[Federal Register Volume 62, Number 201 (Friday, October 17, 1997)]
[Notices]
[Pages 54143-54145]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 97-27522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26764]


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

October 10, 1997.
    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 October 31, 1997, 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.

Western Resources, Inc. (70-9097)

    Western Resources, Inc. (``WRI''), located at 818 Kansas Avenue, 
Topeka, Kansas 66612, a Kansas public utility holding company exempt 
under section 3(a) pursuant to rule 2 from all provisions of the Act 
except section 9(a)(2), has filed an application under sections 9(a)(2) 
and 10 of the Act in connection with a proposed sale of its gas utility 
operations.
    WRI, itself a public utility company, is engaged through its Kansas 
Power & Light Company division in the generation, purchase, 
transmission, distribution and sale of electric energy in Kansas and 
the transportation and sale of natural gas predominantly in Kansas, 
with some small operations in Oklahoma. WRI provides retail electric 
service to approximately 329,000 customers in Kansas and northeastern 
Oklahoma. WRI also provides wholesale electric generation and 
transmission services to numerous municipal customers in Kansas, and, 
through interchange agreements, to surrounding integrated systems. WRI 
provides natural gas service to approximately 648,000 retail customers 
in Kansas and northeastern Oklahoma. WRI is regulated as a public 
utility with respect to retail electric and gas rates and other matters 
by the Kansas Corporation Commission (``KCC'') and with respect to 
retail gas rates and other matters by the Oklahoma Corporation 
Commission (``OCC''). WRI is also subject to the jurisdiction of the 
Federal Energy Regulatory Commission, including jurisdiction with 
respect to rates for sales of electricity for resale.
    WRI has one utility subsidiary, Kansas Gas and Electric Company 
(``KGE'').\1\ KGE provides retail electric service to approximately 
277,000 residential, commercial and industrial customers in Kansas and 
wholesale electric generation and transmission services to numerous 
municipal customers in Kansas and, through interchange agreements, to 
surrounding integrated systems. KGE does not own or operate any gas 
properties. KGE has one active subsidiary, Wolf Creek Nuclear Operating 
Corporation (``Wolf Creek''), a Delaware Corporation which is 47% owned 
by KGE and operates the Wolf Creek Generating Station on behalf of the 
plant's owners, including KGE.\2\ KGE is regulated as a public utility 
company with respect to retail electric rates and other matters by the 
KCC. It is also regulated by the Nuclear Regulatory Commission under 
the Atomic Energy Act of 1954, as amended, in connection with its 
ownership interest in Wolf Creek.
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    \1\ WRI has entered into an Agreement and Plan of Merger dated 
February 17, 1997 with Kansas City Power & Light Company (``KCPL''), 
a public utility company which operates as an electric utility 
company in Kansas and Missouri (``KCPL Merger Agreement''). The KCPL 
Merger Agreement calls for KCPL to be acquired by WRI, after which, 
WRI would claim, or seek an order from the Commission granting, an 
exemption under Section 3(a).
    \2\ KGE has obtained no-action assurance from the Commission 
regarding its ownership interest in Wolf Creek. SEC No-Action Letter 
(June 26, 1995).
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    WRI also has numerous direct and indirect non-utility subsidiaries, 
including (1) Westar Capital, Inc. (``Westar Capital''), a Kansas 
corporation that is holding company for certain of WRI's non-regulated 
activities,\3\ (2)

[[Page 54144]]

Westar Energy, Inc. (``Westar Energy''), a Kansas corporation that 
provides energy related services to large commercial and industrial 
customers,\4\ and (3) Mid Continent Market Center, Inc. (``MCMC''), a 
Kansas corporation that offers natural gas transportation, wheeling, 
parking, balancing and storage services to natural gas procedures.\5\
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    \3\ Westar Capital's subsidiaries and affiliates are: (i) 
Hanover Compressor Company (offers compression services to the 
natural gas industry), (ii) Westar Financial Services, Inc. (funds 
activities of other WRI subsidiaries), (iii) Wing Columbia, L.L.C. 
(invests in power generation projects in Columbia, South America), 
(iv) WestSec, Inc. (engaged in the business of monitored home and 
business security systems), (v) Westar Limited Partners, Inc. 
(``Westar Limited'') (participates in limited partnerships and 
investments related to the business of WRI), (vi) Valence, L.L.C. 
(develops, manufactures, produces and distributes electronic parts, 
equipment and products), (vii) Thunderbird Limited, III, L.P. (a low 
income housing project in which Westar Limited is an 82% limited 
partner), (viii) Thunderbird Montery, L.P. (a low income housing 
project in which Westar Limited is a 99% limited partner), and (ix) 
Oakwood Manor, L.P. (a low income housing project in which Westar 
Limited is a 99% limited partner).
    \4\ Westar Energy's subsidiaries are: (i) Westar Energy 
Investments, Inc. (holds investments of Westar Energy), (ii) Westar 
Gas Marketing, Inc. (``Westar Gas Marketing'') (arranges natural gas 
purchasing, transportation and delivery for natural gas users), 
(iii) Westar Gas Company (gathers and processes natural gas in 
Oklahoma and Kansas), (iv) Indian Basin Venture I and II 
(collectively, Indian Basin Ventures) (operates a gas processing 
plant in New Mexico), (v) Westar Electric Marketing, Inc. (arranges 
electric marketing and brokering for commercial and industrial 
customers on a wholesale level), and (vi) Westar Business Services, 
Inc. (provides energy related services to commercial and industrial 
customers).
    \5\ MCMC has a subsidiary, Market Center Gathering, Inc., which 
facilitates the operation of gas gathering systems.
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    For the year ended December 31, 1996, WRI had consolidated 
operating revenues of approximately $2,047 billion, approximately $549 
million of which was derived from the company's natural gas operations, 
approximately $1.197 billion of which was derived from its electric 
energy operations and approximately $301 million of which was derived 
from its non-utility activities. Consolidated assets of WRI and its 
subsidiaries at December 31, 1996 were approximately $6.65 billion, 
approximately $4.36 billion of which consisted of identifiable utility 
property, plant and equipment. WRI's common stock, $5.00 par value, is 
listed on the New York Stock Exchange. There were 65,220,373 shares of 
WRI common stock outstanding as of July 30, 1997.
    ONEOK, Inc., is a Delaware corporation which, among other things, 
operates as a gas utility company (``ONEOK''). ONEOK has its principal 
office in Tulsa, Oklahoma. It engages through its divisions and 
subsidiaries in several aspects of the energy business, including local 
distribution of natural gas. ONEOK is a gas utility company as defined 
in Section 2(a)(4) of the Act and is presently neither an associate nor 
an affiliate of a public-utility holding company. Oklahoma Natural Gas 
Company, a division of ONEOK, and two subsidiaries, ONG Transmission 
Company and ONG Sayre Storage Company comprise a fully integrated 
intrastate natural gas gathering, storage, transmission and 
distribution operation that provides natural gas service to 
approximately 730,000 customers, primarily in Oklahoma. The operations 
of the division and two subsidiaries are consolidated for ratemaking 
purposes by the OCC. ONEOK also engages in a number of non-regulated 
energy-related businesses, including natural gas marketing and oil and 
gas exploration and production. As of May 31, 1997, there were 
27,997,925 shares of ONEOK common stock outstanding. For the year ended 
August 31, 1996, ONEOK's operating revenues on a consolidated basis 
were approximately $1.224 billion, of which approximately $538 million 
was attributable to regulated natural gas distribution activities and 
approximately $686 million to gas marketing, gas processing, gas 
exploration, gas production and other operations. Consolidated assets 
of ONEOK and its subsidiaries at May 31, 1997 were $1.40 billion, of 
which approximately $678 million consists of its gas distribution 
property, plant and equipment.
    WRI requests authorization to acquire up to (1) 9.9% of the 
outstanding common stock of WAI, Inc. (WAI), a newly-formed Oklahoma 
corporation,\6\ and (2) shares of WAI's non-voting convertible 
preferred stock, which, when aggregated with the common stock, may 
amount to as much as 45% of the total capital stock of WAI 
(collectively, ``WAI Stock''). In return for the WAI Stock, and 
pursuant to an amended and restated agreement dated May 19, 1997 (the 
``Agreement'') among WRI, WAI and ONEOK, WRI will transfer all of the 
assets of its Kansas and Oklahoma gas distribution operations and all 
of the outstanding capital stock of its MCMC and Westar Gas Marketing 
subsidiaries \7\ (collectively, the ``WRI Gas Business'') to WAI (the 
``Asset Transaction'').\8\ ONEOK will then merge with and into WAI, 
with WAI as the surviving corporation (the ``Merger,'' and together 
with the Asset Transaction, the ``Transactions''), and WAI will be 
renamed ONEOK, Inc. (``New ONEOK'').\9\
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    \6\ WAI has been formed initially as a wholly-owned subsidiary 
of WRI.
    \7\ As noted above, MCMC provides natural gas transportation, 
wheeling, parking, balancing and storage services to natural gas 
producers and Westar Gas Marketing arranges natural gas purchasing, 
transportation and delivery for natural gas users.
    \8\ Applicant states that transfer of the WRI Gas Business to 
New ONEOK will improve the efficiency of WRI's gas utility 
operations, will be in the public interest and the interests of 
investors and consumers and will not be detrimental to the proper 
functioning of the resulting holding company system.
    \9\ Pursuant to a Registration Rights Agreement to be entered 
into by WRI and New ONEOK upon closing of the Transactions, the 
outstanding shares of ONEOK common stock (``ONEOK Common Stock'') 
will be converted on a one-for-one basis into the right to receive 
shares of New ONEOK common stock (``New ONEOK Common Stock''). Each 
share of New ONEOK Common Stock will be issued together with the 
corresponding number of associated rights to purchase one one-
hundredths of a share of Series C Preferred Stock of New ONEOK.
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    Immediately following the Merger, the New ONEOK board of directors 
and management will be the same as that of ONEOK prior to the Merger, 
except for (i) the expansion of the board from 14 to 16 directors to 
allow the appointment two directors designated by WRI \10\ and (ii) the 
appointment of five persons who are currently officers of WRI with 
respect to the WRI Gas Business (including officers of MCMC and Westar) 
as additional officers of New ONEOK, with comparable 
responsibilities.\11\ New ONEOK will be subject to regulation with 
respect to rates and other corporate matters by KCC and OCC.
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    \10\ Only one of the two directors may be an officer, director 
or employee of WRI or its subsidiaries. The two directors to be 
designated by WRI approximate the number of directors it could elect 
in ordinary circumstances, based on its 9.9% common equity interest, 
if cumulative voting applied. No board member designated by WRI will 
serve on the New ONEOK board nominating committee, or chair any 
other committee of New ONEOK's board.
    \11\ Under certain circumstances, following the occurrence of a 
``Regulatory Change,'' WRI has the right to designate additional 
directors providing for aggregate representation of up to one-third 
of the New ONEOK Board.
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    Upon consummation of the Transactions, on a fully diluted basis, 
after giving affect to the Transactions and based on the number of 
shares of ONEOK Common Stock outstanding as of December 12, 1996, WRI 
will hold 2,966,702 shares of New ONEOK Common Stock and 19,317,584 
shares of Series A Convertible Preferred Stock of New ONEOK,\12\ 
representing up to 9.9%

[[Page 54145]]

of the New ONEOK Common Stock outstanding before conversion of any of 
the Series A Convertible Preferred Stock into New ONEOK Common Stock 
and up to 45% of the New ONEOK Common Stock that would be outstanding 
after conversion of all such stock. The present shareholders of ONEOK 
Common Stock will hold shares of New ONEOK Common Stock representing at 
least 90.1% of the New ONEOK Common Stock then outstanding and not less 
than 55% of the New ONEOK Common Stock that would be outstanding after 
conversion of all of the Series A Convertible Preferred Stock to be 
held by WRI.
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    \12\ Shares of Series A Convertible Preferred Stock are non-
voting, except that they vote with the New ONEOK Common Stock (and 
any other class or series of stock which may be similarly entitled 
to vote with the holders of New ONEOK Common Stock) as a single 
class with respect to certain extraordinary matters such as 
transactions constituting a Change in Control (as defined in the 
Shareholder Agreement) or proposed changes to New ONEOK's 
Certificate or Incorporation or By-Laws. The Series A Convertible 
Preferred Stock is convertible, at the option of the holder, in 
whole or in part, at any time following the occurrence of a 
Regulatory Change (as defined in the Shareholder Agreement), into 
New ONEOK Common Stock at the rate of one share of New ONEOK Common 
Stock for each share of Series A Convertible Preferred Stock (as 
adjusted to reflect any stock split or similar events). In addition, 
any shares of the Series A Convertible Preferred Stock transferred 
by WRI to any person other than WRI or its affiliates is required to 
be converted into New ONEOK Common Stock.
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    WRI and New ONEOK will enter into a shareholder agreement 
(``Shareholder Agreement''), upon the closing of the Transactions, 
which will place certain restrictions on WRI's actions as a New ONEOK 
shareholder during the term of the Shareholder Agreement.\13\ Among 
other things, the Shareholder Agreement will provide that the 
``Shareholder Group'' (defined as WRI, its affiliates, partners and 
certain other persons and groups contemplated by Section 13(d) of the 
Securities Exchange Act of 1934) will be prohibited from acquiring (1) 
any Voting Securities (as defined in the Shareholder Agreement) that 
would cause the Shareholder Group to have more than a 9.9% Voting 
Ownership Percentage,\14\ prior to the occurrence of a Regulatory 
Change (as defined in the Shareholder Agreement),\15\ or (2) any 
securities that would, at any time, cause the Shareholder Group's Total 
Ownership Percentage \16\ to exceed the Maximum Ownership Percentage 
specified in the Shareholder Agreement.\17\ The Shareholder Agreement 
gives the Shareholder Group certain ``top-up'' and ``dilutive 
issuance'' rights that enable the Shareholder Group to ensure that the 
Voting Ownership Percentage does not fall below 9.9% and the Total 
Ownership Percentage does not fall below the Maximum Ownership 
Percentage. The Shareholder Agreement will also impose certain 
restrictions on WRI's ability to vote \18\ or transfer the securities 
of New ONEOK.
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    \13\ The Shareholder Agreement terminates under certain 
circumstances described in Article V of the agreement.
    \14\ ``Voting Ownership Percentage'' means the Voting Power (as 
defined in the Shareholder Agreement) represented by New ONEOK 
Common Stock and shares of any other class of capital stock of New 
ONEOK then entitled to vote in the election of directors (not 
including Convertible Preferred Stock) (''Voting Securities'') 
beneficially owned by the person whose voting ownership percentage 
is being determined.
    \15\ The Shareholder Agreement states that a ``Regulatory 
Change'' will be deemed to have occurred upon the receipt by WRI of 
an opinion of counsel (which counsel must be reasonably acceptable 
to New ONEOK) to the effect that either (1) the 1935 Act has been 
repealed, modified, amended or otherwise changed or (2) WRI has 
received an exemption, or, in the unqualified opinion of WRI's 
counsel, is entitled without any regulatory approval to claim an 
exemption, or has received an approval or no-action letter from the 
Commission or its staff under the 1935 Act or has registered under 
the 1935 Act, or any combination of the foregoing, and as a 
consequence of (1) and/or (2), WRI may fully and legally exercise 
such rights under the Shareholder Agreement as take effect in the 
period after the Regulatory Change has occurred.
    \16\ ``Total Ownership Percentage'' means the Voting Power (as 
defined in the Shareholder Agreement) which would be represented by 
the Securities Beneficially Owned (as defined in the Shareholder 
Agreement) by the Person whose Total Ownership Percentage is being 
determined if all shares of Convertible Preferred Stock (as Defined 
in the Shareholder Agreement), or other Securities convertible into 
Voting Securities (as defined in the Shareholder Agreement), 
Beneficially Owned by such Person were converted into shares of 
Common Stock (or other Voting Security.
    \17\ The Shareholder Agreement defines ``Maximum Ownership 
Percentage'' as a Total Ownership Percentage of 45%, less the Voting 
Power (as defined under the Shareholder Agreement) represented by 
all Voting Securities (as defined in the Shareholder Agreement) 
transferred by the Shareholder Group during the term of the 
Shareholder Agreement, including the Voting Power represented by any 
shares of Convertible Preferred Stock which were converted into 
shares of New ONEOK Common Stock contemporaneously with such 
transfer pursuant to the terms of the Shareholder Agreement.
    \18\ Among other things, the Shareholder Agreement provides 
that, with respect to the election of directors to New ONEOK's board 
of directors, WRI will vote all New ONEOK Common Stock held by it in 
accordance with the recommendation of New ONEOK's nominating 
committee. The New ONEOK nominating committee recommends nominees to 
fill vacancies on the board, establishes procedures to identify 
potential nominees, recommends criteria for membership on the board, 
and recommends the successor chief executive officer when a vacancy 
occurs. The New ONEOK By-laws provide that the chief executive 
officer of New ONEOK must be elected by the affirmative vote of 80% 
of the directors of New ONEOK.
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    Applicant states that the proposed Transactions satisfy all of the 
requirements of Sections 9(a)(2) and 10 under the Act.\19\ In addition, 
WRI and ONEOK have requested a no-action letter from the Commission in 
connection with the proposed Transactions seeking assurances that WRI's 
ownership interest in New ONEOK will not cause NEW ONEOK to be deemed a 
``subsidiary'' of WRI or WRI to be deemed a ``holding company'' under 
the Act.
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    \19\ Section 9(a)(2) makes it unlawful, without approval of the 
Commission under Section 10, ``for any person * * * to acquire, 
directly or indirectly, any security of any public utility company, 
if such person is an affiliate * * * of such company and of any 
other public utility or holding company, or will by virtue of such 
acquisition become such an affiliate.'' Commission approval under 
Section 9(a)(2) is required because WRI (which is already an 
affiliate of its subsidiary, KGE) will become an affiliate of New 
ONEOK as a result of the proposed Transactions.

    For the Commission, pursuant to delegated authority, by the 
Division of Investment Management.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27522 Filed 10-16-97; 8:45 am]
BILLING CODE 8010-01-M