(As filed with the Securities and Exchange Commission March 31, 2000)
File No. 70-[____]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
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
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1.1 INTRODUCTION.....................................................1
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1.2 DESCRIPTION OF WASHINGTON GAS LIGHT AND ITS SUBSIDIARIES.........1
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1.2.1 Gas Utility Operations..................................1
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1.2.2 Non-Utility Businesses of Washington Gas Light and
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Its Subsidiaries........................................3
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1.3 CAPITALIZATION OF WGL HOLDINGS AND SUBSIDIARIES.................6
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1.4 THE REORGANIZATION...............................................7
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1.5 SUMMARY OF REQUESTED APPROVALS; USE OF PROCEEDS..................9
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1.6 DESCRIPTION OF PROPOSED FINANCING PROGRAM.......................10
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1.6.1. WGL Holdings External Financing.........................10
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(a) Common Stock.......................................10
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(b) Long-term Debt.....................................12
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(c) Short-term Debt....................................12
(d) Other Securities...................................13
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1.6.2. Washington Gas Light Financing..........................13
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(a) Short-Term Debt of Washington Gas Light. ..........14
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(b) Other Securities.............. ....................14
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1.6.3 Non-Utility Subsidiary Financing.......................14
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1.7 GUARANTEES AND OTHER FORMS OF CREDIT SUPPORT....................15
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1.7.1 WGL Holdings Guarantees................................15
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1.7.2 Non-Utility Subsidiary Guarantees.....................15
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1.8 HEDGING TRANSACTIONS............................................15
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1.8.1 Interest Rate Hedges...................................15
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1.8.2 Anticipatory Hedges....................................16
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1.9 SYSTEM MONEY POOL...............................................16
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1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES........................19
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1.11 FINANCING SUBSIDIARIES..........................................19
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1.12 INTERMEDIATE SUBSIDIARIES.......................................20
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1.13 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS........22
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1.14 APPROVAL OF SERVICES UNDER SERVICE AGREEMENTS...................23
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1.15 CERTIFICATES OF NOTIFICATION....................................24
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ITEM 2. FEES, COMMISSIONS AND EXPENSES..................................... 26
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ITEM 3. APPLICABLE STATUTORY PROVISIONS.....................................26
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3.1 GENERAL.........................................................26
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3.2 COMPLIANCE WITH RULES 53 AND 54.................................26
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ITEM 4. REGULATORY APPROVALS.................................................27
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ITEM 5. PROCEDURE............................................................27
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS....................................27
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A. EXHIBITS........................................................27
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B. FINANCIAL STATEMENTS............................................29
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS..............................30
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
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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.
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Washington Gas Light sells and delivers natural gas to customers in
metropolitan Washington, D.C., and the adjoining areas of Maryland and Virginia.
Washington Gas Light is currently 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 provides 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) Together, the Company and Shenandoah Gas served a
total of 863,258 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 State
Corporation Commission of Virginia ("SCC-VA"), the Public Service Commission of
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2 Washington Gas Light is exempt 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).
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the District of Columbia ("PSC-DC"), and the Public Service Commission of
Maryland ("PSC-MD"). Shenandoah Gas is also subject to regulation by the SCC-VA.
On September 29, 1999, Washington Gas Light's board of directors
approved the merger of Shenandoah Gas into Washington Gas Light. On October 5,
1999, the Company filed an application with the SCC-VA to begin the merger
process. The SCC-VA issued an order on December 22, 1999 that approved the
merger request, but required 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 Shenandoah Gas.(3) In the interim, Washington Gas Light must continue
to fulfill longstanding regulatory reporting requirements for Shenandoah Gas and
itself as if they continued to be separate entities. The merger of Shenandoah
Gas into Washington Gas Light is expected to be effective on or about April 1,
2000.
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 for itself and Shenandoah
Gas to the entry points of their distribution systems 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.
A map showing the combined service area of Washington Gas Light and
Shenandoah Gas is filed herewith as Exhibit E-1.
It is clear from the foregoing that the Washington Gas Light system
constitutes an "integrated" gas utility system within the meaning of
Section 2(a)(29)(B) of the Act.(4) 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
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3 See Petition of Washington Gas Light Company and Shenandoah Gas
Company, Case No. PUA990071 (Dec. 22, 1999).
4 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."
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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 11.5(5)
1.2.2 Non-Utility Businesses of Washington Gas Light and Its
Subsidiaries.
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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.(6) The Company also operates the steam and chilled water
facilities located in a mixed residential and commercial complex in
Washington, D.C.(7)
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").(8)
(b) Crab Run Gas Company ("Crab Run"): Crab Run's sole
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 non-affiliate. Crab Run's investment in this partnership is not material and
it is expected that any further investment would be minimal.(9)
(c) Washington Gas Resources Corp. ("WGR"): WGR serves as the
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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:
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5 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).
6 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.
7 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).
8 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").
9 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.
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o Washington Gas Energy Services, Inc. ("WGEServices"): WGEServices is
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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 FERC(10) and intends
to participate in the electric choice programs that will soon be
implemented in the Company's service territory.(11) WGEServices has
three wholly-owned subsidiaries: Washington Gas Energy Systems, Inc.,
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which offers commercial energy services, including the design
and renovation of mechanical HVAC systems;(12) Brandywood Estates,
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Inc., ("Brandywood") a co-general partner in a venture designed to
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develop 1,600 acres of land in Prince George's County, Maryland;(13)
and Advanced Marketing Concepts, Inc., an inactive subsidiary that
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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
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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,
ventilating and air-conditioning ("HVAC") equipment in Washington,
D.C. and surrounding areas.(14)
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
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10 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).
11 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).
12 Registered gas utility holding companies are permitted to engage
through subsidiaries in providing such energy management services. See Rule
58(b)(1)(i).
13 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.
14 Registered gas utility holding companies are permitted to engage
through subsidiaries in selling, installing and servicing such equipment. See
Rule 58(b)(1)(iv).
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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.(15) The
Company will not play an active role in any development or management
activities. Its sole contribution to the venture will be the land.
Further, the Company's percentage interest in the venture will be
reduced when new investors join the partnership.(16)
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.(17)
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
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.(18) Initially, PSG
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15 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.
16 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).
17 Although providing customer financing through a non-utility
subsidiary is outside the scope of Rule 58 and/or Rule 48, the Commission has
authorized other registered holding companies to engage in similar customer
financing activities through non-utility subsidiaries. See e.g., Cinergy Corp.,
et al., Holding Co. Act Release No. 26662 (Feb. 7, 1997);. Consolidated Natural
Gas Company, et al., Holding Co. Act Release No. 26757 (Aug. 27, 1997); and
Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999).
18 Like ACI, PSG is engaged in selling, installing and servicing HVAC
equipment, a business permitted by Rule 58(b)(iv).
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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.
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.
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.(19)
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,
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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
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 agreement to support its
outstanding commercial paper. At December 31, 1999, Washington Gas Light had
permanent lines of credit for $25 million, seasonal lines of credit for
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19 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."
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$15 million, and revolving credit facilities aggregating $160 million. 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. All of these
current credit facilities expire not later than June 30, 2000. 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
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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%
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Total $1,419,933 100.0%
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*/ Includes current maturities of long-term debt.
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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. Approximately 46,475,488
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 Gas
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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
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 is also subject to
approval by the SCC-VA, and an application requesting such approval was filed on
February 27, 2000. It is expected that the Reorganization will be implemented as
soon as practicable after all corporate and regulatory approvals have been
obtained. 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.
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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.
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.
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1.5 SUMMARY OF REQUESTED APPROVALS; USE OF PROCEEDS. As used in this
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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 and 1.12, 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 pursuant to Rule 42, 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
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. Lastly, 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.
9
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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 during the
Authorization Period up to an aggregate of $200 million in the form of long-term
debt securities and Common Stock. In addition, WGL Holdings proposes to issue
and reissue from time to time during the Authorization Period up to $200 million
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.
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 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.
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<PAGE>
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.
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, and to engage in other sales of its
treasury shares for general business purposes, 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.
--------------
WGL Holdings requests authority to issue and sell from time to time
through the Authorization Period unsecured notes ("Debentures") in one or more
series. The aggregate principal amount of Debentures at any time outstanding,
when added to the amount of Common Stock sold during the Authorization Period,
11
<PAGE>
will not exceed $200 million. The Debentures (a) may be convertible into any
other securities of WGL Holdings, (b) will have maturities ranging from one to
50 years, (c) 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, (d) may be entitled to mandatory or optional sinking fund
provisions, (e) may provide for reset of the coupon pursuant to a remarketing
arrangement, and (f) may be called from existing investors or put to the
company, or both. In addition, WGL Holdings may have the right from time to time
to defer the payment of interest on the Debentures of one or more series (which
may be fixed or floating or "multi-modal" debentures, i.e., debentures where the
interest is periodically reset, alternating between fixed and floating interest
rates for each reset period). 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 pur 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; provided, however,
that WGL Holdings will not issue and sell any Debentures at interest rates in
excess of those generally obtainable at the time of pricing or repricing of such
Debentures for securities having the same or reasonably similar maturities and
having reasonably similar terms, conditions and features issued by utility
companies or utility holding companies of the same or reasonably comparable
credit quality, as determined by the competitive capital markets.
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 $200 million. The effective cost of money on Short-term Debt
authorized in this proceeding will not exceed the competitive market rates
available to companies with comparable credit ratings with respect to debt
having similar maturities.
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
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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, with respect
to European commercial paper, 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.
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.
(d) Other Securities.
-----------------
In addition to the specific securities for which authorization is
sought herein, WGL Holdings may also find it necessary or desirable in order to
minimize financing costs or to obtain new capital under then existing market
conditions to issue and sell other types of securities, including but not
limited to preferred stock, from time to time during the Authorization Period.
WGL Holdings requests that the Commission reserve jurisdiction over the issuance
of additional types of securities and the amount thereof. WGL Holdings
undertakes to file a post-effective amendment in this proceeding which will
describe the general terms of each such security and the amount thereof to be
issued and request a supplemental order of the Commission authorizing the
issuance thereof by WGL Holdings.
1.6.2. Washington Gas Light Financing.
------------------------------
As indicated in Item 1.3, above, Washington Gas Light currently has
financing arrangements in place. Washington Gas Light requests authorization to
maintain all of these existing financing arrangements, and any extensions
thereof, in place through the Authorization Period.
Under Rule 52(a), most 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. However, under Virginia
Code Sections 56-65 and 56-65.1, without prior approval of the SCC-VA, a
Virginia regulated utility may incur debt of less than 12 months maturity,
provided that the amount thereof does not exceed 12% of the total capitalization
of the utility. 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. The PSC-DC has no jurisdiction over financings with
maturities of less than 12 months. Accordingly, Washington Gas Light requests
approval for certain financing transactions that fall outside the exemption
under Rule 52(a).
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(a) Short-Term Debt of Washington Gas Light.
---------------------------------------
Washington Gas Light requests authority 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.
(b) Other Securities.
----------------
Washington Gas Light may also issue and sell other types of securities
to non-associate purchasers which do not qualify for use of Rule 52 but which
are considered appropriate during the Authorization Period. Washington Gas Light
requests that the Commission reserve jurisdiction over the issuance of such
additional types of securities and the amounts thereof. Washington Gas Light
also undertakes to cause a post-effective amendment to be filed in this
proceeding that will describe the general terms of each such security and the
amounts thereof and request a supplemental order of the Commission authorizing
the issuance thereof by the Company.
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). The Applicants request that the
Commission reserve jurisdiction over the issuance by any Non-Utility Subsidiary
of any other securities with respect to which the exemption under Rule 52(b)
would not be available. The Applicants undertake to cause a post-effective
amendment to be filed in this proceeding which will describe the general terms
of each such non-exempt security and the amounts thereof and request a
supplemental order of the Commission authorizing the issuance thereof.
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.(20) 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.
- ------------------------
20 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 $200 million
outstanding at any one time. 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.
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 $100 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.
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 Investor Service 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.
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<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.(21)
1.9 SYSTEM MONEY POOL. WGL Holdings and certain of the Subsidiaries hereby
-----------------
request authorization to establish a system money pool ("Money Pool") and, to
the extent not exempted by Rule 52, also 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.
- ------------------------
21 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 Ameren Corp., et al., Holding Co. Act Release No.
27053 (July 23, 1999).
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 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.
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<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 participate
in 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 the Money Pool.
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
repayment, redemption or refinancing of its debt and preferred stock; (iv) to
meet unexpected contingencies, payment and timing differences, and cash
18
<PAGE>
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.(22)
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. 23 WGL Holdings may, if required, guarantee or enter
into expense agreements in respect of the obligations of any Financing
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
- ------------------------
22 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).
23 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>
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 or FUCOs,
Rule 58 Companies, ETCs 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.(24) 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 EWG or FUCO, Rule 58 Company, ETC 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 the Utility Subsidiaries from operational or other
business risks that may be associated with investments in non-utility companies;
or (8) for other lawful business purposes.
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
- ------------------------
24 Washington Gas Light does not hold an interest in any EWG or FUCO
at this time.
20
<PAGE>
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.(25)
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,(26) 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.(27) 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
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 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
- ------------------------
25 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).
26 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.
27 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>
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.(28)
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.
- ------------------------
28 The Commission has granted similar approvals to other registered holding
companies. See Entergy Corporation, et al., Holding Co. Act Release No.
27039 (June 22, 1999); and Interstate Energy Corporation, et al., Holding
Co. Act Release No. 27069 (August 26, 1999).
22
<PAGE>
1.14 APPROVAL OF SERVICES UNDER SERVICE AGREEMENTS. 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.(29) 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.
- ------------------------
29 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.
23
<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.
1.15 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 would be filed
24
<PAGE>
within 60 days after the end of each of the first three calendar quarters, and
90 days after the end of the last calendar 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 Debentures issued during the quarter;
(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.
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
25
<PAGE>
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 and sale of Common Stock, Debentures and Short-term Debt by WGL
Holdings and to the issuance and sale of securities by Washington Gas Light and
the Non-Utility Subsidiaries that are not exempt under Rule 52. 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 also
applicable to WGL Holdings' or any Non-Utility Subsidiary's acquisition of the
equity securities of any Financing Subsidiary or Intermediate Subsidiary.
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
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.
26
<PAGE>
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.
--------------------
As indicated, the SCC-VA and the PSC-DC both have jurisdiction over the
issuance of securities by Washington Gas Light, other than the issuance of notes
with a maturity of one year or less. The SCC-VA also has jurisdiction over
approval of agreements between Washington Gas Light and its associate companies,
including the Service 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 June 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).
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
27
<PAGE>
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.
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).
D-1 Application of Washington Gas Light Company and its
Affiliated Interests to the Virginia State Corporation
Commission.
D-2 Order of the Virginia State Corporation Commission. (To be
filed by amendment).
E-1 Map of Washington Gas Light service area. (Paper format
filing).
28
<PAGE>
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).
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 10-K for the fiscal year ended
ended September 30, 1999 September 30, 1999 in File No.
1-1483.
FS-2 Washington Gas Light See Annual Report of
Consolidated Balance Sheets Washington Gas Light on Form
as of 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
Income for the three months on Form 10-Q for the fiscal
ended December 31, 1999 quarter ended December 31,
1999 in File No. 1-1483.
FS-4 Washington Gas Light See Quarterly Report of
Consolidated Balance Sheets Washington Gas Light on Form
as of December 31, 1999 10-Q for the fiscal
quarter ended December 31,
1999 in File No. 1-1483.
29
<PAGE>
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.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this
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: March 31, 2000
30
EXHIBIT B-4
WGL HOLDINGS, INC.
SYSTEM MONEY POOL AGREEMENT
This SYSTEM MONEY POOL AGREEMENT is made and entered into this ____
day of _____________, 2000 by and among WGL Holdings, Inc., ("WGL Holdings"), a
Virginia Corporation and a registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the "Act"); and the subsidiaries of WGL
Holdings, Inc. listed on Exhibit A to this Agreement (each a "Party" and
collectively, the "Parties").
RECITALS
The Parties from time to time have need to borrow funds on a
short-term basis. Some of the Parties from time to time are expected to have
funds available to loan on a short-term basis. The Parties desire to establish a
pool (the "System Money Pool") to coordinate and provide for certain of their
short-term cash and working capital requirements.
NOW THEREFORE, in consideration of the premises, and the mutual
promises set forth herein, the Parties hereto agree as follows:
ARTICLE I
CONTRIBUTIONS AND BORROWINGS
Section 1.1. Contributions to System Money Pool. Each Party will
-----------------------------------------------
determine each day, on the basis of cash flow projections and other relevant
factors, in such Party's sole discretion, the amount of funds it has available
for contribution to the System Money Pool, and will contribute such funds to the
System Money Pool. The determination of whether a Party at any time has surplus
funds to lend to the System Money Pool, or shall lend such funds to the System
Money Pool, will be made by such Party's Treasurer, or by a designee thereof, on
the basis of cash flow projections and other relevant factors, in such Party's
sole discretion. Each Party may withdraw any of its funds at any time upon
notice to WGL Holdings as administrative agent of the System Money Pool.
Section 1.2 Rights to Borrow. Subject to the provisions of Section
----------------------------
1.4(b) of this Agreement, all short-term borrowing needs of the Parties, with
the exception of WGL Holdings, may be met by funds in the System Money Pool to
the extent such funds are available. Each Party (other than WGL Holdings) shall
have the right to make short-term borrowings from the System Money Pool from
time to time, subject to the availability of funds and the limitations and
conditions set forth herein and in the applicable orders of the Securities and
Exchange Commission ("SEC"). Each Party (other than WGL Holdings) may request
<PAGE>
loans from the System Money Pool from time to time during the period from the
date hereof until this Agreement is terminated by written agreement of the
Parties; provided, however, that the aggregate amount of all loans requested by
any Party hereunder shall not exceed the applicable borrowing limits set forth
in applicable orders of the SEC and other regulatory authorities, resolutions of
such Party's shareholders and Board of Directors, such Party's governing
corporate documents, and agreements binding upon such Party. No Party shall be
obligated to borrow from the System Money Pool if lower cost funds can be
obtained from external borrowing. No loans through the System Money Pool will be
made to, and no borrowings through the System Money Pool will be made by, WGL
Holdings.
Section 1.3. Source of Funds.
----------------------------
(a) Funds will be available through the System Money Pool from
the following sources for use by the Parties from time to time: (i)
surplus funds in the treasuries of the Parties other than WGL
Holdings, (ii) surplus funds in the treasury of WGL Holdings, and
(iii) proceeds from bank borrowings and the sale of commercial paper
by the Parties ("External Funds"), in each case to the extent
permitted by applicable laws and regulatory orders. Funds will be made
available from such sources in such other order as WGL Holdings, as
administrator of the System Money Pool, may determine will result in a
lower cost of borrowing to Parties borrowing from the System Money
Pool, consistent with the individual borrowing needs and financial
standing of the Parties providing funds to the System Money Pool.
(b) Borrowing Parties will borrow pro rata from each lending
Party in the proportion that the total amount loaned by such lending
Party bears to the total amount then loaned through the System Money
Pool. On any day when more than one fund source (e.g., surplus
treasury funds of WGL Holdings and other System Money Pool
participants ("Internal Funds") and External Funds), with different
rates of interest, is used to fund loans through the System Money
Pool, each borrowing Party will borrow pro rata from each fund source
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
System Money Pool.
Section 1.4. Authorization.
--------------------------
(a) Each loan shall be authorized by the lending Party's
Treasurer, or by a designee thereof.
(b) All borrowings from the System Money Pool shall be authorized
by the borrowing Party's Treasurer, or by a designee thereof. No Party
shall be required to effect a borrowing through the System Money Pool
if such Party determines that it can (and is authorized to) effect
such borrowing at lower cost directly from banks or through the sale
<PAGE>
of its own commercial paper in an existing commercial paper program.
Section 1.5. Interest. Each Party receiving a loan shall accrue
---------------------
interest daily on the unpaid principal amount of such loan to the System Money
Pool from the date of such loan until such principal amount shall be paid in
full. Interest shall be payable monthly in arrears and upon payment (including
prepayment) in full of the unpaid principal amount thereof.
(a) If only Internal Funds comprise the funds available in the
System 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. The
interest payable on such loans shall be adjusted on the first business
day of each month that the loan is outstanding.
(b) If only External Funds comprise the funds available in the
System Money Pool, the interest rate applicable to loans of such
External Funds shall be equal to the lending Party's cost for such
External Funds (or, if more than one Party had made available External
Funds on such day, the applicable interest rate shall be a composite
rate, equal to the weighted average of the cost incurred by the
respective Parties for such External Funds).
(c) In cases where both Internal Funds and External Funds are
concurrently borrowed through the System Money Pool, the rate
applicable to all loans comprising such "blended" funds shall be a
composite rate, equal to the weighted average of the (i) cost of all
Internal Funds contributed by Parties (as determined pursuant to
Section 1.5(a) above) and (ii) the cost of all such External Funds (as
determined pursuant to Section 1.5(b) above); provided, that in
circumstances where Internal Funds and External Funds are available
for loans through the System 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 borrowing.
Section 1.6. Certain Costs. The cost of compensating balances and/or
--------------------------
fees paid to banks to maintain credit lines by Parties lending External Funds to
the System Money Pool shall initially be paid by the Party maintaining such
line. Commitment fees shall be allocated by usage of proceeds. A portion of such
costs shall be retroactively allocated every month to the Parties borrowing such
External Funds through the System Money Pool in proportion to their respective
daily outstanding borrowings of such External Funds.
Section 1.7. Repayment. Each Party receiving a loan hereunder shall
----------------------
repay the principal amount of such loan, together with all interest accrued
thereon, on demand and in any event within one year of the date on which such
loan was made. All loans made through the System Money Pool may be prepaid by
<PAGE>
the borrower without premium or penalty.
Section 1.8. Form of Loans to Parties. Loans to the Parties through
-------------------------------------
the System Money Pool will be made pursuant to open-account advances, repayable
upon demand and in any event not later than one year after the date of the
advance; provided, that each lending Party shall at all times be entitled to
receive upon demand one or more promissory notes evidencing any and all loans by
such lender. Any such note shall: (a) be substantially in the form filed as
Exhibit A to this agreement, (b) be dated as of the date of the initial
borrowing, (c) mature on demand or on a date agreed by the Parties to the
transaction, but in any event not later than one year after the date of the
applicable borrowing, and (d) be repayable in whole at any time or in part from
time to time, without premium or penalty.
ARTICLE II
OPERATION OF SYSTEM MONEY POOL
Section 2.1. Operation. Operation of the System Money Pool, including
----------------------
record keeping and coordination of loans, will be handled by WGL Holdings under
the authority of the appropriate officers of the Parties. WGL Holdings shall be
responsible for the determination of all applicable interest rates and charges
to be applied to advances outstanding at any time hereunder, shall maintain
records of all advances, interest charges and accruals and interest and
principal payments for purposes hereof, and shall prepare periodic reports
thereof for the Parties. WGL Holdings will administer the System Money Pool.
Separate records shall be kept by WGL Holdings for the System Money Pool
established by this agreement and any other money pool administered by WGL
Holdings.
Section 2.2. Investment of Surplus Funds in the System Money Pool.
-----------------------------------------------------------------
Funds not required to meet System Money Pool loans (with the exception of funds
required to satisfy the System Money Pool's liquidity requirements) will
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, (vi)
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.
Section 2.3. Allocation of Interest Income and Investment Earnings.
------------------------------------------------------------------
The interest income and other investment income earned by the System Money Pool
on loans and investment of surplus funds will be allocated among the Parties in
accordance with the proportion each Party's contribution of funds in the System
Money Pool bears to the total amount of funds in the System Money Pool and the
cost of any External Funds provided to the System Money Pool by such Party.
<PAGE>
Interest and other investment earnings will be computed on a daily basis and
settled once per month.
Section 2.4. Event of Default. If any Party shall generally not pay
-----------------------------
its debts as such debts become due, or shall admit in writing its inability to
pay its debts generally, or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against any Party seeking
to adjudicate it a bankrupt or insolvent, then the other Parties may declare the
unpaid principal amount of any loans to such Party, and all interest thereon, to
be forthwith due and payable and all such amounts shall forthwith become due and
payable.
ARTICLE III
MISCELLANEOUS
Section 3.1. Amendments. No amendment to this Agreement shall be
-----------------------
adopted except in a writing executed by the Parties.
Section 3.2. Legal Responsibility. Nothing herein contained shall
---------------------------------
render any Party liable for the obligations of any other Party hereunder and the
rights, obligations and liabilities of the Parties are several in accordance
with their respective obligations, and not joint.
Section 3.3. Governing Law. This Agreement shall be governed by, and
--------------------------
construed in accordance with, the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned companies have duly caused this
document to be signed on their behalf on the date first written above by the
undersigned thereunto duly authorized.
WGL HOLDINGS, INC.
By:
-------------------------------
Name:
Title:
WASHINGTON GAS LIGHT COMPANY
By:
-------------------------------
Name:
Title:
<PAGE>
CRAB RUN GAS COMPANY
By:
-------------------------------
Name:
Title:
HAMPSHIRE GAS COMPANY
By:
-------------------------------
Name:
Title:
WASHINGTON GAS RESOURCES CORP.
By:
-------------------------------
Name:
Title:
WASHINGTON GAS CONSUMER SERVICES, INC.
By:
-------------------------------
Name:
Title:
WASHINGTON GAS ENERGY SERVICES, INC.
By:
-------------------------------
Name:
Title:
WASHINGTON GAS ENERGY SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
AMERICAN COMBUSTION INDUSTRIES, INC.
By:
-------------------------------
Name:
Title:
BRANDYWOOD ESTATES, INC.
By:
-------------------------------
Name:
Title:
WG MARITIME PLAZA I, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
COMPANIES PARTICIPATING IN WGL HOLDINGS, INC. SYSTEM MONEY POOL
Washington Gas Light Company
Crab Run Gas Company
Hamsphire Gas Company
Washington Gas Resources Corp.
Washington Gas Consumer Services, Inc.
Washington Gas Energy Services, Inc.
Washington Gas Energy Systems, Inc.
American Combustion Industries, Inc.
Brandywood Estates, Inc.
WG Maritime Plaza I, Inc.
<PAGE>
EXHIBIT B
(TO SYSTEM MONEY POOL AGREEMENT)
FORM OF SYSTEM MONEY POOL NOTE
$ (See attached schedule for principal amount [Date] outstanding at
any time.)
FOR VALUE RECEIVED, the undersigned, , a Corporation (the "Company"),
hereby unconditionally promises to pay to the order of (the "Lender"), on
demand, or on a date agreed to by the Company and the Lender (but in any case
not later than one year after the date of the applicable borrowing), at the
offices of , in lawful money of the United States of America and in immediately
available funds, the aggregate unpaid principal amount of all loans (that are
posted on the schedule annexed hereto and made a Part hereof) made by the Lender
to the Company through the WGL Holdings, Inc. ,System Money Pool (the "System
Money Pool") pursuant to the authorization in effect from time to time of the
Securities and Exchange Commission under the Public System Holding Company Act
of 1935, as amended.
The Company further agrees to pay in like money at such office accrued
interest on the unpaid principal amount hereof from time to time from the date
of the applicable borrowing at the rate as determined by WGL Holdings, Inc., in
its capacity as a administrator of the System Money Pool, in accordance with the
terms and provisions of the System Money Pool Agreement, dated as of , 2000,
among the Company, the Lender and the other parties thereto. Interest shall be
payable monthly in arrears and upon payment (including prepayment) in full of
the unpaid principal amount hereof.
This Note shall be governed by, and construed and interpreted in
accordance with, the Laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned, pursuant to due authorization,
has caused this Note to be executed in its name and on its behalf by its duly
authorized officer.
[Company]
By:
------------------------------------
Name:
Title:
EXHIBIT B-5
WASHINGTON GAS LIGHT COMPANY
AND
WASHINGTON GAS RESOURCES CORP.
SERVICE AGREEMENT
THIS AGREEMENT made this 14th day of May 1998, between Washington Gas Light
Company, a District of Columbia and Virginia corporation (hereinafter called the
Company) and Washington Gas Resources Corp., a Delaware corporation (hereinafter
called the Affiliate).
WITNESSETH:
The Affiliate is a subsidiary of the Company. The Company has specialists
who are experienced in the operations of gas utilities and related businesses,
together with appropriate facilities and equipment, through which it is prepared
to furnish services, as hereinafter described, to the Affiliate.
The rendition of such services on a centralized basis will enable the
Affiliate to realize substantial economic and other benefits through (1)
efficient use of personnel and equipment, (2) coordination of analysis and
planning, and (3) availability of specialized personnel and equipment which the
Affiliate cannot economically maintain on an individual basis. Furthermore, the
execution of this service agreement establishes procedures to allocate costs
that will further assure that utility customers do not subsidize nonutility
operations.
The Company has previously entered into service agreements with other WGL
subsidiaries (collectively, the "Affiliates") on the same terms and conditions.
<PAGE>
-2-
The Company will render all services performed under all agreements at cost,
which cost shall be fairly and equitably apportioned among the Affiliates. To
the extent that any charges for services or goods are rendered to the Affiliates
on the basis of estimated costs, they are readjusted to actual costs at least
annually except in cases of construction, in which event such charges are
adjusted upon completion of the individual projects.
WITNESSETH THAT the Company and the Affiliate, in consideration of the
promises included herein, agree as follows:
1. Agreement to Furnish Services. The Company and the Affiliate agree to
-----------------------------
furnish to each other, upon the terms and conditions set forth in Attachment A,
which is attached hereto and constitutes a part hereof, each of the services
described in Article II of said Attachment A, at such times, for such periods
and in such manner, as the Company and the Affiliate respectfully may from time
to time request. The Company and the Affiliate will each maintain an
organization sufficient to render with efficiency and reasonable promptness each
of the services described in Article II of said Attachment A, but it shall not
be obligated to perform any services hereunder without reasonable notice.
2. Effective Date of this Agreement. This Agreement shall become effective
--------------------------------
when approved by the State Corporation Commission of Virginia and supersedes any
previous agreements between the Company and the Affiliate.
3. Termination. This Agreement may be terminated upon not less than thirty
-----------
(30) days written notice, by either the Company of the Affiliate; provided,
however, that this Agreement shall be terminated automatically (i) to the extent
<PAGE>
-3-
that performance under this Agreement may conflict with any rule, regulation or
order of any state or federal regulatory agency having jurisdiction over the
Company or the Affiliate, or (ii) if this Agreement shall become invalid or
illegal under any state law or under any rule, regulation or order of any state
commission or other state body having jurisdiction in the premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
WASHINGTON GAS LIGHT COMPANY
By: /s/ James H. DeGraffenreidt, Jr.
------------------------------------
James H. DeGraffenreidt, Jr.
President and Chief Executive Officer
WASHINGTON GAS RESOURCES CORP.
By: /s/ James B. White
------------------------------------
James B. White
Vice President
<PAGE>
Attachment A
WASHINGTON GAS LIGHT COMPANY
---------------------
Services Available Between the Company
and Affiliate, Methods of Charging Therefor, and
Miscellaneous Terms and Conditions of Service Agreements
---------------------
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS Page
A. "WGL" 1
B. "Affiliate" and "Affiliates" 1
C. "Service Agreement" 1
ARTICLE II. DESCRIPTION OF SERVICES
A. Accounting, Financial and Statistical Services 1
B. Auditing and Internal Audit Services 2
C. Budget Services 2
D. Corporate and Legal Services 2
E. Engineering, Operations and Planning Service 2
F. Human Resources Services 2
G. Information Systems Services 3
H. Gas Dispatching Services 3
I. Marketing and Advertising Service 3
J. Insurance Services 3
K. Methods Services 3
L. Officers 4
M. Rate Services 4
N. Tax Services 4
O. Miscellaneous Services 4
P. Services By Affiliate 4
-1-
<PAGE>
ARTICLE III. COMPENSATION
A. Specific Direct Salary Charges to Affiliate 5
B. Apportioned Direct Salary Charges to Affiliate 5
C. Indirect Labor Costs 5
D. Apportionment of Employee Benefits 6
E. Other Expenses 6
F. Apportionment of Overhead 6
G. Affiliates' Charges to WGL 6
H. Transfer of Equipment and Goods 7
ARTICLE IV. BILLING
A. Monthly Bills and Detail Statement of Charges 7
B. Information to be Furnished by Affiliate 7
ARTICLE V. INSPECTION OF RECORDS 7
-2-
<PAGE>
WASHINGTON GAS LIGHT COMPANY
Services Available to Affiliate,
Methods of Charging Therefor, and
Miscellaneous Terms and Conditions of Service Agreements
ARTICLE I. DEFINITIONS
A. The term "WGL" or "Company" shall mean Washington Gas Light Company and
its successors.
B. The term "Affiliate" shall mean any subsidiary corporation of WGL which
is a party to a "Service Agreement" with WGL; the term "Affiliate" refers to the
subsidiaries of WGL collectively.
C. The term "Service Agreement" shall mean an agreement, of which this
Attachment A constitutes a part, for the rendition of service by WGL or the
Affiliate.
ARTICLE II. DESCRIPTION OF SERVICES
The services and facilities which the Company and the Affiliate are
prepared to render and furnish to each other, as requested from time to time by
the Company and the Affiliate, are set forth in general terms below. The details
listed under each heading are intended to be illustrative rather than inclusive
and are subject to modification from time to time in accordance with the state
of the art and the needs of the Affiliate. Exhibit 1 hereto indicates whether
the service to be performed shall be directly charged or allocated. If the
service is to be allocated, Exhibit 1 describes the basis thereof.
A. Accounting, Financial and Statistical Services.
-----------------------------------------------
-1-
<PAGE>
WGL will advise and assist the Affiliate in accounting, financial and
statistical matters, including the preparation and furnishing of financial,
statistical and other related reports and analyses; credit services such as
credit checks and collection of overdue accounts; cash management services such
as billing, processing and application of cash receipts; payroll processing
services; and financial services such as forecasting cash requirements,
obtaining financing and evaluating proposed sales programs and financing terms.
B. Auditing and Internal Audit Services.
-------------------------------------
WGL will conduct periodic audits of the general records of the Affiliate
and will coordinate the audit programs of the Affiliate with those of the
independent accountants in the annual examination of their accounts.
C. Budget Services.
----------------
WGL will advise and assist the Affiliate in matters involving the
preparation and development of budgets and budgetary controls.
D. Corporate and Legal Services.
-----------------------------
WGL will advise and assist the Affiliate in connection with corporate and
legal matters, and with administrative and judicial proceedings involving
regulatory, tax, contract, tort, property, insurance and similar matters.
E. Engineering, Operations and Planning Services.
----------------------------------------------
WGL will advise and assist the Affiliate in connection with estimates of
gas requirements and gas available, gas transmission, measurement, storage and
distribution, construction requirements, negotiation of gas purchase and sale
contracts, and other operating matters.
-2-
<PAGE>
F. Human Resources Services.
-------------------------
WGL will advise and assist the Affiliate, as required, in connection with
employee relations matters, including recruitment, employee placement, training,
compensation, safety, labor relations and health, welfare and employee benefits.
G. Information Systems Services.
-----------------------------
WGL will process data for the Affiliate by means of electronic, magnetic
tape, or other tabulating or calculating equipment maintained on a centralized
basis. These services will include the computing, preparing and processing of
service bills and other bookkeeping, accounting, analytical and related
functions.
H. Gas Dispatching Services.
-------------------------
WGL will advise and assist the Affiliate in the dispatching of the gas
supplies available to the Affiliate, and in determining and effecting the most
efficient routing and distribution of such supplies in light of the respective
needs therefor and the applicable laws and regulations of governmental bodies.
If requested, WGL will provide a central dispatcher or dispatchers to handle the
routing and dispatching of gas.
I. Marketing and Advertising Services.
-----------------------------------
WGL will advise and assist Affiliate in matters involving the furnishing of
information to customers, employees, investors and other interested groups, and
to the public generally, including the preparation of booklets, photographs,
motion pictures, and other means of presentation, and assistance to Affiliate in
their marketing and advertising programs.
-3-
<PAGE>
J. Insurance Services.
-------------------
WGL will advise and assist Affiliate in general insurance matters, in
obtaining policies, making inspections and settling claims.
K. Methods Services.
-----------------
WGL will advise and assist the Affiliate in the formation of accounting
practices and methods of procedure, in the standardization of forms, and with
respect to the purchase, rental and use of mechanical and electronic computing
equipment. WGL will also conduct such special studies as may be requested by the
Affiliate.
L. Officers.
---------
Any Affiliate may, with the consent of WGL, elect to any office of the
Affiliate any officer or employee of WGL whose compensation is paid by WGL.
Services rendered to the Affiliate by such person as an officer shall be billed
by WGL to the Affiliate and paid for as provided in Articles III, IV and V, and
the Affiliate shall not be required to pay any compensation directly to any such
person.
M. Rate Services.
--------------
WGL will advise and assist the Affiliate in all rate matters, including the
design and preparation of schedules and tariffs, the analysis of rate filings of
producers and pipeline suppliers, and the preparation and presentation of
testimony and exhibits to regulatory authorities.
N. Tax Services.
-------------
-4-
<PAGE>
WGL will advise and assist the Affiliate in tax matters, in the preparation
of tax returns and in connection with proceedings relating to taxes.
O. Miscellaneous Services.
-----------------------
WGL will render to any Affiliate any such services, not hereinabove
described, as from time to time WGL may be equipped to render and such Affiliate
may desire to have performed.
P. Service By Affiliate.
---------------------
The Affiliate will provide WGL such services as may be reasonably necessary
to the providing of services by WGL under the Agreement.
-5-
<PAGE>
ARTICLE III. COMPENSATION
It is the intent of the Company and the Affiliate that charges for goods,
services, and facilities shall compensate the Company for all its costs
including without limitation its direct costs, all indirect costs related to
such direct costs and all overhead costs of providing goods, services, and
facilities.
The amounts which an Affiliate shall pay to WGL shall be determined
as provided in this Article III.
A. Specific Direct Salary Charges to Affiliate.
--------------------------------------------
To the extent that time spent by the officers and employees of WGL and the
Affiliate is related to specific, identifiable services, a direct salary charge
shall be made based on the hourly rates of compensation.
B. Apportioned Direct Salary Charges.
----------------------------------
To the extent that the time spent by the officers and employees of WGL and
the Affiliate is related to services rendered to WGL or to Affiliate generally,
or to any specified group of the Affiliates, a direct salary charge shall be
made to the Company or to the Affiliate generally, or to such specified group of
the Affiliates, and allocated to each such Affiliate upon such equitable basis
or bases as WGL may from time to time specify.
C. Indirect Labor Costs.
--------------------
There shall be added to the direct labor charges in (A) and (B) of this
Article III a suitable loading factor for holidays, vacations, sick time and
such other excused time with pay as is consistent with WGL's accounting
policies.
-6-
<PAGE>
D. Apportionment of Employee Benefits.
----------------------------------
The employee benefit expenses which are related to direct salary charges
made pursuant to paragraphs (A) and (B) of this Article III shall be apportioned
among the several Affiliates, as applicable, in the proportions which the
respective direct salary charges made pursuant to the rendering of such services
to each Affiliate bear to the aggregate of such direct salary charges.
E. Other Expenses.
--------------
All expenses, other than salaries and employee benefit expenses incurred by
WGL in connection with services rendered to a specific Affiliate shall be
charged directly to such Affiliate. All such expenses incurred by WGL in
connection with services rendered to the Affiliate generally or to any specified
group of Affiliates shall be apportioned in the manner set forth in paragraph
(B) of this Article III for the apportionment of salary charges. All other
expenses shall be considered Overhead, which shall include: rents; depreciation;
amortization; return; taxes; compensation of employees performing office service
functions; general office supplies; charges for utility, maintenance and similar
services; legal fees and fees of independent accountants; and all other such
expenses normally treated as Overhead.
F. Apportionment of Overhead.
-------------------------
The Overhead shall be allocated among the Affiliate in the manner
prescribed by WGL to fairly apportion the Overhead charges between the Company
and the Affiliate.
G. Affiliates' Charges to WGL.
--------------------------
When an Affiliate renders services to WGL, the Affiliate will be
compensated by WGL in the same manner as described herein for services by WGL to
the Affiliate.
-7-
<PAGE>
H. Transfer of Equipment or Goods.
------------------------------
Where applicable, the sale price of goods transferred to or from affiliated
companies will be based on approved tariffs in effect at the time of the sale or
transfer. If the sale is not covered by a tariff, the sales price of items
transferred between affiliated companies will be based on the net book value at
the time of transfer.
ARTICLE IV. BILLING
A. Monthly Bills and Detail Statement of Charges.
---------------------------------------------
As soon as practicable after the close of each month WGL and the Affiliate
will issue to each other an Invoice and Detail of Charges which will itemize the
amounts due for services, overhead and expenses for such month, computed
pursuant to Article III. All amounts so billed shall be paid within fifteen (15)
days after the receipt of the bill therefor.
To the extent required by law, all bills shall be accompanied by a
statement showing the manner in which such charge was determined.
B. Information to be Furnished by Affiliate.
----------------------------------------
The Affiliate will forward to WGL from time to time, as requested, such
financial and statistical information as WGL may need to compute the charges
payable by Affiliate upon such basis as may have been specified pursuant to
Article III.
ARTICLE V. INSPECTION OF RECORDS
WGL agrees to keep its books and records available for inspection at all
reasonable times by representatives of the Affiliate in order that the
correctness of the charges made by WGL for services to the Affiliate may be
verified by the Affiliate. The Affiliate agrees to do the same on behalf of WGL.
-8-
EXHIBIT B-6
WASHINGTON GAS LIGHT COMPANY
AND
WGL HOLDINGS, INC.
SERVICE AGREEMENT
THIS AGREEMENT made this ____ day of ____________ 2000, between Washington
Gas Light Company, a District of Columbia and Virginia corporation (hereinafter
called the Company) and WGL Holdings, Inc., a Virginia corporation (hereinafter
called the Affiliate).
WITNESSETH:
The Company is a subsidiary of the Affiliate. The Company has specialists
who are experienced in the operations of gas utilities and related businesses,
together with appropriate facilities and equipment, through which it is prepared
to furnish services, as hereinafter described, to the Affiliate.
The rendition of such services on a centralized basis will enable the
Affiliate to realize substantial economic and other benefits through (1)
efficient use of personnel and equipment, (2) coordination of analysis and
planning, and (3) availability of specialized personnel and equipment which the
Affiliate cannot economically maintain on an individual basis. Furthermore, the
execution of this service agreement establishes procedures to allocate costs
that will further assure that utility customers do not subsidize nonutility
operations.
The Company has previously entered into service agreements with other WGL
affiliates (collectively, the "Affiliates") on substantially the same terms and
<PAGE>
-2-
conditions. The Company will render all services performed under all agreements
at cost, which cost shall be fairly and equitably apportioned among the
Affiliates. To the extent that any charges for services or goods are rendered to
the Affiliates on the basis of estimated costs, they are readjusted to actual
costs at least annually except in cases of construction, in which event such
charges are adjusted upon completion of the individual projects.
WITNESSETH THAT the Company and the Affiliate, in consideration of the
promises included herein, agree as follows:
1. Agreement to Furnish Services. The Company agrees to furnish to the
-----------------------------
Affiliate, upon the terms and conditions set forth in Attachment A, which is
attached hereto and constitutes a part hereof, each of the services described in
Article II of said Attachment A, at such times, for such periods and in such
manner, as the Company and the Affiliate respectfully may from time to time
request. The Company will maintain an organization sufficient to render with
efficiency and reasonable promptness each of the services described in Article
II of said Attachment A, but it shall not be obligated to perform any services
hereunder without reasonable notice.
2. Effective Date of this Agreement. This Agreement shall become effective
--------------------------------
when approved by the State Corporation Commission of Virginia and supersedes any
previous agreements between the Company and the Affiliate.
3. Termination. This Agreement may be terminated upon not less than thirty
-----------
(30) days written notice, by either the Company or the Affiliate; provided,
however, that this Agreement shall be terminated automatically (i) to the extent
that performance under this Agreement may conflict with any rule, regulation or
order of any state or federal regulatory agency having jurisdiction over the
<PAGE>
-3-
Company or the Affiliate, or (ii) if this Agreement shall become invalid or
illegal under any state law or under any rule, regulation or order of any state
commission or other state body having jurisdiction in the premises.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
WASHINGTON GAS LIGHT COMPANY
By:______________________________________
Joseph M. Schepis
President and Chief Operating Officer
WGL HOLDINGS, INC.
By:______________________________________
Joseph M. Schepis
President and Chief Operating Officer
<PAGE>
Attachment A
WASHINGTON GAS LIGHT COMPANY
---------------------
Services Available Between the Company
and Affiliate, Methods of Charging Therefor, and
Miscellaneous Terms and Conditions of Service Agreements
---------------------
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS Page
A. "WGL".............................................................. 1
B. "Affiliate" and "Affiliates"....................................... 1
C. "Service Agreement"................................................ 1
ARTICLE II. DESCRIPTION OF SERVICES
A. Accounting, Financial and Statistical Services..................... 1
B. Auditing and Internal Audit Services............................... 2
C. Budget Services.................................................... 2
D. Corporate and Legal Services....................................... 2
E. Engineering, Operations and Planning Service....................... 2
F. Human Resources Services........................................... 2
G. Information Systems Services....................................... 3
H. Gas Dispatching Services........................................... 3
I. Marketing and Advertising Service.................................. 3
J. Insurance Services................................................. 3
K. Methods Services................................................... 3
L. Officers........................................................... 4
M. Rate Services...................................................... 4
N. Tax Services....................................................... 4
O. Miscellaneous Services............................................. 4
-i-
<PAGE>
ARTICLE III. COMPENSATION
A. Specific Direct Salary Charges to Affiliate........................ 5
B. Apportioned Direct Salary Charges to Affiliate..................... 5
C. Indirect Labor Costs............................................... 5
D. Apportionment of Employee Benefits................................. 6
E. Other Expenses..................................................... 6
F. Apportionment of Overhead.......................................... 6
G. Transfer of Equipment and Goods.................................... 6
ARTICLE IV. BILLING
A. Monthly Bills and Detail Statement of Charges...................... 7
B. Information to be Furnished by Affiliate........................... 7
ARTICLE V. INSPECTION OF RECORDS........................................... 7
-ii-
<PAGE>
WASHINGTON GAS LIGHT COMPANY
Services Available to Affiliate,
Methods of Charging Therefor, and
Miscellaneous Terms and Conditions of Service Agreements
ARTICLE I. DEFINITIONS
A. The term "WGL" or "Company" shall mean Washington Gas Light Company and
its successors.
B. The term "Affiliate" shall mean any corporation affiliated with WGL and
which is a party to a "Service Agreement" with WGL; the term "Affiliates" refers
to the affiliates of WGL collectively.
C. The term "Service Agreement" shall mean an agreement, of which this
Attachment A constitutes a part, for the rendition of service by WGL.
ARTICLE II. DESCRIPTION OF SERVICES
The services and facilities which the Company is prepared to render and
furnish to the Affiliate, as requested from time to time by the Affiliate, are
set forth in general terms below. The details listed under each heading are
intended to be illustrative rather than inclusive and are subject to
modification from time to time in accordance with the state of the art and the
needs of the Affiliate.
A. Accounting, Financial and Statistical Services.
-----------------------------------------------
WGL will advise and assist the Affiliate in accounting, financial and
statistical matters, including the preparation and furnishing of financial,
statistical and other related reports and analyses; credit services such as
credit checks and collection of overdue accounts; cash management services such
as billing, processing and application of cash receipts; payroll processing
services; and financial services such as forecasting cash requirements,
<PAGE>
obtaining financing and evaluating proposed sales programs and financing terms.
B. Auditing and Internal Audit Services.
-------------------------------------
WGL will conduct periodic audits of the general records of the Affiliate
and will coordinate the audit programs of the Affiliate with those of the
independent accountants in the annual examination of their accounts.
C. Budget Services.
----------------
WGL will advise and assist the Affiliate in matters involving the
preparation and development of budgets and budgetary controls.
D. Corporate and Legal Services.
-----------------------------
WGL will advise and assist the Affiliate in connection with corporate
and legal matters, and with administrative and judicial proceedings involving
regulatory, tax, contract, tort, property, insurance and similar matters.
E. Engineering, Operations and Planning Services.
----------------------------------------------
WGL will advise and assist the Affiliate in connection with estimates of
gas requirements and gas available, gas transmission, measurement, storage and
distribution, construction requirements, negotiation of gas purchase and sale
contracts, and other operating matters.
F. Human Resources Services.
-------------------------
WGL will advise and assist the Affiliate, as required, in connection with
employee relations matters, including recruitment, employee placement, training,
compensation, safety, labor relations and health, welfare and employee benefits.
-2-
<PAGE>
G. Information Systems Services.
-----------------------------
WGL will process data for the Affiliate by means of electronic,
magnetic tape, or other tabulating or calculating equipment maintained on a
centralized basis. These services will include the computing, preparing and
processing of service bills and other bookkeeping, accounting, analytical and
related functions.
H. Gas Dispatching Services.
-------------------------
WGL will advise and assist the Affiliate in the dispatching of the gas
supplies available to the Affiliate, and in determining and effecting the most
efficient routing and distribution of such supplies in light of the respective
needs therefor and the applicable laws and regulations of governmental bodies.
If requested, WGL will provide a central dispatcher or dispatchers to handle the
routing and dispatching of gas.
I. Marketing and Advertising Services.
-----------------------------------
WGL will advise and assist Affiliate in matters involving the furnishing of
information to customers, employees, investors and other interested groups, and
to the public generally, including the preparation of booklets, photographs,
motion pictures, and other means of presentation, and assistance to Affiliate in
their marketing and advertising programs.
J. Insurance Services.
------------------
WGL will advise and assist Affiliate in general insurance matters, in
obtaining policies, making inspections and settling claims.
K. Methods Services.
-----------------
WGL will advise and assist the Affiliate in the formation of accounting
practices and methods of procedure, in the standardization of forms, and with
-3-
<PAGE>
respect to the purchase, rental and use of mechanical and electronic computing
equipment. WGL will also conduct such special studies as may be requested by the
Affiliate.
L. Officers.
---------
Any Affiliate may, with the consent of WGL, elect to any office of the
Affiliate any officer or employee of WGL whose compensation is paid by WGL.
Services rendered to the Affiliate by such person as an officer shall be billed
by WGL to the Affiliate and paid for as provided in Articles III, IV and V, and
the Affiliate shall not be required to pay any compensation directly to any such
person.
M. Rate Services.
--------------
WGL will advise and assist the Affiliate in all rate matters, including
the design and preparation of schedules and tariffs, the analysis of rate
filings of producers and pipeline suppliers, and the preparation and
presentation of testimony and exhibits to regulatory authorities.
N. Tax Services.
------------
WGL will advise and assist the Affiliate in tax matters, in the
preparation of tax returns and in connection with proceedings relating to taxes.
O. Miscellaneous Services.
-----------------------
WGL will render to any Affiliate any such services, not hereinabove
described, as from time to time WGL may be equipped to render and such Affiliate
may desire to have performed.
-4-
<PAGE>
ARTICLE III. COMPENSATION
It is the intent of the Company and the Affiliate that charges for goods,
services, and facilities shall compensate the Company for all its costs
including without limitation its direct costs, all indirect costs related to
such direct costs and all overhead costs of providing goods, services, and
facilities.
The amounts which an Affiliate shall pay to WGL shall be determined as
provided in this Article III.
A. Specific Direct Salary Charges to Affiliate.
--------------------------------------------
To the extent that time spent by the officers and employees of WGL is
related to specific, identifiable services, a direct salary charge shall be made
based on the hourly rates of compensation.
B. Apportioned Direct Salary Charges.
---------------------------------
To the extent that the time spent by the officers and employees of WGL is
related to services rendered to Affiliates generally, or to any specified group
of the Affiliates, a direct salary charge shall be made to the Affiliates
generally, or to such specified group of the Affiliates, and allocated to each
such Affiliate upon such equitable basis or bases as WGL may from time to time
specify.
C. Indirect Labor Costs.
---------------------
There shall be added to the direct labor charges in (A) and (B) of this
Article III a suitable loading factor for holidays, vacations, sick time and
such other excused time with pay as is consistent with WGL's accounting
policies.
-5-
<PAGE>
D. Apportionment of Employee Benefits.
-----------------------------------
The employee benefit expenses which are related to direct salary charges
made pursuant to paragraphs (A) and (B) of this Article III shall be apportioned
among the several Affiliates, as applicable, in the proportions which the
respective direct salary charges made pursuant to the rendering of such services
to each Affiliate bear to the aggregate of such direct salary charges.
E. Other Expenses.
---------------
All expenses, other than salaries and employee benefit expenses incurred by
WGL in connection with services rendered to a specific Affiliate shall be
charged directly to such Affiliate. All such expenses incurred by WGL in
connection with services rendered to the Affiliate generally or to any specified
group of Affiliates shall be apportioned in the manner set forth in paragraph
(B) of this Article III for the apportionment of salary charges. All other
expenses shall be considered Overhead, which shall include: rents; depreciation;
amortization; return; taxes; compensation of employees performing office service
functions; general office supplies; charges for utility, maintenance and similar
services; legal fees and fees of independent accountants; and all other such
expenses normally treated as Overhead.
F. Apportionment of Overhead.
--------------------------
The Overhead shall be allocated among the Affiliates in the manner
prescribed by WGL to fairly apportion the Overhead charges between the Company
and the Affiliates.
G. Transfer of Equipment or Goods.
-------------------------------
Where applicable, the sale price of goods transferred to or from affiliated
companies will be based on approved tariffs in effect at the time of the sale or
transfer. If the sale is not covered by a tariff, the sales price of items
transferred between affiliated companies will be based on the net book value at
-6-
<PAGE>
the time of transfer.
ARTICLE IV. BILLING
A. Monthly Bills and Detail Statement of Charges.
---------------------------------------------
As soon as practicable after the close of each month WGL will issue to the
Affiliate an Invoice and Detail of Charges which will itemize the amounts due
for services, overhead and expenses for such month, computed pursuant to Article
III. All amounts so billed shall be paid within fifteen (15) days after the
receipt of the bill therefor.
To the extent required by law, all bills shall be accompanied by a
statement showing the manner in which such charge was determined.
B. Information to be Furnished by Affiliate.
----------------------------------------
The Affiliate will forward to WGL from time to time, as requested, such
financial and statistical information as WGL may need to compute the charges
payable by Affiliate upon such basis as may have been specified pursuant to
Article III.
ARTICLE V. INSPECTION OF RECORDS
WGL agrees to keep its books and records available for inspection at all
reasonable times by representatives of the Affiliate in order that the
correctness of the charges made by WGL for services to the Affiliate may be
verified by the Affiliate. The Affiliate agrees to do the same on behalf of WGL.
-7-
EXHIBIT B-7
WASHINGTON GAS LIGHT COMPANY
----------------------------
DESCRIPTION OF ALLOCATION BASES
APPLICABLE TO AFFILIATE TRANSACTIONS
DIRECT LABOR:
- ------------
Costs are charged directly at source and are based on the time dedicated to the
specific, identifiable services benefiting the Affiliates.
INFORMATION SYSTEMS:
- -------------------
Allocations for the use of Information Systems resources and services including
mainframe computers and associated peripheral devices (e.g., central processor
use, data storage and access, printing, and timesharing sessions), training,
data entry, and program maintenance and enhancements are based on actual usage.
PAYROLL:
- -------
Allocations are based on a ratio of labor dollars charged to each Affiliate to
the total labor dollars processed by WGL during a preceding twelve-month
period.
HUMAN RESOURCES:
- ---------------
Allocations are based on a ratio of WGL labor dollars charged to each Affiliate
to the total WGL labor costs for a preceding twelve-month period.
OFFICERS:
- --------
Allocations are based on a ratio of average net investment and payroll dollars
applicable to each Affiliate during a twelve-month period. The allocation
elements are assigned equal weightings.
ACCOUNTS PAYABLE AND CASH DISBURSEMENTS:
- ---------------------------------------
Allocations are based on a ratio of the number of records processed for each
Affiliate to the total records processed by WGL during a preceding twelve-month
period.
FRINGE BENEFITS APPLICABLE TO LABOR:
- -----------------------------------
Allocations are based on the ratio of WGL labor costs charged to each Affiliate
to the total WGL labor costs for the twelve-month period immediately preceding
the current month.
PAYMENT OF INVOICES - GAS PURCHASED:
- -----------------------------------
Charges are based on the gas volumes utilized by the benefiting Affiliates.
Refunds from wholesale gas suppliers are assigned to the benefiting Affiliates
based on actual volumes purchased.
PAYMENT OF INVOICES - INCOME TAXES:
- ----------------------------------
Consolidated federal income tax payments are allocated to the Affiliates based
on their separate taxable income.
1
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
DESCRIPTION OF ALLOCATION BASES
APPLICABLE TO AFFILIATE TRANSACTIONS
PAYMENT OF INVOICES - OTHER:
- ---------------------------
Invoice costs are either charged directly or allocated to the Affiliates
depending upon the nature of the cost.
INTEREST:
- --------
Interest costs are based on the consolidated cost of debt and preferred stock
applied to the total capital of the benefiting Affiliates or against delinquent
amounts due for services rendered.
MATERIALS AND SUPPLIES:
- ----------------------
Issues of materials and supplies are directly charged to the benefiting
Affiliates.
TRANSPORTATION COSTS:
- --------------------
Allocations are based on the vehicle time charged to the benefiting Affiliates
multiplied by the average cost rate of the applicable vehicle. Average cost
rates are determined for each unique class or type of equipment.
RENT:
- ----
Allocations are based on the ratio of square footage of utilized WGL general
property that is dedicated to the operations of the Affiliates divided by total
square footage of utilized WGL general property. The major components of the
amount allocated as rent include return on investment, related income taxes,
property taxes, insurance, maintenance of structures and improvements and cost
of gas used by the Company.
BUILDING SERVICES:
- -----------------
Allocations are based on the ratio of usable WGL floor space dedicated to the
operation of the Affiliates to the total WGL usable floor space. Allocable
costs include water, electricity, janitor supplies, cleaning, etc.
TELEPHONE:
- ---------
Telephone equipment costs are directly charged, along with the related usage
and long distance calls.
SMALL TOOLS:
- -----------
Allocations are based on the actual distribution of WGL field labor to the
Affiliates on retirement, capital, and certain maintenance jobs.
2
<PAGE>
WASHINGTON GAS LIGHT COMPANY
----------------------------
DESCRIPTION OF ALLOCATION BASES
APPLICABLE TO AFFILIATE TRANSACTIONS
POSTAGE:
- -------
Postage costs are charged to the Affiliates based on actual mailings processed
by WGL.
GAS STORAGE OPERATIONS:
- ----------------------
Represents amount charged from the Affiliate to WGL for gas storage service
according to a FERC-approved tariff.
3
EXHIBIT B-8
SUBSIDIARIES OF WGL HOLDINGS, INC.
(TO BE EFFECTIVE AT THE TIME OF ORGANIZATION OF THE HOLDING COMPANY STRUCTURE.)
(COMPANIES LISTED AS OF MARCH 21, 2000)
WGL HOLDINGS, INC.
- ------------------
Utility Subsidiary: Washington Gas Light Company
(100% owned by WGL Holdings, Inc.)
Non-utility subsidiaries: Hampshire Gas Company
(all 100% owned by Crab Run Gas Company
WGL Holdings, Inc.) Washington Gas Resources Corp.
WASHINGTON GAS RESOURCES CORP. - SUBSIDIARIES
---------------------------------------------
(all 100% owned by Washington Gas Resources Corp)
Washington Gas Consumer Services, Inc.
Washington Gas Energy Services, Inc.
Washington Gas Energy Systems, Inc.
American Combustion Industries, Inc.
Brandywood Estates, Inc.
WG Maritime Plaza I, Inc.
Primary Investors, LLC.
(50% owned by WGL Holdings, Inc.)
PRIMARY INVESTORS LLC SUBSIDIARY:
---------------------------------
(100% owned by Primary Investors LLC)
Primary Services Group, LLC
PRIMARY SERVICES GROUP, LLC- SUBSIDIARIES
-----------------------------------------
(all 100% owned by Primary Services Group, LLC)
Primary Service Co.
Aitken Air Conditioning & Heating
Specialists
Mountain Air Technologies, Inc.
Joseph M. Whelan Co., Inc.
EXHIBIT D-1
COMMONWEALTH OF VIRGINIA
BEFORE THE
STATE CORPORATION COMMISSION
APPLICATION OF )
)
WASHINGTON GAS LIGHT COMPANY ) CASE NO.
PUA00_________ )
and its )
AFFILIATED INTERESTS )
)
For approval of transactions )
under Virginia Code, Title 56, )
Chapters 4 and 5, related to the )
formation of a holding company )
APPLICATION
-----------
Washington Gas Light Company ("Washington Gas" or "Company") and its
affiliated interests hereafter identified (collectively referred to herein as
"Applicants")1 hereby apply to the State Corporation Commission ("Commission" or
"Virginia SCC") for authority to enter into certain transactions requiring
approval under the Affiliates Act, Virginia Code ss.ss. 56-76, et seq., and the
- ---------
1 Shenandoah Gas Company ("Shenandoah Gas") is currently a wholly owned
subsidiary of Washington Gas. However, Washington Gas and Shenandoah Gas
(referred to jointly herein as "the Companies") filed a petition with the
Commission on October 6, 1999, for authority to merge Shenandoah Gas into
Washington Gas, which authority was granted, subject to certain conditions, by
the Order Granting Authority issued by the Commission on December 22, 1999, in
Case No. PUA990071. The Companies have also filed an application with the
Federal Energy Regulatory Commission ("FERC") for all necessary approvals
related to the merger of Shenandoah Gas into Washington Gas, which is currently
pending in FERC Docket No. CP00-31-000. Washington Gas plans to merge Shenandoah
Gas into Washington Gas as soon as it receives all necessary regulatory
approvals and satisfies all conditions related to such transaction. Upon
completion of the merger, Shenandoah Gas will become part of Washington Gas and
no authorization will be required with respect to Shenandoah Gas in connection
with the transactions contemplated herein. For purposes of this Application,
Washington Gas has assumed that the merger will be completed prior to
undertaking the transactions contemplated herein.
<PAGE>
-2-
Utility Transfers Act, Virginia Code ss.ss. 56-88, et seq., in
order to reorganize their corporate structure and to create a holding company.
In addition, Washington Gas moves the Commission to modify certain Orders
relating to the approval of certain affiliate agreements, as described herein.
In support of this application, the Applicants represent as follows:
1. Washington Gas is a public service company organized and existing under
the laws of the Commonwealth of Virginia and the District of Columbia and is
qualified to conduct business in Maryland. In Virginia, Washington Gas provides
natural gas distribution service to more than 342,000 customers in Arlington,
Fairfax, Loudoun and Prince William Counties, in the Cities of Alexandria,
Fairfax, Falls Church and Manassas and in the Towns of Leesburg, Middleburg and
Vienna. Washington Gas also provides natural gas distribution service to more
than 502,000 customers in the District of Columbia and Maryland.
2. Shenandoah Gas is a public service company organized and existing under
the laws of the Commonwealth of Virginia. Shenandoah Gas currently provides
natural gas distribution service to more than 11,000 customers in Clarke,
Frederick, Shenandoah and Warren Counties, in the City of Winchester and in the
Towns of Berryville, Middletown, New Market, Stephens City, Strasburg and
Woodstock in Virginia. As noted in footnote 1 above, Washington Gas and
Shenandoah Gas have received authorization from the Commission, subject to
certain conditions, to merge Shenandoah Gas into Washington Gas and are awaiting
authorization from FERC to undertake such transaction. Washington Gas expects to
complete such merger prior to undertaking the reorganization described herein.
<PAGE>
-3-
Upon completion of the merger, Washington Gas will provide service to the former
customers of Shenandoah Gas through its Shenandoah Division at the same rates,
and under the same terms and conditions, as currently provided by Shenandoah
Gas.
3. In addition to Shenandoah Gas, Washington Gas currently owns 100% of
the outstanding shares of Crab Run Gas Company, Hampshire Gas Company,
Washington Gas Resources Corp. ("WG Resources") and 50% of the outstanding
voting units of Primary Investors, L.L.C. WG Resources in turn owns 100% of the
outstanding shares of Washington Gas Consumer Services, Inc., ACI Industries,
Inc., and Washington Gas Energy Services, Inc. ("WG Energy Services). WG Energy
Services in turn owns 100 % of the outstanding shares of Brandywood Estates,
Inc., Washington Gas Energy Systems, Inc. and Advanced Marketing Systems, Inc.
Finally, Primary Investors, L.L.C. owns approximately 94% of Primary Service
Group, L.L.C. These entities are referred to herein as the "affiliated
interests." For an illustration of the present corporate structure of Washington
Gas and its affiliated interests see page 9 of the Proxy Statement and
Prospectus filed herewith as Schedule A.
4. Washington Gas provides management and other services to Shenandoah Gas
and the affiliated interests under Service Agreements approved by this
Commission. A list of all of the existing Service Agreements between Washington
Gas and its affiliated interests, including the Case Number and date of the
Commission order approving all such Service Agreements, is filed herewith as
Schedule B. Except for the existing Service Agreement between Washington Gas and
Shenandoah Gas, which will be canceled effective upon the merger of Shenandoah
<PAGE>
-4-
Gas with and into Washington Gas, the Applicants intend for the substantive
terms of the existing Service Agreements between Washington Gas and the
affiliated interests to remain in full force and effect following completion of
the transactions described herein. Washington Gas requests authority to modify
the recitals of each of the Service Agreements listed on Schedule B only as
necessary to reflect the new relationship between Washington Gas and each of the
affiliated interests, i.e., after the reorganization, Washington Gas and the
affiliated interests will no longer be related as parent and subsidiary, but as
"sister" subsidiaries of the new holding company.
5. WGL Holdings, Inc. ("WGL Holdings") is a Virginia corporation and a
wholly owned subsidiary of Washington Gas, which was formed on January 13, 2000,
for the purpose of accomplishing the proposed merger and reorganization. WGL
Holdings owns all of the outstanding common stock of Washington Gas Acquisition
Co. ("Acquisition"), a Virginia corporation also formed on January 13, 2000, for
the purpose of accomplishing the proposed merger and reorganization. Neither WGL
Holdings nor Acquisition owns any utility assets or securities, or engages in
any business at the current time.
6. Washington Gas and its affiliates, together with WGL Holdings and
Acquisition, intend to accomplish the proposed reorganization by entering into
an Agreement and Plan of Merger and Reorganization whereby (i) Acquisition will
be merged with and into Washington Gas (the "merger"), with Washington Gas being
the surviving corporation; (ii) each share of Washington Gas Common Stock
outstanding immediately prior to the effective time of the merger will be
converted into an equal number of new shares of WGL Holdings Common Stock; (iii)
<PAGE>
-5-
each share of Acquisition Common Stock outstanding immediately prior to the
merger will be converted into shares of Washington Gas, resulting in WGL
Holdings becoming the owner of all outstanding shares of Washington Gas Common
Stock; and (iv) the shares of WGL Holdings Common Stock held by Washington Gas
immediately prior to the merger will be canceled. As a result of the merger, WGL
Holdings will become a holding company with Washington Gas as its wholly owned
subsidiary. All of the Common Stock of WGL Holdings outstanding immediately
after the merger will be owned by the former holders of Washington Gas Common
Stock outstanding immediately prior to the merger. Subsequently, Washington Gas
will transfer to WGL Holdings all of the outstanding Common Stock of the
affiliated interests.
7. Following the merger and reorganization, Washington Gas and the
affiliated interests will each be wholly owned subsidiaries or investments of
WGL Holdings and all of the outstanding common stock of WGL Holdings will be
owned by the former Washington Gas shareholders. For an illustration of the
proposed corporate structure of WGL Holdings and its affiliates following the
merger and reorganization, see page 9 of the Proxy Statement and Prospectus
filed herewith as Schedule A. Washington Gas will continue to provide natural
gas distribution service to all of its customers in Virginia at the same rates,
and under the same terms and conditions of service, as it currently provides
such service. As noted above, following the merger of Shenandoah Gas into
Washington Gas, Washington Gas will provide service to the former customers of
Shenandoah Gas through its Shenandoah Division at the same rates, and under the
same terms and conditions, as currently provided by Shenandoah Gas.
8. Except for the effect of the tranfer to WGL Holdings of all of the
<PAGE>
-6-
outstanding Common Stock of the affiliated interests as noted in Paragraph 6
above, Washington Gas will maintain the same capital structure that existed
prior to the reorganization following completion of the reorganization.
Washington Gas Common Stock held by the Company's shareholders prior to the
merger will be held by WGL Holdings. However, the Company's Preferred Stock will
remain outstanding, except two convertible series, which have been called and,
in accordance with their terms, were converted either to Common Stock or
redeemed in cash effective February 1, 2000.2 All of the Company's debt
securities will remain outstanding. In the future, equity capital will be
obtained from WGL Holdings, but Washington Gas will issue debt securities to
external sources directly on its own.
9. Washington Gas is currently a holding company under the Public Utility
Holding Company Act of 1935 ("PUHCA") by virtue of its ownership of 100% of the
common stock of Shenandoah Gas. However, it is exempt from regulation by the
Securities and Exchange Commission ("SEC") under Section 3(a)(2) of PUHCA,
because it is "predominantly a public-utility company whose operations as such
do not extend beyond the State in which it is organized and States contiguous
thereto." Upon the merger of Shenandoah Gas with and into Washington Gas,
Washington Gas will no longer be a holding company. However, following
completion of the transactions described above, WGL Holdings will become a
holding company under PUHCA and will register with the SEC pursuant to Section 5
of PUHCA.
- ---------
2 The two series of preferred stock that have been called include (i) the $4.36
Convertible Series, with 1,846 shares outstanding and a book value of $190,100
as of September 30, 1999, and (ii) the $4.60 Convertible Series, with 556 shares
outstanding and a book value of $56,900 as of September 30, 1999.
<PAGE>
-7-
10. Although WGL Holdings will be a registered holding company under PUHCA,
the SEC will have no jurisdiction over Washington Gas' rates and terms and
conditions of utility service. Washington Gas will continue to be subject to the
authority of the Virginia SCC with respect to the rates and terms and conditions
of utility service provided to customers within Virginia.
11. Neither Washington Gas nor any affiliate will assert in any forum that
WGL Holdings' status as a registered holding company under PUHCA preempts
Virginia law, including Virginia law relating to the transfer of utility assets,
the determination of appropriate capital and corporate structure, and the
establishment of retail rates. Should any other entity so assert, WGL Holdings,
Washington Gas and all affiliates will, unless otherwise directed by the
Virginia SCC, oppose such assertions.
12. The proposed corporate restructuring will be in the public interest
because the creation of a holding company will strengthen the Company's ability
to compete effectively and provide superior service and value to customers and
shareholders. The proposed new structure will support the vitality of the
Company's regulated utility business, while also providing financial and
regulatory flexibility necessary to respond quickly and effectively to changing
industry and economic conditions. The holding company structure also enhances
the Company's ability to maintain a clear separation between the costs and
operation of unregulated activities and those of the regulated utility business.
Washington Gas will continue to operate as the regulated local natural gas
distribution company throughout Northern Virginia and the Washington, D.C.
metropolitan area, providing safe and reliable public utility service and
committed to improving the quality of life in the communities served by the
Company.
<PAGE>
-8-
13. All of the parties to the Agreement and Plan of Merger and
Reorganization qualify as "affiliated interests" of Washington Gas, as that term
is defined at Va. Code ss. 56-76. The Agreement and Plan of Merger and
Reorganization included as Appendix A to the Proxy Statement and Prospectus
attached hereto as Schedule A is a true and correct copy of the form of the
Agreement that is scheduled to be submitted for approval by Stockholders at the
Annual Meeting to be held March 3, 2000. For the reasons explained in the
preceding paragraph, the Agreement and Plan of Merger and Reorganization is in
the public interest and the parties request approval of such agreement under Va.
Code ss.ss. 56-77 and 56-84.
14. Upon completion of the proposed restructuring, WGL Holdings will
qualify as an "affiliated interest" of Washington Gas, as that term is defined
at Va. Code ss. 56-76. The Applicants hereby request approval under Va. Code
ss.ss. 56-77 and 56-84 of a proposed Service Agreement between WGL Holdings and
Washington Gas that will cover officers, accounting, financial and statistical,
corporate and legal, tax, marketing and advertising and other services as more
fully set forth in the proposed Service Agreement to be provided by Washington
Gas to WGL Holdings. A copy of the proposed Service Agreement is attached hereto
as Schedule C.
15. Pursuant to the Guidelines promulgated by the Commission's Division of
Public Utility Accounting, a Transaction Summary under Chapter 4 of Title 56 of
the Code of Virginia is attached hereto as Schedule D.
16. The conversion of the outstanding shares of Washington Gas Common Stock
into the right to receive, on a one-for-one basis, shares of WGL Holdings common
stock on the merger effective date will result in a change of control of a
<PAGE>
-9-
public utility, requiring Commission approval under Va. Code ss. 56-88.1. The
reorganization is in the public interest for the reasons stated above and,
therefore, "adequate service to the public at just and reasonable rates will not
be impaired or jeopardized" by granting the approvals requested herein. The
Applicants hereby petition the Commission for authority to acquire and dispose
of control of a public utility in order to effect the foregoing transactions and
the proposed restructuring in whole, pursuant to Va. Code ss. 56-90.
17. Pursuant to the Guidelines promulgated by the Commission's Division of
Public Utility Accounting, a Transaction Summary under Chapter 5 of Title 56 of
the Code of Virginia is attached hereto as Schedule E.
18. The Applicants intend by this Application to obtain all authority and
approvals required under Virginia law from the Commission in order to effect the
proposed corporate restructuring as described herein. Applicants hereby request
that the Commission provide all such authority and approvals.
19. Upon completion of the restructuring described herein, Washington Gas
will no longer hold the stock of any of its existing subsidiary companies, since
all of its current subsidiaries will become subsidiaries of WGL Holdings.
Accordingly, for the reasons explained below, Washington Gas moves the
Commission to modify certain Orders approving affiliate agreements between
Washington Gas and several of its subsidiaries, which contain restrictions that
will no longer be necessary following the completion of the reorganization
described herein.
20. In the Order Granting Authority issued August 7, 1998 in Case No.
<PAGE>
-10-
PUA980015,3 the Commission approved Service Agreements between Washington Gas
and two subsidiaries: American Combustion, Inc. and American Combustion
Industries, Inc. (together referred to as "ACI").4 ACI is a mechanical
contractor engaged primarily in the installation and maintenance of gas-fired
boilers and chillers and the conversion of oil-fired heating systems to gas for
commercial and governmental customers. Primarily in connection with this work,
ACI is also engaged in the removal of oil tanks and environmental remediation
associated with the removal of oil tanks. In Ordering Paragraph (1) of the Order
Granting Authority, the Commission stated in the last sentence thereof,
The approval of the Service Agreement shall be on condition
that in Virginia, ACI shall provide such services only to WGL's
gas customers." 1998 Ann. Rept. at 191.
In an Order on Reconsideration issued on September 15, 1998,5 the Commission
explained the basis for this restriction on the business activities of ACI in
Virginia, stating that under Virginia Code ss. 13.1-620 D, Washington Gas may
not undertake any other public service business or nonpublic service business in
Virginia "except as may be related or incidental to its natural gas service
business." 1998 S.C.C. Ann. Rept. at 192. The Commission found that this
restriction applied, as well, to any subsidiary of Washington Gas, since "...
what the law prohibits the Company from doing directly, it also prevents it from
- ---------
3 Order Granting Authority, Application of Washington Gas Light Company, Case
No. PUA980015, 1988 S.C.C. Ann. Rept. 190 (1998).
4 American Combustion, Inc. was merged into American Combustion Industries,
Inc., with American Combustion Industries, Inc. being the surviving corporation,
effective March 30, 1999.
5 Order on Reconsideration, Application of Washington Gas Light Company, Case
No. PUA980015, 1988 S.C.C. Ann. Rept. 192 (1998).
<PAGE>
-11-
doing indirectly, through a subsidiary ...." (Id.). The Commission distinguished
its holding in Case No. PUA970014,6 involving a proposed service agreement
between Commonwealth Gas Services, Inc., a Virginia public service company, and
a non-regulated "sister" affiliate, Columbia Service Partners, Inc. where it
explicitly rejected application of the "related to or incidental to" limitation,
based on the following rationale:
"Since [Columbia] Service Partners is not a public
service company, nor a subsidiary of a public
service company, the statutory limitations on the
activities of public service companies, contained
inss.13.1-620 D, simply never come into play."
1998 S.C.C. Ann. Rept. at 192-193.
Following completion of the reorganization described herein, like Columbia
Service Partners, ACI will no longer be a subsidiary of Washington Gas, a public
service company. As a result, the restriction imposed on the activities of ACI
in connection with the approval of the Service Agreement between Washington Gas
and ACI in Case No. PUA980015 will no longer be appropriate. Therefore,
Washington Gas moves the Commission to revise the Order Granting Authority
issued in Case No. PUA980015 by eliminating the last sentence of Ordering
Paragraph (1).
21. In an Order Granting Approval issued May 14, 1998 in Case No.
PUA970019,7 the Commission approved Service Agreements between Washington Gas
and three subsidiaries: Washington Gas Resources Corp. ("Resources"), Washington
- ---------
6 Application of Commonwealth Gas Services, Inc. and Columbia Services Partners,
Inc., Case No. PU970014, 1998 S.C.C. Ann. Rept. 149 (1998).
7 Order Granting Approval, Application of Washington Gas Light Company, Case No.
PUA970019, 1988 S.C.C. Ann. Rept. 151 (1998).
<PAGE>
-12-
Gas Consumer Services, Inc. ("Consumer Services") and Washington Gas Energy
Systems, Inc. ("Energy Systems"). Resources serves as a holding company for the
Company's non-utility operations. Consumer Services provides various consumer
services, including the sale of miscellaneous consumer products and a Commercial
Finance Program. Energy Systems provides the commercial market with methods and
products for increasing the energy efficiency of buildings. In Ordering
Paragraph (2) of the Order Granting Approval, the Commission stated that,
"The Service Agreements are approved only to
support the provision of miscellaneous consumer
products, such as fire extinguishers, and
Commercial Finance Program services provided by
[Consumer Services] and the provision, to the
commercial market, of methods and products for
increasing energy efficiency of buildings such as
conversion to natural gas operations by [Energy
Services]. Subsequent Commission approval shall be
required to support the provision of any
additional services." 1998 S.C.C. Ann. Rept. at
151.
While the Commission did not explain the basis for these restrictions on the
activities of these subsidiaries, it is apparent that they are similarly based
on the "related to or incidental to" limitation of Virginia Code ss. 13.1-620 D.
As noted above, following completion of the reorganization described herein,
Consumer Services and Energy Systems will no longer be subsidiaries of
Washington Gas. As a result, the restrictions imposed on the activities of these
companies in Case No. PUA970019 will no longer be appropriate. Therefore,
Washington Gas moves the Commission to revise the Order Granting Approval issued
in Case No. PUA970019 by eliminating Ordering Paragraph (2).
<PAGE>
-13-
WHEREFORE, Applicants respectfully petition the Commission for the
following relief:
A. Grant all necessary authority, including all necessary approvals under
Chapters 4 and 5 of Title 56 of the Virginia Code, in order to effect the
proposed reorganization described herein, including:
1. Approval of the Agreement and Plan of Merger and Reorganization;
2. Approval of the transfer of ownership of all of the Common Stock
of Washington Gas from its current shareholders to WGL Holdings;
3. Approval of the transfer of ownership of all of the Common Stock
of the affiliated interests from Washington Gas to WGL Holdings;
4. Approval of the Service Agreement between Washington Gas and
WGL Holdings; and
5. Authority to modify the recitals of each of the existing
Service Agreements between Washington Gas and the affiliated
interests listed on Schedule B only to reflect the new
relationship between the Company and the affiliated interests
as "sister" subsidiaries of WGL Holdings, rather than as parent
and subsidiary.
B. Revise the Order Granting Authority issued in Case No. PUA980015 by
deleting the last sentence of Ordering Paragraph (1) thereof; and
C. Revise the Order Granting Approval issued in Case No. PUA970019 by
deleting Ordering Paragraph (2) thereof.
<PAGE>
-14-
Respectfully submitted,
WASHINGTON GAS LIGHT COMPANY
By: __________________________
Adrian P. Chapman
Vice President, Regulatory Affairs
and Energy Acquisition
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Adrian P.
Chapman, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
By: _________________________
Douglas V. Pope
Corporate Secretary
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Douglas V.
Pope, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
<PAGE>
-15-
Respectfully submitted,
WGL HOLDINGS, INC.
By: _________________________
Frederic M. Kline
Vice President and
Chief Financial Officer
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Frederic M.
Kline, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
By: _________________________
Douglas V. Pope
Corporate Secretary
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Douglas V.
Pope, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
<PAGE>
-16-
Respectfully submitted,
WASHINGTON GAS ACQUISITION CO
By: _________________________
Frederic M. Kline
Vice President and
Chief Financial Officer
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Frederic M.
Kline, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
By: _________________________
Douglas V. Pope
Corporate Secretary
DISTRICT OF COLUMBIA, to wit:
I, _________________________________, Notary Public in and for the
district aforesaid, hereby certify that this day appear before me, Douglas V.
Pope, who, after being first duly sworn, made oath and said that the matters
contained in the foregoing Application and Schedules are true to the best of his
knowledge and belief.
Given under my hand and notarial seal this _____ day of February 2000.
-----------------------------
Notary Public
My Commission Expires: ______________________________
<PAGE>
-17-
John K. Keane, Jr.
Donald R. Hayes
1100 H Street, N.W.
Washington, D.C. 20080
(202) 624-6507
Counsel for
Washington Gas Light Company
February 25, 2000
<PAGE>
SCHEDULE D
APPLICATION OF WASHINGTON GAS LIGHT COMPANY
AND AFFILIATED INTERESTS FOR APPROVAL OF
TRANSACTIONS UNDER VIRGINIA CODE, TITLE 56, CHAPTER 4
TRANSACTION SUMMARY - CHAPTER 4
1) Describe in detail, the affiliate relationship among the parties involved.
Response:
WGL Holdings is being established as a holding company, initially with
five directly owned subsidiaries and seven indirectly owned
subsidiaries. The directly- owned subsidiaries will include Washington
Gas Light Company (including Shenandoah Gas Company, which will have
been merged into Washington Gas prior to the completion of the instant
transaction), Crab Run Gas Company, Hampshire Gas Company, Washington
Gas Resources Corp. ("WG Resources") and Primary Investors, L.L.C. WGL
Holdings will own 100% of the common stock of the first four of these
directly-owned subsidiaries and 50% of the outstanding voting units of
Primary Investors, L.L.C. WG Resources will own 100% of the common
stock of Washington Gas Consumer Services, Washington Gas Energy
Services ("WG Energy Services"), and ACI Industries. WG Energy Services
will own 100% of the common stock of Brandywood Estates, Washington Gas
Energy Systems and Advanced Marketing Systems. Finally, Primary
Investors, L.L.C. owns approximately 94% of Primary Service Group
L.L.C. Washington Gas is a public service corporation organized to
provide natural gas service to customers in Arlington, Fairfax, Loudoun
and Prince William Counties, in the Cities of Alexandria, Fairfax,
Falls Church and Manassas and in the towns of Leesburg, Middleburg and
Vienna. After the merger of Shenandoah Gas into Washington Gas, it will
also serve, through the Shenandoah Division, the area currently served
by Shenandoah Gas, including Clarke, Frederick, Shenandoah and Warren
Counties, the City of Winchester and the towns of Berryville,
Middletown, New Market, Stephens City, Strasburg and Woodstock.
An illustration of the proposed corporate structure of Washington Gas
and its affiliated interests is shown on page 9 of the Proxy Statement
and Prospectus filed as Schedule A to the Application.
<PAGE>
2) Describe the conditions and terms of the agreement, including rights of the
parties to cancel and renewability.
Response:
The terms of the Agreement and Plan of Merger and Reorganization are
described in the Application. The Agreement is subject to approval by
this Commission and by the shareholders of Washington Gas. Upon the
receipt of all necessary approvals, the reorganization will be
implemented.
With respect to the proposed Service Agreement between Washington Gas
and WGL Holdings, Washington Gas proposes to provide services as set
forth in the Service Agreement. The Service Agreement is identical to
Service Agreements between Washington Gas and its affiliates that were
first approved by the Commission in 1988 in Case No. PUA880021 and have
been approved in subsequent cases, including Case Nos. PUA970019,
PUA980015 and PUA990019 and are currently in effect.
The proposed services include officers, accounting, financial and
statistical, corporate and legal, tax, marketing and advertising and
other services as more fully set forth in the proposed Service
Agreement. The services are to be provided at cost, which approximates
market.
The Service Agreement may be terminated upon 30 days written notice by
either party to the other; it will also terminate automatically in the
event that performance under the Agreement may conflict with any rule,
regulation or order of any state or federal regulatory agency having
jurisdiction over Washington Gas or the affiliate, or if the Service
Agreement shall become invalid or illegal under any state law or under
any rule, regulation or order of any state commission or other state
body having jurisdiction over the matter.
3) Why is the utility company providing the service(s)/good(s)? What are the
current or prior arrangements? Provide specific details.
Response:
Washington Gas proposes to provide services to WGL Holdings because
Washington Gas has established means of performing such services and
WGL Holdings does not have the same resources. Therefore, these
services can be provided more efficiently by Washington Gas than WGL
Holdings. There are no prior arrangements with WGL Holdings.
-2-
<PAGE>
4) Show that the utility is receiving compensation equal to or greater
than that received from non-affiliates where such service(s)/good(s)
are provided to affiliates and non-affiliates. Where such
service(s)/good(s) are provided to affiliates only, such pricing should
be at the higher of cost or market. Show that this is true for the
proposed arrangement or provide justification as to why the above
guideline should not apply.
Response:
The services to be provided to WGL Holding are not being provided by
Washington Gas to non-affiliates. Services not being provided to
non-affiliates will be provided to WGL Holdings at cost, which
approximates market.
5) How are the associated costs to be charged or allocated? Detailed
descriptions must be provided.
Response:
Direct labor costs for all time devoted to WGL Holdings' business and
other costs incurred related to its business will be directly assigned
to WGL Holdings. The cost of indirect labor, employee benefits, and
overhead will be allocated using the same methodology employed in the
report of affiliate transactions filed with the Commission by
Washington Gas each year.
6) Provide assurance through safeguards in place that no unregulated affiliate
will be subsidized by the regulated company as a result of the proposed
transaction.
Response:
Accounting systems and procedures Washington Gas currently has in place
applicable to affiliate transactions will assure that costs are
properly assigned and accounted for separately from the regulated
activities of Washington Gas.
-3-
<PAGE>
7) Provide assurances that the utility is not exposing itself to greater
business risk as a result of the proposed arrangement. If the utility is
being exposed to a greater degree of business risk, show how the
arrangement would be in the public interest in spite of the additional risk
exposure.
Response:
With respect to the proposed Agreement and Plan of Merger and
Reorganization, the proposed reorganization is a means to further
insulate the utility from business risk of the non-regulated
affiliates. Because the non-regulated business of the holding company
will be conducted through separate subsidiaries, any liabilities
incurred by those subsidiaries will not constitute liabilities of the
utility subsidiary. The corporate separation also insures that all
costs of a particular non-regulated subsidiary will be charged to that
subsidiary and not allocated to the utility subsidiary.
8) Show that the agreement or arrangement is not detrimental to the Virginia
ratepayers. How is the transaction in the public interest? Be specific.
Response:
With respect to the proposed Agreement and Plan of Merger and
Reorganization, the proposed reorganization will not be detrimental to
Virginia ratepayers. As mentioned in the response to item number 7
above, the proposed holding company structure leaves Washington Gas
virtually unchanged since it will continue to operate as a regulated
utility, maintaining the necessary operating systems to ensure safe and
reliable public utility service. The proposed holding company structure
provides for the insulation of customers of Washington Gas from the
risks of the non-regulated businesses. Furthermore, the holding company
structure will facilitate the planning of financings best suited to the
particular needs and circumstances of the separate businesses and thus
should improve financing alternatives.
With respect to the proposed Service Agreement and affiliate
transactions for which approval is sought in this application are not
essentially different than those which have been approved in the past.
The Commission has had more than 11 years of experience with the
operation of those arrangements and can be assured, based on that
experience, that the arrangements are not detrimental to Virginia
ratepayers.
-4-
<PAGE>
9) Show that the arrangement will not cause the utility to become involved in
a long term captive relationship.
Response:
With respect to the proposed Service Agreement, see the Response to
Question No. 2 above.
10) Cost should be directly assigned where possible. Direct charge allocation
should be emphasized for labor and other costs that can be identified with
a specific activity. Allocations based on a general allocator should be
limited to 5% of total charges if at all possible. If such assignments
deviate from the above guidelines, provide justification for such
deviation.
Response:
Not applicable.
11) Goods or services provided to an affiliate should be at the tariffed rate.
If this is not the case here, explain.
Response:
Not applicable.
<PAGE>
SCHEDULE E
APPLICATION OF WASHINGTON GAS LIGHT COMPANY
AND AFFILIATED INTERESTS FOR APPROVAL OF
TRANSACTIONS UNDER VIRGINIA CODE, TITLE 56, CHAPTER 5
TRANSACTION SUMMARY - CHAPTER 5
1) Provide a copy of the agreement signed by the president or any vice
president and the secretary or any assistant secretary of the company.
Response:
A true and correct copy of the form Agreement and Plan of Merger and
Reorganization is attached as Appendix A to the Proxy Statement and
Prospectus, which is attached to the Application as Schedule A. The
form Agreement and Plan of Merger and Reorganization will be submitted
for approval by Stockholders of Washington Gas at the Annual Meeting to
be held March 3, 2000.
2) Provide a clear summarization of the asset(s) in question.
Response:
This Application relates to transactions in securities, rather than to
the assets owned by Washington Gas.
3) Describe the proposed procedure and the terms and conditions of the
transactions to include:
a) Historical and current use of the property;
b) Proposed use of the property;
c) Original cost of the property;
d) Proposed sales price of the property and method of determining the
price; and
e) Proposed accounting treatment of the transaction as well as current
recording on company's books and records.
<PAGE>
Response:
a) All utility assets of Washington Gas (including the Shenandoah
Division after completion of the merger of Shenandoah Gas with and
into Washington Gas) involved in the proposed transaction have been
used to provide natural gas utility service to customers in portions
of Virginia and Maryland and in the District of Columbia.
b) All utility assets of Washington Gas (including the Shenandoah
Division after completion of the merger of Shenandoah Gas with and
into Washington Gas) involved in the proposed transaction will
continue to be used to provide natural gas utility service to
customers in portions of Virginia and Maryland and in the District
of Columbia.
c) The original cost of the property is not applicable, since the
ownership of assets will remain unchanged.
d) All assets are valued at the current booked amount.
e) The transaction will involve the transfer of the equity ownership of
Washington Gas from its current shareholders. The transactions are
straightforward and will involve standard accounting practices for
equity transactions.
4) Provide assurances that adequate service to the public at just and
reasonable rates will not be impaired or jeopardized by the proposed
transfer.
Response:
Adequate service to the public at just and reasonable rates will not be
impaired or jeopardized by the proposed transfer. Customers of
Washington Gas (including the Shenandoah Division after completion of
the merger of Shenandoah Gas with and into Washington Gas) will see no
change in regulated rates or service offerings as a result of the
proposed transfer. At the time of the next Washington Gas Light Company
rate case or Annual Informational Filing, whichever comes first, the
Commission and its Staff will have the opportunity to fully audit the
data of Washington Gas and the Shenandoah Division.
-2-
<PAGE>
5) Show that the sales price was arms-length and that the purchase will result
in a direct benefit to customers.
Response:
The transaction at issue constitutes a restructuring, and does not
involve a sale or purchase of assets. For a discussion of the benefits
to customers, see the response to Question No. 8 of Schedule D.
6) Provide schedule of plant, book depreciation, and contributed property
related to assets to be acquired up to current date (of date of purchase,
if acquisition has taken place).
Response:
A schedule of plant, book depreciation, and contributed property
related to assets to be acquired up to current date (of date of
purchase, if acquisition has taken place) is not applicable, because
this is an acquisition of securities rather than assets.
7) Provide complete financial statements, to include Balance Sheet, Income
Statement and Cash Flow Statement, for the latest twelve-month period and
for the last five years.
Response:
The requested financial statements are included as Attachment 1 to this
Transaction Summary.
8) Are invoices available to verify plant figures? If not, why not?
Response:
Invoices to verify plant figures are not applicable to the requested
transaction.
-3-
<PAGE>
9) In addition to the items described above, for applications requesting
approval of the acquisition/disposition of control, address the anticipated
impact of such action on the regulated company's rates and service, capital
structure, and access to capital and financial markets. Discuss favorable
and unfavorable economic impacts on the State of Virginia to include
employee levels, facilities, and services provided. Will an additional
investment be required to improve service quality? Provide specific details
on improvements needed. Provide the anticipated impact on rates of such
improvements currently and for the next ten years.
Response:
There will be no immediate impact on rates and service, capital
structure or access to capital and financial markets. In the future,
the restructuring will permit the continuing use of economies of scale
and increased financial flexibility. Likewise, there will be no
immediate impacts on employee levels, facilities and other interests of
the Commonwealth of Virginia. In the long term, the public interest
will be served by permitting a strengthened public utility to serve
customers, and by separating non-regulated businesses and permitting
them increased flexibility.
-4-
<PAGE>
SCHEDULE E
ATTACHMENT 1
Consolidating Income Statements at
Fiscal Year Ended September 30, 1999
Fiscal Year Ended September 30, 1998
Fiscal Year Ended September 30, 1997
Fiscal Year Ended September 30, 1996
Fiscal Year Ended September 30, 1995
Consolidating Balance Sheets at
Fiscal Year Ended September 30, 1999
Fiscal Year Ended September 30, 1998
Fiscal Year Ended September 30, 1997
Fiscal Year Ended September 30, 1996
Fiscal Year Ended September 30, 1995
Consolidated Cash Flows at
Fiscal Year Ended September 30, 1999
Fiscal Year Ended September 30, 1998
Fiscal Year Ended September 30, 1997
Fiscal Year Ended September 30, 1996
Fiscal Year Ended September 30, 1995
EXHIBIT H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-_____)
Filings under the Public Utility Holding Company Act of 1935, as
amended ("Act")
April __, 2000
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by May
__, 2000 to the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at the
address(es) as specified below. Proof of service (by affidavit or, in case of an
attorney at law, by certificate) should be filed with the request. Any request
for hearing shall identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing, if ordered,
and will receive a copy of any notice or order issued in the matter. After May
__, 2000, the application(s) and/or declaration(s), as filed or as amended, may
be granted and/or permitted to become effective.
* * * * * *
WGL HOLDINGS, INC., ET AL. (70-[ ])
-------------------------- ----
WGL Holdings, Inc. ("WGL Holdings"), 1100 H Street, N.W., Washington,
D.C. 20080, which is currently a wholly owned subsidiary of Washington Gas Light
Company ("Washington Gas Light"), Washington Gas Light and certain subsidiaries
of Washington Gas Light (the "Applicants") have filed an application-declaration
pursuant to Sections 6(a), 7, 9(a)(1), 10, 11(b), 12(b), 12(c), 12(f), 13(b), 32
and 33 of the Public Utility Holding Company Act of 1935, as amended (the
"Act"), in which they request authorization for a program of external financing,
intrasystem financing, guarantees, affiliate transactions and other related
matters following WGL Holdings' registration as a holding under the Act for the
period through December 31, 20005.
1
<PAGE>
Washington Gas Light and its wholly owned subsidiary, Shenandoah Gas
Company ("Shenandoah"), sell and deliver natural gas to customers in
metropolitan Washington, D.C., and the adjoining areas of Maryland and Virginia
and several cities and towns in the northern Shenandoah Valley of Virginia.
Together, the two companies served a total of 863,258 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 and Shenandoah are subject to regulation as to retail rates and
transportation service, the issuance of securities, affiliate transactions and
other matters by the State Corporation Commission of Virginia ("SCC-VA").
Washington Gas Light is also subject to regulation by the Public Service
Commission of the District of Columbia and the Public Service Commission of
Maryland.
Washington Gas Light is in the process of merging Shenandoah into
itself. Subsequent to that merger, and subject to receipt of approval by the
SCC-VA, Washington Gas Light will become a wholly owned subsidiary of WGL
Holdings, and the current common stockholders of Washington Gas Light will
become the stockholders of WGL Holdings (the "Reorganization"). In addition, the
current non-utility subsidiaries of Washington Gas Light will become direct
subsidiaries of WGL Holdings. The Reorganization is expected to be completed as
early as June 15, 2000. Following the Reorganization, WGL Holdings intends to
register as a holding company under the Act.
In addition to its gas distribution operations, Washington Gas Light
offers financing for the purchase of natural gas and electric appliances and
other energy-related products and services and operates the steam and chilled
water facilities located in a mixed residential and commercial complex in
Washington, D.C. Washington Gas Light directly owns 100% of the outstanding
voting securities of three active non-utility subsidiaries: (i) Hampshire Gas
Company ("Hampshire"), which operates an underground gas storage field; (ii)
Crab Run Gas Company, which holds an investment in a partnership that is engaged
in the exploration and production of oil and gas; and (iii) Washington Gas
Resources Corp. ("WGR"), which serves as the holding company for other
wholly-owned non-utility subsidiaries. WGR's direct subsidiaries are: (i)
Washington Gas Energy Services, Inc., an unregulated energy marketer, which
itself holds all of the voting securities of three other subsidiaries which are
engaged in providing commercial energy services and in real estate development
activities; (ii) American Combustion Industries, Inc., which is in the business
of designing, selling, installing and servicing commercial heating, ventilating
and air-conditioning ("HVAC") equipment in Washington, D.C. and surrounding
areas; (iii) Maritime Plaza I, Inc., which was formed to hold Washington Gas
Light's interest in a venture formed to develop a 12-acre parcel of land in
Washington, D.C.; and (iv) Washington Gas Consumer Services, Inc., which offers
a program under which it earns a fee for matching customers with finance
companies for energy-related equipment.
Washington Gas Light also holds a 50% equity interest in Primary
Investors, LLC ("Primary Investors"), a Delaware limited liability company
formed to serve as the holding company for investments in after-market products
and services for residential and light commercial HVAC customers.
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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. Common
equity represents 50% of Washington Gas Light's total capitalization, including
short-term debt.
WGL Holdings is requesting that the Commission find that Washington
Gas Light's gas distribution system constitutes an integrated gas utility system
within the meaning of Section 2(a)(29)(B) of the Act and that all of the direct
and indirect non-utility subsidiaries and investments of Washington Gas Light
are retainable under the standards of Section 11(b)(1) of the Act and, as
applicable, section 2 of the Gas-Related Activities Act.
In addition, the Applicants are seeking authority through December 31,
2005, to the extent that such transactions are not otherwise exempt under the
Act, for each of the following proposals:
(1) WGL Holdings proposes to issue and sell up to an aggregate of $200
million in the form of long-term debt securities ("Debentures") and common
stock. In addition, WGL Holdings proposes to issue and reissue from time to time
up to $200 million of short-term indebtedness in the form of commercial paper,
bank borrowings or borrowings from financial institutions ("Short-term Debt").
Common stock may be issued in one or more public or private transactions, as
consideration for the acquisition of the securities or assets of other
companies, pursuant to Washington Gas Light's dividend reinvestment plan, and
pursuant to certain stock based plans that Washington Gas Light currently
maintains for its employees and directors which WGL Holdings intends to adopt.
The Debentures may have maturities ranging from one to 50 years. The maturity
dates, interest rates, call and/or put options, redemption and sinking fund
provisions and conversion features, if any, with respect to 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, provided, however, that WGL Holdings will
not issue and sell any Debentures at interest rates in excess of those generally
obtainable at the time of pricing or repricing of such Debentures for securities
having the same or reasonably similar maturities and having reasonably similar
terms, conditions and features issued by utility companies or utility holding
companies of the same or reasonably comparable credit quality, as determined by
the competitive capital markets. The effective cost of money on Short-term Debt
will not exceed the competitive market rates available to companies with
comparable credit ratings with respect to debt having similar maturities.
(2) Washington Gas Light requests authority to issue and sell from
time to time during the Authorization Period notes and other evidence of
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indebtedness having a maturity of one year or less in an aggregate principal
amount outstanding at any one time not to exceed $350 million.
(3) 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 on behalf or for the benefit of
any subsidiary as may be appropriate to enable such subsidiary to carry on its
business in an aggregate principal amount not to exceed [$150] $200 million
outstanding at any one time.
(4) The non-utility subsidiaries of WGL Holdings propose to provide
guarantees and other forms of credit support on behalf or for the benefit of
other non-utility subsidiaries in an aggregate principal amount not to exceed
$100 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).
(5) WGL Holdings, and to the extent not exempt pursuant to Rule 52,
its subsidiaries, request authorization to enter into interest rate hedging
transactions with respect to existing and future indebtedness, subject to
certain limitations and restrictions, in order to reduce or manage interest rate
cost.
(6) WGL Holdings, Washington Gas Light, Hampshire, Crab Run and WGR
propose to establish a system money pool ("Money Pool") and, to the extent not
exempted by Rule 52, also 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. Washington Gas Light requests authority to borrow up to
$350 million at any one time outstanding from the Money Pool. WGL
Holdings may lend to the Money Pool but may not borrow from it.
(7) WGL Holdings requests authority to change the terms of any 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.
(8) The Applicants 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 its 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.
(9) 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 or FUCOs, Rule 58 Companies, ETCs or other
non-exempt non-utility subsidiaries (as authorized in this proceeding or in a
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separate proceeding), provided that Intermediate Subsidiaries may also engage in
development activities and administrative activities relating to such
subsidiaries.
(10) 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 out of capital
and unearned surplus (including revaluation reserve), to the extent permitted
under applicable corporate law.
(11) Finally, Washington Gas Light requests authorization to continue
to provide administrative, management, technical, legal and other support
services to its current subsidiaries and to provide similar services to WGL
Holdings after the Reorganization. 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. All such services will be rendered at
cost, determined in accordance with Rules 90 through 92.
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