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File No. 70-09421
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Amendment No. 3
COLUMBIA ENERGY GROUP
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
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(Names of company or companies filing this statement and
addresses of principal executive offices)
J.W. Trost, Vice President
Columbia Energy Group Service Corporation
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
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(Name and address of agent for service)
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Columbia Energy Group ("Columbia"), amends Amendment No. 2 to its
Application-Declaration under File No. 70-09421 as follows:
(1) Replace the paragraph immediately after the heading "Proposed
Factoring Program" with the following:
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.
Columbia Energy Group ("Columbia"), a Delaware corporation, and a
holding company registered under the Public Utility Holding Company Act of 1935
(the "Act"), is seeking to engage in the factoring of accounts receivable
through one or more, existing or newly-formed or acquired, direct or indirect
subsidiaries (hereinafter referred to collectively as "Factoring Sub").
PROPOSED FACTORING PROGRAMING
Columbia proposes to have Factoring Sub engage in the factoring of
accounts receivable interests ("Receivables") of associate companies and of
nonassociate companies.(1) Factoring Sub would limit the acquisition of
Receivables from nonassociate companies so that the trailing twelve-month
average amount of nonassociate company Receivables held as of the end of any
calendar month would be less than the trailing twelve month average amount of
any Receivables acquired from Columbia associate utility companies held as of
the end of such calendar month (the "fifty-percent" limitation). The Commission
has previously authorized other registered holding companies to factor
Receivables in a similar manner. See, e.g., Central and South West Corporation,
Holding Co. Act Release No. 25995 (March 2, 1994); Allegheny Power System, Inc.,
Holding Co. Act Release No. 26401 (Oct. 27, 1995); New Century Energies, Inc.,
Holding Co. Act Release No. 26748 (August 1, 1997). Columbia further proposes,
as part of the factoring program, to have Factoring Sub enter into purchase and
sales agreements with reputable third-party financial institutions and their
subsidiaries ("Purchasers"). The Commission has previously authorized at least
one other registered holding company and its subsidiaries to transfer
Receivables to third-party Purchasers. See, e.g., Connecticut Light & Power
Company, Holding Co. Act Release No. 26761 (Sept. 29, 1997).
(2) Replace the paragraph immediately before the heading "Authorization
Requested" with the following:
BENEFITS OF THE FACTORING PROGRAM TO COLUMBIA AND ITS PARTICIPATING SUBSIDIARIES
Columbia believes that the proposed factoring authorization would
provide participating Columbia subsidiaries with an even less-costly alternative
than the already low cost short-term borrowing through the system money pool. To
spread this benefit most widely throughout the system, Columbia's factoring
program has been designed to provide all Columbia subsidiaries with significant
levels of Receivables access to this financing option. Factoring Sub provides a
centralized and efficient means to accomplish this end.
Although prior Commission orders authorizing factoring may be read to
limit associate company factoring to utility receivables, there is no reason to
apply that restriction to Columbia's proposal. Each of Columbia's subsidiaries
has been established under Commission order or an
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(1) Such nonassociate companies would either be public utility
companies within the meaning of the Act, or entities that derive or will derive
substantially all of their revenue (exclusive of revenues from temporary
investments) from one or more of the "energy-related" or "gas-related"
activities of the type described in Rule 58.
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appropriate exemption. Each is either part of an integrated utility system or is
functionally related to that system. And, as associates engaged in authorized or
permitted activities, each has the same need to arrange for the lowest cost
financing whether it is a utility or nonutility. Columbia's factoring program
allows the Columbia Group to achieve the benefits of a factoring program without
additional risks to Columbia subsidiaries, including Columbia's public-utility
subsidiary companies.
Columbia summarizes the benefits and most significant aspects of the
factoring program below:
1) THE FACTORING PROGRAM WILL PROVIDE COLUMBIA'S SUBSIDIARIES, INCLUDING ITS
PUBLIC-UTILITY SUBSIDIARY COMPANIES, WITH: (A) AN INCREMENTAL INFUSION OF CASH
AND; (B) AN ONGOING SAVINGS FROM A LOWER COST OF FUNDS. The factoring of
Receivables of Columbia's operating subsidiaries would reduce their
capitalization requirements. The factoring program would provide a new,
non-traditional source of funds for the participating Columbia subsidiaries,
thereby leaving existing funding sources less used. Lastly, the effective cost
of the factoring program is expected to be comparable to or slightly less than
Columbia's cheapest source of capital (currently commercial paper).
2) THE FACTORING PROGRAM WILL NOT RESULT IN CROSS SUBSIDIZATION BETWEEN COLUMBIA
ASSOCIATE COMPANIES. Factoring Sub will administer the stream of Receivables
from each participating subsidiary in parallel, without commingling. Each
participating subsidiary will pay a discount rate based upon the quality of its
Receivables and no associate will be penalized based upon the collection history
of a sister company.
3) PARTICIPATION IN THE FACTORING PROGRAM WILL NOT CHANGE THE COLLECTION
EXPOSURE PROFILE OF ANY COLUMBIA SUBSIDIARY COMPANY OR THE COLUMBIA GROUP AS A
WHOLE. Subject to the right of the purchasers to appoint a collection agent, it
is anticipated that each participating subsidiary will continue to collect the
factored Receivables from its customers. Because each company will continue to
collect its own Receivables, customers should be unaware of the factoring
program. In addition, because Columbia's public-utility subsidiary companies
will continue to control collections, no change in collection rates is
anticipated.
4) THE FACTORING PROGRAM ALLOWS COLUMBIA'S NONUTILITY SUBSIDIARY COMPANIES, SUCH
AS COLUMBIA ENERGY SERVICES, INC. ("CES"), COLUMBIA'S ENERGY MARKETING COMPANY,
TO FACTOR ITS RECEIVABLES TO THE SAME EXTENT AS A COLUMBIA PUBLIC-UTILITY
SUBSIDIARY COMPANY. CES' customers are the same types of customers served by
Columbia's public-utility subsidiary companies. Its business creates
substantially similar Receivables to those generated by the public-utility
subsidiary companies.
5) BROAD PARTICIPATION IN THE FACTORING PROGRAM BY COLUMBIA'S NONUTILITY
COMPANIES PROVIDES BENEFITS TO COLUMBA'S PUBLIC-UTILITY SUBSIDIARY COMPANIES
THROUGH THE ALLOCATION OF FIXED COSTS OVER A LARGER BASE OF RECEIVABLES.
Although no company will be required to participate in the factoring program,
increased participation provides benefits through economies of scale. The cost
of the factoring program to all participants, including Columbia's
public-utility subsidiary companies, is reduced when the initial fixed costs of
starting the factoring program, such as negotiating transaction documentation
with the Purchasers, are spread over a larger volume of Receivables.
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6) COLUMBIA'S FACTORING PROGRAM POSES SIGNIFICANTLY LESS RISK THAN THE FACTORING
PROGRAM CONDUCTED BY CSW CREDIT, INC. ("CSW CREDIT"). CSW Credit was authorized
by the Commission to borrow up to $824 million to purchase Receivables of
affiliated and nonaffiliated companies, and its holding company parent, Central
and South West Corporation, was authorized to make equity investments in CSW
Credit of up $156 million. See CSW Credit, Inc., Holding Co. Act Release No.
26437 (Dec. 22, 1995). In contrast to CSW Credit, which generally held the
Receivables that it factored, Columbia's factoring program would involve the
same-day transfer of Receivables from the participating company to Factoring Sub
and then to the Purchaser. Consequently, Factoring Sub does not require
significant levels of capital to conduct its business. Columbia's proposed
aggregate investment in Factoring Sub will not exceed $25 million. Factoring
Sub's dramatically lower capitalization is indicative of the lower levels of
risk associated with Columbia's factoring program.
(3) Add the following after the first sentence under the heading
"Authorization Requested":
Columbia also requests authorization to form and capitalize Factoring Sub with
any combination of equity, debt, or guarantees. Columbia proposes that the
Commission release jurisdiction over the participation by the Factoring Sub in
the Columbia money pool. See The Columbia Gas System, Inc., Holding Co. Act
Release No. 26634 (Dec. 23, 1996); and as supplemented and extended by the
Commission's order in Columbia Energy Group, Holding Co. Act Release No. 26798
(Dec. 22, 1997) (reserving jurisdiction over money pool participation by
newly-formed subsidiaries that are engaged in new lines of business). Columbia's
aggregate investment, including guarantees, in all Factoring Subs will not
exceed $25 million.
(4) Revise "Item 3. Applicable Statutory Provisions" to read as
follows:
ITEM 3. APPLICABLE STATUTORY PROVISIONS
(a) State the section of the Act and the rules thereunder believed to
be applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of exemption.
Columbia believes that sections 6(a), 7, 9(a), 10, and 12 of the Act
and the rules adopted under these sections are applicable to the proposed
transactions. Section 9(a) of the Act makes unlawful the acquisition by a
registered holding company of "any . . . interest in any business" without the
prior approval of the Commission under section 10. Section 10(c)(1) directs the
Commission not to approve an acquisition of securities or utility assets, or any
other interest, if the proposed acquisition is "detrimental to the carrying out
of the provisions of Section 11." Section 11(b)(1) of the Act requires the
Commission to limit the operations of public-utility holding companies to such
other businesses as are reasonably incidental, or economically necessary or
appropriate to the operations of such integrated public-utility system. The
Commission may permit as reasonably incidental, or economically necessary or
appropriate to the operations of one or more integrated public-utility systems
the retention of an interest in any business (other than the business of a
public-utility company as such) which the Commission
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shall find necessary or appropriate in the public interest or for the protection
of investors or consumers and not detrimental to the proper functioning of such
system or systems.
The Commission has previously authorized other registered holding
companies to factor receivables. See, e.g., Central and South West Corporation,
Holding Co. Act Release No. 25995 (Mar. 2, 1994) (the "CSW Order"); Allegheny
Power System, Inc., Holding Co. Act Release No. 26401 (Oct. 27, 1995); New
Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997).
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Columbia does not own, nor operate, nor is it an equity participant in
any Exempt Wholesale Generator or any Foreign Utility Company and will not be a
company that owns, operates or has an equity participation in an Exempt
Wholesale Generator or Foreign Utility Company as a result of the approvals
requested in this Application-Declaration. Columbia does not have any rights or
obligations under a service, sales or construction contract with an Exempt
Wholesale Generator or Foreign Utility Company as a result of the proposed
transactions.
Columbia believes that, based on the arguments above, its factoring
proposal is consistent with the standards of the Act and Commission precedent
and we respectfully request authorization of the application-declaration under
the terms proposed. To the extent that the proposed transactions are considered
by the Commission to require authorization, approval or exemption under any
section of the Act or any provision of the rules and regulations other than
those specifically referred to here, Columbia requests authorization under such
sections and or rules as well.
(5) Revise "Item 6. Exhibits and Financial Statements" to read as
follows:
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
F Opinion of Counsel
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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 Application-Declaration to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 12, 1999 Columbia Energy Group
By: /s/ M.W. O'DONNELL
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M.W. O'Donnell, Senior Vice
President & Chief Financial Officer
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EXHIBIT F
August 12, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Columbia Energy Group, File No. 70-09421
Dear Sirs:
As counsel for Columbia Energy Group ("Columbia"), a holding company
registered under the Public Utility Holding Company Act of 1935 (the "Act"), and
its subsidiary companies, I deliver to you this opinion for filing as Exhibit F
to the Application-Declaration referenced above. Briefly stated, Columbia is
seeking authority to engage in the factoring of accounts receivable through one
or more, existing or newly formed or acquired, direct or indirect subsidiaries
(each a "Factoring Sub"). Factoring Sub would engage in the factoring of
accounts receivable interests ('Receivables") of associate and of nonassociate
companies within limits prescribed in the Application-Declaration.
In connection with the above, I have examined:
(i) the Application-Declaration, as amended; and
(ii) such other documents, records and matters of law as I deemed
necessary to enable me to render this opinion;
Based upon the foregoing and relying thereupon, I am of the opinion
that if the above referenced transactions are consummated in accordance with the
Application-Declaration:
(i) all state and federal laws applicable to the proposed
transactions will have been complied with; and
(ii) the consummation of the proposed transactions will not violate
the legal rights of the holders of any securities issued by
Columbia, or by any associate company thereof.
I hereby consent to the filing of this opinion as an exhibit to the
Application-Declaration.
Very truly yours,
/s/ Christopher J. Lord
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Columbia Energy Group Service Corporation
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