ML17311A307

Forwards Central & Southwest Corp ,Notifying Epec That Expressed Intent of City of Las Cruces,Nm to Condemn Epec Electric Facilities Creates Situation That Must Be Resolved Before Closing of Subj Transaction Can Occur

ML17311A307
Person / Time
Site:	Palo Verde
Issue date:	09/21/1994
From:	Flanigan T CENTRAL & SOUTH WEST SERVICES, INC., JONES, DAY, REAVIS & POGUE
To:	Gody A Office of Nuclear Reactor Regulation
References
NUDOCS 9409290357
Download: ML17311A307 (16)

Text

P R.l C3 H.IWY' (ACCELERATED RIDS PROCESSIX REGULATORY INFORMATION DISTRIBUTION SYSTEM (RIDS) r ACCESSION NBR: 9409290357 DOC. DATE: 94/09/21 NOTARIZED: NO DOCKET N

FACIL:STN-50-528 Palo Verde Nuclear Station, Unit 1, Arizona Publi 05000528 STN-50-529 Palo Verde Nuclear Station, Unit 2, Arizona Publi 05000529 STN-50-530 Palo Verde Nuclear Station, Unit 3, Arizona Publi 05000530 AUTH.NAME AUTHOR AFFILIATION FLANIGAN,T.E.

Central

& South West Services,?nc.

FLANIGAN,T.E.

Jones, Day, Reavis

& Pogue RECIP.NAME RECIPIENT AFFILIATION GODY,A.T.

Inspection

& Licensing Policy Branch (Post 920712)

SUBJECT:

Forwards Central

& Southwest Corp 940912 ltr,notifying EPEC that expressed intent of City of Las Cruces,NM to condemn EPEC electric facilities creates situation that must be resolved before closing of subj transaction can occur.

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N NOTE TO ALL"RIDS" RECIPIENTS:

PLEASE HELP US TO REDUCE iVASTE!CONTACl THE DOCUMENTCONTROL DESK, ROOM Pl-37 (EXT. 504-2083 ) TO ELIit!INATEYOUR NAiIEPROD!

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ATLANTA AUSTIN BRUSSELS CHICAGO CLEVELAND COLUMBUS DALLAS FRANKFURT GENEVA HONG KONG IRVINE LONDON LOS ANGELES NEW YORK PARIS PITTSBURGH RIYADH TAIPEI TOKYO JONES, DAY, REAVIS & POGUE METROPOLITAN SQUARE 1450 G STREET. N.W.

WASHINGTON. D.C. 20005

~ 2088 TELEPHONE: 202 ~879-3939 TELEX: DOMESTIC 892410 TELKX:INTKRNATIONAL84383 CABLE: ATTORNEYS WASHINGTON FACSIMILE: 202 737 ~2832 WRITER'S DIRECT NUMBER:

(202) 879-3850 September 21, 1994 VIA HAND DELIVERY Anthony T. Gody, Sr.

Chief, Inspection and Licensing Policy Branch Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission One White Flint North, Mail Room 12 E4 11555 Rockville Pike Rockville, Maryland 20852-2738 Re:

Arizona Public Service Company; El Paso Electric Company; Consideration of Indirect Transfer of Control of Ownership of License and Opportunity for Public Comment on Antitrust Issues Docket Nos.

STN 50-528 50-529 50-530

Dear Mr. Gody:

I am writing on behalf of Central and South West

Services, Inc. acting on behalf of Central and South West Corporation (HCSWH) and its electric utility operating subsidiaries.

By letter dated September 12,

1994, CSW notified El Paso Electric Company

("EPECH) that recent adverse developments jeopardize the completion of CSW's proposed acquisition of EPEC (HTransaction").

In connection with the Transaction, the above referenced matter is now pending before the Nuclear Regulatory Commission.

A copy of CSW's letter to EPEC is enclosed.

Among other things, the letter notifies EPEC that the expressed intent of the City of Las Cruces, New Mexico to condemn EPEC's electric facilities creates a situation that must be timely and favorably resolved before a closing of the Transaction can occur.

280029 9409290357 94092'DOCKOSOPD328 N

PDR

Anthony T. Gody, Sr.

September 21, 1994 Page 2

It is important to understand that CSW's letter serves only to notify EPEC that the matters discussed in the letter, individually and cumulatively, constitute Material Adverse Effects (a term that is defined in the parties'erger agreement),. which unless timely resolved will preclude closing.

The letter does not terminate the Transaction, and CSW has stated that it. continues to use its best efforts to consummate the Transaction, including taking all reasonable action necessary to obtain required regulatory approvals.

Please do not hesitate to call me if you have any questions regarding this letter or the enclosure.

Respectfully submitted, CENTRAL AND SOUTH WEST SERVICES I INC ~

By:

T3.mothy E. Flan

Jones, Day, ea is

& Pogue 1450 G Stre t,

.W.

Washington, 20005-2088 (202) 879-3850 Voice (202) 737-2832 Fax Enclosure 91603.1

Anthony T. Gody, Sr.

September.21, 1994 Page 3

cc:

Joseph

Rutberg, Esq.

(Mail Room 15 B18)

William M. Lambe (Mail Room 12 E4)

Robert S.

Wood (Mail Room 12 E4)

Brian Holian (Mail Room 13 E18)

William L. Stewart Jack

Newman, Esq.

Donald R. Allen, Esq.

Richard N. Carpenter, Esq.

J.

Cathy Fogel, Esq.

Norma K. Scogin, Esq.

Alan J.

Statman, Esq.

Steve Olea Ken Johnston Aubrey V. Godwin Betsy Bayless Jade Eaton Roy P. Lessy, Jr.,

Esq.

91603.1

Central and South Nest Corporation 1616 V/codc2 Acgg as Faccrroy p,o, 8ox 660164

~ Oases.

Zcxss 7S266416a 214 7 77.1096 FEAO. C. MEYEA. JA.

Sanlcr Vlo~ praa'eaanl and General Cancel September 12, 1 99 at Eduardo Rodriguez, Esq.

Vice President 6 General Counsel Zl Paso Electric Company 3 03 North Oregon Zl Paso, Texas 79960

Dear Mr. Rodriguez:

This letter is in response to your letter of August 5, 1994 to Henry Kaim regarding the situation in Las Cruces.

Because sales by Zl Paso Electric 4o customers in the City xepresent approximately 8 percent of El Paso Electric '

annua l gross

revenues, the favorable resolution of this dispute is a materia 1 element of CSH baxgain with El Paso Electric.

Merely delaying a "3.itigated settlement" with Las Cxuces beyond the Termination Date under the Merger Agreement would not be a satisfactory resolution of this matter, CSH wil1 not close this transaction unless this matter is favorably and timely resolved.

The statements in your letter of August 5 regarding CSH '

pleadings in the Bankruptcy Court relating to the Las Cruces situation and with your xeading of the requirements of the Merger Agreement are in error.

CSH '

Amended

Response

to the City of Las Cruces pending Motion for Relief fron Stay was neither harmfu3. nox inappropriate, CSH filing of the Amended Response was fu3.ly consistent with the texms of the Merger Agreement.

Section 7. 1 (a) of the Merger Agreement permi ts each party to file "any pleading" -- with or without the other party '

approval and whether or not acceptable to the other party -- if it is determined by the filing party in good faith to be "requixed in the exercise of its respective duties".

Xn addition, Section exercise of (the obj ecting party ') judgment" (emphasis added)

The fi1 ing of CSH '

Amended

Response

was fully consistent with these provisions.

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Mr. Zduardo

driguez, Esq.

September 3.2 994 Page 2

Under Section 8.3(f) of the Merger Agreement, it is a

condition to CSH's obligations, that "no ZPZ Material Adverse Effect shall have occurred" and that "thexe shall exist no fact or circumstance which may reasonably be expected to give rise to an EpZ Material Adverse Effeet".

Fuxthex'more, under section 8,2 (c) of the Merger Agreement, the obligations of each party to effect the px'oposed merger are conditioned on no Governmental Authority enacting any law, rule, regulation or ordinance, or issuing any order, which would have an EPE Material Adverse Effect or a Material Adverse Effect upon the prospects for the business of cSH or El Paso after the proposed Merger.

Fox these

reasons, CSR believed when it filed the Amended Response -- and CSW continues to believe now -- that the "situation placed before the Court by the City of Las Cxuces'ntent to condemn places the closing of.the Merger Agreement in severe jeopardy" and whether the automatic stay is modified or maintained, the underlying threat o1 condemnation and the City of Las Cruces'xpressed intent to condemn the Las Cruces distx'ibution system creates a

situation that must be timely and favorably resolved before a

closing of the Merger can occur.

Xn addition to the City of Las Cruces, the Departments of the Air Force and the Army within the last several months have xequested proposals related to the provision of electric service to Holloman Aix Force Base and Hhite Sands Missile Range, respectively.

The potential for losses of further customers could also constitute Material Adverse Effects which would make it impossible to close the transaction.

Another adverse situation which has arisen relates to the natuxe and amount of tube cracking in the Palo Verde Nuclear Generating Station

("Palo Verde")

steam generators.

The precise nature and extent of the problem has been the subject of continuing investigation and analysis by Arizona Public Service Company

("APS"), as operator of Palo Verde, after the execution of the Merger Agreement.

Although APS has developed a system of plugging cracked tubes in these steam generators, it is uncex tain how long the units may be operated befoxe significant expense may be required with respect to the replacement of these generate vs.

This in turn increases the potential frequency and 3.ength o1 outages from the tube cracking problem.

These problems may le d to decreased

capacity, increased operating cost", additiona3.

capital expenditures and increased costs for purchased power.

The significance of these problems will have to be detexmined before CSW will close the transaction.

IJ (I

Hr. Eduardo ~driguez, Esq.

September 3.~994 Page 3

CSH. also views recent developments related to the pending Merger rate case in Texas with concern.

As you know I CSH filed a proposed rate settlement plan in connection with the pending Merger application that would limit the non-fuel cash base rate increase fox Texas jurisdictional customers to

$ 25 million, On June 23, 1994, the El Paso City council voted to deny the company's requested rate increase following a recommendation from the City's public. Utility Regulatory Board that rates be reduced by

$ 15.7 million.

On June 24, l994, the staff ("Staff" ) of the Public Utility Commission of Texas

("PUCT") announced that it had filed testimony in the case recommending an i.ncxease in base rates of only

$17.1 million.

In addition, the Staff took the position that the proposed Merger is not in the public interest because of anticipated cost increases to existing CSH subsidiaries,'hat the proposed purchase price i.s too high by

$ 300-500 million; and that it disagreed with the estimates of Merger-related savings presented by El Paso Electric and CSH.

Several xate base treatments also have bean proposed which, if

adopted, jeopardize the future rate relief contemplated under the Plan and Merger Agreement.

In addition to the immediate effect of these developments in the Texas rate proceedings, these developments are also troubling in light of the "public interest" and other determinations that are required as part of the regulatory deliberations by the Securities and Exchange Commission and other regulatory agencies reviewing the proposed Merger.

Moreover, the failure for whatever reason to obtain a

finding that the proposed merger is in the public interest or the inability for whatever reason to obtain a rate path substantially in the amount described in the disclosure statement will constitute a failure of the regulatory closing conditions in the Merger Agreement.

Finally, as you know, the Federal Energy Regulatory Commission last month issued an order in the merger proceeding requiring the companies to offer "comparable transmission service" to other electric utilities as a condition of proceeding further with the case.

The FERC's order represents a significant policy change and imposes conditions not previously imposed in recent FERC orders in mergers involving electric utility companies.

.On September 1, the companies sought a rehearing of the FZRC's order.

As you know, it is a condition precedent to CSH's obligation to close the Mexgex that all necessary regulatory approvals and orders be obtained on terms that satisfy Section 8.3(g) of the Merger Agreement.

Failure to obtain the necessary regulatory approvals and orders for whatever reason will not satisfy the terms of the Merger Agreement and will preclude closing of the proposed Merger.

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Mr. Eduardo

driguez, Esq.

September 1

994 Page 4

CSH believes that the foregoing matters, individually and cumulatively, constitute a Material Adverse Effect or failure of other closing conditions which, unless timely resolved in accordance with the Merger Agreement, will preclude closing of the proposed Merger.

Of course, other events may occur or come to our attention which constitute a Material Adverse Effect or failure of other closing conditions.

CSH continues to use its best efforts to consummate the proposed Merger.

However, CSH believes that it is appropriate to apprise El Paso Electric of these concerns that must be satisfactorily resolved in light of the parties'espective rights and obligations under applicable provisions of the Merger Agreement and the Plan.

As always, we axe more than willing to discuss with you any issues raised in this letter or in any way related to the proposed Merger.

Xour truly PCM/ml cc:

Creditor Committee Representatives

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