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File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post-Effective Amendment No. 10
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
CNG INTERNATIONAL CORPORATION
Two Fountain Square, Suite 600
11921 Freedom Drive
Reston, Virginia 20190-5608
Consolidated Natural Gas Company, a registered holding company,
is the parent of the other party
Names and addresses of agents for service:
S. E. WILLIAMS, Senior Vice President
and General Counsel
Consolidated Natural Gas Company
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
N. F. CHANDLER, General Attorney
Consolidated Natural Gas Service Company, Inc.
CNG Tower
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3199
<PAGE> 2 File Number 70-8759
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 10
to
FORM U-1
APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935
Item 1. Description of Proposed Transaction
___________________________________
I. PRIOR CNG INTERNATIONAL AUTHORIZATIONS
By order dated May 30, 1996, HCAR No. 26523, the Securities and Exchange
Commission ("Commission" or "SEC") authorized Consolidated Natural Gas Company
("CNG"), a registered holding company under the Public Utility Holding Company
Act of 1935 (the "Act"), to form CNG International Corporation ("CNG
International"), to directly or through intermediary companies acquire
interests in exempt wholesale generators (EWGs") and foreign utility companies
("FUCOs") as such terms are respectively defined in Sections 32 and 33 of the
Act. CNG was also authorized under such order to provide CNG International
with certain credit support with respect to its investments. Jurisdiction was
retained over the applicant's request to invest up to $300 million(1) in
Foreign Energy Activities (including foreign gas pipelines) as defined in the
application.
By supplemental order dated October 25, 1996, HCAR No. 26595, the
Commission released jurisdiction over proposed investments of up to an
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(1) All dollar amounts are in U.S. currency unless otherwise noted.
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aggregate of $75 million by CNG International in two gas pipelines, one in
Bolivia and the other in Argentina and Uruguay (the "Uruguay Project").
Pursuit of investment in the pipeline in Bolivia has been abandoned.(2)
By supplemental order dated November 19, 1996, HCAR No. 26608, the
Commission released jurisdiction over a proposed investment of up to $75
million by CNG International in three gas pipeline projects in Australia
("Australian Pipeline Projects"). Approximately $38.8 million in these
projects was consummated in late 1996. As a result of such transaction, CNG
International now indirectly(3) holds a 30% ownership interest in Epic Energy
Pty Ltd, an Australian company ("Epic"), which currently owns and operates a
470 mile pipeline in Queensland, and two pipelines, 488 and 44 miles in length,
serving markets in South Australia.(4)
______________
(2) Since the $50 million authorization earmarked for the Bolivian pipeline
will no longer be needed, CNG regards such amount available for release of
jurisdiction for other Foreign Energy Activities in the proceeding under
File No. 70-8759.
(3) CNG International owns all of the outstanding shares of CNG Cayman One
Ltd., which owns all of the outstanding stock of CNGI Australia Pty Ltd.,
which in turn owns 30% of the outstanding shares of Epic Energy Pty Ltd.
(4) The other shareholders in Epic are Venture Holdings Pty Ltd, a subsidiary
of El Paso Energy International Company (30%); Australian Mutual Provident
Society , an Australian insurance company and investment house (10%);
Allgas Pipelines Pty. Ltd., a gas distribution utility in Brisbane,
Queensland (10%); and SAS Trustee Corporation (Axion) and Utilities of
Australia Pty.Limited (Hastings), both Australian investment managers (10%
each).
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By supplemental order dated February 12, 1998, HCAR No. 26824, the
Commission released jurisdiction over a proposed investment of up to $165
million by CNG International in the 925 mile Alinta natural gas pipeline in
Western Australia ("Alinta Project"). In March 1998, CNG International paid
approximately $143 million to acquire its 33.3% equity interest in the Alinta
Project, through intermediate subsidiaries including Epic Energy Austalia Trust
("Epic Trust")(5), from the Western Australia Government.
In the February 12, 1998 order, the Commission reserved jurisdiction,
pending completion of the record, over: (i) the investment by CNG, through CNG
International, in entities that would engage in Consulting and Support
Services(6) and Foreign Energy Activities(7) (other than the Uruguay Project,
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(5) The partners in Epic Trust are the same as the shareholders in Epic with
the exception of Allgas, which declined to invest in the Alinta Project.
Allgas' otherwise 10% share in Epic Trust was acquired pro rata by those
investing in the Alinta Project. In connection with their investment in
the Alinta Project, CNG International and a subsidiary of El Paso Energy
Corporation formed DBNGP Finance Company LLC ("DBNGP") to obtain $250
million in assitional long-term project financing. The parent companies
transferred their equity partnership interests in the Alinta Project to
DBNGP, which is 50% owned by each of the parent companies. DBNGP owns all
the stock of CNG Labuan One Ltd, a Malaysian corporation, which holds a
33.3% interest in Epic Trust.
(6) "Consulting and Support Services" are defined as energy consulting and
administrative, technical, construction, operating, maintenance, and other
management services to nonassociates in connection with their foreign
operations.
(7) "Foreign Energy Activities" include: (i) the sale and servicing of energy
equipment; (ii) gas transmission and storage; (iii) gas exploration and
production: (iv) brokering and marketing of electricity, gas and other
energy commodities; and (v) services related to the foregoing.
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The Australian Pipeline Projects and the Alinta Project); (ii) the provision by
CNG, CNG International and its subsidiaries of credit support agreements
aggregating, together with EWG/FUCO credit support, not more than $300 million
with nonassociates in connection with Consulting and Support Services and
Foreign Energy Activities; (iii) the issuance to nonassociates by CNG
International and its subsidiaries of securities that are not exempt from prior
Commission review under sections 6(a) and 7 of the Act; (iv) agreements for the
provision of goods and services between and among CNG International, its
subsidiaries and other companies in the CNG system; and (v) reporting
requirements with respect to the proposed transactions, other than the
investment in Intermediate Subsidiaries, EWGs, FUCOs, the Urugauy Project, the
Australian Pipeline Projects and the Alinta Project.
II. THE TPA PIPELINE
The applicants through this post-effective amendment proceeding seek
removal of the reservation of jurisdiction over a proposed acquisition of
interests in the pipeline (the "TPA Pipeline") owned and operated by
Transmission Pipelines Australia Pty Ltd, a company formed by the state of
Victoria, Australia. The TPA Pipeline is the same pipeline as that described
as being owned by the Gas Transmission Corporation in earlier filings made in
this proceeding. The Victorian Government has indicated it will be offering
the TPA Pipeline for sale by public tender in April, 1999. Jurisdiction would
continue to be reserved in the interim over the remaining not yet approved
above-described activities pending further completion of the record.
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Regulation of the gas industry in Australia is currently state based,
although a Federal regulatory regime is being implemented. The objectives of
the new regime, as with electricity, are to create competitive wholesale and
retail markets, and to encourage new entrants. A national gas access code,
providing for open access transportation, has been developed and is being
implemented during 1999. This code will be administered by the Australian
Consumer and Competition Council. The State of Victoria is selling the TPA
Pipeline as part of an ongoing program of privatization of utilities.
The TPA Pipeline is located entirely within the State of Victoria in
south-eastern Australia. It is 1,111 miles long and was constructed between
1947 and 1998 with the main trunk system constructed in 1970. The TPA Pipeline
transports natural gas from the Gippsland Basin gas producing areas to the
markets in the Victorian state capital, Melbourne, industrial regions to the
east and west and rural areas in north and central west of the state. The
smaller Western system supplies gas to the southwest of the state from the
Otway Basin. The major section of the pipeline is 30 inches in diameter. The
network radiating from the Melbourne hub consists of sections of 19.7 inch,
17.7 inch, 11.8 inch, 3.9 inch and 3.2 inch diameters.
The pipeline is designed to have 4 compressor stations, of which 3 are
currently in operation with a total of 15 compressor units. The fourth station
with 1 unit is scheduled to be commissioned in May 1999. The maximum allowable
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operating pressure is 1,033.5 pounds per square inch on the trunk line.
Maximum allowable operating pressure on other lines ranges from 114 to 1,530
pounds per square inch. The current capacity of the pipeline is 266.8 bcf/yr.
The TPA Pipeline is currently operated under a market carriage regulatory
regime. Capacity and operations are contracted to the Market and System
Operator, VENCorp, a state owned corporation. The principal end uses of
natural gas are residential and small commercial (43%), manufacturing
industries (39%) and other industries, primarily food processing (18%).
CNG and CNG International seek a release of jurisdiction over an amount up
to $100 million for them to make their indirect investment, through Epic Trust
and other intermediaries, to acquire the TPA Pipeline. Early indications
suggest that the total price will be in excess of $600 million. It is
anticipated that 70% of the cost of acquisition will be financed by project
non-recourse debt. The form of investment in the TPA Pipeline may be an
acquisition of the pipeline assets or acquisition of securities issued by the
corporation or other legal entity that may be created by the state of Victoria
to own the pipeline assets during the privatization process. In the event the
other equity owners in the Epic Trust elect not to pursue the acquisition of
the TPA Pipeline, CNG International may decide to bid in its own right up to
100% of the asset.
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III. FINANCING
CNG International will carry on the proposed activities for which
authorization is requested herein through one or more special-purpose
subsidiary or associate companies, partnerships, limited liability companies,
joint ventures or other entities (depending upon the tax, legal and regulatory
requirements of the particular project), including those to be formed with
persons or entities for the sole purpose of submitting a final binding bid
and/or consummating the proposed transactions.
CNG International will obtain funds for its subsidiaries (which
subsidiaries will obtain such funds in essentially mirror financing
arrangements) to engage in the proposed transactions by (i) selling shares of
its common stock, $10,000 par value per share, to CNG, (ii) open account
advances as described below, or (iii) long-term loans from CNG, in any
combination thereof. The open account advances and long-term loans will have
the same effective terms and interest rates as related borrowings of CNG in
the forms listed.
Open account advances may be made to CNG International on a revolving
basis to provide working capital and to finance the activities authorized by
the Commission. Open account advances will be made under letter agreement with
CNG International and will be repaid on or before a date not more than one year
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from the date of the first advance with interest at the same effective rate of
interest as CNG's weighted average effective rate for commercial paper and/or
revolving credit borrowings. If no such borrowings are outstanding, the
interest rate shall be predicated on the Federal Funds' effective rate of
interest as quoted daily by the Federal Reserve Bank of New York. Only
outstanding amounts of open account advances will be calculated against the
$300 million cap on financing.
CNG may make long-term loans to CNG International for the financing of its
activities. Loans to CNG International shall be evidenced by long-term non-
negotiable notes of CNG International (documented by book entry only) maturing
over a period of time (not in excess of 50 years) to be determined by 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 CNG International either through
internal cash generation or from financings at the time authorized by the SEC,
such as pursuant to the five year intrasystem financing authorization under
Holding Co. Act Release No. 26500 (March 28, 1996).
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Authority is requested for Consolidated, CNG International and its
subsidiaries involved in the investments in the TPA Pipeline to enter guarantee
arrangements, obtain letters of credit, and otherwise provide credit support
with respect to obligations of their respective subsidiaries to third parties
as may be needed and appropriate to enable them to execute the transactions and
to carry on in the ordinary course of their respective businesses. The maximum
aggregate limit on all such credit support by Consolidated, CNG International
and its subsidiaries at any one time outstanding will be $100 million with
respect to the TPA Pipeline. The guarantees and other credit support would be
in addition to the intra-company financing requested elsewhere herein.
IV. COMPLIANCE WITH RULE 53
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an EWG or a FUCO, or other transactions
by such registered holding company or its subsidiaries other than with respect
to EWGs or FUCOs, the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the
registered holding company system if Rules 53(a), (b) and (c) are satisfied.
CNG believes that Rule 53(a), (b) and (c) are satisfied in its case as follows.
Rule 53(a)(i) requires that the aggregate investment in EWGs and FUCOs not
exceed 50% of a system's consolidated retained earnings. One-half of the CNG's
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average consolidated retained earnings as reported for the four most recent
quarterly periods on CNG's Forms 10-K and 10-Q was $785,976,500; CNG's had no
investments in EWGs as of December 31, 1998. The Company had invested
$134,320,000 in FUCOs through December 31, 1998. CNG's investments in EWGs and
FUCOs satisfies the 50% limitation.
CNG and its subsidiaries maintain books and records to identify the
investments in and earnings from its EWGs and FUCOs in which they directly or
indirectly hold an interest, thereby satisfying Rule 53(a)(2). The books and
records of CNG'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.
CNG owns less than 50% of the FUCOs in which it has invested. The books
and records of such FUCOs are maintained according to the comprehensive body of
accounting principles applicable in the respective countries in which such
FUCOs operated. Material variations from GAAP in such books and records and
related financial statements will be described and quantified upon the
Commission's request. CNG undertakes to provide the Commission access to such
books, records and financial statements, in English, as it may request.
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It is anticipated that a minimal number of employees of CNG's domestic
public-utility companies will render services, directly or indirectly, to EWGs
and FUCOs in the CNG 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, thereby satisfying Rule 53(a)(3).
All Form U-1 filings seeking authority to finance EWGs or FUCOs, together
with related filings of Rule 24 and Item 9 of Form U5S (including Exhibits G
and H thereof), have been, or will be, submitted to the public utility
commissions of the states having jurisdiction over the rates of the public-
utility companies in the CNG system, thereby satisfying Rule 53(a)(4).
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.
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.
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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 subject post-
effective amendment proceeding will not exceed $25,000, including fees payable
to Consolidated Natural Gas Service Company, Inc. for services on a cost basis
(including costs of regularly employed counsel).
Item 3. Applicable Statutory Provisions
_______________________________
The acquisition of interests in the TPA Pipeline is subject to sections
9(a), 10, 11, 32 and rule 54, and the Gas Related Activities Act of 1990
("GRAA"). Rule 16 would also apply in the event the ownership interest held by
CNG International and its subsidiaries did not exceed 50% of the total equity
interests in a project investment entity.
In its order dated October 25, 1996, the Commission found that
investments by CNG in foreign gas pipeline projects "constitute entry into the
business of transportation of natural gas subject to section 2(a) of the GRAA.
HCAR No. 26595. Thus, these acquisitions are deemed to satisfy the
requirements of section 11(b)(1) of the Act.
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The other requirements of section 10 of the Act continue to apply. CNG
submits that these requirements are met for the reasons set forth in Post-
Effective Amendment No. 3 in this proceeding. Briefly stated, the proposed
Foreign Energy Activities requested herein are a necessary complement to the
foreign utility activities authorized by the Energy Policy Act of 1992.
Strategic benefits are anticipated to stem from CNG's participation in new
energy markets. While investments in foreign pipeline projects may pose risks
that do not arise in the domestic utility industry, these risks are not an
absolute bar to foreign investment. Rather, as the Commission emphasized in
its April 1, 1996 order, HCAR No. 26501, permitting the Southern Company to
invest an amount equal to 100% of its consolidated retained earnings in exempt
wholesale generators and foreign utility companies, there is a need for the
registered holding company to establish procedures to identify and mitigate
such risks.
In this matter, as discussed previously, there are ample safeguards for
consumer interests. The proposed transactions will be structured so that
investors and not consumers will bear the risks that may be associated with
these new ventures. As explained previously, CNG conducts a thorough review of
any proposed investment, with a view toward risk management. The international
operations will be conducted with the same prudence and sound business judgment
that has resulted in CNG's present status as one of the country's most
financially sound energy providers.
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Accordingly, for the reasons set forth above, the applicants request that
the Commission authorize the proposed TPA Pipeline investment and reserve
jurisdiction over the other proposed activities not yet authorized in this
proceeding, pending completion of the record.
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 transactions proposed herein on or before April 12, 1999 .
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 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.
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Item 6. Exhibits and Financial Statements
_________________________________
The following exhibits and financial statements are made a part of this
statement:
(a) Exhibits
F Opinion of counsel for CNG and CNG International
(previously filed)
O Draft of Notice.
(previously filed)
Item 7. Information as to Environmental Effects
_______________________________________
The proposed transactions do not involve major federal action having a
significant effect on the human environment. No federal agency has prepared or
is preparing an environmental impact statement with respect to the proposed
transaction.
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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, Nonregulated
Business and Chief Financial Officer
CNG INTERNATIONAL CORPORATION
By N. F. Chandler
Its attorney
Date: March 17, 1999
