<PAGE> 1
File Number 70-8883
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
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 70-8883
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of 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."
CNG Energy Services Corporation ("Energy Services"), a Delaware
corporation, is a wholly-owned nonutility subsidiary of Consolidated. Energy
Services, pursuant to various orders issued by the Securities and Exchange
Commission ("SEC" or "Commission") beginning in 1987(1), engages in the gas
__________________
(1) See SEC order dated February 27, 1987, HCAR No. 24329.
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marketing and power generation business. Consolidated and Energy Services are
collectively referred to herein as the "Applicants."
II. PROPOSED INVESTMENTS IN ENERGY COMMODITY MARKETING ACTIVITIES
The Applicants seek authority for Energy Services to invest, through
December 31, 2001, up to $250 million to expand its business to include that of
marketing power and other energy commodities (in addition to natural gas), fuel
management and other energy related activities as described in more detail
below. The Applicants also seek authority to provide up to $250 million in
guarantees or other credit support to subsidiaries engaged in energy commodity
marketing activities ("Marketing Subsidiaries"). The $250 million limit does
not apply to gas marketing activities for which Energy Services already has
authorization or which will be conducted through Marketing Subsidiaries;
financing of such gas marketing activities would occur either pursuant to Rule
52 or, as to Energy Services, through the CNG System omnibus financing
authorization in Commission order dated March 28, 1996, HCAR No. 26500.
Since the converging energy markets have achieved a rapid stage of
development, request is made for expeditious processing of this application-
declaration so that the opportunity for Energy Services to become a significant
participant in such markets may not be irrevocably lost.
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III. DESCRIPTION OF ENERGY SERVICE'S PROPOSED ENERGY COMMODITY MARKETING
ACTIVITIES
The Applicants propose that Energy Services and the Marketing
Subsidiaries engage in all forms of brokering and marketing transactions
involving energy commodities, including electricity, natural gas, coal, oil,
other hydrocarbons, wood chips, wastes and other combustibles, at wholesale and
at retail. Marketing Subsidiaries may be corporations, partnerships, limited
liability companies, joint ventures or other entities in which Energy Services
may have a 100% interest, or a majority or a minority equity or debt position
with nonaffiliates. It is also proposed that Energy Services and the Marketing
Subsidiaries provide incidental related services, such as fuel management,
storage and procurement. Energy Services and its Marketing Subsidiaries are
hereinafter collectively referred to as "Marketing Companies."
The Applicants propose that a Marketing Company conduct such activities
without regard to the location or identity of customers or source of revenues.
However, the Applicants request the Commission to reserve jurisdiction over any
activities by a Marketing Company outside the United States, pending completion
of the record in this proceeding. Specifically, a Marketing Company will not
make any sales of electricity or natural gas to retail customers in any state
unless authorized or permitted to make such sales under applicable state laws
or regulations.
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To the extent that it may not already be authorized to do so(2), Energy
Services also requests authorization for itself or the Marketing Subsidiaries
to acquire or construct physical assets that are incidental and reasonably
necessary in the day-to-day conduct of marketing operations, such as oil and
gas storage facilities, gas, oil or coal reserves, or a pipeline spur needed
for deliveries of fuel to an industrial customer. The Applicants represent,
however, that a Marketing Company will not acquire any assets or make any
retail sales of energy commodities if, as a result of the transaction, it would
become a "public utility company" within the meaning of the Act.
With the considerable gas supply from all market sources, including from
Consolidated, the plentiful supply of reliable electric power from all market
sources, the financial strength of Consolidated, and Energy Service's fuel
management capabilities, Energy Services is expected to give its customers
excellent choices in buying, selling, borrowing and loaning of natural gas,
___________________
(2) For example, Energy Services is authorized under an SEC order dated July
26, 1995, HCAR No. 26341, to acquire, without additional prior Commission
approval, up to a 50% interest in a corporation or partnership formed to
engage in gas related activities, including investing in facilities to
transport gas.
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electricity, and other fuels as well as additional choices in how they manage
their operations.(3)
Energy commodity marketing transactions may take a variety of
different forms. In general, these transactions involve contracts under which
the performance of the parties is expressed in terms of the obligation to make
or take physical delivery of electricity, gas or other energy commodities, as
well as the purchase and sale of commodity-based derivative contracts, such as
options, swaps and exchange-traded futures contracts, under which physical
delivery may or may not in fact occur. Arbitrage transactions may also occur
through which one form of energy may be exchanged for another form of energy.
The Marketing Companies will take appropriate measures in the normal
course of their business to mitigate the risks associated with electric power
and fuel purchases or sales contracts. Such measures may include matches
between long-term firm or variable price electric power sales contracts and
long-term firm or variable price fuel purchase contracts. The Marketing
Companies also may hedge fuel price risk through the purchase of fuel or fuel
reserves or options on fuel reserves.
___________________
(3) The CNG System through CNG Power Services Corporation ("CNGPS") already
offers a degree of such choices. CNGPS is a wholly-owned subsidiary of
Consolidated that is an exempt wholesale generator ("EWG") under Section 32
of the Act and a power marketer. To the extent that the energy commodity
marketing activities of Energy Services would include that of a power
marketer, they would broadly encompass the same kind of business as that
currently being conducted by CNGPS. It is anticipated that CNGPS, since it
is limited as to its activities as an EWG, will evolve into having a
proportionally smaller role as a power marketer once Energy Services is
authorized to be a power marketer. For example, Energy Services desires to
engage in retail sales of electric power whereas CNGPS as an EWG is barred
from such business.
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In addition, the Marketing Companies may purchase or sell commodity-based
derivative instruments, such as electricity or gas futures contracts and
options on electricity or gas futures, similar to those traded on the New York
Mercantile Exchange, and gas and oil price swap agreements and other, primarily
commodity-based, derivative instruments.
The Marketing Companies may also offset price risk exposure under a
purchase or sales contract through an opposite position to the purchase or
sale. Similarly, in a portfolio of purchase and sales contracts, risk also
could be limited through an appropriate mix of long-term and short-term
contracts, and diversification of the mix of customers and suppliers regionally
and across industry lines. Finally, the Marketing Companies will endeavor to
limit risk exposure through contract provisions that would place a ceiling on
the amount of damages payable when performance failure occurs, and/or exclude
consequential damages.
Ultimately, the Marketing Companies will seek to manage a "book" of
various energy contracts involving purchases, sales and trades of electricity
and other energy commodities. The Marketing Companies will seek to hedge the
risks associated with these contracts through a combination of physical assets,
balanced physical purchases and sales, purchases and sales on futures markets,
or other derivative risk management tools.
Energy Services currently engages in gas-related derivatives in order to
hedge against commodity price risks inherent in its gas marketing business.
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Energy Services intends to engage in transactions involving both gas, power and
other fuel capacity rights, rate swaps and other commodity-based derivative
products that may be developed for use in the energy markets in which it will
participate in the ordinary course of its business as an energy company.
Energy Services 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 under Order 888 of the Federal Energy Regulatory
Commission ("FERC") in parallel fashion to the open-access developments of the
gas markets under FERC Order 636. Power derivative markets have first occurred
in those parts of the United States, such as the West Coast, that have
relatively balanced power generation costs and more liquidity. 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 leveling of prices.
Energy Services will not deal in such derivative products for purposes of
speculation, but rather would use them only to reduce price-risk exposure
through hedging.
Energy Services may engage in energy commodity marketing activities with
the gas utility companies in the Consolidated System(4) or other affiliates in
____________________
(4) The utility companies in the Consolidated System are The East Ohio Gas
Company, The Peoples Natural Gas Company, Virginia Natural Gas, Inc., Hope
Gas, Inc, and West Ohio Gas Company.
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the Consolidated System on the same market terms that would be available to
nonaffiliate customers of Energy Services.
All proposed brokering and marketing activities, including the fuel-for-
energy and energy commodity brokering and marketing activities, will be
conducted by personnel of Energy Services.
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 in energy commodity marketing
activities of the Marketing Companies or for any inadequate returns on such.
IV. ENERGY COMMODITY MARKETING ACTIVITIES APPROPRIATE UNDER SECTION
11(b)(1) OF THE ACT
Under Section 10(c)(1) of the Act, the Commission cannot approve an
acquisition that would be detrimental to the carrying out of the provisions of
Section 11. Section 11 directs the Commission to limit the nonutility
interests of a registered holding company to those that are reasonable
incidental, or economically necessary or appropriate to such company's utility
operations, including interests in any other business which the Commission
finds 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.
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The applicants believe that in view of the increasing integration of the
energy markets, the Commission should find that the approval of the proposal
for the Marketing Companies to engage in energy commodity marketing activities
would not be detrimental to the carrying out of Section 11 and so require an
adverse finding under Section 10(c)(1). The Applicants' request for the
Marketing Companies with respect to energy commodity brokering and marketing
activities in wholesale and retail markets is consistent with recent orders
that have authorized registered holding companies to engage in these
activities.
By order dated August 18, 1995, HCAR No. 26359, the Commission
permitted a service company subsidiary of Northeast Utilities Service Co., a
registered electric holding company, to market electric power, and to
substitute other forms of energy for electricity.
By order dated March 14, 1996, HCAR No. 26493, the Commission authorized
a subsidiary of Eastern Utilities Associates to buy, sell and broker electric
power in wholesale markets, and to furnish fuel marketing services to electric
power producers. The Commission in such order reserved jurisdiction over such
subsidiary's buying, selling and brokering electric power and fuel in retail
markets and to any party other than an electric power producer, pending
completion of the record.
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Commodity marketing activities for which Energy Services herein seeks
authorization are similar to those activities authorized for a subsidiary of
Energy Services in Commission order dated April 30, 1996 (the "Energy Alliance
Order"), HCAR No. 26512. In the Energy Alliance Order, the Commission approved
the proposed acquisition by a new special purpose subsidiary of Energy Services
of an interest in the Energy Alliance Partnership, a nonutility company to be
formed to engage in marketing and brokering not only of natural gas, but also
of electric power and other fuels, in both wholesale and retail markets.(5)
The Energy Alliance Order is broad in that it permits the Consolidated System
to engage, without geographic restriction, in marketing and brokering
activities as a full participant in the integrated energy markets. The
partnership formed to engage in this business can deal in various types of
energy commodities rather than limiting itself to
energy of the type sold by the utilities in the registered system (in this
______________________
(5) The Commission found "...that approval of the proposed acquisitions would
not be 'detrimental to the carrying out of the provisions of section 11'
and so require an adverse finding under section 10(c)(1)." In addition,
the Commission noted "...that the transactions would appear to be within
the plain meaning of the statute, viz the proposed brokering and marketing
and related activities are 'reasonably incidental, or economically
necessary or appropriate on a finding that they are necessary or
appropriate in the public interest or for the protection of investors or
consumers and not detrimental to the proper functioning of the integrated
public-utility system.'" HCAR No. 26512, P. 14.
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case, gas).(6) Energy Services should be granted the same authority as has
already been granted to its proposed subsidiary.
The Commission by supplemental order dated May 23, 1996, HCAR No.
26519, released its reservation of jurisdiction over Eastern Utilities
Associates' retail marketing of electric power with respect to pilot retail
programs in New Hampshire and Massachusetts. In this order the Commission
noted that competitive pressures are rapidly increasing in the contemporary
electric business. This increased competition until now has been most evident
in the bulk power market, but there have recently been an increasing number of
proposals that would allow a retail customer to choose its electricity supplier
and require utilities to engage in retail wheeling. The Commission further
stated that it recognized the need to apply the standards of Section 9(a)(1)
and 10, and by reference Section 11(b)(1), in light of the changing realities
of the utility industry. It noted, among other things, the national policy
(reflected most recently in Order No. 888 of FERC) to promote efficient and
competitive energy markets. In an earlier order, Eastern Utilities Assocs.,
HCAR No. 26232 (Feb. 15, 1995), the Commission acknowledged that participation
of registered system companies in energy marketing and brokering activities
may promote greater competition and thus further the public interest in a sound
electric and gas utility industry. The Commission stated in the May 23, 1996
Eastern Utilities Associates order that these same concerns extend to
competition in retail as well as wholesale markets.
___________________
(6) With respect to gas registered systems in particular, the Commission noted
"...that federal legislation specifically encourages gas holding companies
to invest and participate in.....projects involving electric power." Id.,
P.12.
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By order dated May 23, 1996, HCAR No. 26520, the Commission authorized
New England Electric System to, among other things, establish marketing
companies to market electric power at retail and wholesale at negotiated prices
in certain enumerated states. By order dated May 31, 1996, HCAR No. 26527, the
Commission authorized the expansion of electricity, natural gas and other
energy commodities marketing activities for a subsidiary of Unitil Corporation.
The Commission reserved jurisdiction over retail sales except those occurring
as part of these registered systems' participation in the New Hampshire and
Massachusetts pilot programs. Both orders contain a discussion of the
increasingly competitive energy markets.
In its order dated September 26, 1996, SEI Holdings, Inc., HCAR No.
26581, the Commission found the proposal of a subsidiary of The Southern
Company to engage in energy commodity activities to meet the applicable
standards of the Act.(7) This order is significant in that the Commission
dispensed with its prior position that retail marketing proposals could only be
approved on a state-by-state basis after a detailed review of specific state
laws or programs concerning retail wheeling. In the SEI Holdings order, the
Commission found that industry trends and competitive pressures made it
important for registered system companies to be poised to compete in new
markets as they are created. Such participation was stated as promoting the
goals of United States energy policy, including increased competition and lower
utility rates, and also facilitating effective state regulation.
___________________
(7) The energy commodity marketing activities authorized in this order are
almost identical to those proposed by the Applicants herein
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Changes in the structure and functioning of the energy industry were
examined in a recent study and report by the Division of Investment Management.
See The Regulation of Public-Utility Holding Companies, Report of the Division
of Investment Management, Securities and Exchange Commission (June 1995) (the
"Report"). The Commission approved the issuance of the Report on June 20,
1995. In the Report, the Commission recognized the national policy to promote
efficient and competitive energy markets. The Report further recognizes the
evolution of the registered holding companies away from traditional utility
activities and towards broader energy-related businesses.(8)
Pursuant to a recommendation in the Report(9), the Commission on June 20,
1995 proposed the adoption of Rule 58, HCAR No. 26313. Rule 58 would exempt
from prior Commission approval, as being in the ordinary course of business
pursuant to Section 9(c)(3), the acquisition by a registered holding company or
any of its subsidiaries of securities of an energy-related company or gas-
___________________
(8) "In recent years, there has been a dramatic increase in the volume of
applications by registered holding companies seeking to engage in
nonutility activities that compliment, or are natural extensions of, the
gas and electric utility businesses. These filings reflect an evolution of
the registered holding companies away from traditional, regulated utility
functions and towards broader energy-related businesses." The Report,
P. 88.
(9) "The SEC must continue to respond flexibly to change in the utility
industry. Toward this end, the Division believes that the registered
holding companies should be permitted to invest in diversified activities
without unnecessary regulatory obstacles and recommends consideration of a
rule that would exempt, subject to certain conditions, investments in
specified energy-related activities from prior SEC approval." Id., P. 87.
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related company (as respectively defined in the proposal).(10) Acquisitions of
securities under the rule would be subject to certain reporting requirements,
and acquisitions of securities of an energy-related company would also be
subject to certain investment limitations. The applicants believe that the
energy commodity marketing activities for which approval is requested in this
proceedings would come within the types of activities enumerated in the
proposed rule as permitted for an energy-related or gas-related company.
Considering the above authorities, the granting of authority for Energy
Services and the Marketing Subsidiaries to engage in energy commodity marketing
activities would clearly be within the perimeters of the Commission's current
interpretation of Section 11(b)(1) policy under the Act.
____________________
(10) "The proposed rule and related rule amendments will eliminate unnecessary
regulatory burdens and paperwork associated with filings by a registered
holding company for Commission approval to invest in nonutility businesses
that are closely related to a system's core utility business." HCAR No.
26313, P. 1. "The Commission believes that the registered holding-company
systems should be relieved of the regulatory burden of having to file
multiple applications for authority to engage in nonutility activities,
through investments in the securities of other companies, that are of the
same or similar character or type as those the Commission has allowed in
previous cases." Id. P. 24.
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V. 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, $1.00 par value, to
Consolidated at an amount greater than par up to a maximum of $10,000 per
share, (ii) open account advances as described below, or (iii) long-term loans
from Consolidated, in any combination thereof. Transactions in amounts in
excess of $250,000,000 used to engage in non-gas energy commodity marketing
activities 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:
(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
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evidenced by long-term non-negotiable notes of Energy Services
(documented by book entry only) maturing over a period of time (not
in excess of 30 years) to be determined by the officers of
Consolidated, with the interest predicated on and equal to
Consolidated's cost of funds for comparable borrowings. In the
event Consolidated has not had recent comparable borrowings, the
rates will be tied to the Salomon Brothers indicative rate for
comparable debt issuances published in Salomon Brothers Inc. Bond
Market Roundup or similar publication on the date nearest to the
time of takedown. All loans may be prepaid at any time without
premium or penalty.
Consolidated will obtain the funds required for Energy Services through
internal cash generation, issuance of long-term debt securities, borrowings
under credit agreements or through other authorizations approved by the
Commission.
VI. GUARANTEES
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
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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.
By order dated March 28, 1996, Release No. 35-26500, File No. 70-8667,
the SEC authorized Consolidated, through March 31, 2001, to enter into
guarantee arrangements, obtain letters of credit and otherwise provide credit
support with respect to the obligations of Energy Services and other applicants
in such proceeding. The aggregate amount of all such arrangements would not
exceed $2 billion. Guarantees by Consolidated of Energy Services' obligations
arising in connection with it engaging in energy commodity marketing activities
would occur under such authorization. The Applicants request the authority to
provide the same type of credit support, in an amount not to exceed an
aggregate of $250 million, to Marketing Subsidiaries.
VII. 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
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Energy Services can be in any combination of these three forms of financing;
and any financing between Energy Services and any of its Marketing Subsidiaries
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 the respective subsidiary. All the authorizations described below
would be for a period ending December 31, 2001.
(1) For Energy Services to obtain up to $250,000,000 from Consolidated
for the purpose of accomplishing its direct or indirect investment
in non-gas energy commodity marketing activities and for its
indirect investment in non-gas energy marketing activities of
Marketing Subsidiaries.
(2) For Marketing Subsidiaries to engage in energy commodity marketing
activities and to obtain up to $250,000,000 from Energy Services
needed for such Marketing Subsidiaries to engage in non-gas energy
commodity marketing activities.(11)
(3) For the Applicants to make guarantees and provide other credit
support up to an aggregate of $250,000,000 for Marketing
Subsidiaries.
__________________
(11) As indicated earlier, there would be no dollar limit on gas marketing
activities of Marketing Subsidiaries, the financing for which would occur
under Rule 52.
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VIII. 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 foreign utility company
("FUCO") as defined in Section 33(a)(3) of the Act, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rules 53(a), (b) or (c) are satisfied.
Currently Consolidated owns indirectly, through CNGPS, an EWG, a 1% general
partnership interest in Lakewood Cogeneration, L.P. ("Lakewood"), also an EWG.
CNG Power Company, a wholly-owned subsidiary of Energy Services, owns a 34%
limited partnership in Lakewood. 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 June 30, 1996 was
$716,932,000; 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
<PAGE> 21
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). Copies of the Form U-1 filings have been
sent to the state regulators pursuant to Rule 53(2)(4) in connection with
Consolidated's only filing for EWG and FUCO financing, File No. 70-8759. An
order was issued in such proceeding on May 30, 1996 (Release No. 35-26523).
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.
X. RULE 24 CERTIFICATES
It is also requested that Rule 24 Certificates of Notification be filed
within 60 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 balance sheet as of the end of such period, and a statement of
income and expense for the period for each Marketing Subsidiary.
2. A statement indicating as a percentage of total revenues of Energy
Services for the period, the amount of revenues attributable to
non-gas energy commodity marketing activities of Energy Services
and all energy commodity marketing activities of Marketing
Subsidiaries.
<PAGE> 22
3. The agreement and transaction information contained in the
attachments to the Marketing Companies' power marketing
informational filings with FERC.
4. The applicants' guarantees or other credit support of energy
commodity marketing activities of Marketing Companies.
The above information will be reported in the Rule 24 Master Certificates
of Notification filed under File No. 70-8667.
Item 2. Fees, Commissions and Expenses
______________________________
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 $22,000, consisting of the
$2,000 filing fee under the Act, $15,000 payable to Consolidated Natural Gas
Service Company, Inc. ("Service Company") for services on a cost basis
(including regularly employed counsel) for the preparation of this
application-declaration and other documents, and $5,000 for miscellaneous other
expenses.
The charges of Consolidated Natural Gas Service Company, Inc., a
subsidiary service company, for services on a cost basis (including regularly
employed counsel) in connection with the preparation of this
application-declaration and other related documents and papers required to
consummate the proposed transactions are as stated above.
<PAGE> 23
Item 3. Applicable Statutory Provisions
_______________________________
Sections 6(a) and 7 and Rule 43 are deemed applicable to the issuance of
securities by Energy Services and/or Marketing Subsidiaries.
Sections 9(a) and 10 are deemed applicable to the acquisitions (i) by
Consolidated of the capital stock, open account advance debits and notes of
Energy Services, (ii) by Energy Services of the capital stock or other equity
interests, open account advance debits and notes of Marketing Subsidiaries and
(iii) by Marketing Subsidiaries of the capital stock or other equity interests,
open account advance debits and notes of Marketing Subsidiaries at the next
lower tier.
Sections 12(b) and Rule 45 are considered applicable to guarantees or
other credit support arrangements by Energy Services and/or Marketing
Subsidiaries of their respective subsidiaries in connection with energy
commodity marketing activities.
Section 11(b)(1) of the Act applies to the energy commodity marketing
activities proposed by Energy Services.
<PAGE> 24
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 herein above, such authorization, approval
or exemption is hereby requested.
Item 4. Regulatory Approval
___________________
The financing authorization sought herein is not subject to the
jurisdiction of any State or Federal Commission (other than the Commission).
However, FERC approval is required for an entity to become a wholesale power
marketer, and approval from a state under various state retail power marketing
programs for an entity to be a participant therein may also be required.
Item 5. Procedure
_________
Given the pressing competitive conditions and the need to immediately
enter into test markets, it is hereby requested that the Commission issue its
order with respect to the transaction proposed herein as soon as possible, but
in any event on or before December 1, 1996.
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 -
<PAGE> 25
Office of Public Utility Regulation may assist in the preparation of the
Commission's decision. There should be no waiting period between the issuance
of the Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
(a) Exhibits
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)
F Opinion of counsel for Consolidated and Energy Services.
(To be filed by amendment)
O Draft of Notice.
(b) Financial Statements
Financial statements are deemed unnecessary with respect to the
authorizations herein sought due to the nature of the matter proposed.
However, Consolidated will furnish any financial information that the
Commission shall request.
<PAGE> 26
Item 7. Information as to Environmental Effects
_______________________________________
The proposed financing 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.
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: October 21, 1996
<PAGE> 1
EXHIBIT O
(Proposed Notice Pursuant to Rule 22f)
(Release No. 35- )
FILINGS UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("ACT")
October , 1996
Notice is hereby given that the following filing(s) has/have been made with the
Commission pursuant to provisions of the Act and rules promulgated thereunder.
All interested persons are referred to the application(s) and/or declaration(s)
for complete statements of the proposed transaction(s) summarized below. The
application(s) and/or declaration(s) and any amendments thereto is/are
available for public inspection through the Commission's Office of Public
Reference. Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
November , 1996 to the Secretary, Securities and Exchange Commission,
Washington, DC 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) specified below. Proof of service (by
affidavit or, in case of an attorney at law, by certificate) should be filed
with the request. Any request for hearing shall identify specifically the
issues of fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any notice or
order issued in the matter. After said date, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted to
become effective.
<PAGE> 2
Consolidated Natural Gas Company, et al. (70- )
__________________________________________________
Consolidated Natural Gas Company ("Consolidated"), CNG Tower, Pittsburgh,
Pennsylvania 15222-3199, a registered holding company, and its wholly-owned
non-utility subsidiary, CNG Energy Service Corporation ("Energy Services"), One
Park Ridge Center, Pittsburgh, Pennsylvania 15244-0746, have filed an
application-declaration under Sections 6(a), 7, 9(a), 10 and 12(b) of the Act
and Rule 45 thereunder.
Energy Services, pursuant to various orders issued by the Securities and
Exchange Commission ("SEC" or "Commission") beginning in 1987 (See order dated
February 27, 1987, Release No. 35-24329, File No. 70-7225), engages in the gas
marketing and power generation business. Consolidated and Energy Services are
collectively referred to as the "Applicants."
The Applicants seek authority for Energy Services to invest, through
December 31, 2001, up to $250 million to expand its business to include that of
marketing power and other energy commodities (in addition to natural gas), fuel
management and other energy related activities as described in more detail
below. The Applicants also seek authority to provide up to $250 million in
guarantees or other credit support to subsidiaries engaged in energy commodity
marketing activities ("Marketing Subsidiaries"). The $250 million limit does
not apply to gas marketing activities for which Energy Services already has
authorization or which will be conducted through Marketing Subsidiaries;
financing of such gas marketing activities would occur either pursuant to Rule
52 or, as to Energy Services, through the CNG System omnibus financing
authorization in Commission order dated March 28, 1996, HCAR No. 26500.
<PAGE> 3
The Applicants propose that Energy Services and the Marketing
Subsidiaries engage in all forms of brokering and marketing transactions
involving energy commodities, including electricity, natural gas, coal, oil,
other hydrocarbons, wood chips, wastes and other combustibles, at wholesale and
at retail. Marketing Subsidiaries may be corporations, partnerships, limited
liability companies, joint ventures or other entities in which Energy Services
may have a 100% interest, or a majority or a minority equity or debt position
with nonaffiliates. It is also proposed that Energy Services and the Marketing
Subsidiaries provide incidental related services, such as fuel management,
storage and procurement. Energy Services and its Marketing Subsidiaries are
collectively referred to as "Marketing Companies."
The Applicants propose that a Marketing Company conduct such activities
without regard to the location or identity of customers or source of revenues.
However, the Applicants request the Commission to reserve jurisdiction over any
activities by a Marketing Company outside the United States, pending completion
of the record in this proceeding. Specifically, a Marketing Company will not
make any sales of electricity or natural gas to retail customers in any state
unless authorized or permitted to make such sales under applicable state laws
or regulations.
To the extent that it may not already be authorized to do so, Energy
Services also requests authorization for itself or the Marketing Subsidiaries
to acquire or construct physical assets that are incidental and reasonably
necessary in the day-to-day conduct of marketing operations, such as oil and
<PAGE> 4
gas storage facilities, gas, oil or coal reserves, or a pipeline spur needed
for deliveries of fuel to an industrial customer. The Applicants represent,
however, that a Marketing Company will not acquire any assets or make any
retail sales of energy commodities if, as a result of the transaction, it would
become a "public utility company" within the meaning of the Act.
Energy commodity marketing transactions may take a variety of different
forms. In general, these transactions involve contracts under which the
performance of the parties is expressed in terms of the obligation to make or
take physical delivery of electricity, gas or other energy commodities, as well
as the purchase and sale of commodity-based derivative contracts, such as
options, swaps and exchange-traded futures contracts, under which physical
delivery may or may not in fact occur. Arbitrage transactions may also occur
through which one form of energy may be exchanged for another form of energy.
The Marketing Companies will take appropriate measures in the normal
course of their business to mitigate the risks associated with electric power
and fuel purchases or sales contracts. Such measures may include matches
between long-term firm or variable price electric power sales contracts and
long-term firm or variable price fuel purchase contracts. The Marketing
Companies also may hedge fuel price risk through the purchase of fuel or fuel
reserves or options on fuel reserves.
<PAGE> 5
In addition, the Marketing Companies may purchase or sell commodity-based
derivative instruments, such as electricity or gas futures contracts and
options on electricity or gas futures, similar to those traded on the New York
Mercantile Exchange, and gas and oil price swap agreements and other, primarily
commodity-based, derivative instruments.
Energy Services currently engages in gas-related derivatives in order to
hedge against commodity price risks inherent in its gas marketing business.
Energy Services intends to engage in transactions involving both gas, power and
other fuel capacity rights, rate swaps and other commodity-based derivative
products that may be developed for use in the energy markets in which it will
participate in the ordinary course of its business as an energy company.
Energy Services will need to use such products in order to remain competitive
in such markets.
Energy Services may engage in energy commodity marketing activities with
the gas utility companies in the Consolidated System or other affiliates in
the Consolidated System on the same market terms that would be available to
nonaffiliate customers of Energy Services.
All proposed brokering and marketing activities, including the fuel-for-
energy and energy commodity brokering and marketing activities, will be
conducted by personnel of Energy Services.
<PAGE> 6
It is proposed for Energy Services to raise funds for the purposes
described herein by (i) selling shares of its common stock, $1.00 par value, to
Consolidated at an amount greater than par up to a maximum of $10,000 per
share, (ii) open account advances as described below, or (iii) long-term loans
from Consolidated, in any combination thereof. Transactions in amounts in
excess of $250,000,000 used to engage in energy commodity marketing activities
(in addition to natural gas) 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:
(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
<PAGE> 7
(documented by book entry only) maturing over a period of time (not
in excess of 30 years) to be determined by the officers of
Consolidated, with the interest predicated on and equal to
Consolidated's cost of funds for comparable borrowings. In the
event Consolidated has not had recent comparable borrowings, the
rates will be tied to the Salomon Brothers indicative rate for
comparable debt issuances published in Salomon Brothers Inc. Bond
Market Roundup or similar publication on the date nearest to the
time of takedown. All loans may be prepaid at any time without
premium or penalty.
Consolidated will obtain the funds required for Energy Services through
internal cash generation, issuance of long-term debt securities, borrowings
under credit agreements or through other authorizations approved by the
Commission.
By order dated March 28, 1996, Release No. 35-26500, File No. 70-8667,
the SEC authorized Consolidated, through March 31, 2001, to enter into
guarantee arrangements, obtain letters of credit and otherwise provide credit
support with respect to the obligations of Energy Services and other applicants
in such proceeding. The aggregate amount of all such arrangements would not
exceed $2 billion. Guarantees by Consolidated of Energy Services' obligations
arising in connection with it engaging in energy commodity marketing activities
would occur under such authorization. Energy Services requests the authority
<PAGE> 8
to provide the same type of credit support, in an amount not to exceed an
aggregate of $250 million, to its Marketing Subsidiaries as it may be able to
obtain from Consolidated.
____________________________
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
Jonathan G. Katz
Secretary
