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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)
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 (the "Company" or "Consolidated") is a
public utility holding company registered under the Public Utility Holding
Company Act of 1935 ("Act"), and is in the business of owning and holding all
of the outstanding securities (except for certain indebtedness of a
distribution company acquired in 1990) of sixteen companies principally engaged
in the natural gas business. The said subsidiary companies are engaged in
natural gas exploration, production, purchasing, gathering, transmission,
storage, distribution, marketing and by-product operations. Consolidated and
its subsidiaries are herein referred to as the "Consolidated System" or "CNG
System."
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II. FORMATION OF CNG INTERNATIONAL
______________________________
Consolidated proposes to form CNG International Corporation ("CNG
International")as a new Delaware subsidiary which would become the vehicle for
the Company to invest in energy related businesses outside the United States.
Consolidated proposes to invest up to $300,000,000 in such businesses during
the period beginning from the time an order is issued in this proceeding
through December 31, 2005. CNG International would have 30,000 shares of
common stock, $10,000 par value per share, authorized, for an aggregate
capital stock authorization of $300,000,000. However, financing of CNG
International by Consolidated may occur in the form of short-term and long-term
loans in addition to capital stock sales, as described in greater detail under
"V Source of Funds" below.
In addition to the $300 million intra-system financing referred to above,
Consolidated also seeks authority herein for parent company guarantees and
other credit support arrangements in the amount not to exceed $300 million.
This request for credit support authorization is described in more detail under
"VI PARENT COMPANY GUARANTEES AND OTHER CREDIT SUPPORT" below.
Consolidated seeks to engage in international energy activities in order
to (i) participate in the more rapid economic growth of international or
foreign energy businesses, (ii) obtain the higher rates of return on equity
that may be obtained from investments in such activities, (iii) utilize to its
profit its expertise developed in the emerging competitive energy markets in
North America, and (iv) obtain further knowledge of developing energy markets
through strategic alliances with companies already involved in the
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international energy industry. The types of foreign businesses in which
Consolidated may invest would include both utility and nonutility companies.
For example, Consolidated has recently entered into an alliance agreement with
MetNorth Energy ("ME"), an electric utility company in Sydney, Australia, for
the purpose of working together to seek out, identify, evaluate and participate
in opportunities in the energy sector in Australia and certain Asian countries.
Consolidated is also currently evaluating a possible investment in the natural
gas pipeline infrastructure in Bolivia.
III. TYPES OF ENERGY BUSINESSES IN WHICH CNG INTERNATIONAL
WOULD ENGAGE
__________________________________________________
A. EWGs and FUCOs
1. General
Consolidated proposes that it be authorized to form and finance CNG
International in order that it may acquire securities or interests in the
business of one or more "exempt wholesale generators" ("EWGs") as defined in
Section 32(a) of the Act and located outside of the United States, and "foreign
utility companies"("FUCOs") as defined in Section 33(a) of the Act. Request is
also made for CNG International to form and finance intermediate subsidiary
companies ("Intermediate Companies")so that they may acquire interests in,
finance the acquisition of and hold the securities of EWGs and FUCOs.
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2. Use of Intermediary Companies
Intermediate Companies would normally be special purpose subsidiaries to
facilitate the consummation of investments in EWGs and FUCOs, and would enhance
the ability of CNG International to respond quickly to investment
opportunities. Further, it has been the particular experience of those
investing in FUCOs that the use of Intermediate Companies are often
necessitated by business concerns such as foreign ownership requirements in
countries where FUCOs are located, the need to facilitate investments via a
consortium of companies where each member thereof has a consolidated subsidiary
involved in the final FUCO structure for tax and accounting purposes, or to
ease subsequent adjustments to or sales of interests among members of the
ownership group. An Intermediate Company may be organized at the time of the
making of bids or proposals to acquire an interest in any EWG or FUCO or at any
time thereafter in order to facilitate the bidding and subsequent consummation
of an acquisition of an interest of an EWG or FUCO.
Consolidated also proposes that CNG International or any Intermediary
Company will issue equity securities and debt securities to persons other than
Consolidated (and with respect to which there will be no recourse to
Consolidated), including banks, insurance companies and other financial
institutions, exclusively for the purpose of financing (including any
refinancing) of investments in EWGs and FUCOs. It is anticipated that the
issuance of such securities will be exempt transactions either pursuant to Rule
52 under the Act or purusant to a Section 3(b) exemption requested further
herein. It is also possible that issuances of securities by certain
subsidiaires engaged in gas related activities may be exempt pursuant to Rule
16 under the Act.
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3. Compliance with Rule 53
Any direct or indirect investment by CNG International in any EWG or FUCO
would be consummated only if, at the time thereof, and giving effect thereto,
Consolidated's "aggregate investment" determined in accordance with Rule
53(a)(1)(i) in all EWGs and FUCOs would not exceed 50% of Consolidated's
consolidated retained earnings as defined in Rule 53(a)(1)(ii). As of
September 30, 1995, one-half of the Company's consolidated retained earnings
was $634,048,000; the Company's investment in EWGs as of the date of filing of
this application-declaration ("Application") is estimated to be approximately
$18,000,000.
The books and records of Consolidated's two current EWGs are kept in
conformity with United States generally accepted accounting principles
("GAAP"), the financial statements are prepared according to GAAP, and
Consolidated undertakes to provide the Securities and Exchange Commission
("Commission" or "SEC") access to such books and records and financial
statements as it may request. It is anticipated that a minimal number of
employees of Consolidated's domestic public-utility companies will render
services, directly or indirectly, to EWGs and FUCOs in the Consolidated System,
and the number of such employees shall not in any event exceed two percent of
the total number of employees of such utility companies.
A copy of this Application has been submitted to the public utility
commissions of the States of Ohio, Pennsylvania, West Virginia and Virginia,
which are the only regulators having jurisdiction over the retail rates of the
public-utility companies in the Consolidated System. In addition, Consolidated
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will submit to each such commission a copy of any Rule 24 certificate required
hereunder, as well as a copy of Item 9 of Consolidated's Form U5S, including
Exhibits G and H thereof.
None of the conditions described in Rule 53(b) under the Act exist with
respect to Consolidated, thereby satisfying Rule 53(b) and making Rule 53(c)
inapplicable.
B. Other Energy Related Activities
1. General
Consolidated proposes that CNG International be authorized to seek out,
identify, evaluate and invest in opportunities in the foreign energy sector,
including electric generation related activities (other than EWGs and FUCOs
and including cogeneration and small power production), gas exploration and
production, gas transmission and storage, the brokering and marketing of
electricity, gas and other energy commodities and related services. CNG
International may also engage in the energy consulting business in foreign
energy markets. All of such activities are referred to herein as "Foreign
Energy Activities." CNG International may also acquire interests in other
categories of international or foreign energy activities to the extent that
such acquisition may be exempted under a rule of general applicability
hereafter adopted by the Commission.
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2. Alliance with ME
Consolidated has entered into a strategic alliance agreement ("Alliance")
with ME of Sydney, Australia. The Alliance, in accordance with Rule 51, states
that the arrangements between the parties are subject to approval of the
Commission under PUHCA. A copy of the Alliance is filed as Exhibit B-1. ME
was formed on October 1, 1995, by the amalgamation of electricity distributors
Sydney Electricity and Orion Energy. The amalgamation is part of an Australian
energy restructuring that will allow the new company to also market natural gas
and strive to become Australia's leading total energy services organization.
ME currently is the largest distributor of electricity in Australia,
distributing electricity to 1.3 million customers in the state of New South
Wales. It also tests and certifies electrical distribution equipment for
companies throughout Australia and Asia, and has electricity distribution and
other projects underway in Indonesia, Vietnam and China.
ME desires to obtain more expertise in the natural gas sector of the
energy industry. Consolidated through its subsidiaries has developed broad
experience in operating in a competitive energy market in North America and
now desires to enter the energy markets of Australia and Asia.
Consolidated and ME have accordingly agreed through the Alliance to co-
operate and work together in a strategic alliance with the object of seeking
out, identifying, evaluating and participating in Foreign Energy Activity, EWG
and FUCO opportunities (including electricity and gas generation, production,
transmission, distribution, marketing, sale and related services) in Australia
and certain Asian countries. ME would bring to the venture, among other
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things, its expertise and experience in design, construction and operation of
technology relevant to all aspects of the electricity industry and marketing of
electricity, its knowledge of the diversity of electricity customer types and
their needs, and the benefit of its business establishment in Australia and
Asia. Consolidated would contribute to the venture, among other things, its
expertise and experience in design, construction and operation of technology
relevant to all aspects of the natural gas industry and marketing of natural
gas, its knowledge of the diversity of natural gas customers and their needs,
its business contacts and experience with United States headquartered
multinational corporations with interests and operations in Asia, and its
detailed understanding of the regulatory regimes applicable to the electricity
and natural gas industries in North America (which are models being considered
by Governments in Asia when establishing their own regimes).
Affiliates of American utility companies, Entergy Corporation, PacifiCorp,
Texas Utilities Co., Utilicorp and General Public Utilities Corp., have within
the past few months acquired interests in the Australian utility industry.
Each of the five electric distribution companies recently sold off by the
government of Victoria (carved out of the former State Electricity Commission
of Victoria) now have full or partial ownership by one of these United States
utility affiliates. One of these acquisitions involves an electric-gas energy
business combination, i.e. the acquisition of Solaris Power Ltd, serving
Melbourne, by a 50-50 joint venture of General Public Utilities subsidiary
Energy Initiatives, Inc. and Australian Gas Light Co., the largest private gas
utility in Australia.
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The Alliance provides for the development of an initial 18 month business
plan to identify opportunities for the venture, and that the parties shall each
be responsible for their own expenses incurred in a joint evaluation process.
The parties would enter into additional agreements with respect to future
potential investment opportunities as they arise. CNG International may enter
other alliances similar to the one with ME, and make further investments
pursuant to such additional alliances as to take advantage of Foreign Energy
Activity, EWG and FUCO opportunities.
3. Evaluation of Possible Bid for Bolivian
Gas Transportation Facilities
CNG Energy Services Corporation ("CNG Energy") is a wholly-owned non-
utility subsidiary of Consolidated. CNG Energy was originally authorized to
engage in the gas marketing business by Commission order dated February
27,1987, HCAR No. 24329, File No. 70-7225. Certain restrictions on CNG Energy
to generate off-system revenues were removed pursuant to the Gas Related
Activities Act of 1990 (Pub. L.101-572, November 15, 1990) ("GRAA") by
Commission order dated August 7, 1992, HCAR No. 25600.
In order to further an expansion of its gas marketing business, CNG Energy
has entered into a Joint Evaluation and Cost Sharing Agreement ("Agreement")
with Panhandle International Development Corporation ("PIDC"), a subsidiary of
Panhandle Eastern Corporation, and two other affiliates of major United States
natural gas companies. The Agreement, a draft of which is filed as Exhibit B-
2, is in response to the Bolivian government's solicitation of proposals to
acquire certain gas transportation assets of Yacimientos Petroliferos Fiscales
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Bolivianos. The parties to the Agreement are to equally share the expenses of
PIDC in its evaluation of the Bolivian assets with the goal of the parties
possibly submitting a joint proposal to acquire such assets in the near future.
The Agreement permits a party to assign to an affiliate its rights or
delegate its obligations and duties thereunder without the express consent of
the other parties. CNG Energy would assign its rights under the Agreement to
CNG International subsequent to the authorization of its formation pursuant to
an order obtained in this proceeding. The basis for such transfer is that any
investment in the Bolivian project would be an investment in a Foreign Energy
Activity such that CNG International would be the more appropriate company in
the CNG System to further pursue the opportunity involved.
4. Consulting and Other Services
Request is also made for CNG International to provide consulting,
administrative, technical, construction, operating and maintenanace and other
management services to non-affiliated foreign persons. Such services may
consist of consulting as to natural gas and electricity acquisition and
marketing, for example, based on the expertise with respect to such activities
developed in the Consolidated System, particularly that of CNG Energy and CNG
Power Services Corporation, the CNG's System's gas and power marketers,
respectively. CNG International may also offer natural gas exploration,
production, transmission and distribution consulting services based on the CNG
System's expertise in these areas. All of the above services would be provided
to non-affiliates at market based rates sufficient to cover CNG International's
cost and a reasonable profit.
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CNG International may also provide similar services to entities formed by
it with respect to its foreign energy business. Such entities may be wholly-
owned by CNG International or one of its subsidiaries, or may be jointly owned
with a person with which it has an alliance agreement. Services provided to
affiliates would be at cost if the recipient is a utility company, but may be
provided at market based rates if the recipient is a non-utility company.
In order for CNG International to provide the above consulting services,
it may contract with associate companies in the CNG System. Services obtained
from utility companies within the CNG System would be performed at cost under
Rules 90 and 91. Services from non-utility companies within the CNG System may
be performed either at cost or at market based rates.
5. Foreign Energy Activities May Be Conducted
through Various Arrangements
CNG International requests authority to enter into arrangements to carry
on Foreign Energy Activities in one or more of the following forms:
1. CNG International may acquire an ownership interest, which may be up to
100% of the voting or non-voting stock, in one or more corporations
established for the sole purpose of engaging in Foreign Energy
Activities. The organizational documents governing such corporations
will expressly limit their activities to Foreign Energy Activities.
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2. CNG International may establish one or more wholly-owned limited purpose
subsidiary corporations to invest and participate in partnerships or
joint ventures to be formed with unrelated persons or entities for the
sole purpose of engaging in Foreign Energy Activities. The
organizational documents governing such partnerships, joint ventures or
corporations would expressly limit their activities to Foreign Energy
Activities. As indicated below, the financing of these wholly-owned
subsidiaries would mirror the financing provided by Consolidated to CNG
International for the purpose of the subject investment.
It is anticipated that most external financings of CNG International and
its subsidiaries will be exempt pursuant to Rule 52 under the Act. To the
extent that Rule 52 might not apply to such financings, application is hereby
made to exempt such financings by a subsidiary of CNG International under
Section 3(b) of the Act in the event such subsidiary: (i) will derive no
material part of its income, directly or indirectly, from sources within the
United States and (ii) will not be a public-utility company operating within
the United States. Considering the amount of the proposed investment in
foreign activities and the likelihood of enhancing shareholder value through
profitable international investments, the Commission should not find it
necessary in the public interest or for the protection of investors that the
external financings of such a subsidiary remain subject to the Act.
Pursuant to the authorizations requested above, CNG International and its
subsidiaries would be able to acquire, without further Commission approval, (i)
up to 50% of the voting or nonvoting stock, in one or more corporation, (ii) up
to 50% of the general partnership interests or voting equity interests in one
or more other joint business entities such as joint ventures or limited
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liability companies, or (iii) up to 100% of the limited partnership interests
in one or more partnerships, provided all of such corporations, partnerships or
other entities are established for the sole purpose of engaging in Foreign
Energy Activities which also qualify as natural gas activities covered by the
Gas Related Activities Act of 1990 (Pub. L 101-572, November 15, 1990)
("GRAA"). This would be similar to the authorization granted to CNG Energy in
Commission order dated July 26, 1995, HCAR No. 26341, File No. 70-8621. It is
anticipated that external financings of such jointly owned entities will be
exempt pursuant to Rule 16 under the Act.
In the event no exemption is otherwise available, request is made that a
corporation, partnership, limited liability company or joint venture in which
CNG International or its subsidiary has an ownership interest of less than 100%
be authorized to obtain third party debt financing. Such financing may be from
a bank or other institutional lender.
IV. LEGAL BASIS FOR AUTHORIZING ENERGY RELATED ACTIVITIES OF CNG INTERNATIONAL
__________________________________________________________________________
Consolidated is of the opinion that the proposed activities of CNG
International should be permitted under the GRAA and Section 11(b) of the Act
for the reasons given in the legal memorandum which is filed as Exhibit B-3.
Essentially, Consolidated believes that the proposed transactions for CNG
International and its subsidiaries will inure to the benefit of consumers of
the CNG System.
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Further, the proposed activities of CNG International are clearly
appropriate in the public interest as evidenced by the recent history of
federal legislation and regulatory action which has strongly promoted the
development of competitive energy markets. Such legislation and regulation
consists of Public Utility Regulatory Practices Act of 1978, 16 USCA 796;
cogeneration statutes, Pub. L. 99-186 and 99-553; the GRAA, FERC Order 636 and
the Energy Policy Act of 1992, Pub. L. 102-486.
V. SOURCE OF FUNDS
_______________
It is proposed for CNG International to raise funds for the purposes
described herein by (i) selling shares of its common stock, $10,000 par value
per share, to Consolidated, (ii) open account advances as described below, or
(iii) long-term loans from Consolidated, in any combination thereof.
Consolidated will obtain the funds required for CNG International through
internal cash generation.
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:
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1. Open account advances may be made to CNG International to provide working
capital and to finance the activities authorized by the Commission. Open
account advances will be made under letter agreement with CNG
International 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 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 CNG International for the
financing of its activities. Loans to CNG International shall be
evidenced by long-term non-negotiable notes of CNG International
(documented by book entry only) maturing over a period of time (not in
excess of 50 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.
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VI. PARENT COMPANY GUARANTEES AND OTHER CREDIT SUPPORT
__________________________________________________
Application is made for Consolidated, CNG International and Intermediary
Companies to enter guarantee arrangements, obtain letters of credit, and
otherwise provide credit support with respect to obligations of their
respective subsidiaries to third parties as may be needed and appropriate to
enable them to carry on in the ordinary course of their respective businesses.
The maximum aggregate limit on all such credit support by Consolidated, CNG
International and Intermediary Companies at any one time will be $300 million.
The $300 million in guarantees and other credit support is in addition to the
$300 million limit on intra-company financing requested elsewhere herein.
VII. AUTHORIZATIONS REQUESTED
________________________
The following authorizations are hereby requested. All funding by a CNG
System parent company of its immediate subsidiary pursuant to this Application
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 CNG International can be in any combination of these three
forms of financing; and any financing between CNG International and its
subsidiaries will be in the same combination of forms that exists between the
Consolidated and CNG International in the transaction which causes CNG
International to obtain funds to invest in the subsidiary. All the
authorizations described below would be for a period ending December 31, 2005
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1. For CNG International to obtain up to $300 million from Consolidated for
the purpose of investing in international energy activities as described
herein.
2. For CNG International to invest up to an aggregate of $300 million in
EWGs, FUCOs, entities engaged exclusively in Foreign Energy Activities,
and in Foreign Energy Activities directly itself.
3. For CNG International and its subsidiaries to enter into contracts
whereby they would provide consulting and other Foreign Energy Activity
services to unrelated parties and associated companies as described
herein, and for an exemption from the cost standard pursuant to Section
13(b) of the Act and Rule 83.
4. For Consolidated to make guarantees and/or provide other credit support,
either directly or indirectly through CNG International and its
subsidiaries, of foreign energy transactions in which CNG International
has a direct or indirect interest, provided that the total amount of such
guarantees and other credit support shall not exceed $300 million at any
one time.
5. For CNG International and its subsidiaries to enter into agreements to
obtain services from associated companies in the CNG System as described
in more detail herein, and for an exemption from the cost standards
pursuant to Section 13(b) and Rule 83 for services from non-public
utility companies.
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6. For the external financings of CNG International and its subsidiaries to
be exempt pursuant to Sectiion 3(b) of the Act in the event such
financings do not come under the exemption provided by Rule 52.
7. For a corporation, partnership, limited liability company or joint
venture in which CNG International or its subsidiary has an ownership
interest of less than 100% to obtain third party debt financing, in the
event that such financing would not otherwise be exempt.
VIII. REQUEST FOR DETERMINATION WITH RESPECT TO THE GRAA
__________________________________________________
The Commission in HCAR No. 26313, dated June 20, 1995, has proposed the
adoption of Rule 58 which, among other things, would exempt from prior
Commission approval the acquisition by a gas registered holding company or its
subsidiary of securities of a "gas related company." The proposed rule defines
a gas-related company as one that derives, or will derive, substantially all of
its revenues from one or more activities permitted under the GRAA, and such
other activities as the Commission may, from time to time, by order upon
application designate as gas-related for purposes of the rule.
In the event Rule 58 is adopted substantially in the form as proposed, a
formal designation of all the types of gas supply related activities described
in Section 2(b) of the GRAA as being "gas-related" for the purpose of the rule
may be needed. This would be necessary in order to have companies engaged in
such activities, but with respect to which there has never been a formal
determination of permissible financing under Section 2(b), to be gas-related
companies under the rule without further proceedings. It is accordingly
<PAGE> 20
requested that the Commission anticipatorily designate as gas-related
companies, for the purpose of Rule 58 if such rule is adopted substantially as
proposed, all of the types of companies that now, or may in the future, exist
and which now, or will, derive substantially all of their revenues from the
activities described in Section 2(b) of the GRAA. Such gas-related designated
companies may be companies in which CNG International and its subsidiaries may
seek to invest.
In the event the Commission decides that an anticipatory determination of
"gas-related" is not appropriate because of the pending nature of Rule 58, it
is, in the alternate, requested that a determination be made pursuant to
Section 2(b) of the GRAA that all acquisitions of interests in companies
engaged in the activities described in Section 2(b) be approved for purposes of
any exemptive rule of general application in which an exemption from Section
9(a) depends upon the existence of gas-related activities permitted under the
GRAA. The reasons supporting such an approval are the same as discussed under
"Activities under the Gas Related Activities Act" in the legal memorandum filed
as Exhibit B-3.
IX. FILING OF CERTIFICATES OF NOTIFICATION
______________________________________
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 CNG International balance sheet as of the end
of such period, and a statement of income and expense for the period.
<PAGE> 21
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 in connection with the herein proposed
transaction will not exceed $26,000, consisting of the $2,000 filing fee under
the Act, $10,000 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, $10,000 payable to non-affiliated professionals, and $4,000 for
miscellaneous other expenses.
(b) If any person to whom fees or commissions have been or are to be paid
in connection with the proposed transaction is an associate company or an
affiliate of the applicant or declarant, or is an affiliate of an associate
company, set forth the facts with respect thereto.
The charges of Service Company, 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.
<PAGE> 22
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 CNG International and its subsidiaries.
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
their respective subsidiaries, CNG International and its subsidiaries.
Sections 12(b) and Rule 45 are considered applicable to loan arrangements
among Consolidated, CNG International and its subsidairies, and to guarantees
of parent companies as requested herein.
Section 13(b) and Rules 83, 87, 90 and 91 are deemed applicable to
certain of the proposed service arrangements with respect to which
authorization is sought.
Section 32 and 33 and Rules 53 and 54 apply to the financing activities
involving EWGs and FUCOs.
Section 11(b)(1) of the Act and the Gas Related Activities Act of 1990
apply to the energy related transactions proposed for CNG International.
Section 3(b) of the Act may apply in so far as issuance of securities by CNG
International and its subsidiaries would not fall within the purview of the
exemption in Rule 52.
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.
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(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.
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 February 16, 1996.
<PAGE> 24
(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.
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
(a) Exhibits
B-1 Strategic Alliance Agreement, dated November 7, 1995,
between Consolidated and ME.
B-2 Draft of Joint Evaluation and Cost Sharing Agreement, dated
November 28, 1995, among PIDC, Sonat Americas Inc.,
El Paso Energy Development Company, and CNG Energy
Services Corporation.
B-3 Legal Memorandum.
F Opinion of counsel for Consolidated.
(To be filed by Amendment)
O Draft of Notice.
<PAGE> 25
(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.
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> 26
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 D. M. Westfall
Senior Vice President
and Chief Financial Officer
Date: December 15, 1995
<PAGE> 1 Exhibit B-1
STRATEGIC ALLIANCE AGREEMENT
between
CONSOLIDATED NATURAL GAS COMPANY
and
METNORTH ENERGY
<PAGE> 2
CONTENTS
SECTION HEADING PAGE
Parties 1
Recitals 1
1. Definitions 2
2. Objects of Strategic Alliance 2
3. Contribution by ME 2
4. Contribution by CNG 3
5. Project Opportunities 4
6. Management 4
7. Business Plans 5
8. Publicity 6
9. Confidentiality 7
10. Conditions 7
11. Assignment 8
12. Term 8
13. Mediation 8
14. Termination 9
15. Address for Notice 9
16. Relationship of Parties 10
17. Entire Agreement 10
18. Further Assurances 11
19. Variation 11
20. Governing Law 11
21. Interpretation 11
Annexure A 13
<PAGE> 3
STRATEGIC ALLIANCE AGREEMENT
THIS AGREEMENT is made on the 7th day of November, 1995 between
CONSOLIDATED NATURAL GAS COMPANY of 625 Liberty Avenue, Pittsburgh, in the
State of Pennsylvania, United States of America ("CNG"); and
METNORTH ENERGY of 570 George Street, Sydney in the State of New South Wales,
Australia ("ME").
WHEREAS
A. The Council of Australia Governments has resolved that to the maximum
extent possible competition should be encouraged in the production,
transmission, distribution and marketing of energy throughout Australia;
B. Competition in electricity and natural gas markets is expected to phase
in commencing in 1996;
C. Australian and foreign enterprises will compete with each other within
Australia and, in order to do so successfully and to avoid being
disadvantaged, Australian enterprises will need to participate in the
international energy markets, especially in Asia;
D. ME is the largest distributor of electricity in Australia and intends to
expand its activities in the energy sector throughout Australia and Asia
and strive to become Australia's leading total energy services
organization;
E. ME does not have expertise in the natural gas sector of the energy
industry;
F. CNG is one of the largest producers, transporters, distributors and
marketers of natural gas and energy services in North America and in
addition has experience in generating, and marketing electricity;
G. CNG has broad experience in operating in a competitive energy market in
North America which is serving as a model for competitive energy market
regimes in many parts of the world including Asia
H. CNG wishes to enter the energy markets of Australia and Asia;
I. ME and CNG have agreed:
- - to jointly seek out and evaluate "Opportunities" in the energy
sector in Australia and Asia;
that CNG will provide ME with technical and marketing expertise
to support ME's "total energy solutions" objectives in Australia
<PAGE> 4
2
NOW THEREFORE the parties hereby agree as follows:
I. DEFINITIONS
1.1 "EFFECTIVE DATE" has the meaning set out in Clause 12.
1.2 OPPORTUNITY - means a potential investment opportunity or project which
the Parties agree to investigate.
1.3 "PARTY" or "PARTIES" means one or more of the parties to this Agreement.
1.4 "TERRITORY" has the meaning set out in Clause 2.1.
1.5 "INCONTESTABLE ENERGY MARKET" means the market structure in place for
retailing electricity in Australia as at 1 November 1995.
1.6 "VENTURE" has the meaning set out in Clause 2.1.
2. OBJECTS OF STRATEGIC ALLIANCE
2.1 CNG and ME hereby agree to cooperate and work together in a strategic
alliance ("the Venture") with the object of seeking out, identifying,
evaluating and participating in Opportunities in the energy sector
(including without limitation, electricity and gas generation,
production, transmission, distribution, marketing, sale and related
services) in Australia, those Asian countries listed in Annexure "A"
hereto and such other Asian countries as agreed between the parties from
time to time ("the Territory").
2.2 Unless the parties otherwise agree in writing the strategic alliance
shall be strictly limited to the activities specified in this Agreement
and nothing in this Agreement shall be implication or otherwise, operate
to extend the strategic alliance beyond such activities.
2.3 ME will continue its separate business activities in the "uncontestable
energy market" in New South Wales.
3. CONTRIBUTION BY ME
3.1 ME shall contribute the following to the Venture:
(a) expertise and experience in design, construction and operation of
technology relevant to all aspects of the electricity industry
and marketing of electricity;
(b) knowledge of the diversity of electricity customer types and
their needs;
(c) the benefit of its business establishment in Australia and Asia;
<PAGE> 5
3
(d) understanding of the industry and general business regulatory
regimes of Australia and throughout Asia;
(e) the recognition of ME's management that markets within the
Territory offer energy investment opportunities;
(f) an established basis for energy operations in Asia;
(g) in respect of any business plan and budget approved by the
Management Committee, such funds, expertise, plant, equipment and
facilities as ME agreed to contribute when it approved the
business plan and budget.
4. CONTRIBUTION BY CNG
4.1 CNG shall contribute the following to the Venture:
(a) expertise and experience in design, construction and operation of
technology relevant to all aspects of the natural gas industry
and marketing of natural gas;
(b) knowledge of the diversity of natural gas customers and their
needs;
(c) business contacts and experience with US headquartered:
(i) multinational corporations with business operations in
Asia; and
(ii) aid agency and financial institutions with interests and
operations in Asia;
(d) a detailed understanding of the regulatory regimes applicable to
the electricity and natural gas industries of North America.
These regimes are models being considered by Governments in Asia
when establishing their own regimes;
(e) the recognition of CNG's management that markets within the
Territory offer energy investment opportunities;
(f) experience as a fully integrated electricity, natural gas and oil
company operating in a competitive and integrated energy market.
(g) in respect of any business plan and budget approved by the
Management Committee, such funds, expertise, plant, equipment and
facilities as CNG agreed to contribute when it approved the
business plan and budget.
<PAGE> 6
4.2 CNG will locate employees in Sydney to work with ME to jointly identify
and investigate Opportunities within the Territory and to support ME's
marketing and total energy
4
solutions within Australia with marketing and technical expertise not
currently available within ME.
5. PROJECT OPPORTUNITIES
5.1 If either Party is offered or becomes aware of, an "Opportunity" to
participate either as an investor or supplier of goods or services to an
energy project in the Territory, that Party shall promptly notify the
other Party, giving full details of the Opportunity. The parties shall
have a period of fourteen (14) days within which to agree to further
investigate and pursue the Opportunity jointly.
5.2 If the Parties elect to proceed together to investigate, pursue and
participate in any Opportunity:
(a) the Parties shall, at their own expense, participate in a joint
evaluation process and enter into further agreements as between
themselves as appropriate, relating to their respective
participation in any such project;
(b) neither Party shall separately submit any tender or bid during
the evaluation process without consultation with the other. If,
having evaluated an Opportunity, either Party elects not to
proceed with such Opportunity, then the remaining Party may make
its own separate arrangements with respect to said Opportunity;
and
(c) the Parties agree to use their best endeavors to reach prompt and
timely agreement with respect to evaluation of Opportunities. If
no agreement is reached within a reasonable time (in the opinion
of either Party reached in good faith), then the issue becomes
subject to mediation under Section 13.
5.3 Notwithstanding the provisions of Clauses 5.1 and 5.2, nothing in this
Agreement shall oblige either Party to make any bid or enter into
further agreements with the other Party in order to participate in
projects in Australia, Asia or elsewhere.
6. MANAGEMENT
6.1 The Venture shall be managed by a Management Committee which will have
such duties and responsibilities as the Parties may from time to time
agree.
6.2 The Management Committee:
(a) shall be comprised of six members (three representatives from
each Party);
(b) shall have a chairman appointed by ME who shall be one of its
representatives;
<PAGE> 7
5
(c) chairman shall not have a casting vote;
(d) shall have a quorum for its meetings of two representatives from
each Party.
6.3 The role of the Management Committee shall be:
(a) to manage the relationship between the parties;
(b) to seek out and review Opportunities;
(c) agree upon which Opportunities will be jointly evaluated;
(d) to provide a forum for the Parties to negotiate and structure
appropriate joint venture agreements including capital and
operating budgets for each such joint venture;
(e) to approve business plans for the Venture;
(f) to facilitate coordination of the activities of the Parties in
relation to the Venture, including without limitation in regard
to information exchange and preparation and submission of tenders
and bids;
(g) to review operation of the Venture;
(h) provide a monthly activity report to the Parties;
6.4 Meetings of the Management Committee shall, unless the Parties agree
otherwise, be held quarterly in Sydney or by conference telephone with
members present personally or by proxy.
6.5 CNG and ME shall bear their own expenses, including any travel and
accommodation expenses, incurred in relation to Management Committee
meetings.
7. BUSINESS PLANS
7.1 Within ninety (90) days following the date hereof, the parties shall
prepare an initial business plan and strategy relating to the initial
eighteen (18) months operation of the Venture. Similar plans and
strategies shall be prepared for successive 18 month periods each May
and November. The initial business plan shall have as an objective the
identification of not less than twenty-five (25) Opportunities.
7.2 Except as otherwise provided in this Agreement or separately agreed in
writing by the parties, the parties shall bear their own costs in
connection with the Venture.
<PAGE> 8
6
7.3 In recognition that CNG will incur certain Additional Direct Expenses as
a result of supporting ME's marketing activities. CNG will be entitled
to be reimbursed a portion of said Additional Direct Expenses up to a
maximum of US$150,000 for each year during which support is provided.
Additional Direct Expenses are defined as Cost of Living Adjustment.
Employer Paid Post Housing, Home Housing Spendable, Assignee and Family
Home Leave, Education, Home Housing Maintenance, Motor Vehicle Lease and
Maintenance, Other Taxable Allowance. Storage, Moving In and Moving Out
Airfares, Shipment In and Out, Temporary Living Expenses, Relocation
Allowance In and Out, and Home and Host Country Tax Costs. CNG shall be
solely responsible for salary and benefits payable to its employees.
7.4 To the extent that said payment is less than CNG's Additional Direct
Expenses, CNG shall be entitled to receive gross profits (defined as
sales revenue less the cost of product) from the sale of natural gas by
ME in each year when marketing assistance is provided, subject to such
reimbursement not exceeding the total of CNG's Additional Direct
Expenses and in any case capped at US$300,000. In any year when such
gross profits are insufficient to provide full reimbursement, such
shortfall shall be carried forward into the following year or years
until the total Additional Direct Expenses incurred hereunder have been
reimbursed to CNG.
8. PUBLICITY
8.1 A Party may make public announcements and disclosures reasonably
necessary to comply with any statutory or regulatory obligations in
Australia, the United States or elsewhere, provided that if either Party
wishes to make a public announcement or other disclosure of this
Agreement or any other agreement or arrangement between the parties,
that Patty shall notify the other Party of the proposed announcement as
far in advance as is reasonably possible and shall give due
consideration to the wishes of the other Party with regard to the text
of such announcement. Each Party shall keep the other fully informed in
relation to any such announcement or other publicity relating to the
Venture.
8.2 So long as this Agreement is in force, CNG agrees to allow use of its
full name, the letters CNG and/or the word "CONSOLIDATED" in connection
with the Venture upon and subject to CNG's usual guidelines and controls
on such use from time to time.
8.3 So long as this Agreement is in force, ME agrees to allow use of its
full name or approved abbreviations or variations thereof in connection
with the Venture upon and subject to ME's usual guidelines and controls
on such use from time to time.
<PAGE> 9
7
9. CONFIDENTIALITY
9.1 CNG and ME agree to use their best endeavors to:
(a) preserve the secrecy of all confidential information disclosed to
it by the other;
(b) keep such information secure and protected against theft, damage,
loss or unauthorized access;
(c) not to use such information for any purpose except as
contemplated by this Agreement; and
(d) ensure that these obligations are observed by its affiliates,
employees, agents and contractors.
9.2 For the purpose of this Section 9, confidential information
includes information relating to the business or affairs of each Party
including technical information relating to energy distribution and
marketing, supplies and buyer information, trade secrets and other sales
and/or marketing information.
9.3 Notwithstanding the provisions of Clause 9.2, confidential
information does not include information disclosed by a Party to the
other Party which:
(a) is in the public domain when received;
(b) subsequently comes into the public domain through no fault of the
recipient;
(c) is lawfully received by the recipient from a third Party on an
unrestricted basis; or
(d) is already known to the recipient prior to receipt.
9.4 The provisions of this clause shall survive the variation,
renewal, termination or expiry of this Agreement.
10. CONDITIONS
10.1 This Agreement and the arrangement between the parties contemplated
hereby shall be subject to:
(a) the approval of the United States Securities and Exchange
Commission under the United States Public Utility Holding Company
Act 1935; and
(b) in the case of ME, ratification by ME's Board of Directors.
8
10.2 If, in respect of the condition in Sub-Clause 10.1 (a), CNG in its sole
discretion considers the approval has been given subject to unacceptable
conditions or is advised by the above mentioned body that approval is
not required, CNG may waive that condition.
<PAGE> 10
11. ASSIGNMENT
11.1 Neither Party may assign any of its right under this Agreement without
the prior written consent of the other Party.
11.2 Notwithstanding the provisions of Clause 11.1, either Party may without
any consent of the other Party assign its right under this Agreement to
its wholly owned subsidiary ("Subsidiary") by written notice provided
that the Subsidiary covenants in writing with the other Party to be
bound by all the terms and conditions of this Agreement.
12. TERM
12.1 This Agreement shall become effective on whichever is the later of 1
January 1996 or the date the last of the conditions provided for in
Section 10 is satisfied ("Effective Date") and will continue for an
initial period of three (3) years thereafter. It is anticipated however
that marketing assistance hereunder will not be required after 18 months
from the effective date.
12.2 After the initial term of three (3) years, this Agreement shall be
renewed automatically from year to year for successive one (1) year
terms on the same terms and conditions as are set out herein unless
either Party gives to the other Party at least 90 days' written notice
prior to the expiration of any current term, of its wish that the
agreement not be renewed in which case the agreement shall expire at the
end of that term.
13. MEDIATION
13.1 If a Party is of the opinion that the other Party is in breach of this
Agreement or that the provisions of the Agreement do not meet the needs
of the Venture, it may by notice set out, as the case may be, details
of:
(a) the alleged breach;
(b) the proposed amendments to this Agreement.
13.2 If the Parties are unable to agree within fourteen (14) days, upon:
(a) the need to or how to rectify the alleged breach of this
Agreement; or
(b) the need for or the form of any amendment to the Agreement,
9
they will submit themselves to a process of mediation under the guidance
of Mediate Today Pty Ltd or a similar organization.
<PAGE> 11
13.3 If after mediation the Parties are unable or unwilling to resolve their
differences either Party may then proceed to terminate this Agreement as
provided in Section 14.
14. TERMINATION
14.1 Having first complied, in good faith, with the provisions of Section 13
either Party may terminate this Agreement upon giving not less than
ninety (90) days' written notice of termination to the other Party.
14.2 Notwithstanding the provisions of Clause 14.1, either Party may
terminate this Agreement immediately by written notice to the other
Party if the other Party:
(a) becomes insolvent, has a receiver, manager or administrator
appointed over the whole or any parts of its assets or business;
or
(b) commits an irremediable material breach of this Agreement.
14.3 Neither Party shall be liable to the other for loss or damage of any
kind resulting from expiration or termination of this Agreement in
accordance with its terms provided that such expiration or termination
shall be without prejudice to any cause of action accruing prior to
expiration or termination.
15. ADDRESS FOR NOTICE
15.1 All notices sent in relation to this Agreement must be in writing and
addressed to the recipient at the address or facsimile number set out
below or to such other address or facsimile number as a Party may notify
the other from time to time:
(a) Consolidated Natural Gas Company
(Attention: Stephen E Williams
Senior Vice President and General Counsel)
Address: 625 Liberty Ave.
22nd Floor
Pittsburgh PA 15222
U.S.A.
Facsimile No: 412-227-1033
<PAGE> 12
10
(b) MetNorth Energy
(Attention: Anthony R Winn
General Manager, Natural Gas)
Address: 570 George Street
Sydney NSW 2000
AUSTRALIA
Facsimile No: 2-269-4930
15.2 A notice will be deemed to be duly received:
(a) if sent by hand, when left at the address of the recipient;
(b) if sent by pre-paid post, five (5) days (if posted within
Australia to an address in Australia) or ten (10) days (if posted
from one country to another) after the date of posting;
(c) if sent by facsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine
from which the facsimile was sent indicating that the facsimile
was sent in its entirety to the recipient's facsimile number.
16. RELATIONSHIP OF PARTIES
16.1 Nothing in this Agreement shall constitute the parties as partners,
joint venturers, coowners or constitute either Party as the agent,
employee or representative of the other.
16.2 Each Party agrees not to purport to bind, undertake, commit or enter
into contractual relations with third parties on behalf of the other
Party.
16.3 Each Party agrees, in the event of breach by it of Clause 16.2, to
indemnify and keep indemnified the other Party against any losses,
debts, liabilities, obligations, claims, actions, suit and/or demands
incurred by the Party and arising out of the Party's breach of Clause
16.2.
17. ENTIRE AGREEMENT
17.1 This Agreement contains all the terms agreed between the parties
regarding the subject matter hereof and supersedes any prior agreements,
understandings or arrangements between them, whether oral or in writing
including the Memorandum of Understanding dated August 29, 1995.
11
17.2 No representation, undertaking or promise shall be taken to have been
given or be implied from anything written in negotiations between the
parties prior to this Agreement except as set out in this Agreement.
<PAGE> 13
18. FURTHER ASSURANCES
18.1 Each Party will, at its own expense and when requested by another Party,
promptly do, execute and deliver everything reasonably necessary to the
purpose of or to give full effect to this Agreement.
19. VARIATION
19.1 No variation or amendment to this Agreement shall be effective unless in
writing and signed by authorized representatives of the Parties.
20. GOVERNING LAW
20.1 This Agreement is governed by and construed in accordance with the laws
in force for the time being in the State of New South Wales.
21. INTERPRETATION
21.1 Headings included in this Agreement are for convenience only and shall
be disregarded in construing this Agreement.
21.2 Words importing singular include the plural and vice versa Words
importing natural persons include corporations.
21.3 Reference to annexures are the annexures to this Agreement.
12
EXECUTED as an Agreement.
SIGNED for and on behalf of
CONSOLIDATED NATURAL GAS
COMPANY by its duly authorized
representative in the presence of: George A. Davidson, Jr.
Signature of
Stephen E. Williams
Signature of Witness
Stephen E. Williams
Name of Witness
SIGNED for and on behalf of
METNORTH ENERGY by its duly
authorized representative in the
presence of: Allan J. Gillespie
Signature of
A. R. Winn
Signature of Witness
A. R. Winn
Name of Witness
<PAGE> 14
ANNEXURE A
SOUTH-EAST ASIAN COUNTRIES
* Bangladesh
* Brunei
* Cambodia
* Peoples' Republic of China
* Hong Kong
* India
* Indonesia
* Japan
* North Korea
* South Korea
* Laos
* Malaysia
* Myanmar
* New Zealand
* Pakistan
* Papua New Guinea
* Philippines
* Singapore
* Sri Lanka
* Thailand
* Vietnam
<PAGE> 15
AMENDMENT
THIS AMENDMENT dated the 22nd day of November, 1995, to that certain
Strategic Alliance Amendment dated the 7th day of November, 1995, by and
between Consolidated Natural Gas Company ("CNG"), of Pittsburgh, Pennsylvania,
USA, and MetNorth Energy, of Sydney, NSW, Australia.
WHEREAS, CNG and MetNorth desire to amend clause 5.1 of the Strategic
Alliance Agreement between them dated the 7th day of November, 1995.
NOW, THEREFORE, CNG and MetNorth agree as follows:
1. That Clause 5.1 of the Strategic Alliance Agreement be revised to
read, in its entirety, as follows:
"5.1 If the Parties' employees who are assigned to the Management
Committee jointly identify an Opportunity, they shall have a
period of fourteen (14) days within which to agree to further
investigate and pursue the Opportunity jointly."
EXECUTED as an agreement this 22nd day of November, 1995.
CONSOLIDATED NATURAL GAS COMPANY
By Stephen E. Williams
Senior Vice President and
General Counsel
-- and --
METNORTH ENERGY
By A. R. Winn
General Manager, Natural Gas
<PAGE> 1 Exhibit B-2
JOINT EVALUATION AND COST SHARING AGREEMENT
This Joint Evaluation and Cost Sharing Agreement (this "Agreement"),
dated November 28, 1995, is by and between PANHANDLE INTERNATIONAL DEVELOPMENT
CORPORATION, a Delaware corporation ("PIDC"), SONAT AMERICAS INC., a Delaware
corporation ("Sonat"), El Paso Energy Development Company, a Delaware company
("EPED"), and CNG Energy Services Corporation ("CNG"), a Delaware corporation
(individually a "Party" and collectively the "Parties").
RECITALS
The Bolivian government is soliciting proposals for the capitalization
of a Bolivian company to which certain transportation assets and liabilities of
Yacimientos Petroliferos Fiscales Bolivianos will be transferred (the "Bolivia
Project").
The Parties desire to set forth herein their agreement to jointly
evaluate the transportation assets and liabilities involved in the Bolivia
Project and, subject to the terms hereof, jointly submit one or more proposals
with respect to the Bolivia Project.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by each of the Parties, the Parties hereby agree as follows:
<PAGE> 2
1. Certain Defined Terms. (a) As used herein, the term "Evaluation
Activities" shall mean such activities as may be reasonably necessary to
evaluate the transportation assets and liabilities constituting a part of the
Bolivia Project and determine the potential viability of bidding on the Bolivia
Project, including, without limitation, the following activities:
qualification of existing pipeline assets; market evaluation; economic analysis
of the Brazil to Bolivia pipeline project; evaluation of supply; service design
and pricing; new pipeline system design and routing; bid quality estimates for
design construction and operating costs; identification of permits and other
approvals; preparation of certain documents; environmental requirements;
public, industry and governmental relations; development of government and
regulatory issues and related strategies; financial planning; and such
activities as may be necessary to (i) develop a common set of assumptions and
projects for any proposals to be submitted by the Parties with respect to the
Bolivia Project, (ii) to determine the most desirable legal and financial
structure for any such proposals and (iii) prepare, document and submit any
proposals to be submitted by the Parties in connection with the Bolivia Project
and coordinate the activities of the Parties in connection therewith.
(b) As used herein the term "Affiliate" shall mean, with respect to a
Party, any other entity directly or indirectly controlling, controlled by or
under common control with such Party.
(2) Performance of Evaluation Activities. Subject to the terms of this
Agreement, PIDC agrees to perform or cause to be performed, and to coordinate,
all Evaluation Activities for the joint benefit of PIDC, Sonat, EPED and CNG.
To the extent deemed necessary by PIDC and provided that such costs are
included in the Budget (as defined below) or otherwise approved by the Project
<PAGE> 3
Committee in writing, PIDC may retain third parties, any Party and its
Affiliates, or utilize its Affiliates for the performance of the Evaluation
Activities.
3. Joint Submission of Proposals. Subject to the terms and conditions
of this Agreement, the Parties agree to jointly submit one or more proposals
with respect to the Bolivia Project in accordance in all material respects with
the terms of the requests for proposals distributed by the Bolivian government
and any other applicable bidding rules or procedures if the Parties agree
unanimously in writing to the terms and conditions of any such proposals. In
connection with any such proposals to be submitted by the Parties, the Parties
shall agree that any such proposals must be based upon a common set of
assumptions and projections for the Bolivia Project and the most desirable
legal and financial structure for the investment contemplated by any such
proposals.
4. Cost Sharing; Budget, Cash Calls, Record and Inspection Rights.
(a) Provided that such costs and expenses are contemplated by the
Budget or otherwise approved by the Project Committee in writing, all costs and
expenses (other than general and administrative costs and expenses) incurred
from August 12, 1995 forward with respect to the Evaluation Activities shall be
shared equally by PIDC, Sonat, EPED and CNG.
(b) PIDC has prepared and submitted to Sonat, EPED and CNG for their
review and approval a reasonably detailed work plan and budget, a copy of which
is attached hereto as Exhibit "A" that sets forth a schedule for the
<PAGE> 4
performance of the Evaluation Activities and the costs and expenses anticipated
to be incurred in connection therewith (such work plan and budget, as same may
be amended or modified pursuant to the terms hereof, being herein referred to
as the "Budget"). Upon the execution by the Parties of this Agreement, each
such Party shall be deemed to have approved the Budget attached hereto and
agreed to fund 25% of all costs or expenses incurred by PIDC that are included
in such Budget. From time to time during the term of this Agreement, any Party
may propose amendments to or modifications of the Budget, and the other Parties
shall respond in writing to such requested amendments or modifications within
10 days following receipt thereof. Failure by any Party to respond in writing
within such 10-day period shall be deemed to constitute approved by such Party
of the proposed amendment or modification. In addition, any expenditures that
are approved in writing by the Project Committee shall be deemed to constitute
a part of the Budget. Any budgetary disputes among the Parties will be
referred to the Project Committee for review and consideration.
(c) On a monthly basis, PIDC may invoice each Party for its share of
any unreimbursed costs and expenses contemplated by the Budget that have been
approved by the Parties and incurred by PIDC.
(d) PIDC shall keep a record of the costs and expenses incurred in
connection with the performance of the Evaluation Activities and shall, on a
monthly basis, furnish to the Parties during the term hereof an itemized
statement of such costs, together with such other information as may be
reasonably necessary to describe the Evaluation Activities performed since the
date of the most recent statement.
<PAGE> 5
(e) Each Party, through its authorized representatives, shall have the
right, at all reasonable times and upon twenty-four hours prior written notice
to the other Parties, to inspect the books and records of the other Parties
that relate to costs and expenses incurred in connection with the performance
of the Evaluation Activities, provided that such inspection occurs no later
than the 24th month (the "Inspection Deadline") following the month in which
the applicable costs were reported as having been incurred. All costs and
expenses incurred by PIDC in connection with the performance of the Evaluation
Activities shall conclusively be presumed to be true and correct after the
Inspection Deadline, unless a Party has notified the other Parties of detailed
exceptions prior to such date. The Party conducting the inspection shall pay
all costs and expenses associated with it.
5. Project Committee. The Parties shall form a committee (the
"Project Committee") for the purpose of reviewing the progress and results of
the Evaluation Activities, reviewing and approving the Budget and any proposed
amendments or modification thereto and discussing any matters relating to
proposals being considered by the Parties with respect to the Bolivia Project.
The Project Committee shall consist of four persons, one appointed by each
Party. Each Party shall have one vote on all matters to be decided by the
Project Committee. Unless otherwise stated herein, any approval fo the Project
Committee shall require the affirmative vote of three persons. Any approvals
granted or decisions made by a Party's representative on the Project Committee
shall be binding on such Party. PIDC will, from time to time, provide
information and reports to the Project Committee regarding the progress and
results of the Evaluation Activities. Unless the Parties agree otherwise, all
meetings of the Project Committee will be held in Houston, Texas, at mutually
agreeable times and locations
<PAGE> 6
6. Confidentiality. With respect to any and all data, plans,
proposals or other material related to the bidding, design, construction,
operation or financing of the Bolivia Project, in each case that has been or is
hereafter developed by or provided to a Party or any of its Affiliates by oro n
behalf of another Party or Affiliate of a Party in connection with the Bolivia
Project ("Confidential Information"), each Party shall, and shall cause its
Affiliates to, use any such Confidential Information only with regard to the
Bolivia Project and not for any other purpose and to hold such Confidential
Information in strict confidence and not disclose same to any third party
without the written consent of the members of the Project Committee.
Notwithstanding the foregoing, the obligation of confidentiality shall not
apply to any disclosure:
(a) of information that is in or enters the public domain through
no fault of the receiving person or entity;
(b) of information that was in the possession of the receiving
person or entity prior to its receipt of similar information from
another Party (or an Affiliate of a Party) in connection with the
Bolivia Project;
(c) required by law, regulations, legal process or order of any
court or governmental body having jurisdiction;
<PAGE> 7
(d) to a Party, lender or direct or indirect prospective purchaser
of interests in the Bolivia Project, in each case provided that such
person or entity has agreed in writing to be bound by use and
confidentiality restrictions as least as restrictive as those set forth
in this Section 6;
(e) to directors, officers, employees or representatives of such
Parties if such persons have been informed of the obligations set forth
in this Section 6 and the Party has agreed to cause such persons to use
and maintain the confidentiality of such Confidential Information only
in accordance with the terms of this Section 6; or
(f) to any and all governmental authorities in connection with
obtaining permits for the Bolivia Project or with the investment by the
Parties in the Bolivia Project.
7. Withrawal and Termination. (a) A Party may voluntarily withdraw
from its participation under this Agreement for any reason by providing 5 days'
prior written notice to the other Parties. Any such withdrawal shall be
effective on the first business day following the expiration of such 5-day
period. A Party shall be deemed to have withdrawn if following the completion
of the Evaluation Activities (but prior to the deadline for submission of
proposals with respect to the Bolivia Project), it is the only Party that is
not in agreement with the terms of a proposal or proposals to be submitted for
the Bolivia Project. In the event of a voluntary or deemed withdrawal, the
withdrawing Party shall have no further rights or obligations under this
Agreement except for:
<PAGE> 8
(i) the obligation to pay its share of any costs and expenses
contemplated by the Budget and previously approved by the Parties as in
effect on the effective date of such Party's withdrawal;
(ii) the obligation to continue to abide by the confidentiality
provisions and obligations set forth in Section 6 hereof and the
obligations set forth in Section 8 hereof; and
(iii) any obligations or liabilities attributable to the breach by
such Party of its obligations prior to the effective date of such
withdrawal.
(b) This Agreement shall terminate on the earliest to occur of (i) the
mutual agreement of all of the Parties to terminate this Agreement, (ii) the
award of the Bolivia Project by the Bolivian government to a third party, (iii)
the issuance by the Bolivian government of an official announcement canceling
the Bolivia Project and (iv) following the completion of the Evaluation
Activities (but prior to the deadline for submission of proposals with respect
to the Bolivia Project), the failure of at least 3 of the Parties to reach
agreement on the terms of a proposal or proposals to be submitted. Subject to
the terms of Section 7(a), this Agreement shall terminate as to a Party
withdrawing pursuant to Section 7(a). If this Agreement is terminated, the
rights and obligations of the Parties hereunder shall cease and be of no
further force and effect, except that each Party shall continue thereafter to
be liable for performance obligations, and any breach by such Party of the
provisions of this Agreement, that matured or occurred prior to the date of
such termination
<PAGE> 9
Right to Participate in Proposals and Exclusivity. (a) At the conclusion
of the Evaluation Activities, each Party (other than a Party withdrawing
pursuant to Section 7(a)) shall have the right, but not the obligation, to
participate in the making of a joint proposal with respect to the Bolivia
Project on a mutually agreeable basis set forth in writing including the right,
if any such proposal is successful, to participate equally (unless otherwise
agreed in writing) in the equity ownership of the Bolivia Project. If a
proposal submitted by the Parties is successful, it is contemplated that the
Parties would form a special purpose company for the purpose of making such
investment, which company would qualify as an entity with characteristics of a
partnership for U.S. tax purposes, would be located in a tax efficient
jurisdiction and would otherwise be structured in a manner acceptable to the
Parties.
(b) In the event a Party (the "Non-Proceeding Party") voluntarily
withdraws or is deemed to have withdrawn pursuant to Section 7(a), and all of
the other Parties are willing to go forward with the Bolivia Project, then the
Parties who are willing to go forward with the Bolivia Project may do so, and
the Non-Proceeding Party will no longer be associated with or have any right to
participate in the Bolivia Project, whether such participation is with any
third parties or on its own. Upon written request of the Parties, all
Confidential Information shall be promptly returned by the Non-Proceeding Party
to the other Parties and the Non-Proceeding Party shall be subject to the
confidentiality provisions and obligations set forth in Section 6 hereof for a
period of two years following the date of such withdrawal. In the event that
no Party goes forward with the Bolivia Project beyond the Evaluation
Activities, there is no need to return all Confidential Information
<PAGE> 10
(c) Without the prior written consent of all of the other Parties and
except as contemplated hereunder, each Party shall not, and will cause its
Affiliates not to, (i) negotiate with any person or entity or enter into any
agreement or understanding with any person or entity regarding the Bolivia
Project or (ii) directly or indirectly solicit, encourage or consider inquiries
or proposals from any person or entity, or furnish informaiton to any person or
entity, in either case regarding the Bolivia Project, except with regard to
Evaluation Activities as contemplated by this Agreement. Each Party
understands that the other Parties and their Affiliates are incurring
substantial costs and expenses in reliance on their rights under this Agreement
and that the right to participate in proposals and the right of exclusivity
provided for in this Section 8 are material inducements to such Parties to
enter into and perform its obligations under this Agreement.
9. Representations and Warranties. Each Party represents and warrants
to the other Parties that:
(a) It is a duly organized, validly existing entity of the type
described in the introduction to this Agreement and is in good standing
under the laws of the jurisdiction of its formation. It has all
requisite power and authority to enter into and to perform its
obligations under this Agreement.
(b) Its execution, delivery, and performance of this Agreement
have been duly authorized, and do not and will not (i) violate any law,
rule, regulation, order, or decree applicable to it or (ii) violate its
organizational documents.
<PAGE> 11
(c) This Agreement is a legal and binding obligation of that
Party, enforceable against that Party in accordance with its terms,
except to the extent enforceability is modified by bankruptcy,
reorganization and other similar laws affecting the rights of creditors
generally and by general principles of equity.
(d) There is no litigation or, to the best of its knowledge,
threatened to which that Party or any of its Affiliates is a party that,
if adversely determined, would have a material adverse effect on the
financial condition, prospects, or business of the Bolivia Project or
that Party's ability to perform its obligations under this Agreement.
10. General. (a) The Parties shall act as independent contractors in
the performance of any activities under this Agreement and, except as expressly
provided herein, no Party shall act as agent for or partner of the other
without its prior written consent. This Agreement is not intended to create a
partnership or joint venture. The rights and obligations of the Parties shall
be limited to those expressly set forth herin.
(b) Each Party shall execute and deliver such additional instruments
and other documents and shall take such further actions as may be necessary or
appropriate to effectuate, carry out and comply with all of the terms of this
Agreement and the transactions contemplated hereby.
<PAGE> 12
(c) Each Party undertakes that neither it nor its Affiliates, nor any
officer, director, shareholder, representative, employee or agent thereof has
made, will make, will promise to make or will cause to be made, in connection
with this Agreement, any payments, loans or gifts of any money or anything of
value, directly or indirectly, (i) to or for the use or benefit of any official
or employee of any government, (ii) to any political party or official or
candidate thereof or (iii) to any other person either for an advance or
reimbursement, if it knows that any party of such payment, loan or gift will be
directly or indirectly given or paid by such other person, or will reimburse
such other person for payments, gifts or loans previously made, to any
governmental official or political party, or candidate or official thereof. In
addition, each Party represents that it is familiar with the provisions of the
Foreign Corrupt Practices Act and shall comply with such provisions.
(d) This Agreement and with regard to Sonat only, that certain Letter
Agreement from Sonat to PIDC dated September 15, 1995, constitutes the entire
agreement between the Parties and supersedes all prior agreements or
understandings with respect to the matters referred to herein. This Agreement
may be modified or amended only by an instrument in writing that is signed by
all of the Parties.
(e) Any notice or other communication required to be given under this
Agreement shall be made in writing and may be delivered by telecopier, air
courier, messenger delivery or regular mail, addressed to the Party's address
set forth below. Notice or communications shall be effective upon receipt
during regular business hours. Any Party may, by notice in writing to the
other Party in the manner specified in this Section 10(e), specify an
<PAGE> 13
additional person or persons to receive copies of all subsequent notices
thereafter directed to such Party or to provide other addresses for any person
to whom notices or communications are to be directed pursuant to this
Agreement. The addresses of the Parties for purposes of this Agreement shall
be as follows:
If to PIDC:
Panhandle International Development Corporation
5400 Westheimer Court
Houston, Texas 77056-5310
Attention: Phillip C. Grigsby, Project Manager
Facsimile No. (713) 989-3185
If to Sonat:
Sonat Americas Inc.
P.O. Box 2563
Birmingham, Alabama 35202
Attention: William A. Smith, President
Facsimile No. (205) 326-2084
If to CNG:
CNG Energy Services Corporation
c/o 625 Liberty Avenue
Pittsburgh, PA 15222
Attention: Ken Cuccinelli
Facsimile No. (412) 227-1136
If to EDEP:
El Paso Energy Development Company
100 North Stanton Street
El Paso, Texas 79901
Attention: John Cunningham
Facsimile No. (915) 541-5427
<PAGE> 14
(f) Unless expressly provided herein, a delay on the part of any Party
in exercising its rights hereunder or failure to exercise its rights shall not
operate as a waiver of such rights. Any tacit or implicit waiver by any Party
of a right or remedy hereunder in a particular instance shall not operate as a
waiver of such right or remedy in any other instance or as to any other Party.
(g) If any provision of this Agreement is determined to be invalid or
unenforceable in a jurisdiction, the invalidity or unenforceability of that
provision in that jurisdiction and such determination shall not affect any
other provision of this Agreement in that or any other jurisdiction. To the
extent permitted by applicable law, the Parties waive any provision of law
which renders any provision of this Agreement invalid or unenforceable in any
respect.
(h) (i) All disputes, controversies or claims arising out of,
relating to or in conection with this Agreement, or the breach, default,
termination or invalidity thereof, shall be finally determined under the
Commercial Arbitration Rules of the American Arbitration Association by
three arbitrators to be appointed by the American Arbitration Association
in accordance with its rules. The proceedings shall be conducted in
Houston, Texas. NO PARTY SHALL BE AWARDED OR ENTITLED TO SEEK THE
RECOVERY OF PUNITIVE AND/OR CONSEQUENTIAL DAMAGES;
(ii) the federal and state courts located in the State of Texas
are hereby given nonexclusive jurisdiction to enter judgment upon, and to
enforce, an arbitration award, and the Parties hereby expressly consent
and submit to the jurisdiction of such courts;
<PAGE> 15
(iii) each Party hereby agrees that the arbitration procedure
provided herein shall be the sole and exclusive method of resolving any
of the aforesaid disputes, controversies or claims, including, without
limitation, all questions, claims and other matters arising, related to
or in connection with this Agreement and the transactions, agreements and
instruments contemplated hereby; and
(iv) any monetary award of the arbitrators shall be made and shall
be payable in U.S. dollars, net of any tax or deductions or reductions
whatsoever. Any such monetary award shall include interest from the date
of any breach or any violation of this Agreement. The arbitrators shall
fix an appropriate rate of interest from the date of the breach or other
violation to the date when the award is paid in full.
(v) This agreement is governed by and shall be construed in
accordance with the laws of Delaware, excluding any conflict-of-laws rule
or principle that might refer the governance or the construction of the
Agreement to the law of another jurisdiction.
(i) This Agreement shall be binding upon the Parties and their
permitted sucessors and assigns. Except as otherwise set forth herein, no
Party may assign its rights or delegate its obligations or duties hereunder
without the express written consent of the other Parties. Notwithstanding the
prior sentence, a Party may assign to an Affiliate its rights or delegate its
obligations and duties hereunder without the express written consent of the
other Parties.
<PAGE> 16
(j) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute but one
agreement.
IT WITNESS WHEREOF, the Parties have entered into this Agreement on the
date and year first hereinabove written.
PANHANDLE INTERNATIONAL DEVELOPMENT
CORPORATION
By:
Name:
Title:
SONAT AMERICAS INC.
By:
Name:
Title:
EL PASO ENERGY DEVELOPMENT COMPANY
By:
Name:
Title:
CNG ENERGY SERVICES CORPORATION
By:
Name:
Title:
<PAGE> 1
EXHIBIT B-3
MEMORANDUM OF LAW
BACKGROUND
Consolidated Natural Gas Company ("Consolidated"), a registered holding
company has filed an application under sections 3(b), 6(a), 7, 9(a), 10, 12(b),
13(b), 32 and 33 of the Public Utility Holding Company Act of 1935, as amended
("Act"), and rules 45, 53, 54, 83, 87, 90 and 91 thereunder, in connection with
the formation and capitalization of a new, wholly owned subsidiary, CNG
International Corporation ("CNG International") to engage in various energy
related activities outside of the United States.
Among other things, CNG International may invest in foreign utility
companies ("FUCOs") and exempt wholesale generators ("EWGs") located outside of
the United States. The applicants request authorization for CNG International
to form intermediate subsidiary companies ("Intermediate Companies") to acquire
interests in, and finance the acquisition and hold the securities of, such EWGs
and FUCOs.(1)
In addition, the applicant requests authorization for CNG International to
invest in opportunities in the foreign energy sector, including electric
generation-related activities (other than EWGs or FUCOs), exploration,
development, production, marketing, manufacture, and other similar activities
_________________
(1) Under section 32(g), a registered holding company may acquire an EWG
without the need to apply for, or receive, prior Commission approval. Under
present law, the acquisition of an FUCO is similarly exempt. The Commission
has proposed rule 55 which would govern FUCO acquisitions. See Holding Co. Act
Release No. 25757 (Mar. 8, 1993). The rule, as proposed, would track the
provisions of rule 53, which provides a safe harbor for certain EWG-related
financings. See Holding Co. Act Release No. 25886 (Sept. 23, 1993) (adopting
rule 53). As explained in the application, the conditions of rule 53 will be
met.
<PAGE> 2
related to the supply of natural or manufactured gas, gas transmission and
storage, the brokering and marketing of electricity and other energy
commodities (collectively, "Foreign Energy Activities").(2)
The applicants also seek authority for CNG International to provide
consulting, administrative, technical, construction, operations and
maintenance, and other management services, at market-based rates, outside of
the United States. CNG International may also provide such services, at
market-based rates, to entities formed by it to engage in Foreign Energy
Activities.
To provide such services, CNG International may contract with other
companies within the Consolidated system. System utility companies would be
reimbursed at cost pursuant to rules 90 and 91 for such services. Services
from system nonutility companies would be reimbursed either at cost or at
market-based rates.
The proposed activities would be carried out through one or more
subsidiaries, either directly or by means of joint ventures, partnerships or
other associations with unrelated persons.
Consolidated seeks authority to provide financing, directly or indirectly,
from time to time through 2005 in an aggregate amount of up to $300 million at
any one time outstanding.(3) Consolidated also seeks authority to issue
guarantees and offer other credit support in an aggregate amount of up to $300
million at any one time outstanding during this period.
_____________________
(2) Applicants seek authority to the extent the proposed activities are not
otherwise exempted by statute, rule or order. In particular, CNG International
may engage in other foreign energy activities to the extent such activities are
exempted by a rule of general application, such as proposed rule 58, hereafter
adopted by the Commission. See Holding Co. Act Release No. 26313 (June 28,
1995) (proposing release).
(3) Such authority is in addition to financing authority that is otherwise
permitted by statute, rule or other order.
<PAGE> 3
FUNDAMENTAL CHANGES IN THE UTILITY INDUSTRY
The Commission, in its Concept Release issued last fall, recognized that:
The electric and gas utility industry is in transition. The rapid growth
that characterized the industry in the early part of this century has
diminished. In addition, companies must adapt to an increasingly
competitive environment.(4)
Consolidated's proposal is occasioned by, and addressed to, the sweeping
changes in the energy industry. No longer a largely parochial concern, today's
utility holding company is increasingly called to think, and act, globally.
At a time when there is little growth in domestic markets, foreign
markets, which are experiencing rapid economic growth, offer attractive
investment opportunities. Consolidated seeks to capitalize on the expertise it
has developed in competitive energy markets in North America, and to gain
further knowledge through strategic alliances with companies already involved
in the international energy industry.
Consolidated draws support for its proposal from the Gas-Related
Activities Act of 1990 ("GRAA")(5) and the Energy Policy Act of 1992 ("Energy
Policy Act") (6). Congress enacted the GRAA to enable the gas registered
holding companies to participate on an equal footing with other gas companies
in the development of new gas markets.(7) The GRAA is intended to promote
competition in the natural gas markets through investment in gas exploration,
development, production, transportation, storage, marketing and similar
activities.
______________________
(4) Modernization of the Regulation of Public-Utility Holding Companies,
Holding Co. Act Release No. 26153 (Nov. 2, 1994) ("Concept Release").
(5) Pub. L. No. 101-572, 104 Stat. 2810 (codified at 15 U.S.C. sec. 79k note).
(6) Pub. L. 102-486. 106 Stat. 2776 (1992).
(7) S8637 Cong. Rec. (June 20, 1990).
<PAGE> 4
The Energy Policy Act is similarly intended to facilitate foreign
investment and improve the competitive position of United States' companies in
the worldwide energy market. To that end, the Energy Policy Act creates two
new classes of exempt entities, exempt wholesale generators and foreign utility
companies, to enable U.S. companies to invest freely in foreign utility
operations.
Energy is increasingly being treated as a commodity. Electric and gas
markets must become efficient through the use of trading systems, demand side
management programs, arbitrage and creative service offerings. Power marketers
and brokers play a strategic role in these markets. A pending filing, in which
Consolidated seeks authority to engage in energy arbitrage activities (File No.
70-8631) is but one example of the initiatives companies must undertake if they
are to remain competitive in today's energy markets.
Power marketing is just one step in the evolution of utilities from single
service providers to total energy companies. The Division of Investment
Management in its recent Study of the Regulation of Public-Utility Holding
Companies, noted this movement away from traditional, regulated utility
functions and toward a broader range of energy-related businesses:
Today, nearly all registered holding companies engage in a variety of
energy-related activities that involve application of resources and
capabilities developed in the conduct of utility operations. Many involve
new uses of skills and experience gained in utility operations, or new
uses of utility infrastructure and technology to provide services to
utility as well as nonutility customers.(8)
LEGAL BASIS FOR PROPOSED ACTIVITIES
Activities under the Energy Policy Act
As discussed earlier, the Energy Policy Act created two classes of
entities, EWGs and FUCOs, that are exempt from all provisions of the Act.
Sections 32 and 33 of the Act, as amended by the Energy Policy Act, generally
permit a registered holding company to acquire EWGs and FUCOs without the need
to apply for, or receive, prior Commission approval. Further, an intermediate
___________________
(8) Study of the Regulation of Public-Utility Holding Companies (June 1995)
("June, 1995 Study").
<PAGE> 5
company that exclusively owns or operates EWGs may itself be exempted as an
EWG. In addition, the Commission has proposed rule 56 under which an
intermediate company that exclusively owns or operates FUCOs may be deemed to
be a FUCO.(9) Thus, authority is requested for the formation of Intermediate
Companies only to the extent that such entities are not otherwise exempted by
rule or statute. In this regard, we note that the Commission has previously
approved the formation of intermediate companies to hold interests in, and
finance the acquisition and hold the securities of, EWGs and FUCOs. See, e.g.,
CINergy Corporation, Holding Co. Act Release No. 27376 (Sept. 21, 1995);
General Public Utilities Corporation, Holding Co. Act Release No. 26326 (July
6, 1995); Southern Company, Holding Co. Act Release No. 26096 (Aug. 3, 1994).
Activities under the Gas-Related Activities Act
The GRAA deems the requirements of section 11(b)(1) to be met with respect
to certain gas-related activities. In particular, the proposed gas
transportation and storage activities are deemed to satisfy section 11(b)(1),
pursuant to section 2(a) of the GRAA. That section, in pertinent part,
provides that the acquisition by a gas registered holding company of any
interest in:
any company organized to participate in activities involving the
transportation of natural gas or storage of natural gas, shall be deemed,
for purposes of section 11(b)(1) of the Act, to be reasonably incidental
or economically necessary or appropriate to the operation of [the
system's] gas utility companies.
The remaining activities, relating to gas exploration, development,
production, marketing, manufacture, and other similar activities related to the
supply of natural or manufactured gas (collectively, "gas supply activities")
should be deemed to satisfy the standards of section 11(b)(1), pursuant to
section 2(b) of the GRAA. That section, in pertinent part, provides that the
acquisition by a gas registered holding company:
of any interest in any company organized to participate in activities
(other than those of a natural gas company or involving the transportation
or storage of natural gas) related to the supply of natural gas, including
exploration, development, production, marketing, manufacture, or other
similar activities related to the supply of natural or manufactured gas
____________________
(9) See Holding Co. Act Release No. 25757 (Mar. 8, 1993).
<PAGE> 6
shall be deemed, for purposes of section 11(b)(1) of the Act, to be
reasonably incidental or economically necessary or appropriate to the
operations of such gas utility companies, if --
(1) the Commission determines, after notice and an opportunity for
hearing in which the company proposing the acquisition shall have the
burden of proving, 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 as 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 gas supply activities satisfy the standards for approval
under section 2(b) of the GRAA. These activities are in the interest of system
consumers. The activities of CNG International will benefit utility consumers
by generating economic profits that will contribute to the financial strength
of the system.(10) The increased financial strength of the CNG system should
result in a continued low cost of capital for system utilities and,
consequently, continued low rates for utility consumers.
As used in the GRAA, the term "consumers" also refers to customers of
other system companies, such as pipelines and other nonutility subsidiaries.
To succeed in a competitive market place, CNG International must provide
benefits for these new customers. The interchange of technical and other
expertise, between the domestic and foreign portions of the Consolidated system
would also contribute to the strength of the Consolidated system as a whole.
As noted in the application, energy markets in certain parts of the world are
more developed than those in the United States. The ability to move
technological and market intelligence to and from Consolidated's domestic
_________________
(10) Such profits would be due, in part, to the higher rate of return on equity
investment possible in international energy markets.
<PAGE> 7
markets will result in a more competitive system, and so benefit consumers of
both utility and nonutility companies in the Consolidated system. In addition,
the proposed gas supply activities will generate profits through the higher
optimum use of system resources and persons, allowing such resources to be
deployed over larger market areas, and permitting full utilization of system
personnel.
Further, as the sponsors of the GRAA recognized:
Technical advances and expertise may also be developed through these
activities that may benefit consumers. 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.(11)
In this regard, Consolidated represents that investors, and not utility
consumers, will bear the risks associated with these new ventures. See
Southern Company, Holding Co. Act Release No. 26211 (Dec. 30, 1994). No
subsidiary of Consolidated will be obligated to engage in any transaction with
CNG International or its subsidiaries. Further, the proposed maximum
investment of $600 million, over a ten-year period, is less than 50% of the
consolidated retained earnings of the registered holding company. See rule 53.
See also Holding Co. Act Release No. 26313 (June 28, 1995) (rule 58 proposing
release) ("The activities contemplated by the GRAA are per se closely related
to the core utility business of the gas registered holding companies . . . .
There is no indication that Congress intended for the Commission to place
investment limits on these activities.").(12)
____________________
(11) S17585 Cong. Rec. (Oct. 27, 1990)
(12) Consolidated also requests the Commission to declare a company which
derives substantially all of its revenues from the proposed gas exploration and
development activities to be a "gas-related company" within the meaning of
proposed rule 58. See section (2) of the proposed rule ("The term gas-related
company shall mean a business that derives or will derive substantially all of
its revenues from activities permitted under the Gas-Related Activities Act of
1990, 104 Stat. 2810, and such other activitie and investments as the
Commission may, from time to time, . . . designate as gas-related for purposes
of this Act.").
<PAGE> 8
Activities under Section 11(b)(1) of the Act
To the extent that the Foreign Energy Activities are not within the
purview of the GRAA or the Energy Policy Act, or are not otherwise exempted,
they are permissible under section 11(b)(1), in that they are closely related
to the system's core utility business. See Eastern Utilities Associates,
Holding Co. Act Release No. 26232 (Feb. 15, 1995), discussed below.
Section 11 of the Act directs the Commission to limit the nonutility
activities of a registered holding company to those that are "reasonably
incidental or economically necessary or appropriate" to the operations of the
system's utility business. The Commission and the courts have interpreted
these provisions to require a functional relationship between a nonutility
interest and the system's core utility operations. In its Concept Release, the
Commission questioned the continuing validity of this model:
The present model of regulation under the Act, which strictly limits the
size of a system's utility operations and the scope of its nonutility
businesses, was intended to focus the attention of the registered holding
company on the needs of its operating utilities, and thereby protect
consumers and investors from the risks that might be associated with
unrelated businesses. Some have suggested that this model is no longer
appropriate and that market conditions require a broader focus on energy
services and other nonutility activities. The Act, as currently
administered, does not afford the degree of flexibility that many believe
will be necessary to meet these changes.
The SEC staff, in its June, 1995 Study, recommended that the Commission adopt a
more flexible approach to diversification, concluding that:
the SEC's review evaluates a transaction under the standards of the Act --
- - it does not guarantee the financial success of a nonutility venture. . .
. it may make more sense to focus on transactions between regulated
utilities and their diverse unregulated affiliates, so that these
transactions are economically fair to the regulated utility.
In other contexts, the Commission has begun to move away from a static
interpretation of section 11(b)(1), and towards a more flexible approach to
diversification. At the end of 1994, the Commission approved a proposal by
<PAGE> 9
a registered holding company to develop a wireless communications system to
provide services to system companies and to regional nonassociates. The
Commission approved the transactions under a traditional functional
relationship analysis but suggested, among other things, that the proposed
activities could also be authorized under the plain meaning of section
11(b)(1), as "reasonably incidental, or economically necessary or appropriate"
to the system's core utility operations, finding also that they were "necessary
or appropriate in the public interest or for the protection of investors or
consumers and not detrimental" to the proper functioning of the integrated
public-utility system. Southern Company, Holding Co. Act Release No. 26211
(Dec. 30, 1994).
In a recent order, the Commission removed the percentage limitation on the
energy management services business of another registered holding company.
Among other things, the Commission noted that the provision of such services is
closely related to the core utility business. The Commission also noted the
strong national interest in promoting energy conservation and efficiency.
Eastern Utilities Associates, Holding Co. Act Release No. 26232 (Feb. 15,
1995). The Commission also has proposed for comment rule 58, which would
facilitate investments in a wide range of energy-related and gas-related
companies. This rule would obviate the need for Commission approval with
respect to the proposed activities.
Marketing and Brokering Activities
To the extent that these activities are not otherwise governed by the GRAA
or the amendments to the Act under the Energy Policy Act, Consolidated seeks
authority to participate in brokering and marketing activities involving
electricity, gas and other energy commodities.
The Commission has approved a number of proposals for entry by registered
holding company systems into energy marketing and brokering businesses. See,
e.g., Consolidated Natural Gas Company, Holding Co. Act Release Nos. 24329
(Feb. 27, 1987) and 26341 (July 26, 1995); Entergy Corporation, Holding Co. Act
Release No. 25848 (July 8, 1993); and UNITIL Corporation, Holding Co. Act
Release No. 25816 (May 24, 1993). These matters routinely involved exclusively
gas or electric transactions, depending on the type of utility holding company
system involved. The Commission has taken a more liberal approach in recent
matters, permitting the marketing and brokering of fuel, as well. See, e.g.,
Northeast Utilities, Holding Co. Act Release No. 26354 (Aug. 18, 1995)
(marketing and brokering of electricity and fuel for generation). Currently
<PAGE> 10
pending before the Commission is an application for authority for Consolidated,
a gas registered holding company, to engage in these activities with respect to
natural gas, electricity and other fuels.
As the Commission has recognized with respect to energy management
services, the provision of marketing and brokering services is closely related
to the core business of the utility. See Eastern Utilities Associates, above.
Accordingly, for the reasons set forth herein and in the application, the
Commission should authorize the proposed brokering and marketing activities.
Consulting and Other Services
Finally, the applicants seek authority for CNG International to provide
consulting, administrative, technical, construction and other management
services, including operations and maintenance services, at market-based rates,
to companies outside of the United States. CNG International may also provide
services, at market-based rates, to entities formed by it to engage in Foreign
Energy Activities. Consolidated requests an exemption from the cost standard
pursuant to rule 83 and section 13(b) of the Act, in connection with these
activities.
The proposed services are consistent with Commission precedent. The
Commission has long authorized registered holding companies to engage in
consulting activities. See, e.g., Southern Company, Holding Co. Act Release
No. 22132 (July 17, 1981); American Electric Power Company, Holding Co. Act
Release No. 22468 (Apr. 28, 1982).
The Commission has recently granted subsidiaries of a registered holding
company broad authority to provide services to foreign associate companies. In
a recent matter, the Commission authorized the intermediate subsidiaries of
CINergy Corporation to provide their wholly foreign subsidiaries, and other
wholly foreign intermediate subsidiaries and their subsidiaries, with all
services "necessary or desirable for their operation, including, without
limitation, management, administrative, employment, tax, accounting,
engineering, consulting, utility performance, and electronic data processing
services, and software development and support services in connection
therewith." CINergy Corporation, Holding Co. Act Release No. 27376 (Sept. 21,
1995) (the intermediate subsidiaries in that matter were to be organized for
the purpose of engaging, directly or indirectly, and exclusively, in the
business of acquiring, owning and holding the securities of, and/or providing
services to FUCOs and EWGs).
<PAGE> 11
The Commission has also authorized subsidiaries of a registered holding
company to offer operation and management services, as well as consulting
services, to developers, owners and operators of domestic and foreign power
projects, both associate and nonassociate. Entergy Corporation, Holding Co.
Act Release No. 26322 (June 30, 1995).
To provide such services, CNG International may contract with other
companies within the Consolidated system. Services would be provided by system
utility companies, utilizing work orders, and would be reimbursed on a full
cost basis pursuant to rules 90 and 91. See CINergy Corporation, supra.
Services from system nonutility companies would be reimbursed either at cost or
at market-based rates. Consolidated requests an exception from the cost
standard, pursuant to section 13(b), in this regard. See, e.g., Entergy
Corporation, Holding Co. Act Release No. 26322.
Related Transactions
Consolidated seeks authority to invest, directly or indirectly, from time
to time through 2005, in an aggregate amount of up to $600 million at any one
time outstanding. Consolidated would make such investments by means of common
stock purchases, open account advances, loans, guarantees and other credit
support.(13)
In addition, an entity formed pursuant to this order may issue debt and
equity securities to nonassociates, exclusively for the purpose of financing
its authorized activities. To the extent possible, these entities will rely on
rule 52. In the event that rule 52 is unavailable, however, Consolidated
requests an exemption, pursuant to section 3(b) for nonrecourse financings by a
subsidiary that "derives no material part of its income from sources within the
United States, and neither it nor any of its subsidiary companies is a public
utility company operating in the United States." See e.g., Southern Company,
Holding Co. Act Release No. 25639 (Sept. 23, 1992) (granting wholly foreign
subsidiary an exemption from sections 6 and 7).
______________________
(13) Such authority is in addition to that otherwise permitted or exempted by
statute, rule or order. Investments in EWGs and FUCOs, for example, would not
be counted toward the investment cap under this matter; these investments are
subject to a separate cap under rule 53. Similarly, financing transactions
which may be exempted under sections 32 and 33 of the Act, or rules 45 or 52
thereunder would not be counted toward the investment cap in this matter.
<PAGE> 12
Authority is requested for CNG International to carry out the proposed
activities through one or more subsidiaries, either directly or by means of
joint ventures, partnerships or other association with unrelated persons. See
Northeast Utilities, Holding Co. Act Release No. 26213 (Dec. 30, 1994); see
also Consolidated Natural Gas Company, Holding Co. Act Release No. 26341 (July
26, 1995). In this regard, it is also proposed that CNG International be
authorized to acquire and capitalize new subsidiary companies and affiliates to
engage in the activities authorized in this matter. To the extent that
Consolidated indirectly acquires up to 50% of the voting interests in one or
more companies organized to engage primarily in the exploration, development,
production, manufacture, storage, transportation or supply of natural gas, such
companies, and each affiliate thereof, would be exempt pursuant to rule 16 from
all obligations, duties or liabilities imposed upon it by the Act, as a
subsidiary company or as an affiliate of a registered holding company or of a
subsidiary company thereof.(14)
___________________
(14) Rule 16, in pertinent part, provides that:
Any company, and each affiliate thereof, shall be exempt from all
obligations, duties or liabilities imposed upon it by the Act, as a
subsidiary company or as an affiliate of a registered holding company
or of a subsidiary company thereof, as such terms are respectively
defined in Sections 2(a)(8)A) and 2(a)(11) of the Act, if:
(1) Such company is not a public utility company as defined in
Section 2(a)(5) of the Act;
(2) Such company is or has been organized to engage primarily in
the exploration, development, production, manufacture, storage,
transportation or supply of natural or synthetic gas;
(3) No more than 50 percent of its voting securities or other
voting interests are owned, directly or indirectly, by one or more
registered holding companies; and
(4) The acquisition by the registered holding company or
subsidiary thereof of its interest insuch company has been approved
by the Commission pursuant to Sections 9(a)(1) and 10 of the Act and
applicable rules thereunder upon a timely application to the
Commission.
<PAGE> 13
Conclusion
Accordingly, for the reasons set forth herein and in the application,
Consolidated requests the Commission to authorize the proposed transactions.
<PAGE> 1
EXHIBIT O
Proposed Notice Pursuant to Rule 22f)
(Release No. 35- )
FILINGS UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("ACT")
December , 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
January , 1996 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 has filed an
application-declaration under Sections 3(b), 6(a), 7, 9(a), 10, 12(b), 13(b),
32 and 33 of the Act and Rules 45, 53, 54, 83, 87, 90 and 91 thereunder.
Consolidated proposes to form CNG International Corporation ("CNG
International")as a new Delaware subsidiary which would become the vehicle for
the Company to invest in energy related businesses outside the United States.
Consolidated proposes to invest up to $300,000,000 in such businesses during
the period beginning from the time an order is issued in this proceeding
through December 31, 2005. CNG International would have 30,000 shares of
common stock, $10,000 par value per share, authorized, for an aggregate
capital stock authorization of $300,000,000. However, financing of CNG
International by Consolidated may occur in the form of short-term and long-term
loans in addition to capital stock sales. In addition to the $300 million
intra-system financing referred to above, Consolidated also seeks authority
herein for parent company guarantees and other credit support arrangements in
the amount not to exceed $300 million.
Consolidated seeks to engage in international energy activities in order
to (i) participate in the more rapid economic growth of international or
foreign energy businesses, (ii) obtain the higher rates of return on equity
that may be obtained from investments in such activities, (iii) utilize to its
profit its expertise developed in the emerging competitive energy markets in
North America, and (iv) obtain further knowledge of developing energy markets
through strategic alliances with companies already involved in the
international energy industry.
<PAGE> 3
Consolidated proposes that it be authorized to form and finance CNG
International in order that it may acquire securities or interests in the
business of one or more "exempt wholesale generators" ("EWGs") as defined in
Section 32(a) of the Act and located outside of the United States, and "foreign
utility companies"("FUCOs") as defined in Section 33(a) of the Act. Request is
also made for CNG International to form and finance intermediate subsidiary
companies ("Intermediate Companies")so that they may acquire interests in,
finance the acquisition of and hold the securities of EWGs and FUCOs.
Intermediate Companies would normally be special purpose subsidiaries to
facilitate the consummation of investments in EWGs and FUCOs, and would enhance
the ability of CNG International to respond quickly to investment
opportunities.
Consolidated also proposes that CNG International or any Intermediary
Company will issue equity securities and debt securities to persons other than
Consolidated (and with respect to which there will be no recourse to
Consolidated), including banks, insurance companies and other financial
institutions, exclusively for the purpose of financing (including any
refinancing) of investments in EWGs and FUCOs. It is anticipated that the
issuance of such securities will be exempt transactions either pursuant to Rule
52 under the Act or purusant to a Section 3(b) exemption requested further
herein. It is also possible that issuances of securities by certain
subsidiaires engaged in gas related activities may be exempt pursuant to Rule
16 under the Act.
<PAGE> 4
Consolidated also proposes that CNG International be authorized to seek
out, identify, evaluate and invest in opportunities in the foreign energy
sector, including electric generation related activities (other than EWGs and
FUCOs and including cogeneration and small power production), gas exploration
and production, gas transmission and storage, the brokering and marketing of
electricity, gas and other energy commodities and related services. CNG
International may also engage in the energy consulting business in foreign
energy markets. All of such activities are referred to herein as "Foreign
Energy Activities." CNG International may also acquire interests in other
categories of international or foreign energy activities to the extent that
such acquisition may be exempted under a rule of general applicability
hereafter adopted by the Commission.
Request is also made for CNG International and its subsidiaries to provide
consulting, administrative, technical, construction, operating and maintenanace
and other management services to non-affiliated foreign persons. Such services
may consist of consulting as to natural gas and electricity acquisition and
marketing, for example, based on the expertise with respect to such activities
developed in the Consolidated System, particularly that of CNG Energy and CNG
Power Services Corporation, the CNG's System's gas and power marketers,
respectively. CNG International and its subsidiaries may also offer natural
gas exploration, production, transmission and distribution consulting services
based on the CNG System's expertise in these areas. All of the above services
would be provided to non-affiliates at market based rates sufficient to cover
cost and a reasonable profit
<PAGE> 5
CNG International and its subsidiaries may also provide similar services
to entities formed by it with respect to its foreign energy business. Such
entities may be wholly-owned by CNG International or one of its subsidiaries,
or may be jointly owned with a person with which it has an alliance agreement.
Services provided to affiliates would be at cost if the recipient is a utility
company, but may be provided at market based rates if the recipient is a non-
utility company.
CNG International and its subsidiaries may contract with associate
companies in the CNG System in order to provide the above services. Services
obtained from utility companies within the CNG System would be performed at
cost under Rules 90 and 91. Services from non-utility companies within the CNG
System may be performed either at cost or at market based rates.
Application is made for exemption from the cost standards pursuant to
Section 13(b) of the Act and Rule 83.
CNG International requests authority to enter into arrangements to carry
on Foreign Energy Activities in one or more of the following forms:
1. CNG International may acquire an ownership interest, which may be up to
100% of the voting or non-voting stock, in one or more corporations
established for the sole purpose of engaging in Foreign Energy
Activities. The organizational documents governing such corporations
will expressly limit their activities to Foreign Energy Activities.
2. CNG International may establish one or more wholly-owned limited purpose
subsidiary corporations to invest and participate in partnerships or
joint ventures to be formed with unrelated persons or entities for the
sole purpose of engaging in Foreign Energy Activities. The
<PAGE> 6
organizational documents governing such partnerships, joint ventures or
corporations would expressly limit their activities to Foreign Energy
Activities. As indicated below, the financing of these wholly-owned
subsidiaries would mirror the financing provided by Consolidated to CNG
International for the purpose of the subject investment.
It is anticipated that most external financings of CNG International and
its subsidiaries will be exempt pursuant to Rule 52 under the Act. To the
extent that Rule 52 might not apply to such financings, application is hereby
made to exempt such financings by a subsidiary of CNG International under
Section 3(b) of the Act in the event such subsidiary: (i) will derive no
material part of its income, directly or indirectly, from sources within the
United States and (ii) will not be a public-utility company operating within
the United States. Considering the amount of the proposed investment in
foreign activities and the likelihood of enhancing shareholder value through
profitable international investments, the Commission should not find it
necessary in the public interest or for the protection of investors that the
external financings of such a subsidiary remain subject to the Act.
In the event no exemption is otherwise available, request is made that a
corporation, partnership, limited liability company or joint venture in which
CNG International or its subsidiary has an ownership interest of less than 100%
be authorized to obtain third party debt financing. Such financing may be from
a bank or other institutional lender.
<PAGE> 7
It is proposed for CNG International to raise funds for the purposes
described herein by (i) selling shares of its common stock, $10,000 par value,
to Consolidated, (ii) open account advances as described below, or (iii) long-
term loans from Consolidated, in any combination thereof. Consolidated will
obtain the funds required through internal cash generation.
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
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
<PAGE> 8
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.
All funding by a CNG System parent company of its immediate subsidiary
pursuant to this Application 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 CNG International can be
in any combination of these three forms of financing; and any financing between
CNG International and its subsidiaries will be in the same combination of
forms that exists between the Consolidated and CNG International in the
transaction which causes CNG International to obtain funds to invest in the
subsidiary.
Application is also made for Consolidated, CNG International and
Intermediary Companies to enter guarantee arrangements, obtain letters of
credit, and otherwise provide credit support with respect to obligations of
their respective subsidiaries to third parties as may be needed and appropriate
to enable them to carry on in the ordinary course of their respective
businesses. The maximum aggregate limit on all such credit support by
Consolidated, CNG International and Intermediary Companies at any one time will
be $300 million. The $300 million in guarantees and other credit support is in
<PAGE> 9
addition to the $300 million limit on intra-company financing requested
elsewhere herein.
____________________________
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Jonathan G. Katz
Secretary
