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I. Petitioner and Tri-Power Before the Acquisition
A. Petitioner
1. Organization and Operations
Petitioner was incorporated on November 30, 1983, as a
wholly owned subsidiary of KN Energy, Inc. (KN Energy), a
publicly traded company.1 Effective October 1, 1984, KN Energy
assigned its ownership interests in substantially all of its
then-remaining oil and natural gas producing properties to
petitioner.2 On September 13, 1985, as the result of a spinoff,
petitioner became an independent, publicly owned company. Stock
1 KN Energy, Inc. (KN Energy), was formed in 1936 as a
pipeline company to purchase supplies of natural gas in the Otis
field in central Kansas and deliver those supplies through a
single transmission line to markets in northern Kansas and
central Nebraska.
2 KN Energy had previously spun off a portion of its assets
pursuant to a plan to thwart a 1983 takeover attempt. During
1983, KN Energy had two types of natural gas reserves, (1) "old"
natural gas reserves (natural gas reserves associated with wells
drilled before July 1, 1978), and (2) "new" natural gas reserves
(natural gas reserves associated with wells drilled on or after
July 1, 1978).
As a defensive mechanism to the 1983 takeover attempt, KN
Energy decided to spin off its oil and natural gas reserves. KN
Energy accomplished the spinoff using two subsidiaries, Midlands
Energy Co. (Midlands) and petitioner. The first spinoff took
place on Dec. 13, 1983, after KN Energy transferred its new
natural gas reserves and undeveloped properties to Midlands. The
second spinoff was delayed because transfer of KN Energy's old
natural gas reserves, which were subject to regulation by the
Federal Energy Regulatory Commission (FERC), required FERC
approval which had not yet been sought. On Jan. 29, 1985, FERC
issued an order approving the Oct. 1, 1984, transfer of the
remaining oil and old natural gas reserves to petitioner.
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