[Federal Register: March 8, 2004 (Volume 69, Number 45)]
[Notices]
[Page 10768-10773]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr04-127]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27805]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
March 2, 2004.
Notice is hereby given that the following filings have been made
with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by March 29, 2004 to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law,
by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After March 29, 2004, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
WGL, Holdings (70-10167)
WGL, Holdings, Inc. (``WGL''), a registered public utility holding
company, WGL's utility subsidiary, Washington Gas Light Company
(``Washington Gas''), WGL's nonutility subsidiaries, Crab Run Gas
Company (``Crab Run''), Hampshire Gas Company (``Hampshire''),
Washington Gas Resources Corporation (``WGRC''), American Combustion
Industries, Inc. (``ACI''), Brandywood Estates, Inc. (``Brandywood''),
WG Maritime Plaza I, Inc. (``WG Maritime''), Washington Gas Energy
Services, Inc. (``WGEServices''), Washington Gas Energy Systems, Inc.
(``WGESystems''), Washington Gas Consumer Services, Inc. (``Consumer
Services'') and Washington Gas Credit Corporation (``Credit Corp.''),
all located at 101 Constitution Avenue, NW., Washington, DC 20080
(collectively ``Applicants''), have filed an application-declaration,
as amended (``Application''), under sections 6(a), 7, 9(a), 10, 12(b),
12(c), 12(f), 13(b), 32, and 33 and rules 45(a), 45(c), 46, 53, and 54.
I. Background
WGL, through its subsidiaries, sells and delivers natural gas and
provides a variety of energy-related products and services to customers
in the metropolitan Washington, DC, Maryland, and Virginia areas. WGL's
subsidiary, Washington Gas, is involved in the distribution and sale of
natural gas that is predominantly regulated by State regulatory
commissions. WGL, through its unregulated subsidiaries, offers energy-
related products and services that are closely related to its core
business. The majority of these energy-related activities are performed
by wholly owned subsidiaries of Washington Gas Resources Corporation.
Washington Gas delivers and sells natural gas to customers in
Washington, DC and adjoining areas in Maryland, Virginia and several
cities and towns in the northern Shenandoah Valley of Virginia.
Effective November 1, 2000, Washington Gas and its direct or indirect
subsidiaries became subsidiaries of WGL, a holding company registered
under the Act.
In addition to its regulated utility operations, WGL has three
other wholly
[[Page 10769]]
owned subsidiaries: Crab Run, Hampshire, and WGRC. Crab Run is an
exploration and production company whose assets are managed by an
Oklahoma-based limited partnership. WGL's investment in this subsidiary
and partnership is not material and management expects that future
investments in Crab Run will be minimal. Hampshire is a regulated
natural gas storage business that operates an underground storage field
in the vicinity of Augusta, West Virginia. Hampshire serves Washington
Gas under a tariff administered by the Federal Energy Regulatory
Commission. WGRC owns the majority of the WGL's nonutility
subsidiaries. WGRC's subsidiaries include ACI, Brandywood, WG Maritime,
WGEServices, WGESystems, Consumer Services, and Credit Corp.
The term ``Nonutility Subsidiaries'' means each of the existing
nonutility subsidiaries of WGL, and their respective subsidiaries, and
any direct or indirect nonutility company acquired or formed by WGL or
any Nonutility Subsidiary in the future in a transaction that has been
approved by the Commission in this filing or in a transaction that is
exempt under the Act. The term ``Subsidiaries'' means Washington Gas
and the Nonutility Subsidiaries.
II. Current Request
Applicants request the following authorizations through March 31,
2007 (``Authorization Period''): (i) A program of external financing,
(ii) intrasystem financing and credit support arrangements, and (iii)
interest rate hedging measures.
III. Financing Parameters
A. General Terms and Conditions
Financing transactions with third parties will be subject to the
following general terms and conditions, including, without limitation,
securities issued for the purpose of refinancing or refunding
outstanding securities of the issuer (``Financing Parameters'').
1. Effective Cost of Money
The effective cost of capital on long-term debt (``Long-Term
Debt''), preferred stock (``Preferred Stock''), preferred securities
(``Preferred Securities''), equity-linked securities (``Equity-Linked
Securities''), and short-term debt (``Short-term Debt'') will not
exceed competitive market rates available at the time of issuance for
securities having the same or reasonably similar terms and conditions
issued by similar companies of reasonably comparable credit quality;
provided that in no event will the effective cost of capital (i) on any
series of Long-term Debt exceed 500 basis points over a U.S. Treasury
security having a remaining term equivalent to the term of the series,
(ii) on any series of Preferred Stock, Preferred Securities or Equity-
Linked Securities exceed 500 basis points over a U.S. Treasury security
having a remaining term equal to the term of the series, and (iii) on
Short-term Debt exceed 300 basis points over the London Interbank
Offered Rate (``LIBOR'') for maturities of less than one year.
2. Maturity
The maturity of Long-term Debt will be between one and 50 years
after the issuance thereof. Preferred Stock and Equity-Linked
securities issued directly by WGL or a Financing Subsidiary may be
perpetual in duration.
3. Issuance Expenses
The underwriting fees, commissions or other similar remuneration
paid in connection with the non-competitive issue, sale or distribution
of securities pursuant to this Application will not exceed the greater
of (i) 5% of the principal or total amount of the securities being
issued or (ii) issuance expenses that are generally paid at the time of
the pricing for sales of the particular issuance, having the same or
reasonably similar terms and conditions issued by similar companies of
reasonably comparable credit quality.
4. Common Equity Ratio
At all times during the Authorization Period, WGL and Washington
Gas will maintain common equity of at least 30% of its consolidated
capitalization (common equity, Preferred Stock, Long-Term Debt and
Short-Term Debt); provided that WGL will in any event be authorized to
issue common stock (``Common Stock'') (including under stock-based
plans maintained for shareholders, employees, and management) to the
extent authorized in this filing.
5. Investment Grade Ratings
Applicants further represent that, except for securities issued for
the purpose of funding money pool operations, no guarantees or other
securities, other than Common Stock, may be issued in reliance upon the
authorization granted by the Commission under this Application unless
(i) the security to be issued, if rated, is rated investment grade;
(ii) all outstanding securities of the issuer that are rated are rated
investment grade; and (iii) all outstanding securities of the top level
registered holding company that are rated are rated investment grade.
For purposes of this provision, a security will be deemed to be rated
``investment grade'' if it is rated investment grade by at least one
nationally recognized statistical rating organization, as that term is
used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the
Securities Exchange Act of 1934, as amended. Applicants request that
the Commission reserve jurisdiction over the issuance of any securities
that are rated below investment grade. Applicants further request that
the Commission reserve jurisdiction over the issuance of any guarantee
or other securities at any time that the conditions set forth in
clauses (i) through (iii) above are not satisfied.
IV. WGL External Financing
WGL proposes to issue and sell from time to time during the
Authorization Period, Common Stock and Preferred Stock and, directly or
indirectly through one or more financing subsidiaries (``Financing
Subsidiaries'') (as described below), Long-Term Debt and other forms of
Preferred Securities or Equity-Linked Securities in an aggregate amount
not to exceed $300 million during the Authorization Period. In
addition, WGL proposes to issue and reissue Short-Term Debt not to
exceed $300 million principal amount outstanding at any time.
A. Common Stock
WGL proposes to issue and sell Common Stock through underwriting
agreements of a type generally standard in the industry. Common Stock
may be issued under private negotiation with underwriters, dealers or
agents, as discussed below, or effected through competitive bidding
among underwriters. In addition, sales may be made through private
placements or other non-public offerings to one or more persons. All
Common Stock sales will be at rates or prices and under conditions
negotiated or based upon, or otherwise determined by, competitive
capital markets. Although the Company has no present plans to issue
Common Stock, if, for example, WGL Holdings were to issue $70 million
of Common Stock at the closing price on January 30, 2004 of $27.95, it
would result in an issuance of approximately 2.5 million shares. WGL
also proposes to issue stock options, performance shares, stock
appreciation rights (``SARs''), warrants, or other stock purchase
rights that are exercisable for Common Stock and to issue Common Stock
upon the exercise of the options, SARs, warrants, or other stock
purchase rights.
[[Page 10770]]
B. Long-Term Debt, Preferred Stock and Other Preferred or Equity-Linked
Securities
WGL seeks authority to issue its authorized Preferred Stock or,
directly or indirectly through one or more Financing Subsidiaries, to
issue Long-Term Debt and other types of Equity-Linked Securities
(including, specifically, trust preferred securities). Applicants state
that the proceeds of Long-Term Debt, Preferred Stock, or other Equity-
Linked Securities would enable WGL to reduce Short-Term Debt with more
permanent capital and provide an important source of future financing
for the operations of and investments in non-utility businesses that
are exempt under the Act.
Preferred Stock or other types Equity-Linked Securities may be
issued in one or more series with such rights, preferences, and
priorities as may be designated in the instrument creating each series,
as determined by WGL's board of directors. The dividend rate on any
series of Preferred Stock or Equity-Linked Securities will not exceed
at the time of issuance 500 basis points over the yield to maturity of
a U.S. Treasury security having a remaining term equivalent to the term
of these securities. Dividends or distributions on Preferred Stock or
Equity-Linked Securities will be made periodically and to the extent
funds are legally available for this purpose, but may be made subject
to terms which allow the issuer to defer dividend payments for
specified periods. Preferred Stock or other Equity-Linked Securities
may be convertible or exchangeable into shares of Common Stock.
Applicants state that Long-Term Debt of WGL will be in the form of
unsecured notes (``Debentures'') issued in one or more series. The
Debentures of any series (i) May be convertible into any other
securities of WGL, (ii) will have a maturity ranging from one to 50
years, (iii) will bear interest at a rate not to exceed 500 basis
points over the yield to maturity of a U.S. Treasury security having a
remaining term approximately equal to the term of such series of
Debentures, (iv) may be subject to optional and/or mandatory
redemption, in whole or in part, at par or at various premiums above or
discounts below the principal amount thereof, (v) may be entitled to
mandatory or optional sinking fund provisions, (vi) may provide for
reset of the coupon under a remarketing arrangement, and (vii) may be
called from existing investors or put to the company, or both. The
Debentures will be issued under an indenture (``Indenture'') to be
entered into between WGL and a national bank, as trustee.\1\
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\1\ WGL contemplates that the Debentures would be issued and
sold directly to one or more purchasers in privately-negotiated
transactions or to one or more investment banking or underwriting
firms or other entities that would resell the Debentures without
registration under the 1933 Act in reliance upon one or more
applicable exemptions from registration thereunder, or to the public
either (i) through underwriters selected by negotiation or
competitive bidding or (ii) through selling agents acting either as
agent or as principal for resale to the public either directly or
through dealers.
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C. Short-Term Debt
Applicants request authority for WGL to issue up to an aggregate
principal amount of $300 million of Short-Term Debt during the
Authorization Period. The effective cost of money on Short-Term Debt
authorized in this Application will not exceed, at the time of
issuance, 300 basis points over the London Interbank Offer Rate
(``LIBOR'') for maturities of one year or less. Applicants state that
to provide financing for general corporate purposes, other working
capital requirements and investments in new enterprises until long-term
financing can be obtained, WGL may sell commercial paper, from time to
time, in established domestic or European commercial paper markets.
Commercial paper would typically be sold to dealers at the discount
rate per annum prevailing at the date of issuance for commercial paper
of comparable quality and maturities sold to commercial paper dealers
generally.
WGL also proposes to establish bank lines of credit in an aggregate
principal amount sufficient to support projected levels of Short-Term
Debt and to provide an alternative source of liquidity. Loans under
these lines will have maturities not more than one year from the date
of each borrowing. WGL may also engage in other types of Short-Term
Debt within the limitations of the Financing Parameters, generally
available to borrowers with comparable credit ratings as it may deem
appropriate in light of its needs and market conditions at the time of
borrowing.
D. Financing by Washington Gas
Under rule 52(a), the long-term securities issued and sold by
Washington Gas (including, specifically, Long-Term Debt and Preferred
Stock) will be exempt from the pre-approval requirements of sections
6(a) and 7 of the Act because these securities will have been
specifically approved by both the Virginia State Corporation Commission
(``SCC-VA'') and the Public Service Commission of the District of
Columbia (``PSC-DC''), the agencies with regulatory authority over
Washington Gas in the two jurisdictions in which it is incorporated.
The issuance by Washington Gas of commercial paper and other short-term
indebtedness having a maturity of less than 12 months will not be
exempt under rule 52(a) since it is not subject to approval by both the
SCC-VA and the PSC-DC.
Washington Gas requests approval to issue and sell from time to
time during the Authorization Period Short-Term Debt in an aggregate
principal amount outstanding at any one time not to exceed $350 million
(``Washington Gas Short-Term Debt Limit''). Short-Term Debt could
include, without limitation, commercial paper sold in established
domestic or European commercial paper markets in a manner similar to
WGL, bank lines of credit and other debt securities. The effective cost
of money on Washington Gas Short-Term Debt will not exceed at the time
of issuance 300 basis points over LIBOR for maturities of one year or
less.
E. Nonutility Subsidiary Financing
In order to be exempt under rule 52(b), any loan by WGL to a
Nonutility Subsidiary or by one Nonutility Subsidiary to another must
have interest rates and maturities that are designed to parallel the
lending company's effective cost of capital. However, if a Nonutility
Subsidiary making a borrowing is not wholly owned by WGL, directly or
indirectly, and does not sell goods or services to Washington Gas, then
the Applicants request authority to make loans to any associate company
at interest rates and maturities designed to provide a return to the
lending company of not less than its effective cost of capital.
Applicants state that, if WGL or a Nonutility Subsidiary were required
to charge only its effective cost of capital on a loan to a less than
wholly owned associate company when market rates were greater, the
other owner(s) of associate company would in effect receive a subsidy
from WGL or other lending Nonutility Subsidiary equal to the difference
between the cost of providing the loan at its effective cost of capital
and the other owner(s') proportionate share of the price at which it
would have to obtain a similar loan on the open market.\2\
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\2\ WGL states that it will include in the next certificate
filed under rule 24 in this filing substantially the same
information as that required on Form U-6B-2 with respect to any
intrasystem loan transaction.
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[[Page 10771]]
V. Guarantees
A. WGL Guarantees
WGL requests authorization to enter into guarantees and capital
maintenance agreements, obtain letters of credit, enter into expense
agreements or otherwise provide credit support (collectively, ``WGL
Guarantees'') on behalf or for the benefit of any Subsidiary as may be
appropriate to enable a Subsidiary to carry on in the ordinary course
of its business, in an aggregate principal amount not to exceed $400
million outstanding at any one time. Subject to this limitation, WGL
may guarantee both securities issued by and other contractual or legal
obligations of any Subsidiary. In addition, WGL proposes to charge each
Subsidiary a fee for each guarantee provided on its behalf that is
determined by multiplying the amount of the WGL Guarantee provided by
the cost of obtaining the liquidity necessary to perform the guarantee
(for example, bank line commitment fees or letter of credit fees, plus
other transactional expenses) for the period of time the guarantee
remains outstanding (``Guarantee Fee'').
B. Nonutility Subsidiary Guarantees
In addition, Nonutility Subsidiaries request authority to provide
guarantees and other forms of credit support (``Nonutility Subsidiary
Guarantees'') on behalf or for the benefit of other Nonutility
Subsidiaries in an aggregate principal amount not to exceed $200
million outstanding at any one time, exclusive of any guarantees and
other forms of credit support that are exempt pursuant to rule 45(b)(7)
and rule 52(b). The Nonutility Subsidiary providing any credit support
may charge its associate company a Guarantee Fee.
VI. Hedging Transactions
WGL Holdings, and to the extent not exempt pursuant to rule 52, the
Subsidiaries, request authorization to enter into interest rate hedging
transactions with respect to existing indebtedness (``Interest Rate
Hedges''), subject to certain limitations and restrictions, in order to
reduce or manage interest rate cost. Interest Rate Hedges would only be
entered into with counterparties (``Approved Counterparties'') whose
senior debt ratings, or the senior debt ratings of the parent companies
of the counterparties, as published by Standard and Poor's Ratings
Group, are equal to or greater than BBB, or an equivalent rating from
Moody's Investors Service, or Fitch Inc.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets to manage the volatility of
interest rates, including but not limited to interest rate swaps,
swaptions, caps, collars, floors, forwards, rate locks, structured
notes (i.e., a debt instrument in which the principal and/or interest
payments are indirectly linked to the value of an underlying asset or
index), and short sales of U.S. Treasury securities. Applicants would
use Interest Rate Hedges as a means of prudently managing the risk
associated with any outstanding debt by, for example, (i) converting
variable rate debt to fixed rate debt, (ii) converting fixed rate debt
to variable rate debt, or (iii) limiting the impact of changes in
interest rates resulting from variable rate debt. The transactions
would be for fixed periods and stated notional amounts, which in no
case would exceed the principal amount of the underlying debt
instrument. Fees, commissions and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option
payments) in connection with an Interest Rate Hedge will not exceed
those generally obtainable in competitive markets.
In addition, WGL Holdings and the Subsidiaries request
authorization to enter into interest rate hedging transactions with
respect to anticipated debt offerings (``Anticipatory Hedges''),
subject to certain limitations and restrictions. Applicants state that
Anticipatory Hedges would only be entered into with Approved
Counterparties, and would be utilized to fix and/or limit the interest
rate risk associated with any new issuance through (i) a forward sale
of exchange-traded U.S. Treasury futures contracts, U.S. Treasury
obligations and/or a forward swap (each a ``Forward Sale''), (ii) the
purchase of put options on U.S. Treasury obligations (``Put Options
Purchase''), (iii) a Put Options Purchase in combination with the sale
of call options on U.S. Treasury obligations (``Zero Cost Collar''),
(iv) transactions involving the purchase or sale, including short
sales, of U.S. Treasury obligations, or (v) some combination of a
Forward Sale, Put Options Purchase, Zero Cost Collar, and/or other
derivative or cash transactions, including, but not limited to
structured notes, caps, and collars, appropriate for the Anticipatory
Hedges.
Anticipatory Hedges may be executed on-exchange (``On-Exchange
Trades'') with brokers through the opening of futures and/or options
positions traded on the Chicago Board of Trade, the opening of over-
the-counter positions with one or more counterparties (``Off-Exchange
Trades''), or a combination of On-Exchange Trades and Off-Exchange
Trades. WGL Holdings or a Subsidiary will determine the optimal
structure of each Anticipatory Hedge transaction at the time of
execution. WGL Holdings or a Subsidiary may decide to lock in interest
rates and/or limit its exposure to interest rate increases. All open
positions under Anticipatory Hedges will be closed on or prior to the
date of the new issuance and neither WGL Holdings nor any Subsidiary
will, at any time, take possession or make delivery of the underlying
U.S. Treasury Securities.
Applicants represent that each Interest Rate Hedge and Anticipatory
Hedge will be treated for accounting purposes under U.S. generally
accepted accounting principles.
VII. Money Pool
WGL and certain of the Subsidiaries request authorization to
continue operating a system money pool (``Money Pool'') as previously
authorized by the Commission. To the extent not exempted by rule 52,
the Subsidiaries request authorization to make unsecured short-term
borrowings from the Money Pool and to contribute surplus funds to the
Money Pool and to lend and extend credit to (and acquire promissory
notes from) one another through the Money Pool. WGL requests
authorization to contribute surplus funds and/or to lend and extend
credit to the participating Subsidiaries through the Money Pool.
Subsidiaries participating in the Money Pool arrangement are Washington
Gas, Crab Run, Hampshire, WGRC, WGEServices, WGESystems, ACI,
Brandywood, Consumer Services, Credit Corp., and WG Maritime.
Under the terms of the Money Pool, short-term funds will be
available from the following sources for short-term loans to the
participating Subsidiaries from time to time: (1) Surplus funds in the
treasuries of Money Pool participants other than WGL; (2) surplus funds
in the treasury of WGL (together, ``Internal Funds''); and (3) proceeds
from bank borrowings and/or commercial paper sales by WGL or any Money
Pool participant for loan to the Money Pool (``External Funds''). Funds
will be made available from these sources in such order as WGL, as
administrator of the Money Pool, may determine would result in a lower
cost of borrowing, consistent with the individual borrowing needs and
financial standing of the companies providing funds to the pool. The
determination of whether Washington Gas at any time has surplus funds
to lend to the Money Pool or shall lend
[[Page 10772]]
funds to the Money Pool will be made by Washington Gas' chief financial
officer or treasurer, or by a designee thereof, on the basis of cash
flow projections and other relevant factors, in Washington Gas' sole
discretion.
A participating Subsidiary that borrows from the Money Pool will
borrow pro rata from each participant that lends, in the proportion
that the total amount loaned by each lending Money Pool participant
bears to the total amount then loaned through the Money Pool. On any
day when both Internal Funds and External Funds with different rates of
interest, are used to fund loans through the Money Pool, each borrower
would borrow pro rata from each funding source in the Money Pool in the
same proportion that the amount of funds provided by that fund source
bears to the total amount of short-term funds available to the Money
Pool.
Proceeds of any short term borrowings from the Money Pool may be
used by a participant: (i) For the interim financing of its
construction and capital expenditure programs; (ii) for its working
capital needs; (iii) for the repayment, redemption or refinancing of
its debt and preferred stock; (iv) to meet unexpected contingencies,
payment and timing differences, and cash requirements; and (v) to
otherwise finance its own business and for other lawful general
corporate purposes. Washington Gas requests authority to borrow up to
$350 million at any one time outstanding from the Money Pool.
Borrowings by Washington Gas from the Money Pool will be counted
against the Washington Gas Short-Term Debt Limit. WGL Holdings will not
make any borrowings from the Money Pool.
VIII. Changes in Capital Stock of Subsidiaries
In order to accommodate the proposed transactions in this filing
and to provide for future issues, Applicants request authorization to
change the terms of any wholly owned Subsidiary's authorized capital
stock capitalization by an amount deemed appropriate by WGL or other
intermediate parent company in the instant case. A Subsidiary would be
able to change the par value, or change between par value and no-par
stock, without additional Commission approval. Any action by Washington
Gas would be subject to and would only be taken upon the receipt of any
necessary approvals by the state commission(s) in the state or states
in which Washington Gas is incorporated and doing business.
IX. Financing Subsidiaries
WGL and the Subsidiaries request authority to acquire, directly or
indirectly, the equity securities of one or more corporations, trusts,
partnerships or other entities (``Financing Subsidiaries'') created
specifically for the purpose of facilitating the financing of the
authorized and exempt activities (including exempt and authorized
acquisitions) of WGL and the Subsidiaries through the issuance of Long-
Term Debt or Equity Securities, including but not limited to monthly
income preferred securities, to third parties. Financing Subsidiaries
would loan, dividend or otherwise transfer the proceeds of any
financing to its parent or to other Subsidiaries, provided, however,
that a Financing Subsidiary of Washington Gas will dividend, loan or
transfer proceeds of financing only to Washington Gas. The terms of any
loan of the proceeds of any securities issued by a Financing Subsidiary
to WGL would mirror the terms of those securities. WGL may, if
required, guarantee or enter into Expense Agreements in respect of the
obligations of any Financing Subsidiary which it organizes. The
Subsidiaries may also provide guarantees and enter into Expense
Agreements under rules 45(b)(7) and 52, as applicable, if required on
behalf of any Financing Subsidiaries which they organize. If the direct
parent company of a Financing Subsidiary is authorized in this
proceeding or any subsequent proceeding to issue Long-Term Debt or
similar types of equity securities, then the amount of the securities
issued by that Financing Subsidiary would count against the limitation
applicable to its parent for those securities. In these cases, however,
the Guarantee by the parent of the security issued by its Financing
Subsidiary would not be counted against the limitations on WGL
Guarantees or Nonutility Subsidiary Guarantees. In other cases, in
which the parent company is not authorized to issue similar types of
securities, the amount of any Guarantee not exempt under rules 45(b)(7)
and 52 that is entered into by the parent company with respect to
securities issued by its Financing Subsidiary would be counted against
the limitation on WGL Holdings Guarantees or Nonutility Subsidiary
Guarantees, as the case may be.
Applicants state that any affiliate transactions entered into by a
Financing Subsidiary in connection with an Expense Agreement would be
conducted at fair market value without regard to cost, and therefore,
Applicants request an exemption under section 13(b) from the at cost
standards of rules 90 and 91 for WGL Holdings and the Subsidiaries to
enter into these transactions.
X. Intermediate Subsidiaries
WGL requests authority to acquire, directly or indirectly through a
Nonutility Subsidiary, the securities of one or more new subsidiary
companies (``Intermediate Subsidiaries'') which may be organized
exclusively for the purpose of acquiring, holding and/or financing the
acquisition of the securities of or other interest in one or more
exempt wholesale generators (``EWGs''), as defined in section 32 of the
Act, foreign utility companies (``FUCOs''), as defined in section 33 of
the Act, or exempt telecommunication companies ETCs (``Exempt
Telecommunication Companies''), exempt companies under rule 58 (``Rule
58 Companies''), or other non-exempt Nonutility Subsidiaries (as
authorized in this proceeding or in a separate proceeding).\3\ WGL also
requests authority for Intermediate Subsidiaries to provide management,
administrative, project development, and operating services to these
entities at fair market prices determined without regard to cost, and
requests an exemption (to the extent that rule 90(d) does not apply)
pursuant to section 13(b) from the cost standards of rules 90 and 91 as
applicable to these transactions, in any case in which the Nonutility
Subsidiary purchasing such goods or services is:
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\3\ WGL does not hold an interest in any EWG, FUCO or ETC at
this time.
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(i) A FUCO or foreign EWG that derives no part of its income,
directly or indirectly, from the generation, transmission, or
distribution of electric energy for sale within the United States;
(ii) an EWG that sells electricity at market-based rates, that have
been approved by the Federal Energy Regulatory Commission (``FERC''),
provided that the purchaser is not Washington Gas;
(iii) a ``qualifying facility'' (``QF''), within the meaning of the
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''),
that sells electricity exclusively (a) at rates negotiated at arm's
length to one or more industrial or commercial customers purchasing
electricity for their own use and not for resale, and/or (b) to an
electric utility company (other than Washington Gas) at the purchaser's
``avoided cost,'' as determined in accordance with PURPA regulations;
(iv) a domestic EWG or QF that sells electricity at rates based
upon its cost of
[[Page 10773]]
service, as approved by FERC or any state public-utility commission
having jurisdiction, provided that the purchaser is not Washington Gas;
or
(v) a Rule 58 Subsidiary or any other Nonutility Subsidiary that
(a) is partially owned by WGL, provided that the ultimate purchaser of
the goods or services is not a Washington Gas (or any other entity
within the WGL system whose activities and operations are primarily
related to the provision of goods and services to Washington Gas), (b)
is engaged solely in the business of developing, owning, operating and/
or providing services or goods to Nonutility Subsidiaries, described in
clauses (i) through (iv) immediately above, or (c) does not derive,
directly or indirectly, any material part of its income from sources
within the U.S. and is not a public-utility company operating within
the U.S.
Applicants state that an Intermediate Subsidiary may be organized,
among other things: (i) In order to facilitate the making of bids or
proposals to develop or acquire an interest in any Exempt Company, Rule
58 Company, or other non-exempt Nonutility Subsidiary, (ii) after the
award of such a bid proposal, in order to facilitate closing on the
purchase or financing of the acquired company, (iii) at any time
subsequent to the consummation of an acquisition of an interest in any
such company in order, among other things, to effect an adjustment in
the respective ownership interests in such business held by WGL
Holdings and non-affiliated investors, (iv) to facilitate the sale of
ownership interests in one or more acquired nonutility companies, (v)
to comply with applicable laws of foreign jurisdictions limiting or
otherwise relating to the ownership of domestic companies by foreign
nationals, (vi) as a part of tax planning in order to limit WGL
Holdings' exposure to U.S. and foreign taxes, (vii) to further insulate
WGL Holdings and Washington Gas from operational or other business
risks that may be associated with investments in nonutility companies,
or (viii) for other lawful business purposes.
Applicants state that investments in Intermediate Subsidiaries may
take the form of any combination of the following: (i) Purchases of
capital shares, partnership interests, member interests in limited
liability companies, trust certificates, or other forms of equity
interests, (ii) capital contributions, (iii) open account advances with
or without interest, (iv) loans, and (v) guarantees issued, provided,
or arranged in respect of the securities or other obligations of any
Intermediate Subsidiaries. Applicants state, further, that funds for
any direct or indirect investment in any Intermediate Subsidiary will
be derived from: (i) Financings authorized in this proceeding, (ii) any
appropriate future debt or equity securities issuance authorization
obtained by WGL from the Commission, and (iii) other available cash
resources, including proceeds of securities sales by a Nonutility
Subsidiary under rule 52.\4\
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\4\ To the extent that WGL provides funds or guarantees directly
or indirectly to an Intermediate Subsidiary which are used for the
purpose of making an investment in any EWG or FUCO or a Rule 58
Company, Applicants state that the amount of the funds or guarantees
will be included in WGL's ``aggregate investment'' in these
entities, as calculated in accordance with rule 53 or rule 58, as
applicable.
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WGL Holdings may, from time to time, to consolidate or otherwise
reorganize all or any part of its direct and indirect ownership
interests in Nonutility Subsidiaries, and the activities and functions
related to such investments, under one or more Intermediate
Subsidiaries. To effect a consolidation or other reorganization, WGL
Holdings may wish to either contribute the equity securities of one
Nonutility Subsidiary to another Nonutility Subsidiary or sell (or
cause a Nonutility Subsidiary to sell) the equity securities of one
Nonutility Subsidiary to another one. To the extent that these
transactions are not otherwise exempt under the Act or rules
thereunder, WGL Holdings hereby requests authorization under the Act to
consolidate or otherwise reorganize under one or more direct or
indirect Intermediate Subsidiaries WGL Holdings' ownership interests in
existing and future Nonutility Subsidiaries. These transactions may
take the form of a Nonutility Subsidiary selling, contributing or
transferring the equity securities of a subsidiary as a dividend to an
Intermediate Subsidiary, and Intermediate Subsidiaries acquiring,
directly or indirectly, the equity securities of companies, either by
purchase or by receipt of a dividend. The purchasing Nonutility
Subsidiary in any transaction structured as an intrasystem sale of
equity securities may execute and deliver its promissory note
evidencing all or a portion of the consideration given. Each
transaction would be carried out in compliance with all applicable U.S.
or foreign laws and accounting requirements, and any transaction
structured as a sale would be carried out for a consideration equal to
the book value of the equity securities being sold. WGL Holdings will
report each transaction in the next quarterly certificate filed under
rule 24 in this proceeding, as described below.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-5111 Filed 3-5-04; 8:45 am]
BILLING CODE 8010-01-P