SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27814; 70-10144)
Dominion Resources Inc., et al.
Order Approving Issuance and Sale of Short Term Notes and Commercial Paper; Reservation of Jurisdiction.
March 15, 2004
Dominion Resources, Inc. ("DRI"), a registered holding company, and Consolidated Natural Gas Company ("CNG"), a registered holding company and direct subsidiary of DRI ("Applicants"), both in Richmond, Virginia, have filed an declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under sections 6(a) and 7 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 53 and 54 under the Act. A notice of the Declaration was issued by the Commission on November 25, 2003 (HCAR No. 27768).
I. Request to increase short term debt
DRI and CNG, each requests authority to issue additional short term debt through December 31, 2004 ("Authorization Period"). DRI and CNG request authorization to issue short term debt including, but not limited to, the issuance of commercial paper, in an aggregate amount of up to $4.0 billion principal amount outstanding at any one time, $2.0 billion for DRI and $2.0 billion for CNG. The additional short term debt will enable DRI to support its money pool1 and other short term financing needs, which vary significantly during a calendar period. This additional $2.0 billion short term debt authorization will enable CNG to support its short term financing needs which vary significantly during a calendar period.
Short-term borrowings from banks or other financial institutions will be evidenced by (A) "transactional" promissory notes to be dated the date of such borrowings and to mature not more than one year after the date thereof or (B) "grid" promissory notes evidencing all outstanding borrowings from the respective lender, to be dated as of the date of the first borrowing evidenced thereby, with each such borrowing maturing not more than one year thereafter. DRI and CNG state that, at any given time, some or all of its outstanding short term notes will be issuable in connection with the establishment of back-up credit facilities to support DRI's and CNG's commercial paper program, but that such credit facilities will not be drawn upon and no borrowings will occur, except in certain limited circumstances, at which time obligations under the related commercial paper will 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 and CNG's financing authorization unless and until an actual borrowing occurs under the related credit facility. Additionally, with respect to any "grid" notes issued by Applicants, only the amount actually outstanding at any given time shall be considered a borrowing. DRI and CNG, each propose to issue and sell the commercial paper at market rates with varying maturities not to exceed 270 days.
II. Parameters for Financing Authorization
The following general terms will be applicable:
The following general terms will be applicable:
Common Equity. Each Applicant will maintain common equity of at least 30% of its consolidated capitalization.
Investment Grade Ratings. Except for securities issued for the purpose of funding intrasystem financings, an Applicant will not issue any securities pursuant to this Application unless upon original issuance thereof: (i) such securities, if rated, are rated at least investment grade, and (ii) all securities of the issuer 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 defined in rule 15c3-1(c) (2) (vi) (F) under the Securities Exchange Act of 1934.
Effective Cost of Money on Financings. The effective cost of capital for 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 on such short-term debt securities exceed 700 basis points over the comparable term London Interbank Offered Rate.
The underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale, or distribution of securities will not exceed 700 basis points of the principal or face amount of the securities being issued or gross proceeds of the financing.
The Applicants request that the Commission reserve jurisdiction over the issuance of securities at any time that the conditions set forth above are not satisfied.
DRI currently meets all of the conditions of rule 53(a), except for clause (1). At September 30, 2003, DRI's "aggregate investment", as defined in rule 53(a)(1), in EWG's and FUCO's, was approximately $3,843.0 million (of which approximately $3,834.7 million was in EWGs). With respect to rule 53(a)(1), DRI was authorized to finance its investment in EWGs and FUCOs in an amount not to exceed 100% of its "average consolidated retained earnings" plus $4.5 billion by Commission order dated December 28, 2001 (HCAR No. 27485) ("Rule 53 (c) Order"). At September 30, 2003, DRI's "average consolidated retained earnings" were $1,692.4 million and, therefore, DRI's investment in EWG's and FUCO's continues to be within the authorized limit. In addition, DRI and its subsidiaries are in compliance and will continue to comply with the other provisions of rule 53(a) and (b).
Applicants state the proposed transactions, considered in conjunction with the effect of the capitalization and earnings of DRI's EWGs and FUCOs, will not have a material adverse effect on the financial integrity of the DRI System, or an adverse impact on DRI's public utility subsidiaries, their customers, or the ability of state commissions to protect such public utility customers. The Rule 53 (c) Order was predicated, in part, upon an assessment of DRI's overall financial condition which took into account, among other factors, DRI's consolidated capitalization ratio and its retained earnings, both of which have improved since the date of the Rule 53(c) Order. In the aggregate, DRI's EWG and FUCO investments have been profitable for the period September 30, 2000 through September 30, 2003. As of September 30, 2001, the most recent period for which financial statement information was evaluated in the Rule 53 (c) Order, DRI's consolidated capitalization consisted of 33.4% common equity, 6.4% preferred stock and 60.2% debt (including long and short-term debt and preferred stock). As of September 30, 2003, the consolidated capitalization ratios of DRI, with consolidated debt including all short-term debt and non-recourse debt of its EWGs and FUCOs, were as follows: common shareholders equity 39%; preferred stock 1%; and long term and short term debt 60%.
DRI's consolidated retained earnings increased from $1,199 million as of March 31, 2000 to $1,437 million as of September 30, 2003 and grew from $922 million as of December 31, 2001 to $1,437 million as of September 30, 2003. DRI's EWGs and FUCOs have made a positive contribution to earnings by contributing approximately $2,400.8 million in revenues from March 31, 2000 through September 30, 2003, and net income of $575.6 million for the same period. DRI's EWG and FUCO contributions to revenues and net earnings from December 31, 2001 to September 30, 2003 were $1,494.2 million and $291.8 million, respectively. Accordingly, since the date of the Rule 53(c) Order, the capitalization and earnings attributable to DRI's investments in EWGs and FUCOs has not had an adverse impact on DRI's financial integrity.
Applicants state the fees, commissions, and expenses associated with the proposed transactions will not exceed $25,000. It is further stated that no state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.
Due notice of the filing of the Declaration 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. 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 rules under the Act, that the Declaration is permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
IT IS FURTHER ORDERED, that jurisdiction be, and it hereby is, reserved over the issuance of any such securities that at any time do not satisfy the conditions set forth in the financing parameters.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Jill M. Peterson
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