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 its wholly-owned subsidiaries
(the "Subsidiary Corporations") which NorAm expects will purchase
ownership interests in various natural gas pipeline and
distribution projects throughout Latin America (the "Latin
American Projects"). While NorAm anticipates that its
participation in each of the Latin American Projects may be in
any aspect of the natural gas business in which NorAm currently,
operates, including transmission, distribution, marketing,
gathering and processing, none of the Subsidiary Corporations
will purchase more than a 50% interest in any of the Latin
American Projects, nor will NorAm invest in any entity which has
utility operations in the United States. NorAm has been involved
in negotiations with parties in Argentina, Bolivia, Brazil,
Chile, Peru and Uruguay, and expects to participate in Latin
American Projects throughout Latin America.
NorAm will participate in the Latin American Projects,
either alone or in conjunction with Latin American partners, none
of which will not own any interest in a United States public
utility company. NorAm will acquire a debt and/or equity
APPLICATION FOR ORDER OF EXEMPTION
NorAm / Latin American Projects<PAGE>
interest in an entity created to hold the interests of the
parties involved in each of the Latin American Projects (the
"Project Entity"). In no event will NorAm's equity interest in
any of the Latin American Projects exceed 49%, nor will NorAm
supply more than 50% of the debt financing for any one of the
Latin American Projects. No income from the Latin American
Projects will be derived, directly or indirectly, from sources
within the United States, and neither the Subsidiary Corporations
nor any Project Entity will be a public utility company operating
in the United States.
In order for either NorAm or the Subsidiary Corporations to
successfully negotiate with the other parties involved in any of
the Latin American Projects, NorAm must secure an exemption
pursuant to Section 3(b) of the Act. Additionally, NorAm must be
able to assure its potential partners that its involvement in the
Latin American Projects is not subject to any contingencies.
Without receipt of an unqualified order of exemption pursuant to
this Application, NorAm could not effectively participate in the
negotiations nor give its potential partners the required
assurances. The granting of an unqualified order of exemption
pursuant to this Application will provide NorAm the opportunity
to participate in the Latin American Projects without hinderance
of delay in government approval. 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
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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
similar bodies in Louisiana, Arkansas, Mississippi, Oklahoma and
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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).
THE TRANSACTIONS
Though the details of the Latin American Projects have not
been finalized, NorAm's ownership interest in each, through one
or more Subsidiary Corporations, will not exceed 49%. The amount
of NorAm's investment and the amount of ownership acquired in
each of the Latin American Projects will be consistent with
NorAm's assessment of the risks associated with investing in
Latin America 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 the
proposed pipeline and distribution systems. Based upon these
factors, the maximum amount of money NorAm expects to invest in
the Latin American Projects described herein, not including
amounts allocated for projects which are the subject of other
exemption applications filed by NorAm(1), will not exceed $75
(1) NorAm's Application for an Order of Exemption Pursuant to
Section 3(b) for Gas Natural filed with the Commission on or
(continued...)
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million. However, the exact amount of the investment will not be
determined until the due diligence process is completed with
respect to each Latin American Project and NorAm's ownership
interest in each is determined. This maximum amount is
approximately 2.1% of NorAm's consolidated assets and
approximately 3.4% of NorAm's total capitalization, each as of
September 30, 1995. NorAm estimates that none of the Latin
American Projects will effect NorAm's consolidated revenues more
than 1%. NorAm will not acquire a majority interest in any of
the Project Entities.
NorAm's interest in the Latin American Projects will be
reflected in NorAm's financial statements according to the equity
method of accounting. Under that method, the revenues, assets
and liabilities related to the Latin American Projects 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
derived from the Latin American Projects. 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 the Latin American Projects, increased by its percentage
interest in retained earnings related to the Latin American
(1)(...continued)
about March 5, 1995 was granted on or about August 1, 1995.
NorAm has not yet received a notice of ruling regarding its
second Application for an Order of Exemption Pursuant to Section
3(b) regarding concessions in Colombia and Mexico filed with the
Commission on or about August 14, 1995.
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Projects or decreased by its percentage interest in any net
losses related to the Latin American Projects.
NorAm's expertise in the gas business will significantly
contribute to the success of the Latin American Projects. NorAm,
through the Subsidiary Corporations, will participate in the
provision of quality service to customers and provide technical
and management services throughout Latin America.
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. The Latin American Projects contemplate
NorAm's partial ownership of a Project Entity which would be
considered 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 transactions, NorAm and the Subsidiary
Corporations will be holding companies with respect to the
Project Entities and the Project Entities will be subsidiaries of
each of the holding companies. NorAm and the Subsidiary
Corporations 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
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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."
The Subsidiary Corporations would be formed solely for the
purpose of maintaining the ownership interest in the Latin
American Projects. All of the income of the Subsidiary
Corporations would be derived from sources outside the United
States. None of the Project Entities would be a public utility
company operating in the United States.
Neither the Subsidiary Corporations nor any of the Project
Entities 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 NorAm, the
Subsidiary Corporations or any of the Project Entities 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 in the Latin American Projects will total
approximately 2.1% of the consolidated assets and about 3.4% of
the total capitalization of NorAm, each as of September 30, 1995.
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 or its subsidiaries will have a material
direct or indirect interest in the Subsidiary Corporations or any
of the Latin American Projects, and the amount of NorAm's
investment will not be significant, there is no regulatory
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purpose in requiring the Subsidiary Corporations or the Project
Entities to be treated as a utility subsidiary of a United States
holding company.
NorAm's participation in the Latin American Projects 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 the Subsidiary Corporations and the
Project Entities will be focused in Latin America 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. NorAm's profits from the Latin American Projects in
relation to its other operations will be insignificant. NorAm
does not expect to derive any significant part of its income from
the Latin American Projects and NorAm's investment in the Latin
American Projects will represent a small fraction of its
consolidated assets and equity. It is not necessary to regulate
the Subsidiary Corporations or the Project Entities in the public
interest nor for the protection of investors, and no portion of
the Subsidiary Corporations' or Project Entity's income is
derived directly or indirectly from sources within the United
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States. Therefore, NorAm's Application for an unqualified order
of exemption pursuant to Section 3(b) should be granted.
NORAM ENERGY CORP.
By:
Jackson W. Ellis, III
Vice President and Corporate
Controller
Date:
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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 development of
natural gas pipeline and distribution systems in Latin America
(the "Latin American Projects").
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 Latin American Projects
through one or more wholly-owned subsidiaries (the "Subsidiary
Corporations"). NorAm's interest in the Latin American Projects
will not exceed 49%.
Should the proposed investments take place, NorAm, the
Subsidiary Corporations and the entities through which the
pipeline projects would be managed would each be a holding
company under the Act. Section 3(b) of the Act provides that the
Commission may by order, upon 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."
APPLICATION FOR ORDER OF EXEMPTION
NorAm / Latin American Projects<PAGE>
NorAm states that neither the Subsidiary Corporations nor any of
the managing entities of the Latin American Projects 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 the Latin American Projects by
virtue of NorAm's interest in the Latin American Projects, and
that the proposed investments 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 / Latin American Projects<PAGE>
