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[No. 844]

IN THE MATTER OF

CENTRAL OHIO LIGHT & POWER COMPANY

File No. 32-163. Promulgated August 8, 1939

EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY.

Issue Solely for the Purpose of Financing Business of Applicant. Application having been filed by a subsidiary of a registered holding company pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935 for an exemption from the provisions of Section 6 (a) of the Act of the issue and sale of first mortgage 4% bonds, series C due 1964, in the principal amount of $4,100,000, 32% serial notes in the principal amount of $500,000, 2,200 shares of $6 preferred shares, no par value, the net proceeds to be used for the purpose of paying off the principal amount of certain bonds and notes, miscellaneous indebtedness, and reimbursing applicant's treasury for expenditures resulting from additions and improvements, exemption granted, subject to conditions set forth fully in the findings, the Commission finding that the transactions have been authorized by the state commission and are solely for the purpose of financing the business of the applicant as a public utility company.

FINDINGS AND OPINION OF THE COMMISSION

Central Ohio Light & Power Company (hereinafter sometimes called the "applicant"), a subsidiary of Crescent Public Service Company, a registered holding company, has filed an application, and amendments thereto, pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935 for an exemption from the provisions of Section 6 (a) thereof in regard to the issue and sale by the applicant of (1) its first mortgage 4% bonds, series C, due August 1, 1964, in the principal amount of $4,100,000, (2) its 32% serial notes, due August 1, 1940, to August 1, 1944, in the principal amount of $500,000, and (3) 2,200 shares of its $6 preferred shares (cumulative), no par value. It is proposed to issue all of the aforesaid securities publicly.

A hearing on the application, as amended, was duly held after appropriate notice. No member of the public appeared or requested an opportunity to be heard. The record in this matter having been examined, the Commission makes the following findings:

HISTORY AND BUSINESS

The applicant was incorporated under the laws of the State of Ohio. Upon its organization in 1930, applicant acquired all of the properties and assets of The Wooster Electric Company, The North Baltimore Service Company, The Rudolph Light & Power Company, The Farmers Light & Power Company, The Enterprise Utilities Company, the electric and hot water heating property and certain assets of The Toledo, Bowling Green & Southern Traction Company and the electric property and certain assets of Western Ohio Railway & Power Corporation. Applicant is engaged principally in the business of generating, purchasing, transmitting, distributing, selling, and supplying electricity for lighting, heating, industrial, and general utility purposes, and as incidents thereto is also engaged in the hot water heating business and in the sale of electric merchandise and incandescent lamps. Service is rendered to various communities, all located in the State of Ohio.

PURPOSE OF ISSUES

Applicant proposes to apply the net proceeds (estimated at a total of $4,754,375, after deducting estimated expenses of $73,625, but excluding accrued interest and dividends) from the sale of the bonds, notes, and preferred shares for the purpose of (1) paying off the principal amount of its first mortgage 5% gold bonds, series A, its first mortgage 5% bonds, series B, and its 3-year 412% convertible secured notes, aggregating $4,350,000; (2) paying off the principal amount of miscellaneous indebtedness, aggregating $217,375; and (3) reimbursing its treasury to the extent of $187,000 for capital expenditures resulting from additions, improvements, and betterments to its plant and property heretofore made by it, which amount, together with current funds in its treasury, will be used to pay off the balance of bank loans, estimated premiums, and cost of note conversions.

CAPITALIZATION

The following table sets forth applicant's capitalization, including surplus and reserve for equity of preferred stock at May 31, 1939, per balance sheet and pro forma:

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• 11,707 shares outstanding (excluding 293 shares held in treasury) stated at $90 per share.

⚫ The additional 2,200 shares of preferred to be issued will be stated at $110 per share, i. e., at liquidating value.

• This reserve is to be credited $700 monthly ($8,400 per year) until such time as the reserve shall equal the difference between liquidating value and stated value of the $6 preferred presently outstanding.

• An amount of $143,375 representing premium on bonds called ($117,750) and duplicate interest ($25,625) will be charged to earned surplus.

• An amount of $55,000 is to be credited to the preferred capital stock account (representing the difference between price to the company and liquidating value of the 2,200 shares proposed to be issued) and $31,772.63 is to be credited to a reserve for equity of $6 preferred stock.

It will be noted from the above that mortgage debt will be reduced $250,000 and total debt will be reduced $54,450.77. Further, by the use of serial notes, total debt will be reduced an additional $500,000 during the next 5 years. As a result of the operation of the sinking fund provided for the mortgage bonds, such mortgage debt will be reduced approximately $153,750 within said 5-year period. Thereafter mortgage debt will similarly be reduced approximately $61,500

yearly until maturity. As a result of the operation of the sinking fund, mortgage debt will be reduced approximately $1,383,750, or 33.75 percent by maturity.

PROPERTY, PLANT AND EQUIPMENT

The following table sets forth the ratio of total debt to (a) gross fixed assets including intangibles, (b) gross fixed assets excluding intangibles, (c) depreciated fixed assets including intangibles and (d) depreciated fixed assets excluding intangibles, as at May 31, 1939, both per balance sheet and pro forma:

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It appears from the record that on December 4, 1930 (as of December 1, 1930), applicant acquired certain properties and franchises from seven predecessor companies in transactions which were between affiliated interests. The acquisition was made pursuant to Order No. 6547 dated September 22, 1930, of The Public Utilities Commission of Ohio, which order authorized an aggregate consideration of $5,333,300 *

1 The Wooster Electric Company, The North Baltimore Service Company, The Rudolph Light & Power Company, Western Ohio Railway & Power Corporation, The Farmers Light & Power Company, The Enterprise Utilities Company, and The Toledo, Bowling Green & Southern Traction Company.

* All of the companies involved in the transaction were indirect subsidiaries of Empire Public Service Corporation, which was liquidated in bankruptcy during 1934. Upon organization, the applicant became a subsidiary of Electric Public Service Company, also an indirect subsidiary of Empire Public Service Corporation. Electric Public Service Company is the predecessor of Crescent Public Service Company, the present parent of the applicant.

The aggregate consideration to be paid for properties:
Wooster

North Baltimore..

Rudolph

Western Ohio

Farmers

Enterprise-

Toledo--

$1, 183, 400

97, 800 11,500

1,736, 500

90, 300 64, 900 2,148,900

5, 333, 300

to be paid for the properties. Such amount represented estimated reproduction cost new less accrued depreciation as determined by an appraisal made by Stone & Webster Engineering Corporation based on inventories as of June 30, 1930, adjusted to eliminate $88,300 from the appraisal estimate of working capital.

In addition to plant, property and equipment, the applicant acquired, for the purchase price of $5,333,300, certain current assets which exceeded certain current liabilities assumed, in the amount of $169,329.14. The total net assets acquired were recorded on the books of applicant at an amount which was $219,026.785 in excess of the purchase price paid therefor, which excess was credited to capital surplus on the books of the applicant.

Subsequently, an amount of $279,001.38 representing "cost of financing" included in the property account was transferred to "unamortized intangibles" and is presently being amortized by charges to income and will be completely eliminated by June 1, 1962.

Precise information in regard to the original cost of all of the physical properties acquired by applicant is not available. Applicant estimates, however, that as at June 30, 1930, the gross original cost of such properties amounted to $5,073,092.86. After deducting accrued depreciation of $696,707.68 applicable to such properties, depreciated

Estimated reproduction cost new of $6,071,700 included (a) cost of financing $276,400 (the balance of which was recently transferred to deferred assets and is being amortized against income), (b) going value $553,900, and (c) working capital $149,400. Accrued depreciation was estimated at $650,100.

Subsequent adjustments, as of the date of acquisition, decreased this amount to $191,578 which amount was transferred in 1939 to the reserve for renewals, replacement and retirements in connection with the retirement of certain obsolete equipment included in the property acquisitions mentioned above.

• Applicant states that the records of two companies (Western Ohio Railway & Power Corporation and The Toledo Bowling Green & Southern Traction Company) were so insufficient and/or inaccurate, that applicant was unable to determine the original cost of properties acquired from such companies.

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• Estimated on the basis of reproduction cost new of $1,977,500 less allowances contained therein for cost of financing and going value aggregating $273,000.

• Exclusive of appreciation of $35,824.15 recorded in the accounts following an appraisal in 1928.

• Estimated on the basis of reproduction cost new of $2,418,900 less allowances contained therein for cost of financing and going value aggregating $337,000.

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