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EXHIBIT 99.2
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Elizabeth Anne Moler, Chair;
Vicky A. Bailey, James J. Hoecker,
William L. Massey, and Donald F. Santa, Jr.
NorAm Energy Services, Inc. ) Docket No. EL97-25-000
ORDER INITIATING JURISDICTIONAL INQUIRY
(Issued February 5, 1997)
In this order, we initiate a jurisdictional inquiry concerning a
transaction involving NorAm Energy Services, Inc. (NorAm), a public utility
under the Federal Power Act (FPA). Under the transaction, NorAm Energy
Corporation (NorAm Energy), the parent company of NorAm, will merge with
Houston Industries, Incorporated (Houston Industries) and Houston Industries'
subsidiaries, Houston Lighting & Power Company (HL&P) and Houston Industries
Energy, Inc. (HI Energy).(1) This transaction may require Commission approval
pursuant to section 203 of the FPA. We direct NorAm to make a filing setting
forth its views on this issue, and offer other interested persons an
opportunity to comment on NorAm's filing. In the alternative, NorAm may file an
application for authorization pursuant to section 203.
Background
NorAm was authorized to make wholesale electric power and energy sales
in interstate commerce at market-based rates by order issued July 25, 1994.(2)
The July 25 order required NorAm to notify the Commission of any change in
status that would reflect a departure from the characteristics that the
Commission relied upon in authorizing market-based pricing. On September 30,
1996, NorAm filed a notice of change in status in Docket No. ER94-1247-010 to
inform the Commission of the planned merger of its parent company, NorAm Energy,
with Houston Industries and HL&P. In its notice of change of status, NorAm
requested authority to continue to charge market-based rates after the
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(1) Houston Industries is an exempt public utility holding company. Its
subsidiary, HL&P is an electric utility located in the Electric
Reliability Council of Texas (ERCOT) engaged in the generation,
transmission, distribution and sale of electric energy. HI Energy, also
a subsidiary, owns various interests in foreign utilities, exempt
wholesale generators, and a qualifying facility.
(2) NorAm Energy Services, Inc., letter order (unpublished).
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merger is consummated based on a finding that its post-merger affiliation with
HL&P raises no market power concerns. The Commission will address NorAm's
request for continued authority to sell power at market-based rates in a
separate order.
NorAm's notice of change of status describes the planned merger as
follows. Houston Industries would be merged into HL&P, with HL&P, renamed
Houston Industries, Incorporated, (New Houston Industries) as the surviving
corporation. NorAm Energy would then be merged into HI Merger, Incorporated (HI
Merger), a wholly-owned subsidiary of Houston Industries, with HI Merger,
renamed NorAm Energy Corporation (New NorAm Energy), as the surviving
corporation. As a result, New Houston Industries would be the parent company,
with HL&P operating as a division of New Houston Industries, and HI Energy and
New NorAm Energy as subsidiaries. NorAm would become a second-tier
wholly-owned subsidiary of New Houston Industries and a wholly-owned
subsidiary of New NorAm Energy.(3)
Discussion
Section 203
The Commission's jurisdiction over corporate restructurings involving
public utilities is derived from section 203 of the FPA, (4) which reads in
pertinent part:
(a) No public utility shall sell, lease or otherwise dispose of the
whole of its facilities subject to the jurisdiction of the
Commission . . . or by any means whatsoever, directly or
indirectly, merge or consolidate such facilities or any part
thereof with those of any other person . . . without first
having secured an order of the Commission authorizing it to do
so.
(b) The Commission may grant any application for an order under
this section in whole or in part and upon such terms and
conditions as it finds necessary or appropriate to secure the
maintenance of adequate service and the coordination in the
public interest of facilities subject to the jurisdiction of
the
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(3) NorAm's notice of change of status also described alternative merger
plans, which would be used under certain circumstances to effect the
merger of the companies. However, under each alternative merger plan,
NorAm would become a direct or indirect wholly-owned subsidiary of the
Houston Industries corporate organization.
(4) 16 U.S.C. Section 824b (1994).
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Commission. The Commission may from time to time for good cause shown
make such orders supplemental to any order made under this section as it
may find necessary or appropriate.
Prior Cases
In Central Vermont Public Service Corporation,(5) the Commission
determined that the transfer of all of a public utility's stock to a
newly-created holding company is a transfer of ownership and control of the
utility's jurisdictional facilities and that such transfer constitutes a
disposition of jurisdictional facilities requiring Commission approval under
section 203.
In Central Illinois Public Service Company,(6) the Commission explained
that its assertion of jurisdiction in Central Vermont was not based solely on
the transfer of stock, but rather that the Commission's concern lies in the
transfer of control of public utilities and, thereby, control over the
jurisdictional facilities of those public utilities. After considering the
legislative history of section 203, the Commission found that "Congress' intent
was to ensure that the Commission maintain oversight over any transfer of
jurisdictional utility property . . . ."(7)
In Missouri Basin Municipal Power Agency,(8) the Commission determined
that ownership of a public utility's stock does not render a holding company a
public utility under the FPA. Because section 203 only encompasses action taken
by public utilities, the merger of two public utility holding companies does
not automatically fall within the Commission's section 203 jurisdiction.
In Illinois Power Company,(9) the Commission reviewed its merger policy
and clarified its jurisdiction under section 203 over indirect mergers of
public utilities owned by public utility
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(5) Central Vermont Public Service Corporation, 39 FERC Paragraph 61,295 at
61,690 (1987) (Central Vermont).
(6) Central Illinois Public Service Company, 42 FERC Paragraph 61,073 at
61,328 (1988) (Central Illinois).
(7) Id. (emphasis in original).
(8) Missouri Basin Municipal Power Agency, 53 FERC Paragraph 61,368 (1990),
reh'g denied, 55 FERC Paragraph 61,464 (1991) (Missouri Basin).
(9) Illinois Power Company, 67 FERC Paragraph 61,136 (1994).
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holding companies. The Commission stated that such clarification was "necessary
to ensure the continued adequacy of our merger policies in protecting the
public interest," since "most mergers of public utility holding companies will
simultaneously involve an indirect merger of the public utility subsidiaries of
such holding companies."(10) In Illinois Power, the Commission described the
three-step process some utilities were following to reorganize, and explained
how section 203 jurisdiction applied at each step:
In step one, a public utility transfers ownership of all of its stock to
a newly-formed holding company. The Commission stated that under Central
Vermont such a transfer constitutes a transfer of the ownership and
control of the utility's jurisdiction facilities and, therefore, is a
disposition of facilities subject to section 203 approval.
In step two, the newly-formed public utility holding company merges with
another public utility holding company. The Commission followed its
previous determination that it does not have jurisdiction over the
merger of holding companies unless the holding companies themselves
directly own or operate jurisdictional facilities and, consequently, are
public utilities. However, the Commission also adopted a rebuttable
presumption that when public utility holding companies merge, their
public utility subsidiaries likely retain no real corporate
independence, that decision-making for the public utilities would
typically rest with the new holding company, and that, therefore, an
indirect merger of the public utilities occurs requiring section 203
authorization.
In step three, the public utility subsidiaries of the merged holding
companies formally merge and section 203 approval is required.
The Instant Transaction
NorAm is a public utility marketer. Its jurisdictional facilities
include its market-based power sales tariff under which it is authorized to
engage in sales of electric energy at wholesale in interstate commerce and its
contracts for sales for resale in interstate commerce.(11) Pre-merger, the
public utility NorAm, and its jurisdictional facilities, are controlled by its
parent, NorAm Energy. Post-merger, it appears that the
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(10) Id. at 61, 352-53.
(11) During the first three calendar quarters of 1996, NorAm sold
approximately 1.3 million kWh at wholesale in interstate commerce.
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new parent holding company, New Houston Industries, will control the
jurisdictional facilities of the public utility NorAm through its ownership of
NorAm Energy. Thus, there is an issue of whether Commission authorization under
section 203 is required for this transaction.(12)
Without deciding the issue, we note that in Central Vermont we
indicated that, in reviewing corporate transactions and relationships, we would
focus on the substance of transactions and relationships rather than their
form.(13) Moreover, section 203 was intended to be prophylactic in operation.
Under section 203, the enumerated activities can only be undertaken after the
applicant has "secured an order of the Commission authorizing it to do so."
Although NorAm has not sought a ruling on this issue, we believe the
jurisdictional question must be resolved prior to consummation of the
transaction.
Further Procedures
NorAm is directed to file a response within 30 days of the date of this
order either (1) providing arguments as to why the transaction does not require
Commission authorization under FPA section 203 or (2) an application for
authorization under section 203. If it elects the former, interventions,
protests, or comments will be due 15 days after its filing. If it files an
application for authorization, a notice of filing will be issued pursuant to
the procedures discussed in the Merger Policy Statement.(14)
The Commission orders:
(A) NorAm is hereby directed to make a filing as discussed in the
body of this order within 30 days.
(B) If NorAm files a response arguing that authorization under
section 203 of the Federal Power Act is not required, interventions, protests
or comments will be due 15 days after NorAm's filing.
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(12) In our Merger Policy Statement we acknowledged that new types of
mergers in addition to mergers between public utilities may be subject
to our jurisdiction under section 203. See Inquiry Concerning the
Commission's Merger Policy Under the Federal Power Act; Policy
Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC Stats. &
Regs. Paragraph 31,044 (1996) (Merger Policy Statement), mimeo at
pp.7-8.
(13) 39 FERC at 61,690.
(14) See Merger Policy Statement.
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(C) If NorAm files an application for authorization under section
203 of the Federal Power Act, interventions, protests, or comments will be due
as specified in a further notice to be issued by the Commission.
By the Commission.
( S E A L )
/s/ LOIS D. CASHELL
Lois D. Cashell,
Secretary.