(Release No. 35-27634; 70-9967)
Dominion Resources Inc., et al.
Order Authorizing Money Pool
January 3, 2003
Dominion Resources, Inc. ("DRI"), a registered holding company; Consolidated Natural Gas Company ("CNG"), a registered holding company subsidiary of DRI, both located in Richmond, VA (collectively, "Registered Holding Companies"), and the following public utility subsidiary companies of DRI: Hope Gas, Inc., Clarksburg, WV; The Peoples Natural Gas Company, Pittsburgh, PA; and The East Ohio Gas Company, Cleveland, OH (collectively, "Account A Participants");1 and the following nonutility subsidiary companies of DRI: Dominion Energy, Inc.; Elwood Energy LLC; Dominion Reserves, Inc.; Dominion Ohio ES, Inc.; Dominion Resources Services, Inc. ("DRI Services") Dominion Alliance Holding, Inc.; DT Services, Inc.; Dominion Metering Services, Inc.; CNG International Corporation; Dominion Greenbrier, Inc.; Dominion Natural Gas Storage, Inc. all located in Richmond, VA; Elwood II Holdings, LLC; Elwood III Holdings, LLC, both located in Elwood, IL; Kincaid Generation, LLC, Kincaid, IL; CNG Power Services Corporation; Dominion Products and Services, Inc.; Dominion Retail, Inc., all located in Pittsburgh, PA; Dominion Exploration & Production, Inc.; CNG Pipeline Company; CNG Main Pass Gas Gathering Corporation; CNG Oil Gathering Corporation; Dominion Oklahoma Texas Exploration & Production, Inc., all located in Houston, TX; Dominion Transmission, Inc.; Dominion Iroquois, Inc.; Dominion Field Services, Inc., all located in Clarksburg, WV (collectively, "Account B Participants"); (Account A Participants and Account B Participants collectively, "Subsidiaries") have filed an application-declaration under sections 6(a), 7, 9, 10, 12(b), and 12(f) of the Public Utility Holding Company Act of 1935, as amended, and rules 43, 45, and 54 under the Act ("Application") with the Securities and Exchange Commission ("Commission"). The Commission issued a notice of the proposed transactions on May 10, 2002 (HCAR No. 27528).
I. Prior Authority
By orders dated June 12 and July 16, 1986 (HCAR Nos. 24128 and 24150), as amended by orders dated May 27, 1987 (HCAR No. 24399), February 14, 1990 (HCAR No. 25040), May 13, 1991 (HCAR No. 25311), April 8, 1994 (HCAR No. 26021), and July 18, 1997 (HCAR No. 26742), the Commission permitted the application-declaration of CNG and its subsidiaries to become effective, thereby authorizing the establishment of the CNG money pool ("CNG Money Pool"). By order dated December 15, 1999 (HCAR No. 27112), CNG was authorized to maintain the CNG Money Pool through January 28, 2003. Consolidated Natural Gas Service Company, Inc. ("CNG Services") until January 1, 2001 both administered and participated in the CNG Money Pool. The CNG Money Pool, subsequent to the merger of CNG Services into DRI Services on January 1, 2001, is now administered by DRI Services. After satisfaction of the borrowing needs of the CNG subsidiary companies authorized to participate in the CNG Money Pool, DRI Services, as agent for the pool, invests excess funds and allocates the earnings among those participant companies providing such excess funds.
DRI, CNG, and the Subsidiaries seek authority to form and operate through December 31,2005 a DRI money pool ("DRI Money Pool").2 The Subsidiaries consist of DRI subsidiaries, which are not subsidiaries of CNG, and DRI subsidiaries which are subsidiaries of CNG which are currently participants in the CNG Money Pool.3 The Registered Holding Companies will not borrow from the DRI Money Pool, but will be the ultimate providers of funds to the DRI Money Pool as needed. Additional subsidiaries of DRI may become participants in the DRI Money Pool as either Account A Participants or Account B Participants.4
The purpose of the DRI Money Pool will be to provide the Subsidiaries with internal and external funds and to invest surplus funds of DRI and the Subsidiaries in short-term money market instruments. The DRI Money Pool will offer the Subsidiaries 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 Subsidiaries, and decreased reliance on external funding sources.
Participants will invest their surplus funds in the DRI Money Pool, and the Subsidiaries will borrow funds from the DRI Money Pool, provided that, (A) 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. Money Pool borrowings by the Subsidiaries are generally exempt transactions under rule 52 promulgated under the Act.5 DRI and/or CNG will obtain the funds to invest in the DRI Money Pool: (A) from internally generated funds; (B) through the authorizations the Commission granted by order dated December 15, 1999 (HCAR No. 27112) and May 24, 2001 (HCAR No. 27406); and/or (C) any other current financing authorization or exemptions that may be available to DRI or CNG. DRI Services will administer the DRI Money Pool on an "at cost" basis. In providing funds to DRI Money Pool participants, DRI and CNG will give preference to the needs of the public utility subsidiary company participants. DRI will report any default under any external loan agreement within ten (10) days of the occurrence of a default within a filing with the Commission under this filing, S.E.C. File No. 70-9967. The filing will describe how the default under the loan agreement will affect representation of a preference to the needs of the public utility subsidiary company participants.
Funds in the DRI Money Pool will be held in two separate accounts: Account A for public utility subsidiary company participants and Account B for the participants, which are not public utility subsidiary company participants.6 Account A funds will not be loaned to non-public utility subsidiary company participants (Account B Participants). Account B funds may be loaned to public utility subsidiary company participants (Account A Participants) provided that the interest charged is not greater than the cost of borrowing such funds to DRI or CNG as applicable.
For each of Account A Participants and Account B Participants, respectively, DRI Services will maintain a record reflecting such individual participant's daily balance. The record will 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 owned, if any.
The daily interest rate on loans from the DRI Money Pool and on all deposits of cash in the money pool will 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 will 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 will be the rate on the prior business day.
Each participant receiving a loan through the DRI Money Pool will be required to repay the principal amount of the loan, together with all interest accrued thereon, on demand. Interest on outstanding loans would be paid to the DRI Money Pool monthly. All loans made through the DRI Money Pool can be repaid by the borrower without premium or penalty.
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: (A) obligations issued or guaranteed by the U.S. government and/or its agencies and instrumentalities; (B) commercial paper; (C) certificates of deposits; (D) bankers' acceptances; (E) repurchase agreements; (F) tax exempt notes; and (G) other investments that are permitted by section 9(c)(3) of the Act and rule 40. 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.
All terms and conditions governing the operations of, and the participation by DRI, CNG and the Subsidiaries in, the DRI Money Pool will be contained in a written agreement.7
DRI states that it meets all of the conditions of rule 53(a), except for rule 53(a)(1), and none of the adverse conditions specified in Rule 53(b) exist. At September 30, 2002, DRI's aggregate investment, as defined in rule 53(a)(1), in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") was approximately $2,967.4 million (of which $2,959.1 million was in EWGs). This amount exceeds the 50% "safe harbor" limitation contained in the rule. DRI's "average consolidated retained earnings" as of September 30, 2002 were $ 1,102.3 million. However, DRI has by Commission order dated December 28, 2001 (HCAR No.27485) ("Rule 53 (c) Order"), authority to make investments in EWGs and FUCOs up to its "average consolidated retained earnings" plus $4.5 billion.
Since the date of the Rule 53(c) Order, the capitalization and level of earnings attributable to DRI's investment in EWGs and FUCOs has not had an adverse impact on DRI's financial integrity. DRI's EWG and FUCO contributions to revenues and net earnings from the date of the Rule 53(c) Order to September 30, 2002 were $555.1 million and $78.7 million, respectively. As of the date of the Rule 53 (c) Order, DRI's consolidated capitalization consists of 33.4% common equity, 6.4% preferred securities, 60.2% debt (including current maturities of short- and long-term debt and preferred stock). DRI maintains that the proposed transaction will not have any material impact on capitalization. As of September 30, 2002, the consolidated capitalization ratios for DRI with consolidated debt including all short-term debt and non-recourse debt of its EWGs and FUCOs were as follows: common shareholder's equity, 34.8%; preferred stock, 5.9%, long-term and short-term debt, 59.3%.
In addition, DRI is in compliance and will continue to comply with the other provisions of rule 53(a) and (b).
Fees and expenses expected to be incurred, directly or indirectly, in connection with seeking the authorizations are estimated to be $30,000. The Pennsylvania Public Utility Commission in the case of The Peoples Natural Gas Company, and The West Virginia Public Service Commission in the case of Hope Gas, Inc., each has approved those respective companies' participation in the DRI Money Pool. No other state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.
Due notice of the filing of the Application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. On the basis of the facts in the record, it is found that, except as to those matters over which jurisdiction has been reserved, the applicable standards of the Act and rules under the Act are satisfied, and that no adverse findings are necessary.
IT IS ORDERED under the applicable provisions of the Act and the rules under the Act that, except as to those matters over which jurisdiction has been reserved, the Application is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act to be filed on a calendar quarterly basis as part of the quarterly rule 24 filings in this file and together with S.E.C. File Nos. 70-9517, 70-9555, and 70-9679, and will include the following information with respect to DRI Money Pool transactions:
IT IS FURTHER ORDERED, that jurisdiction be reserved over the addition of subsidiaries to the DRI Money Pool.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
1 The Account A Participants are the public utility subsidiary companies of DRI as defined in section 2(a)(5) of the Act, other than Virginia Electric Power Company.
2 See The National Grid Group plc, HCAR No. 27154 (March 15, 2000); National Fuel Gas Company, HCAR No. 26847 (March 20, 1998); Conectiv, Inc., HCAR No. 26833 (February 26, 1998); and NiSource, Inc. et al., HCAR No. 27479 (December 19, 2001).
3 The CNG Money Pool will be terminated after issuance of an order approving the DRI Money Pool by the Commission.
4 DRI requests that the Commission reserve jurisdiction over the addition of any new company.
5 Transactions by The East Ohio Gas Company with the DRI Money Pool would not be covered by rule 52 under the Act, since the Public Utilities Commission of Ohio has no jurisdiction over financing transactions involving borrowings, which can be repaid in less than a year.
6 A list of the participants under Account A and Account B is filed in S.E.C. File No. 70-9967 as Exhibit A-1.
7 The DRI Money Pool Agreement is filed in S.E.C. File No. 70-9967, Exhibit A-2.