File No. 70-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________
U-1
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
______________________________________________
Names of Companies filing this statement and addresses of principal
executive offices:
National Fuel Resources, Inc.
478 Main Street
Buffalo, New York 14202
______________________________________________
Name of Top Registered Holding Company:
NATIONAL FUEL GAS COMPANY
Names and Addresses of Agent for Service:
Philip C. Ackerman
Senior Vice President
National Fuel Gas Company
10 Lafayette Square
Buffalo, New York 14203
David F. Smith Robert J. Kreppel, President
10 Lafayette Square National Fuel Resources, Inc.
Buffalo, New York 14203 478 Main Street
Buffalo, New York 14202
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
Kyle G. Storie
10 Lafayette Square
Buffalo, New York 14203
Item 1. Description of Applicant
National Fuel Resources, Inc. ("NFR") is a non-rate
regulated natural gas marketer/broker which also invests in certain
gas equipment research and development projects. It is a
wholly-owned subsidiary of National Fuel Gas Company ("National").
National is a public utility holding company registered under the
Public Utility Holding Company Act of 1935, as amended ("Act").
Proposed Transaction
NFR hereby seeks authority to engage in electric power
marketing/brokering. A typical electric power marketing/brokering
transaction would involve the purchase of electric power from a
utility or non-utility generator and the resale of that power to
another utility (wholesale) or an end-user (retail). The customer or
NFR would contract with an electric utility for transmission capacity
to transport the power. Variations on this basic approach may be
possible, including long-term power purchases and sales. It may also
become necessary or desirable for NFR to trade in any electricity
futures market that may develop to cover its obligations in the
market (all references to participation in the electric power
marketing/brokering business include participation in the electric
futures market as described herein).<F1>
To the extent that it would cause NFR to become an Electric
utility company as defined by Section 2(a)(3) (all section references are to
the Act unless otherwise indicated), the Applicant is not currently
seeking approval to own or operate any electric utility assets as
defined in Section 2(a)(18).
Discussion
NFR's participation in the electric power
marketing/brokering business might be construed as the acquisition of
an interest in a business under Section 9(a) requiring approval of
the Commission pursuant to Section 10.
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<F1> It is anticipated that NFR would attempt to match its
portfolio of power sales contracts with its portfolio of
power purchase contracts with similar terms. Hedging would
be needed only to reduce risk with respect to that portion
of NFR's total contract portfolio which is not matched.
Market tools are currently developing whereby NFR will be
able to manage the price risk associated with electric
power brokering. The New York Mercantile Exchange recently
approved a plan to open a market for electricity-futures
contracts with trading to begin no sooner than the last
quarter of 1995. As FERC continues to restructure the
electric industry in a manner similar to the way it
restructured the gas industry, other market tools will
likely develop whereby NFR will be able to effectively
minimize the risk associated with electric power brokering.
In its use of hedging tools, NFR will not engage in
speculative trading. Hedging activity will be limited to
no more than the total volume of NFR's commodities that are
subject to market price fluctuation.
Section 10(c)(1) directs the Commission to approve an
acquisition of an interest in a business only if it is in accordance
with Section 11. Section 11(b)(1) requires that the Commission
limit the operation of a registered holding-company system to "a
single integrated public-utility system" (or in certain situations,
more than one) and to such other businesses as are reasonably
incidental, or economically necessary or appropriate to the
operations of an integrated public-utility system.<F2> In Michigan
Consolidated Gas Co. v. S.E.C., 444 F.2d 913, 916 (D.C. Cir. 1971)
the Court endorsed a two-pronged "functional relationship" test
whereby the business to be acquired must be:
1) reasonably incidental or economically
necessary or appropriate (the statutory
language) to the registered holding
company's integrated public utility
system, and
2) necessary or appropriate in the public
interest.
NFR's participation in the electric power marketing/
brokering business is reasonably incidental, economically necessary and
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<F2> As applied to gas utility companies, this means a system
consisting of one or more gas utility companies ... Sec.
2(a)(29). The integrated public utility system requirement
has, from time to time, resulted in a finding that a
particular registered holding company could not engage in both
the electric utility business and gas utility business. See,
for example, Engineers Public Service Co. v. SEC, (CA D of C,
1943) 138 F.2d 936. See, also CINergy Corp. HCAR No. 35-26063
(June, 1994) where a newly registered holding company engaged
primarily in the electric utility business sought and received
a deferral of the Commission's consideration of whether it
must divest certain gas properties pending the outcome of the
PUHCA Reform initiative discussed infra at p. 3. Such
restrictions are not applicable in the present case given that
NFR does not plan to own any electric plant and thus would not
be an electric utility company.
appropriate to National's integrated public utility system and it is in
the public interest.
At the Roundtable Discussion to Inaugurate the Comprehensive
Study of Regulation under the Act held in July of 1994 the Commission
asked industry leaders to comment on various issues including whether
the profile of the industry will change in coming years. Officials
from both the electric and gas sectors anticipate fundamental changes
including evolution toward the provision of energy sales and service as
opposed to the historical configuration of the sale of just gas or just
electricity. For example, it was noted that:
The local gas distribution company (LDC) of the
future may be fundamentally different than the
LDC of today in the kinds of services it offers
to customers. The future LDC could distribute a
variety of services, such as being a broker of
gas and electric services.
From Executive Summary of Remarks by Michael Baly III, President of
the American Gas Association.
James Rogers, CEO of PSI Resources, Inc. opined:
As competition spreads, it is not clearly defined,
either. In the future, emerging energy services
companies will compete by offering broad energy
portfolios -- including, for example, electricity
from the grid, on-site generation, and natural gas
to fuel that electric generation as well as direct
applications. A complete energy portfolio will
also include energy efficiency services that are
as much "information" as they are "energy."
Consolidated Natural Gas Company's Executive Summary states:
Over the last 15 years, substantial deregulation
of the gas and electric industries has occurred
and, as a result, highly competitive markets for
energy in general and gas in particular have
developed. These regulatory changes have opened
up opportunities for independent developers,
industrial companies, gas producers, gas pipelines
and others to participate in electric generation.
For gas companies, we no longer participate just
in a gas market, but rather in what is becoming an
energy market. CNG sees this development
continuing with competition, not regulation, as
the driving force. Consolidation of businesses
will result as necessary to provide reliable
energy sources at least cost. Also new to the
industry is the concept of energy marketers who
will provide energy obtained from multiple sources
to a diverse customer base.
The pace of change is even more rapid than these observers
contemplated. One of the nation's largest gas companies, Enron, is
already marketing electricity and, of course, many electric companies
are marketing gas.
In summary, contemporary market conditions require a broad
focus on energy services. Open pipeline access, "retail wheeling",
and other legislative and regulatory changes have and will continue
to broaden the gas market into an energy market. Customers would
benefit from having another marketer able to sell them the type of
energy/energy services which best fit their particular circumstances.
Otherwise, these customers could be at a disadvantage to their
competitors who operate outside National's system and have ready
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<F3> A large number of companies from the gas and electric
industry, both regulated and unregulated, have received
approval from FERC to broker electric power. In fact, certain
holding companies registered under the Act have been able to
enter this business without Commission approval due to the
fact that unlike National, they have an ownership interest in
an exempt wholesale generator. Thus, potential competitors of
National and NFR are already in position to provide such
services to their customers.
economically necessary and appropriate that NFR participate in the
electric marketing/brokering business.
Allowing NFR to broker/market electric power will also meet
the second prong of the functional relationship test. It will be in
the public interest to approve this application because the result
will be enhanced competition, something that is always in the
interest of the public. The Commission stated that increasing
competition is an important consideration of the Act.<F4>
Despite the evolution from just a gas market and just an
electric market to an energy market it could be argued that the sale
of electricity and related services is not functionally related to
the operation of a gas utility. In other words, you arguably do not
need to do electric power marketing in order to continue to carry on
a gas utility business, albeit, at a competitive disadvantage. This
view is short-sighted, narrow minded and anachronistic. The
traditional gas utility business is dying and it is being killed
enthusiastically by state and federal regulators who see the
tremendous advantages to consumers which stem from free competition
instead of monopoly regulation. To force a gas holding company to
restrict itself to marketing energy in the form of gas only would be
to force it to fight with one arm tied behind its back in a
competitive battle where the opposition has two and even three good
arms in the form of gas, electricity and oil.
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<F4> See Union Electric Co., 45 S.E.C. 489 (1974).
The Commission has allowed holding companies to diversify into
activities which are peripheral to the activities of the utility. A
number of these ventures are discussed in Jersey Central Power &
Light Company HCAR No. 35-24348 (March 18, 1987) 37 S.E.C. Docket
1243 and CSW Credit, Inc. HCAR No. 25995 (March 2, 1994). In Jersey
Central the Commission approved the licensing of a computer program
while CSW related to a request by the applicant to expand its credit
factoring business. The Commission has also approved the sale or
lease of radio facilities and equipment and the provision of
consulting services such as management, technical and training
services to non-associates (citations omitted).
In Jersey Central Power & Light Company the Commission notes
that:
[i]n a number of "consulting company" cases,
subsidiaries of holding companies were authorized
to sell management, technical, and training
services to nonassociates based upon "the
accumulated skills and experience" of the
holding-company systems . . . the other business
(1) evolved in connection with the system's
utility business, (2) the investment in the other
business was not significant in relation to the
system's total financial resources, and (3) the
investment had the potential to produce benefits
for the investors and/or consumers.
Id. at 37 S.E.C. 1245.
The provision of electric power marketing/brokering by one
of National's subsidiaries is analogous to these "consulting company"
cases in that the "accumulated skills and experience" NFR has gained
through its gas marketing business will allow it to effectively provide
electric power marketing/brokering sales and services.
In CSW the Commission reaffirmed the three prong test for
approval of non-functionally related businesses noting that:
Jersey Central articulated the operative
principle underlying these cases by positing a
three prong test. It concluded that, in each of
the cited cases, (1) the non-functionally related
business evolved in connection with the system's
utility business; (2) the investment in the other
business was not significant in relation to the
system's total financial resources; and (3) the
investment had the potential to produce benefits
for investors or consumers. (Emphasis supplied.)
The subject application should be approved because NFR's
participation in the electric power marketing/brokering business passes
this three prong test. (1) as discussed supra. pp. 3-5, the
marketing/brokering of electricity has and will continue to evolve in
connection with the system's (gas) business; (2) the investment in the
"other business" will not be significant in relation to the system's
total financial resources. The skills and experience which NFR has
developed over the years spent in National's system providing gas sales
and service are easily transferable and ensure that there will be
minimal training or other expense necessary in becoming proficient
electric power marketers/brokers; (3) as previously discussed, the
provision of electric power brokering services will benefit consumers.
Congress has shown its desire that registered holding
companies take part in the evolution of the power market by the
addition of Section 32(g) to the Act in 1992. Section 32(g) allows registered
holding companies to acquire interests in exempt wholesale generators
(EWGs).<F5> An EWG can broker unlimited amounts of wholesale electric
power, even power not generated by the EWG.<F6> Thus, by allowing
registered holding companies to acquire EWGs, Congress has also
authorized registered holding companies to market/broker wholesale
electric power.
NFR would need only to establish an EWG development
subsidiary in order to do power brokering purely on the wholesale
level.<F7> Given, however, its size and the nature of its business,
retail power brokering affords the best opportunity for NFR to provide
additional services to customers within the National system and to help
foster competition in the energy industry. The Commission has
recommended no enforcement action in a number of instances where
companies have sought to market/broker not only in the wholesale market
but also to end-users.<F8> Thus allowing NFR to do electric power
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<F5> See, Holding Company Act Release No. 35-25886, 55 SEC
Docket 131 (September 23, 1993), stating "Registered
holding companies and their subsidiaries no longer need to
apply for Commission approval to acquire interests in EWGs."
<F6> See, Entergy Edegel II, Inc., 68 FERC paragraph 61,283,
page 62,214 footnote 3 (September 2, 1994); LG&E Power
Marketing Inc., 67 FERC paragraph 61,083, page 61,237
footnote 4 (April 19, 1994).
<F7> See, EI Power, Inc., 68 FERC paragraph 61,023 (July 6,
1994); SEI Holdings VII, Inc., 67 FERC paragraph 61,182
(May 13, 1994).
<F8> See, Electric Clearinghouse, Inc., S.E.C. No Action Letter
(April 13, 1994); CRSS Power Marketing, Inc., S.E.C. No
Action Letter (March 31, 1994); Enron Power Marketing,
Inc., S.E.C. No Action Letter (January 5, 1994).
marketing/brokering at both the retail and wholesale level would be
in the public interest because it would increase competition and is
in accord with Congressional intent and Commission decisions.
NFR's proposed marketing/brokering would not involve
ownership of electric power generation facilities, other than EWGs.
Although NFR could own any number of EWGs, the power they generated
could only be sold at wholesale or leased to one or more public
utility companies. Additionally, NFR would not own electric
transmission facilities. Thus, allowing NFR to participate in the
retail and wholesale electric power marketing/brokering business
would not make it an electric utility under the Act and would not
lead to undue retail market influence. Rather, allowing NFR to do
retail and wholesale electric marketing/brokering would only have the
affect of providing cheaper, more efficient and varied energy
services than its customers would otherwise have available.
Recent Orders issued by the Commission recognize the
changing competitive atmosphere in the industry and provide a more
liberal interpretation of the "functional relationship" test. For
example, in Eastern Utilities Associates, et al. HCAR No. 35-26232
(February 15, 1995) 58 S.E.C. Docket 2174 Cogenex, an energy
consulting subsidiary of Eastern Utilities, was allowed to expand its
business beyond the traditional 50% limitation that required revenues
related to customers outside the service territory be less than
revenues attributable to customers within that area. The Commission
noted that "[t]he Act, 'creates a system of pervasive and continuing
economic regulation that must in some measure at least be refashioned
from time to time to keep pace with changing economic and regulatory
climates.'" Id. at 58 S.E.C. 1217.
In Southern Company, HCAR No. 35-26211 (December 30, 1994)
58 S.E.C. Docket 1471 the Commission found that a "functionally
related" activity could include an electric utility developing a
telecommunications subsidiary. The Commission approved the
transaction on two alternative grounds. First, it was held that the
relative investments for associate and non-associate companies is
consistent with the rationale underlying CSW Credit, supra. This was
so "[e]ven though the majority of the revenues may ultimately come
from nonassociate customers." Id. at 58 S.E.C. 1477. The second
ground for approval was that the deal satisfied the requirements of
Jersey Central Power & Light Co., supra, as approved in CSW Credit.
NFR believes that, as in Southern Company, the proposed
activities meet the traditional "functionally related" standard.
But, if not, NFR urges the Commission to keep pace with changing
economic and regulatory climate as it did in Eastern Utilities, by
refashioning the "functionally related" test to allow the Applicants
to do electric brokering/marketing.
Item 2. Fees, Commissions and Expenses
For Attorney's Fees Less than $5,000
Filing Fee $2,000
TOTAL $7,000
Item 3. Applicable Statutory Provisions.
Sections 2, 9(a), 10, 11(b), and Rule 23 are applicable to
the transaction contemplated hereunder.
Applicable Provisions Proposed Transaction
Sections 2, 9(a), 10, NFR's participation in the
11(b) and Rule 23 electric power marketing/
brokering business and
electricity futures markets.
To the extent that the proposals herein are considered by
the SEC to require authorization, approval or exemption under any
section of the Act or provision of the rule or regulations other than
those specifically referred to herein, request for such authorization
approval or exemption is hereby made.
Item 4.
No federal regulatory authority, other than the SEC, has
jurisdiction over the proposals. No state regulatory authority has
jurisdiction over the proposed transactions.
Item 5. Procedure
The SEC is requested to issue an order permitting the
Application-Declaration to become effective as soon as possible with
respect to consummation of the transactions described herein.
National respectfully requests that the SEC's orders herein
be entered pursuant to the provisions of Rule 23. If a hearing is
ordered, Applicant-Declarants waive a recommended decision by a
hearing officer, or any other responsible officer of the SEC, and
agree that the Division of Investment Management, Office of Public
Utility Regulation may assist in the preparation of the SEC's
decision and/or order; and request that the SEC's order become
effective upon issuance.
Item 6. Exhibits and Financial Statements
a) Exhibits
*A-1 Opinion of Counsel
*B-1 Proposed Form of Notice
b) *Financial Statements
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*To be filed by Amendment.
Item 7.
The proposed transactions outlined herein involve no action
which will significantly affect the quality of the environment.
No federal agency has prepared or is preparing an
environmental impact statement with respect to the transactions
proposed in the Application-Declaration.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused this
Amendment to the application-declaration to be signed on their behalf
by the undersigned thereunto duly authorized.
Dated: June 15, 1995
NATIONAL FUEL RESOURCES, INC.
By:/s/Robert J. Kreppel
Robert J. Kreppel
President
