SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27923; 70-10247)
Allegheny Energy, Inc.
Order Authorizing Sale Of Ownership Interest In Ohio Valley Electric Corporation
December 14, 2004
Allegheny Energy, Inc. ("Allegheny"), a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), Greensburg, Pennsylvania, has filed a declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under section 12(d) and rule 44 of the Act. The Commission issued a notice of the Declaration on September 28, 2004 (Holding Co. Act Release No. 27897).
Allegheny requests authorization to sell a nine percent ownership interest in Ohio Valley Electric Corporation ("OVEC") to Buckeye Power Generating, LLC ("Buckeye Power"), an affiliate of Buckeye Power Inc. OVEC is a public utility company under the Act.
OVEC was formed in the early 1950s by a group of holding companies and utilities located in the Ohio Valley region in response to the request of the United States Atomic Energy Commission ("AEC") to supply the electric power and energy necessary to meet the needs of a uranium enrichment plant being built by the AEC in Pike County, Ohio. The holding companies that directly or indirectly own 10 percent or more of OVEC's stock, each of which is a registered holding company, are: Allegheny (12.5%),1 American Electric Power Company, Inc. ("AEP") (44.2%) and FirstEnergy Corp. ("FirstEnergy") (20.5%).2
OVEC owns two coal-fired generating stations: (1) the Kyger Creek Plant in Cheshire, Ohio, which has a generating capacity of 1,075 megawatts, and (2) the Clifty Creek Plant in Madison, Indiana, which has a generating capacity of 1,290 megawatts and is owned by OVEC's wholly-owned subsidiary, Indiana-Kentucky Electric Corporation. Originally, the Department of Energy ("DOE") purchased essentially all of the generating capacity of OVEC's generating facilities. However, DOE terminated its purchase agreement on April 30, 2003, and each of the Sponsoring Companies currently is entitled to its specified share of all net power and energy produced by OVEC's two generating stations.3
Buckeye Power, Inc., is a member-owned generation and transmission cooperative based in Columbus, Ohio, that supplies power and energy to all the electric distribution cooperatives that serve customers in Ohio. The certified service territory of these distribution cooperatives covers nearly 40 percent of the land area in the state and encompasses 77 of Ohio's 88 counties.
On May 17, 2004, Allegheny signed a purchase agreement ("Purchase Agreement") under which Allegheny will sell a nine percent equity interest in OVEC, and Allegheny Energy Supply Company, LLC ("AE Supply"), will assign its rights to nine percent of the power generated by OVEC, to Buckeye Power for $102 million in cash and the assumption of approximately $37 million in debt by Buckeye Power ("Purchase Price"). Of the total cash component of the Purchase Price, $7,140,000 represents the price for the transfer of Allegheny's nine percent equity interest in OVEC, the transaction for which authority is being sought in this Application. The remainder represents the price for the assignment of AE Supply's rights under the OVEC Inter-Company Power Agreement to nine percent of the power generated by OVEC.4
Allegheny maintains that the sale and assignment of these various interests is consistent with Allegheny's strategic goals of improving its financial strength by reducing debt and of refocusing its attention on the generation assets it owns and operates within the PJM Interconnection territory. Allegheny will use the net proceeds from the OVEC sale to reduce outstanding debt and for general corporate purposes.
Allegheny states that the Purchase Price and other definitive terms for the sale of OVEC reflected in the Purchase Agreement - negotiated by representatives of the parties over a number of months - are the result of arm's-length bargaining, and the Purchase Price constitutes fair and adequate consideration for the sale and assignment of Allegheny's interests in OVEC.
The proposed transaction is subject to rule 54 under the Act, which provides that in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an exempt wholesale generator ("EWG") or a foreign utility company ("FUCO"), or other transactions by that registered holding company or its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any EWG or a FUCO subsidiary on the registered holding company if paragraphs (a), (b) and (c) of rule 53 are satisfied.
Allegheny does not satisfy the requirements of rule 53(a)(1).5 Allegheny currently complies with, and will comply with, the record keeping requirements of rule 53(a)(2), the limitation under rule 53(a)(3) on the use of the Allegheny system's domestic public-utility company personnel to render services to EWGs and FUCOs, and the requirements of rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail regulatory commissions. None of the circumstances described in 53(b)(1) have occurred. The circumstances described in Rule 53(b)(2) and Rule 53(b)(3) have occurred. Allegheny submits that the requirements of rule 53(c) are met.
Allegheny believes that the requested authorization will not have a substantial adverse impact upon the financial integrity of Allegheny, nor its operating companies, which include Monongahela Power Company ("Monongahela"), West Penn Power Company ("West Penn"), and The Potomac Edison Company ("Potomac Edison"). Moreover, the operating companies and their customers will not be adversely impacted by the requested relief. The ratio of common equity to total capitalization of each of the operating companies will continue to be maintained at not less than 30 percent.6 In addition, each of the operating companies is subject to regulation by state commissions that are able to protect utility customers within their respective states.
Allegheny states that the fees, commissions and expenses incurred or to be incurred in connection with this Declaration will be approximately $10,000.
The Federal Energy Regulatory Commission approved the transaction for which authority is requested on September 15, 2004. No other state or federal commission, other than this Commission, has jurisdiction over the transaction.
Due notice of the filing of this Declaration 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. Based on the facts in the record, the Commission finds that 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 the Declaration be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
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