<PAGE> 1
File Number 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and the direct
or indirect parent of the other parties)
CNG ENERGY SERVICES CORPORATION
CNG POWER COMPANY
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-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
___________________________________
INTRODUCTION
Consolidated Natural Gas Company (the "Company" or "Consolidated") is a
public utility holding company registered under the Public Utility Holding
Company Act of 1935 ("Act"), and is in the business of directly owning and
holding all of the outstanding securities (except for certain indebtedness of a
distribution company acquired in 1990) of sixteen companies principally engaged
in the natural gas business. The said subsidiary companies are engaged in
natural gas exploration, production, purchasing, gathering, transmission,
storage, distribution, marketing and by-product operations. Consolidated and
its subsidiaries are herein referred to as the "Consolidated System" or "CNG
System."
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
<PAGE> 3
and power marketing and power generation business. CNG Power Company ("Power
Company"), a Delaware corporation, is a wholly-owned subsidiary of Energy
Services and is engaged principally in the power generation business.
Consolidated, Energy Services and Power Company are collectively referred to
herein as the "Applicants."
ACQUISITION OF INTERESTS IN EXEMPT WHOLESALE GENERATORS
Consolidated proposes that Power Company become the primary vehicle for
the Company to invest in exempt wholesale generators ("EWGs"), as defined in
Section 32(a) of the Act, within the United States. Sections 32 and 33 were
added to the Act by the Energy Policy Act of 1992 ("Energy Policy Act")(2).
CNG International Corporation, a wholly-owned subsidiary of Consolidated, is
currently authorized to engage in various activities with respect to
acquisition of interests in foreign EWGs and foreign utility companies
("FUCOs") as defined in Section 33(a)(3) of the Act.(3)
Investments in EWGs by Power Company will be made using internally
generated funds of Consolidated and will accordingly be outside the
authorizations sought in this proceeding and subject to the limitations of Rule
53 promulgated under the Act. It is anticipated that the aggregate amount of
__________________
(2) Pub. L. 102-486, 106 Stat. 2776 (1992).
(3) HCAR No. 26523 (May 30, 1996).
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investments in EWGs by Power Company during the period ending December 31, 2002
would not exceed $150 million. No such investment would be undertaken if, as a
consequence, the aggregate direct and indirect investment by Consolidated in
all EWGs and FUCOs would exceed 50% of the Company's consolidated retained
earnings. Energy Services and Power Company may also acquire interests in
other categories of energy activities to the extent that such acquisition may
be exempted under a rule of general applicability hereafter adopted by the
Commission.
Financing of Energy Services by Consolidated, and of Power Company by
Energy Services may either be stand-alone or back-to-back mirror image
financing, and may occur in the form of short-term and long-term loans in
addition to capital stock sales, as described in greater detail under " SOURCE
OF FUNDS" below. Consolidated also seeks authority herein for parent company
guarantees and other credit support arrangements in the amount not to exceed
$150 million. This request for credit support authorization is described in
more detail under "PARENT COMPANY GUARANTEES AND OTHER CREDIT SUPPORT" below.
<PAGE> 5
Sections 32 of the Act permits a registered holding company to acquire and
maintain interests in one or more EWGs without the need to apply to or receive
the approval of the Commission. Thus the amount of any financing of CNG Power
by Consolidated and/or Energy Services from their respective internally
generated funds for the purpose of investing in EWGs will not be calculated
against other authorizations requested in this proceeding, but will be subject
to compliance with Rule 53.
USE OF INTERMEDIATE COMPANIES
CNG Power may acquire securities or interests in the business of one or
more EWGs located inside the United States. Request is made for CNG Power to
form and finance intermediate subsidiary companies ("Intermediate Companies")
so that they may acquire interests in, finance the acquisition of and hold the
securities of EWGs.
An Intermediate Company that exclusively owns or operates EWGs may itself
be exempted as an EWG. Thus, authority is requested for the formation of
Intermediate Companies only to the extent that such entities are not otherwise
exempted by rule or statute. In this regard, it is noted that the Commission
has previously approved the formation of intermediate companies to hold
interests in, and finance the acquisition and hold the securities of, EWGs and
FUCOs. See, e.g., Consolidated Natural Gas Company, HCAR No. 26523 (May 30,
1996); CINergy Corporation, HCAR No. 27376 (Sept. 21, 1995); General Public
Utilities Corporation, HCAR No. 26326 (July 6, 1995); and Southern Company,
HCAR No. 26096 (Aug. 3, 1994).
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Intermediate Companies would be special purpose subsidiaries exclusively
engaged in activities to facilitate the consummation of investments in EWGs
and would enhance the ability of CNG Power to respond quickly to investment
opportunities. Further, it has been the particular experience of
those investing in EWGs that the use of Intermediate Companies are often
necessitated by business concerns such as the need to facilitate investments
via a consortium of companies where each member thereof has a consolidated
subsidiary involved in the final EWG structure for tax and accounting purposes,
or to ease subsequent adjustments to or sales of interests among members of the
ownership group. Intermediate Companies may acquire interests in other
corporations, joint ventures, partnerships, limited liability companies and
other investment entities created for the purpose of investing in EWGs. An
Intermediate Company may be organized at the time of the making of bids or
proposals to acquire an interest in any EWG or at any time thereafter in order
to facilitate the bidding and subsequent consummation of an acquisition of an
interest of an EWG.
Consolidated also proposes that CNG Power or any Intermediate Company will
issue equity securities and debt securities to persons other than
Consolidated (and with respect to which there will be no recourse to
Consolidated), including banks, insurance companies and other financial
institutions, exclusively for the purpose of financing (including any
refinancing) of investments in EWGs. It is anticipated that the issuance of
such securities will generally be exempt transactions pursuant to Rule 52 under
the Act.
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COMPLIANCE WITH RULE 53
Any direct or indirect investment by CNG Power in any EWG would be
consummated only if, at the time thereof, and giving effect thereto,
Consolidated's "aggregate investment" determined in accordance with Rule
53(a)(1)(i) in all EWGs and FUCOs would not exceed 50% of Consolidated's
consolidated retained earnings as defined in Rule 53(a)(1)(ii). As of
September 30, 1996, one-half of the Company's consolidated retained earnings
was $691,274,000; the Company's investment in EWGs as of the same date is
approximately $18,000,000. The Company currently has no investments in FUCOs.
The books and records of Consolidated's EWGs are kept in conformity with
United States generally accepted accounting principles ("GAAP"), the financial
statements are prepared according to GAAP, and Consolidated undertakes to
provide the Commission access to such books and records and financial
statements as it may request. It is anticipated that a minimal number of
employees of Consolidated's domestic public-utility companies will render
services, directly or indirectly, to EWGs and FUCOs in the Consolidated System,
and the number of such employees shall not in any event exceed two percent of
the total number of employees of such utility companies.
A copy of this Application is being submitted to the public utility
commissions of the States of Ohio, Pennsylvania, West Virginia and Virginia,
which are the only regulators having jurisdiction over the retail rates of the
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public-utility companies in the Consolidated System. In addition, Consolidated
will submit to each such commission a copy of any Rule 24 certificate required
hereunder, as well as a copy of Item 9 of Consolidated's Form U5S, including
Exhibits G and H thereof.
None of the conditions described in Rule 53(b) under the Act exist with
respect to Consolidated, thereby satisfying Rule 53(b) and making Rule 53(c)
inapplicable.
EWG ACTIVITIES MAY BE CONDUCTED THROUGH VARIOUS ARRANGEMENTS
CNG Power requests authority, for the period ending December 31, 2002 to
enter into arrangements to invest in EWGs in one or more of the following
forms:
1. CNG Power may acquire an ownership interest, which may be up to 100% of
the voting or non-voting stock or other equity interest, in one or more
corporations (including Intermediate Companies), partnerships, limited
liability companies or other like entities established for the sole
purpose of engaging in EWG activities. The organizational documents
governing such entities will expressly limit their activities to EWG
activities.
2. CNG Power may establish one or more wholly-owned limited purpose
subsidiary corporations to invest and participate in partnerships,
limited liability companies, joint ventures or other entities (depending
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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 EWG activities. The organizational documents governing such
partnerships, joint ventures or corporations would expressly limit their
activities to EWG activities. As indicated below, the financing of these
wholly-owned subsidiaries would mirror the financing provided by
Consolidated and/or Energy Services to CNG Power for the purpose of the
subject investment.
It is anticipated that most intra-system financings among, and external
financings of, CNG Power and its subsidiaries will be exempt pursuant to Rule
52 under the Act. However, there may arise the need to issue securities in a
transaction with respect to which an exemptive rule under the Act might not
apply. Such securities would encompass interests in partnerships, joint
ventures or other entities, and all other types of equity instruments
regardless of preference with respect to, or conditioned on, distributions of
the issuer upon liquidation or otherwise. Fees, commissions and expenses
expected to be incurred in connection with the issuance of such securities will
not exceed (a) those amounts prescribed by statute or regulation, in the case
of filing or registration fees charged by governmental agencies; (b) cost, in
the case of fees and/or expenses charged by CNG System associates; or (c) in
all other cases, fair, reasonable and customary fees and commissions at market
rates, comparable to those incurred in similar transactions by similar
companies, and arrived at in a negotiated, competitive and/or arms-length
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manner. Fees, commissions and expenses of any underwriter that may be incurred
with respect to such securities will not exceed those amounts generally paid at
the time of pricing for sales of such securities issued by companies of
comparable credit quality and having similar terms, conditions and features.
Consolidated therefore requests that the Commission reserve jurisdiction over
the issuance of such additional types of securities. Consolidated also
undertakes to cause a post-effective amendment to be filed in this proceeding
which will describe the general terms of each such security and request a
supplemental order of the Commission authorizing such transactions.
Consolidated further requests that each supplemental order be issued by the
Commission without further time-consuming public notice.
SOURCE OF FUNDS
It is proposed for CNG Power and Energy Services to raise funds for the
proposed transactions for which authorization is requested herein by (i)
selling shares of their respective common stock, ($1,000 par value per share
for CNG Power and $10,000 par value for Energy Services), for up to $10,000 per
share, to their respective parent company (Energy Services in the case of CNG
Power and Consolidated in the case of Energy Services), (ii) open account
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advances from their respective parent as described below, or (iii) long-term
loans from their respective parent, in any combination thereof. Any providing
of funds by Consolidated to Energy Services, and by Energy Services to CNG
Power, can be in any combination of these three forms of financing; and any
financing between CNG Power and its subsidiaries utilizing such Consolidated
and/or Energy Services sourced funds will be in the same combination of forms
that exists between its parents and their respective subsidiary in the
transaction which causes CNG Power to obtain such funds. Consolidated will
obtain the funds required for CNG Power to acquire interests in EWGs through
internal cash generation.
The open account advances and long-term loans will have the same effective
terms and interest rates as related borrowings of Consolidated in the forms
listed below:
1. Open account advances may be made to CNG Power or Energy Services, as the
case may be, on a revolving basis to provide working capital and to
finance the activities authorized by the Commission. Open account
advances will be made under letter agreement with the borrower 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
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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. Only outstanding amounts of open account advances will be
calculated against any cap on financing described herein.
2. The parent company may make long-term loans to Energy Services or CNG
Power, as the case may be, for the financing of its activities. Loans
shall be evidenced by long-term non-negotiable notes of the borrower
(documented by book entry only) maturing over a period of time (not in
excess of 50 years) to be determined by the officers of Consolidated,
with the interest predicated on and equal to Consolidated's cost of funds
for comparable borrowings. In the event Consolidated has not had recent
comparable borrowings, the rates will be tied to the Salomon Brothers
indicative rate for comparable debt issuances published in Salomon
Brothers Inc. Bond Market Roundup or similar publication on the date
nearest to the time of takedown. All loans may be prepaid at any time
without premium or penalty.
PARENT COMPANY GUARANTEES AND OTHER CREDIT SUPPORT
Application is made for Consolidated, Energy Services, CNG Power and its
subsidiaries, including Intermediary Companies, to enter guarantee
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arrangements, obtain letters of credit, and otherwise provide credit support
with respect to obligations of their respective subsidiaries (including EWGs)
to third parties as may be needed and appropriate to enable them to carry on in
the ordinary course of their respective businesses. The maximum aggregate
limit on all such credit support by Consolidated, Energy Services, CNG Power
and its subsidiaries at any one time will be $150 million. Credit support
authorization would be for the period ending December 31, 2002.
SERVICE AGREEMENTS INVOLVING EWGS
Energy Services and its affiliates may perform services or construction
for, or sell goods to, an EWG in which CNG Power has acquired an interest.
Services, construction and goods may be provided at market rates (determined by
arms-length negotiation or competitive bidding) if the EWG does not provide
services, construction or goods directly or indirectly to Consolidated System
utility affiliates located in the United States.
Energy Services and its affiliates may contract with Consolidated
associate companies in order to provide the above services, construction and
goods. Services, construction and goods obtained from domestic utility
associates would be at cost. Services, construction and goods from nonutility
associates may be at either cost or market; provided, however, that services,
construction and goods from nonutility associates substantially involved in the
provision of services, construction or goods to Consolidated domestic utility
associates would be at cost.
<PAGE> 14
INCREASE IN CAPITALIZATION OF ENERGY SERVICES
As of the date of filing of this Application, Energy Services had 4,000
shares of common stock, $1.00 par value per share, authorized. In order to
accommodate future financings including those requested herein, application is
made to increase Energy Services' equity authorization to 50,000 shares of
common stock, $1.00 par value per share. If, as anticipated, each additionally
authorized share would be issued for $10,000 per share, this would allow
sufficient certificate of incorporation authorization to consummate up to an
aggregate of $460 million in additional equity financing for the purposes
described herein and for other purposes previously authorized or exempt.
FILING OF CERTIFICATES OF NOTIFICATION
It is also requested that Rule 24 Certificates of Notification be filed
within 60 days after the end of each semi-annual calendar period to report to
the Commission with respect to transactions authorized pursuant to this
filing. Such certificates shall contain a CNG Power balance sheet as of the end
of such period, and a statement of income and expense for the period.
Item 2. Fees, Commissions and Expenses
______________________________
It is estimated that the fees, commissions and expenses ascertainable at
this time to be incurred by Consolidated in connection with the herein proposed
transaction will not exceed $25,000, including $10,000 payable to Consolidated
<PAGE> 15
Natural Gas Service Company, Inc. ("Service Company") for services on a cost
basis (including regularly employed counsel) for the preparation of this
application-declaration and other documents, $10,000 payable to non-affiliated
professionals, and $4,000 for miscellaneous other expenses.
Item 3. Applicable Statutory Provisions
_______________________________
Sections 6(a) and 7 and Rule 43 may be deemed applicable to the issuance
of securities by Energy Services, CNG Power and its subsidiaries not otherwise
exempt pursuant to Section 32 of the Act or Rule 52.
Sections 9(a) and 10 may be deemed applicable to the acquisitions by
Consolidated, Energy Services and CNG Power of the capital stock, open account
advance debits and notes of their respective subsidiaries not otherwise exempt
pursuant to Section 32 of the Act or Rule 52.
Sections 12(b) and Rule 45 are considered applicable to loan arrangements
among Consolidated, Energy Services, CNG Power and its subsidiaries, and to
guarantees and other credit support for direct or indirect subsidiaries by
parent companies as requested herein.
Section 32 and Rules 53 and 54 apply to the financing activities
involving EWGs.
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Section 13(b) and Rules 83, 87, 90 and 91 are deemed applicable to
certain of the proposed service arrangements with respect to which
authorization is sought.
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.
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).
Item 5. Procedure
_________
It is hereby requested that the Commission issue its order with respect
to the transaction proposed herein on or before March 14, 1996.
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It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed with respect to the
proposed transactions. The office of the Division of Investment Management -
Office of Public Utility Regulation may assist in the preparation of the
Commission's decision. There should be no waiting period between the issuance
of the Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
(a) Exhibits
A-1 Certificate of Incorporation of Energy Services.
(Incorporated by reference to Exhibit A-1 to Form U-1
of Consolidated, File No. 70-8577)
A-2 By-Laws of Energy Services.
(Incorporated by reference to Exhibit A-2 to Form U-1
of Consolidated, File No. 70-8577)
A-3 Certificate of Incorporation of CNG Power Company.
(Incorporated by reference to Exhibit A-1 to Form U-1
of Consolidated, File No. 70-7909)
A-4 By-Laws of CNG Power.
(Incorporated by reference to Exhibit A-2 to Form U-1
of Consolidated, File No. 70-7909)
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F Opinion of counsel for Consolidated, Energy Services
and CNG Power.
(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.
Item 7. Information as to Environmental Effects
_______________________________________
The proposed transactions do not involve major federal action
having a significant effect on the human environment. See Item 1(a).
No federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
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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
CNG POWER COMPANY
By N. F. Chandler
Their attorney
Date: January 10, 1996
<PAGE> 1
EXHIBIT O
Proposed Notice
Pursuant to Rule 22(f)
(Release No. 35- )
FILINGS UNDER THE PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935 ("ACT")
January , 1997
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
February , 1997 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, 625
Liberty Avenue, Pittsburgh, Pennsylvania, 15222-3199, a registered holding
company, and Consolidated's wholly-owned subsidiaries, CNG Energy Services
Corporation ("Energy Services") and CNG Power Company ("Power Company"), One
Park Ridge Center, P.O. Box 15746, Pittsburgh, Pennsylvania 15244-0746, have
filed an application-declaration pursuant to Sections 6, 7, 9, 10, 12, 13 and
32 of the Act and Rules 43, 45, 53, 54, 83, 87, 90, and 91 thereunder.
Consolidated proposes that Power Company become the primary vehicle for
the Company to invest in exempt wholesale generators ("EWGs"), as defined in
Section 32(a) of the Act, within the United States. Investments in EWGs by
Power Company will be made using internally generated funds of Consolidated and
will accordingly be outside the authorizations sought and subject to the
limitations of Rule 53 promulgated under the Act. It is anticipated that the
aggregate amount of investments in EWGs by Power Company during the period
ending December 31, 2002 would not exceed $150 million.
Request is made for authority, through December 31, 2002, for CNG Power to
form and finance wholly-owned, intermediate subsidiary companies ("Intermediate
Companies") so that they may acquire interests in, finance the acquisition of
and hold the securities of EWGs. Intermediate Companies may acquire interests
in other corporations, joint ventures, partnerships, limited liability
companies and other investment entities created for the purpose of investing in
EWGs. An Intermediate Company may be organized at the time of the making of
<PAGE> 3
bids or proposals to acquire an interest in any EWG or at any time thereafter
in order to facilitate the bidding and subsequent consummation of an
acquisition of an interest of an EWG.
CNG Power further requests authority for the period ending December 31,
2002, to acquire an ownership interest, which may be up to 100% of the voting
or non-voting stock or other equity interest, in one or more corporations
(including Intermediate Companies), partnerships, limited liability companies
or other like entities established for the sole purpose of engaging in EWG
activities. The organizational documents governing such entities will
expressly limit their activities to EWG activities. the financing of these
wholly-owned subsidiaries would mirror the financing provided by Consolidated
and/or Energy Services to CNG Power for the purpose of the subject
investment.
It is anticipated that most intra-system financings among, and external
financings of, CNG Power and its subsidiaries will be exempt pursuant to Rule
52 under the Act. However, there may arise the need to issue securities in a
transaction with respect to which an exemptive rule under the Act might not
apply. Such securities would encompass interests in partnerships, joint
ventures or other entities, and all other types of equity instruments
regardless of preference with respect to, or conditioned on, distributions of
the issuer upon liquidation or otherwise. Fees, commissions and expenses
expected to be incurred in connection with the issuance of such securities will
not exceed (a) those amounts prescribed by statute or regulation, in the case
<PAGE> 4
of filing or registration fees charged by governmental agencies; (b) cost, in
the case of fees and/or expenses charged by CNG System associates; or (c) in
all other cases, fair, reasonable and customary fees and commissions at market
rates, comparable to those incurred in similar transactions by similar
companies, and arrived at in a negotiated, competitive and/or arms-length
manner. Fees, commissions and expenses of any underwriter that may be incurred
with respect to such securities will not exceed those amounts generally paid at
the time of pricing for sales of such securities issued by companies of
comparable credit quality and having similar terms, conditions and features.
It is proposed for CNG Power and Energy Services to raise funds for the
proposed transactions for which authorization is requested by (i) selling
shares of their respective common stock, ($1,000 par value per share
for CNG Power and $10,000 par value for Energy Services), for up to $10,000 per
share, to their respective parent company (Energy Services in the case of CNG
Power and Consolidated in the case of Energy Services), (ii) open account
advances from their respective parent as described below, or (iii) long-term
loans from their respective parent, in any combination thereof. Any providing
of funds by Consolidated to Energy Services, and by Energy Services to CNG
Power, can be in any combination of these three forms of financing; and any
financing between CNG Power and its subsidiaries utilizing such Consolidated
and/or Energy Services sourced funds will be in the same combination of forms
that exists between its parents and their respective subsidiary in the
transaction which causes CNG Power to obtain such funds. Consolidated will
obtain the funds required for CNG Power to acquire interests in EWGs through
internal cash generation.
<PAGE> 5
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 CNG Power or Energy Services, as the
case may be, on a revolving basis to provide working capital and to
finance the activities authorized by the Commission. Open account
advances will be made under letter agreement with the borrower 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. Only outstanding amounts of open account advances will be
calculated against any cap on financing described herein.
2. The parent company may make long-term loans to Energy Services or CNG
Power, as the case may be, for the financing of its activities. Loans
shall be evidenced by long-term non-negotiable notes of the borrower
(documented by book entry only) maturing over a period of time (not in
excess of 50 years) to be determined by the officers of Consolidated,
with the interest predicated on and equal to Consolidated's cost of funds
for comparable borrowings. In the event Consolidated has not had recent
comparable borrowings, the rates will be tied to the Salomon Brothers
<PAGE> 6
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.
Application is also made for Consolidated, Energy Services, CNG Power and
its subsidiaries, including Intermediary Companies, to enter guarantee
arrangements, obtain letters of credit, and otherwise provide credit support
with respect to obligations of their respective subsidiaries (including EWGs)
to third parties as may be needed and appropriate to enable them to carry on in
the ordinary course of their respective businesses. The maximum aggregate
limit on all such credit support by Consolidated, Energy Services, CNG Power
and its subsidiaries at any one time will be $150 million. Credit support
authorization would be for the period ending December 31, 2002.
Energy Services and its affiliates may perform services or construction
for, or sell goods to, an EWG in which CNG Power has acquired an interest.
Such services, construction and goods may be provided at market rates
(determined by arms-length negotiation or competitive bidding) if the EWG does
not provide services, construction or goods directly or indirectly to
Consolidated System utility affiliates located in the United States.
Energy Services and its affiliates may contract with Consolidated
associate companies in order to provide the above services, construction and
goods. Services, construction and goods obtained from domestic utility
<PAGE> 7
associates would be at cost. Services, construction and goods from nonutility
associates may be at either cost or market; provided, however, that services,
construction and goods from nonutility associates substantially involved in the
provision of services, construction or goods to Consolidated domestic utility
associates would be at cost.
As of the date of filing of this Application, Energy Services had 4,000
shares of common stock, $1.00 par value per share, authorized. In order to
accommodate future financings including those requested herein, application is
also made to increase Energy Services' equity authorization to 50,000 shares of
common stock, $1.00 par value per share. If, as anticipated, each additionally
authorized share would be issued for $10,000 per share, this would allow
sufficient certificate of incorporation authorization to consummate up to an
aggregate of $460 million in additional equity financing for the purposes
described herein and for other purposes previously authorized or exempt.
____________________________________
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz
Secretary
