<PAGE> 1
File Number 70-8631
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 2
to
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and
the parent of the other party)
CNG ENERGY SERVICES CORPORATION
One Park Ridge Center
P.O. Box 15746
Pittsburgh, Pennsylvania 15244-0746
Names and addresses of agents for service:
S. E. WILLIAMS, Senior Vice President
and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
N. F. CHANDLER, General Attorney
Consolidated Natural Gas Service Company, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
<PAGE> 2 File Number 70-8631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
___________________________________
(a) Furnish a reasonably detailed and precise description of the
proposed transaction, including a statement of the reasons why it is desired to
consummate the transaction and the anticipated effect thereof. If the
transaction is part of a general program, describe the program and its
relation to the proposed transaction.
I. INTRODUCTION
Consolidated Natural Gas Company ("Consolidated") is a Delaware
corporation and a public utility holding company registered as such under the
Public Utility Holding Company Act of 1935 ("Act"). It is engaged solely in
the business of owning and holding all of the outstanding securities, with the
exception of certain minor long-term debt, of sixteen subsidiaries. These
subsidiary companies are engaged in the energy business, principally in natural
gas exploration, production, purchasing, sales, gathering, transmission,
storage, distribution, by-product operation, research and other activities
related to natural gas. Consolidated and its subsidiaries are referred to
herein as the "CNG System."
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II. PROPOSED INVESTMENT IN ENERGY ALLIANCE PARTNERSHIP
CNG Energy Services Corporation ("Energy Services"), a Delaware
corporation and a wholly-owned nonutility subsidiary of Consolidated, proposes
to incorporate CNG Energy Arbitrage Corporation ("CNGEA") under the laws of the
State of Delaware, with an authorized equity capitalization of $10,000,000
consisting of 1,000 shares of common stock, $10,000 par value each. Soon after
approval by the Securities and Exchange Commission ("SEC") of this
Application-Declaration, it is anticipated that CNGEA will sell and issue 300
shares of its common stock at par for $3,000,000 to Energy Services to become a
special purpose, wholly-owned subsidiary of Energy Services. This $3,000,000
in financing is part of the $10,000,000 aggregate financing authorization
sought herein. Subsequent additional financing of CNGEA by Energy Services
and/or Consolidated may also occur as exempt transactions pursuant to Rule 52.
CNGEA will acquire a one-third general partnership interest in Energy
Alliance Partnership ("Partnership"), a partnership to be formed under the laws
of the state of Delaware. A draft of the Partnership agreement is filed as
Exhibit B-1. According to the terms of the Partnership agreement, the
Partnership will terminate on December 31, 2020 unless the Partners (as defined
below) agree on another date. The Partnership will be set up to engage in the
principal business of buying and selling natural gas and electric power,
including in connection with arbitrage transactions, principally in wholesale
markets.
Noverco Energy Services (U.S.) Inc., a Delaware corporation ("NOV Sub"),
a wholly-owned subsidiary of Noverco Inc. ("Noverco") which is a Canadian
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public-utility holding company, will also acquire a one-third general
partnership interest in the Partnership. Noverco, headquartered in Montreal,
is committed to positioning Quebec's natural gas industry as a strategic link
in America's Northeast markets. Noverco principally pursues its activities
through two subsidiaries: Gaz Metropolitain and Company, Limited Partnership
("GMLP"), Quebec's natural gas distributor with annual deliveries of 200
billion cubic feet to over 172,000 customers; and Novergaz Inc., which carries
out nonregulated activities such as marketing, independent power production and
gas storage. By SEC Order dated November 23, 1994, Release No. 35-26170, a
wholly-owned subsidiary of Noverco, Gaz Metropolitain Inc. ("GMI"), and a
majority owned subsidiary of GMI, GMLP, were granted an exemption from all
provisions of the Act (except Section 9(a)(2) thereof) in connection with the
acquisition by GMLP of Vermont Gas Systems, Inc., a gas utility company.
Noverco's shareholders are SOQUIP (38%), an energy company owned by the Quebec
government; Caisse de Depot et Placement du Quebec (30%), a C$47 billion
portfolio manager that invests the funds of the Quebec public pension and
insurance plans; Laurentides Investissements S.A. (24%), a subsidiary of Gaz de
France, France's state-owned gas company and a world leader in the natural gas
industry; and Levesque Beaubien Geoffrion Inc. (8%), a major Quebec brokerage
firm.
The remaining one-third general partnership interest will be acquired by
H.Q. Energy Services (U.S.) Inc. a Delaware corporation ("HQ-Sub"), which is
wholly-owned directly or indirectly by wholly-owned subsidiaries of Hydro-
Quebec, a Canadian electric utility company which is a crown corporation of the
Province of Quebec. Hydro-Quebec is one of the top ten electric utilities in
the world with 30,000 MW capacity and assets in excess of C$30 billion. It
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is headquartered in Montreal. It has annual sales of more than US$5 billion
and serves 3.3 million domestic Canadian customers. About 10 percent of its
production is sold to neighboring utilities in Canada and the United States.
Hydro-Quebec has a reputation as a reliable supplier to U. S. power pools, and
has extensive experience in spot power sales to U. S. public utilities. It is
an established world leader in high-voltage transmission and management of
large power systems and has been extensively involved in wholesale electricity
trading for more than 30 years. Its 95 percent hydropower production is backed
by 165 trillion watt hours of water storage capacity. Hydro-Quebec's price of
power is among the lowest in North America. Neither Hydro-Quebec nor any of
its affiliates own any electric or gas transmission facility, nor have any
electric or gas retail customer, in the United States.
CNGEA, NOV Sub and HQ-Sub are referred to individually as a "Partner" and
collectively as the "Partners." Consolidated, Noverco and Hydro-Quebec are
referred to collectively as "the Parent Companies."
Each of the Parent Companies will enter into similar undertaking
agreements with the Partnership which, among other things, will commit them
subject to the terms and conditions of such agreement to provide up to
$3,000,000 to their respective Partner subsidiary as shall be necessary to
permit such subsidiary to fulfill its obligations respecting its obligation to
make up to $3,000,000 in initial capital contributions under the Partnership
agreement. A draft of the Consolidated undertaking agreement ("Undertaking
Agreement") is filed as Exhibit B-2.
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III. DESCRIPTION OF THE PARTNERSHIP'S BUSINESS
The business of the Partnership will be to supply, sell, purchase,
market, broker or otherwise trade electricity or fuel, to provide electricity
or fuel management services, and to carry on activities, or perform services,
related to any of the foregoing, including in connection with arbitrage
transactions. The Partnership will initially seek to profit in the evolving
integrated energy market by identifying and capturing the electric and/or fuel
arbitrage profits inherent in the wholesale electric and natural gas business.
It will strive to become a leader in providing major customers with flexible
and competitive packaged electric/fuel services. With the considerable gas
supply from all market sources, including from Consolidated and Noverco, the
plentiful supply of reliable electric power from all market sources including
Hydro-Quebec, the financial strength of all three Parent Companies and their
affiliates, and the Partnership's fuel management capabilities, the Partnership
is expected to give its customers unprecedented choices in buying, selling,
borrowing and loaning of natural gas, electricity, and other fuels as well as
additional choices in how they manage their operations.
It is expected that the other fuels will include oil and other
hydrocarbons, as well as wood chips, wastes and other combustible substances.
Involvement with such fuels is likely to result in connection with arbitrage
transactions also involving natural gas. It is anticipated that these other
fuels will not comprise a material part (probably less than 5%) of the business
of the Partnership and will be only incidental to the main business of gas and
electric power arbitrage.
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CNG Power Services Corporation ("CNGPS") is a wholly-owned subsidiary of
Consolidated that is an exempt wholesale generator under Section 32 of the Act
and a power marketer. To the extent that the business of the Partnership is
that of a power marketer, it will broadly be the same kind of business as that
currently being conducted by CNGPS. One difference, however, between the
business of CNGPS and the Partnership is that the Partnership will concentrate
its activities initially in a cluster of states in the northeastern portion of
the United States whereas CNGPS will concentrate its activities primarily in
the rest of the country. It is anticipated that CNGPS will evolve into having
a proportionally smaller role in a much larger market, and the Partnership will
develop into having a larger role in a more confined market geographically.
The services to be offered by the Partnership will include the following.
- Providing electric generators with instantaneous supply and sales
options so they can keep generating units operating at optimal
levels.
- Helping electric utilities find the best way to meet Clean Air
requirements through a combination of new gas technologies,
emission credits, cross-fuel management and wholesale electricity
purchases and sales.
- Helping customers manage the price changes in electricity and fuel
relative to time and location.
- Helping electric utilities and nonutility generators by managing
fuel supply and transportation contracts, banking of electricity
until needed and providing price and delivery flexibility.
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The following is an example of the type of transactions in which the
Partnership would engage. An independent power generator ("Generator") with a
gas fueled generating facility might have long-term gas purchase contracts with
gas suppliers. The Partnership, however, could be in a position to sell to the
Generator, over a given term in the future, electric power acquired from
another electric producer, including possibly Hydro-Quebec, at a price below
the cost of the Generator producing its own power using gas as a fuel. At the
same time, the Partnership estimates that the gas prices under these gas supply
contracts are currently below the gas price anticipated to exist at the time
when deliveries would occur. In a transaction in which both the Generator and
the Partnership would profit, the Generator would contract to buy the less
expensive power from the Partnership to meet its obligations to supply power to
its own customers, and would assign or sell its rights to take delivery under
its gas supply contracts to the Partnership. The Partnership would
subsequently dispose of the gas under these contracts into the wholesale gas
markets when and where prices have risen favorably in relation to the contract
prices. The Partnership could also hedge against unfavorable gas price
movements through the use of such instruments as gas futures. The net result
of this arbitrage transaction is that gas and electric power move, as
convertible energy forms, into the most economic market for each respective
commodity while the contracting parties also profit. Further examples of
Transactions are filed as Exhibit B-3 (filed under claim of confidential
treatment pursuant to Rule 104).
Due to the varied nature of market requirements in doing fuel and power
arbitrage transactions, not all transactions will be completely balanced as
between the fuel component and the power component. That is, a given arbitrage
transaction may require the delivery of a greater amount of power than would be
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generated by the fuel component of the transaction. Conversely, the contract
may call for the delivery of a greater proportion of energy in the form of fuel
when compared to the amount of energy being received in the form of power.
The Partnership intends to engage in transactions involving gas and power
capacity rights, rate swaps and other commodity-based derivative products that
may be developed for use in the markets in which it participates in the
ordinary course of its business. It is felt that the Partnership will need to
use such products in order to remain competitive in such markets. There are
currently many sophisticated market tools to manage gas price risk. It is
expected that similar tools for the management of electricity price risk will
evolve as the electric power markets become more open and competitive in
parallel fashion to the open-access developments of the gas markets under FERC
Order 636. It is anticipated that power derivative markets will first occur in
those parts of the United States, such as the West Coast, that have relatively
balanced power generation costs and an absence of a high degree of utility
stranded costs under open access conditions. Federal and state regulatory
accommodation of open-access in power markets is also essential. Under such
circumstances, derivatives will contribute to a more balanced power market
through the levelizing of prices. The Partnership will not deal in such
derivative products for purposes of speculation, but rather would use them only
to reduce price-risk exposure through hedging. See the detailed discussion of
such market hedging and policy under "MARKET HEDGING TOOLS" under "VII. NEED
FOR GUARANTEE" beginning on page 30 infra.
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The Partnership will initially conduct its activities generally in the
wholesale energy markets in the northeastern and middle-Atlantic United
States(1), but may move into other market areas during the authorization period
requested herein. The Partnership may engage in energy transactions with the
gas utility companies in the Consolidated System(2), Energy Services or other
affiliates in the Consolidated System on the same market terms that would be
available to nonaffiliate customers of the Partnership. The Partnership will
sell electric and gas energy to wholesale and retail customers to the extent
permitted without becoming an "electric utility company" or a "gas utility
company" within the meaning of the definitions of such terms in Section 2(a)(3)
and 2(a)(4) of the Act, respectively. In this regard, the Partnership may sell
gas at retail. But since it would not own or operate facilities used for the
distribution of gas at retail, such transactions would not cause it to be a
utility company as defined in Section 2(a)(4) of the Act. The Partnership will
not at this time make any electricity sales at retail since such are not
currently permitted to FERC authorized power marketers. It is expected,
however, that the electric industry will evolve to permit retail electricity
transactions by power marketers; in such event the Partnership would engage in
retail power sales in order to remain competitive. Request is hereby made for
the SEC to reserve jurisdiction over retail sales of gas and electricity
pending further developments with respect to the permissibility of such
transactions.
_______________
(1) This would include the following states: Maine, New Hampshire, Vermont,
Massachusetts, Rhode Island, Connecticut, New York, Pennsylvania, New Jersey,
Maryland, District of Columbia, Delaware and Virginia.
(2) The utility companies in the Consolidated System are The East Ohio Gas
Company, Peoples Natural Gas Company, Virginia Natural Gas, Inc., Hope Gas,
Inc, and West Ohio Gas Company.
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The business affairs of the Partnership are to be managed by a management
committee ("Management Committee"). Each Partner will be entitled to name one
person to serve on the Management Committee for each eleven percent of its
Partnership interest. Each member of the Management Committee will have one
vote at committee meetings. The Management Committee may create management
positions and other committees, and delegate the exercise of certain powers.
The Partnership may contract for needed services from the Partner or
affiliate that is determined to be best suited to procure or supply them by
virtue of its expertise and experience in the relevant field. The Management
Committee may also have recourse to outside suppliers in the event
availability, quality, price or reliability are better than those that may be
obtained from a Partner. Charges to the Partnership for services from a
Partner are to be made on a direct costing method (salary plus fringe benefits)
for use of personnel, and direct out-of-pocket expenses for other items.
The net profits of the Partnership are to be divided in accordance with
each Partner's Partnership interest.
A Partner will not be able to transfer, in whole or in part, its
Partnership interest without first allowing the other Partners to match the
offer which the selling Partner is contemplating accepting. This right of
first refusal does not apply to the transfer of interests to a Related Entity
as defined in the Partnership Agreement.
Consolidated undertakes that it will not seek recovery through higher
rates to the CNG System utility customers in order to compensate Consolidated
for any possible losses that it may sustain on investments in CNGEA or for any
inadequate returns on such investments.
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IV. FUNDAMENTAL CHANGES IN THE ENERGY INDUSTRY
The Partnership would inaugurate business in the context of accelerating
and fundamental changes occurring in the energy industry. Essentially, what
has been traditionally regarded as discrete facets of the industry, primarily
gas and electric, are rapidly being integrated into an energy market trading on
Btu (British thermal unit) values. The following sets forth some of the
details describing this development.
1. Developments in gas industry; Order 636
Due to the issuance of Order 636 by the Federal Energy Regulatory
Commission ("FERC") in 1992, interstate pipelines, such as Consolidated's
subsidiary CNG Transmission Corporation ("Transmission"), ceased to be
merchants or sellers of gas. The pipelines became common carriers under the
open access provisions of Order 636, with their transportation and storage
services becoming unbundled from the sale of natural gas.
As a result of Order 636, a market in released transportation and storage
capacity has developed. Natural gas customers, such as local distribution
companies ("LDCs"), now have significantly increased responsibility and control
over gas supply and transportation capacity. Gas marketers have entered the
business of assisting these customers in managing their daily supply
requirements. The early multitude of gas marketers is now being replaced
through industry consolidation by the emergence of several mega-marketers.
Parallels of these developments are expected to develop in the electric
industry deregulation process.
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2. Developments in electric industry; Energy Policy Act of 1992
The Energy Policy Act of 1992 (Pub.L 102-486, October 24, 1992) ("EPA92")
has significantly furthered the deregulation of electric power markets. It
has, through the creation of the electric wholesale generator status in Section
32 of the Act, contributed towards the unbundling of power generation and
transmission. There is a correspondingly growing pressure for wholesale and
retail wheeling of electric power generated outside the transporter's system.
The majority of changes in the electric markets are expected to occur in
the 1995-97 timeframe, which would be five years faster than it took the gas
industry to become deregulated. Both FERC and Congress have the benefit of
knowledge of energy market deregulation gained from the gas industry
restructuring. There are also many state initiatives underway, such as open
access proposals for California and Wisconsin. Paralleling earlier events in
the gas industry, energy or power marketers are starting up to assist wholesale
and industrial electric customers with their increased responsibilities to
arrange for energy at the lowest available price in an increasingly competitive
market. Much of the electric market maker infrastructure is already in place,
with experienced gas marketers poised to enter the marketplace. Exhibit B-4 is
a list of major energy companies, many of which have affiliates deeply involved
in the gas industry, who have filed with FERC for power marketing status.
3. Evolution towards integrated fuel markets; development of
power marketing similar to development of gas marketing
The rising gas demand and deliverability worries appearing amid the
transitional stresses of gas and electricity deregulation have left natural gas
producers, pipeline companies and marketing firms scrambling to adjust.
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It is dawning on them that they are in the business of selling Btus of energy -
not necessarily cubic feet of natural gas. Analysts predict that gas
consumption for electricity power generation could double by the end of the
decade if the restructured gas and electric industries learn to cooperate
better. According to projections from the National Electric Reliability
Council, more than 60% of the power generation capacity to come on line by 2001
will be gas-fired, or a combination of gas and oil. The figure compares to
1991, which saw only 20% of new electric-power capacity fired by gas.
Independents are the source of most of the growth in gas use.
Energy markets are becoming more customer focused. Utilities must
consequently provide competitively priced power to retain industrial load and
to make incremental inroads. Tools have also been developed to increase power
trading and to provide related services. Some of these are the production of
real-time data, standardized transmission access and pricing, power pools open
to entry of new members, regional transmission groups, computerized systems and
state ratemaking initiatives. Customer demand is also expected to create
integrated energy marketplaces. All of these changes are indicative of the
control of the commodity assets moving towards the ultimate consumer.
Electric and gas markets must become efficient through the use of trading
systems, demand side management programs, arbitrage and creative service
offerings. Power marketers must take advantage of their strengths; these are
their ability to move fast, unique knowledge, financial capacity to control
strategic assets and an aggressive nature. They should accumulate
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low-cost excess generating, supply and transmission capacity to market to those
who do not have the same resources at the same economic cost. The purpose of
the Partnership is for gas and electric industry companies through their
subsidiaries to form a strategic alliance which is needed to remain competitive
with others.
The interchangeability of different forms of energy, particularly gas and
electric, is becoming more commonplace. For example, it was recently announced
that Long Island Lighting Co. ("LILCO") and Con Edison will swap natural gas
for electric energy. LILCO will pay a fee to have gas that it owns burned at
Con Edison's plants with the electricity thereby generated delivered to LILCO.
This avoids LILCO having to construct new gas-burning facilities while at the
same time reducing its consumption of high-priced oil.
As a further example of the integration of energy markets, UtiliCorp
United Inc. has announced that it wants to become the first electric and
natural gas utility to operate in all 50 states. The Kansas City based company
says it will expand its natural gas network, which already extends into 45
states, and its eight-state electric operations, to eventually offer both
services to millions of customers nationwide. They will be packaged and
marketed under the brand name EnergyOne.
If the Partnership is not authorized by the Commission to become a
participant in these forthcoming competitive markets, Consolidated will see
other energy marketers take advantage of the Consolidated System infrastructure
and other business assets. Consolidated would thus find itself a hobbled
observer of others grasping the integrated market opportunities (denied to it)
to engage in profitable gas and power transactions.
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V. LEGAL BASIS FOR AUTHORIZING ENERGY RELATED ACTIVITIES OF THE PARTNERSHIP
Consolidated is of the opinion that the proposed activities of the
Partnership should be permitted under the Gas Related Activities Act of 1990
(Pub.L 101-572, November 15, 1990) ("GRAA") and Section 11(b) of the Act for
the following reasons.
1. Gas Related Activities Act of 1990
Section 2(a) of the GRAA provides that the requirements of Section
11(b)(1) of the Act are met with respect to the acquisition of an interest in a
company organized to participate in activities involving the transportation or
storage of natural gas.
Section 2(b) of the GRAA provides that the requirements of Section
11(b)(1) of the Act are met with respect to the acquisition of an interest in a
company organized to participate in activities related to the supply of natural
gas, broadly defined to include exploration, development, production, marketing
and other similar activities, if:
"(1) the Commission determines . . . that such acquisition is in
the interest of consumers of each gas utility company of such
registered company or consumers of any other subsidiary of such
registered company; and
(2) the Commission determines that such acquisition will not be
detrimental to the interest of consumers of any such gas utility
company or other subsidiary or to the proper functioning of the
registered holding company system."
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Section 2(c) of the GRAA provides that each determination be made "on a
case-by-case basis, and not based on any preset criteria."
The proposed activities of the Partnership satisfy the requirements of
Section 2(b) of the GRAA and, therefore, of Section 11(b)(1) of the Act. The
GRAA requires the Commission to determine whether the activities of the
Partnership will benefit Consolidated System consumers. As used in the GRAA,
the term "consumers" refers both to the retail utility customers and to
wholesale customers such as pipelines and nonaffiliated utility companies.
Consolidated's consumers, both current and future, wholesale and retail, will
benefit from the Partnership's business.
Energy Services, as a gas marketer, has had several years of experience
in unregulated gas commodity sales. During those years it has developed a
considerable customer base. Its participation in the Partnership with the
United States subsidiaries of two substantial Canadian companies will give
Energy Services a great deal more credibility as an energy marketer, both gas
and electric. The customers of Energy Services, Transmission, the utility
companies in the Consolidated System, and other Consolidated companies engaging
in the natural gas business would obtain a material advantage through the
Partnership's activities; they would be able to advance, bank, price, store and
interchange energy sources through the facilities of one house.
The Partnership's business could also maintain and increase
Consolidated's system gas throughput to LDCs, both associated and
nonassociated, and their end-users. The creation of an integrated energy
<PAGE> 18
marketer in the market area served by Transmission will encourage
transportation of gas into such system. This will enhance the investments that
customers of Transmission have made in service agreements with Transmission.
Further, the increase in throughput (i.e., volumes of gas transported through
the pipeline of Transmission) attributable to the Partnership's activities
should result in more competitive
transportation rates for the wholesale customers of Transmission, including the
Consolidated System LDCs. The additional transportation fees should increase
Consolidated System revenues and lower intrasystem gas transportation costs on
Transmission's system.
One of the more significant consumer benefits expected to result from the
Partnership's business is an addition to capacity release value of LDC
customers of the Consolidated System. Due to the open-access provisions of
FERC's Order 636, LDC's found it necessary to contract on a twelve-month basis
for gas deliverability capacity, on interstate pipelines such as
Transmissions', in amounts sufficient to provide supply at maximum demand
arising in the winter. This causes a substantial amount of such capacity to go
unneeded during the "off" months when LDC customer demand is low. Such excess
capacity is often sold into capacity release markets at minimal rates.To the
extent the Partnership becomes an active purchaser in such excess capacity
markets for its non-LDC customers, it will contribute towards an increase in
price that the LDCs can obtain for their release capacity rights, thereby
helping to lower the cost of gas to their customers.
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Another consumer benefit is that the Partnership would provide a place
for buyers and sellers to execute trades of gas and electric power, which will
be supported by services offered by the Partners in their respective spheres of
activity. This would overall help maintain the liquidity of the integrated
energy market on both its gas and electric sides.
On October 27, 1990, the following was stated in the U.S. Congress by
legislative sponsors (Senator D'Amato in the Senate and Representative Markey
in the House) of the GRAA:
"...Technical advances and expertise may also be developed through these
activities that may benefit customers. Finally, there may exist assets
that are either surplus to the needs of the system or that have
developed in the normal course of system operations. Use of these
assets to maximize their value is recognized as a benefit to customers
only so long as the proposed activity does not create a detriment to
system customers."
These statements indicate that the legislators that passed the GRAA intended
that such legislation be interpreted flexibly. They show that activities that
naturally evolve from the Consolidated System's gas operations and which also
benefit system customers should be permitted under the Act. The proposed
energy related activities of the Partnership fall into such category.
For all of the above reasons, the proposed activities of the Partnership
should be found to be in the interest of consumers of the Consolidated System;
and, accordingly that Section 2(b)(1) of the GRAA is satisfied.
It is further requested that the SEC find the proposed activities will
not be detrimental to the interests of consumers or to the proper functioning
of the holding company system, and that Section 2(b)(2) of the GRAA is thereby
<PAGE> 20
satisfied. No subsidiary of Consolidated will be obligated to engage in any
transaction with the Partnership. Consolidated's maximum investment of $10
million in CNGEA, anticipated to be in the form of either stock purchases or
short-term open account advances, will be de minimis in relation to the
Consolidated System's consolidated total assets of approximately $5.4 billion.
2. Appropriate under Section 11(b) of the Act
The first sentence of Section 11(b)(1) of the Act limits the operations
of a registered holding company system to a single integrated public utility
system, and to such other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of such integrated
public utility system. The last sentence of Section 11(b)(1) states that the
Commission may permit as reasonably incidental, or economically necessary or
appropriate to the operations of one or more integrated public utility systems
the retention of an interest in any business which the Commission shall find
necessary or appropriate in the public interest or for the protection of
investors or consumers and not detrimental to the proper functioning of such
system or systems.
In view of the rapidly changing nature of the energy markets in North
America as the twentieth century draws to a close, particularly the increasing
convergence of the gas and electric power markets due to the interchangeability
of energy forms, the type of business in which the Partnership proposes to
engage should be deemed to be incidental and appropriate to the operations of
the Consolidated System. A substantial portion of the Partnership's business
<PAGE> 21
will consist of gas marketing, and the portions which do not involve gas
directly will be energy-related and will accordingly involve gas indirectly.
Highly competitive energy markets are making the classification of companies as
solely gas or electric obsolete. Consolidated through its investments in
cogeneration facilities already has part ownership in seven plants capable of
producing 438 megawatts of power.(3) It is for these reasons that the business
of the Partnership is incidental and appropriate to the energy operations of
the Consolidated System.
The proposed activities of the Partnership are clearly appropriate in the
public interest as evidenced by the recent history of federal legislation which
has strongly promoted the development of competitive energy markets. Such
legislation consists of the following.
a. Public Utility Regulatory Practices Act of 1978
The Public Utility Regulatory Practices Act of 1978 ("PURPA")
defines a "cogeneration facility" as a facility which produces electric
energy and steam or other forms of useful energy (such as heat) which are
used for industrial, commercial, heating or cooling purposes (16 USCA 796
(18)(A)). PURPA further defines a "qualifying cogeneration facility"
_______________
(3) Consolidated indirectly owns interests in independent power producers as
follows:
Percentage
of Equity
Project Name Location Interest
____________ ________ ___________
Cogent Little Falls New York 50%
Lakewood New Jersey 35
Sanitary Dairy Pennsylvania 100
Grumman Aerospace New York 30
San Joaquin California 25
Chalk Cliff California 25
Bear Mountain California 50
<PAGE> 22
("Cogen") as a cogeneration facility which meets FERC requirements
respecting minimum size, fuel use, and fuel efficiency (16 USCA 796
(18)(B)). The FERC operating and efficiency standards for Cogens are set
forth in 18 CFR 292.205(a) and (b). PURPA also requires electric
utilities to purchase electric energy from, and sell electric energy to,
Cogens (16 USCA 824a-3). PURPA allowed FERC to exempt Cogens from being
electric utility companies under Section 2(a)(3) of the Act, which FERC
did at 18 CFR 292.602. PURPA can thus be viewed as Congress' initial
action to provide for greater efficiencies in energy markets through the
liberalization of the restraints placed on electric generation by the
Act.
b. Cogeneration Statutes
Even though Cogens became exempt from the Act by virtue of PURPA
and FERC rulemaking, Consolidated and the other registered gas holding
companies were prevented from investing in Cogens under a strict
interpretation of the functional relationship requirement of Section
11(b) of the Act. This restraint was removed by Public Law 99-186
(December 18, 1985), which stated that notwithstanding Section 11(b)(1)
of the Act, a company in a registered gas holding company system could
acquire and retain, in any geographic area, any interest in a Cogen.
Public Law 86-553 (October 27, 1986) broadened the scope of the
1985 statute by providing that any company in a registered holding
company system (whether gas or electric) could acquire and retain, in any
geographic area, an interest in a Cogen. The 1986 statute thus allowed
electric holding company systems to invest in Cogens without needing to
comply with the operational integration requirements of the Act.
<PAGE> 23
These two Cogen statutes together are further evidence of
Congressional intent to foster the development of competitive energy
markets. Congress achieved this by removing restraints otherwise imposed
by the Act on registered holding company participation in such markets.
c. Gas Related Activities Act of 1990
The provisions of the GRAA are discussed in detail above. The GRAA
is an important step in the evolution of Congressional thinking on
removing Section 11(b) restraints to allow registered gas holding
companies to compete in energy markets with those not restrained by the
Act. The GRAA essentially made inapplicable, as to gas related
activities of a registered gas holding company, the functionally related
requirement of Section 11(b)(1), which requires a showing of benefit to
the utility companies of the system. Substituted in lieu of the
functional relationship test is a standard based on consumer benefit and
absence of detriment to the proper functioning of the system. Congress,
in weighing the matter, clearly came down in favor of removal of the
traditional Section 11(b)(1) restrictions when such would promote energy
industry efficiencies and consumer benefits.
d. Energy Policy Act of 1992
The enactment of EPA92 is the most recent and significant
contribution towards competitiveness in the wholesale energy markets in
the United States. As already noted above under "IV FUNDAMENTAL CHANGES
<PAGE> 24
IN THE ENERGY INDUSTRY", EPA92 added Sections 32 and 33 to the Act, which
created the categories of exempt wholesale generator ("EWG") and foreign
utility company ("FUCO"), respectively. An EWG as defined in Section 32
means any person determined by FERC to be engaged in the business of
owning or operating an eligible facility. The definition of "eligible
facility" in Section 32 includes a facility which is used for the
generation of electric energy exclusively for sale at wholesale. Section
32(e) states that EWGs shall not be considered electric utility companies
under the Act. Section 32(g) allows a registered holding company to
acquire interests in EWGs or FUCOs without prior approval of the SEC.
Two salient features of EPA92 indicating further federal policy of
liberalizing energy markets are (i) the category of EWG under EPA92 is
broader than that of a Cogen under PURPA in that it has no requirement
for an industrial or commercial host using an alternative energy form
(which greatly reduces facility complexity, cost, and siting problems)
and (ii) EWGs, unlike Cogens, are exempt from all provisions of the Act
(which makes for ease of operation of a facility within a registered
holding company system). EPA92 can be regarded as laying the groundwork
for what is generally anticipated to be the next big step in opening
energy markets to greater competition, i.e. open access on utility
transmission lines or the electric industry equivalent of FERC Order 636.
<PAGE> 25
FERC has taken further steps in the direction of opening up
wholesale power markets. On March 29, 1995, it issued a proposal (Docket
No. RM95-8-000) which would require investor-owned electric utilities to
provide "open access" to their interstate transmission systems. This
would allow distant utilities or wholesale customers to buy and sell
power over transmission lines owned by others. Tariffs would be posted
by the utilities for the transmission of power and allied services, with
the same rates applying to their own wholesale transactions.
e. NAFTA
The Partnership's business would also further the goals of
increased trade between the United States and Canada as expressed in the
North American Free Trade Agreement Implementation Act ("NAFTA") (Pub L.
103-182). There is much cross-border energy business taking place
between the United States and Canada today. In 1993 the U.S. natural gas
industry imported 11% of its total consumption from Canada, whereas
exports to Canada for the same year was 45 billion cubic feet. In 1992
the United States imported 35,181,757 Kwh from Canada and exported
7,865,990 Kwh to Canada. The public policy enunciated in NAFTA
encourages the reduction of barriers to trade and the enhancement of
investment opportunities between the United States and Canada, to the
betterment of consumers in both countries.
<PAGE> 26
The SEC in a supplemental order issued on February 15, 1995, Release No.
35-26232 (File No. 70-7287), acknowledged the importance of the fundamental
legislative trend described above. This order allowed EUA Cogenex, a
subsidiary of Eastern Utility Associates, to engage in demand-side management
without any longer being limited to doing no more than half of its business for
nonaffiliate customers. In the order, the SEC indicates that the energy
management business is closely related to the utility's core business, and that
Congress has stated that there is a strong national interest in promoting
energy conservation and efficiency. This order also states that this policy
would appear to be furthered by the expansion of the services proposed by
Cogenex. Similar to the Cogenex order, the applicants believe that the
proposed business of the Partnership is closely related to the Consolidated
System's core energy business, and that the issuance of an order in this
proceeding will also promote the national interest in seeking energy
efficiency.
The SEC gave further acknowledgment to the suitability of registered
holding companies engaging in energy-related activities, whether gas, electric
or otherwise, in HCAR No. 26313, dated June 20, 1995, in which it proposed the
adoption of Rule 58. New Rule 58 would exempt the acquisition of securities of
an energy-related company (as defined) from prior SEC approval under Section
9(a)(1) and 10 of the Act on the grounds that such a nonutility business is
closely related to the registered holding company system's core utility
business.
<PAGE> 27
Concluding Argument
The proposed transactions reflect economic realities in competitive
energy markets. The business of the Partnership as an energy marketer dealing
in both gas and power transactions would be a direct development of the
changing nature of the North American energy markets. As already stated
herein, energy forms are becoming readily interchangeable. Customers will
contract for the most economic form of the Btus that they need; it will not
matter that much if it be gas, electricity or some other form of energy such as
oil or coal. The Parent Companies are striving to be participants in such
emerging markets through their investments in the Partners of the Partnership.
VI. OTHER LEGAL ASPECTS OF THE PARTNERSHIP
In addition to the permissibility of the Partnership under the GRAA and
Section 11(b) of the Act, there are other legal aspects of the Partnership's
status that should be discussed. These are as follows.
1. Partnership under FERC jurisdiction
Since the Partnership will be engaging in the business of power
marketing, it will need to obtain the approval of the FERC for market based
rates. In granting an order, FERC will consider whether there are any likely
opportunities for discriminatory practices favoring any affiliated utility
companies participating in the same markets as competitors who are likely to be
customers of the Partnership. FERC in granting an order may impose conditions
to guard against such subsidization. The interests of consumers will thus be
protected by this FERC oversight.
<PAGE> 28
2. No U.S. utility company directly involved; Partnership not a
utility company
Neither the Partnership nor any parent affiliate of the Partnership will
be a United States utility company. It is the belief of the applicants that
the Commission Staff position taken in the no-action letter, dated January 5,
1994, with respect to Enron Power Marketing, Inc. ("Enron Power") would
substantially apply to the status of the Partnership. In such letter, the
Staff stated that it would not recommend any enforcement action to the
Commission under the Act, including Section 2(a)(3) thereof, against Enron
Power in the event it enters into contracts for the purchase and resale of
electric power and for transmission capacity in connection with power marketing
transactions. In effect, the Staff has taken the position that Enron Power was
not to be deemed an electric utility company under the Act.
VII. SOURCE OF FUNDS
It is proposed for Energy Services to raise funds for the purposes
described herein by (i) selling shares of its common stock, $1,000 par value,
to Consolidated, (ii) open account advances as described below, or (iii) long-
term loans from Consolidated, in any combination thereof. Transactions
subsequent to the initial $3,000,000 used to form CNGEA will occur pursuant to
Rule 52. 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:
<PAGE> 29
(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 pursuant to a note issued by it, 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
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.
<PAGE> 30
Consolidated will obtain the funds required for Energy Services through
internal cash generation, issuance of long-term debt securities, borrowings
under credit agreements or through other authorizations approved by the
Commission subsequent to the effective date of this Application-Declaration.
Consolidated also seeks the authorization to make the commitment to provide up
to $3,000,000 to CNGEA to allow it to make its initial $3,000,000 contribution
to the Partnership, all as embodied in the Undertaking Agreement. CNGEA would
engage in general partner investing and financing transactions with respect to
the Partnership in lieu of Energy Services. CNGEA would have mirror image
authorizations and obligations of Energy Services under this filing as such
relate to the acquisition of a one-third general partner interest in the
Partnership, with Energy Services functioning as a "pass-through" with regard
to the indirect Consolidated financing of the Partnership.
VIII. NEED FOR GUARANTEE
By order dated November 16, 1993 ("November 16, 1993 Order"), Release No.
35-25926, File No. 70-8231, the SEC authorized Consolidated to guarantee,
through December 31, 1998, up to an aggregate principal amount of $750 million
of the obligations of Energy Services, pursuant to certain gas purchase, sales
and transportation contracts. It is anticipated, however, that this guarantee
authority will soon be superseded by a new $2 billion system-wide guarantee
authority, effective through March 31, 2001, which is requested in the
proceeding at File No. 70-8667. The reason for obtaining the guarantee
authority in the November 16, 1993 Order was the structural change in the gas
markets under FERC Order 636, which necessitated gas marketing companies, such
<PAGE> 31
as Energy Services, to be able to demonstrate financial credibility with
customers. Energy marketing companies, though entering many contracts for high
volumes of gas or power, are not highly capitalized due to the nature of their
operations. This absence of high capitalization has caused some would-be
customers to be apprehensive of the risk of dealing with such marketing
companies. However, often times such marketing companies are subsidiaries of
financially strong parent companies. Consequently, the usual method for
establishing the financial credibility of the marketing company is by the
parent (such as Consolidated) standing behind its subsidiary through
guarantees, thus allowing the subsidiary to compete effectively in increasingly
deregulated markets. This same rationale applies to the proposed business of
the Partnership. The energy marketing business of the Partnership would be an
extension of the gas marketing business of Energy Services. Consolidated,
therefore, seeks authority through March 31, 2001 to guarantee, either directly
or indirectly through CNGEA, the fuel and power transactions of the
Partnership, to the extent required by the Partnership's customers to
consummate transactions. The amount of such guarantees will be limited by
placing them under the dollar cap as currently applies to guarantees under the
November 16, 1993 Order, or subsequently the $2 billion cap in a superseding
order (the "File No. 70-8667 Order") issuing forth in the File No. 70-8667
proceeding. That is, Consolidated will not make a guarantee under the
authority granted in this proceeding if the effect of such an additional
guarantee would be for the aggregate of all outstanding guarantees under such
authorization and the authorization in the November 16, 1995 Order or the File
No. 70-8667 Order to exceed $750 million or $2 billion, as the case may be.
<PAGE> 32
The Partnership intends to use many ways which are available to limit
financial risks in today's energy markets, thereby also lessening the risk to
Consolidated under any guarantees it may give. Some of the more common of
these risk-reduction methods are as follows.
MATCHING OF OBLIGATIONS TO MARKET PRICES. Price is now matched much
better between purchase and sales contracts, and also matched more directly to
market prices. Previously as to gas, pipelines negotiated prices with
producers without the benefit of market input. Sales prices were determined
independently by regulation. Now the market establishes the price of gas to be
delivered, with future prices defined in terms of then existing markets or an
index. This limits the potential size of damage claims from customers since
replacement gas should be available at the market price at which Gas Services
would be obligated to perform. The same principle would apply to power
purchase and sales contracts as the wholesale power market further develops.
MARKET HEDGING TOOLS. Generally, the Partnership would strive to match
its portfolio of its fuel and power sales contracts with a portfolio of fuel
and power purchase contracts with similar terms. For instance, long-term firm
sales contracts with variable or indexed prices would be matched with long-term
supply contracts with variable or indexed prices. Hedging would be needed only
to reduce risk with respect to that small portion of the Partnerships' total
sales contract portfolio which is not matched with appropriate supply
contracts. For example, a one year, fixed price sales contract might not be
matched; protection against price risk in such a short-term contract could be
provided by proper hedging tools.
<PAGE> 33
There are currently many sophisticated market tools to manage price risk.
The market for natural gas risk-management contracts is about $5 billion and
growing fast. Tools such as gas futures contracts and options on gas futures,
are traded on the New York Mercantile Exchange, and gas price swap agreements
which are binding agreements between parties on a private contract basis, are
common and essential tools to manage risk on some types of gas sales that
cannot be matched with a corresponding gas purchase. The New York Mercantile
Exchange's board of directors in early 1995 approved preliminary terms and
conditions for two electricity futures contracts, with trading likely to begin
in early 1996.
In its use of hedging tools, the Partnership will not engage in
speculative trading. Consolidated represents that such trading is prohibited
by corporate policy, and that hedging activity will be limited to no more than
the total volume of the Partnership's commodities that are subject to market
price fluctuation.
Consolidated has established a System Energy Price Risk Committee
("SEPRC") comprised of its Controller and other senior level financial and
accounting officers. The SEPRC has the responsibility to review the
effectiveness of subsidiary hedge strategies and ensure that adequate trading
controls are being implemented. The SEPRC further has the responsibility to
approve the establishment of new accounts, establish minimum credit quality
standards of brokers and counter parties, review position limits, and review
subsidiary policies and procedures to ensure they adhere to CNG System policy.
<PAGE> 34
LIMITATION OF DAMAGES. Damages can be specifically limited to the
difference between the cost of fuel or power that should have been provided to
a customer and the cost of replacement fuel or power when the performance
failure occurs. Consequential damages are generally excluded.
SPECIFICATION OF OBLIGATIONS. Contractual obligations can be more
specific than in the past. Before FERC Order 636, most pipeline gas sales were
made under full requirements contracts. Today gas sales contracts have
specific volume obligations, thus limiting the exposure. The same principle
would apply to power sales.
SHORTER TERMS. There is also less risk exposure in today's gas markets
because the terms of gas sales contracts are generally 5 to 10 years compared
to the previous industry standard of 20 years. Also, when an undesirable
contract expires, there is no longer any need to obtain FERC approval of
abandonment before the Partnership could walk away from the customer.
It is believed by Consolidated that through the proper use of price
hedging tools, together with favorable contract terms, the risk to Consolidated
under any guarantees of Partnership obligations will not pose a material risk
to Consolidated or the CNG System. It is further believed that as the
wholesale power market matures, risk reduction devices for power transactions
will become available to the same extent as those available for gas
transactions.
The financial exposure to Consolidated through guarantees of Partnership
obligations will be further limited due to the participation of the other
<PAGE> 35
Parent Companies (both of which are financially substantial entities) through
their United States subsidiaries in making such guarantees. It is anticipated
that each of the Partner's guarantees will for the most part be limited to
those Partnership obligations arising in the area of the respective Partner's
business.
IX. AUTHORIZATIONS REQUESTED
The following authorizations are hereby requested. All funding by a
Consolidated System parent company of its immediate subsidiary would be in the
form of (a) the sale of the subsidiary's common stock to the parent, (b) open
account advances from the parent to the subsidiary, and/or (c) long-term loans
from the parent to the subsidiary. Any providing of funds by Consolidated to
Energy Services can be in any combination of these three forms of financing;
and any financing between Energy Services and CNGEA will be in the same
combination of forms that exists between Consolidated and Energy Services in
the transaction which causes Energy Services to obtain funds to invest in
CNGEA. All the authorizations described below would be for a period ending
December 31, 2020 (the Partnership termination date) with the exception of the
fifth item covering Consolidated guarantees of arbitrage transactions, which
would be for the same period anticipated to be in the File No. 70-8667 Order,
i.e. ending March 31, 2001.
<PAGE> 36
(1) For Energy Services to obtain up to $3,000,000 from Consolidated
for the purpose of accomplishing its initial indirect investment in
the Partnership.
(2) For CNGEA to obtain up to $3,000,000 from Energy Services needed
for CNGEA to complete its acquisition of a one-third general
partnership interest in the Partnership.
(3) For CNGEA to invest up to $3,000,000 in the Partnership by
initially purchasing a one-third general partnership interest
therein.
(4) For Consolidated to enter into the Undertaking Agreement with the
Partnership to commit to providing CNGEA with up to $3,000,000 in
financing.
(5) For Consolidated to make guarantees, either directly or indirectly
through CNGEA, of transactions of the Partnership, as described
further herein.
X. RULE 53 SATISFIED
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an EWG or a FUCO, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
<PAGE> 37
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rules 53(a), (b) or (c) are satisfied.
Currently Consolidated owns indirectly a 1% general partnership and a 34%
limited partnership interest in Lakewood Cogeneration, L.P. ("Lakewood"), an
EWG. On November 30, 1994, the 1% general partnership interest in Lakewood was
acquired by CNG Power Services Corporation, an EWG and a newly-formed
wholly-owned subsidiary of Consolidated, from CNG Energy Company, another
wholly-owned subsidiary of Consolidated, in a transaction exempt under Rule
43(b)(2). Consolidated does not own any interests in a FUCO. Consolidated
believes that Rule 53(a), (b) and (c) are satisfied in its case as follows.
Fifty percent of Consolidated's retained earnings as of September 30,
1995 was $634,048,000; Consolidated's aggregate investment (as defined in Rule
53(a)(l)(i)) in Lakewood on such date and in both its EWGs as of the date of
filing of this Application-Declaration is estimated to be approximately
$18,000,000, thereby satisfying Rule 53(a)(l). Consolidated and its
subsidiaries maintain books and records to identify the investments in and
earnings from its EWGs in which they directly or indirectly hold an interest,
thereby satisfying Rule 53(a)(2). In addition, the books and records of each
such entity are kept in conformity with United States generally accepted
accounting principles ("GAAP"), the financial statements are prepared according
to GAAP, and Consolidated undertakes to provide the SEC access to such books
and records and financial statements as it may request. Employees of
Consolidated's domestic public-utility companies at this time do not render
services, directly or indirectly, to the EWGs in the Consolidated System,
thereby satisfying Rule 53(a)(3). There has been compliance with Rule 53(2)(4)
<PAGE> 38
in regard to Consolidated's only filing for EWG and FUCO financing, currently
pending at File No. 70-8759.
None of the conditions described in Rule 53(b) exist with respect to
Consolidated, thereby satisfying Rule 53(b) and making Rule 53(c) inapplicable.
XI. SERVICE CONTRACTS WITH AFFILIATES
CNGEA, as a special purpose subsidiary, would not have any payroll or
full-time employees. Accordingly, it would enter into a service contract with
Energy Services pursuant to which Energy Services would provide administrative
and other supporting services, such as the keeping of books and records and the
making of corporate filings.
The Partnership may contract for needed services from the Partner, Parent
Company, or other affiliate that is determined to be best suited to provide
them by virtue of its expertise and experience. It is accordingly anticipated
that the Partnership will enter into a contract with CNGEA and/or Energy
Services for the rendering of supporting services relative to United States gas
marketing transactions.
All service contracts between affiliates in the Consolidated System will
provide for services to be rendered on an at-cost basis in compliance with
Rules 87 and 90 under the Act.
Neither CNGEA nor the Partnership will provide goods to or acquire goods
from companies in the Consolidated System.
<PAGE> 39
XII. RULE 24 CERTIFICATES
It is also requested that Rule 24 Certificates of Notification be filed
within 45 days after the end of each quarterly calendar period to report to the
Commission with respect to transactions authorized pursuant to this filing.
Such certificates shall contain the following information:
1. A CNGEA balance sheet as of the end of such period, and a statement
of income and expense for the period.
2. A statement indicating as a percentage of total revenues for the
period, the amount of revenues attributable to gas sales, power
sales and sales of all other forms of fuel.
3. The agreement and transaction information contained in the
attachments to the Partnership's power marketing informational
filings with FERC.
4. A description of the types and dollar amounts of services provided
by Consolidated affiliates to the Partnership and CNGEA.
Consolidated guarantees of Partnership arbitrage transactions will be
reported in the Rule 24 Certificates of Notification filed under File No.
70-8231 or File No. 70-8667.
(b) Describe briefly, and where practicable, state the approximate
amount of any material interest in the proposed transaction, direct or
indirect, of any associate company or affiliate of the applicant or any
affiliate of any such associate company.
None, except as set forth in Item 1(a).
(c) If the proposed transaction involves the acquisition of securities
not issued by a registered holding company or a subsidiary thereof, describe
briefly the business and property, present or proposed, of the issuer of such
securities.
<PAGE> 40
None, except as set forth in Item 1(a).
(d) If the proposed transaction involves the acquisition or disposition
of assets, described briefly such assets, setting forth original cost, vendor's
book cost (including the basis of determination) and applicable valuation and
qualifying reserves.
None, except as set forth in Item 1(a).
Item 2. Fees, Commissions and Expenses
______________________________
(a) State (i) the fees, commissions and expenses paid or incurred, or
to be paid or incurred, directly or indirectly, in connection with the proposed
transaction by the applicant or declarant or any associate company
thereof, and (ii) if the proposed transaction involves the sale of securities
at competitive bidding, the fees and expenses to be paid to counsel selected
by applicant or declarant to act for the successful bidder.
It is estimated that the fees, commissions and expenses ascertainable at
this time to be incurred by Consolidated and Energy Services in connection with
the herein proposed transaction will not exceed $35,000, consisting of the
$2,000 filing fee under the Act, $17,000 payable to Consolidated Natural Gas
Service Company, Inc. ("Service Company") for services on a cost basis
(including regularly employed counsel) for the preparation of this
application-declaration and other documents, $12,000 payable to non-affiliated
professionals, and $4,000 for miscellaneous other expenses.
(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
<PAGE> 41
documents and papers required to consummate the proposed transactions are as
stated above.
Item 3. Applicable Statutory Provisions
_______________________________
(a) State the section of the Act and the rules thereunder believed to be
applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of
exemption.
Sections 6(a) and 7 and Rule 43 are deemed applicable to the issuance of
securities by Energy Services and/or CNGEA in the transaction that forms CNGEA
and the Partnership (the "Formation Transaction").
Sections 9(a) and 10 are deemed applicable to the acquisitions (i) by
Consolidated of the capital stock, open account advance debits and notes of
Energy Services, (ii) by Energy Services of the capital stock, open account
advance debits and notes of CNGEA in the Formation Transaction and (iii) by
CNGEA of partnership interests in the Partnership.
Sections 12(b) and Rule 45 are considered applicable to loan arrangements
among Consolidated, Energy Services and CNGEA in the Formation Transaction, the
Undertaking Agreement commitment and to guarantees of fuel and power arbitrage
transaction by the Partnership.
Rule 52 is considered applicable to intra-company financing among
Consolidated, Energy Services and CNGEA subsequent to the Formation
Transaction.
CNGEA's participation in the Partnership is deemed to satisfy the
requirements of Rule 16 under the Act. Consequently, the Partnership and
affiliates not otherwise subject to the jurisdiction of the Act will rely upon
Rule 16 to be exempt from all obligations, duties or liabilities that would be
imposed upon them by the Act in the absence of Rule 16.
<PAGE> 42
Section 11(b)(1) of the Act and the Gas Related Activities Act of 1990
apply to the energy related transactions proposed by the Partnership. In the
alternative, Section 9(c)(3) of the Act may apply in so far as an exemption for
the proposed investments in the Partnership may be granted.
If the Commission considers the proposed future transactions to require
any authorization, approval or exemption, under any section of the Act for Rule
or Regulation other than those cited hereinabove, such authorization, approval
or exemption is hereby requested.
(b) If an applicant is not a registered holding company or a subsidiary
thereof, state the name of each public utility company of which it is an
affiliate or of which it will become an affiliate as a result of the proposed
transaction, and the reasons why it is or will become such an affiliate.
Not applicable.
Item 4. Regulatory Approval
___________________
(a) State the nature and extent of the jurisdiction of any State
commission or any Federal commission (other than the Securities and Exchange
Commission) over the proposed transactions.
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.
<PAGE> 43
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 September 20, 1995.
(b) State (i) whether there should be a recommended decision by a hearing
officer, (ii) whether there should be a recommended decision by any other
responsible officer of the Commission, (iii) whether the Division
Investment Management - Office of Public Utility Regulation may assist in the
preparation of the Commission's decision, and (iv) whether there should be a
30-day waiting period between the issuance of the Commission's order and the
date on which it is to become effective.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed with respect to the
proposed transactions. The office of the Division of Investment Management -
Office of Public Utility Regulation may assist in the preparation of the
Commission's decision. There should be no waiting period between the issuance
of the Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
<PAGE> 44
(a) Exhibits
A-1 Certificate of Incorporation of Energy Services.
(Incorporated by reference to File No. 70-8577)
A-2 By-Laws of Energy Services.
(Incorporated by reference to File No. 70-8577)
B-1 Form of General Partnership Agreement to be among
CNGEA, NOV Sub, and HQ-Sub.
B-2 Form of Undertaking Agreement between Consolidated
and the Partnership.
B-3 Examples of energy arbitrage transactions.
(Filed under claim of confidential treatment pursuant
to Rule 104)
B-4 List of companies who have filed with FERC for power
marketing status.
F Opinion of counsel for Consolidated and Energy Services.
O Draft of Notice.
(b) Financial Statements
Financial statements are deemed unnecessary with respect to the
authorizations herein sought due to the nature of the matter proposed.
However, Consolidated will furnish any financial information that the
Commission shall request.
<PAGE> 45
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> 46
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
CNG ENERGY SERVICES CORPORATION
By N. F. Chandler
Its Attorney
Date: March 7, 1996
