As filed with the Securities and Exchange Commission on
February 15, 2002
File No. 070-10044
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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PNM RESOURCES, INC.
Alvarado Square
Albuquerque, New Mexico 87158
PUBLIC SERVICE COMPANY OF NEW MEXICO
Alvarado Square
Albuquerque, New Mexico 87158
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(Name of companies filing this statement and
address of principal executive offices)
PNM RESOURCES, INC.
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(Name of top registered holding company
parent of each applicant or declarant)
Roger D. Eklund
Regulatory Project Manager
Public Service Company of New Mexico
Alvarado Square
Albuquerque, New Mexico 87158
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(Name and address of agent for service)
The Commission is requested to mail copies of
all orders, notices and communications to:
Timothy Michael Toy, Esq.
Pillsbury Winthrop LLP
One Battery Park Plaza
New York, New York 10004-1490
TABLE OF CONTENTS
PAGE
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION............................................................. 1
INTRODUCTION.......................................................................................... 1
TIMING................................................................................................ 2
A. DESCRIPTION OF THE PARTIES AND FACILITIES.......................................................... 2
1. PNM RESOURCES, INC........................................................................... 2
2. PUBLIC SERVICE COMPANY OF NEW MEXICO......................................................... 2
3. DANA COMMERCIAL CREDIT CORPORATION........................................................... 5
B. DCC PROJECT FINANCE TWO, INC....................................................................... 5
C. DESCRIPTION OF APPLICANTS' REQUESTS................................................................ 6
ITEM 2. FEES, COMMISSIONS AND EXPENSES.................................................................. 7
ITEM 3. APPLICABLE STATUTORY PROVISIONS................................................................. 7
A. SECTION 10(b)...................................................................................... 7
1. SECTION 10(b)(1) - INTERLOCKING RELATIONS AND CONCENTRATION OF CONTROL....................... 8
2. SECTION 10(b)(2) - FAIRNESS OF CONSIDERATION AND FEES........................................ 9
3. SECTION 10(b)(3) - CAPITAL STRUCTURE......................................................... 9
B. SECTION 10(c)......................................................................................10
1. SECTION 10(c)(1).............................................................................10
2. SECTION 10(c)(2).............................................................................10
C. SECTION 10(f)......................................................................................11
D. EXEMPTION UNDER SECTION 3(a)(1)....................................................................11
ITEM 4. REGULATORY APPROVAL.............................................................................11
ITEM 5. PROCEDURE.......................................................................................11
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS...............................................................12
A. EXHIBITS...........................................................................................12
B. FINANCIAL STATEMENTS...............................................................................12
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.........................................................13
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The Application/Declaration filed in this proceeding was filed on
January 23, 2002. The Application/Declaration is amended and restated in its
entirety to read as follows:
PNM Resources, Inc. ("PNM Resources") and Public Service Company of New
Mexico ("PNM"; together with PNM Resources, the "Applicants") hereby submit an
Application/Declaration (this "Application") under Sections 9(a)(2) and 10 of
the Public Utility Holding Company Act of 1935, as amended (the "Act" or the
"1935 Act"), to acquire an interest in a public-utility company as described in
this Application.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
INTRODUCTION
PNM is party to a leveraged lease transaction under which it leases a
60% undivided interest in certain electric transmission facilities as described
herein. An institutional equity investor is the sole beneficiary of the grantor
trust which holds legal title to the 60% interest and leases such interest to
PNM. Both the grantor trust and the trust company that serves as trustee of the
grantor trust are excluded from status as a public-utility company under
Sections 2(a)(3) and 2(a)(5) of the Act by virtue of having complied with Rule
7(d) promulgated under the Act (17 C.F.R. Section 250.7(d) (2001)). The
institutional investor is similarly exempt.
The institutional investor in question, Dana Commercial Credit
Corporation (the "Investor"), maintains its investment in the leased assets
through DCC Project Finance Two, Inc., a wholly-owned, single-purpose
Delaware corporation (the "OP Company" or "DCC Project Finance"). The OP
Company has claimed and maintains the exclusion under Rule 7(d) promulgated
under the Act ("Rule 7(d)") because all of the equity interest in the OP
Company is owned by a company, namely the Investor, that is otherwise
primarily engaged in one or more businesses other than the business of a
public-utility company (17 C.F.R. Section 250.7(d)(1)(ii) (2001)).
The Investor has determined to dispose of its investment in the
leased assets and the Applicants have agreed to acquire such investment. The
acquisition is to occur VIA the sale by the Investor to the Applicants of the
Investor's entire equity interest (in the form of common stock) in the OP
Company. Upon the acquisition by the Applicants of the OP Company, the OP
Company will no longer meet the requirements of Rule 7(d)(1)(ii) and will,
therefore, have become a public-utility company under the Act. Accordingly,
the Applicants must seek authority under Section 9(a)(2) of the Act in order
to acquire the equity interest in the OP Company.
The proposed transaction is, in essence, a partial unwinding of a
financing transaction to which PNM is party as lessee. Upon acquisition by the
Applicants of the OP Company, only the lease debt component of the original
financing will remain in the hands of unaffiliated parties (namely, the debt
holders). PNM expects to effect a transaction to prepay the remaining lease debt
and complete the unwind of the financing (as to the 60% interest only; a
parallel transaction with a different equity investor as to the remaining 40%
interest would remain in effect), although completion of the unwind will not
occur necessarily in conjunction with the acquisition of the OP Company. Prior
to the completion of the unwind, PNM, AS LESSEE, will continue to have complete
operational control over the leased assets to the exclusion of Applicants as
owners of the equity interest in the OP Company, which will remain a passive
investor only.
TIMING
The availability for purchase by the Applicants of the equity interest
in the OP Company is a significant and unique opportunity for PNM to begin to
unwind an older, complex financing of an asset which has a significant place in
the overall transmission network for the desert Southwest. THE OPPORTUNITY WILL
LIKELY DISAPPEAR IF THE APPLICANTS ARE NOT IN A POSITION TO CONSUMMATE THE
PURCHASE BY MARCH 20, 2002, THE DATE AFTER WHICH THE EQUITY INVESTOR HAS THE
UNILATERAL AND UNFETTERED OPTION TO TERMINATE THE APPLICANTS' RIGHT TO ACQUIRE
THE OP COMPANY ON THE AGREED TERMS.
A. DESCRIPTION OF THE PARTIES AND FACILITIES
1. PNM RESOURCES, INC.
PNM Resources is a public-utility holding company claiming exemption
from all provisions of the Act except Section 9(a)(2) under Section 3(a)(1)
pursuant to Rule 2 of the Act. PNM Resources' principal offices are located in
Albuquerque, New Mexico.
PNM Resources, a New Mexico corporation, filed its initial statement on
Form U-3A-2 claiming exemption on December 31, 2001 (SEC File No. 069-00517)
(the "Exemption Statement").
At the annual meeting of the shareholders of PNM held on June 6, 2000,
shareholders of PNM approved management's plan to create a new holding company
pursuant to the Agreement and Plan of Share Exchange dated as of April 17, 2000
(as amended, the "PLAN OF EXCHANGE"), by and between PNM and PNM Resources, the
New Mexico corporation formerly named "Manzano Corporation." Effective December
31, 2001, pursuant to the Plan of Exchange, the outstanding shares of common
stock ($5.00 par value) of PNM were automatically exchanged on a share-for-share
basis (the "Share Exchange") for common stock (without par value) of PNM
Resources. This restructuring transaction resulted in PNM becoming a direct,
wholly-owned subsidiary of PNM Resources. The restructuring was authorized by
the Federal Energy Regulatory Commission ("FERC"), Public Service Company of New
Mexico, 95 FERC P. 62,296 (2001), by the Nuclear Regulatory Commission (the
"NRC"), Public Service Company of New Mexico, 66 Fed. Reg. 34,960 (July 2, 2001)
and by the New Mexico Public Regulation Commission (the "NMPRC").
PNM Resources owns all of the issued and outstanding voting
securities of its public utility subsidiary, PNM, and its non-utility
subsidiary, Avistar Inc. ("Avistar"). Avistar is currently engaged in certain
unregulated business ventures. In July 2001, the Board of Directors of
Avistar decided to wind down all operations except for Avistar's Reliadigm
business unit, which provides maintenance solutions to the electric power
industry. PNM Resources directly owns all of the issued and outstanding
voting securities of the following inactive (1) New Mexico subsidiaries: PNM
Electric & Gas Services, Inc.; Sunbelt Mining Company, Inc.; Paragon
Resources, Inc.; Sunterra Gas Gathering Company; and Sunterra Gas Processing
Company. There are also a number of indirectly owned inactive subsidiaries.
PNM Resources does not own directly any utility properties or perform any
utility operations, although PNM, as indicated in this application, does own
such properties and perform such operations.
2. PUBLIC SERVICE COMPANY OF NEW MEXICO
PNM is a New Mexico corporation formed in 1917 with its principal
offices in Albuquerque, New Mexico. PNM is a public-utility company within the
meaning of Section
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(1) "Inactive" means that such entity does not have any current or
ongoing operations.
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2(a)(5) of the Act. PNM is an integrated public-utility primarily engaged in
the generation, transmission, distribution and sale of electricity and in the
transmission, distribution and sale of natural gas within the State of New
Mexico.
PNM is currently subject to the jurisdiction of the NMPRC with respect
to its retail electric and gas rates, service, accounting, issuance of
securities, construction of major new generation and transmission facilities and
other matters. FERC has jurisdiction over rates and other matters related to
transmission service and wholesale electric rates. As a co-licensee with respect
to three nuclear generating units, PNM is also subject to the authority of the
NRC.
In 2000, PNM began operating as three distinct business units: (1)
Utility Operations, (2) Generation and Trading Operations and (3) Unregulated
Operations. The Utility Operations business unit includes the electric service
offering segment ("Electric") and the natural gas product offering segment
("Gas"). Electric consists of the sale and distribution of electricity, as well
as all activities related to PNM's electric transmission operations. Gas
includes the transportation, distribution and sale of natural gas. Both Electric
and Gas include related activities such as marketing and customer service. The
Generation and Trading Operations business unit includes production and purchase
of electricity, the sale of electricity to Utility Operations (at an internally
developed transfer price) and wholesale sales of electricity and electricity
trading activities with third parties. PNM also owns certain inactive
subsidiaries.
PNM provides retail electric service to a large area of north central
New Mexico, including the cities of Albuquerque, Santa Fe, Rio Rancho, Las
Vegas, Belen and Bernalillo. PNM also provides retail electric service to Deming
in southwestern New Mexico and to Clayton in northeastern New Mexico. As of
December 31, 2000, PNM served approximately 369,000 retail electric customers,
the largest of which accounted for approximately 4.1% of PNM's total electric
revenues for the year ended December 31, 2000.
As of December 31, 2000, the aggregate net generating capacity of PNM's
system was 1,521 megawatts ("MW"). During 2000, the seasonal peak electric
demand experienced by PNM was 1,368 MW during the summer and 1,211 MW during the
winter. PNM served this demand with a combination of the following: (i) 390 MW
of nuclear generated power obtained though PNM's 10.2% interest in the Palo
Verde Nuclear Generating Station ("Palo Verde"), located in Wintersburg,
Arizona; (ii) 765 MW of power from the coal burning units at the San Juan
Generating Station ("SJGS"), located in Waterflow, New Mexico, obtained through
PNM's 50% ownership of SJGS Units 1, 2 and 3 and 38.457% ownership of SJGS Unit
4; (iii) 192 MW of power obtained through PNM's 13% ownership of coal burning
Units 4 and 5 at the Four Corners Power Plant, located in Fruitland, New Mexico;
(iv) 154 MW generated by gas/oil burning units at the Reeves Generating Station,
located in Albuquerque, New Mexico; and (v) 20 MW generated by the gas/oil
burning unit at the Las Vegas Generating Station, located in Las Vegas, New
Mexico. For the year ended December 31, 2000, PNM's electric generation mix was
68.0% coal, 29.8% nuclear, and 2.2% gas/oil.
Beginning in July 2000, PNM had approximately 132 MW of additional unit
contingent peaking capacity as a result of its agreement with the Delta-Person
Limited Partnership ("PLP"), owner of a gas turbine generating unit located near
Albuquerque, New Mexico. PNM entered into a 20 year power purchase agreement
with PLP to purchase approximately 132 MW of unit
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contingent peaking capacity, with an option to renew for an additional five
years. This brings PNM's total net generation capacity, consisting of both
internal capacity and external, contracted capacity, to 1,653 MW.
Currently, PNM is constructing a new power plant, known as the Afton
Generating Station, that is located in southern New Mexico. PNM will directly
own such power plant. The Afton Generating Station will be constructed
adjacent to the Afton Compression Station of El Paso Natural Gas Company,
about 12.5 miles southwest of Las Cruces, New Mexico. The plant is scheduled
to be in commercial operation by the end of October 2002. It will produce 135
MW of electricity in its initial, simple cycle phase. By the last quarter of
2003, PNM is expected to expand the plant to a combined-cycle facility, with
an output of approximately 225 MW.
In addition to generation capacity, PNM purchases power in the market.
PNM has two power purchase agreements with Southwestern Public Service Company:
a long-term agreement (which expires May 2011) under which PNM receives 150 MW
of interruptible power and an intermediate-term agreement (through December
2005) under which PNM receives 72 MW of firm power. PNM also has a long-term
power purchase agreement (through 2010) with Tri-State Generation and
Transmission Association, Inc., under which PNM receives 50 MW of firm power.
Additionally, PNM has 70 MW of contingent capacity it obtains from El Paso
Electric Company under a transmission capacity for generation capacity trade
arrangement that runs through May 2004.
As of December 31, 2000, PNM's electric transmission facilities
(including jointly owned and leased facilities) consisted of approximately 2,552
circuit miles of electric transmission lines, 4,205 miles of overhead
distribution lines, 3,389 miles of underground distribution lines, and a total
of 210 switching stations and substations, all located in New Mexico. On
February 28, 2001, PNM completed the purchase of several additional transmission
lines and switching stations from Tri-State Generation and Transmission
Association, Inc. The purchase included approximately 335 miles of 115 kV
transmission lines and two complete additional switching stations, and portions
of three switching stations (immediately adjacent to existing PNM-owned
switching stations), all of which are located in New Mexico. PNM's jointly owned
transmission facilities (mentioned above) include approximately 165 miles of 500
kV transmission lines located in Arizona. They are associated with PNM's
interest in Palo Verde. Except for the EIP (the ownership of which is
described in this application), PNM directly owns all of its transmission
facilities.
PNM, distributing natural gas to most of the major communities in New
Mexico, including Albuquerque and Santa Fe, served approximately 435,000 natural
gas customers as of December 31, 2000. The Albuquerque metropolitan area
accounts for approximately 51.7% of the total sales-service customers. PNM
obtains its supply of natural gas primarily from sources within New Mexico
pursuant to contracts with producers and marketers. These contracts are
generally sufficient to meet PNM's peak-day demand. PNM serves certain cities
that depend on El Paso Natural Gas Company or Transwestern Pipeline Company for
transportation of gas supplies. Because these cities are not directly connected
to PNM transmission facilities, gas transported by these companies is the sole
supply source for those cities.
PNM's natural gas properties, as of December 31, 2000, consisted
primarily of natural gas storage, transmission and distribution systems.
Provisions for storage made by PNM include ownership and operation of an
underground storage facility located near Albuquerque, New
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Mexico. The transmission systems consisted of approximately 1,464 miles of
pipe with appurtenant compression facilities. The distribution systems
consisted of approximately 10,693 miles of pipe.
3. DANA COMMERCIAL CREDIT CORPORATION
Dana Commercial Credit Corporation's Annual Report for the year 2000
states that Dana Commercial Credit Corporation, a Delaware corporation ("DCCC"),
is a subsidiary of Dana Corporation, one of the world's largest suppliers to
vehicle manufacturers and their related aftermarkets. DCCC, either directly or
through subsidiary companies, is primarily engaged in one or more businesses
other than the business of a public-utility company.
DCC Project Finance, a Delaware corporation, is a direct,
wholly-owned subsidiary of DCCC. DCCC owns all of the issued and outstanding
capital stock of DCC Project Finance.
B. DCC PROJECT FINANCE TWO, INC.
DCC Project Finance, a single-purpose entity, has a 60% beneficial
ownership interest in the Eastern Interconnection Project (the "EIP"). The EIP
consists of a 216 mile, 345 kV transmission line between PNM's bulk power
switching station north of Bernalillo, New Mexico and a high voltage DC
converter station, called the Blackwater Station, located in the Clovis-Portales
area of eastern New Mexico, plus associated switching equipment and the
Blackwater Station DC converter facilities. The EIP was constructed in 1984-1985
to interconnect PNM's transmission system to that of Southwestern Public Service
Company ("SPS").(2)
Prior to commercial operation of the EIP in 1985, PNM entered into a
leveraged lease financing of the EIP. PNM sold the EIP to certain institutional
investors, Emerson Leasing Ventures, Inc. ("Emerson") and General Foods Credit
Corporation ("GFCC", and together with Emerson, the "Owner Participants"),(3)
each of which formed a trust with The First National Bank of Boston (the "Owner
Trustee")(4) for the purpose of holding title to its respective undivided
interest in the EIP. Following the sale and lease-back transaction, PNM had
and currently has a 100% leasehold interest in the EIP. The Owner Trustee
thereafter entered into two separate 30 year leases with PNM wherein PNM
makes two semiannual payments that cover both (i) the debt service on the
amount borrowed to finance the Owner Participants' purchase of the EIP
--------------------
(2) PNM and SPS entered into an agreement in November 1982 to provide for
the transmission interconnection between utilities. SPS provides
electricity to portions of Texas, New Mexico, Kansas and Oklahoma.
Subject to certain conditions, the agreement provides for the purchase
by PNM from SPS of up to 200 MW of interruptible power from 1995
through 2011.
(3) Emerson acquired a 60 percent interest in the EIP and GFCC acquired the
remaining 40 percent interest. GATX Capital Corporation (`GATX")
subsequently acquired Emerson's interest from an entity that had
purchased the stock of the original Emerson equity investor (a
single-asset subsidiary of Emerson). DCC Project Finance is the
successor in the interest to GATX. GFCC was acquired indirectly by the
Philip Morris Companies Inc. ("Philip Morris") in the late 1980's.
(4) State Street Bank and Trust Company subsequently has replaced The First
National Bank of Boston as the Owner Trustee.
5
from PNM and (ii) cash flow to equity investors which, with tax benefits,
provides equity investors with return of and on their investments. A copy of
the lease of the 60% interest is Exhibit B-2 hereto. PNM holds easements over
part of the land underlying the EIP and is the fee owner of the remaining
land underlying the EIP. Pursuant to two separate easements dated as of
February 5, 1985, PNM granted to the Owner Trustee certain easements to the
land underlying the EIP.
As part of the lease transaction, PNM retained an option to renew
the lease at 50 percent of the original rent as well as an option to purchase
the EIP at its fair market value at the end of the original lease or any
renewal period. In addition, the lease permits PNM to exercise an early
purchase option after thirty semiannual payments have been made under the
lease.(5) Specifically, Section 14(a) of the lease provides that "[u]nless a
Default or Event of Default shall have occurred and be continuing, the Lessee
shall have the right to exercise one of the following options to purchase the
Undivided Interest: (1) [o]n the date of expiration of the Basic Term, the
Fixed Rent Renewal Term or any then applicable Fair Market Renewal Term, the
Lessee shall have the right . . . to purchase the Undivided Interest on the
date of expiration of such Term at a purchase price equal to the Fair Market
Value thereof; or (2) [o]n [a Basic Rent Payment Date] (which date may only
be a Basic Rent Payment Date during the Basic Term occurring on or after the
thirtieth Basic Rent Payment Date), at a purchase price equal to the greater
of the Early Purchase Value applicable on the date of purchase and the Fair
Market Value of the Undivided Interest on such date, plus an amount equal to
the sum of any Basic Rent then owing and any premium due on prepayment of the
Notes."
Since 1985, PNM has operated the EIP and treated the EIP as part of its
integrated transmission system. Under the leases, PNM is responsible for paying
all taxes, insurance premiums, operating and maintenance costs and all other
similar costs associated with the EIP. Also, PNM is responsible for any
additional costs from time to time in connection with alterations of or
improvements to the EIP.
In connection with the initial closing of the leveraged lease
financings, a filing on Form U-7D was made as contemplated by Rule 7(d) on
February 5, 1985 for the benefit of Emerson and the trustee of its grantor
trust. The presently effective filing is an Amendment, Restatement and
Consolidation of Forms U-7D (File Nos. 32-480 and ___(6)) filed on or about
September 14, 1993. Exhibit B-3 hereto. Upon acquisition of DCC Project Finance
by the Applicants, the presently effective filing will be amended to delete DCC
Project Finance therefrom (leaving the trustee of the grantor trust as the only
company benefited by such filing).
Upon acquisition by the Applicants of DCC Project Finance, PNM
Resources will not derive, directly or indirectly, any material part of its
income from DCC Project Finance (in any event, the gross revenues derived
from DCC Project Finance will not exceed $200,000). Upon such acquisition,
PNM Resources will, in addition, continue to claim an exemption under Section
3(a)(1) of the Act from all provisions of the 1935 Act, other than Section
9(a)(2), in accordance with Rule 2 under the 1935 Act.
C. DESCRIPTION OF APPLICANTS' REQUESTS
The Applicants retained Schrickel Capital Corp. to make an inquiry on
behalf of the Applicants. The Applicants are seeking authority to purchase 100%
of the issued and outstanding stock of DCC Project Finance.
Pursuant to a purchase agreement between DCCC and PNM dated as of
January 15, 2002 (the "Purchase Agreement"), the Applicants will purchase
100% of the issued and outstanding common stock of DCC Project Finance (the
"Subject Stock"), to be renamed PNM Project Finance Two,
--------------------
(5) FERC determined that the lease between PNM and the Owner Trustee was
not jurisdictional because neither the Owner Participants nor the Owner
Trustee were public utilities. PUBLIC SERVICE COMPANY OF NEW MEXICO, 29
FERC Paragraph 61,387 (1984).
(6) This file number is presently unknown.
6
Inc. immediately upon consummation of the transaction. The Applicants will
purchase the Subject Stock from DCCC for $5,672,000 (subject to possible
upward adjustment as provided in the Purchase Agreement).(7)
Acquiring the voting securities of DCC Project Finance requires prior
Commission authorization under Sections 9(a)(2) and 10 of the Act because the
Applicants will be acquiring the voting securities of a public-utility company
and PNM Resources would thereby become an affiliate of a public-utility company
in addition to PNM.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the transactions contemplated herein are
estimated as follows:
Purchase Price............................... $5,672,000(8)
Legal Fees................................... 300,000
Advisory Fee................................. 225,000
Miscellaneous................................ 125,000
Total.................................. 6,322,000
ITEM 3. APPLICABLE STATUTORY PROVISIONS
It is believed that Sections 9(a)(2) and 10 of the Act are directly or
indirectly applicable to the authority requested in this Application. To the
extent that the proposed transactions are considered by the Commission to
require authorization, approval or exemption under any section of the Act or
provisions of the rules or regulations thereunder other than those specifically
referred to herein, request for such authorization, approval or exemption is
hereby made.
A. SECTION 10(b)
Section 10(b) of the Act provides that, if the requirements of Section
10(f) are satisfied, the Commission shall approve an acquisition under Section
9(a) unless the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interest of
investors or consumers;
--------------------
(7) If the closing date shall occur after February 28, 2002, interest on
the cash payment of $5,672,000 will be computed at the lower of DCCC's
60-day funding cost or 5% per annum for the actual number of days
elapsed from but excluding January 15, 2002 to and including the
closing date. Such interest (if due) shall be an upward adjustment to
such cash purchase price. No other pricing adjustment is applicable to
the purchase or sale of the Subject Stock.
(8) The Purchase Price is subject to possible upward adjustment as provided
in the Purchase Agreement. (See footnote 7 herein.)
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(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other remuneration,
to whomsoever paid, to be given, directly or indirectly, in connection
with such acquisition is not reasonable or does not bear a fair
relation to the sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the securities
to be acquired; or
(3) such acquisition will unduly complicate the capital structure of
the holding-company system of the applicant or will be detrimental to
the public interest of consumers or the proper functioning of such
holding-company system.
1. SECTION 10(b)(1) - INTERLOCKING RELATIONS AND CONCENTRATION
OF CONTROL
The transactions described herein will not tend towards
"interlocking relations or the concentration of control of public-utility
companies, of a kind or to an extent detrimental to the public interest or
the interest of investors or consumers." As stated in Item 1, PNM has
operated the facilities concerned as part of its integrated transmission
system since 1985 under the lease agreement, and thus there will be no
effective change of control over the facilities concerned as a result of the
contemplated transaction. Since PNM already leases and operates the
facilities concerned and the proposed transaction has no impact on
operations, there will be no detrimental impact on interlocking relations.
The facilities have always been an integral part of PNM's electric system.
By virtue of the proposed transactions, PNM will not have directors in common
with other public utility companies. The proposed change in the ownership of
the EIP and associated equipment presents no concentration of control or
other market power concerns. Because PNM already leases these facilities and
exercises complete control over their operation, the acquisition of stock and
related change in title of a portion of the EIP will not result in any change
in market power. No generation market share is affected as a result of the
transfer.
In addition, as a result of the transaction there will be no effect on
potential transmission market power that PNM could exercise. The EIP will
continue to be used in the same way both before and after the transaction, with
the only changes being acquisition of stock and transfer of legal title to a
portion of the facilities to a lessee that already operates and controls the
facilities concerned and the termination of the lease with respect to the
transferred portion. All of the facilities, before and after the transaction,
will be subject to PNM's open access transmission tariff ("OATT") or the OATT of
a regional transmission organization ("RTO") to which PNM in the future may
transfer operational control.
No generating facilities of previously unaffiliated entities are being
combined in a single entity as a result of the proposed transaction. Moreover,
this transaction does not involve a single corporate entity obtaining control
over one or more merging entities that provide inputs to electricity production.
The present application does not raise horizontal or vertical market power
issues.
The transaction will not involve any consolidation of separate
companies and does not involve a merger of any new facilities with those already
operated by PNM. The Applicants do not propose to merge with or acquire any
other entity in the instant Application. This type of arrangement, therefore, is
not harmful to the Act's protected interests.
Section 10(b)(1) of the Act requires the Commission, before blocking an
acquisition, to find that control is "of a kind or to an extent detrimental to
the public interest or the interest of investors or consumers." The stock
acquisition does not involve a combination of previous separate utilities. Thus,
rather than create prohibited corporate structures, PNM will continue to
8
serve its utility customers by providing reliable power through its control
of the EIP in the same manner since 1985.
Accordingly, because PNM already maintains control of the EIP within
the State of New Mexico, and because other regulatory agencies (FERC and the
NMPRC) will concurrently be asked to evaluate and approve the proposed
transactions, the Commission should find that the proposed transactions do not
create the type of concentration of control prohibited by Section 10(b)(1).
2. SECTION 10(b)(2) - FAIRNESS OF CONSIDERATION AND FEES
Section 10(b)(2) of the 1935 Act requires the Commission to determine
whether the consideration to be paid in connection with the proposed acquisition
of securities, including all fees, commissions and other remuneration, is
reasonable and whether it bears a fair relation to, investment in and earning
capacity of the underlying utility assets.
PNM will purchase all of the issued and outstanding shares of
capital stock of DCC Project Finance for $5,672,000 (subject to possible
upward adjustment as provided in the Purchase Agreement (as described
elsewhere herein)). The purchase price is the product of arm's-length
negotiations between DCCC and PNM. These negotiations were preceded by due
diligence and analysis. As recognized by the Commission in NORTHEAST
UTILITIES, Holding Co. Act Release No. 25221 (Dec. 21, 1990) citing OHIO
POWER CO., 44 SEC 340, 346 (1970), prices arrived at through arm's-length
negotiations are particularly persuasive evidence that Section 10(b)(2) is
satisfied. As of February 5, 1985, the EIP had an appraised fair market value
of not less than $73,000,000. PNM has not sought to have the EIP reappraised
since such date.
After consummation of the transactions described in this
application, PNM will be the lessee of the 60% undivided interest in the EIP
and DCC Project Finance (to be renamed "PNM Project Finance Two, Inc.") will
own such interest in the EIP. Such 60% undivided interest will appear on the
consolidated financial statements of PNM Resources as consolidated plant,
property and equipment. In addition, the assets and liabilities of DCC
Project Finance will appear on the consolidated financial statements of PNM
Resources.
As set forth in Item 2 of this Application, PNM expects to incur a
combined total of approximately $650,000 in fees, commissions and expenses. PNM
believes that the estimated fees and expenses in this matter bear a fair
relation to the value of the transactions and the strategic benefits to be
achieved, and further that the fees and expenses are fair and reasonable in
light of the complexity of the transactions.
3. SECTION 10(b)(3) - CAPITAL STRUCTURE
Section 10(b)(3) of the Act requires the Commission to determine
whether the proposed transactions will unduly complicate the capital structure
of the Applicants or will be detrimental to the public interest, the interest of
investors or consumers or the proper functioning of the PNM system. The
acquisition of the Subject Stock will not involve the issuance of new
securities. In addition, the acquisition of the Subject Stock will not be
detrimental to the interest of consumers or the functioning of the PNM system
because the EIP facilities already are included in PNM's transmission rates,
which were established as part of a settlement agreement that occurred prior to
the transfer of these facilities. PNM's transmission rates will not change as a
result of the acquisition, and, in any event, would change only in a rate case
or in a proceeding relating to an RTO where FERC would have jurisdiction. All of
the facilities, before and after the transaction, will be subject to PNM's OATT
or the OATT of an RTO to which PNM in the future may transfer operational
control. PNM will fund the purchase price for the stock of DCC Project Finance
from cash on hand.
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B. SECTION 10(c)
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the Commission shall
not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of Section 8 or is
detrimental to the carrying out of the provisions of Section 11; or
(2) the acquisition of securities or utility assets of a public-utility
or holding company unless the Commission finds that such acquisition
will serve the public interest by tending towards the economical and
the efficient development of an integrated public-utility system.
1. SECTION 10(c)(1)
Section 10(c)(1) of the Act provides that the Commission may not
approve a transaction that is "unlawful under the provisions of section 8 or is
detrimental to the carrying out of the provisions of section 11." Together these
sections relate to the corporate simplification standards of Section 11(b)(2) of
the Act, which require that each registered holding company take the necessary
steps to ensure that the corporate or continued existence of any company in the
holding-company system does not unduly or unnecessarily complicate the structure
of such holding-company system. Sections 8 and 11, by their terms, only apply to
registered holding companies, and PNM Resources will be exempt from registration
under Section 3(a)(1) pursuant to Rule 2 of the Act.
2. SECTION 10(c)(2)
Section 10(c)(2) of the Act requires that any acquisition not be
approved unless the Commission finds that "such acquisition will serve the
public interest by tending towards the economical and efficient development of
an integrated public-utility system."
Section 2(a)(29)(A) of the Act defines an "integrated public utility
system" as applied to electric utility companies as a:
system consisting of one or more units of generating plants
and/or transmission lines and/or distributing facilities,
whose utility assets, whether owned by one or more electric
utility companies, are physically interconnected or capable of
physical interconnection and which under normal conditions may
be economically operated as a single interconnected and
coordinated system confined in its operations to a single area
or region, in one or more states, not so large as to impair
(considering the state of the art and the area or region
affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation.
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As discussed in Item 1, PNM and DCCC have entered into the Purchase
Agreement under which PNM will purchase all of the issued and outstanding stock
of DCC Project Finance. PNM will maintain the EIP using the same mechanisms and
same system operator as it has since 1985 and thereby meets the Commission's
requirements for economical operation.
After consummation of the proposed transaction, PNM will continue to be
subject to regulation by the NMPRC. Since the EIP is located within New Mexico,
the proposed transaction will not impair the effectiveness of local management.
Accordingly, the proposed acquisition complies with the single area or region
requirement of Section 10(c)(2).
As part of its analysis under Section 10(c)(2), the Commission also
considers whether the operation of the proposed integrated public-utility system
will generate economies and efficiencies. Whether or not the Applicant's
proposed transaction is consummated, PNM will be able to continue to meet its
service demands in the same reliable manner as before the filing of this
Application.
Since PNM already leases and operates the facilities concerned and
the proposed transaction has no impact on operations, the transactions
described in this application would not detract from a finding that the
transactions would contribute towards an integrated public-utility system.
The facilities have always been an integral part of PNM's electric system,
and will continue to be an integral part of PNM's electric system after
consummation of the transactions described in this application.
The lease transaction described in this application is being bought
out by PNM on favorable terms. Consummation of the transactions described in
this application will allow PNM to acquire 100% of the beneficial interest in
the owner trust that holds title to a 60% undivided interest in the leased
assets, thereby enabling PNM to obtain the residual value of that portion of
the EIP at no additional cost to PNM. Purchase of the shares of DCC Project
Finance by PNM: will allow PNM to reduce its exposure with respect to equity
investor indemnification provisions in the lease, because indemnification
will no longer be necessary; will allow PNM to retire the underlying Secured
Facility Bonds, which are presently non-callable; and will give PNM
functional control of the acquired portion of the EIP. In addition, as more
power generation plants are sited on or near the EIP and as improvements are
made to the EIP to accommodate these plants, the fair market value has the
potential to increase in the future; it is a benefit for any related increase
in this value to accrue to the benefit of PNM and its customers rather than
to the benefit of a third party investor. Finally, by virtue of the
elimination of the required lessor consent for certain modifications to the
EIP, the process by which such modifications are approved will become less
cumbersome.
C. SECTION 10(f)
Section 10(f) of the Act prohibits the Commission from approving the
transaction proposed in this Application unless the Commission is satisfied that
the transaction will be undertaken in compliance with applicable state laws. The
Applicants commit to complete the transaction in a manner consistent with the
laws of the State of New Mexico. Additionally, the acquisition of the stock of
DCC Project Finance will not impair effective regulation because the Applicants
will continue to be subject to the jurisdiction of the Commission, FERC and the
NMPRC after acquisition of such stock in the same manner and to the same extent
as they were prior to such acquisition.
D. EXEMPTION UNDER SECTION 3(a)(1)
PNM Resources claims exemption, under Section 3(a)(1), from all
provisions of the Act except Section 9(a)(2). PNM Resources will continue to
claim this exemption after PNM's purchase of the Subject Stock. Following
PNM's purchase of the Subject Stock and the renaming of DCC Project Finance
to PNM Project Finance Two, Inc., PNM will continue to be a wholly owned
subsidiary of PNM Resources, and PNM Project Finance Two, Inc., a Delaware
corporation, will be a wholly owned subsidiary of PNM.
ITEM 4. REGULATORY APPROVAL
The Applicants are contemporaneously with this Application seeking
appropriate approvals from the NMPRC and FERC. Exhibits D-1 and D-2 hereto. The
Applicants are seeking all necessary regulatory approvals contemporaneously with
the filing of this Application. The acquisition is not subject to
Hart-Scott-Rodino reporting requirements because it falls below the minimum
threshold for reporting a proposed transaction under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
ITEM 5. PROCEDURE
The Applicants request that the Commission issue and publish no later
than Friday, February 1, 2002, the requisite notice under Rule 23 with respect
to the filing of this Application, such notice to specify a date not later than
Tuesday, February 26, 2002 as the date after which an order granting and
permitting this Application to become effective may be entered by the
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Commission and that the Commission enter not later than Friday, March 12,
2002 an appropriate order granting and permitting this Application to become
effective.
No recommended decision by a hearing officer or other responsible
officer of the Commission is necessary or required in this matter. The Division
of Corporate Regulation of the Commission may assist in the preparation of the
Commission's decision in this matter. There should be no thirty-day waiting
period between the issuance and effective date of any order issued by the
Commission in this matter, and the Applicants respectfully request that any such
order be made effective immediately upon the entry thereof.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
A-1 Certificate of Incorporation of DCC Project Finance Two, Inc.
B-1 Purchase Agreement between Dana Commercial Credit Corporation
and Public Service Company of New Mexico dated as of January
15, 2002.
B-2 Amended and Restated Lease dated as of September 1, 1993 under
which PNM leases, as lessee, the 60% undivided interest.
(Schedules 1, 2 and 3 are not available electronically.)
B-3 Amendment, Restatement and Consolidation of Forms U-7D
executed on September 14, 1993 by The First National Bank of
Boston, as owner trustee, and DCC Project Finance Two, Inc.
D-1 Application to the New Mexico Public Regulation Commission.
D-2 Application to FERC.
E-1 Map showing the interconnection of the Eastern Interconnection
Project to PNM's properties (filed on Form SE).
F-1 Opinion of Counsel to the Applicants.
F-2 Opinion of Counsel to the Applicants.
F-3 "Past Tense" Opinion of Counsel (to be filed by amendment).
G-1 Form of Notice.
B. FINANCIAL STATEMENTS
FS-1 Form 10-K Annual Report of Public Service Company of New
Mexico for the year ended December 31, 2000 (incorporated by
reference to such filing, File No. 1-6986).
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FS-2 Form 10-K/A Amendment No. 1 to Annual Report of Public Service
Company of New Mexico for the year ended December 31, 2000
(incorporated by reference to such filing, File No. 1-6986).
FS-3 Form 10-K/A Amendment No. 2 to the Annual Report of Public
Service Company of New Mexico for the year ended December 31,
2000 (incorporated by reference to such filing, File
No. 1-6986).
FS-4 Form 10-Q Quarterly Report of Public Service Company of New
Mexico for the period ended March 31, 2001 (incorporated by
reference to such filing, File No. 1-6986).
FS-5 Form 10-Q Quarterly Report of Public Service Company of New
Mexico for the period ended June 30, 2001 (incorporated by
reference to such filing, File No. 1-6986).
FS-6 Form 10-Q/A Amended Quarterly Report of Public Service Company
of New Mexico for the period ended June 30, 2001 (incorporated
by reference to such filing, File No. 1-6986).
FS-7 Form 10-Q Quarterly Report of Public Service Company of New
Mexico for the period ended September 30, 2001 (incorporated
by reference to such filing, File No. 1-6986).
FS-8 A balance sheet for DCC Project Finance Two, Inc. as of
December 31, 2001. No other financial statements are available
for DCC Project Finance Two, Inc.
There have been no material changes, not in the ordinary course of
business, to the aforementioned balance sheet from December 31, 2001,
to the date of this Application.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this Application involve a
"major federal action" nor do they "significantly affect the quality of the
human environment" as those terms are used in Section 102(2)(C) of the National
Environmental Policy Act. None of the proposed transactions that are the subject
of this Application will result in changes in the operation of the Applicants
that will have an impact on the environment. The Applicants are not aware of any
federal agency which has prepared or is preparing an environmental impact
statement with respect to the transactions proposed herein.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this statement to be signed
on their behalf by the undersigned thereunto duly authorized.
Date: February 15, 2002
Albuquerque, New Mexico
PNM RESOURCES, INC.
By: /s/ John R. Loyack
-----------------------------------------
Name: John R. Loyack
Title: Vice President, Controller and
Chief Accounting Officer
PUBLIC SERVICE COMPANY
OF NEW MEXICO
By: /s/ Terry R. Horn
-----------------------------------------
Name: Terry R. Horn
Title: Vice President and Treasurer
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