SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27644: 70-9477)
Dominion Resources, Inc.
Supplemental Order Authorizing Extension of Time for Divestiture
January 28, 2003
Dominion Resources, Inc., ("DRI"), Richmond, VA, a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), has filed a post-effective amendment to its application-declaration ("Application") in this file under sections 6(a), 7, 9(a), 10, 12(d), 13(b), 32 and 33 of the Act and rules 53, 54, 87, 88, 90, and 91 under the Act. The Commission issued a notice of the filing of that Application on January 6, 2003 (HCAR Release No. 27635).
DRI requests authorization to continue its process of divesting the holdings of its subsidiary Dominion Capital, Inc., ("DCI") beyond the third anniversary of the effective date of the merger (January 28, 2000) authorized in the Commission's order of December 15, 1999 (HCAR No. 27113) ("Merger Order") authorizing DRI's proposed acquisition of Consolidated Natural Gas Company ("Merger").
DCI and its subsidiaries are in the financial services industry, including commercial lending, merchant banking, and residential lending. Its principal subsidiaries are First Source Financial, LLP, First Dominion Capital, LLP, and Rincon Securities, Inc. Under the terms of the Merger Order, DCI and each of its subsidiaries were to have been
divested within three years of the Merger.1 DRI states that in accordance with the Merger Order DRI has diligently undertaken to divest the businesses and assets of DCI. DRI states that it has succeeded in reducing the assets of DCI by a factor of two thirds, from a balance as of December 31, 1999, of $3,576,460,000 to a balance as of September 30, 2002, of $1,175,164,000. DRI states that its efforts to divest itself of DCI have been frustrated by the economic recession, low interest rates, and the diverse assets held by DCI. DRI therefore requests that the Commission issue an order authorizing an extension of the time to accomplish divestiture until January 28, 2006.
The record indicates that DCI is currently pursuing and DRI states that it proposes to continue an expeditious and prudent program of divesting the assets and lines of business of DCI and to apply the resulting proceeds to reduce the debt portion of DRI's consolidated capitalization.
DRI states that it meets all the conditions of rule 53(a) under the Act 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"), as defined in section 32 of the Act, and foreign utility companies ("FUCOs"), as defined in section 33 of the Act, was approximately $2,967.4 million, of which $2,959.1 million was in EWGs. This amount exceeds the 50% "safe harbor" limitation set forth in the rule. DRI's average consolidated retained earnings as of September 30, 2002, were $1,102.3 million. However, DRI has, in accordance with a
Commission order dated December 28, 2001 (HCAR No. 27485) authority to make investments in EWGs and FUCOs up to its consolidated retained earnings plus $4.5 billion. As of September 30, 2002, the consolidated capitalization ratios of Dominion, with consolidated debt including all short-term debt and non-recourse debt of its EWGs and FUCOs, were as follows: common shareholders' equity 34.8%; preferred stock 5.9%; long-term and short-term debt 59.3%. DRI states that its consolidated retained earnings increased from $1,199 million as of March 31, 2000, to $1,420 million as of September 30, 2002, and grew from $922 million as of December 31, 2002 to $1,420 million as of September 30, 2002. DRI states that its EWGs and FUCOs have made a positive contribution to earnings by contributing approximately $1,461.8 million in revenues from March 31, 2000 through September 30, 2002, and net income of $362.3 million for the same period.
Fees, commissions and expenses will depend upon the ultimate terms of each disposition. The fees associated with the Application are legal fees in the amount of $20,000. No regulatory approvals are required other than that of this Commission.
Due notice of the filing of the Application has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of 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 the Application, as amended, be, and hereby is, granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
IT IS FURTHER ORDERED that DRI conduct an annual evaluation as of June 30th of each year of the feasibility of expediting the divestiture of DCI's remaining assets and lines of business in light of changing business and financial market conditions (including the relative feasibility of selling assets at that time or subsequently in order to recover fair value), and submit to the Commission a report of that evaluation within ten days of its completion.
IT IS FURTHER ORDERED that quarterly reports will be filed 60 days after each quarter by type of DCI investment, value as of the beginning of each quarter, divestitures or sales during the quarter, and end-of-quarter value.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
1 DRI was allowed to retain the owner-lessor interest held by DCI in a hydroelectric facility in Vidalia, Louisiana that is leased to Catalyst Old River Hydroelectric Limited Partnership.