Matthew G. Bevin Governor

Charles G. Snavely Secretary Energy and Environment Cabinet

Edward T. Depp Dinsmore & Shohl 101 South Fifth Street, STE 2500 Louisville, KY 40202

Commonwealth of Kentucky Public Service Commission

211 Sower Blvd. P.O. Box 615

Frankfort, Kentucky 40602-0615 Telephone: (502) 564-3940

Fax: (502) 564-3460 psc.ky.gov

April 27, 2017

Michael J. Schmitt Chairman

Robert Cicero Vice Chairman

Daniel E. Logson, Jr. Commissioner

PSC STAFF OPINION 2017-008

Re: Brandenburg Telephone Company/Brandenburg Communications Corporation/Estate of Joseph D. Tobin , Jr.

Dear Mr. Depp:

The Commission received your letter on March 9, 2017, in which you requested confirmation, on behalf of the estate of Joseph D. Tobin, Jr. ("Estate"), that the prior approval requirements of KRS 278.020(6) and KRS 278.020(7) do not apply to the Estate's transfer of Brandenburg Communications Corporation ("Brandenburg Communications") shares of stock, or in the alternative, for the Commission to grant all necessary approvals to allow for the distributions to the beneficiaries of the Estate. This opinion represents Commission Staff's ("Staff") interpretation of the law as applied to the facts presented, is advisory in nature, and it is not binding on the Commission should the issues addressed herein be formally presented for Commission resolution.

Based upon your letter, the Staff understands the facts are as follows:

• Brandenburg Telephone Company ("Brandenburg Telephone") is a jurisdictional utility pursuant to KRS Chapter 278 that serves 15,513 customers in the Commonwealth of Kentucky.1

• Prior to his death, Mr. Tobin owned approximately 38% of Brandenburg Communications, which is the sole shareholder of Brandenburg Telephone.

1 Annual Report of Brandenburg Communications to the Public Service Commission for the Year Ended December 31 , 2015, at 28 of 32.

KentuckyUnbridledSpirit.com An Equal Opportunity Employer M/F/0

Edward T. Depp April27, 20 17 Page 2

• The Estate is working to finalize the transfers of Mr. Tobin's shares of Brandenburg Communications pursuant to the terms of his will and the November 22, 2016 orders from the Probation Division of the Meade County District Court ("the Court").

• Pursuant to the will , Mr. Tobin left the majority of his shares to his chi ldren: Allison Willoughby, Joseph D. Tobin Ill , and Tom H. Tobin. All three children were already shareholders in Brandenburg Communications, and the effect of the transfer of stock will be to increase their respective stakes from approximately 5% each to just under 15% each. The remainder of Mr. Tobin's Brandenburg Communications shares will transfer to the following six individuals who were not previously shareholders: Ruth Crawford , his widow, will receive less than 1 0% of the shares, and his five grandchildren will receive less than 0.25% of the shares.

• Your letter claims the transfer of shares will not cause a change in the ownership of Brandenburg Telephone and that it will remain fully owned by Brandenburg Communications. Further, you state that there will be no change in the day-to­day operational control of Brandenburg Telephone in that All ison Willoughby, Mr. Tobin's daughter, has long had a leading role in the management of Brandenburg Telephone and will continue to act as General Manager.

• The Estate further asserts that the transfer of shares will not result in a significant change to Brandenburg Communications' management, board, or shareholders, and therefore will not result in a significant change of control of Brandenburg Telephone.

• For the above stated reasons, the Estate concludes that Commission approval is not required under KRS 278.020 before the Estate distributes Mr. Tobin's shares of Brandenburg Communications. In the alternative, the Estate requests that the Commission find that the individuals to acquire the Brandenburg Communication shares, pursuant to Mr. Tobin's will , have the necessary financial, technical, and managerial abi lities to provide reasonable service as required by KRS 278.020(6); find that the transfers are made in accordance with law, for a proper purpose, and are consistent with the public interest as required by KRS 278.020(7) ; waive any and all unmet formal application requirements under KRS 278.020; approve the Estate's distribution of all of Mr. Tobin's shares of Brandenburg Communications pursuant to the terms of the will and Court orders; and grant all such other re lief to which the Estate is entitled .

KentuckyUnbndledSpirit.com An Equal Opportunity Employer M/F/D

Edward T. Depp April27 , 2017 Page 3

Your letter presents the following question: Whether the Estate must obtain Commission approval based upon KRS 278.020(6) and KRS 278.020(7), in order to distribute Mr. Tobin 's ownership shares of Brandenburg Communications?

Staff Analysis

KRS 278.020(6) provides as follows:

No person shall acquire or transfer ownership of, or control , or . the right to control, any utility under the jurisdiction of the commission by sale of assets, transfer of stock, or otherwise, or abandon the same, without prior approval by the commission. The commission shall grant its approval if the person acquiring the utility has the financial , technical , and managerial abilities to provide reasonable service.

KRS 278.020(7) also provides in relevant part as follows:

No individual, group, syndicate, general or limited partnership, association, corporation, joint stock company, trust, or other entity (an "acquirer''), whether or not organized under the laws of this state, shall acquire control , either directly or indirectly, of any utility furnishing utility service in this state, without having first obtained the approval of the comm1ss1on. Any acquisition of control without prior authorization shall be void and of no effect. As used in this subsection, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a utility, whether through the ownership of voting securities, by effecting a change in the composition of the board of directors, by contract or otherwise. Control shall be presumed to exist if any individual or entity, directly or indirectly, owns ten percent (10%) or more of the voting securities of the utility. This presumption may be rebutted by a showing that · ownership does not in fact confer control. Appl ication for any approval or authorization shall be made to the commission in writing, verified by oath or affirmation , and be in a form and contain the information as the commission requires. The commission shall approve any proposed acquisition when it finds that the same is to be made in accordance with law, for a proper purpose and is consistent with the public interest.

KentuckyUnbridledSpirit.com An Equal Opportunity Employer M/F/D

Edward T. Depp April 27, 2017 Page 4

In your letter, the Estate asserts that Commission approval of Mr. Tobin's transfer of shares is not necessary under KRS 278.020(6) because there wi ll be no change in ownership of Brandenburg Telephone itself, nor will there be any significant change in the management, board, or shareholders of Brandenburg Telephone's parent company, Brandenburg Communications. The Estate further states that the Commission has applied a "significant change" standard when evaluating whether approval from the Commission is required in circumstances such as this, and references the Commission's March 7, 2016 Order in Case No. 2015-00413, Application of Duke Energy Kentucky, Inc. for Declaratory Order.

However, in Staff's analysis, the plain language of KRS 278.020(6) contemplates the transfer of ownership of a utility, be it directly or indirectly, as an activity requiring approval by the Commission. Additionally, the Duke Energy Kentucky case is distinguishable as it involved different facts than the transfer of stock issue presented herein. In the Duke Energy Kentucky case, Duke Energy Kentucky, Inc.'s ("Duke Kentucky") indirect parent company, Duke Energy Corporation ("Duke Energy Corp.") was to acquire Piedmont Natural Gas Company, Inc. ("Piedmont"). That proposed transaction involved the existing, indirect parent of Duke Kentucky acquiring a non­affiliate which would become an affiliate of Duke Kentucky. Under the facts in that case, no stock of Duke Kentucky or of its parent company was to be transferred or acquired . All of the pre-transaction Piedmont stock was to be converted into cash and cancelled, along with an expansion of Duke Energy Corp.'s board of directors from 15 to 16 by placing one member from the pre-transaction Piedmont board of directors onto the Duke Energy Corp.'s board.2

In the Duke Energy Kentucky case, the Commission found that the proposed transaction presented no transfer of ownership of Duke Kentucky or Duke Energy Corp. because Piedmont was the entity being acquired and its acquisition presented "no significant change" in the ownership of the utility or the corporate structure.3 That is not the case with the transfer of stock ownership of Brandenburg Communications, the sole owner of Brandenburg Telephone. The facts presented here are that 38% of the stock of Brandenburg Communications, the sole owner of Brandenburg Telephone, is to be transferred . Mr. Tobin's three children will increase their ownership stakes from approximately 5% each to just under 15% each, with the remainder of Mr. Tobin's shares distributed to his widow at less than 10% and his five grandchildren at less than 0.25%. KRS 278.020(6) requires prior Commission approval when a jurisdictional utility is transferred "by sale of assets, transfer of stock, or otherwise." The General Assembly's use of the word "otherwise" is a clear indication that Commission approval

2 See Case No. 2015-00413 Application of Duke Energy Kentucky, Inc. for Declaratory Order, (Ky. P.S.C. Mar. 7, 2016).

3 /d. atB-10.

KentuckyUnbridledSplrit.com An Equal Opportunity Employer MIF/0

Edward T. Depp April 27, 2017 Page 5

is required for both direct and indirect transfers of control. The transfer of 38 percent of the shares of Brandenburg Communications will effectuate an indirect change in the ownership of Brandenburg Telephone, and prior approval is therefore required under KRS 278.020(6).

In your letter, you have also asserted that the transaction will not bring about a change in control , or the right to control as addressed in KRS 278.020(7). Under KRS 278.01 0{1 9) "Control" means the power to direct the management or policies of a person through ownership, by contract, or otherwise. Specifically, KRS 278.020(7) states that, "Control shall be presumed to exist if any individual or entity, directly or indirectly, owns ten percent {1 0%) or more of the voting securities of the utility. This presumption may be rebutted by a showing that ownership does not in fact confer control. " The proposed transaction will cause an increase in the amount of stock owned by Mr. Tobin's three children, bringing each of their total shares to over 10%, which is the threshold level that is statutorily presumed to constitute control of a utility.

You have further stated there will be no change in the day-to-day operational control of Brandenburg Telephone. However, the fact that there is no current intent for day-to-day operations to change does not rebut the presumption that an individual who directly or indirectly owns ten percent or more of the stock of a utility has acquired control. Based upon the facts you have presented , even though Brandenburg Telephone will remain under the ownership of Brandenburg Communications, there is a change in indirect ownership by the transfer of Brandenburg Communications stock. Staff also notes that in the Duke Energy Kentucky case, unlike here, there was no direct or indirect transfer of stock of the utility or its parent company. The Commission's finding of "no significant change" in that case was expressly limited to the expansion of Duke Energy Corp.'s board of directors from 15 to 16 members and personnel adjustments, not in reference to the direct or indirect acquisition of stock.4

Additionally, you refer to KRS 278.020(8) and assert that KRS 278.020(7) does not apply because the acquirers are almost exclusively pre-existing shareholders.

The relevant portion of KRS 278.020 (8)(b) provides as follows:

Subsection (7) of [KRS 278.020] shall not apply to any acquisition of control of any: Utility by an acquirer who directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the utility, including any entity created at the direction of such utility for purposes of corporate reorganization.

4 /d. at10.

KentuckyUnbndledSp1nt com An Equal Opportunity Employer M/F/D

Edward T. Depp April27, 2017 Page 6

As discussed previously, it is Staff's opinion that KRS 278.020(7) does apply to these facts and the Estate does not meet the exception described in KRS 278.020(8)(b) because there will be a change in control , as defined by statute, due to the transfer of stock to ind ividuals acquiring more than 10 percent where these individuals did not all previously "control" the utility.

The transfer of 38% ownership of stock and the presumption of control is enough to require the approval of the proposed transfer of stock by the Commission. KRS 278.020(6) provides that the Commission must approve a transfer of stock ownership in a util ity. Whi le the Court has approved the distribution of stock, as it has jurisdiction over the Estate, KRS 278.020(6) gives jurisdiction over the transfer of stock ownership in a util ity to the Commission. Brandenburg Telephone should file a formal application with the Commission which provides sufficient evidence to either support or request for Commission approval of the transfer of control or rebut the presumption that there will be a change in control.

This letter represents Commission Staff's interpretation of the law as applied to the facts presented. This opinion is advisory in nature and not binding on the Commission should the issues herein be formally presented for Commission resolution. Questions concerning this opinion should be directed to Brittany Koenig, Commission Staff Attorney, at (502) 782-2591 or Angela Goad, Commission Staff Attorney, at (502) 782-2562.

Sincerely,

~Jill Richard G. Raft General Counsel

BK!ph

KentuckyUnbndledSplrit.com An Equal Opportunity Employer M/F/D