JONES, DAY, REAVIS & POGUE
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, TX 75201
9550:clc (214) 969-3722
950527-002-012
May 4, 1995
VIA HAND DELIVERY
Mr. Robert Wason
Division of Investment Management
Securities and Exchange Commission
455 Fifth Street, N.W., M.S. 10-6
Room 10239
Washington, DC 20549
Re: Application of NorAm Energy Corp. for an
Order of Exemption Pursuant to
Section 3(b) of the Public Utility
Holding Company Act of 1935
Dear Mr. Wason:
Enclosed is NorAm Energy Corp.'s Application for an
Order of Exemption Pursuant to Section 3(b) of the Public Utility
Holding Company Act of 1935 (the "Application"). NorAm plans to
purchase an interest in Gas Natural, S.A. ("Gas Natural"), an
energy company in Colombia presently owned by Eco Petrol ("EP"),
a division of the Colombian government. NorAm will participate
in the acquisition of Gas Natural through a wholly-owned Delaware
subsidiary (the "Delaware Subsidiary"). NorAm may create a
Colombian corporation (the "Colombian Corporation") to hold its
and its partners' interests in Gas Natural, or it may create a
wholly-owned Colombian subsidiary (the "Colombian Subsidiary") to
hold its shares in Gas Natural. The Delaware Subsidiary will
hold, in either case, shares of the Colombian Corporation or the
Colombian Subsidiary (collectively referred to as the "Colombian
Companies"). In no event will NorAm's interest in Gas Natural
exceed 49%.
NorAm's proposed transactions would cause NorAm, the
Delaware Subsidiary and the Colombian Companies to be considered
holding companies under the Act with respect to Gas Natural.
Because it is not necessary in the public interest or for the
protection of investors, to require compliance with the Act, no<PAGE>
Mr. Robert Wason
May 4, 1995
Page 2
material part of Gas Natural's or the Colombian Companies' income
is derived, directly or indirectly, from sources within the
United States, and neither Gas Natural nor the Colombian
Companies are public utility companies operating in the United
States, NorAm requests that the Commission grant the enclosed
Application.
Please call me at the above number should you have any
questions or comments.
Very truly yours,
Gerry Osterland
Enclosure
cc: Mr. Michael Bracy
<PAGE>
APPLICATION OF NORAM ENERGY CORP.
FOR AN ORDER OF EXEMPTION
PURSUANT TO SECTION 3(b) OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
INTRODUCTION
NorAm Energy Corp. ("NorAm") seeks an unqualified order of
exemption pursuant to Section 3(b) of the Public Utility Holding
Company Act of 1935 (the "Act") for Gas Natural, S.A. ("Gas
Natural"), a natural gas distribution company which serves
Bogota, Colombia. Eco Petrol ("EP"), the government-owned energy
company in Colombia, is expected to announce shortly plans to
privatize its ownership of Gas Natural. NorAm proposes to
purchase an interest from EP, which interest would be acquired by
a newly formed wholly-owned Delaware subsidiary (the "Delaware
Subsidiary") of NorAm. While it is not currently contemplated,
it is possible that if NorAm bids with other companies as
partners, a Colombian corporation (the "Colombian Corporation")
would be created to hold all of the partners' interests in Gas
Natural or, if advantageous, NorAm would organize a wholly-owned
Colombian subsidiary (the "Colombian Subsidiary") to hold its
shares of Gas Natural and the Delaware Subsidiary would hold, in
either case, shares of the Colombian Corporation or the Colombian
Subsidiary (collectively referred to herein as the "Colombian
Companies").
NorAm's ownership interest in Gas Natural will in no event
exceed 49% and is not expected to exceed 25%. No income of Gas
APPLICATION FOR ORDER OF EXEMPTION
NorAm / Gas Natural S.A.<PAGE>
Natural or the Colombian Companies will be derived, directly or
indirectly, from sources within the United States, and neither
Gas Natural nor the Colombian Companies nor any of their
respective subsidiaries will be a public utility company
operating in the United States.
EP owns approximately 60% of the common stock of Gas
Natural. It is expected that about 10% of Gas Natural will be
sold to its employees. Another 26% of Gas Natural is owned by
the government-owned electric utility company; it is unclear
whether or when those shares will be sold to private interests.
The remaining interest is already controlled by private entities.
While the schedule for the privatization has not been
announced by EP, NorAm estimates that requests for proposals will
be issued as soon as May 1995 and bids required as early as July
1995. It is clear, however, that all bids must be all cash and
cannot be subject to any conditions or contingencies. Bidders
will be able to bid for all or only a portion of the shares
offered by EP.
NorAm is currently discussing with Colombian utility and
other companies the possibility of forming a bidding group to bid
for Gas Natural and is also considering bidding independently for
a portion of the shares to be sold. NorAm expects to acquire
somewhere between 15-25% of Gas Natural; the exact percentage
will depend on the completion of NorAm's due diligence related to
Gas Natural, its negotiations with its potential partners and the
outcome of the bidding process. If NorAm decides to bid with
partners, it would enter into an agreement with such partner or
APPLICATION FOR ORDER OF EXEMPTION
-4- NorAm / Gas Natural S.A.<PAGE>
partners detailing the rights and obligations of bidding group
or, although not contemplated at this time, form the Colombian
Companies to hold all the shares of Gas Natural purchased
pursuant to the bidding process. It is possible that discussions
concerning partners will not be concluded until shortly before
the request for proposals is issued.
If NorAm's bid is successful and this Application granted,
its interest in Gas Natural would be held directly or indirectly
by the Delaware Subsidiary.
In order for NorAm to successfully bid for a portion of the
shares of Gas Natural or become part of a bidding group and
finalize arrangements with potential partners, it must determine
that Gas Natural would be exempt pursuant to Section 3(b) of the
Act. Additionally, it must be able to assure its potential
partners that it can be a bidder and that its involvement is not
subject to any contingencies. Without receipt of an unqualified
order of exemption pursuant to this Application, NorAm could not
bid independently for a portion of the shares nor give its
potential partners the required assurances. Additionally, in
order for NorAm to be competitive in the bidding process, it must
be able to submit its bid without any contingencies. Bids with
contingencies will not be considered by the Colombian government.
The granting of an unqualified order of exemption pursuant to
this Application will provide NorAm a chance of success in the
bidding process. NorAm respectfully requests that the Commission
grant its Application for an order of exemption pursuant to
Section 3(b) of the Act.
APPLICATION FOR ORDER OF EXEMPTION
-5- NorAm / Gas Natural S.A.<PAGE>
THE PARTIES
NorAm Energy Corp.
NorAm is a Delaware corporation with its principal places of
business and operations in Texas, Louisiana, Arkansas,
Mississippi, Oklahoma, Missouri and Minnesota. NorAm is not a
public utility holding company as defined in the Act because all
of its utility operations are conducted by NorAm, not a
subsidiary company. NorAm is principally engaged in the
distribution and transmission of natural gas, including
gathering, storage and marketing. NorAm's distribution business,
which provided approximately 60% of NorAm's operating income in
1994, serves approximately 2.7 million customers in six states
with annual throughput of approximately 524.2 billion cubic feet
("Bcf"). NorAm is also engaged in the business of operating
(1) two interstate pipelines with total annual throughput of
approximately 878 million MMBtu, utilizing principal facilities
in a five-state area, (2) natural gas gathering systems, which
annually gather approximately 230 Bcf of gas through
approximately 3,500 miles of pipe in the Anadarko, Arkoma and
Ark-La-Tex supply basins and (3) a natural gas marketing company
which provides gas supply, storage, transportation and other
services, with annual sales volume of approximately 318 Bcf.
NorAm's two interstate pipelines are regulated by the
Federal Energy Regulatory Commission as to the services offered
and the maximum rates which may be charged. NorAm's natural gas
distribution operations are regulated as to services offered and
the rates which may be charged by state utility commissions or
APPLICATION FOR ORDER OF EXEMPTION
-6- NorAm / Gas Natural S.A.<PAGE>
similar bodies in Louisiana, Arkansas, Mississippi, Oklahoma and
Minnesota and by municipalities in Texas, although certain
aspects of service are regulated by the Texas Railroad
Commission. None of the transactions contemplated herein require
the prior approval of any of the aforementioned commissions.
Additional information related to NorAm's financial and
operating information is contained in the periodic reports of
NorAm filed with the Commission under the Securities Exchange Act
of 1934 (File No.1-3751).
Gas Natural, S.A.
Gas Natural is a government-owned energy company which is
the natural gas distribution company that serves and operates in
Bogota, Colombia.
As of December 31, 1994, Gas Natural had a total of 172,142
customers, having added 41,497 customers during the year then
ended. Gas Natural's distribution system as of December 31,
1994, consisted of 1,768,128 meters of installed tubing
(approximately 410,249 meters of which were installed during the
year then ended).
For the year ended December 31, 1994 Gas Natural's operating
revenues were approximately $23.6 million (utilizing an estimated
exchange rate of 800 Colombian pesos to the U.S. dollar) and its
operating profit was approximately $3.1 million. After inclusion
of other items of income and expense (including income taxes),
Gas Natural's net income was approximately $3.0 million.
APPLICATION FOR ORDER OF EXEMPTION
-7- NorAm / Gas Natural S.A.<PAGE>
As of December 31, 1994, Gas Natural's total assets were
approximately $61.4 million (utilizing an estimated exchange rate
of 800 Colombian pesos to the U.S. dollar), including net
property, plant and equipment of approximately $39.0 million and
current assets of approximately $11.5 million. Gas Natural's
equity as of December 31, 1994, was approximately $31.3 million
and its long-term obligations and current liabilities were
approximately $17.7 million and $9.7 million, respectively.
THE TRANSACTION
NorAm proposes to participate in the government's bidding
process to buy shares of Gas Natural sold by EP pursuant to a
government privatization plan. EP will sell its 60% ownership
interest in Gas Natural, of which NorAm plans to acquire 15-25%.
This interest will be held by NorAm's wholly-owned Delaware
Subsidiary, either directly or indirectly, by owning an interest
in the Colombian Companies which will own the shares of Gas
Natural.
The amount of NorAm's investment and the amount of ownership
acquired will be consistent with its view of the risks associated
with investing in Colombia including, political stability, the
volatility of the currency, advantages and disadvantages of the
regulatory framework, enforcement measures, the effect of the
transfer on the customers and completion of a thorough evaluation
of Gas Natural and its systems. Based upon these factors, the
amount of money NorAm has earmarked to invest in this transaction
will be limited to $30,000,000, however the exact amount of the
APPLICATION FOR ORDER OF EXEMPTION
-8- NorAm / Gas Natural S.A.<PAGE>
bid will not be determined until the due diligence process is
completed and its ownership interest in Gas Natural is finalized.
The $30,000,000 estimate is based on a 49% interest in Gas
Natural. This maximum amount is approximately .8% of NorAm's
consolidated assets and approximately 1.4% of NorAm's total
capitalization, each as of December 31, 1994. NorAm estimates
that this transaction will have an annual effect on NorAm's
consolidated revenues of less than 1%. NorAm will acquire a
majority interest in neither Gas Natural nor the Colombian
Corporation. This transaction will represent a very small
investment when compared to NorAm's overall operations.
NorAm's interest in Gas Natural will be reflected in NorAm's
financial statements according to the equity method of
accounting. Under that method, the revenues, assets and
liabilities of Gas Natural will not be consolidated into NorAm's
financial statements. NorAm's consolidated statement of income
will reflect only NorAm's indirect percentage interest in the net
income or net loss of Gas Natural. Any net loss will be limited
to NorAm's total investment. NorAm's consolidated balance sheet
will reflect only the amount of NorAm's investment in Gas
Natural, increased by its percentage interest in Gas Natural's
retained earnings or decreased by its percentage interest in any
net losses of Gas Natural.
NorAm's expertise in the gas business will significantly
contribute to the future operations of Gas Natural. NorAm,
through the Delaware Subsidiary and the Colombian Companies, can
participate in the provision of quality service to customers in
APPLICATION FOR ORDER OF EXEMPTION
-9- NorAm / Gas Natural S.A.<PAGE>
Bogota and provide technical and management services to Gas
Natural. NorAm expects that only a small number of its
employees, approximately 50 of its 6900 employees, would ever be
involved in on-site work in Colombia when necessary and all time
and expenses related to such work would be reimbursed by the
Colombian Companies to the employees' employer.
STATUTORY STANDARD
NorAm is not a public utility holding company as defined
under the Act since it does not conduct utility operations
through any subsidiary. Gas Natural is a gas utility company as
defined under the Act. Any company which directly or indirectly
owns, controls or holds with power to vote 10% or more of the
voting securities of a foreign utility company is considered a
holding company under the Act. Based upon the proposed
transaction, NorAm, the Delaware Subsidiary and the Colombian
Companies, if created, will be holding companies with respect to
Gas Natural and Gas Natural will be a subsidiary company of each
of the holding companies. NorAm, the Delaware Subsidiary and the
Colombian Companies, if created, would be exempt from the
provisions of the Act pursuant to Rule 10, provided the
requirements of Section 3(b) are satisfied.
Section 3(b) provides that the Commission
"shall exempt any subsidiary company, as such, of a holding
company from any provision or provisions of this title, the
application of which to such subsidiary company the
Commission finds is not necessary in the public interest or
for the protection of investors, if such subsidiary company
derives no material part of its income, directly or
indirectly, from sources within the United States, and
APPLICATION FOR ORDER OF EXEMPTION
-10- NorAm / Gas Natural S.A.<PAGE>
neither it nor any of its subsidiary companies is a public-
utility company operating in the United States."
The Colombian Companies would be formed solely for the purpose of
maintaining the ownership interest in Gas Natural. All of the
income of the Delaware Subsidiary, Colombian Companies and Gas
Natural would be derived from sources outside the United States.
None of these companies will be a public utility company
operating in the United States.
NorAm's partners, if any, will be exempt from the Act
pursuant to Rule 5 since they are foreign entities who will not
own any interest in a United States public utility company.
Neither Gas Natural nor the Colombian Companies has derived
or will derive any of its income from the United States.
Therefore, it is not necessary in the public interest or for the
protection of the public investors to impose upon Gas Natural
compliance with the Act. NorAm's investment is slight as
compared to its capitalization and such investment will not
impair the utility functions or the financial condition of NorAm.
NorAm's investment will total about .8% of the consolidated
assets and about 1.4% of the total capitalization of NorAm, each
as of December 31, 1994. Consequently, because the contemplated
transaction will have no material effect on NorAm's operations,
its consolidated assets or its total capitalization and no United
States investor in the securities of NorAm and its subsidiaries
will have a material direct or indirect interest in Gas Natural
or the Colombian Companies, and the amount of NorAm's investment
will not be significant, there is no regulatory purpose in
APPLICATION FOR ORDER OF EXEMPTION
-11- NorAm / Gas Natural S.A.<PAGE>
requiring Gas Natural or the Colombian Companies, if created, to
be treated as a utility subsidiary of a United States holding
company.
NorAm's acquisition of an interest in Gas Natural would be
exempt pursuant to Rule 11 if this Application is granted.
In American & Foreign Power Co., 6 SEC 396, 403 (1939), and
in Middle West of Canada, Ltd., 2 SEC 505, 507 (1937), the
Commission stated that the purpose of Section 3(b) is that
foreign subsidiary companies "shall largely be freed from the
jurisdiction of this Commission with respect to such of their
activities as are essentially foreign in their nature and
effects." The activities of Gas Natural and the Colombian
Companies will be focused in Colombia and are exclusively foreign
in nature. Consequently, regulation by the Commission pursuant
to the Act is not necessary.
NorAm's utility operations will continue to be focused in
Texas, Louisiana, Arkansas, Mississippi, Oklahoma, Missouri and
Minnesota. While participation in the bidding process is based
upon the future profitability of Gas Natural, NorAm's interest in
those profits in relation to its other operations will be
insignificant. NorAm is not expected to derive any significant
part of its income from the operations of Gas Natural. NorAm's
investment in Colombia will represent a small fraction of its
consolidated assets and equity. It is not necessary to regulate
Gas Natural in the public interest nor for the protection of
investors, and no portion of Gas Natural's income is derived
directly or indirectly from sources within the United States.
APPLICATION FOR ORDER OF EXEMPTION
-12- NorAm / Gas Natural S.A.<PAGE>
Therefore, NorAm's Application for an unqualified order of
exemption pursuant to Section 3(b) should be granted.
NORAM ENERGY CORP.
By: Michael B. Bracy
Michael B. Bracy
Executive Vice President
Date: May 5, 1995
APPLICATION FOR ORDER OF EXEMPTION
-13- NorAm / Gas Natural S.A.<PAGE>
PROPOSED FORM OF NOTICE
NORAM ENERGY CORP. (________________)
NorAm Energy Corp., a Delaware corporation, ("NorAm"), 1600
Smith, 11th floor, Houston, Texas 77002, has filed an application
for an order seeking an exemption under Section 3(b) of the
Public Utility Holding Company Act of 1935 (the "Act") in
connection with its proposed participation in the bidding process
to purchase an interest in Gas Natural, S.A. ("Gas Natural"),
shares of which will be sold by the Colombian government pursuant
to the government's privatization plan.
NorAm is engaged in the business of distributing and
transmitting natural gas in six states. NorAm is not a public
utility holding company as defined in the Act.
NorAm will participate in the acquisition of Gas Natural
through a wholly-owned Delaware subsidiary (the "Delaware
Subsidiary"). NorAm may create a Colombian corporation (the
"Colombian Corporation") to hold its and its partners' interests
in Gas Natural, or it may create a wholly-owned Colombian
subsidiary (the "Colombian Subsidiary") to hold its shares in Gas
Natural. The Delaware Subsidiary would hold, in either case,
shares of the Colombian Corporation or the Colombian Subsidiary
(collectively referred to herein as the "Colombian Companies").
NorAm's interest in Gas Natural will not exceed 49%.
Should the transaction take place, NorAm, the Delaware
Subsidiary and the Colombian Companies would each be a holding
company under the Act with respect to Gas Natural. Section 3(b)
of the Act provides that the Commission may by order, upon
APPLICATION FOR ORDER OF EXEMPTION
-1- NorAm / Gas Natural S.A.<PAGE>
application, exempt any subsidiary company, as such, of a holding
company
"from any provision or provisions of the Act the application
of which to such subsidiary company . . . is not necessary
in the public interest or for the protection of investors,
if such subsidiary company derives no material part of its
income, directly or indirectly, from sources within the
United States, and neither it nor any of its subsidiary
companies is a public utility company operating in the
United States."
NorAm states that neither Gas Natural nor the Colombian Companies
will derive any income, directly or indirectly, from sources in
the United States, and will not operate, or have any subsidiary
operating, as a public utility company in the United States.
NorAm further states that no United States investor would have a
direct or indirect material interest in Gas Natural by virtue of
NorAm's interest in the Colombian Companies, and that the
proposed acquisition will not affect or impair utility functions
or the financial condition of NorAm. Under these circumstances,
NorAm states that it is not necessary in the public interest or
for the protection of investors to subject it to any of the
provisions of the Act applicable to subsidiary companies, and
therefore, that NorAm is entitled to an unqualified order of
exemption under Section 3(b) of the Act.
APPLICATION FOR ORDER OF EXEMPTION
-2- NorAm / Gas Natural S.A.<PAGE>
