U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Holding Company Act Release 27590

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27590; 70-10023)

C&T Enterprises, Inc., et al.

Order Authorizing Acquisition of Public-Utility Company and Granting Exemptions

October 31, 2002

C&T Enterprises, Inc. ("C&T"), Lewisburg, Pennsylvania, a Pennsylvania corporation and a public-utility holding company exempt from registration under section 3(a)(1) of the Public Utility Holding Company Act of 1935 ("Act") by order of the Commission, Claverack Rural Electric Cooperative, Inc. ("Claverack"), Wysox, Pennsylvania, a Pennsylvania rural electric cooperative and a holding company exempt from registration under section 3(a)(1) of the Act by order of the Commission, Tri-County Rural Electric Cooperative, Inc. ("Tri-County"), a Pennsylvania rural electric cooperative and a holding company exempt from registration under section 3(a)(1) of the Act by order of the Commission, and Wilderness Area Utilities, Inc. ("Wilderness"), a Pennsylvania corporation and a public-utility holding company exempt from registration under section 3(a)(1) of the Act by order of the Commission,1 both of Mansfield, Pennsylvania, (collectively, "Applicants"), have filed with this Commission an application, as amended, under sections 3(a)(1), 9(a)(2) and 10 under the Act. The Commission issued a notice of the filing of the application on May 10, 2002 (HCAR No. 27528). No requests for a hearing on the application have been received.

I. Background

Tri-County and Claverack each own 50% of the issued shares of C&T. Generally, the Applicants request: (1) authority for C&T directly and Tri-County and Claverack indirectly to acquire all of the common stock of Valley Energy, Inc. ("Valley"), a newly formed Pennsylvania public-utility company; and (2) an order granting Tri-County, Claverack, Wilderness and C&T exemptions under section 3(a)(1) of the Act from all provisions of the Act, except section 9(a)(2).

Tri-County is engaged in the distribution of electricity to approximately 17,700 customers throughout a 4,484 square-mile service area in seven counties in north-central Pennsylvania. Tri-County also serves a small number of customers in bordering counties of New York. Tri-County is not subject to utility regulation by any state or federal agency and is specifically exempted from any regulation by the Pennsylvania Public Utilities Commission ("PA PUC") under the Pennsylvania Electric Cooperative Corporation Act. For the fiscal year ended December 31, 2001, Tri-County's operating revenues and net income were approximately $17.6 million and -$942,822, respectively. At December 31, 2001, the assets of Tri-County were approximately $42 million in identifiable electric utility property, plant and equipment and approximately $14 million in other corporate assets.

Tri-County has one wholly-owned subsidiary, Wilderness, which is a Pennsylvania public-utility holding company exempt from all provisions of the Act, except section 9(a)(2), under section 3(a)(1) of the Act.2 Wilderness has one wholly-owned operating subsidiary, Wellsboro Electric Company ("Wellsboro"), a Pennsylvania investor-owned public-utility company engaged in the distribution of electricity to approximately 5,700 customers in an approximately 266 square-mile area in north-central Pennsylvania. Wellsboro is subject to regulation by the PA PUC. For the fiscal year ended December 31, 2001, Wilderness' operating revenues, net income and total assets were $146,133, -$69,558, and $13,648,028, respectively. For the fiscal year ended December 31, 2001, Wellsboro's operating revenues and net income were approximately $6.3 million and -$247,832, respectively. As of December 31, 2001, Wellsboro's assets were approximately $7.7 million consisting of approximately $6.1 million in identifiable electric utility property, plant and equipment and approximately $1.6 million in other corporate assets.

Claverack is engaged in the distribution of electricity to approximately 17,200 customers throughout a service territory of approximately 1,820 square miles in an eight-county region in north-central and north-eastern Pennsylvania. Claverack also serves a small number of customers in bordering counties in New York. Like Tri-County, Claverack is not subject to utility regulation by any state or federal agency and is specifically exempted from any regulation by the PA PUC under the Pennsylvania Electric Cooperative Corporation Act. For the fiscal year ended December 31, 2001, Claverack's operating electric revenues and net income were approximately $19.6 million and $293,541, respectively. At December 31, 2001, Claverack's assets were approximately $57 million consisting of approximately $44 million in identifiable electric utility property, plant and equipment and approximately $13 million in other corporate assets.3

C&T is a Pennsylvania corporation formed for the purpose of acquiring and holding the common stock of Citizens' Electric Company ("Citizens"). Tri-County and Claverack each own 50% of the issued shares of C&T, 1,000 shares each of common stock. C&T's sole current asset is the stock of Citizens and upon consummation of the acquisition discussed below, the stock of Valley Energy, Inc. ("Valley"). C&T will not have any other subsidiaries. For the fiscal year ended December 31, 2001, C&T's operating revenues, net income and total assets were approximately $285,442, -$92,422, and $13,838,997, respectively.

Citizens, a Pennsylvania public-utility company, is principally engaged in the distribution of electricity to approximately 6,500 customers in an approximately 55 square-mile service territory in parts of two counties in central Pennsylvania. Citizens is subject to regulation as a public-utility company as to retail electric rates and other matters by the PA PUC. For the fiscal year ended December 31, 2001, Citizens' operating revenues and net income were approximately $9.6 million and $242,057, respectively. Assets of Citizens were approximately $12.6 million, consisting of approximately $5.7 million in identifiable electric utility property, plant and equipment and approximately $6.9 million in other corporate assets.

On October 4, 2000, C&T entered into an agreement to purchase the Pennsylvania and New York natural gas assets of NUI Utilities, Inc ("NUI") ("Asset Sale Agreement"). The Asset Sale Agreement provides that C&T will purchase substantially all of the natural gas assets of NUI located in Pennsylvania and New York ("Acquisition"). Upon consummation of the Acquisition, C&T will transfer its ownership interest in the NUI assets to Valley ("Transfer"). Upon the transfer of the assets to Valley, Valley will issue 1000 shares of common stock, all of which will be held by C&T ("Stock Acquisition"). The shareholders of C&T and NUI have approved the Stock Acquisition at their respective shareholder meetings. (The Acquisition, the Transfer, and the Stock Acquisition are referred to collectively as the "Transaction".)

Valley will be a public-utility company as defined in section 2(a)(5) of the Act, engaged in the business of selling and distributing natural gas in parts of one county in north-central Pennsylvania and in portions of two counties in south-central New York. Valley will serve approximately 6,300 retail customers in a 104 square-mile territory lying substantially within the Commonwealth of Pennsylvania with the remaining portion in the state of New York. Approximately 5,000 of Valley's customers will be located in Pennsylvania with the remaining 1,300 customers located in New York. Valley will be an investor-owned public-utility subject to regulation by the PA PUC and the New York Public Service Commission ("NYPSC").

Following the proposed Transaction, C&T will remain a subsidiary company of Tri-County and Claverack, and there will be no change in the ownership of Wilderness or Wellsboro. Each of C&T, Wilderness, Tri-County and Claverack requests an order under section 3(a)(1) exempting it from all provisions of the Act except section 9(a)(2) following consummation of the Stock Acquisition. Each states that it will remain predominantly intrastate in character and will carry on its business substantially in Pennsylvania, the state in which each company and every material public-utility company subsidiary are organized.

The Applicants anticipate that the proposed Transaction will create opportunities for achieving economies of scale, eliminating duplicate facilities and activities, sharing production capacity and reserves, and generally more efficient operations. Among other things, the Transaction is expected to permit Citizens, Wellsboro and Valley to achieve significant savings through labor cost savings, facilities consolidations, corporate and administrative programs, non-fuel purchasing economies, and the ability to combine certain administrative functions such as billing and metering. These expected economies and efficiencies from the combined utility operations are estimated to result in net savings of $500,000 annually.

II. Discussion

The proposed Stock Acquisition, and Tri-County and Claverack's resultant indirect acquisition of Valley, require prior Commission approval under sections 9(a)(2) and 10 of the Act. Following the Stock Acquisition, each of Tri-County, Claverack, C&T and Wilderness requests a continued exemption under section 3(a)(1). The Commission has reviewed the proposed Stock Acquisition under the standards of section 10 and finds that the requirements of the Act are satisfied. The Commission wishes to address in particular the application of the requirements of section 10(c) of the Act and the continuation of the exemptions under section 3(a)(1).

Under section 10(c)(1), the Commission may not approve an acquisition that "would be detrimental to the carrying out of the provisions of section 11." Section 11(b)(1) of the Act generally confines a registered holding company to ownership of a single integrated public-utility system, as defined in section 2(a)(29) of the Act. An exception to this requirement is provided in section 11(b)(1)(A) through(C) ("ABC clauses"). A registered holding company may own one or more additional integrated systems if each system meets the criteria of those clauses. The additional system may be either gas or electric.

By its terms, section 11(b)(1) of the Act applies only to registered holding companies. The Commission has previously determined that a holding company may acquire utility assets that will not, when combined with its existing utility assets, make up an integrated system or comply fully with the ABC clauses provided that there is de facto integration of contiguous utility properties and the holding company will be exempt from registration under section 3 of the Act following the acquisition.4 The proposed Transaction meets these conditions for approval.

The Stock Acquisition will combine the electric assets of Citizens and the gas assets of Valley under the C&T umbrella. There will be de facto integration of the gas and electric properties following the Stock Acquisition even though Valley and Citizens will remain separate integrated systems. Citizens was found to be a part of an integrated electric utility system in the Commission's order5 approving the acquisition of Citizens' stock and will remain an integrated electric utility system confined to the Lewisburg area of Pennsylvania. Valley will be an integrated gas utility system confined to Bradford County, Pennsylvania and a small portion of Tioga and Chemung Counties, New York. The utility service territories of C&T's parents, the indirect holding companies Claverack and Tri-County, overlap completely the service territory of Valley. Applicants state that the Stock Acquisition will produce a combined enterprise that will better serve the needs of its customers and the interests of its investors by offering efficient energy supply and delivery service in competitive markets. The systems of Citizens and Valley will be coordinated with respect to a number of operational, administrative and support functions. Those functions being considered include: human resources, payroll, customer service, meter reading, billing, supply chain, fleet, accounting and treasury. Moreover, Applicants assert that the Transaction will produce a combined entity that will be able to compete more efficiently and effectively in providing energy service to customers. Further, there is no reason to believe that the Stock Acquisition will give rise to any of the abuses, such as scattered utility properties, inefficient operations, lack of local management or evasion of state regulation, that the Act, including section 11(b)(1), was intended to address. Nor does it appear that the transaction will impede the ability of the PA PUC or the NYPSC to regulate effectively the respective state utility activities of either Citizens or Valley.

Section 10(c)(2) of the Act requires an affirmative showing that a proposed acquisition will tend towards the economical and efficient development of an integrated system. An "integrated public-utility system" is defined in section 2(a)(29) of the Act to mean:

As applied to gas utility companies, a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its operations to a single area or region, 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 gas utility operations of NUI's Pennsylvania and New York assets, when incorporated into C&T's Valley, will constitute an integrated gas utility system within the meaning of section 2(a)(29)(B) of the Act. In terms of the area covered, number of customers served, and gross revenues, Valley's integrated gas utility system will be C&T's secondary system, and its electric utility system (which will not be affected by the Transaction) will be its primary system.

Further, section 10(c)(2) requires that the Commission authorize the acquisition if it will tend toward the economical and efficient development of an integrated public-utility system. The proposed acquisition satisfies this requirement. In this matter, both systems will benefit from the proposed combination. The Commission has previously found benefits to the C&T and Citizens system in the Commission order approving the Citizens' acquisition. Now, however, both integrated systems will realize a number of benefits from the Stock Acquisition. The Stock Acquisition will combine two companies with complementary operations and expertise, and provide important strategic, financial and other benefits to the two companies' shareholders and customers.

The Stock Acquisition will have a number of benefits that will result in economic efficiencies for the both integrated systems. C&T has estimated the nominal dollar net value of synergies from the Stock Acquisition to be in excess of $0.5 million annually. The geographical locations of the respective service territories of Citizens and Valley, and whose headquarters are within 90 miles of one another, provide an opportunity to integrate efficiently their utility operations. There are three general areas where presently quantifiable savings can be realized through the combination of the companies: (1) corporate and administrative programs including labor savings and billing and computer services; (2) non-fuel purchasing economies; and (3) administrative and human resources. The Commission finds that the Applicants have made the requisite showing under section 10(c)(2) of the Act.

Section 3(a)(1) of the Act provides that the Commission shall exempt any holding company "unless and except insofar as it finds the exemption detrimental to the public interest or the interest of investors or consumers if such holding company, and every subsidiary company thereof, which is a public utility company from which such holding company derives, directly or indirectly, any material part of its income, are predominantly intrastate in character and carry on their business substantially in a single state in which such holding company in every such subsidiary company thereof are organized."

C&T's electric public utility subsidiary, Citizens, following the Stock Acquisition, will continue to be a Pennsylvania corporation operating wholly in the Commonwealth of Pennsylvania and will, therefore, meet the requirements of the latter half of section 3(a)(1), as being "predominantly intrastate in character" and carrying on its business "substantially in a single state." Wilderness and Wellsboro are likewise Pennsylvania corporations operating wholly in the Commonwealth of Pennsylvania. Valley alone will operate in two contiguous states, New York and Pennsylvania.

As C&T would derive a material part of its income from Valley, it is necessary to determine whether Valley and the C&T system each are "predominantly intrastate in character" and operate "substantially in a single state." Section 3(a)(1) does not provide any guidelines for that determination; the Commission usually evaluates a variety of quantifiable factors in order to compare a company's out-of-state presence with its in-state presence.6 The Commission has traditionally considered a wide range of numerical factors, and in practice, given the greatest deference to revenues.7

In the present case, gross operating revenues, net operating revenues (operating margin), utility operating income, net utility income and net utility plant of Valley (before intercompany eliminations), and the percentage of each on a pro forma basis for each of the past five years, to the total combined gross operating revenues, net operating margins, utility operating income, net utility income and net utility plant (after intercompany eliminations) of C&T and subsidiaries are as follows:

 

Gross Operating Revenues ($000)
Year C&T Combined Valley (total) Valley NY
Amount % of C&T Total Amount % of C&T Total % of Valley Total
2002 (thru 6/30) $ 12,102 $ 6,030 49.8 % $ 1,238 10.2 % 20.5 %
2001 $ 20,593 $ 11,074 53.8 % $ 1,941 9.4 % 17.5 %
2000 $ 18,639 $ 9,490 50.9 % $ 1,566 8.4 % 16.5 %
1999 $ 17,065 $ 9,237 54.1 % $ 1,556 9.1 % 16.8 %
1998 NA* $ 10,922   $ 1,581   14.5 %
1997 NA* $ 11,451   $ 1,624   14.2 %
        99, 00, 01, 3.5 year average 17.6 %
* C&T Enterprises was formed in 1998, data not available

Note: For this and the following tables, the amounts shown on the "C&T combined" column consists of the financial statement amounts for both C&T Enterprises and Valley.

 

 

Operating Margins (000s)
Operating Margin=Gross Revenue less cost of gas and cost of fuel for electric generation (direct pass through to consumer)
Year C&T Combined Valley (total) Valley NY
Amount % of C&T Total Amount % of C&T Total % of Valley Total
2002 (thru 6/30) $ 4,480 $ 2,149 48.0 % $ 432 9.6 % 20.1 %
2001 $ 7,894 $ 4,033 51.1 % -$ 266** -3.4 % -6.6 %
2000 $ 7,143 $ 3,702 51.8 % $ 671 9.4 % 18.1 %
1999 $ 7,036 $ 4,143 58.9 % $ 540 7.7 % 13.0 %
1998 NA* $ 3,719   $ 551   14.8 %
1997 NA* $ 4,019   $ 613   15.3 %
        99, 00, 01, 3.5 year average 9.8 %
* C&T Enterprises was formed in 1998, data not available.
**The books and records of Valley reflect a -$401,000 operating margin for 2001. Of that amount, $266,000 relates to operations during the 5 year period reflected on this chart and the balance to operations prior to 1997.

Note: Operating margin = Gross Operating Revenues less cost of gas and cost of fuel for electric generation.

 

 

Utility Operating Income (000s)
Utility Operating Income = Operating Margin less operation & maintenance, depreciation & amortization and taxes other than income.
Year C&T Combined Valley (total) Valley NY
Amount % of C&T Total Amount % of C&T Total % of Valley Total
2002 (thru 6/30) $ 1,800 $ 1,166 64.8 % $ 220 12.2 % 18.9 %
2001 $ 2,040 $ 1,374 67.4 % -$ 908 -44.5 % -66.1 %
2000 $ 1,239 $ 766 61.8 % $ 115 9.3 % 15.0 %
1999 $ 1,406 $ 967 68.8 % -$ 3 -0.2 % -0.3 %
1998 NA* $ 246   -$ 19   -7.9 %
1997 NA* $ 911   $ 53   5.8 %
        99, 00, 01, 3.5 year average -13.5 %
* C&T Enterprises was formed in 1998, data not available.

Note: Utility Operating Income = Operating Margin less operating & maintenance, depreciation & amortization, and taxes other than income.

 

 

Net Utility Income (000s)
Net Utility Income = Utility Operating Income less Interest and income taxes.
Year C&T Combined Valley (total) Valley NY
Amount % of C&T Total Amount % of C&T Total % of Valley Total
2002 (thru 6/30) $ 368 $ 119 32.2 % $ 118 32.1 % 99.6 %
2001 $ 457 $ 549 120.2 % -$ 611 -133.8 % -111.3 %
2000 $ 4 $ 114 2968.6 % -$ 7 -169.9 % -5.7 %
1999 $ 270 $ 291 107.7 % -$ 50 -18.5 % -17.2 %
1998 NA* -$ 147   -$ 67   45.3 %
1997 NA* $ 276   -$ 20   -7.2 %
        99, 00, 01, 3.5 year average -51.2 %
* C&T Enterprises was formed in 1998, data not available.

Note: Note: Net Utility Income = Utility Operating Income less interest, and income taxes.

 

 

Net Plant (000s)
Year C&T Combined Valley (total) Valley NY
Amount % of C&T Total Amount % of C&T Total % of Valley Total
2002 (thru 6/30) $ 19,863 $ 13,268 66.8 % $ 1,791 9.0 % 13.5 %
2001 $ 19,899 $ 13,306 66.9 % $ 1,799 9.0 % 13.5 %
2000 $ 19,544 $ 13,245 67.8 % $ 1,645 8.4 % 12.4 %
1999 $ 18,828 $ 13,213 70.2 % $ 1,669 8.9 % 12.6 %
1998 NA* -$ 13,130   -$ 1,623   12.4 %
1997 NA*          
        99, 00, 01, 3 year average 12.9 %
* C&T Enterprises was formed in 1998, data not available.

 

The Commission has generally assigned the most weight to a comparison of gross utility operating revenues as a measure of the relative size of in-state and out-of-state utility operations. However, the Commission has recognized that in certain circumstances net utility operating revenues may be a more appropriate basis for comparison. For example, in NIPSCO the Commission noted that the components of gross revenues are different for electric and gas utilities. Retail rates often contain automatic adjustment clauses that provide for the relatively current pass-through to customers of the actual cost of gas, in the case of gas utilities, and of fuel for generation and purchased power, in the case of electric utilities. These pass-through costs represent a larger part of gross revenues in the gas utility business than in the electric utility business. In addition, changes in the cost of gas have a significantly greater effect on gas utility gross revenues than on electric utility gross revenues. The cost of delivered gas may thus distort a comparison based on gross revenues. In such a case, a comparison based on net utility operating revenues (gross revenues less cost of gas and cost of fuel for electric generation) has been found to eliminate these distortions and provide a more appropriate basis for comparison.8

Applicants assert that similar considerations are present in this case. They state that revenue from Valley's Pennsylvania operations depends to a much greater extent than revenue from New York on industrial customers who receive gas transportation services only. In 2000, 30.1% of Valley's Pennsylvania gross revenues were derived from transportation charges, while only 5.8% of Valley's New York gross revenues derived from transportation charges. In 2001, the figures were 20.8% and 4.3%, respectively. Applicants state that transportation-only customers arrange their own gas supply and there is no cost of gas pass through associated with that revenue. A comparison of Valley's Pennsylvania and New York operations based on gross revenues would be distorted by exaggerating the size of the New York operations. In this matter, a comparison based on operating margin, which is gross revenue less the cost of gas, would be more appropriate. On that basis, and particularly considering the 3.5 year average, Valley meets the "substantially and predominantly" criteria of section 3(a)(1). Furthermore, Applicants note that the future growth of the Valley system is expected to take place in Pennsylvania rather than in New York, and that it is very unlikely that Valley NY will increase in gross operating revenues or operating margin as a percentage of total Valley revenues. Applicants state that the Valley NY service territory is highly saturated and has experienced very little customer growth. Valley's customer growth historically has come from the Pennsylvania division, where construction of new residential developments and associated growth in commercial businesses typically occurs. The historic trend of growth occurring predominantly in Pennsylvania is expected to continue for the foreseeable future. In this light, in Pennsylvania, Valley is exploring an expansion into a new community, Monroeton, where there is a potential to add over a hundred residential customers. There is no expansion of that magnitude under consideration in the Valley NY service territory. NUI's last forecast for the Pennsylvania division of Valley included expected annual growth of 106 new residential accounts and 12 commercial accounts. In comparison, for Valley's New York division, NUI forecasted annual growth of 15 residential and 2 commercial accounts. Consequently, the percentage of gross operating revenues and operating margin associated with Valley NY is expected to trend downwards.

Valley NY's operating income and net income also appear relatively high in 2002 because certain headquarters and related corporate expenses normally accounted for in any given year were not accounted for in 2002. Specifically, because NUI anticipated that the sale of the Valley Pennsylvania and Valley NY's division would close prior to 2002, it did not structure its financial system to allocate shared, corporate service expenses, such as the expenses of the human resources, corporate accounting and investor relations departments, to Valley Pennsylvania and Valley NY. Consequently, O&M expenses in 2002 were lower than in prior years. As a result, the utility operating income and net utility income of Valley Pennsylvania and Valley NY are higher than in prior years, when a portion of the costs associated with corporate services was allocated to both Valley Pennsylvania and Valley NY. Moreover, data reported for 2002 represents only a partial year (the first six months of 2002).

In determining whether a company's operations are "predominantly and substantially intrastate in character," the Commission has applied the test on both a consolidated basis, to the holding company, and on a corporate basis to each material subsidiary. In NIPSCO, the Commission found that an out-of-state operating utility subsidiaries contributing 13.0% to 13.7% (or an average of 13.2%) of operating margin to the holding company satisfied the "predominantly and substantially" standard for purposes of section 3(a)(1).

Both Valley and C&T meet the test as applied in the NIPSCO precedent. Valley is the only utility subsidiary of C&T that has utility operations outside the Commonwealth of Pennsylvania. Looking at Valley on a stand alone basis, for the last 3.5 years of operations, between -6.6 to 20.1% (or an average of 9.8%) of operating margin were derived from New York utility operations. On a consolidated basis, during the same time period, C&T derived between -3.4% to 9.6% (or an average of 5.8%) of operating margin from New York utility operations. These ratios fall within the range found acceptable by the Commission in NIPSCO as noted above, especially when the 3.5 year averages shown in the charts above are taken into account.

It further appears that the requested exemptions would not be detrimental to the public interest or the interests of investors or consumers. As noted below, all three of the state commissions with authority to approve the proposed Transaction have done so. There appears to be little possibility in this case that the holding company structure will be used to evade state and local regulation, or that regulation under the Act is needed to supplement state regulation in order to prevent detriment to the interests protected by the Act.

III. Conclusion

Fees and expenses in the estimated amount of $510,000 are expected to be incurred in connection with the proposed Stock Acquisition. The PA PUC approved the Transaction by order dated February 7, 2002. The NYPSC approved the Transaction by order dated March 27, 2002. The Federal Energy Regulatory Commission approved the transfer of NUI's National Gas Act section 7(f) determination to C&T and Valley by order dated October 15, 2001.

Due notice of the filing of the application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Upon the basis of the facts in the record, it is hereby found that the applicable standards of the Act and rules thereunder are satisfied, and that no adverse findings are necessary:

IT IS ORDERED, under the applicable provisions of the Act and rules thereunder, that the proposed Stock Acquisition is approved, subject to the terms and conditions prescribed in rule 24 under the Act and to the following: C&T will file certificates under rule 24 within 90 days after the close of the Applicants' fiscal year stating the operating margin for each of C&T, Valley, and Valley's New York operations (before intercompany eliminations) and the percentage contribution of each for the past year, to the total combined operating margin (after intercompany eliminations) of C&T and Valley; the certificates will also include financial statements for C&T, Claverack, Tri-County and Valley;

IT IS FURTHER ORDERED, under section 3(a)(1) of the Act that each of C&T, Tri-County, Claverack, and Wilderness be exempted from all provisions of the Act except section 9(a)(2) following consummation of the Stock Acquisition.

For the Commission, by the Division of Investment Management, under delegated authority.

 

Margaret H. McFarland
Deputy Secretary

 


1 The Commission granted Tri-County, Claverack and C&T exemptions in HCAR No. 26973 (Feb. 5, 1999). The Commission granted Wilderness an exemption in a prior order, HCAR No. 26167 (Nov. 22, 1994).

2 HCAR No. 26167 (Nov. 22, 1994).

3 Claverack wholly owns one nonutility subsidiary, Susquehanna Energy Plus, Inc., doing business as Tioga Energy. Tioga Energy jointly owns Tioga Propane with Wellsboro.

4 The criteria for de facto integration are set forth in BL Holding Corp. HCAR No. 26875 (May 15, 1998), among other orders. They include (i) the contiguity of the service territories; (ii) administrative coordination of the systems; (iii) lack of potential for the abuses that section 11(b)(1) and the Act were intended to address; and (iv) no detriment to the ability of state utility commissions to regulate effectively. See also, TUC Holding Co., HCAR No. 26749 (August 1, 1997).

5 HCAR No. 26973 (Feb. 5, 1999).

6 NIPSCO Industries, Inc. HCAR No. 26975 (February 10, 1999) ("NIPSCO").

7 In this case the Commission has considered a somewhat wider range of data than in most cases, incorporating the first six months of the current year to calculate a 3.5 year average rather than the 3 year average the Commission has traditionally used, in order to demonstrate that the operating margin loss of 2001 has not continued.

8 The Commission in prior cases has recognized that, in acquisitions of gas utilities by electric utilities, a more accurate measure of the relative size of the utility operations may be determined by comparing net operating revenues rather than gross revenues. The Commission has recognized the difficulty of making size comparison between an electric company and a natural gas distribution company based upon gross revenues. AES Corporation, HCAR No. 35-27063 (1999); Houston Industries, Inc., HCAR No. 35-26744 (1997); NIPSCO, supra n. 7. In NIPSCO, involving an acquisition of a gas utility by an electric utility, the Commission noted that "pass-through costs" (e.g., purchased gas and fuel for electric generation) constitute a larger portion of gross revenues for a gas utility than for an electric utility. The Commission then concluded that where a predominately electric system (NIPSCO) acquired an exclusively gas system (Bay State), a reliance on gross revenues comparison distorts the gas utility's relative size and gross revenues when comparing them with those of an electric utility, and that it is appropriate to examine net data such as net operating income.

 

http://www.sec.gov/divisions/investment/opur/filing/35-27590.htm


Modified: 07/23/2003