<PAGE> 1
File Number 70-7508
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 5
to
FORM U-1
APPLICATION-DECLARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and the
parent of the other party)
CNG FINANCIAL SERVICES, INC.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
Names and addresses of agents for service:
S. E. WILLIAMS, Senior Vice President
and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
N. F. Chandler, General Attorney
Consolidated Natural Gas Service Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
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File Number 70-7508
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5
To
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
This Application-Declaration is hereby restated 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.
I. INTRODUCTION
Consolidated Natural Gas Company (the "Company" or
"Consolidated") is a public utility holding company
registered as such under the Public Utility Holding Company
Act of 1935 (the "Act"). It is engaged solely in the
business of owning and holding all of the outstanding
securities of sixteen subsidiary companies most of which are
in the natural gas business, including a subsidiary service
company, research company, marketing company and coal
company. The subsidiary companies are principally engaged
in natural gas exploration, production, purchasing,
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gathering, transmission, storage, distribution, and
by-product operations. Consolidated and all of its
subsidiaries are referred to herein as the "Consolidated
System" or "System."
The Securities and Exchange Commission
("Commission") by order dated January 12, 1989, HCAR No.
24805, File No. 70-7567, authorized Consolidated to
organize, acquire the capital stock of, and provide
financing for a new wholly-owned subsidiary, CNG Financial
Services, Inc. ("CNGF"). CNGF was authorized by such order
to invest through December 31, 1989 in passive leveraged
lease transactions in order to take advantage of the tax
savings associated with such investments. Consolidated
caused CNGF to be incorporated under the laws of the State
of Delaware on March 1, 1989, with an authorized equity
capitalization of 10,000 shares of common stock, $10,000 par
value per share, or an aggregate of $100,000,000. Five
shares of its common stock have been issued to Consolidated
for a consideration of $50,000; however, CNGF did not engage
in any leveraged lease transactions.
Consolidated now seeks authorization to provide CNGF
with up to $25 million in financing to allow CNGF to engage
in the financing of gas equipment (as defined more fully
below).
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II. PROPOSED TRANSACTIONS
A. General
_______
Various regulatory and market trends have combined
to increase competition for Consolidated in recent years,
and for all participants in the gas industry in general.
The factors affecting Consolidated include an abundant
supply of gas nationwide; competition from local producers
and from other sellers of gas for industrial and wholesale
markets; low prices for gas, which impact production
operations; competition with residual fuel oil and other
forms of energy in some parts of the dual-fuel capable
boiler market; and regulatory efforts, such as Order Nos.
436, 500 and 636 of the Federal Energy Regulatory
Commission, which seek to encourage more competition within
the industry.
Consolidated continues to deal with this more
competitive environment by widening the range of services
that are offered to customers. The five local distribution
companies in the Consolidated System ("System LDCs") (1) now
routinely provide a variety of firm and interruptible
services, including gas transportation, storage, supply
pooling and balancing, and brokering, to industrial and
large commercial customers.
_______________
(1) These are The East Ohio Gas Company, The Peoples
Natural Gas Company, Virginia Natural Gas, Inc.,
Hope Gas, Inc., and West Ohio Gas Company.
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With the exception of Virginia Natural Gas, Inc.
("VNG"), each of Consolidated's LDCs primarily operates in
long-established service areas and has extensive facilities
already in place. In these areas, a high-technology,
service-oriented economy is in the process of developing,
supplanting an economy formerly based mainly on heavy
industry. Residential and commercial service areas of the
Consolidated System (other than VNG) have a high heating
load saturation of approximately 98%. Almost all customers
of such System LDCs have become more energy-efficient during
this time. As a result, gas use in such areas has declined.
Growth obviously is limited because of high saturation
levels for most significant traditional applications.
Competition, both from other fuels and other gas suppliers
is very evident. Opportunities in such retail service areas
come primarily from competing with alternate fuels and
developing and promoting new uses of gas.
The ability of the System LDCs to compete with
alternate fuels and/or promote new uses of gas would be
enhanced if they had the ability to offer customer financing
of natural gas equipment. Consolidated believes that such
financing could be offered more effectively through one
centralized company rather than through the five individual
System LDCs.
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Financing of certain types of gas equipment is often
times not readily available from traditional sources of
lending such as banks, due to the specialized nature of the
equipment and cash flow cycles of the industries that
traditionally use such equipment. Much of the gas equipment
which will be purchased by consumers will be using new
technology. These consumers may have difficulty finding
financing for their purchases because of the reluctance of
traditional leaders to invest in "cutting edge" technology.
Because of Consolidated's expertise and knowledge of new
specialized gas equipment and other new gas technologies,
CNGF will be more familiar with the gas equipment being
financed and more willing to provide financing.
For the above reasons, CNGF seeks authorization to
engage in the financing of gas equipment.
B. Categories of Equipment to be Financed
______________________________________
The gas equipment ("Gas Equipment") that CNGF
proposes to finance will include Gas Equipment in one of the
following categories:
1. Standard gas appliances ("Standard Gas
Appliances");
2. Equipment using new or unfamiliar technology, or
Equipment using a new application of existing
technology. ("New Technology Equipment"); or
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3. Gas Equipment which will enable an end-user to
use natural gas as an alternative to another
fuel ("Alternate Fuel Equipment").
Examples of Gas Equipment that CNGF would finance in
each of the above categories are listed in Exhibit B. Each
of the categories are described below.
The types of equipment that CNGF will finance can
fall in one or more of the above categories. For example,
gas heat pumps falls in all three of the categories.
Further, the Gas Equipment may be used by either
residential, commercial or industrial users. The commercial
and industrial users can be small or large. The types of Gas
Equipment that CNGF may finance can be used in various
industries.(2)
Standard Gas Appliances
_______________________
Standard Gas Appliances would include such Gas
Equipment as ranges, dryers, water heaters and furnaces.
Most of the Standard Gas Appliances would be used by
residential and small commercial users. As described in
detail in the LEGAL ANALYSIS section, the types of Standard
Gas Appliances that CNGF will finance will be the same type
_______________
2. These would include construction, food, chemical,
rubber, plastic, glass, steel, nonferrous metals,
equipment manufacturing, transportation, utility and
other energy, merchandising, service, medical,
educational, and civic enterprises.
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of standard gas appliances described in Rule 48. However,
the exemption of Rule 48 is inapplicable to CNGF because
CNGF is not a public utility company or an associate service
company as required by Rule 48. CNGF is proposing to engage
in the financing activities involving Standard Gas
Appliances to provide centralized control and incur
economies of combined financing operations.
2. New Technology Equipment
________________________
As competition in the natural gas market increases
(vis-a-vis gas and other alternative fuels), new gas
technology has been and will be developed. As with any new
technology, the System LDCs have found that customers are
unwilling to experiment or try the product without
incentives. One incentive that encourages customers to use
these "new" products is to offer to finance the purchase of
the equipment by the customer. CNGF, accordingly, proposes
to finance New Technology Equipment.
Such equipment would include Gas Equipment that
would be marketed to promote new or unfamiliar technology
that uses gas as its main source of fuel, which could
include equipment using existing technology designed for a
new application. Examples of New Technology Equipment would
be gas heat pumps, gas air conditioning and gas turbines.
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Another example of New Technology Equipment would be
natural gas vehicles ("NGV"). By order dated August 27,
1992 ("NGV Order") at HCAR No. 25615 at File No. 70-7845,
the Commission recently authorized CNG Energy Company, a
wholly-owned subsidiary company of Consolidated, to finance
certain activities related to the promotion of NGVs.
However, CNGF is not seeking in this proceeding to
participate in any NGV financing; all such financing will be
done by CNG Energy Company pursuant to the NGV Order.
3. Alternate Fuel Equipment
________________________
The System LDCs have and continue to actively
promote the use of natural gas to replace alternate fuels in
many large commercial and industrial applications. However,
many of the System LDC customers (existing and potential)
are unwilling to convert equipment that currently operates
on an alternative fuel, such as oil or coal, to natural gas.
Although the overall cost of converting will likely result
in savings over the long-term, the initial substantial
investment in gas-burning equipment may prohibit such
customers from converting to natural gas. Such initial cost
imposes financial burdens on the customer that could be
alleviated if customer financing could be offered. The
ability of CNGF to finance equipment that would be used to
compete with alternate fuels will allow the System LDCs to
more effectively compete with
suppliers of alternate fuels.
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Alternate Fuel Equipment would include Gas Equipment
marketed to compete with alternative fuels. Alternate Fuel
Equipment is defined as Gas Equipment that would enable an
end-user to use natural gas as fuel. Such equipment may be
the equipment necessary to convert the unit to use natural
gas as a fuel, but would not include distinct pieces of
equipment that can be sold without apparatus to use gas as
fuel. For example, a coal-burning boiler by itself would
not be Gas Equipment, but the energy connective apparatus
enabling the coal-burning boiler to use gas as fuel would be
Gas Equipment. Alternate Fuel Equipment may also include
Gas Equipment that is manufactured and sold as a complete
indivisible unit that burns gas. These integrated compact
units, such as compact gas generators, not only are similar
to standard gas appliances, but also are designed to compete
with alternate fuels.
III. LEGAL ANALYSIS
Unless approved by the Securities and Exchange
Commission ("Commission") under Section 10 of the Act, it is
unlawful under Section 9(a)
for any registered holding company or any subsidiary
company thereof ... to acquire, directly or
indirectly, any securities or utility assets or any
other interest in any business;(3)
_______________
(3) Public Utility Holding Company Act of 1935, Section
9(a)(1), 15 U.S.C. Section 79i(a)(1).
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Consolidated's proposed investment of up to $25 million in
CNGF to fund CNGF's activities constitutes an acquisition by
Consolidated of "any securities" or "any other interest in
any business" within the meaning of Section 9(a)(1) of the
Act, and therefore Commission approval is required.
Under Section 10(a) of the Act, a company may apply
to the Commission for approval of such an acquisition.(4)
Section 10(b) provides, in part, that the Commission SHALL
APPROVE the acquisition unless it finds that the acquisition
will be detrimental to the public interest or the interest
of investors or consumers or the proper functioning of the
holding company system (emphasis supplied).(5)
Notwithstanding Section 10(b), Section 10(c)(1) directs the
Commission not to approve
an acquisition of securities or utility assets, or
of any other interest, which is ... detrimental to
the carrying out of the provisions of section 11.(6)
Section 11(b)(1) in turn, directs the Commission:
To require ... that each registered holding company,
and each subsidiary company thereof, shall take such
action as the Commission shall find necessary to
limit the operations of the holding-company system
of which such company is a part to a single
integrated public-utility system, and to such other
businesses as are reasonably incidental, or
economically necessary or appropriate to the
operations of such integrated public-utility
system.(7)
_______________
(4) Id. Section 10(a), 15 U.S.C. Section 79j(a).
(5) Id. Section 10(b)(3), 15 U.S.C., Section 79j(b)(3).
(6) Id. Section 10(c)(1), 15 U.S.C., Section 79j(c)(1).
(7) Id. Section 11(b)(1), 15 U.S.C., Section 79k(b)(1).
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The section further provides:
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
(non-utility) business which the Commission 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 . . . .
These two sentences are known as the "other business"
clauses of Section 11(b)(1).
The Commission has construed Section 10(c)(1) to
mean that any non-utility interest which could not be
retained under Section 11 (b)(1) cannot be acquired.(8)
Section 11(b)(1) has been held by the Commission to require
a registered holding company to limit itself to the
management and operation of its electric or gas utility
business and to such non-utility businesses as will
primarily further its utility business.
The Commission has long interpreted Section 11
(b)(1) to permit the retention of non-utility interests upon
an affirmative showing of an "operating or functional
relationship" between the non-utility business and the
operations of the integrated utility business of the holding
company system, provided it also can be shown that the
acquisition is in the public interest.(9) Permissible
_______________
(8) TEXAS UTILITIES CO., 21 SEC 827, 829 (1946). See
also PUBLIC SERVICE OF OKLAHOMA, 45 SEC 878 (1985).
(9) See, e.g., NORTH AMERICAN CO., 11 S.E.C. 194 (1942),
aff'd, 133 F.2d 148 (2d Cir. 1943), aff'd (holding
limited to constitutional issues), 327 U.S. 686
(1946).
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non-utility interests have included the ownership of
pipeline facilities used primarily to transport natural gas
for sale to the utility subsidiaries of an integrated gas
system(10), oil production operations bearing a direct and
close relationship to retainable natural gas production
operations(11), coal companies selling their output
primarily to system electric-utility companies (12) and
factoring of accounts receivable for a holding company's
utility subsidiaries.(13)
The Commission also has approved as consistent with
Section 11 acquisitions by registered holding company
systems of interests in non-utility businesses which will
primarily, but not exclusively, benefit the holding
company's public utility operations. Examples of these
include acquisitions to promote research and development of
_______________
(10) UNITED LIGHT & RAILWAYS CO., 27 S.E.C. 441 (1947),
aff'd sub nom. PANHANDLE EASTERN PIPELINE CO. v.
SEC, 170 F.2d 453 (8th Cir.), cert. denied, 335 U.S.
854 (1948).
(11) LONE STAR GAS CORP., 12 S.E.C. 286, 299 (1942). See
also COLUMBIA GAS AND ELECTRIC CORP. 17 S.E.C. 494,
511 (1944) (oil properties "closely related to the
operations of the gas utility companies: were
retainable).
(12) AMERICAN GAS AND ELECTRIC CO., 21 S.E.C. 575, 587
(1945); NORTH AMERICAN CO., 11 S.E.C. at 225-26.
(13) CSW CREDIT, INC., HCAR No. 23767 (July 19, 1985), 33
SEC Docket 1161.
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energy related technology (14), acquisitions designed to
encourage the sale of energy through the promotion of
appliances or equipment that have not yet received
widespread public acceptance (15), expansion of the
factoring of accounts receivable to include accounts of
non-associated as well as associated utilities of the
holding company, on the condition that the factoring
activities would remain primarily devoted to acquiring
accounts receivable of associated utilities (16); and
licensing and training non-associate utilities to use a
series of computer software programs designed to help detect
theft of service that originally were developed by a utility
subsidiary of a registered holding company for its own use
and which continued to primarily benefit
_______________
(14) See, e.g., GENERAL PUBLIC UTILITIES CORP., HCAR No.
15184 (February 9,1965) (acquisition of temporary,
five-year interest in company created to promote
manufacture and national marketing of electrical
equipment using new type of fan). See also SOUTHERN
CO.; SOUTHERN ELECTRIC INVESTMENTS, HCAR No. 23888
(October 1,1984), 31 SEC Docket 700 (equity
investment in company developing technology
combining energy management and other services for
use by residential and small commercial customers)
and ENTERGY CORP., HCAR No. 25718 (December 28,1992)
(equity investment in a company engaged in the
development, manufacturing and marketing of
energy-efficient lighting technologies).
(15) See MISSISSIPPI POWER CO., HCAR No. 22453 (September
1, 1987), 39 SEC Docket 109 and ENGINEERS PUBLIC
SERVICE CO., 12 S.E.C. at 54-55; Holding Company Act
Rule 48, 17 C.F.R. 250.48 (1988).
(16) CSW CREDIT, INC., HCAR No. 24157 (July 31, 1986), 36
SEC Docket 324.
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the holding company's associated utilities. (17)
A. Section 11(b)(1) Functional Relationship Test
_____________________________________________
Since the early days of its administration of the
Act, the Commission has held the promotion and sale of gas
or electric appliances to be a permissible "other business"
for, respectively, a gas or electric utility holding company
system under the standards of Section 11 of the Act. As the
Commission explained in ENGINEERS PUBLIC SERVICE COMPANY
(18), such activities are reasonably incidental or
economically necessary or appropriate to the operation of
the utility business because they encourage greater
consumption, and tend to increase sales, of energy by the
utility.
Like the appliance merchandising activities involved
in the ENGINEERS case, CNGF's activities will have a close
operating or functional relationship to Consolidated's gas
utility business. The principal goal of CNGF is to increase
retail gas sales by System LDCs. The ability of CNGF to
engage in the proposed activities will
_______________
(17) JERSEY CENTRAL POWER & LIGHT CO., HCAR No. 24348
(March 18, 1987), 37 SEC Docket 1660.
(18) ENGINEERS PUBLIC SERVICE CO., 12 SEC 41 (1942),
REV'D AND REMANDED, 138F.2d 936 (D.C. Cir. 1943),
JUDGMENT VACATED AS MOOT, 332 U.S. 788 (1947); LONE
STAR GAS CORP., 12 SEC 286 (1942). SEE ALSO
MISSISSIPPI POWER COMPANY, HCAR NO. 22453 (September
1, 1987), 39 SEC Docket 109; and LOUISIANA POWER AND
LIGHT CO., HCAR No. 25445 (December 26, 1991), 50
SEC Docket 718.
<PAGE> 16
enhance the marketing effort of the System LDCs to encourage
the use of natural gas equipment by their existing and
potential customers. Increased use of Gas Equipment will
lead to greater consumption of natural gas and this will
tend to increase gas sales by System LDCs.
In addition to the benefit of increasing sales of
the System's public utility companies, the Gas Equipment by
the various category groups that CNGF proposes to finance
meet the functional relationship requirement of Section 11
of the Act for the following reasons:
1. Gas Equipment in the Nature of Standard Gas
Appliances
___________________________________________
Consolidated submits that financing of Gas Equipment
that is the nature of Rule 48 Standard Gas Appliances is
permissible under the Act because, as a matter of policy,
similar activities are permitted under Rule 48(a)
promulgated by the Commission. (19) Many of the types of
Gas Equipment that CNGF proposes to finance fall
_______________
(19) Rule 48(a)(1) reads as follows:
Any public utility company, or subsidiary thereof,
or associate service company thereof, shall be
exempt from section 9(a) of the Act with respect to
the acquisition, in the ordinary course of business,
of any evidence of indebtedness executed by
customers of such public utility company as
consideration for the purchase (whether from such
public utility company, from an associate company
thereof, or from dealers) of standard electric or
gas appliances, or reacquisition of any such
security guaranteed by such company.
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within the category of "standard gas appliances" described
in Rule 48. Consolidated believes that the promulgation of
Rule 48 by the Commission indicates a policy allowing
financing of gas equipment as a functionally related
activity under Section 11(b) of the Act. CNGF engaging in
the financing activities, rather than the System LDCs or
Consolidated's service company, offers the advantage of
providing centralized financial, management and credit
control and incurring economies of scale through combined
operations.
2. Gas Equipment Promoting New and Unfamiliar
Technology
__________________________________________
CNGF's financing efforts to help promote new and or
unfamiliar gas technologies, such as gas air conditioning
and the gas-fired heat pump, is by itself functionally
related to Consolidated's gas utility business. The
Commission in ENGINEERS recognized that the merchandising
business in ENGINEERS was related to the business of a
utility system because it aided in educating "the public in
the benefits that may be derived from the use of such
appliances as have not yet found wide acceptance." The
Commission has approved as consistent with Section 11 of the
Act acquisitions that promoted new technologies. An example
includes the Commission's Order authorizing the acquisition
of an interest in a company created to promote
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the manufacture and marketing of electrical equipment using
a new type of fan. (20) The Commission also approved the
formation of a new company to develop photovoltaic cells
(21), as the formation of a division to promote natural gas
vehicles (22) and the investment in a company engaged to
promote energy-efficient lighting technologies. (23) CNGF's
activities to the extent it promotes new and/or unfamiliar
gas technologies is incidental or economically necessary and
appropriate to the operations of its gas utility business
and should be authorized by the Commission.
3. Gas Equipment Used to Compete with Alternate
Fuels
____________________________________________
The financing of Gas Equipment in the Alternate Fuel
Equipment Category will allow the System LDCs to compete
more effectively with alternate fuels. The ability to
compete with alternative fuels will enable the System LDCs
to increase sales and thereby increase their revenues,
_______________
(20) GENERAL PUBLIC UTILITIES CORP., HCAR No. 15184
(February 9,1965).
(21) SOUTHERN COMPANY, HCAR No. 35-23888 (October
31,1984).
(22) CONSOLIDATED NATURAL GAS COMPANY, HCAR No. 25615
(August 27,1992).
(23) ENTERGY CORP., HCAR No. 25718 (December 28,1992).
<PAGE> 19
which will ultimately benefit the customers on the System
LDCs through lower fixed costs. As recognized by the
Commission in CITIES SERVICE (24), a business that promotes
competition with other types of fuel is reasonably
incidental or economically necessary or appropriate to the
utility operations. In that the business of CNGF promotes
competition with alternate fuels, such CNGF activities meet
the functionally relationship test of Section 11(b).
Finally, it should be emphasized that Consolidated
is not seeking to diversify into a business with only a
remote nexus to its core gas utility business, such as
financing the construction of, and operating, low income
housing projects, or operating a public transit system (25),
examples of business ventures that the Commission has held
not be "reasonably incidental, or economically necessary or
appropriate" to utility operations. Here, Consolidated is
not seeking to add to its retail gas customer base by owning
or operating unrelated businesses which happen to consume
natural gas. Instead, Consolidated's aim is to help its gas
utilities sell natural gas to consumers by promoting new
uses for gas
_______________
(24) CITIES SERVICES COMPANY, HCAR No. 5028 (May 5,
1944), 15 S.E.C. 962.
(25) MICHIGAN CONSOLIDATED GAS CO., 44 SEC. 361 (1970),
aff'd., 444 F.2d (D.C. Cir. 1971); PHILADELPHIA CO.,
28 SEC 35 (1948), aff'd, 177F.2d 720 (D.C.C. Cir.
1949).
<PAGE> 20
and/or compete with alternative fuel. Also, CNGF's business
is limited to financing Gas Equipment. It does not intend to
hold itself out as an independent financing concern, but
rather the majority of CNGF's business will originate at the
request of System LDCs and their respective end-user
customers.
B. Section 11(b)(1) Public Interest Test
_______________________________________
Consolidated's proposal to finance Gas Equipment
also meets the public interest and investor and consumer
protection standards of Sections 10 and 11 of the Act, in
that the proposed activities are reasonably incidental or
economically necessary or appropriate to the Consolidated
LDCs' utility operations and would further the economical
management, operation, integration and coordination of the
utility system. The proposed Activities will allow the LDCs
to expand their gas markets, thereby increasing their
revenues and allowing their fixed costs of service to be
shared by new consumers. The earnings expected from the
additional revenues as well as any profits derived from
customer financing also will benefit investors in
Consolidated.
For the foregoing reasons, Consolidated and CNGF
submit that the proposed activities of CNGF meet the
requirements of the Act.
<PAGE> 21
IV. PROPOSED METHOD OF CONDUCTING BUSINESS
Authorization is sought for CNGF to assist gas users
and alternate or dual fuel users in obtaining Gas Equipment,
primarily in the commercial and/or industrial areas. CNGF
would accomplish this by providing such users with: (i)
short-term loans to cover the period of installation of the
Gas Equipment until permanent financing can be obtained by
the user, or (ii) long-term loans for a period up to the
expected useful life of the Gas Equipment.
The aggregate amount of financing by CNGF
outstanding from time to time will not exceed $25,000,000,
with an individual customer financing limit of $5,000,000,
at any one time. CNGF will not act as a representative or
agent of any manufacturer or supplier of Gas Equipment.
Marketing representatives of other companies in the
Consolidated System may recommend specific manufacturers or
types of Gas Equipment to end-users. Such recommendations
will not entail any compensation from any manufacturer or
supplier of equipment.
It is expected that the customers for financing will
mainly originate through contacts between LDCs and their
respective end-user customers. For example, a Consolidated
System LDC marketing representative may recommend to a glass
manufacturing company that a new type of Gas Equipment be
installed in a furnace to increase production efficiency. In
order to encourage the customer
<PAGE> 22
to acquire and use such equipment and thereby allow the
System LDC to compete with an alternative fuel, equipment
financing may be offered through CNGF.
Consolidated does not anticipate any changes in the
way that the costs of promoting or marketing gas utilizing
equipment are allocated as a result of CNGF engaging in
financing of Gas Equipment. At the present time, all such
costs are paid by the LDC that will gain the incremental
throughput (sales volumes and/or transportation volumes). It
is anticipated that any incremental costs associated with
the marketing or sale of financing services will be incurred
by CNGF.
CNGF will obtain funding for its loans from
Consolidated. Loans from Consolidated to CNGF would be made
at the cost of funds incurred by Consolidated. Loans made
by CNGF to customers may be either unsecured or secured, and
would be made at a spread above the cost of funds from
Consolidated in order to cover CNGF's costs and earn a
return on its capital; however, in no event will the
interest rate charged exceed the maximum rate authorized
from time-to-time by applicable law. The term of the
customer loan will not exceed the lesser of ten years or the
expected useful life of the Gas Equipment being financed.
CNGF proposed to conduct its activities both within
and outside of the four states of Virginia, West Virginia,
Pennsylvania and Ohio where System LDCs are located
<PAGE> 23
(collectively, "LDC States"). However, during the
twelve-month period beginning on the first day of January in
the year following the date CNGF commences financing of Gas
Equipment pursuant to an order issued in this proceeding,
and for each subsequent calendar year thereafter, total
revenues of CNGF from Gas Equipment financing in LDC States
will exceed total revenues of CNGF derived from Gas
Equipment financing in all other states.
CNGF does not have any full-time employees. It
anticipates that it will obtain accounting, credit,
financial, management, marketing, operating, technical and
clerical support at cost from Consolidated Natural Gas
Service Company, Inc. ("Service Company") pursuant to a
written service agreement. Such services are of a type and
nature which Service Company is authorized under Section
13(b) of the Act to render to associate companies pursuant
to Commission order, dated August 26, 1966 ( HCAR No.
15548).
V. CNGF'S SOURCE OF FUNDS
Consolidated proposes to provide financing, from
time to time on a revolving basis, up to an aggregate of
$25,000,000 at any one time outstanding to CNGF through
December 31, 1997 to fund the activities of CNGF described
herein. CNGF may raise funds through such date by selling
common stock to Consolidated and/or issuing notes to
<PAGE> 24
Consolidated. The notes will have the same effective terms
and interest rates as related borrowings of Consolidated in
one of the forms listed below:
1. Open Account Advances may be made to CNGF to
provide working capital and to finance the
activities described herein. Open account
advances will be made by book entry only and not
evidenced by short-term notes. The open account
advances made to CNGF will bear the same
interest rate as open account advances made to
participants in the Consolidated System Money
Pool, which is equal to the effective weighted
average rate of interest on Consolidated's
commercial paper and/or revolving credit
borrowings. All loans, which will be payable on
demand, may be prepaid at any time without
premium or penalty and will bear interest,
payable monthly, equal to the effective cost of
short-term borrowings to Consolidated or, if no
such borrowings are outstanding, the federal
funds' effective rate as quoted daily by the
Federal Reserve Bank of New York.
2. Consolidated may make long-term loans to CNGF
for the financing of the activities of CNGF
described herein. Loans to CNGF shall be
evidenced by long-term non-negotiable notes
<PAGE> 25
(which may be book entry) of CNGF maturing over
a period of time to be determined by the
officers of Consolidated, with the interest
predicated on and substantially equal to
Consolidated's cost of funds for comparable
borrowings by the parent. In the event
Consolidated has not had recent comparable
borrowings, the rates will be tied to the
Solomon Brothers indicative rate for comparable
debt issuances published in Solomon Brothers Inc
Bond Market Roundup, or to a comparable rate
index, on the date nearest to the time of
takedown. All loans may be prepaid at any time
without premium or penalty.
CNG will obtain the funds required to finance CNGF
Gas Equipment financing activities through internal cash
generation, issuance of long-term debt securities as
authorized by Commission orders dated April 21, 1993 (HCAR
No. 25800) File No. 70-8167, and April 14, 1994 (HCAR No.
26026), File No. 70-8362, borrowings under a credit
agreement, as authorized by Commission orders dated March
28, 1991 (HCAR No. 25283) and September 9, 1992 (HCAR No.
25626), File No. 70-7827, or through other authorizations
approved or to be approved by the Commission.
<PAGE> 26
VI. AUTHORIZATIONS SOUGHT
The following authorizations or determinations are
hereby requested:
(1) For CNGF to obtain, from time to time through
December 31, 1998, funds from Consolidated for
Gas Equipment financing through (a) the sale of
CNGF common stock, $ 10,000 par value, to
Consolidated (b) open account advances from
Consolidated, and (c) long-term loans from
Consolidated, in such amounts that the aggregate
outstanding amount so obtained from Consolidated
for Gas Equipment financing will not at any one
time exceed $25,000,000.
(2) For CNGF, from time to time through December 31,
1998, to (a) purchase at par from Consolidated
shares of CNGF's common stock, $10,000 par
value, previously sold to Consolidated to obtain
funds as described above, (b) hold such
reacquired treasury shares, and (c) resell such
shares to Consolidated at par.
(3) For CNGF to engage in the activities, as
described herein.
<PAGE> 27
VII. FILING OF CERTIFICATES OF NOTIFICATION
It is proposed that CNGF file a certificate of
notification within forty-five (45) days after the end of
each calendar quarterly period, covering those transactions
for which authority will have been granted by the
Commission. Such certificates will show (i) total borrowings
by CNGF from Consolidated, (ii) total repayments of
borrowings to Consolidated by CNGF and (iii) total sales
and/or repurchases by CNGF of its common stock.
(b) Describe briefly, and where practicable state the
approximate amount of any material interest in the proposed
transaction, direct or indirect, of any associate company or
affiliate of the applicant or declarant or any affiliate of
any such associate company.
None, except as set forth in Item 1.(a) above.
(c) If the proposed transaction involves the acquisition
of securities not listed by a registered holding company or
a subsidiary thereof, describe briefly the business and
property, present or proposed, of the issuer of such
securities.
None, except as set forth in Item 1.(a) above.
(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.
Inapplicable.
<PAGE> 28
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.
It is estimated that the expenses to be incurred in
connection with the proposed transactions, other than those
previously indicated, will not exceed $40,000, consisting of
counsel fees not in excess of $20,000, $16,000 payable to
Service Company for services on a cost basis (including
regularly employed counsel), a $2,000 fee for filing this
Application-Declaration, and miscellaneous out-of-pocket
expenses estimated at $2,000.
(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.
If the charges of Service Company in connection with
the preparation of this Application-Declaration on Form U-1
and other related documents and papers required to
consummate the proposed transactions are considered to be
fees or commissions, such fees are described in Item 2(a)
above.
<PAGE> 29
Item 3. Applicable Statutory Provisions
_______________________________
(a) State the sections 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(a) and 7 and Rule 43 may be deemed to
apply to the sale by CNGF of its common stock to
Consolidated, and the open account advances and long-term
debt transactions between Consolidated and CNGF. Sections
9(a) and 10 may apply to the acquisition by Consolidated of
CNGF's securities.
It is believed that Section 12(c) and Rule 42 may be
applicable to purchases of its own common stock by CNGF from
Consolidated. Section 9(a) and 10 of the Act may apply to
the proposed financing transactions between CNGF and others.
Section 12(f) and 13(b) and Rules 87, 90, and 91 may
apply between CNGF and associate companies.
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
provision of the rules or regulations other than those
specifically referred to herein, request for such
authorization, approval or exemption is hereby made.
(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
<PAGE> 30
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.
Inapplicable.
Item 4. Regulatory Approval
___________________
(a) State the nature and extent of the jurisdiction
of any State commission or any Federal commission (other
than the Securities and Exchange Commission) over the
proposed transaction.
No State commission or Federal commission other than
the Securities and Exchange Commission has jurisdiction over
any of the proposed transactions.
(b) Describe the action taken or proposed to be
taken before any commission named in answer to paragraph (a)
of this term in connection with the proposed transaction.
Inapplicable.
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 Commission action with respect
to the transaction set forth in this Application-Declaration
become effective on or before September 15, 1994.
(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
<PAGE> 31
the Commission, (iii) whether the Office of Public Utility
Regulation of 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.
It is submitted that a recommended decision by a
hearing or other responsible officer of the Commission is
not needed with respect to the proposed transactions. The
Office of Public Utility Regulation of the Division of
Investment Management may assist in the preparation of the
Commission's decision. There should be no 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
_________________________________
The following exhibits and financial statements are
filed as a part of this statement:
(a) Exhibits
________
A - Constituent Instruments
A-1 Certificate of Incorporation of CNGF
(See Form SE dated June 15, 1989)
A-2 By-Laws of CNGF
(See Form SE dated June 15, 1989)
B - Agreements and Documents Relating to
Transactions.
B-1 List of Categories of Equipment (and
examples of each) That CNGF
Prospectively Could Assist with
Financing
(Filed herewith)
<PAGE> 32
F - Opinions of Counsel.
(To be filed by amendment.)
O - Proposed notice pursuant to Rule 22(f).
(b) Financial Statements
____________________
Financial Statements are deemed unnecessary with
respect to the authorizations sought herein due to the
simple nature of the proposed transactions involving the
financing of Gas Equipment of relatively insignificant
amounts. However, any financial information will be
furnished which the Commission shall request.
Item 7. Information as to Environmental Effects
_______________________________________
(a) Describe briefly the environmental affects 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. 4332(2)(C)). If the response to this item 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.
As more fully described in Item 1(a), the proposed
transactions subject to the jurisdiction of this Commission
relate to financing proposals and involve no major federal
action significantly affecting the human environment.
(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.
None.
<PAGE> 33
SIGNATURES
__________
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned Company has
duly caused this statement to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
By L. D. Johnson
Executive Vice President
and Chief Financial Officer
CNG FINANCIAL SERVICES, INC.
By N. F. Chandler
Secretary
Dated: August 26, 1994
<PAGE> 1
Exhibit B-1
Types of Equipment that CNG Financial Services, Inc.
Prospectively Could Finance
By Category
STANDARD GAS APPLIANCES
- - This
classification would include most of the traditional
residential and commercial gas appliances, such as:
Ranges
Dryers
Water Heaters
Forced Air Furnaces
Gas Lights
Gas Boilers that are not a conversion from an alternate
fuel
APPLIANCES USING NEW OR UNFAMILIAR TECHNOLOGIES / NEW
APPLICATION OF EXISTING TECHNOLOGY
Gas Air Conditioning
Gas Fired Heat Pump
Combination space and water heating units (primarily
used for apartments)
Desiccant cooling systems
Incinerators
Gas Turbines
Gas Engines
Sludge Drying Equipment
Co-firing Equipment
APPLIANCES USED TO COMPETE COMPETITIVELY
- - Many industrial process applications, as well as space
conditioning and food service applications, have
competitively fueled pieces of equipment. Gas Equipment
that CNGF will finance will include any equipment necessary
to convert the unit to use natural gas. Also, gas
equipment may include equipment that is manufactured and
sold as a complete integrated unit that burn gas. Examples
of possible Gas Equipment in this category include the
following:
Boilers
Gas Burners
Gas Engines
Kilns
Steam Turbines
Fryers
Dryers
Commercial Food Service Equipment
Gas Heat Pumps
<PAGE> 1
Exhibit O
Proposed Notice
Pursuant to Rule 22(f)
(Release No. 35- )
FILINGS UNDER THE PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935 ("ACT")
July , 1994
Notice is hereby given that the following filing(s)
has/have been made with the Commission pursuant to
provisions of the Act and rules promulgated thereunder. All
interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed
transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendments thereto is/are available
for public inspection through the Commission's Office of
Public Reference.
Interested persons wishing to comment or request a
hearing on the application(s) and/or declaration(s) should
submit their views in writing by August , 1994 to the
Secretary, Securities and Exchange Commission, Washington,
DC 20549, and serve a copy on the relevant applicant(s)
and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in case of an attorney at
law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues
of fact or law that are disputed. A person who so requests
will be notified of any hearing, if ordered, and
<PAGE> 2
will receive a copy of any notice or order issued in the
matter. After said date, the application(s) and/or
declaration(s), as filed or as amended, may be granted
and/or permitted to become effective.
____________________________________
Consolidated Natural Gas Company, et al. (70-7508)
Consolidated Natural Gas Company ("Consolidated"),
CNG Tower, Pittsburgh, Pennsylvania 15222-3199, a registered
holding company, has filed an Application-Declaration with
the Commission pursuant to Sections 6(a), 7, 9(a), 10 and
12(c) of the Public Utility Holding Company Act of 1935
("Act") and Rule 42 thereunder. Consolidated and all of its
subsidiaries are referred to herein as the "Consolidated
System."
Consolidated seeks to have CNG Financial Services,
Inc. ("CNGF") engage in the financing of gas utilizing
equipment ("Gas Equipment"). The Gas Equipment that CNGF
proposes to finance will fall into one or more of the
following categories:
1. Standard gas appliances ("Standard Gas
Appliances");
2. Appliances using new or unfamiliar technology or
appliances using a new application of existing
technology. ("New Technology Equipment"); or
<PAGE> 3
3. Gas Equipment which will enable an end-user to
use natural gas as an alternative to another
fuel ("Alternate Fuel Equipment").
The Standard Gas Appliances that CNGF will finance
will include Gas Equipment similar to the standard gas
appliances of Rule 48. Standard Gas Appliances would
include such Gas Equipment as ranges, dryers, and furnaces.
Most of the Standard Gas Appliances would be used by
residential and small commercial users.
CNGF also proposes to finance New Technology
Equipment. Such equipment would include Gas Equipment that
would be marketed to promote new or unfamiliar technology
that uses gas as its main source of fuel, which could
include equipment using existing technology designed for a
new application. Examples of New Technology Equipment would
be gas heat pumps, gas air conditioning and gas turbines.
Alternate Fuel Equipment would include Gas Equipment
marketed to compete with alternative fuels. Such equipment
may be the equipment necessary to convert the unit to use
natural gas as a fuel. Alternate Fuel Equipment would,
however, be limited to Gas Equipment that would enable an
end-user to use natural gas as fuel and would not include
equipment that can be sold without apparatus to use gas as
fuel. For example, a coal-burning boiler by itself would
not be Gas Equipment, but the energy connective apparatus
enabling the coal-burning boiler to use gas as fuel would be
Gas Equipment.
<PAGE> 4
Alternate Fuel Equipment may also include Gas
Equipment that is manufactured and sold as a complete unit
that burns gas. These integrated compact units, such as
compact gas generators, not only are similar to standard gas
appliances, but also is designed to compete with alternate
fuels.
CNGF proposes to assist gas users and alternate or
dual fuel users in obtaining Gas Equipment, primarily in the
commercial and/or industrial areas. CNGF would seek to help
Consolidated local distribution companies promote new and
unfamiliar gas technologies and promote competition with
alternate fuels. CNGF would accomplish this by providing
such users with: (i) short-term loans to cover the period of
installation of the Gas Equipment until permanent financing
can be obtained by the user, or (ii) long-term loans for a
period up to the expected useful life of the Gas Equipment.
The aggregate amount of financing by CNGF outstanding from
time to time will not exceed $25,000,000, with an individual
customer financing limit of $5,000,000 at any one time.
CNGF will not act as a representative or agent of any
manufacturer or supplier of Gas Equipment. Marketing
representatives of other companies in the Consolidated
System may recommend specific manufacturers or types of Gas
Equipment to end users. Such recommendations will not
entail any compensation from any manufacturer or supplier of
equipment.
<PAGE> 5
CNGF will obtain funding for its loans from
Consolidated. Loans from Consolidated to CNGF would be made
at the cost of funds incurred by Consolidated. Loans made
by CNGF to customers may be either unsecured or secured, and
would be made at a spread above the cost of funds from
Consolidated in order to cover CNGF's costs and earn a
return on its capital; however, in no event will the
interest rate charged exceed the maximum rate authorized
from time-to-time by applicable law. The term of the
customer loan will not exceed the lesser of ten years or the
expected useful life of the Gas Equipment being financed.
CNGF proposed to conduct its activities both within
and outside of the four states of Virginia, West Virginia,
Pennsylvania and Ohio where 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 CNGF commences financing of Gas
Equipment pursuant to an order issued in this proceeding,
and for each subsequent calendar year thereafter, total
revenues of CNGF from Gas Equipment financing in LDC States
will exceed total revenues of CNGF derived from Gas
Equipment financing in all other states.
Consolidated proposes to provide financing up to an
aggregate of $25,000,000 to CNGF through December 31, 1998
to fund the activities of CNGF described herein. CNGF may
raise funds through such date by selling common stock to
<PAGE> 6
Consolidated and/or issuing notes to Consolidated. CNGF is
also requesting authority to repurchase shares of its common
stock from Consolidated from time to time. The notes will
have the same effective terms and interest rates as related
borrowings of Consolidated in one of the forms listed below:
1. Open Account Advances may be made to CNGF to
provide working capital and to finance the activities
described herein. Open account advances made to CNGF will
bear the same interest rate as open account advances made to
participants in the Consolidated System Money Pool, which is
equal to the effective weighted average rate of interest on
Consolidated's commercial paper and/or revolving credit
borrowings. All loans, which will be payable on demand, may
be prepaid at any time without premium or penalty and will
bear interest, payable monthly, equal to the effective cost
of short-term borrowings to Consolidated or, if no such
borrowings are outstanding, the federal funds' effective
rate as quoted daily by the Federal Reserve Bank of New
York.
2. Consolidated may make long-term loans to CNGF
for the financing of the activities of CNGF described
herein. Loans to CNGF shall be evidenced by long-term
non-negotiable notes (which may be book entry) of CNGF
maturing over a period of time to be determined by the
officers of Consolidated, with the interest predicated on
and substantially equal to Consolidated's cost of funds for
<PAGE> 7
comparable borrowings by the parent. In the event
Consolidated has not had recent comparable borrowings, the
rates will be tied to the Solomon Brothers indicative rate
for comparable debt issuances published in Solomon Brothers
Inc Bond Market Roundup, or to a comparable rate index, on
the date nearest to the time of takedown.
CNG will obtain the funds required to finance CNGF
Gas Equipment financing activities through internal cash
generation, issuance of long-term debt securities as
authorized by Commission orders dated April 21, 1993 (HCAR
No. 25800) File No. 70-8167, and April 14, 1994 (HCAR No.
26026), File No. 70-8362, borrowings under a credit
agreement, as authorized by Commission orders dated March
28, 1991 (HCAR No. 25283) and September 9, 1992 (HCAR No.
25626), File No. 70-7827, or through other authorizations
approved or to be approved by the Commission.
____________________________________
For the Commission, by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
