ML13330B245
| ML13330B245 | |
| Person / Time | |
|---|---|
| Site: | San Onofre  |
| Issue date: | 08/25/1987 |
| From: | Baskin K Southern California Edison Co |
| To: | NRC Office of Administration & Resources Management (ARM) |
| References | |
| TAC-66406, TAC-66407, TAC-66408 NUDOCS 8708310092 | |
| Download: ML13330B245 (16) | |
Text
Southern California Edison Company P. 0. BOX 800 2244 WALNUT GROVE AVENUE ROSEMEAD, CALIFORNIA 91770 KENNETH P. BASKIN TELEPHONE VICE PRESIDENT 8113-302-1401 August 25, 1987 U. S. Nuclear Regulatory Commission Attention: Document Control Desk Washington, D.C.
20555 Gentlemen:
Subject:
Docket Nos. 50-206, 50-361, and 50-362 SCE Corporate Restructuring San Onofre Nuclear Generating Station Units 1, 2 and 3 Southern California Edison Company (SCE) is the holder of Operating Licenses Nos. DPR-13, NPF-10, and NPF-15 for the San Onofre Nuclear Generating Station (SONGS) Units 1, 2 and 3. SCE has begun the process of implementing a corporate restructuring which will result in the creation of a holding company (referred to here as "SCE Holding Company" although no formal name has yet been selected). SCE Holding Company will own all of the outstanding common stock of SCE. Following the restructuring SCE will continue to be the licensee of the San Onofre units and no transfer of the operating licenses will be effected. Attachment A is a description of the proposed corporate restructuring detailing the relationship of SCE, SCE Holding Company, and the non-utility subsidiaries.
After the restructuring is complete, Southern California Edison will remain a public utility providing the same utility services as it did immediately prior to the restructuring. Control of the operating licenses for the SONGS units, now held by SCE and its co-owners, will remain with SCE and the same owners and will not be affected by the restructuring.
SCE is aware that in a number of early cases, utility licensees formed parent holding companies without NRC consent when the restructuring did not involve a transfer of licenses under the commission's rules. Recent restructurings, however, such as Iowa Electric Light and Power Company and Wisconsin Electric Power Company have established a policy precedent where commission consent was obtained. SCE believes that formal commission approval of the proposed restructuring is not required by either the Atomic Energy Act 9708310092 870825 PDR ADOCK 05000206 P
Document Control Desk August 25, 1987 or the commission's rules; nevertheless, to the extent that the NRC staff requests that commission consent be obtained, SCE hereby requests such consent and provides the accompanying information to facilitate the staff's review of SCE's proposed restructuring. Attachment B provides SCE's responses to the three specific questions that NRC staff posed to Iowa Electric Light and Power Company and Wisconsin Electric Power Company regarding their respective requests for commission consent to similar corporate restructurings.
The information provided herewith demonstrates that (1) funds available to SCE to carry out activities under its operating licenses will not be reduced by the proposed action, (2) the management of SCE utility operations will not be adversely affected, and (3) that the proposed restructuring will not result in SCE becoming owned, controlled, or dominated by any foreign interests.
SCE trusts that the information provided with this letter and its attachments will be sufficient for the commission to grant its consent, to the extent required, to the proposed corporate restructuring. If you have any questions or desire additional information, please contact me.
Very truly yours, Enclosures cc: R. F. Dudley, NRR Project Manager, San Onofre Unit 1 H. Rood, NRR Senior Project Manager, San Onofre Units 2 and 3
- 3. B. Martin, Regional Administrator, NRC Region V F. R. Huey, NRC Senior Resident Inspector, San Onofre Units 1, 2 and 3
ATTACHMENT A:
GENERAL DESCRIPTION OF THE PROPOSED REORGANIZATION TO FORM HOLDING COMPANY I.
SCE's Current Corporate Organization SCE is a public utility primarily engaged in the business of supplying electric energy to a 50,000 square mile area in central and southern California. SCE's operations are subject to the rate regulatory process of the California Public Utilities Commission and the Federal Energy Regulatory Commission. SCE is the majority owner and operator of the San Onofre Nuclear Generating Station, Unit Nos. 1, 2 and 3, and is also a partial owner of the Palo Verde Nuclear Generating Station, Unit Nos. 1, 2 and 3.
In addition to its regulated utility operations, SCE owns The Mission Group, an unregulated, nonutility company, which in turn owns several unregulated, nonutility subsidiaries.
The significant unregulated, nonutility subsidiaries owned by The Mission Group are:
o Mission Energy Company --
Electric power generation power development.
o Mission Power Engineering Company --
Engineering and construction services.
o Mission Land Company --
Industrial park development.
o Mission Financial Management Company --
Financial investments.
SCE's current corporate structure is.shown on the following chart:
Current Organization Structure SCE Utility Non-Utility Subsidiaries Subsidiaries II.
The Proposed Reorganization SCE proposes to carry out a reorganization plan which will result in a holding company structure under which SCE and its utility operations will be a wholly-owned subsidiary of the newly formed SCE Holding Company (an interim name).
Under the reorganization plan, SCE will create a parent corporation, SCE Holding Company, which will own all the common shares of SCE as well as the shares of The Mission Group. The corporate reorganization into a holding company structure will be implemented using a Reverse Triangular Merger ("RTM").
The RTM is a legal mechanism that works as described below.
Beginning with SCE's current corporate structure, two new corporations will be formed --
SCE Holding Company and Edison Merger Company as shown on the following chart:
Incorporate SCE Holding Company and Edison Merger Company 1
SCE SCE Holding Company Edison Merger Company L-----------I SCE Holding Company will become the parent company for SCE and The Mission Group, while Edison Merger Company will be utilized to implement the reorganization.
Initially, SCE Holding Company will be a wholly-owned subsidiary of SCE and Edison Merger Company will be a wholly-owned subsidiary of SCE Holding Company. Following all the necessary approvals, and pursuant to an Agreement of Merger consistent with the merger provisions of Chapter 11 of the California General Corporation Law, a merger of Edison Merger Company into SCE will occur. This is shown on the following chart:
SCE Merges with Edison Merger Company SCE SCE Holding Company Edison Merger Company As a result of the merger, Edison Merger Company will disappear by operation of law and the shares of Edison Merger Company (which are held by SCE Holding Company) will be converted into all the shares of SCE common stock which were outstanding immediately prior to the merger.
Simultaneously, the shares of SCE common stock that were outstanding immediately prior to the merger will be converted into newly issued shares of SCE Holding Company common stock on a one-for-one basis. Also, under the terms of the Agreement of Merger and subject to the required shareholder vote, the outstanding shares of SCE's original preferred stock will be converted into shares of SCE Holding Company stock.
SCE's debt securities and all other outstanding shares of preferred and preference stock will remain part of the SCE utility capital structure and will be unaffected by the reorganization plan. As part of the reorganization plan, all the stock of The Mission Group owned by SCE will be transferred to SCE Holding Company in order to separate the nonutility and utility businesses.
The following chart shows the SCE Holding Company corporate structure after the reorganization plan is completed:
1/
In the event the required shareholder vote fails to approve the conversion of such shares into shares of SCE Holding Company stock, the Merger will still take place as provided in the Agreement of Merger; with the single exception that the shares of SCE's original preferred stock shall not be converted or otherwise affected by the Merger, but shall continued to be issued and outstanding original preferred shares of the utility.
Proposed Organization Structure SCE Holding Company SCE
[Mission Group Utility Mission Mission Mission Mission Subsidiaries Energy Land Power Financial
Attachment B:
SCE'S Response to Specific NRC Staff Ouestions To expedite NRC staff review of SCE's request for commission consent to the proposed plan of restructuring, SCE hereby provides responses to specific questions first posed by the staff in June of 1986 in its review of a similar restructuring proposal by Iowa Electric Light and Power Company:
Q.1.
State whether the proposed restructuring might reduce the funds available to SCE to carry out activities under its operating licenses.
Please discuss the basis for your answer.
Answer:
SCE's proposed reorganization will have essentially no impact on the funds available to carry out its activities under the SONGS operating licenses.
This conclusion is based on several factors:
- a. The Utility Operations, Regulation and Financing will be Unchanged After the Restructuring.
A fundamental aspect of the SCE restructuring is that the utility operations of the company will continue to constitute the predominant activity of the SCE Holding Company. The
following factors demonstrate that the regulation and financing of the utility will remain unchanged.
o The current debt and senior equity securities of SCE (with the possible exception of the Original Preferred Stock as discussed in Attachment A) will remain with SCE.
SCE will retain the mortgageable assets and earnings to issue securities as it currently does.
o SCE will continue to be regulated by the California Public Utilities Commission ("CPUC") as to its retail rates and by the Federal Energy Regulatory Commission with regard to sales for resale, thus reasonably assuring that SCE can obtain the funds to operate its nuclear units.
o Immediately following the restructuring the common stock of SCE Holding Company will be owned by the previous holders of SCE common stock in the same proportions as they held prior to the restructuring.
o Capital costs (including capital improvements or additions to SCE's nuclear units) will continue to be financed through a combination of internally generated funds (derived from customer revenues) and security issues.
- b. The California Public Utilities Commission has Comprehensive Authority to Ensure that Utility Financial Integrity is Maintained The CPUC, as the principal regulatory agency overseeing Edison's general utility operations, has comprehensive oversight and authority over utility financial dealings. The CPUC may exercise this authority to ensure that the utility maintains the financial integrity required to provide adequate and reliable electric service. Part of the provision of such service is the availability and expenditure of sufficient funds in capital additions, upgrades, retrofits, maintenance, fuel, and so forth, to prudently operate all of Edison's generating facilities, including its SONGS units. Such funds are obtained both through utility rate revenues and through securities issuances.
In both instances, CPUC authority is adequate to ensure that sufficient funds for nuclear facility activities will be available for the life of the facilities.
The CPUC authorizes an appropriate utility capital structure for ratemaking purposes, and must approve all new debt, preferred stock, or common equity issued by the utility.
Control over the issuance of new securities effectively prevents significant deviations from the approved capital structure, which is the cornerstone of the CPUC's ability to ensure that the utility maintains its financial integrity.
In addition, the CPUC must approve any guarantee of debt obligations by the utility for either utility or non-utility affiliates.2/
It is, and will remain, Edison's policy not to 1/ For example, §816 of the California Public Utilities Code
("Code") describes the general regulatory authority of the CPUC over stocks and security transactions:
"The power of public utilities to issue stocks and stock certificates or other evidence of interest or ownership and bonds, notes, and other evidences of indebtedness and to create liens on their property situated within this State is a special privilege, the right of supervision, regulation, restriction, and control of which is vested in the State, and such power shall be exercised as provided by law under such rules as the commission prescribes."
2/ For example, §851 of the Code states in pertinent part:
"No public utility.
shall sell, lease, assign, mortgage, or otherwise dispose of or encumber the whole or any part of its.
line, plant, system, or other property necessary or useful in the performance of its duties to the public, or any franchise or permit or any right thereunder.
. without first having secured from the commission an order authorizing it so to do."
extend utility credit support to non-utility affiliates. Thus, the financial integrity of the utility will not be jeopardized by the encumbrance of utility assets.
- c.
SCE Has Established a Nuclear Decommissioning Trust Fund that Ensures that Funds Will be Available to Decommission the SONGS Units.
The CPUC initiated a proceeding in 1981 to consider alternatives to ensure that adequate funds will be available to decommission nuclear facilities upon their retirement from service. The CPUC issued an order on April 6, 1983, requiring SCE, among other things, to develop procedures to fund nuclear decommissioning costs which make use of an externally managed trust.
Implementation of this order was delayed, however, pending adoption of relevant tax regulations.
On January 30, 1987, SCE provided the CPUC information which identified the expected decommissioning costs for the facilities and requested approval of a Schedule of Ruling Amounts for filing with the Internal Revenue Service (IRS).
The Edison share of decommissioning costs (in 1986 dollars) for San Onofre Unit 1 are estimated to be $165,000,000; for San Onofre Unit 2, $177,000,000; for San Onofre Unit 3,
$245,000,000; for Palo Verde Unit 1, $33,000,000; for Palo Verde Unit 2, $31,000,000; and for Palo Verde Unit 3, $34,000,000.
SCE filed its Schedule of Ruling Amounts with the I.R.S. on June 26, 1986.
The CPUC ordered SCE to file the Commission-adopted Schedule of Ruling Amounts with the I.R.S. Upon receipt of SCE's approved Schedule of Ruling Amounts from the I.R.S. (estimated to occur between October 1, 1987 and March 1, 1988), SCE will begin making contributions to its externally managed decommissioning trust funds.
Accordingly, the restructuring will have essentially no effect on the funds available to.SCE to carry out activities under its operating licenses.
Q.2.
State whether the proposed restructuring might affect management of SCE's utility operations.
Include in your response a brief discussion of the reporting channels for senior management of the San Onofre nuclear units.
Answer:
The proposed reorganization will have no effect upon the management of SCE's utility operations.
The SCE Holding Company structure retains the utility as a discrete and wholly separate entity which functions in the same fashion as it did prior to formation of the SCE Holding Company. As previously stated following the reorganization, SCE will remain the largest element of the SCE Holding Company. SCE management will continue to make its own decisions with regard to utility planning, operation, financial requirements, purchasing, and sales. No SCE nuclear management position will be changed by the restructuring. The Vice President and Site Manager for SONGS and the Vice President of Nuclear Engineering, Safety and Licensing will retain the same responsibilities as they now have for nuclear operations and they will have no duties, assignments or responsibilities within the SCE Holding Company. Officer-level duties at the SCE Holding Company will be administrative and financial in nature, and will have no direct effect on the management of nuclear operations.
Mr. Howard P. Allen, Chairman of the Board and Chief Executive Officer of SCE, will also be Chairman of the Board of the SCE Holding Company. Mr. Kenneth P. Baskin, SCE's Vice President of Nuclear Engineering, Safety and Licensing, and Mr. Harold B. Ray, SCE's Vice President and Site Manager of SONGS, will continue to report to Mr. David J. Fogarty, Executive Vice President of SCE, who in turn will continue to report directly to Mr. Allen.
While there will be no effect on the management of SCE's utility operations as a result of the proposed restructuring, subsequent changes will, of course, be made in the normal course of doing business.
Q.3.
State whether SCE, by virtue of the proposed restructuring, has or will, become owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government.
Answer:
As previously explained, on the effective date of the restructuring, SCE Holding Company will become the sole holder of SCE common stock, and the current holders of SCE's common stock will become holders of the common stock of SCE Holding Company on a share-for-share basis.
Thus, immediately following restructuring, the common stock of SCE Holding Company will be owned by the previous holders of SCE's common stock in the same proportions in which they held SCE's common stock. Based upon available information, foreign-held shares of SCE as of this date represent less than one tenth of one percent of the total outstanding shares of SCE.
Therefore, the proposed restructuring will not result in SCE becoming owned, controlled, or dominated by foreign interests.
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