File No. 70-09477
As filed with the Securities and Exchange Commission on June 29, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
-----------------------------------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 6
TO
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
----------------------------------------------------------------------
Dominion Resources, Inc. Consolidated Natural Gas Company
120 Tredegar Street 120 Tredegar Street
Richmond, VA 23219 Richmond, VA 23219
(Name of company filing this statement and
address of principal executive offices)
--------------------------------------------------------------------
Dominion Resources, Inc.
(Name of top registered holding company
parent of each applicant or declarant)
----------------------------------------------------------------------
James F. Stutts
Vice President and General Counsel
Dominion Resources, Inc.
120 Tredegar Street
Richmond, VA 23219
(Name and address of agent for service)
-------------------------------------------------------------------
<PAGE>
The Commission is also requested to send copies
of any communication in connection with this matter to:
Norbert F. Chandler, Esq. Tia S. Barancik, Esq.
Managing Counsel LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Consolidated Natural Gas 125 West 55th Street
Service Company, Inc. New York, NY 10019-5389
CNG Tower, 625 Liberty Street
Pittsburgh, PA 15222
<PAGE>
APPLICATION-DECLARATION
UNDER
SECTIONS 8, 9(a), 10, 11(b) and 12(d)
OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FOR APPROVAL OF
DISPOSITION OF PUBLIC UTILITY SUBSIDIARY
Item 1. Description of Proposed Transactions.
This post-effective amendment to the Application-Declaration of the
Applicants in File No. 70-09477 is submitted in connection with the merger (the
"Merger") of Dominion Resources, Inc. ("DRI") and Consolidated Natural Gas
Company ("CNG"), which was approved by the Securities and Exchange Commission
(the "Commission") on December 15, 1999, HCAR No. 35-27113, and completed on
January 28, 2000, and supplements and completes the record with respect to
certain matters set forth therein.
On May 8, 2000, DRI, CNG and Virginia Natural Gas, a wholly owned indirect
subsidiary of DRI and a wholly owned direct subsidiary of CNG ("VNG"), entered
into a Stock Purchase Agreement (the "Stock Purchase Agreement") with AGL
Resources, Inc. ("AGL") pursuant to which DRI and CNG agreed to sell, and AGL
agreed to purchase, all of the outstanding shares of capital stock of VNG for a
purchase price of $550,000,000, subject to adjustment as set forth in the Stock
Purchase Agreement. A copy of the Stock Purchase Agreement is annexed hereto as
Exhibit B-2. DRI and CNG understand that AGL will separately be seeking
authority from the Commission under the 1935 Act for its acquisition of VNG.
This post-effective amendment acknowledges that DRI and CNG are required
and authorized to dispose of VNG pursuant to Sections 11(b) and 12(d) of the
Public Utility Holding Company Act of 1935 (the "1935 Act") and, in particular,
seeks confirmation that the divestiture of VNG by DRI and CNG as contemplated by
the Stock Purchase Agreement is being ordered pursuant to Section 11(b)(1) of
the 1935 Act to effectuate the provisions of Section 11(b) of the 1935 Act and
that such divestiture and the application of the proceeds of such divestiture to
reduce outstanding indebtedness of CNG are necessary and appropriate to
integrate the holding company system of which DRI and CNG are members.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with seeking the authorizations herein requested are
estimated as follows:
Fee, Commission or Expense Thousands
-------------------------- ---------
Legal Fees and Expenses $10
=======
Total $10
Item 3. Applicable Statutory Provisions.
The following sections of the 1935 Act and the Commission's rules
thereunder are or may be directly or indirectly applicable to the proposed
transactions for which authorization is sought in this Application-Declaration.
Section of/Rule under Transactions to which such
the 1935 Act Section/Rule is or may be applicable
--------------------- ------------------------------------
Sections 8, 9(a), 10, 11(b) and 12(d) Acquisition and Disposition of Public
Utility Subsidiary
As noted above, on December 15, 1999, the Commission issued an order, HCAR
No. 35-27113 (Dec. 15, 1999), approving the application of DRI under Section
9(a)(2) of the Public Utility Holding Company Act of 1935 (the "1935 Act") for
the acquisition of CNG and its subsidiaries, including VNG. Under Section 10(f)
of the 1935 Act, the SEC is prohibited from approving any acquisition subject to
Section 9(a)(2), including DRI's acquisition of CNG, "... unless it appears to
the satisfaction of the Commission that such State laws as may apply in respect
of such acquisition have been complied with, except where the Commission finds
that compliance with such State laws would be detrimental to the carrying out of
the provisions of section 11."
DRI, in order to demonstrate to the Commission that DRI's proposed
acquisition of CNG was in compliance with applicable State law, provided the
Commission with, among other things, a copy of the order of the Virginia State
Corporation Commission (the "Virginia Commission") approving the acquisition of
CNG. The Virginia Commission's order was, however, subject to a number of
conditions which were agreed to by DRI, including the condition that within 12
months following the completion of the acquisition of CNG, DRI would dispose of
VNG. The Commission's order of December 15, 1999 approving DRI's acquisition of
CNG acknowledged that each of the relevant States with jurisdiction over the CNG
acquisition, including Virginia, had approved the acquisition and also
acknowledged the fact that the Virginia Commission had mandated the divestiture
of VNG. The Commission's order under the 1935 Act did not, however, recite the
terms of the VNG disposition, pending completion of the record as none of the
particulars relating to such disposition were then available.
When DRI and CNG first announced their intention to merge, it was DRI's
intention and plan to acquire CNG and all of CNG's assets and subsidiaries,
including VNG. DRI believed that the acquisition of VNG as part of the overall
acquisition of CNG was both sensible, as a business matter, and feasible, as a
legal matter. DRI's agreement with the Virginia Commission to dispose of VNG was
entered into reluctantly and only after it became apparent that the Virginia
Commission would never act to approve DRI's acquisition of CNG unless DRI agreed
to dispose of VNG.
The Virginia Commission's requirement that DRI dispose of VNG as a
condition to the Virginia Commission's approval of the acquisition of CNG was,
in part, based on the Virginia Commission's Staff's interpretation of Virginia
law. In some cases, Virginia law prohibits a public service corporation from
conducting more than one kind of public service business in the state.
Specifically, ss. 13.1-620(D) of the Code of Virginia provides that "[n]o
corporation shall be organized under this chapter for the purpose of conducting
in this Commonwealth more than one kind of public service business except that
the telephone and telegraph businesses or the water and sewer businesses may be
combined, but this provision shall not limit the powers of domestic corporations
existing on January 1, 1996". DRI had argued to the Virginia Commission that
this provision of Virginia law would not be implicated by the acquisition of CNG
for several reasons as follows: First, neither DRI nor CNG is a public service
corporation, so their "combination", directly or indirectly would not implicate
the statute. Second, the public service businesses of the two Virginia public
service companies in question, Virginia Electric and Power Company ("Virginia
Power") and VNG, are not being combined, in that DRI and CNG are not proposing
that these companies be merged. Third, if the statute could be construed to
cover an indirect combination of public service businesses through common
control over Virginia Power and VNG, both Virginia Power and VNG were domestic
corporations existing on January 1, 1986 and are, therefore, grand-fathered
under the statute. Ultimately, however, DRI was unable to persuade the Virginia
Commission to permit DRI to acquire and retain VNG and DRI and the Virginia
Commission Staff entered into a settlement that called for the disposition of
VNG, which settlement was approved by, and made a part of the order of, the
Virginia Commission.
As noted above, the Commission may not approve an acquisition for which
approval is required under Section 9(a) of the 1935 Act "... unless it appears
to the satisfaction of the Commission that such State laws as may apply in
respect of such acquisition have been complied with, except where the Commission
finds that compliance with such State laws would be detrimental to the carrying
out of the provisions of section 11." Also, as noted above, it was clear to DRI
that the Virginia Commission would never act to approve DRI's acquisition of CNG
unless DRI agreed to dispose of VNG. Thus, DRI could not have made the showing
required by Section 10(f), viz., that all State laws in respect of the
acquisition had been complied with, unless DRI agreed to divest of VNG. DRI
notes that, as a theoretical matter, the Commission could have acted to approve
DRI's acquisition of CNG even without Virginia Commission approval or,
alternatively, could have ordered DRI to retain VNG notwithstanding the Virginia
Commission's order of divestiture in reliance on the final clause of Section
10(f) which permits the Commission to disregard State laws applicable to a given
acquisition "where the Commission finds that compliance with such State laws
would be detrimental to the carrying out of the provisions of section 11." In
point of fact, however, the Commission, with notice and full knowledge of the
Virginia Commission's order mandating the VNG divestiture, chose not to
challenge that order of divestiture and explicitly noted such requirement in its
order approving the CNG acquisition under the 1935 Act. Such explicit acceptance
of such requirement of divestiture effectively incorporated such requirement
into the order of the Commission under the 1935 Act. Moreover, for the reasons
set forth below, DRI and CNG respectfully submit that the Commission could not
have approved DRI's acquisition of CNG in the absence of a showing of compliance
with Virginia law; viz. in the absence of a disposition of VNG, as neither such
compliance nor such disposition is and would be detrimental to the carrying out
of the provisions of Section 11.
DRI believes that the Commission's order approving the Merger requires DRI
to dispose of VNG. However, as a registered holding company, DRI is now required
to complete the record to document the terms and conditions upon which DRI may
proceed with the disposition of VNG pursuant to the Stock Purchase Agreement.
Under the present circumstances and given the facts of this situation, DRI
acknowledges that the Commission has required DRI to divest VNG under Section
11(b)(1) of the 1935 Act.
The 1935 Act in General
Section 1 of the 1935 Act is very clear that one of the principal evils the
1935 Act was designed to remedy was the fact that, in 1935, multistate holding
companies with activities "extending over many States are not susceptible of
effective control by any State and make difficult, if not impossible, effective
State regulation of public utility companies." Thus, the 1935 Act requires the
simplification of the corporate structures of holding company systems in order
to enable States to regulate the production and distribution of energy. The 1935
Act is generally not concerned with those types of holding companies that can
indeed be effectively regulated on the state level and provides exemptions for
them in Section 3(a)(1) and Section 3(a)(2). The 1935 Act creates federal
jurisdiction to regulate those holding companies that could otherwise escape
State and local regulation, but there is no indication in the 1935 Act that
federal law should be used to override effective State policy. Indeed, Section
21 of the 1935 Act specifically indicates that "nothing in [the 1935 Act] shall
affect . . .the jurisdiction of any other commission, board, agency, or officer
of . . . any State . . . insofar as such jurisdiction does not conflict with any
provision of [the 1935 Act]."
In addition, the Report of National Power Policy Committee on Public
Utility Holding Companies stated that "[w]hile Federal legislation does not try
to regulate intrastate consumers' rates, it can help create conditions under
which State legislation can establish rate structures based upon an objective
and administratively workable standard of prudent investment in the
properties..."Report of National Power Policy Committee on Public Utility
Holding Companies, Appendix to Report No. 621, Report to Accompany S. 2796, 74th
Congress, 1st Sess., May 14, 1935, at p. 57.
Section 8
In the instant situation, the question presented is whether DRI could have
acquired CNG, and thereby VNG, in the first instance. As discussed above, the
answer is unclear under Virginia law and, thus, it is equally unclear that the
Commission could have approved DRI's acquisition of CNG in the absence of a
promise by DRI to dispose of VNG. Section 8 of the 1935 Act provides that
"[w]henever a State law prohibits, or requires approval or authorization of, the
ownership or operation by a single company of the utility assets of an electric
utility company and a gas utility company serving substantially the same
territory, it shall be unlawful for a registered holding company, or any
subsidiary company thereof . . .to acquire, without the express approval of the
state commission, any direct or indirect interest in an electric utility company
or gas utility company serving substantially the same territory as that served
by such companies in which it already has an interest." A careful reading of
Section 8 indicates that the primary thrust of the Section is to preclude the
use of a registered holding company, such as DRI, to circumvent any state law
restrictions, in this case, those of Virginia, on the common ownership of gas
and electric assets by the same company.
Support for this interpretation of Section 8 is also found in the
legislative history of Section 8 which advocates a policy of allowing
combination utilities when they are permitted by State law. As noted in the
Senate Interstate Commerce Committee "[Section 8] is concerned with competition
in the field of distribution of gas and electric energy -- a field which is
essentially a question of State policy, but which becomes a proper subject of
Federal action where the extra-State device of a holding company is used to
circumvent state policy." S. Rep. No. 2796, 74th Cong., 1st Sess., pt 1 at 31
(1935) (the "Senate Report"). Section 8 illustrates the belief that local
regulators are in the best position to assess the needs of their communities.
The 1935 Act was never intended to supplant local regulation but, rather, was
intended to create conditions under which local regulation was possible. Note
that Section 21 of the 1935 Act further codifies this legislative intent
stating: "Nothing in [the 1935 Act] shall affect . . .the jurisdiction of any
other commission, board, agency, or officer of . . .any State, or political
subdivision of any State, over any person, security, or contract, insofar as
such jurisdiction does not conflict with any provision of [the 1935 Act] . . .
." Thus, the 1935 Act should not be used as a tool to override legitimate State
policy, particularly when the holding company involved is subject to both state
and federal regulation.
Much more recently, the Division of Investment Management noted in the
report issued by the Division in June 1995 ("The Regulation of Public Utility
Holding Companies", hereafter, the "1995 Report"), "it does not appear that the
[Commission]'s precedent concerning additional systems precludes the
[Commission] from relaxing its interpretation of Section 11(b)(1)(A)" and "that
the utility industry is evolving toward the creation of one-source energy
companies that will provide their customers with whatever type of energy supply
they want, whether electricity or gas." The Division recommended that the
Commission interpret Section 11(b)(1) of the 1935 Act to allow registered
holding companies to hold both gas and electric operations as long as each
affected State utility regulatory commission approves of the existence of such a
company. (1995 Report, at 15-6). The Commission has adopted the Division's
recommendation with respect to common ownership of electric and gas properties
by registered holding companies, New Century Energies, Inc., HCAR No. 35-26748
(Aug. 1, 1997), to wit., such common ownership should not be barred by the 1935
Act when such common ownership is consistent with State law and policy. If the
foregoing is correct, then the converse must also be true: the 1935 Act must, as
originally contemplated by Section 8, also bar common ownership of electric and
gas properties when such common ownership is not consistent with State law and
policy. Thus, in approving any acquisition subject to Section 9(a)(2), the
Commission must exercise its authority under Section 11(b) of the Act to order
divestiture of a portion of those assets acquired when the acquisition of such
portion would be prohibited by State law notwithstanding that the overall
acquisition may be approved by the State and the Commission.
Section 11(b) of the 1935 Act
Section 11(b) of the 1935 Act requires each registered holding company to
take such actions as deemed necessary by the Commission to limit its operations
to "a single integrated public-utility system, and to such other businesses as
are reasonably incidental, economically necessary or appropriate to the
operations of such integrated public-utility system." In 1935, the Senate stated
that the purpose of Section 11 of the 1935 Act "is simply to provide a mechanism
to create conditions under which effective Federal and State regulation will be
possible." Report No. 621, Report to Accompany S. 2796, 74th Congress, 1st
Sess., May 14, 1935, at p. 9.
In the 1995 Report, the Division stated ". . . the Commission has
recognized that section 11 does not impose "rigid concepts" but rather creates a
"flexible" standard designed "to accommodate changes in the electric utility
industry....Congress, in 1935, recognized that competition in the field of
distribution of gas and electric energy is essentially a question of state
policy." The 1935 Act was intended to ensure compliance with State law in this
regard. Thus, the Commission has the authority under Section 11(b) and, in fact,
is required under Section 11(b), to order the divestiture of assets by a
registered holding company when retention of such assets is inconsistent with
State law.
In requiring DRI to dispose of VNG, the Virginia Commission anticipated
that such divestiture would not be harmful to the DRI system and, in fact that
Virginia consumers would, in light of state restructuring, benefit from the
introduction of a new competitor into the Virginia energy market. In the instant
situation, the combined DRI-CNG system is sufficiently large that the
disposition of VNG at the agreed purchase price will not have an adverse impact
on the DRI-CNG system or its economical and efficient operation, management and
growth.
For all of the above reasons, DRI acknowledges, and respectfully requests
the Commission to confirm, that DRI and CNG are required to dispose of VNG
pursuant to Section 11(b) of the 1935 Act and, in particular, that the
divestiture of VNG by DRI and CNG is being ordered pursuant to Section 11(b)(1)
of the 1935 Act to effectuate the provisions of Section 11(b) of the 1935 Act
and that such divestiture and the application of the proceeds of such
divestiture to reduce outstanding indebtedness of CNG are necessary and
appropriate to integrate the holding company system of which DRI and CNG are
members. DRI and CNG further request the Commission to confirm that DRI and CNG
are authorized pursuant to Section 12(d) of the 1935 Act to effect the
disposition of VNG as contemplated by, and pursuant to the terms and conditions
of, the Stock Purchase Agreement and this post-effective Amendment No. 6.
Item 4. Regulatory Approvals.
In addition to the order of the Commission approving DRI's acquisition of
CNG, DRI's and CNG's divestiture of VNG has been mandated by the Virginia
Commission in Order Approving Merger dated September 17, 1999, in State
Corporation Commission Case No. PUA990020 and the Federal Trade Commission in
its Order of November 4, 1999 in FTC File No. 991-0244 and Docket No. C-3901.
DRI and CNG require no other regulatory approvals or consents to complete the
transactions contemplated by the Stock Purchase Agreement.
Item 5. Procedure.
The Commission is respectfully requested forthwith to issue an order of the
Commission granting and permitting this post-effective amendment to this
Application-Declaration to become effective.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the
disposition of VNG. The Division of Investment Management 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.
Exhibit B-2 Stock Purchase Agreement (incorporated by reference from Form U-1
Application-Declaration File No. 70-09707, Exhibit B-1).
Item 7. Information as to Environmental Effects.
The disposition of VNG neither involves a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 10(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Section 4321, et seq. The only federal actions related to the disposition of VNG
pertain to the Commission's approval of this post-effective amendment to this
Application-Declaration under the 1935 Act and the other approvals and actions
described in Item 4 above. The disposition of VNG will not result in changes in
the operations of DRI, CNG or any of their respective subsidiaries that would
have any impact on the environment. No federal agency is preparing an
environmental impact statement with respect to this matter.
<PAGE>
Pursuant to the Public Utility Holding Company Act of 1935, each of the
undersigned companies has caused this Application-Declaration to be signed on
its behalf by the undersigned thereunto duly authorized.
DOMINION RESOURCES, INC. CONSOLIDATED NATURAL GAS COMPANY
By:/s/James F. Stutts By:/s/James F. Stutts
---------------------- ------------------
Name: James F. Stutts Name: James F. Stutts
Title: Vice President and Title: Vice President and
General Counsel General Counsel
Date: June 29, 2000 Date: June 29, 2000
