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File Number 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and
the parent of the other parties)
CNG ENERGY SERVICES CORPORATION
CNG POWER COMPANY
CNG SPECIAL PRODUCTS AND SERVICES, INC.
One Park Ridge Center
P.O. Box 15746
Pittsburgh, Pennsylvania 15244-0746
Names and addresses of agents for service:
S. E. WILLIAMS, Senior Vice President N. F. CHANDLER, General Attorney
and General Counsel Consolidated Natural Gas
Consolidated Natural Gas Company Service Company, Inc.
CNG Tower CNG Tower
625 Liberty Avenue 625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199 Pittsburgh, Pennsylvania 15222-3199
With a copy to:
Gary W. Wolf, Esq.
Cahill, Gordon & Reindel
Eighty Pine Street
New York, NY 10005
<PAGE> 2 File Number 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
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.
Consolidated Natural Gas Company ("Consolidated") is a public utility
holding company registered as such under the Public Utility Holding Co. Act of
1935 ("Act" or "1935 Act"). It is engaged solely in the business of owning and
holding all of the outstanding securities of sixteen subsidiaries. These
subsidiary companies are primarily engaged in natural gas exploration,
production, purchasing, gathering, transmission, storage, distribution,
marketing and by-product operations.
I. OVERVIEW OF RESTRUCTURING APPLICATION
The purpose of the Application is two-fold. First, this application-
declaration ("Application") contains the request of Consolidated and three of
its wholly-owned subsidiaries, CNG Energy Services Corporation ("Energy
Services")
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CNG Power Company ("CNG Power") and CNG Special Products and Services, Inc.
("CNG Special Products"), for various authorizations to effect a restructuring
of a group of companies in the Consolidated Natural Gas System ("CNG System" or
"System") which are in the non-utility energy business. This would move the
CNG System independent power companies and other non-utility energy related
companies, other than the current System transmission, production and hub
companies, to become direct or indirect subsidiaries of Energy Services. The
resulting configuration would cause this part of the CNG System (the "Energy
Services Group") to conform with its managerial reporting structure.
The second purpose of the Application is to enhance the current
authorization of the non-utility part of the CNG System so that it may engage
in a broader spectrum of energy related businesses than that in which Energy
Services can now engage. This would allow the System to compete more
effectively in the rapidly changing non-utility energy industry. To accomplish
this end, Consolidated seeks broadened authority for Energy Services and
authority to form one or more new subsidiaries to engage in such non-utility
energy services.
The Application is believed to be in alignment with the efforts of the
Securities and Exchange Commission ("Commission") to modernize its
administration of the Act.
II. PROPOSED RESTRUCTURING TRANSACTIONS
The restructing of the Energy Services Group would be effected through the
following steps.
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(1) CNG LAKEWOOD, INC. CNG Lakewood, Inc. ("CNG Lakewood") is
currently a wholly-owned subsidiary of CNG Power Services Corporation
("CNG Power Services"), which has exempt wholesale generator ("EWG")
status under Section 32 of the Act. CNG Lakewood owns a 1% general
partnership interest in Lakewood Cogeneration L.P. ("Lakewood
Partnership"), which is also an EWG. CNG Power owns a 34% limited
partnership interest in Lakewood Partnership and had owned all of the
outstanding common stock of CNG Lakewood now held by CNG Power Services.
In the event the Commission authorizes Energy Services to engage in power
marketing as described in more detail below, the need for CNG Power
Services as the power marketing company of the CNG System would lessen.
In such case, it is proposed to transfer the issued and outstanding shares
of common stock of CNG Lakewood from CNG Power Services back to CNG Power
as part of a liquidating dividend from CNG Power Services to Consolidated
and a subsequent capital contribution by Consolidated of such stock to CNG
Power. This would result in CNG Power having ownership of all independent
power production entities in the CNG System, its designated role.
Subsequent to the transfer by CNG Power Services to Consolidated of the
CNG Lakewood stock, CNG Power Services may (i) continue to function as a
power marketer (even though relinquishing its EWG status) either by
remaining a direct subsidiary of Consolidated or by becoming a subsidiary
of Energy Services through a capital contribution by Consolidated to
Energy Services of all of the outstanding common stock of CNG Power
Services, (ii) ultimately conclude its current power marketing business,
including transferring that portion of its business that is assignable to
Energy Services, after which CNG Power Services would be dissolved, or
(iii) merge with Energy Services, with the latter company succeeding to
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all the rights and liabilities of CNG Power Services' power marketing
business.
(2) CNG SPECIAL PRODUCTS AND SERVICES, INC. By order dated
August 28, 1995, HCAR No. 26363, File No. 70-8577, Consolidated and Energy
Services were authorized to form a new subsidiary of Energy Services
called CNG Special Products and Services, Inc. ("CNG Special Products").
Various utility customer products and services will be offered through CNG
Special Products. In order to have CNG Power's activities concentrated in
independent power production, it is proposed to move the present Liquids,
Technical Products and Natural Gas Vehicle Divisions of CNG Power to CNG
Special Products. This would be effected through a dividend of the assets
of such divisions to Consolidated, with subsequent transfer of the same to
CNG Special Products through sequential contributions of capital by
Consolidated and Energy Services. Such a transfer would be in furtherance
of CNG Special Products' designation as the Energy Services subsidiary to
contain business operations which are not of immediate significance to
justify the creation of another corporation in which to be "housed", and
which do not otherwise fall within the ambit of another existing associate
company within the CNG System.
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(3) CNG POWER COMPANY. All of the issued and outstanding shares of
common stock of CNG Power are owned by Consolidated. These shares would
be transferred as a capital contribution to Energy Services, thereby
making CNG Power a wholly-owned subsidiary of Energy Services. Currently
the management of CNG Power report to the chief executive officer of
Energy Services. To make CNG Power a direct subsidiary of Energy Services
would thus make the Energy Services Group corporate organization chart
agree with its managerial structure.
(4) CNG MARKET CENTER SERVICES, INC. All of the issued and
outstanding shares of common stock of CNG market Center Services, Inc.,
("CNG Market Center") are owned by CNG Power. As part of the movement of
CNG Power from being a direct subsidiary of Consolidated to being a direct
subsidiary of Energy Services, CNG Power will need to transfer as a
dividend to Consolidated its ownership of all of the issued and
outstanding shares of common stock of CNG Market Center. This is
necessary in order to maintain certain business efficiencies and provide
maximum flexibility in CNG Market Center's operations that would not be
available if the market center business of the CNG System were to be under
Energy Services, the marketing company of the System.
(5) CNG STORAGE SERVICE COMPANY. All of the issued and outstanding
common stock of CNG Storage Service Company ("CNG Storage") would be
transferred by Consolidated as a capital contribution to Energy Services,
thereby making CNG Storage a wholly-owned subsidairy of Energy Services.
This would cause the natural gas storage business of CNG Storage to be at
the proper supervisory level in the Energy Services Group structure.
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Exhibit G consists of the Energy Services Group organization charts before
and after the proposed restructuring.
III. EXPANSION OF ENERGY SERVICES' BUSINESS
A. Increase in Spectrum of Authorized Activities
Request is hereby made for authority through December 31, 2000 for Energy
Services to acquire interests in a significantly wider spectrum of activities
in conducting its business as a non-utility energy company. Specifically,
Energy Services requests to engage in the following core energy related
activities ("Core Activities"). Request is also made for Consolidated to form
new, directly owned subsidiaries to engage in the Core Activities if
Consolidated deems it appropriate to have such directly owned subsidiaries
rather than Energy Services engage in such businesses.
(1) energy conservation and demand-side management;
(2) electrotechnologies and commercial applications thereof that are
related to conservation of energy, improved energy efficiency, energy
storage, greenhouse gas reductions, and similiar activities;
(3) manufacture, conversion, sale and servicing of electric and
compressed natural gas powered vehicles and refueling/recharging
infrastructure;
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(4) sales, leasing, servicing and financing of electric and gas
utilizing equipment for residential, commercial and industrial purposes;
(5) brokering and marketing of energy related commodities, including but
not limited to electricity, natural or manufactured gas and other
combustible fuels;
(6) production, conversion, and distribution of thermal energy products
(e.g., process steam, heat, hot water, chilled water, air conditioning,
and the like), alternative fuels, and renewable energy resources;
(7) the sale of technical, operational, management, and other similar
kinds of services and expertise to unaffiliated foreign and domestic
companies and governmental authorities in such areas as power plant and
transmission system design; gas exploration, development, transmission
or storage system design; construction, maintenance and operation; and
fuel procurement, delivery and management; environmental licensing,
testing and remediation;
(8) investment in and operation of "qualifying facilities" within the
meaning of the Public Utility Regulatory Policies Act of 1978, (Pub. L
95-617) ("PURPA"), and facilities that are necessary or incidental
thereto, including thermal energy utilization facilities purchased or
constructed primarily to enable the "qualifying facility" to satisfy the
useful thermal output requirements under PURPA;
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(9) investment in and development, construction, lease and sale of
components of power plants or gas system facilities, such as fuel
handling and storage facilities, scrubbers, and resource recovery and
waste water treatment facilities, provided that the foregoing shall not
include investment in facilities for the generation, transmission or
distribution of electric energy or distribution of natural or
manufactured gas;
(10) exploration, development, production, gathering, transportation,
manufacturing, processing, storage and sale of natural or artificial
gas, propane and associated and non-associated petroleum products;
(11) the development, production, marketing and financing of
applications, technologies, products, and services that have been
developed in a core energy business; and
(12) such other activities and investments as the Commission may, from
time to time, upon application under Section 10 of the Act designate as
"Core Activities."
B. Integration with Financing Authorizations
The aggregate dollar amount of investment in Core Activities by
Consolidated and/or Energy Services and/or their respective direct or indirect
subsidiaries during the period ending December 31, 2000 pursuant to an
authorization in this proceeding will not exceed $500,000,000, which is
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approximately 15% of Consolidated's current capitalization. The following will
not be included in the calculation of the amount available for additional
investments under the $500,000,000 dollar limitation: (i) investments made to
acquire interests in jointly owned entities pursuant to the authorization
granted in Commission order dated July 26, 1995, HCAR No. 26341, File No. 70-
8621, (ii) investments made in a business after an "establishment period" of
two years from the initial acquisition of an interest in such business pursuant
to the authorization granted in this proceeding, after which time the exemption
allowed for non-utility subsidiaries under Rule 52, as amended by HCAR No.
26311, dated June 20, 1995, would apply, and (iii) investments for which there
is no recourse, directly or indirectly, to Consolidated.
C. Exemptions with Respect to Subsidiaries/Affiliates
It is also requested that Consolidated and/or Energy Services be permitted
to engage in Core Activities through formation of, and investments in, any
direct or indirect subsidiary company or affiliate which derives or will derive
substantially all of its revenues from Core Activities (a "Core Activity
Company") and which is not:
(1) a holding company,
(2) a public utility company,
(3) an exempt wholesale generator,
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(4) a foreign utility company,
(5) a company which is engaged primarily in the
business of performing services or construction
for or selling goods to associate public utility
companies, or
(6) a company (other than the registered holding
company) controlling, directly or indirectly, any
company specified in paragraphs (1) through
(5) above if the investment is to be
made in a company specified in such paragraphs.
Consolidated and Energy Services request an exemption from Section 9(a),
pursuant to Section 9(c)(3) of the Act, and 12(b) so that they may, without the
need to apply for or obtain an order of the Commission, acquire the securities
of and/or make capital contributions and other advances to any Core Activity
Company described above in order to finance the business of such subsidiary or
affiliate, provided that Consolidated has a long-term debt rating of investment
grade as established by at least one nationally recognized statistical rating
organization (as that term is used in Rule 15c3-1(c)2(vi)(F) under the
Securities Exchange Age of 1934 ("1934 Act")).
D. Appropriate under Section 11(b) of the Act
The first sentence of Section 11(b)(1) of the Act limits the operations of
a registered holding company system 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. The last sentence of Section 11(b)(1) states that the
Commission may permit as reasonably incidental, or economically necessary or
appropriate to the operations of one or more integrated public utility systems
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the retention of an interest in any 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 or systems.
In view of the rapidly changing nature of the energy markets in North
America as the twentieth century draws to a close, particularly the increasing
convergence of the gas and electric power markets due to the interchangeability
of energy forms, the Core Activities in which Energy Services proposes to
engage should be deemed to be incidental and appropriate to the operations of
the Consolidated System. A substantial portion of Energy Services' business
would still consist of gas marketing, and the Core Activities portion which
would not involve gas directly would be energy-related and in many cases would
involve gas indirectly. Highly competitive energy markets are making the
classification of companies as solely gas or electric obsolete. Consolidated
through its investments in cogeneration facilities already has part ownership
in eight plants capable of producing 438 megawatts of power. It is for these
reasons that the Core Activities are incidental and appropriate to the energy
operations of the CNG System.
The public interest appropriateness of the Core Activities of Energy
Services is evidenced by the recent history of federal legislation and
regulatory action which has strongly promoted the development of competitive
energy markets. Such legislation primarily consists of the following.
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1. Public Utility Regulatory Practices Act of 1978
PURPA defines a "cogeneration facility" as a facility which produces
electric energy and steam or other forms of useful energy (such as heat) which
are used for industrial, commercial, heating or cooling purposes (16 USCA 796
(18)(A)). PURPA further defines a "qualifying cogeneration facility" ("Cogen")
as a cogeneration facility which meets the requirements of the Federal Energy
Regulatory Commission ("FERC") respecting minimum size, fuel use, and fuel
efficiency (16 USCA 796 (18)(B)). The FERC operating and efficiency standards
for Cogens are set forth in 18 CFR 292.205(a) and (b). PURPA also requires
electric utilities to purchase electric energy from, and sell electric energy
to, Cogens (16 USCA 824a-3). PURPA allowed FERC to exempt Cogens from being
electric utility companies under Section 2(a)(3) of the Act, which FERC did at
18 CFR 292.602. PURPA can thus be viewed as Congress's initial action to
provide for greater efficiencies in energy markets through the liberalization
of the restraints placed on electric generation by the Act.
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2. Cogeneration Statutes
Even though Cogens became exempt from the Act by virtue of PURPA and FERC
rulemaking, Consolidated and the other registered gas holding companies were
prevented from investing in Cogens under a strict interpretation of the
functional relationship requirement of Section 11(b) of the Act. This
restraint was removed by Public Law 99-186 (December 18, 1985), which stated
that notwithstanding Section 11(b)(1) of the Act, a company in a registered gas
holding company system could acquire and retain, in any geographic area, any
interest in a Cogen.
Public Law 86-553 (October 27, 1986) broadened the scope of the 1985
statute by providing that any company in a registered holding company system
(whether gas or electric) could acquire and retain, in any geographic area, an
interest in a Cogen. The 1986 statute thus allowed electric holding company
systems to invest in Cogens without needing to comply with the operational
integration requirements of the Act.
These two Cogen statutes together are further evidence of Congressional
intent to foster the development of competitive energy markets. Congress
acheived this by removing restraints otherwise imposed by the Act on registered
holding company participation in such markets.
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3. Gas Related Activities Act of 1990
The Gas Related Activities Act of 1990 (Pub.L 101-572, November 15, 1990)
("GRAA") is an important step in the evolution of Congressional thinking on
removing Section 11(b) restraints to allow registered gas holding companies to
compete in energy markets with those not restrained by the Act. The GRAA
essentially made inapplicable, as to gas related activities of a registered gas
holding company, the functionally related requirement of Section 11(b)(1),
which requires a showing of benefit to the utility companies of the system.
Substituted in lieu thereof, is a standard based on consumer benefit and
absence of detriment to the proper functioning of the system. Congress, in
weighing the matter, clearly came down in favor of removal of the traditional
Section 11(b)(1) restrictions when such would promote energy industry
efficiencies and consumer benefits.
4. Energy Policy Act of 1992
The enactment of the Energy Policy Act of 1992 (Pub L. 102-486, October
24, 1992) ("EPA92") is the most recent and significant step in freeing up the
wholesale energy markets in the United States. EPA92 added Sections 32 and 33
to the Act, which created the categories of EWG and foreign utility company
("FUCO"), respectively. An EWG as defined in Section 32 means any person
determined by FERC to be engaged in the business of owning or operating an
eligible facility. The definition of "eligible facility" in Section 32
includes a facility which is used for the generation of electric energy
exclusively for sale at wholesale. Section 32(e) states that EWGs shall not be
considered electric utility companies under the Act. Section 32(g) allows a
registered holding company to acquire interests in EWGs or FUCOs without prior
approval of the SEC
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Two salient features of EPA92 indicating further federal policy of
liberalizing energy markets are (i) the category of EWG under EPA92 is broader
than that of a Cogen under PURPA in that there is no requirement for an
industrial or commercial host using an alternative energy form in the former
case (which greatly reduces facility complexity, cost, and siting problems) and
(ii) EWGs, unlike Cogens, are exempt from all provisions of the Act (which
makes for ease of operation of a facility within a registered holding company
system). EPA92 can be regarded as laying the groundwork for what is generally
anticipated to be the next big step in opening energy markets to greater
competition, i.e. open access on utility transmission lines or the electric
industry equivalent of FERC Order 636.
5. FERC Action
Due to the issuance of Order 636 by FERC in 1992, interstate pipelines,
such as Consolidated's subsidiary CNG Transmission Corporation, ceased to be
merchants or sellers of gas. The pipelines became common carriers under the
open access provisions of Order 636, with their transportation and storage
services becoming unbundled from the sale of natural gas.
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As a result of Order 636, a market in released transportation and storage
capacity has developed. Natural gas customers, such as local distribution
companies ("LDCs"), now have significantly increased responsibility and control
over gas supply and transportation capacity. Gas marketers have entered the
business of assisting these customers in managing their daily supply
requirements. The early multitude of gas marketers is now being replaced
through industry consolidation by the emergence of several mega-marketers.
Parallels of these developments are developing in the electric industry
deregulation process.
FERC has taken steps in the direction of opening up wholesale power
markets. On March 29, 1995, it issued a proposal (Docket No. RM95-8-000) which
would require investor-owned electric utilities to provide "open access" to
their interstate transmission systems. This would allow distant utilities or
wholesale customers to buy and sell power over transmission lines owned by
others. Tariffs would be posted by the utilities for the transmission of power
and allied services, with the same rates applying to their own wholesale
transactions.
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6. State Action
There are several state initiatives underway, such as open access
proposals for California and Wisconsin. On May 15, 1995, it was announced that
a coalition of Rhode Island utilities, businesses and consumer groups agreed on
general guidelines to form an open market for electricity which would include
retail wheeling. The Rhode Island accord has not yet been approved by
regulators, but it represents the first time that all the parties needed to
advance deregulation have found a common ground.
IV. AUTHORIZATIONS REQUESTED
The following authorizations are hereby requested.
1. For CNG Power Services to transfer its ownership of all the
outstanding common stock of CNG Lakewood to Consolidated as a dividend,
and for Consolidated to subsequently transfer such shares of CNG Lakewood
to CNG Power as a contribution to capital.
2. For Consolidated to transfer its ownership of all of the
outstanding shares of common stock of CNG Power Services to Energy
Services as a capital contribution.
3. For CNG Power Services, in the event that Energy Services decides
not to continue it as a power marketer, to either (i) ultimately conclude
its current power marketing business, including the transfer of that
portion of its business that is assignable to Energy Services, after which
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it would be dissolved, or (ii) merge with Energy Services, with the latter
company succeeding to all of its rights and liabilities as a power
marketer, and all of the outstanding shares of CNG Power Services being
cancelled.
4. For CNG Power to transfer all of the assets of its Liquids ,
Technical Products and Natural Gas Vehicle Divisions to Consolidated as a
dividend (the value of such dividend to be the net assets after adjusting
for related liabilities), and for Consolidated to subsequently transfer
such assets to CNG Special Products as a contribution to capital.
5. For Consolidated to transfer its ownership of all of the
outstanding shares of common stock of CNG Power to Energy Services as a
contribution to capital.
6. Prior to or simultaneously with the action described in Paragraph
4 immediately above, for CNG Power to transfer its ownership of all of the
outstanding common stock of CNG Market Center to Consolidated as a
dividend.
7. For Consolidated to transfer its ownership of all of the
outstanding shares of common stock of CNG Storage to Energy Services as a
contribution to capital.
8. For Consolidated and Energy Services to acquire interests in Core
Activity Companies as described herein.
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9. For Energy Services and/or Core Activity Companies to engage in
Core Activities, including formation of and investments in their
respective subsidiaries, without any additional prior Commission order as
described in detail above.
V. FILING OF CERTIFICATES OF NOTIFICATION
It is proposed that the reporting system of the 1934 Act be integrated
with the reporting system under the 1935 Act with respect to matters covered by
this Application. This would eliminate duplication of filings with the
Commission that cover essentially the same subject matters, resulting in a
reduction of expense for the Commission, Consolidated and Energy Services. To
effect such integration, the 1934 Act reports would be incorporated by
reference into this proceeding. The parties to this Application therefore
undertake to file a certificate of notification under Rule 24 only to report
the following: (i) the specific place, in documents being incorporated by
reference, at which disclosures concerning the authorizations granted pursuant
to this Application-Declaration are located, and (ii) any transaction which is
not otherwise reported or reflected, directly or indirectly, in a report filed
by Consolidated under the 1934 Act or otherwise in another 1935 Act report such
as a Form U5S. Such certificate of notification would be filed within 90 days
after the end of the calendar quarter in which a transaction occurs.
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VI. DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission before or during the
period of effectiveness of an order issued in this proceeding shall be deemed
to be incorporated into this Application and to be a part hereof from the date
of filing of such documents with the Commission, or if filed before the date of
filing of this Application, from the date of the filing hereof.
1934 Act
Consolidated's most recent Form 10-K Annual Report heretofore filed with
the Commission, its Form 10-Q Quarterly Reports filed heretofore
subsequent to the filing of the aforesaid Form 10-K, and all documents
filed by Consolidated pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the 1934 Act subsequent to the date of filing of this Application. (File
No. 1-3196).
1935 Act
Consolidated's most recent Form U5S Annual Report, File No. 30-203,
heretofore filed with the Commission pursuant to the 1935 Act, and each
Form U5S filed from the date hereof.
VII. RULE 53 SATISFIED
Rule 54 promulgated under the Act states that 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 a FUCO, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
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capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rules 53(a), (b) or (c) are satisfied.
Currently Consolidated owns indirectly a 1% general partnership and a 34%
limited partnership interest in Lakewood Cogeneration, L.P. ("Lakewood"), an
EWG. On November 30, 1994, the 1% general partnership interest in Lakewood was
acquired by CNG Power Services Corporation, an EWG and a newly-formed
wholly-owned subsidiary of Consolidated, from CNG Energy Company (now CNG
Power), another wholly-owned subsidiary of Consolidated, in a transaction
exempt under Rule 43(b)(2). Consolidated does not own any interests in a FUCO.
Consolidated believes that Rule 53(a), (b) and (c) are satisfied in its case as
follows.
Fifty percent of Consolidated's retained earnings as of June 30, 1995 was
$662,298,000; Consolidated's aggregate investment (as defined in Rule
53(a)(l)(i)) in Lakewood on such date and in both its EWGs as of the date of
filing of this Application-Declaration is estimated to be approximately
$18,000,000, thereby satisfying Rule 53(a)(l). Consolidated and its
subsidiaries maintain books and records to identify the investments in and
earnings from its EWGs in which they directly or indirectly hold an interest,
thereby satisfying Rule 53(a)(2). In addition, the books and records of each
such entity are kept in conformity with United States generally accepted
accounting principles ("GAAP"), the financial statements are prepared according
to GAAP, and Consolidated undertakes to provide the SEC access to such books
and records and financial statements as it may request. Employees of
Consolidated's domestic public-utility companies do not render services,
directly or indirectly, to the EWGs in the Consolidated System, thereby
satisfying Rule 53(a)(3). No application for EWG financing has been filed with
the Commission since adoption of Rule 53; Rule 53(a)(4) is correspondingly
inapplicable at this time
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None of the conditions described in Rule 53(b) exist with respect to
Consolidated, thereby satisfying Rule 53(b) and making Rule 53(c) inapplicable.
VIII. SERVICE CONTRACTS WITH CORE ACTIVITY COMPANIES
Core Activity Companies may contract for services from Energy Services or
other non-utility company in the CNG System that is determined to be best
suited to provide them by virtue of it expertise and experience. Request is
made for authorization allowing such services to be furnished at market-based
rates pursuant to an exception from the requirements of Section 13(b) of the
Act and Rules 90 and 91 thereunder.
(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 issued by a registered holding company or a subsidiary thereof, describe
briefly the business and property, present or proposed, of the issuer of such
securities.
Inapplicable.
(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.
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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 fees, commissions and expenses ascertainable at
this time to be incurred by Consolidated and Energy Services in connection with
the herein proposed transactions will consist of the $2,000 filing fee under
the Act, $8,000 payable to Consolidated Natural Gas Service Company, Inc.
("Service Company") for services on a cost basis (including regularly employed
counsel) for the preparation of this Application and other documents, $20,000
payable annually to affiliated and non-affiliated professionals with respect to
specific Core Activities, and $3,000 for miscellaneous other expenses.
(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.
The charges of Service Company in connection with the preparation of this
Application on Form U-1 and other related documents and papers
required to consummate the proposed transactions are included in the above.
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.
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Sections 9, 10(a) and 12(f) and Rule 45 are believed to be applicable to
the following proposed transactions:
The (i) acquisitions by Consolidated of (a) the common stock of CNG Market
Center from CNG Power, (b) the common stock of CNG Lakewood from CNG Power
Services and (c) the assets of the Liquids, Technical Products and Natural
Gas Vehicle Divisions from CNG Power; and (ii) the capital contributions
by Consolidated of (x) the CNG Lakewood common stock to CNG Power, (y) the
Liquids, Technical Products and Natural Gas Vehicle Division assets to CNG
Special Products and (z) the CNG Storage, CNG Power and CNG Power Services
common stocks to Energy Services.
The acquisition by CNG Power from Consolidated of the common stock of CNG
Lakewood.
The acquisition by Energy Services of the power marketing business of CNG
Power Services through assignment and/or merger, subsequent to which the
outstanding shares of common stock of CNG Power Services would be
canceled.
The acquisition by Energy Services from Consolidated of (i) the common
stocks of CNG Storage, CNG Power and CNG Power Services, and (ii) the
assets of the Liquids, Technical Products and Natural Gas Vehicles
Divisions.
The acquisition by CNG Special Products from Energy Services of the assets
of the Liquids, Technical Products and Natural Gas Vehicle Divisions.
<PAGE> 26
Sections 9 and 10(a) may also apply to Energy Services and Core Activity
Companies engaging in Core Activities requested herein.
Section 13(b) may be applicable to the exemption request for market-based
rates for service agreements between Core Activity Companies and other non-
utility companies in the CNG System.
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 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 Securities and Exchange
Commission) over the proposed transaction.
No state commission or Federal commission (other than the Securities and
Exchange Commission) has jurisdiction over the proposed transaction.
(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.
<PAGE> 27
Not applicable.
Item 5. Procedure
(a) State the date when Commission action is requested. If the date is
less then forty (40) days from the date of the original filing, set forth the
reasons for acceleration.
It is hereby requested that the Commission issue its order with respect
to the transactions proposed herein on or before December 1, 1995.
(b) State (i) whether there would 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 Corporate
Regulation may assist in the preparation of the Commission's decision, and
(iv) whether there should be a thirty (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 transaction. The Office of Public Utility Regulation 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 made a part of this
statement:
(a) Exhibits
A-1 The certificates of incorporation of CNG Power, CNG Power
Services, CNG Market Center, and CNG Storage as filed as
exhibits to Consolidated's Form U5S, File No. 30-203, are
hereby incorporated by reference.
<PAGE> 28
A-2 The by-laws of the companies listed in A-1 above as filed as
exhibits to Consolidated's Form U5S, File No. 30-203,
are hereby incorporated by reference.
F-1 Opinion of Counsel for Consolidated, Energy Services, CNG Power
and CNG Special Products.
(To be filed by amendment)
G Charts depicting the Energy Services Group before and after
proposed restructuring.
O Proposed Notice pursuant to Rule 22(f).
(b) Financial Statements
Financial statements are not submitted with respect to the authorizations
herein due to (i) the extended period for which authorizations are sought and
(ii) the impracticality of knowing the type and extent of financing
transactions that may occur during such period. However, Consolidated will
furnish any financial information that the Commission shall request.
Item 7. Information as to Environmental Effects
(a) Describe briefly the environmental effects of the proposed
transactions in terms of the standards set forth in Section 102(2)(C) of the
National Environmental Policy Act (42 U.S.C. 4312(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 purpose.
As more fully described in Item 1, the proposed transactions subject to
the jurisdiction of this Commission relate only to the purchase and sale
of securities and involve no major federal action significantly affecting the
human environment.
<PAGE> 29
(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.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Co. Act of
1935, the undersigned companies have duly caused this statement to be signed on
their respective behalf by the undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
By L. D. Johnson
Vice Chairman and
Chief Financial Officer
CNG ENERGY SERVICES CORPORATION
CNG POWER COMPANY
CNG SPECIAL PRODUCTS AND SERVICES, INC.
By N. F. Chandler
Their Attorney
Date: September 22, 1995
<PAGE> 1
<TABLE>
EXHIBIT H
Energy Services Group Before Restructuring
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CNG
|
G.P.= general partnership ____________________________________________________________________________________
L.P.= limited partnership | | | |
CNG CNG CNG Power CNG
Power Energy Services Storage Service
Company Services Corporation Company
| | |
| | |
__________ CNG Energy CNG
| | Arbitrage Lakewood
Power | Liquids Corporation |
____________Generation |_________Division | |
| Division | | |
| | | 1% G.P.
Special purpose | 1/3 G.P. interest in
subsidiaries and | Technical interest in Lakewood
partnership |________ Products Energy Cogen. L.P.
interests in | Division Alliance
various | Partnership
independent |
power producers, | Natural Gas
including a 34% |_______ Vehicle Div.
interest in |
Lakewood Cogen L.P. |
| CNG Market
|_______ Center
Services, Inc.
</TABLE>
<PAGE> 2
<TABLE>
EXHIBIT H
Energy Services Group After Restructuring
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CNG
|
G.P.= general partnership CNG Market Center____________|
L.P.= limited partnership Services, Inc. |
CNG
Energy
Services
|
|
|
_________________________________________________________________________________________________\
| | | | | | : /
CNG Power CNG Energy CNG Special CNG Power CNG Storage Future
______________ Company Arbitrage Products and Services Service Company Subsidiaries
| Corporation Services, Inc. Corporation for Other
| | | New
| | |___Customer Service Businesses
| | | Division
Special purpose 1/3 G.P. |
subsidiaries and interest in |___Liquids Division
partnership Energy |
interests in Alliance |___Technical Products
various Partnership | Division
independent |
power producers, |______Natural Gas
including a 34% Vehicles Division
interest in
Lakewood Cogen L.P.
and CNG Lakewood, Inc.
</TABLE>
<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")
September , 1995
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
October , 1995 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 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.
____________________________________
<PAGE> 2
Consolidated Natural Gas Company, et. al. (70- )
___________________________________________________
Consolidated Natural Gas Company ("CNG"), CNG Tower, 625 Liberty Avenue,
Pittsburgh, Pennsylvania, 15222-3199, a registered holding company, and CNG's
wholly-owned subsidiaries, CNG Energy Services Corporation ("Energy Services"),
CNG Power Company ("CNG Power") and CNG Special Products and Services, Inc.
("CNG Special Products"), One Park Ridge Center, P.O. Box 15746, Pittsburgh,
Pennsylvania 15244-0746, have filed an application- declaration pursuant to
Sections 9, 10, and 12 of the Act and Rule 45 thereunder.
Consolidated and its wholly-owned subsidiaries, Energy Services and CNG
Power, request various authorizations to effect a restructuring of a group of
companies in the Consolidated Natural Gas System ("CNG System" or "System")
which are in the non-utility energy business. This would move the CNG System
independent power companies and other non-utility energy related companies,
other than the current System transmission, production and hub companies, to
become direct or indirect subsidiaries of Energy Services. The resulting
configuration would cause this part of the CNG System (the "Energy Services
Group") to conform with its managerial reporting structure.
The Application also seeks an enhancement of the current authorization of
the non-utility part of the CNG System so that it may engage in a broader
spectrum of energy related businesses than that in which Energy Services can
now engage. This would allow the System to compete more effectively in the
rapidly changing non-utility energy industry. To accomplish this end,
Consolidated seeks broadened authority for Energy Services and authority to
form one or more new subsidiaries to engage in such non-utility energy
services.
The restructuring of the Energy Services Group would be effected through
the following steps
<PAGE> 3
(1) CNG LAKEWOOD, INC. CNG Lakewood, Inc. ("CNG Lakewood") is
currently a wholly-owned subsidiary of CNG Power Services Corporation
("CNG Power Services"), which has exempt wholesale generator ("EWG")
status under Section 32 of the Act. CNG Lakewood owns a 1% general
partnership interest in Lakewood Cogeneration L.P. ("Lakewood
Partnership"), which is also an EWG. CNG Power owns a 34% limited
partnership interest in Lakewood Partnership and had owned all of the
outstanding common stock of CNG Lakewood now held by CNG Power Services.
It is proposed to transfer the issued and outstanding shares of common
stock of CNG Lakewood from CNG Power Services back to CNG Power as part of
a liquidating dividend from CNG Power Services to Consolidated and a
subsequent capital contribution by Consolidated of such stock to CNG
Power. This would result in CNG Power having ownership of all independent
power production entities in the CNG System. Subsequent to the transfer
by CNG Power Services to Consolidated of the CNG Lakewood stock, CNG Power
Services may (i) continue to function as a power marketer (even though
relinquishing its EWG status) either by remaining a direct subsidiary of
Consolidated or by becoming a subsidiary of Energy Services through a
capital contribution by Consolidated to Energy Services of all of the
outstanding common stock of CNG Power Services, (ii) ultimately conclude
its current power marketing business, including transferring that portion
of its business that is assignable to Energy Services, after which CNG
Power Services would be dissolved, or (iii) merge with Energy Services,
with the latter company succeeding to all the rights and liabilities of
CNG Power Services' power marketing business.
<PAGE> 4
(2) CNG SPECIAL PRODUCTS AND SERVICES, INC. In order to have CNG
Power's activities concentrated in independent power production, it is
proposed to move the present Liquids, Technical Products and Natural Gas
Vehicle Divisions of CNG Power to CNG Special Products. This would be
effected through a dividend of the assets of such divisions to
Consolidated, with subsequent transfer of the same to CNG Special Products
through sequential contributions of capital by Consolidated and Energy
Services.
(3) CNG POWER COMPANY. All of the issued and outstanding shares of
common stock of CNG Power are owned by Consolidated. These shares would
be transferred as a capital contribution to Energy Services, thereby
making CNG Power a wholly-owned subsidiary of Energy Services.
(4) CNG MARKET CENTER SERVICES, INC. All of the issued and
outstanding shares of common stock of CNG market Center Services, Inc.,
("CNG Market Center") are owned by CNG Power. As part of the movement of
CNG Power from being a direct subsidiary of Consolidated to being a direct
subsidiary of Energy Services, CNG Power will transfer as a dividend to
Consolidated its ownership of all of the issued and outstanding shares of
common stock of CNG Market Center.
(5) CNG STORAGE SERVICE COMPANY. All of the issued and outstanding
common stock of CNG Storage Service Company ("CNG Storage") would be
transferred by Consolidated as a capital contribution to Energy Services,
thereby making CNG Storage a wholly-owned subsidairy of Energy Services.
<PAGE> 5
Request is made for authority through December 31, 2000 for Energy
Services to acquire interests in a significantly wider spectrum of activities
in conducting its business as a non-utility energy company. Specifically,
Energy Services requests to engage in the following core energy related
activities ("Core Activities"). Request is also made for Consolidated to form
new, directly owned subsidiaries to engage in the Core Activities if
Consolidated deems it appropriate to have such directly owned subsidiaries
rather than Energy Services engage in such businesses.
(1) energy conservation and demand-side management;
(2) electrotechnologies and commercial applications thereof that are
related to conservation of energy, improved energy efficiency, energy
storage, greenhouse gas reductions, and similiar activities;
(3) manufacture, conversion, sale and servicing of electric and
compressed natural gas powered vehicles and refueling/recharging
infrastructure;
(4) sales, leasing, servicing and financing of electric and gas
utilizing equipment for residential, commercial and industrial purposes;
(5) brokering and marketing of energy related commodities, including but
not limited to electricity, natural or manufactured gas and other
combustible fuels;
<PAGE> 6
(6) production, conversion, and distribution of thermal energy products
(e.g., process steam, heat, hot water, chilled water, air conditioning,
and the like), alternative fuels, and renewable energy resources;
(7) the sale of technical, operational, management, and other similar
kinds of services and expertise to unaffiliated foreign and domestic
companies and governmental authorities in such areas as power plant and
transmission system design; gas exploration, development, transmission
or storage system design; construction, maintenance and operation; and
fuel procurement, delivery and management; environmental licensing,
testing and remediation;
(8) investment in and operation of "qualifying facilities" within the
meaning of the Public Utility Regulatory Policies Act of 1978, (Pub. L
95-617) ("PURPA"), and facilities that are necessary or incidental
thereto, including thermal energy utilization facilities purchased or
constructed primarily to enable the "qualifying facility" to satisfy the
useful thermal output requirements under PURPA;
(9) investment in and development, construction, lease and sale of
components of power plants or gas system facilities, such as fuel
handling and storage facilities, scrubbers, and resource recovery and
waste water treatment facilities, provided that the foregoing shall not
include investment in facilities for the generation, transmission or
distribution of electric energy or distribution of natural or
manufactured gas;
<PAGE> 7
(10) exploration, development, production, gathering, transportation,
manufacturing, processing, storage and sale of natural or artificial
gas, propane and associated and non-associated petroleum products;
(11) the development, production, marketing and financing of
applications, technologies, products, and services that have been
developed in a core energy business; and
(12) such other activities and investments as the Commission may, from
time to time, upon application under Section 10 of the Act designate as
"Core Activities."
The aggregate dollar amount of investment in Core Activities by
Consolidated and/or Energy Services and/or their respective direct or indirect
subsidiaries during the period ending December 31, 2000 pursuant to an
authorization in this proceeding will not exceed $500,000,000, which is
approximately 15% of Consolidated's current capitalization. The following will
not be included in the calculation of the amount available for additional
investments under the $500,000,000 dollar limitation: (i) investments made to
acquire interests in jointly owned entities pursuant to the authorization
granted in Commission order dated July 26, 1995, HCAR No. 26341, File No. 70-
8621, (ii) investments made in a business after an "establishment period" of
two years from the initial acquisition of an interest in such business pursuant
to the authorization granted in this proceeding, after which time the exemption
allowed for non-utility subsidiaries under Rule 52, as amended by HCAR No.
26311, dated June 20, 1995, would apply, and (iii) investments for which there
is no recourse, directly or indirectly, to Consolidated
<PAGE> 8
It is also requested that Consolidated and/or Energy Services be permitted
to engage in Core Activities through formation of, and investments in, any
direct or indirect subsidiary company or affiliate which derives or will derive
substantially all of its revenues from Core Activities (a "Core Activity
Company") and which is not:
(1) a holding company,
(2) a public utility company,
(3) an exempt wholesale generator,
(4) a foreign utility company,
(5) a company which is engaged primarily in the
business of performing services or construction
for or selling goods to associate public utility
companies, or
(6) a company (other than the registered holding
company) controlling, directly or indirectly, any
company specified in paragraphs (1) through
(5) above if the investment is to be
made in a company specified in such paragraphs.
Consolidated and Energy Services request an exemption from Section 9(a),
pursuant to Section 9(c)(3) of the Act, and 12(b) so that they may, without the
need to apply for or obtain an order of the Commission, acquire the securities
of and/or make capital contributions and other advances to any Core Activity
Company described above in order to finance the business of such subsidiary or
affiliate, provided that Consolidated has a long-term debt rating of investment
grade as established by at least one nationally recognized statistical rating
organization (as that term is used in Rule 15c3-1(c)2(vi)(F) under the
Securities Exchange Age of 1934 ("1934 Act")).
____________________________________
<PAGE> 9
Authorization is also requested for an exemption under Section 13(b)
of the Act for Core Activity Companies to obtain services at market based rates
from other non-utility companies in the CNG System.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz
Secretary
