cinergy that are rated are rated investment grade by at least one nationally recognized credit rating agency ("Ratings Condition"). At September 30, 2004, Cinergy's outstanding securities that were rated (i.e., senior unsecured debt, commercial paper and preferred trust securities) were rated investment grade by each of the major credit rating agencies (i.e., Fitch Ratings ("Fitch"), Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P")). Cinergy requests that the Commission reserve jurisdiction over Cinergy's issuance of Covered Securities in the event that at any time during the Authorization Period Cinergy does not satisfy the Ratings Condition. 3. Effective Cost of Money on Financings Short-term debt. The interest rate on any series of debt security with a maturity of one year or less will not exceed the competitive market rate available at the time of issuance for securities having reasonably similar terms and conditions issued by similar companies of comparable credit quality ("Comparable Securities"), provided that in no event shall such interest rate exceed 300 basis points over the comparable term London Interbank Offered Rate. Long-term debt. The interest rate on any series of debt security with a maturity greater than one year will not exceed the competitive market rate available at the time of issuance for Comparable Securities, provided that in no event shall such interest rate exceed 500 basis points over the comparable term U.S. Treasury securities or other market-accepted benchmark securities. Preferred securities/Equity-linked securities. The dividend or distribution rate on any series of preferred security or equity-linked security will not exceed the competitive market rate available at the time of issuance for Comparable Securities, provided that in no event shall such dividend or distribution rate exceed 700 basis points over the comparable term U.S. Treasury securities or other market-accepted benchmark securities.. 4. Issuance Expenses The underwriting fees and commissions paid in connection with the issue, sale or distribution of any securities authorized hereunder will not exceed aggregate issuance expenses that are paid at the time in respect of Comparable Securities, provided that in no event shall such issuance expenses exceed seven percent (7%) of the principal or face amount of the securities issued or gross proceeds of the financing. 5. Maturity The maturity of debt securities will not exceed 50 years. Preferred stock or preferred or equity-linked securities (other than perpetual preferred stock) will be redeemed no later than 50 years after the issuance thereof, unless converted into common stock. 6. Use of Proceeds Cinergy will use proceeds from the sale of securities issued pursuant to this Application for any lawful purpose, including but not limited to (a) financing of capital expenditures and working capital requirements of the Cinergy System, including without limitation by means of loans to participating companies in accordance with the terms of the Cinergy System money pool, (b) payment, redemption, acquisition and refinancing of outstanding securities issued by Cinergy, (c) direct or indirect investments in companies or assets the acquisition of which are either exempt under the Act or by Commission rule or have been authorized by the Commission and (d) general corporate purposes. E. Specific Types of Financing 1. Equity Securities a. Common Stock (including Equity-Linked Securities) From time to time over the Authorization Period, subject to the limits and conditions specified in this Application, Cinergy seeks authority to issue and sell additional shares of its common stock and Equity-Linked Securities (as defined below). Cinergy proposes to issue and sell additional shares of its common stock (a) through solicitations of proposals from underwriters or dealers, (b) through negotiated transactions with underwriters or dealers, (c) directly to a limited number of purchasers or to a single purchaser, and/or (d) through agents or other third parties. The price applicable to additional shares sold in any such transaction will be based on several factors, including the current market price of the common stock and prevailing capital market conditions. These transactions may also include forward sales of Cinergy common stock. Cinergy also proposes to issue and sell from time to time options and warrants to acquire its common stock together with other equity-linked securities (collectively, "Equity-Linked Securities"), including but not limited to contracts ("Stock Purchase Contracts") obligating holders to purchase from Cinergy, and/or Cinergy to sell to the holders, a number of shares of Cinergy common stock specified directly or by formula at an aggregate offering price either fixed at the time the Stock Purchase Contracts are issued or determined by reference to a specific formula set forth in the Stock Purchase Contracts. The Stock Purchase Contracts may be issued separately or as part of units ("Stock Purchase Units") consisting of a stock purchase contract and debt and/or preferred securities of Cinergy and/or debt obligations of nonaffiliates, including U.S. Treasury securities, securing holders' obligations to purchase the common stock of Cinergy under the Stock Purchase Contracts. The Stock Purchase Contracts may require holders to secure their obligations thereunder in a specified manner. Cinergy further requests authorization to issue common stock or Equity-Linked Securities as consideration, in whole or part, for acquisitions of securities or assets of businesses of nonaffiliates, the acquisition of which (a) is exempt under the Act or the rules thereunder or (b) has been authorized by prior Commission order issued to Cinergy, subject in either case to applicable limitations on total investments in any such businesses. The shares of Cinergy common stock issued (or, with respect to Equity-Linked Securities, issuable) in connection with any such transaction would be valued at market value based on (i) the closing price on the day before closing of the sale, (ii) average high and low prices for a period prior to the closing of the sale, or (iii) some other method negotiated by the parties. Finally, Cinergy seeks Commission authorization to issue and sell common stock and Equity-Linked Securities in accordance with Cinergy's existing 401(k) plans and other stock-based plans for employees, officers and/or directors, as well as any additional stock-based plans Cinergy may adopt during the Authorization Period. A summary of material terms of Cinergy's existing stock-based plans is set forth in Exhibit H hereto. b. Preferred Securities Subject to the limitations and conditions specified in this Application, Cinergy also proposes to issue and sell preferred securities in one or more series. Preferred securities of any series (a) will have a specified par or stated value or liquidation value per security, (b) will carry a right to periodic cash dividends and/or other distributions, subject among other things, to funds being legally available therefor, (c) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the par or stated or liquidation value thereof, (d) may be convertible or exchangeable into common stock of Cinergy, (e) and may bear such further rights, including voting, preemptive or other rights, and other terms and conditions, as set forth in the applicable certificate of designation, purchase agreement or similar instrument governing the issuance and sale of such series of preferred securities. Preferred securities may be issued in private or public transactions. With respect to private transactions, preferred securities of any series may be issued and sold directly to one or more purchasers in privately negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell the preferred securities without registration under the Securities Act of 1933, as amended (the "Securities Act") in reliance upon one or more applicable exemptions from registration thereunder. From time to time Cinergy may also issue and sell preferred securities of one or more series to the public through (i) underwriters selected by negotiation or competitive bidding or (ii) selling agents acting either as agent or as principal for resale to the public either directly or through dealers. The liquidation preference, dividend or distribution rates, redemption provisions, voting rights, conversion or exchange rights, and other terms and conditions of a particular series of preferred securities, as well as any associated placement, underwriting, structuring or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding and reflected in the applicable certificate of designation, purchase agreement, underwriting agreement or other instrument setting forth such terms. 2. Debt Securities a. Short-Term Notes Subject to the terms and conditions specified in this Application, from time to time over the Authorization Period, Cinergy proposes to make short-term borrowings from banks or other financial institutions. Such borrowings will be evidenced by (a) "transactional" promissory notes to be dated the date of such borrowings and to mature not more than one year after the date thereof or (b) "grid" promissory notes evidencing all outstanding borrowings from the respective lender, to be dated as of the date of the first borrowing evidenced thereby, with each such borrowing maturing not more than one year thereafter. Any such note may or may not be prepayable, in whole or in part, with or without a premium in the event of prepayment. b. Commercial Paper Subject to the limits and conditions specified in this Application, from time to time over the Authorization Period, Cinergy proposes to issue and sell commercial paper through one or more dealers or agents or directly to purchasers. Cinergy proposes to issue and sell the commercial paper at market rates with varying maturities not to exceed 364 days. The commercial paper will be in the form of book-entry unsecured promissory notes with varying denominations of not less than $1,000 each. In commercial paper sales effected on a discount basis, no commission or fee will be payable in connection therewith; however, the purchasing dealer will re-offer the commercial paper at a rate less than the rate to Cinergy. The discount rate to dealers will not exceed the maximum market clearing discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and the same maturity. The purchasing dealer will re-offer the commercial paper in such a manner as not to constitute a public offering within the meaning of the Securities Act. c. Long-Term Notes Subject to the limits and conditions specified in this Application, from time to time over the Authorization Period, Cinergy proposes to issue and sell long-term debt securities ("Notes") in one or more series. Notes of any series may be either senior or subordinated obligations of Cinergy. If issued on a secured basis, Notes would be secured solely by common stock, or other assets or properties, of one or more of Cinergy's nonutility subsidiaries (exclusive of any nonutility subsidiary held by CG&E or PSI). Notes of any series (i) will have maturities greater than one year, (ii) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount thereof, (iii) may be entitled to mandatory or optional sinking fund provisions, and (iv) may be convertible or exchangeable into common stock of Cinergy. Interest accruing on Notes of any series may be fixed or floating or "multi-modal" (i.e., where the interest is periodically reset, alternating between fixed and floating interest rates for each reset period, with all accrued and unpaid interest together with interest thereon becoming due and payable at the end of each such reset period). Notes may be issued under one or more indentures to be entered into between Cinergy and financial institution(s) acting as trustee(s); supplemental indentures may be executed in respect of separate offerings of one or more series of Notes. Notes may be issued in private or public transactions. With respect to the former, Notes of any series may be issued and sold directly to one or more purchasers in privately negotiated transactions or to one or more investment banking or underwriting firms or other entities who would resell the Notes without registration under the Securities Act in reliance upon one or more applicable exemptions from registration thereunder. From time to time Cinergy may also issue and sell Notes of one or more series to the public either (i) through underwriters selected by negotiation or competitive bidding or (ii) through selling agents acting either as agent or as principal for resale to the public either directly or through dealers. The maturity dates, interest rates, redemption and sinking fund provisions, and conversion features, if any, with respect to the Notes of a particular series, as well as any associated placement, underwriting, structuring or selling agent fees, commissions and discounts, if any, will be established by negotiation or competitive bidding and reflected in the applicable indenture or supplement thereto and purchase agreement or underwriting agreement setting forth such terms. 3. Financing Conduits In addition to issuing any of the foregoing debt or equity securities directly, Cinergy requests approval to form one or more subsidiaries that, subject to the limits and conditions of this Application, would (a) issue and sell any of the foregoing securities, (b) lend, distribute or otherwise transfer the proceeds thereof to Cinergy or an entity designated by Cinergy and (c) engage in transactions incidental thereto. The proposed subsidiaries will comprise one or more financing subsidiaries (each, a "Financing Subsidiary") and one or more special-purpose entities (each, a "Special-Purpose Entity," and together with Financing Subsidiaries, "Financing Conduits"). In either case the subsidiaries' businesses will be limited to issuing and selling securities on behalf of Cinergy and transactions incidental thereto; the subsidiaries will have no substantial physical assets or properties. Any securities issued by the Financing Conduits may be guaranteed by Cinergy, either directly or ultimately. Cinergy would acquire shares of common stock or other equity interests of a Financing Subsidiary for an amount not less than the minimum required by applicable law. The business of a Financing Subsidiary will be limited to effecting financing transactions with third parties for the benefit of Cinergy and its subsidiaries. As an alternative in a particular instance to Cinergy directly issuing debt or equity securities, or through a Special-Purpose Entity, Cinergy may determine to use a Financing Subsidiary as the nominal issuer of the particular debt or equity security. In that circumstance, Cinergy may provide a guarantee or other credit support with respect to the securities issued by the Financing Subsidiary, the proceeds of which would be lent, distributed or otherwise transferred to Cinergy or an entity designated by Cinergy. One of the primary strategic reason behind the use of a Financing Subsidiary would be to segregate financings for the different businesses conducted by Cinergy, distinguishing between securities issued by Cinergy to finance its investments in nonutility businesses from those issued to finance its investments in the core utility business. A separate Financing Subsidiary may be used by Cinergy with respect to different types of nonutility businesses. Cinergy would use Special-Purpose Subsidiaries in connection with certain financing structures for issuing debt or equity securities, in order to achieve a lower cost of capital, or incrementally greater financial flexibility or other benefits, than would otherwise be the case. 4. Certain Risk Management Instruments Cinergy also requests authority to manage interest rate and foreign currency exchange rate risk through the entry into, purchase and sale of various risk management instruments commonly used in capital markets, such as interest rate and currency swaps, caps, collars, floors, options, warrants, forwards, futures, forward issuance agreements and similar products designed to manage such risks (collectively, "Derivative Instruments"). Cinergy will enter into Derivative Instruments (either directly or through Financing Conduits) only with counterparties ("Authorized Counterparties") whose senior debt, at the date of entry into the Derivative Instrument, is rated investment grade by at least one nationally recognized credit rating agency. The Derivative Instruments will be for fixed periods and the notional principal amount will not exceed the principal amount of the underlying security, except to the extent necessary to adjust for differing price movements between the underlying security and the Derivative Instrument or to allow for the fees related to the transaction. Cinergy will not engage in "leveraged" or "speculative" derivative transactions. Fees and commissions payable by Cinergy in connection with any Derivative Instrument will not exceed the then-current market level. In respect of all Derivative Instruments, Cinergy will comply with Statement of Financial Accounting Standards ("SFAS") 133, as amended ("Accounting for Derivative Instruments and Hedging Activities"), together with such other standards, if any, relating to accounting for derivative transactions as may, over the course of the Authorization Period, be adopted and implemented by the Financial Accounting Standards Board ("FASB"). Cinergy will designate certain of the Derivative Instruments authorized hereunder as either fair value or cash flow hedges pursuant to SFAS 133 and as determined at the date of entry into the respective Derivative Instruments. In addition, as explained in Exhibit J, Cinergy will enter into certain Derivative Instruments that will not receive hedge accounting treatment. 5. Guarantees Subject to the limits and conditions specified in this Application, from time to time over the Authorization Period, Cinergy requests authority to guarantee, obtain letters of credit, enter into financing arrangements and otherwise provide credit support (each, a "Guarantee") in respect of the debt or other securities or obligations of any or all of Cinergy's subsidiary or associate companies (including any thereof formed or acquired at any time over the Authorization Period), and otherwise to further the business of Cinergy. The terms and conditions of any Guarantees, and the underlying liabilities covered thereby, would be established at arm's length based upon market conditions. Cinergy may charge a fee to the subsidiary on whose behalf Cinergy issues a Guarantee. Any such fee will not exceed a reasonable estimate of the costs, if any, that would have been incurred by the subsidiary in obtaining the liquidity necessary to perform under the Guarantee for the period it remains outstanding. The total amount of Guarantees outstanding at any one time will be limited not only by the Guarantees Limit, but also, where issued in respect of EWGs or FUCOs or Rule 58 Companies, by the investment limitations specified under Rules 53 and 58 and applicable Commission orders, including the order requested hereby. From time to time Cinergy may issue Guarantees in respect of obligations that are not susceptible to exact quantification. In these cases, Cinergy will determine its exposure under the Guarantees, for purposes of measuring compliance with the Guarantees Limit (and any applicable investment limits under Rules 53 and 58), by appropriate means, including estimation of exposure based on loss experience or projected potential payment amounts under the underlying obligation. If appropriate, these estimates will be made in accordance with generally accepted accounting principles. These estimates will be re-evaluated periodically. As discussed above, where Cinergy issues debt or equity securities authorized hereunder via Financing Conduits, Cinergy may provide a Guarantee in respect of the payment and other obligations of the Financing Conduit under the securities issued by it. Given that any securities nominally issued by a Financing Conduit are in substance securities issued by Cinergy itself, any securities issued by a Financing Conduit would count dollar-for-dollar against the Aggregate Financing Limit. Conversely, any Guarantees of securities of Financing Conduits should be excluded entirely from the Guarantees Limit, since inclusion thereof would amount to "double counting," in effect penalizing Cinergy for using Financing Conduits. F. EWG/FUCO Investments Limit Subject to the limits and conditions specified in this Application, Cinergy also requests authority to issue and sell securities for the purpose of funding investments in EWGs and FUCOs in an amount not to exceed the EWG/FUCO Investments Limit. The EWG/FUCO Investments Limit is comprised of two separate investment limits, the EWG/FUCO Projects Limit and the Restructuring Limit, permitting respective aggregate investments as follows. 1. EWG/FUCO Projects Limit. With respect to EWG/FUCO Projects other than those subject to the Restructuring Limit, an aggregate investment not to exceed (a) 100% of Cinergy's consolidated retained earnings plus (b) $2.0 billion. 2. Restructuring Limit. Solely with respect to the potential transfer of certain of CG&E's generating facilities to one or more Restructuring Subsidiaries, an aggregate investment in such Restructuring Subsidiaries not to exceed the net book value of any such transferred generating facilities at the date of transfer. With respect to the Restructuring Limit, the net book value of CG&E's generating facilities at September 30, 2004 (excluding certain generating facilities to be transferred to ULH&P)4 was approximately $1,544 million, including construction work in progress of $44 million. Ohio is the only state in the three-state region in which Cinergy's utilities operate that has enacted electric restructuring legislation. This legislation went into effect in January 2001, deregulating electric generation and supply and giving Ohio retail customers the right to choose electric suppliers.5 In light of this legislation, and of the possibility that CG&E may determine to transfer one or more of its generating facilities to one or more Restructuring Subsidiaries during the Authorization Period, Cinergy has included the Restructuring Limit as part of its overall proposal regarding EWG/FUCO investments. Pending completion of the record, however, Cinergy requests that the Commission reserve jurisdiction over the Restructuring Limit, including any potential investments in Restructuring Subsidiaries. Rule 53 provides that in determining whether to approve certain financing transactions for the purpose of investments in EWGs,6 the Commission will not make certain adverse findings if, among other conditions, the conditions of Rule 53(a) are met. Rule 53(a) provides a "safe harbor" for such investments where the aggregate amount thereof does not exceed 50% of consolidated retained earnings. Cinergy currently does not, and under the EWG/FUCO Investments Limit would continue not to, satisfy this safe harbor. At September 30, 2004, Cinergy's aggregate investment in EWG/FUCO Projects was approximately $852 million. This amount equals approximately 55% of Cinergy's consolidated retained earnings at September 30, 2004 (approximately $1,554 million), which exceeds the Rule 53(a) 50% safe harbor, but is well below the significantly higher level permitted by the EWG/FUCO Order. Since the contemplated investment level under the EWG/FUCO Investments Limit is greater than that permitted under the Rule 53(a) safe harbor, Cinergy is obliged under its proposal to satisfy the test specified in Rule 53(c), namely, that its proposal: "[w]ill not have substantial adverse impact upon the financial integrity of the registered holding company system;"7 and "[w]ill not have an adverse impact on any utility subsidiary of the registered holding company system, or its customers, or on the ability of state commissions to protect such subsidiary or customers."8 Cinergy demonstrates that its proposal satisfies Rule 53(c) in Exhibit I. Item 2. Fees, Commissions and Expenses In addition to the fee information set forth above with respect to the proposed financing transactions, the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, by the Applicant or any associate company thereof in connection with the preparation and filing of this Application are estimated not to exceed approximately $3,000, consisting chiefly of fees for outside legal counsel. Item 3. Applicable Statutory Provisions Sections 6(a), 7, 9(a), 10, 12, 32 and 33 of the Act and Rules 45 and 53 are or may be applicable to the proposed transactions. Cinergy's analysis with respect to Rule 53 is set forth in Exhibit I. Item 4. Regulatory Approval No state or federal commission, other than this Commission, has jurisdiction over the proposed transactions. Item 5. Procedure Applicant requests that the Commission publish in the Federal Register a public notice with respect to this Application by not later than February 25, 2005 and an order granting and permitting this Application to become effective not later than April 15, 2005. Applicant waives a recommended decision by a hearing officer or other responsible officer of the Commission; consents that the Staff of the Division of Investment Management may assist in the preparation of the Commission's order; and requests that there be no waiting period between the issuance of the Commission's order and its effectiveness. Pursuant to rule 24 under the Act, within 60 days after the end of each calendar quarter commencing with the first full calendar quarter following the Commission's order herein, Cinergy will file a quarterly certificate with the Commission containing the following information (in each case as of the end of the calendar quarter just completed, except as otherwise noted): 1. With respect to the EWG/FUCO Projects Limit: a. A computation in accordance with rule 53(a) setting forth Cinergy's consolidated retained earnings and aggregate investment, together with a calculation of remaining capacity under the EWG/FUCO Projects Limit; b. A breakdown showing Cinergy's aggregate investment in each individual EWG or FUCO; c. Cinergy's consolidated capitalization ratios, in terms of debt, common equity and preferred stock; d. The market-to-book ratio of Cinergy's common stock; e. Identification of any new EWG or FUCO projects in which Cinergy invested or committed to invest during the preceding quarter; f. Growth in consolidated retained earnings, segregating total earnings growth attributable to EWGs and FUCOs from that attributable to all other subsidiaries of Cinergy; and g. Year-to-date revenues and net income of each EWG or FUCO in which Cinergy has an interest. 2. With respect to the securities issuance authority proposed herein: a. Summary information concerning any securities issued during the preceding calendar quarter pursuant to the authority requested herein, including Cinergy's relative position as of the end of the quarter under the Aggregate Financing Limit and the Guarantees Limit, together with a representation confirming that Cinergy has met the applicable terms and conditions as set forth in subparts C, D and E of Item 1. Item 6. Exhibits and Financial Statements (a) Exhibits F-1 Preliminary opinion of counsel G Proposed form of public notice H Description of Cinergy System stock-based plans I Rule 53(c) Analysis J Hedge Accounting Exhibit (b) Financial Statements FS-1 Consolidated balance sheet of Cinergy as of September 30, 2004 (filed as a part of and hereby incorporated by reference from Cinergy's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004). FS-2 Consolidated statement of income of Cinergy for the nine months ended September 30, 2004 (filed as a part of and hereby incorporated by reference from Cinergy's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004). Item 7. Information as to Environmental Effects (a) The Commission's action in this matter will not constitute any major federal action significantly affecting the quality of the human environment. (b) No other federal agency has prepared or is preparing an environmental impact statement with regard to the proposed transactions. SIGNATURE Pursuant to the requirements of the Act, the undersigned company has duly caused this Application to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 3, 2005 CINERGY CORP. By: /s/Christopher J. Vogt Christopher J. Vogt Manager, Corporate Finance and Financial Risk Management 1 The EWG/FUCO Order reserved jurisdiction over Cinergy's proposal for additional investment capacity under Rule 53 to accommodate the potential transfer of state-deregulated electric generating facilities owned by one or more of Cinergy's public utility subsidiaries to one or more EWG associate companies established for that purpose. 2 As used herein, "aggregate investment" and "consolidated retained earnings" have the meanings specified in Rule 53(a)(1). 3 The Cinergy System money pool is a short-term borrowing arrangement that assists in managing available cash and financing the working capital requirements of Cinergy's utility subsidiaries. See Cinergy Corp., et al., HCAR No. 27429, Aug. 2, 2001. 4 See HCAR No. 27940, Jan. 21, 2004 (notice with respect to declaration filed by Cinergy and CG&E in File No. 70-10254). 5 Ohio Rev. Code Ann. ss. 4928.01 et seq. 6 The Commission has held that these same standards apply to registered holding company investments in FUCOs. 7 See Rule 53(c)(1). 8 See Rule 53(c)(2). EX-99 2 fucou1exhi.txt EXHIBIT I EWG/FUCO INVESTMENTS LIMIT In the accompanying Application,1 Cinergy requests Commission authorization to issue and sell securities for (among other purposes) investments in EWG/FUCO Projects in an aggregate amount not to exceed the EWG/FUCO Investments Limit.2 Since the total investment contemplated by Cinergy's proposal exceeds the Rule 53(a) safe harbor, Cinergy must satisfy the more exacting criteria of Rule 53(c), namely, that its proposal: will not have a substantial adverse impact upon the financial integrity of the registered holding company system; and will not have an adverse impact on any utility subsidiary of the registered holding company system or its customers, or on the ability of state commissions to protect such subsidiary or customers. For the following reasons, Cinergy's proposal will not produce any such impacts. 1. Financing Parameters; Reasonable Relative Size of Proposed Investment Authority The financing parameters specified in Item 1.D of the Application are important safeguards to help ensure that any investments of authorized financing proceeds in EWG/FUCO Projects will not adversely impact the financial integrity of the Cinergy System. Of special relevance here, Cinergy would be precluded from issuing or selling any of the requested securities, other than common stock, for such investments if at the time in question Cinergy did not satisfy both the Common Equity Condition and the Ratings Condition. Currently, Cinergy's financial condition is strong. For example, at September 30, 2004, common equity comprised 41.1% of Cinergy's consolidated capitalization, and Cinergy's outstanding securities that were rated (senior unsecured debt, commercial paper and preferred trust securities) were rated investment grade by Fitch, Moody's and S&P. Moreover, the requested authority of 100% of consolidated retained earnings plus $2.0 billion is reasonable in terms of size, taking into account benchmarks looked to by the Commission in granting similar requests by other registered holding companies. At September 30, 2004, the proposed investment authority represented 39% of Cinergy's consolidated capitalization, 25% of Cinergy's consolidated assets and 50% of the aggregate market value of Cinergy's common stock.3 2. Project Review Process/Risk Mitigation At Cinergy, proposed investments in EWGs and FUCOs undergo a disciplined investment review process to assure that the risks associated with these investments are identified and appropriately mitigated, while at the same time serving Cinergy's overall strategic goals. Every proposed EWG/FUCO Project undergoes a series of reviews or screens (a) by project managers responsible for identifying business opportunities and by the business unit president to which those managers ultimately report and (b) depending on the dollar amount of the proposed investment or other relevant factors, by one or more committees of senior management and Cinergy's Board of Directors. Cinergy's Board of Directors reviews all proposed investments in excess of $25 million. Cinergy strives to ensure that proposed EWG/FUCO Projects will contribute to Cinergy's overall growth, building upon Cinergy's strengths and resources to achieve broad corporate objectives within budgeting and expenditure guidelines. Thus, in reviewing each potential investment, the applicable project managers focus their review not only on whether the particular project satisfies Cinergy's investment criteria and is reasonably anticipated to generate earnings commensurate with risk, but also on whether the project advances Cinergy's strategic objectives. Potential investments are evaluated against a number of criteria including (i) economic viability of the project, (ii) political and regulatory risk, (iii) availability of non-recourse financing on reasonable terms and (iv) (as noted in the preceding paragraph) strategic fit. Analysis of the economic viability of the project includes an analysis of the overall industry environment in which the project will operate; the ability of the project to produce electricity at or below long-run marginal costs in the competitive region; and the creditworthiness of potential power purchasers and other project counterparties. Analysis of political and regulatory risks involves careful review of changing political and regulatory regimes as well as long-term economic stability in the competitive region. The analysis also includes review of permitting and environmental risks and legal risk associated with the ability to enforce contracts relating to the project and its financing. Cinergy's risk mitigation measures include structural separation of project investments; maintenance of a diverse project mix (including, e.g., both greenfield projects and acquisitions of existing plants); geographic diversity; risk sharing with joint venturers; fuel diversity; and up-front and ongoing consideration of an appropriate "exit" strategy (i.e., eventual sale of all or a portion of the investment, on acceptable terms and conditions, if circumstances warrant). Cinergy obtained non-recourse debt financing to fund a significant amount of the purchase price of its largest EWG/FUCO investment, its 1996 acquisition of 50% ownership of Midlands Electricity plc, a UK retail electricity company. Cinergy sold its interest in Midlands in 1999 at a substantial profit. Cinergy's principal EWG/FUCO investments have been, and will continue to be, in well-established, growing, and fundamentally stable energy markets, such as the United States and western Europe. 3. Financial Performance/Rule 53(b) Cinergy has made significant and regular investments in EWGs and FUCOs since becoming a registered holding company in 1994. During that ten-year period, Cinergy has suffered none of the adverse conditions specified in Rule 53(b). Specifically, (i) neither Cinergy nor any subsidiary thereof having assets with a book value exceeding an amount equal to 10% or more of Cinergy's consolidated retained earnings has been the subject of a bankruptcy or similar proceeding; (ii) there has been no decrease by 10% or more in the average of Cinergy's consolidated retained earnings for the four most recent quarterly periods as compared to the same average for the preceding four quarterly periods; and (iii) Cinergy has not incurred operating losses attributable to its direct or indirect investments in EWG/FUCO Projects in excess of 5% of Cinergy's consolidated retained earnings. Cinergy will promptly notify the Commission by post-effective amendment in this matter should any of these circumstances occur. 4. Operating Company Protections Nor will Cinergy's proposal to issue and sell securities and invest proceeds in EWGs and FUCOs in an amount not to exceed the EWG/FUCO Investments Limit result in any adverse impact on the Operating Companies (PSI, CG&E and ULH&P), their customers or the ability of the applicable state commissions to protect those subsidiaries and their customers. In the first place, any losses in connection with investments in EWGs and FUCOs would have no direct effect on the wholesale or retail electric or gas rates of the Operating Companies. The Operating Companies operate in states whose public utility commissions -- the Indiana, Ohio and Kentucky public utility commissions -- exercise extensive general supervisory authority over utilities subject to their jurisdiction, including with respect to rates and cost of service matters. These commissions have the authority to establish rates for regulated public utility service based upon a rate of return determined to be fair by the state commission. Second, additional project investments will not have a negative impact on the Operating Companies' ability to fund their operations, since the Operating Companies do not depend on Cinergy for capital. While Cinergy has elected from time to time to make capital contributions to the Operating Companies in support of initiatives to improve balance sheet strength, the Operating Companies act independently to finance their capital needs either through their own internal funds or from proceeds of external financings undertaken by them. The Operating Companies' financial condition is strong, as is evidenced by (among other benchmarks) current credit ratings. At September 30, 2004, all of the outstanding securities of the Operating Companies that were rated carried investment grade ratings by each of Fitch, Moody's and S&P. Third, other than possibly in connection with the Restructuring Subsidiaries, (x) no Operating Company has issued or will issue any security for the purpose of financing the acquisition, ownership or operation of any EWG/FUCO Project in which Cinergy has invested or will invest; (y) no Operating Company has assumed or will assume any obligation or liability as guarantor, endorser, surety or otherwise in respect of any security issued by any EWG or FUCO in which Cinergy has invested or will invest; and (z) no Operating Company has pledged or encumbered or will pledge or encumber any part of its utility assets for the benefit of an associate EWG or FUCO. Fourth, with regard to any potential transfer of CG&E generating facilities to Restructuring Subsidiaries, any such transaction will conform in all respects to the requirements of section 32 of the Act, including in particular the requirement for certain enumerated findings from the Ohio, Indiana and Kentucky public utility commissions as a condition to such transfer. Finally, Cinergy has complied and will continue to comply with the other conditions of Rule 53(a) conferring specific protections on customers of the Operating Companies and their state commissions, namely, (a) the requirements of Rule 53(a)(2) regarding the preparation and making available of books and records and financial reports regarding EWG/FUCO Projects; (b) the requirements of Rule 53(a)(3) regarding the limitation on the use of Operating Company employees in connection with providing services to EWG/FUCO Projects; and (c) the requirement of Rule 53(a)(4) regarding filing of copies of applications and reports. 1 Capitalized terms have the meanings assigned in the Application. 2 In the Application, Cinergy requests that the Commission reserve jurisdiction over that part of the overall request identified as the "Restructuring Limit." 3 See Northeast Utilities, et al., HCAR No. 27868A (July 2, 2004), which includes a chart comparing EWG/FUCO investment authority for several registered holding companies, with the range for such investment authority as a percentage of (i) consolidated capitalization being between 11.0% and 49.1%, (ii) consolidated assets being between 8.6% and 33.0%, and (iii) market value of outstanding common stock being between 7.8% and 60.1%. EX-99 3 fucou1exhj.txt EXHIBIT J As noted in the accompanying Application, Cinergy accounts for Derivative Instruments under SFAS 133, which requires that all derivatives, subject to certain exceptions, be accounted for at fair value. Changes in a derivative's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. To qualify for hedge accounting, derivatives must be designated as a hedge and must be effective at reducing the risk associated with the hedged item. Hedge accounting aligns the accounting treatments of the derivative (fair value accounting) with the hedged item (accrual accounting) to minimize variability in reported results. A basic example of hedge accounting is the use of Derivative Instruments to manage exposure to fluctuations in interest rates related to debt instruments. Cinergy accounts for its debt instruments under accrual accounting. Cinergy would typically designate these Derivative Instruments as accounting hedges, either cash flow hedges or fair value hedges, in accordance with the provisions of SFAS 133. In some instances, the hedge accounting designation is not desirable for the risk being hedged. For example, Cinergy engages in derivative activities in connection with the System's energy marketing businesses. Cinergy accounts for all energy marketing derivatives at fair value. Cinergy currently enters into and anticipates continuing to hold foreign currency Derivative Instruments to hedge the risk of fluctuating foreign exchange rates in respect of certain System energy marketing activities that are denominated in currencies other than the U.S. Dollar. In addition, Cinergy may enter into interest rate derivatives to hedge the risk of changing interest rates in connection with the System's energy marketing activities. Since (unlike in the case of the debt instrument hedging noted above) the hedged items (i.e., the energy marketing contracts) already follow fair value accounting, there is no "mismatch" between the accounting for the hedged item and the Derivative Instrument (e.g., the foreign currency swap). Accordingly, since hedge accounting is not applicable in these circumstances, Cinergy would not typically designate the Derivative Instruments in this example as accounting hedges. Summary Cinergy believes that the use of certain Derivative Instruments mitigates System exposure to interest rate and/or foreign currency risk. Cinergy appropriately applies the accounting provisions of SFAS 133 to these Derivative Instruments. In some derivative transactions, hedge designation is preferable to align the accounting treatment between the hedged item and the Derivative Instrument. In other derivative transactions, the hedge designation is not preferable because the hedged item and Derivative Instrument already follow the same accounting treatment. Both of these scenarios are valid, widely practiced risk hedging solutions and important tools in an effective risk mitigation strategy. EX-99 4 fucou1exhg.txt Exhibit G Form of Notice Securities and Exchange Commission (Release No. 35-_________) Cinergy Corp, a registered holding company ("Cinergy"), with offices at 139 East Fourth Street, Cincinnati, Ohio 45202, has filed an application-declaration under Sections 6(a), 7, 9(a), 10, 11(b)(1), 12, 32 and 33 of the Act and Rules 45 and 53 thereunder. Cinergy requests authorization to engage in various financing transactions over a multi-year period as described below. Cinergy directly or indirectly owns all the outstanding common stock of public utility companies operating in Ohio, Indiana and Kentucky, the most significant of which are PSI Energy, Inc. ("PSI") and The Cincinnati Gas & Electric Company ("CG&E"). PSI is a vertically integrated electric utility operating in Indiana, serving more than 700,000 customers in portions of 69 of the state's 92 counties. CG&E is a combination electric and gas public utility holding company exempt from registration pursuant to Rule 2(b) that provides electric and gas service in the southwestern portion of Ohio. CG&E's principal subsidiary is The Union Light, Heat and Power Company ("ULH&P" and together with PSI and CG&E, the "Operating Companies"), which provides electric and gas service in northern Kentucky. Cinergy also owns numerous nonutility subsidiaries engaged in businesses authorized under the Act, by Commission order or otherwise, including "exempt wholesale generators," as defined in Section 32 of the Act ("EWGs"), "foreign utility companies," as defined in Section 33 of the Act ("FUCOs"; and collectively with EWGs, "EWG/FUCO Projects"), "exempt telecommunications companies," as defined in Section 34 of the Act, and "energy-related companies," as defined in Rule 58 ("Rule 58 Companies"). The "Cinergy System" or "System" refers collectively to Cinergy and all of its subsidiaries. As of and for the nine months ended September 30, 2004, Cinergy reported consolidated total assets of approximately $14.2 billion and consolidated total operating revenues of approximately $3.5 billion. By order dated June 23, 2000, HCAR No. 27190 (the "Financing Order"), the Commission authorized Cinergy, subject to the terms and conditions set forth therein, through June 23, 2005: (1) to increase Cinergy's total capitalization at December 31, 1999 (excluding retained earnings and accumulated other comprehensive income) through issuance by Cinergy of any combination of debt and equity securities (including short-term notes, commercial paper, long-term notes, common stock, preferred securities and stock purchase contracts or units) in an aggregate amount not to exceed $5.0 billion; (2) to manage interest rate risk associated with debt securities issued by Cinergy through the use of various instruments; (3) to form special-purpose financing subsidiaries to issue and sell (and engage in related transactions with respect to) any of the authorized equity and debt securities on Cinergy's behalf; (4) to issue guarantees and other credit support on behalf of Cinergy's subsidiaries or otherwise to further Cinergy's business in an aggregate amount not to exceed $2 billion at any time outstanding; and (5) to invest financing proceeds in EWG/FUCO Projects in an aggregate amount not to exceed Cinergy's aggregate investment therein at the date of the Financing Order plus $1 billion. By order dated December 8, 2000, HCAR No. 27295 (the "Stock Plans Order"), the Commission authorized Cinergy to issue and sell up to 50 million shares of its common stock, from time to time through December 8, 2010, under Cinergy's stock-based employee benefit plans. By order dated May 18, 2001, HCAR No. 27400 (the "EWG/FUCO Order" and together with the Financing Order and the Stock Plans Order, the "Prior Orders"), the Commission replaced the EWG/FUCO investment authority granted in the Financing Order, authorizing Cinergy, through June 23, 2005, to apply financing proceeds for an aggregate investment in EWG/ FUCO Projects not to exceed (1) an amount equal to 100 percent of Cinergy's consolidated retained earnings (as defined in Rule 53) plus (2) $2.0 billion.1 In light of the impending expiration of the Financing and EWG/FUCO Orders, Cinergy proposes to replace and supersede the authority granted under the Prior Orders with the financing authority sought in the instant application, with this new authority to become effective upon issuance of the Commission's order. Cinergy states that the requested authority will enable Cinergy to continue to respond quickly and efficiently to its financing needs and available conditions in capital markets, thereby benefiting its shareholders and customers. Subject to various limitations and conditions specified in the application, Cinergy proposes to undertake the following financing transactions from time to time through December 31, 2008 (the "Authorization Period"): (a) to increase Cinergy's total capitalization as in effect at September 30, 2004 (excluding retained earnings and accumulated other comprehensive income) by $5.0 billion through the issuance and sale of any combination of the equity and debt securities described below, whether directly or through one or more financing subsidiaries ("Aggregate Financing Limit"); (b) to provide guarantees in an aggregate amount at any time outstanding not to exceed $3.0 billion ("Guarantees Limit"); (c) to form and utilize special-purpose financing subsidiaries to issue and sell equity and debt securities on Cinergy's behalf; (d) to enter into transactions to manage interest rate and foreign currency exchange rate risk; and (e) to invest financing proceeds in EWG/FUCO Projects in an amount not to exceed (1) with respect to EWG/FUCO Projects other than those subject to the Restructuring Limit, an aggregate investment equal to (a) 100% of Cinergy's consolidated retained earnings plus (b) $2.0 billion ("EWG/FUCO Projects Limit"); and (2) solely with respect to the potential transfer of certain of CG&E's generating facilities to one or more EWG associate companies (each, a "Restructuring Subsidiary"), an aggregate investment equal to the net book value of the generating facilities at the time of transfer ("Restructuring Limit"; and together with the EWG/FUCO Projects Limit, the "EWG/FUCO Investments Limit"). Pending completion of the record, Cinergy requests that the Commission reserve jurisdiction over any investments subject to the Restructuring Limit. The fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, by the Applicant or any associate company thereof in connection with the proposed transactions are estimated not to exceed approximately $3,000, consisting chiefly of fees for outside legal counsel. No state or federal commission, other than this Commission, has jurisdiction over the proposed transactions. For the Commission, by the Division of Investment Management, pursuant to delegated authority. 1 The EWG/FUCO Order reserved jurisdiction over Cinergy's proposal for additional investment capacity under Rule 53 to accommodate the potential transfer of state-deregulated electric generating facilities owned by one or more of Cinergy's public utility subsidiaries to one or more EWG associate companies established for that purpose. EX-99 5 fucou1exhf1.txt EXHIBIT F-1 February 3, 2005 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Cinergy Corp. Application-Declaration on Form U-1 (File No. 70-________) Ladies and Gentlemen: I am Associate General Counsel for Cinergy Corp., a Delaware corporation ("Cinergy" or "Applicant"), and its subsidiaries. This opinion letter is an exhibit to the above-referenced application-declaration on Form U-1 (the "Application") filed today under the Public Utility Holding Company Act of 1935, as amended (the "Act"). In connection with this opinion letter, I have reviewed the Application and such other documents and made such other investigation as I consider appropriate. Based on the foregoing and subject to the other paragraphs hereof, I express the following opinions: 1. All state laws applicable to the proposed transactions will be complied with. 2. The Applicant will legally acquire any securities or assets of any companies acquired pursuant to the proposed transactions. 3. The consummation of the proposed transactions will not violate the legal rights of the holders of any securities issued by Cinergy or any associate company thereof. The foregoing opinions presume that the proposed transactions will be consummated in accordance with the Application and all legal requirements and authorizations applicable thereto, including, without limitation, the Commission's order requested therein and any internal corporate authorizations. I am admitted to the Bars of the States of New York and Ohio. The foregoing opinions are limited to the laws of such states and the Delaware General Corporation Law. I hereby consent to the Commission's use of this opinion letter in connection with the Application. This opinion letter may not be used for any other purpose or relied on by or furnished to any other party without my prior written consent. Very truly yours, /s/ George Dwight II EX-99 6 fucou1exhh.txt EXHIBIT H CINERGY SYSTEM STOCK-BASED PLANS Cinergy Corp. and its subsidiaries have the following stock-based plans: Cinergy Corp. 1996 Long-Term Incentive Compensation Plan; Stock Option Plan; Employee Stock Purchase and Savings Plan; 401(k) Plans; UK Sharesave Scheme; Retirement Plan for Directors; Directors' Equity Compensation Plan; and Directors' Deferred Compensation Plan. 1. Long-Term Incentive Compensation Plan The Cinergy Corp. 1996 Long-Term Incentive Compensation Plan ("LTIP") was originally adopted in 1996 and was subsequently amended effective January 2002. Under this plan, certain key employees may be granted incentive and non-qualified stock options, stock appreciation rights (SARs), restricted stock, dividend equivalents, the opportunity to earn performance-based shares and certain other stock-based awards. Stock options are granted to participants with an option price equal to or greater than the fair market value on the grant date, and generally with a vesting period of either three or five years. The vesting period begins on the grant date, and all options expire within 10 years from that date. The number of shares of common stock issuable under the LTIP is limited to a total of 14.5 million shares. 2. Stock Option Plan The Stock Option Plan ("SOP") is designed to align executive compensation with shareholder interests. Under the SOP, incentive and non-qualified stock options, SARs, and SARs in tandem with stock options may be granted to key employees, officers, and outside directors. The activity under this plan has predominantly consisted of the issuance of stock options. Options are granted with an option price equal to the fair market value of the shares on the grant date. Options generally vest over five years at a rate of 20 percent per year, beginning on the grant date, and expire 10 years from the grant date. The total number of shares of common stock issuable under the SOP may not exceed 5,000,000 shares. No incentive stock options may be granted under the plan after October 24, 2004. 3. Employee Stock Purchase and Savings Plan The Employee Stock Purchase and Savings Plan allows essentially all full-time, regular employees to purchase shares of common stock pursuant to a stock option feature. Under the Employee Stock Purchase and Savings Plan, after-tax funds are withheld from a participant's compensation during a 26-month offering period and are deposited in an interest-bearing account. At the end of the offering period, participants may apply amounts deposited in the account, plus interest, toward the purchase of shares of common stock. The purchase price is equal to 95 percent of the fair market value of a share of common stock on the first date of the offering period. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant's employment ceases. Upon termination of participation, all funds, including interest, are returned to the participant without penalty. The sixth offering period began May 1, 2001, and ended June 30, 2003, with 168,101 shares purchased and the remaining cash distributed to the respective participants. The purchase price for all shares under this offering was $32.78. The total number of shares of common stock issuable under the Employee Stock Purchase and Savings Plan may not exceed 2,000,000. 4. 401(k) Plans Cinergy sponsors 401(k) employee retirement plans (the Cinergy Corp. Non-Union Employees' 401(k) Plan, the Cinergy Corp. Union Employees' 401(k) Plan, and the Cinergy Corp. Union Employees' Savings Incentive Plan) that cover substantially all U.S. employees. Employees can contribute up to 50 percent of pre-tax base salary (subject to Internal Revenue Service limits) and up to 15 percent of after-tax base salary. Cinergy makes matching contributions to these plans in the form of Cinergy Corp. common stock, contributing 100 percent of the first three percent of an employee's pre-tax contributions plus 50 percent of the next two percent of an employee's pre-tax contributions. Employees are immediately vested in both their contributions and Cinergy's matching contributions. Cinergy also makes profit-sharing contributions to these plans in the form of common stock on behalf of 401(k) plan participants who elect to participate in a cash balance feature of a Cinergy-sponsored defined benefit pension plan. The amount of these profit-sharing contributions varies depending upon company performance, and they are subject to a 3-year cliff vesting schedule. 5. UK Sharesave Scheme The Cinergy Corp. UK Sharesave Scheme allows essentially all full-time, regular United Kingdom employees working a minimum of 25 hours per week to purchase shares of common stock pursuant to a stock option feature. Under the Cinergy Corp. UK Sharesave Scheme, after-tax funds are withheld from a participant's compensation during a 36-month or 60-month offering period, at the election of the participants, and are deposited in an account. At the end of the offering period, participants may apply amounts deposited in the account toward the purchase of shares of common stock. The purchase price cannot be less than 80 percent of the average market price at date of grant or shortly prior to the grant. Any funds not applied toward the purchase of shares are returned to the participant. A participant may elect to terminate participation in the plan at any time. Participation also will terminate if the participant's employment ceases. Upon termination of participation, all funds are returned to the participant without penalty although, in certain specified circumstances, options may be exercised early on a pro-rata basis. 6. Retirement Plan for Directors The Retirement Plan for Directors, which provides certain retirement benefits to eligible non-employee directors, was frozen effective December 31, 1998. Benefits under the plan are payable on the first business day of February each year, beginning with the February following the later of the date the individual ceases to be a director or the date he or she attains age 55. The benefits are payable in shares of common stock and cash. 7. Directors' Equity Compensation Plan Under the Directors' Equity Compensation Plan, each non-employee director receives an annual credit to his or her account of a cash award (equal to 450 stock units) or a stock award (equal to 450 shares), as determined by the Cinergy Corp. Board of Directors in its discretion. Until distributed, cash awards earn interest and stock awards earn dividends. The awards are payable beginning on the first business day of the calendar year immediately following his or her termination as a director. Cash awards are payable in cash and stock awards are payable in shares of common stock. The total number of shares of common stock that can be issued or transferred in connection with the plan cannot exceed 75,000 shares. 8. Directors' Deferred Compensation Plan The Directors' Deferred Compensation Plan allows each non-employee director to elect to defer receipt of all or a portion of the fees he or she receives for serving as a director. Directors may elect to have all or a portion of the deferred fees deemed to be invested in a common stock account or a cash account. The deferred fees are payable beginning on the first business day of the calendar year immediately following, at the election of the director, either his or her termination as a director or his or her attainment of the Social Security retirement age. Amounts allocated to the cash account are payable in cash and amounts credited to the stock account are payable in the form of shares of common stock. The total number of shares of common stock that may be offered under the plan cannot exceed 200,000 shares. -----END PRIVACY-ENHANCED MESSAGE-----