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File No. 70-8801
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 3 TO
FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
THE COLUMBIA GAS SYSTEM, INC.
12355 Sunrise Valley Drive, Suite 300
Reston, VA 20191
(Names of company or companies filing this statement
and addresses of principal executive offices)
J. W. Trost, Vice President
Columbia Gas System Service Corporation
12355 Sunrise Valley Drive, Suite 300
Reston, VA 20191
(Name and address of agent for service)
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Item 1 of Amendment No. 2 to the application/declaration previously filed is
hereby amended in its entirety to read as follows:
Item 1. Description of Proposed Transaction
(a) Furnish a reasonably detailed and precise description of the
proposed transaction, including a statement of the reasons why it is desired to
consummate the transaction and the anticipated effect thereof. If the
transaction is part of a general program, describe the program and its relation
to the proposed transaction.
The Columbia Gas System, Inc. ("Columbia"), a Delaware corporation, and
a holding company registered under the Public Utility Holding Company Act of
1935 (the "Act"), is the Applicant-Declarant.
The Commission previously authorized Columbia to establish Columbia
Energy Services Corporation ("CES"), HCAR 35-25802; 70-8145 (April 22, 1993), to
market natural gas products and services. In addition, the Commission also
authorized the creation of TriStar Ventures Corporation and its subsidiaries
(collectively "TriStar"), HCAR 35-24199; 70-7276, (September 26, 1986) to, among
other things, invest in and operate electric cogeneration facilities for
production and sale of electricity.
Columbia hereby requests authorization to market other forms of energy1
either through one or both of these companies or through one or more
subsidiaries
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1 For a description of the proposed marketing activities, see pages
3-4.
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of one or both of these companies or through one or more new direct or indirect
subsidiaries of Columbia (any of the foregoing shall be hereinafter referred to
as "Energy Products Company") or through a joint venture entity to be formed in
conjunction with a third party. Once Energy Products Company is established, the
services that it offers may overlap with services offered by another Columbia
subsidiary if the dictates of the market make such an overlap appropriate: a
subsidiary, which is predominately a producer of an energy commodity, may sell
the commodity into the same markets as the Energy Products Company; a
subsidiary, which is predominately a transporter, may transport the commodity in
the same markets in which the Energy Products Company arranges transportation;
and the activities of a subsidiary, which specializes in the marketing and/or
management of a particular commodity, may overlap with the activities of Energy
Products Company which may offer consumers "one-stop shopping" for energy
commodities. Although technically in the same geographic markets, the companies
will be serving different customer needs.
Energy Products Company will initially concentrate its efforts in those
states currently served by Energy Products Company's affiliated natural gas
pipeline and local distribution companies (generally Kentucky, Maryland, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, Virginia and West
Virginia). However, Energy Products Company's potential
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customer base may include individuals and entities located outside of this
geographic area. However Energy Products Company will not operate outside of
the United States without seeking additional approval. Additionally, Energy
Products Company may provide services to other Columbia Subsidiaries. No
associated company will be obligated to purchase services from Energy Products
Company. However, to the extent that Energy Products Company provides services
to other Columbia Subsidiaries, such services will be provided in conformance
with Section 13 of the Act and the rules promulgated thereunder.
The services provided by Energy Products Company will include the
marketing and/or brokering of electric energy and natural gas at wholesale,
and, to the extent permitted by state law, at retail. In this latter regard,
the Commission has recognized that "[r]etail electric competition is developing
rapidly due to state initiatives" and that "[u]tilities and other suppliers are
preparing to compete in retail electric markets." Consolidated Natural Gas Co.,
HCAR No. 35-26512; 70-8631, mimeo at 4, fn. 12 (April 30, 1996)
("Consolidated"); See also SEI Holdings, Inc., HCAR No. 35-26581; 70-8823,
mimeo at 3-4 (September 26, 1996) ("SEI"). Consistent with the Commission's
holding in SEI, Columbia requests that the Commission approve the request to
market and/or broker electric power at wholesale and to the extent permitted by
applicable state law, at retail. Additionally, in order to meet competition in
the rapidly expanding energy market and/or to offer "one-stop shopping" for the
market's energy needs, Energy Products Company must be able to market any form
of energy commodity usable by customers. It may also be appropriate for Energy
Products Company to market emission allowances. Columbia therefore requests
authorization to market a broad array of energy commodities including natural
gas or manufactured gas, propane, natural gas liquids, oil, refined petroleum
and petroleum products, coal, and/or wood products and emission allowances.
This authorization is consistent with the
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authorization granted in SEI. Such authorization will enable Energy Products
Company to compete effectively with other suppliers in the market place. See
SEI, mimeo at 13-14.
To minimize financial exposure of Energy Products Company and the
exposure of Columbia resulting from Columbia's guarantees, discussed below,
Energy Products Company will use, consistent with SEI, market hedging techniques
(including, but not limited to, the use of futures contracts, options on
futures, and price swap agreements), the matching of obligations to market
prices, contractual limitation of damages and volume limitations, and relatively
short-term contracts. Energy Products Company will use market hedging measures
solely to minimize risk. These hedging measures may include the purchase and
sale of commodity-based derivative contracts such as options, swaps, and
exchange-traded future contracts, under which physical delivery may or may not
occur. In this regard, the purchase and sale of commodity-based derivatives in a
commodity business (generally options, futures contracts, and swaps) may be for
the purpose of hedging an existing position under a contract requiring physical
delivery of a commodity. Alternatively, the purchase and sale of commodity-based
derivatives may be used as a substitute for a position to be taken at a later
time in a physical market in order to lock in the price of a commodity that will
be needed in the future in order to supply new customers. For an energy
marketer, the purchase and sale of energy-based derivatives may be a less risky
means to take a position in a
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commodity than other alternatives, such as the construction of expensive power
plants or the purchase or maintenance of large inventories of a commodity.
Columbia will ensure that the relevant procedures and policies of Energy
Products Company conform to Columbia's internal policy with respect to the
management of price risk. See Consolidated, mimeo at 6-7.
In the day-to-day operation of Energy Products Company, it may be
necessary to acquire or construct physical assets such as oil and gas storage
facilities, gas or coal reserves, or a pipeline spur that is needed for
deliveries of fuel to an industrial customer. Such assets would be incidental to
Energy Products Company's marketing activity and operations and would only be
acquired or constructed to the extent reasonably necessary to conduct the
day-to-day operations of Energy Products Company. Accordingly, Columbia requests
authorization for Energy Products Company to acquire or construct physical
assets that are incidental to and reasonably necessary in the day-to-day conduct
of marketing operations. Granting this request is consistent with the
authorization previously granted in SEI. See SEI, mimeo at 6 - 7. Energy
Products Company will not acquire any assets if, as a result of the transaction,
it would become a "public utility company" within the meaning of the Act.
As Energy Products Company develops its participation in the energy
market, it may wish to enter into joint ventures with companies with expertise
in other
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energy commodities. In furtherance of this, Energy Products Company may wish to
acquire an interest in a joint venture entity for the purpose of marketing or
brokering an energy commodity in the same manner as the Energy Products Company
is directly authorized. Columbia requests authorization for Energy Products
Company to invest funds for the development of joint venture entities subject to
a reservation of jurisdiction over the acquisition by Energy Products Company of
any ownership interest in the joint venture entity. Such an entity could be in
the form of a corporation, general or limited partnership, or a limited
liability company. Columbia's investment in the preliminary investigation of
such joint ventures is included in the $100 million dollar aggregate investment
set forth below.
It is expected that Energy Products Company will contract for large
volumes of energy commodities. In light of the fact that, due to the nature of
the subsidiary's business, it will not be heavily capitalized, it is anticipated
that Columbia will have to guarantee a number of the fuel and power transactions
entered into by the subsidiary. Columbia therefore, requests authorization to
provide guarantees, through December 31, 2000, to Energy Products Company, or to
any joint venture of which Energy Products Company is a participant, so long as
such guarantees in the aggregate do not exceed $100 million. Approval of this
authorization would be consistent with that granted in Consolidated, mimeo at
6, subject to a reservation of jurisdiction by the Commission until such time
as Energy Products Company forms such a joint venture.
Columbia, to the extent required, requests authorization to provide
Energy Products Company with up to $5 million in funding through December 31,
1997,
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through the purchase from time to time of shares of common stock of Energy
Products Company, with $25 par value per share, at a purchase price at or above
par value. Thereafter, the new subsidiary will issue securities, and Columbia,
or a direct subsidiary of Columbia, will acquire securities, in transactions
which will be exempt pursuant to Rule 52. Columbia's aggregate investment in
Energy Product Company will not at any time exceed $100 million (including
guarantees) through December 31, 2000.
CERTIFICATE OF NOTIFICATION
Energy Products Company will report to the Commission with respect to
the transactions contemplated hereunder, in quarterly Rule 24 Certificates which
will include, in addition to a balance sheet and income statement, the
following:
1. A description of all retail electric marketing/brokering and other
non-gas energy projects in which Energy Products Company began participation
during the applicable quarter with a copy of the state regulatory approval of
said program and/or the applicable electric retail wheeling tariff;
2. A statement indicating as a percentage of total revenues of the
period, the amount of revenues attributable to power and natural gas sales and
sales of all other forms of fuel.
Additionally, Columbia will report guarantees of transactions
contemplated hereunder in its quarterly Rule 24 Certificates.
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AUTHORIZATION REQUESTED
Columbia requests authorization to (1) create and fund one or more new
direct or indirect subsidiaries or to fund an existing subsidiary to market
and/or broker energy products through the purchase from time to time through
December 31, 1997, of up to $5 million of common stock of the subsidiary or
subsidiaries, $25 par value per share, at a purchase price at or above par
value; (2) to acquire or construct ancillary physical assets so long as the
acquisition and operation of such assets should not render the subsidiary or
subsidiaries a "public utility company, under the Act; (3) to invest funds in
the preliminary investigation of joint venture arrangements for the purpose of
marketing energy products subject to a reservation of jurisdiction over the
terms of the final acquisition of the interest in the joint venture entity; and
(4) to guarantee the performance of such subsidiary or subsidiaries or a joint
venture in which the subsidiary or subsidiaries has an ownership interest, so
long as the aggregate obligations guaranteed do not exceed $100 million;
provided, that Columbia requests the Commission to reserve jurisdiction over
the guarantee of the obligations of a joint venture entity(ies) until such time
as Energy Products Company enters such a venture(s). Subsequent financing of
the subsidiary or subsidiaries will be pursuant to Rule 45 and 52; however
Columbia's aggregate investment outstanding at any one time will not exceed
$100 million including guarantees.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this Declaration to be signed
on its behalf by the undersigned thereunto duly authorized.
THE COLUMBIA GAS SYSTEM, INC.
Date: November 4, 1996 By: /s/J. W. Trost
__________________________________________
J. W. Trost, Vice President
Columbia Gas System Service Corporation
on behalf of The Columbia Gas System, Inc.
