FEES AND EXPENSES The fees and expenses to be incurred in connection with the proposed transaction are estimated by PE Power as follows: Filing fees.‒‒‒‒ Issuance taxes---. Legal services_____ Accounting services___ Charges of trustee, registrar, and transfer agent__. Printing and engraving__‒‒‒‒ Stock exchange listing and fees__. Miscellaneous and contingency-- Total. $3,160 76, 605 25,000 5,000 58,000 50,000 4, 100 43, 135 265, 000 Drinker, Biddle & Reath have been designated as counsel for the bidders on the bonds. However, no estimate of their fee has been submitted, nor has any estimate as to fees been submitted by Drexel & Company, which acted as financial adviser to the company in connec tion with the sale of the bonds. Since the services of counsel for the company and counsel for the bidders have not been completed and since the record is incomplete as to the amount of the fees to be requested by the financial adviser and by counsel for the bidders, we shall reserve jurisdiction over all legal fees and the financial adviser's fee. The other fees and expenses do not appear unreasonable. COMPLIANCE WITH APPLICABLE STATUTORY STANDARDS The issue and sale by PE Power of the bonds, notes and common stock are subject to the provisions of Section 6 (a) of the Act and must therefore satisfy the applicable requirements of Section 7. The issue and sale of these securities are for the purpose of refunding outstanding securities and thus are for the purpose of financing the business of the company. Accordingly, such issue and sale satisfy the provisions of Section 7 (c). In considering the issuance and sale of bonds and notes under the standards of Section 7 (d), we note that while the proposed transactions will initially result in an increase in the ratio of long-term debt to total capitalization and surplus, the serial maturities of the notes and the operation of the sinking fund on the bonds will rapidly tend to improve this ratio. Furthermore, the contractual operating arrangements, previously discussed, between PE Power, Susquehanna and PE assure PE Power of a relatively stable gross income to meet fixed charges which will be constantly reduced by virtue of the periodic debt reduction. We do not believe it necessary under these circumstances to make adverse findings under Section 7 (d). The provisions of Section 7 (g) are satisfied, since the Pennsylvania Public Utility Commission has approved the issue and sale of the new securities and no other State Commission has informed us that pplicable State laws have not been complied with. The terms of the proposed securities appear appropriate and the bonds are to be sold by competitive bidding. Accordingly, we observe no reason for making any adverse findings under Section 7. The redemption of the outstanding bonds of PE Power will be effected in accordance with the terms of such bonds and is exempted by virtue of the provisions of Rule U-42 (b) (2). The redemption of PE Power's outstanding 8 percent preferred stock is subject to the provisions of Section 12 (c) of the Act and Rule U-42 thereunder. On the basis of the record, we see no reason for any adverse findings under this Section of the Act. The conversion into common stock of the $6,050,000, 6 percent demand note held by P. E. and the sale by PE Power to P. E. of a maximum of 120,000 additional shares of common stock is subject to Section 12 (f) of the Act and Rule U-43 thereunder. We observe no basis for any adverse findings on this aspect of the case. The proposed sale of the serial notes is exempt from the competitive bidding provisions of Rule U-50, since it falls within the exception afforded by Subsection (a) (2) of that Rule. Susquehanna's proposal to join with its parent, PE Power, in the execution of the supplemental indenture securing the new issue of bonds and to guarantee the payment of the principal and interest on the bonds and serial notes to be issued by PE Power constitutes an issuance of "securities", as that term is defined by Section 2 (a) (16) of the Act. Such proposal is for the purpose of enabling PE Power to refund securities, part of the proceeds of which Susquehanna originally received and for which it is still indebted to PE Power on open account advance pursuant to certain intercorporate agreements previously referred to. Under the circumstances, it appears that such securities are being issued for the purpose of financing the business of Susquehanna, and since such transactions have been expressly authorized by the Public Service Commission of Maryland, the Commission of the state in which Susquehanna is organized and doing business, the application of Susquehanna for an exemption from the provisions of Section 6 (a) of the Act will be granted. On the basis of the foregoing findings, we shall grant the applications and permit the declarations to become effective, subject to the requirements of Rule U-24. We shall, of course, reserve jurisdiction as to the terms and conditions of the securities to be issued insofar as the same are to be determined by competitive bidding as well as all legal fees and financial advisory fees to be incurred in connection with the proposed transactions. An appropriate order will issue. By the Commission: (Commissioners McConnaughey, Caffrey and McEntire) Commissioners Purcell and Healy being absent and not participating. APPENDIX A PHILADELPHIA ELECTRIC POWER COMPANY AND SUBSIDIARY Consolidated balance sheet-Mar. 31, 1946, before and after refinancing For illustrative purposes, PE Power has assumed the sale of the bonds at 102 and estimated expenses at $265,000, resulting in a net premium of $335,000; the sale of $2,400,000 par value of common stock also has been assumed. () Denote red figure. "Including $200,000 par value held in depreciation fund. b Including $417,000 principal amount held in depreciation fund. The indenture securing the new bonds provides that until no 1975 series bonds are outstanding or until Jan. 1, 1957, whichever is earlier, no dividends on common stock may be declared except from net income earned subsequent to June 30, 1946. d Segregated from earned surplus, pursuant to court order, for adjustment of Conowingo project property accounts in accordance with orders of the Federal Power Commission if such orders are not modified or set aside by the court. E APPENDIX B PHILADELPHIA ELECTRIC POWER COMPANY AND SUBSIDIARY COMPANY Pro forma statement of income and surplus reflecting first year effect of refinancing, based on adjusted figures for 12 months ended Mar. 31, 1946 APPENDIX C NORTHERN STATES POWER CO. (MINN.) AND SUBSIDIARIES Condensed consolidated income statements as of Mar. 31, 1946, and pro forma as of the same date reflecting the proposed refinancing of $27,500,000 of preferred stock () Denote red figure. Percent 2.09 Percent 3.70 2.10 Federal excess profits taxes and State income taxes for the year 1945 were reduced $3,421,000 and $222,500, respectively, as a result of extraordinary deductions for tax purposes resulting from bond refinancing in 1945 and a charge equivalent to these tax savings was made to "Special amortization of debt discount and expense." The portion of the above amount applicable to 12 months ended Mar. 31, 1946 is $2,730,500. After allowance for deduction of extraordinary tax savings due to bond refinancing in 1945. |