Filings Under the Public Utility Holding Company Act of 1935, as Amended (``Act'')

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26615]

Filings Under the Public Utility Holding Company Act of 1935, as

Amended (``Act'')

November 27, 1996.

Notice is hereby given that the following filing(s) has/have been

made with the Commission pursuant to provisions of the Act and rules

promulgated thereunder. All interested persons are referred to the

application(s) and/or declaration(s) for complete statements of the

proposed transaction(s) summarized below. The application(s) and/or

declaration(s) and any amendments thereto is/are available for public

inspection through the Commission's Office of Public Reference.

Interested persons wishing to comment or request a hearing on the

application(s) and/or declaration(s) should submit their views in

writing by December 23, 1996, to the Secretary, Securities and Exchange

Commission, Washington, D.C. 20549, and serve a copy on the relevant

applicant(s) and/or declarant(s) at the address(es) specified below.

Proof of service (by affidavit or, in case of an attorney at law, by

certificate) should be filed with the request. Any request for hearing

shall identify specifically the issues of fact or law that are

disputed. A person who so requests will be notified of any hearing, if

ordered, and will receive a copy of any notice or order issued in the

matter. After said date, the application(s) and/or declaration(s), as

filed or as amended, may be granted and/or permitted to become

effective.

Cinergy Corp., et al. (70-8933)

Cinergy Corp. (``Cinergy''), a registered holding company, its

wholly-owned nonutility holding company subsidiary, Cinergy

Investments, Inc. (``Investments''), and Cinergy's wholly-owned service

company subsidiary, Cinergy Services, Inc. (``Cinergy Services''), all

located at 139 East Fourth Street, Cincinnati, Ohio 45202, have filed

an application-declaration under sections 6(a), 7, 9(a), 10, 12(b) and

13(b) of the Act and rules 45, 54, 90 and 91 thereunder.

Cinergy and Investments request authorization to form and provide

guaranties in respect of a new wholly-owned nonutility subsidiary,

expected to be named Cinergy Solutions, Inc. (``Solutions''), which

will market a wide variety of energy-related products and services

exclusively to nonassociate commercial/industrial customers (including

governmental, institutional and utility companies) and residential

customers. Applicants state that Solutions will offer an integrated

package of ``value-added'' energy-related products and services to

enable customers to reduce energy costs, improve energy efficiency and

increase productivity. Such services/products will be marketed to

nonassociates on a local, regional, nationwide and, as opportunities

develop, international basis. The services would be priced based on

competitive market rates. Solutions will also develop, acquire, own and

operate certain energy-related projects.

Applicants request authorization to conduct its proposed business

activities directly through Solutions, wholly-owned subsidiaries of

Solutions, and subsidiaries of Solutions jointly owned with joint

venture nonassociates. As part of Solutions' project development and

ownership activities, Applicants further request authority for

Solutions to acquire, directly or indirectly through subsidiaries,

securities or assets of nonassociate companies that derive

substantially all their revenues from the development, ownership or

operation of such projects. Finally, in connection with the formation

of Solutions and its contemplated business activities, Cinergy Services

requests authorization to provide an expanded range of support services

to Solutions (including any subsidiary thereof) and other system

nonutility companies pursuant to an amendment to the existing Cinergy

system nonutility service agreement (``NUSA'').

Solutions intends to offer a complete menu of energy management and

efficiency services and related consulting services, often on a turnkey

basis. These activities (collectively, ``Energy Management Services'')

may also entail the marketing, installation, operation and maintenance

of various products and services designed to implement the solutions

recommended in the course of providing these services. Solutions will

market Energy Management Services primarily to commercial/industrial

customers, but also on a smaller scale to residential customers.

Specifically, Energy Management Services will include: (1)

Identification (through energy audits or otherwise) of energy and other

resource (water, labor, maintenance, materials, etc.) cost reduction or

efficiency opportunities; (2) design of facility and process

modifications or enhancements to realize such opportunities; (3)

management, or direct construction and instillation, of energy

conservation or efficiency equipment; (4) training of client personnel

in the operation of equipment; (5) maintenance of energy systems; (6)

design, management or direct construction and installation of new and

retrofit heating, ventilating, and air conditioning (``HVAC''),

electrical and power systems, motors, pumps, lighting, water and

plumbing systems, and related structures, to realize energy and other

resource efficiency goals or to otherwise meet a customer's energy-

related needs; (7) system commissioning (i.e., monitoring the operation

of an installed system to ensure that it meets design specifications);

(8) reporting of system results; (9) design of energy conservation

programs; (10) implementation of energy conservation programs; (11)

provision of conditioned power services (i.e., services designed to

prevent, control or mitigate adverse effects of power disturbances on a

customer's electrical system to ensure the level of power quality

required by the customer, particularly with respect to sensitive

electronic equipment); and (12) other similar or related activities.

Solutions also proposes to market comprehensive asset management

services (``Asset Management Services'') on a turnkey basis or

otherwise, in respect of energy-related systems, facilities and

equipment (e.g., electric utility systems and assets, including

distribution systems and substations; transmission facilities; electric

generation facilities, including standby generation facilities and

self-generation facilities; boilers; chillers, i.e., refrigeration and

coolant equipment; HVAC; and lighting systems) located on or adjacent

to premises of commercial/industrial customers and used by such

[[Page 64403]]

customers in connection with their business activities. Likewise, these

services would be marketed to other owners of utility assets or systems

such as municipalities and electric cooperatives. Additionally, these

services would be marketed to developers, owners and operators of

nonassociate independent power production facilities (``IPPs''),

including both qualifying and non-qualifying cogeneration or small

power production facilities within the meaning of the Public Utility

Regulatory Policies Act of 1978, as amended (``PURPA'') (such

qualifying facilities, ``QFs'') and exempt wholesale generators and

foreign utility companies within the meaning of the Act, as well as to

developers, owners and operators of nonassociate district thermal

energy systems, i.e., energy systems consisting of central production

plants that distribute steam, hot water and/or chilled water through

underground pipes to customer buildings.

In particular, Asset Management Services will include development;

engineering; design; construction and construction management; pre-

operational start-up testing and commissioning; long-term operations

and maintenance, including system overhaul; load control and network

control; fuel procurement, transportation and storage; fly-ash and

other waste disposal; management and supervision; technical, training

and administrative support; and any other managerial or technical

services required to operate, maintain and manage energy-related assets

physically associated with customer premises or to operate, maintain

and manage municipality or electric cooperative-owned utility systems,

IPPs and district thermal energy systems. Without obtaining the prior

approval of the Commission in a separate filing, Solutions will not

undertake any Asset Management Service if, as a result thereof,

Solutions would become a ``public utility company'' within the meaning

of the Act.

Solutions further proposes; to market to nonassociates, primarily

commercial/industrial customers, general technical consulting services

with respect to energy-related matters (``Consulting Services'').

Specifically, the Consulting Services will include technical and

consulting services involving technology assessments, power factor

correction and harmonics mitigation analysis, commercialization of

electro-technologies, meter reading and repair, rate schedule analysis

and design, environmental services, engineering services, billing

services including conjunctive billing, summary billing for customers

with multiple locations and bill auditing, risk management services,

communications systems, information systems/data processing, system

planning, strategic planning, finance, feasibility studies, and other

similar or related services.

Solutions also proposes to develop, acquire, own and operate

``Projects,'' i.e.: (a) QFs and facilities necessary or incidental

thereto, including thermal energy utilization facilities purchased or

constructed primarily to enable the QF to satisfy the useful thermal

output requirements under PURPA; and (b) district thermal energy

systems and other facilities used for the production, conversion and

distribution of thermal energy products, such as steam, heat, hot water

and chilled water. Project development activities will include Project

due diligence and design review; market studies; site inspection;

preparation of bid proposals (including posting of bid bonds, cash

deposits and the like); applications for required permits or regulatory

approvals; acquisitions of site options and options on other necessary

rights; negotiation and execution of contractual commitments with

owners of existing facilities, equipment vendors, construction firms,

power purchasers, thermal ``host'' users, fuel suppliers and other

Project contractors; negotiation and execution of related financing

commitments and agreements; engineering and construction of Projects;

and similar activities antecedent to the acquisition, ownership and

operation of a Project. In connection with its Project development and

ownership activities, Applicants request authorization for Solutions to

acquire securities or assets of nonassociate companies that derive

substantially all their revenues from the development, ownership or

operation of Projects.

Solutions would also market energy-related services and products

(``Consumer Services'') exclusively to residential and small commercial

customers: (1) Service lines repair/extended warranties--repair of

underground utility service lines owned by and located on the

customer's property and extended service warranties covering the cost

of such repairs; (2) surge protection--meter-based and plug-in

equipment to protect customer household appliances and electronic

equipment from power surges, including due to lightning; (3) appliances

merchandising/repair/extended warranties--marketing of HVAC and other

energy-related household appliances and, in connection therewith or

separately, marketing of appliance inspection and repair services and

extended service warranties covering the cost of repairing customers'

appliances; (4) utility bill insurance--utility bill payment

protection, for a monthly fee for a specified number of months, in the

event the customer becomes unemployed, disabled or dies; (5) gas pilot

lighting of pilot lights for customers; and (6) other similar or

related services.

Applicants further propose that Solutions furnish its own or broker

nonassociate third-party financing to commercial, industrial and

residential customers, both to support sales to customers of goods and

services included within Energy Management Services, Asset Management

Services and Consumer Services and in connection with sales of energy-

related equipment where the customer is not otherwise purchasing goods

and services promoted by Solutions. Customer financing will take the

form of direct loans, installment purchases, operating or finance lease

arrangements (including sublease arrangements) and loan guarantees.\1\

Interest on loans and imputed interest on lease payments will be based

on prevailing market rates. The obligations will have terms of one to

thirty years and will be secured or unsecured. Solutions also may

assign obligations acquired from customers to banks, leasing companies

or other financial institutions, with or without recourse.

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\1\ As discussed below, Cinergy and Investments expect to invest

up to $100 million in Solutions (and its subsidiaries) to finance

the proposed activities. The amount of funds that may be made

available for the proposed customer financing activities is included

in the $100 million.

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Applicants request authorization for Solutions to undertake the

proposed business activities on its own, either directly or through one

or more wholly-owned direct or indirect subsidiaries of Solutions,

formed as corporations, partnerships, limited liability companies or

other legal entities. Applicants state that the decision in particular

cases whether to conduct specific business activities directly through

Solutions or indirectly through one or more wholly-owned subsidiaries

of Solutions will hinge on applicable business, legal, tax, accounting

and strategic considerations. In addition, to mitigate risk or access

skills and relationships that Solutions may require, applicants expect

that Solutions will pursue proposed business activities in certain

instances through alliances with nonassociates. Certain of these

alliances may be relatively informal, not

[[Page 64404]]

involving the formation of any new entities.

Others may encompass formal joint ventures, possibly involving the

formation of one or more wholly- or partly-owned subsidiaries of

Solutions. Applicants also request authorization for Solutions to form

any such joint venture subsidiaries, as in the preceding case solely

for the purpose of implementing Solutions' proposed business

activities. As noted above, as part of Solutions' proposed Project

development and ownership activities, applicants request authority for

Solutions to acquire securities or assets of nonassociate companies

deriving substantially all their revenues from the development,

ownership or operation of Projects.

In connection with its incorporation and initial capitalization,

Solutions is expected to issue and sell up to 100 shares of no par

value common stock to Investments for nominal cash consideration (not

to exceed $1,000). Thereafter, from time to time through December 31,

2001, in order to assist in the financing of Solutions' proposed

business activities, Cinergy and Investments do not expect to invest

more than $100 million in Solutions (including any subsidiaries of

Solutions), either by acquiring securities of Solutions or making cash

capital contributions to Solutions, in exempt transactions pursuant to

rules 52 and 45(b)(4).

Cinergy and Investments request authority through December 31, 2001

to guarantee debt and other obligations of Solutions (including any

subsidiaries of Solutions) incurred in the ordinary course of business

in a maximum principal amount at any one time outstanding not to exceed

$250 million. Debt financing of Solutions proposed to be guaranteed by

Cinergy or Investments (a) will not exceed a term of 15 years, and (b)

will bear interest (1) at a floating rate not in excess of 200 basis

points over the prime rate, London Interbank Offered Rate or other

appropriate index in effect from time to time, or (2) at a fixed rate

not in excess of 250 basis points above the yield at the time of

issuance of U.S. Treasury obligations of a comparable maturity. Any

commitment and other fees on the debt will not exceed 75 basis points

per annum on the total amount of debt financing. Other obligations

incurred by Solutions in the ordinary course of its business as to

which Cinergy and Investments propose to guarantee or otherwise act as

indemnitor or surety are expected often to involve Solutions'

obligation to perform under contracts with customers to which it is a

party. Guarantees issued by Cinergy or Investments in these

circumstances may take the form of procuring bid bonds and the like or

guaranteeing Solutions' performance or other similar direct or indirect

guarantees of Solutions' contractual or other obligations. Applicants

anticipate that these parent company ``backstops'' will be required to

establish Solutions' financial credibility to certain customers as a

prerequisite to obtaining the customer's business and/or on the most

favorable terms.

Cinergy states that it will not seek recovery through higher rates

to customers of Cinergy's utility subsidiaries in order to compensate

it or Investments for any potential losses they may sustain, or

inadequate returns they may realize, resulting from investments in

Solutions or guarantees of Solutions' debt or other obligations.

Initially, Solutions is expected to have limited full-time staff,

primarily executive, management, and administrative personnel.

Applicants expect that Solutions will make extensive use of outside

contractors and consultants in performing its proposed business

activities.

Applicants propose that Cinergy Services render an expanded range

of support services to Solutions (including any subsidiaries thereof)

and the other Cinergy system nonutility companies. Pursuant to the

NUSA, which was authorized by the Commission in its 1994 order

approving the merger that created Cinergy and certain ancillary

transactions including the formation of Cinergy Services (HCAR 26146,

Oct. 21, 1994), Cinergy Services may provide certain services,

primarily administrative and management-type services, to Cinergy's

nonutility subsidiaries, priced at cost for the domestic nonutility

subsidiaries, as determined pursuant to rule 90 under the Act, and at

fair market value for certain foreign subsidiaries of Cinergy pursuant

to section 13(b)(1) and rule 83, and otherwise in accordance with

applicable rules and regulations promulgated by the Commission pursuant

to Section 13(b) of the Act. Specifically, the services that Cinergy

Services may currently render to its nonutility associates are as

follows: (1) Information systems, (2) transportation, (3) human

resources, (4) facilities, (5) accounting, (6) public affairs, (7)

legal, (8) finance, (9) internal audit, (10) investor relations, (11)

planning and (12) executive. Under the Cinergy system Utility Service

Agreement (``USA''), also approved in the Commission's 1994 merger

order and pursuant to which Cinergy Services renders services at cost

to Cinergy's utility subsidiaries, a much broader range of services are

made available. In addition to the same 12 services made available to

the client companies under the NUSA, the following additional services

may be provided by Cinergy Services to the utility subsidiaries: (1)

Electric system maintenance, (2) marketing and customer relations, (3)

electric transmission and distribution engineering and construction,

(4) power engineering and construction, (5) materials management, (6)

power planning, (7) rates, (8) rights of way, (9) environmental affairs

and (10) fuels.

Applicants request authorization for Cinergy Services to provide

certain additional services under the NUSA, priced in accordance with

the Commission's 1994 merger order and otherwise rendered in

conformance with Section 13(b) of the Act and the applicable rules and

regulations thereunder. Applicants state that the proposed additional

services are in general very similar to those additional services under

the USA (enumerated above) that are not currently available under the

NUSA and that the proposed additional services are intended to

accommodate the scope of Solutions' proposed business activities as

well as that of the Cinergy system's other nonutility subsidiaries.

Specifically, the proposed additional services (collectively,

``Additional NUSA Services'') are as follows: (1) Energy-related

facility maintenance, (2) engineering and construction, (3) marketing

and customer relations, (4) materials management, (5) fuels, (6)

environmental affairs, (7) rates, (8) rights of way and (9) energy-

related system operations.

Applicants state that the Additional NUSA Services would be

implemented by means of a restatement of existing Appendix A to the

NUSA (which lists and describes the currently available services under

the NUSA). Applicants do not otherwise in any respect propose to amend

the NUSA.

Applicants state that the Additional NUSA Services are roughly

parallel to the additional functions already made available to

Cinergy's utility subsidiaries under the USA. Consequently, applicants

do not anticipate a need to add any new employees to Cinergy Services

solely to implement the Additional NUSA Services. Applicants represent

that the provision of the Additional NUSA Services will not impair

Cinergy Services' ability to provide the full range of services that it

currently provides to the system utility companies under the USA. All

costs associated

[[Page 64405]]

with Cinergy Services personnel rendering any Additional NUSA Services

(including compensation, benefits and overhead) will be fully

reimbursed by Solutions and other system companies that request and

receive such services in accordance with section 13(b) of the Act and

the applicable rules and regulations thereunder, including rules 90 and

91.

For the Commission, by the Division of Investment Management,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-30811 Filed 12-3-96; 8:45 am]

BILLING CODE 8010-01-M