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File No. 70-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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COLUMBIA ENERGY GROUP
13880 Dulles Corner Lane
Herndon, VA 20171-4600
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(Names of company or companies filing this statement
and addresses of principal executive offices)
COLUMBIA ENERGY GROUP
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(Name of top registered holding company parent of
each applicant or declarant)
J. W. Trost, Vice President
COLUMBIA ENERGY GROUP SERVICE CORPORATION
13880 Dulles Corner Lane
Herndon, VA 20171-4600
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(Name and address of agent for service)
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Columbia Energy Group ("Columbia"), a registered holding company under
the Public Utility Holding Company Act of 1935 (the "Act"), hereby submits for
filing this Application-Declaration on Form U-1.
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 seeks to expand its authority to invest in exempt wholesale
generators ("EWGs") and foreign utility companies ("FUCOs"). Specifically,
Columbia requests that the Commission authorize it to use the net proceeds of
current and subsequently authorized financings to acquire the debt and equity
securities of EWGs and FUCOs and to enter into guarantee arrangements and to
provide other forms of credit support for investments in EWGs and FUCOs, subject
to the requirement that Columbia's "aggregate investment" in EWGs and FUCOs not
exceed an amount equal to 100% of Columbia's "consolidated retained earnings,"
as those terms are defined in Rule 53.
As set forth more fully herein, Columbia will establish that the
proposed increase in financing authority for investments in EWGs and FUCOs: (1)
will not have a substantial adverse impact upon the financial integrity of the
Columbia system, and (2) will not have an adverse impact on any utility
subsidiary of Columbia, or its customers, or on the ability of the state
commissions to protect such subsidiary or customers. Columbia has requested
letters from each of the retail regulators of its distribution subsidiaries
indicating that regulator's assent to the proposed transaction.
Columbia also undertakes not to seek recovery through higher rates to
customers of utility subsidiaries to compensate it for any losses or inadequate
returns it may sustain from the proposed investments.
A. History and Nature of Request
Background
This filing is intended, in the first instance, to enable Columbia to
implement its plans to establish a position in the $200 billion U.S. electricity
market. Since 1986, Columbia, through its wholly-owned subsidiary Columbia
Electric Corporation (formerly known as TriStar Ventures Corporation) ("Columbia
Electric"), has been involved in the development, ownership and operation of
domestic independent power projects. See, e.g., The Columbia Gas System, Inc.,
Holding Co. Act Release No. 24199 (Sept. 26, 1986) (authorizing activities
related to qualifying cogeneration facilities and small power production
facilities under the Public Utility Regulatory Policies Act of 1978 ("PURPA")).
Columbia Electric has interests in three cogeneration projects that produce
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both electricity and useful thermal energy. These projects are fueled
principally by natural gas and have a total capacity of nearly 250 megawatts.(1)
Columbia Electric has entered into joint development agreements with
Westcoast Energy Inc., a nonaffiliate, to develop, own and operate three
gas-fired merchant power plants to be located in the Northeast and Mid-Atlantic
regions of the United States, and possibly Canada. In total, the three plants
are anticipated to provide up to 1000 megawatts of electricity using
approximately 160 Mmcf per day of natural gas. The total cost of these projects
is estimated to be $600 million to $700 million.
In addition, in June, 1998, Columbia Electric and LG&E Power Inc.
entered into an agreement to develop a 550 megawatt (MW) equivalent natural
gas-fired cogeneration project providing electricity and steam for a Reynolds
Metals plant in Gregory, Texas ("Project Gregory").(2) The facility, which will
also provide electricity to the Texas energy market, is expected to begin
commercial operation in the summer of 2000 in the Electric Reliability Council
of Texas ("ERCOT") region. The ERCOT region is an approximately 55,000 MW power
pool that serves approximately 85% of the electrical load in Texas.
Columbia Electric has over 2100 additional megawatts under development.
The projects under development include the Liberty Electric Project, a 500 MW
project in Eddystone, Pennsylvania. Construction on this project is scheduled to
begin in 2000. The Grassy Point Energy Project, a planned 550 MW project in
Haverstraw, New York, is also under development. Other projects under
development include a 550 MW project in southern Maryland and a 500 MW project
in the Midwest.
In view of the projected energy needs into the next century, Columbia
believes there are, and will continue to be, significant investment
opportunities as states move to restructure the generation business, and
economic conditions foster the development of so-called "greenfield" merchant
power projects. The demand for new gas-fired power plants is being spurred by a
healthy and growing economy, coupled with the fact that very few power plants
have been built in the United States in the last 10 years. Load growth has been
increasing steadily at an average rate of between 1.5 percent and 2 percent per
year. The excess capacity that existed as recently as 10 years ago has been
significantly diminished.
The increased demand will be exacerbated if, as expected, many nuclear
power plants are phased out of operation on or before the date that their
licenses expire. There will also be increasing environmental pressures to limit
emissions from coal and oil-fired plants. Absent a vigorous commitment to
construction, many areas face at least the potential for power shortages. The
combination of these factors -- the needs created by
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(1) These projects are qualifying cogeneration facilities or "QFs" under
PURPA.
(2) Project Gregory is a qualifying cogeneration facility under PURPA. The
Commission approved the Project Gregory investment by order dated March
4, 1999. See Columbia Energy Group, Holding Co. Act Release No. 26985.
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economic growth, retirement of nuclear plants and the environmental issues faced
by existing coal and oil-fired generation -- suggest that natural gas-fired
combined-cycle power plants will dominate the new-plant market for some time to
come.
Columbia Electric's mission is to develop, own and operate
state-of-the-art, efficient, electric-power generating facilities that provide
reliable, low-cost power. While Columbia's plans, at present, are focused on
domestic power projects, it is possible that opportunities may arise in foreign
countries as well.
In December, 1996, the Commission issued an Omnibus Financing Order
that, among other things, authorized Columbia to use the proceeds of financing
transactions, in an amount equal to 50 percent of Columbia's consolidated
retained earnings as determined in accordance with Rule 53(a)(1)(ii) under the
Act, for investments in EWGs and FUCOs for which there is recourse, directly or
indirectly, to Columbia. The Columbia Gas System, Inc., Holding Co. Act Release
No. 26634 (Dec. 23, 1996).
Requested Authority
Columbia requests that the Commission authorize it to use the net
proceeds of current and subsequently authorized financings, to invest in, and to
enter into guarantee arrangements and to provide other forms of credit support
for investments in, EWGs and FUCOs, subject to the requirement that Columbia's
"aggregate investment" in EWGs and FUCOs not exceed an amount equal to 100% of
Columbia's "consolidated retained earnings," as those terms are defined in Rule
53. The increase in financing and investment authority will provide Columbia the
flexibility necessary to respond in a timely fashion to possible investments.
Certainty of execution is often important in negotiating for an investment. In
addition, lead time for investments varies greatly. Sometimes the process of
evaluating and developing projects takes many months or years; other times there
may be only a few weeks from the date a company learns of an investment
opportunity to the time the deal is completed. Furthermore, confidentiality
concerns often exist that make it difficult to seek Commission approval.
With respect to its request for additional EWG and FUCO financing
authority, as demonstrated herein, Columbia satisfies the standards that have
been established in earlier decisions. See New Century Energies, Inc., Holding
Co. Act. Release No. 26982 Feb. 26, 1999); American Electric Power Company,
Holding Co. Act Release No. 26864 (April 27, 1998); Cinergy Corp., Holding Co.
Act Release No. 26848 (March 23, 1998); GPU, Inc., Holding Co. Act Release No.
26779 (Nov. 17, 1997); Central and South West Corp., Holding Co. Act Release No.
26653 (Jan. 24. 1997); Southern Company, Holding Co. Act Release No. 26501
(April 1, 1996).
B. Capital Allocation and Review Process.
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Columbia has established comprehensive procedures whereby discretionary
capital projects are evaluated for business, financial, regulatory,
environmental and legal risks.
(1) The Project Review Process
Every potential project opportunity is subjected to a series of formal
reviews to ensure the project's soundness. The process begins with a
consideration of the strategic plans of Columbia and its subsidiary companies
(together, the "Group"), which are updated periodically. Any project that is
considered must be consistent with these strategic plans. The process helps to
ensure that new projects assist Columbia in attaining predetermined business
objectives.
Before any company in the Group makes any investment in a project, an
analysis of that opportunity, including the specific country risk, where
applicable, is subjected to a series of independent internal and external
reviews, both at the subsidiary and Columbia parent levels.
For all projects, the analysis will include consideration of business,
financial, regulatory, environmental and legal risks. Foreign projects will be
subject to an additional level of scrutiny concerning the political and economic
stability of the particular country, the government's commitment to private
power, the legal and regulatory framework for private investment in utility
facilities, the local business support for long-term investment of private
capital, the economic viability of the project, the technology and fuel supply,
the environmental impact, the currency conversion and repatriation and the
potential for future partial sales of the investment interest to other
investors. Before any company in the Group can invest in a foreign country, the
Board of Directors must approve that country for investments by Columbia Energy
Group.
Once a preliminary decision is made to move forward with a given
project, project teams are required to identify the major technical, financial,
commercial and legal risks associated with their particular projects and whether
and how those risks have been mitigated. The members of the project team are
responsible for the due diligence investigation of those risks that have been
identified and must present their findings to an officer of Columbia or the
relevant subsidiary with functional oversight of the relevant risk factor
subject matter.
Each project is subject to increasing levels of management review.
Depending upon the amount of Columbia's projected financial exposure in a
particular project, the proposed investment must be approved successively by the
entire executive management group of the relevant subsidiary, the board of
directors of that subsidiary, the Columbia Executive Committee, the Finance
Committee of Columbia's board of directors, and ultimately the board itself.
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Significantly, the final project review process, in many cases, is to
a large extent replicated by the lenders who agree to provide construction or
permanent debt financing on a non-recourse basis, since repayment of that debt
will depend solely upon the success of the project. Project debt documents
customarily require the establishment of plant overhaul or utility system
maintenance, debt service and other funded reserves, all of which are designed
to preserve the asset and protect the financial performance of the project
against interruptions in revenues and other contingencies. Columbia's ability to
arrange non-recourse financing for its independent power projects is evidence of
the success of the review process outlined above.
(2) Risk Mitigation
Columbia carefully evaluates the potential risks of an independent
power project or foreign utility company before the Group's funds are committed.
(a) Operating Risks. Columbia Electric has focused its
development efforts on gas-fired projects, thereby bringing to the table the
expertise the Group possesses in fuel management and other "up-stream"
activities. Due diligence with respect to operating assumptions is carried out
by Group engineers with experience in the technology being evaluated and by
outside technical consultants. With the advent of merchant plants, it is
possible that some of the risks of changes in the price of fuel will be born by
the power producer, rather than passed through to the purchaser of
electricity.(3) In this regard, Columbia's expertise in gas marketing offers
significant advantages. Other operating risks can be covered by equipment
warranties and by casualty, business interruption and other forms of insurance.
(b) Construction Risks. Construction risks are commonly
addressed under fixed-price contracts with milestones and performance
guarantees, backed by appropriate liquidated damages provisions. The
creditworthiness and track record of the construction contractor is a key
consideration in this regard. In those matters in which Columbia Electric or
another Columbia subsidiary (hereinafter, collectively referred to as "Columbia
Electric") serves as the general construction contractor, provision can be made,
in the form of pre-negotiated cost and damage clauses from sub-contractors
including, without limitation, equipment vendors, to protect against performance
shortfalls, cost overruns and schedule delays.
(c) Commercial Risks. In the past, many independent power
projects have relied upon the "off-take" commitment of a single power purchaser,
normally the local utility company, to eliminate all or substantially all of the
risk of variation in revenues. With the move toward open access and merchant
power plants, long-term off-take contracts are not always available, and
electricity prices may be determined by
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(3) The problem would arise if, for example, the price of gas were to
increase after Columbia Electric entered into a long-term, fixed-price
power sales agreement with an industrial customer.
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supply and demand. Indeed, in competitive markets outside the United States,
such contracts are the exception, rather than the rule. Before committing to a
project, therefore, Columbia Electric conducts extensive investigations to
ensure the viability of long-term demand, and seeks projects that will be
capable of producing electricity at or below long-run marginal costs in the
region, thus providing that the project will be a competitive supplier.
(d) Financial Risks. Columbia addresses the financial risks of
its projects in a number of ways. First and foremost, Columbia seeks to obtain
the maximum amount of permanent financing that is available for such projects at
a reasonable cost and for which there is no recourse, directly or indirectly, to
Columbia. The non-recourse debt of each project thus is secured solely by the
assets and revenues of that project, and creditors have no ability to seek
repayment from Columbia or any of its public-utility company subsidiaries. This
method of financing is intended to limit Columbia's exposure to the amount of
its equity commitment to a given project and so ensure that the Group operating
companies and their customers do not bear the risk of a project's failure or
financial distress. From time to time, Columbia may provide guarantees in
connection with the projects. Such financial support, however, will be carefully
monitored and treated as part of Columbia's aggregate investment as defined in
Rule 53 in the event the project is an EWG or FUCO, or other applicable limit.
(e) Foreign Currency Exchange Risk. In connection with foreign
projects, there are several ways in which Columbia would address the foreign
currency exchange risk element, depending on the status of the host country of a
foreign project. In countries which do not have a history of stability in the
management of their exchange policy, part or all of the revenue from a project
may be payable in hard currency (almost invariably U.S. dollars). Back-up
guarantees or other undertakings by the central government may be available to
ensure that the U.S. dollar payments due under an off-take contract are actually
made available by the central bank or the ministry of finance. In other cases,
the non-recourse project debt is borrowed in the same currency as the project's
revenues, thereby ensuring a match between debt service obligations and
operating income. In more developed countries, long-term currency swaps are
available to provide further hedging for the equity component of the investment.
(f) Legal Risks. Legal risks are addressed by careful review
of any investment by legal counsel, including local and international counsel
where foreign projects are concerned. Such legal reviews address regulatory and
permitting risks, environmental risks, the adequacy and enforceability of
guarantees or other contractual undertakings of third parties, the status of
title to utility property and the obligations inherent in the financing
arrangements.
In addition to the specific risks mentioned above, investment outside
of the United States can entail country-specific risks related to political or
economic performance. In this regard, it is contemplated that, at the outset of
development work in a foreign country, Columbia will seek local partners who are
experienced in doing business in the
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host country. Local partners are a very important element in reducing the risk
of future expropriation or unfair regulatory treatment. Another mitigating
factor is the participation of official or multilateral agencies in a project.
When funds for the project are supplied by government-sponsored export credit
agencies or other governments or institutions such as the World Bank through its
International Finance Corporation affiliate, the host country has strong
incentives not to take actions which would harm a project's viability.
Most political risk can be addressed through political risk insurance
obtained from the Overseas Private Investment Corporation, a United States
agency, or the Multilateral Investment Guaranty Agency, a World Bank affiliate,
or in the commercial insurance market. Political risk insurance is available to
insure the project debt or the return of an investor's equity. One can also
insure against outright expropriation, acts of civil violence or even "creeping"
nationalization brought about by punitive regulation. Columbia will analyze the
perceived risk and its costs and compare that with the cost of obtaining such
insurance and, when such costs associated with such risks exceed the costs of
insurance coverage therefor, Columbia plans to procure such insurance.
Columbia shall not seek recovery through higher rates to its domestic
utility customers to compensate it for any possible loss that it might sustain
by reason of the proposed investments in EWGs and FUCOs. Further, Columbia has
undertaken to apply to the state regulators, which have jurisdiction over the
retail rates of the Group's public-utility subsidiary companies, to solicit
their views with respect to the requested increase in EWG and FUCO financing
authority. Columbia's indirect investments in EWGs and FUCOs will not in any way
diminish the ability of the various State commissions to protect the interests
of consumers in their respective states.
C. Proposed Increase in Financing Authority
For the reasons stated above, Columbia hereby requests that the
Commission exempt it from the requirements of Rule 53(a)(1) under the 1935 Act
so that Columbia can, directly or indirectly, invest an amount equal to its
consolidated retained earnings in EWGs and FUCOs.
Rule 53(c) states that, in connection with a proposal to issue and sell
securities to finance an investment in any EWG, or to guarantee the securities
of any EWG, a registered holding company that is unable to satisfy the
requirements of paragraph (a) of Rule 53 must "affirmatively demonstrate" that
such proposal:
(a) will not have a substantial adverse impact upon the
financial integrity of the registered holding company system;
and
(b) will not have an adverse impact on any utility subsidiary
of the registered holding company, or its customers, or on the
ability of State commissions to protect such subsidiary or
customers.
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The Commission has performed an analysis of the requirements of Rule 53(c) with
respect to application-declarations filed by The Southern Company, Central and
South West Corporation, GPU, Inc., Cinergy Corp., American Electric Power
Company and New Century Energies, Inc. In each of those matters, the applicant
sought relief from the safe-harbor requirements of Rule 53(a)(1) to allow
investments in an amount equal to the applicant's consolidated retained
earnings. The Commission found that the applicants in each matter had
demonstrated successfully, through the use of certain financial indicators, that
investing in EWGs and FUCOs in an amount not to exceed their consolidated
retained earnings would not have a substantial adverse impact on the financial
integrity of the holding company system. A comparison with Columbia of those
financial indicators used by those applicants, considering the size and market
position of Columbia relative to those applicants, demonstrates that the
financial integrity of the Columbia Group is substantially similar to the
financial integrity of the applicants in matters in which the Commission has
previously granted exceptions to the 50% requirement of Rule 53.
Columbia addresses each of the requirements of Rule 53(c) as follows:
(1) The use of proceeds from the issuance of debt and equity securities
of Columbia to make investments in EWGs (as well as in FUCOs), and the issuance
of, or provision for, guarantees in connection therewith by Columbia, in amounts
of up to Columbia's consolidated retained earnings will not have a "substantial
adverse impact" on the financial integrity of the Group. The lack of any
"substantial adverse impact" on the Group's financial integrity as a result of
the proposed investments in EWGs and FUCOs can be demonstrated in several ways,
including by analyses of historic trends in Columbia's consolidated
capitalization ratios and retained earnings and the market view of Columbia's
securities. Consideration of these and other relevant factors supports the
conclusion that the issuance of securities and guarantees by Columbia to finance
investments in EWGs and FUCOs in excess of the limitation in Rule 53(a)(1) will
not have any "substantial adverse impact" on the financial integrity of the
Columbia Group.
Briefly stated, Columbia has a low-cost core natural gas transmission
and distribution business and is developing other diversified businesses that
will provide benefits to its core utility business, as well as enhance the
potential for substantial long-term earnings growth. Columbia's consolidated
capitalization and interest coverage ratios are within industry ranges for BBB+
and A rated companies. Finally, the market's assessment of Columbia's prospect
for future growth and earnings compares favorably to other gas utility
companies.
(a) Aggregate investment in amounts up to 100% of Columbia's
consolidated retained earnings, which was $550.9 million as of June 30, 1999,
would still represent a relatively small commitment of capital for a company the
size of Columbia, based on various key financial ratios. For example,
investments of this amount would be equal to only 13.7% of Columbia's total
capitalization (approximately $4 billion), 7.6% of total consolidated assets
(approximately $7 billion), and 10.6% of the market value of
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Columbia's outstanding common stock ($5.2 billion as of June 30, 1999). Such
percentages are lower than those of Southern as of December 31, 1995 (16.3%,
11.0% and 20.4%, respectively) and those of CSW as of June 30, 1995 (23%, 14%
and 31%, respectively) described by the Commission in their respective Orders as
"a relatively small commitment of capital." Southern Co., Holding Co. Act
Release No. 26501 (April 1, 1996); Central and South West Corporation, Holding
Co. Act Release No. 26653 (Jan. 24. 1997). See also GPU, Inc., Holding Co. Act
Release No. 26779 (Nov. 17, 1997); Cinergy Corp., Holding Co. Act Release No.
26848 (March 23, 1998); American Electric Power Company, Holding Co. Act Release
No. 26864 (April 27, 1998); New Century Energies, Inc., Holding Co. Act Release
No. 29682 (Feb. 26, 1999).
(b) Columbia's consolidated retained earnings have grown by nearly 800
percent since Columbia emerged from bankruptcy. Since December 31, 1995,
Columbia's consolidated retained earnings have grown from $69.8 million to
$550.9 million, an increase of $481.1 million.
(c) The market's assessment of Columbia's future growth and earnings
also compares favorably to other gas utility issuers. In 1998, Moody's Investors
Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") each upgraded
their ratings of Columbia's long-term debt to A3 and A, respectively. Columbia's
long-term debt rating is BBB+ by Standard and Poor's Ratings Group ("S&P").
Columbia's commercial paper ratings are F-1 by Fitch, P-2 by Moody's and A-2 by
S&P.
(d) None of the conditions described in paragraph (b) of Rule 53 is
applicable. Specifically, (1) there has been no bankruptcy of any Columbia
associate company in which a plan of reorganization has not been confirmed; (2)
the average consolidated retained earnings for the four most recent quarterly
periods has not decreased by 10 percent from the average for the previous four
quarterly periods; and (3) Columbia has never reported an "operating loss"
attributable to investments in EWGs and FUCOs.
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Assets to Be Disposed Of" (SFAS 121) requires that certain assets
be reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Columbia currently has
no assets impaired pursuant to SFAS 121. Since Columbia owns no EWGs or FUCOs,
no assets with respect to any EWGs or FUCOs currently owned (directly or
indirectly) by Columbia are expected to be impaired pursuant to SFAS 121, nor
has any associate EWG or FUCO ever defaulted under the terms of any financing
document. Columbia undertakes to notify the Commission by filing a
post-effective amendment in this proceeding in the event that any of the
circumstances described in Rule 53(b) occurs during the authorization period.
(e) Numerous financial indicators show the financial strength of
Columbia. For example, Columbia's earnings per share and return on equity were
$3.23 and 14.2%, respectively, for the year ended 1998.
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(2) The proposed increased use of financing proceeds to invest in EWGs
and FUCOs will not have an "adverse impact" on any of Columbia's public-utility
companies, their respective customers, or on the ability of the five State
commissions having jurisdiction over one or more such utility subsidiaries to
protect such public utility companies or such customers.
The conclusion that the Group's public-utility companies and their
customers will not be adversely impacted by increased levels of investment in
EWGs and/or FUCOs is supported by internal estimates of the projected need for
equity capital from Columbia for the next five years; continuing compliance with
other applicable requirements of Rule 53(a); and the proven effectiveness of
State commission oversight, together with the affirmation by the State
commissions of Kentucky, Maryland, Ohio, Pennsylvania, and Virginia that they
have authority and jurisdiction, and will exercise such authority, to protect
ratepayers in their respective states from any adverse impact. In addition,
(a) All of Columbia's investments in EWGs and FUCOs will be segregated
from the Group's public-utility companies. The utilities are, and are currently
expected in the future to remain, insulated from the direct effects of
investments by Columbia in EWGs and FUCOs. No Group utility owes indebtedness or
has extended credit or sold or pledged its assets directly or indirectly to any
EWG or FUCO in which Columbia owns any interest, no Group utility intends to do
so in the future, and any losses that may be incurred by such projects would
have no effect on domestic rates of any Group utility. In this regard, as
previously noted, Columbia represents that it will not seek recovery through
higher rates to the Group's utility customers in order to compensate Columbia
for any possible losses that it may sustain on investments in EWGs or FUCOs, or
for any inadequate returns on such investments. Further, Section 33(f) generally
prohibits state-regulated public utility companies from financing investments in
FUCOs, and Section 33(g) prohibits outright any pledge or encumbrance of utility
assets by a state-regulated public utility company for the benefit of any
associate FUCO.
(b) Investments in EWGs and FUCOs will not have any negative impact on
the Group utilities' ability to fund operations and growth. Gas registered
systems such as Columbia historically have financed their utility operation at
the parent level. The Group's five-year projections do not contemplate any
extraordinary capital requirements on the part of utility subsidiary companies.
(c) Columbia will comply with the requirements of Rule 53(a)(3)
regarding the limitation on the use of Group utility employees in connection
with providing services to EWGs and FUCOs. An increase in the permissible level
of investment in EWGs and FUCOs is not anticipated to have any impact on
utilization of Group utility employees. The Group utilities have not increased
and will not increase staffing levels to support the operations of EWGs and
FUCOs. It is contemplated that project development, management and home office
support functions for the projects will be largely performed by Columbia Energy
Group Service Corporation, and by outside consultants (e.g.,
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engineers, investment advisors, accountants and attorneys) engaged by Columbia
Electric. Accordingly, the need for the support of personnel provided by the
Group utilities is expected to be modest.
(d) Columbia believes that the five State commissions of Kentucky,
Maryland, Ohio, Pennsylvania, and Virginia having jurisdiction over the Group's
public-utility companies are able to protect utility customers within their
respective states. To provide the Commission with added assurances,
representatives of Columbia have contacted each of the affected state
commissions and requested them to provide the Commission with letters certifying
that the state commission has jurisdiction over the respective Group
public-utility companies and that the state commission will protect ratepayers
from any adverse effect or costs that might result from Columbia's investments
in EWGs and FUCOs.
Rule 54 provides that the Commission, in determining whether to approve
the issue or sale of a security by a registered holding company for purposes
other than the acquisition of an EWG or FUCO, or other transactions by such
registered holding company or its subsidiary other than with respect to EWGs or
FUCOs, shall not consider the effect of the capitalization or earnings of any
subsidiary which is an EWG or FUCO upon the registered holding company System if
the provisions of Rule 53(a), (b) and (c) are satisfied. If the transactions
contemplated hereby are consummated and Columbia's aggregate investment in EWGs
and FUCOs exceeds 50 percent of its consolidated retained earnings, the
provisions of Rule 53(a) will not be satisfied. Columbia has included in this
Application-Declaration certain reporting requirements that are intended to
enable the Commission to monitor the impact of the transactions for which
authority is sought hereby. Columbia believes that such reporting requirements
will assist the Commission in its determinations concerning the effect of EWGs
and FUCOs on other transactions for which Columbia will require authorization:
Columbia will file certificates under rule 24 within 60 days after the
end of each calendar quarter, beginning with the quarter ending December 31,
1999, providing:
a. a computation in accordance with rule 53(a) (as modified by the
Commission's order in this proceeding) of Columbia's aggregate investment in
EWGs and FUCOs ("Exempt Entities");
b. a statement of this aggregate investment as a percentage of the
following: total capitalization, net utility plant, total consolidated assets,
market value of common equity and retained earnings, all as of the end of that
quarter;
c. consolidated capitalization ratios as of the end of that quarter,
with consolidated debt to include all short-term debt and non-recourse debt of
the Exempt Entities, to the extent normally consolidated under applicable
financial reporting rules;
d. market-to-book ratio of Columbia's common stock at the end of the
quarter;
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e. analysis of the growth in consolidated retained earnings which
segregates total earnings growth attributable to Exempt Entities from that
attributable to other subsidiaries of Columbia; and
f. a statement of revenues and net income for each of the Exempt
Entities for the three months ending as of the end of that quarter.
* * * * *
(b) Describe briefly, and where practicable state the approximate
amount of, any material interest in the proposed transaction, direct or
indirect, of any associate or affiliate of the applicant or declarant company or
any affiliate of any such associate company.
See Item 1(a).
(c) If the proposed transaction involves the acquisition of securities
not issued by a registered holding company or subsidiary thereof, describe
briefly the business and property, present or proposed, of the issuer of such
securities.
See Item 1(a).
(d) If the proposed transaction involves the acquisition or disposition
of assets, describe briefly such assets, setting forth original cost, vendor's
book cost (including the basis of determination) and applicable valuation and
qualifying reserves.
See Item 1(a).
ITEM 2. FEES, COMMISSIONS AND EXPENSES
(a) State (1) the fees, commissions and expenses paid or incurred, or
to be paid or incurred, directly or indirectly, in connection with the proposed
transaction by the applicant or declarant or any associate company thereof, and
(2) if the proposed transaction involves the sale of securities at competitive
bidding, the fees and expenses to be paid to counsel selected by applicant or
declarant to act for the successful bidder.
<TABLE>
<S> <C>
Legal fees in connection with the preparation of
the Application-Declaration ................................... $10,000
-------
</TABLE>
(b) If any person to whom fees or commissions have been or are to be
paid in connection with the proposed transaction is an associate company or an
affiliate of the applicant or declarant, or is an affiliate of an associate
company, set forth the facts with respect thereto.
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<PAGE> 14
Legal services in connection with the subject application-declaration
have been rendered by the Columbia Energy Group Service Corporation at cost.
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.
Sections 6 and 7 of the Act, and Rule 53 thereunder are applicable to
the requested expansion of Columbia's financing authority.
Rule 53 provides that, if each of the conditions of paragraph (a)
thereof is met, and none of the conditions of paragraph (b) thereof is
applicable, then the Commission may not make certain adverse findings under
Sections 7 and 12 of the 1935 Act in determining whether to approve a proposal
by a registered holding company to issue securities in order to finance an
investment in any EWG or to guarantee the securities of any EWG. Giving effect
to the proposals contained herein, Columbia will satisfy all of the conditions
of Rule 53(a) except for clause (1) thereof, since Columbia is proposing herein
that Columbia's aggregate investment may exceed 50% of Columbia's consolidated
retained earnings. None of the conditions specified in Rule 53(b) is or will be
applicable.
(b) If an applicant is not a registered holding company or a subsidiary
thereof, state the name of each public utility company of which it is an
affiliate, or of which it will become an affiliate as a result of the proposed
transaction, and the reasons why it is or will become such an affiliate.
Not applicable.
ITEM 4. REGULATORY APPROVAL
(a) State the nature and extent of the jurisdiction of any State
commission or any Federal commission (other than the U. S. Securities and
Exchange Commission) over the proposed transaction.
The proposed transactions are not subject to the jurisdiction of any
State commission or of any federal commission other than this Commission. The
Group has, however, requested letters from each of its State regulators in
connection with the proposed increase in financing authority for investments in
EWGs and FUCOs.
(b) Describe the action taken or proposed to be taken before any
commission named in answer to paragraph (a) of this item in connection with the
proposed transaction.
Not applicable.
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ITEM 5. PROCEDURE
(a) State the date when Commission action is requested. If the date is
less than 40 days from the date of the original filing, set forth the reasons
for acceleration.
It is requested that the Commission issue its notice by December 31,
1999, and its order on or before February 15, 2000.
(b) State (i) whether there should be a recommended decision by a
hearing officer, (ii) whether there should be a recommended decision by any
other responsible officer of the Commission, (iii) whether the Division of
Investment Management may assist in the preparation of the Commission's
decision, and (iv) whether there should be a 30-day waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
Columbia hereby (i) waives a recommended decision by a hearing officer,
(ii) waives a recommended decision by any other responsible officer or the
Commission, (iii) consents that the Division of Investment Management may assist
in the preparation of the Commission's decision, and (iv) waives a 30-day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
A Letter of the Kentucky Public Service Commission (to be filed by
amendment)
B Letter of the Maryland Public Service Commission
C Letter of the Public Utilities Commission of Ohio (to be filed by
amendment)
D Letter of the Pennsylvania Public Utility Commission
E Letter of the Virginia State Corporation Commission (to be filed by
amendment)
F Opinion of Counsel (to be filed by amendment)
G Proposed Notice
(b) Financial Statements
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<PAGE> 16
Columbia Consolidated Financial Statements as of December 31, 1998
(incorporated by reference to the Annual Report on Form 10-K of
Columbia for the fiscal year ended December 31, 1998).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
(a) Describe briefly the environmental effects of the proposed
transaction in terms of the standards set forth in Section 102(2)(C) of the
National Environmental Policy Act [42 U.S.C. 4232(2)(C)]. If the response to
this term is a negative statement as to the applicability of Section 102(2)(C)
in connection with the proposed transaction, also briefly state the reasons for
that response.
The proposed transactions subject to the jurisdiction of this
Commission have no environmental impact in and of themselves.
(b) State whether any other federal agency has prepared or is preparing
an environmental impact statement ("EIS") with respect to the proposed
transaction. If any other federal agency has prepared or is preparing an EIS,
state which agency or agencies and indicate the status of that EIS preparation.
No federal agency has prepared or, to Columbia's knowledge, is
preparing an EIS with respect to the proposed transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Application-Declaration
to be signed on their behalf by the undersigned thereunto duly authorized.
COLUMBIA ENERGY GROUP
DATE: November 4, 1999 by: /s/ M. W. O'Donnell
--------------------------------------
M. W. O'Donnell, Senior Vice President
& Chief Financial Officer
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<PAGE> 17
EXHIBIT B
STATE OF MARYLAND
Commissioners [SEAL] BRYAN G. MOORHOUSE
GENERAL COUNSEL
GLENN F. IVEY DANIEL P. GAHAGAN
CHAIRMAN EXECUTIVE SECRETARY
CLAUDE M. LIGON GREGORY V. CARMEAN
E. MASON HENDRICKSON EXECUTIVE DIRECTOR
SUSANNE BROGAN
GERALD L. THORPE
PUBLIC SERVICE COMMISSION
WILLIAM DONALD SCHAEFER TOWER
6 ST. PAUL STREET
BALTIMORE, MARYLAND 21202-6806
(410) 767-8000
FAX NUMBER (410) 333-6495
#34, 6/24/98AM; ML#62034; S-345
June 26, 1998
Francis X. Wright, Esq.
Eastwick Rose & Wright
201 North Charles Street, Suite 2100
Baltimore, Maryland 21201
Dear Mr. Wright:
This is to advise you that the Commission has reviewed the request
filed on May 27, 1998 by Columbia Gas of Maryland, Inc. and Columbia Energy
Group ("CEG"). The Company and its parent CEG request that the Commission issue
the certification required by Section 33(a)(2) of the Public Utility Holding
Company Act of 1935 ("PUHCA") to the Securities & Exchange Commission ("SEC").
After considering this matter at the June 24, 1998 Administrative
Meeting, the Commission agreed to issue the requested certification to the SEC.
For your convenience enclosed is a copy of the letter to the SEC. Additionally,
the Company and CEG must provide the Commission all necessary information
related to its actual foreign utility company or exempt wholesale generator
investment within a reasonable period of time from the time of such investment.
By Direction of the Commission,
Donald P. Eveleth
Acting Executive Secretary
jrb
Enclosure
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EXHIBIT D
[SEAL]
COMMONWEALTH OF PENNSYLVANIA
PENNSYLVANIA PUBLIC UTILITY COMMISSION
P.O. BOX 3265, HARRISBURG, PA 17105-3265
IN REPLY PLEASE
REFER TO OUR FILE
September 25, 1998
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
RE: Pennsylvania Public Utility Commission Certification
Pursuant to Section 33(a) of the Public Utility Holding
Company Act of 1935
Dear Mr. Katz:
Columbia Gas of Pennsylvania, Inc. is a public utility within the
definition of the Pennsylvania Public Utility Code, 66 Pa. C.S. Section 101 et
seq., and is subject to the jurisdiction of this Commission. Columbia Gas of Pa.
is a subsidiary of Columbia Energy Group, a registered holding company under the
Public Utility Holding Company Act of 1935. With regard to investments in exempt
wholesale generators and foreign utility companies made by Columbia Energy Group
and/or its affiliates, this letter will serve to confirm that this Commission
has the authority and the resources to protect ratepayers subject to our
jurisdiction and intends to so exercise that authority in the public interest.
This certification is applicable to all exempt wholesale generators and
foreign utility companies in which Columbia Energy Group or its subsidiaries may
seek to acquire an interest. This certification is subject to revision or
withdrawal by this Commission prospectively as to any future acquisitions.
BY THE COMMISSION,
James McNulty
Secretary
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EXHIBIT G
SECURITIES AND EXCHANGE COMMISSION
(Release No. )
____________________, 1999
Columbia Energy Group ("Columbia"), 13880 Dulles Corner Lane, Herndon,
VA 20171, a Delaware Corporation, and a holding company registered with the U.
S. Securities and Exchange Commission ("Commission") under the Public Utility
Holding Company Act of 1935, as amended (the "1935 Act" or Act"), has filed an
application seeking authority to invest in exempt wholesale generators ("EWGs")
and foreign utility companies ("FUCOs"), subject to the limitation that
Columbia's "aggregate investment" in EWG's and FUCO's not exceed an amount equal
to 100% of Columbia's "consolidated retained earnings," as those terms are
defined in Rule 53.
The filing and amendments thereto are available for public inspection
through the commission's Office of Public Reference. Interested persons wishing
to comment or request a hearing should submit their views in writing by ,
to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549,
and serve a copy on the applicants-declarants at the address specified above.
Proof of service (by affidavit or, in case of an attorney-at-law, by
certificate) should be filed with the request. Any request for a 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 this matter. After said date, the joint
application-declaration, as filed or as it may be amended, may be permitted to
become effective.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
Jonathan G. Katz
Secretary
3
