File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No. 5
to
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG INTERNATIONAL CORPORATION
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
Consolidated Natural Gas Company, a registered holding company,
is the parent of the other party
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>
File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 5
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
-----------------------------------
1.1 Introduction. Consolidated Natural Gas Company (the
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"Company" or"CNG"), a registered holding company under the Public
Utility Holding Company Act of 1935, seeks authorization to
invest up to $75 million, through CNG International Corporation
("CNG International"), in certain Australian pipeline projects
("Australian Pipeline Projects"), and for such related
transactions as may be necessary to effectuate the acquisition of
an interest in the Australian Pipeline Projects.
By order dated May 30, 1996, CNG was authorized to
establish CNG International to invest in foreign utility
companies ("FUCOs") and exempt wholesale generators ("EWGs")
located outside of the United States. Holding Co. Act Release
No. 26523.<FN1> The order further authorized the formation and
capitalization of intermediate subsidiaries to hold interests in
such EWGs and FUCOs, and the provision of up to $300 million
credit support for these entities. In the May order, the SEC
reserved jurisdiction, pending completion of the record, over:
(i) the investment by CNG, through CNG International, of up to
$300 million in entities that would engage in (a) rendering
certain energy consulting and administrative, technical,
construction, operating, maintenance,
-----------------------
<1> A notice of the filing was issued on February 9, 1996. No
requests for hearing were received.
<PAGE>
and other management services to nonassociates in connection with
their foreign operations ("Consulting and Support Services") and
(b) certain other energy-related businesses in foreign countries
("Foreign Energy Activities"), (ii) the provision by CNG, CNG
International and its subsidiaries of credit support agreements
aggregating, together with EWG/FUCO credit support, up to $300
million credit support as it relates to these activities, (iii)
the issue and sale of nonexempt securities by CNG International
and its subsidiaries, (iv) certain affiliate transactions; and
(v) associated reporting requirements.
By order dated October 25, 1996, the SEC authorized CNG to
invest, through CNG International, up to an aggregate amount of
$75 million in two South American pipeline projects.
Specifically, CNG has been authorized to invest up to $50 million
in connection with a consortium bid to acquire a 50% economic
interest in, and operational control of the hydrocarbon
transportation unit of Yacimientos Petroliferos Fiscales
Bolivianos, the Bolivian state-owned oil and gas company. The
SEC also authorized CNG to invest up to $25 million in connection
with a proposal to construct, own and operate a gas pipeline
between Buenos Aires, Argentina and Montevideo, Uruguay. The SEC
reserved jurisdiction for three years over the acquisition of an
interest in an oil pipeline in connection with the Bolivian gas
pipeline project. Holding Co. Act Release No. 26595.
CNG now requests authority to invest up to $75 million
through CNG International in two additional pipeline projects,
and for certain related transactions.
CNG has been providing, and will continue to provide,
copies of filings in this matter to its state regulators, Ohio
Public Utilities Commission, Pennsylvania Public Utility
Commission, and West Virginia Public Service
<PAGE>
Commission. There has been no adverse comment from those
regulators.
Time is of the essence. Accordingly, CNG asks the SEC
issue an order approving the proposed transactions no later than
November 27, 1996.
1.2 Proposed Investments
---------------------
As explained in Post-Effective Amendment No. 3, every
investment opportunity pursued by CNG is subjected to a series of
formal reviews to ensure that the project satisfies the Company's
standards for investment. Over the past year, CNG has reviewed
literally dozens of potential foreign ventures. On the basis of
that review, CNG has identified two new pipeline projects that
meet the Company's criteria for investments. Specific authority
is requested for those projects as discussed below.
Background
----------
Earlier this year, Tenneco, Inc. ("Tenneco") agreed to sell
its natural gas operations to El Paso Energy Corporation ("El
Paso") for $750 million in stock and the assumption of debt and
other liabilities. <FN2> As a result of the purchase, El Paso
will become the largest gas transportation company, by volume, in
the natural gas industry. To relieve the heavy debt burden
associated with the acquisition, El Paso announced that it would
sell certain properties worth approximately $500 million and
issue new stock to preserve an investment-grade credit rating.
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<2> Neither Tenneco nor El Paso is a public-utility company
within the meaning of the Act.
<PAGE>
The Proposed Transactions
--------------------------
CNG seeks to invest in a joint venture ("Joint Venture")
with El Paso Energy International Company ("EPIC"), a subsidiary
of El Paso. The Joint Venture will be engaged initially in the
operation and expansion of certain Australian gas pipeline
projects ("the Australian Pipeline Projects") that El Paso will
acquire from Tenneco. Through the Joint Venture, CNG will invest
up to $75 million to acquire up to 50% of the equity of Tenneco
Holdings Pty. Ltd. ("TH"), a company formed under the laws of the
Australian Capital Territory with its principal place of business
in Australia. TH owns all of the outstanding shares of Tenneco
Energy Australia, Pty. Ltd., which owns all of the outstanding
shares of Tenneco Energy South Australia Pty. Ltd. ("TESA") and
Tenneco Energy Queensland Pty. Ltd. ("TEQ"). TH also owns all of
the shares of Tenneco Energy Operations and Maintenance Pty. Ltd.
("TEOM"). Each of these entities is a corporation organized and
existing under the laws of Australia, with its principal place of
business in Australia.<FN3>
The Australian Pipeline Projects will consist of:
* 100% of a 470 mile, 16 inch gas transmission system
now owned by TEQ that is located in Northeastern
Australia, extending from the Cooper/Eromonga Basin
in Southwest Queensland to Wallumbilla,
interconnecting with existing pipelines serving the
Brisbane and Gladstone markets. The facilities have
a free-flow capacity of 128 million cubic feet per
day and compressed capacity of up to 293 million
cubic feet per day. Construction on the Queensland
pipeline project commenced in December, 1995. It is
anticipated that the pipeline will begin operations
in January, 1997.
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<3> The names of these entities will be changed prior to or
concurrent with CNG's investment in TH to delete references to
"Tenneco" but their assets and business will remain the same.
<PAGE>
* 100% of two separate pipelines that were acquired by
TESA in connection with the privatization of the
Pipeline Authority of South Australia in June, 1995.
Both pipelines are currently in operation. One
pipeline consists of a 488 mile, 22 inch gas
transmission system connecting gas supplies in Moomba
(the central supply point of the Cooper Basin of
South Australia and Queensland) to the city of
Adelaide, South Australia, with a total free flow
capacity of 140 million cubic feet per day and
existing compressed capacity of 355 million cubic
feet per day. The second pipeline consists of a 44
mile, 6 inch gas transmission pipeline connecting gas
supplies in Katnook to markets in South Australia,
with a free flow capacity of approximately 23 million
cubic feet per day.
* TEOM, which will initially be engaged exclusively in
the development, operations, maintenance and
management of the Australian Pipeline Projects.
Subsidiaries of CNG International and EPIC will act in full
partnership in the development, ownership and operation of the
Australian Pipeline Projects.
It is contemplated that the Joint Venture may invest in
related business opportunities in Australia, provided that the
Joint Venture shall, at all times, be engaged primarily in the
exploration, development, production, manufacture, storage,
transportation or supply of natural or manufactured gas within
<PAGE>
the meaning of rule 16 under the Act. <FN4> CNG will seek such
additional authority as may be required in connection with these
activities.
Pursuant to rule 16, EPIC and each affiliate thereof,
including the Joint Venture, and TH and each existing and future
subsidiary and affiliate thereof, shall be exempt from all
obligations, duties or liabilities imposed upon it by the 1935
Act as a subsidiary company or an affiliate of a registered
holding company.
Related transactions
--------------------
CNG International will carry on the proposed activities
through one or more special-purpose subsidiary or associate
companies, partnerships, limited liability companies, joint
ventures or other entities (depending upon the legal and
regulatory requirements of the particular project) to be formed
with unrelated persons or entities for the sole purpose of
engaging in Foreign Energy Activities.
It is anticipated that financings by and among CNG
International and its subsidiaries will be generally exempt
pursuant to rule 52 under the Act. CNG requests the SEC reserve
jurisdiction over any financing transactions that are not so
exempt.<FN5>
Pursuant to the authorizations requested above and without
limiting the same, CNG International and its subsidiaries would
be able to acquire, without further SEC approval, voting or
nonvoting stock in one or more corporations, general partnership
interests or voting equity interests in one or more other joint
------------------------
<4> In connection with such activities, the participants will
rely on the exemptions provided by rules 16, 45 and 52, and such
other rules as may hereafter be adopted or are otherwise
applicable.
<5> CNG will file a post-effective amendment describing the
general terms of each such security and requesting a supplemental
order of the Commission authorizing such transactions. CNG
requests that supplemental orders be issued without further
public notice.
<PAGE>
business entities such as joint ventures or limited liability
companies, or up to 100% of the limited partnership interests in
one or more partnerships, provided all of such corporations,
partnerships or other entities are established for the sole
purpose of engaging in Foreign Energy Activities authorized by
the SEC.<FN6>
CNG International will fund the proposed transactions by
(i) selling shares of its common stock, $10,000 par value per
share, to CNG, (ii) open account advances as described below, or
(iii) long-term loans from CNG, 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 CNG
in the forms listed.
Open account advances may be made to CNG International on a
revolving basis to provide working capital and to finance the
activities authorized by the SEC. Open account advances will be
made under letter agreement with CNG International and will be
repaid on or before a date not more than one year from the date
of the first advance with interest at the same effective rate of
interest as CNG'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. Only outstanding amounts of
open account advances will be calculated against the $300 million
cap on financing requested herein.
CNG may make long-term loans to CNG International for the
financing of its activities. Loans to CNG International shall be
evidenced by long-term non-negotiable notes of CNG International
(documented by book entry only) maturing over a period of time
(not in excess of 50 years) to be determined by
--------------------
<6> This would be similar to the authorization granted to CNG
Energy in Commission order dated July 26, 1995, Holding Co. Act
Release No. 26341, File No. 70-8621.
<PAGE>
the officers of CNG, with the interest predicated on and equal to
CNG's cost of funds for comparable borrowings. In the event CNG
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.
CNG will obtain the funds required for CNG International
either through internal cash generation or from financings at the
time authorized by the SEC, such as pursuant to the five year
intrasystem financing authorization under Holding Co. Act Release
No. 26500 (March 28, 1996).
Authority is sought for CNG, CNG International and its
subsidiaries engaged in Foreign Energy Activities to enter
guarantee arrangements, obtain letters of credit, and otherwise
provide credit support with respect to obligations of their
respective subsidiaries to third parties as may be needed and
appropriate to enable them to carry on in the ordinary course of
their respective businesses. The maximum aggregate limit on all
credit support by CNG, CNG International and its subsidiaries,
including the credit support previously authorized for EWGs and
FUCOs, will be up to $300 million at any one time outstanding.
The $300 million in guarantees and other credit support is in
addition to the $300 million investment authority requested
elsewhere herein.
<PAGE>
RULE 54 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 SEC shall not consider the effect
of the capitalization or earnings of any subsidiary which is an
EWG or a FUCO upon the registered holding company system if rules
53(a), (b) or (c) are satisfied. Currently CNG owns indirectly,
through CNG Power Services Corporation, an EWG, a 1% general
partnership interest in Lakewood Cogeneration, L.P. ("Lakewood"),
also an EWG. CNG Power Company, a wholly-owned subsidiary of CNG
Energy Services Corporation, owns a 34% limited partnership
interest in Lakewood. CNG does not own any interests in a FUCO.
CNG believe that rule 53(a), (b) and (c) are satisfied in its
case as follows.
Fifty percent of CNG's retained earning as of June 30, 1996
was $716,932,000; CNG'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 Post-Effective Amendment is estimated
to be approximately $18,000,000, thereby satisfying rule
53(a)(1). CNG and its subsidiaries maintain books and records to
identify the investments in and earning 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 the United States generally
accepted accounting principles ("GAAP"), the financial statements
are prepared according to GAAP, and CNG undertakes to provide the
SEC access to such books and records and financial statements as
it may request. Employees of CNG's domestic public-utility
companies at this time do not render services, directly or
indirectly, to the EWGs in the CNG
<PAGE>
system, thereby satisfying rule 53(a)(3). Copies of the Form U-1
filings and the other filings required pursuant to rule 53(a)(4)
are being sent to the state regulators. None of the condition
described in rule 53(b) exist with respect to CNG, thereby
satisfying rule 53(b) and making rule 53(c) inapplicable.
<PAGE>
Item 2. Fees, Commissions and Expenses.
-------------------------------
The fees, commissions and expenses to be paid or incurred in
connection with the filing of this Application-Declaration are
estimated not to exceed $25,000, including the SEC's $2,000
filing fee, fees payable to Consolidated Natural Gas Service
Company, Inc. ("Service Company") for services on a cost basis
(including fees of regularly employed counsel).
Item 3. Applicable Statutory Provisions.
--------------------------------
3.1 Authorization Requested. By order dated May 30, 1996,
------------------------
CNG was authorized to establish CNG International to invest in
FUCOs and EWGs located outside of the United States. Holding Co.
Act Release No. 26523. The order further authorized the
formation and capitalization of intermediate subsidiaries to hold
interests in such EWGs and FUCOs, and the provision of up to $300
million credit support for these entities. In the May order, the
SEC reserved jurisdiction, pending completion of the record,
over: (i) the investment by CNG, through CNG International, of up
to $300 million in entities that would engage in Consulting and
Support Services and Foreign Energy Activities, (ii) the
provision by CNG, CNG International and its subsidiaries of
credit support agreements aggregating, together with EWG/FUCO
credit support, up to $300 million credit support as it relates
to these activities, (iii) the issue and sale of nonexempt
securities by CNG International and its subsidiaries, (iv)
certain affiliate transactions; and (v) associated reporting
requirements.
<PAGE>
By order dated October 25, 1996, the SEC authorized CNG to
invest, through CNG International, up to an aggregate amount of
$75 million in two South American pipeline projects.
Specifically, CNG has been authorized to invest up to $50 million
in connection with a consortium bid to acquire a 50% economic
interest in, and operational control of the hydrocarbon
transportation unit of Yacimientos Petroliferos Fiscales
Bolivianos, the Bolivian state-owned oil and gas company. The
SEC also authorized CNG to invest up to $25 million in connection
with a proposal to construct, own and operate a gas pipeline
between Buenos Aires, Argentina and Montevideo, Uruguay. The SEC
reserved jurisdiction for three years over the acquisition of an
interest in an oil pipeline in connection with the Bolivian gas
pipeline project. Holding Co. Act Release No. 26595.
CNG now requests authority to invest up to $75 million
through CNG International in the Australian Pipeline Projects,
and for such related transactions as may be necessary to
effectuate the acquisition of an interest in the Australian
Pipeline Projects.
3.2 General Provisions. The proposal herein is subject to
-------------------
sections 9(a),10, 11, 32 and rules 16 and 54, and the Gas Related
Activities Act of 1990. In its order dated October 25, 1996, the
SEC found that investments by CNG in foreign gas pipeline
projects "constitute entry into the business of transportation of
natural gas subject to section 2(a) of the [Gas Related
Activities Act of 1990]." Holding Co. Act Release No. 26595.
Thus, these acquisitions are deemed to satisfy the requirements
of section 11(b)(1) of the Act.
As the SEC notes, the other requirements of section 10 of
the Act continue to apply. CNG submits that these requirements
are met for the reasons set forth in post-effective amendment no.
3 in this matter. Briefly stated, the proposed Foreign Energy
Activities are a necessary complement to
<PAGE>
the foreign utility activities authorized under the Energy Policy
Act of 1992. Strategic benefits are anticipated to stem from the
company's participation in new energy markets. While investments
in foreign projects may pose risks that do not arise in the
domestic electric utility industry, these risks are not an
absolute bar to foreign investment. Rather, as the SEC
emphasized in its recent order permitting Southern to invest an
amount equal to 100% of its consolidated retained earnings in
exempt wholesale generators and foreign utility companies, there
is a need for the registered holding company to establish
procedures to identify and mitigate such risks.<FN7>
In this matter, as discussed previously, there are ample
safeguards for consumer interests. The transactions will be
structured so that investors and not consumers will bear the
risks that may be associated with these new ventures. As
explained previously, CNG conducts a thorough review of any
proposed investment, with a view toward risk management. The
international operations will be conducted with the same prudence
and sound business judgment that has resulted in CNG's present
status as one of the country's most financially sound energy
providers.
Accordingly, for the reasons set forth above, CNG requests
that the SEC authorize the proposed pipeline investments and
reserve jurisdiction over the other proposed gas transmission and
storage, gas exploration and production and the marketing and
brokering of energy commodities, pending completion of the
record.
Item 4. Regulatory Approval
-------------------
--------------------------
<7> Southern Co., Holding Co. Act Release No. 26501 (Apr. 1,
------------
1996).
<PAGE>
The authorization sought herein is not subject to the
jurisdiction of any State or Federal Commission (other than the
SEC).
Item 5. Procedure
---------
It is hereby requested that the SEC issue its order with
respect to the two proposed pipeline transactions on or before
November 19, 1996.
It is submitted that a recommended decision by a hearing or
other responsible officer of the SEC is not needed with respect
to the proposed transactions. The Division of Investment
Management - Office of Public Utility
Regulation may assist in the preparation of the SEC's decision.
There should be no waiting period between the issuance of the
SEC's order and the date on which it is to become effective.
Subject to the terms and conditions prescribed in rule 24
under the Act, except that the certificates required to be filed
thereunder shall be filed within forty-five days following the
end of each calendar quarter and shall include:
(1) a copy of the Joint Venture's balance sheet and income
statement and any related notes; and
(2) a brief narrative description of the Australian
Pipeline Projects (including in particular the project size,
location and scope of operation, and specifying any activities
engaged in by the Joint Venture in respect of the development,
operations, maintenance, and management of the Australian
Pipeline Projects); and
(3) within ninety days following consummation of the sale
of each pipeline project, a certificate so stating the
applicant's investment position, accompanied by a detailed
description of each foreign pipeline project in respect of which
the applicant has acquired an interest; and
(4) on an annual basis with ninety days following each June
30 and December 31, in respect of each pipeline project entity in
which the applicant has acquired an interest, a description of
each pipeline project and a copy of each entity's balance sheet,
income statement and any related notes, all in English.
Item 6. Exhibits and Financial Statements
---------------------------------
The following exhibits and financial statements are made a
part of this statement:
(a) Exhibits
F Opinion of counsel for CNG and CNG International
(previously filed).
G Form of Notice (previously filed).
Item 7. Information as to Environmental Effects
---------------------------------------
The proposed transactions do not involve major federal
action having a significant effect on the human environment. No
federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
<PAGE>
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: /s/ D. M. Westfall
---------------------------
D. M. Westfall
Senior Vice President
and Chief Financial Officer
CNG INTERNATIONAL CORPORATION
By: /s/ N. F. Chandler
-----------------------------
N. F. Chandler
Its attorney
Date: November 19, 1996
