ML20151Y819
| ML20151Y819 | |
| Person / Time | |
|---|---|
| Site: | Hope Creek  |
| Issue date: | 02/10/1986 |
| From: | Corbin McNeil Public Service Enterprise Group |
| To: | Adensam E Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8602130173 | |
| Download: ML20151Y819 (12) | |
Text
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4 Pubhc Service Electric and Gas Cornpany I
Ctrbin A. McNeill, Jr.
Pubhc Service Electnc and Gas Company P O Box 236.Hancocks Bndge, NJ 08038 609 339-4800 Vice President -
Nuclear February 10, 1986 Director of Nuclear Reactor Regulation United States Nuclear Regulatory Commission 7920 Norfolk Avenue Bethesda, Maryland 20814 Attention:
Ms. Elinor Adensam, Director Project Directorate 3 Division of BWR Licensing
Dear Ms. Adensam:
BOARD OF PUBLIC UTILITIES APPROVAL OF FORMATION OF HOLDING COMPANY HOPE CREEK GENERATING STATION DOCKET NO. 50-354 Enclosed for your information is the State of New Jersey Board of Public Utilities Order Authorizing Transfer of Capital Stock and Approval of Merger.
The Order approves Public Service Electric and Gas Company's (PSE&G) application for formation of a holding company of which PSE&G would be a subsidiary.
The establishment of the holding company is subject to obtaining favorable approval by PSE&G's shareholders.
This matter has previously been discussed with the NRC staff.
The establishment of the holding company is expected to become effective on or about May 1, 1986 assuming the requisite stockholder approval is obtained.
The restructuring will not in any way affect the Hope Creek Generating Station which would still be operated by Public Service Electric and Gas Company and owned jointly by PSE&G, and Atlantic City Electric Company.
The new organizational structure is similar to that utilized by other NRC applicants and licensees.
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Director of Nuclear 2
2-10-86 Reactor Regulation Should you have any questions in this regard, please contact us.
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Sincerely, Enclosure C
D.H. Wagner USNRC Licensing Project Manager R.W.
Borchardt USNRC Senior Resident Inspector
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ORDER AUTHORIZING PUBLIC SERVICE ELECTRIC AND CAS )
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AND RECORD 5 ALL OF THE ISSUED
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DOCKET NO. EM 8307774 Bertram P. Goltz, Jr., Esq., and Raymond C. Barzey, Esq., Deputy Attorneys General, Department of Law and Public Safety, Newark, New Jersey, on behalf of the Staff of the Board of Public Utilities (Irwin I. Kimmelman, Attorney General)
R. Edwin Selover, Esq., Harold W. Borden, Esq., ar.d Shawn P. Leyden Esq.,
Newark, New Jersey, and Stryker, Tams and D611. by Richard B. McGlynn, Esq., Princeton, New Jersey, for Public Service Electric and Gas Company James M. Hirschhorn, Esq., Director, and Helene 5. Tallenstein, Esq., Deputy Public Advocate. Division of Rate Counsel, Department of the Public Advocate, Newark, New Jersey BY THE BOARD: -
Public Service Electric and Gas Company (Petitioner, P$E&G), a public utility of the 5 tate of New Jersey subject to the jurisdiction of this Board, filed a petition on July 26.1983, pursuant to N.3.5.A. 48:310 and N.3.A.C.14:16.14, requesting authority to transfer all of its issued and outstanding shares of common stock, no par value, on its books and records to Public Service Enterprise Group Incorporated (Holding Company), to exchange shares of its $1.40 Dividend Preference Common 5tock for a certain ratio of shares of common stock of the Holding Company or for cash, and to merge PSE&G,Inc.3/
(MerAer Company)into the Petitioner pursuant to a Plan and Agreement of Merger (Plan) attached to the petition as Exhibit "A*. The net of feet of said petition is an application for approval of the formation of a holding company.
l/ P5E&G. Inc. is the actual name of this corporation and is not an acronym.
r On July 16,1933, Pstationer's Bo:.rd of Directors authoriza! the format.on of a holding company to own a!! of the voting stock of PSE&G with the implementation of the restructuring to be subject to (1) the approval of the shareholders of the Petitioner, the Holding Company and the Merger Company, (2) the approval of this Board and (3) an appropriate ruling of the Internal Revenue Service or an opinion of counsel regarding the tax consequences of the transaction.
The Holding Company, Public Service Enterprise Group Inc)fporated, and the Merger Company, P5E&C,Inc., have been formed solely for the purpose of etfectuating the Plan which is the sabject of the petition flied in th 1 matter. Both new corporations are incorporated under the laws of New Jersey and have only nominal assets and liabilities at this time.
Petitioner currently has two wholly-owned non-utility subsidiaries:
Community Energy Alternatives Incorporated (CEA), which is involved in the development of alternate energy sources with emphasis on cogeneration and small power productiont and Public Service Resources Corporation, an investment subsidiary, both of which P5EiG proposes to transfer to the Holding Company at the time of merger.
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In summary, the proposed reorganization, as indicated under the Plan and Agreement of Merger, will be as follows:
(1)
PSE&G, Inc. will be merged into Petitioner, as part of the reorganizations (2)
Petitioner will transfer all of its issued and outstanding shares of common stock on its books and records to Public Service Enterprise Group Incorporated, and will exchange shares of its $1.40 Dividend Preference Common Stock for a certain ratio of shares of common stock of the Holding Company or for cash:
(3) The initial shares of capital stock of P5E&C, Inc. issued to Public Service Enterprise Group Incorporated will be converted into such number of shares of common stock of the Petitioner as are outstanding prior to the mergers (4)
Petitioner will become a subsidiary of Public Service Enterprise Group Incorporated:
(5)
The common stockholders of Petitioner will become common stockholders of Public Service Enterprise Group Incorporated, on a share.for share basis (4 1he initlat capital stock issued by Public Service Enterprise Group heorporated prior to the offective date of merger will be cancelled (7) The preferred stockholders of Petitioner will continue as such af ter the reorganization, consistent with the laws of New Jerseys (8) Comr unity Energy Alternatives incorporated and Public Service Resources Corporation, non-utility subsidiaries of the Petitioner, will become subsidiaries of the Holding Company, Public Service Enterprise Grcup incorporated.
The directors and officers of the Petitioner who are serving at the time of the merger will continue in such capacities af ter completion of the merger. Those directors of Petitioner who are elected at the annual meeting of its stockholders to be held on April IS,1986, will become the Directors of the Holding Company immediately following the restructuring. The principal executive officers of the Holding Company will be persons holding comparable positions with the Petitioner, P5E&G and, at least initially, will continue to hold such offices with the Petitioner. Initially, the Holding Company will not have any full time employees of its own, although it may in the hva.
As of June 30,1985, PSE&G has an authorized capitallration consisting of: (1) 7,500,000 shares of preferred stock, $100 par value, of which a total of 6,027,442 shares in 17 series are issued and outstanding:(2) 10,000,000 shares of preferred stock, $25 par value, of which 3,600,000 shares in 2 series are issued and outstanding: (3) 1,34),989 shares of $1.40 Dividend Preference Common Stock, no par value, all of which are issued 2.
and outstanding; and (a) !$0.000.000 sharas of Common Stock, no p:r nive, of.heh 122.143,533 shirss tre issued and outstsnding. By 12ttsr dat3d DecembTr 6,1983, PSE&C.
in accordance with paragraph 5 of its petition in this matter, advised the Board that as of November 30,1983, the number of shares of its Common Stock issued and outstanding was 130,313,131.2/
Subject to shareholder approval,it is P5EAC's intention to consummate the restructuring on May 1,1986. The actual aumber of common shares outstanding at that date will, in part, be dependent upon the number of such shares issued and sold prior thereto pursuant to the Petitioner's Dividend Reinvestment and Stock Purchase Plan (DRIP), Payroll.8ased Employee Stock Ownership Plan (PAY 50P). Employee Stock Purchase Plan Tax Reduction Act Employee Stock Ownership Plan (TRA50P), and Thrif t and Tax-Deferred Savings Plan. It is anticipated that each of these plans will be adopted
' by the Holding Company or amended to provide for, among other things, the acquisition of common stock in the Holding Company rather than in the Petitioner. In addition, PSE&C wi!! continue the existing pension plan covering its employees in full force and effect.
The record shows that the proposed restructuring will not result in any changes
_.in the Petitioner's rates charred to customers,in service policies to costomers, in its
. directors, officers or active managers, or in any of its policies with respect to its operations, financing, accounting, capitalization, depreciation, maintenance or any other matter regarding Petitioner's utility operations which affects the public interest.
Petitioner will continue to maintain its books and records in accordance with the appropriate Uniform System of Accounts as prescribed by the Board. Moreover, the jurisdiction of this Board to. regulate the Petitioner will not be impaired as a result of the proposed merger and restructuring.
We note that any transfers or assignments by the Petitioner of its property, franchises, privileges or rights, in whole or in part, or any management, advisory service, construction or engineering contract exceeding $23,000 or loan of money or property between the Petitioner and the Holding Company or any affiliate, will be subject to this Boares jurisdiction pursuant to N.J.S.A. 48:3 7,48:3 7.1 and 48:3 7.2.
We conclude that the aforementioned statutes, and as discussed hereaf ter the broad powers granted the Board by virtue of Title 48 of the New 3ersey Statutes Annotated, clearly and categorically protect the public intereett Petitioner may not* divest itseil of any assets in its possession without the prior approval of this Board or enter into financial transactions with the Holding Company without Board approval as recited above.
We would add that the treatment to be accorded such transactions will be subject to the jurisdiction of the Board pursuant to statute, within the context of any appropriate proceeding, including a base rate proceeding, in which a!! parties will be given an opportunity to develop their positions. Any such transfer of property cannot be effectuated without the approval of the Board. Toward this end, there must be full and reasonable access to any books and records of the Holding Company or its subsidiaries which pertain to any issue or transaction affecting or related to the Petitioner which has been deemed relevant by the Board.
Subsequent to the public hearing held in this ma'ter on November 23,1983, the Petitioner and Board Staff, on December 16,1983, entered in o, signed and submitted a Joint Position and Agreement wherein said parties proposed that tha Board issue an Order granting the relief requessed in PSE&C's petition subject to certain specific conditions.
The Board deems it appropriate to set out these recommanded conditions at lengths (1) PSE&C shallinform the Board of the date on which the transfers and merger have been consummated
, s 2/ By Order dated October 13,1983 in Docket No. EF8307710.A. tne coaro authorized PSE AC to issue and sell 6,210,087 additional shares of its Common Stock through a rights offering to the holders of its Common Stock.
3
(2)
Upon the Plan of M:rger bec ming effectivo. P5EAG shtll annua;1y thereaf ter file with this Board copies of the Holding Company's annual reports to stockholcers and its Securities and Exchange Commission Illings on Form 10-K (3)
Copies of any consolidated tax returns shall be provided by PSEiG to the extent necessary and approprite to resolve any regulatory or financial issues impacting P5E&G:
(4)
PSE&G. upon consummation of the merger herein authorized. shall file with the Board a certified copy of its Certificate of Merger as filed with the Secretary of State of New Jerseys (3) PSE&G. upon completion of the transfer and merger, shall submit the accounting and recording of the transfer of any assets to the Holding Company or its subsidiaries in journal entry form (6) 1his Order shall not be construed as approval by the Board of any cons 4deration for the transfer of the shares of common stocks (7) Full access shall be provided to any books and records and other information of any kind. documentary or otherwise. of the Holding Company or its subsidiaries which pertain to any issue or transaetton affecting or related to PSE&G and which may be deemed relevant by the Boards (8)
PSEkG shall continue to maintain its books and records in accordance with the apprqpriate Uniform System of Accounts as prescribed by the Boards (9)
PSE&G shall record the cost allocations between utility and non-utility operations in sufficient detail to allow the Board to render a determination as to their fairness and reasonableness, and shall file its cost allocation procedure with regard to all relevant cost components with the Board prior to the effectiveness of the Plan of Mergers (10) This Order shall not affect or in any wsy ilmit the exercise of the authority of the Board or of the State in any future petition or in any proceeding with respect to rates, franchises, services, financing, capitalisation, depreciation, accounting, maintenance, oporations or any other matter affecting P5E&G (11) PSE&G shall comply with all applicable stated provisions and the authority granted herein shall become null and void and of no offeet if previsions 1. 4. 3. 9 and 13 set out herein are not exercised by P5EiG by December 31.1986:
(12)
The credit or aseets of PST.&G will not be pledged to support the financing of any non-util.ty affiliate without the prior permission of this Boards consequently, creditors against non-utility affiliates cannot go against the credit or assets of the utility. Cf. N.7.5.A. 48:3 7.2 which requires Beard approval on loans by a public utlIIty to a company 3% or more of the capital stock of which is owned or controlled by any other company which owns or controlo 3% or more of the capital stock of the utility (13)
The President of PSE&G. on behalf of PSE&G. shall agree to the terms and conditions of the Order appproving the transactions 4.
(14)
PSE&G shdi n t make available any customer information o on prospective customers to CEA or to the Holding Company for the purpose of providing it to or advismg CEA without having obtamed written authorization from the customer or prospective customer to be done with the understanding on the part of information wi!! be equally available to other cogeneration dev PSE&G will provide this policy regarding information access CEA will not have access to PSE&G cost, planning, construction o est.
financial data unless sucti iniormation is in the public domam. P shall advise the Board on a quarterly basis of the type (s)of in which has been provided to CEA. P5E&C shall not utdize any of its customers or bunness and shall establish written to CEA for such purposes. personnel in that regard. PSE&G adve (13)
PSE&G agrees to develop a standard " postage stamp"3/ rate based upon average transmission costs, which shall be later dete but shall exclude out of state facilities, and which will be available the wheeling of electric power on a long term basis from qualifyin cogeneration and small power production facilities (as those terms are defined in the Public Utility Regulatory Policies Act of 19781 to neighboring investor owned electric utilities in New Jersey, consisten rate and policy in a manner including but not li of the Board. All wheeling contracts utilizing this filed at FERC and will be subject to periodic changed in order to future Increases in appropriate costs which must be borne by users and may be changed propsectively by PSE&
date of the Board's Order. This agreement is made without prejudir the right of the Board Staff to propose a formal wheeling tariff befo expiration of the three years or to the right of PSE&G to either cha the Staff's proposal, including but not limited to challenging the Bo jurisdiction over wheeling, or to utilize at such time a rate and poli difforent from a " postage stamp" rate.
(16) from cogeneration developers as to any particu alleged to be anti. competitive as a result of CE A being affutated with PStaG.
(IM The Company reaffirms its commitment to the commercial op Hope Creek as soon as pose 6ble, as economically as posable and with o
sacrificing quality. PSE&G also reeffirms its commitment to continue a sound and responesble dividend policy and reasonable levels of retained earnings in order to meet its statutory responsibility to provide safe, Creek, PSE&G agrees that it will not make investm utility operations outside PSE&G in any manner or at any level which would jeopardlas mach commitment. regardless of whetner PSE&G is a substdiary of a holding company or not. PSE&G represents that i access to internal and esternal capital will provide sufhcient cash to s
31 A " postage stamp"cate is a rate that is common throughout the utility's service territory and does not vary with the distance transmitted.
3.
pl?co Hope Creek in commIrcial operation. In ths untMiy event that PSE&C should require additional cash necessary for the commeretal operation of Hope Creek,it will identify the amount of said non.utdity investment and will exclude those amounts from any such request to the Board for increased cash. In addition. P5E&G agrees not to request any additional construction work in progress in rate base related to Hope Creek, prior to commercial operation,in its current rate proceeding. The offset method will continue to be used.
The record indicates that the proposed reorganization wi!! not result in any anticipated change in the Petitioner's dividend policy. While the distribution of dividends, absent abuse,is best left to the discretion of the corporate board of directors.
the continuation of a sound and reasonable dividend policy is a matter of great interest and concern to this Board. Accordingly, said policy shall continue to be subject to the Board's authority as set out in Title 48 and shall be reviewed by the Board in appropriate proceedings.
Through the Joint Position and Agreement, Petitioner has reaffirmed its
'_.gommitment to continue a " sound and responsable dividend policy" and reasonable levels of retained earnings. This is a vital assourance since the flow of earnings from the utility to its new stockholder, the Holding Company, must comport with statutory requirements */ and with sound and reasonable public policy. A rate of return must not only be sufficient to maintain financial integrity and attract the capital needed to serve the public, but also provide a return to the equity owner commens ate with the return on investment in other enterpriseshaving corresponding risks. New 3enay Bell Telephone Company v. New 3ersey Department of Public tJtilities.162 N.L 5uper 60 (App. Div.
1770. A reasonable return on capitalinvestment therefore, by defination, belongs to the investors and dividend and retained earnings distribution, absent abuse, is best lef t to the discretion of corporate management.
However, this broad discretion must be balanced against the regulatory concern 3/ hat the level of dollars flowing from any utility does not deleteriously impact t
upon said utility's ability to internally finance needed construgtlon or meet its basic statutory duty to provide safe, adequate and proper service.6/
This is not meant to attempt to unreasonably inhibit the activites of a holding company in the private non-utility sector where property or capital is not dedicated to the public use. It is the utility and its intercorporste transactions which are of regulatory import. The Board, theretare, pursuant to its statutory authority, including rate proceedings, shall continue to review cost a!!ocations and intercorporate transactions for reasonableness.
4/ N.3.5. A. 48:2 29.! and 29.2 provide that the Board may impose certain specific limitations in dividend policy.
3/ N.3.5.A. 4Se3.7. 7.1 and 7.2 require Board approval fof a beoed spectrum of intercorporate transactions by a utility, such as sales, leases, mortgages, contracts and loans.
'l As a result of the March 28,1979 incident at the Three Mile faland nuclear generating facility, the Board, by Order dated June 18,1979,in Docket No.193.
427, directed Jersey Central Power and Light Company not to pay any dividends to its parent General Public Utilities, for the remainder of 1979. This action was necessary because the payment of such dividends could have had an adverse
'*;,,,,ittproperty in a condition that would allow it to continue to provide safe, imp adequate and proper service.
6
This regulatory concern (1) will remain both before and af ter Hope Creek is in service and (2) applies no matter what the earnings stream (i.e.. return on capital investment) ultimately supports. whether it be non-utility in7estment or other ventures, or cogeneration initiatives. The Board must be in a position to respond to, and the utility in a position to se advise, of any unusual or emergent circumstances which concesvably could arise which affect the financialintegrity or service obligations of the utihty.
The Public Advocate (Advocate) did not of for the testimony of any witnesses.
Rather, it relied solely upon its cross-examination of the Petitioner's witnesses and its closing statement at the hearing and upon its post hearing briefs. In its brief. the Advocate argued that the relief sou$t by PSE&C should be denied for, substantially, the
' following reasons: (1) PSE&G has not demonstrated that the proposed reorganization will result in Positive benefits to the utility and its ratepayers:(2) reorganization harms the utility and the ratepayers in that the Holding Company creates an unacceptable cash draan on the utility, threatens to harm the utility through sham competition with other affiliates, creates the risk of anti competitive activity directed to third. parties and increases the regulatory burden on the Boards and (3) reorganization offers no offsetting benefits to the ratepayers from the Ho. ding Company.
The Board does not accept these arguments as they are either not based in fact or not supported by the record. To date, the Board has not utill ed a " positive benetite" test in conendering applications for the formation of holding companies. Most recently, the Board, by Order dated August 9,1983, authertaed the transfer of stock from Ellaabethtown Water Company to E' Town Corporation. In The Matter of the petition of Elisabethtown Water Comsany. Dechet No. WM8302234. In doing so, the Board stated. at page e, that by autherlains the transaction "there viu be no detriment to the public or to the ratepayers" and that "It le not contrary to the public interest". Likewise, in both In The Metter of the Petition of pu dr. town Gas Commeny. Decket No. 693107 (April D.
17ews, and in the Matter of the Petitlen of Hackensack Water Company. Docket No. 833.
193 (July 12. sveJr. the soard determamed that the proposed restructuring "is to be made in accorderte w6th law, and is not contrary to the public interest".U The Board has determined that a showing of positive benefits would be required as preropis6tes to its approval in only two instances. The first involved a hostile prosy contest initiated by National Utilities and Industries Corporation to replace a majority of the heard of Directors of New Jersey Resources and thereafter to effectuate a merger of the two operating utilitise in question. In the Matter of the petition of New Jersey MeasurCes Cer9eration and New Jersey Natural Gas Company v. NUI Corporation and Elizabethteen Gas Cemeany, Decket No. 53121073 Ranuary 31. lysaJ. If brought ta fruition, thae would have reesited in the merger of two jurisdictional gas utilities in a heetite takeover. each having its een rate and capital structures as well as cceporate management. The second metter involved the roguest of New Jersey Natural Gas Company to sensfer its eleck to Brashlyn Union cas Cornpany, a foreign corporation. In re New 3esumeIgamaral Gas Comsany,40 PUlt hf 337 (September it.1969). In short. these
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were merp er " gene over" casse affecting the internal structure of esisting New Jersey utilities.
7/ In approving the transfer of stock to a holding company in In the Matter of ene Petition of South forsey Gee Comsry. Dochet No. 6912 817 (November iZ,477M and in the Matter of the Petitlen o ' New 3ersey Natural Gas Company. Docket No. 31121077 Uanuary 27. Iveo, ihe Board found the proposed transactions to be "in the public intercet". We conclude that the standard of proof in the pend.ng matt.. L 2 urnt as that utulacd in the proceedings involving Elizabethtown Cas
- ..<.peny, Hackensack Water Company and Elisabethtown Water Company and is consistant with the standard employed in the South Jersey Gas Company and New Jersey Natural Gas Company metters, noted above.
.1.
i As the facts presented in those cases are quite dissimilar to those in the proceedings involving the formation of a holding company, the Board is of the opinion that the use of a positive benefits test is not required in the matter now pending.1/
Everett L. Morris. Petitioner's Executive Vice. President, testified that,in its pending rate case.9/ PSE&C proposes to reduce the equity (retained earnings) of the utility operation by $30 million in anticipation of investing that amount of money in subsidiaries during 1984. Since the Company will reduce the common equity component, ratepayers will not have to support through rates that amount. Further. by attributtng the investment entirely to the shareholders, the overall cost of capital is lowered given that equity is the highest cost element and largest component of the capital structure. It is the Advocate's position that any substantial diversions of funds and management resources prior to the completion of Hope Creek would harm the utility's ratepeyers.
Mr. Morris testified. however, that the cash required in 1986 to complete Hope
~ Creek is $122 million and that internally generated funds for 1986 construction expenditures will be $238 million. In addition. Mr. Morris noted that the Petitioner also has access to some $300 million in available lines of credit. This leads the Board to the conclusion that it is extremely remote that the proposed reorganlaation will create an unacceptable cash drain on P5EAC either before or af ter Hope Creek is placed in service.
The Board is of the further opinion that, even if such an event were to occur, the Board's statutory authority, coupled with the language contained in proposed condition IT of the Joint Position and Agreement. provides full protection to PSE&C's ratepayers.
We likewise find that there has been no showing of any harm resulting from competition between the utility company and its affiliates. The record is clear that cogeneration activities and gas brokering efforts are presently teldng place within Petitioner's service territory and will continue regardless of whether PSE&C is involved.
In its suppositions, the Advocate does not acknowledge that benefits might well accrue to PSE&C ratepayers as a result of delaying construction of future new electric generation capacity because of the avail. ability of cogenerated electricity. The Board is of the opinion that its continuing regulation of and authority over P5EAC and its rates will permit a thorough review of inter. affiliate competition and the effects thereof, if any.
upon the regulated utility.
With regard to the risk of antl. competitive activity on the part of P5EAC and Cf,A directed to th4rd parties, the Board is of the opinion that the current body of federal and state law regarding competition and the language conta6ned in proposed conditions la.
13 and 16 of the Joint Peettion and Agreement, provide reasonable protection to other cogenerathen developers and the public laterest.
TNe Board has ample statutory authority to regulate all utility activites and, if regaired by eudsting facts or circumstances. to take reasonable and appropriate action in order to ressfve regulatory problems and to protect the public. The courts of this State have consistently held that the Legislature in Title 48 has delegated to the Board the widest range of regulatory power over public utilities within the purview of its jurisdiction. iee e. 4 Township of Deptford v Woodbury Town Sewereae Corporation,34
% 418(196 0 tate has delegated to the Board in most swooping terms " general e
supervision and retulation of and jurisdiction and control over all public utilities and their 8/ The Advocate has also argued that the prooosed reorganlaation constitutes an "acquis........ w.mus et tne utility pursuant to N.7.5. A. 48:2 31.1. Shale having serious doubts as to the applicability of that statute to the tranaaetten that is contempated in this anatter, the Board is of the opinion that a determination on such applicability is not necessary in that the factors regdsing Board consideration as enumerated in N.7.1. A. 4h!.)l.1 have been fully addressed in the record.
U Docket No. ER3)l2116).
8
i property, property rights, equipment, f acilities, and franchises." In re Pubhc 1ernce Electrie and Gas Company. 33 N.3. 353,371 (196l). The reorganization *h.ch is the subject of this matter, cannot a'IIer the Boarfs pervauve jurisdiction over all utihty operations including rates, service and assets. Indeed, this Board, in approving similar applications to form holding companies,10/
h s found that there would be no impairment of 4
the Boarfs jurisdiction over the utility.
Proper regulation of utility operations and its lavolvement in intercorporate activities is what is required to ensure that neither the quality nor the cost of utility service is being adversely affected by diversification. Potential problems such as unfair transfer prices, cross subsidization and anticompetitive behavior can be investigated and prevented by regulation of utility functions pursuant to the Boarfs esisting authority and the enacting conditions set forth in the 3oint Position and Agreement. !! the Board finds a problem in the utility,it can pursue t'ist problem by inspecting the books and records of
.the Holding Company and its subsidiaries. The Board has the legal authority to make appropriate ratemaking adjustments in the event non-utility activities increase utility costs.
Unquestionably, the Boarfs primary tool to assure that PSE&C and its customers are properly protected lies in the Boarfs power to set PSE&C's rates and oversee its transactions. The Board, by setting PSE AC's rate of return, recognizing or disallowing its operating expenses, and fining the investment on which it will earn, will dictate the relationship between PSE&C and the Holding Company in that PSE&C will be the mainstay of the corporate group when the structure is established and for the foreseeable future.
The Board can monitor PSE&C's intercorporate transactions with affiliates by denying recognition for ratemaking purposes of any such transactions that are deemed unreasonable or imprudent. It can influence the utility's cost of capital by fissng rates of return or imputing capital structure,if appropriate. It can assure that utility assets are not transf erred to unregulated affiliates and that the utility is adequately compensated for the transfer of such assets. It can assure adequate capitalization by reducing the earnings of the utility until the Holding Company makes proper capital commitments.
The Boarfs traditional regulatory powers wi!! provide all the enforcement that the Board will need to assure that PSE&C's utility operation and its customers receive first priority, and that diversification by the Holding Company does not af fect the utility or its customers. The Boarfs regulatory tools will be at least as effective when applied to PSE&C as a part of a holding company structure as they would be !! PSE AC were to embark on diversification through wholly owned subsidiaries.
The Seard le therefore of the opinion that the proposed conditions recommended in she Joint Position and Agreement, whee viewed in conjunction wlth the Boarfs emissing statutory authority, ensure that the Board can fully discharge its jurledictlenal reopensibilities which bear upon the provision of safe, adequate and proper utility services while allowing PSt&C's af filiated enterprises to avail themselves of opportunties in the marketplace, and to contribute of the economic growth of New Jerse y.111 10/in the Matter of tilsabethtown Water Company, supra, at 4 (wherein the Board concluded that "the (relevant) statute clearly and categorically protects the public interest").
!!/We would note that the Public Advocate did not participate in or contribute to the negotiation procese which led to the enacting conditions which Staff recommends to govern an approval of this apnHeation and to which the Petitioner has agreed.
Nor did the Advoca'e produce any testimony or record evidence which might have infiuenced us otherwise. We further note that the Advocate did not raise the issue as to the appropriate standard (ej.," positive benefits") to be utilized in t*us proceeding in a timely fashion.
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8 In addition is thJ approvc! of this Board, the proposed transaction is tablect to the approval of the stockholders of PSE&C. the Holding Company and the Merger Company, and a favorable ruling from the Internal Revenue Service, or an opinion of counsel satisfactory to the Petitioner, that tr.e transaction constitutes a tax. free transfer under Section 331 of the Internal Revenue Code of 193a. Any authorization granted by the Board in this Order shall be conditioned upon the receipt of said approvals or opinion.
The Board, af ter investigation and hearing. and having considered the record and exhibits submitted in this matter. including the testirrtny of the witnesses presented and the briefs and legal memoranda of the parties. HER EBt FINDS that (1) The proposed transfer of common stock on the books and recor:!s of the Petitioner of !)0.313.131 shares, as of November 30.1983, of its Common Stock, no par value, plus any additional shares issued under the various stock plans discussed hereinabove or pursuant to Board Order through the time of merger, to Pubtle Service Enterprise Group Incorporated. the proposed exchange of Petitioner's shares of $1.40 Dividgnd Preference Common Stock for a ratio of shares, to be determined. of Public Service Enterprise Group Incorported or for cash, and the proposed merger of PSE&c. Inc. into the Petitioner, for the purpose of effectuating the transfer and restructuring, are to be made in accordance with law and are not contrary to the public interests (2) The proposed conditions set out in the Joint Position and Agreement entered into by the Petitioner and Staff are reasonable and appropriate.
and, in conjunction with existing statutes, provide this Board with sufficient means and authority by which to properly regulate utility operations:
O) The proposed restructuritir, will have no adverse impact upon the rates charged to Petitioner's ratepayers. the employees of the utility or upon PSE&G's ability to render safe, adequate and proper services and (4) Subject to the pertinent condittorts contained in the Joint Position and Agreement and esisting law, the proposed restructuring will not adversely af fect competition.
Accordirigly, the Board HER EBY GR ANTS the relief requested in the petition filed in thl matter and AUTHORIZE 5 Public 5ervice Electric and Gas Company to record on its books and records, the transfer of all issued and outstanding shares of its Common Stock, no per value, to Public Service Enterprise Group Incorporated, to enchange its shares of $1.48 Olvidend Preference Common Stock for a certain ratio of shares of Public Service Enterprtes Group Incorporated or for cash and to inerse P5E&C. Inc. into Public Service Electric and Gas Company in accordance olth the Plan and Agreement ef Herger.
OATED: January 17, 1936 BOA D OF PUBLIC UTII.! TIES Y
8ARB RA URitAN PR 5 ENT EORGE. B ARik3UR R OBER T N. CU COMMI55 TONE ATTEST:
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5LOSSOM A. PERETZ SECRETARY 1%