Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 64599

A. New Rules 6a–5 and 15Aa–3 under 

the Exchange Act, which would require 

SROs to implement certain minimum 

governance standards, including a 

majority independent board, fully 

independent Nominating, Governance, 

Audit, Compensation, and Regulatory 

Oversight Committees, and the 

separation of an SRO’s regulatory 

functions from its market operations 

and other business interests 

(‘‘Governance Standards Proposal’’). 

B. Amendments to Rules 6a–2, 15Aa–

1, and Rule 15Aa–2 (redesignated Rule 

15Aj–1) and to Form 1 and to new Form 

2 (redesignated Form X–15AA–1) and 

repeal of Forms X–15Aj–1 and X–15Aj–

2 under the Exchange Act, which would 

require the SROs to provide to the 

Commission, and publicly disclose, 

greater and more current information 

about their operation and structure, 

including their governance processes, 

regulatory programs, financial 

condition, and ownership 

(‘‘Transparency Proposal’’). 

C. New Rule 17a–26 under the 

Exchange Act, which would require 

SROs to file with the Commission 

quarterly and annual reports containing 

specified information on the operation 

of their regulatory programs, including 

their examination, investigation, and 

enforcement activities (‘‘SRO Reporting 

Proposal’’). 

D. New Rules 6a–5(o) and 15Aa–3(o), 

new Rule 17a–27, and amendments to 

Form 1 and new Form 2, which would 

require SROs to (i) restrict ownership 

and voting levels of individual members 

to no more than 20% and (ii) report 

significant accumulations of ownership 

by any person, and would require SRO 

members to report significant ownership 

interest information as well (‘‘SRO 

Ownership Proposal’’). 

E. New Regulation AL, which would 

impose reporting and notification 

requirements on an SRO that lists or 

trades its own securities or those of its 

trading facilities or affiliates (‘‘SRO SelfListing Proposal’’). 

F. Amendment to Rule 17a–1 under 

the Exchange Act, which would codify 

the current practice of the SROs to keep 

at least one copy of their required books 

and records in the United States 

(‘‘Books and Records Proposal’’). 

The Commission also will consider 

whether to publish for public comment 

a Concept Release, which would request 

and examine public comment on a 

variety of issues relating to the efficacy 

of the current self-regulatory system, 

including the possibility of 

implementing specified enhancements 

to the current SRO system or pursuing 

one of several possible alternative 

regulatory models. 

For further information, please 

contact Geraldine Idrizi at (202) 942–

7317 (Governance Standards Proposal); 

Susie Cho at (202) 942–0748 or Leah 

Mesfin at (202) 942–0196 (Transparency 

Proposal); Richard Holley at (202) 942–

8086 (SRO Reporting Proposal); Sonia 

Trocchio at (202) 942–0753 (SRO SelfListing Proposal, SRO Ownership 

Proposal, and Books and Records 

Proposal); and Christopher Stone at 

(202) 942–7938 (Concept Release). 

2. The Commission will hear oral 

argument on appeals by Leslie A. Arouh 

and the Division of Enforcement of an 

initial decision of an administrative law 

judge. Arouh was formerly an associated 

person with First Union Capital Markets 

(‘‘First Union’’), a registered brokerdealer. The law judge concluded that 

Arouh participated in an adjusted 

trading scheme which consisted of First 

Union’s (1) buying $100 million of 

corporate bonds at prices above the 

prevailing market price from a group of 

accounts at ARM Capital Advisors LLC 

(‘‘ARM’’), a registered investment 

adviser, (2) selling the same bonds, at 

market price, to a different group of 

ARM accounts shortly thereafter, 

resulting in a $1.376 million loss to First 

Union, and (3) selling to ARM accounts 

bonds that were marked up sufficiently 

above the prevailing market price to 

reimburse First Union’s losses on the 

first two legs. 

The law judge found Arouh willfully 

violated Section 17(a) of the Securities 

Act of 1933, Section 10(b) of the 

Securities Exchange Act of 1934, and 

Exchange Act Rule 10b–5. The law 

judge suspended Arouh from 

association with a broker or dealer for 

ninety days and ordered Arouh to pay 

a civil money penalty of $330,000. 

Arouh argues that the record does not 

support the law judge’s findings of 

violation, that the sanctions imposed by 

the law judge are excessive, and that no 

sanctions are warranted. The Division 

has appealed the sanctions, arguing that, 

in addition to the civil money penalty, 

the Commission should bar Arouh 

permanently from association with any 

broker or dealer and impose a ceaseand-desist order against him. 

Among the issues likely to be 

considered are: 

A. Whether respondent committed the 

alleged violations; and 

B. If so, whether sanctions should be 

imposed in the public interest. 

The subject matter of the Closed 

Meeting scheduled for Tuesday, 

November 9, 2004 will be: Post 

argument discussion. 

The subject matter of the Closed 

Meeting scheduled for Wednesday, 

November 10, 2004 will be:

Formal orders of investigations; 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings of an 

enforcement nature; and 

An adjudicatory matter.

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. For further 

information and to ascertain what, if 

any, matters have been added, deleted 

or postponed, please contact the Office 

of the Secretary at (202) 942–7070.

Dated: November 2, 2004. 

Jonathan G. Katz, 

Secretary.

[FR Doc. 04–24812 Filed 11–3–04; 11:18 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 35–27907] 

Filings Under the Public Utility Holding 

Company Act of 1935, as Amended 

(‘‘Act’’) 

November 1, 2004. 

Notice is hereby given that the 

following filings(s) has/have been made 

with the Commission pursuant to 

provisions of the Act and rules 

promulgated under the Act. 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 amendment(s) is/are available for 

public inspection through the 

Commission’s Branch 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 

November 24, 2004, to the Secretary, 

Securities and Exchange Commission, 

Washington, DC 20549–0609, 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 the case of an attorney at 

law, by certificate should be filed with 

the request. Any request for hearing 

should identify specifically the issues of 

facts 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 November 24, 2004, the 

application(s) and/or declaration(s), as 

filed or as amended, may be granted 

and/or permitted to become effective. 

64600 Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 

1Black Hills Power has approximately 60,000 

retail customers in eleven counties throughout a 

9,300 square mile service territory in portions of 

western South Dakota, eastern Wyoming and 

southern Montana. It also sells bundled capacity 

and energy service to Gillette, Wyoming and 

wholesale capacity and energy to other wholesale 

customers; owns generating facilities in its South 

Dakota service area, in Wyoming’s Powder River 

Basin (just west of Black Hills Power’s service 

territory) and a small transmission system 

(consisting of 230 kV and smaller transmission 

facilities in southwest South Dakota and northeast 

Wyoming, with a 69 kV distribution extension into 

southeast Montana, totalling 2,195 miles of 

transmission facilities).

2See SEC File Nos. 70–10229 (May 14, 2004) and 

70–10225 (October 14, 2004).

Black Hills Corporation, et al. (70–

10237) 

Black Hills Corporation (‘‘Black 

Hills’’), a public-utility holding 

company exempt under section 3(a)(1) 

of the Act by rule 2, and its subsidiaries, 

including Black Hills Power, Inc. 

(‘‘Black Hills Power’’ or ‘‘Utility 

Subsidiary’’), its electric-utility 

company subsidiary (collectively, 

‘‘Subsidiaries’’), all located at 625 Ninth 

Street, Rapid City, SD 57701 

(collectively, ‘‘Applicants’’), have filed 

an application-declaration, as amended 

(‘‘Application’’) with the Commission 

under sections 6, 7, 9, 10, 11, 12, 13, 32, 

33, 34 of the Act and rules 42, 43, 45, 

52, 53, 54, 58 and 88 through 92. 

I. Background 

Black Hills, a South Dakota 

corporation, is an integrated energy 

company with three principal 

subsidiaries engaged in three major 

lines of business: (i) Black Hills Power, 

a subsidiary electric-utility company 

engaged in the generation, transmission, 

distribution and sale of electricity to 

customers in South Dakota, Wyoming 

and Montana and the wholesale sale of 

power in the western United States,1 (ii) 

Black Hills Energy, Inc. (‘‘Black Hills 

Energy’’), a direct wholly owned 

subsidiary engaged, through 

subsidiaries, in the development, 

ownership and operation of exempt 

wholesale generators, as defined in 

section 32 of the Act (‘‘EWGs’’), and 

qualifying facilities as defined in the 

Public Utility Regulatory Policies Act of 

1978 (‘‘PURPA’’) (‘‘QFs’’), the 

production, transportation and 

marketing of natural gas, oil, coal and 

other energy commodities, power 

marketing and other energy-related 

activities; and (iii) Black Hills 

FiberCom, LLC (‘‘Black Hills 

FiberCom’’), a subsidiary engaged in 

telecommunications activities and 

which Applicants anticipate will 

become an exempt telecommunications 

company, as defined in section 34 of the 

Act (‘‘ETC’’). Black Hills Power is 

regulated as a public-utility company by 

the states of South Dakota, Wyoming 

and Montana, with these states 

regulating Black Hills Power’s retail 

electric rates and charges and most of its 

securities issuances. Black Hills Power 

is also subject to regulation, under the 

Federal Power Act, by the Federal 

Energy Regulatory Commission 

(‘‘FERC’’). Black Hills Energy, directly 

and indirectly, owns interests in 

nonutility subsidiaries, all primarily 

engaged in energy-related or 

telecommunications activities 

(‘‘Nonutility Subsidiaries’’).

Black Hills proposes to continue to 

compete in the utility business by 

developing generation projects, 

expanding its power marketing 

operations and pursuing additional, 

related growth opportunities. Black 

Hills seeks authorizations to enable it 

and its Subsidiaries to operate and 

engage in financing and investment 

activities, intrasystem services and other 

related activities and transactions 

following its registration as a publicutility holding company under the Act. 

Black Hills states that it intends to 

register as a public-utility holding 

company under section 5 of the Act 

upon the issuance of the Commission’s 

order in this matter. 

Upon its registration as a publicutility holding company, Black Hills 

proposes to form Black Hills Services 

Company, Inc. (‘‘Black Hills Services’’), 

to provide centralized services (such as 

accounting, financial, human resources, 

information technology and legal 

services) to the companies in the Black 

Hills system (‘‘Black Hills System’’). 

Black Hills also intends to purchase an 

additional electric-utility company, 

Cheyenne Light, Fuel & Power 

Company, which is currently a 

subsidiary of Xcel Energy, Inc., a 

registered holding company under the 

Act.2

II. Summary of Requested Authority 

Applicants request the following 

financing authorizations, for the period 

beginning with the effective date of an 

order issued in this matter, through 

December 31, 2007 (‘‘Authorization 

Period’’), and authorizations for certain 

related actions, as described in more 

detail in subsequent sections of this 

notice:

1. For Black Hills, directly or indirectly, to 

retain or refinance existing outstanding 

financing arrangements and debt issuances in 

the total amount of up to $1.534 billion, 

consisting of approximately (a) $807.1 

million in utility and nonutility debt 

arrangements; (b) up to $350 million in shortterm debt and available credit lines 

(‘‘Existing Short-Term Debt’’); and (c) $367.7 

million in guarantees and other forms of 

credit support (‘‘Existing Guarantees’’) 

(collectively, ‘‘Existing Financings’’); 

2. For Black Hills and its Subsidiaries, to 

issue and sell securities, of up to an 

additional $1 billion in securities 

outstanding at any one time (‘‘Aggregate 

Additional Financing Limit’’), comprised of: 

(a) For Black Hills, (i) common stock 

(‘‘Common Stock,’’ as defined below), (ii) 

preferred stock and preferred stock 

equivalent securities (collectively, ‘‘Preferred 

Securities,’’ as defined below), (iii) 

unsecured debt (‘‘Long-Term Debt’’) 

(excluding the additional issuance of 2.7 

million shares of common stock under 

various plans, described below); and 

(b) For the Subsidiaries, (a) common stock 

(‘‘Subsidiary Common Stock,’’ as defined 

below), (b) preferred stock and preferred 

stock equivalent securities (‘‘Subsidiaries 

Preferred Securities,’’ as described below), (c) 

unsecured and secured short-term debt 

(‘‘Subsidiary Short-Term Debt’’) and (d) 

unsecured and secured long-term debt 

(‘‘Subsidiary Long-Term Debt’’); 

3. For Black Hills and its Subsidiaries, to 

enter into transactions to manage interest rate 

risk, including anticipatory hedging 

transactions (together, ‘‘Interest Rate Hedging 

Transactions’’); 

4. For Black Hills and its Subsidiaries, to 

issue grantees and other credit support 

(‘‘Guarantees’’) in an aggregate amount of up 

to $400 million (excluding Existing 

Guarantees) (‘‘Additional Guarantee Limit’’); 

5. For Black Hills and its Subsidiaries, (a) 

to form financing entities (‘‘Financing 

Subsidiaries,’’ as defined below) and (b) to 

issue and sell securities through Financing 

Subsidiaries, subject to the Aggregate 

Additional Financing Limit; 

6. For Black Hills and its Subsidiaries, to 

establish two money pools and enter into 

certain intrasystem financing arrangements; 

7. For Black Hills, directly or indirectly 

through Nonutility Subsidiaries to engage, 

and make investments, in nonutility 

activities (such as EWGs, FUCOs, energyrelated activities or subsidiaries authorized 

under rule 58 (‘‘Rule 58 Subsidiaries’’) and 

other energy-related activities, assets or 

subsidiaries (collectively, ‘‘Permitted 

Nonutility Investments’’)): 

(a) to (i) engage in energy marketing and 

brokering (‘‘Energy Marketing,’’ as further 

defined below) in Canada and Mexico and 

elsewhere in the world outside of the United 

States (subject to the Commission’s 

reservation or jurisdiction over these 

activities outside of the United States, 

Mexico and Canada), and (ii) render energy 

management services (‘‘Energy Management 

Services,’’ as described below) and 

consulting services (‘‘Consulting Services,’’

as described below) anywhere in the world 

outside of the United States (collectively 

‘‘Non-U.S. Energy-Related Subsidiaries’’); 

(b) to invest in energy-related assets 

(‘‘Energy-Related Assets,’’ as further defined 

below) in an amount of up to $300 million 

(‘‘Energy-Related Assets Financing Limit’’); 

(c) to invest in an aggregate amount of up 

to $1.4 billion in EWGs and FUCOs 

Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 64601

3Existing Financings are described in detail in 

Exhibit I–2 of the Application. 4Applicants note that this request includes 

amounts that have been obtained through Financing 

Continued

(excluding its existing investments) (‘‘EWG/

FUCO Financing Limit’’); and 

(d) to engage, and invest an amount of up 

to $100 million (on a revolving fund basis), 

in (i) preliminary development activities 

(‘‘Development Activities,’’ as defined below) 

and (ii) administrative and management 

activities (‘‘Administrative Activities,’’ as 

defined below) related to EWGs, FUCOs, 

Rule 58 Subsidiaries, Energy-Related Assets 

and Non-U.S. Energy-Related Subsidiaries; 

8. For Black Hills and its Subsidiaries, to 

alter the capital stock of all 50%-or-more 

owned Subsidiaries, subject to the 

Commission’s reservation of jurisdiction over 

partially owned Subsidiaries;

9. For Nonutility Subsidiaries, to pay 

dividends out of capital and unearned 

surplus (including revaluation reserve); 

10. For Black Hills, directly or through 

Nonutility Subsidiaries, to acquire the 

securities of one or more corporations, trusts, 

partnerships, limited liability companies or 

other entities organized exclusively for the 

purpose of acquiring, holding and/or 

financing or facilitating the acquisition or 

disposition of Permitted Nonutility 

Investments (‘‘Intermediate Subsidiaries’’); 

11. For Black Hills and its Subsidiaries, to 

undertake internal reorganizations of 

subsidiaries and businesses; 

12. For Black Hills, for the Commission to 

find, concerning the formation of a service 

company, that Black Hills Services will be so 

organized and so conducted as to meet the 

requirements of section 13(b) of the Act and 

that the filing of a Form U–13–1 is 

unnecessary; to be permitted an interim 

transition period after registration (no later 

than 12 months following the date of the 

Commission’s order in this matter), to 

implement the service company; and to be 

excepted, among other things, from various 

at-cost rules applicable to transactions among 

Black Hills System companies; and 

13. For Black Hills, to retain all of its 

existing investments in (a) EWGs and QFs, 

(b) energy-related exploration, production, 

transportation and marketing of energy 

commodities, power marketing and other 

activities; (c) telecommunications activities 

and (d) related businesses.

III. General Financing Parameters and 

Use of Proceeds 

Black Hills proposes that the 

following general terms be applicable to 

the external financing transactions. 

A. Effective Cost of Money 

Applicants propose that the effective 

cost of capital on the proposed Preferred 

Securities, Short-Term Debt and LongTerm Debt and Black Hills’ Subsidiaries’

preferred securities, short-term debt and 

long-term debt will not exceed 

competitive market rates available at the 

time of the issuance of securities, having 

the same or reasonably similar terms 

and conditions issued by companies of 

reasonably comparable credit quality; 

provided that in no event will the 

effective cost of capital exceed, (1) on 

any series of Preferred Securities, LongTerm Debt or Subsidiary Preferred 

Securities or Subsidiary Long-Term 

Debt, 500 basis points over a U.S. 

Treasury security having a remaining 

term equal to the term of the series; and 

(2) on Short-Term Debt, or Subsidiary 

Short-Term Debt, 300 basis points over 

the London Interbank Offered Rate 

(‘‘LIBOR’’) for maturities of less than 

one year. 

B. Maturity of Debt and Final 

Redemption of Preferred Securities 

Applicants state that the maturity of 

the proposed long-term indebtedness 

will not exceed 50 years. In addition, 

they state that all preferred securities 

will be redeemed no later than 50 years 

after their issuance. 

C. Issuance Expenses 

Applicants state that the underwriting 

fees, commissions, or other similar 

remuneration paid in connection with 

the non-competitive issue, sale or 

distribution of a security that is the 

subject of this Application (not 

including any original issue discount) 

will not exceed 5% of the principal or 

total amount of the security being 

issued. 

D. Common Equity Ratio and 

Investment Grade Condition 

The consolidated common equity of 

Black Hills was 47% of total 

consolidated capitalization (common 

equity, preferred stock and long-term 

and short-term debt, including current 

maturities on long-term debt), as of June 

30, 2004, Black Hills and its Utility 

Subsidiary commit that they will each 

maintain a common equity ratio (as 

reflected in the most recent 10–K or 10–

Q (filed with the Commission as 

required by the Securities Exchange Act 

of 1934, as amended (‘‘34 Act’’), and as 

adjusted to reflect subsequent events 

that affect capitalization) of at least 30% 

of capitalization.

Applicants represent that, apart from 

securities issued for the purpose of 

funding money pool operations, no 

guarantees or other securities, other 

than common stock, may be issued in 

reliance upon the authorization to be 

granted by the Commission in this 

matter, unless (i) the security to be 

issued, if rated, is rated investment 

grade; (ii) all outstanding securities of 

the issuer, that are rated, are rated 

investment grade; and (iii) all 

outstanding securities of Black Hills (the 

holding company in the Black Hills 

System), that will be registered, that are 

rated, are rated investment grade 

(‘‘Investment Grade Condition’’). For 

purposes of this Investment Grade 

Condition, a security will be deemed to 

be rated ‘‘investment grade,’’ if it is 

rated investment grade by at least one 

nationally recognized statistical rating 

organization, as that term is used in 

paragraphs (c)(2)(vi)(E), (F) and (H) of 

rule 15c3–1 under the 34 Act. The 

Investment Grade Condition ratings test 

will not apply to any issuance of 

common stock. Applicants request that 

the Commission reserve jurisdiction 

over the issuance of any of such 

securities that are rated below 

investment grade. Applicants further 

request that the Commission reserve 

jurisdiction over the issuance of any 

guarantee or other securities at any time 

that the conditions set forth in clauses 

(i) through (iii) above are not satisfied. 

E. Use of Proceeds 

Applicants state that proceeds from 

the sale of securities in external 

financing transactions will be used for 

general corporate purposes, including, 

in part, capital expenditures of the 

Black Hills System, working capital 

requirements of the Black Hills System, 

the acquisition, retirement or 

redemption under rule 42 of the 

securities previously issued by Black 

Hills or its Subsidiaries and other 

purposes, including direct or indirect 

investment in authorized assets and 

securities (i.e., energy-related assets and 

companies, EWGs, FUCOs and ETCs). 

IV. Retention and Refinancing of 

Existing Financing 

Applicants request authorizations, 

during the Authorization Period, for 

Black Hills, directly or indirectly, to 

retain and refinance existing 

outstanding financing arrangements and 

debt issuances in the total amount of up 

to $1.534 billion, consisting of, 

approximately, (a) $807.1 million in 

Utility and Nonutility debt 

arrangements; (b) up to $350 million in 

short-term debt and available credit 

lines (the Existing Short-Term Debt); 

and (c) $376.7 million in guarantees and 

other forms of credit support (the 

Existing Guarantees).3 With respect to 

its Existing Short-Term Debt, Black Hills 

requests that the Commission include in 

its approval the retention and 

refinancing of Black Hills’ existing 

revolving credit facilities (up to $350 

million in borrowing ability at any one 

time on a short-term basis), although 

Black Hills may not draw down the full 

amount of its facilities at the time of a 

Commission order and, thus, not have 

actually incurred ‘‘short-term debt.’’ 4

64602 Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 

Subsidiaries. Applicants also note that they are 

requesting authority to retain existing Financing 

Subsidiaries. See sections V.F. and VI, below, 

Existing Financing Subsidiaries are Black Hills 

Nevada Real Estate Holdings LLC, Black Hills 

Valmont Colorado Inc., E–Next A Equipment 

Leasing Company LLC and Las Vegas Cogeneration 

Energy Financing Company LLC.

5Black Hills currently maintains a divided 

reinvestment plan (‘‘DRP’’) for its shareholders and 

various employee stock-based plans (an employee 

stock purchase plan (the ‘‘ESPP’’), a Short-Term 

Incentive Plan, a 1996 Stock Option Plan, a 1999 

Stock Option Plan and a 2001 Omnibus Incentive 

Compensation Plan). Black Hills’ DRP enables its 

shareholders to reinvest dividends and make 

optional cash investments to purchase additional 

shares of common stock. Black Hills’ ESPP sells 

shares of Black Hills common stock to employees 

at 90% of the stock’s market price on the offering 

date. At June 30, 2004, 129,244 shares have been 

reserved and are available for issuance under the 

ESPP. Under the Short-Term Incentive Plan, certain 

key employees are awarded short-term incentive 

bonuses, a portion or all of which may be paid in 

common stock. The 1996 and 1999 Stock Option 

Plans permit Black Hills to grant stock options to 

its employees. The 2001 Omnibus Incentive 

Compensation Plan permits it to issue restricted 

stock, restricted stock units, performance shares, 

performance units, stock appreciation rights, stock 

options and other awards, as determined by the 

Compensation Committee of the Board of Directors.

6Black Hills proposes that its common stock 

financings may be effected by underwriting 

agreements customary in the industry and public 

distributions effected by private negotiation with 

underwriters, dealers or agents, as described below, 

or through competitive bidding among 

underwriters. In addition, it is proposed that sales 

may be made through private placements or other 

non-public offerings to one or more persons. Black 

Hills states that all common stock sales would be 

at rates or prices and under conditions negotiated 

or based upon, or otherwise determined by, 

competitive capital markets. Black Hills may also 

buy back shares of its stock or options during the 

Authorization Period in accordance with rule 42.

7Preferred Securities may be issued in one or 

more series with rights, preferences and priorities, 

as may be determined by Black Hills’ Board of 

Directors. Dividends or distributions on Preferred 

Securities will be made periodically, but may be 

made subject to terms, which allow the issuer to 

defer dividend payments for specified periods. 

Preferred Securities may be convertible or 

exchangeable into shares of Black Hills common 

stock or indebtedness. Preferred Securities may be 

sold directly through underwriters or dealers in 

connection with an acquisition in a manner similar 

to that described for common stock.

8Any long-term debt may: (a) Be convertible into 

any other securities of Black Hills; (b) will have 

maturities ranging from one to 50 years; (c) be 

subject to optional and/or mandatory redemption, 

in whole or in part, at par or at various premiums 

above the principal amount; (d) be entitled to 

mandatory or optional sinking fund provisions; (e) 

provide for reset of the coupon as required by a 

remarketing arrangement; (f) be subject to tender or 

the obligation of the issuer to repurchase at the 

election of the holder or upon the occurrence of a 

specified event; (g) be called from existing investors 

by a third party; and (h) be entitled to the benefit 

of positive or negative financial or other covenant. 

Maturity dates, interest rates, redemption and 

sinking fund provisions, tender or repurchase and 

conversion features, if any, with respect to the longterm securities of a particular series, as well as any 

associated placement, underwriting or selling agent 

fees, commissions and discounts, if any, will be 

established by negotiation or competitive bidding. 

Borrowings from the banks and other financial 

institutions may be unsecured and pari passu with 

debt securities issued under the Black Hills 

Indenture and the short-term credit facilities. 

Specific terms of any borrowings will be 

determined by Black Hills at the time of issuance 

and will comply in all regards with the parameters 

of the financing authorization described in section 

III, above.

9Commercial paper may be sold in established 

domestic and European commercial markets. 

Commercial paper would be sold to dealers at the 

discount rate or the coupon rate per annum

prevailing at the date of issuance for commercial 

paper of comparable quality and maturities sold to 

commercial paper dealers generally. It is expected 

that the dealers acquiring commercial paper from 

V. Proposed Additional Financing and 

Other Related Authority 

Applicants request authority to issue 

and sell additional equity and debt 

securities in an amount of up to $1 

billion and Additional Guarantees in an 

amount of up to $400 million, among 

other things, in addition to the 

refinancing of its Existing Financings 

(described above), during the 

Authorization Period. Specifically, 

Black Hills requests authorization to 

issue, directly and indirectly, (a) 

common stock (other than 2.7 million 

shares for employee benefits plans or 

stock purchase and dividend 

reinvestment plans, discussed below), 

(b) preferred stock and preferred 

securities, (c) long-term debt and (d) 

short-term debt, in an aggregate amount 

of up to $1 billion (the Aggregate 

Additional Financing Limit), and 

guarantees and other credit support in 

an aggregate amount of up to $400 

million (the Additional Guarantee 

Limit). Applicants also seek financing 

authority (a) for certain energy-related 

investments, in an aggregate amount of 

up to $300 million (the Energy-Related 

Assets Financing Limit), and (b) for 

additional investments in EWGs and 

FUCOs, in an aggregate amount of up to 

$1.4 billion (the EWG/FUCO Financing 

Limit), during the Authorization Period 

and other related authority, described 

further, below.

A. Common Stock 

Black Hills now requests authority to 

issue and sell its common stock, 

denominated as ‘‘common stock,’’ and 

including (unless the context indicates 

otherwise) outstanding options, 

warrants and other stock purchase rights 

exercisable for Black Hills’ common 

stock (but not Black Hills’ Preferred 

Stock that is convertible into its 

common stock, prior to conversion) 

(‘‘Common Stock’’), subject to the 

Aggregate Additional Financing Limit of 

up to $1 billion, during the 

Authorization Period. 

In addition, Black Hills requests 

authority to issue up to 2.7 million 

additional shares of Common Stock 

through various plans, in accordance 

with the terms of the programs.5 Black 

Hills proposes in this regard, from time 

to time, to issue new shares and/or 

acquire in open market transactions, or 

by some other method, up to 400,000 

additional shares of Black Hills 

Common Stock, during the 

Authorization Period. Black Hills also 

proposes to issue new shares and/or 

acquire in open market transactions, or 

by some other method, up to 2.3 million 

additional shares of Black Hills 

Common Stock under the employee 

stock-based plans (excluding shares that 

may be issued through the exercise of 

outstanding options and issuance of 

shares for outstanding restricted stock 

units and performance shares), from 

time to time, during the Authorization 

Period.6

B. Preferred Securities

Black Hills requests authority to issue 

additional shares of its authorized 

Preferred Stock, defined below, or other 

types of preferred securities of Black 

Hills Corporation (including trustpreferred securities, monthly income 

preferred securities and equity-linked 

securities) (together, ‘‘Preferred 

Securities’’), directly or indirectly 

through one or more financing entities 

(‘‘Financing Subsidiaries,’’ as defined 

below), organized by Black Hills, subject 

to the Aggregate Additional Financing 

Limit. Preferred Stock is defined as 

stock of Black Hills Corporation 

denominated as ‘‘preferred stock’’ and 

having preference rights with respect to 

payment of dividends and other 

benefits, which may include, in certain 

circumstances, the right of conversion 

into Common Stock.7

C. Debt Securities 

1. Long-Term Debt 

Black Hills requests authority to issue 

and sell unsecured long-term debt 

securities, comprised of notes and 

debentures and other forms of 

unsecured indebtedness having 

maturities of one year or longer (‘‘LongTerm Debt’’), up to the Aggregate 

Additional Financing Limit (which 

excludes renewals of Existing 

Financings).8

2. Short-Term Debt 

Black Hills seeks authority to issue 

unsecured short-term debt securities, 

comprised of commercial paper, 

promissory notes and other forms of 

indebtedness having maturities of less 

than one year (‘‘Short-Term Debt’’), up 

to the Aggregate Additional Financing 

Limit (which excludes renewals of 

Existing Financings).9

Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 64603

Black Hills will offer the paper at a discount to 

corporate, institutional and, with respect to 

European commercial paper, individual investors. 

Institutional investors are expected to include 

commercial banks, insurance companies, pension 

funds, investment trusts, foundations, colleges and 

universities, and finance companies.

10Applicants anticipate that the majority of the 

financings will be exempt from prior Commission 

authorization under rule 52(b).

11 Interest Rate Hedges will include the use of 

financial instruments commonly used in today’s 

capital markets, such as interest rate forwards, 

futures, swaps, caps, collars, floors and structured 

notes (i.e., a debt instrument in which the principal 

and/or interest payments are linked to the value of 

an underlying asset or index), or transactions 

involving the purchase or sale, including short 

sales, of government or agency (e.g., Fannie Mae) 

obligations or LIBOR-based swap instruments.

12Anticipatory Hedges may be implemented 

through: (a) A forward sale of exchange-traded 

Interest Rate Hedges (a ‘‘Forward Sale’’); (b) the 

purchase of put options on Interest Rate Hedges (a 

‘‘Put Options Purchase’’); (c) a Put Options 

Purchase in combination with the sale of call 

options Interest Rate Hedges (a ‘‘Zero Cost Collar’’); 

(d) transactions involving the purchase or sale, 

including short sales, of Interest Rate Hedges; or (e) 

some combination of a Forward Sale, Put Options 

Purchase, Zero Cost Collar and/or other derivative 

or cash transactions, including, but not limited to, 

appropriate structured notes, caps or collars.

13Certain Guarantees may be for obligations not 

capable of exact quantification. For measuring 

compliance with the $400 million limitation 

appropriate means will be utilized, including 

estimation of exposure based on loss experience or 

projected potential payment amounts. If 

appropriate, estimates will in accordance with 

GAAP. Estimates will be reevaluated periodically.

14Applicants are also requesting authority to 

retain existing Financing Subsidiaries. See sections 

IV, above, and VI, below.

15 In an Expense Agreement, an Applicant would 

provide financial support and pay necessary 

operating expenses of a Financing Subsidiary to 

facilitate the subsidiary’s agreements with third 

parties in financing activities approved through this 

Application.

16See section V.N., below. Applicants also 

request approval under section 13(b) of the Act and 

rules 87 and 90 to provide these services at market 

prices but only for so long as an Expense Agreement 

in place. Applicants explain that, to have ratings 

agencies recognize Financing Subsidiaries as 

separate from their parents or affiliates, Expense 

Agreements must be at market prices (i.e., the 

contracts would be assumable by a successor 

without interruption or an increase of fees).

D. Subsidiary Financings 

Applicants also request that Black 

Hills’ Subsidiaries be authorized to 

issue and sell Subsidiary Common 

Stock and Subsidiary Preferred 

Securities, Subsidiary Long-Term Debt 

and Subsidiary Short-Term Debt, subject 

to the Aggregate Additional Financing 

Limit and the parameters described in 

section III, above, during the 

Authorization Period. Black Hills’

Utility Subsidiary and its Nonutility 

Subsidiaries request this financing 

authority to the extent that Subsidiaries 

may require financing that is outside 

rule 52 exempt financing.10 The Utility 

Subsidiary specifically requests 

authority to issue unsecured and 

secured short-term debt securities, 

including commercial paper and credit 

lines, subject to the Aggregate 

Additional Financing Limit and the 

parameters described in section III, 

above, during the Authorization Period.

E. Financing Risk Management Devices 

Black Hills, directly or indirectly 

through its Subsidiaries, requests 

authority to enter into interest rate 

hedging transactions utilizing various 

financial instruments (collectively, 

‘‘Interest Rate Hedges’’), subject to 

certain limitations and restrictions, in 

order to reduce or manage interest rate 

costs. Black Hills will not engage in 

speculative transactions. 

Applicants state that Interest Rate 

Hedges (other than exchange-traded 

interest rate futures or options 

contracts) 11 will only be entered into 

with counterparties whose senior debt 

ratings, or the senior debt ratings of any 

credit support providers who have 

guaranteed the obligations of such 

counterparties, as published by 

Standard and Poor’s Ratings Group, are 

equal to or greater than BBB, or an 

equivalent rating from Moody’s, Fitch 

Investor Service or Duff and Phelps 

(‘‘Approved Counterparties’’). 

Applicants also state that fees, 

commissions and other amounts 

payable to an Approved Counterparty or 

exchange or other party (excluding, 

however, the swap or option payments) 

in connection with an Interest Rate 

Hedge, will not exceed those generally 

obtainable in competitive markets for 

parties of comparable credit quality.

Applicants also request authority to 

enter into interest rate hedging 

transactions for anticipated debt 

offerings (‘‘Anticipatory Hedges’’). Black 

Hills states that Anticipatory Hedges 

would be utilized to fix an/or limit the 

interest rate risk associated with any 

new issuance.12 Anticipatory Hedges 

may be executed on-exchange (‘‘OnExchange Trades’’), through brokers by 

the opening of futures and/or options 

positions traded on the Chicago Board 

of Trade, the opening of over-thecounter positions with one or more 

Approved Counterparties (‘‘OffExchange Trades’’) or a combination of 

On-Exchange Trades and Off-Exchange 

Trades.

Applicants state that they will comply 

with Statement of Financial Accounting 

Standards No. 133 (‘‘SFAS 133’’), 

‘‘Accounting for Derivatives Instruments 

and Hedging Activities’’ or other 

standards relating to accounting for 

derivative transactions as are adopted 

and implemented by the Financial 

Accounting Standards Board (‘‘FASB’’). 

The Interest Rate Hedges and 

Anticipatory Hedges will qualify for 

hedge accounting treatment under the 

FASB standards in effect and as 

determined at the date Interest Rate 

Hedges or Anticipatory Hedges are 

entered into. 

F. Additional Guarantees ($400 Million) 

Applicants request authority to 

guarantee performance of a Subsidiary 

or an affiliate and to provide other forms 

of credit support (‘‘Guarantees’’) in an 

aggregate principal amount not to 

exceed $400 million outstanding at any 

one time, the Additional Guarantee 

Limit, during the Authorization Period. 

Applicants also request authority to 

charge each Subsidiary a guarantee fee 

that is comparable to those fees charged 

by third parties. Black Hills further 

requests that any Guarantees 

outstanding at the end of the 

Authorization Period be permitted to 

continue until expiration or termination 

in accordance with their terms.13

G. Financing Subsidiaries 

Applicants request authority to 

acquire, directly or indirectly, the equity 

securities of one or more corporations, 

trusts, partnerships, limited liability 

companies, or other entities, created 

specifically for the purpose of 

facilitating the financing of authorized 

and exempt activities (including 

authorized and exempt acquisitions) 

(‘‘Financing Subsidiaries’’), through the 

issuance of Subsidiary Common Stock 

or Subsidiary Preferred Securities, or 

Subsidiary Long-Term Debt, and to 

transfer of the proceeds to the Black 

Hills System company involved.14

Applicants also request authority to 

issue Guarantees for the Financing 

Subsidiaries, subject to the Additional 

Guarantee Limit. Applicants further 

request authority to enter into support, 

servicing or expense agreements 

(‘‘Expense Agreements’’) for obligations 

of Financing Subsidiaries.15 Applicants 

request authority for Financing 

Subsidiaries to pledge revenues or other 

assets or grant security interests solely 

to accommodate the intrasystem mirror 

structure of the financings; provided 

that the security pledged will not 

consist of the assets (other than an 

income stream in support of the 

financing) or stock of any Black Hills 

operation subsidiary.16

Black Hills and its Subsidiaries also 

request authority to issue and sell to any 

Financing Subsidiary, from time to time, 

in one or more series, unsecured 

debentures, unsecured promissory 

notes, or other unsecured debt 

64604 Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 

17The terms (e.g., interest rate, maturity, 

amortization, prepayment terms, default provisions, 

etc.) of the Notes would be designed to parallel the 

terms of the securities issued by the Financing 

Subsidiary to which the Notes relate.

18Black Hills states that, although it is requesting 

this authorization, it may not implement either the 

Utility or Nonutility Money Pool immediately upon 

registration for various reasons, including the need 

to meet requirements of state regulatory 

commissions. Initial participants in the Nonutility 

Money Pool would be Black Hills Services, Black 

Hills Energy and Black Hills FiberCom.

19Under the proposed Utility Money Pool terms, 

short-term funds would be available from: (1) 

Surplus funds in the treasuries of Utility Money 

Pool participants other than Black Hills, (2) surplus 

funds in the treasury of Black Hills, and (3) 

proceeds from bank borrowings by Utility Money 

Pool participants or the sale of commercial paper 

by Black Hills or the Utility Subsidiary for loan to 

the Utility Money Pool. Funds would be made 

available as Black Hills Services may determine 

would result in a lower cost of borrowing, 

consistent with the individual borrowing needs and 

financing standing of pool participants.

20Applicants state that the Money Pools will be 

operated by Black Hills Services on an at-cost basis 

and separate records will be maintained for each 

pool. Surplus funds of the Utility Money Pool and 

the Nonutility Money Pool may be combined in 

common short-term investments, but separate 

records will be maintained and interest will be 

allocated separately, on a daily basis, to each money 

pool in the proportion that the amount of each 

money pool’s surplus funds bears to the total 

amount of surplus funds available for investment 

from both money pools.

21Applicants state that, if no borrowings are 

outstanding, then the interest rate will be 

predicated on the Federal Funds’ effective rate of 

interest as quoted daily by the Federal Reserve Bank 

of New York.

22Black Hills states that, generally, loans to, and 

purchase of capital stock form, borrowing 

Subsidiaries will be exempt under rule 52 and 

capital contributions and open account advances 

without interest will be exempt under rule 45(b). 

Loans by Black Hills or a Nonutility Subsidiary to 

a Nonutility Subsidiary generally will have interest 

rates and maturity dates that are designed to 

parallel the lending company’s effective cost of 

capital, in accordance with rule 52(b).

23Black Hills defines Energy Marketing to consist 

of the brokering and marketing of electricity, 

natural gas and other energy commodities, as well 

as incidental related services, such as fuel 

management, storage and procurement.

24Black Hills defines Energy Management 

Services to include the marketing, sale, installation, 

operation and maintenance of various products and 

services related to energy management and 

demand-side management, including energy and 

efficiency audits; meter data management, facility 

design and process control and enhancements; 

construction, installation, testing, sales and 

maintenance of (and training client personnel to 

operate) energy conservation equipment; design 

implementation, monitoring and evaluation of 

energy conservation programs; development and 

review of architectural, structural and engineering 

drawings for energy efficiencies, design and 

specification of energy consuming equipment and 

general advice on programs; the design, 

construction, installation, testing, sales, operation 

and maintenance of new and retrofit heating, 

ventilating, and air conditioning, electrical and 

power systems, alarm, security, access control and 

warning systems, motors, pumps, lighting, water, 

water-purification and plumbing systems, building 

automation and temperature controls, installation 

and maintenance of refrigeration systems, building 

infrastructure wiring supporting voice, video, data 

and controls networks, environmental monitoring 

and control, ventilation system calibration and 

maintenance, piping and fire protection systems, 

and design, sale, engineering, installation, operation 

and maintenance of emergency or distributed power 

generation systems, and related structures, in 

connection with energy-related needs; and the 

provision of services and products designed to 

prevent, control, or mitigate adverse effects of 

power disturbances on a customer’s electrical 

systems.

25Applicants define Consulting Services to 

include technical and consulting services involving 

technology assessments, power factor correction 

and harmonics mitigation analysis, meter reading 

and repair, rate schedule design and analysis, 

environmental services, engineering services, 

billing services (including consolidation or 

instruments (‘‘Notes’’).17 Applicants 

further request authority for the 

Financing Subsidiaries to apply the 

proceeds of any external financing by a 

Financing Subsidiary, plus the amount 

of any equity contribution made to it, 

from time to time, by its parent 

corporation and other funds that may be 

available, or obtained in an exempt 

financing transaction, to purchase 

Notes. Applicants state that amounts 

issued by Financing Subsidiaries to 

third parties will be subject to the 

Aggregate Additional Financing Limit. 

However, Applicants request that 

underlying intrasystem mirror debt 

(including Notes), and parent guarantee, 

not be so included, so as to avoid 

double counting.

H. Money Pools 

Black Hills and its Utility Subsidiary 

request authorization to establish a 

utility money pool (‘‘Utility Money 

Pool’’) and Black Hills and its 

Nonutility Subsidiaries request 

authority to establish a nonutility 

money pool (‘‘Nonutility Money Pool’’), 

separate from the Utility Money Pool.18

Black Hills also requests that utilityrelated Financing Subsidiaries be 

permitted to participate in the Utility 

Money Pool (due to their financing 

relationship with the Utility 

Subsidiary). Black Hills also asks the 

Commission to reserve jurisdiction over 

the addition of other participants to the 

Money Pools in the future.

The Utility Subsidiary, to the extent 

not exempted under rule 52, requests 

authority to make unsecured short-term 

borrowings from, contribute surplus 

funds to, and to lend and extend credit 

to (and acquire promissory notes from) 

other participants in the Utility Money 

Pool, through the Utility Money Pool.19

Applicants propose that the 

Nonutility Money Pool would be 

operated on the same terms and 

conditions as the Utility Money Pool, 

except that Black Hills’ funds made 

available to Money Pools will be made 

available to the Utility Money Pool first 

and only afterward to the Nonutility 

Money Pool. No loans would be made 

to, and no borrowings from, the 

Nonutility Money Pool by a Utility 

Subsidiary. 

Black Hills requests authorization to 

contribute surplus funds and to lend 

and extend credit to: (1) The Utility 

Subsidiary through the Utility Money 

Pool and (2) the Nonutility Subsidiaries 

through the Nonutility Money Pool. 

Black Hills and the Utility Subsidiary, 

including related Financing Entities, 

may contribute funds from the issuance 

of short-term debt to the Utility Money 

Pool. Black Hills and the Nonutility 

Subsidiaries may contribute funds from 

the issuance of short-term debt to the 

Nonutility Money Pool.20

I. Intrasystem Financing

Black Hills and the Subsidiaries 

request that they be permitted, when 

making intrasystem loans or extending 

intrasystem credit (in the event a loan 

or an extension of credit is not exempt 

under rules 45(b) or 52), to charge 

interest at the same effective rate of 

interest as the daily weighted average of 

commercial paper, revolving credit and/

or other short-term borrowings of the 

respective lending Subsidiary, including 

an allocated share of commitment fees 

and related expenses.21

Applicants also request authority for 

Black Hills, directly or indirectly 

through a Nonutility Subsidiary, to 

make loans to partially owned 

Subsidiaries at interest rates and 

maturities designed to provide a return 

to the lending company of not less than 

its effective cost of capital.22

J. Energy-Related Activities and Other 

Additional Nonutility Investments 

Applicants seek authorization for 

certain activities related to nonutility 

investments in EWGs, FUCOs and other 

energy-related investments permitted 

under rule 58, as well as investments in 

Energy-Related Assets and Non-U.S. 

Energy Related Subsidiaries, for the 

duration of the Authorization Period, 

i.e., Permitted Nonutility Investments, 

as discussed below. 

1. Certain Energy-Related Activities 

Black Hills requests authority, 

directly or indirectly through Nonutility 

Subsidiaries, to (a) engage in Energy 

Marketing 23 in Canada and Mexico and 

elsewhere in the world outside of the 

United States, subject to the 

Commission’s reservation of jurisdiction 

over these activities outside of the 

United States, Mexico and Canada, and 

(b) render Energy Management 

Service 24 and Consulting Services 25

Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 64605

centralized billing, bill desegregation tools and bill 

inserts), risk management services, communications 

systems, information systems/data processing, 

system planning, strategic planning, finance, 

general management consulting including training 

activities, feasibility studies, and other similar 

related services.

26Black Hills states that Energy-Related Assets 

will not include any ‘‘utility assets’’ within the 

meaning of the Act.

27Black Hills has no FUCOs.

28 Development Activities will include due 

diligence and design review; market studies; 

preliminary engineering; site inspection; 

preparation of bid proposals, including, in 

connection with these activities, posting of bid 

bonds; application for required permits and/or 

regulatory approvals; acquisition 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 

‘‘hosts,’’ fuel suppliers and other project 

contractors; negotiation of financing commitments 

with lenders and other third-party investors; and 

such other preliminary activities as may be required 

in connection with the purchase, acquisition, 

financing or construction of facilities or the 

acquisition of securities of, or interests in, new 

businesses.

29Administrative Activities will include 

personnel, accounting, engineering, legal, financial 

and other support activities necessary to manage 

Black Hills and its Subsidiaries’ investments in 

nonutility subsidiaries.

30Applicants state that they cannot ascertain at 

this time how a Subsidiary’s financing may be 

effected under rule 52, including, for example, what 

portion may be a sale of capital securities (i.e.,

common or preferred stock) to Black Hills or an 

intermediate parent or whether it may exceed thenauthorized capital stock or whether capital stock 

with no par value may be used.

31Black Hills states that there are various legal 

and business reasons for using Intermediate 

Subsidiaries. Limited purpose subsidiaries are often 

necessary or desirable to facilitate financing the 

acquisition and ownership of a FUCO, an EWG or 

other enterprise. The laws of some foreign countries 

may require that a bidder in a privatization program 

be organized in that country. Using one or more 

Continued

anywhere in the world outside of the 

United States. To the extent that 

operations outside the U.S. involve 

additional or different risks than U.S. 

operations, Black Hills states that it will 

evaluate and seek to mitigate those risks 

in a manner similar to the manner it 

evaluates EWG and FUCO investments, 

described below.

2. Additional Investments in EnergyRelated Assets ($300 Million) 

Black Hills also requests authority, 

directly or indirectly through Nonutility 

Subsidiaries, to invest in nonutility 

energy assets that are incidental and 

related to its business as an electricity 

and energy commodities marketer and 

broker or to its other energy-related 

businesses, including natural gas 

exploration and production, gathering, 

processing, storage and transportation 

facilities and equipment, liquid oil 

reserves and transportation and storage 

facilities, gas or coal reserves, electric 

metering and customer electric 

equipment and associated facilities, and 

other physical assets that are incidental 

to and reasonably necessary in the dayto-day conduct of energy marketing, 

brokering and trading operations or 

other energy-related businesses 

(‘‘Energy-Related Assets’’) in an amount 

of up to $300 million (‘‘Energy-Related 

Assets Financing Limit’’).26 Black Hills 

further defines Energy-Related Assets to 

exclude additional investments in 

EWGs or FUCOs, addressed in section 

V.1.3., below. Black Hills states that 

Energy-Related Assets will be acquired 

only in the countries in which it is 

authorized to conduct its electricity and 

energy commodities marketing and 

brokering business (currently the United 

States and, if approved, Canada and 

Mexico).

3. Additional Investment in EWGs and 

FUCOs ($1.4 Billion) 

Applicants seek financing authority in 

an aggregate amount of up to $1.4 

billion for additional investments in 

EWGs and FUCOs during the 

Authorization Period (excluding Black 

Hills investment as of June 30, 2004, of 

$705 million in EWGs) 27 (‘‘EWG/FUCO 

Investment Limit’’). Black Hills states 

that the proposed amount represents 

approximately 458% of Black Hills’

‘‘average consolidate retained earnings,’’

as defined in rule 53(a)(1), for the four 

quarterly periods ending June 30, 2004, 

and the proposed investment limit of 

$1.4 billion compare favorably with 

other EWG/FUCO investment limits 

authorized by the Commission.

4. Investment in Development Activities 

and Administrative Activities 

Black Hills and its Subsidiaries also 

request authority to invest, using a 

‘‘revolving fund’’ concept described 

below, an amount of up to $100 million, 

in (i) Development Activities 28 and (ii) 

Administrative Activities 29 related to 

EWGs, FUCOs, Rule 58 Subsidiaries, 

Energy-Related Assets and EnergyRelated Subsidiaries. Development 

Activities will be designed to result in 

nonutility investments, eventually, such 

as EWGs, FUCOs, Rule 58 Subsidiaries, 

Energy-Related Assets or Energy-Related 

Subsidiaries.

Black Hills proposes a ‘‘revolving 

fund,’’ which would provide that, to the 

extent that funds are expended for 

Development Activities (or 

Administrative Activities, as the case 

may be) and result in an EWG, FUCO, 

or a Rule 58 Subsidiary, or other 

authorized investment, the amount will 

cease to be allocable to the Development 

Activities financing limit of $100 

million, but will then be allocable to the 

particular, applicable investment limit 

related to the investment. For example, 

Development Activities expenditures 

that result in an EWG would count 

against the EWB/FUCO Aggregate 

Financing Limit (described in section 

V.1.3., above) and expenditures 

resulting in a Rule 58 Subsidiary would 

count against the limitation on 

investment in rule 58, or expenditures 

resulting in an Energy-Related Asset 

would count against the Energy-Related 

Assets Financing Limit (described in 

section V.1.s., above), or any other 

applicable limitation.

K. Changes in Capital Stock of 

Subsidiaries 

Applicants request authority to 

change the terms of any wholly owned 

Subsidiary’s authorized capital stock 

capitalization or other interests by an 

amount deemed appropriate by Black 

Hills or another intermediate parent 

company, as needed to accommodate 

transactions and future issuances. 

Applicants propose that a wholly 

owned Subsidiary be able to change the 

par value, or change between par value 

and no-par stock, without additional 

Commission approval.30

Black Hills also states that the Utility 

Subsidiary would only take this action 

upon receipt of necessary approvals 

from interested state commission. Black 

Hills also requests that the Commission 

reserve jurisdiction over these 

transactions by partially owned 

Subsidiaries, pending completion of the 

record. 

L. Nonutilities’ Payment of Dividends 

Out of Capital and Unearned Surplus 

Black Hills Energy and Black Hills 

FiberCom also request that they be 

permitted, directly or indirectly through 

their Nonutility Subsidiaries, to pay 

dividends, from time to time, out of 

capital and unearned surplus (including 

revaluation reserve), to the extent 

permitted under applicable state 

corporate law, during the Authorization 

Period. 

M. Intermediate Subsidiaries 

Black Hills requests authority to 

acquire, directly or indirectly through 

the Utility Subsidiary or Nonutility 

Subsidiaries, the securities of one or 

more corporations, trusts, partnerships, 

limited liability companies or other 

entities to be created and organized 

exclusively for the purpose of acquiring, 

holding and/or financing or facilitating 

the acquisition or disposition of 

investments (‘‘Intermediate 

Subsidiaries’’).31 Black Hills states that, 

64606 Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 

Intermediate Subsidiaries may allow Black Hills to 

secure more favorable U.S. and foreign tax 

treatment and achieve tax efficient corporate 

structures, minimizing state or federal taxes. 

Intermediate Subsidiaries may also isolate business 

risks and facilitate adjustments to ownership 

interests or raising debt or equity capital in 

domestic or foreign markets.

32Black Hills states that, first, appropriate 

personnel from Black Hills and its Subsidiaries will 

be transferred to Black Hills Services’ employ, 

subject to requirements associated with the transfer 

employee benefit, health and pension plans, 

contracts, licenses, and permits to Black Hills 

Services and subject to approvals and consents from 

regulators, counterparties and vendors.

33Black Hills Services will have total equity 

capital of not more than $10,000.

to the extent that it provides funds to an 

Intermediate Subsidiary for investment 

in an EWG, FUCO or a Rule 58 

Subsidiary or other investment, the 

amount will be included in Black Hills’

Aggregate EWG/FUCO Financing Limit 

of $1.4 billion or other applicable 

financing limit, as the case may be.

N. Internal Corporate Reorganizations 

Applicants request authority to 

undertake internal reorganizations of 

Subsidiaries and businesses. Internal 

reorganizations may be accomplished 

through a contribution, sale, 

distribution, assignment or other 

transfer from one entity, and the 

acquisition by another entity, of the 

securities, asset or interests in an entity. 

None of the proposed reorganizations 

will include a transfer of assets or 

securities of a Subsidiary that owns or 

operates utility assets within the 

meaning of sections 2(a)(3), 2(a)(4) and 

2(a)(18) of the Act.

Black Hills and its Subsidiaries 

request authority to sell or to cause any 

Subsidiary to sell, or otherwise transfer, 

(1) businesses, (2) the securities of 

current Subsidiaries engaged in some or 

all of these businesses, or (3) 

investments which do not involve a 

Subsidiary (i.e., less than 10% voting 

interest) to a Subsidiary, and to acquire 

the assets of businesses, subsidiaries or 

other investment interests or, 

alternatively, to transfer securities or 

assets by share exchanges, share 

distributions or dividends, followed by 

contribution of securities or assets to a 

Subsidiary. Black Hills also requests 

that it be permitted, following direct or 

indirect acquisition of securities of 

Nonutility Subsidiaries, to transfer 

securities or assets of Nonutility 

Subsidiaries to other Subsidiaries using 

any of these methods or to liquidate or 

merge Nonutility Subsidiaries. 

O. Intrasystem Service Transactions 

Black Hills states that the Black Hills 

System will engage in a variety of 

affiliate transactions for the provision of 

goods, services and construction, under 

rules 87, 90 and 91. For an interim 

period following registration, no longer 

than 12 months after the date of the 

Commission’s order in this matter, 

Applicants request various exceptions 

to the at-cost rules, among other things, 

as described more fully below. 

1. Establishment of Black Hills Services 

Company 

Black Hills expects to form Black 

Hills Services within 60 days of the 

issuance of the Commission’s order in 

this matter. Black Hills seeks authority 

to delay, for a period not longer than 12 

months following the date of its 

registration, the full implementation of 

all service agreements and arrangements 

and required accounting systems and 

cost allocation methodologies. The 

transition period is necessary to 

accommodate the complexities of the 

formation of the service company.32 In 

addition, Black Hills commits, however, 

to implement the at-cost requirements 

as soon as practicable.

In connection with the formation of 

the service company, Black Hills 

requests that the Commission find that 

Black Hills Services will be so organized 

and shall be so conducted as to meet the 

requirements of section 13(b), and that 

the filing of a Form U–13–1 is 

unnecessary, or, alternatively, that this 

Application be deemed to constitute a 

filing on Form U–13–1 as required by 

rule 88. 

Black Hills Services will be the 

service company subsidiary for the 

Black Hills System and will provide 

Black Hills Power, any future utility 

subsidiaries and Black Hills’ Nonutility 

Subsidiaries with some or all of the 

following services: administrative, 

management and support services, 

including services relating to support of 

electric and gas plant operations (i.e.,

energy supply management of the bulk 

power and natural gas supply, 

procurement of fuels, coordination of 

electric and natural gas distribution 

systems, maintenance, construction and 

engineering work); customer bills, and 

related matters; materials management; 

facilities; real estate; rights of way; 

human resources; finance; accounting; 

internal auditing; information systems; 

corporate planning and research; public 

affairs; corporate communications; legal; 

environmental matters; and executive 

services.33 The cost of services provided 

by Black Hills Services will be directly 

assigned, distributed or allocated by 

activity, project, program, work order or 

other appropriate basis. Black Hills 

Services will be staffed primarily by 

personnel transferred from Black Hills, 

Black Hills Power and certain 

Nonutility Subsidiaries. It will have its 

headquarters in Rapid City, South 

Dakota, and will conduct substantial 

operations in Rapid City and Golden, 

Colorado.

2. Services, Goods and Assets Involving 

a Utility Subsidiary 

The Utility Subsidiary may provide to 

other associate companies, services that 

are incidental to its utility businesses, 

including, but not limited to, 

infrastructure services maintenance, 

storm outage emergency repairs, supply 

planning services, switchyard activities 

and services of personnel with 

specialized expertise related to the 

operation of the utility. To the extent 

these services might exceed those 

allowable under applicable rules, Black 

Hills seeks approval for Black Hills 

Power to provide services to any other 

Subsidiary. 

3. Nonutility Subsidiary Transactions 

Black Hills requests authorization for 

Black Hills Services and the Nonutility 

Subsidiaries to enter into agreements 

(and/or continue the effectiveness of 

existing agreements, described in 

section V.N.4, below) to provide 

construction, goods or services to 

certain associate companies at fair 

market prices determined without 

regard to cost. Specifically, Black Hills 

seeks an exemption for Black Hills 

Services and the Nonutility Subsidiaries 

under section 13(b) from the cost 

standards of rules 90 and 91 (to the 

extent that rule 90(d) does not apply), if 

the company being provided 

construction, goods or service is: (1) A 

FUCO or an EWG that derives no part 

of its income, directly or indirectly, 

from the generation, transmission, or 

distribution of electric energy for sale 

within the U.S.; (2) an EWG that sells 

electricity at market-based rates that 

have been approved by the FERC or 

appropriate state public-utility 

commission, provided that the 

purchaser of the EWG’s electricity is not 

an affiliated public-utility or an affiliate 

that resells the power to an affiliated 

public-utility; (3) a QF that sells 

electricity exclusively at rates 

negotiated at arm’s-length to one or 

more industrial or commercial 

customers purchasing the electricity for 

their own use and not for resale, or to 

an electric utility company (other than 

an affiliated electric utility) at the 

purchaser’s ‘‘avoided cost,’’ as 

determined under PURPA; (4) an EWG 

or a QF that sells electricity at rates 

based upon its cost of service, as 

approved by FERC or any state publicutility commission having jurisdiction, 

Federal Register / Vol. 69, No. 214 / Friday, November 5, 2004 / Notices 64607

1As defined in Exchange Act Sections 3(a)(4) and 

3(a)(5) [15 U.S.C. 78c(a)(4) and 78c(a)(5)].

2See Definition of Terms in and Specific 

Exemptions for Banks, Savings Associations, and 

Savings Banks Under Sections 3(a)(4) and 3(a)(5) of 

the Securities Exchange Act of 1934, Exchange Act 

Release No. 44291 (May 11, 2001), 66 FR 27760 

(May 18, 2001).

3 17 CFR 240.15a–7.

4See Exchange Act Release No. 44570 (July 18, 

2001); Exchange Act Release No. 45897 (May 8, 

2002); and Exchange Act Release No. 46745 

(October 30, 2002); Exchange Act Release No. 47649 

(April 8, 2003) (extending the exemption from the 

definition of ‘‘broker’’ until November 12, 2004); 

Exchange Act Release No. 47366 (February 13, 

2003) (extending exemption from the definition of 

‘‘dealer’’ until September 30, 2003). On February 

13, 2003, the Commission adopted amendments to 

certain parts of the Interim Rules that define terms 

used in the dealer exceptions, as well as certain 

dealer exemptions (‘‘Dealer Release’’) Exchange Act 

Release No. 47364 (February 13, 2003), 68 FR 8686 

(February 24, 2003). Therefore, this order is limited 

to an extension of the temporary exemption from 

the definition of ‘‘broker’’.

5Exchange Act Release No. 49879 (June 17, 2004), 

69 FR 39682 (June 30, 2004)

6See Exchange Act Release No. 50056 (July 22, 

2004) 69 FR 44988 (July 28, 2004) (extending 

comment period on Regulation B until September 

1, 2004).

7 17 CFR 240.15a–7.

8 In proposing Regulation B, the Commission 

proposed Rule 781 as a re-designation of Rule 15a–

7 and proposed a compliance date of January 1, 

2006. See 17 CFR 242.781.

provided that the purchaser of the 

electricity is not an affiliated publicutility; or (5) an ETC, an ‘‘energyrelated’’ company under rule 58 or any 

other Nonutility Subsidiary that (i) is 

partially owned, provided that the 

ultimate purchaser of goods or services 

is not a Utility Subsidiary, (ii) is 

engaged solely in the business of 

developing, owning, operating, and/or 

providing services or goods to 

Nonutility Subsidiaries described in (1) 

through (4) above, or (iii) does not 

derive, directly or indirectly, any part of 

its income from sources within the U.S. 

and is not a public-utility company 

operating within the U.S. 

4. Request for Exemption for Existing 

Affiliate Arrangements 

Black Hills requests a determination 

that the Subsidiaries may continue to 

engage in certain affiliate transactions 

under rule 87(a)(3) or otherwise. Black 

Hills also seeks approval for Black Hills 

Power and affiliated EWGs to provide 

services (such as engineering and 

technical support functions, fuel 

procurement, information systems, 

maintenance, quality assurance, 

management services and support and 

safety review) at cost as defined in rules 

90 and 91, to each other. 

VI. Retention 

Black Hills is engaged in various 

nonutility businesses through 

Subsidiaries and through affiliated 

business ventures, including the 

following: (1) EWGs and QFs, (2) 

investments in energy-related 

businesses involving exploration and 

production, transmission and 

distribution and cogeneration, among 

other things; and (3) 

telecommunications activities. 

Applicants also request that they be 

permitted to retain existing Financing 

Subsidiaries, Black Hills Nevada Real 

Estate Holdings LLC, Black Hills 

Valmont Colorado Inc., E-Next A 

Equipment Leasing Company LLC, and 

Las Vegas Cogeneration Energy 

Financing Company LLC.

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–24738 Filed 11–4–04; 8:45 am] 

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50618/File No. S7–12–01] 

Order Extending Temporary Exemption 

of Banks, Savings Associations, and 

Savings Banks From the Definition of 

‘‘Broker’’ Under Section 3(a)(4) of the 

Securities Exchange Act of 1934

November 1, 2004. 

I. Background 

The Gramm-Leach-Bliley Act 

(‘‘GLBA’’) repealed the blanket 

exception of banks from the definitions 

of ‘‘broker’’ and ‘‘dealer’’ under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and replaced this 

full exception with functional 

exceptions incorporated in amended 

definitions of ‘‘broker’’ and ‘‘dealer.’’

Under the GLBA, banks that engage in 

securities activities either must conduct 

those activities through a registered 

broker-dealer or ensure that their 

securities activities fit within the terms 

of a functional exception to the 

amended definitions of ‘‘broker’’ and 

‘‘dealer.’’

The GLBA provided that the amended 

definitions of ‘‘broker’’ and ‘‘dealer’’

were to become effective May 12, 2001. 

On May 11, 2001, the Securities and 

Exchange Commission (‘‘Commission’’) 

issued interim final rules (‘‘Interim 

Rules’’) to define certain terms used in, 

and grant additional exemptions from, 

the amended definitions of ‘‘broker’’

and ‘‘dealer.’’ 2 Among other things, the 

Interim Rules extended the exceptions 

and exemptions granted to banks under 

the statute and Interim Rules to savings 

associations and savings banks. They 

also included a temporary exemption 

that gave banks time to come into full 

compliance with the more narrowlytailored exceptions from broker-dealer 

registration.3 To further accommodate 

the banking industry’s continuing 

compliance concerns, the Commission 

delayed the effective date of the bank 

‘‘broker’’ and ‘‘dealer’’ rules through a 

series of orders that ultimately extended 

the temporary exemption from the 

definition of ‘‘broker’’ to November 12, 

2004, and from the definition of 

‘‘dealer’’ to September 30, 2003.4

In June 2004, the Commission 

proposed Regulation B, which would 

revise and replace the Interim Rules.5

The comment period for Regulation B 

expired on September 1, 2004,6 and the 

Commission has received over 105 

comments, including comments from 

the banking industry, banking 

regulators, and members of Congress.

In the Interim Rules, the Commission 

adopted Exchange Act Rule 15a–7,7

which provided that banks must begin 

complying with the GLBA on January 1, 

2002. We proposed to amend this 

provision in Regulation B by providing 

banks and other financial institutions 

until January 1, 2006, to begin 

complying with the GLBA.8

II. Extension of Temporary Exemption 

From Definition of ‘‘Broker’’

The Commission is carefully 

considering comments to determine 

what final action should be taken with 

regard to the Regulation B proposal. The 

Commission anticipates that this review 

process will not be completed before the 

exemption from the Interim Rules 

relating to the definition of ‘‘broker’’

expires on November 12, 2004. 

Therefore, the Commission finds that 

extending the temporary exemption of 

banks, savings associations, and savings 

banks from the definition of ‘‘broker’’ is 

necessary and appropriate in the public 

interest, and is consistent with the 

protection of investors. The Commission 

believes that extending the exemption 

from the definition of ‘‘broker’’ until 

March 31, 2005, will prevent banks and 

other financial institutions from 

unnecessarily incurring costs to comply 

with the statutory scheme based on the 

current Interim Rules and will give the 

Commission time to fully consider 

comments received on Regulation B and