SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27784; 70-9861)
Great Plains Energy Incorporated, et al.
Order Authorizing Financing, Dividends, and Other Transactions
December 29, 2003
Great Plains Energy Incorporated ("GPE"), a registered public utility holding company; Kansas City Power & Light Company ("KCPL"), a public utility subsidiary company of GPE; Great Plains Power Incorporated ("GP Power"), a nonutility subsidiary company of GPE; Kansas City Power & Light Receivables Company ("KCPL Receivables"), a nonutility subsidiary of KCPL; all in Kansas City, Missouri; and KLT, Inc., an intermediate holding company of GPE in Overland Park, Kansas (collectively, "Applicants") have filed an application-declaration ("Application") with the Securities and Exchange Commission ("Commission") under sections 6(a), 7, 9(a), 10 and 12(c) of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 45 and 46 under the Act. A notice of the Application was issued by the Commission on November 21, 2003 (HCAR No. 27767).
I. Prior Authorization
By order dated September 7, 2001 (HCAR No. 27436) ("September Order"), the Commission authorized GPE and its subsidiaries, among other things, to engage in: (A) a program of external financing; (B) intrasystem credit support arrangements; (C) interest rate hedging measures; and (D) other intrasystem transactions from time to time through December 31, 2004 ("Authorization Period"). More specifically, the Commission authorized GPE to issue and sell common stock and, directly or indirectly, short-term and long-term debt securities and other forms of preferred or equity-linked securities. The aggregate amount of all such securities issued by GPE during the Authorization Period was limited to $450 million under the conditions of the September Order, and the Commission reserved jurisdiction over (A) the retainability of KLT Investment II until October 1, 2004 and (B) payment of dividends by any nonexempt nonutility subsidiary.
II. Current Requests
Applicants request that the current proposal supersede and replace the authorizations under the September Order through December 31, 2005 ("New Authorization Period"). The term "subsidiary" includes any current and future direct or indirect subsidiary of GPE.
GPE requests authorization to issue and sell, directly or indirectly through financing subsidiaries, $1.2 billion in the aggregate amount of common stock, short-term and long-term debt securities and other forms of preferred or equity-linked securities. Common stock of GPE will be issued and sold either (1) directly by GPE, or (2) directly or indirectly upon conversion into common stock of GPE of preferred or equity-linked securities issued by GPE or financing subsidiaries. GPE may issue and sell common stock through underwriters or dealers, through agents, or directly to a limited number of purchasers or a single purchaser. Also, it requests authority to issue common stock, performance shares options, SARs, warrants or other stock purchase rights exercisable for common stock in public or privately negotiated transaction as consideration for the equity securities or assets of other existing companies, provided that the acquisition of any such equity securities or assets has been authorized in a separate proceeding or is exempt under the Act or the rules under the Act. GPE will directly issue preferred and equity-linked securities, including specifically, debt or preferred securities that are convertible, either manditorily or at the option of the holder, into common stock or GPE indebtedness and forward purchase contracts for common stock. Long-term debt of GPE may be in the form of unsecured notes ("Debentures") issued in one or more series. To provide for financing for general corporate purposes, other working capital requirements and investments in new enterprises until long-term financing can be obtained, GPE may sell, directly or indirectly through one or more financing subsidiaries, commercial paper or establish bank lines of credit.
KCPL requests authorization to issue and sell notes and other evidence of indebtedness having a maturity of one year or less in an aggregate principal amount outstanding at any one time not to exceed $500 million, including without limitation commercial paper, bank lines of credit, and other debt securities.1
GPE, the nonutility subsidiaries listed in Exhibit J of the Application ("Exhibit J Subsidiaries"), and any future nonutility subsidiaries request authority to make loans to any such associate company at interest rates and maturities designed to provide a return to the lending company of not less than its effective cost of capital when the borrowing Exhibit J Subsidiary is: (1) not wholly owned directly or indirectly by GPE and (2) does not sell goods or services to KCPL. The following existing Exhibit J Subsidiaries are not wholly owned: Wolf Creek Nuclear Operating Corporation; Custom Energy Holdings, LLC; Strategic Energy LLC; Forest City Gathering LLC; Patrick KLT Gas, LLC; and eChannel, Inc.
GPE and KCPL request authorization to enter into interest rate hedging transactions with respect to existing indebtedness, subject to certain limitations and restrictions, in order to reduce or manage interest rate cost. Interest Rate Hedges would only be entered into with counterparties whose senior debt ratings, or the senior debt ratings of the parent companies of the counterparties, as published by Standard and Poor's Ratings Group, are equal to or greater than BBB, or an equivalent rating from Moody's Investors Service, Fitch, or Duff and Phelps.
GPE proposes to enter into guarantees and other forms of support agreements on behalf or for the benefit of any subsidiary during the New Authorization Period in an aggregate principal amount not to exceed $600 million outstanding at any one time.
Applicants also request authorization for nonutility subsidiaries to provide credit support on behalf of and for the benefit of other nonutility subsidiaries in an aggregate principal amount not to exceed $300 million outstanding at any one time, exclusive of any guarantees and other forms of credit support exempt under rule 45(b)(7) or rule 52(b).
KCPL currently leases from nonaffiliates certain utility assets for use in providing electric service within its service territory. Two of these leases are for transmission assets, and one lease is for five combustion turbines. No affiliate or associate company of KCPL is a party to these leases, and KCPL does not sublease any of these utility assets to any affiliate or associate company (including but not limited to GP Power). KCPL requests authority to continue with these leases in accordance with their terms.
D. Changes in Capital Stock and Financing Subsidiaries
The Applicants request authorization to change any wholly owned Exhibit J Subsidiary's capital stock capitalization. Applicants further represent that any alteration of the terms and conditions of any capital stock of a subsidiary, which is a public utility subsidiary company (as defined in section 2(a)(5) of the Act) would be subject to and would only be taken upon the receipt of further Commission authorization and any necessary approvals by the state commissions in the state or states in which such subsidiary is incorporated.
GPE and its subsidiaries request authority to acquire, directly or indirectly, the equity securities of one or more corporations, trusts, partnerships or other entities created specifically for the purpose of facilitating the financing of the authorized and exempt activities ("Financing Subsidiaries") of GPE and the subsidiaries through the issuance of debt or equity securities, including but not limited to company-obligated manditorily redeemable trust preferred securities, to third parties. A Financing Subsidiary would loan, dividend or otherwise transfer the proceeds of any such financing to its parent. The terms of any loan of the proceeds of any securities issued by a Financing Subsidiary may, if required, guarantee or enter into expense agreements in respect of the obligations of any expense agreements under rules 45(b)(7) and rule 52, as applicable, if required on behalf of any Financing Subsidiaries which they organize.
E. Intermediate Subsidiaries
GPE request authority to acquire, directly or indirectly through a nonutility subsidiary (excluding Great Plains Energy Services, Inc.), the securities of one or more new intermediate subsidiary companies which may be organized exclusively for the purpose of acquiring, holding and/or financing the acquisition of the securities of or other interest in one or more EWGs, foreign utility companies ("FUCOs"), exempt telecommunications companies ("ETC"), rule 58 companies or other nonutility subsidiaries (as authorized in this proceeding). GPE requests authority for these new intermediate subsidiaries, as well as existing intermediate subsidiaries (collectively, "Intermediate Subsidiaries"), to provide management, administrative, project development and operating services to such entities at fair market prices determined without regard to cost, and therefore requests an exemption (to the extent that rule 90(d) does not apply) under section 13(b) from the cost standards of rules 90 and 91 as applicable to such transactions, in any case in which the nonutility subsidiary purchasing such goods or services is:
(1) A FUCO or foreign EWG that derives no part of its income, directly or indirectly, from the generation, transmission, or distribution of electric energy for sale within the United States;
(2) An EWG that sells electricity at market-based rates which have been approved by the FERC, provided that the purchaser is not KCPL;
(3) A "qualifying facility" ("QF") within the meaning of the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA") that sells electricity exclusively (a) at rates negotiated at arms'-length to one or more industrial or commercial customers purchasing such electricity for their own use and not for resale, and/or (b) to an electric utility company at the purchaser's "avoided cost" as determined in accordance with the regulations under PURPA;
(4) A domestic EWG or QF that sells electricity at rates based upon its cost of service, as approved by FERC or any state public utility commission having jurisdiction, provided that the purchaser thereof is not KCPL; or
(5) A rule 58 subsidiary or any other nonutility subsidiary that (a) is partially-owned by GPE, provided that the ultimate purchaser of such goods or services is not KCPL (or any other entity that GPE may form whose activities and operations are primarily related to the provision of goods and services to KCPL), (b) is engaged solely in the business of developing, owning, operating and/or providing services or goods to nonutility subsidiaries described in clauses (1) through (4) immediately above, or (c) does not derive, directly or indirectly, any material part of its income from sources within the United States and is not a public utility company operating within the United States.
F. Payment of Dividends
Applicants, on behalf of the following specified subsidiaries: GP Power; Innovative Energy Consultants Inc.; Home Service Solutions Inc.; Worry Free Service Inc.; KLT Inc., KLT Investments II Inc.; KLT Energy Services Inc.; Custom Energy Holdings, LLC; Strategic Energy LLC, KLT Gas Inc.; Apache Canyon Gas LLC; FAR Gas Acquisitions Corporation; Forest City, LLC; Forest City Gathering Company; and Patrick KLT Gas, LLC (collectively, "Specified Subsidiaries") request that the Specified Subsidiaries be permitted to pay dividends out of capital and unearned surplus, provided that no Specified Subsidiary at the time of payment such Specified Subsidiary either derives any material part of its revenues from the sale of goods, services, electricity or natural gas to KCPL or has negative retained earnings, without further approval of the Commission. GPE requests that the Commission reserve jurisdiction over dividends paid out of capital and unearned surplus by (1) any Specified Subsidiary which at the time of payment either (a) derives any material part of its revenues from the sale of goods, services, electricity, or natural gas to KCPL or (b) has negative retained earnings, and (2) any nonutility subsidiary not identified as a Specified Subsidiary.
G. Use of Proceeds
GPE states that the proposed increase in the authorized limit on issuing common stock, short-term and long-term debt securities and other forms of preferred or equity-linked securities will enable it to: (1) finance investments and capital expenditures by it and its subsidiaries; (2) to fund future investments in any ETC or energy-related or gas-related company within the meaning of rule 58; (3) to repay, redeem, refund or purchase by it or its subsidiaries of their respective securities; and (4) to finance the working capital requirements of it and its subsidiaries. GPE further states that the proposed increase in the authorized limit will provide additional liquidity to it and the ability to increase its equity to total capitalization ratio, which will strengthen its financial position and enhance its access to the capital markets. GPE does not request authority at this time to invest in EWGs or FUCOs.
GPE has invested, directly or indirectly, approximately $3.3 million in GP Power as of September 30, 2003. GPE requests authority to continue to invest, directly or indirectly, up to $10 million in the aggregate in GP Power to be used as preliminary IPP project development. GP Power was described in Appendix A to the September Order as a wholly owned subsidiary of GPE after the holding company reorganization and would hold interests in independent power producers ("IPPs"). Currently, GP Power is a nonutility subsidiary engaged in certain IPP preliminary project development and administrative activities such as obtaining options to purchase real estate for potential plant sites, filing application for air, wetlands and other preconstruction matters and filing a market-based rate schedule with the Federal Energy Regulatory Commission. GPE states that it will seek the authorization of the Commission before it acquires, directly or indirectly, any securities of an IPP.
H. Financing Parameters
1. Interest Rates on Indebtedness
The interest rate on long-term debt securities (debt securities having maturities of one year or more) issued to non-associate companies pursuant to Commission authorization will not exceed at the time of issuance the greater of (a) 500 basis points of the yield to maturity of a U.S. Treasury security having a remaining term approximately equal to the term of such debt, or (b) competitive market rates for securities of comparable credit quality with similar terms and features. The interest rate on GPE bank lines of credit and short-term debt securities (debt securities having maturities of less than one year) issued to non-associate companies pursuant to Commission authorization will not exceed at the time of issuance the greater of (a) 500 basis points over the comparable term London Interbank Offered Rate ("LIBOR"), or (b) a gross spread over LIBOR that is consistent with similar securities of comparable credit quality with similar terms and features.
2. Investment Grade Ratings
Apart from securities issued either for intrasystem financings, or by KCPL in the form of commercial paper or short-term bank facilities, no guarantees or other securities, other than common stock, may be issued in reliance upon the authorization granted by the Commission unless: (a) the security to be issued, if rated, is rated investment grade; (b) all outstanding securities of the issuer (except in the case of GPE, its preferred stock) that are rated are rated investment grade; and (c) all outstanding securities of GPE (except for GPE's preferred stock) that are rated are rated investment grade.2 Applicants request that the Commission reserve jurisdiction over the issuance or any guarantee or other securities at any time that the conditions set forth in clauses (a) through (c) are not satisfied.
3. Common Equity Capitalization
Issuance of guarantees or other securities in reliance upon the authorization by the Commission will be subject to the following conditions: (a) GPE will maintain common equity as a percentage of consolidated capitalization (as reflected on the balance sheets contained in its most recent filing on Form 10-K or Form 10-Q filed with the Commission pursuant to the Securities Exchange Act of 1934, and including short-term debt and current maturities of long term debt) at 30% or higher at all times during the Authorization Period; and (b) KCPL will maintain common equity as a percentage of consolidated capitalization (determined in the same manner specified above) at 30% or higher during the Authorization Period. The Commission is requested to reserve jurisdiction over the issuance of guarantees or other securities in those circumstances where GPE or KCPL does not comply with the 30% common equity criteria.
I. Reservation of Jurisdiction
In addition, Applicants request that the Commission continue to reserve jurisdiction over the retention of KLT Investments II until December 31, 2005.3
Applicants estimate that the fees and expenses associated with these transactions will not exceed $10,000, not including underwriting fees and other expenses, which will not exceed five percent of the proceeds of the financings. Approval of the Missouri Public Service Commission (the "MPSC") is required prior to the encumbrance of KCPL's assets or the issuance and sale by KCPL of stocks, bonds, notes or other evidences of indebtedness payable at periods of more than twelve months after the date thereof. No state commission, and no federal commission other than this Commission, has jurisdiction over any of the transactions proposed.
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. 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 are satisfied, and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that except as to those matters over which jurisdiction has been reserved, the Application, as amended, be and it hereby is, granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24, under the Act, including the following information which will be filed within 60 days after the end of each of the first three fiscal quarters, and 90 days after the end of the last fiscal quarter, in which the transactions occur:
IT IS FURTHER ORDERED, that jurisdiction be, and it hereby is, reserved over: (1) the retainability of KLT Investment II until December 31, 2005; (2) the payment of dividends by (a) any Specified Subsidiary that (i) derives a material part of its revenues from KCPL or (ii) has negative retained earnings and (b) any nonutility subsidiary not identified as a Specified Subsidiary; (3) the issuance by GPE and KCPL of any preferred stock and/or any other securities that are rated below investment grade; (4) the issuance of any guarantee or other securities at any time that the following conditions are not satisfied: (a) the security to be issued, if rated, is rated investment grade and (b) all outstanding securities of the issuer, except in the case of GPE, (GPE's preferred stock) that are rated are rated investment grade; and (5) the issuance of guarantees or other securities in those circumstances where GPE or KCPL does not comply with the 30% common equity criteria.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Jill M. Peterson
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