SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27539 ; International Series Release No. 1260; 70-9961 and 70-9985)
E.ON AG, et al.
Order Authorizing the Acquisition of Foreign Registered Holding Company and Related Transactions; Approving Other Related Requests; Declaring Company Not to Be a Subsidiary; Discussing Individual Comments on the Acquisition; Approving Financings and Intrasystem Service Transactions; and Reserving Jurisdiction
June 14, 2002
E.ON AG ("E.ON"), Düsseldorf, Germany, a German public-utility holding company exempt from registration by rule 5 under the Public Utility Holding Company Act of 1935, as amended ("Act"), and Powergen plc ("Powergen"), London, U.K., a U.K. registered public-utility holding company, together with certain direct and indirect wholly owned subsidiaries of Powergen, all registered holding companies, specifically, Powergen US Holdings Limited ("Powergen US Holdings"), Powergen US Investments, Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl, Powergen Luxembourg Investments sarl, Powergen US Investments Corp. ("PUSIC"), London, U.K. (collectively, the "Powergen Intermediate Holding Companies," and, together with E.ON and Powergen, the "Merger Applicants") have filed a joint application-declaration, as amended (the "Merger Application"), under sections 2(a)(8), 4, 5, 9(a)(2), 10, 13(b), 14 and 15 of the Act and rules 80 through 91, 93 and 94 in connection with E.ON's proposed acquisition of the outstanding voting securities of Powergen ("Acquisition") and related transactions. The Acquisition would result in E.ON's indirect acquisition of Powergen's indirect subsidiary, LG&E Energy Corp. ("LG&E Energy"), a Kentucky public-utility holding company exempt from registration by order under section 3(a)(1) of the Act, and LG&E Energy's public-utility subsidiary companies, Louisville Gas and Electric Company ("LG&E") and Kentucky Utilities Company ("KU", and, together with LG&E, the "Utility Subsidiaries").1 Following the Acquisition, E.ON would register as a holding company under section 5 of the Act.
In addition, E.ON and certain of its subsidiaries, E.ON UK Verwaltungs GmbH ("E.ON UK"), E.ON UK plc, E.ON US Verwaltungs GmbH ("E.ON US"), all of Dűsseldorf, Germany; Fidelia, Inc., ("Fidelia"), a Delaware finance company subsidiary and E.ON North America Inc. ("E.ON NA"), a Delaware corporation; and Powergen, the Powergen Intermediate Holding Companies, Powergen US Funding LLC ("Powergen US Funding"), a financing vehicle for Powergen US Holdings, all of London, U.K.; LG&E Energy, the Utility Subsidiaries and LG&E Energy's nonutility subsidiaries, all of Louisville, Kentucky (the "LG&E Energy Nonutilities" and, together with LG&E Energy and the Utility Subsidiaries, the "LG&E Energy Group") (collectively, the "Financing Applicants"), have filed a declaration-application, as amended, under sections 6(a), 7, 9(a), 10, 12, 13, 32 and 33 of the Act and rules 45, 46, 52, 53, 54, 90 and 91 requesting authority for various financing transactions and service agreements related to the proposed Acquisition (the "Financing Application").
The Commission issued a notice of the filing of the Merger Application on December 21, 2001.2 The Commission received comments from two individuals. The Commission issued a notice of the Financing Application on March 12, 2002.3 No comments or requests for hearing were received concerning the Financing Application.
Table of Contents
"Applicants" means E.ON and its direct and indirect subsidiary companies, except its FUCO subsidiaries, and Powergen and its direct and indirect subsidiaries, except its FUCO subsidiaries.
"E.ON" means E.ON AG.
"E.ON Energie" means E.ON Energie AG.
"E.ON Group" means E.ON and all of its direct and indirect subsidiary companies.
"E.ON UK" means E.ON U.K. Verwaltungs GmbH.
"E.ON US" means E.ON U.S. Verwaltungs GmbH.
"E.ON US Intermediate Holding Companies" means E.ON US and Powergen US Investments Corp. ("PUSIC"), following the Acquisition and the Reorganization in which PUSIC and the LG&E Energy Group will be transferred to E.ON US.
"E.ON UK Intermediate Holding Companies" means E.ON UK, E.ON UK plc, Powergen, Powergen US Holdings Limited ("Powergen US Holdings"), Powergen US Investments, Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl and Powergen Luxembourg Investments sarl.
"KU" means Kentucky Utilities Company.
"LG&E Energy Group" means LG&E Energy and all of its direct and indirect subsidiary companies.
"LG&E Energy" means LG&E Energy Corporation.
"LG&E" means Louisville Gas and Electric Company.
"Powergen" means Powergen plc.
"Powergen Group" means Powergen and all of its direct and indirect subsidiaries.
"Powergen Group Holdings is the "umbrella" foreign utility company ("FUCO") in the Powergen Group.
"Powergen Financing Entities" means Powergen US Funding LLC and Powergen US Holdings and its subsidiaries: Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl and Powergen Luxembourg Investments sarl.
"Powergen Intermediate Holding Companies" means Powergen US Holdings, Powergen US Investments, Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl and Powergen Luxembourg Investments sarl and PUSIC.
Following the Acquisition and Reorganization, Powergen US Holdings, Powergen US Investments, Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl and Powergen Luxembourg Investments sarl (but not PUSIC) will be included among the E.ON UK Intermediate Holding Companies.
"Utility Subsidiaries" means LG&E and KU.
E.ON seeks authorization to acquire all of the issued and outstanding common stock of Powergen, and, through the acquisition, LG&E Energy and the Utility Subsidiaries.4 Following the Acquisition, LG&E Energy would continue to claim exemption from registration under section 3(a)(1) of the Act and E.ON would register as a holding company under section 5 of the Act.
E.ON also requests authorization, following the Acquisition:
1) to make certain corporate structure changes in a reorganization without having to seek specific authority for each change, subject to certain conditions;
2) to own E.ON's and Powergen's foreign utility operations as foreign utility companies ("FUCOs"), as defined in section 33 of the Act;
3) to own certain other existing and to be acquired nonutility businesses;
4) to retain, and continue to make, investments held as reserves against long-term liabilities regarding employee benefits and nuclear plant decommissioning, as being "in the ordinary course of business" under section 9(c)(3) of the Act, in accordance with German corporate practice;
5) to invest up to $4 billion in certain nonutility businesses that E.ON intends to divest within a certain period following the Acquisition;
6) for E.ON and its subsidiaries, Powergen and its subsidiaries, and LG&E Energy and its subsidiaries to engage in intrasystem service transactions, subject to certain conditions; and
7) to exempt from the at-cost requirements of section 13 of the Act certain intrasystem service transactions.
In addition, the Merger Applicants request the Commission:
1) to issue an order under section 2(a)(8) of the Act declaring RAG AG, a partially owned German nonutility subsidiary of E.ON, not to be a subsidiary; and
2) to disregard certain intermediate holding companies for purposes of applying section 11(b)(2) of the Act.
E.ON is an Aktiengesellschaft, the equivalent of a U.S. stock corporation, under the laws of the Federal Republic of Germany. E.ON was formed in June 2000 as a result of the merger of two German conglomerates, VEBA AG ("VEBA") and VIAG AG ("VIAG"), which traced their roots to the 1920s. E.ON's shares are traded on all German stock exchanges and the Swiss Stock Exchange and as American Depository Receipts ("ADRs") on the New York Stock Exchange. As of year end 2001, E.ON was Germany's fifth largest industrial group, based on market capitalization of approximately $35 billion as of December 31, 2001.
For the year ending December 31, 2001, E.ON had revenues of €79.7 billion ($70.9 billion) and net income of €2 billion ($1.8 billion).5 As of December 31, 2001, E.ON had total assets of €99.05 billion ($88.2 billion).6
E.ON's corporate subsidiaries are organized into six separate business divisions: energy, chemicals, real estate, oil, telecommunications and distribution/logistics. Each division is responsible for managing its own day-to-day business. E.ON and its direct and indirect subsidiaries are referred to as the "E.ON Group." E.ON provides strategic management for E.ON Group members and coordinates E.ON Group activities. E.ON also provides centralized controller, treasury, risk management and service functions to E.ON Group members, as well as functions relating to communications, capital markets and investor relations. The subsidiary through which E.ON conducts its energy business is discussed in the following section. E.ON's other nonutility interests are discussed in section V,C, infra.
E.ON Energie AG ("E.ON Energie"), a wholly owned subsidiary, heads E.ON's energy division, which accounts for 51% of E.ON's total investments. E.ON Energie was formed in July 2000, when E.ON merged the two major energy divisions of VEBA and VIAG. E.ON Energie's core business consists of the ownership and operation of power generation facilities, and the transmission and distribution of electric power, gas and heat and energy-related businesses, including the supply of water and water-related services. At the time of, or prior to, the Acquisition, E.ON will claim FUCO status for E.ON Energie by filing Form U-57 under rule 57.
E.ON Energie conducts its retail energy business through a number of mostly majority owned subsidiaries and its utility distribution and supply business through a number of majority owned subsidiaries in Germany.7 E.ON Energie supplied about one-third of the electricity consumed in Germany in 2001, when E.ON Energie sold 203.3 billion kilowatt hours ("kWh") of electricity in western Germany and 26.8 billion kWh in eastern Germany.8 E.ON Energie also conducts a marketing and energy trading business through its wholly owned subsidiary, E.ON Sales & Trading GmbH.
E.ON Energie holds stakes in various regional electricity and gas distributors and in municipal utilities ("Stadtwerke").9 For historical and political reasons, E.ON Energie rarely owns 100% of the regional utilities or Stadtwerke.
E.ON Energie's principal water-related activities are centered in the German stock exchange-listed company Gelsenwasser, the largest privately held water utility in Germany based on volume of water deliveries. Gelsenwasser also provides gas utility services. E.ON Energie holds an 80.5% equity interest in Gelsenwasser through its wholly owned subsidiary, E.ON Aqua GmbH.
In 2001, E.ON Energie had total revenues of approximately €18.4 billion ($16.4 billion), including €694 million ($618 million) in electricity taxes. Gas and electricity revenues (including district heating) accounted for 89% of these revenues. Of the remaining revenues, 1.6% were attributable to water activities and 9.4% were derived from other sales.
Powergen is a U.K. integrated energy company, with principal operations in the U.K. and the U.S. Powergen's ordinary shares are listed on the London Stock Exchange and its American Depository Shares ("ADSs") are listed on the New York Stock Exchange. Powergen, including its predecessor company, has been a reporting company under the Securities Exchange Act of 1934, as amended (the "1934 Act"), since 1995 and has filed reports with the Commission in accordance with the requirements of the 1934 Act applicable to foreign private issuers.
For the year ending December 31, 2001, Powergen had revenues of £5.659 billion ($8.23 billion) and net income under U.S. generally accepted accounted principles ("GAAP") of £101 million ($147 million). As of December 31, 2001, Powergen had total assets of £10.52 billion ($15.3 billion) and a market capitalization of approximately £4.9 billion ($7.2 billion). Powergen and all of its direct and indirect subsidiary companies are referred to below as the Powergen Group.10
Powergen's two principal subsidiaries are Powergen Group Holdings and Powergen US Holdings, both U.K. companies. Powergen Group Holdings, a FUCO, is the holding company for Powergen's U.K. and international businesses. Powergen Group Holdings' wholly owned subsidiary, Powergen UK plc, is one of the U.K.'s largest integrated electricity and gas businesses. As of December 31, 2001, Powergen UK plc owned or operated approximately 8,200 megawatts ("MW") of core generation capacity (of which approximately 7,400 MW is wholly owned and the balance held through joint ventures), and served over three million customer accounts. Powergen's operations in the U.K. include the marketing of electricity, gas, telecommunications and other essential services to domestic and business customers; asset management in electricity production and distribution; and energy trading to support those activities. Through Powergen International Ltd., Powergen holds interests in power projects in India and the Asia Pacific Region.
Powergen US Holdings, a registered holding company, is the holding company for Powergen's U.S. business, and is the indirect parent, through the chain of the Powergen Intermediate Holding Companies (Powergen US Investments, Powergen Luxembourg sarl, Powergen Luxembourg Holdings sarl, Powergen Luxembourg Investments sarl and PUSIC), of LG&E Energy, which Powergen acquired on December 11, 2000, in accordance with the Powergen Order.11 PUSIC holds all of the outstanding voting securities of LG&E Energy.
LG&E Energy is a holding company exempt by order under section 3(a)(1) of the Act.12 It is engaged, through its subsidiaries, in power generation and project development; retail gas and electric utility services; and asset-based energy marketing. Its public-utility subsidiary companies, LG&E and KU, serve in the aggregate approximately 857,000 electricity customers and 299,000 gas customers over a transmission and distribution network covering some 27,000 square miles.13 LG&E Energy also is engaged through subsidiaries in a variety of nonutility businesses, including independent power generation, foreign utility operations, energy services, and commercial and industrial energy consulting.14 LG&E Energy and all of its direct and indirect subsidiary companies are referred to below as the LG&E Energy Group.
LG&E engages in the generation, transmission, and distribution of electricity to approximately 364,000 customers in Louisville and 16 surrounding counties. LG&E also purchases, distributes and sells natural gas to approximately 299,000 customers within this service area and in limited additional areas. 15 For the twelve months ended December 31, 2001, LG&E had electric operating revenues of $705.9 million (net of provision for rate refunds), gas operating revenues of $290.8 million, electric operating income of $123.8 million and gas operating income of $18 million. LG&E is subject to regulation by the Federal Energy Regulatory Commission (the "FERC") and the Kentucky Public Service Commission (the "Kentucky Commission").
KU engages in the generation, transmission, and distribution of electricity to approximately 464,000 customers in over 600 communities and adjacent suburban and rural areas in 77 counties in central, southeastern and western Kentucky, and to approximately 29,000 customers in five counties in southwestern Virginia.16 KU also sells electric energy at wholesale for resale to twelve Kentucky municipalities and one Pennsylvania municipality. In addition, KU owns and operates a small amount of electric utility property in one county in Tennessee.
For the year ended December 31, 2001, KU had electric operating revenues of $859.5 million and operating income of $121.4 million. KU is subject to regulation by the FERC, the Kentucky Commission, the Virginia State Corporation Commission (the "Virginia Commission") and the Tennessee Regulatory Authority (the "Tennessee Commission").
On April 9, 2001, E.ON and Powergen announced that they had agreed to the terms for the Acquisition. Applicants propose to effect the Acquisition by means of a court-supervised Scheme of Arrangement under Section 425 of the U.K. Companies Act 1985 ("Scheme").17 In a Scheme of Arrangement, the company to be acquired makes an application to the High Court of Justice of England and Wales ("High Court") for the High Court to summon a meeting of shareholders. It is at the discretion of the High Court to order this meeting. If the meeting is ordered, the shareholders vote on the Scheme at two meetings, which will be held on the same day at a single location.
The High Court orders the first meeting (the "Court Meeting"). To be effective, the Scheme must receive the affirmative vote of a simple majority of those shareholders present and voting (either in person or by proxy) at the Court Meeting, representing at least 75% of the shares held by those shareholders present and voting. At the second meeting, the Extraordinary General Meeting, the shareholders must pass a special resolution approving the implementation of the Scheme. At meetings held on April 19, 2002, Powergen's shareholders voted to approve the proposed Acquisition.
There will be a further hearing before the High Court to sanction the Scheme at the court's discretion. The Scheme will be effective once the High Court order sanctioning the Scheme has been delivered to the U.K. Registrar of Companies.
Powergen must submit to the High Court the document convening the necessary shareholder meetings. This document, the "Scheme Circular," must be sent to shareholders in advance of the meetings. Powergen filed with the Commission a declaration under section 12 of the Act and rule 62 to obtain authorization to solicit proxies from its shareholders in connection with the Scheme and the Commission issued an order permitting the declaration to become effective.18
E.ON will pay £7.65 for each Powergen share and £30.60 for each Powergen ADS (representing four Powergen shares). The offer values the whole of Powergen's capital stock at approximately £5.1 billion ($7.3 billion) (assuming the exercise in full of all outstanding options under Powergen's employee benefit plans). E.ON will acquire Powergen, including its outstanding debt. On the basis of the Powergen debt outstanding as at December 31, 2000 of £4.5 billion ($6.4 billion), adjusted for divestments announced by Powergen prior to the date of the Agreement, the total value of the proposed acquisition would be £9.6 billion ($13.7 billion).19
The Merger Applicants state that, for U.K. tax purposes, some shareholders of Powergen may prefer to receive a loan note rather than cash in return for their Powergen shares. Under U.K. tax law, Powergen shareholders can defer recognition of any capital gains from the sale of their shares until they redeem the loan notes. In the event that loan notes are used, accepting Powergen shareholders would receive £1 nominal of loan notes for every £1 of cash consideration.20 The loan notes would be unsecured, and would not exceed $7.3 billion in aggregate principal amount issued.21 If E.ON elects to make the offer through another E.ON Group company, E.ON UK plc, E.ON would guarantee the loan notes.22
None of Powergen, LG&E Energy or any of their subsidiaries will borrow or issue any security, incur any debt or pledge any assets to finance any portion of the purchase price paid by E.ON for the Powergen shares.
As noted above, the requisite European Commission and U.K. approvals have been obtained. In addition, the Kentucky, Virginia and Tennessee Commissions have granted their approvals. The FERC has approved the Acquisition under section 203 of the Federal Power Act. The Merger Applicants made the applicable filings with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the applicable waiting periods expired on November 15, 2001. The Committee on Foreign Investments in the United States has concluded that there are no issues of national security with respect to the Acquisition to warrant an investigation under the Exon-Florio Amendment to the Defense Production Act of 1950.23
The Merger Applicants state that the German and European utility regulations that affect the E.ON Group apply only to the German and European operating companies and not to E.ON, which will register under the Act. There is therefore no conflict between regulation under the Act and German or European regulation. Similarly, U.K. utility regulation affecting Powergen (and E.ON following the Acquisition) would apply only to the U.K. operating companies and not directly to E.ON. Therefore, there also will be no conflict between regulation under the Act and U.K. regulation.
To effect the Acquisition, E.ON has established a wholly owned German subsidiary, E.ON UK Verwaltungs GmbH ("E.ON UK"), which in turn owns all the outstanding shares of an acquisition vehicle, E.ON UK plc, that will acquire all of the outstanding Powergen shares and survive the Acquisition. E.ON, E.ON UK and E.ON UK plc will register as holding companies.
As a subsidiary of E.ON UK and E.ON UK plc, Powergen will remain the immediate parent company of Powergen Group Holdings, the "umbrella" FUCO in the Powergen Group.
Powergen will continue to hold LG&E Energy through the Powergen Intermediate Holding Companies, each of which is a registered holding company, for a period of time not to exceed twelve months after the Acquisition. This will allow time for E.ON to accomplish a reorganization (the "Reorganization") in which the ownership of PUSIC, (one of the Powergen Intermediate Holding Companies and the immediate parent of LG&E Energy) will be transferred to E.ON US, a direct subsidiary of E.ON. The Merger Applicants state that the reorganized corporate structure will take into account international tax regulations and will clearly separate the domestic utility operations of the Utility Subsidiaries from the other businesses of E.ON and Powergen.
The Merger Applicants expect that the transfer of PUSIC will be made in exchange for cash and/or a note. If issued, it is expected that the note will be in an amount not to exceed the fair market value of PUSIC and will bear interest at a market-based rate. The Merger Applicants request the Commission to reserve jurisdiction over the transfer of PUSIC and the issuance of the note until the record in this matter has been supplemented to indicate the amount and other terms of the note.
Following the Reorganization, E.ON will hold all the outstanding voting stock of LG&E Energy through E.ON US and PUSIC (together, the "E.ON US Intermediate Holding Companies").24 E.ON US will register as a holding company and PUSIC will remain a registered holding company.25 Although Powergen will cease to own any public-utility companies, it will also remain a registered holding company because it will have responsibility for the development and operation of LG&E's and KU's business, and will support the development of E.ON's Anglo-American energy and utility business in the context of E.ON's overall group strategy.
Because certain Powergen Intermediate Holding Companies, i.e., Powergen US Investments, Powergen Luxembourg sarl, and Powergen Luxembourg Holdings sarl, will cease to hold voting interests in LG&E Energy directly or indirectly following the Reorganization, Applicants request that the Commission unconditionally approve the deregistration of these companies under section 5(d) of the Act. Applicants further request that the Commission reserve jurisdiction over the proposed deregistration until the Reorganization has been effected and the record is complete in this regard.
The Merger Applicants state that maintaining an efficient structure after the Acquisition and the Reorganization may require a rapid response to changes in matters such as tax and accounting rules. It may be appropriate to add or subtract an intermediate holding company in the E.ON US Intermediate Holding Company chain or the E.ON UK Intermediate Holding Company chain. The Merger Applicants assert that such changes to the "upper structure" would not have any material impact on the financial condition or operations of LG&E Energy or its subsidiaries. The Merger Applicants request authorization to make structural changes, subject to the condition that no change (i) will result in the introduction of any third party interests in the upper structure, (ii) will introduce a non-European Union or non-U.S. entity into the upper structure, or (iii) will have any material impact on the financial condition or operations of LG&E Energy or the Utility Subsidiaries.
E.ON NA, E.ON's wholly owned U.S. subsidiary, has served in the past as the holding company for certain of E.ON's activities in North America, handling certain finance, legal, tax and other service functions. E.ON NA owns Fidelia, a Delaware finance company subsidiary. Fidelia lends money to E.ON Group companies, including the U.S. subsidiaries of Degussa AG, one of E.ON's to-be-divested subsidiaries.
The Merger Applicants propose that, following the Acquisition, E.ON NA and Fidelia will be placed in the E.ON U.S. corporate structure. To effect the restructuring, E.ON would transfer the E.ON NA shares to E.ON US, which, in turn, would transfer the shares to PUSIC. For tax reasons, debt of E.ON NA held by E.ON may be cancelled in whole or in part, or E.ON may contribute assets to the capital of E.ON NA in connection with the restructuring transactions.
In addition, Fidelia, which holds the cash proceeds of certain divestments of E.ON's nonutility businesses in the U.S., will continue to hold those funds for use in future U.S. acquisitions, as permitted by the Act and rules thereunder or authorized by the Commission. Further, Fidelia may lend funds to other companies in the E.ON Group, consistent with the requirements of the Act and rules.26 This measure would avoid repatriation of the funds to Germany and exposure to the risks of currency value fluctuations.
E.ON intends to finance the Acquisition with cash on hand, proceeds from the liquidation of certain readily marketable assets, funds from E.ON's existing lines of credit or the issuance and sale of long-term or short-term debt securities or bank lines of credit.
Because the Acquisition would result in E.ON's direct acquisition of Powergen and its indirect acquisition of LG&E Energy and its utility subsidiaries, LG&E and KU, the transaction requires prior authorization under sections 9(a)(2) and 10 of the Act. The Commission has reviewed the proposed Acquisition and finds that it satisfies the standards of the Act.
The Commission wishes to discuss in particular the ownership by E.ON Energie, a proposed FUCO under section 33 of the Act, of water operations; and the requirements of section 11(b) of the Act concerning the nonutility businesses and corporate structure of registered holding companies. As a related matter, we wish to discuss the proposed financing of the continuing operations of the E.ON subsidiaries, to be divested, pending divestment.
Section 33(a)(3) of the Act in pertinent part defines the term "foreign utility company" to mean "any company that owns or operates facilities that are not located in any State and that are used for the generation, transmission, or distribution of electric energy for sale or the distribution at retail of natural or manufactured gas for heat, light, or power."27 Section 33(c)(3) of the Act further provides in pertinent part that "any interest in the business of 1 or more foreign utility companies . . . shall for all purposes of this Act, be considered to be -
(A) consistent with the operation of a single integrated public utility system, within the meaning of section 11, and;
(B) reasonably incidental, or economically necessary or appropriate, to the operations of an integrated public utility system, within the meaning of section 11."
Unlike the definition of "exempt wholesale generator" in section 32(a) of the Act, the definition of "foreign utility company" does not require this type of exempt entity to be "exclusively" engaged in the business described in the definition. The Commission, however, has noted its concern that the activities of a FUCO have an appropriate relationship to the activities described in section 33(a)(3).28 Although a test of this type may not be as strict as the test under section 11 to determine whether registered holding companies may engage in nonutility businesses, we continue to believe that permitting FUCOs owned by registered holding companies to engage in any business would subvert limitations imposed on registered holding companies by the Act in a way that Congress could not have intended when it passed section 33. Because, as described below, E.ON's foreign water-related activities are closely related to its foreign utility operations, we are able to conclude that E.ON should be permitted to retain these businesses without first determining the full scope of businesses in which a registered holding company can engage through a FUCO.
E.ON Energie's principal water-related activities are centered in the German stock exchange-listed company Gelsenwasser AG ("Gelsenwasser").29 Although water deliveries by the E.ON Energie group as a whole, including Gelsenwasser, decreased 9.1% to 235.5 million cubic meters in 2001, Gelsenwasser is the largest privately held water utility in Germany (based on volume of water deliveries).
Gelsenwasser provides water and natural gas to 4.1 million inhabitants and industrial users in the Ruhr, Munster, Lower Rhine, eastern Westphalia, Lower Saxony, Saxony-Anhalt, Brandenburg, Mecklenburg and western Pomerania regions of Germany and the Czech Republic. Gelsenwasser is also involved in sewage disposal and treatment. Of Gelsenwasser's revenues in 2001, the supply of water accounted for 54%, natural gas for 41% and other for 5%.
As noted above, E.ON Energie also holds stakes in various regional electricity and gas distributors and Stadtwerke (municipal utilities). In 2001, E.ON Energie had total revenues of approximately €18.4 billion ($16.4 billion), including €694 million ($618 million) in electricity taxes, attributable to the following activities:
The Merger Applicants state that E.ON Energie's water, heating, engineering and waste management services are closely tied to its local utility operations. These bundled services not only provide synergies but also share facilities and customers in most cases. The Merger Applicants state that the context in which E.ON acquired these operations underscores how integral they are to the utility service expected by E.ON's European customers. For historical and political reasons E.ON Energie rarely owns 100% of the regional utilities or Stadtwerke. E.ON's expansion of its electric and gas business through the acquisition of regional utilities and Stadtwerke brought with it other services that these companies traditionally provided, including water, heating, waste management and other services. Continued provision of these services was typically a condition of acquiring the electric and gas operations. Indeed, the continuing shareholdings of counties, municipalities and other local shareholders in their former Stadtwerke or regional utilities serve to ensure that municipal and regional customers will continue to have integrated services available.
The Merger Applicants note that in Germany and in many other parts of Europe, it is typical for a utility to offer a complement of services, including not only electric and gas service but also water, waste management and other services, as part of a bundled service. For example, 64% of gas distribution in Germany is provided by companies that also provide water services. This combination of services allows a high degree of cost savings in operations, maintenance, customer care, billing and sales. Operations and maintenance are performed by skilled craftsmen who have to study both gas and water installations. For this reason, the integration of electricity, gas and water services has been increasing in Germany and many other European countries, such as Austria and Italy. The three businesses require many of the same skills to deliver an essential commodity to residential and industrial customers in an economical and efficient manner. All three businesses require operating and maintaining infrastructure assets that deliver the commodity directly to the customer, measure and meter the amount delivered and bill and collect revenues. There is also consumer demand for such integration, as many European customers are used to receiving multiple utility services from one source.
The Merger Applicants state that, in view of the historical development of this linkage through traditional municipal and regional services and labor training practices, and the economic advantages of continuing to provide such services in an integrated manner, E.ON could not readily split its water services from the gas and electricity business. The interests of other shareholders in Stadtwerke and regional utilities, including the municipalities and other local authorities themselves, also prevent such a separation, particularly where such shareholders are capable of blocking corporate actions.
In view of the facts and circumstances of this matter, the Commission finds that E.ON Energie may engage in the activities described above, without forfeiting its claim to FUCO status. The Commission does not discern the potential for detriment to the investors or consumers of the registered holding company from these activities.30
As part of a general divestment program, E.ON intends to divest certain nonutility subsidiaries and their respective subsidiaries following the Acquisition.31 E.ON explains that its goal is to become a leading global integrated energy and utility company. The activities of the TBD Subsidiaries include chemicals (Degussa AG), real estate (Viterra AG), oil (VEBA Oel), and distribution and logistics (Stinnes AG).32
Section 11(b)(1) of the Act limits the nonutility interests of a registered holding company to those that are "reasonably incidental, or economically necessary or appropriate to the operations of [the] integrated public-utility system." In addition, for a nonutility business to be retained, the Commission must find that its retention is "necessary or appropriate in the public interest or for the protection of investors or consumers and not detrimental to the proper functioning of such system." As noted previously, E.ON plans to divest the TBD Subsidiaries, whose activities include chemicals (Degussa AG), real estate (Viterra AG) and oil (VEBA Oel). We therefore do not need to determine whether the Act would permit E.ON to retain any of these businesses indefinitely. However, we are required to discuss the manner and timing of E.ON's divestment of these subsidiaries. Specifically, E.ON proposes to divest Degussa AG and Viterra AG within five years of the date of registration of E.ON as a holding company, and VEBA Oel within three years of that date.
E.ON currently owns 64.55% of the equity of Degussa AG ("Degussa"). As noted above, E.ON proposes to divest this interest within five years of registration as a holding company.
The Commission has generally permitted retention of businesses that are to be divested for a period of up to three years.33 The Merger Applicants believe that a three-year divestment period would force a sale of the chemicals business at a price that would not reflect its true value.
The Merger Applicants explain that Degussa is an extremely large, recently formed company. In 2001, it had sales of approximately €19 billion ($15.8 billion) and 53,000 employees.34 The Merger Applicants also believe that the market currently undervalues Degussa because of the mix of its business and structure of its operations. They state that time is needed to complete the process of integrating the four formerly separate chemical companies comprised by Degussa to realize anticipated efficiency gains, if fair value is to be obtained in the marketplace.
The Merger Applicants state that Degussa is implementing measures that will combine, streamline and refocus its operations, including a number of divestments. The focus of the new Degussa is the specialty chemicals business.
Finally, the Merger Applicants state that the number of potential buyers is limited and that antitrust issues will require careful analysis. The Merger Applicants explain that relatively few companies compete in the global chemicals markets. As to many potential buyers, there may be questions regarding the resulting levels of concentration with respect to certain chemicals or processes in certain geographic areas. The inherent complexity of much of the chemicals business, the production processes involved and related intellectual property concerns could mean that a substantial period of time would be required to work through any such concerns with antitrust authorities and craft solutions that would permit the sale to be completed. The chemical industry's unpredictable business cycles of three to five years will complicate the timing of a sale.
A five-year divestment period is not unprecedented.35 Moreover, although we must enforce the limits that section 11 places on the types of businesses that a registered holding company may own, we also believe that when a new company comes within the scope of the Act, we should allow it a reasonable amount of time to realize full value for the businesses and assets that it must divest. Doing so is fully consistent with the statutory goals of protecting utility investors and consumers. Based on the facts and circumstances of this matter, particularly the complexity involved in selling Degussa, the Commission finds that E.ON may retain the company following the Acquisition for a period of up to five years following E.ON's registration as a holding company.
On May 20, 2002, E.ON and one of its subsidiaries, RAG AG ("RAG") entered into an agreement to exchange part of E.ON's Degussa interest for RAG's interest in Ruhrgas AG ("Ruhrgas").36
The Merger Applicants also request a five-year period for E.ON to dispose of its real estate group, Viterra AG ("Viterra"). Viterra has predominantly been a provider of low-income residential housing; its assets are concentrated in highly industrialized areas of Germany. Prior to 1990, its business was publicly subsidized and highly regulated. Viterra has four strategic business units: residential investment, development and services, and commercial real estate and development. Its property portfolio consists of approximately 164,500 housing units and 100 commercial units. Its residential holdings date mainly from the 1950s and 1960s.
The Merger Applicants state that the size of Viterra alone would make it difficult to sell the business at a fair price with a three-year time frame. Viterra's revenues in 2001 were €1.3 billion ($1.1 billion). It is the largest privately owned real estate company in Germany. E.ON believes that the number of potential buyers may be limited to a few international insurance groups or financial investors.
In addition, the pool of potential buyers is affected by Viterra's tax/dividend situation. Because of differences in valuation under applicable German GAAP and tax law resulting from Viterra's status as a non-taxable corporation until January 1, 1990, Viterra currently records losses for tax purposes. It is expected to begin to show a very low taxable income within the next few years.
If Viterra were to pay dividends during the next 15 years to the owner of its common stock, whether to E.ON or to a new third party, the dividends would be taxed at a rate of about 43%, despite Viterra's negative or very low taxable income. In contrast, if Viterra did not pay dividends, its untaxed reserves would remain on its balance sheet, and at the end of 15 years, it could pay those reserves out as dividends without any tax being levied on the payments. E.ON believes that this unusual tax situation will further reduce the number of potential buyers.
The Merger Applicants state that E.ON is already engaged in a process to restructure Viterra to make it more saleable. First, Viterra is selling low-income units and reinvesting a portion of the proceeds in upgraded residential units, particularly in more affluent areas. Second, Viterra is expanding the commercial side of its business. Third, Viterra's management is developing the skills required to complete in a free market economy. E.ON believes that these changes will gradually transform the business and allow Viterra to be sold at a much higher price than it could command in the near future.
Based on these facts and circumstances, the Commission finds that the Merger Applicants may also retain Viterra for up to a five-year period following E.ON's registration as a holding company.
VEBA Oel manages interests in oil, gas and petrochemicals businesses. British Petroleum plc ("BP") became the majority shareholder (51%) of VEBA Oel on February 7, 2002, by subscribing to a capital increase. E.ON has the option to sell its remaining interest in VEBA Oel (49%) to BP. Upon completion of this transaction, E.ON will have divested its oil businesses completely. E.ON proposes to divest its interest in VEBA Oel within three years of the date of E.ON's registration as a holding company.37
Stinnes AG ("Stinnes") is active in logistics in transportation, chemicals, distribution and materials. E.ON proposes to divest its interest in Stinnes within three years of the date of E.ON's registration as a holding company.
(v) Other Companies
Hibernia Gamma Beteiligungsgesellschaft mbH ("Hibernia") is a subsidiary of E.ON Energie. Its sole purpose is to acquire and own a minimum of 10% of the nominal capital of the Commerzbank Europe (Ireland), a bank organized as an unlimited company under Irish law with authorized nominal capital of €1 billion; Hibernia currently owns 31% of that entity. E.ON will divest Hibernia within three years of the date of the completion of the Acquisition and the registration of E.ON as a holding company under the Act.
E.ON will also divest the following five subsidiary companies, all passive investment vehicles whose real estate holdings are managed by Viterra AG, within five years of the date of the completion of the Acquisition and the registration of E.ON as a holding company under the Act:
ERKA Vermögensverwaltungsgesellschaft mbH vorm. Reichs-Kredit-Gesellschaft holds and manages real estate acquired in connection with a former banking business, including the rental of real estate to VAW aluminium AG, a now-divested E.ON subsidiary, and other companies. Its book value is approximately €7.4 milliion.
Projektgemeinschaft Humboldtpark München II GbR holds real estate and real estate rights with a book value of approximately €6.5 million.
Hibernia Industriewerte GmbH & Co. KG, Humboldt-Verwaltungsgebäude Mülheim company holds an office building leased to Stinnes AG, a TBD Subsidiary.
Induboden GmbH & Co. Grundstücksgesellschaft holds real estate and real estate rights.
Induboden GmbH & Co. Industriewerte holds real estate belonging to E.ON Group companies, including the headquarter buildings of E.ON Energie in Hanover, Germany), and Stinnes AG and VEBA Oel, both TBD Subsidiaries.
In addition to the retention periods discussed above, E.ON requests authorization to invest up to $4 billion in the TBD Subsidiaries pending their divestment in order to preserve and protect the value of the businesses and to prevent any diminution in their value or prospects. The Merger Applicants state that any immediate cessation of credit support for, or investment in, the companies would deprive them of the capital they need to maintain their current business lines and manage their ongoing affairs, and would diminish their value, as perceived by the market and potential purchasers. The Merger Applicants further note that, to maintain an ongoing business, it is necessary to fund needed investments that enhance business value.
The Commission has previously authorized investments pending sale in businesses to be divested in order to permit the management of the businesses as ongoing concerns and an orderly sale.38 In general, permitting further investments in businesses that are to be divested is consistent with the goals that underlie allowing the newly-registered company to retain these businesses for a period of time - namely, that the interest of investors and consumers are both furthered by permitting the registered company to take reasonable steps to maximize the value of the businesses that the Act requires ultimately to be divested.
The requested investment authority of $4 billion is based both on previous levels of investment in the TBD Subsidiaries and on assumptions that E.ON has made concerning the need for future investments. The requested authority represents less than 10% of the $70 billion annual revenues of the TBD Subsidiaries for the year 2000. Finally, nothing in the record suggests that this level of investment will risk the financial integrity of the registered system or any utility subsidiary of the system. We therefore conclude that the requested level of investment is reasonable and should therefore be permitted.
D. Nonutility Interests (Other than E.ON Energie) Sought to be Retained39
Through two intermediate holding companies, E.ON Telecom GmbH (formerly VEBA Telecom) and VIAG Telecom Beteiligungs GmbH, E.ON holds interests in telecommunications and cellular phone providers in Austria (50.1%) and France (17.5%). E.ON disposed of most of its telecommunications activities during 1999 and 2000, but it currently intends to retain the cellular phone providers. The two companies will apply to the Federal Communications Commission for status as "exempt telecommunications companies" ("ETCs") under section 34 of the Act.
Except for E.ON Energie, the TBD Subsidiaries and the ETCs, E.ON's nonutility subsidiaries are generally of a character that the Commission has previously authorized. The basis for their retention is described in Appendix A to this Order. Generally, the businesses of these companies are related or incidental to E.ON's energy and utility businesses.40
Exhibit G-2.3 to the Merger Application lists the nonutility subsidiaries of LG&E Energy and states the basis for their retention. The nonutility businesses of Powergen and those of the LG&E Energy Group that were considered in the Powergen Order are retainable on the same basis as noted in that order. Excluded are certain nonutility businesses over which the Powergen Order reserved jurisdiction.41
As noted above, E.ON directly owns 37.1 % of the shares of RAG AG ("RAG").42 E.ON proposes to retain its ownership interest and seeks an order under section 2(a)(8) of the Act declaring RAG not to be a subsidiary company.
RAG is a unique entity created under the auspices of the German government to own all operating coal mines in Germany. RAG was formed to address the adverse effects upon coal production and the resulting social dislocation caused by changing economics of fuel supply during the 1950s.43 The public, and especially the miners' union, demanded the creation of a single coal mining company for the region in 1958. After lengthy negotiations, an agreement in principle was signed in 1969. This agreement still forms the basis for the existence and operations of RAG.
The parent companies of RAG at the time, including VEBA, a predecessor of E.ON, undertook to provide RAG with share capital made by contribution agreements, according to which they transferred their own mining activities into RAG and in consideration for which they received shareholdings in RAG. The members of the workforce had to be kept on and could not be dismissed. A provision of the agreement in principle states that "profit is not the principal aim of RAG."
Six entities, including E.ON, own all of RAG's outstanding voting stock. The other shareholders are BGE Beteiligungsgesellschaft für Energieunternehmen mbH, a wholly owned subsidiary of RWE AG - 21.95%; Société Nouvelle Sidechar, Paris, a wholly owned subsidiary of RWE AG - 8.25%; ThyssenKrupp Stahl AG - 12.69%; Montan-Verwaltungs GmbH, of which 79% is held by ThyssenKrupp Stahl AG and 21% is held by E.ON - 10%; and Verwaltungsgesellschaft Ruhrkole Beteiligung mbH, of which 35% is held by the RAG group and 65% is held by ARBED S.A. - 10%. The RAG shares cannot be sold without the approval of the owners of 75% of its shares. In addition, RAG's shareholders are economically precluded from divesting their shares by the absence of any market for the shares, due to RAG's inability to distribute profits to its owners.
The value of the initial contributions was negative. For RAG to continue in operation, heavy subsidies from the state were necessary. In 2001, RAG received some $3.6 billion in subsidies.44 The overall amount of all state subsidies prior to that time was above $45.5 billion.45
The state has played a continuing role in managing the business direction of RAG. In 1997, it was agreed that state subsidies would decrease to an annual amount of $2.4 billion (DM 5.3 billion) in 2005. At this time, all state subsidies will cease unless a new arrangement is agreed. Under the 1997 agreement also, deficits from the coal mining activities are to be partly compensated through RAG'S non-coal mining businesses.46 Specifically, these businesses are obligated to contribute €100 million ($89 million) annually to the repayment or diminution of subsidies commencing in 2001 and lasting until 2005. The 1997 agreement does not allow RAG to pay dividends so long as RAG receives state subsidies.
The German government has the power indirectly to review and approve all business transactions of RAG that could in any way influence the 1997 agreement. The government also has the ability to control the timing and amount of any dividends to shareholders. Any sale of RAG subsidiaries must be approved. The state is represented on the Supervisory Board of RAG: among the Supervisory Board representatives of the shareholders, as opposed to representatives of the employees, there are four state representatives. E.ON has 3, its competitor RWE has 2 and ThyssenKrupp also has 2.
RAG is looking for means to increase the contributions made by its nonutility businesses and to become more like a "normal" commercial enterprise by 2005, when the state subsidies will cease. It is hoped that RAG will be in a position to attract private capital and eventually to develop a private market for its shares. This, in turn, would enable RAG's existing shareholders to liquidate their interests in the company.
While the RAG shares provide no economic benefits, they also impose no ongoing risks or burdens. The ability to cut off the liabilities associated with money-losing coal operations motivated RAG's shareowners in part to contribute mining and mining-related assets to RAG in the first place. RAG's shareholders - including E.ON - have no obligations to make any further capital contributions, or otherwise contribute any funds, to RAG. Except as discussed below in connection with the guarantee in support of the Degussa-RAG transaction, E.ON commits that it will not make additional investments in RAG unless authorized by the Commission.
RAG is a subsidiary company of E.ON within the meaning of section 2(a)(8)(A) of the Act.47 Section 2(a)(8)(B) authorizes the Commission to declare by order that a company is not a subsidiary company of a given holding company under section 2(a)(8)(A) if the Commission finds that:
(i) the subsidiary is not controlled, directly or indirectly, by the holding company (either alone or pursuant to an arrangement or understanding with one or more other persons) either through one or more intermediary persons or by any means or device whatsoever,
(ii) the subsidiary is not an intermediary company through which control of another company is exercised, and
(iii) the management or policies of the subsidiary are not subject to a controlling influence, directly or indirectly, by the holding company (either alone or pursuant to an arrangement or understanding with one or more other persons) so as to make it necessary or appropriate in the public interest or for the protection of investors or consumers that the subsidiary be subject to the obligations, duties and liabilities imposed in this title upon subsidiary companies of holding companies.
The unique features of RAG support a declaratory order under section 2(a)(8) of the Act. RAG is not an intermediate company through which E.ON exercises control of other companies. It appears that it is neither controlled nor subject to a controlling influence by E.ON.48 Rather RAG is a quasi-public, subsidized entity that serves to carry out certain policies of the German government. Because E.ON effectively cannot receive dividends from RAG and cannot obtain any economic benefit by selling its interest in RAG, E.ON's interest in RAG is fundamentally different from the type of interest that a company would normally have in a subsidiary. Initially, therefore, E.ON's interest in RAG does not appear to be the type of interest section 2(a)(8) was intended to regulate.
In addition, based on the record, it appears that E.ON, like RAG's other shareholders, has little ability to affect the management, policies or operations of RAG.49 In previous matters, the Commission has pointed to a number of factors as proof that a particular entity exercises a controlling influence. 50 The sole feature of RAG that may require examination under this precedent is its corporate governance arrangements. E.ON has 3 out of 21 seats on RAG's Supervisory Board.51 The Merger Applicants note that German corporate law narrowly limits the powers and duties of Supervisory Board members. They have no direct influence on the day-to-day management and operations of the company and cannot compel the Management Board members, who manage the company, to follow their instructions. Because E.ON has only 3 of 21 seats on the RAG Supervisory Board, it has no approval or veto power with respect to the limited issues on which the Supervisory Board votes. Further, E.ON's 39.2% ownership interest is offset by a comparable 30.2% interest held by RWE AG, a large German utility and direct competitor of E.ON. 52 As noted previously, only six entities, including E.ON, own all of RAG's outstanding voting stock. E.ON has no arrangement with any of these persons concerning RAG.
Based on these facts, we find that E.ON does not exert a controlling influence over RAG. Even if it did, it would not appear to be necessary or appropriate in the public interest or for the protection of investors or consumers to subject RAG to the obligations, duties and liabilities imposed under the Act upon subsidiary companies of holding companies. Because E.ON treats RAG as having virtually no value and is not obligated to make further investments in it, RAG does not pose a threat to the financial health of E.ON or any of its utility subsidiaries. On the facts of this matter, no public policy would be served by regulating RAG as a subsidiary of E.ON. Accordingly, this Order declares under section 2(a)(8) of the Act that RAG is not a subsidiary of E.ON.
E.ON has undertaken that it will advise the Commission annually in its report on Form U5S of any changes in the current attributes of its ownership interest in RAG (e.g. the inability to receive dividends) and that it will not, directly or indirectly, increase its investment in RAG without prior approval of the Commission.
As noted above, E.ON has proposed to divest its interest in Degussa within five years of the date of E.ON's registration as a holding company. On May 20, 2002, E.ON and RAG entered into an agreement to exchange part of E.ON's Degussa interest for RAG's interest in Ruhrgas (the "Transaction"). Through the Transaction, RAG would acquire a majority of Degussa's outstanding shares, 50.1%, and E.ON would acquire an additional 18.5% stake in Ruhrgas, shares currently owned by RAG.
RAG would finance the acquisition of Degussa shares under a tender offer through a loan of up to €2 billion granted by a consortium of banks. All shares acquired by means of the loan would be transferred as security to the banks. Various other security measures would be taken. In the event that these measures should be insufficient to cover any outstanding repayment obligation of RAG at the maturity of the loan on December 31, 2004, E.ON will provide a subordinated guarantee to the banks. The Merger Applicants state that, given the collateral to be provided and the value of Degussa shares, it is highly unlikely that the E.ON guarantee would ever be called upon. It is expected that RAG will be able to repay the bank loan from funds gained from the divestment of certain non-core assets.
The Transaction would enable E.ON to reduce its holding in Degussa almost immediately, while at the same time it would give RAG a significant interest in a business with substantial revenues. E.ON requests authorization to issue the guarantee in connection with the Transaction.
Section 11(b)(2) of the Act requires the Commission to ensure that "the corporate structure or continued existence of any company in the holding company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding company system." Section 11(b)(2) directs the Commission to require each registered system company "to take such action as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company," in other words, to eliminate "great-grandfather" holding companies.53
As a result of the interposition of the E.ON US Intermediate Holding Companies (E.ON US and PUSIC) between E.ON and LG&E Energy following the Acquisition and the Reorganization, and the interposition of the E.ON UK Intermediate Holding Companies (E.ON UK and E.ON UK plc) between E.ON and Powergen, E.ON will be a holding company with respect to subsidiaries which "[themselves have] a subsidiary company which is a holding company." E.ON US, PUSIC, E.ON UK, E.ON UK plc and Powergen will all be holding companies over LG&E Energy, which itself will be an exempt holding company over LG&E and KU.54
The Commission reviewed and permitted similar structures in the Powergen Order and in the National Grid Order.55 As in those matters, the intermediate holding companies in the Merger Application will not be a means by which E.ON seeks to diffuse control of LG&E Energy and the Utility Subsidiaries. Rather, these companies will be created as special purpose entities for the sole purpose of helping the parties capture economic efficiencies that might otherwise be lost in a cross-border transaction.56
The E.ON US and UK Intermediate Holding Companies will not issue securities to third parties and consequently may appropriately be considered as mere conduits. Each will be wholly owned, directly or indirectly, and fully controlled, by E.ON. The creation and existence of the intermediate holding companies will not adversely affect the operation of the LG&E Energy Group.
E.ON UK plc may, however, issue and sell loan notes to Powergen's shareholders to finance the Acquisition in part. The loan notes would benefit Powergen's shareholders by minimizing their tax exposure.57 E.ON UK plc would not issue other securities to third parties. In view of the function of this company as a financing subsidiary for the limited purpose of issuing loan notes to finance the Acquisition, the Commission believes that it too may be considered to be essentially a conduit and may be disregarded for purposes of section 11(b)(2). E.ON UK plc will not issue equity to third parties, and so will avoid the creation of a minority interest.58
This corporate structure does not appear to implicate the abuses that section 11(b)(2) was designed to address. Accordingly, the Commission concludes that it is appropriate to "look through" the intermediate holding companies in the Merger Application for purposes of section 11(b)(2) of the Act.
The E.ON Group companies, particularly E.ON Energie, a proposed FUCO, hold significant investments as reserves against two types of long-term liabilities: their pension obligations, and, for E.ON Energie only, its nuclear decommissioning obligations.59 These investments, which currently total approximately €9 billion ($7.9 billion), include publicly traded common stocks of other companies.60 Large parts of the investments are held through investment funds. Like a number of foreign jurisdictions, but unlike the U.S., German law does not require that these reserves be placed in a separate segregated fund.61
The Merger Applicants request the Commission to authorize E.ON and its German subsidiaries to retain, and continue to make, these investments under section 9(c)(3) of the Act as being in the ordinary course of business.62 Under section 9(c)(3), registered holding companies and their subsidiaries may acquire "other securities, within such limitations, as the Commission may by rules and regulations or order prescribe as appropriate in the ordinary course of business of a registered holding company or subsidiary company thereof and as not detrimental to the public interest or the interest of investors or consumers."
To ensure that the requested relief corresponds to a continuing need in the ordinary course of business, E.ON proposes to make equity investments for the purposes of funding future employee benefit and nuclear decommissioning expenditures only if, at the time of investment, the actuarial value of the prospective obligations exceeds the aggregate amount of the investments that will be held by E.ON immediately after the investment has been made. Further, E.ON will not create an affiliate relationship with any company within the terms of section 2(a)(11) of the Act by acquiring 5% or more of the voting securities of any issuer.63 During the year 2002, E.ON will reduce any stakes that it has that exceed 5% of a single company to below 5%.64 Further, on a going forward basis, E.ON's additional net investments in its reserves will be limited to 25% common stocks.65 E.ON's annual report on Form U5S will include a statement that reconciles the reserve investments with the related long-term liabilities. The statement will indicate the asset class breakdown of the reserves. Based upon these commitments, and in recognition of the differences between U.S. and German law governing the establishment of reserves against these liabilities, the Commission finds that it is appropriate to grant the requested relief.
In the Powergen Order, the Commission found that LG&E Energy Services, Inc. ("LG&E Services"), a direct wholly owned subsidiary of LG&E Energy, met the requirements of section 13(b) of the Act. LG&E Services will continue to provide services to the LG&E Energy Group companies. It is also contemplated that LG&E Services may provide services to E.ON Group companies following the Acquisition. Any such services would be provided at cost in accordance with the service agreement. Except as otherwise described in the Merger Application or reflected in the form of service agreement attached to the Merger Application as Exhibit J-1, the operation of LG&E Services will conform to the authorization granted in the Powergen Order.66
Applicants propose that, following the Acquisition and Reorganization, Powergen and other Powergen Group companies (i.e. Powergen Group Holdings and all of its direct and indirect subsidiaries) will continue to provide services to the LG&E Energy Group. For example, the companies will provide management services in the areas of internal audit, tax and treasury; and consultation regarding engineering, research and development projects and transmission best practices. It is also expected that E.ON and other E.ON Group companies will provide services to LG&E Services and other LG&E Energy Group companies.67 Those services would generally be limited to high-level management, administrative and technical services.
E.ON and Powergen do not intend to render services to their subsidiaries for a charge and they will not allocate to the LG&E Energy Group companies, or charge them for, any general overhead costs incurred at the E.ON or Powergen level.68 The Merger Applicants state that, to the extent that costs for services provided by companies of the Powergen Group or the E.ON Group (other than E.ON and Powergen) can be attributed to a specific LG&E Energy Group company, that company will be charged such cost directly. Billing and coordination of services would be performed by LG&E Services, as described below. The costs for the service will be directly assigned, distributed or allocated by activity, project, program, work order or other appropriate basis. The service provider will use appropriate policies and procedures to assure that all costs are identified and attributed to particular projects, programs or work orders for purposes of direct cost allocation.
As required by rule 91 under the Act, the costs allocated across the businesses served by any service provider will represent the total true cost of providing the corporate service. The costs considered in the allocation will include: (i) total payroll and associated costs; (ii) materials and consumable costs; (iii) building and facilities costs; (iv) information systems infrastructure costs; and (v) other departmental costs. Records related to services provided by any service provider to the LG&E Energy Group companies will be made available to the Commission staff for review.
The Merger Applicants state that, to the extent that any services cannot be directly attributed to a specific LG&E Energy Group company, LG&E Energy Group companies will pay a share of the costs of services that benefit them. The portion of the costs attributable to the LG&E Energy Group companies will be determined using measures that reflect the relevant contribution and size of the individual businesses. With respect to costs incurred at the Powergen Group level, allocation of group costs will by done using four measures (revenues, operating profit, employee numbers and net assets) and the costs will be allocated equally across the four measures. Revenues will be adjusted to exclude the income resulting from sales of purchased power within the LG&E Energy Group. Powergen will use figures from the latest published accounts to calculate the percentage of revenues, operating profit, employee numbers and net assets on an annualized basis, and these four percentages will be averaged to calculate the group allocation.
LG&E Services will generally act as the gatekeeper or coordinator for services flowing to and from the LG&E Energy Group. The Merger Applicants expect that the majority of costs billed by Powergen Group companies to the LG&E Energy Group companies will be paid initially by LG&E Services, which will then charge the appropriate service recipient. LG&E Services will allocate the costs of service among the LG&E Energy Group companies using one of several methods. The method of cost allocation varies based on the department rendering the service.69
The Merger Applicants state that, except as otherwise authorized by the Commission, all services provided by E.ON Group companies and/or Powergen Group companies to LG&E Services and the other LG&E Energy Group companies will be billed at cost and in accordance with fair allocation methods, as required by section 13 of the Act and related rules. If a service provider provides services for the benefit of a specific LG&E Energy Group company, the charge applicable to that company will be specifically identified in the invoice. Otherwise, the service provider's charges will be allocated to individual LG&E Energy Group companies through LG&E Services' allocation procedures.
The Merger Applicants propose that LG&E Services also provide services to companies in the E.ON Group. Any services would be provided at cost.
Each company in the E.ON Group, the Powergen Group and the LG&E Energy Group (including LG&E Services) requests authorization under section 13(b) of the Act to provide services and sell goods to nonutility companies in the LG&E Energy Group, the Powergen Group and the E.ON Group at fair market prices determined without regard to cost. To that end, each company requests an exemption under section 13(b) of the Act from the cost standards of rules 90 and 91 as applicable to these transactions, in any case in which the nonutility subsidiary purchasing these goods or services is:
1) a FUCO or foreign EWG which 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 which sells electricity at market-based rates which have been approved by the FERC, provided that the purchaser is not a public-utility company in the LG&E Energy Group;
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 arm's-length to one or more industrial or commercial customers purchasing the electricity for their own use and not directly for resale, and/or (b) to an electric utility company other than a public-utility company in the LG&E Energy Group at the purchaser's "avoided cost," as determined in accordance with PURPA regulations;
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 is not a public-utility company in the LG&E Energy Group; or
5) a subsidiary engaged in rule 58 activities or any other nonutility subsidiary that (a) is partially owned by a member of the LG&E Energy Group, the Powergen UK Group or the E.ON Group; (b) is engaged solely in the business of developing, owning, operating and/or providing services or goods to the nonutility subsidiaries described in clauses (1) through (4) immediately above; or (c) does not derive any part of its income from a public-utility company within the LG&E Energy Group.
The Commission has granted substantially identical exemptions under section 13(b) of the Act in previous matters.70 We find it appropriate to grant E.ON the same relief.
The Commission received letters commenting on the proposed acquisition from two individuals. 71 Mr. Fred W. Baumann, Jr. expressed concern about foreign ownership of U.S. utilities and asked the Commission to reject the Acquisition.72 Mr. Cecil R. Hamblin also expressed concern about foreign ownership and noted his preference for an acquisition of LG&E Energy by American Electric Power Company, Inc. ("AEP"), a registered holding company. Mr. Hamblin objected to the tax consequences of Powergen's acquisition of LG&E Energy. 73
The Commission considered similar views in approving the acquisition of New England Electric System, a U.S. registered holding company, by National Grid plc, a U.K. holding company.74 As we concluded in National Grid, concerns about the national security implications of acquisitions of U.S. utilities are not relevant under the Act. Instead, as we indicated in National Grid, concerns about foreign ownership of U.S. utilities are more appropriately addressed by the Committee on Foreign Investment in the United States ("CFIUS") under the Exon-Florio Amendment to the Defense Production Act of 1950.75 As noted previously, the Merger Applicants were informed on December 19, 2001, that CFIUS concluded that there were no issues of national security sufficient to warrant an investigation. In view of the role and greater expertise of CFIUS, the Commission does not believe that it is necessary to consider whether national security concerns implicate the public interest standard of the Act.
Concerning Mr. Hamblin's preference for an acquisition of LG&E Energy by AEP rather than E.ON, the Act requires the Commission only to determine whether a proposed transaction meets the applicable standards. The Act does not require the Commission to determine whether a potential alternative transaction is preferable to the one for which authorization is sought.76
Finally, the issue of the tax consequences of Powergen's acquisition of LG&E is moot because the Powergen Order authorized the transaction. In addition, as the Commission noted in the National Grid Order:
The tax consequences of the Merger for any particular investor or group of investors will vary depending upon the investor's tax situation. It would therefore be impracticable for us to incorporate the tax consequences of the Merger into our analysis of the fairness of the Merger.77
To the extent that Mr. Hamblin and Mr. Baumann have raised issues of law under the Act, we are able to address them on the basis of the record before us. It is well settled that evidentiary hearings are required only when there exists a genuine issue of material fact.78 A proponent of a hearing must make a minimal showing that material facts are in dispute; an intervenor cannot rely on bald or conclusory allegations that a dispute exists.79 On the basis of our review, we are satisfied that no hearing is needed in this matter.
The Financing Application requests authorization for certain financing activities of E.ON and its subsidiaries through May 31, 2005 (the "Authorization Period"), specifically:
1) various financings by E.ON, including the issuance of common stock and ADSs, preferred stock, short and long-term debt, currency and interest rate swaps and guarantees;
2) certain financings by (a) the direct and indirect holding company parents of LG&E Energy, (b) the LG&E Energy Group companies and (c) E.ON UK and its holding company subsidiaries and the Powergen Financing Entities;
3) the continuation by the Utility Subsidiaries of their respective receivables factoring programs;
4) the creation of money pools and certain intercompany financing arrangements;
5) the payment of dividends out of capital or unearned surplus;
6) the LG&E Energy Group tax allocation agreement;
7) changes to the terms of any wholly owned E.ON Group company's authorized capital stock, the issuance of additional shares, or alteration of the terms of any then existing authorized security;
8) the formation of, and the issuance by, financing entities of securities otherwise authorized to be issued and sold under this Order or exemptions available under the Act;
9) investments in exempt wholesale generators ("EWGs"), as defined in section 32 of the Act and FUCOs; and
10) investments in energy-related companies doing business outside the U.S.
The Financing Applicants state that the specific terms and conditions of securities that may be issued in accordance with the requested authority are not known at this time. They propose that the financing transactions will be subject to the following general terms and conditions (the "Financing Parameters"):
The Financing Applicants state that the requested authorizations will give them flexibility to respond quickly and efficiently to their financing needs and to changes in market conditions, and will thus benefit investors and consumers. The Commission has previously approved similar proposals.80
The proceeds from the sale of securities in external financings by E.ON will be used for general corporate purposes, including:
1) financing investments by, and capital expenditures of, the E.ON Group, including the funding of future investments in EWGs, FUCOs and TBD Subsidiaries and ETCs, as well as companies engaged or formed to engage in energy-related businesses, as authorized by this Order;
2) the repayment, redemption, refunding or purchase by any E.ON Group company of its own securities under rule 42 or as authorized by this Order;
3) the financing or refinancing of the capital requirements of the E.ON Group; and
4) other lawful purposes.
The $75 billion External Financing Limit represents investments in the following areas, generally:
1) $25 billion of investments in EWGs and FUCOs;
2) $35 billion of investments in EWGs and FUCOs financed by bridge loans ("Bridge Loans") pending the receipt of divestment proceeds;
3) $4 billion for investments in TBD Subsidiaries pending their divestment, as discussed in section V, C, 1,c, supra;
4) $10 billion for investments in energy-related subsidiaries doing business outside the U.S., as discussed in section XIII, C, 9, k, infra.
The Financing Applicants note that the proposed investments in EWGs and FUCOs financed by Bridge Loans represent merely the redeployment of the existing capital that is currently invested in the TBD Subsidiaries, because the Bridge Loans (or other outstanding debt in an equivalent amount) will be repaid with the proceeds of the divestments. Consequently, the aggregate level of new capital expenditures that will be financed under the requested authorization is approximately $39 billion. In addition to the capital expenditure program described above, as of December 31, 2001, E.ON and Powergen had debt securities outstanding in the amount of approximately $14.5 billion and $7.5 billion, respectively. Funds raised under the requested authority, and subject to the External Financing Limit, will also be used to refinance, repay, redeem or refund some of this debt during the Authorization Period.
No financing proceeds will be used to acquire a new subsidiary unless the acquisition is consummated in accordance with an order of the Commission or an available exemption under the Act. The proceeds of external financings will be allocated to companies in the E.ON Group in various ways through intrasystem financings discussed below.
After the Acquisition, certain arrangements made to finance Powergen's acquisition of LG&E Energy and LG&E Energy's operations will remain in place. Powergen acquired LG&E Energy in December 2000 for approximately $3.25 billion. There was a simultaneous capital injection in LG&E Energy of approximately $0.76 billion. As described in the Powergen Order, Powergen US Holdings, one of the Powergen Intermediate Holding Companies, raised $3.7 billion from a bank facility negotiated for this purpose and borrowed $0.3 billion from Powergen UK plc. The Powergen Order noted that Powergen intended to reduce the debt incurred under the bank facility in various ways.81 This original debt has been repaid or refinanced. As a result, external debt of Powergen US Holdings (including Powergen US Funding LLC) has been reduced from $3.7 billion to $2.6 billion. In addition, the change in the composition of the debt has resulted in a reduction in cost.
Applicants intend that the external debt at Powergen US Holdings and Powergen US Funding LLC will remain in place following E.ON's acquisition of Powergen and the proposed Reorganization As of December 2001, the aggregate amount of debt outstanding was $4 billion, of which $2.6 billion was external debt.
The funds raised by Powergen US Holdings have been passed down through the Powergen Intermediate Holding Companies through a combination of loans and equity holdings. Part of this arrangement was reorganized in October 2001 with the result that PUSIC became obligated to contribute capital with a net present value of $3.1 billion to Powergen US Securities Limited ("PUSSL") when future capital calls are made. Under U.S. GAAP, this obligation is treated as a loan from PUSSL to PUSIC. The balance of the funds passed down represents equity.
The timing and amounts of PUSIC's obligations to meet the calls (and related security arrangements) are very similar to those arising under a debt instrument. As a result, under US GAAP (and for the purposes of determining U.S. taxable income) the payments under the calls (other than the final payment in respect of each class, which is treated as a repayment of loan principal) are regarded as interest and the net present value of the obligation to make the future payments is recorded as debt.
In the event of the Reorganization, the stock of PUSIC will be transferred from the Powergen Intermediate Holding Companies to E.ON US for value payable in the form of cash and/or a note.82 PUSIC's obligation in respect of the capital call described above will remain a continuing obligation of PUSIC. Funds paid by PUSIC to PUSSL will be invested in non-voting shares of a U.K. unlimited company owned by Powergen, Powergen UK Securities, which will lend to Powergen US Holdings.
As of December 31, 2001, E.ON had 692 million common shares issued and approximately 687.3 million outstanding shares. E.ON recently completed the repurchase of 76.3 million common shares, approximately 10% of the company's capital stock. E.ON has cancelled 71.3 million of the repurchased shares. 83
As of December 31, 2001, E.ON had financial liabilities to banks and third parties totaling €12,987 million ($11,560 million) consisting of bonds (€1,689 million, $1,503 million), bank loans (€9,167 million, $8,160 million), liabilities related to banking operations (€1,110 million, $988 million) bills payable (€30 million, $27 million) and other financial liabilities (€991 million, $882 million). E.ON's bank loans have maturities ranging from 2002 to 2040. E.ON raises funds through lines of credit, commercial paper, medium term notes, and other means.
E.ON's capital structure on a pro forma basis taking the Acquisition into account as of December 31, 2001 would be composed of 48.44% equity, 0.24% preferred stock and 51.32% debt.84 E.ON's financial strength is also reflected in its credit ratings.85
E.ON proposes to issue and sell securities and to guarantee the obligations of its subsidiaries in an aggregate amount outstanding at any one time during the Authorization Period not to exceed the $75 billion External Financing Limit.86 The various securities would be subject to the following dollar sublimits: no more than $25 billion would consist of equity securities, including preferred stock, options and warrants (the "Equity Sublimit"); no more than $40 billion would consist of debt securities (the "Debt Sublimit"); and no more than $40 billion would consist of guarantees (the "Guarantee Limit").
E.ON seeks authorization to issue and sell common stock from time to time during the Authorization Period: (i) through underwritten public offerings; (ii) in private placements; (iii) in exchange for securities or assets being acquired from other companies; (iv) under its dividend reinvestment, stock-based management incentive and employee benefit and employee share purchase plans; or (v) through subscription rights. E.ON also proposes to issue and sell options, warrants or other stock purchase rights.87 The authorization to issue and sell common stock would also apply to the issuance of common stock directly or through the ADR program and, for purposes of this request, the ADRs would not be considered separate securities from the underlying common stock. All sales of common stock and other equity instruments would be made at rates or prices and under conditions negotiated, based upon, or otherwise determined by, competitive capital markets.
E.ON requests authorization to use its common stock as consideration for acquisitions that are authorized under the Act, such as the exchange of equity securities for securities of the company being acquired in order to provide the seller with certain tax advantages. The E.ON ordinary shares to be exchanged may, among other things, be purchased on the open market under rule 42 or may be original issue. E.ON ordinary shares used to fund an acquisition would be valued at market value based upon the closing price on XETRA, Germany's official electronic trading system, on the day before the execution of a definitive agreement or, in the case of a tender offer, on the day of commencement of the offer.
E.ON also requests authorization to use its common stock and other equity instruments to fund employee benefit plans and in connection with dividend reinvestment plans that currently exist or may be formed during the Authorization Period.
E.ON requests authorization to issue preferred stock from time to time during the Authorization Period in accordance with the applicable Financing Parameters. Preferred stock would have dividend rates or methods of determining the same, redemption provisions, conversion or put terms and other terms and conditions as E.ON may determine at the time of issuance.
E.ON requests authorization to issue and sell long-term unsecured debt securities from time to time during the Authorization Period in accordance with the applicable Financing Parameters. E.ON may also maintain and establish long-term bank lines of credit. Subject to the Financing Parameters, any long-term debt security would have the maturity, interest rate(s) or methods of determining the same, interest payment terms, redemption provisions, sinking fund terms, and other terms and conditions as E.ON may determine at the time of issuance.
E.ON seeks authorization to issue and sell short-term securities through bank lines of credit, institutional debt, commercial paper and bid notes. Short-term debt will be issued in accordance with the applicable Financing Parameters. E.ON may sell commercial paper, from time to time, in established commercial paper markets. E.ON may engage in other types of short-term financing generally available to borrowers with comparable credit ratings, as it may deem appropriate in light of its needs and market conditions at the time of issuance.
E.ON seeks authorization to enter into, perform, purchase, and sell financial instruments that are intended to manage the volatility of interest rates and currency exchange rates, including, but not limited to, swaps, caps, floors, collars, and forward agreements or any other similar agreements ("Hedging Instruments"). The Financing Applicants state that E.ON would employ Hedging Instruments as a means of prudently managing the risk associated with any of its outstanding debt issued under this Order or an applicable exemption by, for example: (i) converting variable rate debt to fixed rate debt; (ii) converting fixed rate debt to variable rate debt; and (iii) limiting the impact of changes in interest rates resulting from variable rate debt. In no case will the notional principal amount of any Hedging Instrument exceed that of the underlying debt instrument and related interest rate or currency exposure. The Financing Applicants state that E.ON will not engage in "leveraged" or "speculative" transactions. The underlying interest rate indices of a Hedging Instrument will closely correspond to the underlying interest rate indices of E.ON's debt to which the Hedging Instrument relates. Hedging Instruments would be entered into on-exchange or off-exchange with counterparties whose senior debt ratings are investment grade ("Approved Counterparties").
In addition, E.ON requests authorization to enter into Hedging Instruments with respect to anticipated debt offerings ("Anticipatory Hedges"), subject to certain limitations and restrictions. Anticipatory Hedges would only be entered into on-exchange or off-exchange with Approved Counterparties, and would be used to fix and/or limit the interest rate or currency exchange rate risk associated with any proposed new issuance. Anticipatory Hedges may include: (i) a forward sale of U.S. or European Economic Area ("EEA") Treasury futures contracts, U.S. or EEA Treasury obligations and/or a forward swap (each, a "Forward Sale"); (ii) the purchase of put options on U.S. or EEA Treasury obligations (a "Put Options Purchase"); (iii) a Put Options Purchase in combination with the sale of call options on U.S. or EEA Treasury obligations (a "Zero Cost Collar"); (iv) transactions involving the purchase or sale, including short sales, of U.S. or EEA Treasury obligations; or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar, and/or other derivative or cash transactions, including, but not limited to, structured notes, caps, and collars, appropriate for the Anticipatory Hedges.
Hedging Instruments and Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions, the opening of over-the-counter positions with one or more Approved Counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. E.ON will determine the optimal structure of each Hedging Instrument or Anticipatory Hedge transaction at the time of execution.
E.ON will comply with SFAS 133 ("Accounting for Derivatives Instruments and Hedging Activities") and SFAS 138 ("Accounting for Certain Derivative Instruments and Certain Hedging Activities") or any other standards relating to accounting for derivative transactions that are adopted and implemented by the Financial Accounting Standards Board ("FASB").
To the extent that such securities are not exempt under rule 52(a), the Utility Subsidiaries request authorization to enter into the transactions described in this section on the same terms applicable to E.ON. The E.ON US Intermediate Holding Companies, the Powergen Intermediate Holding Companies and the Powergen Financing Entities propose to enter into hedging transactions with E.ON or each other to hedge interest rate or currency exposures. These transactions would be on market terms. The E.ON Financing Entities, as defined in section XIII, C,9,f, infra, request authority to enter into hedging transactions with third parties or E.ON to hedge interest rate or currency risk in connection with financings authorized in this Order. These transactions would be on the same terms applicable to E.ON.
No gain or loss on a hedging transaction entered into by E.ON or its subsidiaries will be allocated to the Utility Subsidiaries, except that a gain or loss may be allocated to a Utility Subsidiary where a hedging transaction is entered into by a Utility Subsidiary in connection with a Utility Subsidiary financing.
E.ON requests authorization to enter into guarantees, obtain letters of credit, enter into expense agreements or otherwise provide credit support ("Guarantees") with respect to the obligations of the E.ON Group companies, as may be appropriate or necessary to enable them to carry on in the ordinary course of their respective businesses. The aggregate amount of Guarantees will not exceed the Guarantee Limit (not taking into account obligations that are exempt under rule 45). All debt guaranteed will comply with the Financing Parameters, as applicable.
Included in the Guarantee Limit are Guarantees previously issued for the benefit of E.ON Group companies.88 E.ON proposes to charge each company a fee for each Guarantee provided on its behalf. The fee will not exceed the cost, if any, of the liquidity necessary to perform the Guarantee. As of December 31, 2001, E.ON had contingent liabilities from Guarantees issued and outstanding on behalf of E.ON Group companies in an aggregate amount of €282 million ($251 million).
Although E.ON and its German subsidiaries will file a consolidated German income tax return, they have not entered into a tax agreement relating to either federal or state taxes as provided by rule 45(c) under the Act. E.ON and its German subsidiaries do, however, allocate the taxes paid by the consolidated German group among themselves that have income and they compensate the companies with losses on a current basis, pursuant to profit and loss transfer agreements under the German Stock Corporation Act.89 Applicants request the Commission to authorize these profit and loss transfer agreements and the consolidated tax filing of E.ON and its German subsidiaries discussed in this Order and in Exhibit G-1 to the Financing Application under section 12(b) of the Act.
The profit and loss transfer agreements allow E.ON to cause the subsidiaries to distribute their profits or to hold them as retained earnings. If the subsidiaries have losses, E.ON assumes the losses. Although E.ON's potential exposure under the agreements is uncertain, E.ON, on a consolidated basis, has a history of profitability and its core non-U.S. regulated utility business is stable. Because a profit and loss transfer agreement is in some respects like a financial guarantee from a parent to its subsidiary, E.ON proposes to treat its net exposure under the agreements as a Guarantee subject to the Guarantee Limit.
E.ON's exposure is not capable of exact quantification until year end, when the accounting for the financial performance of each company subject to a profit and loss transfer agreement is complete. Accordingly, E.ON will review its aggregate exposure under all of these agreements during the year for purposes of measuring compliance with the Guarantee Limit and will estimate projected potential payment amounts based on prior experience and interim information. The projected amounts will count against the Guarantee Limit. When the year end results are available, E.ON will true-up the estimated exposure with its actual experience and will adjust the amount charged against the Guarantee Limit accordingly.
As discussed previously in section V, B, supra, the Financing Applicants seek authorization to retain existing investments in their foreign utility operations and energy-related businesses.90
The Financing Applicants further seek authorization to invest the proceeds from divestments (including any completed divestments as well as future ones), which may total approximately $35 billion, in EWG and FUCO activities, without including those investments in E.ON's Aggregate EWG/FUCO Financing Limitation, as defined below.91 The requested authorization would also include the ability for E.ON to issue and sell up to $35 billion of securities to finance EWG and FUCO investments pending the receipt of divestment proceeds (the "Bridge Loans"); provided that upon the receipt of those proceeds, the Bridge Loans or debt securities with an equivalent principal amount would be retired, redeemed or otherwise paid down, so that the EWG and FUCO investment under the requested authorization would not exceed the cash proceeds from divestments.92
In addition, the Financing Applicants propose to enter into transactions to finance additional investments in EWGs and FUCOs in an amount up to $25 billion.93 The $25 billion, plus the $35 billion Bridge Loan authorization described above, are togetner referred to as the "Aggregate EWG/FUCO Financing Limitation." The proposed amount of E.ON's securities issuances for the purpose of financing EWG and FUCO investments is included in E.ON's External Financing Limit.
The $25 billion amount is approximately equal to 238% of E.ON's consolidated retained earnings as of December 31, 2001, on a pro forma basis reflecting the Acquisition, determined in accordance with U.S. GAAP.94
These proposals are discussed in section XIII, C, 6, a, infra.
The E.ON Group companies (other than the LG&E Energy Group companies) propose to finance the TBD Subsidiaries and E.ON's nonutility subsidiaries that are not now or hereafter held as part of a FUCO or the LG&E Energy Group (the "Retained Nonutility Subsidiaries"), and these companies propose to finance one another throughout the Authorization Period, through capital contributions, loans, guarantees, the purchase of equity or debt securities, or other methods.95 In connection with the financing of the TBD Subsidiaries, investments would not exceed $4 billion. In connection with the financing of the Retained Nonutility Subsidiaries, investments would not exceed the amount of financing authorization sought in the Financing Application, i.e., $75 billion. The requested authorization would not apply to any company in the LG&E Energy Group.
The Financing Applicants request this authorization to allow the E.ON Group, other than the LG&E Energy Group companies, to finance the TBD Subsidiaries and the Retained Nonutility Subsidiaries at market rates, where required by German law or regulation. Where the law or regulations do not require market rate financing, the E.ON Group (other than the LG&E Energy Group companies) would finance the TBD Subsidiaries and the Retained Nonutility Subsidiaries at the lending company's cost of capital.
As discussed previously in section III,D,2, supra, it may be necessary or desirable following the consummation of the Acquisition of Powergen for E.ON to delay the transfer of the LG&E Energy Group to E.ON US (one of the E.ON U.S. Intermediate Holding Companies) for up to twelve months ("Interim Period"). The Financing Applicants request that, during the Interim Period, Powergen and the Powergen Intermediate Holding Companies continue to have the financing authority granted to Powergen in the Powergen Order.96
The Financing Applicants further request that the Powergen Financing Entities - specifically, the Powergen Intermediate Holding Companies that are left after PUSIC is transferred to E.ON US and Powergen US Funding, a special purpose entity that is not and will not be a holding company -- be authorized to maintain, repay, refund and otherwise refinance the outstanding debt in place as of the date of the transfer of the LG&E Energy Group companies (the "Transfer Date") through the Authorization Period, so long as the aggregate principal amount thereof does not at any time exceed the amount outstanding as of the Transfer Date. As noted above, the aggregate amount outstanding as of December, 2001 was $4 billion. The Financing Applicants further request that the Powergen Financing Entities be authorized to loan any proceeds from the issuance of securities pursuant to the requested refinancing authorization to any of the E.ON US Intermediate Holding Companies and the LG&E Energy Group companies through the Authorization Period.
Each of the Powergen Financing Entities requests authorization to issue and sell securities to the other Powergen Financing Entities, Powergen, E.ON UK, E.ON UK plc, and E.ON, and to acquire securities from the other Powergen Financing Entities, the E.ON US Intermediate Holding Companies and the LG&E Energy Group companies. Each of the Powergen Financing Entities also seeks authority to issue guarantees and other forms of credit support to the other Powergen Financing Entities, the E.ON US Intermediate Holding Companies and the LG&E Energy Group companies. The Powergen Financing Entities would not acquire voting securities of LG&E Energy, its subsidiaries or the E.ON US Intermediate Holding Companies. The authorizations are requested through the Authorization Period.
The proposed financings by the Powergen Financing Entities would be used to finance the capital requirements of the LG&E Energy Group and any exempt or subsequently authorized acquisition. The Powergen Financing Entities will not use the financings to carry on business activities within the Powergen Financing Entities.
As discussed in section III,A, supra, it is expected that the Powergen Intermediate Holding Companies would transfer PUSIC, the U.S. parent of the LG&E Energy Group companies, to E.ON US in exchange for cash and/or a note. The Financing Applicants request the Commission to reserve jurisdiction over the transfer of PUSIC and the issuance of the note pending the completion of the record.
Powergen, E.ON UK plc and E.ON UK request authorization to issue and sell securities to E.ON (or a special purpose financing entity) and to their direct and indirect parent companies. Powergen, E.ON UK plc and E.ON UK also request authorization to acquire securities from their subsidiaries, including the Powergen Financing Entities, and to issue guarantees and provide other forms of credit support to, or for the benefit of, their subsidiaries. Powergen and E.ON UK would not issue securities to third parties.
The Financing Applicants propose that E.ON hold its interest in LG&E Energy through E.ON US and PUSIC. E.ON US and PUSIC each request authorization to issue and sell securities to each other and to E.ON (or a special purpose financing entity), and to acquire securities from their direct or indirect E.ON US Intermediate Holding Company subsidiaries, E.ON NA and LG&E Energy and its subsidiaries. In no case would a holding company borrow, or receive any extension of credit or indemnity, from any of its respective direct or indirect subsidiaries.
Upon consummation of the Reorganization of the E.ON Group and the transfer of PUSIC to E.ON US, E.ON or one of the E.ON US Intermediate Holding Companies may be required to guarantee certain of the debt issued by the Powergen Financing Entities according to the terms of the applicable debt instruments. The Financing Applicants seek authority for the E.ON US Intermediate Holding Companies to issue guarantees and other forms of credit support to, or for the benefit of, the Powergen Financing Entities. Any guarantees issued by E.ON and the E.ON US Intermediate Holding Companies will count against the Guarantee Limit.
The Financing Applicants state that the guarantees from E.ON US or PUSIC to the Powergen Financing Entities are necessary to reduce the credit risk for the holders of the outstanding debt of the various Powergen Financing Entities. These guarantees are part of the documentation of the relevant debt, and currently cannot be withdrawn. A direct guarantee from E.ON would not always be sufficient, because increasingly the capital markets are requiring that issuers support debt issues with not only the issuer's assets but also the assets of the issuer's affiliated group.
Each of the E.ON US Intermediate Holding Companies is intended to function as a financial conduit to facilitate E.ON's U.S. investments. For reasons of economic efficiency, the terms and conditions of any securities issued by the E.ON US Intermediate Holding Companies would be market-based, determined under the Market Rate Method, as defined in Section XIV,B,infra. The E.ON Intermediate Holding Company financings would be used to finance the capital requirements of E.ON NA and the LG&E Energy Group and any exempt or subsequently authorized activity that is hereafter acquired. The financings will not be used to carry on business or investment activities within the E.ON US Intermediate Holding Companies.
LG&E Energy requests authorization to obtain funds through sales of short-term debt securities to meet its funding requirements. Specifically, LG&E Energy proposes to have outstanding at any time during the Authorization Period external short-term debt in an aggregate amount of up to $400 million. LG&E Energy may engage in short-term financing as it deems appropriate in light of its needs and market conditions at the time of issuance. Financing could include, without limitation, commercial paper sold in established commercial paper markets, lines of credit with banks or other financial institutions, and debt securities issued under an indenture or a note program. All transactions will be at rates or prices, and under conditions, negotiated under, based upon, or otherwise determined by, competitive market conditions. Any securities issued by LG&E Energy will comply with the Financing Parameters.
The Financing Applicants request authorization for the Utility Subsidiaries to undertake the following transactions:
LG&E and KU propose to issue debt with maturities of two years or less to one or more associate or nonassociate companies in an aggregate principal amount at any one time outstanding during the Authorization Period of up to $400 million for each of LG&E and KU.97 Each Utility Subsidiary may engage in these financings as it may deem appropriate to do in light of its needs and market conditions at the time of issuance, subject to the applicable Financing Parameters. Such financing could include, without limitation, commercial paper sold in established U.S. or European commercial paper markets, lines of credit with banks or other financial institutions, and debt securities issued under an indenture or a note program. All transactions will be at rates or prices, and under conditions negotiated under, based upon, or otherwise determined by, competitive market conditions.
LG&E and KU propose to continue their receivables factoring programs, as authorized by the Powergen Order.98 In accordance with the order, LG&E formed and made capital contributions to LG&E Receivables, LLC ("LG&E Receivables") and KU has formed and made capital contributions to KU Receivables, LLC ("KU Receivables"). LG&E Receivables and KU Receivables will pay dividends or other distributions to the extent that the dividends or other distributions may be considered to be paid out of capital or unearned surplus. The Financing Applicants also request authorization of the intercompany notes issued by LG&E Receivables and KU Receivables to LG&E and KU, respectively.99
The Utility Subsidiaries seek authorization to guarantee the obligations of their subsidiaries (other than EWGs, ETCs or FUCOs), to the extent not exempt under rule 45. Guarantees would not exceed $200 million for either LG&E or KU. Certain guarantees may support obligations that are not capable of exact quantification. In this case, the Utility Subsidiaries will determine the exposure under a guarantee for purposes of measuring compliance with the above limits by appropriate means, including estimation of exposure based on loss experience or projected potential payment amounts. The Utility Subsidiaries propose to charge each subsidiary a fee for each guarantee provided on its behalf that is not greater than the cost, if any, of the liquidity necessary to perform the guarantee and the credit risk assumed by the Utility Subsidiary. Guarantees issued by the Utility Subsidiaries would not be secured by any utility assets.
The subsidiary companies of LG&E Energy now owned or hereafter acquired or formed, except the Utility Subsidiaries, are referred to as the "Nonutility Subsidiaries." In many cases, the Nonutility Subsidiaries will finance their capital needs on an exempt basis under rule 52(b).
The activities of LG&E Energy and its Nonutility Subsidiaries are financed, in part, through intercompany loans. Sources of funds also include internally generated funds and proceeds of external financings.
The Financing Applicants request authorization for LG&E Energy and the Nonutility Subsidiaries to loan funds to the Nonutility Subsidiaries in a net principal amount at any one time outstanding during the Authorization Period not to exceed $1 billion. LG&E Energy will not borrow funds from its subsidiary companies. Terms and conditions of intercompany loans available to a borrowing Nonutility Subsidiary will be materially no less favorable than the terms and conditions of loans available from third-party lenders. The interest rate will be equal to the lending company's cost of capital. All loans will be payable on demand or will have a maturity of less than fifty years from the date of issuance.
The LG&E Energy Group has in place certain guarantees and other credit support arrangements and requests authority for these arrangements to remain in place following the Acquisition. These guarantees and credit support arrangements, described fully in the Financing Application, have been previously authorized or are permitted under the Act.
The Financing Applicants request authorization for LG&E Energy and the Nonutility Subsidiaries to enter into guarantees, extend credit, obtain letters of credit, enter into guarantee-type expense agreements and otherwise to provide credit support for the obligations from time to time of the LG&E Energy Group companies during the Authorization Period. Guarantees issued by LG&E Energy would not exceed an aggregate principal amount of $1.5 billion and Guarantees issued by the Nonutility Subsidiaries would not exceed an additional aggregate principal amount of $1.5 billion, in each case based on the amount at risk outstanding at any one time, exclusive of any guarantees or credit support arrangements existing on the date of the Acquisition and exclusive of guarantees that may be exempt under rule 45(b). The request for guarantee authorization is separate from E.ON's External Financing Limit or E.ON's Guarantee Limit and is also separate from the guarantee authorization sought by the Utility Subsidiaries, discussed above. Any securities issued by the LG&E Energy Group companies which are guaranteed or otherwise covered by credit support arrangements, will be issued either under a Commission order or an applicable exemption under the Act.
Any guarantees or other credit support arrangements outstanding at the end of the Authorization Period shall continue until expiration or termination in accordance with their terms. The amount of guarantees outstanding at any one time shall not be counted against the aggregate respective limits applicable to external financings or the limits on intrasystem financing requested elsewhere in the Financing Application. The guarantor will not charge a fee for a guarantee that would exceed the guarantor's cost of obtaining the liquidity necessary to perform the guarantee for the period of time the guarantee remains outstanding and the credit risk assumed by the guarantor. To the extent that the exposure under any guarantee is not capable of exact quantification, the guarantor will estimate its exposure based on loss experience or projected potential payment amounts.
The Financing Applicants request authorization to operate three money pools. The utility money pool ("Utility Money Pool") would include only the Utility Subsidiaries as borrowers from, and lenders to, the pool. E.ON, E.ON NA, Fidelia and LG&E Energy may be additional members of the Utility Money Pool, but they would participate only as lenders to the pool.100 LG&E Energy Services Inc. ("LG&E Services") will act as the administrator of the Utility Money Pool.
The U.S. nonutility money pool ("U.S. Nonutility Money Pool") would include the Nonutility Subsidiaries as borrowers from, and lenders, to the pool. E.ON, E.ON NA, Fidelia and LG&E Energy would be additional members of the U.S. Nonutility Money Pool, but they would participate only as lenders to the pool. LG&E Services will act as the administrator of the U.S. Nonutility Money Pool.
The Utility Subsidiaries and certain of the Nonutility Subsidiaries currently participate in money pools approved in the Powergen Order. The Financing Applicants request that the Commission authorize the existing money pools through December 31, 2003, to provide a period of time to implement the new money pools.
The Financing Applicants also request authorization to form and operate an E.ON nonutility money pool ("E.ON Nonutility Money Pool") on the terms described herein. The E.ON Nonutility Money Pool may include all E.ON Group companies as borrowers from and lenders to the pool, except E.ON, the E.ON US Intermediate Holding Companies, the Powergen Intermediate Holding Companies and the LG&E Energy Group companies.101 E.ON, the E.ON US Intermediate Holding Companies and the Powergen Intermediate Holding Companies would participate only as lenders to the E.ON Nonutility Money Pool.
The daily outstanding balance of all borrowings from the Utility Money Pool during any month will accrue interest at the rate, as published in the Wall Street Journal on the last business day of the prior calendar month for high grade 30-day commercial paper issued by major corporations and sold through dealers (the "WSJ Rate"), plus an at-cost allocation of LG&E Services' cost of managing the money pool. The interest rate paid on loans to the Utility Money Pool would be the weighted average of the WSJ Rate earned on loans to pool participants and the interest rate earned by the pool on surplus deposits invested in high-quality short-term readily marketable instruments.
LG&E Services would administer the Utility Money Pool on an at cost basis and maintain the records for the pool. The determination of whether a participant in a money pool has surplus funds to lend to the pool or should borrow from the pool would be made by each participant's chief financial officer or treasurer, or by a designee thereof, on the basis of cash flow projections and other relevant factors, in that participant's sole discretion. No party would be required to effect a borrowing through a money pool if it is determined that it could (and had the authority to) effect a borrowing at a lower cost directly from banks or through the sale of its own commercial paper.
The Utility Subsidiaries' borrowings from the Utility Money Pool would be counted against their overall short-term borrowing limits stated above. The U.S. Nonutility Money Pool will be operated on substantially the same terms and conditions as the Utility Money Pool.
The E.ON Nonutility Money Pool would be administered by E.ON at no charge or by E.ON NA or its special purpose subsidiary at cost. The interest rate charged by the pool would be set according to the Market Rate Method and surplus funds would be invested in the same manner proposed for the Utility Money Pool. The interest rate paid on deposits to the E.ON Nonutility Money Pool will be a weighted average of the rates charged borrowers and the money pool investment rate.
The Financing Applicants request authorization for each company in the E.ON Group, other than EWGs, FUCOs and ETCs, to acquire, redeem, or retire its securities or those of its direct and indirect subsidiaries. The securities may either be outstanding or issued and sold in the future from time to time during the Authorization Period. These transactions will be undertaken at either the competitive market prices for the securities or at the stated price for the securities, as applicable. The Utility Subsidiaries will acquire, retire or redeem securities only in accordance with rule 42. The redemption or retirement of securities would be effected consistent with corporate law, and state or national law applicable in the jurisdiction where the company whose securities are being acquired, retired, or redeemed is organized and any applicable financing covenants.
The E.ON Group companies, except the EWGs, FUCOs and ETCs, propose to organize new, or use existing, corporations, trusts, partnerships, or other entities (the "E.ON Financing Entities"), created for the purpose of facilitating financings through their issuance to third parties of income preferred securities or other securities authorized in this Order or issued under an applicable exemption. The E.ON Financing Entities also propose to issue these securities to third parties in the event the issuances are not exempt under rule 52. In addition, the Financing Applicants request authorization with respect to (i) the issuance of debentures or other evidences of indebtedness to an E.ON Financing Entity in return for the proceeds of the financing (i.e., an E.ON financing Entity could acquire securities from its parent or an associate company in exchange for the proceeds of a third-party financing); (ii) the acquisition of voting interests or equity securities issued by the E.ON Financing Entity to establish ownership of, or to return funds to, the financing entity; and (iii) the guarantee of the E.ON Financing Entity's obligations in connection with the securities issued. An E.ON Group company may also enter into expense agreements with its respective E.ON Financing Entity to pay all expenses of the entity. All expense reimbursements would be at cost.
To help ensure the necessary legal separation to isolate a financing entity from its parent company for bankruptcy purposes, it may be necessary or appropriate for any servicing arrangement to be at a market price so that a successor entity, for example, could assume the servicing duties in the event of the bankruptcy of the parent without interruption or an increase in fees. Accordingly, the Financing Applicants request authorization to enter into servicing agreements with E.ON Financing Entities, as applicable, at market-based terms.
Any amounts issued by an E.ON Financing Entity to third parties under the requested authority would count against the External Financing Limit or any other applicable limit for the immediate parent of the E.ON Financing Entity. The underlying intra-system mirror debt and parent guarantee will not, however, count against the applicable financing or guarantee limits. If financing entities organized by E.ON or the Utility Subsidiaries issue long-term debt or preferred stock in a public offering, the securities would, when issued, be rated investment grade by a nationally recognized statistical rating organization.102
The portion of a subsidiary's aggregate financing to be effected through the sale of equity securities to a direct or indirect parent company during the Authorization Period cannot be determined at this time. A proposed sale of capital securities may in some cases exceed the then authorized capital stock of the subsidiary. In addition, the subsidiary may choose to use other forms of capital securities, including common stock, ordinary shares, preferred stock, other preferred securities, options and/or warrants convertible into common or preferred stock, rights, and similar securities. Consequently, the Financing Applicants request authority to increase the amount, or change the terms, of any wholly owned subsidiary's authorized capital securities, without additional Commission approval, except as provided below. The terms that may be changed may include, among others, series designation, dividend rates, conversion rates and dates, and expiration dates. The Financing Applicants request the Commission to reserve jurisdiction over changes to the capital stock of each of LG&E, KU and any subsidiary that is not wholly owned directly or indirectly by E.ON. The changes to capital stock proposed above affect only the manner in which financing is conducted by the subsidiary and will not alter the terms or limits proposed in the Financing Application.
The Financing Applicants ask the Commission to approve the agreement among certain E.ON Group companies to file a consolidated tax return (the "Tax Allocation Agreement"). The parties to the agreement would include PUSIC, E.ON NA, Fidelia and the LG&E Group companies.
Approval is necessary because the Tax Allocation Agreement provides for the retention by the U.S. parent of the U.S. tax filing group (i.e., PUSIC or certain of its subsidiaries) of certain tax attributes resulting from payments it has made, rather than the allocation of these losses to the subsidiaries in the U.S. tax filing group without compensation, as would otherwise be required by rule 45(c)(5). PUSIC seeks to retain only the benefit of tax losses that have been generated by it in connection with financing the acquisition of LG&E Energy. As a result of Powergen's acquisition of LG&E Energy, PUSIC generates tax benefits from the interest expense on the acquisition-related debt that is non-recourse to the LG&E Energy Group and is unrelated to the financing of subsidiary operations.103
The Financing Applicants will use the purchase method of accounting for the Acquisition. Under this method of accounting, the premium to be paid to acquire Powergen will result in a substantial amount of goodwill for the E.ON Group. According to SFAS 141 and 142, goodwill will not be amortized but will be subject to annual impairment tests. A potential write-off of this goodwill due to impairment would reduce future consolidated net income.104
In addition, Staff Accounting Bulletin No. 54 generally requires that the premium paid in an acquisition utilizing the purchase method of accounting be "pushed down" to the books of the acquired company, which in this case would be the Powergen Group. The effect of a "push down" is to eliminate the retained earnings of the acquired company and to increase its additional paid-in capital. However, the Financing Applicants state that they have been advised that, under applicable exceptions to the general rule, the premium paid in the Acquisition will be "pushed down" to LG&E Energy and other companies in the Powergen Group, but not to the Utility Subsidiaries or any other subsidiary of LG&E Energy.
The Financing Applicants request authorization for each of the TBD Subsidiaries, the Retained Nonutility Subsidiaries, the Powergen Group (excluding Powergen Group Holdings), the E.ON US Intermediate Holding Companies, E.ON UK, E.ON U.K. plc and the LG&E Energy Group companies (excluding the Utility Subsidiaries) to pay dividends with respect to its common stock or fund the redemption or repurchase of stock out of capital and unearned surplus (including revaluation reserve), to the extent permitted under corporate law and state or national law applicable in the jurisdiction where each company is organized, and any applicable financing covenants, from time to time through the Authorization Period.
The Financing Applicants propose to restructure E.ON's nonutility holdings, including those in the LG&E Energy Group, from time to time as may be necessary or appropriate in the furtherance of the E.ON Group's authorized nonutility activities and to maintain and support investment in the TBD Subsidiaries pending divestment. To that end, E.ON requests authorization to acquire, directly or indirectly, the equity securities of one or more intermediate subsidiaries ("Development Subsidiaries") organized exclusively for the purpose of acquiring, financing, and holding the securities of, one or more existing or future nonutility subsidiaries. Development Subsidiaries may also provide management, administrative, project development and operating services to these entities.
Restructuring could involve the acquisition of one or more new special purpose subsidiaries to acquire and hold direct or indirect interests in any or all of the TBD Subsidiaries and the E.ON Group's existing or future authorized nonutility businesses. Restructuring could also involve the transfer of existing subsidiaries, or portions of existing businesses, among the E.ON Group companies and/or the reincorporation of existing subsidiaries in a different jurisdiction. These measures would enable the E.ON Group to consolidate similar businesses, to participate effectively in authorized nonutility activities, and to position the TBD Subsidiaries appropriately for eventual sale without the need to apply for or receive additional Commission approval.105
The requested nonutility restructuring authorization works together with the authorization to invest up to $4 billion in the TBD Subsidiaries. For example, E.ON's German subsidiary, Viterra, has a portfolio of primarily low-income housing properties. To put Viterra in a better position to be sold, it may be desirable to package certain existing properties into one or more corporations for a separate sale and also to acquire selected commercial or upscale residential properties that complement Viterra's existing holdings. A more balanced portfolio of properties may be more attractive to a potential purchaser and increases the likelihood of structuring a successful sale.
Development Subsidiaries may be corporations, partnerships, limited liability companies or other entities in which E.ON, directly or indirectly, may have a 100% interest, a majority equity or debt position, or a minority debt or equity position. Development Subsidiaries would engage only in businesses to the extent that the E.ON Group is authorized, whether by statute, rule, regulation or order, to engage in those businesses (including the businesses of the TBD Subsidiaries pending divestment). E.ON commits that the requested authorization will not result in the entry into a new, unauthorized line of business by the E.ON Group.
Development Subsidiaries would be organized for the purpose of acquiring, holding and/or financing the acquisition of the securities of, or other interest in, one or more EWGs, FUCOs, subsidiaries exempt under rule 58 ("Rule 58 Subsidiaries"), energy related subsidiaries, defined in section XIII,C,9,k, infra ("Energy Related Subsidiaries"), ETCs or other non-exempt nonutility subsidiaries. Development Subsidiaries may also engage in development activities ("Development Activities") and administrative activities ("Administrative Activities") relating to the permitted businesses of the nonutility subsidiaries.
Development Activities will include due diligence and design review; market studies; preliminary engineering; site inspection; preparation of bid proposals, including, in connection therewith, posting of bid bonds; application for required permits and/or regulatory approvals; acquisition of site options and options on other necessary rights; negotiation and execution of contractual commitments with owners of existing facilities, equipment vendors, construction firms, power purchasers, thermal "hosts," fuel suppliers and other project contractors; negotiation of financing commitments with lenders and other third-party investors; and such other preliminary activities as may be required in connection with the purchase, acquisition, financing or construction of facilities or the acquisition of securities of, or interests in, new businesses. Administrative Activities will include ongoing personnel, accounting, engineering, legal, financial and other support activities necessary to manage E.ON's investments in nonutility subsidiaries.
A Development Subsidiary may be organized, among other things, (i) to facilitate the making of bids or proposals to develop or acquire an interest in any EWG, FUCO, Rule 58 Subsidiary, Energy-Related Subsidiary, ETC or other nonexempt nonutility subsidiary; (ii) after the award of the a bid proposal, to facilitate closing on the purchase or financing of the acquired company; (iii) at any time subsequent to the consummation of an acquisition of an interest in any company in order, among other things, to effect an adjustment in the respective ownership interests in business held by E.ON and non-affiliated investors; (iv) to facilitate the sale of ownership interests in one or more acquired nonutility companies; (v) to comply with applicable laws of foreign jurisdictions limiting, or otherwise relating to, the ownership of domestic companies by foreign nationals; (vi) as a part of financial optimization or tax planning, to limit E.ON's exposure to German, U.S. and foreign taxes; or (vii) to further insulate E.ON and the Utility Subsidiaries from operational or other business risks that may be associated with investments in nonutility companies.
Development Activities will be funded in accordance with rules 45(b) and 52(b) or as authorized in this Order. To the extent that E.ON provides funds or guarantees directly or indirectly to a Development Subsidiary that are used for the purpose of making an investment in any EWG, FUCO or Rule 58 Subsidiary, the amount of these funds or guarantees will be included in E.ON's aggregate investment in these entities, calculated in accordance with rules 53 or 58, as applicable.
To the extent that these transactions are not exempt from the Act or are otherwise authorized or permitted by rule, regulation or order, the Financing Applicants request authorization for the Development Subsidiaries to provide management, administrative, project development and operating services to direct or indirect subsidiaries at cost in accordance with section 13 of the Act and related rules, including rules 90 and 91. The Financing Applicants also propose, however, that Development Subsidiaries would provide services and sell goods at fair market prices, under an exemption from the at-cost standard of section 13(b) of the Act and rules 90 and 91 under the Act, when the associate company receiving the goods or services is:
1) a FUCO or foreign EWG that does not derive any 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 to nonassociate companies at market-based rates approved by the FERC;
3) a "qualifying facility" under the Public Utility Regulatory Policy Act of 1978 ("PURPA") that sells electricity to industrial or commercial customers for their own use at negotiated prices or to electric utility companies at their "avoided cost," as defined under PURPA;
4) a domestic EWG or "qualifying facility" that sells electricity to nonassociate companies at cost-based rates approved by the FERC or a state commission; and
5) a Rule 58 Subsidiary or any other authorized subsidiary that: (a) is partially owned, provided that the ultimate purchaser of the goods or services is not an associate public-utility company or an associate company that primarily provides goods and services to associate public-utility companies; (b) is engaged solely in the business of developing, owning, operating and/or providing goods and services to nonutility companies described in items (1) through (4), 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.
As discussed previously in section V,C,1,b, supra, E.ON is engaged in a significant program to divest a number of its existing nonutility businesses. From these divestments, E.ON expects to receive proceeds in excess of $20 billion within the next five years, including the proceeds of sales already made. The Financing Applicants propose that E.ON invest these proceeds to build its existing, permitted nonutility businesses, and to acquire additional interests in EWGs, FUCOs and permitted nonutility businesses located primarily outside the United States. Accordingly, E.ON requests authorization to acquire, and to invest up to $10 billion in, the following nonutility businesses (the "Energy-Related Subsidiaries") without regard to the source of their revenues:
1) the provision of energy management services and other businesses related to energy conservation;
2) the maintenance and monitoring of utility equipment;
3) the provision of utility-related or utility-derived software and services;
4) the provision of engineering, consulting and technical services, operations and maintenance services;
5) the brokering and marketing of electricity and other energy commodities, and the provision of services such as fuel management, storage and procurement; and
6) oil and gas exploration, development, production, gathering, transportation, storage, processing and marketing activities, and related or incidental activities.106
The proposed transactions are variously subject to sections 6(a), 7, 9(a), 10 and 12 of the Act and rules 45, 46, 52, 53 and 54. The Commission has reviewed the proposed transactions and finds that they satisfy the requirements of the Act. We wish to discuss in particular the proposed EWG and FUCO financings and the proposed financing of the TBD Subsidiaries and the Retained Nonutility Subsidiaries by the E.ON Group (other than the LG&E Group companies) at market rates, where required by German law or regulation.
As noted previously, the Financing Applicants seek authorization to enter into transactions to finance additional investments in EWGs and FUCOs in an amount up to $25 billion.107 Insofar as the proposal concerns the issuance of securities for purposes of financing the acquisition of EWGs, as well as guarantees of securities of EWGs, the transactions are subject to sections 6, 7, 12(b), 32(h)(3) and rule 53, promulgated under section 32(h)(6) of the Act.108 Similarly, insofar as the proposal concerns the issuance of securities for purposes of financing the acquisition of one or more FUCOs, as well as guarantees of securities of FUCOs, the transactions are subject to sections 6(a), 7, 12(b) and 33(c)(2) of the Act.109 The Commission has stated that it will develop standards for FUCO financings on a case-by-case basis.110
E.ON cannot rely upon the safe harbor of rule 53 because of its significant existing FUCO investment. As noted previously, E.ON had an aggregate investment, as defined in rule 53(a), in EWGs and FUCOs of $3.811 billion as of December 31, 2001. In addition, the combined LG&E Energy Group and Powergen aggregate investment in EWGs and FUCOs as of December 31, 2001 is $1.075 billion. As of December 2001, on a pro forma basis to reflect the Acquisition, E.ON had consolidated retained earnings of $10.499 billion. The combined E.ON, Powergen and LG&E Energy aggregate investment ($4.886 billion) represents approximately 47% of E.ON's pro forma consolidated retained earnings. Including the reinvestment of the expected proceeds from divestments of approximately $35 billion as aggregate investment, the combined E.ON, Powergen and LG&E Energy aggregate investment ($39.886 billion) would represent approximately 380% of E.ON's pro forma consolidated retained earnings. In addition, E.ON does not satisfy the conditions of rule 53(a) concerning books and records, because Powergen Group Holdings, the Powergen Group FUCO, provides financial statements in accordance with U.K. GAAP, with reconciliations of material variations from U.S. GAAP.111 Accordingly, it is appropriate to analyze E.ON's proposal, insofar as it concerns EWG and FUCO financings, under rule 53(c), in addition to sections 6, 7 and 12(b) and rule 53(b).112
Under rule 53(c), E.ON is required, in order to obtain Commission approval, to demonstrate that the proposed transactions will not have a substantial adverse impact on the financial integrity of the registered system, and will not have an adverse impact on the Utility Subsidiaries or on the ability of the relevant state commissions to protect the Utility Subsidiaries or their customers. The Commission has considered these requirements in a number of orders, including the order in the National Grid Order and the Powergen Order.113
The following chart shows how the proposed investments in an amount up to $65 billion compares to the percentages for the companies that received the 100% Orders and for the foreign registered holding companies in the National Grid Order and the Powergen Order. The chart states investments in EWGs and FUCOs* as a percentage of:
Among other things, the comparison demonstrates that whereas U.S.-based registered holding companies have been subject to diversification restrictions and have substantially more assets invested in the U.S. utility business than in EWG or FUCO investments, E.ON's foreign operations are significant and its proposed FUCO investment is commensurately larger. The comparison also indicates a timing issue. The full amount of E.ON's proposed investments would not be made at once. Investments will be made over a period of time, during which E.ON's consolidated capitalization and retained earnings are likely to grow. In addition, E.ON's program of expanding in the U.S. will likely proceed. The numbers above reflect a hypothetical assumption that as much as $65 billion may be invested in EWGs and FUCOs. It is more realistic, however, to project that U.S. acquisitions will take a significant portion of E.ON's capital expenditure budget and that EWG and FUCO investments will be commensurately reduced. For this reason, the percentage comparison presented above is static and has limited value as a predictor of the effect of FUCO investments on the overall financial soundness of the E.ON Group.
E.ON states that its ongoing commitments to follow prudent investment practices and to maintain minimum common stock equity levels and investment grade credit ratings will assure its continued financial soundness. As noted previously in this Order, E.ON commits to maintain its common stock equity (including minority interest) as a percentage of total capitalization, measured on a book value U.S. GAAP basis, at 30% or above. E.ON also commits to maintain its senior unsecured long-term debt rating at an investment grade level.
In the previous orders, the Commission considered certain financial indicators in determining that there would be no substantial adverse impact on the financial integrity of the holding company system. The size and market position of E.ON, as well as the financial integrity of the E.ON Group, is at least as secure as that of the applicants in previous orders.
E.ON's credit rating is currently Aa2/AA- by Moody's and Standard & Poor's. E.ON's consolidated capitalization and interest coverage ratios for 2001, on a pro forma basis to reflect the Acquisition, are within industry ranges set by independent debt rating agencies for similarly rated companies, as shown below:
As these statistics demonstrate, E.ON will be financially sound following the Acquisition. As noted above, E.ON commits to maintain its common stock equity (including minority interest) as a percentage of total capitalization, measured on a book value U.S. GAAP basis, at 30% or above. E.ON also commits to maintain its senior unsecured long-term debt rating at an investment grade level. E.ON will not issue additional debt securities to finance EWG or FUCO acquisitions if, upon original issuance, its senior debt obligations are not rated investment grade by at least one of the major rating agencies (viz., Standard & Poor's Corporation, Fitch Ratings and Moody's Investor Service).
Other financial indicators also show the financial strength of E.ON. For example, E.ON's net income for 2001 was $1.823 billion, a decrease of $1.529 billion over net income of $3.352 billion for 2000, which was $340 million higher than 1999. 121 Similarly, E.ON's basic earnings per share from continuing operations were $3.44 for 2001, as compared to $5.21 for 2000 and $6.03 for 1999. On a pro forma basis to reflect the Acquisition, E.ON's earnings per share are $2.92 per share and its return on equity is 9.0%. E.ON will continue to provide the financial information required by Form 20-F to permit the Commission to monitor the effect of E.ON's EWG and FUCO investments on E.ON's financial condition. E.ON's indicated dividend rate for the year ended December 31, 2001, was $1.42 per share. In comparison to E.ON's basic earnings per share from continuing operations of $3.44 for the year ended December 31, 2001, the dividend payout ratio is 41.3%. These numbers demonstrate that E.ON is operated conservatively and that much of its earnings are reinvested in operations.
Another aspect of the Commission's inquiry focuses on whether risks associated with foreign utility businesses could adversely affect the financial stability of the registered system. In this regard, the Financing Applicants state that E.ON's successful operation of an international generation, distribution, and supply business indicates that E.ON has sound management skills and expertise in the utility industry, particularly as it relates to foreign utility operations.
In addition, E.ON utilizes a stringent review process to assess the risks associated with new investments, including EWGs and FUCOs. The E.ON capital expenditure guidelines (the "Capex Guidelines") establish group-wide, uniform valuation criteria and procedures for assessing investments.122 The Capex Guidelines ensure that the E.ON Group takes a uniform approach to strategy, returns, and risk exposure and allocates its financial resources efficiently. The guidelines provide a framework for managing investment decisions and set out minimum requirements for the assessment procedure, ensuring that decisions are made in a consistent, informed and controlled environment. The procedure applies to all projects within the E.ON Group with a volume that exceeds the threshold established in the bylaws of the Board of Management, in the division parent company's Articles of Association, or agreed on between E.ON and the divisions.
Investments are evaluated against a range of criteria, including strategic and financial fit, impact on E.ON Group earnings and financing, and economic measures. Economic measures include dynamic valuation criteria such as discounted cash flows, internal rate of return, and payback period. Investments are assessed on an after-tax basis and on the basis of nominal parameters. All investments are assessed against individual hurdle rates. The hurdle rates are the minimum requirement. In order to create value, projects must demonstrate a positive net present value at these discount rates. The hurdle rates are updated and approved by the E.ON Management Board annually.
A project presentation is required to gain approval for investment. The presentation includes all relevant information that is necessary to understand the project and its strategic, legal, tax, and economic background as well as its profitability, earnings impact, and risk exposure.
Because key factors concerning the project's profitability (such as the development of sales volume, prices and margins) are subject to uncertainty, the project presentation also covers scenarios and sensitivity analyses. These analyses illustrate the changes in profitability due to altered key factors.123
Post Completion Audits ("PCAs") are presented after the investment has been made. PCAs are presented for individual projects with strategic significance and for projects that show significant deviations from the business plan originally presented (for example with regard to cash flows, time schedule). PCAs include a comparison of the planned and the realized initial capital expenditure, as well as a comparison of the planned and realized operating cash flows, an updated profitability calculation based on realized cash flows and an updated business plan, information about delays in the time schedule, and a deviation analysis including a description of counteractions to secure the present value and the return originally expected.
E.ON further states that the proposed EWG/FUCO financings will not have an adverse impact on any Utility Subsidiary, its customers, or the ability of the state public utility commissions to protect such customers. In support of this assertion, E.ON cites: (i) the insulation of the Utility Subsidiaries and their customers from potential direct adverse effects of investments in EWGs and FUCOs; (ii) analyses of the Utility Subsidiaries' financial integrity (including their ability to issue senior securities); and (iii) the effectiveness of the state commission oversight.
Following the Acquisition, E.ON will maintain a corporate structure that separates its foreign operations, with the exception of LG&E Energy's FUCO holdings, from its U.S. utility operations, insulating the latter from any adverse effects from FUCO investments. The organization of the U.S. utility activities under LG&E Energy, PUSIC and E.ON U.S. reflects E.ON's intent to operate the U.S. utility business in a financially independent manner.
E.ON's investments in EWGs and FUCOs will be segregated from the Utility Subsidiaries. None of the Utility Subsidiaries will provide financing for, extend credit to, or sell or pledge its assets directly or indirectly to any EWG or FUCO in which E.ON owns any interest, except in the case of EEI, an EWG subsidiary of KU. Any losses that may be incurred by E.ON's EWGs and FUCOs will have no effect on domestic rates of any Utility Subsidiary. E.ON commits not to seek recovery in retail rates of the Utility Subsidiaries for any failed investment in, or inadequate returns from, an EWG or FUCO investment.
Moreover, to the extent that there may be indirect impacts on the Utility Subsidiaries from E.ON's EWG or FUCO investments through effects on E.ON's capital costs, the state commissions that regulate the Utility Subsidiaries can set the cost of capital for electric utilities by comparison with selected groups of domestic utilities, which may exclude any utilities with adverse impacts due to EWGs and FUCOs. Therefore, the states have the authority and the mechanism to prevent any adverse effects on the cost of capital due to investments in EWGs and FUCOs from being passed on to ratepayers. In addition, E.ON commits not to seek to recover any FUCO losses from the Utility Subsidiaries or their customers.
As noted previously, E.ON will comply with the requirements of rule 53(a)(3) regarding limiting the use of the Utility Subsidiaries' employees to provide services to EWGs and FUCOs. It is contemplated that project development, management and home office support functions for the FUCOs currently held by E.ON will be largely performed by Powergen and E.ON Energie and their respective subsidiary companies, and by outside consultants (e.g., engineers, investment advisors, accountants and attorneys) engaged by Powergen or E.ON Energie. Accordingly, E.ON's need for the support of personnel provided by the Utility Subsidiaries is expected to be modest. E.ON also will comply with the other conditions of rule 53(a) providing specific protections to customers of the Utility Subsidiaries and their state commissions, in particular, the requirements of rule 53(a)(1) regarding the preparation and making available of books and records and financial reports regarding EWGs and FUCOs, and the requirements of rule 53(a)(4) regarding the provision of EWG and FUCO-related information to every federal, state and local regulator having jurisdiction over the retail rates, as applicable, of the Utility Subsidiaries.
Investments in EWGs and FUCOs will not have any negative impact on the ability of the Utility Subsidiaries to fund operations and growth. The Utility Subsidiaries currently have financial facilities in place that are adequate to support their operations. These facilities will continue after the Acquisition. The Utility Subsidiaries are in good financial health, as indicated by such factors as debt/equity ratios, earnings coverages, and security ratings. The expectation of continued strong credit ratings by the Utility Subsidiaries should allow them to continue to access the capital markets to finance their operations and growth.
Specifically, debt (including short-term debt) ratios of the two Utility Subsidiaries are consistent with the industry range for "A" rated electric utilities. The current industry median for "A" rated utilities is approximately 50.5%. See Standard & Poor's Utility Financial Statistics.
E.ON commits to maintain the common stock equity ratios of each of LG&E and KU, on an individual basis, at a minimum of 30%.
With respect to earnings coverages, the Utility Subsidiaries' ability to issue debt and equity securities in the future depends on their financial strength at the time such securities are issued. To the degree they issue senior secured debt, they must comply with certain coverage requirements designated in their mortgage bond indentures. For the twelve-month period ended December 31, 2001, indenture earnings coverages for the Utility Subsidiaries were approximately 6.42x for LG&E and 6.15x for KU, in each case well above the required coverages of 2.0x. Accordingly, the Utility Subsidiaries should have more than adequate earnings coverages to meet their interest expense obligations in the foreseeable future. As for security ratings, the Utility Subsidiaries' coverages have generally been within the 3.0x to 5.0x ranges set by the major rating agencies in recent years. The Utility Subsidiaries continue to show adequate financial statistics, as measured by the rating agencies.
E.ON does not believe that investments made in EWGs and FUCOs will negatively affect the credit ratings of the Utility Subsidiaries.
With respect to the capital needs of the Utility Subsidiaries, the Financing Applicants state that additional investments in EWGs and FUCOs will not have any negative impact on the Utility Subsidiaries' ability to fund operations and growth. Present projections indicate that the Utility Subsidiaries will continue to fund their operations and their construction expenditures primarily from internal sources of cash and from sales of securities and other borrowings for the next two years. Moreover, due to their credit ratings, the Utility Subsidiaries should be able to access the capital markets as needed.
The Virginia Commission has asked the Commission to make clear that the Utility Subsidiaries, in furtherance of their public service obligations, have a priority claim on capital from E.ON, over FUCO and EWG investments. To that end, E.ON commits to maintain adequate capitalization of the Utility Subsidiaries so that they can continue to meet their public service obligations. E.ON will provide capital to the Utility Subsidiaries, as necessary to support public service obligations, on a priority basis before E.ON funds its EWG and FUCO investments.
Utility Subsidiaries - Construction Expenditures: actual and projected, including Allowance for Funds Used During Construction ($ million):
E.ON believes that the three state commissions having jurisdiction over the Utility Subsidiaries, namely, Kentucky, Virginia, and Tennessee (collectively, the "State Commissions") are able to protect utility customers within their respective states. The State Commissions that have reviewed the Acquisition have not raised objections to Powergen's and/or LG&E Energy's current or proposed investments in EWGs or FUCOs.124 Additionally, E.ON will be subject to reporting requirements at the state level. The Utility Subsidiaries are also subject to audits by the FERC. Such audits have not raised any issue relative to affiliate transactions generally.
In connection with the Acquisition, the Commission requested the views of each of the State Commissions having jurisdiction over the Utility Subsidiaries viz., the Kentucky, Virginia and Tennessee Commissions, concerning their authority and ability to protect ratepayers. Each commission responded affirmatively.
Finally, as noted above, the state commissions will have the authority to make adjustments in a Utility Subsidiary's cost of capital to take into account any negative effect from E.ON's investments in EWGs and FUCOs. For all these reasons, the State Commissions will have adequate authority to protect the Utility Subsidiaries' ratepayers from any adverse effect associated with E.ON's investments in EWGs and FUCOs.
Based on these factors, the Commission finds that E.ON has made the requisite showing under rule 53(c).
As noted previously, the E.ON Group companies propose to finance the TBD Subsidiaries and E.ON's nonutility subsidiaries that are not now or hereafter held as part of a FUCO or the LG&E Energy Group (the "Retained Nonutility Subsidiaries"), and these companies propose to finance one another, through capital contributions, loans, guarantees, the purchase of equity or debt securities, or other methods throughout the Authorization Period.125 In connection with the financing of the TBD Subsidiaries, investments would not exceed $4 billion. In connection with the financing of the Retained Nonutility Subsidiaries, investments would not exceed the amount of financing authorization sought in this Financing Application, i.e., $75 billion. The requested authorization would not apply to any company in the LG&E Energy Group.
Applicants request this authorization to allow the E.ON Group companies (other than the LG&E Energy Group companies), to finance the TBD Subsidiaries and the Retained Nonutility Subsidiaries at market rates, where required by German law or regulation. Where market rate financing is not required by law or regulation, the E.ON Group companies (other than the LG&E Energy companies) would finance the TBD Subsidiaries and the Retained Nonutility Subsidiaries at the lending company's cost of capital.
Where market rate financing is required, E.ON would determine the appropriate market rate for loans to each TBD Subsidiary or Retained Nonutility Subsidiary or among such entities in much the same manner practiced by an independent bank. E.ON would review the nature of each subsidiary's business, evaluate its capital structure, the particular risks to which it is subject, and generally prevailing market conditions. E.ON would also evaluate and take into account information from third parties such as banks that would indicate the prevailing market rates for similar businesses. In particular, E.ON will obtain information on the range of rates used by one or more banks for loans to similar businesses. Such independent third-party information would serve as an index against which an appropriate market rate could be determined. This analysis is referred to as the "Market Rate Method." E.ON would provide its analysis supporting its market-based rate determination to the Commission staff upon request.
In addition, to the extent funds are borrowed by a company in the LG&E Energy Group from an associate company, the loan would be made at E.ON's effective cost of capital or a lower rate, regardless of the cost of capital incurred by the lending company. Consequently, the E.ON Group companies that are financed according to the Market Rate Method would not pass increased costs on to the companies in the LG&E Energy Group.
The Commission has previously granted an authorization to lend funds to certain subsidiaries at market rates in the context of a foreign registered holding company. In Emera, Inc., the Commission authorized Emera to lend funds to its Canadian subsidiaries at market rates where this was necessary to allow the holding company to operate its business efficiently under Canadian tax regulations.126 The market rate loans made by Emera were required to be calculated in the same manner as the Market Rate Method proposed in this matter. In addition, Emera's public-utility subsidiaries were insulated from any increased costs associated with the market rate financing of Emera's nonutility subsidiaries because all borrowings by the utilities would be at the lowest of (i) Emera's cost of capital, (ii) the cost of capital of an associate FUCO, if that company was the lender, or (iii) the utility's cost of capital incurred in a direct borrowing at that time from a nonassociate lender for a comparable term loan.127
E.ON will file Form U5S annually within 180 days of the close of E.ON's fiscal year. In addition, as required, respectively, by the 1934 Act and the 1933 Act, E.ON will file reports on Form 20-F and Form 6-K containing material announcements as made.
E.ON also will report annually, as a supplement to the Form U-13-60 filed by LG&E Services, service transactions among E.ON Group companies (except the LG&E Energy Group) and the LG&E Energy Group. The report will contain the following information:
1) A narrative description of the services rendered by members of the E.ON Group or the Powergen Group for the LG&E Energy Group, by members of the LG&E Group for the E.ON Group or the Powergen Group, and by members of the LG&E Energy Group for one other (other than as reported on Form U-13-60);
2) A disclosure of the dollar amount of services rendered in item 1) above, according to category or department;
3) An identification of companies rendering services described in item 1) above and recipient companies, including disclosure of the allocation of services costs among the companies of the LG&E Energy Group; and
4) A disclosure of the number of LG&E Energy Group employees engaged in rendering services to other E.ON Group companies on an annual basis, stated as an absolute and as a percentage of total employees; and
The Commission believes that these reporting requirements will enable us to oversee the operations of the E.ON system companies, including intrasystem transactions.
E.ON will provide the following supplemental information in its annual Form U5S filing:
1) The amount of any tax credit or loss carryover generated during the preceding taxable year by PUSIC: (a) as a result of interest expense on indebtedness incurred in connection with the acquisition of LG&E Energy, or (b) as the result of any other item of cost or expense;
2) A description of how the income tax credit and/or income tax liability was calculated and allocated to all companies included in the consolidated tax return, showing all of PUSIC's interest costs and any assumptions used in the calculation;
3) A description of how any funding is effected through all E.ON US and UK Intermediate Holding Companies (each, an "Intermediate Company");
4) A description of the amount and character of any payments made by each Intermediate Company to any other E.ON Group company during the reporting period; and
5) A statement that the allocation of tax credits and liabilities was conducted in accordance with the tax allocation agreement in effect and filed as an exhibit to the Form U5S.
6) A statement reconciling reserve investments held against pension and nuclear plant decommissioning liabilities with those related liabilities, and indicating the asset class breakdown of those reserves.
Applicants shall file a report with the Commission within two business days (in Germany) after the occurrence of any of the following:
1) A 10% or greater decline in common stock equity for U.S. GAAP purposes since the end of the last semi-annual reporting period for E.ON, Powergen, LG&E Energy or either of the Utility Subsidiaries or the capitalization of any of those companies falls below 30% common stock equity;
2) E.ON or either of the Utility Subsidiaries defaults on any debt obligation in principal amount equal to or exceeding $10 million if the default permits the holder of the debt obligation to demand payment;
3) Any event described in rule 53(b) under the Act;
4) A nationally recognized statistical rating organization has downgraded the senior debt ratings of E.ON or either of the Utility Subsidiaries by one full rating level (e.g. from A to BBB); or
5) Any event that would have a material adverse effect on the ability of E.ON or any of its subsidiaries to comply with any condition or requirement in this Order on an ongoing basis.
The report shall describe all material circumstances giving rise to the event.
Lastly, E.ON will provide rule 24 certificates on a semiannual basis. The rule 24 certificates will be provided to the Commission within 180 days after the end of E.ON's fiscal year and within 90 days of the end of its second fiscal quarter and will contain the following information:
1) The principal amount, interest rate, term, number of shares, market price per share, sales price per share (if other than market price) and aggregate proceeds, as applicable, of any securities issued by E.ON during the reporting period, including securities issued to dividend reinvestment plans and employee benefit plans;
2) The amount of guarantees issued during the reporting period by E.ON, the name of the beneficiary of the guarantee and the terms and purpose of the guarantee;
3) E.ON's aggregate investment, as defined under rule 53, in EWGs and FUCOs as of the end of the reporting period in dollars and as a percentage of E.ON's consolidated retained earnings; a description of EWG and FUCO investments during the reporting period and; the aggregate investment in EWGs and FUCOs since the date of this Order;
4) The aggregate amount of securities and the aggregate amount of guarantees issued and outstanding by E.ON since the date of this Order, including any Acquisition debt;
7) A list of the securities issued by the Intermediate Companies during the reporting period, including principal amount, interest rate, term, number of shares and aggregate proceeds, as applicable, with the acquiring company identified;
8) The amount and terms of any short-term debt issued by any Utility Subsidiary, and a list of the deposits and withdrawals by company from the Utility Money Pool during the reporting period;
9) The amount and terms of any nonexempt financings consummated during the period by any Utility Subsidiary;
10) The amount and terms of any nonexempt financings consummated by any LG&E Group nonutility subsidiary during the reporting period;
11) A table showing, as of the end of the reporting period, the dollar and percentage components of the capital structures of E.ON and LG&E Energy;
12) The amount of any dividends paid out of capital and unearned surplus (including revaluation reserve) by any of the TBD Subsidiaries, the Retained Nonutility Subsidiaries, the Powergen Group (excluding Powergen Group Holdings Ltd.), the Intermediate Companies, E.ON UK, E.ON U.K. plc and the LG&E Energy Group companies (excluding the Utility Subsidiaries), identifying the paying and receiving company,
13) The information required by Form U-9C-3 with regard to investments in Energy-Related Subsidiaries;
14) Paper copies of E.ON's filings of Form 20-F and reports to shareholders; and
15) As applicable, all amounts shall be expressed in U.S. dollars and shall be presented in accordance with the U.S. GAAP or the reconciliation requirements of Form 20-F.
16) A Rule 53(a) computation - a calculation of the ratio of E.ON's aggregate investment in EWGs and FUCOs to E.ON's average consolidated retained earnings (both as determined in accordance with Rule 53(a));
17) A statement of aggregate investment as a percentage of the following: total capitalization, net utility plant, total consolidated assets and market value of common equity, all as of the end of the semiannual period;
18) A statement of E.ON's authorized EWG and FUCO investment limit and the amount of unused investment authority based on the aggregate investment as of the end of the semiannual period;
19) Consolidated capitalization ratios as of the end of the semiannual period;
20) The market-to-book ratio of E.ON's common stock as of the end of the semiannual period;
21) An analysis of the growth in consolidated retained earnings, which segregates total earnings growth attributable to EWGs and FUCOs from that attributable to other E.ON subsidiaries; and
22) A statement of revenues and net income of each of E.ON's EWGs and FUCOs for the twelve months (or six months, as applicable) ended as of the end of the semiannual period (such statement to indicate which EWGs and FUCOs were acquired during the reporting period).
The certificates, which will include information with respect to all securities issuances that are exempt under rule 52, will be in lieu of any separate certificates required on Form U-6B-2 pursuant to rule 52.
The Commission has carefully examined the Merger Application and the Financing Application under the applicable standards of the Act, and has concluded that the proposed transactions are consistent with those standards. The Commission has reached these conclusions on the basis of the complete record before us.
No federal or state commission other than this Commission has jurisdiction over the proposed transactions, other than as described above. Fees, commissions and expenses in connection with the proposed Acquisition and financing transactions will be approximately $44 million.
Due notice of the filing of the Merger 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. Upon the basis of the facts in the record, it is hereby found that the applicable standards of the Act and rules thereunder are satisfied, and that no adverse findings are necessary:
IT IS ORDERED, under the applicable provisions of the Act and rules thereunder, that the application, as amended, be, and it hereby is, granted immediately, subject to the terms and conditions prescribed in rule 24 under the Act and to the reporting requirements set forth in this Order.
IT IS FURTHER ORDERED, pursuant to section 11(b)(1) of the Act, that within five years following closing of the Acquisition and the registration of E.ON, E.ON will take appropriate action to effect the sale of all of its right, title and interest in and to Degussa and Viterra and their subsidiaries and assets.
IT IS FURTHER ORDERED, pursuant to section 11(b)(1) of the Act, that within three years following closing of the Acquisition and the registration of E.ON, E.ON will take appropriate action to effect the sale of all of its right, title and interest in and to the TBD Subsidiaries other than Degussa and Viterra, and their subsidiaries and assets.
IT IS FURTHER ORDERED that jurisdiction is reserved over (i) the deregistration of certain Powergen Intermediate Holding Companies, pending completion of the record; and (ii)the retention of the following companies: CRC-Evans International, Inc.; CRC-Evans Pipeline International, Inc.; CRC-Evans Weighting Systems Inc. (formerly known as CRC-Key, Inc.); CRC-Evans B.V.; CRC-Evans Canada Ltd.; PIH Holdings Ltd.; and Pipeline Induction Head Ltd.
Due notice of the filing of the Financing 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. Upon the basis of the facts in the record, it is hereby found that the applicable standards of the Act and rules thereunder are satisfied, and that no adverse findings are necessary:
IT IS ORDERED, under the applicable provisions of the Act and rules thereunder, that the Financing 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 and to the following:
IT IS FURTHER ORDERED, that jurisdiction is reserved pending completion of the record over the proposed transfer of PUSIC to E.ON US and issuance of the associated note.
By the Commission.
COMPANIES TO BE RETAINED
A. E.ON Energie
E.ON Energie, a wholly-owned subsidiary of E.ON AG, engages in various businesses, both directly and through its subsidiaries. E.ON AG intends to certify E.ON Energie as a FUCO. Subsidiary activities primarily include owning and operating electrtric-, hydro-, nuclear- and coal-fired power plants, particularly throughout Germany, Scandinavia, Russia, the Baltic region, Poland, the Czech Republic, Hungary, Italy, Switzerland and the Netherlands. In Germany, E.ON Kraftwerke owns and operates the power stations using fossil energy sources, E.ON Kernkraft owns and operates the nuclear power stations and E.ON Wasserkraft owns and operates the hydroelectric power plants. In addition, numerous E.ON Energie subsidiaries operate regional multi-utilities throughout Germany. In Scandinavia, E.ON Energie is the largest shareholder in Sydkraft, the second largest Swedish utility. Sydkraft is primarily active in the generation, transmission and distribution of electricity.
Other businesses provide gas transmission and distribution services, water and sewage treatment services, and engage in energy trading and marketing. Several E.ON Energie subsidiaries also provide property management services. Exhibit G-1 to the Merger Application describes these individual subsidiaries in more detail.
E.ON AG also intends to retain several telecommunications companies. More specifically, these include:
1. E.ON Telecom GmbH (100.0)
-holding company for E.ON's telecommunications business; will apply to the Federal Communications Commission for exempt telecommunications company status under Section 34 of the Act.
1.1. VEBA Telecom Beteiligungs-GmbH (100.0)
1.2. VEBA Telecom Verwaltungsgesellschaft mbH (100.0)
1.3. VR Telecommunications Geschäftsführungs-GmbH (51.2)
-acts as managing partner with liability for VR Telecommunications GmbH & Co. (see Item 1.4).
1.4. VR Telecommunications GmbH & Co. (19.9) (21.2 also owned by E.ON Energie, 18.2 owned by VR Telecommunications Holding GmbH)
-a former German telecommunications company; currently invests cash proceeds from the sale of telecommunications businesses; will be liquidated within several months.
1.4.1. VR Telecommunications Beteiligungsverwaltungs GmbH (100.0)
-acts as managing partner with liability for VR Telecommunications Beteiligungsverwaltungs GmbH & Co. KG (see Item 1.4.2).
1.4.2. VR Telecommunications Beteiligungsverwaltungs GmbH & Co. KG (100.0)
-German holding company for assets of VR Telecommunications GmbH & Co. (see Item 1.4).
126.96.36.199. VR Telecommunications International GmbH (100.)
-German holding company for Vebacom Holdings, Inc.
188.8.131.52.1. Vebacom Holdings, Inc. (100.)
-U.S. holding company for Iridium LLC.
184.108.40.206.1.1. Iridium LLC (8.35)
-satellite telecommunications provider currently in bankruptcy liquidation.
1.4.3. Iridium Holdings LLC (1.1)
-holds proceeds of the sale of certain European Iridium assets.
1.5. VR Telecommunications Holding GmbH (50.0)
-holds interest in VR Telecommunications GmbH & Co.
1.5.1. VR Telecommunications GmbH & Co. (18.2) (21.2 also owned by E.ON Energie, 19.9 by E.ON Telecom GmbH)
-see Item 1.4 for description.
1.6. BOUYGUES TELECOM S.A(17.5)
-operates a mobile telecommunications and digital wireless network in France.
2. VIAG Telecom Beteiligungs GmbH (100.0)
-German holding company for Austrian telecommunications businesses; will apply to the Federal Communications Commission for exempt telecommunications company status under Section 34 of the Act.
2.1. VIAG Connect Gesellschaft für Telekommunikation mbH (100.0)
-Austrian holding company for telecommunications businesses.
2.1.1. Connect Austria Gesellschaft für Telekommunikation Ges.m.b.H.(20.0) (VIAG Connect Beteiligungs Ges.m.b.H. also has a 10.0 interest, and RHI Telekom Ges.m.b.H also owns 20.1)
-develops, produces and sells a broad range of telecommunications services in Austria; operates and markets a private digital wireless network in Austria.
2.1.2. VIAG Connect Beteiligungs Ges.m.b.H. (36.63) (VIAG Telecom Beteiligungs GmbH also has a 63.37 interest)
-Austrian holding company for telecommunications business.
220.127.116.11. Connect Austria Gesellschaft für Telekommunikation Ges.m.b.H (10.0) (VIAG Connect Gesellschaft für Telekommunikation mbH also has a 20.0 interest, and RHI Telekom Ges.m.b.H also owns 20.1)
-see Item 2.1.1. for description.
2.2. RHI Telekom Ges.m.b.H (63.37)
-Austrian holding company for telecommunications business.
2.2.1. Connect Austria Gesellschaft für Telekommunikation Ges.m.b.H (20.1) (VIAG Connect Gesellschaft für Telekommunikation mbH also has a 20.0 interest, and VIAG Connect Beteiligungs Ges.m.b.H. has a 10.0 interest)
-see Item 2.1.1. for description.
2.3. VIAG Connect Beteiligungs Ges.m.b.H.(63.37) (VIAG Connect Gesellschaft für Telekommunikation mbH also has a 36.63 interest)
-see Item 2.1.2. for description.
3. VEBA Telecom Management GmbH (100.0)
4. VIAG Telecom AG (100.0)
C. Other Companies
E.ON AG also intends to retain several subsidiaries that engage in a variety of other activities. More specifically, these companies are:
1. Chemie-Verwaltungs-AG (100.0)
-holding company for Degussa AG, a to-be-divested company (see Item 1.1 on Chemicals List, Exhibit G-1); will use divestiture proceeds to finance future utility investments and to grant loans to E.ON Group companies.1
2. E.ON INTERNATIONAL FINANCE B.V. (100.0)
-special-purpose finance company; issues bonds, promissory notes and other securities or evidence of indebtedness; lends funds to E.ON Group companies.2
3. E.ON North America, Inc. (66.9) (VEBA Electronics US Holding GmbH holds a 33.1 interest.)
-holding company for E.ON AG's U.S. businesses; currently invests equity and cash proceeds of divestitures through loans to E.ON Group companies; provides limited treasury and cash management services for E.ON Group companies via a money pooling arrangement at Citibank, N.A. (participating companies manage daily cash disbursements and collections, transferring them to individual accounts that are zero-balanced into a single account at the end of each business day; E.ON North America, Inc. invests all excess overnight funds).3
3.1. FIDELIA Corporation (100.0)
-finance subsidiary for E.ON Group companies.4
3.2. VEBA Electronics LLC (100.0)
-finance subsidiary for E.ON Group companies.5
3.3. Viterra Energy Services, Inc. (100.0)
-directly and through its subsidiaries provides water metering services in California.6
3.3.1. Aquameter, Inc. (100.0)
3.3.2. Californian Edison Inc. (100.0)
3.3.3. American Energy Billing Services Inc. (100.)
3.3.4. DBK Inc. (100.0)
3.3.5. Utiliread Inc. (100.)
4. E.ON Fünfte Verwaltungs-Gesellschaft mbH (100.0)
-currently holds the proceeds of the divestiture of VAW aluminium AG, a to-be-divested company (see Item 1, Aluminum List, Exhibit G-1); will use divestiture proceeds to finance Powergen plc acquisition via loans to E.ON UK Verwaltungs GmbH and E.ON UK plc.7
5. E.ON Risk Consulting GmbH (100.0)
-directly and through its subsidiaries procures insurance on favorable terms by acting as insurance broker for E.ON Group companies and their employees; procures a wide range of insurance, including health, life, property, products liability and automobile insurance.8
5.1. Junge & Co. Versicherungsmakler GmbH (100.0)
-a 50.1% share of this company will be sold to Cooper Gay in 2002, a company that will also receive a "call-option" that can be exercised between January and June of 2007; E.ON Risk Consulting will receive a "put-option" that can be exercised between January and June of 2006.
5.1.1. Günter Lübsen GmbH (100.0)
5.2. Hamburger Hof Versicherungs-Aktiengesellschaft (100.0)
5.3. Montan GmbH Assekuranz-Makler (41.5)
-procures automobile insurance exclusively for E.ON employees.
6. E.ON UK Verwaltungs-Gesellschaft mbH (100.0)
-holding company for E.ON UK PLC; will register under the Act if Powergen plc remains a registered holding company.
6.1. E.ON UK PLC. (100.0)
-company to be used to acquire and hold Powergen plc; will register under the Act if Powergen plc remains a registered holding company.
7. E.ON Venture Partners GmbH (100.0)
-owns and manages interests in companies as a venture capital fund; active in the energy and water fields; its investments include: Euro 2 million investment in Sixth Dimension, Inc., a company developing an internet-based infrastructure to control and monitor distributed generation units, meters, and main energy consuming devices; Euro 2.3 million investment in Enginion AG, a company developing a "Micro Power Unit" that provides both power and heat, suitable for use in the automotive sector; Euro 2 million investment in Ionity AG, a company developing and producing lithium-ion-polymer batteries, to be used in high-powered mobile energy supply systems.9
7.1. E.ON Venture Erste Vermögensverwaltungsgesellschaft mbH (100.0)
8. E.ON Vermögensanlage GmbH (100.0)
-manages cash generated by E.ON Group companies. The cash is invested with other E.ON Group companies on market terms, generally through short-term intercompany loans, pending the identification of long-term investment opportunities within the E.ON Group. After E.ON's registration under the Act, cash will be invested within the E.ON Group through the E.ON Nonutility Money Pool and as otherwise authorized by the Commission or permitted under the Act. E.ON proposes to use the funds for investment in utility and energy-related investments of the type common for FUCOs, the acquisition of energy-related businesses consistent with the categories enumerated in Rule 58 and other businesses authorized or permitted under the Act. Investments would typically be made through loans, capital contributions and the acquisition of voting or nonvoting equity interests.10
9. EBV Verwaltungs GmbH (100.0)
-invests cash proceeds from the sale of the VEBA Electronics business (see Item 25); to be liquidated.
10. E.ON Gmbh (100.0)
11. FITAS Verwaltung GmbH & Co. Vermietungs-KG (99.9) (E.ON Bayern AG also has a 0.1 interest)
-holds and manages an office building leased to E.ON Energie AG.11
12. Gesellschaft für Energiebeteiligung mbH (Essen) (50.3) (also 24.1 owned by E.ON Kraftwerke GmbH)
-holding company for shares in STEAG AG, a company that constructs, owns and operates power plants in the Ruhr region of Germany and elsewhere (see Item 18.104.22.168 on Energy List, Exhibit G-1).12
13. Gewerkschaft Morgenglück GmbH (100.0)
-holds real estate formerly used for utility/coal-mining businesses by E.ON's predecessors; the company is a passive investment vehicle; its real estate holdings are managed by Viterra AG; E.ON seeks to retain its investment in the company for tax purposes because retention permits deferral of capital gains taxes and divestiture currently would entail significant tax liability; E.ON will not make further non energy-related real estate investments through the company without Commission authorization.13
14. HIBERNIA Industriewerte GmbH (100.0)
-acts as managing partner with liability for Hibernia Industriewerte GmbH & Co. KG, Humboldt-Verwaltungsgebäude Mülheim (see Item 5, Other To-Be-Divested List, Exhibit G-1).14
15. HIBERNIA Industriewerte GmbH & Co. oHG (98.0)
-holds real estate formerly used for utility/coal-mining businesses by E.ON's predecessors; the company is a passive investment vehicle; its real estate holdings are managed by Viterra AG; E.ON seeks to retain its investment in the company for tax purposes because retention permits deferral of capital gains taxes and divestiture currently would entail significant tax liability; E.ON will not make further non energy-related real estate investments through the company without Commission authorization.15
16. ILSE Feldesbesitz GmbH (100.0)
-holds coal-fields near the Rhein river; inactive.16
17. Induboden GmbH (50.0)
-holds minority interests in E.ON Group companies, e.g., Hibernia Industriewerte GmbH & Co. KG, Humboldt-Verwaltungsgebäude Mülheim, Induboden GmbH & Co. Grundstücksgesellschaft, Induboden GmbH & Co. Industriewerte, Viterra Grundstücke Verwaltungs GmbH, Essen, Stinnes Immobiliendienst Verwaltungsges. mbH, München, MVG Grundstücke Verwaltungs-GmbH, Gelsenkirchen.17
18. Indupark Grundstücksverwertung GmbH (75.0)
-holds real estate formerly used for utility/coal-mining businesses by E.ON's predecessors; the company is a passive investment vehicle; its real estate holdings are managed by Viterra AG; E.ON seeks to retain its investment in the company for tax purposes because retention permits deferral of capital gains taxes and divestiture currently would entail significant tax liability, E.ON will not make further non energy-related real estate investments through the company without Commission authorization.18
19. Iniativkreis Ruhrgebiet Verwaltungs GmbH, Essen (33.3)
-sponsors economic development/corporate citizen projects in the Ruhr area; de minimis investment with a book value of Euro 30,000.19
20. Montan-Verwaltungsgesellschaft mbH (21.3)
-holding company for part of E.ON's shareholdings in RAG Aktiengesellschaft.20
21. NFK Finanzcontor GmbH & Co. KG (100.0)
-finance company for E.ON Group companies; equity-financed company that manages own funds currently totaling 5 billion Euros; invests funds in intra-E.ON Group loans and external bank investments; potential future contributor to indirect re-financing of E.ON UK Verwaltungsgesellschaft (Item 6); no third parties have contributed funds.21
22. NFK Finanzcontor Beteiligungs GmbH (100.0)
-acts as managing partner with liability for NFK Finanzcontor GmbH & Co. KG (see Item 21).22
23. Niedersächsische Energie- Agentur GmbH (25.0) (also 25.0 owned by E.ON Energie AG)
-provides energy related services, including consulting services, particularly in the field of renewable energy.23
24. VBB VIAG-Bayernwerk-Beteiligungsgesellschaft mbH (50.0) (E.ON Energie also has a 50.0 interest)
-manages cash generated by certain divestitures. The cash is invested with other E.ON Group companies on market terms, generally through short-term intercompany loans, pending the identification of long-term investment opportunities within the E.ON Group. After E.ON's registration under the Act, cash will be invested within the E.ON Group through the E.ON Nonutility Money Pool and as otherwise authorized by the Commission or permitted under the Act. E.ON proposes to use the funds for investment in utility and energy-related investments of the type common for FUCOs, the acquisition of energy-related businesses consistent with the categories enumerated in Rule 58 and other businesses authorized or permitted under the Act. Investments would typically be made through loans, capital contributions and the acquisition of voting or nonvoting equity interests.24
25. VEBA Electronics GmbH (100.0)
-manages cash generated by E.ON Group companies and obtained through the divestiture of the electronics business. The cash is invested with other E.ON Group companies on market terms, generally through short-term intercompany loans, pending the identification of long-term investment opportunities within the E.ON Group. After E.ON's registration under the Act, cash will be invested within the E.ON Group through the E.ON Nonutility Money Pool and as otherwise authorized by the Commission or permitted under the Act. E.ON proposes to use the funds for investment in utility and energy-related investments of the type common for FUCOs, the acquisition of energy-related businesses consistent with the categories enumerated in Rule 58 and other businesses authorized or permitted under the Act. Investments would typically be made through loans, capital contributions and the acquisition of voting or nonvoting equity interests.25
25.1. VEBA Electronics Beteiligungs GmbH (100.0)
25.1.1. VEBA ELECTRONICS UK PLC (100.0)
22.214.171.124. Raab Karcher Electronic Systems PLC (100.0)
126.96.36.199.1. Pragma Ltd (100.0)
188.8.131.52.2. Thame Power Ltd. (100.0)
25.1.2. VEBA Electronics US Holding GmbH (75.0) (VEBA Investments Ltd. has a 25.0 interest.)
184.108.40.206. E.ON North America, Inc. (33.1) (E.ON AG has a direct 66.9 interest.)
-see Item 3 above for description.
25.2. VEBA Investments Ltd (100.0)
25.2.1. VEBA Electronics US Holding GmbH (25.0) (VEBA Electronics Beteiligungs GmbH has a 75.0 interest.)
26. VEBA FUNDING INC. (100.0)
27. VEBA Zweite Verwaltungsgesellschaft mbH (100.0)
-former holding company of share in MEMC Electronic Materials, Inc., a divested company, sold for USD 1; inactive.26
28. VIAG Bayernwerk Beheer B.V. (100.0)