DB DRAFT 170807v3
PRIVILEGED AND CONFIDENTIAL
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
The AES Corporation ) File No. 70-9779
Certificate Pursuant to Rule 24 and Release No. 35-27363
Under the Public Utility Holding Company Act of 1935
On March 23, 2001, the Securities and Exchange Commission ("SEC")
issued an order, Release No. 35-27363 in File No. 70-9779 ("Exemption Order"),
granting an exemption under Section 3(a) of the Public Utility Holding Company
Act of 1935, as amended, to The AES Corporation ("AES") in relation to its
proposed acquisition of IPALCO Enterprises, Inc. ("IPALCO"), which has a
public-utility subsidiary company, Indianapolis Power & Light Company ("IPL").
The Exemption Order required AES to file certain certificates (as described in
the Exemption Order) under Rule 24 within 60 days of the close of each calendar
quarter for a period of two years beginning March 31, 2001 and every six months
thereafter. A certificate complying with the Exemption Order is set forth below
(as an attachment) for the period ending September 30, 2003.
Respectfully submitted,
/s/ Earle H. O'Donnell
------------------------------
Earle H. O'Donnell
Andrew B. Young
Hugh E. Hilliard
Dewey Ballantine LLP
1775 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Dated: December 1, 2003
THE AES CORPORATION
SEC FILING PURSUANT TO SECTION 3(a)(5) EXEMPTION ORDER
QUARTER ENDED SEPTEMBER 30, 2003
ITEM (1) PER EXEMPTION ORDER (STATEMENTS ATTACHED):
1) Pro Rata Consolidated Statement of Operations of The AES Corporation for
the 12 months ended September 30, 2003
2) Pro Rata Consolidated Balance Sheet of The AES Corporation at September 30,
2003
3) Statement of Consolidated Income of IPALCO for the 12 months ended
September 30, 2003
4) Statement of Income of IPL for the 12 months ended September 30, 2003
5) Consolidated Balance Sheet of IPALCO at September 30, 2003
6) Balance Sheet of IPL at September 30, 2003
2
THE AES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(INCLUDES IPALCO)
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2003
PRORATA BASIS(1)
(UNAUDITED)
TWELVE MONTHS
ENDED
($ in millions) 9/30/2003
--------------------------------------------------------------------------------
REVENUES:
Sales and services $ 7,814
OPERATING COSTS AND EXPENSES:
Cost of sales and services 5,726
Selling, general and administrative expenses 145
---------------
TOTAL OPERATING COSTS AND EXPENSES 5,871
---------------
OPERATING INCOME 1,943
OTHER INCOME AND (EXPENSE):
Interest expense, net (1,681)
Other (expense) income, net 1,120
(Loss) gain on sale of assets and asset impairment expense (2,097)
---------------
(LOSS) INCOME BEFORE INCOME TAXES (715)
Income tax (benefit) expense 462
---------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (1,177)
Loss from operations of discontinued components
(net of income taxes) (1,545)
---------------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,722)
Cumulative effect of accounting change
(net of income taxes) (2)
---------------
NET (LOSS) INCOME $ (2,724)
===============
----------
(1) In accordance with the analysis used in the order requiring filing of
this certificate, this table is calculated on a proportional consolidation basis
whereby AES' subsidiaries are included by multiplying each applicable line item
from the statement of operations of each AES subsidiary times AES' percentage
ownership interest in such subsidiary.
3
THE AES CORPORATION
PRO RATA BASIS(1) CONSOLIDATED BALANCE SHEET
(INCLUDES IPALCO)
SEPTEMBER 30, 2003
($ in millions, unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,477
Restricted cash 433
Short-term investments 204
Accounts receivable, net of reserves 1,263
Inventory 399
Receivable from affiliates 16
Deferred income taxes - current 127
Prepaid expenses 85
Other current assets 769
Current assets of discontinued operations and
businesses held for sale 141
---------------
TOTAL CURRENT ASSETS 4,914
PROPERTY, PLANT AND EQUIPMENT
Land 754
Electric generation and distribution assets 20,883
Accumulated depreciation and amortization (4,739)
Construction in progress 2,048
---------------
PROPERTY, PLANT AND EQUIPMENT, NET 18,946
OTHER ASSETS
Deferred financing costs, net 432
Investments in and advances to affiliates 675
Debt service reserves and other deposits 380
Goodwill, net 1,385
Deferred income taxes - noncurrent 999
Long-term assets of discontinued operations and
businesses held for sale 584
Other assets 2,100
---------------
TOTAL OTHER ASSETS 6,555
TOTAL $ 30,415
===============
----------
(1) In accordance with the analysis used in the order requiring filing of
this certificate, this table is calculated on a proportional consolidation basis
whereby AES' subsidiaries are included by multiplying each applicable line item
from the balance sheet of each AES subsidiary times AES' percentage ownership
interest in such subsidiary.
4
THE AES CORPORATION
PRO RATA BASIS(1) CONSOLIDATED BALANCE SHEET
(INCLUDES IPALCO)
SEPTEMBER 30, 2003
($ in millions, unaudited)
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,148
Accrued interest 643
Accrued and other liabilities 1,384
Current liabilities of discontinued operations and
businesses held for sale 67
Non-recourse debt - current portion 4,303
---------------
TOTAL CURRENT LIABILITIES 7,545
LONG-TERM LIABILITIES
Non-recourse debt 10,045
Recourse debt 5,280
Deferred income taxes 838
Pension liabilities 1,275
Long-term liabilities of discontinued operations and
businesses held for sale 354
Other long-term liabilities 2,685
---------------
TOTAL LONG-TERM LIABILITIES 20,477
Minority interest 897
Company-obligated Convertible Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts Holding Solely
Junior Subordinated Debentures of AES 809
STOCKHOLDERS' EQUITY
Common stock 6
Additional paid-in capital 5,710
Accumulated deficit (659)
Accumulated other comprehensive loss (4,370)
---------------
TOTAL STOCKHOLDERS' EQUITY 687
TOTAL $ 30,415
===============
----------
(1) In accordance with the analysis used in the order requiring filing of
this certificate, this table is calculated on a proportional consolidation basis
whereby AES' subsidiaries are included by multiplying each applicable line item
from the balance sheet of each AES subsidiary times AES' percentage ownership
interest in such subsidiary.
5
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
FOR TWELVE MONTHS ENDED SEPTEMBER 30, 2003
ELECTRIC UTILITY OPERATING REVENUES $ 825,301
UTILITY OPERATING EXPENSES:
Operation:
Fuel 177,389
Other operating expenses 116,772
Power purchased 16,605
Maintenance 76,574
Depreciation and amortization 123,050
Taxes other than income taxes 28,165
Income taxes - net 106,104
---------------
Total operating expenses 644,659
---------------
UTILITY OPERATING INCOME 180,642
---------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 4,029
Gain (loss) on sales of assets, net 1,081
Other - net (4,503)
Income tax benefit - net 26,815
---------------
Total other income (deductions) - net 27,422
---------------
INCOME BEFORE INTEREST AND OTHER CHARGES 208,064
---------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 102,352
Other interest 572
Allowance for borrowed funds used during construction (1,896)
Amortization of redemption premiums and expense on debt - net 2,125
Preferred dividends of subsidiary 3,213
---------------
Total interest and other charges - net 106,366
---------------
NET INCOME $ 101,698
===============
6
INDIANAPOLIS POWER & LIGHT COMPANY
STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
For the Twelve Months Ended September 30, 2003
OPERATING REVENUES $ 825,301
---------------
OPERATING EXPENSES:
Operation:
Fuel 177,389
Other 116,772
Power purchased 16,605
Maintenance 76,574
Depreciation and amortization 123,050
Taxes other than income taxes 28,165
Income taxes - net 106,104
---------------
Total operating expenses 644,659
---------------
OPERATING INCOME 180,642
---------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 4,029
Miscellaneous income and (deductions) - net (1,660)
Gain on sale of asset 2,343
Income (taxes) applicable to other income and deductions 81
---------------
Total other income and (deductions) - net 4,793
INCOME BEFORE INTEREST AND OTHER CHARGES 185,435
---------------
INTEREST AND OTHER CHARGES:
Interest on long-term debt 41,393
Other interest 572
Allowance for borrowed funds used during construction (1,896)
Amortization of redemption premium and expense on debt - net 1,700
---------------
Total interest and other charges - net 41,769
---------------
NET INCOME 143,666
---------------
PREFERRED DIVIDEND REQUIREMENTS 3,213
---------------
INCOME APPLICABLE TO COMMON STOCK $ 140,453
===============
7
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS SEPTEMBER 30, 2003
------ ------------------
UTILITY PLANT:
Utility plant in service $ 3,175,040
Less accumulated depreciation 1,615,622
------------------
Utility plant in service - net 1,559,418
Construction work in progress 143,012
Property held for future use 7,708
------------------
Utility plant - net 1,710,138
------------------
OTHER ASSETS:
Nonutility property - at cost, less accumulated
depreciation 1,451
Other investments 9,411
------------------
Other assets - net 10,862
------------------
CURRENT ASSETS:
Cash and cash equivalents 34,821
Restricted cash 21,905
Accounts receivable and unbilled revenue (less allowance
for doubtful accounts of $1,806) 41,539
Fuel - at average cost 28,441
Materials and supplies - at average cost 46,696
Net income tax refunds receivable 3,006
Prepayments and other current assets 7,604
------------------
Total current assets 184,012
------------------
DEFERRED DEBITS:
Regulatory assets 164,291
Miscellaneous 29,637
------------------
Total deferred debits 193,928
------------------
TOTAL $ 2,098,940
==================
8
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
CAPITALIZATION AND LIABILITIES SEPTEMBER 30, 2003
------------------------------ ------------------
CAPITALIZATION:
Common shareholders' deficit:
Premium on 4% cumulative preferred stock $ 649
Paid in capital 70
Accumulated deficit (52,918)
Accumulated other comprehensive loss (51,546)
------------------
Total common shareholders' deficit (103,745)
Cumulative preferred stock of subsidiary 59,135
Long-term debt (less current maturities and
sinking fund requirements) 1,401,994
------------------
Total capitalization 1,357,384
------------------
CURRENT LIABILITIES:
Current maturities and sinking fund requirements 80,294
Accounts payable 30,367
Accrued expenses 18,081
Dividends payable 880
Accrued taxes 28,893
Accrued interest 36,993
Other current liabilities 12,915
------------------
Total current liabilities 208,423
------------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 390,984
Unamortized investment tax credit 28,862
Accrued postretirement benefits 5,917
Accrued pension benefits 100,441
Miscellaneous 6,929
------------------
Total deferred credits and other long-term liabilities 533,133
------------------
TOTAL $ 2,098,940
==================
9
INDIANAPOLIS POWER & LIGHT COMPANY
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, 2003
------------------
ASSETS
UTILITY PLANT:
Utility plant in service $ 3,175,040
Less accumulated depreciation 1,615,622
------------------
Utility plant in service - net 1,559,418
Construction work in progress 143,012
Property held for future use 7,708
------------------
Utility plant - net 1,710,138
------------------
OTHER PROPERTY -
At cost, less accumulated depreciation 4,963
------------------
CURRENT ASSETS:
Cash and cash equivalents 30,569
Restricted cash 21,905
Accounts receivable and unbilled revenue (less allowances
for doubtful accounts of $1,793) 40,584
Receivable due from Parent 959
Fuel - at average cost 28,441
Materials and supplies - at average cost 46,702
Net income tax refunds receivable 2,505
Prepayments and other current assets 7,643
------------------
Total current assets 179,308
------------------
DEFERRED DEBITS:
Regulatory assets 164,291
Miscellaneous 20,900
------------------
Total deferred debits 185,191
------------------
TOTAL $ 2,079,600
==================
10
INDIANAPOLIS POWER & LIGHT COMPANY
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, 2003
------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock $ 324,537
Premium and net gain on preferred stock 2,642
Retained earnings 367,573
Accumulated other comprehensive loss (51,543)
------------------
Total common shareholders' equity 643,209
Cumulative preferred stock 59,135
Long-term debt (less current maturities
and sinking fund requirements) 651,994
------------------
Total capitalization 1,354,338
------------------
CURRENT LIABILITIES:
Current maturities and sinking fund requirements 79,994
Accounts payable 30,367
Accrued expenses 15,278
Dividends payable 805
Accrued taxes 38,053
Accrued interest 12,876
Other current liabilities 13,991
------------------
Total current liabilities 191,364
------------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 391,749
Unamortized investment tax credit 28,862
Accrued postretirement benefits 5,917
Accrued pension benefits 100,441
Miscellaneous 6,929
------------------
Total deferred credits and other long-term liabilities 533,898
------------------
TOTAL $ 2,079,600
==================
11
ITEM (2) PER EXEMPTION ORDER (INCOME STATEMENT AMOUNTS ARE 12 MONTHS ENDED):
IPL CONTRIBUTIONS TO
AES/IPALCO CONSOLIDATED HOLDING COMPANY
(PRO RATA CONSOLIDATION BASIS(1))
($MM)
12 MOS. ENDED 9/30/02 12 MOS. ENDED 9/30/03
---------------------------------------------------------------------------
GROSS REVENUES(2) 9.38% 10.56%
IPL 810 825
IPALCO (excluding IPL) - -
AES 7,830 6,989
AES/IPALCO 8,640 7,814
OPERATING INCOME 13.37% 14.77%
IPL 299 287
IPALCO (excluding IPL) - 0
AES 1,938 1,656
AES/IPALCO 2,237 1,943
NET INCOME (23.03%) (5.14%)
IPL 161 140
IPALCO (excluding IPL) (29) (39)
AES (831) (2,825)
AES/IPALCO (699) (2,724)
NET ASSETS 5.81% 6.84%
IPL 2,017 2,080
IPALCO (excluding IPL) 26 19
AES 32,645 28,316
AES/IPALCO 34,688 30,415
----------
(1) In accordance with the analysis used in the order requiring filing of
this certificate, the AES line items in this table are calculated on a
proportional consolidation basis whereby AES' subsidiaries are included by
multiplying each applicable line item from the statement of operations or
balance sheet, as applicable, of each AES subsidiary times AES' percentage
ownership interest in such subsidiary. The numbers presented for AES in this
table exclude CILCO, which AES sold during the first quarter of 2003.
(2) Gross business revenues (utility and non-utility) of IPALCO combined as
a percentage of total gross business revenues (including IPALCO/IPL, utility and
non-utility) of AES.
12
ITEM (3) PER EXEMPTION ORDER - GENERATION INFORMATION:
AES Generating Plants in Operation at September 30, 2003 (excluding IPALCO):
AES AES
CAPACITY INTEREST EQUITY REGULATORY
UNIT COUNTRY (MW) (%) (MW) STATUS
------- ---- --- ---- ------
AES Deepwater USA 143 100 143 QF
AES Beaver Valley USA 125 100 125 QF
AES Placerita USA 120 100 120 QF
AES Thames USA 181 100 181 QF
AES Shady Point USA 320 100 320 QF
AES Hawaii USA 189 100 189 QF
AES Warrior Run USA 180 100 180 QF
AES Somerset USA 675 100 675 EWG
AES Cayuga USA 306 100 306 EWG
AES Greenidge USA 161 100 161 EWG
AES Westover USA 126 100 126 EWG
AES Alamitos USA 2,123 100 2,123 EWG
AES Redondo Beach USA 1,330 100 1,330 EWG
AES Huntington Beach USA 904 100 904 EWG
AES Hemphill USA 14 67 9 QF
AES Mendota USA 25 100 25 QF
AES Delano USA 50 100 50 QF
AES Puerto Rico USA 454 100 454 FUCO
AES Granite Ridge USA 720 100 720 EWG
AES Ironwood USA 705 100 705 EWG
AES Red Oak USA 832 100 832 EWG
AES Whitefield (sale pending) USA 16 100 16 QF
AES Wolf Hollow USA 730 100 730 EWG
DOMESTIC SUBTOTAL: 10,429 10,424
AES AES
CAPACITY INTEREST EQUITY REGULATORY
COUNTRY (MW) (%) (MW) STATUS
------- ---- --- ---- ------
UNIT
AES Kingston Canada 110 50 55 EWG
AES San Nicholas Argentina 650 88 572 EWG
AES Cabra Corral Argentina 102 98 100 FUCO
AES El Tunal Argentina 10 98 10 FUCO
AES Sarmiento Argentina 33 98 32 FUCO
AES Ullum Argentina 45 98 44 FUCO
13
AES Quebrada Argentina 45 100 45 FUCO
AES Alicura Argentina 1,040 99 1,030 FUCO
AES Bayano Panama 236 49 116 FUCO
AES Panama Panama 42 49 21 FUCO
AES Chiriqui - La Estrella Panama 42 49 21 FUCO
AES Chiriqui - Los Valles Panama 48 49 24 FUCO
AES Los Mina Dom. Rep. 210 100 210 EWG
AES Xiangci - Cili China 26 51 13 FUCO
Wuhu China 250 25 63 FUCO
Chengdu Lotus City China 48 35 17 FUCO
AES Jiaozuo China 250 70 175 FUCO
AES Hefei China 115 70 81 FUCO
AES Chongqing Nanchuan China 50 71 36 FUCO
Yangcheng China 2,100 25 525 FUCO
AES Ekibastuz Kazakhstan 4,000 100 4,000 FUCO
AES Ust-Kamenogorsk GES Kazakhstan 350 100 350 FUCO
AES Shulbinsk GES Kazakhstan 330 100 330 FUCO
AES Ust-Kamenogorsk TETS Kazakhstan 1,464 100 1,464 FUCO
AES Sogrinsk TETS Kazakhstan 702 100 702 FUCO
Altai-Ust-Kamenogorsk Heat Nets Kazakhstan 310 Mgmt 0 FUCO
OPGC India 420 49 206 FUCO
AES Lal Pir Pakistan 351 90 316 FUCO
AES PakGen Pakistan 344 90 310 FUCO
AES Borsod Hungary 171 100 171 FUCO
AES Tisza II Hungary 860 100 860 FUCO
AES Tiszapalkonya Hungary 250 100 250 FUCO
AES Elsta Netherlands 405 50 203 FUCO
Medway (Sale pending) U.K. 688 25 172 FUCO
AES Indian Queens U.K. 140 100 140 EWG
AES Kilroot U.K. 520 97 504 FUCO
AES Uruguaiana Brazil 639 100 639 FUCO
AES Tiete (10 plants) Brazil 2,651 53 1,405 FUCO
AES EDC Venezuela 2,316 87 2,015 FUCO
AES Merida III Mexico 497 55 273 FUCO
AES Ottana Italy 140 100 140 FUCO
AES Mammonal Colombia 90 62 56 FUCO
AES Chivor Colombia 1,000 96 960 FUCO
AES Gener-Electrica de Santiago Chile 379 89 337 FUCO
AES Gener-Energia Verde Chile 42 99 42 FUCO
AES Gener-Guacolda Chile 304 49 149 FUCO
AES Gener-Norgener Chile 277 99 274 FUCO
Itabo Dom. Rep. 587 25 147 FUCO
AES Bohemia Czech Rep. 50 100 50 FUCO
AES SONEL Cameroon 850 56 476 FUCO
Central Dique Argentina 68 34 23 FUCO
AES Termoandes Argentina 643 99 637 FUCO
AES Parana Argentina 845 100 845 FUCO
Ebute Nigeria 290 95 276 FUCO
AES Gener - Cordillera Chile 245 99 243 FUCO
AES Gener - Costa Chile 512 99 507 FUCO
AES Haripur* (sale pending) Bangladesh 360 100 360 FUCO
AES Meghnaghat* (sale pending) Bangladesh 450 100 450 FUCO
14
AES Barka Oman 427 85 363 FUCO
Ras Laffan Qatar 413 55 229 FUCO
FOREIGN SUBTOTAL: 30,832 24,064
TOTAL - September 30, 2003 41,261 34,488
Foreign Generation as a Percentage of
Total: 75% 70%
* Currently in discontinued operations status.
IPALCO Generating Plants at September 30, 2003:
AES AES
CAPACITY INTEREST EQUITY REGULATORY
UNIT COUNTRY (MW) (%) (MW) STATUS
Petersburg USA 1,715 100 1,715 IURC
H.T. Pritchard (Eagle Valley) USA 367 100 367 IURC
E.W. Stout USA 1,116 100 1,116 IURC
Georgetown USA 80 100 80 IURC
TOTAL - September 30, 2003 3,278 3,278
Revenues from electric generation capacity - 12 months ended September 30, 2003
(millions of dollars):
IPALCO 578 13%
AES (excluding IPALCO) 3,768 87%
-------- -----
Total 4,346 100%
IPALCO's electric revenues are allocated between electric generation and
electric transmission and distribution activities according to utility rate
base. AES generation revenues are derived from the total generation revenues
earned by AES subsidiaries times the percentage ownership interest of AES in
those subsidiaries.
There has been no change in the amount of generation capacity owned by IPALCO
and a 4,339 MW decrease in the amount of generation capacity owned by AES
(excluding IPALCO) from 38,578 MW to 34,239 MW since March 31, 2003. There has
been a 2% increase in the total revenues earned from the capacity owned by AES
and IPALCO in the 12-month period ended September 30, 2003 compared with the
12-month period ended March 31, 2003. The percentage of the total revenues
derived from the generation capacity owned by IPALCO has decreased from 14% to
13%.(1)
The countries in which AES' net generating capacity increased during the second
and third quarters of 2003 are as follows: Oman, Qatar and the United States.
----------
(1) This evaluation excludes the electric generation assets and revenues of
CILCO, which AES sold during the first quarter of 2003.
15
ITEM (4) PER EXEMPTION ORDER - ELECTRIC TRANSMISSION AND DISTRIBUTION AND GAS
DISTRIBUTION:
Electric transmission and distribution and gas distribution assets owned as of
September 30, 2003 (millions of dollars):
IPALCO 1,386
Total AES (excluding IPALCO) 5,014
-------
Total 6,400
Electric transmission and distribution and gas distribution revenues for 12
months ending September 30, 2003 (millions of dollars):
IPALCO 248
Total AES (excluding IPALCO) 3,219
-------
Total 3,467
IPALCO's electric revenues are allocated between electric generation and
electric transmission and distribution activities according to utility rate
base. AES transmission and distribution revenues are derived from the total
revenues earned by AES transmission and distribution subsidiaries by multiplying
these revenues by the percentage ownership interest of AES in those
subsidiaries.
The total transmission and distribution assets owned by AES and IPALCO have
increased since March 31, 2003. IPALCO's transmission and distribution assets
have increased while the revenues derived from such assets have decreased since
March 31, 2003. AES' transmission and distribution assets have increased and the
revenues derived from such assets have decreased since March 31, 2003. IPALCO's
percentage of the total transmission and distribution assets has decreased from
23% to 22%, and IPALCO's percentage of the total revenues from such assets has
remained the same at 7%, for the 12-month period ending September 30, 2003
compared to the 12-month period ending March 31, 2003.(1)
----------
(1) This evaluation excludes the transmission and distribution assets and
revenues of CILCO, which AES sold during the first quarter of 2003.
16
ITEM (5) PER EXEMPTION ORDER:
IPL has not sold or transferred any electric and/or gas utility assets to any
affiliate company of the AES consolidated holding company system during the
second and third quarters of 2003.
ITEM (6) PER EXEMPTION ORDER:
During the second and third quarters of 2003, no application has been made to
the Indiana Utility Regulatory Commission ("IURC") that involves AES' ownership
position or AES' oversight over the operations of IPL or IPALCO. The IURC issued
an order on April 16, 2003 in which it clarified an order it issued on February
12, 2003. The February 12, 2003 order required IPL to file certain reports to
the IURC before declaring or paying a dividend on IPL common stock and provided
that IPL shall not pay such dividend until either the IURC approves the dividend
or 20 days elapse without the initiation by the IURC of a proceeding to further
explore the implications of such dividend. A copy of each of the February 12,
2003 and April 16, 2003 orders are attached to this certificate.
ITEM (7) PER EXEMPTION ORDER:
As previously reported, on January 31, 2003, AES announced completion of the
sale of CILCORP, including CILCO, to Ameren Corporation after receiving all
necessary regulatory approvals.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of 1935,
as amended, AES has duly caused this certificate to be signed on its behalf on
this 1st day of December, 2003 by the undersigned thereunto duly authorized.
The AES Corporation
/s/ Ashley A. Meise
---------------------------
By: Ashley A. Meise
Assistant General Counsel
17
STATE OF INDIANA
INDIANA UTILITY REGULATORY COMMISSION
PETITION OF INDIANAPOLIS POWER & LIGHT )
COMPANY, AN INDIANA CORPORATION, FOR (1) )
APPROVAL OF ITS 2003-2006 FINANCING )
PROGRAM WHICH INCLUDES THE ISSUANCE OF )
UP TO $380,650,000 IN AGGREGATE PRINCIPAL )
AMOUNT OF (1A), FIXED OR VARIABLE RATE )
SECURED OR UNSECURED LONG-TERM DEBT IN )
AN AMOUNT NOT TO EXCEED $370,650,000 IN )
AGGREGATE PRINCIPAL, AND (1B) CAPITAL )
LEASE OBLIGATIONS NOT TO EXCEED )
$10,000,000 IN AGGREGATE PRINCIPAL; (2) TO )
EXECUTE AND DELIVER ONE OR MORE )
SUPPLEMENTAL INDENTURES TO ITS )
MORTGAGE AND DEED OF TRUST DATED AS OF )
MAY 1, 1940 AS SUPPLEMENTED AND AMENDED, ) CAUSE NO. 42292
FOR THE PURPOSE OF CREATING OR SECURING )
EACH NEW SERIES OF FIRST MORTGAGE )
BONDS; (3) TO EXECUTE LETTERS OF CREDIT )
OR OTHER CREDIT FACILITIES DEEMED )
APPROPRIATE BY PETITIONER TO PROVIDE )
LIQUIDITY FOR ITS VARIABLE INTEREST RATE ) APPROVED: FEB 12 2003
OBLIGATIONS AS PROPOSED TO BE ISSUED )
HEREIN, THROUGHOUT THE LIFE OF THE )
UNDERLYING OBLIGATION; (4) TO EXECUTE )
AND DELIVER PROMISSORY NOTES AND OTHER )
EVIDENCE OF INDEBTEDNESS RELATING TO )
ISSUANCE OF LONG-TERM DEBT; (5) TO ENTER )
INTO INTEREST RATE RISK MANAGEMENT )
TRANSACTIONS IN CONNECTION WITH ITS )
VARIABLE RATE OBLIGATIONS AS PROPOSED )
TO BE ISSUED HEREIN, THROUGHOUT THE LIFE )
OF THE UNDERLYING OBLIGATION(S); AND (6) )
AUTHORITY TO APPLY THE NET CASH )
PROCEEDS FROM THE SALE OF SUCH LONG- )
TERM DEBT AFTER PAYMENT OF EXPENSES )
INCURRED IN CONNECTION THEREWITH, TO )
DISCHARGE, REFUND OR REPLACE CERTAIN )
SERIES OF ITS FIRST MORTGAGE BONDS )
OUTSTANDING AND TO REIMBURSE ITS )
TREASURY, REPAY SHORT TERM BORROWINGS, )
AND FINANCE ITS CONSTRUCTION PROGRAM. )
BY THE COMMISSION:
DAVID ZIEGNER, COMMISSIONER
GREGORY S. COLTON, ADMINISTRATIVE LAW JUDGE
On September 19, 2002, Indianapolis Power & Light Company, an Indiana
corporation ("IPL" or "Petitioner"), filed its Verified Petition and supporting
testimony in this Cause seeking an order by this Commission approving
Petitioner's 2003-2006 financing program.
Pursuant to notice of hearing duly given and published as required by law,
proof of which was incorporated into the record by reference and placed in the
official files of the Commission, a public hearing was held in this Cause at
10:00 a.m. on October 29, 2002, in Room E306 of the Indiana Government Center
South, 302 West Washington Street, Indianapolis, Indiana. That hearing was
continued to November 18, 2002, at which time Petitioner submitted testimony and
other evidence in support of its petition and the Office of Utility Consumer
Counselor ("OUCC") also presented evidence.
Based upon the applicable law and the evidence herein, the Commission now
finds as follows:
1. NOTICE AND JURISDICTION. Due, legal and timely notice of the time and
place of the public hearing conducted by the Commission in this Cause was given
and published as required by law. Petitioner is a "public utility" as defined in
Ind. Code Section 8-1-2-1 and is subject to the jurisdiction of the Commission
in the manner and to the extent provided by the laws of the State of Indiana
including, among other things, with respect to the issuance and sale of
securities. This Commission has jurisdiction over Petitioner and the subject
matter of this proceeding.
2. PETITIONER'S CHARACTERISTICS. IPL is an Indiana corporation with its
principal office and place of business at One Monument Circle, Indianapolis,
Indiana. It furnishes electric services to the public and is subject to
regulation by the Commission under the laws of the State of Indiana. IPL renders
retail electric utility service to approximately 450,000 retail customers
located principally in and near the City of Indianapolis, Indiana, and in
portions of the following Indiana counties: Boone, Hamilton, Hancock, Hendricks,
Johnson, Marion, Morgan, Owen, Putnam and Shelby Counties. IPL owns, operates,
manages and controls electric generating, transmission and distribution plant,
property and equipment and related facilities, which are used and useful for the
convenience of the public in the production, transmission, delivery and
furnishing of such utility service.
3. PROPOSED FINANCING. Petitioner seeks Commission approval of a program
(the "Financing Program") that would permit Petitioner from time to time, over a
multi-year period to issue a maximum aggregate indebtedness of $380,650,000
(collectively, "New Debt") that Petitioner anticipates will be comprised of:
(a) $160,000,000 increase in indebtedness ("New Bonds");
(b) $210,650,000 issued to retire, refund, or redeem four debt issues
currently outstanding ("Lawful Refundings");
(c) $10,000,000 in Capital Leases ("Lease[s]")
The proceeds from Petitioner's New Bonds shall be used to pay, in part, for
[a] the costs associated with Petitioner's construction program during the
period governed by this Petition;
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and [b] to reimburse Petitioner's Treasury for funds previously expended to
install the new combustion turbine at Petitioner's Harding Street plant.(1)
Proceeds from Petitioner's Lawful Refundings shall be used to refund securities
that [A] mature within the next four years ("Maturing Series"), or [B] are
callable within the next four years (Redemption Series") as given in Table (1).
Table (1)
Balance
Outstanding
Description (000's) Redemption Price
Maturing Series
6.05% 39th Supplemental First Mortgage $ 80,000 100%
Bond due 02/01/2004 - taxable
8.00% 34th Supplemental First Mortgage 58,800 100%
Bond due 10/15/2006 - taxable
Redemption Series
6.10% 36th Supplemental First Mortgage 41,850 102% - 2003
Bond due 01/01/2016 - tax-exempt 101% - 2004
5.50% 38th Supplemental First Mortgage 30,000 102% - 2004
Bond due 10/01/2023 - tax-exempt 101% - 2005
Total Lawful Refundings $ 210,650
The maximum fixed rate on the issuance of New Debt shall not exceed those
generally obtainable at the time of pricing or repricing of such New Debt for
securities having the same or reasonably similar maturities and having
reasonably similar terms, conditions, and features issued by utilities of the
same or reasonably comparable credit quality. However, the maximum fixed rate on
the reissuance of the Redemption Series of such Lawful Refundings as given in
Table (1) shall be less than the economic break-even rate that allows the net
present value of the such indebtedness, including all redemption premiums and
issuance expenses, to equal the net present value of the existing Redemption
Series, considering the remaining life of such securities.
Petitioner's witness Connie R. Horwitz, Treasurer of IPL, testified
regarding the Financing Program. Ms. Horwitz stated that the most significant
item included in Petitioner's proposed construction program are costs associated
with Petitioner's plan to reliably and economically achieve compliance with
required reductions in nitrogen oxide ("NOx") emissions at its generating
stations. As demonstrated in Petitioner's evidence in Cause No. 42170,
Petitioner expects to make capital expenditures of approximately $260 million to
achieve compliance with these new environmental regulations. Ms. Horwitz
testified that IPL currently estimates that it will raise a total of $160
million in New Debt to [a] fund a part of its NOx
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(1) Petitioner received Commission authorization for the Harding Street
Combustion Turbine in December, 2001, and the Turbine was placed in-service in
May, 2002.
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construction, [b] reimburse Petitioner's treasury for funds already expended for
installation of the Harding Street combustion turbine as previously authorized
by this Commission and subsequently placed in service in May, 2002, and [c] fund
its other ongoing capital projects.
4. PURPOSE OF THE FINANCING. Petitioner proposes, subject to Commission
approval, to issue the securities to provide funds to acquire property, material
or working capital; to construct, complete, extend and/or improve its
facilities, plant and distribution system; to improve its service; to discharge,
lawfully refund or refinance its obligations, including the possible redemption
of debt; to repay any short-term indebtedness incurred by Petitioner for such
purposes; or for other general corporate purposes.
Long-term debt issued pursuant to the proposed financing program will be
made for maturities not to exceed 40 years at fixed or variable market interest
rates. The long-term debt may be in the form of promissory notes or other
unsecured evidences of indebtedness or secured debt issued pursuant to the
Mortgage. Debt issued pursuant to the Mortgage will be in the form of Mortgage
Bonds issued in accordance with one or more Supplemental Indentures to the
Mortgage creating new series of Mortgage Bonds and specifying the terms thereof.
5. PROPOSED CAPITAL LEASE OBLIGATIONS. Petitioner also seeks Commission
approval to enter into, from time to time, over a period ending December 31,
2006, up to $10,000,000 million principal amount of Lease obligations for a term
not to exceed ten years. Ms. Horwitz testified that IPL proposes to utilize
Leases to acquire property and equipment in order to optimize the cost of
financing commensurate with the underlying asset's expected life. Ms. Horwitz
testified that assets purchased could be in the form of, but not limited to,
buildings, transformers, computers, software, telecommunications equipment, and
fleet vehicles. The Leases will have structures and terms similar to other forms
of debt financing, but with the potential, in certain instances, to lower the
overall cost associated with financing property and equipment acquisitions. The
amount financed under such Leases, excluding transaction costs, is not expected
to be more than the net capitalized cost of the appraised value of the
underlying property or equipment, in conformity with accounting principles
generally accepted in the United States of America. The term of a lease is also
structured so as not to exceed the useful life of the asset financed. Ms.
Horwitz opined that at lease expiration, Petitioner will have several available
options. These options include the ability to renew the lease at a price and
term mutually agreeable to Petitioner and the lessor, to terminate the lease, or
to purchase the equipment.
6. PROPOSED INTEREST RATE RISK MANAGEMENT TRANSACTIONS. Petitioner also
seeks authority to enter into interest rate risk management transactions for
variable interest rate obligations issued as part of the Proposed Financing.
Petitioner seeks authority to enter into any such interest rate risk management
transactions throughout the life of any Notes in order to mitigate the interest
rate risk associated with such securities. Such interest rate risk management
transactions would include, but not be limited to, interest rate swaps, caps,
floors, collars, forwards, and forward starting swaps. Petitioner proposes to
enter into such interest rate risk management transactions with terms and
characteristics as shall be fixed and determined by Petitioner's Board of
Directors.
The main concept behind interest rate risk management transactions from the
Petitioner's perspective is to establish an effective ceiling rate for
floating-rate debt for a specified period of
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time. In order to assure a maximum ceiling interest rate, Petitioner would pay a
premium, much like an insurance policy, for this protection.
Ms. Horwitz opined that since market opportunities for interest rate risk
management transactions are transitory, Petitioner must be able to execute swap,
cap, collar, forward and/or forward starting swap transactions when the
opportunity arises to obtain the most competitive pricing. Thus, Petitioner
seeks approval to enter into any or all such transactions in connection with the
new Unsecured Notes during the entire term of the underlying obligations.
Ms. Horwitz stated that for book purposes, Petitioner proposes to account
for all payments or receipts involving such transactions, including
administrative costs, as a decrease or increase in interest expense. For
ratemaking purposes, Petitioner contemplates reflecting the net effect of such
transactions in its embedded debt cost. This accounting treatment is consistent
with the Commission's determination in Petitioner's latest financing petition,
Cause No. 41439.
7. PETITIONER'S CAPITALIZATION AND BALANCE SHEET. A Balance Sheet of
Petitioner as of June 30, 2002, and an Income Statement of Petitioner for the
twelve months ended June 30, 2002, were provided to the Commission. Ms. Horwitz
testified that the original cost net utility plant exceeds the total
capitalization of Petitioner. This Commission has repeatedly recognized that due
to historic inflation and other factors, Petitioner's fair value of its net
utility plant would exceed its net original cost, and thus, once Petitioner
completes the financing transactions contemplated herein, Petitioner's total
capitalization will not exceed the fair value of Petitioner's net utility plant.
As of June 30, 2002, the capitalization of Petitioner amounted to
$1,402,824,000, and consisted of long-term debt in the amount of $621,964,000
(excluding unamortized discount of $686,000 and current maturities in the amount
of $-0-); cumulative preferred stock in the amount of $59,135,000; and common
equity in the amount of $721,725,000. All of the outstanding bonds, preferred
stock and common stock have been duly authorized by Orders of this Commission.
At June 30, 2002, the long-term debt of Petitioner was represented by
twelve series of First Mortgage Bonds and two unsecured notes. The outstanding
First Mortgage Bonds have been issued under and pursuant to a Mortgage and Deed
of Trust dated as of May 1, 1940, as supplemented and modified by supplemental
indentures (hereinafter collectively referred to as the "Mortgage"). At June 30,
2002, the First Mortgage Bonds and the two unsecured notes constitute the only
long-term debt of Petitioner.(2) Petitioner had no other outstanding
indebtedness except current liabilities.
At June 30, 2002, the issued and outstanding capital stock was comprised of
five separate issues of Cumulative Preferred stock totaling 591,535 shares with
a par value of $100 per share, 17,206,630 shares of Common Stock without par
value, and Retained Earnings of an undisclosed amount.
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(2) Additional off-balance sheet indebtedness of Petitioner includes the
$50 million Asset Securitization of Petitioner's accounts receivable in 1996.
Petitioner expenses interest incurred therefrom as an operating expense in
accordance with SFAS140.
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8. THE OUCC'S POSITION. OUCC witness Russell J. Robertson testified that
the OUCC is not asking that IPL's financing petition be denied. IPL is required
to install NOx equipment to meet certain EPA requirements and Mr. Robertson
agreed that financing is an appropriate means to accomplish that installation.
In addition, Mr. Robertson agreed that IPL should be given the opportunity to
renegotiate certain indebtedness if such action can benefit ratepayers as well.
Mr. Robertson did however express concern that Petitioner's financing
request may be impacted by the financial condition of AES and IPALCO. Mr.
Robertson testified that IPL's parent company, IPALCO, was purchased by AES in
March 2001. Mr. Robertson opined that "[s]ince that time, AES has experienced
significant financial pressure in the market which has been well documented in
the press." Mr. Robertson went on to testify "the OUCC believes that the
financial troubles of IPL's parent companies may lead to cash outflows from IPL
(through e.g. dividends or loans) that might result in insufficient cash to
provide reasonably adequate service or result in an inappropriate debt to equity
ratio."
In support of its concerns, the OUCC during cross-examination extracted
admissions from Ms. Horwitz that IPL's credit rating has fallen significantly
due to financial troubles at IPL's parent company. She conceded that one reason
Petitioner's credit rating fell may have been due to the investment community's
concern that IPL's parent companies might extract cash from IPL in an amount
that would jeopardize IPL's current financial position. Ms. Horwitz agreed that
IPL should not be able to send cash to its parent company to the extent that its
debt equals 100% of its capital structure. Although she agreed that some amount
of dividend payment might be too excessive, she contended that IPL management
should make this decision and the Commission should not interfere.
The OUCC recommended that the Commission prohibit IPL from providing loans
to AES or IPALCO without prior Commission approval. In addition, Mr. Robertson
recommended that IPL should not be allowed to pay dividends to its parent
companies in an amount greater than its earnings.
The Petitioner charged that the proposed restriction limiting dividends to
"earnings" is nebulous given the many possible interpretations of that term. The
OUCC countered that, to allow for variations in earnings by quarter, the
Commission might limit IPL dividends so that the total dividends paid in the
preceding twelve-month period (including the proposed dividend) not exceed IPL's
earnings for the most recent four quarters. To ensure that this restriction not
unreasonably prevent the withdrawal of equity from the company, the OUCC
proposed that IPL be permitted to come to the Commission at any time to request
that these restrictions be relaxed. In such proceedings, the OUCC suggested that
the burden should fall on IPL to show that either the parent company's financial
difficulties no longer pose a risk of substantial cash withdrawals from the
company or that withdrawals of equity can be made without unreasonable affecting
IPL's quality of service.
9. PETITIONER'S REBUTTAL. Petitioner submitted the rebuttal testimony of
Connie R. Horwitz, the Treasurer of IPL. Ms. Horwitz commented that there is no
factual basis to support Mr. Robertson's recommendation that "IPL, as a
condition of approval in this case, be prohibited from providing to AES or
IPALCO loans without prior Commission approval." Ms. Horwitz
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noted that there is no allegation that IPL has previously loaned money to either
AES or IPALCO. She stated that in an effort to resolve the matter, however, IPL
would be willing to comply with this recommendation during the period of this
financing authority.
Ms. Horwitz stated that Mr. Robertson's recommendation that "IPL should not
be allowed to pay dividends to its parent companies in an amount greater than
its earnings" causes IPL concern. She stated that the OUCC's proposal attempts
to constrict the day-to-day operations of IPL. She stated her belief that the
Commission may not or should not impose the OUCC's own idea of fiscal corporate
policy under the guise of the Commission's financing approval function. Ms.
Horwitz noted that the OUCC had not articulated any concern regarding IPL's
prior or current dividend policy, nor had it accused IPL's management of any
abuse or harm to consumers. She continued that there is no factual justification
presented in the OUCC's testimony to support this recommendation. Ms. Horwitz
further noted that the OUCC's proposal is nebulous. She stated that "earnings"
is undefined in the OUCC's proposal. She stated that if the term "earnings"
means cumulative retained earnings, which is the only rational definition, given
the volatility of monthly, quarterly or annual measures of profit, and since
material changes in cumulative retained earnings have the greatest effect on
debt-equity ratios, the proposed financing restriction is unnecessary. IPL's
current Mortgage and Deed of Trust provides that its dividends will not exceed
its cumulative retained earnings. Ms. Horwitz opined that it is possible that
the condition's vagueness, uniqueness and its restriction of management
discretion would create uncertainty in the minds of potential bond purchasers
and bond rating agencies, which could negatively affect the marketing of the
bonds. She continued that another concern with the OUCC's proposal is that there
is no time limit articulated regarding the OUCC's proposal. Ms. Horwitz
testified that IPL is willing to provide to the Commission on a yearly basis,
for the term of this financing authority, a report of its capital expenditures.
She stated that this will assure the Commission that IPL's capital expenditures
exceed its additional long-term borrowings. She stated that IPL would commit to
place its proceeds from any new long-term borrowings into a restricted account,
which would only be utilized to pay for its capital expenditures. This is a
restriction rationally related to a financing proceeding, unlike the OUCC's
proposed broad restriction on IPL's dividend policy. She concluded with IPL's
assurance that it will comply with all conditions of its Mortgage and Deed of
Trust.
Ms. Horwitz was cross-examined by the OUCC. On re-direct, Ms. Horwitz
further explained IPL's current bond ratings. She stated that IPL's debt had
been down-graded by Standard & Poor's ("S&P") because of a "notching" rule that
S&P utilizes, but that IPL's bond ratings by other investment analysts remained
strong. She further explained that one of the reasons that IPL has maintained
its level of bond rating is that various safeguards are in place, which the
investment community views as protections. For example, Ms. Horwitz explained
that in addition to the constraint on dividend pay-outs present in IPL's First
Mortgage Bonds, there is also an interest rate coverage ratio and a
debt-to-capital ratio that must be maintained at the IPALCO level. Ms. Horwitz
was asked to submit, as a late-filed exhibit, copies of documents provided to
S&P, which explain the presence of "ring fencing." In response to this request,
on November 20, 2002, IPL asked the Commission to take administrative notice of
IPALCO's Amended Articles of Incorporation and Bylaws. In addition, IPL filed a
copy of a "Separateness Agreement," which articulates the independence of IPALCO
and AES. No party opposed IPL's requests for Administrative Notice, and the
Commission now grants the requests.
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10. FINDINGS AND CONCLUSIONS. The provisions of the Indiana Code that
govern utility financings include I.C. 8-1-2-76 through 80 and I.C. 8-1-4-1. Of
particular interest to the Commission in this case are the criteria set forth in
1.C. 8-1-2-79(a) which include the following:
For the purpose of enabling it to determine whether the proposed issue
is in the public interest, in accordance with laws touching the
issuance of securities by public utilities, and reasonably necessary
in the operation and management of the business of the utility in
order that the utility may provide adequate service and facilities,
the commission also may consider the total outstanding capitalization
of the utility, including the proposed issue, in relation to the total
value of or investment in the property of the utility, including the
property to be acquired by the proposed issue, as shown by the balance
sheet, accounts, or reports of the utility, the records of the
commission, or other evidence, and the character and proportionate
amount of each kind of security, including the proposed issue, and the
unamortized discount suffered by the utility in the sale of the
outstanding securities.
(a) REQUESTED FINANCING AUTHORITY. The Commission determines that the
proposed Financing Program outlined herein, including all steps contemplated by
the Financing Program, is advantageous and necessary, in the public interest and
in the best interest of Petitioner and its customers.
Based on the evidence presented, the Commission finds that the long-term
debt which Petitioner will have outstanding pursuant to the Financing Program
will bear a reasonable proportion (50.2%) to Petitioner's total capitalization
and will be reasonable in aggregate amount, with due consideration given to the
nature of Petitioner's business, Petitioner's credit, future prospects and
earnings and the effect which the issuance of such securities may have on the
management and efficient operations of Petitioner. We further find that
Petitioner's total outstanding capitalization, when adjusted for the Financing
Program, and the application of the proceeds therefrom, will be reasonable in
relation to the total value of Petitioner's property and will not be in excess
of the fair value of Petitioner's property used and useful for the convenience
of the public.
The Commission finds that the issuance of long-term debt pursuant to the
Financing Program is reasonably necessary for the purposes for which such
securities may be authorized by the Commission and is in accordance with the
provisions of the laws of the State of Indiana relating to the issuance of
securities by public utilities. Therefore, the Commission finds that the
Financing Program (which includes the issuance of New Bonds, the Lawful
Refundings, the use of Leases, and the use of Interest Rate Risk Management
Transactions) should be approved and authorized by the Commission, and a
Certificate of Authority should be issued to Petitioner accordingly, subject to
the condition set forth below.
The Petitioner made a number of offers to protect IPL customers' interests
from the dangers that are of concern to the OUCC. First, IPL offered to make no
loans to any parent without prior Commission approval during the period of this
financing authority. Second, IPL expressed a willingness to provide to the
Commission on a yearly basis, for the term of this
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financing authority, a report of its capital expenditures to assure the
Commission that IPL's capital expenditures exceed its additional long-term
borrowings. Third, IPL offered to place its proceeds from any new long-term
borrowings into a restricted account, which will only be utilized to pay for its
capital expenditures. Fourth and last, IPL represented that it will not make any
dividend payments to its common shareholders that would result in its Leveraged
Ratio exceeding 0.67:1.(3) The Commission finds that Petitioner's offers should
all be accepted and that Petitioner should therefore be required to honor those
commitments.
(b) RESTRICTION ON DIVIDENDS. Out of a concern that IPL may have to make
substantial dividend distributions to its ultimate parent, AES, a company whose
declining stock price and bond rating has raised concerns, the OUCC has
suggested that the Commission restrict IPL's ability to pay out "earnings." The
Commission believes there is merit to this suggestion.
As a regulatory agency charged with overseeing utilities, the Commission is
attuned to factors that affect all utilities in general and individual utilities
as well. With regard to IPL and its ultimate parent AES, the Commission is aware
of considerable media attention to the recent financial difficulties of AES.(4)
To ignore such reports would be a dereliction of our responsibility to exercise
our statutory authority in an informed manner. In the case at hand, the OUCC's
witness Mr. Robertson testified that IPL's ultimate parent, AES, has experienced
significant financial pressure in the market, and that the financial troubles
with IPL's parent companies may lead to cash outflows from IPL that might result
in insufficient cash to provide reasonably adequate service, or result in an
inappropriate debt to equity ratio. IPL's witness Ms. Horwitz testified that
"IPL's credit rating was dropped by the Standard & Poor's rating agency solely
because of a practice that Standard & Poor's has on linking a subsidiary to a
much lower rated parent." She further conceded that implicit in the rating drop
is a concern by the investment community that IPL's parent companies might
extract cash from IPL in an amount that would leave IPL in a difficult
situation. The evidence presented supports a finding, and we find, that the poor
financial condition of AES has created a situation that could endanger the
financial health of IPL.
At this time, IPL has a reasonable capital structure, and based on a
snapshot of IPL's financial condition, the Commission has approved IPL's
financing request. However, faced with an ultimate parent, AES, that is in
financial distress, there is a risk that IPL may need to surrender dividends in
such an amount that a factor critical to the Commission's approval of a
financing request - the utility's capital structure - could be substantially
changed. If the flow of cash dividends from IPL to its unregulated parent
companies were unrestricted, such cash flows could lower the amount of equity
retained in IPL to a level that the additional debt financing proposed herein
might become imprudent. In addition, as a company increases the percentage of
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(3) Our acceptance of IPL's offer to limit its Leveraged Ratio to 0.67:1
should not be construed as an indication that the Commission believes such a
capital structure is reasonable. Moreover, we do not believe this is a
significant concession on IPL's part. The evidence appears to indicate that IPL
could distribute almost all of its retained earnings to its parent without
running afoul of this concession. In addition, we note that such a requirement
already limits transfers from IPALCO to AES. See, Section 9.4 of Article IX of
IPALCO's Second Amended and Restated Articles of Incorporation.
(4) See article by Gargi Chakrabarty, November 12, 2002, Indianapolis Star.
Also see Staff and News Service Report, January 28, 2003, Indianapolis Star.
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debt in its capital structure, both its cost of equity and its cost of debt
increase - a burden that eventually would fall on ratepayers.
IPL pointed to a number of safeguards that exist to protect its financial
health and to ensure its independence from its parent IPALCO and IPALCO's
parent, AES. However, the Commission has concerns that the operation of those
safeguards may not preserve what is presently a sound financial condition. While
the effects of some safeguards (e.g., the Mortgage Indenture) can be ascertained
because they relate to objective financial criteria, the level of protection
afforded by those safeguards may not be sufficient to protect the public
interest.(5) The operation of other safeguards, like "ring fencing," leaves
critical decisions to the IPL and IPALCO Boards of Directors. For example,
Article VII, Section 6 of IPL's By-laws states, "The Corporation shall at all
times ensure that its capitalization is adequate in light of its business and
purpose." The Commission does not believe it is appropriate to leave the
decision on "adequate capitalization" solely to the IPL and IPALCO Boards of
Directors, in light of our experience with declining service quality shortly
after IPALCO was acquired by AES.(6) The judgments of the IPL and IPALCO Boards
of Directors are guided only by a fiduciary duty to their respective
corporations. The Commission's duty to protect the public interest requires that
it look beyond the interests of any single constituency, so that a proper
balance can be found between a diversity of interests. Finally, with regard to
"ring fencing," it appears that some of the "ring fencing" provisions erected to
give IPL and IPALCO independence from their respective corporate parents can be
undone.(7)
Petitioner objects that the Commission lacks authority to control the
dividend policy of a utility. To the contrary, we note that I.C. 8-1-2-80
states, "The commission shall have such power to impose such conditions upon a
public utility in issuing securities as it may deem reasonable." In the case at
hand, where the unregulated ultimate parent of a major Indiana utility is in
financial distress, it is appropriate for the Commission to assert this
authority. Under the circumstances presented, the Commission finds the
restrictions approved below to be "reasonable," within the meaning of I.C.
8-1-2-80.
The OUCC proposed that the Commission restrict Petitioner's dividends so
that the total dividends paid in the preceding twelve months (including the
proposed dividend) do not exceed Petitioner's "earnings" for the most recent
four quarters. IPL claimed that the meaning of the term "earnings" is nebulous.
The Commission is likewise unclear about how to describe the restriction that
should be implemented. In the interest of avoiding a protracted hearing on this
issue, which would hinder IPL's ability to make timely distributions, the
Commission finds that IPL, before declaring or paying any dividend, should file
with the Commission a report detailing (1) the amount of the proposed
distribution, (2) the amount of dividends distributed during the
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(5) For example, IPL's Mortgage Indenture provides that IPL's dividends
shall not exceed its cumulative retained earnings. Thus, the Mortgage Indenture
would allow IPL to distribute approximately $350 million that now resides in
that account, or nearly half of Petitioner's total current equity of $780
million.
(6) See the Commission's Orders in Cause No. 41962 investigating service
quality problems of IPL.
(7) For example, Article IX of IPL's Amended and Restated By-laws permits
the shareholders (i.e., IPALCO) to repeal the Separateness provisions found in
Article VII. Likewise, Article X of IPALCO's Second Amended and Restated
Articles of Incorporation appears to permit the repeal of the limitations on
dividends found at Section 9.4 of Article IX.
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prior twelve months, (3) an income statement for the same twelve-month period,
(4) the most recent balance sheet, and (5) IPL's capitalization as of the close
of the preceding month, as well as a pro forma capitalization giving effect to
the proposed dividend, with sufficient detail to indicate the amount of
unappropriated retained earnings. If within twenty (20) calendar days the
Commission does not initiate a proceeding to further explore the implications of
the proposed dividend, the proposed dividend should be deemed approved. The
Commission finds the preceding approval process should continue in effect during
the term of this financing authority, which expires December 31, 2006.
IT IS THEREFORE ORDERED BY THE INDIANA UTILITY REGULATORY COMMISSION THAT:
1. Petitioner be, and hereby is, authorized to carry out and consummate
the Financing Program described in the Petition filed in this Cause and by the
testimony, exhibits and evidence introduced at the hearing in this Cause,
subject to the condition set forth in Ordering Paragraph No. 5 below. In
particular, Petitioner is authorized over the period ending December 31, 2006 to
issue $380,650,000 (collectively, "New Debt") that Petitioner anticipates will
be comprised of:
(a) $160,000,000 increase in indebtedness ("New Bonds")
(b) $210,650,000 issued to retire, refund, or redeem four debt issues
currently outstanding ("Lawful Refundings")
(c) $10,000,000 in Capital Leases ("Lease[s]")
2. There shall be, and hereby is issued to Petitioner, a Certificate of
Authority for the issuance of securities, upon the terms and conditions, of the
character, for the consideration, in the manner, and for the purposes, set forth
in this Order, including:
(a) authority to issue from time to time over the period ending December
31, 2006 up to $370,650,000 in aggregate principal amount of fixed or
variable rate secured or unsecured long-term debt in amount on terms
consistent with the evidence submitted herein;
(b) authority to execute capital lease agreements not to exceed
$10,000,000 on terms consistent with the evidence submitted herein;
(c) authority to the extent long-term debt issued pursuant to this
authority is secured, to execute and deliver Supplemental Indentures
supplementing and amending the Mortgage in order to create new series
of Mortgage Bonds and to specify the characteristics thereof in
accordance with the term and provisions of the Mortgage;
(d) authority to execute and deliver promissory notes and other evidence
of indebtedness relating to such long-term debt;
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(e) authority to execute letters of credit or other credit facilities on
terms consistent with the evidence submitted herein;
(f) authority to execute Interest Rate Risk Management transactions on
terms consistent with the evidence submitted herein;
(g) authority to use and apply the cash proceeds arising from the issue
and issuance of the long-term debt and/or capital lease obligations
for the purposes set forth in the Petition.
3. Within thirty (30) days after each use of the authority granted
herein, Petitioner shall submit a report to the Commission with a copy of the
OUCC summarizing the results of the financing. The report shall include, at a
minimum, the purpose of the financing, the type of financing and a description
of the terms of the financing including the calculation of the effective
interest rate and resulting capital structure.
4. The authority granted in this Order shall expire on December 31, 2006
to the extent it has not been utilized by that date.
5. Petitioner shall comply with the four commitments set forth in Finding
Paragraph No. 10(a).
6. Petitioner shall comply with the findings set forth in Finding
Paragraph No. 10(b) relating to dividends.
7. This Order shall be effective on and after the date of its approval.
MCCARTY, HADLEY, LANDIS, RIPLEY, AND ZIEGNER CONCUR:
APPROVED: FEB 12 2003
I hereby certify that the above is a true
and correct copy of the Order as approved.
-----------------------------------------
Nancy Manley, Secretary to the Commission
-12-
STATE OF INDIANA
INDIANA UTILITY REGULATORY COMMISSION
PETITION OF INDIANAPOLIS POWER & )
LIGHT COMPANY, AN INDIANA )
CORPORATION, FOR (1) APPROVAL OF ITS )
2003-2006 FINANCING PROGRAM WHICH )
INCLUDES THE ISSUANCE OF UP TO )
$380,650,000 IN AGGREGATE PRINCIPAL )
AMOUNT OF (1A), FIXED OR VARIABLE RATE )
SECURED OR UNSECURED LONG-TEM )
DEBT IN AN AMOUNT NOT TO EXCEED )
$370,650,000 IN AGGREGATE PRINCIPAL, AND )
(1B) CAPITAL LEASE OBLIGATIONS NOT TO )
EXCEED $10,000,000 IN AGGREGATE )
PRINCIPAL; (2) TO EXECUTE AND DELIVER )
ONE OR MORE SUPPLEMENTAL )
INDENTURES TO ITS MORTGAGE AND DEED )
OF TRUST DATED AS OF MAY 1, 1940 AS )
SUPPLEMENTED AND AMENDED, FOR THE )
PURPOSE OF CREATING OR SECURING )
EACH NEW SERIES OF FIRST MORTGAGE )
BONDS; (3) TO EXECUTE LETTERS OF ) CAUSE NO. 42292
CREDIT OR OTHER CREDIT FACILITIES )
DEEMED APPROPRIATE BY PETITIONER TO )
PROVIDE LIQUIDITY FOR ITS VARIABLE )
INTEREST RATE OBLIGATIONS AS )
PROPOSED TO BE ISSUED HEREIN, )
THROUGHOUT THE LIFE OF THE )
UNDERLYING OBLIGATION; (4) TO EXECUTE ) ORDER ON PETITION
AND DELIVER PROMISSORY NOTES AND ) FOR RECONSIDERATION
OTHER EVIDENCE OF INDEBTEDNESS )
RELATING TO ISSUANCE OF LONG-TERM )
DEBT; (5) TO ENTER INTO INTEREST RATE )
RISK MANAGEMENT TRANSACTIONS IN )
CONNECTION WITH ITS VARIABLE RATE )
OBLIGATIONS AS PROPOSED TO BE ISSUED )
HEREIN, THROUGHOUT THE LIFE OF THE ) APPROVED: APRIL 16, 2003
UNDERLYING OBLIGATION(S); AND (6) )
AUTHORITY TO APPLY THE NET CASH )
PROCEEDS FROM THE SALE OF SUCH LONG- )
TERM DEBT AFTER PAYMENT OF EXPENSES )
INCURRED IN CONNECTION THEREWITH, )
TO DISCHARGE, REFUND OR REPLACE )
CERTAIN SERIES OF ITS FIRST MORTGAGE
BONDS OUTSTANDING AND TO REIMBURSE )
ITS TREASURY, REPAY SHORT TERM )
BORROWINGS, AND FINANCE ITS )
CONSTRUCTION PROGRAM. )
BY THE COMMISSION:
DAVID E. ZIEGNER, COMMISSIONER
GREGORY S. COLTON, ADMINISTRATIVE LAW JUDGE
On February 12, 2003, the Commission issued an order in this Cause (the
"Order") approving the financing program of Petitioner Indianapolis Power &
Light Company ("IPL" or "Petitioner") for the 2003-2006 period.
On February 28, 2003, IPL filed its Petition for Reconsideration or, In The
Alternative, For Rehearing ("Petition For Reconsideration"). On March 14, 2003,
IPL filed its Notice of Appeal pursuant to Ind. Appellate Rule 9(I).
Being duly advised and having considered the matters set forth in IPL's
Petition For Reconsideration, the Commission now finds:
1. JURISDICTION. In the Order, the Commission found it had jurisdiction
over the parties and the subject matter of this Cause. No party has challenged
this finding. Petitioner filed a Notice of Appeal on March 14, 2003, and on
April 7, 2003 sought a 30-day extension of the deadline for submission of the
Clerk's Record, which was granted by the Court of Appeals. The Commission
retains jurisdiction at this time to address the Petition for Reconsideration.
2. RELIEF REQUESTED BY PETITIONER. In its Petition For Reconsideration,
IPL seeks the following with respect to the Order:
(a) Modification of the Order by replacing the dividend "approval process"
condition described in the Order with a Dividend Review Process
("DRP") containing an objective criterion acceptable to IPL. IPL
proposes that to the extent common stock dividend distributions do not
cause IPL's long-term debt capitalization ratio to exceed a specific
threshold, the DRP condition will not apply in any manner to require
IPL to withhold dividend distributions. To the extent a dividend
distribution would result in a long-term debt capitalization ratio
greater than the objective criterion, and the Commission initiates a
separate, lawfully conducted investigation, the DRP would result in
IPL temporarily withholding that portion of the dividend that causes
the objective criterion to be exceeded, pending investigation. The DRP
also would establish a reasonable time limit for the completion of any
investigation the Commission may order.
(b) Clarification that IPL's financing authority is approved and that no
restriction on dividend distributions results from the Order but
rather, the Commission is imposing a reporting requirement as a
condition of the financing and that any
2
order attempting to limit dividend distributions would result from a
separate investigation under I.C. 8-1-2-59.
(c) Modification of the Order to institute an upfront procedure whereby
non-public information submitted to the Commission pursuant to the
reporting requirement of the Order would be treated by the Commission
as exempt from public disclosure in accordance with 170 IAC 1-1.1-4,
I.C. 8-1-2-29, and I.C. 5-14-3-4, until the information has been
publicly released.
(d) Clarification that the dividend reporting and "approval process"
condition is only applicable to dividend payments to IPL's common
shareholder and not to dividend payments to IPL's preferred
shareholders.
(e) Corrections to statements on page 5 of the Order regarding the amount
of IPL's retained earnings and the total shares of preferred stock
outstanding as of June 30, 2002.
With regard to item (b) above, IPL proposed that a long-term debt
capitalization ratio in the range of 55% to 60% was reasonable and should be
approved. IPL further proposed that a reasonable time limit for completing an
investigation of proposed dividends (for that portion of a proposed dividend
that would result in a long-term debt capitalization ratio above the approved
range) would be sixty days from the date the Commission initiates a proceeding.
3. POSITION OF THE OUCC. The OUCC made no filing in response to the
Petition For Reconsideration.
4. COMMISSION FINDINGS.
A. IPL'S PROPOSED DIVIDEND REVIEW PROCESS. In its Petition For
Reconsideration IPL criticized the "dividend approval condition" created by the
Order, stating that the condition lacked objective criteria, a reasonable time
limit for the completion of any investigation and any triggering mechanisms. To
correct these perceived shortcomings, IPL suggested that the Commission instead
implement a "Dividend Review Process" with the following details:
(1) If a report filed by IPL on proposed common stock dividends verifies
that, after payment of the proposed dividends, the ratio of IPL's
long-term debt to the book value of its total capital structure is not
greater than a specified threshold, the proposed dividends will not be
subject to any condition other than the provision of the information
required by Finding No. 10 of the Order. If the proposed dividends
would result in a long-term debt capitalization ratio above the
specified threshold, and the Commission initiates an investigation
thereof within twenty (20) days of the informational filing, the
payment of that portion of the dividend which causes the long-term
debt capitalization ratio to exceed the specified threshold would be
withheld pending the investigation, provided that the investigation is
completed within sixty (60) days.
3
(2) If the Commission initiates a proceeding to explore the implications
of proposed common stock dividends resulting in a long-term debt
capitalization ratio in excess of the specified threshold, the
Commission will provide IPL with notice and hearing pursuant to I.C.
8-1-2-59. The Commission also will complete the investigation and
issue any order thereon within sixty (60) days from the date the
Commission initiates the proceeding. IPL alleged that this sixty (60)
day time limit is needed to ensure that the period of time of any
withholding of that portion of the dividend which causes the long-term
debt capitalization ratio to exceed the specified threshold will be
reasonable and to avoid the pancaking of investigations of sequestered
dividend payments.
After considering the proposed Dividend Review Process, the Commission is
not persuaded to adopt it. IPL's proposed range of 55% to 60% for a long-term
debt capitalization ratio is significantly higher than has previously been
experienced by IPL, and appears to surrender to the notion that IPL's capital
structure should be no better than is warranted by its current credit rating,
which is depressed due to AES's financial condition. IPL also claims that,
absent the certainty of an objective criterion establishing a presumptively
reasonable capital structure, IPL cannot prudently plan its business and
financing activities. The record evidence does not support the reasonableness of
IPL's proposed debt capitalization ratio, nor does it support IPL's claim that
an objective criterion is necessary.
B. THE ORDER'S DIVIDEND APPROVAL CONDITION. In its Petition For
Reconsideration, IPL requests clarification of the "mechanics" of the dividend
approval condition. IPL suggests that the dividend approval condition could be
interpreted merely as a requirement that IPL must provide information to the
Commission, after which the Commission might then decide to open an
investigation into IPL's financial condition pursuant to I.C. 8-1-2-58 and/or
59. To dispel any uncertainty on this point, the Commission now clarifies that
the dividend approval condition prohibits IPL from issuing any dividends unless
those dividends are either deemed approved or explicitly approved by the
Commission.(1) To further clarify, if the Commission initiates a proceeding to
explore the implications of a proposed dividend, the Commission finds that IPL
should not issue the dividends that are the subject of that proceeding until the
proceeding is concluded by a Commission order, and then only if that order
approves the proposed dividend.
IPL suggests that any investigation into the appropriateness of a proposed
dividend should be addressed through I.C. 8-1-2-58 and/or 59. Those two
statutory provisions are not the basis for the Commission's claimed authority
over IPL's dividends and are therefore not applicable to the dividend approval
process set forth in the Order. The Order indicates that the Commission's
authority to restrict dividends is based on I.C. 8-1-2-80 which states in part,
"The commission shall have power to impose such conditions upon a public utility
in issuing of securities as it may deem reasonable." In the Order, the
Commission determined that the
----------
(1) We grant below IPL's request that the payment of dividends for
preferred stock be excepted from the dividend approval condition.
4
initiation of a proceeding to explore the implications of a proposed dividend
was "reasonable" within the meaning of I.C. 8-1-2-80.
The Commission notes that since the issuance of the February 12, 2003
Order, IPL has twice petitioned for approval of proposed dividends. Without
waiving any of the positions taken in its Petition for Reconsideration, IPL
provided the financial information required by the Order, and sought Commission
approval of first, a preferred dividend to be paid on April 1, 2003, and second,
both a common stock dividend to be paid on April 9, 2003 and a preferred
dividend to be paid on July 1, 2003. In no instance did the Commission initiate
a proceeding to explore the implications of the proposed dividends, and they
were all therefore deemed approved after twenty days had elapsed.
C. CONFIDENTIALITY OF INFORMATION. IPL asserted in the Petition For
Reconsideration that much of the information the Order requires IPL to submit
before making dividend distributions may not yet have been publicly disclosed at
the time the report must be filed. IPL explained that because it is the
principal subsidiary of IPALCO, a reporting company, premature release of such
material nonpublic information could cause repercussions at the IPALCO and AES
levels. IPL stated that this makes it necessary for IPL to seek a protective
order to ensure that the Commission treats such information as confidential and
protected from public disclosure until such information has been generally made
publicly available. IPL expressed its concern that if this confidentiality issue
is first raised in a motion for a protective order at the time the report is
due, there could be delays in the review of the report and completion of any
review proceeding because IPL cannot provide the information to the Commission
until at least a preliminary confidentiality determination has been made.
IPL alleged that public disclosure of proposed dividends prior to public
declaration would be inconsistent with the scheme of SEC regulation. IPL also
stated that public disclosure of an income statement or balance sheet that had
not been previously issued or which did not fall within a quarterly reporting
pattern would also be inconsistent with the SEC regulatory scheme. Therefore,
IPL opined that there will be a need for confidential treatment with respect to
each dividend report, and a mechanism should be established to allow the timely
filing of the confidential information. IPL proposed that at the time of filing
a report, IPL submit, pursuant to 170 IAC 1-1.1-4(b), a sworn statement as to:
(a) the nature of the information; (b) the reason it is confidential; (c) the
efforts taken to maintain its confidentiality; and (d) the date upon which IPL
expects the information will become public. IPL requested that the Commission
find that future dividend reports so verified by IPL would be confidential and
exempt from disclosure under I.C. 8-1-2-29 and I.C. 5-14-3-4, until such time as
the information has been publicly released. IPL expressed a willingness to enter
into an appropriate nondisclosure agreement with the OUCC which will allow its
representatives to immediately review the reports as filed with the Commission.
The Commission finds that IPL's proposed confidentiality procedure is
consistent with federal securities laws and regulations, will expedite
consideration of the information and will be efficient for the Commission and
the parties. Accordingly, the Commission approves the proposed procedure and
authorizes IPL to submit nonpublic financial information in its dividend reports
under seal to one of the presiding officers for this Cause. The Commission finds
such
5
information is exempt from public disclosure and public access pursuant to I.C.
8-1-2-29 and I.C. 5-14-3-4. IPL is directed to notify the Commission when such
information has been publicly released and is no longer confidential.
D. TREATMENT OF PREFERRED DIVIDENDS. As evidenced in Appendix B of IPL's
Petition, IPL currently has outstanding 591,353 shares of preferred stock. In
its Petition For Reconsideration, IPL stated that all shares of preferred stock
are owned by holders other than IPALCO or AES. IPL stated that the preferred
shareholders are entitled to dividends on their preferred stock on a quarterly
basis according to the dividend rate fixed for each series of preferred stock
which is approximately $800,000 in the aggregate per quarter. IPL stated that as
a result, subject to declaration by the Board of Directors, dividends on
preferred stock are limited to specified amounts, payable on specified dates,
similar to interest payments on debt. IPL stated that preferred shareholders
have no right to the residual earnings of the company. IPL requested that the
Order be clarified in a manner that makes it clear that the dividend reporting
and "approval process" condition concerns only payments of dividends on IPL's
common stock, not payments of dividends on IPL's preferred stock. The Commission
finds that the requested reconsideration should be granted. Therefore, the
reporting requirements of the Order and the need to obtain Commission approval
are triggered only with regard to the payment of dividends on common stock, not
to payments of dividends on preferred stock.
E. MISCELLANEOUS CORRECTIONS. On page 5 of the February 12 Order the
Commission stated: "[a]t June 30, 2002, the issued and outstanding capital stock
was comprised of five separate issues of Cumulative Preferred stock totaling
591,535 SHARES with a par value of $100 per share, 17,206,630 shares of Common
Stock without par value, and RETAINED EARNINGS OF AN UNDISCLOSED AMOUNT."
[Emphasis added.] IPL stated that this statement is not correct because Appendix
B to the Petition, which was admitted in evidence as PETITIONER'S EXHIBIT NO. 1,
shows that as of that date IPL's retained earnings were $407,283,000 and IPL had
591,353 shares of cumulative preferred stock outstanding. IPL requested that the
Commission correct this finding. Based upon the Petition for Reconsideration and
the Commission's review of PETITIONER'S EXHIBIT NO. 1, the Commission finds that
the Order should be and hereby is so corrected.
IT IS THEREFORE ORDERED BY THE INDIANA UTILITY REGULATORY COMMISSION THAT:
1. IPL's Petition for Reconsideration is granted in part and denied in
part, and the Commission's February 12, 2003 Order is clarified, modified and
corrected consistent with the findings herein.
2. The Order shall be effective on and after the date of its approval.
MCCARTY, HADLEY, RIPLEY AND ZIEGNER CONCUR; LANDIS CONCURRING IN PART AND
DISSENTING IN PART:
APPROVED:
6
I HEREBY CERTIFY THAT THE ABOVE IS TRUE
AND CORRECT COPY OF THE ORDER AS APPROVED.
---------------------------
NANCY E. MANLEY,
SECRETARY TO THE COMMISSION
7
CAUSE NO. 42292
ORDER ON PETITION FOR RECONSIDERATION
APRIL 16, 2003
OPINION OF COMMISSIONER LANDIS, CONCURRING IN PART, DISSENTING IN PART:
1. I support and join in the findings of Finding Paragraph No. 4.A. regarding
IPL's proposed Dividend Review Process. In particular, I concur with the
majority opinion's finding that the record evidence does not support the
reasonableness of Petitioner's proposed range of 55% to 60% for a long-term debt
capitalization ratio.
In testimony, the Public proposed that the Commission should limit IPL's
dividends to no more than IPL's earnings for the preceding twelve months. This
standard may be too generous. A recent article in a trade journal suggests that
dividends as a percent of earnings should, from an investor's perspective, be
around 55%. [Public Utilities Fortnightly, "Is It Safe?: Finding the Best
Utility Dividends," April 1, 2003].
I am not persuaded that either of the above specific approaches is
necessarily appropriate or prudent.
Petitioner argues that the Commission's action has resulted in an
atmosphere of "....risk and uncertainty created by this lack of clarity..."
which, Petitioner contended, could compromise the proposed and approved
Financing Program.
In a rating action released on April 11, 2003, Moody's Investors Service
reports that "IPL plans to take on additional debt as approved by the Indiana
Utility Regulatory Commission to partially fund its upcoming capital ependiture
program..." [Moody's Investor Service, April 11, 2003, quoted in "Moody's cuts
IPALCO Enterprises ratings," Reuters News Service] while no mention is made of
concern over the Commission's dividend approval process.
At the same time, the Commission's concerns regarding upstreaming to the
parent are closely parallel to reservations reflected in Moody's statement:
"Moody's notes that large dividend payments from IPALCO have been made to AES
Corporation in 2001 and 2002 and a high pay-out from funds available to
shareholders after utility operating needs are met is likely to continue.
[ibid.]"
I am concerned that any good-faith attempt by the Commission to set a
permissible range for a debt capitalization ratio or for
dividends-as-a-percent-of-earnings might automatically be interpreted as a
permissible upper boundary, rather than as general guidance, and therefore might
be taken as license for IPL to abandon more stringent internal standards.
2. I respectfully dissent from parts of Finding Paragraph No. 4.B. I believe
that in some respects the Commission's order would benefit from greater
specificity and
guidance for Petitioner. I find merit in Petitioner's argument that "...the
dividend 'approval process' lacks sufficient clarity..." Although the Commission
has already allowed IPL to issue two rounds of dividend payments, I do not
believe this provides sufficient guidance to enable IPL to act with greater
assurance in future quarters. While recognizing the challenges inherent in
arriving at some type of equitable, appropriate and productive guideline
regarding dividend payments, I support the creation of guidelines for dividends
that would be presumed to be reasonable and not subject to Commission
disapproval. In addition, I believe Commission Staff can quickly identify and
respond in those instances where Petitioner has requested approval of dividends
above and beyond what is permitted under the guidelines. When Staff has
completed its review process and has no objection to a proposed dividend, I
would prefer that the Commission provide some affirmative notification to IPL,
as opposed to "letting the clock run" on the twenty-day period.
3. I concur in the Order's findings relating to Confidentiality of Information
(Finding Paragraph No. 4.C.), Treatment of Preferred Dividends (Finding
Paragraph No. 4.D.) and Miscellaneous Corrections (Finding Paragraph No. 4.E.).