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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
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and
the parent of the other party)
CNG ENERGY SERVICES CORPORATION
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
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, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
<PAGE> 2 File Number 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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.
I. INTRODUCTION
Consolidated Natural Gas Company ("Consolidated") is a Delaware
corporation and a public utility holding company registered as such under the
Public Utility Holding Company Act of 1935 ("Act"). It is engaged solely in
the business of owning and holding all of the outstanding securities, with the
exception of certain minor long-term debt, of sixteen subsidiaries. These
subsidiary companies are engaged in the energy business, principally in
natural gas exploration, production, purchasing, sales, gathering,
transmission, storage, distribution, by-product operation, research and other
activities related to natural gas.
II. PROPOSED INVESTMENT IN ENERGY ALLIANCE PARTNERSHIP
CNG Energy Services Corporation ("Energy Services"), a Delaware
corporation and a wholly-owned nonutility subsidiary of Consolidated, proposes
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to incorporate CNG Energy Arbitrage Corporation ("CNGEA") under the laws of
the State of Delaware, with an authorized equity capitalization of $10,000,000
consisting of 1,000 shares of common stock, $10,000 par value each. Soon
after approval by the Securities and Exchange Commission ("SEC") of this
Application-Declaration, it is anticipated that CNGEA will sell and issue 300
shares of its common stock at par for $3,000,000 to Energy Services to become
a special purpose, wholly-owned subsidiary of Energy Services.
CNGEA will acquire a one-third general partnership interest in Energy
Alliance Partnership ("Partnership"), a partnership to be formed under the
laws of the state of Delaware. A draft of the Partnership agreement is filed
as Exhibit B-1. According to the terms of the Partnership agreement, the
Partnership will terminate on December 31, 2020 unless the Partners (as
defined below) agree on another date. The Partnership will be set up to
engage in the principal business of buying and selling natural gas and
electric power, including in connection with arbitrage transactions,
principally in wholesale markets.
Noverco Energy Services (U.S.) Inc., a Delaware corporation ("NOV Sub"),
a wholly-owned subsidiary of Noverco Inc. ("Noverco") which is a Canadian
public-utility holding company, will also acquire a one-third general
partnership interest in the Partnership. Noverco, headquartered in Montreal,
is committed to positioning Quebec's natural gas industry as a strategic link
in America's Northeast markets. Noverco principally pursues its activities
through two subsidiaries: Gaz Metropolitain and Company, Limited Partnership
("GMLP"), Quebec's natural gas distributor with annual deliveries of 200
billion cubic feet to over 172,000 customers; and Novergaz Inc., which carries
out nonregulated activities such as marketing, independent power production
and gas storage. By SEC Order dated November 23, 1994, Release No. 35-26170,
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a wholly-owned subsidiary of Noverco, Gaz Metropolitain Inc. ("GMI"), and a
majority owned subsidiary of GMI, GMLP, were granted an exemption from all
provisions of the Act (except Section 9(a)(2) thereof) in connection with the
acquisition by GMLP of Vermont Gas Systems, Inc., a gas utility company.
Noverco's shareholders are SOQUIP (38%), an energy company owned by the Quebec
government; Caisse de Depot et Placement du Quebec (30%), a C$47 billion
portfolio manager that invests the funds of the Quebec public pension and
insurance plans; Laurentides Investissements S.A. (24%), a subsidiary of Gaz
de France, France's state-owned gas company and a world leader in the natural
gas industry; and Levesque Beaubien Geoffrion Inc. (8%), a major Quebec
brokerage firm.
The remaining one-third general partnership interest will be acquired by
H.Q. Energy Services (U.S.) Inc. a Delaware corporation ("HQ-Sub"), which is
wholly-owned directly or indirectly by wholly-owned subsidiaries of
Hydro-Quebec, a Canadian electric utility company which is a crown corporation
of the Province of Quebec. Hydro-Quebec is one of the top ten electric
utilities in the world with 30,000 MW capacity and assets in excess of C$30
billion. It is headquartered in Montreal. It has annual sales of more than
US$5 billion and serves 3.3 million domestic Canadian customers. About 10
percent of its production is sold to neighboring utilities in Canada and the
United States. Hydro-Quebec has a reputation as a reliable supplier to U. S.
power pools, and has extensive experience in spot power sales to U. S. public
utilities. It is an established world leader in high-voltage transmission and
management of large power systems and has been extensively involved in
wholesale electricity trading for more than 30 years. Its 95 percent
hydropower production is backed by 165 trillion watt hours of water storage
capacity. Hydro-Quebec's price of power is among the lowest in North America.
Neither Hydro-Quebec nor any of its affiliates own any electric or gas
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transmission facility, nor have any electric or gas retail customer, in the
United States.
CNGEA, NOV Sub and HQ-Sub are referred to individually as a "Partner"
and collectively as the "Partners." Consolidated, Noverco and Hydro-Quebec
are referred to collectively as "the Parent Companies."
Each of the Parent Companies will enter into similar undertaking
agreements with the Partnership which, among other things, will commit them
subject to the terms and conditions of such agreement to provide up to
$3,000,000 to their respective Partner subsidiary as shall be necessary to
permit such subsidiary to fulfill its obligations respecting its capital
contributions under the Partnership agreement. A draft of the Consolidated
undertaking agreement ("Undertaking Agreement") is filed as Exhibit B-2.
III. DESCRIPTION OF THE PARTNERSHIP'S BUSINESS
The business of the Partnership will be to supply, sell, purchase,
market, broker or otherwise trade electricity or fuel, to provide electricity
or fuel management services, and to carry on activities, or perform services,
related to any of the foregoing, including in connection with arbitrage
transactions. The Partnership will initially seek to profit in the evolving
integrated energy market by identifying and capturing the electric and/or fuel
arbitrage profits inherent in the wholesale electric and natural gas business.
It will strive to become a leader in providing major customers with flexible
and competitive packaged electric/fuel services. With the considerable gas
supply from all market sources, including from Consolidated and Noverco, the
plentiful supply of reliable electric power from all market sources including
Hydro-Quebec, the financial strength of all three Parent Companies and their
affiliates, and the Partnership's fuel management capabilities, the
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Partnership is expected to give its customers unprecedented choices in buying,
selling, borrowing and loaning of natural gas, electricity, and other fuels as
well as additional choices in how they manage their operations.
It is expected that the other fuels will include oil and other
hydrocarbons, as well as wood chips, wastes and other combustible substances.
Involvement with such fuels is likely to result in connection with arbitrage
transactions also involving natural gas. It is anticipated that these other
fuels will not comprise a material part (probably less than 5%) of the
business of the Partnership and will be only incidental to the main business
of gas and electric power arbitrage.
The services to be offered by the Partnership will include the
following.
- Providing electric generators with instantaneous supply and sales
options so they can keep generating units operating at optimal
levels.
- Helping electric utilities find the best way to meet Clean Air
requirements through a combination of new gas technologies,
emission credits, cross-fuel management and wholesale electricity
purchases and sales.
- Helping customers manage the price changes in electricity and fuel
relative to time and location.
- Helping electric utilities and nonutility generators by managing
fuel supply and transportation contracts, banking of electricity
until needed and providing price and delivery flexibility.
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The following is an example of the type of transactions in which the
Partnership would engage. An independent power generator ("Generator") with a
gas fueled generating facility might have long-term gas purchase contracts
with gas suppliers. The Partnership, however, could be in a position to sell
to the Generator, over a given term in the future, electric power acquired
from another electric producer, including possibly Hydro-Quebec, at a price
below the cost of the Generator producing its own power using gas as a fuel.
At the same time, the Partnership estimates that the gas prices under these
gas supply contracts are currently below the gas price anticipated to exist at
the time when deliveries would occur. In a transaction in which both the
Generator and the Partnership would profit, the Generator would contract to
buy the less expensive power from the Partnership to meet its obligations to
supply power to its own customers, and would assign or sell its rights to take
delivery under its gas supply contracts to the Partnership. The Partnership
would subsequently dispose of the gas under these contracts into the wholesale
gas markets when and where prices have risen favorably in relation to the
contract prices. The Partnership could also hedge against unfavorable gas
price movements through the use of such instruments as gas futures. The net
result of this arbitrage transaction is that gas and electric power move, as
convertible energy forms, into the most economic market for each respective
commodity while the contracting parties also profit. Further examples of
Transactions are filed as Exhibit B-3 (filed under claim of confidential
treatment pursuant to Rule 104).
Due to the varied nature of market requirements in doing fuel and power
arbitrage transactions, not all transactions will be completely balanced as
between the fuel component and the power component. That is, a given
arbitrage transaction may require the delivery of a greater amount of power
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than would be generated by the fuel component of the transaction. Conversly,
the contract may call for the delivery of a greater proportion of energy in
the form of fuel when compared to the amount of energy being received in the
form of power.
The Partnership will initially conduct its activities generally in the
wholesale energy markets in the northeastern and middle-Atlantic United
States. The Partnership may engage in energy transactions with the gas
utility companies in the Consolidated System(1), Energy Services or other
affiliates in the Consolidated System on the same market terms that would be
available to nonaffiliate customers of the Partnership. The Partnership will
sell electric and gas energy to wholesale and retail customers to the extent
permitted without becoming an "electric utility company" or a "gas utility
company" within the meaning of the definitions of such terms in Section
2(a)(3) and 2(a)(4) of the Act, respectively.
The business affairs of the Partnership are to be managed by a
management committee ("Management Committee"). Each Partner will be entitled
to name one person to serve on the Management Committee for each eleven
percent of its Partnership interest. Each member of the Management Committee
will have one vote at committee meetings. The Management Committee may create
management positions and other committees, and delegate the exercise of
certain powers.
______________
(1) The utility companies in the Consolidated System are The East Ohio Gas
Company, Peoples Natural Gas Company, Virginia Natural Gas, Inc., Hope Gas,
Inc, and West Ohio Gas Company.
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The Partnership may contract for needed services from the Partner or
affiliate that is determined to be best suited to procure or supply them by
virtue of its expertise and experience in the relevant field. The Management
Committee may also have recourse to outside suppliers in the event
availability, quality, price or reliability are better than those that may be
obtained from a Partner. Charges to the Partnership for services from a
Partner are to be made on a direct costing method (salary plus fringe
benefits) for use of personnel, and direct out-of-pocket expenses for other
items.
The net profits of the Partnership are to be divided in accordance with
each Partner's Partnership interest.
A Partner will not be able to transfer, in whole or in part, its
Partnership interest without first allowing the other Partners to match the
offer which the selling Partner is contemplating accepting. This right of
first refusal does not apply to the transfer of interests to a Related Entity
as defined in the Partnership Agreement.
IV. FUNDAMENTAL CHANGES IN THE ENERGY INDUSTRY
The Partnership would inaugurate business in the context of accelerating
and fundamental changes occurring in the energy industry. Essentially, what
has been traditionally regarded as discrete facets of the industry, primarily
gas and electric, are rapidly being integrated into an energy market trading
on Btu (British thermal unit) values. The following sets forth some of the
details describing this development.
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1. Developments in gas industry; Order 636
Due to the issuance of Order 636 by the Federal Energy Regulatory
Commission ("FERC") in 1992, interstate pipelines, such as Consolidated's
subsidiary CNG Transmission Corporation ("Transmission"), 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.
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 expected to develop in
the electric industry deregulation process.
2. Developments in electric industry; Energy Policy Act of 1992
The Energy Policy Act of 1992 (Pub.L 102-486, October 24, 1992)
("EPA92") has significantly furthered the deregulation of electric power
markets. It has, through the creation of the electric wholesale generator
status in Section 32 of the Act, contributed towards the unbundling of power
generation and transmission. There is a correspondingly growing pressure for
wholesale and retail wheeling of electric power generated outside the
transporter's system.
The majority of changes in the electric markets are expected to occur in
the 1995-97 timeframe, which would be five years faster than it took the
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gas industry to become deregulated. Both FERC and Congress have the benefit
of knowledge of energy market deregulation gained from the gas industry
restructuring. There are also many state initiatives underway, such as open
access proposals for California and Wisconsin. Paralleling earlier events in
the gas industry, energy or power marketers are starting up to assist
wholesale and industrial electric customers with their increased
responsibilities to arrange for energy at the lowest available price in an
increasingly competitive market. Much of the electric market maker
infrastructure is already in place, with experienced gas marketers poised to
enter the marketplace. Exhibit B-4 is a list of major energy companies, many
of which have affiliates deeply involved in the gas industry, who have filed
with FERC for power marketing status.
3. Evolution towards integrated fuel markets; development of
power marketing similar to development of gas marketing
The rising gas demand and deliverability worries appearing amid the
transitional stresses of gas and electricity deregulation have left natural
gas producers, pipeline companies and marketing firms scrambling to adjust.
It is dawning on them that they are in the business of selling Btus of energy
- - not necessarily cubic feet of natural gas. Analysts predict that gas
consumption for electricity power generation could double by the end of the
decade if the restructured gas and electric industries learn to cooperate
better. According to projections from the National Electric Reliability
Council, more than 60% of the power generation capacity to come on line by
2001 will be gas-fired, or a combination of gas and oil. The figure compares
to 1991, which saw only 20% of new electric-power capacity fired by gas.
Independents are the source of most of the growth in gas use.
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Energy markets are becoming more customer focused. Utilities must
consequently provide competitively priced power to retain industrial load and
to make incremental inroads. Tools have also been developed to increase power
trading and to provide related services. Some of these are the production of
real-time data, standardized transmission access and pricing, power pools open
to entry of new members, regional transmission groups, computerized systems
and state ratemaking initiatives. Customer demand is also expected to create
integrated energy marketplaces. All of these changes are indicative of the
control of the commodity assets moving towards the ultimate consumer.
Electric and gas markets must become efficient through the use of
trading systems, demand side management programs, arbitrage and creative
service offerings. Power marketers must take advantage of their strengths;
these are their ability to move fast, unique knowledge, financial capacity to
control strategic assets and an aggressive nature. They should accumulate
low-cost excess generating, supply and transmission capacity to market to
those who do not have the same resources at the same economic cost. The
purpose of the Partnership is for gas and electric industry companies through
their subsidiaries to form a strategic alliance which is needed to remain
competitive with others.
The interchangeability of different forms of energy, particularly gas
and electric, is becoming more commonplace. For example, it was recently
announced that Long Island Lighting Co. ("LILCO") and Con Edison will swap
natural gas for electric energy. LILCO will pay a fee to have gas that it
owns burned at Con Edison's plants with the electricity thereby generated
delivered to LILCO. This avoids LILCO having to construct new gas-burning
facilities while at the same time reducing its consumption of high-priced oil.
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As a further example of the integration of energy markets, UtiliCorp
United Inc. has announced that it wants to become the first electric and
natural gas utility to operate in all 50 states. The Kansas City based
company says it will expand its natural gas network, which already extends
into 45 states, and its eight-state electric operations, to eventually offer
both services to millions of customers nationwide. They will be packaged and
marketed under the brand name EnergyOne.
If the Partnership is not authorized by the Commission to become a
participant in these forthcoming competitive markets, Consolidated will see
other energy marketers take advantage of the Consolidated System
infrastructure and other business assets. Consolidated would thus find itself
a hobbled observer of others grasping the integrated market opportunities
(denied to it) to engage in profitable gas and power transactions.
V. LEGAL BASIS FOR AUTHORIZING ENERGY RELATED ACTIVITIES OF THE PARTNERSHIP
Consolidated is of the opinion that the proposed activities of the
Partnership should be permitted under the Gas Related Activities Act of 1990
(Pub.L 101-572, November 15, 1990) ("GRAA") and Section 11(b) of the Act for
the following reasons.
1. Gas Related Activities Act of 1990
Section 2(a) of the GRAA provides that the requirements of Section
11(b)(1) of the Act are met with respect to the acquisition of an interest in
a company organized to participate in activities involving the transportation
or storage of natural gas.
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Section 2(b) of the GRAA provides that the requirements of Section
11(b)(1) of the Act are met with respect to the acquisition of an interest in
a company organized to participate in activities related to the supply of
natural gas, broadly defined to include exploration, development, production,
marketing and other similar activities, if:
"(1) the Commission determines . . . that such acquisition is in
the interest of consumers of each gas utility company of such
registered company or consumers of any other subsidiary of such
registered company; and
(2) the Commission determines that such acquisition will not be
detrimental to the interest of consumers of any such gas utility
company or other subsidiary or to the proper functioning of the
registered holding company system."
Section 2(c) of the GRAA provides that each determination be made "on a
case-by-case basis, and not based on any preset criteria."
The proposed activities of the Partnership satisfy the requirements of
Section 2(b) of the GRAA and, therefore, of Section 11(b)(1) of the Act. The
GRAA requires the Commission to determine whether the activities of the
Partnership will benefit Consolidated System consumers. As used in the GRAA,
the term "consumers" refers both to the retail utility customers and to
wholesale customers such as pipelines and nonaffiliated utility companies.
Consolidated's consumers, both current and future, wholesale and retail, will
benefit from the Partnership's business.
Energy Services, as a gas marketer, has had several years of experience
in unregulated gas commodity sales. During those years it has developed a
considerable customer base. Its participation in the Partnership with the
United States subsidiaries of two substantial Canadian companies will give
Energy Services a great deal more credibility as an energy marketer, both gas
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and electric. The customers of Energy Services, Transmission, the utility
companies in the Consolidated System, and other Consolidated companies
engaging in the natural gas business would obtain a material advantage through
the Partnership's activities; they would be able to advance, bank, price,
store and interchange energy sources through the facilities of one house.
The Partnership's business could also maintain and increase
Consolidated's system gas throughput to LDCs, both associated and
nonassociated, and their end-users. The creation of an integrated energy
marketer in the market area served by Transmission will encourage
transportation of gas into such system. This will enhance the investments
that customers of Transmission have made in service agreements with
Transmission. Further, the increase in throughput (i.e., volumes of gas
transported through the pipeline of Transmission) attributable to the
Partnership's activities should result in more competitive
transportation rates for the wholesale customers of Transmission, including
the Consolidated System LDCs. The additional transportation fees should
increase Consolidated System revenues and lower intrasystem gas transportation
costs on Transmission's system.
The Partnership's business would also help the LDC customers of
Transmission in that it would contribute toward the making of a better market
for such LDC's capacity release. Another consumer benefit is that the
Partnership would provide a place for buyers and sellers to execute trades of
gas and electric power, which will be supported by services offered by the
Partners in their respective spheres of activity. This would overall help
maintain the liquidity of the integrated energy market on both its gas and
electric sides.
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On October 27, 1990, the following was stated in the U.S. Congress by
legislative sponsors (Senator D'Amato in the Senate and Representative Markey
in the House) of the GRAA:
"...Technical advances and expertise may also be developed through
these activities that may benefit customers. Finally, there may exist
assets that are either surplus to the needs of the system or that have
developed in the normal course of system operations. Use of these
assets to maximize their value is recognized as a benefit to customers
only so long as the proposed activity does not create a detriment to
system customers."
These statements indicate that the legislators that passed the GRAA intended
that such legislation be interpreted flexibly. They show that activities that
naturally evolve from the Consolidated System's gas operations and which also
benefit system customers should be permitted under the Act. The proposed
energy related activities of the Partnership fall into such category.
For all of the above reasons, the proposed activities of the Partnership
should be found to be in the interest of consumers of the Consolidated System;
and, accordingly that Section 2(b)(1) of the GRAA is satisfied.
It is further requested that the Commission find the proposed activities
will not be detrimental to the interests of consumers or to the proper
functioning of the holding company system, and that Section 2(b)(2) of the
GRAA is thereby satisfied. No subsidiary of Consolidated will be obligated to
engage in any transaction with the Partnership. Consolidated's maximum
investment of $10 million in CNGEA, anticipated to be in the form of either
stock purchases or short-term open account advances, will be de minimis in
relation to the Consolidated System's consolidated total assets of
approximately $5.4 billion.
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2. 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
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 type of business in which the
Partnership proposes to engage should be deemed to be incidental and
appropriate to the operations of the Consolidated System. A substantial
portion of the Partnership's business will consist of gas marketing, and the
portions which do not involve gas directly will be energy-related and will
accordingly 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 seven plants capable of producing 438 megawatts of power.
It is for these reasons that the business of the Partnership is incidental and
appropriate to the energy operations of the Consolidated System.
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The proposed activities of the Partnership are clearly appropriate in
the public interest as evidenced by the recent history of federal legislation
which has strongly promoted the development of competitive energy markets.
Such legislation consists of the following.
a. Public Utility Regulatory Practices Act of 1978
The 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 FERC
requirements 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' initial action to provide for greater efficiencies in energy
markets through the liberalization of the restraints placed on electric
generation by the Act.
b. Cogeneration Statutes
Even though Cogens became exempt from the Act by virtue of PURPA
and FERC rulemaking, Consolidated and the other registered gas holding
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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 achieved this by removing restraints otherwise
imposed by the Act on registered holding company participation in such
markets.
c. Gas Related Actitivites Act of 1990
The provisions of the GRAA are discussed in detail above. The
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
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requirement of Section 11(b)(1), which requires a showing of benefit to
the utility companies of the system. Substituted in lieu of the
functional relationship test 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.
d. Energy Policy Act of 1992
The enactment of EPA92 is the most recent and significant
contribution towards competitiveness in the wholesale energy markets in
the United States. As already noted above under "IV FUNDAMENTAL CHANGES
IN THE ENERGY INDUSTRY", EPA92 added Sections 32 and 33 to the Act,
which created the categories of exempt wholesale generator ("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.
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 it has no requirement
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for an industrial or commercial host using an alternative energy form
(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.
FERC has taken further 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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e. NAFTA
The Partnership's business would also further the goals of
increased trade between the United States and Canada as expressed in the
North American Free Trade Agreement Implementation Act ("NAFTA") (Pub L.
103-182). There is much cross-border energy business taking place
between the United States and Canada today. In 1993 the U.S. natural gas
industry imported 11% of its total consumption from Canada, whereas
exports to Canada for the same year was 45 billion cubic feet. In 1992
the United States imported 35,181,757 Kwh from Canada and exported
7,865,990 Kwh to Canada. The public policy enunciated in NAFTA
encourages the reduction of barriers to trade and the enhancement of
investment opportunities between the United States and Canada, to the
betterment of consumers in both countries.
The SEC in a supplemental order issued on February 15, 1995, Release No.
35-2632 (File No. 70-7287), acknowledged the importance of the fundamental
legislative trend described above. This order allowed EUA Cogenex, a
subsidiary of Eastern Utility Associates, to engage in demand-side management
without any longer being limited to doing no more than half of its business
for nonaffiliate customers. In the order, the SEC indicates that the energy
management business is closely related to the utility's core business, and
<PAGE> 23
that Congress has stated that there is a strong national interest in promoting
energy conservation and efficiency. This order also states that this policy
would appear to be furthered by the expansion of the services proposed by
Cogenex. Similar to the Cogenex order, the applicants believe that the
proposed business of the Partnership is closely related to the Consolidated
System's core energy business, and that the issuance of an order in this
proceeding will also promote the national interest in seeking energy
efficiency.
Concluding Argument
The proposed transactions reflect economic realities in competitive
energy markets. The business of the Partnership as an energy marketer dealing
in both gas and power transactions would be a direct development of the
changing nature of the North American energy markets. As already stated
herein, energy forms are becoming readily interchangeable. Customers will
contract for the most economic form of the Btus that they need; it will not
matter that much if it be gas, electricity or some other form of energy such
as oil or coal. The Parent Companies are striving to be participants in such
emerging markets through their investments in the Partners of the Partnership.
<PAGE> 24
VI. OTHER LEGAL ASPECTS OF THE PARTNERSHIP
In addition to the permissibility of the Partnership under the GRAA and
Section 11(b) of the Act, there are other legal aspects of the Partnership's
status that should be discussed. These are as follows.
1. Rule 16 Status for the Partnership
The applicants request that the Partnership and each affiliate thereof
(except for companies within the Consolidated System) be deemed exempt under
Rule 16 from all obligations imposed upon them by the Act, as a subsidiary
company or as an affiliate of a registered holding company or of a subsidiary
company thereof. The basis for such application is as follows.
- The Partnership is not a public utility company as defined
in Section 2(a)(5) of the Act.
- The Partnership is being organized to engage primarily in
activities related to the supply of natural gas.
"Primarily" has been defined to mean "at first, in the first
instance; originally." The term has been defined to
secondarily mean "in the first place; principally." The
activities of the Partnership will all be energy related.
Many of these activities, particularly in the early stages
of the Partnership's business, will directly involve
contracts for the purchase and sale of natural gas. The
types of most transactions envisioned for the Partnership
<PAGE> 25
will be of such a nature that the gas and power aspects will
be inseparably interwoven; consequently all such energy
transactions should be characterized as "gas transactions"
or "gas related" in their entirety.
- No more than one-third of the voting interests in the
Partnership will be owned, directly or indirectly, by a
registered holding company, i.e. Consolidated.
- The acquisition by Energy Services of its interests in the
Partnership is the subject of this Application-Declaration.
2. Partnership under FERC jurisdiction
Since the Partnership will be engaging in the business of power
marketing, it will need to obtain the approval of the FERC for market based
rates. In granting an order, FERC will consider whether there are any likely
opportunities for discriminatory practices favoring any affiliated utility
companies participating in the same markets as competitors who are likely to
be customers of the Partnership. FERC in granting an order may impose
conditions to guard against such subsidization. The interests of consumers
will thus be protected by this FERC oversight.
3. No U.S. utility company directly involved; Partnership not a
utility company
Neither the Partnership nor any parent affiliate of the Partnership will
be a United States utility company. It is the belief of the applicants that
the Commission Staff position taken in the no-action letter, dated January 5,
<PAGE> 26
1994, with respect to Enron Power Marketing, Inc. ("Enron Power") would
substantially apply to the status of the Partnership. In such letter, the
Staff stated that it would not recommend any enforcement action to the
Commission under the Act, including Section 2(a)(3) thereof, against Enron
Power in the event it enters into contracts for the purchase and resale of
electric power and for transmission capacity in connection with power
marketing transactions. In effect, the Staff has taken the position that
Enron Power was not to be deemed an electric utility company under the Act.
VII. SOURCE OF FUNDS
It is proposed for Energy Services to raise funds for the purposes
described herein by (i) selling shares of its common stock, $1,000 par value,
to Consolidated, (ii) open account advances as described below, or (iii) long-
term loans from Consolidated, in any combination thereof.
The open account advances and long-term loans will have the same effective
terms and interest rates as related borrowings of Consolidated in the forms
listed below:
(1) Open account advances may be made to Energy Services to provide
working capital and to finance the activities authorized by the
Securities and Exchange Commission ("Commission"). Open account
advances will be made under letter agreement with Energy Services
and will be repaid on or before a date not more than one year from
the date of the first advance with interest at the same effective
rate of interest as Consolidated's weighted average effective rate
for commercial paper and/or revolving credit borrowings. If no
such borrowings are outstanding, the interest rate shall be
<PAGE> 27
predicated on the Federal Funds' effective rate of interest as
quoted daily by the Federal Reserve Bank of New York.
(2) Consolidated may make long-term loans to Energy Services for the
financing of its activities. Loans to Energy Services shall be
evidenced by long-term non-negotiable notes of Energy Services
(documented by book entry only) maturing over a period of time
(not in excess of 30 years) to be determined by the officers of
Consolidated, with the interest predicated on and equal to
Consolidated's cost of funds for comparable borrowings. In the
event Consolidated has not had recent comparable borrowings, the
rates will be tied to the Salomon Brothers indicative rate for
comparable debt issuances published in Salomon Brothers Inc. Bond
Market Roundup or similar publication on the date nearest to the
time of takedown. All loans may be prepaid at any time without
premium or penalty.
Consolidated will obtain the funds required for Energy Services through
internal cash generation, issuance of long-term debt securities, borrowings
under credit agreements or through other authorizations approved by the
Commission subsequent to the effective date of this Application-Declaration.
Consolidated also seeks the authorization to make the commitment to provide up
to $3,000,000 to CNGEA as embodied in the Undertaking Agreement.
CNGEA would engage in general partner investing and financing transactions
with respect to the Partnership in lieu of Energy Services. CNGEA would have
mirror image authorizations and obligations of Energy Services under this
filing as such relate to the acquisition of a one-third general partner
interest in the Partnership, with Energy Services functioning as a
<PAGE> 28
"pass-through" with regard to the indirect Consolidated financing of the
Partnership.
VIII. NEED FOR GUARANTEE
By order dated November 16, 1993 ("November 16, 1993 Order"), Release
No. 35-25926, File No. 70-8231, the SEC authorized Consolidated to guarantee,
through December 31, 1998, up to an aggregate principal amount of $750 million
of the obligations of Energy Services, pursuant to certain gas purchase, sales
and transportation contracts. The reason for obtaining such guarantee
authority was the structural change in the gas markets under FERC Order 636,
which necessitated gas marketing companies, such as Energy Services, to be
able to demonstrate financial credibility with customers. Energy marketing
companies, though entering many contracts for high volumes of gas or power,
are not highly capitalized due to the nature of their operations. This
absence of high capitalization has caused some would-be customers to be
apprehensive of the risk of dealing with such marketing companies. However,
often times such marketing companies are subsidiaries of financially strong
parent companies. Consequently, the usual method for establishing the
financial credibility of the marketing company is by the parent (such as
Consolidated) standing behind its subsidiary through guarantees, thus allowing
the subsidiary to compete effectively in increasingly deregulated markets.
This same rationale applies to the proposed business of the Partnership. The
energy marketing business of the Partnership would be an extension of the gas
marketing business of Energy Services. Consolidated, therefore, seeks
authority through December 31, 1998 to guarantee, either directly or
indirectly through CNGEA, the fuel and power transactions of the Partnership,
to the extent required by the Partnership's customers to consummate
<PAGE> 29
transactions. The amount of such guarantees will be limited by placing them
under the same dollar cap as applies to guarantees under the November 16, 1993
Order. That is, Consolidated will not make a guarantee under the authority
granted in this proceeding nor under the November 16, 1993 Order if the effect
of such an additional guarantee would be for the aggregate of all outstanding
guarantees under both authorizations to exceed $750 million.
The Partnership intends to use many ways which are available to limit
financial risks in today's energy markets, thereby also lessening the risk to
Consolidated under any guarantees it may give. Some of the more common of
these risk-reduction methods are as follows.
MATCHING OF OBLIGATIONS TO MARKET PRICES. Price is now matched much
better between purchase and sales contracts, and also matched more directly to
market prices. Previously as to gas, pipelines negotiated prices with
producers without the benefit of market input. Sales prices were determined
independently by regulation. Now the market establishes the price of gas to
be delivered, with future prices defined in terms of then existing markets or
an index. This limits the potential size of damage claims from customers
since replacement gas should be available at the market price at which Gas
Services would be obligated to perform. The same principle would apply to
power purchase and sales contracts as the wholesale power market further
develops.
MARKET HEDGING TOOLS. Generally, the Partnership would strive to match
its portfolio of its fuel and power sales contracts with a portfolio of fuel
and power purchase contracts with similar terms. For instance, long-term firm
sales contracts with variable or indexed prices would be matched with
long-term supply contracts with variable or indexed prices. Hedging would be
needed only to reduce risk with respect to that small portion of the
<PAGE> 30
Partnerships' total sales contract portfolio which is not matched with
appropriate supply contracts. For example, a one year, fixed price sales
contract might not be matched; protection against price risk in such a
short-term contract could be provided by proper hedging tools.
There are currently many sophisticated market tools to manage price
risk. The market for natural gas risk-management contracts is about $5 billion
and growing fast. Tools such as gas futures contracts and options on gas
futures, are traded on the New York Mercantile Exchange, and gas price swap
agreements which are binding agreements between parties on a private contract
basis, are common and essential tools to manage risk on some types of gas
sales that cannot be matched with a corresponding gas purchase. The New York
Mercantile Exchange's board of directors in early 1995 approved preliminary
terms and conditions for two electricity futures contracts, with trading
likely to begin in the last quarter of 1995.
In its use of hedging tools, the Partnership will not engage in
speculative trading. Consolidated represents that such trading is prohibited
by corporate policy, and that hedging activity will be limited to no more than
the total volume of the Partnership's commodities that are subject to market
price fluctuation.
Consolidated has established a System Energy Price Risk Committee
("SEPRC") comprised of its Controller and other senior level financial and
accounting officers. The SEPRC has the responsibility to review the
effectiveness of subsidiary hedge strategies and ensure that adequate trading
controls are being implemented. The SEPRC further has the responsibility to
approve the establishment of new accounts, establish minimum credit quality
standards of brokers and counter parties, review position limits, and review
subsidiary policies and procedures to ensure they adhere to CNG System policy
<PAGE> 31
LIMITATION OF DAMAGES. Damages can be specifically limited to the
difference between the cost of fuel or power that should have been provided to
a customer and the cost of replacement fuel or power when the performance
failure occurs. Consequential damages are generally excluded.
SPECIFICATION OF OBLIGATIONS. Contractual obligations can be more
specific than in the past. Before FERC Order 636, most pipeline gas sales
were made under full requirements contracts. Today gas sales contracts have
specific volume obligations, thus limiting the exposure. The same principle
would apply to power sales.
SHORTER TERMS. There is also less risk exposure in today's gas markets
because the terms of gas sales contracts are generally 5 to 10 years compared
to the previous industry standard of 20 years. Also, when an undesirable
contract expires, there is no longer any need to obtain FERC approval of
abandonment before the Partnership could walk away from the customer.
It is believed by Consolidated that through the proper use of price
hedging tools, together with favorable contract terms, the risk to
Consolidated under any guarantees of Partnership obligations will not pose a
material risk to Consolidated or the CNG System. It is further believed that
as the wholesale power market matures, risk reduction devices for power
transactions will become available to the same extent as those available for
gas transactions.
The financial exposure to Consolidated through guarantees of Partnership
obligations will be further limited due to the participation of the other
Parent Companies (both of which are financially substantial entities) through
their United States subsidiaries in making such guarantees. It is anticipated
that each of the Partner's guarantees will for the most part be limited to
<PAGE> 32
those Partnership obligations arising in the area of the respective Partner's
business.
IX. AUTHORIZATIONS REQUESTED
The following authorizations are hereby requested. All funding by a
Consolidated System parent company of its immediate subsidiary would be in the
form of (a) the sale of the subsidiary's common stock to the parent, (b) open
account advances from the parent to the subsidiary, and/or (c) long-term loans
from the parent to the subsidiary. Any providing of funds by Consolidated to
Energy Services can be in any combination of these three forms of financing;
and any financing between Energy Services and CNGEA will be in the same
combination of forms that exists between Consolidated and Energy Services in
the transaction which causes Energy Services to obtain funds to invest in
CNGEA. All the authorizations described below would be for a period ending
December 31, 2020 (the Partnership termination date) with the exception of the
fifth item covering Consolidated guarantees of arbitrage transactions, which
would be for the same period in the November 16, 1993 Order, i.e. ending
December 31, 1998.
(1) For Energy Services to obtain up to $10,000,000 from Consolidated
for the purpose of accomplishing its indirect investment in the
Partnership.
(2) For CNGEA to obtain up to $10,000,000 from Energy Services needed
for CNGEA to complete its acquisition of a one-third general
partnership interest in the Partnership and to possibly make
further equity contributions to the Partnership thereafter.
<PAGE> 33
(3) For CNGEA to invest up to $10,000,000 in the Partnership by
initially purchasing a one-third general partnership interest
therein and by being in a position to make further equity
contributions thereafter.
(4) For Consolidated to enter into the Undertaking Agreement with the
Partnership to commit to providing CNGEA with up to $3,000,000 in
financing.
(5) For Consolidated to make guarantees, either directly or indirectly
through CNGEA, of transactions of the Partnership, provided that
the total amount of such guarantees for the Partnership together
with the total amount of guarantees of transactions of Energy
Services under the November 16, 1993 Order shall not exceed $750
million at any one time.
X. 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
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
<PAGE> 34
and a newly-formed wholly-owned subsidiary of Consolidated, from CNG Energy
Company, 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 December 31,
1994 was $734,939,000; 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). 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.
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.
XI. SERVICE CONTRACTS WITH AFFILIATES
CNGEA, as a special purpose subsidiary, would not have any payroll or
full-time employees. Accordingly, it would enter into a service contract with
Energy Services pursuant to which Energy Services would provide administrative
<PAGE> 35
and other supporting services, such as the keeping of books and records and
the making of corporate filings.
The Partnership may contract for needed services from the Partner,
Parent Company, or other affiliate that is determined to be best suited to
provide them by virtue of its expertise and experience. It is accordingly
anticipated that the Partnership will enter into a contract with CNGEA and/or
Energy Services for the rendering of supporting services relative to United
States gas marketing transactions.
All service contracts between affiliates in the Consolidated System will
provide for services to be rendered on an at-cost basis in compliance with
Rules 87 and 90 under the Act.
XII. RULE 24 CERTIFICATES
It is also requested that Rule 24 Certificates of Notification be filed
within 60 days after the end of each semi-annual calendar period to report to
the Commission with respect to transactions authorized pursuant to this
filing. Such certificates shall contain a CNGEA balance sheet as of the end
of such period, and a statement of income and expense for the period.
Consolidated guarantees of Partnership arbitrage transactions will be reported
in the Rule 24 Certificates of Notification filed under File No. 70-8231.
(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 any
affiliate of any such associate company.
None, except as set forth in Item 1(a).
<PAGE> 36
(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.
None, except as set forth in Item 1(a).
(d) If the proposed transaction involves the acquisition or disposition
of assets, described briefly such assets, setting forth original cost,
vendor's book cost (including the basis of determination) and applicable
valuation and qualifying reserves.
None, except as set forth in Item 1(a).
Item 2. Fees, Commissions and Expenses
______________________________
(a) State (i) 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 (ii) 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 transaction will not exceed $35,000, consisting of
the $2,000 filing fee under the Act, $17,000 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-declaration and other documents, $12,000 payable to non-affiliated
professionals, and $4,000 for miscellaneous other expenses.
<PAGE> 37
(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, a subsidiary service company, for
services on a cost basis (including regularly employed counsel) in connection
with the preparation of this application-declaration and other related
documents and papers required to consummate the proposed transactions are as
stated above.
Item 3. Applicable Statutory Provisions
_______________________________
(a) State the section of the Act and the rules thereunder believed to be
applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of
exemption.
Sections 6(a) and 7 and Rule 43 are deemed applicable to the issuance of
securities by Energy Services and/or CNGEA.
Sections 9(a) and 10 are deemed applicable to the acquisitions (i) by
Consolidated of the capital stock, open account advance debits and notes of
Energy Services, (ii) by Energy Services of the capital stock, open account
advance debits and notes of CNGEA and (iii) by CNGEA of partnership interests
in the Partnership.
Sections 12(b) and Rule 45 are considered applicable to loan
arrangements among Consolidated, Energy Services and CNGEA, the Undertaking
Agreement commitment and to guarantees of fuel and power arbitrage transaction
by the Partnership.
<PAGE> 38
CNGEA's participation in the Partnership is deemed to satisfy the
requirements of Rule 16 under the Act. Consequently, the Partnership and
affiliates not otherwise subject to the jurisdiction of the Act will be exempt
from all obligations, duties or liabilities that would be imposed upon them by
the Act in the absence of Rule 16.
Section 11(b)(1) of the Act and the Gas Related Activities Act of 1990
apply to the energy related transactions proposed by the Partnership. In the
alternative, Section 9(c)(3) of the Act may apply in so far as an exemption
for the proposed investments in the Partnership may be granted.
If the Commission considers the proposed future transactions to require any
authorization, approval or exemption, under any section of the Act for
Rule or Regulation other than those cited hereinabove, such authorization,
approval or exemption is hereby requested.
(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 transactions.
<PAGE> 39
The financing authorization sought herein is not subject to the
jurisdiction of any State or Federal Commission (other than the Commission).
(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.
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 hereby requested that the Commission issue its order with respect
to the transaction proposed herein on or before July 15, 1995.
(b) State (i) whether there should be a recommended decision by a
hearing officer, (ii) whether there should be a recommended decision by any
other responsible officer of the Commission, (iii) whether the Division
Investment Management - Office of Public Utility Regulation 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 the Division of Investment Management -
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.
<PAGE> 40
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
(a) Exhibits
A-1 Certificate of Incorporation of Energy Services.
(Incorporated by reference to File No. 70-8577)
A-2 By-Laws of Energy Services.
(Incorporated by reference to File No. 70-8577)
B-1 Form of General Partnership Agreement to be among
CNGEA, NOV Sub, and HQ-Sub.
B-2 Form of Undertaking Agreement between Consolidated
and the Partnership.
B-3 Examples of energy arbitrage transactions.
(Filed under claim of confidential treatment pursuant
to Rule 104)
B-4 List of companies who have filed with FERC for power
marketing status.
F Opinion of counsel for Consolidated and Energy Services.
(to be filed by amendment)
O Draft of Notice.
(b) Financial Statements
Financial statements are deemed unnecessary with respect to the
authorizations herein sought due to the nature of the matter proposed.
However, Consolidated will furnish any financial information that the
Commission shall request.
<PAGE> 41
Item 7. Information as to Environmental Effects
_______________________________________
(a) Describe briefly the environmental effects of the proposed
transaction in terms of the standards set forth in Section 102 (2) (C) of the
National Environmental Policy Act 42 U.S.C. 4232 (2) (C). If the response to
this 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 or
that response.
The proposed transactions do not involve major federal action
having a significant effect on the human environment. See Item 1(a).
(b) State whether any other federal agency has prepared or is preparing
an environmental impact statement ("EIS") with respect to the proposed
transaction. If any other federal agency has prepared or is preparing an EIS,
state which agency or agencies and indicate the status of that EIS
preparation.
No federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
<PAGE> 42
SIGNATURE
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
Vice Chairman of the Board
and Chief Financial Officer
CNG ENERGY SERVICES CORPORATION
By N. F. Chandler
Its Attorney
Date: May 10, 1995
<PAGE> 1
EXHIBIT B-1
_________________________________________________________________
GENERAL PARTNERSHIP AGREEMENT
respecting electricity and fuel operations
under the name
of
"Energy Alliance Partnership"
_________________________________________________________________
<PAGE> 2
i.
_________________________________________________________________
TABLE OF CONTENTS
PAGE ARTICLE TITLE
____ _______ ______
2 Definitions
6 Preamble
6 1 Partnership
7 2 Objects of the Partnership
7 3 Governing Law
7 4 Partnership name
7 5 Head Office
7 6 Term
8 7 Partnership Interests
10 8 Capital Contributions
11 9 Representations and Warranties
11 10 Matters requiring approval of the Partners
12 11 Management Committee
14 12 Financial matters
14 12.1 Working capital
14 12.2 Fiscal Year
15 12.3 Auditor
15 12.4 Banking arrangements
15 12.5 Business plan
15 12.6 GAAP
15 12.7 Cash distributions
16 12.8 Financial statements
16 12.9 Books and records
17 12.10 Reports to Partners
18 12.11 Annual tax return
19 12.12 Actions in event of audit and other tax
matters
21 13 Staffing and facilities
21 14 Insurances
21 15 Products and services
22 16 Individual obligations of the Partners
22 17 Indemnification
22 18 Restrictions on transfer of Partnership
Interest
23 19 Right of first refusal
26 20 Authorized and non authorized withdrawal of a
Partner
28 21 Disputes
29 22 Non competition
30 23 Non solicitation
_________________________________________________________________
<PAGE> 3
ii.
_________________________________________________________________
31 24 Confidentiality
32 25 Dissolution and winding up
33 26 Notices
35 27 Costs
35 28 Miscellaneous
35 28.1 Entire Agreement
35 28.2 No waiver
35 28.3 Counterparts
35 28.4 Severability
36 28.5 No assignment
36 28.6 Captions of articles
36 28.7 Singular and plural
36 28.8 Period
36 28.9 Interpretation
36 28.10 Agreement drafted for three Partners
36 28.11 Appendix
37 29 Reference date
37 Signatures
APPENDIX
________
A Territory
_________________________________________________________________
<PAGE> 4
_________________________________________________________________
GENERAL PARTNERSHIP AGREEMENT
respecting electricity and fuel operations
under the name
of
"Energy Alliance Partnership"
Executed at ___________,on ___________ 1995
Bearing the reference date of ____________________ 1995
_________________________________________________________________
BETWEEN: CNG ENERGY ARBITRAGE CORPORATION, a
corporation duly constituted under the
laws of the State of Delaware, United
States of America
(hereinafter called "CNGEA")
AND: H.Q. ENERGY SERVICES (U.S.) INC., a
corporation duly constituted under the
laws of the State of Delaware, United
States of America
(hereinafter called "HQUS")
AND; NOVERCO ENERGY SERVICES (U.S.) INC., a
corporation duly constituted under the
laws of the State of Delaware, United
States of America
(hereinafter called "NOVUS")
_________________________________________________________________
<PAGE> 5
2.
_________________________________________________________________
- DEFINITIONS -
For the purposes hereof, unless the context indicates otherwise,
the following terms and expressions have the meanings ascribed to
them:
"Administrative
Partner" - has the meaning ascribed to it in
PARAGRAPH 12.9.1;
"Agreement" - this agreement, as amended from
time to time;
"Arbitrage
Transaction" - the coordinated purchase and sale
or exchange of electricity and Fuel
or of two types of Fuel at the same
or different locations and at the
same or different points in time;
"Auditor" - the independent firm of accountants
of the Partnership appointed from
time to time;
"Bankruptcy" - with respect to any Partner, shall
be deemed to occur when such
Partner files a petition respecting
its bankruptcy, makes a general
assignment for the benefit of
creditors, voluntarily takes any
advantage of any bankruptcy or
insolvency laws, or is adjudicated
a bankrupt, or if a petition or an
answer is filed proposing the
adjudication of such Partner as a
bankrupt, when such Partner shall
consent to the filing thereof or
sixty (60) days after the filing
thereof unless the same shall have
been discharged or denied prior
thereto;
"Business" - the business to be carried on by
the Partnership as described in
PARAGRAPH 2.1;
<PAGE> 6
"CNG" - Consolidated Natural Gas Company;
_________________________________________________________________
3.
_________________________________________________________________
"Capital" - the amount of cash or the value of
all property contributed to the
capital of the Partnership pursuant
to the provisions hereof;
"Capital Account" - of a Partner means an account to
which is credited or debited all
Capital Contributions received from
and Capital distributions made to,
respectively, such Partner and the
net income or net loss,
respectively, of the Partnership
allocated to such Partner;
"Capital Contribution" - a contribution of capital to the
Partnership pursuant to ARTICLE 8
or PARAGRAPH 10.1.6;
"Code" - the Internal Revenue Code of 1986,
as amended, or any corresponding
provisions of succeeding law in
effect from time to time;
"Control" - (a) in the case of a corporation,
the holding, otherwise than by
way of security only, of
shares to which are attached
more than fifty percent (50%)
of the votes that may be cast
to elect directors of such
corporation, provided the
votes attached to such shares
are sufficient, if exercised,
to elect a majority of the
directors of the said
corporation;
(b) in the case of a limited
partnership, the holding,
otherwise than by way of
security only, of
<PAGE> 7
(i) shares to which are
attached more than fifty
percent (50%) of the
votes that may be cast to
elect directors of each
of its general partners,
provided the votes
attached to such
shares are sufficient,
if exercised, to elect a
majority of the directors
of each such general
partner, or of more
_________________________________________________________________
4.
_________________________________________________________________
than fifty percent (50%)
of all the partnership
interests of each and
every class held by the
general partners in the
limited partnership; or
(ii) more than fifty percent
(50%) of all the
partnership interests
held by the partner(s) in
the limited partnership;
and
(c) in the case of a general
partnership, the holding,
otherwise than by way of
security only, of more than
fifty percent (50%) of all the
partnership interests held by
the partners in the general
partnership.
The terms "Controlled" and
"Controlling" shall have
corresponding meanings;
<PAGE> 8
"Dissolution Event" - the Bankruptcy or withdrawal of a
Partner whether or not pursuant to
the terms of this Agreement;
"Dollar" or "$" - the lawful money of the United
States of America;
"Fiscal Year" - has the meaning ascribed to it in
PARAGRAPH 12.2;
"Fuel" - natural gas, oil, coal and other
hydrocarbons, as well as wood
chips, wastes and other substances;
"GAAP" - the generally accepted U.S.
accounting principles consistently
applied;
"HQ" - Hydro Quebec;
_________________________________________________________________
5.
_________________________________________________________________
"Management
Committee" - the management committee of the
Partnership constituted pursuant to
ARTICLE 11;
"Managers" - the members of the Management
Committee;
"NOV" - Noverco Inc.;
"Parents" - CNG which has directly or
indirectly the Control over CNGEA,
HQ which has directly or indirectly
the Control over HQUS and NOV which
has directly or indirectly the
Control over NOVUS;
"Partners" - CNGEA, HQUS and NOVUS together with
such other Persons as may become
partners of the Partnership;
<PAGE> 9
"Partnership" - the general partnership constituted
hereby;
"Partnership Interest" - the percentage obtained by dividing
the Capital Account of a Partner by
the aggregate Capital Accounts of
all the Partners and multiplying by
100;
"Person" - includes an individual,
partnership, association, trust,
unincorporated organization and
corporation;
"Proportionately" - as among any Partners, pro rata
based upon such Partners'
Partnership Interests;
"Related Entity" - of a Partner, means a Person (other
than an individual) who is
Controlled directly or indirectly
by the corresponding Parent of such
Partner;
"Tax Capital Account" - has the meaning ascribed to it in
PARAGRAPH 12.9.5;
"Tax Matters Partner" - has the meaning ascribed to it in
PARAGRAPH 12.11.1;
_________________________________________________________________
6.
_________________________________________________________________
"Territory" - the territories located in the
United States of America, as shown
in the map attached as APPENDIX
"A", composed of the territories of
NEPOOL (New England Power Pool),
NYPA (New York Power Authority) and
PJM (Pennsylvania, New Jersey-
Maryland Power Pool) as they may be
modified from time to time, and
such other areas as determined by
the Partners from time to time;
<PAGE> 10
"Treasury Regulations" - the income tax regulations
promulgated under the Code, as such
regulations may be amended from
time to time and including
corresponding provisions of
succeeding regulations;
"Utility" - a regulated public utility engaged
primarily in ownership and
operation of assets for service
to retail customers.
- PREAMBLE -
A. WHEREAS the Partners intend to provide the energy industry
with flexible services of various energy forms;
B. WHEREAS the Partners have agreed to enter into a partnership
to carry on the Business and to execute this General
Partnership Agreement for the purpose of establishing the
principles and modalities regarding the organization and
operation of the Partnership and of setting forth their
mutual understanding with respect to the objective and
mission of the Partnership, as well as their respective
rights and obligations as Partners.
- NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: -
________________________________________________
ARTICLE 1 - PARTNERSHIP
1.1 The Partners hereby form a general partnership under the
Uniform Partnership Act (Delaware) subject to the terms and
conditions hereof.
_________________________________________________________________
<PAGE> 11
7.
_________________________________________________________________
ARTICLE 2 - OBJECT OF THE PARTNERSHIP
2.1 The object of the Partnership, which constitutes its
Business, shall be to supply, purchase, market, broker or
otherwise trade electricity or Fuel, to provide electricity
or Fuel management services as well as to carry on
activities or perform services related to any of the
foregoing, in the Territory, including, without limitation,
in connection with Arbitrage Transactions.
2.2 Neither the Partnership nor any Partner shall act as
representative or agent of any Parent. Nothing in this
Agreement should be construed to authorize the Partnership
or any of the Partners to represent any of the Parents or
any Related Entity in any commercial dealing, including
with respect to the sale of electricity or Fuel.
ARTICLE 3 - GOVERNING LAW
3.1 The validity, interpretation and performance of this
Agreement shall be governed by the laws in force in the
State of Delaware, exclusive of the conflict of laws rules
thereof.
ARTICLE 4 - PARTNERSHIP NAME
4.1 The name of the Partnership shall be "Energy Alliance
Partnership".
ARTICLE 5 - HEAD OFFICE
5.1 The head office of the Partnership shall be at such
location as determined by the Management Committee.
<PAGE> 12
ARTICLE 6 - TERM
6.1 Subject to the provisions contained in this Agreement, the
Partnership shall commence on the date of execution of this
Agreement and shall continue for a term ending on the
earlier of:
_________________________________________________________________
8.
_________________________________________________________________
6.1.1 the date on which the Partnership is voluntarily
dissolved by agreement of the Partners; or
6.1.2 the date on which a Dissolution Event occurs
provided, however, the remaining Partners shall have
the right to elect to continue the Business, in a
reconstituted form if necessary, such right
exercisable upon an affirmative vote of the remaining
Partners within sixty (60) days after their acquiring
knowledge of the Dissolution Event; or
6.1.3 on December 31,2020, unless the Partners agree on
another date.
ARTICLE 7 - PARTNERSHIP INTERESTS
7.1 Initially, each of the Partners shall have the Partnership
Interest set forth below opposite its name:
Name of the Partners Partnership Interest
____________________ ____________________
CNGEA 33 1/3%
HQUS 33 1/3%
NOVUS 33 1/3%
The above Partnership Interests may be altered pursuant to
this Agreement.
7.2 For accounting and tax purposes, the profits and losses of
the Partnership shall be determined and allocated among the
Partners.
<PAGE> 13
7.3 The profits and losses of the Partnership allocated among
the Partners shall be credited or charged, as the case may
be, to their respective Tax Capital Accounts as of the date
as of which such profits and losses are to be determined in
accordance with PARAGRAPH 12.9.5.
7.4 All profits and losses of the Partnership shall be
determined in accordance with the accounting methods
followed by the Partnership for federal income tax
purposes. Profits and losses shall include all items of
income, gain, loss and deduction.
7.5 Division of profits and losses shall be made and
eligibility therefor shall be determined as of the close of
each fiscal year, except that, in the case of a transferee
Partner in accordance herewith, the allocation of profits
and losses
_________________________________________________________________
9.
_________________________________________________________________
between transferor and transferee shall be as of the date
the transfer has been made.
7.6 Except as otherwise provided herein, profits, losses and
credits of the Partnership shall be allocated among the
Partners Proportionately.
7.7 If the Partnership's adjusted basis for income tax purposes
of property contributed by a Partner differs from the value
at which the property was accepted by the Partnership at
the time of its contribution, in determining the
contributing Partner's distributive share of the taxable
income or loss of the Partnership, depreciation or gain or
loss with respect to the contributed property shall be
allocated to take into account, to the fullest extent
permitted by the Code and the Treasury Regulations, the
difference between the adjusted basis of the property to
the Partnership and the agreed value of the property at the
time of its contribution. Such allocations shall be
consistent with section 704(c) of the Code and the Treasury
Regulations promulgated pursuant thereto.
7.8 No allocation shall be made to any Partner so as to create
or increase a deficit balance in such Partner's Tax Capital
Account in excess of any amount of such deficit balance
<PAGE> 14
that the Partner is obligated, or deemed obligated, to
restore or the amount permitted under the minimum gain
provisions. Further, notwithstanding anything contained
herein to the contrary, a Partner who receives an
adjustment, allocation or distribution described in
Treasury Regulation Section 1.704-1(b) (2) (ii) (d) (4),
Section 1.704-1(b) (2) (ii) (d) (5), or Section 1.704-1(b)
(2) (ii) (d) (6), which causes or increases a deficit in
such Partner's Tax Capital Account in excess of any amount
of such deficit balance that the Partner is obligated, or
deemed obligated, to restore, will be allocated items of
income and gain in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible. Any
special allocations of items of income or gain pursuant to
this provision shall be taken into account in computing
subsequent allocations of profits pursuant to this
Agreement so that the net amount of any items so allocated
and all other items allocated to each Partner shall, to the
extent such allocation shall not create or increase a
deficit balance in such Partner's Tax Capital Account in
excess of any amount of such deficit balance that the
Partner is obligated, or deemed obligated, to restore, be
equal to the net amount that would have been allocated to
each Partner pursuant to the provisions of this Agreement
if such unexpected adjustments, allocations or
distributions had not occurred. This provision is intended
to comply with the qualified income offset provision in the
Treasury Regulations under section 704(b) of the Code and
shall be interpreted consistently therewith.
_________________________________________________________________
10.
_________________________________________________________________
7.9 Notwithstanding any other provision of this Agreement, if
there is a net decrease in partnership minimum gain as
defined in Treasury Regulation Section 1.704-2(d), each
Partner who would otherwise have a deficit in such
Partner's Tax Capital Account shall be allocated items of
income and gain in a manner and in an amount sufficient to
eliminate such deficit as quickly as possible. The items to
be so allocated shall be determined in accordance with
Treasury Regulation Section 1.704-2(f) (6). This provision
is intended to comply with the minimum gain charge-back
requirements in Treasury Regulation Section 1.704-2(f) and
<PAGE> 15
shall be interpreted consistently therewith. In the event
of the Partnership's profits or losses for any year include
Partner nonrecourse deductions, the provisions of Treasury
Regulation Section 1.704-2(i) shall be applied for that
year and all succeeding taxable years.
7.10 The references in this Agreement to the Code and the
Treasury Regulations and to provisions thereof, should not
be interpreted to signify that provisions not specifically
referred to, were intended not to be applicable or not to
be complied with.
ARTICLE 8 - CAPITAL CONTRIBUTIONS
8.1 If at any time Capital or further Capital is required for
carrying on the Business, the Capital shall be advanced by
the Partners Proportionately.
8.2 All Capital Contributions shall be made in cash. However,
if agreed by the Management Committee, a Partner may make a
Capital Contribution in property. In such event, the value
of the property so contributed shall be agreed upon between
the contributing Partner and the Management Committee. Any
Capital Contribution made in property by a Partner shall be
matched by Capital Contributions in cash by the other
Partners Proportionately.
8.3 Each Partner agrees to make an initial Capital Contribution
of $600,000 to the Partnership, within thirty (30) days
following the execution of this Agreement. Subject to the
Business volume requirements and when required by the
Management Committee, each Partner agrees to make
additional Capital Contributions to the Partnership up to
an aggregate amount of $2,400,000.
8.4 If a Partner does not make a Capital Contribution on the
due date, the other Partners may bring the additional
Capital which was to be contributed by said Partner to the
Partnership, Proportionately, within thirty (30) days
following the date on which said Capital Contribution was
due. In such event, the Partnership
_________________________________________________________________
<PAGE> 16
11.
_________________________________________________________________
Interest of each Partner shall be adjusted accordingly, pro
rata to all the Capital Contributions made by all the
Partners.
ARTICLE 9 - REPRESENTATIONS AND WARRANTIES
9.1 Each Partner hereby represents and warrants to the other
Partners:
9.1.1 that it is a valid and existing corporation duly
incorporated and has the requisite power to carry on
its business;
9.1.2 that it has full power and authority to enter into
this Agreement;
9.1.3 that the execution of this Agreement and the
accomplishment of its obligations hereunder do not
conflict with any law, any governmental or regulatory
restrictions, its articles of incorporation, its by-
laws nor with any agreement executed by it.
9.2 Each Partner hereby covenants to ensure its continued
qualification under the laws of its jurisdiction of
incorporation and, if required by law, of such
jurisdictions where the Partnership carries on its
Business.
ARTICLE 10 - MATTERS REQUIRING APPROVAL OF THE PARTNERS
10.1 All decisions pertaining to the Business and the other
affairs of the Partnership shall be made by the Management
Committee, save and except that the following matters shall
require the unanimous written approval of the Partners:
10.1.1 any amendment to this Agreement;
<PAGE> 17
10.1.2 any sale or other disposition of all or
substantially all of the assets of the
Partnership;
10.1.3 the purchase or the transfer of a Partnership
Interest or any part thereof or the admission
of a new Partner, save and except in compliance
with ARTICLES 18. 19 AND 20;
_________________________________________________________________
12.
_________________________________________________________________
10.1.4 the dissolution, liquidation or winding-up of
the Partnership or the merger, amalgamation or
reorganization of the Partnership with any
Person;
10.1.5 any change in the Business;
10.1.6 any additional Capital Contributions to the
Partnership by the Partners in excess of
$3,000,000 per Partner on a cumulative basis.
10.2 For the purposes of PARAGRAPH 10.1, any Partner that
withdraws from the Partnership or otherwise causes the
Partnership to be dissolved shall be deemed not to be a
partner of the Partnership.
ARTICLE 11 - MANAGEMENT COMMITTEE
11.1 Save and except as provided in ARTICLE 10, the Partners
agree that the Business and the affairs of the Partnership
shall be managed by the Management Committee.
11.2 The Management Committee shall be comprised of a maximum of
nine (9) Managers.
11.3 Each Partner shall be entitled to name one (1) Manager for
each eleven percent (11%) of its Partnership Interest by
instrument in writing given to the Management Committee.
<PAGE> 18
11.4 The quorum for Management Committee's meetings shall be
three (3) Managers and must include a nominee of each
Partner holding individually a Partnership Interest of
twenty-two percent (22%) or more.
11.5 Each Manager, including the Chairman, has one (1) vote at
Management Committee's meetings.
11.6 The Management Committee manages the affairs of the
Partnership and exercises all the powers necessary for that
purpose. It may, in its discretion, create management
positions and other committees, and delegate the exercise
of certain powers to the holders of those positions and to
those committees. The provisions of PARAGRAPH 11.8 shall
apply mutatis mutandis to the individuals holding said
positions or being members of said committees.
_________________________________________________________________
13.
_________________________________________________________________
11.7 The decisions of the Management Committee are taken by the
affirmative vote of a majority of the Managers present at a
duly convened meeting at which a quorum is present, which
majority must include a nominee of each Partner holding
individually a Partnership Interest of twenty-two percent
(22%) or more.
11.8 The Managers are not liable to the Partnership or any
Partner individually for the decisions taken by the
Management Committee, unless they act with fraud, bad
faith, gross recklessness, gross carelessness or gross
negligence.
11.9 Except in respect of an action by or on behalf of the
Partnership to procure a judgment in its favour, the
Partnership shall indemnify a Manager and his heirs
executors, successors and legal representatives, against
all costs, charges and expenses, including an amount paid
to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a
party by reason of being or having been a Manager of the
Partnership,
<PAGE> 19
11.9.1 unless he acted with fraud, bad faith, gross
recklessness, gross carelessness or gross
negligence; and
11.9.2 in the case of a criminal or administrative
action or proceeding that is enforced by a
monetary penalty, if he had reasonable grounds
for believing that his conduct was lawful or in
the case of any other criminal or
administrative action, he is found not guilty
of any alleged unlawful conduct.
11.10 No person may be designated as a Manager without his
express consent.
11.11 Each Manager shall serve at the pleasure of the Partner
naming him and may be removed at any time by said Partner.
In the event that a Partner's Partnership Interest shall be
reduced such that it shall no longer be entitled to name
the number of Managers it has named, it shall remove the
excess Managers named by it. Failing such removal by said
Partner, a majority of the Managers appointed by the other
Partners shall have the right, by ordinary resolution and
without having to comply with the rules of PARAGRAPHS 11.4
AND 11.7, to remove the excess Managers.
11.12 Subject to PARAGRAPH 11.3, the Partners fill the vacancies
on the Management Committee.
11.13 Where the Management Committee is prevented from acting
owing to the incapacity or systematic opposition of some
Managers, the other Managers may
_________________________________________________________________
14.
_________________________________________________________________
act alone for conservatory acts in connection with the
discharge of the existing obligations of the Partnership
and the provisions of PARAGRAPHS 11.4. 11.7 and 11.17 shall
apply mutatis mutandis as if the Management Committee only
comprised such other Managers.
11.14 The Managers may participate in a meeting of the Management
Committee by the use of a means which allows all those
participating to communicate directly with each other.
<PAGE> 20
11.15 The Chairman of the Management Committee or any two (2)
Managers may convene a meeting of the Management Committee
by sending a written convening notice, together with a
proposed agenda, to the other Managers at least three (3)
business days before the date of the meeting.
11.16 The Managers may waive the notice convening a meeting of
the Management Committee. The mere presence of the Managers
is equivalent to a waiver of the convening notice unless
they are attending to object that the meeting was not
regularly convened.
11.17 Resolutions in writing signed by all the Managers in office
are as valid as if passed at a meeting of the Management
Committee. A copy of the resolutions shall be kept with the
minutes of proceedings or the equivalent.
11.18 The Managers shall serve without compensation from the
Partnership.
11.19 The reasonable expenses incurred by the Managers in such
capacity shall be reimbursed by the Partnership.
ARTICLE 12 - FINANCIAL MATTERS
12.1 Working capital
Except as otherwise agreed upon by the Management
Committee, it is the intention of the Partners that the
Partnership shall operate first with the funds to be
provided by them as Partners under ARTICLE 8 and with its
profits.
12.2 Fiscal Year
The Fiscal Year end of the Partnership shall be December 31
of each year.
_________________________________________________________________
15.
_________________________________________________________________
<PAGE> 21
12.3 Auditor
The Auditor shall be determined by the Management
Committee.
12.4 Banking arrangements
The Partners agree that the Partnership shall enter into
banking arrangements with any bank or banks or other
financial institutions as the Management Committee shall
determine. All cheques, drafts and other instruments and
documents on behalf of the Partnership may be signed by the
person designated by the Management Committee. All
Partnership money shall, when received, be paid and
deposited with the bankers of the Partnership to the credit
of a Partnership account.
12.5 Business plan
The Partnership shall operate within the overall parameters
of a business plan which shall be submitted for
consideration to and approved by the Management Committee
as soon as possible after the date hereof (and modified
from time to time as circumstances require) and under
annual capital and operating budgets which shall be
approved by the Management Committee at least thirty (30)
days prior to the commencement of each Fiscal Year of the
Partnership save for the first. The capital and operating
budgets for the first Fiscal Year shall be drawn by the
Partners and approved by the Management Committee within
sixty (60) days of the date hereof.
12.6 GAAP
All accounting matters under this Agreement shall be
governed by GAAP and to that end any accounts, reports,
statements or similar matters which are drawn or
established in connection with the Business or the affairs
of the Partnership shall conform with GAAP.
12.7 Cash distributions
The Partnership shall operate under a policy of prudent
cash distributions whereby, save for normal and prudent
reserves (including without limitation, reserves for
<PAGE> 22
amounts required, in the reasonable opinion of the
Management Committee, to fund anticipated budgetary
requirements for the next twelve (12) months), cash will be
distributed Proportionately to the Partners as and when
available for distribution; subject only to solvency and
similar tests, if any, imposed by the laws governing the
Partnership.
_________________________________________________________________
16.
_________________________________________________________________
12.8 Financial statements
Proper accounts shall be kept of all transactions of the
Partnership and at the end of each Fiscal Year or so soon
thereafter as possible, a statement shall be prepared
showing the income and expenses of the Partnership for the
past year and what belongs and is due to each of the
Partners as its share of the profits, together with the
Capital Account of each Partner. The Partnership accounts
shall be audited by the Auditor at the expense of the
Partnership.
12.9 Books and records
12.9.1 The Management Committee shall designate a
Partner, agent or employee of the Partnership
as the Administrative Partner to maintain or
cause to be maintained at the office of the
Partnership (or other designated location, if
necessary), full, correct and complete copies
of this Agreement, and each material agreement
of the Partnership and, in each case, full,
correct and complete copies of all amendments
thereof and supplements thereto, and full and
accurate books of the Partnership showing all
receipts and expenditures, assets and
liabilities, profits and losses and all other
books, records and information required by the
Uniform Partnership Act (Delaware) to record
the Partnership's business and affairs,
together with a current list of the full name
and last known business address of each
<PAGE> 23
Partner, and executed copies of all powers of
attorney, and copies of the Partnership's
federal, state and local income tax returns and
reports, if any.
12.9.2 Such documents, books and records shall be
maintained at a designated location until six
(6) years after the termination and liquidation
of the Partnership. The Administrative Partner
may issue copies of the documents deposited
with him; until proof to the contrary, the
copies are proof of their contents without any
requirement to prove the signature affixed to
them or the authority of the author.
12.9.3 Each Partner and its duly authorized agent(s)
or representative(s) shall have the right, at
such Partner's expense, at all reasonable times
during normal business hours and upon at least
two (2) business days' prior notice, to inspect
and make copies or extracts from all the
Partnership's documents, books, records,
information stored electronically by means of a
computer or other data storage or data
processing device, including, without
limitation, all documents, books and records
necessary to enable such Partner to defend any
tax audit or related proceeding.
_________________________________________________________________
17.
_________________________________________________________________
12.9.4 Each Partner and its duly authorized agent(s)
or representative(s) shall also have the right,
at such Partner's expense, at all reasonable
times during normal business hours and upon at
least two (2) business days' prior notice, to
audit the billings, accounts, records, other
documents and physical operations of the
Partnership necessary to verify the accuracy of
any statement, charge or computation made
pursuant to this Agreement during any calendar
year within the twenty-four (24) month period
following the end of such calendar year. The
<PAGE> 24
Partnership shall respond to exceptions
resulting from the audit within 30 days of the
receipt of the final audit report.
12.9.5 An individual Tax Capital Account shall be
established and maintained for each Partner on
the books of the Partnership in accordance with
the requirements of Section 704(b) of the Code
and Treasury Regulation Section 1.704-1(b).
Upon the permitted transfer or termination of
any interest in the Partnership, the Tax
Capital Account of each Partner shall be
adjusted as required by any Treasury
Regulations in effect as of the date of such
transfer or termination. The provisions of this
Agreement relating to the maintenance of Tax
Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and
shall be interpreted and applied in a manner
consistent with such Regulations. In the event
the Tax Matters Partner shall determine that it
is prudent to modify the manner in which the
Tax Capital Accounts, or any debits or credits
thereto, are computed in order to comply with
such Treasury Regulations or to make an
election under the Treasury Regulations in
determining Tax Capital Accounts, the Tax
Matters Partner may make such modification,
provided that it is not likely to have a
material effect on the amounts distributable to
any Partner upon the dissolution of the
Partnership. The Tax Matters Partner also shall
make any appropriate modifications in the event
unanticipated events might otherwise cause this
Agreement not to comply with Treasury
Regulation Section 1.704-1(b).
12.10 Reports to Partners
12.10.1 Wthin forty five (45) days after the end of
each of the first three calendar quarters of
each Fiscal Year, the Administrative Partner
shall cause to be prepared and delivered to the
other Partners an unaudited balance sheet as of
the end of such calendar quarter and unaudited
<PAGE> 25
statements of operations for such calendar
quarter and unaudited statements of operations,
Partners' equity and cash flow of the
Partnership for the period from the beginning
of the then current Fiscal
_________________________________________________________________
18.
_________________________________________________________________
Year to the end of such calendar quarter, all
of which shall be prepared in accordance with
GAAP;
12.10.2 Within ninety (90) days after the end of each
Fiscal Year, the Administrative Partner shall
cause to be prepared and delivered to the other
Partners an audited balance sheet as of the end
of such Fiscal Year and related statements of
operations, Partners' equity and cash flow of
the Partnership, prepared in accordance with
GAAP;
12.10.3 With respect to each calendar quarter of each
Fiscal Year, the Administrative Partner shall
cause to be prepared and delivered to the other
Partners a reasonable estimate of the other
Partners' respective allocable shares of
taxable profit and losses (and their respective
allocable shares of any items of income, gain,
loss or deduction). The tax estimate for the
first calendar quarter of each Fiscal Year
shall be delivered to the Partners on or before
the last day of such calendar quarter. The tax
estimates for the subsequent calendar quarters
of each Fiscal Year shall be delivered to the
Partners at least thirty (30) days prior to the
close of each such calendar quarter. Such tax
estimates shall be reasonable in light of the
information available to the Administrative
Partner at time of preparation;
12.10.4 With respect to each month of each Fiscal Year,
the Administrative Partner shall cause to be
prepared and delivered to each Partner, within
twenty (20) days of the end of each month, a
reasonable estimate of net income and net cash
flow of the Partnership for such month.
<PAGE> 26
12.11 Annual tax return
12.11.1 Unless otherwise determined by the Management
Committee, CNGEA shall be the Tax Matters
Partner for federal income tax purposes
pursuant to Section 6231 of the Code with
respect to all taxable years of the Partnership
and is authorized to do whatever is necessary
to qualify as such. The Tax Matters Partner
shall cause the preparation of, and shall
timely file, or cause the timely filing of, all
tax returns and shall timely make or revoke all
elections, and take all tax reporting
positions, necessary or desirable for the
Partnership so as to maximize the tax benefits
of the Partners (i.e. maximum cost allowances,
reserves and other deductions), including
elections under Section 195 of the Code (to
amortize start up expenditures) and 709 of the
Code (to amortize organizational expenditures)
taking into consideration the tax provisions
contained herein. No election shall be made by
any Partner to have the
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19.
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Partnership excluded from the application of
any provision of Subchapter K of the Code or
any equivalent state or other income tax
provision.
12.12 Actions in event of audit and other tax matters
12.12.1 The Tax Matters Partner shall take all actions
which are necessary or appropriate in dealing
with any tax authorities subject to the
following:
12.12.1.1 During any audit or other
controversy with any tax authority,
the Tax Matters Partner shall keep
the other Partners informed of all
material facts and developments on
a timely basis, and shall consult
<PAGE> 27
with any Partner at such Partner's
request. In general, the Tax
Matters Partner shall not take any
action contemplated by Sections
6221 through 6233 of the Code
unless it has first given the other
Partners notice of the contemplated
action and received the consent of
the Management Committee. This
provision is not intended to
authorize the Tax Matters Partner
to take any action which is left to
the determination of an individual
Partner under Section 6221 through
6233 of the Code.
12.12.1.2 The Tax Matters Partner shall keep
each Partner informed of all
administrative and judicial
proceedings for the adjustment at
the Partnership level of
partnership items in accordance
with Section 6233(g) of the Code,
and shall furnish copies of
correspondence received pursuant to
the provisions of the preceding
sentence to the Partners.
12.12.1.3 The Tax Matters Partner shall not
enter into any extension of the
period of limitations as provided
under Section 6229 of the Code
without first giving reasonable
notice to all other Partners of
such intended action and obtaining
the consent of the Management
Committee.
12.12.1.4 No Partner shall file, pursuant to
Section 6227 of the Code, a request
for an administrative adjustment of
partnership items for any
Partnership taxable year. If any
Partner desires such a request for
administrative adjustment, and if
<PAGE> 28
the Management Committee agrees
with the requested adjustment, the
Tax Matters Partner shall file the
request for administrative
adjustment on behalf of the
Partnership.
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20.
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12.12.1.5 The Tax Matters Partner shall not
make any settlement offers with
respect to the tax treatment of
partnership items without first
giving reasonable advance notice of
such intended action (including any
proposal for settlement) to the
other Partners. The Tax Matters
Partner shall not bind any other
Partner to a settlement agreement
without obtaining the written
concurrence of any such Partner who
would be bound by such agreement.
Unless prohibited, any other
Partner who enters into a
settlement agreement with the
Internal Revenue Service or the
Secretary of the Treasury with
respect to any partnership items
shall promptly notify the Tax
Matters Partners of such settlement
agreement, and the Tax Matters
Partner shall promptly notify the
other Partners of such settlement
agreement.
12.12.1.6 Pursuant to the approval of the
Management Committee, the Tax
Matters Partner shall have the
right to engage legal counsel,
certified public accountants, or
other assistance with respect to
any partnership level tax audit. In
<PAGE> 29
such case, any reasonable item of
expense with respect to such
matters, including but not limited
to fees and expenses for legal
counsel, certified public
accountants and other experts which
the Tax Matters Partner incurs in
connection with any Partnership
level audit, assessment, litigation
or other proceedings regarding any
partnership item shall be borne by
the Partnership.
12.12.1.7 The Tax Matters Partner shall
provide to each of the Partners a
copy of the Partnership's annual
federal income tax information
returns (Form 1065 and the
accompanying Schedules K-1), as
well as any similar State income
tax returns, at least thirty (30)
days prior to the due date for such
returns in order that each of the
Partners may review and comment on
such returns prior to the filing
thereof. If approved by the
Management Committee, such comments
shall be incorporated into the
return.
12.12.1.8 The Partnership shall indemnify the
Tax Matters Partner for all claims,
liabilities, losses and damages
borne by the Tax Matters Partner,
which were incurred in connection
with any administrative or judicial
proceeding with respect to any
audit of the Partnership's Tax
Returns, except to the extent
caused
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<PAGE> 30
21.
_________________________________________________________________
by the gross negligence or willful
misconduct of the Tax Matters
Partner.
12.12.1.9 The taking of any action and the
incurring of any expense by the Tax
Matters Partner in connection with
any such proceeding, except to the
extent otherwise governed by
PARAGRAPH 12.12.1, shall be a
matter in the reasonable discretion
of the Tax Matters Partner.
ARTICLE 13 - STAFFING AND FACILITIES
13.1 The Partnership shall operate with the staff, the premises
and facilities, as determined by the Management Committee.
ARTICLE 14 - lNSURANCES
14.1 The Partnership shall purchase such insurances in type and
in amount and with the coverage determined by the
Management Committee.
ARTICLE 15 - PRODUCTS AND SERVICES
15.1 Where the Partnership calls for the supply or sale of
electricity and/or Fuel, the Management Committee shall
first seek to procure or sell same, as the case may be,
from or to suppliers and buyers designated by the
Management Committee from time to time on the basis inter
alia of the following criteria: availability, quality,
price, reliability, etc.
15.2 Where the Partnership calls for the supply of services, the
Management Committee shall seek to procure same as follows:
<PAGE> 31
15.2.1 The Management Committee shall determine which
of the Partners (including their Related
Entities) is best suited to procure or supply
them.
15.2.2 To that end, charges to the Partnership for
services sourced from the Partners (including
their Related Entities) shall be made on the
direct
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22.
_________________________________________________________________
costing method for the personnel of such
Partners (that is, salary plus fringe benefits)
and direct out-of-pocket expenses for other
items.
15.2.3 Notwithstanding the foregoing, no Partner shall
have any obligation to supply such services to
the Partnership.
ARTICLE 16 - INDIVIDUAL OBLIGATIONS OF THE PARTNERS
16.1 With respect to the activities of a Partner outside of the
Partnership, each of the Partners shall keep indemnified
the Partnership and the other Partners from all actions,
proceedings, costs, claims and demands of every nature in
connection with his own separate debts, liabilities,
obligations, duties and agreements whether at present or
future.
ARTICLE 17 - INDEMNIFICATION
17.1 If at any time a Partner is required to pay or becomes
liable for more than his proportion of the Partnership
debts as provided for in this Agreement, that Partner shall
have Proportionately as against the other Partners a right
of recovery to the payment or indemnification against such
liability.
<PAGE> 32
ARTICLE 18 - RESTRICTIONS ON TRANSFER OF PARTNERSHIP INTEREST
18.1 Except as expressly provided for in this Agreement, no
Partner may sell, transfer, assign, pledge, charge,
mortgage or in any other way dispose of or encumber its
Partnership Interest or rights under this Agreement, or any
part thereof, without the prior written consent of the
other Partners.
18.2 However, a Partner may, without said consent of the other
Partners, transfer all of its Partnership Interest to a
Related Entity, provided:
18.2.1 that said Partner sends a notice of the
proposed transfer to the other Partners;
18.2.2 that none of the other Partners demonstrates to
the transferring Partner that the proposed
transfer will have material and unfavourable
regulatory
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23.
_________________________________________________________________
or fiscal impacts on it or on the Partnership;
said demonstration having to be made in writing
within thirty (30) days following the receipt
of the notice referred to in PARAGRAPH 18.2.1,
failing which all such other Partners shall be
deemed not to be opposing the proposed
transfer; and
18.2.3 that said Related Entity becomes simultaneously
a party to this Agreement in lieu and place of
said transferring Partner.
ARTICLE 19 - RIGHT OF FIRST REFUSAL
19.1 For the purpose of this Article, unless the context
indicates otherwise, the following terms and expressions
have the meanings ascribed to them:
<PAGE> 33
"Accepting Offerees" - the Offerees having accepted
an Offer;
"Additional Interest" - the portion of the Offered
Interest that was refused by
the Refusing Offerees;
"Approved Candidate(s)" - the Persons listed in the
List Of Candidates which are
approved by the Offerees
pursuant to PARAGRAPH 19.3;
"Approved Candidate/Offer" - a bona fide written offer
from an Approved Candidate
offering to purchase the
Partnership Interest of the
Offeror and setting the price
in cash and other terms and
conditions;
"List Of Candidates" - the list of the Persons which
the Offeror intends to
solicit in order to obtain
from them an offer to
purchase all its Partnership
Interest, which list shall be
signed by the Offeror and
shall comprise sufficient
information in order to
identify each of said
Persons, their business and
affairs and ultimate
ownership;
"Offer" - the written offer to sell its
Partnership sent by the
Offeror to the Offerees
setting the price in cash and
other terms and conditions;
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<PAGE> 34
24.
_________________________________________________________________
"Offerees" - the Partners other than the
Offeror;
"Offeror" - a Partner making an Offer;
"Offered Interest" - the Partnership Interest
forming the object of the
Offer;
"Refusing Offerees" - the Offerees having refused
an Offer.
19.2 Except as provided in ARTICLE 18 or except with the written
consent of all the Offerees, the Offeror may not sell or
otherwise transfer, in whole or in part, its Partnership
Interest to any Person without first having delivered a
List Of Candidates to the Offerees.
19.3 The Offerees shall deliver to the Offeror a joint written
notice of approval or refusal of the Persons listed in the
List Of Candidates within thirty (30) days following the
receipt of same, failing which the Offerees shall be
irrefutably deemed to have refused said Persons.
19.4 If pursuant to PARAGRAPH 19.3 there is at least one (1)
Approved Candidate, the Offeror may seek to obtain an
Approved Candidate/Offer within one hundred and twenty days
(120) days following the expiry of the thirty (30) day
period set forth in PARAGRAPH 19.3. In that regard, before
disclosing any information respecting the Partnership to an
Approved Candidate, the Offeror shall obtain from the
latter a confidentiality undertaking in a form satisfactory
to the Offerees and deliver to them an executed copy of
same.
19.5 If the Offeror receives an Approved Candidate/Offer within
the period set forth in PARAGRAPH 19.4 that the Offeror is
willing to accept, it must communicate a complete copy
thereof to the Offerees together with an Offer setting
forth the same cash price, terms and conditions as those
<PAGE> 35
stipulated in the Approved Candidate/Offer. By delivering
the Offer, the Offeror represents and warrants to the
Offerees that there is no direct or indirect supplementary
consideration (whether or not in the nature of a tangible
or intangible assets, money, property, securities or other
benefits) to be received by an Approved Candidate or any
other Person in connection with the Approved
Candidate/Offer and that the Approved Candidate/Offer is
not made as part of or in connection with any other
transaction.
19.6 The Offerees shall be entitled to acquire the Offered
Interest Proportionately.
_________________________________________________________________
25.
_________________________________________________________________
19.7 The Offerees shall deliver to the Offeror a written notice
of acceptance or refusal of the Offer within thirty (30)
days following the receipt of the Offer.
19.8 The Offerees who have not sent to the Offeror the notice
provided in PARAGRAPH 19.7 within the stipulated period,
shall be irrefutably deemed to have refused the Offer.
19.9 If the Offer is accepted by all the Offerees, the Offeror
shall transfer the Offered Interest to the Offerees within
thirty (30) days following the date of such acceptance.
19.10 If the Offer is not accepted by all the Offerees, the
Offeror shall deliver, within ten (10) days following the
expiration of the period set forth in PARAGRAPH 19.7, a
written notice to that effect to the Accepting Offeree.
19.11 Within ten (10) days from the date of receipt of the notice
referred to in PARAGRAPH 19.10, the Accepting Offeree shall
deliver to the Offeror a written notice of acceptance or
refusal of the Additional Interest, failing which the
Accepting Offeree shall be irrefutably deemed to have
refused to acquire the Additional Interest.
19.12 In the event of a refusal or deemed refusal by the
Accepting Offeree to acquire the Additional Interest, the
Accepting Offeree shall be irrefutably deemed to have
refused the Offer even if it had been initially accepted.
<PAGE> 36
19.13 In the event of a refusal or deemed refusal of the Offer
by all the Offerees, the Offeror may transfer the Offered
Interest to the Approved Candidate having made an Approved
Candidate/Offer within thirty (30) days following the date
of the refusal or deemed refusal of the Offer by the last
of the Offerees, and this, at the same cash price and upon
the same terms and conditions as those stipulated in the
Approved Candidate/Offer or at a cash price and upon terms
and conditions which are more favourable to the Offeror,
failing which, if the Offeror still desires to sell the
Offered Interest, it must offer it again to the Offerees in
the manner provided in this Article.
19.14 A Partner may not sell or otherwise transfer any part of
its Partnership Interest to an Approved Candidate having
made an Approved Candidate/Offer, if the latter does not
agree in advance and in writing to become a party to this
Agreement.
19.15 If, for purposes of obtaining any necessary regulatory
approval, the periods set forth in PARAGRAPHS 19.9 AND
19.13 have to be extended, the Offeror, the Offerees
_________________________________________________________________
26.
_________________________________________________________________
and the Partnership shall act diligently and in good faith
to minimize the extension of said periods, which extension
shall not exceed six (6) months.
19.16 No Partner may rely upon the provisions of this Article
before the expiry of a period of five (5) years from the
date of execution of this Agreement.
ARTICLE 20 - AUTHORIZED AND NON AUTHORIZED WITHDRAWAL OF A
PARTNER
20.1 Authorized withdrawal
20.1.1 For the purposes of PARAGRAPH 20.1, unless the
context indicates otherwise, the following
terms and expressions have the meanings
ascribed to them:
<PAGE> 37
"Price" - the price referred to
in PARAGRAPH 20.1.2.
"Remaining Partners" - the Partners other
than the withdrawing
Partner;
"Withdrawal Notice" - the written notice
sent by the
withdrawing Partner to
the Remaining Partners
referred to in
PARAGRAPH 20.1.2;
"Withdrawing Partner" - a Partner having sent
a Withdrawal Notice.
20.1.2 Any Partner may at any time during the thirty
(30) day period commencing on the 90th day
following the end of the fifth Fiscal Year and
of each fifth Fiscal Year thereafter, require
the Remaining Partners to purchase its
Partnership Interest for a Price equal to its
book value, as determined by the Auditor on the
basis of the last audited financial statements
of the Partnership, by giving a withdrawal
Notice to the Remaining Partners.
20.1.3` The Remaining Partners shall purchase the
Partnership Interest of the Withdrawing Partner
Proportionately or, alternatively, at the
discretion of the Remaining Partners, the
Partnership Interest of the Withdrawing Partner
shall be redeemed by the Partnership.
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27.
_________________________________________________________________
20.1.4 The Remaining Partners or the Partnership, as
the case may be, shall pay the Price to the
Withdrawing Partner, without interest, in
twelve (12) monthly, equal and consecutive
<PAGE> 38
installments, the first of which shall become
due and payable on the first day of the month
following the date of the receipt of the
withdrawal Notice by more than twenty (20)
days. If, for purposes of obtaining any
necessary regulatory approval, said twenty (20)
day period has to be extended, the Partners and
the Partnership shall act diligently and in
good faith to minimize the extension of said
period, which extension shall not exceed six
(6) months.
20.1.5 The Withdrawing Partner shall cease to be a
Partner of the Partnership on the date the
transaction of purchase and sale of its
Partnership Interest is completed.
20.1.6 In the event there are two (2) Withdrawing
Partners, the Remaining Partner shall have the
right to elect to continue the Business, in a
reconstituted form and with additional partners
if desired.
20.1.7 In the event there are three (3) withdrawing
Partners, the Partnership shall be dissolved
and wound up in accordance with the provisions
of ARTICLE 25.
20.2 Non authorized withdrawal
20.2.1 In the event a Partner withdraws from the
Partnership, fails to vote in favor of
reconstituting and continuing the Partnership
following a dissolution of the Partnership or
otherwise causes the dissolution of the
Partnership, without in each case complying
with the provisions of PARAGRAPH 20.1, the
Capital contributed to the Partnership by such
Partner shall be forfeited without prejudice to
the right of the remaining Partners to recover
from such Partner damages for breach of this
Agreement. In such a case, any such forfeiture
of Capital shall be treated as minimum
liquidated damages.
<PAGE> 39
20.2.2 The provisions of PARAGRAPH 20.1.6 shall be
applicable mutatis mutandis where two Partners
(said two Partners need not commit the same
breach) either withdraw from the Partnership,
fail to vote in favor of reconstituting and
continuing the Partnership following the
dissolution of the Partnership or otherwise
cause the dissolution of the Partnership
without, in each case, complying with the
provisions of PARAGRAPH 20.1.
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28.
_________________________________________________________________
ARTICLE 21 - DISPUTES
21.1 In their dealings with each other hereunder and in all
matters not specifically contemplated in this Agreement,
the Partners shall deal with each other and with the
Partnership in the utmost good faith and shall owe to each
other a duty of loyalty and fair dealing. Failure to comply
with this provision, including systematic actions to
frustrate, paralyze or otherwise thwart the Business or
purpose of the Partnership, shall constitute a breach of
this Agreement.
21.2 Should any dispute arise among any of the Partners in
respect of any matter arising out of or relating to this
Agreement including without limitation, the validity,
interpretation or performance hereof, and which the
Partners involved are unable to resolve by negotiation
within ten (10) days, any Partner shall cause the issue to
be referred to the respective chairmen of the Parent of
each of the Partners by delivering a written notice to the
other Partners.
21.3 If the chairmen are unable to unanimously resolve the
question within twenty (20) days of submission, the dispute
shall, upon submission by any Partner by means of an
arbitration notice to the other Partners, be finally
settled by arbitration in compliance with the provisions of
PARAGRAPH 21.4. However, the chairmen may unanimously
<PAGE> 40
elect, within fifteen (15) days following said arbitration
notice, that said arbitration be held before another
arbitration tribunal and in another location or that the
dispute be settled in a different manner.
21.4 The Partners agree that the arbitration shall be governed
by the following rules notwithstanding the provisions of
the Act referred to in PARAGRAPH 21.4.1:
21.4.1 the arbitration proceedings shall be conducted
in accordance with the _____________ of
______________, as the same may be amended or
supplemented from time to time;
21.4.2 the arbitration shall be held in the city of
__________________
21.4.3 the arbitral tribunal shall be comprised of
three (3) independant arbitrators of which two
(2) shall be knowledgeable in the subject under
dispute;
21.4.4 the arbitrators shall be appointed unanimously
by all the Partners within ten (10) days
following the giving of the arbitration notice
referred to in PARAGRAPH 21.3, failing which
the arbitrators shall be appointed by a court
of competent jurisdiction of _________,
________, upon submission by any Partner and
said appointment shall be final and without
appeal;
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29.
_________________________________________________________________
21.4.5 the language of arbitration shall be English;
21.4.6 the arbitrators shall make their final award
within thirty (30) days following the end of
the arbitration hearings;
21.4.7 the arbitration award made by the arbitrators
shall be final and without appeal;
<PAGE> 41
21.4.8 the arbitrators shall have broad power to
fashion an appropriate remedy in the case of a
breach of this Agreement, including the
assessment of money damages and, in the case of
a breach of PARAGRAPH 21.1, the expulsion of
the defaulting Partner which shall be treated
as a non authorized withdrawal of such Partner
pursuant to PARAGRAPH 20.2 which shall apply
mutatis mutandis. The award of the arbitrators
may be enforced in any court of competent
jurisdiction, including by seeking injunctive
relief;
21.4.9 the arbitrators shall have the power to
allocate their fees and costs at their entire
discretion.
ARTICLE 22 - NON COMPETITION
22.1 Except with the prior written consent of the other
Partners, no Partner may, while being a Partner of the
Partnership, have a direct economic interest as
shareholder, partner, through contractual arrangements or
otherwise, in the Territory, in a line of business similar
to the Business, provided that the following shall not be a
violation of this paragraph: the sale, purchase or exchange
of electricity or Fuel to or from facilities or by a
Utility in which said Partner has a direct equity interest.
22.2 Except with the prior written consent of the other Partners
and except in the event of termination of the Partnership
pursuant to PARAGRAPH 6.1.1 OR 6.1.3, no Partner may, upon
ceasing to be a Partner of the Partnership, for a period of
three (3) years thereafter, have a direct economic interest
as shareholder, partner, through contractual arrangements
or otherwise, in the Territory as at the time said Partner
ceases to be a Partner of the Partnership, in Arbitrage
Transactions, provided that the following shall not be a
violation of this paragraph: the sale, purchase or exchange
of electricity or Fuel to or from facilities or by a
Utility in which said Partner has a direct equity interest.
_________________________________________________________________
<PAGE> 42
30.
_________________________________________________________________
22.3 Each Partner acknowledges that the restrictions contained
in PARAGRAPHS 22.1 AND 22.2 are, in view of the Business,
reasonable and necessary to protect the legitimate
interests of the other Partners and the Partnership and
that any violation of these restrictions will result in
irreparable injury to the other Partners and the
Partnership.
22.4 Each Partner acknowledges that in the event of its
violation of the restrictions set forth in this Article,
the other Partners shall be entitled, among other things,
to preliminary and permanent injunctive relief without the
necessity of first following the procedures set forth in
ARTICLE 21.
ARTICLE 23 - NON SOLICITATION
23.1 For the purposes of this Article, unless the context
indicates otherwise, the term "Employee" means any person
whose competence, expertise, experience or knowledge is
substantial enough to likely affect to a material extent,
considering all circumstances, the usual course,
efficiency, profitability, marketability, and other similar
aspects of the Business which make it distinctive.
23.2 Except with the prior written consent of the other
Partners, no Partner may at any time while being a Partner
of the Partnership and, except in the event of termination
of the Partnership pursuant to PARAGRAPH 6.1.1 OR 6.1.3, no
Partner may, upon ceasing to be a Partner of the
Partnership, for a period of three (3) years thereafter,
either individually, in partnership, jointly or in
conjunction with any Person as principal, agent, trustee,
contracting party or holder of shares (other than shares
listed on a Canadian or United States of America stock
exchange or publicly traded on an organized market in
Canada or the United States of America, that do not
constitute more than ten percent (10%) of the market
capitalization of the relevant corporation, not considering
preferred shares) or in any other manner whatsoever:
<PAGE> 43
23.2.1 induce or endeavour to induce any Employee of
the Partnership to leave such Employee's
employment with the Partnership; or
23.2.2 employ or attempt to employ or assist any
Person to employ any Employee of the
Partnership.
23.3 The prohibition provided for in PARAGRAPH 23.2 shall not
apply to a Partner, a Parent or any of its Related Entities
with regard to any Employee of the
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31.
_________________________________________________________________
Partnership who was an Employee of that Partner, Parent or
Related Entity, immediately prior to his having been
employed by the Partnership.
23.4 All Partners hereby recognize and agree that in their view
and insofar as their business is concerned, the
restrictions provided in this Article are reasonable and
valid, and hereby waive, to the fullest extent permitted by
applicable law, all defences to the strict enforcement
thereof.
23.5 Each Partner acknowledges that in the event of its
violation of the restrictions set forth in this Article,
the other Partners shall be entitled, among other things,
to preliminary and permanent injunctive relief without the
necessity of first following the procedures set forth in
ARTICLE 21.
ARTICLE 24 - CONFIDENTIALITY
24.1 For the purpose of this Article, unless the context
indicates otherwise, the term "Information" means all trade
secrets or confidential or proprietary information of the
Partnership or of any Partner revealed, directly or
indirectly, to one or more of the other Partners during the
course of this Agreement, regardless of the form in which
it appears, or under which it is communicated, all copies
or recordings thereof (whether or not made in accordance
<PAGE> 44
with this Agreement) and the content of such information,
including, but not limited to, all descriptions, economic
data, computer programs and models and the results
therefrom.
24.2 The Partners agree to keep confidential all Information,
and shall not, without prior written consent of the others,
disclose to any third party, firm, corporation or entity
(save and except to its corresponding Parent and a Related
Entity and to their respective legal counsel, accountants
and consultants, provided they undertake to comply with the
provisions of this Article) such Information, nor shall
either Partner use any such Information for purposes other
than the Business. The Partners agree to use their best
efforts to limit the disclosure of the Information to only
those directors, officers, employees and agents (including
legal counsel, accountants and consultants) who need to
know such Information.
24.3 The obligations set forth in PARAGRAPH 24.2 shall not apply
to any Information which a Partner can demonstrate:
24.3.1 was in its possession prior to the time of
disclosure; or
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32.
_________________________________________________________________
24.3.2 was in the public domain at the time of
disclosure, or subsequently become part of the
public domain through no fault of such Partner
or any Related Entity of such Partner.
24.4 In the event that a Partner is legally requested or
required (by oral questions, interrogatories, request for
Information or documents, subpoena, civil investigative
demand or similar process) to disclose any Information, it
is agreed that it will provide the other Partners with
prompt notice of such request prior to complying therewith
so that they may seek an appropriate protective order
and/or waive compliance with this Article. If in the
absence of a protective order or the receipt of a waiver
hereunder, a Partner is nonetheless legally compelled to
disclose such Information, it may disclose such Information
<PAGE> 45
without liability hereunder. In addition any Partner may
disclose any Information if such disclosure is necessary in
connection with the enforcement of the rights of such
Partner in the Partnership hereunder.
24.5 The obligations of each Partner concerning confidentiality
under this Agreement shall apply for the time periods
determined in accordance with the provisions of PARAGRAPHS
22.1 AND 22.2, mutatis mutandis.
ARTICLE 25 - DISSOLUTION AND WINDING UP
25.1 At the end of the term set forth in ARTICLE 6, the
Partnership shall be dissolved and wound up, unless where
the provisions of PARAGRAPH 6.1.2 are applicable, the
remaining Partners elect to continue the Partnership in a
reconstituted form and with additional partners if desired.
25.2 In such event and subject to the provisions of ARTICLE 20,
the Partners shall cause the assets of the Partnership to
be realized and the liabilities of the Partnership to be
paid, and the net amount realized therefrom, after
deducting all reasonable expenses incurred in disposition
and realization of the assets, shall be divided among the
Partners in accordance with their Partnership Interests as
such sums are received, the whole as follows:
25.2.1 Upon dissolution of the Partnership,
liquidation of the assets of the Partnership,
the Partners or the liquidator shall distribute
all liquidating proceeds in the following
manner:
25.2.1.1 first, to pay all reasonable liquidation costs
to the Partners or the liquidator;
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33.
_________________________________________________________________
25.2.1.2 second, to pay all third party creditors of the
Partnership in satisfaction of Partnership
debts and expenses, including debts owed to the
Partners as creditors of the Partnership;
<PAGE> 46
25.2.1.3 third, to establish reserves for contingencies
and unforeseen obligations of the Partnership
which the Partners or the liquidator, as the
case may be, reasonably deems necessary; and
25.2.1.4 fourth, to each Partner in accordance with the
positive Tax Capital Accounts, after making any
adjustments to such Tax Capital Accounts
required pursuant to Treasury Regulation
1.704-1(b) on or before the later of the end
of the taxable year in which the Partnership is
treated as liquidated under said Treasury
Regulation or ninety (90) days after the date
of such liquidation.
25.3 The distributions that would otherwise be made to the
Partners pursuant to PARAGRAPH 25.2.1 may be distributed to
a trust established for the benefit of the Partners, upon
terms and conditions agreed upon by the Partners, for the
purposes of liquidating Partnership assets, collecting
amounts owed to the Partnership, and applying any
contingent or unforeseen liabilities or obligations of the
Partnership or of the Partners arising out of or in
connection with the Partnership. The assets of any such
trust shall be distributed to the Partners from time to
time, in the reasonable discretion of the Partners, in the
same proportions as the amount distributed to such trust by
the Partnership would otherwise have been distributed to
the Partners pursuant to this Agreement.
ARTICLE 26 - NOTICES
26.1 Any and all notices or other communications required or
permitted hereunder shall be in writing and shall be
delivered by courier or telecopied (with confirmation by
courier) to the Partners or the Partnership, as the case
may be, at the addresses set forth below (which any Partner
may at any time change in respect of itself and/or any
others to whom copies of notices or other communications to
it are to be sent, by similar notice to the other Partners)
and shall be deemed to have been received on the day of
actual receipt if a business day in the place of receipt or
<PAGE> 47
the next following business day if received on a day that
is not a business day or after 4:30 P.M. (local time) in
the place of receipt:
_________________________________________________________________
34.
_________________________________________________________________
26.1.1 To CNGEA:
______________________________
______________________________
______________________________
with copies to:
______________________________
______________________________
______________________________
26.1.2 To HQUS
______________________________
______________________________
______________________________
with copies to:
______________________________
______________________________
______________________________
26.1.3 to NOVUS:
______________________________
______________________________
______________________________
with copies to:
______________________________
______________________________
______________________________
<PAGE> 48
26.1.4 For the Partnership:
______________________________
______________________________
______________________________
Attention: the President
________________________
_________________________________________________________________
35.
_________________________________________________________________
ARTICLE 27 - COSTS
27.1 Each Partner shall assume the expenses incurred by it in
connection with the drafting and negotiation of this
Agreement and of all other related documents.
ARTICLE 28 - MISCELLANEOUS
28.1 Entire agreement
This Agreement constitutes the entire agreement of the
Partners with respect to the subject matter hereof and
supersedes all prior understandings and agreements of such
Partners with respect thereto.
28.2 No waiver
Neither this Agreement nor any of the terms hereof may be
amended, supplemented or waived, except by an instrument in
writing signed by the Partner against which enforcement of
such change or waiver, as the case may be, is sought. No
failure or successive failures on the part of any Partner,
or its respective permitted successors or assigns, to
enforce any covenant or agreement, and no waiver or
successive waivers on its or their part of any conditions
of this Agreement shall operate as a discharge of such
covenant, agreement, or condition, or render the same
invalid, or impair the right of any such Partner, or its
respective permitted successors and assigns, to enforce the
same in the event of any subsequent breach or breaches by
any other Partner, its permitted successors or assigns.
<PAGE> 49
28.3 Counterparts
This Agreement may be executed in any number of
counterparts, each of which, when so executed and
delivered, shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
28.4 Severability'
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions
contained herein shall not be affected thereby.
_________________________________________________________________
36.
_________________________________________________________________
28.5 No Assignment
Except as is expressly provided for in or permitted under
this Agreement, no Partner may assign its rights or
obligations under this Agreement without the prior written
consent of all the other Partners.
28.6 Captions of articles
The captions of the Articles and paragraphs of this
Agreement have been inserted for convenience of reference
only and shall in no way restrict or otherwise modify any
of the terms or provisions hereof.
28.7 Singular and plural
As the context requires, words importing the singular
number only shall include the plural and vice versa.
28.8 Period
If a period set forth herein expires on a Saturday or
Sunday or on a statutory holiday in the place of receipt of
any document pursuant to this Agreement, said period shall
be extended to the next business day.
<PAGE> 50
28.9 Interpretation
The terms "this Agreement", "hereof", "hereunder",
"hereto", "herein" and similar expressions refer to this
Agreement and not to any particular Article, paragraph or
other portion hereof. Unless something in the subject
matter or context is inconsistent therewith, references
herein to Articles and paragraphs are to Articles and
paragraphs of this Agreement.
28.10 Agreement drafted for three Partners
This Agreement has been drafted for a maximum of three (3)
Partners. This Agreement shall be amended before
additional Partners become parties to same.
28.11 Appendix
The appendix attached hereto forms an integral part hereof.
_________________________________________________________________
37.
_________________________________________________________________
ARTICLE 29 - REFERENCE DATE
29.1 It may be referred to this Agreement as bearing the
reference date of _______ 1995.
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT:
The Partners.
CNG ENERGY ARBITRAGE CORPORATION
per:
Name: ________________
Title: _______________________
<PAGE> 51
H.Q. ENERGY SERVICES (U.S.) INC.
per:
Name: ________________
Title: _________________________
NOVERCO ENERGY SERVICES (U.S.) INC.
per:
Name: ________________
Title: _________________________
_________________________________________________________________
<PAGE> 1
EXHIBIT B-2
_________________________________________________________________
UNDERTAKING BY CONSOLIDATED NATURAL GAS COMPANY
in connection with the General Partnership Agreement
respecting electricity and fuel operations
Executed at ____________, on ________ 1995
AMONG: CONSOLIDATED NATURAL GAS COMPANY, a
corporation duly constituted under the laws
of the State of Delaware
AND: ENERGY ALLIANCE PARTNERSHIP, general
partnership respecting electricity and fuel
operations constituted under the laws of the
State of Delaware, United States of America
- - DEFINITIONS -
For the purposes hereof, unless the context indicates otherwise,
the following terms and expressions have the meanings ascribed to
them:
"Agreement" - this agreement, as amended from time to
time;
"Business" - shall have the meaning ascribed thereto
in the GPA from time to time and at any
time. As at the date hereof, the GPA
defines the Business as follows: The
object of the Partnership, which
constitutes its Business, shall be to
supply, purchase, market, broker or
otherwise trade electricity or Fuel in
<PAGE> 2
the Territory, including, without
limitation, in connection with Arbitrage
Transactions;
_________________________________________________________________
2.
_________________________________________________________________
"Control" - (a) in the case of a corporation, the
holding, otherwise than by way of
security only, of shares to which
are attached more than fifty
percent (50%) of the votes that may
be cast to elect directors of
such corporation, provided the
votes attached to such shares are
sufficient, if exercised, to elect
a majority of the directors of the
said corporation;
(b) in the case of a limited
partnership, the holding, otherwise
than by way of security only, of
(i) shares to which are attached
more than fifty percent (50%)
of the votes that may be cast
to elect directors of each of
its general partners, provided
the votes attached to such
shares are sufficient, if
exercised, to elect a majority
of the directors of each such
general partners, or of more
than fifty percent (50%) of
all the partnership interests
of each and every class held
by the general partners in the
limited partnership; or
(ii) more than fifty percent (50%)
of all the partnership
interests held by the
partner(s) in the limited
partnership; and
<PAGE> 3
(c) in the case of a general
partnership, the holding, otherwise
than by way of security only, of
more than fifty percent (50%) of
all the partnership interests held
by the partners in the general
partnership.
The terms "Controlled" and "Controlling"
shall have corresponding meanings;
_________________________________________________________________
3.
_________________________________________________________________
"Fuel" - natural gas, oil, coal and other
hydrocarbons, as well as wood chips,
wastes and other substances;
"GPA" - the General Partnership Agreement
respecting electricity and Fuel
operations executed between the Partners
and bearing the reference date of
______________ 1995, as amended from
time to time;
"Information" - means all trade secrets or confidential
or proprietary information of the
Partnership, of the Partners (other than
the Subsidiary), of the other Parents or
of any Person (other than an individual)
directly or indirectly Controlled by
such other Parents revealed, directly or
indirectly, to the Parent during the
course of the GPA, regardless of the
form in which it appears, or under which
it is communicated, all copies or
recordings thereof (whether or not made
in accordance with the GPA) and the
content of such information, including,
but not limited to, all descriptions,
economic data, computer programs and
models and the results therefrom;
"Parent" - Consolidated Natural Gas Company;
<PAGE> 4
"Parents" - Consolidated Natural Gas Company, Hydro
Quebec and Noverco Inc. which have
individually, directly or indirectly,
the Control over CNG Energy Arbitrage
Corporation, H.Q. Energy Services (U.S.)
Inc. and Noverco Energy Services (U.S.)
Inc. respectively;
"Partners" - CNG Energy Arbitrage Corporation, H.Q.
Energy Services (U.S.) Inc. and Noverco
Energy Services (U.S.) Inc.;
"Partnership" - the partnership formed pursuant to the
GPA;
_________________________________________________________________
4.
_________________________________________________________________
"Person" - includes an individual, partnership,
association, trust, unincorporated
organization and corporation;
"Related Entity": - a Person (other than an individual) who
is Controlled directly or indirectly by
the Parent;
"Subsidiary" - CNG Energy Arbitrage Corporation;
"Territory" - shall have the meaning ascribed thereto
in the GPA from time to time and at any
time. As at the date hereof, the GPA
defines the Territory as follows: the
territories located in the United States
of America, as shown in the map
attached as APPENDIX "A", composed of
the territories of NEPOOL (New England
Power Pool), NYPA (New York Power
Authority) and PJM (Pennsylvania, New
Jersey-Maryland Power Pool) as they may
be modified from time to time, and such
other areas as determined by the
Partners from time to time;
<PAGE> 5
"Utility" - shall have the meaning ascribed thereto
in the GPA from time to time and at any
time. As at the date hereof, the GPA
defines Utility as follows: a
regulated public electric utility
engaged primarily in ownership and
operation of assets for service to
retail customers.
- - PREAMBLE -
A. WHEREAS the Parent has directly or indirectly the Control
over the Subsidiary;
B. WHEREAS the Parent intends to provide for certain
undertakings in connection with the GPA;
C. WHEREAS the Parents of the other Partners have executed and
delivered on the date hereof substantially similar
undertakings;
_________________________________________________________________
5.
_________________________________________________________________
- NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: -
________________________________________________
ARTICLE 1 - FUNDS
1.1 The Parent hereby undertakes to provide the Subsidiary, in
timely fashion, with all requisite funds as shall be
necessary to permit the Subsidiary to fulfill its
obligations respecting its capital contributions pursuant to
PARAGRAPH 8.3 and 10.1.6 of the GPA.
ARTICLE 2 - PARTNERS' INTEREST IN THE PARTNERSHIP
2.1 It is the intention of the Parent that the Subsidiary have a
331/3% interest in the Partnership and that the two other
Partners also have respectively a 331/3% interest in the
Partnership, the whole subject to the provisions of the GPA.
<PAGE> 6
2.2 Subject to the provisions of the GPA, the Parent shall
remain in Control of the Subsidiary.
ARTICLE 3 - DESIGNATED SUPPLIER AND BUYER
3.1 The Parent hereby agrees to be or cause a Related Entity to
be a supplier and buyer of electricity or Fuel in the event
the Management Committee of the Partnership designates the
Parent pursuant to PARAGRAPH 15.1 of the GPA. The Parent
agrees to deal with the Partnership in this regard in good
faith and recognizes that there may be situations in
connection with said transactions and other commercial
transactions, including the Business, where it may be
necessary for the Parent to financially guarantee or
otherwise support the obligations of the Subsidiary in a
particular transaction; provided, however, that the Parent
shall not be obligated to provide any such guarantee or
support when it has determined in its sole discretion that
to do so might create a risk that the Parent will be subject
to the tax, regulatory or other jurisdiction of any
governmental body to which the Parent is not then subject.
3.2 The Parent does not authorize the Partnership or any Partner
to act as representative or agent of the Parent. Nothing in
this Agreement should be construed as authorizing the
Partnership or any of the Partners to represent any
_________________________________________________________________
6.
_________________________________________________________________
of the Parents or any Related Entity in any commercial
dealing, including with respect to the sale of electricity
or Fuel.
ARTICLE 4 - COOPERATION
4.1 The Parent recognizes that the Partnership constitutes a
promising vehicle for conducting electricity sales in the
Territory (not as an agent for the Parent) and therefore,
the Parent represents that it is the Parent's intention to
cooperate with the Partnership, to lend all support and
<PAGE> 7
assistance to the Partnership's commercial viability and
success and to do business with the Partnership for sales of
electricity in the Territory.
ARTICLE 5 - NON COMPETITION
5.1 Except with the prior written consent of the Partnership,
the Parent may not, while the Subsidiary is a Partner of the
Partnership and, upon the Subsidiary ceasing to be a Partner
of the Partnership (except in the event of a termination of
the Partnership pursuant to paragraph 6.1.1 or 6.1.3 of the
GPA), for a period of three (3) years thereafter, have any
economic interest whether directly or indirectly as
shareholder, partner, lender, agent, trustee, guarantor,
through contractual arrangements or otherwise, in the
Territory (in the case where the Subsidiary ceases to be a
Partner of the Partnership, in the Territory as at the time
the Subsidiary so ceases to be a Partner of the
Partnership), in Arbitrage Transactions, provided that the
following shall not be a violation of this paragraph:
5.1.1 the sale, purchase or exchange of electricity or
Fuel to or from facilities or by an Utility in
which the Parent has a direct or indirect equity
interest; or
5.1.2 transactions for the substitution of natural gas
by other Fuel during peak demand for natural gas.
5.2 The Parent acknowledges that the restrictions contained in
PARAGRAPHS 5.1 are, in view of the Business, reasonable and
necessary to protect the legitimate interests of the
Partnership and that any violation of these restrictions
will result in irreparable injury to the Partnership. The
Parent acknowledges that in the event of its violation of
these restrictions, the Partnership, any Partner (other than
the Subsidiary) or any other Parent shall be entitled, among
other things, to
_________________________________________________________________
<PAGE> 8
7.
_________________________________________________________________
preliminary and permanent injunctive relief without any
necessity to prior resort to any arbitration or other
similar procedure contemplated by the GPA.
ARTICLE 6 - NON SOLICITATION
6.1 For the purposes of this Article, unless the context
indicates otherwise, the term "Employee" means: any person
whose competence, expertise, experience or knowledge is
substantial enough to likely affect to a material extent,
considering all circumstances, the usual course, efficiency,
profitability, marketability, and other similar aspects of
the business of the Partnership which make it distinctive.
6.2 Except with the prior written consent of the Partners (other
than the Subsidiary), the Parent may not at any time while
the Subsidiary is a Partner of the Partnership and, except
in the event of termination of the Partnership pursuant to
PARAGRAPH 6.1.1 OR 6.1.3 of the GPA, the Parent may not,
upon the Subsidiary ceasing to be a Partner of the
Partnership, for a period of three (3) years thereafter,
either individually, in partnership, jointly or in
conjunction with any Person as principal, agent, trustee,
contracting party or holder of shares (other than shares
listed on a Canadian or United States of America stock
exchange or publicly traded on an organized market in Canada
or the United States of America, that do not constitute more
than ten percent (10%) of the market capitalization of the
relevant corporation, not considering preferred shares) or
in any other manner whatsoever:
6.2.1 induce or endeavour to induce any Employee of the
Partnership to leave such Employee's employment
with the Partnership; or
6.2.2 employ or attempt to employ or assist any Person
to employ any Employee of the Partnership.
<PAGE> 9
6.3 The prohibition provided for in PARAGRAPH 6.2 shall not
apply to the Parent or any of its Related Entities with
regard to any Employee of the Partnership who was an
Employee of the Parent or of a Related Entity of the Parent,
immediately prior to his having been employed by the
Partnership.
6.4 The Parent hereby recognizes and agrees that in the view of
the Partners (other than the Subsidiary) and insofar as
their respective business is concerned, the restrictions
provided in this Article are reasonable and valid, and
hereby waives, to the fullest extent permitted by applicable
law, all defences to the strict enforcement thereof.
_________________________________________________________________
8.
_________________________________________________________________
6.5 The Parent acknowledges that in the event of its violation
of the restrictions set forth in this Article, the
Partnership, any Partner (other than the Subsidiary) or any
other Parent shall be entitled, among other things, to
preliminary and permanent injunctive relief.
ARTICLE 7 - CONFIDENTIALITY
7.1 The Parent agrees to keep confidential all Information, and
shall not, without prior written consent of the Partnership,
disclose any information to any third party, firm,
corporation or entity, save and except to a Related Entity
and to its and their respective legal counsel, accountants
and consultants, provided said Related Entity, legal
counsel, accountants and consultants undertake to comply
with the provisions of this Article. The Parent agrees to
use its best efforts to limit the disclosure of the
Information to only those directors, officers, employees and
agents (including legal counsel, accountants and
consultants) who need to know such Information.
7.2 The obligations set forth in PARAGRAPH 7.1 shall not apply
to any Information which the Parent can demonstrate:
7.2.1 was in its possession prior to the time of
disclosure; or
<PAGE> 10
7.2.2 was in the public domain at the time of
disclosure, or subsequently become part of the
public domain through no fault of the Parent or
any Related Entity.
7.3 In the event that the Parent is legally requested or
required (by oral questions, interrogatories, request for
Information or documents, subpoena, civil investigative
demand or similar process) to disclose any Information, it
is agreed that it will provide the Partnership with prompt
notice of such request prior to complying therewith so that
it may seek an appropriate protective order and/or waive
compliance with this Article. If in the absence of a
protective order or the receipt of a waiver hereunder, the
Parent is nonetheless legally compelled to disclose such
Information, it may disclose such Information without
liability hereunder. In addition, the Parent may disclose
any Information if such disclosure is necessary in
connection with the enforcement of the rights of the Parent
or of the Partnership hereunder.
_________________________________________________________________
9.
_________________________________________________________________
7.4 The obligations of the Parent concerning confidentiality
under this Agreement shall apply for the time periods
determined in accordance with the provisions of PARAGRAPH
5.1, mutatis mutandis.
ARTICLE 8 - INDEMNIFICATION FOR CERTAIN EXTERNAL MATTERS
8.1 The Parent shall indemnify and hold harmless the Partners
(other than the Subsidiary) from and against liability and
damages resulting from:
8.1.1 a bankruptcy of the Subsidiary for reasons
unrelated to the Business;
8.1.2 activities of the Subsidiary unrelated to its
interest in the Partnership; or
<PAGE> 11
8.1.3 a breach by the Subsidiary of its obligations
under the GPA.
ARTICLE 9 - CARRYING BUSINESS IN CANADA
9.1 The Parent represents that it is its intention to evaluate
the opportunity that the Partnership or any other newly-
formed Canadian partnership in which each Parent would
directly or indirectly have a 33 1/3 % interest carry on the
Business in Canada, and to this effect, it undertakes to
evaluate as soon as practicable the implications thereof.
ARTICLE 10 - ACKNOWLEDGEMENT
10.1 The Partnership hereby acknowledges and accepts the
undertakings of the Parent pursuant to these presents.
ARTICLE 11 - NOTICE
11.1 Any and all notices or other communications required or
permitted hereunder shall be in writing and shall be
delivered by courier or telecopied (with confirmation by
courier) to the Parent or the Partnership, as the case may
be, at the addresses set forth below (which any party may at
any time change in respect of itself and/or
_________________________________________________________________
10.
_________________________________________________________________
any others to whom copies of notices or other communications
to it are to be sent, by similar notice to the other
parties) and shall be deemed to have been received on the
day of actual receipt if a business day in the place of
receipt or the next following business day if received on a
day that is not a business day or after 4:30 P.M. (local
time) in the place of receipt:
<PAGE> 12
11.1.1 To the Parent:
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, PA.
U.S.A. 15222-3199
Attention: ___________________
with copies to:
______________________________
______________________________
______________________________
11.1.2 To the Partnership:
Energy Alliance Partnership
______________________________
______________________________
with copies to:
______________________________
______________________________
ARTICLE 12 - TERM
12.1 The term of this Agreement shall commence on the date of its
execution and shall terminate, save and except the
provisions set forth in ARTICLES 5.6.7 AND 8, on the earlier
of:
_________________________________________________________________
11.
_________________________________________________________________
12.1.1 the date the Subsidiary ceases to be a partner of
the Partnership; or
<PAGE> 13
12.1.2 the date of termination of any agreement
substantially identical to this Agreement executed
by the other Parents, for any reason other than
such Parent's Subsidiary ceasing to be a partner
of the Partnership.
ARTICLE 13 - BENEFICIARIES ENFORCEMENT
13.1 Notwithstanding anything herein to the contrary, this
Agreement shall enure to the benefit of, be binding upon and
be enforceable by the parties hereto, their successors,
permitted assignees, agents and legal representatives as
well as each Partner (other than the Subsidiary).
ARTICLE 14 - GOVERNING LAW
14.1 The validity, interpretation and performance of this
Agreement shall be governed by the laws in force in the
State of Delaware, exclusive of the conflict of laws rules
thereof.
ARTICLE 15 - MISCELLANEOUS
15.1 No waiver
Neither this Agreement nor any of the terms hereof may be
amended, supplemented or waived, except by an instrument in
writing signed by the party against which enforcement of
such change or waiver, as the case may be, is sought. No
failure or successive failures on the part of any party, or
its respective permitted successors or assigns, to enforce
any covenant or agreement, and no waiver or successive
waivers on its or their part of any conditions of this
Agreement shall operate as a discharge of such covenant,
agreement, or condition, or render the same invalid, or
impair the right of any such party, or its respective
<PAGE> 14
permitted successors and assigns, to enforce the same in the
event of any subsequent breach or breaches by the other
party, its permitted successors or assigns.
_________________________________________________________________
12.
_________________________________________________________________
15.2 Severability
If any provision of this Agreement is or becomes invalid,
illegal or unforceable in any respect, the validity,
legality and enforceability of the remaining provisions
contained herein shall not be affected thereby.
15.3 No Assignment
Except as is expressly provided for in or permitted under
this Agreement, no party may assign its rights or
obligations under this Agreement without the prior written
consent of the other party.
15.4 Singular and plural
As the context requires, words importing the singular number
only shall include the plural and vice versa.
15.5 Interpretation
The terms "this Agreement", "hereof", "hereunder", "hereto",
"herein" and similar expressions refer to this Agreement and
not to any particular Article, paragraph or other portion
hereof. Unless something in the subject matter or context is
inconsistent therewith, references herein to Articles and
paragraphs are to Articles and paragraphs of this Agreement.
15.6 Appendix "A" of the GPA
For information purposes, Appendix "A" of the GPA is attached
hereto.
<PAGE> 15
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT
THE PARENT,
CONSOLIDATED NATURAL GAS
COMPANY
per:
Name: ___________
Title: ________________
_________________________________________________________________
13.
_________________________________________________________________
THE PARTNERSHIP,
ENERGY ALLIANCE PARTNERSHIP
by: CNG ENERGY ARBITRAGE
CORPORATION
per: __________________________
Name: ___________
Title: _________________
by: H.Q. ENERGY SERVICES
(U.S.) INC.
per: __________________________
Name: ___________
Title: _________________
and by: NOVERCO ENERGY
SERVICES (U.S.) INC.
<PAGE> 16
per: __________________________
Name: ___________
Title: _________________
_________________________________________________________________
<PAGE> 1 Exhibit B-4
POWER MARKETERS
In order to take advantage of the new opportunities effected
by the Energy Policy Act and the competition that it fosters,
many companies have extended operations into the wholesale bulk
power markets. Power marketing is fast becoming one way for
various types of companies, particularily energy companies, to
participate in these markets. Power marketers buy and sell
wholesale electricity at market-based rates, as well as match
buyers and sellers fulfilling the role of power brokers. Because
marketers actually take title to the power, they are subject to
FERC regulation. As such, power marketers must file applications
with FERC in order to obtain marketer status. FERC's criteria
for granting such status include:
1) neither the marketer nor its affiliates possesses market
power
2) they do not own or control resources that create entry
barriers
3) there is no evidence of potential self-dealing.
In receiving power marketer status, companies are able to
move away from the traditional cost-based rate structure imposed
by regulators. However, such status does not release companies
from all regulation. Typically, marketers will have to file a
<PAGE> 2
rate schedule with FERC, and report on a quarterly basis any
activity conducted as a marketer. Also, marketers that become
members of various power pools will have to comply fully with the
reliability and security requirements of such pools.
Following is a list of power marketers who have filed with
FERC as of February 10, 1995.
Docket Date
No. Filed Company Parent
______ ______ ______ ______
ER94-1530 8-02-94 Acme Power
Marketing --
ER94-890 1-05-94 AES Power Inc AES Corp
ER94-1691 9-29-94 AIG Trading Corp American Int'l Group
ER94-1578 8-22-94 American Power
Exchange --
ER95-216 11-18-94 Aquila Power Corp Aquila
ER94-1246 5-11-94 Ashton Energy Corp Ashton
ER95-7 10-04-94 Asociated Power
Services Associated NG
ER94-1297 5-11-94 Black Creek Hydro Puget Sound P&L
ER94-1181 4-28-94 C.C. Pace Energy
Services C.C. Pace Resources
ER94-1545 8-09-94 Calpine Power
Marketing CS Holding
ER94-1457 7-15-94 Camelot Energy
Services --
ER94-155 11-15-93 Catex Vitol Electric Catex Vitol
ER94-1402 6-28-94 Cenergy Northern States Power
ER90-225 2-02-90 Chicago Energy
Exchange --
EL86-2 10-11-85 Citizens Energy
Corp --
ER94-1685 9-29-94 Citizens Lehman
Power Sales Citizens/Lehman
ER89-401 5-08-89 Citizens Power &
Light Citizens Energy/
Apache
ER95-393 1-06-95 CLP Hartford
Sales LLC --
ER94-1328 6-02-94 CMEX Trinity PL/Global
<PAGE> 3
Docket Date
No. Filed Company Parent
______ ______ ______ ______
ER94-1554 8-12-94 CNG Power Services
Corp Consolidated NG
ER94-142 11-09-93 CRSS Power Marketing CRSS/Paribas
ER94-1450 7-13-94 Coastal Electric
Services Coastal Corp
ER94-1488 7-25-94 Contintenal Energy
Services Montana Power Co
ER91-435 5-10-91 DC Tie, Inc. --
ER94-1612 8-31-94 Destec Power Services Destec
ER94-1161 5-04-94 Direct Electric Inc. --
ER94-1538 8-05-94 EDC Power Marketing ENSERCH
ER94-964 2-08-94 Eastern Power
Distribution The Eastern Group
ER94-1099 3-30-94 Eclipse Power
Marketing Terra
ER94-1478 7-21-94 Electrade Corporation Preston Head Limited
ER94-968 2-10-94 Electric
Clearinghouse NG Clearinghouse
ER95-111 10-31-94 The Electric
Exchange --
ER94-1580 8-25-94 Energy Resources
Marketing AFV Enterprises
ER94-1690 9-29-94 Engelhard Power
Marketing Engelhard Corp
ER94-24 10-12-93 Enron Power Marketing Enron Gas Services
ER94-1539 8-05-94 Equitable Power
Services Equitable Resources
ER94-1597 8-25-94 Gulfstream Energy,
LLC Gulfstream Trading
ER94-1613 8-31-94 Hadson Electric Hadson
ER94-108 10-29-93 Heartland Energy Wisconsin P&L
ER95-252 12-01-94 Howard Energy Company --
EL87-50 7-07-87 Howell Gas Management Howell Corp
ER94-178 11-19-93 Howell Power Systems Howell Corp
ER94-1475 7-20-94 Illinova Power
Marketing Illinois Power
ER94-1672 9-22-94 Imprimis Corporation --
ER95-257 12-01-94 Industrial Gas &
Electric --
EL94-6 10-05-93 InterCoast Iowa-Illinois G&E
ER95-33 10-12-94 J. Aron & Company Goldman Sachs
<PAGE> 4
Docket Date
No. Filed Company Parent
______ ______ ______ ______
ER94-1432 7-01-94 JEB Corporation J.E. Brabstron
ER95-295 12-19-94 Kaztex Energy
Services --
ER95-208 11-18-94 KCS Energy Marketing
Srvcs KCS Energy
ER95-232 12-05-94 Kmball Power Company
ER95-218 11-21-94 Koch Power Services Koch Gas Services
ER94-1188 4-26-94 LG&E Power Marketing Louisville G&E
ER92-850 9-22-92 Louis Dreyfus EP Louis Dreyfus
ER95-74 10-26-94 Mesquite Energy
Services --
ER93-839 8-02-93 MG Electric Power MG R&M
ER95-78 10-26-94 Mid-American
Resources, Inc --
ER94-1329 6-02-94 MidCon Occidental
ER94-1384 6-21-94 Morgan Stanley
Capital Grp Morgan Stanley
ER90-168 1-19-90 National Electric Tang
ER94-1593 8-25-94 National Power
Exchange --
ER95-192 11-15-94 National Power
Management --
ER94-1247 5-11-94 NorAm Energy Services NorAm Gas
ER94-152 11-12-93 North American Energy
Consv Robert M. Beningson
ER95-379 1-03-95 Peak Energy, Inc --
ER95-430 1-13-95 Phibro Salomon Inc
ER89-580 7-28-89 Portland General
Exchange Portland General
ER95-72 10-26-94 Power Exchange Corp --
ER94-931 1-24-94 PowerNet Brooklyn Union Gas
ER95-473 1-25-95 Proven Alternatives,
Inc. --
ER94-1061 3-18-94 Rainbow Energy
Marketing Rainbow Natural Gas
ER95-480 1-26-94 Rig Gas --
ER94-1352 6-13-94 R. J. Dahnke &
Associates --
ER95-362 12-30-94 Stand Energy Corp --
ER94-389 12-23-93 Tenaska Power Service Tenaska
<PAGE> 5
Docket Date
No. Filed Company Parent
______ ______ ______ ______
ER95-428 1-13-95 Tenneco Energy
Marketing Tenneco
ER94-1676 9-23-94 Texas-Ohio Power
Marketing --
ER94-1362 6-15-94 Texican Energy
Ventures Texican Natural Gas
ER95-62 10-24-94 TexPar Energy, Inc --
EL89-32 5-30-89 Torco --
ER95-305 12-20-94 Transco Power
Trading Co Transco
ER95-187 11-14-94 Utility 2000 Energy
Corp --
ER94-1394 6-22-94 Valero Power Services Valero
ER94-1168 4-22-94 Vesta Energy
Alternatives Vesta/Edisto
ER95-378 1-03-95 Westcoast Power
Marketing Westcoast Energy
ER93-730 6-25-93 Wholesale Power
Services PSI Energy
ER95-300 12-20-94 Wickland Power
Services Wickland
<PAGE> 1
EXHIBIT O
Proposed Notice Pursuant to Rule 22f)
(Release No. 35- )
FILINGS UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("ACT")
May , 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
June , 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 ("Consolidated"), CNG Tower, Pittsburgh,
Pennsylvania 15222-3199, a registered holding company, and its wholly-owned
non-utility subsidiary, CNG Energy Service Corporation ("Energy Services"), One
Park Ridge Center, Pittsburgh, Pennsylvania 15244-0746, have filed an
application-declaration under Sections 6(a), 7, 9(a), 10 and 12(b) of the Act
and Rules 16 and 45 thereunder.
Energy Services was authorized by the Securities and Exchange Commission
("SEC") to be the gas marketing subsidiary for the CNG System by order dated
February 27, 1987 ("Order"), Release No. 35-24329, File No. 70-7225. The Order
authorizes Energy Services, as a gas marketer, to purchase, pool, transport,
exchange, store and sell gas supplies from competitively priced sources,
including the spot markets, independent producers and brokers, and the
Consolidated System producing affiliate, CNG Producing Company.
Energy Services proposes to incorporate CNG Energy Arbitrage Corporation
("CNGEA") under the laws of the State of Delaware, with an authorized equity
capitalization of $10,000,000 consisting of 1,000 shares of common stock,
$10,000 par value each. Soon after approval by the Securities and Exchange
Commission ("SEC") of this Application-Declaration, it is anticipated that
CNGEA will sell and issue 300 shares of its common stock at par for $3,000,000
to Energy Services to become a special purpose, wholly-owned subsidiary of
Energy Services.
CNGEA will acquire a one-third general partnership interest in Energy
Alliance Partnership ("Partnership"), a partnership to be formed under the laws
of the state of Delaware. Noverco Energy Services (U.S.) Inc., ("NOV Sub"), a
wholly-owned subsidiary of Noverco Inc. ("Noverco") which is a Canadian gas
<PAGE> 3
utility holding company, will also acquire a one-third general partnership
interest in the Partnership. The remaining one-third general partnership
interest will be acquired by H.Q. Energy Services (U.S.) Inc. ("HQ Sub"), which
is wholly-owned directly or indirectly by wholly-owned subsidiaries of Hydro-
Quebec, a Canadian electric utility company.
CNGEA, NOV Sub and HQ-Sub are referred to individually as a "Partner" and
collectively as the "Partners." Consolidated, Noverco and Hydro-Quebec are
referred to collectively as "the Parent Companies." Each of the Parent
Companies will enter into an agreement ("Undertaking Agreement") with the
Partnership which, among other things, will commit them subject to the terms
and conditions of such agreement to provide up to $3,000,000 to their
respective Partner subsidiary as shall be necessary to permit such subsidiary
to fulfill its obligations respecting its capital contributions under the
Partnership agreement.
The business of the Partnership will be to supply, purchase, market,
broker or otherwise trade electricity or fuel, to provide electricity or fuel
management services, and to carry on activities, or perform services, related
to any of the foregoing, including in connection with arbitrage transactions.
The Partnership will initially seek to profit in the evolving integrated energy
market by identifying and capturing the electric and/or fuel arbitrage profits
inherent in the wholesale electric and natural gas business. It will strive to
become a leader in providing major customers with flexible and competitive
packaged electric/fuel services.
<PAGE> 4
The services to be offered by the Partnership will include the following.
- Providing electric generators with instantaneous supply and sales
options so they can keep generating units operating at optimal
levels.
- Helping electric utilities find the best way to meet Clean Air
requirements through a combination of new gas technologies,
emission credits, cross-fuel management and wholesale electricity
purchases and sales.
- Helping customers manage the price changes in electricity and fuel
relative to time and location.
- Helping electric utilities and nonutility generators by managing
fuel supply and transportation contracts, banking of electricity
until needed and providing price and delivery flexibility.
The Partnership will initially conduct its activities generally in the
wholesale energy markets in the northeastern and midwestern United States. The
Partnership may engage in energy transactions with the gas utility companies in
the Consolidated System(1), Energy Services or other affiliates in the
Consolidated System on the same market terms that would be available to
______________
(1) The utility companies in the Consolidated System are The East Ohio Gas
Company, Peoples Natural Gas Company, Virginia Natural Gas, Inc., Hope Gas,
Inc, and West Ohio Gas Company.
<PAGE> 5
nonaffiliate customers of the Partnership. The Partnership will sell electric
and gas energy to wholesale and retail customers to the extent permitted
without becoming an "electric utility company" or a "gas utility company"
within the meaning of the definitions of such terms in Section 2(a)(3) and
2(a)(4) of the Act, respectively.
The Partnership may contract for needed services from the Partner or
affiliate that is determined to be best suited to procure or supply them by
virtue of its expertise and experience in the relevant field. The Management
Committee may also have recourse to outside suppliers in the event
availability, quality, price or reliability are better than those that may be
obtained from a Partner. Charges to the Partnership for services from a
Partner are to be made on a direct costing method (salary plus fringe benefits)
for use of personnel, and direct out-of-pocket expenses for other items.
It is proposed for Energy Services to raise funds for the purposes
described herein by (i) selling shares of its common stock, $1,000 par value,
to Consolidated, (ii) open account advances as described below, or (iii) long-
term loans from Consolidated, in any combination thereof.
The open account advances and long-term loans will have the same effective
terms and interest rates as related borrowings of Consolidated in the forms
listed below:
(1) Open account advances may be made to Energy Services to provide
working capital and to finance the activities authorized by the
Securities and Exchange Commission ("Commission"). Open account
advances will be made under letter agreement with Energy Services
and will be repaid on or before a date not more than one year from
the date of the first advance with interest at the same effective
rate of interest as Consolidated's weighted average effective rate
<PAGE> 6
for commercial paper and/or revolving credit borrowings. If no
such borrowings are outstanding, the interest rate shall be
predicated on the Federal Funds' effective rate of interest as
quoted daily by the Federal Reserve Bank of New York.
(2) Consolidated may make long-term loans to Energy Services for the
financing of its activities. Loans to Energy Services shall be
evidenced by long-term non-negotiable notes of Energy Services
(documented by book entry only) maturing over a period of time (not
in excess of 30 years) to be determined by the officers of
Consolidated, with the interest predicated on and equal to
Consolidated's cost of funds for comparable borrowings. In the
event Consolidated has not had recent comparable borrowings, the
rates will be tied to the Salomon Brothers indicative rate for
comparable debt issuances published in Salomon Brothers Inc. Bond
Market Roundup or similar publication on the date nearest to the
time of takedown. All loans may be prepaid at any time without
premium or penalty.
Consolidated will obtain the funds required for Energy Services through
internal cash generation, issuance of long-term debt securities, borrowings
under credit agreements or through other authorizations approved by the
Commission subsequent to the effective date of this Application-Declaration.
Consolidated also seeks the authorization to make the commitment to provide up
to $3,000,000 to CNGEA as embodied in the Undertaking Agreement.
CNGEA would engage in general partner investing and financing transactions with
respect to the Partnership in lieu of Energy Services. CNGEA would have mirror
image authorizations and obligations of Energy Services under this filing as
<PAGE> 7
such relate to the acquisition of a one-third general partner interest in the
Partnership, with Energy Services functioning as a "pass-through" with regard
to the indirect Consolidated financing of the Partnership.
By order dated November 16, 1993 ("November 16, 1993 Order"), Release No.
35-25926, File No. 70-8231, the SEC authorized Consolidated to guarantee,
through December 31, 1998, up to an aggregate principal amount of $750 million
of the obligations of Energy Services, pursuant to certain gas purchase, sales
and transportation contracts. Consolidated seeks authority through
December 31, 1998 to guarantee, either directly or through CNGEA, the fuel and
power transactions of the Partnership, to the extent required by the
Partnership's customers to consummate transactions. Consolidated will not make
a guarantee under the authority granted in this proceeding nor under the
November 16, 1993 Order if the effect of such an additional guarantee would be
for the aggregate of all outstanding guarantees under both authorizations to
exceed $750 million.
Request is also made that the Partnership be deemed exempt under Rule 16
from all obligations imposed upon it by the Act, as a subsidiary company or an
affiliate of a registered holding company or of a subsidiary company thereof.
____________________________
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Jonathan G. Katz
Secretary
