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File Number 70-8577
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
TO
FORM U-1
APPLICATION-DECL
ARATION UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and
the parent of the other party)
CNG ENERGY SERVICES CORPORATION
One Park Ridge Center
Pittsburgh, Pennsylvania 15244-0746
Names and addresses of agents for service:
S. E. Williams, Senior Vice President
and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
J. M. Hostetler, Attorney
Consolidated Natural Gas Service Company, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
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File Number 70-8577
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 TO
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
_____________________________
(a) Furnish a reasonably detailed and precise
description of the proposed transaction, including a statement of
the reasons why it is desired to consummate the transaction and
the anticipated effect thereof. If the transaction is part of a
general program, describe the program and its relation to the
proposed transaction.
Consolidated Natural Gas Company ("Consolidated") is a
Delaware corporation and a public utility holding company
registered as such under the Public Utility Holding Company Act
of 1935 ("Act"). It is engaged solely in the business of owning
and holding all of the outstanding securities, with the
exception of certain minor long-term debt, of sixteen
subsidiaries. These subsidiary companies are primarily engaged
in natural gas exploration, production, purchasing, gathering,
transmission, storage, distribution, by-product operation, energy
services and other activities related to the natural gas
business.
CNG Energy Services Corporation ("Energy Services") --
formerly CNG Gas Services Corporation -- is a wholly-owned, non-
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utility subsidiary of Consolidated engaged in the energy
marketing business. Energy Services now proposes to form a new
subsidiary, CNG Special Products and Services, Inc. ("CSPS"), to
engage in the business of providing energy-related services
("Customer Services") to customers of the local distribution
companies ("LDCs") in the Consolidated System(1) and to others,
primarily customers of non-affiliated utilities.
PROPOSED ACTIVITIES
The Customer Services will generally be offered by CSPS as a
convenience to utility customers; will be closely related to
energy services already being provided to such customers; will
lead to increased and more efficient utilization of existing
Consolidated LDC personnel and facilities, and additional revenue
to offset the cost of maintenance of such personnel and
___________________
(1) The "Consolidated System" is presently comprised of
Consolidated and its 16 wholly-owned subsidiaries which, in
addition to a gas marketing subsidiary, Energy Services,
includes five local distribution companies and an interstate
pipeline subsidiary, CNG Transmission Corporation. The five
local distribution companies of the Consolidated System
("Consolidated LDCs") are: (1) The East Ohio Gas Company,
serving 1,081,000 customers primarily in northeastern Ohio;
(2) The Peoples Natural Gas Company, serving 332,000
customers in southwestern Pennsylvania; (3) Virginia Natural
Gas, Inc., serving 184,000 customers in southeastern
Virginia; (4) Hope Gas, Inc., serving 111,000 customers in
central and northern West Virginia; and (5) West Ohio Gas
Company, serving 60,000 customers in a region in western
Ohio centered around Lima.
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facilities. For example, the Service Line Maintenance and
Routine Furnace Services Programs -- servicing the gas pipeline
and furnace on the customer's property -- relates directly to
natural gas service to existing natural gas customers. This
additional services will enable Consolidated's LDCs to "add
value" to the existing natural gas service by offering to
maintain natural gas equipment all the way to the "burner tip."
It will thereby promote more efficient utilization of the LDC's
existing local distribution facilities and personnel.
None of the Customer Services will require a large amount of
additional capital investment, nor will such divert the attention
of management from the Consolidated System core utility
operations. The number of Consolidated LDC personnel involved
will not be of such a magnitude that utility services would in
any way be impaired. If LDC staff levels would not be adequate
at any point in the future to handle these extra
responsibilities, Applicants would add staff to CSPS instead of
the LDC. The rendering of any significant support by a
Consolidated LDC to CSPS to enable it to provide Customer
Services would require approval of the state public utility
commission having jurisdiction over the subject LDC.
CSPS will not make loans to customers in connection
with any of the proposed services. Any customer financing would
be provided by a bank or third party.
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What follows is a list of Customer Services that would
directly or indirectly benefit customers:
(1) Service Line Maintenance Program
(2) Appliance Guard (extended service warranty)
(3) Payment Power (bill payment protection)
(4) Routine Furnace Services
(5) One-Package Appliance Inspection and
Replacement
(6) Community Bill Payment Center
(7) Energy Audits and Services
(8) Propane Service
(9) Gas Fired Electric Generators
(10) Pipeline Maintenance, Construction, and Managerial
Support Services for Others
Applicants acknowledge that the authorization granted by this
Commission extends only to these ten specific categories of
Customer Services and that Applicants must obtain additional
commission authorization before offering any other types of
services.
Energy Services intends for CSPS to conduct its
Customer Services business both within and outside of the four
states of Virginia, West Virginia, Pennsylvania and Ohio where
the Consolidated LDCs are located (collectively the "LDC
States"). However, during the twelve month period beginning on
the first day of January in the year following the date CSPS
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commences Customer Services activities pursuant to an order
issued in this proceeding, and for each subsequent calendar year
thereafter, the revenues from customers in the LDC States will
exceed the total revenues from customers in all other states.
Some customer and Consolidated System benefits from the
activities of CSPS would be to : (1) maintain or increase
system LDC gas load; (2) promote aspects of the LDC gas
business that are less weather sensitive; (3) utilize existing
Consolidated System faculties, and experience, to manage, support
and staff the new service entity; (4) lessen overall energy
costs of customers; (5) reduce one-time cash outlays for repairs
by LDC customers; and, (6) improve the financial strength and
continued viability of Consolidated's existing customer base by
reducing energy costs. It is expected that the business of CSPS
will be profitable which will inure to the benefit of
Consolidated's investors.
The following is a more detailed description of the
Customer Services listed above:
(1) Service Line Maintenance Program
CSPS would pay for repair of service lines --
owned by and on customer's property -- in exchange for a nominal
monthly fee. This is similar to service offered by telephone
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companies to repair telephone lines inside the house -- without
any additional charge above the nominal monthly fee.
Generally, in Ohio, Pennsylvania and West Virginia
-- states served by Consolidated LDCs -- the customers own and
are responsible for the portion of the natural gas service line
which is on their property. For a fixed monthly fee, CSPS would
provide payment of service line repairs or replacements, which
typically cost an average of $600.00. The actual repair or
replacement would be performed by an independent contractor
selected by CSPS from a pre-approved list.
CSPS's service line program will (1) protect
customers from the high "out-of-pocket" cost and (2) facilitate
the repair or replacement of the service line. The service will
benefit Consolidated LDCs by increasing customer satisfaction and
building good will.
(2) Appliance Guard
CSPS would provide customers with an extended
service warranty that would cover the cost of repairing
appliances owned by the customer. It would include (but not be
limited to) gas grills, furnaces and air conditioning units, and
commercial and residential ranges. The customer is protected
from high repair costs; the LDC benefits from increased customer
satisfaction and good will.
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(3) Payment Power
CSPS, through contractual arrangement with
American Banker's Insurance Group, would provide bill payment
protection for customers up to $400 a month for six months --
should the customer become unemployed, disabled, or die.
Customers receive payment protection and LDCs benefit from
reduced delinquencies, decreased collection activity, and
increased customer satisfaction.
(4) Routine Furnace Services
CSPS would act as an intermediary for customers to
arrange routine inspections or repairs of furnaces. CSPS would
choose the contractor from a list of qualified contractors. This
referral service would be provided at no additional cost to
customers; the contractor -- having entered into a reduced fee
arrangement with CSPS -- pays for the program. CSPS then bills
the customer the contractor's standard or usual fee for
inspection/repair services. The referral service should be a
convenience to customers and build good will for LDCs.
(5) One-Package Appliance Inspection and Replacement
This would be a "premium service" offered by CSPS
to "add value" for the customer. It goes beyond the Routine
Furnace Services plan mentioned above, by offering annual
inspection, maintenance service, or even replacement of any
appliance, including hot water heaters. Also, CSPS may offer
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customers the option to rent, rent-to-own, or purchase appliances
like hot water heaters and furnaces.
(6) Community Bill Payment Center
CSPS would provide a centralized bill payment
center where customers can -- with "one-stop" -- pay their
gas, electric, water, telephone, cable and other utility or
municipal bills. The potential for such centers will depend on
the local community (overall interest and feasibility). Local
utilities and municipalities maybe able to reduce costs by
merging existing bill payment locations into the community bill
payment center.
(7) Energy Audits and Services
CSPS would arrange energy audits for institutional
and commercial customers, and then offer the customer a turn-key
service package, including bank or other third party financing,
to implement energy-saving recommendations resulting from the
audit. CSPS, as a general contractor, would not perform the
actual audit or implementation work, but would subcontract such
to third parties with the appropriate expertise.
(8) Propane Service
CSPS would arrange for this service in areas
where, at the present time, it is not economical for LDCs to
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extend natural gas service via underground pipeline. A qualified
contractor would be selected from a pre-approved list for
installation of the propane tank and necessary hook ups.
(9) Gas Fired Electric Generators
CSPS would arrange for the installation of
temporary or permanent gas-fired turbines, for the on-site
generation and consumption of electrical energy. For example,
some industrial customers use large amounts of electricity in the
manufacturing process. The capacity of the local electrical grid
may necessitate a decrease in industrial production -- or
require the industrial to pay a higher rate for electricity --
during certain hours of peak demand. With the installation of
gas-fired turbines, to generate electricity during the hours of
peak demand, the industrial would maintain its production or cut
its energy costs to be more competitive in world markets.
(10) Pipeline Maintenance, Construction and
Managerial Support Services For Others
For pipeline maintenance, CSPS would manage all
Department of Transportation ("DOT") required maintenance on
pipelines owned by other utilities. This would involve
conducting and documenting leak surveys, leak repairs, corrosion
monitoring, class location studies, valve inspection, etc.
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For pipeline construction, CSPS would arrange for
and manage the construction of pipelines to be owned by other
utilities. For example, an electric utility may decide to make
an existing generating station capable of burning natural gas for
the generation of electricity. Several miles of large diameter,
underground pipeline may be necessary. The utility may want to
own the pipeline, but lacks the expertise to arrange for its
construction. CSPS would utilize existing expertise within the
Consolidated system to arrange for and manage the pipeline
construction project.
For managerial support services, which are
intended for small, non-affiliated utilities, CSPS would offer
(1) consultant services to solve financial or operational
difficulties, (2) managerial services for one or more day-to-day
operations, and (3) training services for the employees of small
utilities to meet new standards in the industry or comply with
government regulations. The services would be tailored to meet
the particular needs. For example, one operational support
service might be meter reading services arranged by CSPS.
Applicants submit that the proposed Customer Services are
reasonably incidental and/or economically necessary or
appropriate to the Consolidated System core utility business of
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distributing gas at retail and will primarily benefit the
Consolidated LDCs and their customers.(2)
Applicants submit that the proposed Service Line Maintenance
Program will facilitate and enhance the ability of the LDCs to
maintain their distribution lines in good working order and
effect repairs quickly when needed, thereby minimizing service
interruptions and lost sales due to line breaks and enhancing the
utility service provided to customers and the ability of the LDCs
to distribute gas reliably and efficiently. Similarly, proposed
Customer Services such as Appliance Guard, Routine Furnace
Services and One-Package Appliance Inspection and Replacement
will promote the safe and efficient distribution of gas at retail
by facilitating the maintenance and repair of gas utilizing
equipment that is broken or not working properly. In addition,
like the proposed Energy Audits and Services, these inspection,
warranty and repair services will foster effective demand side
management by reducing unnecessary consumption. Applicants
submit that such equipment warranty and repair services, like the
proposed services pertaining to the installation of gas fired
_________________
(2) Applicants submit that each of the proposed Customer
Services falls within one or more of the categories of
energy-related activities which would be permitted under
proposed rule 58. See Holding Company Act Release No. 26311
(June 28, 1995).
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electric generators, are consistent with or reasonably incidental
to the type of appliance sales and marketing activities that have
been approved by the Commission in cases such as Engineers Public
Service Company, 12 S.E.C. 41 (1942) at 54-55; Mississippi Power
Company, HCAR No. 22453 (September 1, 1978); General Public
Utilities Corporation, HCAR No. 15184 (February 9, 1965); and
Cities Service Company, HCAR No. 5028 (May 5, 1944), 15 S.E.C.
962 (1944). Applicants also submit that the provision of
Customer Services such as Pipeline Maintenance, Construction and
Managerial Support Services to non-affiliates would be consistent
with the type of activities approved in various "consulting
services" cases such as American Electric Power Company, HCAR No.
22468 (April 28, 1982), The Southern Company, HCAR No. 22132
(July 17, 1981) and New England Electric System, HCAR No. 22719
(November 19, 1982). Applicants submit that activities related
to utility bill payment and collection, such as the establishment
of Community Bill Payment Centers, is reasonably incidental and
necessary or appropriate to the core utility function of gas
distribution because collecting bills for gas utility service is
essential if the LDCs are to continue their distribution
function. Finally, Applicants believe that the proposed Propane
Services constitute "marketing, manufacturing, or other similar
activities related to the supply of natural or manufactured gas"
within the meaning of section 2(b) of the Gas Related Activities
Act.
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SERVICE ARRANGEMENTS BETWEEN CSPS AND CONSOLIDATED LDCS
Consolidated's LDCs will assist CSPS in customer
billing, accounting and other energy-related services. It is
anticipated that these services for CSPS can be done by the
current staff at the LDCs. All services between the LDCs and
CSPS, or CSPS and any other Consolidated system company, required
to conduct the new Customer Services will be billed at cost, in
accordance with Section 13(b) of the Act and Commission Rules 87,
90 and 91.
SOURCE OF FUNDS
Energy Services requests authorization to create and
capitalize CSPS, as a wholly-owned subsidiary. CSPS will be
incorporated in Delaware and will have authorized capital stock
of $10,000,000, consisting of 1,000 shares of common stock,
$10,000 par value each. Energy Services through CSPS would seek
to (1) efficiently centralize the administration of the new
services and (2) better insulate the Consolidated System --
including its LDCs -- from the risks associated with investing in
the new business. Even though Energy Services is requesting
authorization in this Application to finance CSPS up to
$10,000,000 over an approximate five year period, it is currently
estimated that a maximum of $5,000,000 of financing will be
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required for the first two years of CSPS activities. All
financing will be on a revolving basis.
Energy Services proposes to raise funds for the purpose
described above by (i) selling shares of its common stock, $1.00
par value, to Consolidated, (ii) open account advances as
described below, or (iii) long-term loans from Consolidated, in
any combination thereof.
The open account advances and long-term loans will have
the same effective terms and interest rates as related borrowings
of Consolidated in the forms listed below:
(1) Open Account Advances may be made to Energy
Services to provide working capital and to finance the activities
authorized by the SEC. 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 Fund's effective rate of interest as quoted daily by the
Federal Reserve Bank of New York.
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(2) Consolidated may make long-term loans to Energy
Services for the financing of its activities described above.
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 substantially equal to Consolidated's
cost of funds for comparable borrowings by the parent. In the
event Consolidated has not had recent comparable borrowings, the
rate will be tied to the Salomon Brothers indicative rate for
comparable debt issuances published in Salomon Brothers Inc. Bond
Market Roundup or similar publication on the date nearest to the
time of takedown. All loans may be prepaid at any time without
premium or penalty.
Consolidated will obtain the funds required for Energy
Services through internal cash generation, issuance of long-term
debt securities, borrowings under credit agreements or through
other authorizations approved by the SEC subsequent to the
effective date of this Application-Declaration. Issuance of
long-term debt securities by Consolidated is authorized by
Commission order dated March 6, 1995, HCAR No. 26245; borrowings
under credit agreements are authorized by Commission order dated
June 29, 1995, HCAR No. 26231.
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Energy Services, in turn, would fund CSPS with "mirror-
image" financing, reflecting the same source and combination of
funds as utilized between Consolidated and Energy Services.
SUMMARY OF AUTHORIZATION REQUESTED
Consolidated requests authorization to fund Energy
Services, from time to time through December 31, 2000. All
funding by Consolidated to its immediate subsidiary (Energy
Services) would be through (i) the sale of Energy Services'
common stock to Consolidated, (ii) open account advances from
Consolidated, and (iii) long-term loans from Consolidated. Any
provision of funds by Consolidated to Energy Services can be in
any combination of these three forms of financing; and any
financing, between Energy Services and its subsidiary -- CSPS --
will be in the same combination of forms as between Consolidated
and Energy Services (i.e., mirror image).
Thus, Consolidated and Energy Services respectfully
request the following authorizations:
(1) For Energy Services to obtain up to $10,000,000
from Consolidated (in the manner described above) to invest in
CSPS;
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(2) For CSPS to obtain up to $10,000,000 from Energy
Services (in mirror-image financing described above) to engage in
the new Customer Services described above.
CERTIFICATES OF NOTIFICATION
Applicants will file quarterly certificates of
notification, within 45 days after the end of each calendar
quarterly period, which will include the following information:
(i). A statement of the source, type, amount, terms and
use(s) of any loans provided to CSPS and Energy Services pursuant
to the authorizations granted during the period covered and
cumulatively.
(ii). A statement of the total repayments of any
such borrowings by CSPS and Energy Services for the period
covered and a statement of their net cumulative outstanding
borrowings as of the end of the period covered.
(iii). A statement of all revenues derived from the
Customer Services activities authorized both during the period
covered and cumulatively, including information on the amount and
percentage of revenues attributable to each category or type of
service provided.
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(iv). Copies of all state commission orders
approving or post-transaction audit documents pertaining to
affiliate service arrangements or affiliate transactions between
CSPS and Consolidated System LDCs obtained during the period
covered.
(v). A statement containing a company-by-company
breakdown of all services provided to CSPS by Consolidated System
LDCs (or any other Consolidated System companies) and all
payments for such services made by CSPS during the period covered
and cumulatively.
Additionally, Applicants will file (i) no later than August
15th of each year Balance Sheets for CSPS and Energy Services as
of June 30th of that year and Income statements for CSPS and
Energy Services for the six (6) month period ending on June 30 of
that year, and (ii) no later than 120 days after the end of each
calendar year a modified form U-13-60 annual report.
RULE 53 SATISFIED
Rule 54 promulgated under the Act states that in
determining whether to approve the issue or sale of a security by
a registered holding company for purposes other than the
acquisition of an electric wholesale generator ("EWG") or a
foreign utility company ("FUCO"), or other transactions by such
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registered holding company or its subsidiaries other than with
respect to EWGs or FUCOs, the Commission shall not consider the
effect of the capitalization or earnings of any subsidiary which
is an EWG or a FUCO upon the registered holding company system if
Rule 53(a), (b) and (c) are satisfied.
Currently Consolidated owns indirectly a 1% general
partnership and a 34% limited partnership interest in Lakewood
Cogeneration, L.P. ("Lakewood"), an EWG. The 1% general
partnership interest in Lakewood is owned by CNG Power Services
Corporation, an EWG and a wholly-owned subsidiary of
Consolidated. Consolidated does not own any interests in a FUCO.
Consolidated believes that Rule 53(a), (b) and (c) are satisfied
in its case as follows.
Fifty percent of Consolidated's retained earnings as of
December 31, 1994 was $734,740,000; Consolidated's aggregate
investment (as defined in Rule 53(a)(1)(i)) in Lakewood on such
date and in both its EWGs as of the date of filing of this
Application-Declaration is estimated to be approximately
$18,000,000, thereby satisfying Rule 53(a)(1). Consolidated and
its subsidiaries maintain books and records to identify the
investments in and earnings from its EWGs in which they directly
or indirectly hold an interest, thereby satisfying Rule 53(a)(2).
Employees of Consolidated's domestic public-utility companies do
not render services, directly or indirectly, to the EWGs in the
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Consolidated System, thereby satisfying Rule 53(a)(3). No
application for EWG financing has been filed with the Commission
since adoption of Rule 53; Rule 53(a)(4) is correspondingly
inapplicable at this time.
None of the conditions described in Rule 53(b) exist
with respect to Consolidated, thereby satisfying Rule 53(b) and
making Rule 53(c) inapplicable.
Item 2. Fees, Commissions, and Expenses
_______________________________
(a) State (i) the fees, commissions and expenses paid
or incurred, or to be paid or incurred, directly or indirectly,
in connection with the proposed transaction by the applicant or
declarant or any associate company thereof, and (ii) if the
proposed transaction involves the sale of securities at
competitive bidding, the fees and expenses to be paid to counsel
selected by applicant or declarant to act for the successful
bidder.
It is estimated that the fees, commissions and expenses
ascertainable at this time to be incurred by Consolidated and
Energy Services in connection with the proposed transactions will
not exceed $7,000, including the $2,000 filing fee, $4,000
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, and $1,000 for
miscellaneous other expenses.
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(b) If any person to whom fees or commissions have
been or are to be paid in connection with the proposed
transaction is an associate company or an affiliate of the
applicant or declarant, or is an affiliate of an associate
company, set forth the facts with respect thereto.
The charges of Service Company, a subsidiary service
company, for services on a cost basis (including regularly
employed counsel) in connection with the preparation of this
Application-Declaration and other related documents and papers
required to consummate the proposed transactions are as stated
above.
Item 3. Applicable Statutory Provisions
________________________
(a) State the section of the Act and the rules
thereunder believed to be applicable to the proposed transaction.
If any section or rule would be applicable in the absence of a
specific exemption, state the basis of exemption.
Sections 6(a) and 7 and Rule 43 are deemed applicable
to the issuance of securities by Energy Services and CSPS.
Sections 9(a) and 10 are deemed applicable to the
acquisitions (i) by Consolidated of the capital stock, open
account advance debits and notes of Energy Services and, (ii) by
Energy Services of the capital stock, open account advance debits
and notes of CSPS, and (iii) the entry of CSPS into the Customer
Services described above.
<PAGE> 23
Section 12(b) and Rule 45 are considered applicable to
loans made by Consolidated to Energy Services and Energy Services
to CSPS.
Section 13(b) and Rules 87, 90 and 91 are deemed
applicable to the services being provided by the LDCs, or any
other company within the Consolidated system, to CSPS.
If the Commission considers the proposed future
transactions to require any authorization, approval or exemption,
under any section of the Act or Rule or Regulation other than
those cited herein, such authorization, approval or exemption is
hereby requested.
(b) If an applicant is not a registered holding
company or a subsidiary thereof, state the name of each public
utility company of which it is an affiliate or of which it will
become an affiliate as a result of the proposed transaction, and
the reasons why it is or will become such an affiliate.
Not applicable.
Item 4. Regulatory Approval
________________
(a) State the nature and extent of the jurisdiction of
any State commission or any Federal commission (other than the
Securities and Exchange Commission) over the proposed
transactions.
No state commission and no federal agency other than
this Commission has jurisdiction over the proposed transactions
except that, with regard to service agreements and affiliate
<PAGE> 24
transactions between the CNG LDCs and CSPS, the CNG LDCs will be
required to make certain affiliate-transaction filings with
and/or obtain certain pre-transaction authorizations from or
submit to certain post-transaction audit review by the state
public-utility commissions having jurisdiction over them.
Applicants will not engage in any Customer Services activities in
states requiring pre-transaction authorizations in connection
with intra-system service agreements and/or affiliate
transactions until the necessary authorizations are obtained. In
addition, copies of all such authorizations as well as any
documents pertaining to post-transaction audit proceedings will
be provided to the Commission in accordance with the rule 24
Certificate of Notification requirements outlined below.
Affiliate - transaction filings by Consolidated LDCs
for the foreseeable future should only involve the states of
Ohio, Pennsylvania, Virginia and West Virginia. The Peoples
Natural Gas Company (Peoples) has filed a proposed service
agreement between CSPS and Peoples with the Pennsylvania Public
Utility Commission. Approval is anticipated at the August 31,
1995 meeting of that commission. The Virginia and West Virginia
commissions, like Pennsylvania, require the filing and approval
of service agreements between affiliates. Ohio does not require
such filings or approvals; instead, they rely on post-audit
proceedings for the examination of affiliate transactions.
<PAGE> 25
Applicants will obtain state commission approval -- for
service agreements between CSPS and the respective Consolidated
LDC -- prior to engaging in any of the Customer Service
activities in that state. Copies of state commission orders or
post-audit documents approving such affiliate service agreements
will be submitted to the Commission as part of the Rule 24
Certificates of Notification. If Applicants would provide any of
the Customer Services in any state other than Ohio, Pennsylvania,
Virginia and West Virginia -- and to perform such service in that
state would require an affiliate service agreement -- then
Applicants would provide notice to this Commission and submit
copies of any required state commission approvals.
Please see Exhibits A-3 and A-4 which contain
Applicants' forms of service agreement (1) between Consolidated
Natural Gas Service Company and CSPS and (2) between CSPS and any
Consolidated LDC.
(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.
<PAGE> 26
Consolidated and Energy Services request that the
Commission issue its order with respect to the transaction
proposed by the end of May 1995.
(b) State (i) whether there should be a recommended
decision by a hearing officer, (ii) whether there should be a
recommended decision by any other responsible officer of the
Commission, (iii) whether the Division of 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 statement are made
a part of this statement:
(a) Exhibits
Please see the initial U-1, filed February 24, 1995, for
Energy Services' Certificate of Incorporation and Bylaws
(Exhibits A-1 and A-2, respectively), and the Opinion of Counsel.
<PAGE> 27
A-3 -- Form of Service Agreement used
between Consolidated Natural Gas
Company (the parent) and all
subsidiaries.
A-4 -- Form of Service Agreement used
between Consolidated affiliates.
(b) Financial Statements
_________________
Financial statements of the applicant-declarants are
deemed unnecessary with respect to the proposed authorizations
sought herein due to the simple nature of the proposed
transaction and the amount to be invested relative to the size of
the applicant-declarants. However, any financial information
will be furnished which 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.
<PAGE> 28
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.
SIGNATURES
___________
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned Companies have duly
caused this statement to be signed on their behalf by the
undersigned thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
By L. D. Johnson
Vice Chairman of the Board
and Chief Financial Officer
CNG ENERGY SERVICES CORPORATION
By J. M. Hostetler
Its Attorney
Dated: August 28, 1995
<PAGE> 1
EXHIBIT A-3
CNG ______________ Company
__________________________
__________________________
Attention: ____________________, President
Gentlemen:
I. PROPOSED SERVICES. The undersigned, Consolidated
Natural Gas Service Company, Inc. ("Service Corporation"),
proposes to supply certain services to your company similar to
those supplied to the other companies in the Consolidated Natural
Gas System ("System Companies"). The Service Corporation will
supply such services at the request of your company. The
services offered are listed and described in Exhibit I which is
attached hereto and made a part hereof.
II. PERSONNEL. In supplying the various services provided
for under this Agreement, the Service Corporation may arrange for
the services of such executives, accountants, financial advisers,
technical advisers, attorneys, engineers, physicians, geologists
and other persons with the necessary qualifications and
experience as required for or pertinent to the rendition of such
service.
The Service Corporation, after consultation with your
company, may also arrange for the services of nonaffiliated
experts, consultants and attorneys in connection with the
performance of any of the services supplied under this Agreement.
III. COMPENSATION AND ALLOCATION. The Service Corporation
will supply the services under this Agreement to your company and
those System Companies which have signed similar contracts, at
cost to the Service Corporation of rendering such service.
The rules for the determination and allocation of costs are
set forth in Exhibit II which is attached hereto and made a part
hereof.
As soon as practicable after the close of each month the
Service Corporation will render your company a statement for the
services rendered during such month.
IV. TERMINATION AND MODIFICATION. This Agreement will
continue until terminated by either party upon giving 6O days
written notice of its intention to do so to the other party.
<PAGE> 2
CNG _________________ Company
______________________, 199__
Page 2
This Agreement will be subject to termination or
modification at any time to the extent its performance may
conflict with the provisions of the Public Utility Holding
Company Act of 1935, as amended, or with any rule, regulation or
order of the Securities and Exchange Commission adopted before or
after the making of this Agreement. This Agreement shall be
subject to the approval of any state commission or other state
regulatory body whose approval is, by the laws of said state, a
legal prerequisite to the execution and delivery or the
performance of this Agreement.
This proposal is sent to you in duplicate, and will become a
binding Agreement between us upon your signing in the place
provided below for your acceptance. Please return one executed
copy to us. Above your signature you should indicate those
services which your company initially requests to be rendered
under this Agreement.
V. REQUESTS FOR SERVICES. On or before December 15th of
each year beginning in ____, your company shall furnish the
Service Corporation with a letter advising of the services
desired by your company for the ensuing calendar year.
CONSOLIDATED NATURAL GAS
SERVICE COMPANY, INC.
G. A. DAVIDSON, JR.
Chairman of the Board
The undersigned accepts this Agreement and hereby requests
the following services described in Exhibit I.
<PAGE> 1
EXHIBIT I
Description of Services which will be Provided by
Consolidated Natural Gas Service Company, Inc.,
under This and Similar Service Contracts
1. Accounting - The Service Company will advise and assist
your Company in accounting matters, including the
development of accounting practices, procedures and
controls, and the preparation and analysis of financial
reports.
2. Auditing - The Service Company's internal auditing staff
will periodically audit the accounting records maintained
by your Company, coordinating their examination with that
of independent public accountants. Such personnel will
report on their examination and submit recommendations,
as appropriate, on improving methods of internal control
and accounting procedures.
3. Data Processing and Computer Services - The Service
Company will provide the organization and resources for
the operation of a centralized data processing facility.
This facility will be used for the processing of
computerized applications in your Company. The Service
Company will also develop, implement, and process those
computerized applications for your Company that can be
economically best accomplished on a centralized basis.
<PAGE> 2
Software Pooling - The Service Company will accept from
your Company, ownership of and rights to use, assign,
license or sublicense all software owned, acquired or
developed by or for your Company which your Company can
and does transfer or assign to it. The Service Company
will preserve and protect the rights to all such software
to the extent reasonable and appropriate under the
circumstances; to license your Company, on a non-
exclusive, no-charge or at-cost basis, to use all
software which Service Company has the right to sell,
license or sublicense; and, at your Company's expense, to
permit your Company to enhance any such software and to
license others to use all such software and enhancements
to the extent that the Service Company shall have legal
right to so permit.
4. Employee Benefits - The Service Company will provide
central accounting for employee benefit plans of your
Company. The Service Company will advise and assist your
Company in the administration of such plans and will
prepare and maintain records of employee and company
accounts under the said plans, together with such
statistical data and reports as are pertinent to the
plans.
<PAGE> 3
5. Employee Relations - The Service Company will advise and
assist your Company in the formulation and administration
of employee relations policies and programs relating to
your Company's labor relations, personnel administration,
training, wage and salary administration and safety.
6. Operations - The Service Company will advise and assist
your Company in the study, planning, engineering and
construction of the gas plant facilities of your Company
and of the System as a whole and will advise and assist
in all planning, engineering and construction operations
of your Company. The Service Company will develop long-
range operational programs for all the System Companies
and will advise and assist your Company in the
coordination of such programs with the programs of the
other System Companies.
7. Executive and Administrative - The Service Company will
advise and assist your Company in the solution of major
problems and in the formulation and execution of the
general plans and policies of your Company. The Service
Company will advise and assist your Company as to
operations, the issuance of securities, the preparation
of filings arising out of or required by the various
Federal and State securities, business, public utilities
and corporation laws, the selection of executive and
administrative personnel, the representation of your
<PAGE> 4
Company before regulatory bodies, proposals for capital
expenditures, budgets, financing, acquisition and
disposition of properties, expansion of business, rate
structures, public relationships and other related
matters.
8. Business & Operations Services - The Service Company will
advise and assist your Company in all matters relating to
operational capacity, the preparation and coordination of
operating studies, the movement and transfer of gas
volumes, and the compiling and communication of
information relevant to system operation.
9. Exploration and Development - The Service Company will
advise and assist your Company in all geological and
exploration matters in the Appalachian Area including
those relating to the discovery and maintenance of gas
reserves, the acquisition and surrender of acreage, the
selection of well locations, and the development of
underground storage facilities. The Service Company will
also advise your Company in geological and exploration
matters in other areas as may be required from time to
time.
<PAGE> 5
10. Risk Management - The Service Company will advise and
assist your Company in securing requisite insurance, in
the purchase and administration of all property, casualty
and marine insurance and in the settlement of insured
claims.
11. Marketing - The Service Company will plan and formulate
programs for the development of the marketing areas of
your Company, including the marketing areas of your
wholesale customers and will assist your Company in
carrying out policies and programs for the development of
plant locations and of industrial, commercial and
wholesale markets and will assist with community
redevelopment and rehabilitation programs.
12. Medical - The Service Company will direct and administer
all medical and health activities of your Company, will
provide systems of physical examination for employment
and other purposes and will direct and administer
programs for the prevention of sickness.
13. Corporate Planning - The Service Company will advise and
assist your Company in studying and planning in
connection with operations, budgets, economic forecasts,
capital expenditures and special projects.
<PAGE> 6
14. Purchasing - The Service Company will advise and assist
your Company in the purchase of materials, supplies and
services, will conduct purchase negotiations, prepare
purchasing agreements and will administer programs of
material control.
15. Rate - The Service Company will advise and assist your
Company in the analysis of your rate structure in the
formulation of rate policies and in the negotiation of
large contracts. The Service Company will also advise
and assist your Company in proceedings before regulatory
bodies involving the rates and operations of your Company
and of other natural gas companies and producers where
such rates and operations directly or indirectly affect
your Company.
16. Research - The Service Company will investigate and
conduct research into problems relating to production,
utilization, testing, manufacture, transmission, storage
and distribution of gas. The Service Company will keep
abreast of and evaluate for your Company all research
developments and programs of significance affecting your
Company and the natural gas industry, will conduct
research and development in promising areas and will
advise and assist in the solution of technical problems
arising out of your operations.
<PAGE> 7
17. Tax - The Service Company will advise and assist your
Company in the preparation of Federal and other tax
returns, and will generally advise your Company as to any
problems involving taxes.
18. Corporate Secretary - The Service Company will provide
all necessary functions required of a publicly held
corporation; coordinating information and activities
among shareholders, the transfer agent, Board of
Directors and Consolidated Management; providing direct
services to security holders; preparing and filing
required annual and interim reports to shareholders and
the SEC; and conducting the annual meeting of
shareholders.
19. Investor Relations - The Service Company will provide
fair and accurate analysis of Consolidated and its
operating subsidiaries and its outlook within the
financial community; enhancing Consolidated's position in
the gas industry; balancing and diversifying shareholder
investment in Consolidated through a wide range of
activities; providing feedback to Consolidated and its
operating subsidiaries regarding investor concerns,
trading and ownerships; holding periodic analysts
meetings; and providing various operating data as
requested or required by investors.
(Revised as of August 1, 1995)
<PAGE> 1
EXHIBIT II
Method of Allocating Cost among Companies Receiving
Service under This and Similar Service Contracts
with Consolidated Natural Gas Service Company, Inc.
1. The costs of rendering service by Consolidated Natural
Gas Service Company, Inc. (Service Corporation) will
include all costs of doing business including interest on
debt but excluding a return for the use of equity capital
for which no charge will be made to System companies.
2. (a) The Service Corporation will maintain a separate
record of the expenses of each department. The
expenses of each department will include:
(i) those expenses that are directly
attributable to such department, and
(ii) an appropriate portion of those office and
housekeeping expenses that are not
directly attributable to a department but
which are necessary to the operation of
such department.
<PAGE> 2
(b) Expenses of the department will include salaries
and wages of employees, rent and utilities,
materials and supplies, depreciation, and all
other expenses attributable to the department
excluding, however, employee welfare expenses.
The expenses of a department will not include:
(i) those incremental out-of-pocket expenses
that are incurred for the direct benefit
and convenience of an individual company
or group of companies;
(ii) Service Corporation overhead expenses,
including expenses of the corporate
secretary's department that are
attributable to maintaining the corporate
existence of the Service Corporation,
franchise and other general taxes,
employee welfare expenses, and all other
incidental overhead expenses including
those auditing fees, internal auditing
department expenses and accounting
department expenses attributable to the
Service Corporation.
<PAGE> 3
(c) The Service Corporation will establish annual
budgets for controlling the expenses of each
department and for determining estimated costs to
be included in interim monthly billing.
3. (a) Employees in each department will be divided into
two classes:
A. Those employees rendering service to
System companies, and
B. those office and general service
employees, such as secretaries,
stenographers, telephone operators and
file clerks, who generally assist
employees in Class A or render other
housekeeping services and who are not
engaged directly in rendering service to
your Company or a group of companies.
(b) Expenses set forth in Section 2 above (which
exclude sickness and disability benefits, paid
absences, and other welfare expenses) will be
separated to show:
(i) salaries and wages of Class A employees,
and
(ii) all other expenses of the department.
<PAGE> 4
(c) There will be attributed to each dollar of a Class
A employee's salary or wage, that percentage of
all other expenses of his department (as defined
in (b) above), that his salary or wage is to the
total Class A salaries and wages of that
department.
(d) Class A employees in each department will maintain
a record of the time they are employed in
rendering service to each company or group of
companies. An hourly rate will be determined by
dividing the total expense attributable to a Class
A employee as determined under subsection (c)
above by the productive hours reported by such
employee.
4. The charge to your Company for a particular service will
be determined by multiplying the hours reported by Class
A employees in rendering such service to your Company by
the hourly rates applicable to such employees. When such
employees render service to a group of companies
including your Company, the charge to your Company will
be determined by multiplying the hours attributable to
your Company under the allocation formulas set forth in
Section 9 of this Exhibit by the hourly rates applicable
to such employees.
<PAGE> 5
5. To the extent appropriate and practical the foregoing
computations of hourly rates and charges may be
determined for groups of employees within reasonable
salary range limits.
6. Those expenses of the Service Corporation that are not
included in the annual expense of a department under
Section 2 above will be charged to System companies
receiving service as follows:
(a) Incremental out-of-pocket costs incurred for the
direct benefit and convenience of a company or
group of companies will be charged directly to
such company or group of companies. Such costs
incurred for a group of companies will be
allocated on the basis of an appropriate formula.
(b) Service Corporation overhead expenses referred to
in Section 2 above will be charged to your Company
in the proportion that the charges made to your
Company for costs, other than those set forth in
this Section 6, are to the total of such charges
to all companies receiving service.
<PAGE> 6
7. Notwithstanding the foregoing bases of determining cost
allocations for billing purposes, cost allocations for
certain services involving machine operations and
production units will be determined on an appropriate
basis established by the Service Corporation relating to
the direct use of machine equipment or production units.
8. Monthly bills will be issued for the services rendered to
your Company on an estimated basis. Such estimate will
normally be predicated on service department budgets and
estimated productive hours of employees for the year. At
the end of each year, estimated figures will be revised
to reflect actual experience during such year and
adjustments will be made in amounts billed to give effect
to such revision.
9. When Class A employees render services to a group of
companies the following formulas shall be used to
allocate the time of such employees to the individual
companies receiving such service:
(a) Department formulas to be used when employees
render services to all companies participating in
such service, for the services indicated:
<PAGE> 7
Department Basis of Allocation
Computer Services The number of residential and
commercial customers at the end
of the preceding calendar year.
Annuities and Benefits The number of employee and
annuitant accounts as of the
preceding December 31st.
Human Resources The number of employees as of
the preceding December 31st.
Operations Service
Corporate Planning Total investment in utility
plant (as defined by FERC and
State Commissions) booked at
preceding December 31st.
System Gas Operations Total gas supply and gas
transported volumes (gross
purchases; production and
transportation) for the
preceding year ended December
31st.
Risk Management Insurance premiums for the
preceding year ended December
31st.
Marketing Gross revenues from the sale of
natural gas excluding
intercompany sales booked during
the preceding year ended
December 31st.
Rates Total regulated company
operating expenses, excluding
purchased gas expense, other
purchased products and
royalties, for the preceding
year ended December 31st.
<PAGE> 8
Research Gross revenues from the sale of
natural gas, including
intercompany sales, booked
during the preceding year ended
December 31st.
Tax The sum of the total income and
total deductions as reported for
Federal Income Tax purposes on
the last return filed.
Corporate Secretary/
Investor Relations Weighted average of total
Service Company billings for the
three prior years ending
December 31st.
(b) Formulas to be used in the absence of a department
formula or when service rendered by employees is for a
different group of companies than those companies
regularly participating in such service:
Company Group Basis of Allocation
All companies (includes all
System Companies except
Service Corporation) Total operating expenses,
excluding purchased gas expense,
other purchased products and
royalties, for the preceding
year ended December 31st.
All operating companies Operating revenue deductions
booked during the preceding year
ended December 31st.
<PAGE> 9
All retail companies Volume of gas sold at retail
during the preceding year ended
December 31st.
All wholesale companies Gross revenues from sales for
resale booked during the
preceding year ended December
31st.
All companies purchasing gas
from an individual non-
affiliated pipeline company Volume of gas purchased from
individual pipeline company
during the preceding year ended
December 31st.
All companies purchasing
gas from non-affiliated
companies Volume of gas purchased from
non- affiliated pipeline
companies during the preceding
year ended December 31st.
All companies having
transmission lines Gross investment in transmission
plant booked at preceding
December 31st.
All production companies Production plant budget for the
current year of allocation.
Appalachian production
companies Gross investment in Appalachian
production plant booked at
preceding December 31st.
All storage companies Gross investment in storage
plant, excluding non-current
inventory, booked at preceding
December 31st.
<PAGE> 10
All Companies/Shareholder
Activities (Annual Shareholders'
meeting, annual and interim
shareholder reports, proxy
solicitations, other
shareholder and investor
related services) Weighted average of total
Service Company billings for the
three prior years ending
December 31st.
(c) If the use of a basis of allocation would result in an
inequity because of a change in operations or
organization then the Service Corporation may adjust
the basis to effect an equitable distribution.
(Revised as of August 1, 1995)
<PAGE> 1
EXHIBIT A-4
, 1995
CNG
Gentlemen:
This Agreement is by and between CNG ______ ("___"), a
Delaware Corporation and CNG _____ ("___"), a Delaware
Corporation. CNG "A" has requested that CNG "B" provide it with
certain services which it may from time to time require in the
conduct of it business. CNG "B" has agreed to provide such
services to CNG "A", upon the terms and conditions hereinafter
provided.
Accordingly, in consideration of the mutual promises
herein contained, CNG "B" and CNG "A" agree as follows:
1. Upon written request by CNG "A", CNG "B" will
provide such accounting, operating, administrative, legal,
marketing and related services as are deemed necessary or
desirable. In so doing, CNG "B" may arrange for and provide the
services of its own qualified personnel or it may, after prior
consultation with CNG "A", arrange for and procure the services
of such qualified non-affiliated third party contractors
("Contractors") as CNG "B", in its own opinion, deems necessary
or appropriate.
2. All services rendered under and in accordance with
this Agreement shall be provided at cost. The cost of rendering
such services shall include: (1) the cost of employees'
benefits, payroll taxes and compensated absences attributable to
salaries and wages directly billed as determined in accordance
with CNG "B"'s policies and procedures; (2) all other out-of-
pocket operating costs, including expenses for transportation
tolls, and other expenses incurred by CNG "B" or its employees in
connection with the performance of services under this Agreement;
(3) the actual costs of materials and supplies furnished by CNG
"B" in connection with the performance of services under this
Agreement; (4) administrative and general costs attributable to
services performed under this Agreement (including reasonable
amounts for general office maintenance and depreciation,
amortization, return and related taxes on CNG "B"'s general plant
investment), determined in accordance with CNG "B"'s policies and
procedures; and (5) the actual cost incurred by CNG "B" in
procuring Contractors to provide such services in accordance with
the procedure described in Paragraph 1 above.
<PAGE> 2
3. CNG "B" shall render monthly statements to CNG "A"
for services supplied or to be supplied in the manner set forth
above. Such statements shall include the costs of all services
supplied thereunder during the preceding calendar month. All
statements so tendered will be due and payable upon receipt.
This Agreement shall become effective as of _____,
1995, and shall continue in force and effect for a term of one
(1) year from said date and thereafter until terminated by either
party upon sixty (60) days' written notice of termination;
provided, however, that this Agreement shall be subject to
termination or modification at any time to the extent that its
performance may conflict with the provisions of the Public
Utility Holding Company Act of 1935, as amended, or any rule,
regulation or order of the Securities and Exchange Commission
adopted or promulgated prior or subsequent to the making of this
Agreement; and provided, further, that this Agreement shall be
subject to the approval of any state or federal regulatory body
or agency, the approval of which is, by the laws of said state or
of the United States, a legal prerequisite to the execution,
acceptance or performance of this Agreement.
If you approve of this proposal, please indicate your
acceptance by executing both copies hereof in the space provided
and return one (1) fully executed copy to CNG "B".
Respectfully submitted,
CNG
By: __________________________________
ACCEPTED AND AGREED TO this
_____day of_____________, 1995.
CNG
By:____________________________
