(As filed with the Securities and Exchange Commission July 7, 2000)
File No. 70-9653
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
on
FORM U-1/A
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
WGL Holdings, Inc.
Washington Gas Light Company
Crab Run Gas Company
Hampshire Gas Company
Washington Gas Resources Corp.
Primary Investors, LLC
1100 H Street, N.W.
Washington, D.C. 20080
(Names of companies filing this statement and addresses of
principal executive offices)
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WGL HOLDINGS, INC.1
(Name of top registered holding company parent of each applicant or declarant)
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John K. Keane, Jr.
Senior Vice President and General Counsel
Washington Gas Light Company
1100 H Street, N.W.
Washington, D.C. 20080
(Name and address of agent for service)
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The Commission is requested to mail copies of all orders, notices and
other communications to:
Douglas V. Pope, Secretary Andrew F. MacDonald, Esq.
Washington Gas Light Company Thelen Reid & Priest LLP
1100 H Street, NW 701 Pennsylvania Avenue, N.W.
Washington, D.C. 20080 Washington, D.C. 20004
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1 WGL Holdings, Inc. will register upon completion of the
reorganization described in Item 1 of this Application/Declaration.
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION..................................1
1.1 Introduction.........................................................1
1.2 Description of Washington Gas Light and its Subsidiaries.............1
1.2.1 Gas Utility Operations..........................................1
1.2.2 Non-Utility Businesses of Washington Gas Light and
Its Subsidiaries..............................................3
1.3 Capitalization of WGL Holdings and Subsidiaries......................6
1.4 The Reorganization...................................................7
1.5 Summary of Requested Approvals; Use of Proceeds......................9
1.6 Description of Proposed Financing Program...........................10
1.6.1. WGL Holdings External Financing................................10
(a) Common Stock...................................................10
(b) Long-term Debt, Preferred Stock and other Preferred or
Equity-Linked Securities.....................................12
(c) Short-term Debt................................................13
1.6.2. Washington Gas Light Financing.................................14
1.6.3 Non-Utility Subsidiary Financing...............................14
1.7 Guarantees and Other Forms of Credit Support........................15
1.7.1 WGL Holdings Guarantees........................................15
1.7.2 Non-Utility Subsidiary Guarantees..............................15
1.8 Hedging Transactions................................................15
1.8.1 Interest Rate Hedges...........................................15
1.8.2 Anticipatory Hedges............................................16
1.9 System Money Pool...................................................16
1.10 Changes in Capital Stock of Subsidiaries............................19
1.11 Financing Subsidiaries..............................................19
1.12 Intermediate Subsidiaries...........................................20
1.13 Energy Consumer Financing Activities................................22
1.14 Payment of Dividends Out of Capital and Unearned Surplus............22
1.15 Approval of Services Under Service Agreement........................24
1.16 Certificates of Notification........................................25
ITEM 2. FEES, COMMISSIONS AND EXPENSES......................................27
ITEM 3. APPLICABLE STATUTORY PROVISIONS.....................................27
3.1 General.............................................................27
3.2 Compliance with Rules 53 and 54.....................................27
ITEM 4. REGULATORY APPROVALS................................................28
ITEM 5. PROCEDURE...........................................................28
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS...................................28
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.............................31
i
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The Application/Declaration filed in this proceeding on March 31, 2000
is hereby amended and restated in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
-----------------------------------
1.1 INTRODUCTION. WGL Holdings, Inc. ("WGL Holdings"), a Virginia
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corporation, is currently a wholly owned subsidiary of Washington Gas Light
Company ("Washington Gas Light" or the "Company"), a "gas utility company"
within the meaning of Section 2(a)(4) of the Public Utility Holding Company Act
of 1935, as amended (the "Act"). WGL Holdings has nominal capitalization and
does not conduct any business operations or own any material assets at this
time. As a result of the reorganization which is described below in Item 1.4
(the "Reorganization"), WGL Holdings will become a "holding company," as defined
in Section 2(a)(7) of the Act, over Washington Gas Light and the current common
stockholders of Washington Gas Light will acquire and own all of the issued and
outstanding common stock of WGL Holdings. Following completion of the
Reorganization, WGL Holdings will register pursuant to Section 5 of the Act.
This Application/Declaration seeks authorization and approval of the
Commission with respect to ongoing financing activities of WGL Holdings and its
subsidiaries, intrasystem extensions of credit, interest rate hedging measures,
the creation of specified types of new subsidiaries, the payment of dividends
out of capital and unearned surplus by non-utility subsidiaries, approval of
affiliate agreements and other related matters pertaining to WGL Holdings and
its subsidiaries. In addition, to the extent necessary, WGL Holdings requests
that the Commission make findings under Section 11(b)(1) of the Act that (1) the
gas utility system of Washington Gas Light constitutes an "integrated" gas
utility system, as defined in Section 2(a)(29)(B) of the Act, and (2) the
non-utility operations of Washington Gas Light and its subsidiaries, as
described below in Item 1.2, may be retained.
1.2 DESCRIPTION OF WASHINGTON GAS LIGHT AND ITS SUBSIDIARIES.
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1.2.1 Gas Utility Operations. Washington Gas Light sells and
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delivers natural gas to customers in metropolitan Washington, D.C., and the
adjoining areas of Maryland and Virginia. Until recently, Washington Gas Light
was a holding company by reason of its ownership of all of the voting securities
of Shenandoah Gas Company ("Shenandoah Gas"), a gas distribution company which
provided service to several cities and towns in the northern Shenandoah Valley
of Virginia, including the City of Winchester and the Towns of Middletown,
Strasburg, Stephens City, Berryville, Mount Jackson, Woodstock and New Market.2
On April 1, 2000, Shenandoah Gas was merged into Washington Gas Light in
accordance with an order of the State Corporation Commission of Virginia
("SCC-VA").3 Together, the Company and Shenandoah Gas served a total of 863,258
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2 Washington Gas Light previously claimed exemption from the
registration requirements pursuant to Section 3(a)(2) of the Act. See Washington
Gas Light Company, Holding Co. Act Release No. 16706 (May 1, 1970).
3 See Petition of Washington Gas Light Company and Shenandoah Gas
Company, Case No. PUA990071 (Dec. 22, 1999). The SCC-VA order requires that
separate accounting records be maintained for the Shenandoah Gas division of
Washington Gas Light until the Company files, and the SCC-VA approves, a plan
for the merger of the tariffs for Washington Gas Light and the Shenandoah Gas
division. In the interim, Washington Gas Light must continue to fulfill
longstanding regulatory reporting requirements for the Shenandoah Gas division
and itself as if they were separate entities.
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customer meters as of December 31, 1999, in an area having a population
estimated at 4.5 million. Approximately 41% of these customers are located in
Virginia, approximately 17% in the District of Columbia, and approximately 42%
in Maryland. Washington Gas Light is incorporated under the laws of both the
Commonwealth of Virginia and the District of Columbia. It is subject to
regulation as to retail rates and transportation service, the issuance of
securities, affiliate transactions and other matters by the SCC-VA, the Public
Service Commission of the District of Columbia ("PSC-DC"), and the Public
Service Commission of Maryland ("PSC-MD").
At September 30, 1999, Washington Gas Light and Shenandoah Gas
together had 612 miles of transmission mains and 10,006 miles of distribution
mains. The Company has the capacity for storage of approximately 15 million
gallons of propane for peak shaving. The Company also has peaking facilities
consisting of propane air plants in West Springfield, Virginia and Rockville,
Maryland. The Company purchases substantially all of its gas for bundled sales
from producers in the Texas-Louisiana-Gulf Coast region and the southwest, and
from marketers. The Company arranges gas deliveries to multiple entry points on
its system using the delivery capacity of interstate pipelines under a variety
of long-term contracts. The Company's gas supply and storage and transportation
capacity plan is based on the requirements of the system as a whole (including
the Shenandoah Gas division).
A map showing the combined service area of Washington Gas Light and
Shenandoah Gas is filed herewith as Exhibit E-1.
Under Section 2(a)(29)(B) of the Act, an integrated gas utility system
is defined to mean:
"a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by
being operated as a single coordinated system confined in its
operations to a single area or region, in one or more States, not so
large as to impair (considering the state of the art and the area or
region affected) the advantages of localized management, efficient
operation, and the effectiveness of regulation: Provided, That gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region."
The Washington Gas Light system constitutes an "integrated" gas
utility system within the meaning of Section 2(a)(29)(B) of the Act. The present
Washington Gas Light system is the result of a series of acquisitions over the
years by Washington Gas Light of smaller neighboring gas companies (including
Shenandoah Gas) and the subsequent merger of those companies into Washington Gas
Light. Significantly, the Commission has approved several of these acquisitions
under the standards of Section 10(c), which, by reference, incorporates Section
11.4 The Company serves a single, contiguous, region that includes all of the
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4 See Washington Gas Light Company, Holding Co. Act Release No. 14846
(April 9, 1963) (approving the acquisition of Frederick Gas Company, Inc., which
was merged into the Company in 1996); and Washington Gas Light Company, Holding
Co. Act Release No. 15319 (Oct. 7, 1965) (approving acquisition of Martinsburg
Gas and Heating Company, which was merged into the Company in 1965). At the time
of these acquisitions, Washington Gas Light already owned substantially all of
the outstanding voting securities of Shenandoah Gas, which it had acquired in
1959. See Washington Gas Light Company, 44 S.E.C. 515 (1971) (approving plan
filed by Washington Gas Light under Section 11(e) to eliminate publicly-held
shares of Shenandoah Gas).
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District of Columbia and the surrounding areas of Virginia and Maryland. All of
the operations of the Company, including arranging for gas supply and
transportation, customer billing, call center operations, pipeline construction,
maintenance and replacement activities, and non-gas purchasing, among others,
are planned and conducted on a central, system-wide basis. The principal
executive offices of the Company are located in Washington, D.C. The Company is
subject to regulation with respect to rates, service, financing and other
matters in each of the three jurisdictions in which it operates. Accordingly,
the Commission should find that the area or region served by the Company is not
so large as to impair the advantages of efficient operation, localized
management and effectiveness of regulation.
1.2.2 Non-Utility Businesses of Washington Gas Light and Its
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Subsidiaries. In addition to its regulated utility operations, Washington Gas
------------
Light also offers financing for the purchase of natural gas and electric
appliances and other energy-related products and services. This financing is
provided through purchase by the Company of time payment contracts from
appliance dealers who participate in the program. From time to time, the Company
resells those contracts to banks.5 The Company also operates the steam and
chilled water facilities located in a mixed residential and commercial complex
in Washington, D.C.6
Washington Gas Light directly owns 100% of the outstanding voting
securities of three active non-utility subsidiaries:
(a) Hampshire Gas Company ("Hampshire"): Hampshire operates an
-----------------------------------
underground gas storage field in the vicinity of Augusta, West Virginia on
behalf of Washington Gas Light under a cost of service tariff regulated by the
Federal Energy Regulatory Commission ("FERC").7
(b) Crab Run Gas Company ("Crab Run"): Crab Run's primary asset is an
---------------------------------
investment in an Oklahoma-based limited partnership that is engaged in the
exploration and production of oil and gas. The partnership is managed by a
------------------------
5 Rule 40(a)(4) and 48(a)(1), as applicable, specifically authorize
the acquisition of a customer's evidence of indebtedness in the ordinary course
of business and as consideration for the purchase of standard appliances.
6 The Commission has previously authorized registered gas utility
holding companies to operate and maintain customer-owned energy-related systems,
including systems used to produce steam, hot water and chilled water. See
Columbia Energy Group, et al., Holding Co. Act Release No. 26868 (May 6, 1998).
7 Registered gas utility holding companies are permitted to engage in
gas storage activities through subsidiaries. See Rule 58(b)(2)(i) and section
2(a) of the Gas-Related Activities Act of 1990 ("GRAA").
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non-affiliate. Crab Run's investment in this partnership is not material and it
is expected that any further investment would be minimal.8
(c) Washington Gas Resources Corp. ("WGR"): WGR serves as the holding
--------------------------------------
company for other wholly-owned non-utility subsidiaries. It does not conduct any
operations of its own. WGR's direct subsidiaries are as follows:
o Washington Gas Energy Services, Inc. ("WGEServices"): WGEServices is
----------------------------------------------------
an unregulated energy marketer. It does not own or operate any utility
assets. As of September 30, 1999, WGEServices supplied gas to nearly
65,000 residential, commercial and industrial customers both inside
and outside Washington Gas Light's service territory. WGEServices also
holds a power marketing certificate issued by the FERC9 and intends to
participate in the electric choice programs that will soon be
implemented in the Company's service territory.10 WGEServices has
three wholly-owned subsidiaries: Washington Gas Energy Systems, Inc.,
----------------------------------
which offers commercial energy services, including the design and
renovation of mechanical HVAC systems;11 Brandywood Estates, Inc.,
-----------------------
("Brandywood") a co-general partner in a venture designed to develop
1,600 acres of land in Prince George's County, Maryland;12 and
Advanced Marketing Concepts, Inc., an inactive subsidiary that
--------------------------------
previously provided services primarily in the area of energy-related
home improvements, which WGEServices intends to merge with Brandywood.
o American Combustion Industries, Inc. ("ACI"): Washington Gas Light
-----------------------------------
acquired 100% of the stock of two related companies in 1998 which have
since been merged, with ACI as the survivor. ACI is in the business of
designing, selling, installing and servicing commercial heating,
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8 Registered gas utility holding companies are permitted to engage in
gas exploration and production activities through subsidiaries. See Rule
58(b)(2)(ii) and section 2(b) of the GRAA.
9 See Washington Gas Energy Services, Inc., 77 F.E.R.C.P. 61,049 (Oct.
18, 1996), rehearing denied 78 F.E.R.C.P. 61,212 (March 3, 1997).
10 Registered gas utility holding companies are permitted to engage
through subsidiaries in brokering and marketing of natural gas, electricity and
other energy commodities. See Rule 58(b)(1)(v).
11 Registered gas utility holding companies are permitted to engage
through subsidiaries in providing such energy management services. See Rule
58(b)(1)(i).
12 Brandywood and a major real estate developer have formed a venture
to develop a 1,600-acre tract of land in Prince Georges County, Maryland for
sale or lease. Brandywood contributed the tract to the venture in 1992. The land
was originally acquired by the Company in the 1960s for the purpose of
developing a natural gas storage field. That development effort was abandoned in
the 1970s when it became evident that the land was unsuitable for its intended
purpose, and the Company has made several attempts to dispose of the tract since
then. The Company's only source of revenues from the site has been from sales of
gravel. The venture filed a zoning application in 1996 for the parcel which
contemplates mixed-use development of housing, retail space and office space.
The zoning application is pending. The Company's sole objective in partnering
with an independent real estate development company is to dispose of this site.
If the venture is successful, the Company will seek to reduce its ownership
interest through a sale to other investors and will not play an active role in
the day-to-day management of the venture.
4
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ventilating and air-conditioning ("HVAC") equipment in Washington,
D.C. and surrounding areas.13
o WG Maritime Plaza I, Inc.: This company was formed to hold Washington
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Gas Light's interest in a venture formed to develop a 12-acre parcel
of land in Southeast Washington, D.C. that the Company has owned since
1888. The Company operated a manufactured gas plant on the site until
1984. The gas plant was dismantled and removed in 1986. Residues from
the gas manufacturing operations remain in the soil and groundwater.
The Company has conducted various environmental studies of the site in
cooperation with the Environmental Protection Agency, the District of
Columbia government, and the National Parks Service. Based on these
studies, it has been determined that encapsulation of the site (i.e.,
through construction of buildings, paved parking lots and pedestrian
walk-ways, etc.) is the proper method of remediation, as it will
prevent seepage of surface contaminants into the groundwater. The
environmental authorities have concurred with this approach. In May
1999, the Company announced its intention to pursue commercial
development of this site in partnership with a national developer. The
Company is proposing to lease the site to the venture under a
long-term ground lease and to receive a carried interest.14 The
Company will not play an active role in any development or management
activities. Its involvement will be limited to leasing the land.
Further, the Company's percentage interest in the venture will be
reduced when new investors join the partnership.15
o Washington Gas Consumer Services, Inc. ("WG Consumer Services"): WG
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Consumer Services offers a program under which it earns a fee for
matching customers with finance companies for energy-related
equipment.16
In addition to its direct and indirect wholly-owned non-utility
subsidiaries listed above, Washington Gas Light also holds a 50% equity interest
in Primary Investors, LLC ("Primary Investors"), a Delaware limited liability
------------------------
13 Registered gas utility holding companies are permitted to engage
through subsidiaries in selling, installing and servicing such equipment. See
Rule 58(b)(1)(iv).
14 Washington Gas Light's potential liability for
environmental-related claims will continue no matter whether the site is sold or
leased to a third party. Under a ground lease, however, Washington Gas Light
will be able to exercise ongoing control over the future uses of the land, which
will enable it to assure that future uses will not create additional
environmental hazards.
15 The Commission has previously permitted registered holding
companies to retain essentially passive interests in commercial real estate
activities. See Ameren Corp., Holding Co. Act Release No. 26809 (Dec. 30, 1997);
and WPL Holdings, Inc., Holding Co. Act Release No. 26856 (Apr. 14, 2000).
16 The Commission has previously authorized non-utility subsidiaries
of registered holding companies to engage in similar consumer financing
activities. See e.g., The Columbia Gas System, Inc.., Holding Co. Act Release
No. 26498 (March 25, 1996) and Columbia Energy Group, et al., Holding Co. Act
Release No. 26868 (May 6, 1998) (removing certain limitations contained in prior
order); and Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23,
1999).
5
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company formed in August 1999 by Washington Gas Light and an unaffiliated third
party to serve as the holding company for investments in after-market products
and services for residential and light commercial HVAC customers. Primary
Investors engages in this activity through a wholly-owned subsidiary, Primary
Service Group, LLC ("PSG"). PSG will sell, install, repair and maintain HVAC
equipment in the residential and light commercial markets.17 Initially, PSG will
enter this business by acquiring and expanding companies that currently provide
HVAC-oriented products and services in the District of Columbia, and parts of
Maryland and Virginia.
In conjunction with the Reorganization, WGL Holdings intends to
reorganize the ownership of certain of its existing non-utility subsidiaries. An
organizational chart showing all of WGL Holdings' direct and indirect
investments in active subsidiaries following the Reorganization is filed
herewith as Exhibit E-2.
To the extent required, WGL Holdings requests that the Commission
determine that all of the direct and indirect non-utility subsidiaries of the
Company described above are retainable under the standards of Section 11(b)(1)
of the Act and, as applicable, section 2 of the GRAA. In addition, WGL Holdings
requests that the Company's investments prior to the date of the Reorganization
in subsidiaries engaged in "energy-related" activities under Rule 58 be
disregarded for purposes of calculating the dollar limitation on such
investments under Rule 58.18
For the twelve months ended December 31, 1999, Washington Gas Light
reported consolidated operating revenues of $1,148,853,000, of which
$985,287,000 (85.8%) were derived from regulated sales of gas and transportation
service, and $163,566,000 (14.2%) from diversified non-utility activities,
including unregulated sales of gas and the sale, installation and servicing of
residential and commercial HVAC equipment. At December 31, 1999, Washington Gas
Light reported consolidated assets of $1,891,626,000, including net property,
plant and equipment of $1,409,036,000 and current assets of $373,143,000.
1.3 CAPITALIZATION OF WGL HOLDINGS AND SUBSIDIARIES. As of January
-----------------------------------------------
13, 2000, Washington Gas Light had issued and outstanding 46,475,488 shares of
common stock, $1.00 par value. Washington Gas Light's common stock is listed for
trading on the New York and Philadelphia Stock Exchanges. In addition,
Washington Gas Light has issued and outstanding three series of serial preferred
stock, without par value, which are listed for trading on the Philadelphia Stock
Exchange.
At December 31, 1999, the Company had issued and outstanding $500.7
million principal amount of unsecured medium-term notes issued under an
indenture, dated as of September 1, 1991, between the Company and The Bank of
------------------------
17 Like ACI, PSG is engaged in selling, installing and servicing HVAC
equipment, a business permitted by Rule 58(b)(iv).
18 The Commission has previously determined that it is appropriate to
disregard the existing investments in "energy-related companies" of to-be
registered holding companies for purposes of Rule 58, as such companies were not
subject to the restrictions that Section 11(b)(1) places on registered holding
companies at the time such investments were made. See e.g., New Century
Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997), and Dominion
Resources, Inc., et al., Holding Co. Act Release No. 27113 (Dec. 15, 1999). Rule
58 imposes no dollar limitation on investments in "gas-related companies."
6
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New York, as Trustee (Exhibit B-2 hereto), as supplemented by a supplemental
indenture, dated as of September 1, 1993 (Exhibit B-3 hereto). Substantially all
of the Company's properties are subject to the lien created under the Company's
mortgage, dated January 1, 1933, as supplemented and amended, securing any first
mortgage bonds issued by the Company. Washington Gas Light has retired all of
its outstanding first mortgage bonds and does not have any current plans to
issue any new first mortgage bonds.
Washington Gas Light satisfies its short-term financing requirements
through the sale of commercial paper and/or bank borrowings. The Company
maintains credit lines and a revolving credit facility to support its
outstanding commercial paper. Currently, Washington Gas Light has permanent
lines of credit for $30 million, seasonal lines of credit for $10 million, and
revolving credit facilities aggregating $160 million, all of which expire not
later than June 30, 2001. The borrowing options under these various credit
facilities include the lender's prime lending rate, rates based on certificates
of deposit, and rates based on the London Interbank Offered Rates ("LIBOR"). In
addition, two Washington Gas Light subsidiaries, WGEServices and ACI, each have
$5 million revolving lines of credit which provide for LIBOR-based and fixed
rate borrowings. At December 31, 1999, Washington Gas Light and its subsidiaries
had $173.6 million in short-term debt outstanding at a weighted average cost of
6.46% .
Set forth in the table below is a summary of Washington Gas Light's
consolidated capital structure (including short-term debt) as of December 31,
1999:
$ 000s Percent
---- -------
Common stock equity $ 709,427 50.0%
Preferred stock equity 28,413 2.0
Long-term debt 507,041 35.7
Short-term debt */ 175,052 12.3
- ----------- ----
Total $1,419,933 100.0%
=========== ======
*/ Includes current maturities of long-term debt.
-
WGL Holdings is authorized under its Articles of Incorporation
(Exhibit A-1) to issue 120,000,000 shares of common stock, no par value ("Common
Stock"), and 3,000,000 shares of preferred stock., also no par value ("Preferred
Stock"). Approximately 46.5 million shares of WGL Holdings Common Stock will be
issued in the Reorganization. WGL Holdings will not issue any Preferred Stock in
the Reorganization. Following the Reorganization, WGL Holdings intends to
establish a commercial paper program and bank credit lines of its own, which
would be used primarily to fund the operations of and investments in unregulated
subsidiaries. See Item 1.6, below.
1.4 THE REORGANIZATION. To carry out the Reorganization, Washington
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Gas Light has organized two Virginia corporations: WGL Holdings and Washington
Gas Acquisition Co. ("Acquisition Corp."). WGL Holdings is currently a direct
wholly-owned subsidiary of Washington Gas Light, and Acquisition Corp. is a
direct wholly-owned subsidiary of WGL Holdings. Washington Gas Light, WGL
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Holdings and Acquisition Corp. have entered into an Agreement and Plan of Merger
and Reorganization (the "Reorganization Agreement"), dated as of January 13,
2000, which is filed herewith as Exhibit B-1. Washington Gas Light's
shareholders approved the Reorganization Agreement at the annual meeting of
shareholders held on March 3, 2000. The Reorganization has also been approved by
the SCC-VA. (See Exhibit D-1). The Reorganization will become effective at the
time of filing of articles of merger with the Clerk's Office of the SCC-VA and
the Mayor's Office of the District of Columbia.
In the Reorganization:
(1) Acquisition Corp. will merge with and into Washington Gas Light,
with Washington Gas Light being the surviving corporation;
(2) Each share of Washington Gas Light common stock outstanding
before the Reorganization will be converted into a new share of
WGL Holdings Common Stock;
(3) All shares of Acquisition Corp. common stock outstanding prior to
the Reorganization will be converted into shares of Washington
Gas Light, resulting in WGL Holdings becoming the owner of all
outstanding shares of Washington Gas Light common stock;
(4) The shares of WGL Holdings Common Stock held by Washington Gas
Light immediately prior to the Reorganization will be canceled;
and
(5) The directors of Washington Gas Light shall become the directors
of WGL Holdings.
As a result of the Reorganization, WGL Holdings will become a
statutory "holding company," Washington Gas Light will be a direct wholly-owned
subsidiary of WGL Holdings, and all of WGL Holdings Common Stock outstanding
immediately after the Reorganization will be owned by the former holders of
Washington Gas Light common stock outstanding immediately prior to the
Reorganization. Following the Reorganization, the stock of Hampshire, WGR, and
Crab Run will be transferred to WGL Holdings. The Company's investment in
Primary Investors will also be transferred to WGL Holdings.
Washington Gas Light's outstanding preferred stock will continue to be
preferred stock of Washington Gas Light. In addition, the current indebtedness
of Washington Gas Light will continue to be direct obligations of Washington Gas
Light and will be neither assumed nor guaranteed by WGL Holdings in connection
with the Reorganization.
Washington Gas Light will remain a reporting company under the
Securities Exchange Act of 1934, as amended ("1934 Act"). Prior to the
Reorganization, WGL Holdings will apply to have its Common Stock listed on the
New York Stock Exchange. WGL Holdings will file reports with the Commission
pursuant to Section 13(a) of the 1934 Act.
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WGL Holdings has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended. See Exhibit C-1 hereto.
The Prospectus/Proxy Statement contained in the Registration Statement was filed
for the purpose of (i) registering the shares of WGL Holdings Common Stock to be
issued in the Reorganization pursuant to the Securities Act of 1933, as amended
("1933 Act"), and (ii) complying with the requirements of the 1934 Act in
connection with the solicitation of proxies of Washington Gas Light's common and
preferred shareholders. This Registration Statement was declared effective by
the Commission on February 3, 2000.
1.5 SUMMARY OF REQUESTED APPROVALS; USE OF PROCEEDS. As used in
-----------------------------------------------
this Application/Declaration, the term "Non-Utility Subsidiaries" means each of
the existing non-utility subsidiaries of Washington Gas Light, and their
respective subsidiaries, and any direct or indirect non-utility company acquired
or formed by WGL Holdings or any Non-Utility Subsidiary after WGL Holdings
registers under the Act in a transaction that has been approved by the
Commission in this proceeding (see specifically Items 1.11, 1.12 and 1.13,
below), in a separate proceeding, or in a transaction that is exempt under the
Act (specifically, Sections 32, 33 or 34) or by rule or regulation (including,
specifically, Rule 58). The term "Subsidiaries" means Washington Gas Light and
the Non-Utility Subsidiaries. WGL Holdings and the Subsidiaries are sometimes
referred to collectively as the "WGL Holdings System" or as the "Applicants."
In this Application/Declaration, the Applicants are seeking
authority, to the extent that such transactions are not otherwise exempt under
the Act, for: (1) a program of external financing, (2) intrasystem financing and
credit support arrangements, (3) interest rate hedging measures, (4) the
formation and funding of a system money pool, (5) changes to any wholly owned
Subsidiary's capital stock capitalization, (6) the acquisition of the securities
of certain specified categories of non-utility companies, (7) the payment of
dividends out of capital or unearned surplus by Non-Utility Subsidiaries, and
(8) sales and service agreements between the Subsidiaries, to the extent not
otherwise permitted or exempt by rule. The Applicants are requesting approval
for each of the proposals contained herein for the period through December 31,
2005 ("Authorization Period").
The proceeds from the financings authorized by the Commission
pursuant to this Application/Declaration will be used for general corporate
purposes, including: (1) financing, in part, investments by and capital
expenditures of WGL Holdings and its Subsidiaries, (2) funding of future
investments in any "exempt wholesale generator" ("EWG"), "foreign utility
company" ("FUCO"), "exempt telecommunications company" ("ETC"), or
"energy-related" or "gas-related" company within the meaning of Rule 58 ("Rule
58 Company"), (3) the repayment, redemption, refunding or purchase by WGL
Holdings or any Subsidiary of any of its own securities, and (4) financing
working capital requirements of WGL Holdings and its Subsidiaries.
The Applicants represent that no financing proceeds will be used
to acquire the securities of or other interest in any company unless such
acquisition has been approved by the Commission in this proceeding or in a
separate proceeding or in accordance with an available exemption under the Act
or rules thereunder, including Sections 32 and 33 and Rule 58. WGL Holdings
states that the aggregate amount of proceeds of financing and guarantees
approved by the Commission in this proceeding used to fund investments in EWGs
9
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and FUCOs will not, when added to WGL Holdings' "aggregate investment" (as
defined in Rule 53) in all such entities at any point in time, exceed 50% of WGL
Holdings' "consolidated retained earnings" (also as defined in Rule 53).
Further, WGL Holdings represents that proceeds of financing and guarantees
utilized to fund investments in Rule 58 Companies following registration by WGL
Holdings will be subject to the limitations of that rule. WGL Holdings
represents that it will not seek to recover through higher rates to Washington
Gas Light's customers losses attributable to any operations of its Non-Utility
Subsidiaries.
1.6 DESCRIPTION OF PROPOSED FINANCING PROGRAM.
-----------------------------------------
1.6.1 WGL Holdings External Financing. WGL Holdings proposes to issue
-------------------------------
and sell from time to time Common Stock and Preferred Stock and, directly or
indirectly through one or more Financing Subsidiaries (as described below in
Item 1.11), long-term debt securities and other forms of preferred or
equity-linked securities. The aggregate amount of all such securities issued
during the Authorization Period will not exceed $300 million. In addition, WGL
Holdings proposes to issue and reissue from time to time during the
Authorization Period up to $300 million principal amount of short-term
indebtedness at any time outstanding.
(a) Common Stock.
------------
WGL Holdings proposes to issue and sell Common Stock pursuant to
underwriting agreements of a type generally standard in the industry. Common
Stock may be issued pursuant to private negotiation with underwriters, dealers
or agents, as discussed below, or effected through competitive bidding among
underwriters. In addition, sales may be made through private placements or other
non-public offerings to one or more persons. All such Common Stock sales will be
at rates or prices and under conditions negotiated or based upon, or otherwise
determined by, competitive capital markets. WGL Holdings also proposes to issue
stock options, performance shares, stock appreciation rights ("SARs"), warrants,
or other stock purchase rights that are exercisable for Common Stock and to
issue Common Stock upon the exercise of such options, SARs, warrants, or other
stock purchase rights.
WGL Holdings may issue and sell Common Stock through underwriters or
dealers, through agents, or directly to a limited number of purchasers or a
single purchaser. If underwriters are used in the sale of Common Stock, such
securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Common Stock may be offered to the public either through
underwriting syndicates (which may be represented by a managing underwriter or
underwriters designated by WGL Holdings) or directly by one or more underwriters
acting alone. Common Stock may be sold directly by WGL Holdings or through
agents designated by WGL Holdings from time to time. If dealers are utilized in
the sale of Common Stock, WGL Holdings will sell such securities to the dealers,
as principals. Any dealer may then resell such Common Stock to the public at
varying prices to be determined by such dealer at the time of resale. If Common
Stock is being sold in an underwritten offering, WGL Holdings may grant the
underwriters thereof a "green shoe" option permitting the purchase from WGL
Holdings at the same price additional shares then being offered solely for the
purpose of covering over-allotments.
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<PAGE>
WGL Holdings also requests authority to issue Common Stock,
performance shares options, SARs, warrants or other stock purchase rights
exercisable for Common Stock in public or privately-negotiated transactions as
consideration for the equity securities or assets of other existing companies
WGL Holdings is seeking to acquire, provided that the acquisition of any such
equity securities or assets has been authorized in a separate proceeding or is
exempt under the Act or the rules thereunder. If Common Stock or other
securities linked to Common Stock is used as consideration in connection with
any such authorized or exempt acquisition, the market value of the Common Stock
on the day before closing of the acquisition, or the average high and low market
prices for a period prior to the closing, as negotiated by the parties, will be
counted against the proposed $300 million limitation on financing.19
After the Reorganization, WGL Holdings will succeed to Washington Gas
Light's Dividend Reinvestment and Common Stock Purchase Plan ("DRP"). See
Exhibit J-1 hereto. Under the DRP, as amended, participating shareholders of WGL
Holdings will be entitled to reinvest dividends and make optional cash purchases
of shares of Common Stock. The DRP may also be amended to allow for purchases of
Common Stock under the plan by new investors.
In addition, each of the employee and director compensation plans
which provide for investment in Washington Gas Light common stock, as in effect
immediately prior to the Reorganization will be amended to provide for the
issuance of WGL Holdings Common Stock instead of Washington Gas Light common
stock. Currently, Washington Gas Light maintains the following employee and
director stock plans (together with the DRP, the "Stock Plans"):
o 1999 Incentive Compensation Plan. (See Exhibit J-2 hereto). Washington
--------------------------------
Gas Light may issue up to 1,000,000 shares of its common stock
pursuant to grants of stock options, performance stock, restricted
stock, deferred stock, stock granted as a bonus or in lieu of other
awards, or other stock based awards to officers and key employees and
to other third parties.
o Savings Plan and Capital Appreciation Plan. (See Exhibit J-3 hereto).
------------------------------------------
These are 401(k) plans which include Washington Gas Light common stock
as an investment option.
o Directors' Stock Compensation Plan. (See Exhibit J-4 hereto). Under
----------------------------------
this plan, outside directors receive a portion of their retainer in
the form of Washington Gas Light common stock. Currently, the plan
provides for distribution of 800 shares annually to each outside
director.
WGL Holdings will file post-effective amendments to the Registration
Statements under the 1933 Act with respect to the Stock Plans described above
following the Reorganization.
------------------------
19 The Commission has previously approved the issuance of common stock
as consideration for assets or securities of other companies acquired in
authorized or exempt transactions. See e.g., Interstate Energy Corporation, et
al., Holding Co. Act Release No. 27069 (Aug. 26, 1999); SCANA Corporation, et
al., Holding Co. Act Release No. 27137 (Feb. 14, 2000).
11
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Shares of Common Stock for use under the Stock Plans described above
may either be newly issued shares, treasury shares or shares purchased in the
open market. WGL Holdings will make open-market purchases of Common Stock in
accordance with the terms of or in connection with the operation of the plans
pursuant to Rule 42. WGL Holdings may also acquire treasury shares through other
open-market purchases. WGL Holdings also proposes to issue and/or sell shares of
Common Stock pursuant to the existing Stock Plans and similar plans or plan
funding arrangements hereafter adopted without any additional prior Commission
order. Stock transactions of this variety would thus be treated the same as
other stock transactions permitted pursuant to this Application/Declaration.
(b) Long-term Debt, Preferred Stock and other Preferred or
------------------------------------------------------
Equity-Linked Securities.
------------------------
As indicated, WGL Holdings will not issue any shares of its authorized
Preferred Stock in the Reorganization and will not have any shares of Preferred
Stock outstanding at the time that it registers as a holding company. However,
after it registers, WGL Holdings seeks to have the flexibility to issue its
authorized Preferred Stock or, directly or indirectly through one or more
Financing Subsidiaries, to issue long-term debt and other types of preferred or
equity-linked securities (including, specifically, trust preferred securities).
The proceeds of long-term debt, Preferred Stock, or other preferred or
equity-linked securities would enable WGL Holdings to reduce short-term debt
with more permanent capital and provide an important source of future financing
for the operations of and investments in non-utility businesses that are exempt
under the Act.20
Preferred Stock or other types of preferred or equity-linked
securities may be issued in one or more series with such rights, preferences,
and priorities as may be designated in the instrument creating each such series,
as determined by WGL Holdings' board of directors. The dividend rate on any
series of Preferred Stock or other preferred or equity-linked securities will
not exceed at the time of issuance 500 basis points over the yield to maturity
of a U.S. Treasury security having a remaining term equal to the term of such
securities. Dividends or distributions on Preferred Stock or other preferred or
equity-linked securities will be made periodically and to the extent funds are
legally available for such purpose, but may be made subject to terms which allow
the issuer to defer dividend payments for specified periods. Preferred Stock or
other preferred or equity-linked securities may be convertible or exchangeable
into shares of Common Stock.
Long-term debt of WGL Holdings will be in the form of unsecured notes
("Debentures") issued in one or more series. The Debentures of any series (a)
------------------------
20 Recently, the Commission approved a similar financing application
filed by Southern Company in which Southern Company requested approval to issue
preferred securities and long-term debt, directly or indirectly through
special-purpose financing entities. See The Southern Company, Holding Co. Act
Release No. 27134 (Feb. 9, 2000). In that case, the Commission took account of
the changing needs of registered holding companies for sources of capital other
than common equity and short-term debt brought about primarily by the
elimination of restrictions under the Act on investments in various types of
non-core businesses (e.g., "exempt wholesale generators," "foreign utility
companies," and businesses allowed by Rule 58). The Commission noted that,
without the ability to raise capital in external markets that is appropriate for
such investments, registered holding companies would be at a competitive
disadvantage to other energy companies that are not subject to regulation under
the Act.
12
<PAGE>
may be convertible into any other securities of WGL Holdings, (b) will have a
maturity ranging from one to 50 years, (c) will bear interest at a rate not to
exceed 500 basis points over the yield to maturity of a U.S. Treasury security
having a remaining term approximately equal to the term of such series of
Debentures, (d) may be subject to optional and/or mandatory redemption, in whole
or in part, at par or at various premiums above or discounts below the principal
amount thereof, (e) may be entitled to mandatory or optional sinking fund
provisions, (f) may provide for reset of the coupon pursuant to a remarketing
arrangement, and (g) may be called from existing investors or put to the
company, or both. The Debentures will be issued under an indenture (the
"Indenture") to be entered into between WGL Holdings and a national bank, as
trustee.
WGL Holdings contemplates that the Debentures would be issued and sold
directly to one or more purchasers in privately-negotiated transactions or to
one or more investment banking or underwriting firms or other entities that
would resell the Debentures without registration under the 1933 Act in reliance
upon one or more applicable exemptions from registration thereunder, or to the
public either (i) through underwriters selected by negotiation or competitive
bidding or (ii) through selling agents acting either as agent or as principal
for resale to the public either directly or through dealers.
The maturity dates, interest rates, call and/or put options,
redemption and sinking fund provisions and conversion features, if any, with
respect to the Debentures 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 and reflected in
the applicable supplemental indenture or officer's certificate and purchase
agreement or underwriting agreement setting forth such terms.
Finally, WGL Holdings undertakes that without further Commission
authorization it will not issue any Debentures that are not at the time of
original issuance rated at least investment grade by a nationally recognized
statistical rating organization.
(c) Short-term Debt.
---------------
The aggregate principal amount of short-term debt of WGL Holdings
("Short-term Debt") at any time outstanding during the Authorization Period
shall not exceed of $300 million. The effective cost of money on Short-term Debt
authorized in this proceeding will not exceed at the time of issuance 300 basis
points over LIBOR for maturities of one year or less.
To provide financing for general corporate purposes, other working
capital requirements and investments in new enterprises until long-term
financing can be obtained, WGL Holdings may sell commercial paper, from time to
time, in established domestic or European commercial paper markets. Such
commercial paper would typically be sold to dealers at the discount rate per
annum prevailing at the date of issuance for commercial paper of comparable
quality and maturities sold to commercial paper dealers generally. WGL Holdings
expects that the dealers acquiring commercial paper from WGL Holdings will
reoffer such paper at a discount to corporate, institutional and sophisticated
individual investors. WGL Holdings anticipates that its commercial paper will be
reoffered to investors such as commercial banks, insurance companies, pension
funds, investment trusts, foundations, colleges and universities, finance
companies and non-financial corporations.
13
<PAGE>
WGL Holdings also proposes to establish bank lines in an aggregate
principal amount sufficient to support projected levels of short-term borrowings
and to provide an alternative source of liquidity. Loans under these lines will
have maturities not more than one year from the date of each borrowing. WGL
Holdings may also engage in other types of short-term financing generally
available to borrowers with comparable credit ratings as it may deem appropriate
in light of its needs and market conditions at the time of issuance.
1.6.2 Washington Gas Light Financing. Under Rule 52(a), the long-term
------------------------------
securities issued and sold by Washington Gas Light (including, specifically,
long-term debt and preferred stock) will be exempt from the preapproval
requirements of Sections 6(a) and 7 of the Act because such securities will have
been specifically approved by both the SCC-VA and the PSC-DC, the agencies with
regulatory authority over Washington Gas Light in the two jurisdictions in which
it is incorporated. In contrast, the issuance by Washington Gas Light of
commercial paper and other short-term indebtedness having a maturity of less
than 12 months will not be exempt under Rule 52(a) since it is not subject to
approval by both the SCC-VA and the PSC-DC.21 Accordingly, Washington Gas Light
requests approval to issue and sell from time to time during the Authorization
Period notes and other evidence of indebtedness having a maturity of one year or
less in an aggregate principal amount outstanding at any one time not to exceed
$350 million. Such short-term financing could include, without limitation,
commercial paper sold in established domestic or European commercial paper
markets in a manner similar to WGL Holdings, bank lines of credit and other debt
securities. The effective cost of money on short-term debt of Washington Gas
Light authorized in this proceeding will not exceed at the time of issuance 300
basis points over LIBOR for maturities of one year or less.
1.6.3 Non-Utility Subsidiary Financing. As described above in Item
--------------------------------
1.2, the Non-Utility Subsidiaries are engaged in and expect to continue to be
active in the development and expansion of energy-related or otherwise
functionally-related non-utility businesses. In order to finance investments in
such competitive businesses, it will be necessary for the Non-Utility
Subsidiaries to have the ability to engage in financing transactions which are
commonly accepted for such types of investments. In almost all cases, such
financings will be exempt from prior Commission authorization pursuant to Rule
52(b).
In order to be exempt under Rule 52(b), any loan by WGL Holdings to a
Non-Utility Subsidiary or by one Non-Utility Subsidiary to another must have
interest rates and maturities that are designed to parallel the lending
company's effective cost of capital. However, if a Non-Utility Subsidiary making
a borrowing is not wholly-owned by WGL Holdings, directly or indirectly, and
does not sell goods or services to Washington Gas Light, then the Applicants
request authority to make loans to any such associate company at interest rates
and maturities designed to provide a return to the lending company of not less
than its effective cost of capital.22 WGL Holdings will include in the next
certificate filed pursuant to Rule 24 in this proceeding substantially the same
information as that required on Form U-6B-2 with respect to any such
intra-system loan transaction.
------------------------
21 The SCC-VA has authorized Washington Gas Light to issue up to $300
million principal amount of short term-debt at any time outstanding through
September 30, 2000. However, the PSC-DC has no jurisdiction over financings with
maturities of less than 12 months.
22 The Commission has granted similar authority to another registered
holding company. See Entergy Corporation, et al., Holding Co. Act Release No.
27039 (June 22, 1999).
14
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1.7 GUARANTEES AND OTHER FORMS OF CREDIT SUPPORT.
--------------------------------------------
1.7.1 WGL Holdings Guarantees. WGL Holdings requests authorization to
-----------------------
enter into guarantees and capital maintenance agreements, obtain letters of
credit, enter into expense agreements or otherwise provide credit support
(collectively, "WGL Holdings Guarantees") on behalf or for the benefit of any
Subsidiary as may be appropriate to enable such Subsidiary to carry on in the
ordinary course of its business, in an aggregate principal amount not to exceed
$400 million outstanding at any one time. Subject to such limitation, WGL
Holdings may guarantee both securities issued by and other contractual or legal
obligations of any Subsidiary. WGL Holdings proposes to charge each Subsidiary a
fee for each guarantee provided on its behalf that is determined by multiplying
the amount of the WGL Holdings Guarantee provided by the cost of obtaining the
liquidity necessary to perform the guarantee (for example, bank line commitment
fees or letter of credit fees, plus other transactional expenses) for the period
of time the guarantee remains outstanding.23
1.7.2 Non-Utility Subsidiary Guarantees. In addition, Non-Utility
---------------------------------
Subsidiaries request authority to provide guarantees and other forms of credit
support ("Non-Utility Subsidiary Guarantees") on behalf or for the benefit of
other Non-Utility Subsidiaries in an aggregate principal amount not to exceed
$200 million outstanding at any one time, exclusive of any guarantees and other
forms of credit support that are exempt pursuant to Rule 45(b)(7) and Rule
52(b). The Non-Utility Subsidiary providing any such credit support may charge
its associate company a fee for each guarantee provided on its behalf determined
in the same manner as specified above in Item 1.7.1.
1.8 HEDGING TRANSACTIONS.
--------------------
1.8.1 Interest Rate Hedges. WGL Holdings, and to the extent not
--------------------
exempt pursuant to Rule 52, the Subsidiaries, request authorization to enter
into interest rate hedging transactions with respect to existing indebtedness
("Interest Rate Hedges"), subject to certain limitations and restrictions, in
order to reduce or manage interest rate cost. Interest Rate Hedges would only be
entered into with counterparties ("Approved Counterparties") whose senior debt
ratings, or the senior debt ratings of the parent companies of the
counterparties, as published by Standard and Poor's Ratings Group, are equal to
or greater than BBB, or an equivalent rating from Moody's Investors Service,
Fitch, or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets, such as interest rate swaps, caps,
collars, floors, and structured notes (i.e., a debt instrument in which the
principal and/or interest payments are indirectly linked to the value of an
underlying asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury obligations. The transactions would be
for fixed periods and stated notional amounts. Fees, commissions and other
amounts payable to the counterparty or exchange (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.
------------------------
23 The Commission has previously authorized registered holding
companies to recoup from any subsidiary the actual cost of obtaining the
liquidity necessary to perform under a guarantee issued on behalf of such
subsidiary. See e.g., Interstate Energy Corporation, et al., Holding Co. Act
Release No. 27069 (Aug. 26, 1999).
15
<PAGE>
1.8.2 Anticipatory Hedges. In addition, WGL Holdings and the
-------------------
Subsidiaries request authorization to enter into interest rate hedging
transactions with respect to anticipated debt offerings (the "Anticipatory
Hedges"), subject to certain limitations and restrictions. Such Anticipatory
Hedges would only be entered into with Approved Counterparties, and would be
utilized to fix and/or limit the interest rate risk associated with any new
issuance through (i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward
Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination with the sale of
call options on U.S. Treasury obligations (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales, of U.S.
Treasury obligations, or (v) some combination of a Forward Sale, Put Options
Purchase, Zero Cost Collar and/or other derivative or cash transactions,
including, but not limited to structured notes, caps and collars, appropriate
for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through the opening of futures and/or options positions traded on
the Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions
with one or more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. WGL Holdings or a Subsidiary will
determine the optimal structure of each Anticipatory Hedge transaction at the
time of execution. WGL Holdings or a Subsidiary may decide to lock in interest
rates and/or limit its exposure to interest rate increases. All open positions
under Anticipatory Hedges will be closed on or prior to the date of the new
issuance and neither WGL Holdings nor any Subsidiary will, at any time, take
possession or make delivery of the underlying U.S. Treasury Securities.
The Applicants will comply with the then existing financial disclosure
requirements of the Financial Accounting Standards Board associated with hedging
transactions.24
1.9 SYSTEM MONEY POOL.
-----------------
WGL Holdings and certain of the Subsidiaries hereby request
authorization to establish a system money pool ("Money Pool"). To the extent not
exempted by Rule 52, the Subsidiaries request authorization to make unsecured
short-term borrowings from the Money Pool and to contribute surplus funds to the
Money Pool and to lend and extend credit to (and acquire promissory notes from)
one another through the Money Pool. To the extent not exempt by Rule 45(b) or
Rule 52(d), as applicable, WGL Holdings is requesting authorization to
contribute surplus funds and/or to lend and extend credit to the participating
Subsidiaries through the Money Pool. Initially, the Subsidiaries participating
in the Money Pool arrangement will be Washington Gas Light, Hampshire, Crab Run,
WGR, WGEServices, Washington Gas Energy Systems, Inc., Brandywood, ACI, WG
Consumer Services, and WG Maritime Plaza I, Inc.
------------------------
24 The proposed terms and conditions of the Interest Rate Hedges and
Anticipatory Hedges are substantially the same as the Commission has approved in
other cases. See New Century Energies, Inc., et al., Holding Co. Act Release No.
27000 (April 7, 1999); and SCANA Corporation., et al., Holding Co. Act Release
No. 27137 (February 14, 2000).
16
<PAGE>
The participating Subsidiaries believe that the cost of the proposed
borrowings through the Money Pool will generally be more favorable to them than
the comparable cost of external short-term borrowings, and the yield to the
participating Subsidiaries contributing available funds to the Money Pool will
generally be higher than the typical yield on short-term investments.
Under the proposed terms of the Money Pool Agreement, short-term funds
would be available from the following sources for short-term loans to the
participating Subsidiaries from time to time: (1) surplus funds in the
treasuries of Money Pool participants other than WGL Holdings, (2) surplus funds
in the treasury of WGL Holdings, and (3) proceeds from bank borrowings and/or
commercial paper sales by WGL Holdings or any Money Pool participant for loan to
the Money Pool ("External Funds"). Funds would be made available from such
sources in such order as WGL Holdings, as administrator of the Money Pool, may
determine would result in a lower cost of borrowing, consistent with the
individual borrowing needs and financial standing of the companies providing
funds to the pool. The determination of whether Washington Gas Light at any time
has surplus funds to lend to the Money Pool or shall lend funds to the Money
Pool would be made by Washington Gas Light's chief financial officer or
treasurer, or by a designee thereof, on the basis of cash flow projections and
other relevant factors, in Washington Gas Light's sole discretion. See Exhibit
B-4 (Rev) for a copy of the form of Money Pool Agreement.
A participating Subsidiary that borrows from the Money Pool would
borrow pro rata from each participant that lends, in the proportion that the
total amount loaned by each such lending Money Pool participant bears to the
total amount then loaned through the Money Pool. On any day when more than one
funding source (e.g., surplus treasury funds of WGL Holdings and other Money
Pool participants ("Internal Funds") and External Funds), with different rates
of interest, is used to fund loans through the Money Pool, each borrower would
borrow pro rata from each such funding source in the Money Pool in the same
proportion that the amount of funds provided by that fund source bears to the
total amount of short-term funds available to the Money Pool.
Borrowings from the Money Pool would require authorization by the
borrower's chief financial officer or treasurer, or by a designee thereof. No
party would be required to effect a borrowing through the Money Pool if it is
determined that it could (and had authority to) effect a borrowing at lower cost
directly from banks or through the sale of its own commercial paper. No loans
through the Money Pool would be made to, and no borrowings through the Money
Pool would be made by, WGL Holdings.
The cost of compensating balances, if any, and fees paid to banks to
maintain credit lines and accounts by Money Pool participants lending External
Funds to the Money Pool would initially be paid by the participant maintaining
such line. A portion of such costs -- or all of such costs in the event a Money
Pool participant establishes a line of credit solely for purposes of lending any
External Funds obtained thereby into the Money Pool -- would be retroactively
allocated every month to the companies borrowing such External Funds through the
Money Pool in proportion to their respective daily outstanding borrowings of
such External Funds.
17
<PAGE>
If only Internal Funds make up the funds available in the Money Pool,
the interest rate applicable and payable to or by subsidiaries for all loans of
such Internal Funds will be the rates for high-grade unsecured 30-day commercial
paper sold through dealers by major corporations as quoted in The Wall Street
Journal.
If only External Funds comprise the funds available in the Money Pool,
the interest rate applicable to loans of such External Funds would be equal to
the lending company's cost for such External Funds (or, if more than one Money
Pool participant had made available External Funds on such day, the applicable
interest rate would be a composite rate equal to the weighted average of the
cost incurred by the respective Money Pool participants for such External
Funds). In cases where both Internal Funds and External Funds are concurrently
borrowed through the Money Pool, the rate applicable to all loans comprised of
such "blended" funds would be a composite rate equal to the weighted average of
(a) the cost of all Internal Funds contributed by Money Pool participants (as
determined pursuant to the second preceding paragraph above) and (b) the cost of
all such External Funds (as determined pursuant to the immediately preceding
paragraph above). In circumstances where Internal Funds and External Funds are
available for loans through the Money Pool, loans may be made exclusively from
Internal Funds or External Funds, rather than from a "blend" of such funds, to
the extent it is expected that such loans would result in a lower cost of
borrowings.
Funds not required by the Money Pool to make loans (with the exception
of funds required to satisfy the Money Pool's liquidity requirements) would
ordinarily be invested in one or more short-term investments, including: (i)
obligations issued or guaranteed by the U.S. government and/or its agencies and
instrumentalities; (ii) commercial paper; (iii) certificates of deposit; (iv)
bankers' acceptances; (v) repurchase agreements; (vi) tax exempt notes; (vii)
tax exempt bonds; (viii) tax exempt preferred stock; and (ix) such other
investments as are permitted by Section 9(c) of the Act and Rule 40 thereunder.
The interest income and investment income earned on loans and
investments of surplus funds would be allocated among the participants in the
Money Pool in accordance with the proportion each participant's contribution of
funds bears to the total amount of funds in the Money Pool and the cost of funds
provided to the Money Pool by such participant.
Each Applicant receiving a loan through the Money Pool would be
required to repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event not later than one year after the
date of such loan. All loans made through the Money Pool could be prepaid by the
borrower without premium or penalty.
Only those Non-Utility Subsidiaries identified above shall borrow
through the Money Pool. WGL Holdings shall undertake to file a post-effective
amendment in this proceeding seeking approval to add any additional Non-Utility
Subsidiary to borrow through the Money Pool. It is proposed that, without
further authorization of the Commission, other current or future Non-Utility
Subsidiaries may participate in the Money Pool as lenders but not as borrowers.
Proceeds of any short term borrowings from the Money Pool may be used
by a participant (i) for the interim financing of its construction and capital
expenditure programs; (ii) for its working capital needs; (iii) for the
18
<PAGE>
repayment, redemption or refinancing of its debt and preferred stock; (iv) to
meet unexpected contingencies, payment and timing differences, and cash
requirements; and (v) to otherwise finance its own business and for other lawful
general corporate purposes, provided, however, that, under no circumstances will
funds borrowed through the Money Pool be used to make any investment in a FUCO.
Washington Gas Light requests authority to borrow up to $350 million at any one
time outstanding from the Money Pool.
1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES.
----------------------------------------
The portion of an individual Subsidiary's aggregate financing to be
effected through the sale of stock to WGL Holdings or other immediate parent
company during the Authorization Period pursuant to Rule 52 and/or pursuant to
an order issued in this proceeding cannot be ascertained at this time. It may
happen that the proposed sale of capital securities may in some cases exceed the
then-authorized capital stock of such Subsidiary. In addition, the Subsidiary
may choose to use capital stock with no par value or receive a capital
contribution without issuing capital stock. Also, a wholly-owned Subsidiary may
wish to engage in a reverse stock split to reduce franchise taxes. As needed to
accommodate such proposed transactions and to provide for future issues, request
is made for authority to change the terms of any such wholly-owned Subsidiary's
authorized capital stock capitalization by an amount deemed appropriate by WGL
Holdings or other intermediate parent company in the instant case. A Subsidiary
would be able to change the par value, or change between par value and no-par
stock, without additional Commission approval. Any such action by a utility
subsidiary would be subject to and would only be taken upon the receipt of any
necessary approvals by the state commissions in the state or states in which
such utility subsidiary is incorporated and doing business.25
1.11 FINANCING SUBSIDIARIES. WGL Holdings and the Subsidiaries
----------------------
request authority to acquire, directly or indirectly, the equity securities of
one or more corporations, trusts, partnerships or other entities (hereinafter,
"Financing Subsidiaries") created specifically for the purpose of facilitating
the financing of the authorized and exempt activities (including exempt and
authorized acquisitions) of WGL Holdings and the Subsidiaries through the
issuance of long-term debt or equity securities, including but not limited to
monthly income preferred securities, to third parties. Financing Subsidiaries
would loan, dividend or otherwise transfer the proceeds of any such financing to
its parent or to other Subsidiaries. The terms of any loan of the proceeds of
any securities issued by a Financing Subsidiary to WGL Holdings would mirror the
terms of those securities. 26 WGL Holdings may, if required, guarantee or enter
into expense agreements in respect of the obligations of any Financing
------------------------
25 The Commission has granted similar approvals to other registered
holding companies. See Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb.
26, 1998); and New Century Energies, Inc., Holding Co. Act Release No. 26750
(Aug. 1, 1997).
26 The Commission has previously authorized registered holding
companies and their subsidiaries to create financing subsidiaries, subject to
substantially the same terms and conditions. See New Century Energies, Inc., et
al., Holding Co. Act Release No. 27000 (April 7, 1999); Ameren Corp., et al.,
Holding Co. Act Release No. 27053 (July 23, 1999); and The Southern Company,
Holding Co. Act Release No. 27134 (Feb. 9, 2000).
19
<PAGE>
Subsidiary which it organizes. The Subsidiaries may also provide guarantees and
enter into expense agreements, if required, on behalf of any Financing
Subsidiaries which they organize pursuant to Rules 45(b)(7) and 52, as
applicable. If the direct parent company of a Financing Subsidiary is authorized
in this proceeding or any subsequent proceeding to issue long-term debt or
similar types of equity securities, then the amount of such securities issued by
that Financing Subsidiary would count against the limitation applicable to its
parent for those securities. In such cases, however, the guaranty by the parent
of that security issued by its Financing Subsidiary would not be counted against
the limitations on WGL Holdings Guarantees or Subsidiary Guarantees, as the case
may be, set forth in Item 1.7.1 or Item 1.7.2, above. In other cases, in which
the parent company is not authorized herein or in a subsequent proceeding to
issue similar types of securities, the amount of any guarantee not exempt
pursuant to Rules 45(b)(7) and 52 that is entered into by the parent company
with respect to securities issued by its Financing Subsidiary would be counted
against the limitation on WGL Holdings Guarantees or Subsidiary Guarantees, as
the case may be.
1.12 INTERMEDIATE SUBSIDIARIES. WGL Holdings proposes to acquire,
-------------------------
directly or indirectly through a Non-Utility Subsidiary, the securities of one
or more new subsidiary companies ("Intermediate Subsidiaries") which may be
organized exclusively for the purpose of acquiring, holding and/or financing the
acquisition of the securities of or other interest in one or more EWGs, FUCOs,
or ETCs ("Exempt Companies"), Rule 58 Companies or other non-exempt Non-Utility
Subsidiaries (as authorized in this proceeding or in a separate proceeding),
provided that Intermediate Subsidiaries may also engage in development
activities and administrative activities relating to such subsidiaries.27 To the
extent such transactions are not exempt from the Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued thereunder, WGL
Holdings requests authority for Intermediate Subsidiaries to provide management,
administrative, project development and operating services to such entities.
Such services may be rendered at fair market prices to the extent they qualify
for any of the exceptions from the "at cost" standard provided by Rule 90(d)(1).
An Intermediate Subsidiary may be organized, among other things, (1)
in order to facilitate the making of bids or proposals to develop or acquire an
interest in any Exempt Company, Rule 58 Company, or other non-exempt Non-Utility
Subsidiary; (2) after the award of such a bid proposal, in order to facilitate
closing on the purchase or financing of such acquired company; (3) at any time
subsequent to the consummation of an acquisition of an interest in any such
company in order, among other things, to effect an adjustment in the respective
ownership interests in such business held by WGL Holdings and non-affiliated
investors; (4) to facilitate the sale of ownership interests in one or more
acquired non-utility companies; (5) to comply with applicable laws of foreign
jurisdictions limiting or otherwise relating to the ownership of domestic
companies by foreign nationals; (6) as a part of tax planning in order to limit
WGL Holdings' exposure to U.S. and foreign taxes; (7) to further insulate WGL
Holdings and Washington Gas Light from operational or other business risks that
may be associated with investments in non-utility companies; or (8) for other
lawful business purposes.
------------------------
27 Washington Gas Light does not hold an interest in any EWG or FUCO
at this time.
20
<PAGE>
Investments in Intermediate Subsidiaries may take the form of any
combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
Intermediate Subsidiaries. Funds for any direct or indirect investment in any
Intermediate Subsidiary will be derived from (1) financings authorized in this
proceeding; (2) any appropriate future debt or equity securities issuance
authorization obtained by WGL Holdings from the Commission; and (3) other
available cash resources, including proceeds of securities sales by a
Non-Utility Subsidiary pursuant to Rule 52. To the extent that WGL Holdings
provides funds or guarantees directly or indirectly to an Intermediate
Subsidiary which are used for the purpose of making an investment in any EWG or
FUCO or a Rule 58 Company, the amount of such funds or guarantees will be
included in WGL Holdings' "aggregate investment" in such entities, as calculated
in accordance with Rule 53 or Rule 58, as applicable.28
WGL Holdings may determine from time to time to consolidate or
otherwise reorganize all or any part of its direct and indirect ownership
interests in Non-Utility Subsidiaries, and the activities and functions related
to such investments, under one or more Intermediate Subsidiaries. To effect any
such consolidation or other reorganization, WGL Holdings may wish to either
contribute the equity securities of one Non-Utility Subsidiary to another
Non-Utility Subsidiary or sell (or cause a Non-Utility Subsidiary to sell) the
equity securities of one Non-Utility Subsidiary to another one. To the extent
that these transactions are not otherwise exempt under the Act or rules
thereunder,29 WGL Holdings hereby requests authorization under the Act to
consolidate or otherwise reorganize under one or more direct or indirect
Intermediate Subsidiaries WGL Holdings' ownership interests in existing and
future Non-Utility Subsidiaries.30 Such transactions may take the form of a
Non-Utility Subsidiary selling, contributing or transferring the equity
securities of a subsidiary as a dividend to an Intermediate Subsidiary, and
Intermediate Subsidiaries acquiring, directly or indirectly, the equity
securities of such companies, either by purchase or by receipt of a dividend.
The purchasing Non-Utility Subsidiary in any transaction structured as an
intrasystem sale of equity securities may execute and deliver its promissory
note evidencing all or a portion of the consideration given. Each transaction
would be carried out in compliance with all applicable U.S or foreign laws and
accounting requirements, and any transaction structured as a sale would be
carried out for a consideration equal to the book value of the equity securities
------------------------
28 The Commission has previously authorized registered holding
companies to organize intermediate subsidiary companies to acquire and hold
various non-utility subsidiaries, and for such intermediate companies to provide
administrative and development services to such subsidiaries. See New Century
Energies, Inc., et al., Holding Co. Act Release No. 27000 (April 7, 1999);
Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22, 1999);
and Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999).
29 Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b),
46(a) and 58, as applicable, may exempt many of the transactions described in
this paragraph.
30 The Commission has granted similar authority to another holding
company. See Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999).
21
<PAGE>
being sold. WGL Holdings will report each such transaction in the next quarterly
certificate filed pursuant to Rule 24 in this proceeding, as described below.
1.13 ENERGY CONSUMER FINANCING ACTIVITIES. As indicated above in Item
------------------------------------
1.2.2, Washington Gas Light currently offers financing to its customers for the
purchase of natural gas and electric appliances and other energy-related
products and services and may continue to do so after the Reorganization. WGL
Holdings proposes to expand its financing program for purchases from
non-associate vendors of energy-related equipment and related products and
services to include financing for purchases of new or replacement gas or oil
furnaces, gas swimming pool heaters, gas or electric hot water heaters, gas
fireplace inserts, heat pumps, air conditioning equipment, electric and gas
kitchen appliances, air and water treatment equipment, and other energy
conservation equipment, products and services, and for the costs of any related
installation and remodeling work, such as duct work, plumbing, and electrical
work.31
WGL Holdings proposes to offer the expanded consumer financing through
one or more existing or newly-formed, direct or indirect, non-utility
subsidiaries. The proposed financing activities will be limited to Virginia,
Maryland and the District of Columbia. It is anticipated that in the vast
majority of cases, the individuals or businesses to whom consumer financing is
provided will be natural gas customers of Washington Gas Light or individuals or
businesses who are not currently served by any natural gas supplier. Consumer
financing may take the form of direct loans to customers, guarantees of
third-party loans, or purchases, with or without recourse, from vendors of such
equipment, supplies or services of installment purchase obligations executed by
customers.
During the Authorization Period, WGL Holdings proposes to invest not
more than $100 million in existing or new Non-Utility Subsidiaries that are
engaged in the business of providing financing for purchases of energy-related
equipment, goods and services. Such investments would be in the form of
purchases of stock or other equity securities, loans, cash capital contributions
and/or open account advances. WGL Holdings will use the proceeds of the
financing authorized in this proceeding and/or other available cash to make such
investments.
1.14 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS. WGL
--------------------------------------------------------
Holdings also proposes, on behalf of each of its current and future non-exempt
Non-Utility Subsidiaries that such companies be permitted to pay dividends with
respect to the securities of such companies, from time to time through the
Authorization Period, out of capital and unearned surplus (including revaluation
reserve), to the extent permitted under applicable corporate law; provided,
however, that, without further approval of the Commission, no non-exempt
Non-Utility Subsidiary will declare or pay any dividend out of capital or
unearned surplus if such Non-Utility Subsidiary derives any material part of its
revenues from the sale of goods, services, electricity or natural gas to
Washington Gas Light. WGL Holdings requests that the Commission reserve
------------------------
31 The proposed energy consumer financing activities are substantially
identical to those authorized by the Commission in other cases. See e.g., The
Columbia Gas System, Inc.., Holding Co. Act Release No. 26498 (Mar. 25, 1996)
and Columbia Energy Group, et al., Holding Co. Act Release No. 26868 (May 6,
1998) (removing certain limitations contained in prior order); and Ameren Corp.,
et al., Holding Co. Act Release No. 27053 (July 23, 1999).
22
<PAGE>
jurisdiction over dividends paid by any such non-exempt Non-Utility
Subsidiary.32
WGL Holdings anticipates that there will be situations in which one or
more Non-Utility Subsidiaries will have unrestricted cash available for
distribution in excess of any such company's current and retained earnings. In
such situations, the declaration and payment of a dividend would have to be
charged, in whole or in part, to capital or unearned surplus. As an example, if
an Intermediate Subsidiary of WGL Holdings were to purchase all of the stock of
a Rule 58 Company, and following such acquisition, the Rule 58 Company incurs
non-recourse borrowings some or all of the proceeds of which are distributed to
the Intermediate Subsidiary as a reduction in the amount invested in the Rule 58
Company (i.e., return of capital), the Intermediate Subsidiary (assuming it has
no earnings) could not, without the Commission's approval, in turn distribute
such cash to WGL Holdings or its other parent.
Similarly, using the same example, if an Intermediate Subsidiary,
following its acquisition of all of the stock of a Rule 58 Company, were to sell
part of that stock to a third party for cash, the Intermediate Subsidiary would
again have substantial unrestricted cash available for distribution, but
(assuming no profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval, declare and pay a
dividend to its parent out of such cash proceeds.
Further, there may be periods during which unrestricted cash available
for distribution by a Non-Utility Subsidiary exceeds current and retained
earnings due to the difference between accelerated depreciation allowed for tax
purposes, which may generate significant amounts of distributable cash, and
depreciation methods required to be used in determining book income.
Finally, even under circumstances in which a Non-Utility Subsidiary
has sufficient earnings, and therefore may declare and pay a dividend to its
immediate parent, such immediate parent may have negative retained earnings,
even after receipt of the dividend, due to losses from other operations. In this
instance, cash would be trapped at a subsidiary level where there is no current
need for it.
WGL Holdings, on behalf of each current and future non-exempt
Non-Utility Subsidiary represents that it will not declare or pay any dividend
out of capital or unearned surplus in contravention of any law restricting the
payment of dividends. In this regard, it should be noted that all U.S.
jurisdictions limit to one extent or another the authority of corporations to
make dividend distributions to shareholders. Most State corporation statutes
contain either or both an equity insolvency test or some type of balance sheet
test. WGL Holdings also states that its subsidiaries will comply with the terms
of any credit agreements and indentures that restrict the amount and timing of
distributions to shareholders.
------------------------
32 The Commission has granted similar approvals, subject to such
reservation of jurisdiction, to other registered holding companies. See The
Southern Company, et al., Holding Co. Act Release No. 26738 (July 2, 1997).
23
<PAGE>
1.15 APPROVAL OF SERVICES UNDER SERVICE AGREEMENT. Washington Gas
--------------------------------------------
Light has been providing administrative, management, technical, legal and other
support services to its subsidiaries for many years, subject to approval of the
terms of those arrangements by the SCC- VA and also to the oversight of the
PSC-DC and PSC-MD. In addition, in the past, there have been occasions when
subsidiaries of Washington Gas Light have provided services to Washington Gas
Light or to other Washington Gas Light subsidiaries. These approved service
arrangements have also contemplated the possible sale of goods among Washington
Gas Light and its subsidiaries. Filed herewith as Exhibit B-5 is a copy of the
Service Agreement that is in place between Washington Gas Light and WGR.
Washington Gas Light has entered into substantially identical Service Agreements
with its other subsidiaries. Washington Gas Light files an annual report with
the SCC-VA prior to May 1 of each year on transactions between the Company and
its subsidiaries, showing, among other things, the charges that have been made
during the previous year and the methods used to allocated the Company's costs
among itself and its subsidiaries. Copies of this annual report are supplied to
the PSC-DC and PSC-MD as well.
Following the Reorganization, WGL Holdings proposes to continue these
arrangements, with Washington Gas Light providing services and selling goods to
its associate companies in the holding company system. It is also proposed that
the Non-Utility Subsidiaries continue to be able to provide services and sell
goods to Washington Gas Light, WGL Holdings and other associate companies, as
appropriate.33 Washington Gas Light proposes to enter into a substantially
similar Service Agreement with WGL Holdings, although under this agreement,
consistent with Section 13(a) of the Act, WGL Holdings would not be able to
provide any services to the Company. A form of the Service Agreement to be
executed between Washington Gas Light and WGL Holdings is filed herewith as
Exhibit B-6. A copy of the bases for cost allocations under the Service
Agreement is filed herewith as Exhibit B-7. The cost allocations are the same as
previously accepted by the SCC-VA, the PSC-DC and the PSC-MD. The proposed form
of Service Agreement with WGL Holdings has been submitted to the SCC-VA for
approval as part of the same application seeking approval for the
Reorganization. See Exhibit D-1 hereto.
Under the Service Agreements, Washington Gas Light would provide the
following categories of services to WGL Holdings and its other associate
companies:
(a) Accounting, Financial and Statistical Services, including
----------------------------------------------
assistance in the preparation of financial and statistical
reports and credit services.
(b) Auditing and Internal Audit Services, including the conduct of
------------------------------------
periodic audit programs and coordination with outside auditors.
(c) Budget Services, including advice and assistance on developing
--------------- ---------
budgets and budgetary controls.
(d) Corporate and Legal Services, including advice and assistance on
----------------------------
administrative and judicial proceedings and on contracts and
claims.
------------------------
33 The sale of goods and services by one Non-Utility Subsidiary to
another Non-Utility Subsidiary would in most instances be exempt pursuant to
Rule 87.
24
<PAGE>
(e) Engineering, Operations and Planning Services, including advice
---------------------------------------------
and assistance on gas transmission, supply, measurement and
storage requirements.
(f) Human Resources Services, including recruitment, placement and
------------------------
training.
(g) Information Systems Services, including data processing.
----------------------------
(h) Gas Dispatching Services, including determining and effecting the
------------------------
most efficient routing and distribution of gas supplies.
(i) Marketing and Advertising Services, including preparation of
----------------------------------
booklets, photographs and other presentations.
(j) Insurance Services, including claims settlement.
------------------
(k) Methods Services, including advice and assistance on accounting
----------------
practices and methods of procedure and conduct of special
studies.
(l) Rate Services, including advice and assistance on rate design and
-------------
preparation of schedules and tariffs.
(m) Tax Services, including tax return preparation.
------------
Associate companies, in turn, may provide to Washington Gas Light or
to other companies in the WGL Holdings System such services as may be reasonably
necessary.
Under the Service Agreement, Washington Gas Light or any Subsidiary
providing services or goods to Washington Gas Light will be reimbursed for its
cost of providing such services or goods, determined in accordance with Rules 90
through 92. To the extent possible, direct costs incurred in providing any
service will be identified and billed to the associate company receiving those
services, including labor overheads (e.g., payroll taxes, employee benefits,
etc.). Other costs that cannot be allocated directly to a particular associate
company, or which benefit all associate companies, will be allocated to all
associate companies in accordance with the bases used for allocation described
in Exhibit B-7.
1.16 CERTIFICATES OF NOTIFICATION. It is proposed that, with respect
----------------------------
to WGL Holdings, the reporting system of the 1933 Act and the 1934 Act be
integrated with the reporting system under the 1935 Act. This would eliminate
duplication of filings with the Commission that cover essentially the same
subject matters, resulting in a reduction of expense for both the Commission and
WGL Holdings. To effect such integration, the portion of the 1933 Act and 1934
Act reports containing or reflecting disclosures of transactions occurring
pursuant to the authorization granted in this proceeding would be incorporated
by reference into this proceeding through Rule 24 certificates of notification.
The certificates would also contain all other information required by Rule 24,
including the certification that each transaction being reported on had been
carried out in accordance with the terms and conditions of and for the purposes
represented in this Application/Declaration. Such certificates of notification
25
<PAGE>
would be filed within 60 days after the end of each of the first three fiscal
quarters, and 90 days after the end of the last fiscal quarter, in which
transactions occur.
The Rule 24 certificates will contain the following information for
the reporting period:
(a) The sales of any Common Stock by WGL Holdings and the purchase
price per share and the market price per share at the date of the
agreement of sale;
(b) The total number of shares of Common Stock issued or issuable
under options granted during the quarter under any Stock Plan or
otherwise;
(c) If Common Stock has been transferred to a seller of securities of
a company being acquired, the number of shares so issued, the
value per share and whether the shares are restricted to the
acquiror;
(d) The amount and terms of any long-term debt, Preferred Stock, or
other forms of preferred or equity-linked securities issued
directly or indirectly during the quarter by WGL Holdings;
(e) The amount and terms of any Short-term Debt issued by WGL
Holdings or Washington Gas Light during the quarter;
(f) The name of the guarantor and of the beneficiary of any WGL
Holdings Guarantee or Non-Utility Subsidiary Guarantee issued
during the quarter, and the amount, terms and purpose of the
guarantee;
(g) The amount and terms of any financings consummated by any
Non-Utility Subsidiary during the quarter that are not exempt
under Rule 52;
(h) The notional amount and principal terms of any Interest Rate
Hedge or Anticipatory Hedge entered into during the quarter and
the identity of the parties to such instruments;
(i) The name, parent company, and amount invested in any new
Intermediate Subsidiary or Financing Subsidiary during the
quarter;
(j) A list of Form U-6B-2 statements filed with the Commission during
the quarter, including the name of the filing entity and the date
of the filing;
(k) Consolidated balance sheets as of the end of the quarter, and
separate balance sheets as of the end of the quarter for each
company, including WGL Holdings, that has engaged in any
jurisdictional financing transactions during the quarter.
26
<PAGE>
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
------------------------------
The fees, commissions and expenses incurred or to be incurred in
connection with the transactions proposed herein are estimated at $20,000. The
above fees do not include underwriting fees and other expenses incurred in
consummating financings covered hereby. The Applicants estimate that such fees
and expenses will not exceed 5% of the proceeds of any such financings.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
3.1 GENERAL. Sections 6(a) and 7 of the Act are applicable to the
-------
issuance of Common Stock and Preferred Stock and to the direct or indirect
issuance of Debentures or other forms of preferred or equity-linked securities
by WGL Holdings, and to the issuance of Short-term Debt by WGL Holdings and
Washington Gas Light. In addition, Sections 6(a) and 7 of the Act are applicable
to Interest Rate Hedges, except to the extent that they may be exempt under Rule
52, and to Anticipatory Hedges. Section 12(b) of the Act and Rule 45(a) are
applicable to the issuance of WGL Holdings Guarantees and to Non-Utility
Subsidiary Guarantees, to the extent not exempt under Rules 45(b) and 52.
Sections 9(a)(1) and 10 of the Act are applicable to WGL Holdings' or any
Non-Utility Subsidiary's acquisition of the equity securities of any Financing
Subsidiary or Intermediate Subsidiary, and to WGL Holdings' investment in
existing or new subsidiaries to engage in financing of energy-related equipment,
products or services. Section 12(c) of the Act and Rule 46 are applicable to the
payment of dividends from capital and unearned surplus by any Non-Utility
Subsidiary. Section 13(b) of the Act and Rules 80 - 92 are applicable to the
performance of services and sale of goods among Washington Gas Light and
Non-Utility Subsidiaries, but may be exempt from the requirements thereof in
some cases pursuant to Rules 87(b)(1), 90(d) and 92, as applicable.
3.2 COMPLIANCE WITH RULES 53 AND 54. The transactions proposed
-------------------------------
herein are also subject to Rules 53 and 54. Under Rule 53(a), the Commission
shall not make certain specified findings under Sections 7 and 12 in connection
with a proposal by a holding company to issue securities for the purpose of
acquiring the securities of or other interest in an EWG, or to guarantee the
securities of an EWG, if each of the conditions in paragraphs (a)(1) through
(a)(4) thereof are met, provided that none of the conditions specified in
paragraphs (b)(1) through (b)(3) of Rule 53 exists. Rule 54 provides that the
Commission shall not consider the effect of the capitalization or earnings of
subsidiaries of a registered holding company that are EWGs or FUCOs in
determining whether to approve other transactions if Rule 53(a), (b) and (c) are
satisfied. These standards are met.
Rule 53(a)(1): Following the Reorganization, WGL Holdings will not
hold any interest in any EWG or FUCO.
Rule 53(a)(2): WGL Holdings will maintain books and records enabling
it to identify investments in and earnings from each EWG and FUCO in which it
directly or indirectly acquires and holds an interest. WGL Holdings will cause
each domestic EWG in which it acquires and holds an interest, and each foreign
EWG and FUCO that is a majority-owned subsidiary, to maintain its books and
records and prepare its financial statements in conformity with U.S. generally
27
<PAGE>
accepted accounting principles ("GAAP"). All of such books and records and
financial statements will be made available to the Commission, in English, upon
request.
Rule 53(a)(3): No more than 2% of the employees of the Utility
Subsidiaries will, at any one time, directly or indirectly, render services to
EWGs and FUCOs.
Rule 53(a)(4): WGL Holdings will submit a copy of the
Application/Declaration in this proceeding and each amendment thereto, and will
submit copies of any Rule 24 certificates required hereunder, as well as a copy
of WGL Holdings' Form U5S, to each of the public service commissions having
jurisdiction over the retail rates of Washington Gas Light.
In addition, WGL Holdings states that the provisions of Rule 53(a) are
not made inapplicable to the authorization herein requested by reason of the
occurrence or continuance of any of the circumstances specified in Rule 53(b).
Rule 53(c) is inapplicable by its terms.
ITEM 4. REGULATORY APPROVALS.
--------------------
The SCC-VA has jurisdiction over the issuance of indebtedness by
Washington Gas Light having a maturity of less than 12 months if the amount
thereof exceeds 12% of total capitalization of Washington Gas Light. The SCC-VA
also has jurisdiction over approval of agreements between Washington Gas Light
and its associate companies, including the Service Agreement and the Money Pool
Agreement. Except as stated above, no state commission, and no federal
commission, other than this Commission, has jurisdiction over any of the
transactions proposed herein.
ITEM 5. PROCEDURE.
---------
The Applicants respectfully request the Commission publish a notice
under Rule 23 with respect to the filing of this Application or Declaration as
soon as practicable and issue an order approving the authorizations requested
herein as soon as the rules allow so that such order is effective at the time
WGL Holdings registers under the Act, which could occur as early as August 15,
2000. The Applicants further request that there be no 30-day waiting period
between issuance of the Commission's order and the date on which the order is to
become effective; waive a recommended decision by a hearing officer or any other
responsible officer of the Commission; and consent to the participation of the
Division of Investment Management in the preparation of the Commission's
decision and/or order, unless the Division opposes the matters proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
A. EXHIBITS.
--------
A-1 Articles of Incorporation of WGL Holdings, adopted on January 13,
2000 (See Appendix B to Exhibit C-1).
A-2 By-Laws of WGL Holdings, adopted on January 18, 2000 (See
Appendix C to Exhibit C-1).
28
<PAGE>
A-3 Charter of Washington Gas Light (Incorporated by reference to
Exhibit 3.1 to Washington Gas Light's Annual Report on Form 10-K
for the fiscal year ended September 30, 1990 in File 1-1483).
A-4 Bylaws of Washington Gas Light, as amended September 29, 1999
(Incorporated by reference to Exhibit 3 to Washington Gas Light's
Annual Report on Form 10-K for the fiscal year ended September
30, 1999 in File 1-1483).
B-1 Agreement and Plan of Merger and Reorganization, dated as of
January 13, 2000, by and among Washington Gas Light Company, WGL
Holdings, Inc., and Washington Gas Acquisition Corp. (See
Appendix A to Exhibit C-1).
B-2 Indenture dated September 1, 1991, between Washington Gas Light
and Bank of New York (incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K dated September 12, 1991, in File No.
1-1483).
B-3 Supplemental Indenture of Washington Gas Light, dated September
1, 1993 (Incorporated by reference to Exhibit 5 to Washington Gas
Light's Current Report on Form 8-K, dated September 10, 1993, in
File No. 1-1483).
B-4 Form of Money Pool Agreement (Revised).
*B-5 Service Agreement between Washington Gas Light and WGR.
*B-6 Form of proposed Service Agreement between Washington Gas Light
and WGL Holdings.
*B-7 Description of Allocation Bases Applicable to Affiliate
Transactions.
*B-8 List of WGL Holdings' Subsidiaries.
C-1 Registration Statement on Form S-4 filed on February 2, 2000, by
WGL Holdings, Inc. (including Proxy Statement) (incorporated by
reference to File No. 333-96017).
C-2 Registration Statement on Form S-3 filed on September 18, 1998,
by Washington Gas Light Company (including Prospectus for
2,300,000 shares of common stock) (incorporated by reference to
File No. 333-63735).
C-3 Registration Statement on Form S-3 filed on May 27, 1999, by
Washington Gas Light Company (including Prospectus for Medium
Term Notes, Series E) (incorporated by reference to File No.
333-79465).
29
<PAGE>
*D-1 Application of Washington Gas Light Company and its Affiliated
Interests to the Virginia State Corporation Commission for
Approval of the Reorganization.
D-2 Order of the Virginia State Corporation Commission Approving the
Reorganization.
D-3 Application of Washington Gas Light Company and its Affiliated
Interests to the Virginia State Corporation Commission for
Approval of Money Pool Arrangements. (To be filed by amendment).
D-4 Order of the Virginia State Corporation Commission Approving
Money Pool Arrangements. (To be filed by amendment).
D-5 Application of Washington Gas Light Company to the Virginia State
Corporation Commission for Approval to Incur Short-term Debt. (To
be filed by amendment).
D-6 Order of the Virginia State Corporation Commission Approving
Short-term Debt. (To be filed by amendment).
*E-1 Map of Washington Gas Light service area. (Paper format filing).
*E-2 Organizational chart of WGL Holdings and Active Subsidiaries
following Reorganization. (Paper format filing).
F Opinion of Counsel. (To be filed by amendment).
*H Proposed Form of Federal Register Notice.
J-1 Dividend Reinvestment and Common Stock Purchase Plan
(Incorporated by reference to Registration Statement on Form S-3
filed by Washington Gas Light on July 21, 1995)(File No.
33-61199).
J-2 1999 Incentive Compensation Plan (Incorporated by reference to
Registration Statement Form S-8 filed by Washington Gas Light on
July 19, 1999) (File No. 333-83185).
J-3 Savings Plan and Capital Appreciation Plan (Incorporated by
reference to Registration Statement on Form S-8 filed by
Washington Gas Light on December 22, 1994) (File No. 33-57041).
J-4 Directors' Stock Compensation Plan (Incorporated by reference to
Registration Statement on Form S-8 filed by Washington Gas Light
on March 6, 1996) (File No. 333-01471).
*/Previously filed.
-
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B. FINANCIAL STATEMENTS.
--------------------
FS-1 Washington Gas Light See Annual Report of
Consolidated Statements of Washington Gas Light on Form
Income for the fiscal years ended 10-K for the fiscal year ended
September 30, 1999 September 30, 1999 in File No.
1-1483.
FS-2 Washington Gas Light See Annual Report of
Consolidated Balance Sheets as of Washington Gas Light on Form
September 30, 1999 10-K for the fiscal year ended
September 30, 1999 in File No.
1-1483.
FS-3 Washington Gas Light See Quarterly Report of
Consolidated Statements of Washington Gas Light on Form
Income for the six months ended 10-Q for the fiscal quarter
March 31, 2000 ended March 31, 2000 in File
No. 1-1483.
FS-4 Washington Gas Light See Quarterly Report of
Consolidated Balance Sheets as of Washington Gas Light on Form
March 31, 2000 10-Q for the fiscal quarter
ended March 31, 2000 in File
No. 1-1483.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
None of the matters that are the subject of this Application/Declaration
involve a "major federal action" nor do they "significantly affect the quality
of the human environment" as those terms are used in section 102(2)(C) of the
National Environmental Policy Act. The transactions that are the subject of this
Application/Declaration will not result in changes in the operations of any of
the Applicants that will have an impact on the environment. The Applicants are
not aware of any federal agency that has prepared or is preparing an
environmental impact statement with respect to the transactions that are the
subject of this Application/Declaration.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, each of the undersigned companies has duly caused this amended
Application/Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
WGL HOLDINGS, INC.
WASHINGTON GAS LIGHT COMPANY
CRAB RUN GAS COMPANY
HAMPSHIRE GAS COMPANY
WASHINGTON GAS RESOURCES CORP.
By: /s/ Shelley C. Jennings
-------------------------------------
Name: Shelley C. Jennings
Title: Treasurer
PRIMARY INVESTORS, LLC
By: /s/ Adrian Chapman
-------------------------------------
Name: Adrian Chapman
Title: Manager
Date: July 7, 2000
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