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File Number 70-8621
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No. 2
to
Form U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
By
CONSOLIDATED NATURAL GAS COMPANY
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
(a registered holding company and
the parent of the other party)
CNG ENERGY SERVICES CORPORATION
One Park Ridge Center
Pittsburgh, Pennsylvania 15255-0746
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 70-8621
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 2
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
The applicants restate Post-Effective Amendment No. 1 in its entirety as
follows.
Item 1. Description of Proposed Transaction
___________________________________
Consolidated Natural Gas Company ("Consolidated") is a Delaware
corporation and a public utility holding company registered as such under the
Public Utility Holding Company Act of 1935 ("Act"). CNG Energy Services
Corporation ("Energy Services") is a wholly owned subsidiary of Consolidated.
PRIOR AUTHORIZATIONS
Energy Services was authorized by the Securities and Exchange Commission
("SEC" or "Commission") to be the gas marketing subsidiary for the CNG System
by order dated February 27, 1987, HCAR No. 24329. This order authorized Energy
Services, as a gas marketer, to purchase, pool, transport, exchange, store and
sell gas supplies from competitively priced sources, including the spot
markets, independent producers and brokers, and CNG Producing Company ("Gas
Related Activities").
By Order dated July 26, 1995 (the "Order") Energy Services was authorized,
without further Commission approval, through December 31, 1997, to invest an
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aggregate amount up to $150 million(1) to acquire: (i) an ownership interest,
which may be up to 50% of the voting or nonvoting stock, in one or more
corporations established for the sole purpose of engaging in Gas Related
Activities; (ii) either in its own name or through a wholly owned special
purpose subsidiary company, up to 50% of the general partnership interests in
one or more partnerships, or up to 50% voting equity interest in one or more
other joint business entities such as joint ventures or limited liability
companies, which are established for the sole purpose of engaging in Gas
Related Activities; and/or (iii) up to 100% of the limited partnership
interests in one or more partnerships established for the sole purpose of
engaging in Gas Related Activities. None of the projects in which Energy
Services may invest can be a public-utility company.
As of June 30, 1997 Energy Services had invested pursuant to the Order
$19,168,000 and $14,845,000 in two pipeline gathering partnerships(2),
respectively, in the Main Pass area near the Alabama coast of the Gulf of
Mexico.
_____________
(1) The original authorization limit in this proceeding was the lesser of $150
million or Energy Services' unused financing authority under the current
Consolidated System annual intra-system financing authorization, which was
$300 million in the order dated June 29, 1995, HCAR No. 26321. Since the
inception of the Consolidated System omnibus financing authorization in the
order dated March 28, 1996, HCAR No. 25600, the concept of unused financing
authority has become meaningless.
(2) The two partnerships are the Main Pass Gathering Company and the Main Pass
Oil Gathering Company, which transport the gas and oil jointly produced
from the gas fields in the Main Pass region. Energy Services owns the
interests in these partnerships through wholly-owned special purpose
subsidiaries, CNG Main Pass Gathering Corporation and CNG Oil Gathering
Corporation, respectively. On December 31, 1996, the Main Pass Gathering
Company was merged into Dauphin Island Gathering Partners.
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The Order authorized Consolidated and Energy Services to guarantee their
obligations incurred as a a result of equity investments made in the joint
entities up to an aggregate amount of $150 million(3). No such guarantees have
been made to date.
REQUEST FOR EXTENSION
Energy Services continues to have the need to be able to "partner" with
others to allow it to obtain the right to use and control facilities with
greater capacity in a diverse number of geographic areas, and with a lesser
amount of capital investment than it could do on its own. Entering into joint
business ventures in which nonaffiliated parties would invest reduces the
amount of capital Energy Services has at risk in a given project. Most of the
type of projects Energy Services would consider investing in would be
permanently financed with non-recourse project financing, thereby further
reducing the risk to Energy Services. In some cases, Energy Services would
also benefit from the co-investors' experience as to the efficient operation of
some project facilities. It is for such reasons that the applicants now
request an extension of time for the authorization previously granted in this
proceeding until December 31, 2002.
_______________
(3) The original limit on guarantees as stated in the Order was similar to that
stated with respect to the amount of financing, i.e. the lesser of $150
million or Energy Services' unused annual system financing authorization.
See footnote (1) supra.
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The aggregate amount invested (including capitalized development
expenses) by Energy Services in such joint entities will not in the aggregate
exceed $200 million during the extended authorization period ending December
31, 2002. Energy Services would not own more than 50% of the equity voting
interests in any of the joint entities, and the capital structure of each of
the entities is expected to be simple and straight forward, consisting
primarily of equity and project financing. None of the projects in which
Energy Services would seek to invest will be a utility company.
Consolidated and Energy Services also seek to continue to be able to make
guarantees of obligations to make equity investments in the joint entities,
which parent guarantees are commonly requested by institutions providing
project financing. Such guarantees will not in the aggregate exceed $200
million, and would be calculated as part of the maximum $2 billion authority to
guarantee obligations of subsidiaries granted to Consolidated and certain of
its subsidiaries by the Commission order dated March 28, 1996, HCAR No. 26500.
NEED FOR APPLICABILITY OF RULE 16
The applicants regard each of the joint business entities in which Energy
Services would invest pursuant to an authorization granted in this proceeding,
and each affiliate thereof (except for companies within the Consolidated
System), to be exempt under rule 16 from all obligations imposed upon it by the
Act, as a subsidiary company or an affiliate of a registered holding company or
of a subsidiary company thereof. The basis for such position is as follows.
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* The entity would not be a public utility company as defined in section
2(a)(5) of the Act.
* The entities would be organized to engage primarily in Gas Related
Activities which by their very nature relate to the supply of natural gas.
* No more than 50% of the voting interests in the entity will be owned,
directly or indirectly, by a registered holding company.
* The acquisition by Energy Services of its direct or indirect interests in
the entity is the subject of this Application-Declaration.
There is an inherent relationship between rule 16 and the Gas Related
Activities Act of 1990 ("GRAA")(4). Section 2 of the GRAA states that section
11(b)(1) of the Act will be satisfied if a registered holding company (or
subsidiary thereof) acquires any interest in any company organized to
participate in activities involving the transportation or storage of natural
gas, or (if certain determinations are made) in any company organized to
participate in activities related to the supply of natural gas (specifically
including marketing activities). Rule 16(a)(2) requires the exempt company to
be organized primarily for the exploration, development, production,
manufacture, storage, transportation or supply of natural gas. It is Energy
Services' position that the joint entities in which it would participate would,
in their engaging in Gas Related Activities, be involved in activities "related
to the supply of natural gas" as used in the GRAA and also in "supply of
_______________
(4) Pub. Law 101-572.
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natural gas" activities as used in rule 16. There is a strong parallel
structure in the GRAA and rule 16 in that both specifically refer to storage
and transportation of natural gas, and both refer to "the supply of natural
gas." It would seem, therefore, that both the statute and the rule are
referring to basically same types of activities.
Since the Gas Related Activities of Energy Services as a gas marketing
company have already been found to satisfy the GRAA, they should also be deemed
to satisfy the requirements of rule 16.
The joint entities in which Energy Services may invest under an extension
of its authorization in this proceeding may be "gas related companies" within
the meaning of rule 58 adopted under the Act(5). However, rule 16 would not be
available to exempt companies formed under rule 58 since condition (4) of rule
16, i.e. the acquisition would not be approved pursuant to section 9(a) and 10
of the Act, will not have been met. It has been Consolidated's prior
experience in acquiring a minority position in entities mostly owned by persons
not subject to the Act, that such persons insist that the new company not be
subject to the Act. It is primarily for this reason that the applicants seek
an extension of authority in this proceeding rather than attempting to rely on
rule 58 in each instance(6).
_______________
(5) HCAR No. 26667 (Feb. 14, 1997).
(6) The Commission in the release adopting rule 58 stated that "...it believes
that a proposal to amend rule 16 to make it consistent with rule 58, and to
enhance its usefulness (which is limited at present) should be considered.
Such an amendment, however, is beyond the scope of this rulemaking."
(supra, Section IV A).
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FINANCING
Energy Services will obtain up to $200 million for its investments in the
entities in which it would be a partner or co-owner by (i) selling shares of
its common stock(7) 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 Energy Services on a revolving basis
to finance the activities authorized by the Commission in this proceeding.
Open account advances will be made under letter agreement with Energy Services
and will be repaid on or before a date not more than one year from the date of
the first advance with interest at the same effective rate of interest as 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 $200 million cap on financing requested
herein.
CNG may make long-term loans to Energy Services for the financing of the
activities for which authorization is requested herein. Loans to Energy
_______________
(7) Energy Services currently has authorized 4,000 shares of common stock,
$1.00 par value per share. However, it has requested in the pending
proceeding at File No. 70-8981 for authority to increase its common stock
equity to 50,000 shares of common stock, $10,000 par value per share.
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Services shall be evidenced by long-term non-negotiable notes of Energy
Services (documented by book entry only) maturing over a period of time (not in
excess of 50 years) to be determined by the officers of Consolidated, 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 Energy Services 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).
SUMMARY OF AUTHORIZATIONS REQUESTED
Request is hereby made for authority to do the following through
December 31, 2002 without any further prior SEC approval.
1.For Energy Services to acquire for an aggregate amount not to exceed $200
million, directly or indirectly through wholly-owned subsidiaries, up to
50% voting equity interests in joint business entities with non-affiliates
as described above without any further prior SEC approval. Related
capitalized development expenses will be included as part of the
investment costs of acquiring such interests.
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2.For Consolidated and/or Energy Services to make guarantees of obligations
to make equity contributions in connection with Energy Services'
investments in such joint business entities, the aggregate amount of such
guarantees to be limited as described above.
3. For Energy Services to obtain funds to acquire equity interests in new
entities as requested herein through (i) sales of common stock to
Consolidated, (ii) open account advances from Consolidated and (iii) long-
term loans from Consolidated.
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 exempt wholesale generator ("EWG") or
a foreign utility company ("FUCO") as defined in Sections 32 and 33 of the Act,
respectively, 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. Consolidated believes that Rule 53(a), (b) and (c)
are satisfied in its case as follows.
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Consolidated's "aggregate investment" determined in accordance with Rule
53(a)(1)(i) in all EWGs and FUCOs do not exceed 50% of Consolidated's
consolidated retained earnings as defined in Rule 53(a)(1)(ii). One-half of
the CNG's average consolidated retained earnings as reported for
the four most recent quarterly periods on CNG's Forms 10-K and 10-Q was
$752,330,000; CNG's investment in EWGs as of September 30, 1997 is
approximately $14,208,000. The Company as of September 30, 1997 had $9,915,000
in 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.
Copies of applications and all amendments thereto concerning investments
in EWGs and FUCOs are 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 public-utility
companies in the Consolidated System. In addition, Consolidated also submits
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to each such commission a copy of any Rule 24 certificate required by such
filings, 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.
RULE 24 CERTIFICATES
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 the following information with respect to each
entity in which Energy Services has made an investment.
1. Name
2. Organizational form
3. Type of business
4. Total capitalization and the amount invested by Energy
Services for the period and on a cumulative basis
The information will be reported through a cross-reference to Form U-9C-3
in the rule 24 master certificates of notification filed under SEC File No. 70-
8667, and in the format of the Form U-9C-3 which will be concurrently filed.
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It is noted that rule 16(c) requires that the annual report of each
entity exempt pursuant to rule 16 be filed as an exhibit to Consolidated's
annual report on Form U5S.
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 $10,000, including amounts
payable to Consolidated Natural Gas Service Company, Inc. for services on a
cost basis (including regularly employed counsel) for the preparation of this
application-declaration and other documents.
Item 3. Applicable Statutory Provisions
_______________________________
Sections 9(a) and 10 are deemed applicable to the acquisitions by Energy
Services of interests in joint business entities and of stock of special
purpose subsidiaries used as an intervening investment medium for investments
in partnerships.
Sections 6(a), 7, 9(a) and 10 are deemed applicable to the sale and issue
of shares of common stock or debt instruments by Energy Services to
Consolidated.
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Sections 12(b) and rule 45 are considered applicable to guarantee
arrangements among Consolidated, Energy Services and special purpose wholly-
owned subsidiaries of Energy Services.
Rule 16 is deemed to exempt the joint entities in which Energy Services
expects to invest.
If the Commission considers the proposed future transactions to require
any authorization, approval or exemption, under any section of the Act or rule
or regulation other than those cited 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 SEC).
Item 5. Procedure
_________
It is hereby requested that the Commission issue its order with respect to
the transaction proposed herein on or before December 31, 1997.
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
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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
(F) Opinion of counsel for Consolidated and Energy Services.
(O) Draft of Notice.
(b) Financial Statements
Financial statements are deemed unnecessary with respect to the
authorizations herein sought due to the nature of the matter
proposed. However, Consolidated will furnish any financial
information that the Commission shall request.
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 amendment 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: November 13, 1997
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EXHIBIT (F)
November 13, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Consolidated Natural Gas Company, et al.,
SEC File Number 70-8621
Dear Sirs and Madams:
The following opinion is rendered in accordance with the requirements of
Exhibit F to Form U-1 of the Securities and Exchange Commission ("SEC") with
respect to the transactions proposed ("Proposed Transactions") by Consolidated
Natural Gas Company ("Consolidated") and CNG Energy Services Corporation
("Energy Services"), (referred to collectively as the "Companies"), in the
Application-Declaration at SEC File No. 70-8621, as amended ("Application-
Declaration"). By order dated June 16, 1995, HCAR No. 26310, the SEC
authorized Energy Services to invest, through December 31, 1997, an aggregate
amount not to exceed $150 million to acquire without additional SEC approval,
up to 50% voting equity interest in one or more joint business entities which
are established for the sole purpose of engaging in gas related activities,
and/or up to 100% of the limited partnership interests in one or more
partnerships established for the same purpose.
The Companies now seek, through a post-effective amendment proceeding, to
(i) extend the time of effectiveness of the authorization to December 31, 2002,
(ii) increase the authorized investment amount to an aggregate not to exceed an
additional $200 million and (iii) increase the authority of Consolidated and
Energy Services to make guarantees of obligations to make equity investments in
the joint entities to an amount not to exceed $200 million. Energy Services
would obtain funds to acquire equity interests in new entities as requested in
the Application-Declaration through (i) sales of common stock to Consolidated,
(ii) open account advances from Consolidated and (iii) long-term loans from
Consolidated.
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I have examined the certificate of incorporation and bylaws of the
Companies; corporate actions of the Companies relating to the Proposed
Transactions; the Application-Declaration; and such other documents, records,
laws and other matters as I deemed relevant and necessary for the purposes of
this opinion.
Based on such examination and relying thereon, I am of the opinion that
when the SEC shall have permitted the Application-Declaration as amended to
become effective by supplemental order, all requisite action will have been
taken by the Companies which are parties to the Application-Declaration, except
the actual carrying out thereof.
In the event the Proposed Transactions are consummated in accordance with
the Application-Declaration, I am of the opinion that:
(a) No state commission has jurisdiction of the Proposed Transactions;
(b) All state laws applicable to the Proposed Transactions will have been
complied with;
(c) Consolidated and Energy Services are validly organized and duly
existing;
(d) The shares of common stock which Energy Services may issue to
Consolidated in connection with Proposed Transactions will be validly
issued, fully paid and nonassessable, and the holder thereof will be
entitled to the rights and privileges appertaining thereto set forth in
the certificate of incorporation;
(e) The debt securities which Energy Services may issue to Consolidated in
connection with Proposed Transactions will be valid and binding
obligations of the issuer;
(f) Consolidated will legally acquire the aforesaid common stock and/or debt
instruments of Energy Services;
(g) Any guarantee which may be made by Consolidated and/or Energy Services
in connection with and Proposed Transaction will be a valid and binding
obligation of the respective maker;
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(h) Energy Services will legally acquire the capital stock of, and/or
partnership interests or other equity interests in the joint business
enterprises described in the Application-Declaration; and
(i) The consummation of the Proposed Transactions will not violate the legal
rights of the holders of any securities issued by Consolidated or Energy
Services or any associate company thereof.
I hereby consent to the use of this opinion in connection with the
Application-Declaration.
Very truly yours,
N. F. Chandler
Attorney
