EXHIBIT D-16
PUCO
The Public Utilities Commission of Ohio
September 2, 1999
Jonathan G. Katz
Secretary to the Commission
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Mr. Katz:
As requested by the East Ohio Gas Company, the Public Utilities Commission of
Ohio has conducted a structural review of the proposed Consolidated Natural Gas
(CNG) and Dominion Resources, Inc. (DRI) merger. We recognize that the
shareholders of CNG, the parent company of the East Ohio Gas Company, and DRI
have approved the merger of the two companies.
The Staff of the Commission has negotiated the attached commitments and
statements from the companies. In light of the attached commitments, the
Commission is satisfied that the merger will not adversely affect Ohio's
interests.
The Commission certifies that following the merger, it will continue to have
jurisdiction over the East Ohio Gas Company. The Commission has the authority
and the resources to protect Ohio ratepayers, and intends to exercise that
authority and to use those resources to protect those ratepayers. The Commission
believes that the merger will have no detrimental effect on the Commission's
jurisdiction or an its ability to act to protect Ohio ratepayers.
Sincerely,
/s/ Alan Schriber
Alan Schriber
Chairman
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Public Utilities Commission of Ohio
180 East Broad Street
Columbus, OH 432l5-3793
Dear Sirs and Madams:
The shareholders of Consolidated Natural Gas Company ("CNG"), the
parent company of The East Ohio Gas Company, and those of Dominion Resources,
Inc. ("DRI," collectively, the "merging companies"), have approved a merger of
CNG and DRI. On its own behalf, and on behalf of the merging companies, East
Ohio acknowledges that the Commission has ongoing jurisdiction over East Ohio
and its rates, and that that jurisdiction will not be diminished or otherwise
affected by the merger. Furthermore, East Ohio has been authorized by the
merging companies to make the following commitments and representations to the
Commission in connection with its ongoing authority to protect East Ohio's
jurisdictional customers.
(1) The merging companies' business plan recognizing additional
opportunities for the use of storage will not be developed in a manner
detrimental to East Ohio's use of storage for the benefit of its commodity
customers. CNG and DRI commit that any additional uses of storage (either East
Ohio's, CNG's or a third party's) made possible by the merger will not have a
detrimental impact on East Ohio's use of such storage to maximize load factor,
minimize demand charges, and optimize gas acquisition costs for the benefit of
its commodity customers. In addition, East Ohio expects that its expanded Energy
Choice program will make the Company's on-system storage available to the
suppliers of participating customers in a manner comparable to the current
program. East Ohio also will offer suppliers, on a voluntary basis, an
assignment of contract storage for use in the program.
(2) The merging companies' business plan will create opportunities
for the efficient arbitrage of gas and electricity without detriment to East
Ohio's commodity customers. These efficiencies will allow the development of
gas-fired generation in East Ohio's service territory supporting economic
development in the region. CNG's transmission company now has seven months a
year of underutilization which coincide effectively with the expected operation
of DRI's power generation facilities sited on CNG. The natural gas requirements
of those power generation facilities are expected to be met through incremental
flowing supplies over that seven month period rather than storage due to the
predominately summer period operation of such facilities. Depending on various
pricing conditions in the electric power/gas markets, the combined entity will
be better able to take advantage of the so-called "spark-spread," as a larger
entity with both power generation and gas functions and expertise, than either
company could alone.
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(3) The merging companies do not anticipate any material impact on
East Ohio employment levels. About 89% of the jobs presently at East Ohio are
related to operations and the physical storage, distribution and customer
service systems. These jobs simply cannot be moved out of state, anymore than
the pipelines or customers themselves can be. Of the remaining management jobs -
and 200 - no present plans exist to move or eliminate positions due to the
merger. Nearly 150 of these jobs, although not technically "operations," are
closely related to operations, for example, those engaged in field sales (in
Ohio) or technical training (working with Ohio employees), and also cannot be
effectively performed out-of-state. In fact, because East Ohio is essentially an
operating utility subsidiary of CNG, most "corporate" or system managerial jobs
are not now done within East Ohio, but at CNG, based in Pennsylvania.
(4) The merging companies have no plans to spin-off or sell any
operating local distribution companies, other than Virginia Natural Gas ("VNG").
The Virginia SCC staff raised market power issues related to the overlapping
service territories of VNG and Virginia Power that were ultimately addressed by
DRI's and CNG's agreement to sell or spin off VNG. In Ohio, Pennsylvania and
West Virginia, no similar situation exists. The acquisition of those local
distribution systems and their customers is a significant factor in the merging
companies' rationale for the transaction.
(5) Negotiations for a connection with the proposed Independence
pipeline project are underway, and will be successfully concluded when a
certificate is received from the Federal Energy Regulatory Commission. The final
location of the interconnect will be determined in consultation with the Staff
of the Public Utilities Commission of Ohio. If East Ohio requests an
interconnect at a point where Independence does not cross existing East Ohio
facilities, East Ohio will pay for the cost of any lateral pipeline that might
be necessary. The Millennium pipeline project will come across northwestern
Pennsylvania and not be geographically proximate to East Ohio's lines.
(6) The East Ohio Gas Company, Consolidated Natural Gas Company, and
Dominion Resources, Inc. will not seek to overturn, reverse, set aside, change
or enjoin, whether through appeal or the initiation or maintenance of any action
in any forum, a decision or order of the Public Utilities Commission of Ohio
which pertains to recovery, disallowance, allowance, deferral or ratemaking
treatment of any expense, charge, cost, or allocation incurred or accrued by the
East Ohio Gas Company as a result of a contract, agreement, arrangement, or
transaction with any affiliate, associate, holding, mutual service or subsidiary
company on the basis that such expense, charge, cost, or allocation has itself
been filed with or approved by the Securities and Exchange Commission, or was
incurred pursuant to a contract, arrangement, agreement or allocation which was
filed with or approved by the Securities and Exchange Commission.
(7) The merger is driven by a convergence strategy rather than by
cost synergies, and is not expected to produce significant savings at the
operating levels. Net savings, if any, that may be achieved at the corporate
level by reason of the elimination of redundancies ultimately will be reflected
in the service company charges distributed among the operating companies, and
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will be reflected in the base rates of those companies as such rates may be
adjusted from time to time.
(8) The merging companies will be part of a registered holding
company pursuant to the Public Utility Holding Company Act of 1935 and the
Regulations of the Securities and Exchange Commission thereto. There will
therefore be no change in the rules governing accounting for affiliate
transactions.
(9) CNG and DRI are committed to expand the Energy Choice program as
soon as the CAMP billing system or a suitable alternative is fully operational.
DRI does not have a billing system that can accommodate a gas choice program.
East Ohio will make a presentation regarding the CAMP billing system and its
other billing options to the Commission at a time to be determined by the
Commission. East Ohio's existing sales customers are scheduled to be converted
to the CAMP system during the second quarter of 2000, and it is anticipated that
the system will be fully operational in time to expand the Choice program to
East Ohio's entire service territory by the winter of 2000-2001 without any
billing problems. In order to accommodate supplier concerns regarding access in
storage, East Ohio will provide injection rights prior to the winter period
and/or sell storage in place during the winter period to suppliers.
(10) The merged company intends to participate in the retail electric
market in Ohio. At a minimum, it will offer retail electric service in the
counties in which East Ohio provides gas service.
(11) The books and records of East Ohio shall be accessible to the
Commission and its Staff during reasonable business hours, in Ohio. Should the
books and records of its parent company or of any other company within the
system created by the merging companies become relevant to the jurisdictional
rates or tariffed services of East Ohio or relevant to material and specific
code of conduct complaints brought to the attention of the Commission Staff, or
upon a complaint filed at the Commission alleging reasonable grounds pursuant to
ss. 4905.26 O.R.C. necessitating their view, such relevant books and records as
required by the Commission will also be made accessible to the Commission and
its Staff and, if at a location outside Ohio, the reasonable expenses of the
Commission incurred in the travel required for its review will be reimbursed by
the merging companies.
(12) East Ohio shall continue to work with the Commission and its
Staff to develop a Standard Operating Procedure ("SOP"), to be referenced in its
tariffs, that provides alternate methods governing the extension of East Ohio's
facilities and mains, and the methods available for financing such extensions,
and agrees to adopt such procedures upon agreement as to the final terms of the
SOP with the Staff. It is understood that the SOP will (1) offer customers an
additional payment option which reduces their up-front payment for the
construction of mainline extensions; (2) incorporate a payment calculation that
does not include an additional gross up for federal income taxes on the
contribution; (3) require the Company to undertake a canvas of potential
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customers in adjoining areas; and (4) effectively address other issues raised in
the Commission Staff's mid-1998 proposed gas main extension rule. East Ohio will
use its best efforts to reach agreement with the Staff on this matter and file
the necessary application to amend its tariffs by December 31, 1999.
If you have any questions in connection with the foregoing, please
contact me directly at (216) 736-6325.
Sincerely,
Bruce C. Klink
Vice President, Rates & Planning
