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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27662; 70-10064)

Great Plains Energy Incorporated, et al.

Order Authorizing the Formation of a Service Company and Service Arrangements

March 31, 2003

Great Plains Energy Incorporated ("GPE"), Kansas City, Missouri, a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"); Kansas City Power & Light Company ("KCPL"), a wholly owned electric utility subsidiary company of GPE; Great Plains Energy Services Incorporated ("GPES"), a to-be-formed service company subsidiary, all located in Kansas City, Missouri; and Wolf Creek Nuclear Operating Corporation ("WCNOC"), Burlington, Kansas, a nonutility subsidiary of KCPL that provides goods and services to the owners of the Wolf Creek Generating Station (collectively, "Applicants") have filed an application-declaration ("Service Company Application") with the Securities and Exchange Commission ("Commission") under sections 6(a), 7, 9(a), 10, and 13(b) of the Act and rules 88, 90 and 91 under the Act. A notice of the Service Company Application was issued on October 28, 2002 (HCAR No. 27587).

I. Prior Authorizations

By Commission order dated September 7, 2001 (HCAR No. 27436) ("September Order"), GPE was authorized, among other things, to conduct a corporate reorganization and authorized financing for the new system. The September Order further authorized KCPL and the nonutility subsidiaries ("Nonutility Subsidiaries"),1 until the Service Company Application is made effective, to provide support services on an interim basis, as well as sell goods, to each other and to GPE for fourteen months, beginning with the grant of authority contained in the September Order ("Interim Period"). The September Order required GPE to file the Service Company Application to seek authority to create a service company by April 30, 2002 and to implement the final support service structure for the GPE holding company system.2

By Commission order dated November 4, 2002 (HCAR No. 27592) the Commission authorized an extension of the Interim Period, which ended November 6, 2002, and now concludes on March 31, 2003.

II. Summary of Current Requests

Specifically, GPE requests that the Commission approve the designation of GPES as a subsidiary service company in accordance with the provisions of rule 88 under the Act and find that GPES is so organized and will conduct its operations so as to meet the requirements of section 13 of the Act and the rules under the Act. GPES submits a proposed service agreement ("Service Agreement") and a proposed form of GPES service agreement procedures ("GPES Procedures Manual") for approval. To the extent not exempted under rule 87(a)(3), Applicants make these requests: (1) KCPL to provide office space and personal property to GPES; (2) KCPL to continue to provide, under existing agreements, services to WCNOC; and (3) WCNOC to continue to provide, under existing agreements, goods and services to KCPL and the other owners of the Wolf Creek Generating Station.

III. Formation of the Service Company and Service Arrangements

A. Formation of the Service Company

GPES will be incorporated as a Missouri corporation and have a minimal equity capitalization, not more than 1,000 shares with total equity capital of not more than $10,000. Initially, GPES will be staffed by transferring approximately 400 personnel from KCPL.

Applicants propose that KCPL, license, lease, sublease, or service to GPES, in accordance with rules 87, 90, and 91 under the Act, certain office space, computer hardware, communications facilities (including local, long distance, internet and wireless services), office equipment and furnishings, vehicles, and certain software license agreements.3 Applicants state that none of the property proposed to be occupied or used by GPES, or any other associate company, constitutes facilities for the production, transmission, transportation, or distribution of electric energy or natural or manufactured gas. GPES may in the future, enter into various leases or licenses of office space or personal property where the leases or licenses will pertain to more than a single company in the GPE system.

GPES will finance its business through the issuance of debt securities exempted under rule 52(b) to GPE. GPES will not borrow money from an associate company, other than GPE, unless specifically authorized by the Commission in a future proceeding.

B. Service Company Services

Certain administrative and service functions for the GPE system will be consolidated and provided, either in whole or in part, through GPES. Applicants, state the individual system companies will maintain services that can benefit from individualized application at the company level, with GPES offering system-wide coordination and strategy, compliance, oversight and other services where economies can be captured by the centralization of services. GPES may offer various classes of services through departments that will be established following its formation and that may offer more than one class of services, to system companies ("Clients") as described in detail in Appendix A to the Service Agreement. These classes are grouped into two categories: corporate services and shared services. Clients will be required to take the corporate services; Clients may choose which services to take in the shared services category, subject to the terms and conditions of the Service Agreement. Applicants state no core public utility operations or functions will be performed by GPES.

All charges for services shall be distributed among Clients, to the extent possible, based on direct assignment. The amounts remaining after direct assignment shall be allocated among the Clients using the allocation methods set forth in Appendix B of the Service Agreement. Charges for all services provided by GPES to its KCPL and the Nonutility Subsidiaries4 under the Service Agreements will be on an "at cost" basis as determined under rules 90 and 91 of the Act.

GPES's billing system will use the "Uniform System of Accounts for Mutual Service Companies," established by the Commission for holding company systems, as may be adjusted to use the FERC uniform system of accounts. Time records will be maintained in accordance with record retention requirements set forth in 17 C.F.R. 257, but in any event will be maintained for at least six years. GPES states it will hold training sessions for employees on time keeping requirements and Service Agreement procedures. GPES Audit Services Department will also conduct periodic reviews of GPES's business processes and systems to ensure that the services provided are properly documented and charged to Clients.

Applicants further state, no change in the organization of GPES, the type and character of the companies to be serviced, the methods of allocating cost to Clients, or in the scope or character of the services to be rendered subject to section 13 of the Act, or any rule, regulation or order, shall be made unless and until GPES shall first have given the Commission written notice of the proposed change not less than 60 days prior to the proposed effectiveness of any change. If, upon the receipt of any such notice, the Commission shall notify GPES within the 60-day period that a question exists as to whether the proposed change is consistent with the provisions of section 13 of the Act, or of any rule, regulation or order, then the proposed change shall not become effective unless and until GPES shall have filed with the Commission an appropriate declaration regarding the proposed change and the Commission shall have permitted the declaration to become effective.

C. Other Service Arrangements

WCNOC provides operation, maintenance, repair and decommissioning services, at cost, solely as agent for the owners of Wolf Creek Generating Station.5 Goods and services are provided to WCNOC under the Wolf Creek Generating Station Operating Agreement dated April 15, 1986. KCPL, as one of the owners of the Wolf Creek Generating Station, may from time to time provide services and goods to WCNOC under a General Support Services Agreement dated January 1, 1987 and an Emergency Plan Support Services Agreement dated January 1, 1987 ("Preexisting Agreements"). Applicants state the Preexisting Agreements are provided at cost as determined under rules 90 and 91, and include the direct cost plus a percentage of indirect cost adders for applicable fringe benefits and overheads. Applicants request, to the extent not exempted under rule 87(a)(3), authorization for KCPL to continue to provide goods and services to WCNOC under these Preexisting Agreements. KCPL, as one of the owners of the Wolf Creek Generating Station, also has entered into a Service Reciprocity Agreement6 dated June 20, 1986, and requests authority to continue this agreement.

Applicants state only KCPL and WCNOC are requesting authority to provide goods and services beyond the scope of rule 87, and no other system company is requesting authority in the Service Company Application to provide goods and services beyond the scope of rule 87. Excluding KCPL and WCNOC, the following associate companies currently provide services to other associate companies under rule 87: (1) R. S. Andrews Enterprises, Inc., provides services to its subsidiaries; (2) KLT Inc. provides services to its subsidiaries; (3) KLT Gas Inc. provides services to its subsidiaries; (4) Custom Energy, L.L.C., provides services to its subsidiaries; and (5) Digital Teleport, Inc., an exempt telecommunications company under section 34 of the Act ("ETC"), provides services to DTI Holdings, Inc. and Digital Teleport of Virginia, Inc., which are also ETCs.

Fees, commissions, and expenses incurred or to be incurred in connection with the transactions will not exceed $50,000. Except as stated above, it is stated that no state or federal regulatory commission, other than this Commission has jurisdiction over the transactions proposed in the Service Company Application.

Due notice of the filing of the Service Company Application has been given in the manner described in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. On the basis of the facts in the record, the Commission finds that the applicable standards of the Act and rules under the Act are satisfied, and no adverse findings are necessary.

IT IS ORDERED under the applicable provisions of the Act and the rules under the Act, that the Service Company Application is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24, in particular rule 24(c)(2), under the Act.

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

Margaret H. McFarland
Deputy Secretary

 


1 At the time of the September Order, the term Nonutility Subsidiary, included these wholly owned subsidiaries: Home Service Solutions, Inc.; KCPL Receivable, Great Plains Power Inc.; KLT, Inc., and extended to any direct or indirect nonutility company acquired or formed after GPE registered. See September Order at footnote 7.

2 The Service Company Application was filed with the Commission in a timely fashion, as S.E.C. File No. 70-10064.

3 Service arrangements between GPES and KCPL must be filed with the Kansas Corporation Commission ("KCC") to be effective, under K.S.A. 66-1402. No KCC approval is required for the Service Agreement to be effective; however, the KCC may, after hearing, disapprove the agreement if it finds the Service Agreement is not in the public interest. If the state commission finds the contracts to not be in the public interest, then the Applicants shall file with the Commission any order issued by the state commission and seek any necessary approval of the Commission.

4 For purposes of the Service Company Application, a "Nonutility Subsidiary" is defined as a company that is not a public utility company under section 2(a)(5) of the Act. Rule 54 is not applicable to the proposed transactions, because GPE has no aggregate investment (as that term is defined in rule 53(a)(1)(i)) in an exempt wholesale generator as defined under section 32 of the Act or foreign utility company under section 33 of the Act.

5 KCPL holds an undivided 47% ownership interest in Wolf Creek Generating Station, and 47% of the voting securities of WCNOC. By No-Action Letter, with respect to KCPL's ownership of WCNOC, the Commission would not recommend any enforcement action under section 2(a)(3) of the Act. See, Wolf Creek Operating Corp SEC No-Action Letter (December 11, 1995).

6 Agreement provides for the recognition of pension service credits.

 

http://www.sec.gov/divisions/investment/opur/filing/35-27662.htm


Modified: 08/05/2003