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U.S. Securities and Exchange Commission


(Release No. 35-27932; 70-10229)

Xcel Energy Inc., et al.

Order Authorizing Sale of Utility Subsidiary and Related Transaction

December 28, 2004

Xcel Energy Inc. ("Xcel Energy"), a registered public-utility holding company under the Public Utility Holding company Act of 1935, as amended ("Act"), Xcel Energy Services, Inc. ("Xcel Energy Services"), a wholly owned subsidiary service company, Minneapolis, MN, and Public Service Company of Colorado ("PSCo"), one of Xcel Energy's wholly owned utility companies, Denver, CO (collectively, "Applicants"), have filed with the Securities and Exchange Commission ("Commission") an application-declaration, as amended ("Application"), under sections 9(a)(1), 10 and 12(d) of the Act and rules 44 and 54. The Commission issued a notice of the Application on November 19, 2004. The Commission did not receive any request for hearing.

Xcel Energy proposes to sell one of its wholly owned public-utility company subsidiaries, Cheyenne Light, Fuel & Power Company ("Cheyenne"), to Black Hills Corporation ("Black Hills"), a public-utility holding company exempt from registration under section 3(a)(1) of the Act by rule 2.1 Cheyenne is an electric- and gas-utility company, operating in and around Cheyenne, Wyoming, and serving approximately 38,000 electric and 31,000 natural gas customers.2 It is subject to the jurisdiction of the Wyoming Public Service Commission ("Wyoming Commission") and the Federal Energy Regulatory Commission ("FERC").

Xcel Energy directly owns five utility subsidiaries, serving electric or natural gas customers in 11 states: Cheyenne, Northern States Power Company (a Minnesota corporation), Northern States Power Company (a Wisconsin corporation), PSCo and Southwestern Public Service Co. The proposed buyer of Cheyenne, Black Hills, is headquartered in Rapid City, South Dakota. Black Hills' sole public-utility company subsidiary, Black Hills Power, Inc., has customers in eleven counties in western South Dakota, eastern Wyoming and southwestern Montana. Its nonutility subsidiaries are engaged in other energy-related and telecommunications activities.

Xcel Energy states that the sale of Cheyenne is the result of Xcel Energy's business strategy of focusing on core operations and due to changes in the energy industry. Xcel Energy states that its agreement to sell Cheyenne to Black Hills was the result of an auction in which Black Hills was the successful bidder. On January 13, 2004, Xcel Energy and Black Hills entered into a stock purchase agreement in which Xcel Energy agreed to sell and transfer to Black Hills, and Black Hills agreed to purchase from Xcel Energy, all of the common stock of Cheyenne. The purchase price that Black Hills agreed to pay for Cheyenne's stock is the sum of (i) $82,000,000 in cash, (ii) minus the principal amount of indebtedness and all accrued and unpaid interest owed by Cheyenne on Cheyenne's bond issuance (as of the closing date on the sale),3 (iii) plus or minus any adjustments due under the working capital and the capital expenditure adjustments provided for in the agreement.

Xcel Energy, Xcel Energy Services and PSCo also request authority to enter into a transition services agreement with Black Hills under which they will provide certain services to Cheyenne, including certain (i) operational services, (ii) corporate services, (iii) information services, and (iv) other services, for a period not to exceed 6 months (9 months for operational services), with a possible extension period of 3 months. Applicants state that, in the negotiation of the sale of Cheyenne, Applicants agreed to provide these transition services at cost to Black Hills as part of the consideration.

Applicants state that the purchase price and the terms and conditions of the Agreement were the product of an auction process, as stated above. In addition, Xcel Energy does not expect that the sale of the stock will adversely affect competitive conditions. Applicants state that the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), was terminated early on May 17, 2004 without any action by the U. S. Department of Justice ("DOJ") or the Federal Trade Commission ("FTC"). The sale and transfer of the stock by Xcel Energy to Black Hills, and its acquisition by Black Hills, is also subject to approval by the FERC. On September 20, 2004, the FERC approved the transaction. On August 26, 2004, the Wyoming Commission also issued an order approving the transaction.

The transactions proposed are subject to rule 54. Rule 54 provides that, in determining whether to approve certain transactions (other than those involving exempt wholesale generators ("EWGs") or foreign utility companies ("FUCOs"), as defined in sections 32 and 33 of the Act, respectively), if rule 53(a), (b) and (c) are satisfied, the Commission will not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the registered holding company. Xcel Energy states that it satisfies rule 53(a), (b) and(c).4 Consequently, no further consideration of the effect of any EWG or FUCO subsidiary on Xcel Energy is required at this time.

On March 22, 2004, Cheyenne, Xcel Energy and Black Hills jointly filed an application with the Wyoming Commission seeking approval and on August 26, 2004, the Wyoming Commission issued an order approving the transaction. As noted above, the transaction is also subject to jurisdiction of the DOJ, FTC, FERC and the Federal Communications Commission ("FCC").5 Other than as described above, no state regulatory commission and no federal regulatory commission, other than this Commission, has jurisdiction over any of the proposed transactions. The fees, commissions and expenses to be incurred in connection with the proposed transaction are expected not to exceed $125,000.

Due notice of the filing of the Application has been given in the manner prescribed by 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 are satisfied and that no adverse findings are necessary.

IT IS ORDERED that the Application is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24.

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

Margaret H. McFarland
Deputy Secretary


With respect to rule 53(b), Xcel Energy notes that, in 2003, its investment in Denver City Energy Associates LP ("DCEA") was accounted for on the equity method and thus was not included in Xcel Energy's consolidated operating income. Xcel Energy states that it sold its direct investment in DCEA and retains only a 10% indirect ownership interest through US Power Fund LP (for which, in 2003, Xcel Energy reported equity earnings of $80,000). Xcel Energy further notes that, also in 2003, Xcel Energy Argentina Inc. ("Xcel Argentina") and NRG Energy, Inc. ("NRG") were included in discontinued operations and, as a result, NRG and Xcel Argentina were not included in Xcel Energy's 2003 consolidated operating income. For 2003, NRG and Xcel Argentina financial results (i.e., operating income (loss)), were approximately $(251 million) and $21 million, respectively. Finally, Xcel Energy notes that, also in 2003, it reported an income tax benefit of approximately $404 million attributable to its investment in NRG.


Modified: 01/04/2005