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File No. 70-8775
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 2 to
Form U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
THE COLUMBIA GAS SYSTEM, INC.
20 Montchanin Road
Wilmington, DE 19807
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(Names of company or companies filing this statement
and addresses of principal executive offices)
L. J. Bainter, Treasurer
The Columbia Gas System, Inc.
20 Montchanin Road
Wilmington, DE 19807
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(Name and address of agent for service)
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Item 1 of the Application-Declaration is hereby amended in its entirety
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.
Columbia requests authorization to establish one or more direct or
indirect subsidiaries ("Consumer Services Company") to engage in the business
of providing energy-related services ("Consumer Services"), of a nature
described herein, to customers of local distribution companies
("LDCs"),(1) affiliated with Columbia and nonaffiliated LDCs served by
Columbia's interstate natural gas transmission companies.
PROPOSED CONSUMER SERVICE ACTIVITIES
The Consumer Services represent a potential source of new income for
Columbia as well as a valuable source of new services for Columbia's existing
and potential customers. Additionally, these services are related to the
existing services being provided to Columbia customers and will lead to
increased and more efficient utilization of existing Columbia LDC facilities.
These Consumer Services will add value to existing natural gas service by
offering to
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(1) The affiliated LDCs are Columbia Gas of Kentucky, Inc., Columbia Gas
of Maryland, Inc., Columbia Gas of Ohio, Inc., Columbia Gas of
Pennsylvania, Inc., and Commonwealth Gas Services, Inc.
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maintain natural gas equipment all the way to the burner tip. It will thereby
make available a valuable array of currently unavailable services.
The Consumer Services will be provided by one or more direct or indirect
subsidiaries of Columbia. Columbia is seeking authorization herein to create
such subsidiaries. If a new direct subsidiary is created, financing will be
provided by the sale of up to $5 million of Consumer Services Company common
stock to Columbia. In the case of an indirect subsidiary, financing will be
provided out of funds on hand or pursuant to existing funding authority by a
Columbia subsidiary. In either case the amount of funding will not exceed $5
million through December 1997. The Consumer Services will not require a large
amount of capital nor will such Consumer Services divert the attention of
management from the core utility operations. It is anticipated that many, if
not all, services will be provided through the Consumer Services Company's own
staff, third-party vendors, contractors and/or trade allies. The number of
LDC personnel involved will not be of such magnitude that the utility services
would in any way be impaired. If the LDC staff levels would not be adequate
at any point in the future to handle these extra responsibilities, staff would
be added by the Consumer Service Company instead of the Columbia LDCs.
Consumer Services Company will conduct its Consumer Services business
both within and outside of the five states of Virginia, Pennsylvania, Ohio,
Maryland, and Kentucky where the Columbia System LDCs are located
(collectively, "LDC States"). However, during the twelve-month period
beginning on the first day of January in the year following the date Consumer
Services Company commences its Consumer Services business pursuant to a
Commission order issued in this matter, and for each subsequent calendar year,
total revenues of Consumer Services Company derived from customers in the LDC
States will exceed total revenues of Consumer
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Services Company derived from customers in all other states. Those services
will not compete with services offered by other Columbia subsidiaries.
Examples of customer and Columbia System benefits from the provision of
Consumer Services would be to: (1) maintain or increase Columbia System gas
load; (2) promote aspects of the gas business that are less weather sensitive;
and (3) better utilize existing Columbia System facilities. It is expected
that the Consumer Services will be profitable which will inure to the benefit
of Columbia's investors.
The following is a more detailed description of the Consumer Services:
(1) Safety Inspections
Residential and small commercial business customers may be offered an
array of energy assessment and energy-related safety inspections such as
carbon monoxide and radon testing, and wiring safety checks. (This type
of activity is comparable to that previously approved by the Commission
in Central and South West Corporation HCAR No. 26367 (September 1, 1995)
(approving consulting and energy analysis services, among other things).
See also Consolidated Natural Gas Corporation HCAR No. 26363 (August 28,
1995) (the "CNG Consumer Services Release") (approving the "One Package
Appliance Inspection and Replacement Program").
(2) Appliance Financing (2)
Consumer Services Company will provide financing to customers by (1)
making short-term loans to cover the period of installation of the
energy-related appliances until permanent financing can be obtained by
the customer or (2) making long-term loans for a period of time not to
exceed the lesser of 10 years or the expected useful life of the
equipment. The aggregate amount of energy-related appliance equipment
financing loans
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(2) To the extent that the proposed service involves energy-related
equipment rather than natural gas or propane equipment and the
precedent cited is limited to natural gas-related products or
services, the proposed service is consistent with Proposed Rule
58 which recognized that electricity, natural gas and other
energy commodities are interchangeable and competitive in many
instances. Columbia agrees that it will not finance equipment
that utilizes energy sources other than natural gas or propane
until such time as Rule 58 is promulgated or other precedent is
issued by the Commission establishing that natural gas holding
companies can deal in other commodities. At that time,
Columbia will make an appropriate filing seeking a supplemental
order.
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by Consumer Services Company outstanding at any one time will not exceed
$25,000,000, with an individual customer financing limit of $5,000,000 at
any one time.
(This type of activity was previously approved by the Commission in
Consolidated Natural Gas Corporation ("CNG") HCAR No. 26234 (February 23,
1995) (approving financing of gas utilizing equipment for customers of
the affiliated LDCs and gas marketing companies of the CNG system).(3)
(3) Billing Insurance
Consumer Services Company, through contractual arrangement with American
Banker's Insurance Group, or another vendor would provide bill payment
protection for customers up to $400 a month for six months -- should the
customer become unemployed, disabled, or die. Customers receive payment
protection and LDCs benefit from reduced delinquencies, decreased
collection activity, and increased customer satisfaction.
(4) Appliance Repair Warranty
Customers may be offered an appliance repair service for their heating
and air conditioning systems and other major appliances. (This type of
activity was previously approved by the Commission in the CNG Consumer
Services Release as the "Appliance Guard Program".)
(5) Gas Line Repair Warranty
Customers may be offered an opportunity to warrant against the cost of
repair of faulty gas service lines located both within and external to
the customer's location. (This type of activity was previously
approved by the Commission in the CNG Consumer Services Release as the
"Service Line Maintenance Program".)
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(3) The energy-related appliance financing activities contemplated
by this application-declaration are analogous to the appliance
sales and marketing activities approved by the Commission in
cases such as Engineering Public Service Company, 12 S.E.C. 41
(1942) at 54-55; Mississippi Power Company, HCAR No. 22453
(September 1, 1978); General Public Utilities Corporation, HCAR
No. 15184 (February 9, 1965); and Cities Service Company, HCAR
No. 5028 (May 5, 1944), 15 S.E.C. 962 ((1944). These
activities were deemed to satisfy the requirements of Section
11(b)(1) of the Act because (1) they encouraged the sale of
energy through the development, promotion or financing of
standard gas or electric appliances and/or gas or electric
appliances or equipment that had not yet received widespread
public acceptance, and/or (2) they promoted competition of gas
or electricity with other types of fuel. Many of the types of
energy-related appliances Consumer Services Company proposes to
finance fall within the category of standard gas appliances
described in Rule 48.
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(6) Merchandising of Energy Related Goods
Customers may be offered opportunity to purchase energy-related devices
such as water heaters, gas grills, gas logs, and furnaces. (This type
of activity was previously approved by the Commission in PSI Energy, Inc.
HCAR No. 26412 (November 21, 1995) (approving a joint venture for an
appliance sales program). See also the CNG Consumer Services Release
("One-Package Appliance Inspection and Replacement Program").(4)
(7) Commercial Equipment Service
Operators of commercial equipment may be offered a repair warranty
program that would respond to faulty equipment. (This type of activity
is essentially the same and are analogous to the services approved by the
Commission in the cases cited in numbers 4 and 5 above, but specifically
aimed at commercial and small industrial end-users rather than
residential end-users.)
(8) Bill Risk Management Products
A variety of programs may be made available to gas customers interested
in hedging energy price or consumption fluctuations. (This type of
activity was previously approved by the Commission in The Columbia Gas
System, Inc. HCAR No. 25802 (April 22, 1993) which, among other things
approved risk management services in connection with fuel management
services.)
(9) Consulting and Fuel Management Services
Commercial and industrial customers may be offered advisory and/or
management services regarding energy consumption and its measurement.
(This type of activity was previously approved by the Commission in the
CNG Consumer Services Release as "Energy Audits and Services.")
(10) Electronic Measurement Services
Industrial and commercial customers may be offered a variety of enhanced
measurement and billing services that will enable them to better monitor
their energy consumption and expenditures. (This type of activity is
analogous to the fuel management service described above except that it
may be offered separately from more comprehensive fuel management
services.)
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(4) Note also that Proposed Rule 58 would permit the sale,
installation and servicing of electric and gas appliances which
would include all present and future types of equipment used
for residential, commercial and industrial heating and
lighting . (HCAR No. 26313 (June 28, 1995)(at n. 24). This
would include natural gas or electricity used to generate heat
as part of an industrial process such as paint drying or
ceramic glazing.
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(11) Incidental Services
In addition, Columbia specifically requests authorization for Consumer
Service Company to offer to end-use customers served by affiliated LDCs
and LDCs served by affiliated interstate transmission companies
incidental services related to the consumption of energy and the
maintenance of property by those end-users, the need for which arises as
a result of, or evolves out of, the services enumerated above and which
do not materially differ from the types of services listed. These are
services related to maintenance, financing, or sale (but not manufacture)
of the energy-consuming equipment; the measurement, analysis, risk
management, or other services relating to the energy commodity itself;
and the process by which the end-user arranges for delivery, acquires,
consumes, and pays for the energy commodity. This would essentially
permit Consumer Service Company to respond to the needs of end-users as
those needs are identified. Because the services would always relate to
the consumption of energy by the end-user, all of the precedents cited
above should be considered precedent for these incidental services. In
today's fast moving energy markets, it is essential for a consumer
service company to have the flexibility to respond to changes
expeditiously.
The proposed Consumer Services are reasonably incidental and/or
economically necessary or appropriate to Columbia's core utility business of
distributing gas at retail and will primarily benefit the LDCs and their
customers. The proposed gas line warranty program will facilitate and enhance
the ability of the LDCs to maintain their distribution lines in good working
order and effect repairs quickly when needed, thereby minimizing service
interruptions and lost sales due to leaks and line breaks and enhancing the
utility service provided to customers and the ability of the LDCs to
distribute gas reliably and efficiently. Similarly, proposed Consumer
Services such as appliance repairs, including routine furnace services, and
appliance financing will promote the safe and efficient distribution of gas by
facilitating the maintenance, repair, and replacement of gas utilizing
equipment that is broken or not working properly. In addition, the
inspection, warranty, and repair services will foster more effective and
efficient energy consumption and enhance customer safety. These services will
give the utility customers the ability to minimize financial exposure
resulting from potential repair costs.
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SERVICE ARRANGEMENTS WITH COLUMBIA LDCS
The Columbia LDCs will assist Consumer Services Company with customer
billing, accounting, and other energy-related services for Consumer Services
offered to their end-user customers. It is anticipated that these services
for Consumer Services Company can be done by the current staff of the LDCs.
All services between the LDCs and the Consumer Services Company, or between
the Consumer Services Company and any other Columbia System company, required
to conduct the new Consumer Services will be billed at cost, in accordance
with Section 13(b) of the Public Utility Holding Company Act of 1935 ( "the
Act") and Commission Rules 87, 90 and 91.
SOURCE OF FUNDS
Columbia, to the extent required, requests authorization to provide
Consumer Services Company with up to $5 million in funding through December
31, 1997, through the purchase of shares of common stock of Consumer Services
Company, $25 par value per share, at a purchase price at or above par value.
Thereafter, Consumer Services Company will issue securities, and Columbia, or
a direct subsidiary of Columbia, will acquire securities, in transactions
which will be exempt pursuant to Rule 52.
CERTIFICATES OF NOTIFICATION
Applicant will file quarterly certificates of notification within 45 days
after the end of each calendar quarterly period, which will include the
following information:
(i) A statement of the amount of capital provided to Consumer Services
Company pursuant to the authorizations granted by this order during
the period covered and cumulatively;
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(ii) A statement of all revenues derived from the Consumer Services
Company activities authorized by this order both during the period
covered and cumulatively, including information on the amount and
percentage of revenues attributable to each category or type of
service provided and a breakdown showing revenues derived from
customers in the LDC States in relation to total revenues;
(iii) Copies of all state commission orders approving or post-transaction
audit documents pertaining to, affiliate service arrangements or
affiliate transactions between Columbia System LDCs and Consumer
Services Company obtained during the period covered; and
(iv) A statement containing a company-by-company breakdown of all
services provided to Consumer Services Company by Columbia System
LDCs and all payments for such services made by Consumer Services
Company during the period covered and cumulatively; and, provided
further, that (i) no later than August 15th of each year,
Applicants shall file balance sheets for Consumer Services Company
as of June 30th of that year and income statements for Consumer
Services Company for the six-month period ending on June 30th of
that year and (ii) no later than 120 days after the end of each
calendar year, Applicants shall file a modified U-13-60 annual
report.
AUTHORIZATION REQUESTED
1. Columbia requests authorization to create and fund one or more
direct or indirect subsidiaries to offer Consumer Services as herein defined,
from time to time through
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December 31, 1997, through the purchase of up to $5,000,000 of common stock of
the newly created subsidiaries, $25 par value per share, at a purchase price
at or above par value.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, each of the undersigned companies has duly caused this Declaration to be
signed on its behalf by the undersigned thereunto duly authorized.
THE COLUMBIA GAS SYSTEM, INC.
Date: March 21, 1996 By: /s/ L. J. BAINTER
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L. J. Bainter
Treasurer
