[No. 953] IN THE MATTER OF NY PA NJ UTILITIES COMPANY NEW YORK STATE ELECTRIC & GAS CORPORATION OWEGO GAS CORPORATION File Nos. 56-8, 46–112, and 32-101. Promulgated December 29, 1939 EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY. Issue Solely for Purpose of Financing Business of Subsidiary. 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 exemption from the provisions of Section 6 (a) of the Act of the issue and sale to an associate company of 1,632 shares of its no par value common stock for cash of $81,600, the proceeds from the sale to be used in part to pay off a note to the registered holding company and the balance to be placed in applicant's treasury, the transaction being a part of certain transactions undertaken at the direction of a state commission, exemption granted, subject to certain conditions, the Commission finding that the issue and sale are solely for the purpose of financing the applicant's business and have been expressly authorized by the state commission of the state in which the applicant is organized and doing business. SALE OF PUBLIC UTILITY SECURITIES BY REGISTERED HOLDING COMPANY. A registered holding company, having filed an application pursuant to Rule U-12D-1 promulgated under Section 12 (d) of the Act, for approval of the sale by it of 1,632 shares of common stock of an associate company to its direct subsidiary company, for the nominal consideration of $1, the transaction being part of certain transactions undertaken at the direction of a state commission, application approved, subject to certain conditions, the Commission making no adverse findings under the rule. ACQUISITION OF SECURITIES BY REGISTERED HOLDING COMPANY OR SUBSIDIARY. Application, having been filed by a subsidiary registered holding company, pursuant to Section 10 of the Act, for approval of the acquisition from its parent company of 1,632 shares of common stock of applicant's subsidiary company, the transaction being part of certain transactions undertaken at the direction of a state commission, application approved, subject to certain conditions, the Commission finding that the acquisition will not be detrimental to carrying out the provisions of Section 11 of the Act, and will tend toward developing an efficient and integrated public utility system. APPEARANCES: Robert N. Hislop, of the Public Utilities Division of the Commission. Hitt & Munson by G. Kibby Munson, for NY PA NJ Utilities Company, New York State Electric & Gas Corporation, and Owego Gas Corporation. Edmund B. Naylon, for NY PA NJ Utilities Company, New York State Electric & Gas Corporation, and Owego Gas Corporation. FINDINGS AND OPINION OF THE COMMISSION Owego Gas Corporation (hereinafter referred to as "Owego"), an operating gas utility and a direct subsidiary of New York State Electric & Gas Corporation (hereinafter referred to as "New York State"), and an indirect subsidiary of NY PA NJ Utilities Company (hereinafter referred to as "NY PA NJ"), a registered holding company, has filed an application pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935 for exemption from the provisions of Section 6 (a) of the Act, of the issue and sale to NY PA NJ of 1,632 shares of its no par value common stock for cash of $81,600. NY PA NJ has filed an application pursuant to Rule U-12D-1 promulgated under the Act for approval of the sale of 1,632 shares of common stock of Owego to its direct subsidiary, New York State, for the nominal consideration of $1. New York State has filed an application pursuant to Section 10 (a) (1) of the Act for approval of the acquisition by it of said 1,632 shares of common stock of Owego. These applications embrace transactions undertaken at the direction of the Public Service Commission of New York, pursuant to its approval of a merger of Owego into New York State. It is the purpose of these applications to restore Owego to its financial condition immediately prior to October 21, 1931, at which time, as will be hereinafter more fully discussed, certain activities were undertaken which resulted in a depletion of Owego by $118,976. This depletion will be restored in the following manner: Sale of 1,632 shares of common stock to NY PA NJ_____ NY PA NJ_____ Cash donation to Owego by NY PA NJ--- $81,600 20, 063 17, 313 Total-- 6 S. E. C. 118,976 After appropriate notice a consolidated hearing was held on these applications at which no member of the public requested to be heard. Having considered the record in these matters the Commission now makes the following findings: NATURE OF APPLICANTS All of the applicants are members of the Associated Gas and Electric system. Owego, a direct subsidiary of New York State is a gas utility furnishing natural gas to the village of Owego, located in the south central part of New York State in the midst of territory served by its parent. New York State, an exempt holding company and a wholly owned subsidiary of NY PA NJ, is a public utility engaged principally in the generation, purchase, transmission, distribution and sale of electric energy and natural and manufactured gas throughout the State of New York. It is also engaged to a minor extent in rendering steam heating and bus transportation service. NY PA NJ, a registered holding company, is one of the principal subholding companies of the Associated Gas and Electric system controlling operating utility subsidiaries located primarily in the States of New York, New Jersey, and Pennsylvania, which yield approximately 57 percent of the gross revenues of the Associated system. HISTORICAL BACKGROUND AND EVENTS PRECEDING THE APPLICATIONS Owego was organized in December 1924 with an authorized capital stock of 3,000 no par value shares. These 3,000 shares were issued to Owego Gas Light Company in payment for the physical properties of that company. Owego Gas Light Company, with the approval of the Public Service Commission, gave 1,368 shares of said stock to its parent, Empire Gas and Electric Company (hereinafter referred to as "Empire") in settlement of indebtedness in the amount of $61,892. The remaining 1,632 shares were issued to E. L. Phillips and G. W. Olmstead. In 1929, Associated Electric Properties, a member of the Associated system, purchased from E. L. Phillips the control of the Rochester Central Power Corporation, together with the capital stocks of Empire, Owego and certain other operating companies comprising that system. The record indicates that the funds for this purchase were provided by Mohawk Valley Company of Delaware, one of the prede cessor companies to the present NY PA NJ and further that the agreement of sale reflected $94,656 as the price of the 1,632 shares of capital stock of Owego. In May 1931 the 3,000 shares of capital stock of Owego, all of which were held within the Associated system,1 were reclassified, without obtaining Public Service Commission approval, into 1,632 shares of $6 preferred stock and 1,368 shares of common stock. Owego then redeemed this newly created preferred stock at 110, plus accrued dividends, by borrowing on open account from an affiliate. Subsequently, it was decided that the redemption price of $182,376 exceeded the carrying value of the 1,632 shares of stock by $63,400 and that amount was returned to Owego, which reduced the cost of redemption to $118,976. This cost is evidenced at present by a note payable to New York State in the amount of $74,600 and the balance to a large extent by open accounts to affiliates. Upon application by New York State to the Public Service Commission for permission to merge Owego, that Commission declared that the previous reclassification and redemption of the capital stock of Owego had been accomplished without its authorization and therefore was illegal. The Public Service Commission gave its approval of the merger of Owego subject to the fulfillment of the following conditions: (1) That Owego sell 1,632 shares of common stock to NY PA NJ for $81,600, and that in addition NY PA NJ arrange for the cancelation of open accounts and make a cash donation in the amount of the balance necessary to make the total restoration to Owego equal to $118,976. (2) That Owego and New York State correct their books in accordance with prescribed journal entries. (3) That when this had been accomplished, Owego be merged in accordance with a prescribed journal entry.3 11,632 shares owned by Associated Electric Properties. 1,368 shares owned by Empire Gas and Electric Company. The company's witness was unable to explain why this amount was refunded. • Owego's fixed assets were carried at $138,772 as at October 31, 1939. The merger Journal entry prescribed by the Public Service Commission of New York contemplates that New York State will set up these fixed assets in the gross amount of $138,772 to be offset by a credit thereto of $94,354, pending completion of an examination of Oswego's fixed assets by Public Service Commission. This represents at this time a net addition to New York State's fixed assets of $44,418. 6 S. E. C. CAPITALIZATION The proposed transactions in no way affect the capitalization of NY PA NJ or New York State, but do have a real effect on the capitalization of Owego as evidenced by the following, which reflects its capitalization as at October 31, 1939, both before and after giving effect to the proposed transactions immediately prior to merger: As explained above NY PA NJ is to effect a restoration of $118,976 to Owego, this restoration having no effect on the problem of control. Since this is merely a restoration, it should not properly be considered as an increase in its investment in a subsidiary company. NY PA NJ has agreed by a written stipulation, made part of the record in these proceedings, that it will not increase the carrying value of its investments in its subsidiaries because of this expenditure. New York State has also agreed by written stipulation, made part of the record in these proceedings, that in effecting the merger of Owego into itself "it will set up on its books representing the fixed capital of the Owego Gas Corporation the amount reported to the Public Service Commission of the State of New York and will not include in its accounts any item representing excess of estimated reproduction cost over book cost. EARNINGS The proposed transactions will eliminate from the books of Owego indebtedness to affiliates arising from the redemption. Interest on these obligations which approximates $5,795 per annum will be saved. Earnings for the 12 months ended October 31, 1939, adjusted for this interest saving, reflect a net income of $2,180 instead of a net deficit of $3,615. As Owego is to be merged into New York State upon the completion of these transactions this merely means that this net income will be added to the net income of New York State. |