SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27678; 70-10108)
American Transmission Company, LLC, et al.
Order Authorizing Issuance of Short-Term Debt, Long-Term Debt, Preferred Securities, Guarantees, Equity Interests; and Reserving Jurisdiction
May 15, 2003
American Transmission Company, LLC ("ATC"), an electric transmission public utility company subsidiary of Alliant Energy Corporation ("Alliant"), a registered holding company, and ATC Management, Inc. ("ATCMI"), a public utility company, corporate manager of ATC, and holding company subsidiary of Alliant, claiming exemption from registration under section 3(a)(1) by rule 2 of the Public Utility Holding Company Act of 1935, as amended ("Act"), both located in West Waukesha, Wisconsin (together, "Applicants") have filed with the Securities and Exchange Commission ("Commission") an application-declaration ("Application") under sections 6(a), 7 and 12(b) of the Act and rules 45 and 54 under the Act. The Commission issued a notice of the underlying application on March 28, 2003 (HCAR No. 27611).
In 1999, the state of Wisconsin enacted legislation ("Transco Legislation") that facilitated the formation of for-profit transmission companies ("Transcos"). ATC was created under the Transco Legislation and ATCMI was created to be the general manager of ATC. The legislation obligates these Transcos to construct, operate, maintain, and expand transmission facilities to provide adequate, reliable transmission services under an open-access transmission tariff.
By order dated December 29, 2000 (HCAR No. 27331) ("December Order"), the Commission authorized ATC to acquire the transmission assets of the subsidiaries of four investor owned public utility holding companies with service areas in Wisconsin and adjacent areas in Illinois and Michigan.1 The following utility companies transferred ownership and operation of their transmission assets to ATC in exchange for member interests ("Member Interests") in ATC: Wisconsin Power and Light Company ("WPL") and South Beloit Water, Gas and Electric Company ("South Beloit");2 Wisconsin Electric Power Company and Edison Sault Electric Company ("Edison Sault");3 Madison Gas and Electric Company;4 and Wisconsin Public Service Corporation.5 These entities, together with WPPI, are referred to as the "Initial Members."
Applicants state that as a limited liability company, ATC may be formed to be "member managed" or "manager managed" according to Wisconsin law. Applicants state that it was decided that ATC would be "manager managed" by ATCMI. In the December Order, the Commission authorized ATCMI to acquire a nominal interest in ATC and operate as the sole manager of ATC. Due to the extent of the operational control ATCMI has over the utility assets of ATC, the Commission found that both ATC and ATCMI were jurisdictional public utilities under the Act. ATCMI is also an intermediate holding company by virtue of its ownership interest in ATC and claims exemption from registration by rule 2 under section 3(a)(1) of the Act.
As of December 31, 2002, eighteen more contributors, including twelve municipal utilities, six cooperatives, one public power entity, and one investor owned utility invested transmission assets and/or cash in ATC. These members are referred to as the "Additional Members," and along with the Initial Members, the "Member Utilities." Effective February 1, 2001, ATC transferred operational control of its facilities to the Midwest Independent Transmission System Operator, Inc.
Applicants state that ATCMI's ownership structure consists of Class A non-voting shares and Class B voting shares of stock.6 Upon transference of transmission assets to ATC, each Member Utility purchased Class A shares in proportion to the value of the transmission assets it transferred to ATC. In addition, each Initial Member received one Class B share of stock.7 The December Order indicated that, in the future, ATCMI plans to commence an initial public offering ("IPO") of its stock. The Commission reserved jurisdiction over the issuance by ATC or ATCMI of any voting equity securities in connection with a potential IPO by ATCMI.
Applicants seek to expand their existing financing authority as described below. The requested financing authority will supplant that granted in the December Order as it concerns the issuance of debt securities, equity interests, preferred securities and guarantees to be issued through June 30, 2004 ("Authorization Period").8
Applicants seek authority for ATC to issue debt securities in an aggregate amount not to exceed $710 million at any one time outstanding during the Authorization Period, provided that the aggregate amount of short-term debt issued under the requested authority will not exceed $200 million at any one time outstanding during the Authorization Period.
Applicants request authority for ATC to issue Member Interests and ATCMI seeks authority to issue Class A shares, Class B shares, and preferred securities in an aggregate amount of $500 million at any one time outstanding during the Authorization Period, provided that the aggregate amount of Member Interests and Class A shares and Class B shares will not exceed $393 million at any one time outstanding through the Authorization Period.
Finally, Applicants request authority to provide guarantees and other credit support as described herein in an aggregate amount not to exceed $125 million outstanding at any one time during the Authorization Period.
A. Short-Term Debt
Applicants request authority for ATC to arrange unsecured short-term financing, including institutional borrowings, commercial paper and privately placed notes. Applicants state that the amount of short-term debt shall not exceed $200 million at any one time outstanding during the Authorization Period and the maturity of short-term debt would not exceed one year. Any short-term debt security or credit facility would have designations, aggregate principal amount, interest rate(s) or methods of determining the same, terms of payment of interest, collateral, redemption provisions, non-refunding provisions, sinking fund terms, conversion or put terms and other terms and conditions as ATC and ATCMI might determine at the time of issuance, provided that, in no event, however, would the effective cost of money on short-term debt exceed 300 basis points over the London Interbank Offered Rate for maturities of one year or less in effect at the time.
Applicants propose that ATC sell commercial paper or privately placed notes ("Commercial Paper") from time to time, in established domestic or European commercial paper markets. Commercial Paper may be sold at a discount or bear interest at a rate per annum prevailing at the date of issuance for Commercial Paper of a similarly situated company.
ATC may, without counting against the limit on financing set forth above, maintain back up lines of credit in connection with one or more commercial paper programs in an aggregate amount not to exceed the amount of authorized commercial paper. Credit lines may also be set up for use by ATC for general corporate purposes. These credit lines, which will be counted against the financing limit, may be utilized to obtain letters of credit or may be borrowed against, from time to time, as it is deemed appropriate or necessary.
B. Long-Term Debt
Applicants request authority for ATC to issue long-term debt securities in an amount, when combined with short-term debt, not to exceed $710 million outstanding at any time during the Authorization Period. Applicants propose to issue long-term debt including notes or debentures under one or more indentures or long-term indebtedness under agreements with banks or other institutional lenders directly or indirectly. Applicants state that ATC's long-term debt may be unsecured or secured by the assets of ATC. Applicants state that long-term debt may be convertible or exchangeable into forms of equity or indebtedness, or into other securities or assets. Applicants further state that the maturity of long-term debt would not exceed fifty years. Applicants assert that specific terms of any borrowings will be determined at the time of issuance but that the interest rate on long-term debt would not exceed 500 basis points over the yield-to-maturity of a U.S. Treasury security having a remaining term approximately equal to the average life of that debt. Applicants ask the Commission to reserve jurisdiction over the issuance of convertible securities except as described in section III.C. below.
C. Equity Interests
ATC seeks authorization to issue Member Interests and ATCMI seeks authority to issue Class A shares, Class B shares, and preferred securities in an aggregate amount of $500 million at any one time outstanding during the Authorization Period. Applicants state that the aggregate amount of Member Interests and Class A shares and Class B shares will not exceed $393 million plus the face value of any outstanding Member Interests and Class A shares and Class B shares at any one time outstanding through the Authorization Period.9
Applicants request authority for ATC to issue Member Interests in exchange for cash or the transfer of transmission facilities to ATC by current or future Member Utilities. The entities transferring transmission assets and their transferring asset values have not yet been determined. Applicants further state that in order to maintain its 50/50 debt to equity ratio; ATC would reimburse the contributors for 50% of the net book value of the transmission assets contributed. In addition, ATCMI will issue to each new Member Utility of ATC, Class A shares in an amount that is proportional to that Member Utility's interest in the ATC, with a par value of $0.01 per share and a sales price of $10 per share.
Applicants contemplate that from time to time ATC may require an additional equity infusion. In these situations, ATC could reduce the amount of distributions to Member Utilities. Each Member Utilities' equity would be increased by the amount of the undistributed earnings on a pro rata basis. Alternatively, there could be a capital call for Member Utilities to make additional cash contributions on a pro rata basis. If a Member Utility opts not to make an additional contribution, any other Member Utility could make the requested contribution. Member Utilities do not, however, have the obligation to make additional contributions. Another possibility, therefore, would be for ATC to issue preferred securities that are convertible into Member Interests and/or Class A shares and/or Class B shares. These convertible preferred securities would have a stated par value and dividend rate and would be convertible into Member Interests and/or Class A shares and/or Class B shares based on a predetermined ratio or formula. The conversion rights and terms and conditions for exercise of those rights would be set forth at the time of purchase. As noted above, the Commission, in the December Order, reserved jurisdiction over the issuance of voting equity securities by ATC or ATCMI in connection with an IPO by ATCMI. Applicants state that they have not sought and are not seeking a release of that reservation of jurisdiction in this filing.
Prospective purchasers will be advised that issues may arise under the Act if, upon conversion of the preferred securities, they are deemed to own voting securities of ATC and/or ATCMI.
Additionally, Applicants state that it is anticipated that ATC will issue Member Interests and ATCMI will issue Class A shares to Wisconsin Public Service Corporation or its affiliate in exchange for that company's contribution of 50% of the ongoing cash requirements of the Arrowhead to Weston Transmission Line Project ("Project"). Applicants state that current cost estimates are $400 million over the 2002-2004 period.10
Applicants request authority for ATCMI to issue preferred stock or other types of preferred securities to be issued in one or more series with such rights, preferences, and priorities as may be designated in the instrument creating each such series, as determined by ATCMI's board of directors, or a pricing committee or other committee of the board performing similar functions. Preferred securities may be redeemable or may be perpetual in duration. Applicants state that the dividend rate on any series of preferred securities issued by ATCMI would not exceed 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of that series of preferred securities at the time of issuance. Applicants further state that dividends or distributions on preferred securities would be made periodically and to the extent funds are legally available for that purpose, but may be made subject to terms which allow Applicants to defer dividend payments for specified periods. Preferred securities may be sold directly through underwriters or dealers in any manner.
Applicants request authorization to enter into guarantees, obtain letters of credit, enter into expense agreements or otherwise provide credit support with respect to the obligations of their affiliates or Member Utilities in the ordinary course of Applicants' business, in an amount not to exceed $125 million outstanding at any one time during the Authorization Period. ATC would not make any upstream guarantees to Alliant or its subsidiary companies.
Applicants state that certain of the guarantees may be in support of obligations that are not capable of exact quantification. In these cases, Applicants state that exposure under the guarantee will be by appropriate means including estimation of exposure based on loss experience or projected potential payment amounts. These estimates will be made in accordance with generally accepted accounting principles and/or sound financial practices.
Applicants represent that at all times during the Authorization Period, ATCMI and ATC will each maintain common equity of at least 30% of its consolidated capitalization. Applicants further represent that, other than Class A shares and Class B shares and Member Interests, no security may be issued in reliance upon this order, unless: (i) the security to be issued, if rated, is rated investment grade; (ii) all outstanding rated securities of the issuer are rated investment grade; and (iii) all outstanding rated securities of ATCMI are rated investment grade. For purposes of this condition, a security will be considered rated investment grade if it is rated investment grade by at least one nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Act of 1934. Applicants request that the Commission reserve jurisdiction over the issuance by ATCMI or ATC of any securities that are rated below investment grade. Applicants further request that the Commission reserve jurisdiction over the issuance of the securities for which authority is sought herein or any guarantee authority at any time that the conditions set forth in clauses (i) through (iii) above are not satisfied.
These proposed transactions are subject to rule 54 under the Act, which provides that, in determining whether to approve any transaction the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"), as defined in sections 32 and 33, respectively, upon the registered holding company system if paragraphs (a), (b) and (c) of rule 53 are satisfied.
Alliant is the registered holding company parent for ATC and ATCMI. Alliant currently does not meet all of the conditions of rule 53(a). As of December 31, 2002, Alliant's "aggregate investment," as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $565.8 million, or approximately 73.68% of Alliant's average "consolidated retained earnings," as defined in rule 53(a)(1), for the four quarters ended December 31, 2002. Applicants state that although this amount exceeds the 50% "safe harbor" limitation contained in rule 53(a), the Commission authorized Alliant in an order dated October 3, 2001 (HCAR No. 27448) to increase its "aggregate investment" in EWGs and FUCOs to an amount equal to 100% of Alliant's average "consolidated retained earnings."
Applicants state that with regard to capitalization, Alliant has experienced a modest decline in consolidated common stock equity since September 30, 2001, the end of the quarterly period immediately preceding the issuance of the October 3, 2001 order, due primarily to the impact of currency translation losses in Brazil. Applicants state that at December 31, 2002, Alliant's consolidated capitalization consisted of 36.5% common equity, 4.1% preferred stock, 52.4% long-term debt, and 7.1% short-term debt (including current maturities of long-term debt), versus 36.3% common equity, 2.6% preferred stock, 51.2% long-term debt (including variable rate demand bonds classified as current), and 9.9% short-term debt (including current maturities of long-term debt) at September 30, 2001 (the end of the quarter immediately preceding the October 3, 2001 order). Applicants state that these non-cash losses essentially reflect a reduction of the U.S. dollar value of Alliant's investment in FUCOs in Brazil caused by the reduction in value of Brazilian currency in relation to the U.S. dollar. The losses are recorded in "Accumulated other comprehensive loss" on Alliant's consolidated balance sheet and reduce common equity.
Applicants state that Alliant's board of directors recently approved five strategic actions that are likely to strengthen its balance sheet in 2003 which include the sale of certain non-regulated businesses (including Alliant's FUCO investments in Australia); halving the targeted dividend on common stock from $2.00 per share to $1.00 per share; reducing anticipated capital expenditures in 2002 and 2003 (including no new investments in Brazil or in other international operations through 2003); the issuance of approximately $200 - 300 million of new common stock in 2003, depending on market conditions at the time, the proceeds of which would be used primarily to make investments in its domestic public utility subsidiaries; and implementation of other cost control measures. Applicants state that Alliant's actions are designed to reduce debt levels by approximately $800 million to $1 billion over the next 12 months.
Applicants state that Alliant satisfies all of the other conditions of paragraphs (a) and (b) of rule 53. Applicants state that Alliant maintains books and records in conformity with, and otherwise adheres to, the requirements thereof to rule 53(a)(2), no more than 2% of the employees of Alliant's domestic public utility companies render services, at any one time, directly or indirectly, to EWGs or FUCOs in which Alliant directly or indirectly holds an interest according to the requirements of rule 52(a)(3), Alliant will continue to provide a copy of each application and certificate relating to EWGs and FUCOs and relevant portions of its form U5S to each regulator referred to therein, and will otherwise comply with the requirements thereof concerning the furnishing of information according to rule 53(a)(4) and that none of the adverse conditions specified in rule 53(b) exists.
Applicants undertake to file rule 24 certificates of notification within 60 days after the end of the first three calendar quarters and within 90 days after the end of the last calendar quarter in which transactions occur.
The rule 24 certificates will contain the following information as of the end of the applicable quarter:
(i) The sales of any equity securities by ATC or ATCMI and the purchase price per share or Member Interest;
(ii) The amount and terms of any long-term debt issued by ATC during the quarter, and the aggregate amount of short-term debt outstanding as of the end of the quarter, as well as the weighted average interest rate for short-term debt as of such date;
(iii) A description of any utility assets acquired during the quarter and the consideration for each;
(iv) Balance sheets and income statements prepared in accordance with generally accepted accounting principles for ATC as of the end of each of the quarter for the first three calendar quarters;
(v) Audited financial statements with notes as of the end of the calendar year; and
(vi) A report listing by expense category the amount of operational, managerial and administrative services provided by ATCMI to ATC during the calendar year.
Applicants also undertake to file a Form U-13E-1 in respect of any jurisdictional service, sales or construction contracts with Alliant or its subsidiary companies.
Applicants state that approximately $25,000 in fees, commissions and expenses have been incurred in connection with the proposed transaction and that, other than this Commission, no other federal or state regulatory commission has jurisdiction over the above requests.
Due notice of the filing of this Application, as amended, 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. On the basis of the facts in the record, it is found that, except as to those matters over which jurisdiction has been reserved, the applicable standards of the Act and rules under the Act are satisfied, and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that, except as to those matters over which jurisdiction has been reserved, the Application, as amended, be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
IT IS FURTHER ORDERED, that jurisdiction be reserved over the issuance of any convertible securities, other than convertible preferred securities issued by ATC as outlined above in section III.C., pending completion of the record.
For the Commission, by the Division of Investment Management, under delegated authority.
1 Wisconsin Public Power Inc. ("WPPI"), a Wisconsin municipal electric company, contributed cash in exchange for an equity interest in ATC proportional to WPPI's load ratio share in Wisconsin. WPPI is exempt from all provisions of the Act under section 2(c).
2 See December Order. WPL and South Beloit (which are both subsidiary companies of Alliant) are together treated as a single member.
3 See Wisconsin Energy Corp., HCAR No. 27329 (Dec. 28, 2000). Wisconsin Electric Power Company and Edison Sault Electric Company (which are both subsidiaries of Wisconsin Energy Corp., dba We Energies, an exempt holding company) are together treated as a single member.
4 See Madison Gas and Electric Co., HCAR No. 27326 (Dec. 28, 2000). As a result of the acquisition, Madison Gas and Electric Company is both a public-utility company and an exempt holding company.
5 See WPS Resources Corporation, HCAR No. 27330 (Dec. 28, 2000). Wisconsin Electric Power Company is a subsidiary of WPS Resources Corporation, an exempt holding company.
6 Class B shareholders are currently entitled to approve by majority vote: (i) any amendment to the articles of incorporation and (ii) any merger, consolidation, or sale of all or substantially all of ATCMI's assets.
7 Applicants stated in the December Order that this structure was designed to ensure that the Member Utilities had economic interests in proportion to the value of their contribution of assets to ATC, while maintaining the desired per capita voting arrangement. South Beloit and Edison Sault did not receive a Class B share because their respective corporate parents hold their shares.
8 Under the December Order, ATC was authorized to issue long-term and short-term debt in an aggregate amount not to exceed $400 million at any one time outstanding through the Authorization Period provided that short-term debt not exceed $125 million at any one time outstanding during the Authorization Period. As of December 30, 2002, ATC had approximately $350 million outstanding long-term debt, and $0 outstanding short-term debt. Under the December Order, ATCMI was authorized to issue additional Class A shares to new members of ATC and to issue nonvoting preferred securities in an aggregate amount not to exceed $500 million at any one time outstanding during the Authorization Period. As of December 30, 2002, Applicants had approximately $393 million total equity, represented by Member Interests and Class A shares and Class B shares. Applicants had no outstanding preferred securities.
9 Applicants state that as of December 31, 2002, the value of outstanding Class A shares and Class B shares was $103,560. Also at that date, there were 28,127,075 outstanding Member Interests. At that time a Member Interest was valued at $10.77. The total value of Member Interest was $302,811,729. The value on a Member Interest is based on the amount of the initial contribution and any undistributed earnings and so will vary from time to time.
10 Arrowhead-Weston is a 220-mile transmission line connecting Duluth, Minnesota, with Wausau, Wisconsin. Applicants state that the line is needed to accommodate electric load growth in northern Wisconsin and to improve reliability of the electric transmission system in the region. Applicants state that this acquisition of utility assets is subject to approval by the Public Service Commission of Wisconsin and so exempt from section 9(a) (1) under the Act.