[Federal Register: November 26, 2004 (Volume 69, Number 227)]
[Notices]
[Page 68986-68995]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no04-122]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27912]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
November 19, 2004.
Notice is hereby given that the following filing(s) has/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 December 13, 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 December 13, 2004, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
Dominion Resources, Inc., et al. (70-10246)
Dominion Resources, Inc. (``DRI''), a registered holding company;
Consolidated Natural Gas Company (``CNG''), a direct subsidiary of DRI
and also a registered holding company, both of 120 Tredegar Street,
Richmond, VA 23219; their public utility subsidiaries: Virginia
Electric and Power Company (``Virginia Power''), P.O. Box 26666, 17th
Floor, Richmond, VA, The Peoples Natural Gas Company (``Peoples''), 625
Liberty Avenue, Pittsburgh, PA 15222, The East Ohio Gas Company (``East
Ohio''), 1201 E. 55th Street, Cleveland, OH 44103, and Hope Gas, Inc.
(``Hope''), 445 West Main Street, Clarksburg, WV 26301; and the
nonutility subsidiaries (as defined below) (collectively, the
``Applicants'') \1\ have filed an application-declaration
(``Application'') under sections 6(a), 7, 9(a), 10, 12(b), 12(c),
12(f), 32, 33 and 34 of the Act and rules 43, 45, 46, 53 and 54 under
the Act.
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\1\ The addresses for these companies are shown on Exhibit J-1
of the Application.
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DRI's utility subsidiaries are: (1) Virginia Power, a regulated
public utility engaged in the generation, transmission and distribution
of electric energy in Virginia and northeastern North Carolina; (2)
Peoples, a regulated public utility engaged in the distribution of
natural gas in Pennsylvania; (3) East Ohio, a regulated public utility
engaged in the distribution of natural gas in Ohio; and (4) Hope, a
regulated public utility engaged in the distribution of natural gas in
West Virginia (collectively, the ``Utility Subsidiaries''). Virginia
Power is a direct subsidiary of DRI. Peoples, East Ohio and Hope are
each direct subsidiaries of CNG.
DRI's nonutility activities are conducted through its nonutility
subsidiaries (the ``Nonutility Subsidiaries''): (1) Dominion Energy,
Inc. (``DEI'') which, through its direct and indirect subsidiaries
(together with DEI, the ``DEI Companies''), is active in the
competitive electric power generation business and in the development,
exploration and operation of natural gas and oil reserve; \2\ (2)
direct and indirect subsidiaries of Virginia Power, which are engaged
in fuel procurement for Virginia Power and other DEI subsidiaries,
energy marketing and nuclear consulting services; and (3) direct and
indirect subsidiaries of CNG which are engaged in all phases of the
natural gas business other than retail distribution including
transmission, storage and exploration and production. DRI and all of
its subsidiaries are referred to as the ``DRI System.'' \3\
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\2\ DEI also owns Dominion Wholesale, Inc., which provides
inventory services to the DEI Companies and other subsidiaries of
DRI. See HCAR No. 27772 (December 12, 2003).
\3\ DRI has another nonutility subsidiary, Dominion Capital,
Inc. (``DCI'' and, together with its subsidiaries, the ``DCI
Companies''), which in the past, operated as a diversified financial
services company with several operating subsidiaries in the
commercial lending, merchant banking and residential lending
businesses. Pursuant to an order dated January 28, 2003, HCAR No.
27644, DRI is obligated to dispose of its interest in the DCI
Companies (other than certain interests in specified independent
power projects) by December 31, 2006.
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Requested Authorization
A. Summary of Transactions
By prior orders, the Applicants have been authorized to engage in
various financing transactions, a money pool and a tax allocation
agreement.\4\ Applicants request authority to engage in the
transactions set forth below during the period from the effective date
of the order issued in this filing through the period ending December
31, 2007 (``Authorization Period''). This authority would replace and
supersede all of the Applicants' current authorization under the prior
orders. In particular, Applicants request:
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\4\ See HCAR No. 27112, December 15, 1999 (the ``Initial
Financing Order''), HCAR No. 27406, May 24, 2001 (the ``Second
Financing Order''), HCAR No. 27814, March 15, 2004 (the ``Third
Financing Order''), HCAR No. 27634, January 3, 2003 (the ``Money
Pool Order'') and HCAR No. 27845, May 13, 2004 (the ``Tax Allocation
Order'').
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(1) For DRI to increase its capitalization in the aggregate amount
of $8.0 billion over and above its capitalization as of June 30, 2004,
other than for refunding or replacing securities where capitalization
either is not increased (or is increased solely by operation of call
premiums, make whole premiums, or other offering expenses,
collectively, ``Offering Expenses''), through the issuance and/or sale
by DRI of common stock (including forward
[[Page 68987]]
sales), preferred securities, equity-linked securities, and long-term
debt, whether directly or through one or more financing conduits;
(2) For DRI to issue short term debt, including, but not limited to
the issuance of commercial paper or letters of credit in an aggregate
amount up to $12.5 billion principal amount outstanding at any one
time, provided, however, the authority in this subparagraph (2) will be
reduced by the amount of securities issued and outstanding pursuant to
the authority requested in subparagraph (1) above. This short-term debt
authorization would enable DRI to support the DRI Money Pool and other
short-term financing needs, which vary significantly during a calendar
period and are not permanent capital increases;
(3) For DRI to provide guarantees, intra-system advances and other
credit support for all of its subsidiaries, as described below, in an
aggregate amount not to exceed $10 billion at any time outstanding; \5\
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\5\ Pursuant to the prior orders, DRI continues to maintain
guarantee and credit support arrangements for the DCI Companies.
However, DRI is disposing of its interest in the DCI Companies and
these arrangements will diminish and terminate when the disposition
process is completed.
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(4) For DRI to issue up to 50 million shares of stock for its
direct stock purchase and dividend reinvestment plan, incentive
compensation plans and other employee benefit plans as described below
(these issuances to be excluded from the increase to DRI's
capitalization described in subparagraph 1 above);
(5) For DRI to continue to operate the DRI Money Pool as described
below;
(6) For CNG to increase its capitalization in the aggregate amount
of $6.0 billion over and above its capitalization as of June 30, 2004,
other than through refunding or replacing securities where
capitalization is either not increased (or is increased solely by
Offering Expenses) through the issuance and/or sale of common stock
(including forward sales), preferred securities, equity-linked
securities, and long-term debt, whether directly or through one or more
financing conduits;
(7) For CNG to issue short-term debt, including, but not limited
to, the issuance of commercial paper or letters of credit, in an
aggregate amount of up to $9.25 billion principal amount outstanding at
any one time, provided, however, the authority in this subparagraph (7)
will be reduced by the amount of the securities issued and outstanding
pursuant to the authority requested in subparagraph (6) above. This
short-term debt authorization would enable CNG to support its short-
term financing needs which vary significantly during a calendar year
and are not permanent capital increases;
(8) For CNG to provide guarantees, intra-system advances and other
credit support for all of its subsidiaries in an aggregate amount not
to exceed $5.0 billion at any time outstanding;
(9) For DRI and CNG to use financing conduits or subsidiaries to
issue or sell debt or equity securities on DRI's or CNG's behalf either
by DRI or CNG owning these conduits or subsidiaries or guaranteeing the
obligations of these conduits or subsidiaries as described below;
(10) For DRI and CNG to enter into transactions to manage interest
rate credit and equity price risk with regard to the issuance of
securities as described below;
(11) For DRI and CNG to use up to $300 million of the financing for
development costs related to investments in Exempt Subsidiaries and
Non-Exempt Subsidiaries as defined below;
(12) For the Utility Subsidiaries to issue short-term debt
securities (including commercial paper) not to exceed the following
amounts outstanding at any one time:
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Utility subsidiary Short-term debt amount
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Virginia Power........................ $2.25 billion.
Peoples............................... $100 million.
East Ohio............................. $100 million.
Hope.................................. $100 million.
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(13) For the Utility Subsidiaries to enter into transactions to
manage interest rate, credit and equity price risk with regard to the
issuance of securities as described below;
(14) For the Nonutility Subsidiaries to pay dividends out of
capital or unearned surplus;
(15) For DRI and CNG to change the capital stock of subsidiaries;
(16) For DRI and CNG to refund or replace existing securities where
capitalization is not increased (or is increased solely by Offering
Expenses) from that in place at June 30, 2004, all subject to the
financing parameters set forth below;
(17) For DRI to manage and develop DRI system nonutility real
estate as described below;
(18) For DRI and its subsidiaries to continue to operate under the
terms of the Tax Allocation Agreement;
(19) For DRI to make investments in Exempt Wholesale Generators
(``EWG'') and Foreign Utility Companies (``FUCO'') up to an aggregate
investment of 100% of consolidated retained earning plus $8 billion;
and
(20) For the issuance of intra-system advances and guarantees by
DRI and/or CNG to or on behalf of its subsidiaries, by the Nonutility
Subsidiaries to or on behalf of other Nonutility Subsidiaries and by
the Utility Subsidiaries to or on behalf of the Utility Subsidiary's
direct or indirect subsidiaries and others.
B. Parameters for Financing Authorization
The following general terms would be applicable as appropriate to
the financing transactions requested to be authorized in the
Application:
(1) Common Equity Ratio. DRI and CNG state that at all times during
the Authorization Period, DRI, CNG and each of the Utility Subsidiaries
would maintain common equity (as reflected in the most recent Form 10-K
and Form 10-Q filed with the Commission) of at least 30% of its
consolidated capitalization (common equity, preferred stock and long-
term and short-term debt); provided that DRI and CNG would in any event
be authorized to issue common stock to the extent otherwise authorized
in this Application.
(2) Investment Grade Ratings. DRI, CNG and the Utility Subsidiaries
would not issue any guarantees or other securities, other than common
stock, member interests or securities issued for the purpose of funding
money pool operations, unless: (i) The securities, if rated, are rated
at least investment grade, (ii) all outstanding securities of the
issuer that are rated, are rated investment grade, and (iii) all
securities of DRI and CNG that are rated, are rated investment grade.
For purposes of this provision, a security would be deemed to be rated
investment grade if it is rated investment grade by at least one
nationally recognized statistical rating organization, as defined in
rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934, as
amended (``Securities Exchange Act''). Applicants further request that
the Commission reserve jurisdiction over the issuance of any of these
securities at any time that the conditions set forth above are not
satisfied.
(3) Effective Cost of Money on Financings. The effective cost of
capital for long-term debt, short-term debt, preferred securities and
equity linked securities would 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 would
the
[[Page 68988]]
effective cost of capital on (i) any long-term debt securities exceed
500 basis points over comparable term U.S. Treasury securities
(``Treasury Security''); or (ii) any short-term debt securities exceed
500 basis points over the comparable term London Interbank Offered Rate
(``LIBOR''). The dividend and distribution rate on any series of
preferred securities or equity linked securities will not exceed at the
time of issuance 700 basis points over a Treasury Security.
(4) Maturity. The final maturity of any long-term debt securities
would not exceed 50 years. Preferred securities and equity linked
securities would be redeemed no later than 50 years after issuance,
except for preferred securities or equity-linked securities that are
perpetual in duration.
(5) Issuance Expenses. The underwriting fees and commissions paid
in connection with the issue, sale or distribution of securities
pursuant to this Application would not exceed 7% of the principal or
face amount of the securities being issued or gross proceeds of the
financing.
(6) Use of Proceeds. The proceeds from the sale of securities
issued by Applicants pursuant to this Application would be used for any
lawful purposes, including: (i) The financing of the capital
expenditures of the DRI System; (ii) the financing of working capital
requirements of the DRI System; (iii) direct or indirect investment in
companies or assets the acquisition of which are either exempt under
the Act or by Commission Rule or have been authorized by the
Commission; and (iv) general corporate purposes.
C. Description of Specific Types of Financing
(1) Equity Securities
(a) Common Stock (including Equity-Linked Securities). From time to
time during the Authorization Period, subject to the limits and
conditions specified in this Application, DRI seeks authority to issue
and sell up to $8 billion additional shares of its common stock (i)
through solicitations of proposals from underwriters or dealers, (ii)
through negotiated transactions with underwriters or dealers, (iii)
directly to a limited number of purchasers or to a single purchaser,
and/or (iv) through agents. The price applicable to additional shares
sold in any transaction would be based on several factors, including
the current market price of the common stock and prevailing capital
market conditions. Additionally, DRI may seek to enter into derivative
transactions (including the writing of options) to sell securities to
third parties. These transactions could occur in connection with
forward sales of DRI's common stock.
DRI also seeks authority to issue and sell from time to time equity
linked securities, including but not limited to contracts obligating
holders to purchase from DRI and/or DRI to sell to the holders, a
number of shares specified directly or by formula at an aggregate
offering price either fixed at the time the Stock Purchase Contracts
(``Stock Purchase Contracts'') are issued or determined by reference to
a specific formula set forth in the Stock Purchase Contracts. The Stock
Purchase Contracts may be issued separately or as part of units
(``Stock Purchase Units'') consisting of a stock purchase contract and
debt and/or preferred securities of DRI and/or debt obligations of non-
affiliates, including U.S. Treasury securities, securing holders'
obligations to purchase the common stock of DRI under the Stock
Purchase Contracts. The Stock Purchase Contracts may require holders to
secure their obligations in a specified manner.
DRI may also issue common stock as consideration, in whole or in
part, for acquisitions of securities of businesses or the assets of
these businesses, the acquisition of which (a) is exempt under the Act
or by Commission rule or (b) has been authorized by prior Commission
order issued to DRI, subject in either case to applicable limitations
on total investments in any of these businesses. All common stock sales
would be with terms and conditions, at rates or prices and under
conditions negotiated or based upon, or otherwise determined by,
competitive capital markets.
From time to time during the Authorization Period, subject to the
limits and conditions specified in this Application, CNG seeks
authority to issue up to $6 billion additional shares of its common
stock to DRI. The consideration for the stock would be based on the
book value of the stock determined as of the quarter end immediately
preceding the issuance.
(b) Preferred Securities. Subject to the limits and conditions
specified in this Application, each of DRI and CNG also seeks authority
to issue and sell preferred securities in one or more series. Preferred
securities of any series (a) would have a specified par or stated value
or liquidation value per security, (b) would carry a right to periodic
cash dividends and/or other distributions, subject among other things,
to funds being legally available, (c) may be subject to optional and/or
mandatory redemption, in whole or in part, at par or at various
premiums above the par or stated liquidation value, (d) may be
convertible or exchangeable into common stock of DRI, (e) and may bear
other further rights, including voting, preemptive or other rights, and
other terms and conditions, as set forth in the applicable certificate
of designation, purchase agreement and/or similar instruments governing
the issuance and sale of the series of preferred securities.
Preferred securities may be issued in private or public
transactions. With respect to private transactions, preferred
securities of any series may 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 who would
resell the preferred securities without registration under the
Securities Act of 1933, as amended (the ``Securities Act'') in reliance
upon one or more applicable exemptions from registration. From time to
time each of DRI and CNG may also issue and sell preferred securities
of one or more series 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.
The liquidation preference, dividend or distribution rates,
redemption provisions, voting rights, conversion or exchange rights,
and other terms and conditions of a particular series of preferred
securities, as well as any associated placement, underwriting,
structuring or selling agent fees, commissions and discounts, if any,
would be established by negotiation or competitive bidding and
reflected in the applicable certificate of designation, purchase
agreement or underwriting agreement, and other relevant instruments
setting forth the terms.
(2) Debt Securities
(a) Short-Term Notes. Subject to the limits and conditions in this
Application, each of DRI and CNG seeks authorization to make unsecured
short-term borrowings from banks or other financial institutions, and
when combined with issuance of common stock, preferred securities,
equity-linked securities and long-term debt not to exceed $12.5 billion
with respect to DRI and $9.25 billion with respect to CNG. The
borrowings would be unsecured and evidenced by (1) ``transactional''
promissory notes to be dated the date of the borrowings and to mature
not more than one year after the date thereof or (2) ``grid''
promissory notes evidencing all outstanding borrowings from the
respective lender, to be dated as of the date of the first borrowing
evidenced
[[Page 68989]]
thereby, with each borrowing maturing not more than one year
thereafter. The notes may or may not be prepayable, in whole or in
part, with or without a premium in the event of prepayment. Each of DRI
and CNG states that, at any given time, some or all of its outstanding
short-term notes would be issuable in connection with the establishment
of back-up credit facilities to support its commercial paper program
but that these credit facilities would not be drawn upon and no
borrowings would occur under these facilities, except in certain
limited circumstances at which time obligations under the related
commercial paper would be paid. Thus, short-term notes issued in
connection with the establishment of commercial paper back-up
facilities backstop and duplicate commercial paper issuances and should
not be deemed to be borrowings under DRI's or CNG's, as applicable,
financing authorization unless and until an actual borrowing occurs
under the related credit facility. Any other result would ``double
count'' DRI's and CNG's, as applicable, actual financial obligation.
Additionally, with respect to any ``grid'' notes issued by DRI or CNG,
as applicable, only the amount actually outstanding at any given time
shall be considered a borrowing.
(b) Commercial Paper. Subject to the limits and conditions in this
Application, each of DRI and CNG also seeks authority to issue and sell
commercial paper through one or more dealers or agents or directly to
purchasers.
Each of DRI and CNG proposes to issue and sell the commercial paper
at market rates with varying maturities not to exceed 270 days. The
commercial paper would be in the form of book-entry unsecured
promissory notes with varying denominations of not less than $1,000
each. In commercial paper sales effected on a discount basis, no
commission or fee would be payable; however, the purchasing dealer
would re-offer the commercial paper at a rate less than the rate
offered to the DRI or CNG, as applicable. The discount rate to dealers
would not exceed the maximum market clearing discount rate per annum
prevailing at the date of issuance for commercial paper of comparable
quality and the same maturity. The purchasing dealer would re-offer the
commercial paper in a manner as not to constitute a public offering
within the meaning of the Securities Act.
(c) Long-Term Notes. Subject to the limits and conditions in this
Application, each of the DRI and CNG also seeks authority to issue and
sell unsecured long-term debt securities (``Notes'') in one or more
series.
Notes of any series may be either senior or subordinated
obligations of DRI or CNG, as applicable. Notes of any series (a) would
have maturities of greater than one year, (b) may be subject to
optional and/or mandatory redemption, in whole or in part, at par or at
various premiums above the principal amount, (c) may be entitled to
mandatory or optional sinking fund provisions, and (d) may be
convertible or exchangeable into common stock of DRI or CNG, as
applicable. Interest accruing on Notes of any series may be fixed or
floating or ``multi-modal'' (where the interest is periodically reset,
alternating between fixed and floating interest rates for each reset
period, with all accrued and unpaid interest together with interest
becoming due and payable at the end of each reset period, or at
maturity). Notes may be issued under one or more indentures to be
entered into between DRI or CNG, as applicable, and financial
institutions acting as trustee(s); supplemental indentures may be
executed in respect of separate offerings of one or more series of
Notes.
Notes may be issued in private or public transactions. With respect
to the former, Notes of any series may 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 who
would resell the Notes without registration under the Securities Act in
reliance upon one or more applicable exemptions from registration. From
time to time each of DRI and CNG may also issue and sell Notes of one
or more series 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.
The maturity dates, interest rates, redemption and sinking fund
provisions, and conversion features, if any, with respect to the Notes
of a particular series, as well as any associated placement,
underwriting, structuring or selling agent fees, commissions and
discounts, if any, would be established by negotiation or competitive
bidding and reflected in the applicable purchase agreement or
underwriting agreement setting forth the terms.
(3) Financing Conduits
In addition to issuing any of the foregoing debt or equity
securities directly, DRI and CNG request approval to form one or more
entities for the primary purpose of issuing and selling any of the
foregoing securities, lending, dividending or otherwise transferring
the proceeds to DRI or CNG, as applicable, or an entity designated by
DRI or CNG, and engaging in incidental transactions, subject to the
limits and conditions of this Application.
The proposed entities would comprise one or more financing entities
(each, a ``Financing Entity'') and one or more special-purpose entities
(each, a ``Special-Purpose Entity,'' and together with Financing
Entities, ``Financing Conduits''). In either case the entities'
businesses may include issuing and selling securities on behalf of, or
to benefit, DRI or CNG. Any securities issued by the Financing Conduits
may be guaranteed by DRI and/or CNG, either directly or indirectly.
DRI or CNG would acquire a portion of the outstanding shares of
common stock or other equity, membership or controlling interests of
the Financing Entity for an amount not less than the minimum required
by applicable law. A primary function of the Financing Entity would be
effecting financing transactions with third parties for the benefit of
DRI or CNG and their respective subsidiaries. As an alternative in a
particular instance to DRI or CNG directly issuing debt or equity
securities, or through a Special-Purpose Entity, DRI or CNG may
determine to use a Financing Entity as the nominal issuer of the
particular debt or equity security. In that circumstance, the
participating Applicant may provide a guarantee or other credit support
with respect to the securities issued by the Financing Entity, the
proceeds of which would be lent, dividended or otherwise transferred to
the applicable Applicant or an entity designated by the Applicant.
One of the primary strategic reasons behind the use of a Financing
Entity would be to segregate financings for the different businesses
conducted by DRI or CNG, distinguishing between securities issued by
the DRI or CNG to finance their investments in nonutility businesses
from those issued to finance their investments in the core utility
business. A separate Financing Entity may be used by DRI or CNG with
respect to different types of nonutility businesses. DRI or CNG would
use Special-Purpose Entities in connection with certain financing
structures for issuing debt, preferred, equity-linked or equity
securities, in order to achieve a lower cost of capital, or
incrementally greater financial flexibility or other benefits, than
would otherwise be the case.
[[Page 68990]]
(4) Interest Rate, Credit and Equity Price Risk Management
In connection with the issuance and sale of securities, each of
DRI, CNG and the Utility Subsidiaries requests authority to manage
equity price (with regard to DRI common stock), credit and interest
rate risk through the entering into, purchasing and selling of various
risk management instruments commonly used in today's capital markets,
such as interest rate, credit and equity swaps, caps, collars, floors,
options, forwards, futures, forward issuance agreements, call spread
options, the sale and/or purchase of various call or put options or
warrants and similar products designed to manage market, price, rate or
credit risks (collectively ``Hedging Instruments'').
Each of DRI, CNG, and the Utility Subsidiaries, as applicable,
would enter into Hedging Instruments (either directly or indirectly
through subsidiaries) pursuant to agreements with counterparties that
are rated at least investment grade, i.e., who, at the date of
execution of the agreement with DRI, CNG, or a Utility Subsidiary, are
rated (or have a parent issuing a guaranty that is rated) at least
investment grade by at least one nationally recognized statistical
rating organization, as defined in rule 15c3-1(c)(2)(vi)(F) under the
Securities Exchange Act (``Authorized Counterparties''). The derivative
transactions would be for fixed periods and the notional principal
amount would not exceed the principal amount of the underlying security
except to the extent necessary to adjust for differing price movements
between the underlying and hedged securities or to allow for the fees
related to the transaction. None of DRI, CNG or the Utility
Subsidiaries would engage in ``leveraged'' or ``speculative''
derivative transactions pursuant to the authority granted under this
Application.
In addition, each of DRI, CNG and the Utility Subsidiaries requests
authorization to enter into interest rate and credit hedging
transactions with respect to anticipated debt offerings (the
``Anticipatory Hedges''), subject to certain limitations and
restrictions. The Anticipatory Hedges would only be entered into with
Authorized 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 Hedging Instruments (a ``Forward
Sale''), (ii) the purchase of put options on Hedge Instruments (a ``Put
Options Purchase''), (iii) a Put Options Purchase in combination with
the sale of call options Hedging Instruments (a ``Zero Cost Collar''),
(iv) transactions involving the purchase or sale, including short
sales, of Hedging Instruments, or (v) some combination of a Forward
Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or
cash transactions, including, 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 or New York Mercantile Exchange, 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. DRI, CNG, or the Utility Subsidiary would determine the optimal
structure of each Anticipatory Hedge transaction at the time of
execution. DRI, CNG or the Utility Subsidiary may decide to lock in
interest rates and/or limit its exposure to interest rate increases.
Fees and commissions charged or required in connection with any
interest rate, credit or equity price risk management agreement would
not exceed the then current market level.
DRI and CNG represent that each would comply with Statement of
Financial Accounting Standards 133 (``SFAS''), SFAS 138 or other
standards relating to accounting for derivative transactions as are
adopted and implemented by the Financial Accounting Standards Board
(``FASB''). DRI and CNG state that Hedge Instruments and Anticipatory
Hedges would qualify for hedge accounting treatment under the current
FASB standards in effect and as determined at the date Hedging
Instruments or Anticipatory Hedges are entered into.
(5) Guarantees
From time to time through the Authorization Period, DRI requests
authority to guarantee, issue and/or obtain letters of credit, enter
into financing arrangements and otherwise provide credit support (each,
a ``DRI Guarantee'') in respect of the debt or other securities or
obligations of any or all of DRI's subsidiary or associate companies
(including any formed or acquired at any time during the Authorization
Period), and otherwise to further the business of DRI, provided that
the total amount of Guarantees at any time outstanding does not exceed
$10 billion (the ``DRI Guarantee Limit''), and provided further, that
(i) any DRI Guarantees of EWGs and FUCOs shall also be subject to DRI's
limitation on investment in EWGs and FUCOs; (ii) any Guarantees of
energy-related companies within the meaning of Rule 58 (``Rule 58
Companies'') shall also be subject to the aggregate investment limit of
Rule 58; and (iii) any security guaranteed by DRI shall itself be in
compliance with the financing parameters authorized in this Application
or be exempt. The terms and conditions of any DRI Guarantees, and the
underlying liabilities covered, would be established at arm's-length
based upon market conditions.
From time to time through the Authorization Period, CNG requests
authority to guarantee, issue and/or obtain letters of credit, enter
into financing arrangements and otherwise provide credit support (each,
a ``CNG Guarantee'', and together with DRI Guarantees, collectively the
``Guarantees'' and individually, a ``Guarantee'') in respect of the
debt or other securities or obligations of any or all of CNG's
subsidiary or associate companies (including any formed or acquired at
any time during the Authorization Period), and otherwise to further the
business of CNG, up to $5 billion (the ``CNG Guarantee Limit'') on the
same terms and conditions as specified above for DRI.
DRI and CNG may charge a fee to its subsidiaries for each Guarantee
provided on their behalf that is not greater than cost, if any, of
obtaining from any unrelated third party the liquidity necessary to
perform the guarantee for the period of time the Guarantee remains
outstanding.
In the event that DRI or CNG issues any debt or equity securities
authorized in this Application by means of any Financing Conduits, DRI
or CNG may provide a Guarantee in respect of the payment and other
obligations of the Financing Conduits under the securities issued by
it. Given that any securities nominally issued by any Financing
Conduits are in substance securities issued by DRI or CNG itself, any
securities issued by Financing Conduits would count dollar-for-dollar
against DRI's or CNG's financing authority. However, DRI and CNG submit
that any Guarantees of securities of Financing Conduits should be
excluded entirely from the DRI or CNG Guarantee Limit, as applicable,
since inclusion would amount to ``double counting,'' in effect
penalizing DRI or CNG for using Financing Conduits.
As stated above, DRI and CNG request the authority to extend its
credit through entry into performance guarantees that will be a part of
the definition of ``Guarantee''. Such performance Guarantees may be in
[[Page 68991]]
support of the obligations of affiliates undertaking the development or
operation of projects authorized under the Act. However, performance
Guarantees and certain other Guarantees may be in support of
obligations that are not capable of exact quantification. In such
cases, DRI and CNG state that each will determine the exposure under
such Guarantees for purposes of measuring compliance with the DRI
Guarantee Limit or CNG Guarantee Limit, as applicable, by appropriate
means, including estimation of exposure based on loss experience or
projected potential payment amounts. If appropriate, DRI and CNG state
that these estimates will be made in accordance with generally accepted
accounting practices.
DRI and CNG also request authority to guarantee the obligations of
unrelated third parties (``Third Party Guarantees''). From time to
time, it is appropriate for DRI or CNG or one of their subsidiaries to
guarantee, as part of their normal business activities, the obligations
of a third party with whom DRI or CNG or their subsidiary has a
business relationship. For example, a subsidiary of DRI or CNG may
enter into a joint venture to construct certain power generation assets
where such subsidiary manages the power generation assets on behalf of
the joint venture and DRI or CNG would guarantee the performance of
such subsidiary. Third Party Guarantees will be Guarantees only of
long- or short-term indebtedness or Guarantees of performance of
contractual obligations of such third parties with whom DRI or CNG or
their subsidiary has, or had, a business relationship.
D. DRI Money Pool
DRI, CNG and the subsidiaries listed on Exhibit B-2 to the
Application (the ``Participants'') request authorization to operate in
a system money pool (the ``DRI Money Pool''). The DRI Money Pool would
be operated in the same manner as previously authorized by the
Commission. The only change to be made to the DRI Money Pool is the
list of Participants.\6\
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\6\ The following Participants have been deleted from the DRI
Money Pool agreement from the original Money Pool Order: Elwood II
Holding, LLC, Elwood III Holdings, LLC, Kincaid Generation, LLC,
Dominion Metering Services, Inc., and CNG Pipeline Company. No new
Participants have been added to Account A of the DRI Money Pool. The
following Participants have been added to Account B of the DRI Money
Pool: NE Hub Partners L.L.C., Farmington Properties, Inc., Dominion
Capital, Inc., Dominion Technical Solutions, Inc., Virginia Power
Nuclear Services, Inc., Virginia Power Energy Marketing, Inc.,
Virginia Power Services Energy Corp., Inc., CNG Coal Company,
Dominion Member Services, Inc., Tioga Properties, LLC, Dominion Cove
Point, Inc., and Dominion South Pipeline, LP.
---------------------------------------------------------------------------
DRI, CNG and the Participants would invest their surplus funds in
the DRI Money Pool, and the Participants would borrow funds from the
DRI Money Pool, provided that, with respect to each of the CNG utility
companies (The East Ohio Gas Company, Hope Gas, Inc. and The Peoples
Natural Gas Company), outstanding borrowings from the DRI Money Pool
shall not exceed $750 million at any one time.
DRI and CNG would not borrow from the DRI Money Pool, but may be
the ultimate providers of funds to the DRI Money Pool as needed. DRI
and/or CNG would obtain the funds to invest in the DRI Money Pool (i)
from internally generated funds, (ii) under the prior orders, and/or
(iii) any other current financing authorizations or exemptions that may
be available to DRI or CNG. Dominion Resources Services, Inc. (``DRI
Services'') would administer the DRI Money Pool on an ``at cost''
basis. In providing funds to DRI Money Pool Participants, DRI and CNG
would give preference to the needs of the Utility Subsidiaries that are
Participants. DRI would report any default under any external loan
agreement within ten (10) days of the occurrence in a filing with the
Commission. The filing would describe how the default under the loan
agreement would affect preceding representations of preference to the
needs of the Utility Subsidiary Participants.
Funds in the DRI Money Pool would be held in two separate
accounts--one for public utility company participants (``Account A'')
and another for the Participants which are not public utility companies
(``Account B''). Account A funds would not be loaned to non-public
utility company Participants. Account B funds may be loaned to public
utility company Participants provided that the interest charged is not
greater than the cost of borrowing the funds to DRI or CNG, as
applicable. A list of the Account A and Account B participants is filed
as Exhibit B-2 to the Application. Participants that are EWGs, FUCOs,
or exempt telecommunication companies (``ETC'') shall be permitted to
loan funds to Account A or Account B, but shall not be permitted to
borrow funds from either Account A or Account B.
For each of Account A and Account B Participants, respectively, DRI
Services would maintain a record reflecting the Participant's daily
balance. The record would indicate the amount of the Participant's
lending, investment or borrowing balance, as the case may be, as well
as the Participant's share of interest and investment income and
interest owed, if any.
The purpose of the DRI Money Pool is to provide the Participants
with internal and external funds and to invest surplus funds of DRI and
the Participants in short-term money market instruments. The DRI Money
Pool would offer the Participants lower short-term borrowing costs due
to the elimination of banking fees, a mechanism to earn a higher return
on interest from surplus funds that are loaned to other Participants,
and decreased reliance on external funding sources.
Proceeds of any short-term borrowings from the DRI Money Pool by
the Participants may be used (i) for the interim financing of
construction and capital expenditure programs, (ii) for working capital
needs, (iii) for the repayment or refinancing of debt, (iv) to meet
unexpected contingencies, payment and timing differences and cash
requirements, (v) to otherwise finance the borrower's own business, and
(vi) for other lawful general purposes.
The daily interest rate on loans from the DRI Money Pool and on all
deposits of cash in the DRI Money Pool would equal the effective
weighted average rate of interest on DRI's outstanding commercial paper
and/or revolving credit borrowings. If no DRI borrowings are
outstanding on the date of any outstanding loan, then the interest rate
would be the Federal Funds' effective rate of interest as quoted daily
by the Federal Reserve Bank of New York. The rate to be used for
weekends and holidays would be the rate on the prior business day.
Funds not required by the DRI Money Pool to make loans to Participants
or to repay borrowings incurred to provide funds to Participants would
ordinarily be invested in one or more short-term investments including:
(i) Obligations issued or guaranteed by the U.S. government and/or its
agencies and instrumentalities; (ii) commercial paper; (iii)
certificates of deposit; (iv) bankers' acceptances; (v) repurchase
agreements; (vi) tax exempt notes; and (vii) other investments that are
permitted by Section 9(c) of the Act and Rule 40 promulgated under the
Act. The interest income and investment income earned on loans and
investments of surplus funds would be allocated among the Participants
in the DRI Money Pool in accordance with the proportion each
Participant's contribution of funds bears to the total amount of funds
in the DRI Money Pool.
Each Participant receiving a loan through the DRI Money Pool would
be required to repay the principal amount of the loan, together with
all accrued
[[Page 68992]]
interest, on demand. Interest on outstanding loans would be paid to the
DRI Money Pool monthly. All loans made through the DRI Money Pool could
be repaid by the borrower without premium or penalty.
All terms and conditions governing the operations of, and the
participation by DRI, CNG and the Participants in, the DRI Money Pool
are contained in a written agreement in the form as provided in Exhibit
B-1 attached to the Application. DRI states that such agreement will be
the same as approved in the Money Pool Order, with the inclusion of the
restrictions on borrowing for EWGS, FUCOs and ETC as set forth above.
E. Investments in Nonutility Subsidiaries
DRI and CNG request authority to engage in certain activities
described below relating to EWGs, FUCOs, ETCs, and Rule 58 Companies
(collectively, ``Exempt Subsidiaries'') and other nonutility
subsidiaries approved by the Commission (collectively, ``Non-Exempt
Subsidiaries''). To the extent any of these activities described in
this Application constitute the providing of goods, services or
construction from one associate company to another in the DRI system
which would be subject to section 13 of the Act, these goods, services
or construction would be provided at cost as defined in rules 90 and 91
unless an exemption from the at cost requirement is available under the
Act or otherwise approved in the Commission's order in this matter.
DRI and CNG request authority to make additional investments in
Exempt Subsidiaries and Non-Exempt Subsidiaries in the form of
purchases of common stock and other securities, capital contributions,
loans or open account advances, guarantees, or any combination of the
foregoing. Direct or indirect investments by DRI and CNG in Exempt
Subsidiaries and Non-Exempt Subsidiaries would be subject to the
limitations applicable to investments for the subsidiaries.
In connection with existing and future nonutility businesses, DRI
and CNG would engage directly or through subsidiaries in preliminary
development activities (``Development Activities'') and administrative
and management activities (``Administrative Activities'') associated
with the investments. Development Activities would be limited to: due
diligence and design review; market studies; preliminary engineering;
site inspection; preparation of bid proposals, including, posting of
bid bonds; application for required permits and/or regulatory
approvals; acquisition of site options and options on other necessary
rights; negotiation and execution of contractual commitments with
owners of existing facilities, equipment vendors, construction firms,
power purchasers, thermal ``hosts,'' fuel suppliers and other project
contractors; negotiation of financing commitments with lenders and
other third-party investors; and other preliminary activities as may be
required in connection with the purchase, acquisition or construction
of facilities or the securities of other companies. DRI and CNG propose
to expend directly or through Exempt Subsidiaries or Non-Exempt
Subsidiaries up to $300 million in the aggregate outstanding at any
time during the Authorization Period on all the Development Activities.
Amounts expended in the development of projects that result in an
investment in an Exempt Subsidiary or a Non-Exempt Subsidiary would not
count against the limitation on expenditures for Development
Activities. Administrative Activities would include ongoing personnel,
accounting, engineering, legal, financial and other support activities
necessary to manage Development Activities and investments in
subsidiaries.
DRI and CNG request authority to acquire directly or indirectly the
securities of one or more corporations, trusts, partnerships, limited
liability companies or other entities (collectively, ``Intermediate
Subsidiaries''), which would 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 Subsidiaries or
Non-Exempt Subsidiaries, provided that Intermediate Subsidiaries may
also engage in Development Activities and Administrative Activities
(collectively, the ``Activities''). To the extent the transactions are
not exempt from the Act or otherwise authorized or permitted by rule,
regulation or order of the Commission, DRI and CNG request authority
for Intermediate Subsidiaries to engage in the Activities described
above. To the extent that DRI and CNG provide funds directly or
indirectly to an Intermediate Subsidiary which are used for the purpose
of making an investment in any Exempt Subsidiary or Non-Exempt
Subsidiary, the amount of the funds would be included in DRI's
``aggregate investment'' in these entities, as calculated in accordance
with rule 53 or rule 58, as applicable.
F. Direct Investment, Incentive Compensation Plans and Other Employee
Benefit Plans
DRI requests authority, from time to time during the Authorization
Period, to issue and/or acquire in open market transactions or by some
other method which complies with applicable law and Commission
interpretations then in effect up to 50 million shares of DRI common
stock under DRI's direct stock purchase and dividend reinvestment plan,
certain incentive compensation plans and certain other employee benefit
plans described below.
(1) Dominion Direct Investment
DRI maintains Dominion Direct Investment (``Dominion Direct''), a
direct stock purchase plan with a dividend reinvestment feature. The
purpose of Dominion Direct is to provide eligible participants with a
convenient and economical way to purchase DRI common stock and to
increase ownership in DRI by reinvesting dividends and/or making
optional monthly investments. Current shareholders of DRI and new
investors residing in the U.S. who would like to become DRI
shareholders are eligible to participate. Foreign citizens are eligible
to participate as long as their participation would not violate any
laws in their home countries.
At DRI's discretion, shares of DRI common stock purchased under
Dominion Direct would be either newly issued or purchased on the open
market by an independent agent selected by the Dominion Direct
administrator. The decision whether shares are to be purchased directly
from DRI or in the open market would be based on DRI's need for common
equity and other factors considered relevant by DRI. Any determination
by DRI to change the manner in which shares would be purchased for
Dominion Direct, and the implementation of any change, would comply
with applicable law and Commission interpretations then in effect.
Net proceeds from the sale of newly issued shares of DRI common
stock would be added to the general corporate funds of DRI and would be
used to meet its capital requirements and the capital requirements of
its subsidiaries. DRI would not receive any proceeds from shares
acquired in the open market.
(2) Incentive Compensation Plans
DRI currently maintains the DRI Incentive Compensation Plan (the
``DRI Incentive Compensation Plan'') in which employees of DRI's
subsidiaries and employees and certain outside directors of DRI
participate.
[[Page 68993]]
The DRI Incentive Compensation Plan is administered by a committee
comprised of DRI outside directors. All employees of DRI and its
subsidiaries are eligible to receive incentive awards under the DRI
Incentive Compensation Plan if the committee determines that the
employee has contributed, or can be expected to contribute,
significantly to his or her employer. The committee has the power and
complete discretion to select eligible employees and outside directors
to receive awards, the type of awards granted and the terms and
conditions of the awards.
As of June 30, 2004 there were 7,953,009 shares available under the
DRI Incentive Compensation Plan and the annual limit of awards to any
one individual is 1.5 million shares.
The following types of awards may be granted under the DRI
Incentive Compensation Plan: Performance grants; restricted stock;
goal-based stock; stock options; and stock appreciation rights.
Performance Grants. Performance grants are subject to the
achievement of pre-established performance goals comprised of objective
and quantifiable performance criteria. The committee sets target and
maximum amounts payable under each performance grant. The employee
receives appropriate payments at the end of the performance period if
the performance goals (and other terms and conditions of the award)
were met. The actual payments under a performance grant can be cash,
DRI common stock, or both. Performance grants are administered to
comply with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the ``Code'').
The aggregate maximum cash amount payable pursuant to a performance
grant to any employee in any year cannot exceed 0.5% of DRI's
consolidated operating income, before taxes and interest. The committee
must make performance grants prior to the 90th day of the period for
which the performance grants relates or the completion of 25% of the
period.
Restricted Stock Awards. Restricted stock awards consist of shares
of DRI common stock which are subject to certain terms and conditions.
Recipients are not able to sell or transfer restricted stock until the
restrictions stated in the award agreement have been met. The
restricted stock is forfeited if the applicable terms and conditions
are not met.
Goal-Based Stock Awards. Goal-based stock is DRI common stock
subject to performance goals. The stock is not issued to the employee
until the committee certifies that the performance goals (and any other
terms and conditions) have been met.
Stock Options and Stock Appreciation Rights. Stock options may be
granted to eligible employees subject to terms and conditions
established by the committee. The exercise price of an option must be
at least 100% of the fair market value of DRI common stock on the date
that the option is granted. Options may be either incentive stock
options or nonqualified stock options. Stock appreciation rights may be
granted on all or any part of an option, and are subject to the terms
and conditions established by the committee. Stock appreciation rights
also may be granted separately. A stock appreciation right entitles the
employee to receive an amount equal to the excess of (i) the fair
market value on the date of exercise of stock covered by the
surrendered stock appreciation right over (ii) the exercise price of
the stock on the date the stock appreciation right was granted. The
award can be paid in stock or cash, or both.
When granting incentive awards, the committee can allow the awards
to become fully exercisable upon a change in control. Employees cannot
sell, transfer or pledge their interest in performance grants and goal-
based stock awards. Employees cannot sell, transfer or pledge shares of
restricted stock until the stock becomes unrestricted. Options and
stock appreciation rights may be transferred by a participant according
to the terms and conditions for the awards.
The DRI board of directors can amend or terminate the DRI Incentive
Compensation Plan; however, shareholder approval is required of
amendments that would (i) increase the number of shares of DRI common
stock that is reserved and available for issuance under the DRI
Incentive Compensation Plan; (ii) materially change or impact which
employees are eligible to participate in the DRI Incentive Compensation
Plan; or (iii) materially change the benefits that eligible employees
may receive under the DRI Incentive Compensation Plan. Notwithstanding
the foregoing, the DRI board can amend the DRI Incentive Compensation
Plan as necessary and without shareholder approval to ensure that the
DRI Incentive Compensation Plan continues to comply with Section 162(m)
of the Code and Rule 16b-3. The DRI Incentive Compensation Plan would
terminate at the close of business on December 31, 2006 unless the DRI
board of directors terminates the DRI Incentive Compensation Plan prior
to that date.
(3) Other Benefit Plans
In addition to the plans described above, DRI has plans that
provide for the issuance of shares of common stock. For example, DRI
maintains the DRI Hourly Employee Savings Plan, the Dominon Salaried
Savings Plan and certain CNG employee savings plans (the ``DRI 401(k)
Plans''). The DRI 401(k) Plans allow participating employees to elect
to defer a portion of their compensation and have the funds invested in
designated investment media selected by participants, including a
common stock fund of the sponsoring company.
G. Payment of Dividends Out of Capital or Unearned Surplus by
Nonutility Subsidiaries
DRI and CNG seek authority, on behalf of every direct or indirect
Nonutility Subsidiary, that the companies be permitted to pay dividends
with respect to the securities of the companies and/or acquire, retire
or redeem any securities of the companies that are held by an
associated company or affiliate, from time to time, through the
Authorization Period, out of capital or unearned surplus, to the extent
permitted under applicable corporate law, provided that no Nonutility
Subsidiary would declare or pay any dividend out of capital or unearned
surplus unless it: (i) Has received excess cash as a result of the sale
of its assets, (ii) has engaged in a restructuring or reorganization;
and/or (iii) is returning capital to an associate company. Further, no
Nonutility Subsidiary that derives any material part of its revenues
from the sale of goods, services or electricity to Utility Subsidiaries
would declare or pay any dividend out or capital or unearned surplus.
DRI and CNG request that the Commission reserve jurisdiction over the
payment of such dividends out of capital or unearned surplus when any
of these conditions are not met.
H. Changes in Capital Stock of Subsidiaries
The portion of an individual subsidiary's aggregate financing to be
effected through the sale of stock to DRI or other immediate parent
company during the Authorization Period pursuant to Rule 52 and/or
pursuant to an order issued in this proceeding cannot be ascertained at
this time. It may happen that the proposed sale of capital securities
may in some cases exceed the then-authorized capital stock of the
subsidiary. In addition, the subsidiary may choose to use capital stock
with no par value or receive a
[[Page 68994]]
capital contribution without issuing capital stock. Also, a wholly-
owned subsidiary may wish to engage in a reverse stock split to reduce
franchise taxes. As needed to accommodate these proposed transactions,
Applicants request authority to change the terms of any wholly-owned
subsidiary's authorized capital stock capitalization by an amount
deemed appropriate by DRI 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 a Utility Subsidiary 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
the Utility Subsidiary is incorporated and doing business. DRI states
that in the event that proxy solicitations are necessary with respect
to any change to a subsidiary's corporate structure or internal
corporate reorganizations, DRI would seek the necessary Commission
approvals, under section 6(a)(2) and 12(e) of the Act, through the
appropriate filling of a declaration.
I. Investment and Development of Nonutility Real Property
DRI, on behalf of itself and its subsidiaries, requests
authorization to lease, sell or otherwise grant third persons access to
or rights in excess or unwanted real estate and to permit the
extraction or harvesting of mineral or other resources contained on or
in that real estate.
DRI also requests authority to either designate an already existing
nonutility subsidiary or form one or more new nonutility subsidiaries
in which the real-estate activities of the DRI System would be
centralized, so that it could act as agent for DRI System companies for
these activities, manage the real estate portfolio of DRI and its
associate companies, market excess or unwanted real estate and
facilitate the development of nonutility property on or in DRI System
real estate. The net proceeds realized from any sale or from
development of nonutility property would be credited to the company
that owns the subject asset. Services performed for associate companies
would be provided at cost in compliance with Rules 90 and 91. No DRI
company would acquire any real estate in connection with its activities
pursuant to this authorization.
J. Tax Allocation Agreement
DRI also requests approval to continue to operate under an
agreement dated May 13, 2004 for the allocation of consolidated income
tax among DRI and its subsidiaries (``Tax Allocation Agreement''). DRI
requires the continuation of the Tax Allocation Agreement for the
retention by DRI of certain payments for tax losses incurred from time
to time, rather than the allocation of those losses to subsidiaries
without payment as would otherwise be required by Rule 45(c)(5). As a
result of its financing, DRI would be creating tax credits that are
non-recourse to the subsidiaries. DRI states that the Tax Allocation
Agreement is the same as approved by the Tax Allocation Order.
K. EWG/FUCO Investment Limit
Under a prior order,\7\ the Commission authorized DRI to make
investments in EWGs and FUCOs up to an aggregate investment (as defined
in Rule 53) of 100% of consolidated retained earnings plus $4.5
billion. DRI now requests that the Commission authorize DRI to make
investments in EWGs and FUCOs up to an aggregate investment of 100% of
consolidated retained earnings plus $8 billion.
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\7\ See HCAR No. 27485 (December 28, 2001).
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Southwestern Electric Power Company et al. (70-10252)
Southwestern Electric Power Company, a Delaware corporation
(``SWEPCO''), an indirect public utility subsidiary of American
Electric Power Company, Inc. (``AEP''), a registered public utility
holding company under the Public Utility Holding Company Act of 1935,
as amended (``Act''), and Dolet Hills Lignite Company, LLC, a Delaware
limited liability company (``Dolet Hills''), a wholly-owned nonutility
subsidiary of SWEPCO, all at 1 Riverside Plaza, Columbus, Ohio 43215,
have filed a declaration under section 12(c) of the Act and rules 46
and 54 under the Act.
By order dated July 1, 2004, HCAR No. 27872, the Commission granted
the direct and indirect nonutility subsidiaries of AEP authority to pay
dividends out of capital or unearned surplus to the fullest extent of
the law, providing however that without further approval of the
Commission, no nonutility subsidiary would declare or pay any dividend
out of capital or unearned surplus if the nonutility subsidiary derived
any material part of its revenues from the sale of goods, services or
electricity to any public utility subsidiary of its parent.
Dolet Hills is a mining company which provides lignite to the Dolet
Hills Power Plant (the ``Plant''), a 650-megawatt lignite fired
generating plant located in north Louisiana. The Plant is jointly owned
by SWEPCO, the nonaffiliate plant operator, Cleco Power LLC, and two
other nonaffiliated minority owners. Because Dolet Hillsderives a
material part of its revenue from the sale of lignite to its parent
SWEPCO, the Commission's approval is required for Dolet Hills to pay
dividends out of capital to SWEPCO.
Dolet Hills proposes that its Board of Managers declare and pay
dividends out of its capital surplus over time in an amount up to the
full amount of $4,712,000, when cash is available. As of June 30, 2004,
Dolet Hills has paid in capital of $4,712,000.
The Delaware Limited Liability Company Act (Title 6, Chapter 18,
Section 607) provides that: ``A limited liability company shall not
make a distribution to a member to the extent that at the time of the
distribution, after giving effect to the distribution, all liabilities
of the limited liability company, other than liabilities to members on
account of their limited liability company interests and liabilities
for which the recourse of creditors is limited to specified property of
the limited liability company, exceed the fair value of the assets of
the limited liability company, except that the fair value of property
that is subject to a liability for which the recourse of creditors is
limited shall be included in the assets of the limited liability
company only to the extent that the fair value of that property exceeds
that liability.''
SWEPCO is entitled to earn a specified rate of return on its
capital contributions to Dolet Hills. [Louisiana Order No. U-21453, U-
20925(SC), and U-2092(SC)(Subdocket G)] This return is factored in to
the cost of the lignite sold to the Plant. If the Commission authorizes
Dolet Hills to pay the requested dividends out of capital, SWEPCO's
total capital investment in Dolet Hills will be reduced by the amount
of those dividends. The effect of this reduction in SWEPCO's capital
investment will be to reduce the cost of the lignite provided to the
Plant.
Dolet Hills is therefore seeking authorization from the Commission
to pay SWEPCO dividends in an amount up to the full amount of its
capital surplus on its common stock to the full extent of the Delaware
Limited Liability Company Act.
[[Page 68995]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3335 Filed 11-24-04; 8:45 am]
BILLING CODE 8010-01-P