ML17059C166

Request for Consent to Indirect Transfer of Control Over Nine Mile,Units 1 & 2,operating Licenses in Connection W/Creation of New Holding Company.W/Securities & Exchange Commission Financial Info

ML17059C166
Person / Time
Site:	Nine Mile Point
Issue date:	07/21/1998
From:	NIAGARA MOHAWK POWER CORP.
To:	NRC
Shared Package
ML17059C167	List: ML17059C166 ML17059C168 ML18041A066
References
NUDOCS 9807310004
Download: ML17059C166 (24)

Text

ATTACHIVKNTANIAGARAMOHAWKPOWERCORPORATION)DocketNos.Unit1-50-220,Unit2-50-410)OperatingLicenseNos.DPR-63,NPF-69VNXI'EDSTATESOFAMERICABEFORETHENUCLEARREGULATORYCOMMISSIONREQUESTFORCONSENTTOINDIRECTTRANSFEROFCONTROLOVERTHENINEMILE1AND2OPERATINGLICENSESI.INTRODUCTIONNiagaraMohawkPowerCorporation("NMPC"orthe"Company"),pursuantto10C.F.R.g50.80,herebyrequestsNuclearRegulatoryCommission("NRC"orthe"Commission")consenttotheindirecttransferofcontroloverNMPC'sinterestinOperatingLicenseNos.DPR-63andNPF-69(collectively,the"OperatingLicenses")for,respectively,UnitNo.1("NineMile1")andUnitNo.2("NineMle2")(collectively,the"facilities")oftheNineMilePointNuclearPowerStationlocatedinScriba,NewYork.NMPCisa100percentownerofNineMile1anda41percentco-ownerofNineMile2.NMPCoperatesbothfacilities.CommissionconsentisnecessaryinordertoallowthecreationofanewholdingcompanystructureforNMPC.TherestructuringwillnotaffectNMPC'sposition,responsibilityorcommitmentasownerandoperatorofthefacilities.NMPCrespectfullysubmitsthattheproposedindirecttransferofcontrolovertheOperatingLicensesisconsistentwithapplicableprovisionsoflaw,Commissionregulations,andCommissionordersandwillnotaffectNMPC'squalificationsasalicensee.Accordingly,therequestshouldbegranted.$8075OOO220eaO72tIpogAQQCK0~PPage1of12 gpss' II.DESCRIPTIONOFTHENEWHOLDINGCOMPANYSTRUCTUREUndertheproposedholdingcompanystructure,NMPCwillbecomeawholly-ownedsubsidiaryofanewholdingcompany,NiagaraMohawkHoldings,Inc.("Holdings"),aNewYorkcorporation.EachshareofNMPC'scommonstockwillbeexchangedforonenewshareofHoldingscommonstock.NMPC'soutstandingpreferredstockwillnotbeexchangedbutwillcontinueassharesofNMPC'spreferredstock.ThecorporaterestructuringwillresultinachangeintheidentityofthedirectholderofNMPC'scommonstock,butnochangeinthebeneficialownersofthatequity,whowillmerelyexchangetheirNMPCsharesforsharesinHoldings.ThecorporaterestructuringismorefuuydescribedintheFormS-4RegistrationStatementforNiagaraMohawkHoldings,Inc.withAmendments,datedMay29,1998,acopyofwhichisattachedheretoasExhibit1.NMPCcommonshareholdersapprovedthecorporaterestructuringattheirAnnualMeetingonJune29,1998.III.BACKGROUNDNMPCisaregisteredpublicutilityincorporatedunderthelawsofNewYorkState.NMPCisengagedprincipallyinthegeneration,purchase,transmission,distribution,andsaleofelectricityandthepurchase,distribution,sale,andtransportationofgas.NineMile1and2areamongtheelectricgeneratingfacilitiesownedbyNMPC.NMPCsupplieselectricityatbothretailandwholesale.Page2of12

NMPC'sutilityoperationsaresubjecttoregulationbytheNewYorkPublicServiceCommission(the"NYPSC")pursuanttoNewYork'sPublicServiceLaw(the"PSL").TheNYPSC'sjurisdictionincludessupervisionoverNMPC'sretailrates.Further,NMPCisa"publicutility"asdefinedinSection201(e)oftheFederalPowerAct,16U.S.C.g824(e).NMPCsellselectricenergyatwholesaleto,andtransmitselectricenergyininterstatecommercefor,otherelectricutilitiesunderrateschedulesandtariffsapprovedbytheFederalEnergyRegulatoryCommission("FERC").ByvirtueoftheregulatoryauthorityexercisedbytheseagenciesoverNMPC'sratesforelectricity,NMPCisan"electricutility"asdefinedin10C.F.R.550.2.Inadditiontoitsutilityoperations,NMPCownsanunregulatedsubsidiary,OpinacNorthAmerican,Inc.("OpinacNA"),which,inturn,ownsOpinacEnergyCorporation,"PlumStreetEnterprises,Inc.andPlumStreetEnergyMarketing(asubsidiaryofPlumStreetEnterprises)(collectively,the"non-utilitysubsidiaries"),whichparticipateprincipallyinenergy-relatedservices.CanadianNiagaraPowerCo.,LTD("CNP")isowned50percentbyOpinacEnergyCorporation.CNPownsa99.9percentinterestinCanadianNiagaraWindPowerCompanyInc.andCowleyRidgePartnership,respectively',whichtogetheroperateawindpowerjointventureintheProvinceofAlberta,Canada.NMPCalsohasseveralothersubsidiariesincludingNMUraniumInc.,NMHoldings,Inc.,MoreauManufacturingCorp.,BeebeeIslandCorp.,andNMReceivablesCorp.II.~QpinacEnergyCorporationisanexemptholdingcompanyunderSection3(a)(5)ofthePublicUtilityHoldingCompanyActof1935.'tio52S.E.C.Docket1475(1992).Page3of12

'r Subjecttothevariousregulatoryapprovals,includingtheapprovalofthisCommission,NMPCproposestoformtheholdingcompanystructurediscussedabove,wherebyNMPCwillbecomeasubsidiaryofHoldings,aNewYorkcorporation.Aspartoftheproposal,certainofNMPC'snon-utilitysubsidiarieswillbetransferredtoHoldings.TheresultingcorporatestructurewillmoreclearlyseparateNMPC'sregulatedandnon-regulatedbusinesses.Thisseparationisconsistentwithfederalandstateinitiativesfortherestructuringoftheelectricutilityindustry."ItisalsoconsistentwithaSettlementAgreement(the"Settlement"),datedOctober10,1997,amongtheStaffoftheNYPSC,NMPC,andotherparties,whichprovidesforfundamentalchangestothestructureofNMPC'sbusiness.Amongotherthings,theSettlementcallsforNMPCtodivestallofitshydroandfossilgenerationassets.NMPC'snuclearassetswillremainpartofitsregulatedbusiness.NMPCwillcontinuetodistributeelectricitythroughitstransmissionanddistributionsystems,but,bytheendof1999,allofNMPC'scustomerswillbeabletochoosetheirelectricitysupplierinacompetitivemarket."E.g.,ChderNo.888:PromotingWholesaleCompetitionThroughOpenAccessNon-DiscriminatoryTransmission(1997);NYPSCOpinion96-12,Cases94-E-0952,~OpinionandOrderRegardingCompetitiveOpportunitiesforElectricService(1996).Page4of12

Electricrateswillbeunbundledintoseparatechargesfortransmission,distribution,customerservice,electricsupply,andanon-bypassablecompetitivetransitioncharge(the"CTC").NMPC'snuclearcostswillbesubjecttocost-of-serviceregulation.Finally,theSettlementallowsNMPCtoform,atitselection,theholdingcompanystructurediscussedherein.TheSettlementwasapprovedbytheNYPSConMarch19,1998."TheSettlementismorefullydescribedintheSettlementDocument,acopyofwhichisattachedheretoasExhibit2.Moregenerally,theholdingcompanystructurewillenableHoldingstoengageinunregulatedbusinesseswithoutobtainingthepriorapprovalofthePSC,therebyenablingHoldingstopursueunregulatedbusinessopportunitiesinatimelymanner.Underthenewcorporatestructure,financingofunregulatedactivitiesofHoldingsanditsnon-utilitysubsidiarieswillnotrequirePSCapproval.Inaddition,thecapitalstructureofeachnon-utilitysubsidiarymaybeappropriatelytailoredtosuititsindividualbusiness.Also,undertheholdingcompanystructure,Holdings,wouldnotneedPSCapprovaltoissuedebtorequitysecuritiestofinancetheacquisitionofthestockorassetsofothercompanies.TheabilitytoraisecapitalforacquisitionswithoutpriorPSCapprovalshouldallowcompetitiononalevelbasiswithotherpotentialacquires,someofwhicharealreadyholdingcompanies.Underaholdingcompanystructure,theissuanceofdebtorequitysecuritiesbyHoldingstofinancetheacquisitionofstockorassetsofanothercompanyshouldnotadverselyaffectNMPC'scapitaldevotedtoandavailableforregulatedutilityoperations."NiagaraMohawkPowerCorp.,Cases94-E-0098and94-E-0099,~etaOpinionandOrderAdoptingTermsofSettlementAgreementSubjecttoModificationandConditions(1998)(thc"SettlementOrder").Page5of12

Theholdingcompanystructureseparatestheoperationsofregulatedandunregulatedbusinesses.Asaresult,itprovidesabetterstructureforregulatorstoassurethatthereisnocross-subsidizationofcostsortransferofbusinessriskfromunregulatedtoregulatedlinesofbusiness.Aholdingcompanystructurealsoispreferredbytheinvestmentcommunitybecauseitmakesiteasiertoanalyzeandvalueindividuallinesofbusiness.Moreover,theuseofaholdingcompanystructureprovideslegalprotectionagainsttheimpositionofliabilityonregulatedutilitiesfortheresultsofunregulatedbusinessactivities.Inshort,theholdingcompanystructureisahighlydesirableformofconductingregulatedandunregulatedbusinesseswithinthesamecorporategroup.IV.EFFECTOFNEWHOLDINGCOMPANYSTRUCTUREThetransferofdirectcommonequityownershipofNMPCtoHoldingsinvolvesachangeoflegalownershipofNMPCand,therefore,atechnicalchangeinthecontrolofNMPCanditsinterestintheOperatingLicenses,whichtransferofcontrolissubjecttopriorconsentof,theCommission.3z42U.S.C.g2234and10C.F.R.g50.80(a).ThecorporaterestructuringwillhaveaminimaleffectontheunderlyingownershipofNMPCbecausetheexistingshareholdersofNMPCwillcontinuetocontrolNMPCindirectly,andNMPCwillcontinuetoholdtheOperatingLicenses.Page6of12

Afterthecorporaterestructuring,NMPCwillcontinuetobean"electricutility"engagedinthetransmission,distributionand,throughNineMile1and2,thegenerationofelectricity.NMPCwillcontinuetobetheownerofNineMle1andtheco-ownerofNineMile2andwillcontinuetooperatebothfacilities.NoactualtransferoftheownershipinterestinNineMile1and2ortheOperatingLicenseswillbeeffectedbythecorporaterestructuring.Further,NMPCwillJcontinuetorecoverthecostsofowningandoperatingtheplantsonamodifiedcost-of-servicebasisthroughthenon-bypassableCTCandwillcontinuetoberegulatedbytheNYPSCandtheFERC.Thus,pursuantto10C.F.R.g50.80(c),thecorporaterestructuringwillnotaffectNMPC'squalificationsasalicenseeforNineMile1and2,willnotaffectthestatusofNMPCasan"electricutility,"andisotherwiseconsistentwithapplicableprovisionsoflaw,Commissionregulations,andCommissionorders.V.REGULATORYAPPROVALSTheproposedcorporaterestructuringrequirestheapprovaloftheNYPSC,theSECpursuanttothePublicUtilityHoldingCompanyActof1935andtheFERC.TheSettlement,whichincludesadescriptionofthecorporaterestructuring,hasbeenapprovedbytheNYPSCintheSettlementOrder.ConcurrentwiththefilingofthisApplication,NMPCisfilingapplicationswiththeFERCandtheSECforapprovaltoeffecttheproposedcorporaterestructuring.Additionally,acompliancefilingwiththeNYPSC.willberequiredconsistentwiththeSettlementandtheSettlementOrder.NosimilarapplicationisrequiredtobefiledwithanyotherStateorfederalregulatorybody.Page7of12

VI.NUCLEARREGULATORYCOMMISSIONREVIEWToassisttheNRCinitsreviewofthisrequest,NMPCisprovidinginformationwithrespecttothefollowingareaswhichhavebeenthefocusoftheNRC'sreviewinpriorcasesinvolvingthecreationofholdingcompaniesoverNRClicensees:1.ThenewholdingcompanystructurewillnotimpairNMPC'sabilitytocarryoutitsresponsibilitiesunderitsNRClicenses,orotherwiseaffectthefinancialhealthofNMPC.ThecorporaterestructuringwillnothaveanadverseimpactonNMPC'sabilitytofulfillitsresponsibilitiesunderitsNRClicenses.Specifically,thecorporaterestructuringwillnotadverselyaffecttheabilityofNMPCtomeetitsfinancialobligationswithrespecttothefacilities'utureoperatingandcapitalrequirementsortomeetitsfundingobligationswithrespecttotheeventualnucleardecommissioningofthefacilities.TheNRCrecentlyaddressedthefuturerestructuringoftheelectricutilityindustryandvoicedconcernsthatNRClicensedentitiescontinuetohaveaccesstoadequatefundssothatfundsareavailableforsafereactoroperationandthepaymentofdecommissioningcosts.~,.~62Fed.Reg.44071(1997).Page8of12

hWithrespecttobothfinancialqualificationreviewsforoperatinglicenseapplicantsanddecommissionfundingassurancereviews,theNRChasdistinguishedbetweenan"electricutility"andotherlicensees.Asdefinedin10C.F.R.$50.2,an"electricutility"isanentitythatgeneratesordistributeselectricitythecostsofwhicharerecoveredbyratessetbytheentityitselforbyaseparateregulatoryauthority.Investor-ownedutilities,suchasNMPC,areincludedwithinthemeaningof"electricutility."Theunderlyingrationalefordifferenttreatmentisthatrateregulatorstypicallyallowanelectricutilitytorecoverprudentlyincurredcostsofgenerating,transmittinganddistributingelectricservices.TheNRCrecentlyproposedrevisionstothedefinitionof"electricutility"initsproposedrulemakingregardingRmgf~,62Fed.Reg.47588(1997).TheCommissionproposedtoreviseitsdefinitionof"electricutility"tointroduceadditionalflexibilitypriortothederegulationoftheelectricindustryderegulation.TheCommissionnotedthatthekeycomponentofthereviseddefinitionisthatalicensee'sratesareestablishedeitherthroughcost-of-servicemechanismsorthroughothernon-bypassablechargemechanisms,suchastheCTCproposedundertheNMPC/NYPSCSettlement.ThecorporaterestructuringwillnotchangethestatusofNMPCasan"electricutility,"asdefinedin10C.F.R.g50.2.Aftertheholdingcompanystructureiscomplete,NMPCwillretainitsnuclearassetsandwillcontinuetobeapublicutilitysubjecttoregulationbytheNYPSCwithrespectto,amongotherthings,itsretailrates.NMPCwillcontinuetorecoverthecostsofowningandoperatingtheplantsonacost-of-servicebasis.Inaddition,FERCwillcontinuetoregulateNMPC'stransmissionandwholesaleelectricrates.Thus,NMPCwillPage9of12 0

remainan"electricutility,"asdefinedinboth"theCommission'scurrentandproposedregulations,WithregardtothedivestureofNMPC'snon-nucleargeneratingassets,whichwillbeeffectedbyauction,andinaccordancewithCommissionpractice,NMPCagreestonotifytheCommission60daysinadv'anceofanytransferofassetshavingadepreciatedbookvalue/exceedingtenpercent(10%)ofNMPC'sconsolidatednetutilityplant,asrecordedonNMPC'sbookofaccounts.ThetransferofsuchgeneratingassetshasalreadybeenapprovedbytheNYPSCintheSettlementOrder.2.ThenewholdingcompanystructurewillnotadverselyaffectthemanagementofNMPC'snuclearoperationsoritstechnicalqualifications,ThenewholdingcompanystructureretainsNMPCasadiscreteandseparateentity.NoresponsibilityfornuclearoperationswithinNMPCwiHbechangedbythecorporaterestructuring.Officerresponsibilitiesattheholdingcompanylevelwillbeprimarilyadministrativeandfinancialinnatureandwillnotinvolveoperationalmattersrelatingto¹ineMile1and2.AftertheUcorporaterestructuring,NMPCwillcontinuetoberesponsibleforthefacilities'ay-to-dayoperationsandthetechnicalqualificationsrequiredbytheOperatingLicenses.NoNMPCnuclearmanagementpositionswillbechangedasapre-requisiteordirectresultofthecorporaterestructuring.Page10of12 t'

3.ThenewholdingcompanystructurewillnotresultinNMPCbecomingowned,controlledordominatedbyanalien,aforeigncorporation,oraforeigngovernment.Atthetimetherestructuringbecomeseffective,HoldingswillbecomethesoleholderofNMPC'scommonstock,andthecurrentholdersofNMPC'scommonstockwillbecomeholdersofthecommonstockofHoldingsonashare-for-sharebasis.Therefore,immediatelyfollowingtheimplementationoftheholdingcompanystructure,thecommonstockofHoldingswillbeownedbythepreviousholdersofNMPC'scommonstockinthesameproportionsinwhichtheyheldNMPC'scommonstock.Baseduponcurrentlyavailableinformation,sharesofNMPC'scommonstockheldinforeignaccountsrepresentlessthan0.1percent(0.1%)ofthetotaloutstandingsharesofNMPC.Further,allmembersoftheBoardsofDirectorsofNMPCandHoldingsareUnitedStatescitizens.Thus,thecorporaterestructuringwillnotresultinNMPCbeingowned,controlledordominatedbyforeigninterests.VII.THENEWHOLDINGCOMPANYSTRUCTUREWILLHAVENOSIGNIFICANTENVIRONMENTALEFFECTAsdiscussedabove,thenewholdingcompanystructurewillhavenosignificanteffectontheoperationofNineMile1and2.Therewillbenophysicaloroperationalchangestothefacilitiesasaresult.Itwillnotaffectthequalificationsortheorganizationalaffiliationofthepersonnelwhooperateandmaintainthefacilities.Further,itwillnotincreasetheprobabilityorconsequencesofaccidents,nochangeswillbemadeinthetypesofeffluentsthatmaybereleasedoffsite,andtherewillbenosignificantincreaseintheallowableindividualorcumulativePage11of12

occupationalradiationexposure.Thecorporaterestructuringwouldnotaffectnon-radiologicaleffluentsofthefacilitiesandwouldhavenootherenvironmentalimpact.Accordingly,NMPCrequeststhattheCommissionissueandpublishafindingofnosignificantradiologicalenvironmentalimpactpursuantto10C.F.R.5551.31and51.35.VIII.CONCLUSIONBasedupontheforegoing,NMPCrespectfullyrequeststhattheCommissionconsenttotheindirecttransferofcontroldescribedherein.ThecommonshareholdersapprovedthereorganizationonJune29,1998.ApprovalsfromtheNYPSC,theSECandFERCareanticipatedbyOctober15,1998.NMPCrespectfullyrequestsNRCactiononthisapplicationbyOctober15,1998.Page12of12

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