	Home \| Previous Page

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27927; 70-10246)

Dominion Resources, Inc., et al.

Order Authorizing Long-Term and Short-Term Financing Transactions, Participation in a Money Pool, Issuance of Guarantees and other Transactions; and Reserving

December 22, 2004

Dominion Resources, Inc. ("DRI"), a registered holding company under the Public Utility Holding Company Act of l935, as amended ("Act"); Consolidated Natural Gas Company ("CNG"), a direct subsidiary of DRI and also a registered holding company, both of Richmond VA; their public utility subsidiaries: Virginia Electric and Power Company ("Virginia Power"), Richmond VA, The Peoples Natural Gas Company ("Peoples"), Pittsburgh, PA, The East Ohio Gas Company ("East Ohio"), Cleveland, OH, and Hope Gas, Inc. ("Hope"), Clarksburg, WV; and the nonutility subsidiaries (as defined below) (collectively, the "Applicants")¹ have filed an application-declaration, as amended ("Application") with the Securities and Exchange Commission ("Commission") 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. The Commission issued a notice of the Application on November 19, 2004 (HCAR No. 27912).

DRI's utility subsidiaries are: 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

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 will replace and supersede all of Applicants current authorization under the prior orders. In particular, Applicants request:

for DRI to increase its capitalization in the aggregate amount of $4.3 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 sales), preferred securities, equity-linked securities, and long-term debt, whether directly or through one or more financing conduits, and for the Commission to reserve jurisdiction over an additional $3.7 billion of authorization for an increase in its capitalization above that requested and described above in this subparagraph (1);
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 $8.15 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 and for the Commission to reserve jurisdiction over an additional $4.35 billion of authorization above that requested and described above in this subparagraph (2). This short-term debt authorization will 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;
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
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);
for DRI to continue to operate the DRI Money Pool as described below;
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;
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 will enable CNG to support its short-term financing needs which vary significantly during a calendar year and are not permanent capital increases;
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.
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;
for DRI and CNG to enter into transactions to manage interest rate risk with regard to the issuance of securities as described below;
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;
for the Utility Subsidiaries to issue short-term debt securities (including commercial paper) not to exceed the following amounts outstanding at any one time:

Utility Subsidiary	Short-Term Debt Amount
Virginia Power	$2.25 billion
Peoples	$100 million
East Ohio	$100 million
Hope	$100 million

for the Utility Subsidiaries to enter into transactions to manage interest rate risk with regard to the issuance of securities as described below.
for the Nonutility Subsidiaries to pay dividends out of capital or unearned surplus;
for DRI and CNG to change the capital stock of subsidiaries;
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;
for DRI to manage and develop DRI system nonutility real estate as described below;
for DRI and its subsidiaries to continue to operate under the terms of the Tax Allocation Agreement;
for DRI to use the proceeds from authorized financings 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 $5 billion and for the Commission to reserve jurisdiction over an addition $3 billion of investments in EWGs and FUCOs; and
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 will be applicable as appropriate to the financing transactions requested to be authorized in the Application:

Common Equity Ratio. DRI and CNG state that at all times during the Authorization Period, DRI, CNG and each of the Utility Subsidiaries will 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, provided that DRI and CNG will in any event be authorized to issue common stock to the extent otherwise authorized in this Application. The term "consolidated capitalization" is defined to include, where applicable, all common stock equity (comprised of common stock, additional paid in capital, retained earnings, accumulated other comprehensive income or loss, and/or treasury stock), minority interests, preferred stock, preferred securities, equity linked securities, long-term debt, short-term debt and current maturities.
Investment Grade Ratings. DRI, CNG and the Utility Subsidiaries will 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 ("Investment Grade Condition"). 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, as amended ('Securities Exchange Act"). DRI, CNG and the Utility Subsidiaries further request that the Commission reserve jurisdiction over the issuance of any of these securities at any time that the Investment Grade Condition is not satisfied.
Effective Cost of Money on Financings. The effective cost of capital for long-term debt, short-term debt, preferred securities and equity linked securities 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 (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 300 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.
Maturity. The final maturity of any long-term debt securities will not exceed 50 years. Preferred securities and equity linked securities will be redeemed no later than 50 years after issuance, except for preferred securities or equity linked securities that are perpetual in duration.
Issuance Expenses. The underwriting fees and commissions paid in connection with the issue, sale or distribution of securities under this Application will not exceed the competitive market rates which are consistent with similar securities of comparable credit quality and maturities issued by other companies; provided, that in no event will such fees and commissions exceed seven percent (7%) of the principal or face amount of the securities being issued or gross proceeds of the financing.
Use of Proceeds. The proceeds from the sale of securities issued by Applicants under this Application will 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 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 will be based on several factors, including the current market price of the common stock and competitive capital market conditions. These transactions could include 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 will 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 will 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) will have a specified par or stated value or liquidation value per security, (b) will 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 will 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, will 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 $8.15 billion with respect to DRI and $9.25 billion with respect to CNG. The borrowings will 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 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 will be issuable in connection with the establishment of back-up credit facilities to support its commercial paper program but that these credit facilities will not be drawn upon and no borrowings will occur under these facilities, 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 or CNG's, as applicable, financing authorization unless and until an actual borrowing occurs under the related credit facility. Any other result will "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 will 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 will be payable; however, the purchasing dealer will 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 will 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 will 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) will 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 will 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, will 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 will 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 will 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 will 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 will be lent, dividended or otherwise transferred to the applicable Applicant or an entity designated by the Applicant.

DRI and CNG state that one of the primary strategic reasons behind the use of a Financing Entity will 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 and CNG further state that they will 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 will otherwise be the case.

(4) Interest Rate Risk Management

Each of DRI, CNG and the Utility Subsidiaries requests authority to manage 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 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 interest rate risk (collectively "Hedging Instruments").

Each of DRI, CNG, and the Utility Subsidiaries, as applicable, will 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"). DRI�CNG and the Utility Subsidiaries each represent that the derivative transactions will be for fixed periods and the notional principal amount will 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 will 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 hedging transactions with respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. The Anticipatory Hedges will only be entered into with Authorized Counterparties, and will 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 will 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 risk management agreement will not exceed the then current market level.

DRI and CNG and Utility Subsidiaries represent that each will 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, CNG and Utility Subsidiaries state that Hedging Instruments and Anticipatory Hedges will 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; provided, that in the event such Hedging Instruments and/or Anticipatory Hedges do not so qualify, DRI, CNG and the Utility Subsidiaries each request that the Commission reserve jurisdiction over the entering into of such Hedging Instruments or Anticipatory Hedges.

(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, will 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")⁶ 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 the 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 will 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 will 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 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, in the case of a sale of a subsidiary to a third party, the buyer may request that DRI or CNG or a subsidiary guarantee the obligations of the sold subsidiary to its lenders or other counterparties for an interim period. As another 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 will 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. DRI requests that the Commission reserve jurisdiction over the issuance of Third Party Guarantees.

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 will 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.⁷

DRI, CNG and the Participants will invest their surplus funds in the DRI Money Pool, and the Participants will 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 will 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 will 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") 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 Utility Subsidiaries that are Participants. DRI will report any default under any external loan agreement within ten (10) days of the occurrence in a filing with the Commission. The filing will describe how the default under the loan agreement will affect preceding representations of preference to the needs of the Utility Subsidiary Participants.

Funds in the DRI Money Pool will 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 will 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 will maintain a record reflecting the 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 owed, if any.

Participants state that 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 will 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 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. Funds not required by the DRI Money Pool to make loans to Participants or to repay borrowings incurred to provide funds to Participants will 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 will 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 will be required to repay the principal amount of the loan, together with all accrued interest, on demand. Interest on outstanding loans will 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 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 EWGs, FUCOs, ETCs, Rule 58 Companies (collectively, "Exempt Subsidiaries"), and other nonutility subsidiaries approved by the Commission, either in this filing or in a separate filing (collectively, "Non-Exempt Subsidiaries"), provided that Intermediate Subsidiaries may also engage in Development Activities and Administrative Activities (as described below) relating to these Exempt Subsidiaries and Non-Exempt Subsidiaries. To the extent such 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 Development Activities and Administrative Activities described below. 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 will 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 filing.

In connection with existing and future non-utility businesses, DRI and CNG will engage directly or through Intermediate Subsidiaries in preliminary development activities ("Development Activities") and administrative and management activities ("Administrative Activities") associated with such investments. Development Activities will be limited to: due diligence and design review; market studies; preliminary engineering; site inspection; preparation of bid proposals, including, in connection therewith, 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 such other preliminary activities as may be required in connection with the purchase, acquisition or construction of facilities or the securities of other companies or new businesses. Administrative Activities will include ongoing personnel, accounting, engineering, legal, financial and other support activities necessary to manage Development Activities and investments in Exempt Subsidiaries and Non-Exempt Subsidiaries.

An Intermediate Subsidiary may be organized, among other things: (i) to facilitate the making of bids or proposals to develop or acquire an interest in any Exempt Subsidiary or Non-Exempt Subsidiary; (ii) after the award of such a bid proposal, to facilitate closing on the purchase or financing of an acquired company; (iii) at any time subsequent to the consummation of an acquisition of an interest in any such company to, among other things, effect an adjustment in the respective ownership interests in such business held by DRI or CNG and non-affiliated investors; (iv) to facilitate the sale of ownership interests in one or more acquired Exempt Subsidiaries or Non-Exempt Subsidiaries; (v) to comply with applicable laws of foreign jurisdictions limiting or otherwise relating to the ownership of domestic companies by foreign nationals; (vi) as a part of tax planning in order to limit DRI's or CNG's exposure to taxes; (vii) to further insulate DRI or CNG and the Utility Subsidiaries from operational or other business risks that may be associated with investments in Exempt Subsidiaries or Non-Exempt Subsidiaries; or (viii) for other lawful business purposes.

Investments in Intermediate Subsidiaries may take the form of any combination of the following: (i) purchases of capital shares, partnership interests, member interests in limited liability companies, trust certificates or other forms of equity interests; (ii) capital contributions; (iii) open account advances with or without interest; (iv) loans; (v) guarantees issued, provided or arranged in respect of securities or other obligations of any Intermediate Subsidiary. Funds for any direct or indirect investment in any Intermediate Subsidiary will be derived from: (i) financings authorized in this proceeding; (ii) any appropriate future debt or equity securities issuance authorization obtained by DRI or CNG from the Commission; (iii) other available cash resources, including proceeds of securities sales by Exempt Subsidiaries or Non-Exempt Subsidiaries under Rule 52. To the extent that DRI or CNG provide funds or Guarantees 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, as applicable, the amount of such funds or Guarantees will be included in DRI's "aggregate investment" in the Exempt Subsidiaries, as calculated in accordance with rule 53 or rule 58 of the Act, and DRI's "aggregate investment" in Non-Exempt Subsidiaries, provided the investment has been approved by the Commission.

To the extent these transactions are not otherwise exempt under the Act or rules under the Act, DRI and CNG request authorization to consolidate or otherwise reorganize all or any part of its direct and indirect ownership interests in existing of future Exempt Subsidiaries and Non-Exempt Subsidiaries and the activities and functions related to these investments. To effect any consolidation or other reorganization, for example, DRI or CNG may wish to merge or contribute the equity securities of one Exempt Subsidiary or Non-Exempt Subsidiary, as applicable, to another Exempt Subsidiary or Non-Exempt Subsidiary, as applicable (including a newly formed Intermediate Subsidiary) or sell (or cause the sale of) the equity securities or all or part of the assets of one Exempt Subsidiary or Non-Exempt Subsidiary, as applicable, to another one.

DRI and CNG request authorization to expend directly or through Intermediate Subsidiaries, Exempt Subsidiaries or Non-Exempt Subsidiaries up to $300 million in the aggregate outstanding at any time during the Authorization Period on Development Activities. Amounts expended in the development of projects that result in an investment in an Exempt Subsidiary will not count against the limitation on expenditures for Development Activities, but will instead be considered as part of the "aggregate investment" in the entity under rule 53 or rule 58 of the Act, as applicable. Similarly, amounts expended in the development of projects that result in an investment in a Non-Exempt Subsidiary, which investment is approved by the Commission, will not count against the limitation on expenditures for Development Activities, but will instead be considered as part of the "aggregate investment" in the Non-Exempt Subsidiary.

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 will like to become DRI shareholders are eligible to participate. Foreign citizens are eligible to participate as long as their participation will not violate any laws in their home countries.

At DRI's discretion, shares of DRI common stock purchased under Dominion Direct will 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 will 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 will be purchased for Dominion Direct, and the implementation of any change, will comply with applicable law and Commission interpretations then in effect.

Net proceeds from the sale of newly issued shares of DRI common stock will be added to the general corporate funds of DRI and will be used to meet its capital requirements and the capital requirements of its subsidiaries. DRI will 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.

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 will (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 will 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 Dominion 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 will 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 will 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 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 will 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 will be subject to and will 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 will 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 natural 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 will 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 exploitation of natural resources on or in DRI System real estate. The net proceeds realized from any sale or from the exploitation of natural resources will be credited to the company that owns the subject asset. Services performed for associate companies will be provided at cost in compliance with Rules 90 and 91. No DRI company will 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 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 will otherwise be required by Rule 45(c)(5). As a result of its financing, DRI will be creating tax credits that are non-recourse to the subsidiaries. DRI states that the Tax Allocation Agreement is the same as the agreement dated May 13, 2004 that was approved by the Tax Allocation Order.

K. EWG/FUCO Investment Limit

Under a prior order,⁸ 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 use financing proceeds to make investments in EWGs and FUCOs up to an aggregate investment of 100% of consolidated retained earnings plus $5 billion. DRI further requests that the Commission reserve jurisdiction over an additional $3 billion of investments in EWGs and FUCOs.

Rule 53 provides that in determining whether to approve certain financing transactions for the purpose of investments in EWGs, the Commission will not make certain adverse findings if the conditions of Rule 53(a) and (b) are met. Rule 53(c) provides that, in connection with a proposal by a registered holding company to issue and sell securities to finance an investment in an EWG, or to guarantee the securities of an EWG, an applicant unable to satisfy the conditions of Rule 53(a) and (b) must affirmatively demonstrate that the proposal (i) will not have a substantial adverse impact upon the financial integrity of the registered holding company system; and (ii) will not have an adverse impact on any utility subsidiary of the registered holding company or its customers, or on the ability of state commissions to protect those subsidiaries or customers.

As further described below, DRI states that the requested authority "will not have a substantial adverse impact upon the financial integrity of the holding company system" and "will not have an adverse impact on any utility subsidiary of the registered company, or its customers, or on the ability of state commissions to protect such subsidiary or customers, as is required by subparts (1) and (2) of Rule 53(c).

DRI represents that it is in compliance with all of the conditions established by subparts (a) and (b) of Rule 53 except 53(a)(1).

Particularly with respect to demonstrating the absence of any substantial adverse impact prohibited by Rule 53(c)(1) upon the financial integrity of the registered holding company system, DRI establishes such absence as provided below.

Current EWG/FUCO Investment. DRI's consolidated aggregate investment in EWGs and FUCOs as of September 30, 2004, was approximately $2.3 billion, of which EWG investment constituted approximately 99.6%. DRI's consolidated retained earnings as of September 30, 2004 were approximately $1.27 billion.

Reasonable Relative Size of the Proposed Investment. DRI states that the requested authority of 100% of consolidated retained earnings plus $5.0 billion represents 22.9.7% of DRI's consolidated capitalization, 14.0% of consolidated assets, and 29.8% of the market value of its common stock as of September 30, 2004. DRI's consolidated capitalization, consolidated assets and market value of common stock ratios are within the Commission's previously approved ranges.⁹

Equity to Total Capitalization. DRI commits that common equity will comprise at least 30% of its consolidated capitalization throughout the period of time the requested authorization is in effect. As of September 30, 2004, its common equity comprised 37% of DRI's consolidated capitalization.

Credit Ratings. The senior debt of DRI carries an investment grade rating and DRI's corporate credit rating is investment grade as determined by Moody's Investors Service ("Moody's") and Standard & Poor's Corporation ("S&P"). DRI commits that during the authorization period it will maintain at least an investment grade corporate senior unsecured debt rating from at least one nationally recognized statistical rating agency as defined in Rule 5c3-1(c)(2)(vi)(F) under the Securities Exchange Act. Financial Performance. DRI states that its existing investments in EWGs and FUCOs make a positive contribution to revenues and earnings. DEI is the entity which acquires virtually all of DRI's non-utility generation operations. For the fiscal period ended December 31, 2002,

DEI recognized revenues of $1,157 million, net income of $184 million, and retained earnings of $267 million. For the fiscal period ended December 31, 2003, DEI recognized revenues of $1,335 million, net income of $205 million, and retained earnings of $383 million. DRI states that it has suffered none of the adverse conditions specified by Rule 53(b), including no bankruptcy of a subsidiary having assets with book value exceeding 10% of DRI's consolidated retained earnings, no decrease by more than 10% in average consolidated retained earnings for the last four quarters compared to the prior four quarters, and no operating losses in EWGs or FUCOs in excess of 5% of consolidated retained earnings. DRI states that it will notify the Commission by post-effective amendment in this matter should any of those circumstances occur.

Risk Management and Project Review Process. DRI state that every potential investment in EWGs and FUCOs undergoes a series of reviews by project managers responsible for identifying business opportunities, and in some cases senior management and the Board of Directors of DEI and/or senior management and the Board of Directors of DRI. The Board of Directors of DRI reviews investments in excess of $50 million.

Potential investments are evaluated against a number of investment criteria including (i) economic viability of the project, (ii) political and regulatory risk, (iii) availability of non-recourse financing on reasonable terms and (iv) strategic fit within the DRI System. Analysis of the economic viability of the project includes an analysis of the overall industry environment (e.g. progress towards restructuring) in which the project will operate; the ability of the project to produce electricity at or below long-run marginal costs in the competitive region and the credit worthiness of potential power purchasers and other project counterparties. Analysis of political and regulatory risks involves careful review of changing political and regulatory regimes as well as long-term economic stability in the competitive region. The analysis also includes review of permitting and environmental risks as well as legal risk associated with the ability to enforce contracts relating to the project and its financing.

DRI states that its risk mitigation measures include structural separation of project investments, and maintenance of a diverse project mix, including, e.g. both greenfield projects and acquisitions of existing plants, geographic diversity, risk sharing with joint venturers, and fuel diversity. DRI asserts that its principal investments under its business plan are in well-established, growing, and fundamentally stable energy markets.

DRI states that its business strategy and the requested authorization reflect the evolution of the energy market in the Untied Stated and particularly the Eastern Interconnected region of the United States. DRI is predominantly seeking domestic EWG investment opportunities that complement its integrated holding company system assets, and help serve the energy requirements of the region served by those assets. DRI anticipates that FUCO or foreign EWG acquisitions would be merely an incidental component of its project development and investment program, perhaps resulting from an acquisition driven by domestic EWG growth opportunities, while the vast majority of the requested authority will be directed to domestic power generation projects in established domestic wholesale energy markets.

DRI states that it is particularly sensitive to ensuring that its independent energy investments contribute to its overall strategic growth plan building upon DRI's strengths and resources to achieve broad corporate objectives within budgeting and expenditure guidelines. Thus, each potential investment must be reviewed and approved by a number of managers within the DRI system who will focus their review not only on the questions of whether a particular project satisfies DRI's investment criteria and is reasonably anticipated to generate earnings commensurate with risk, but also on the question of whether the project is likely to aid in achieving DRI's long-term overall strategic objectives.

Particularly with respect to demonstrating the absence of any adverse impact upon public utility subsidiaries, their customers or the ability of State commissions to protect those subsidiaries and their customers, DRI states that:

All EWG and FUCO projects will be structurally separate from public utility company operations in that they are permanently owned by corporations, limited liability companies, or partnerships that are held in corporate chains of ownership independent of DRI's public utility company subsidiaries.
No public utility company subsidiary of DRI will indemnify or guarantee the obligations of EWG or FUCO projects.
Each of its public utility subsidiaries maintains investment grade corporate credit ratings and debt ratings as determined by at least one nationally recognized statistical rating agency as defined in Rule 5c 3-1(c)(2)(vi)(F) under the Securities Exchange Act, that each is able to finance its operations principally from internally generated funds, and the proposed investment authority will not restrict the availability of capital for their operations. Each commits that the common equity will constitute at least 30% of its respective consolidated capitalization.
The public utility company subsidiaries of DRI operate in states with state public service commissions that exercise general supervision authority, including authority over rate and public utility cost of service matters. These commissions have the authority to establish rates for regulated public utility company service based upon a rate of return determined to be fair by the state commission.
The public utility company subsidiaries of DRI will not seek recovery in rates to their regulated customers to compensate for any losses or inadequate returns that may be sustained on DRI's investments in EWGs or FUCOs.

L. Filings of Certificates of Notification

It is proposed that, with respect to DRI, the reporting systems of the Securities Exchange Act and the Securities Act be integrated with the reporting system under the Act consistent with the authority granted in the prior orders. This will continue to eliminate duplication of filings with the Commission that cover essentially the same subject matters, resulting in a reduction of expense for both the Commission and DRI and CNG. The portion of the Securities Act and Securities Exchange Act reports containing or reflecting disclosures of transactions occurring pursuant to the authorizations granted in this proceeding will be incorporated by reference into this proceeding through Rule 24 certificates of notification. The certificates will also contain all other information required by Rule 24, including the certification that each transaction being reported on had been carried out in accordance with the terms and conditions of and for the purposes represented in this Application. Such certificates of notification will be filed within 60 days after the end of the last calendar quarter in which transactions occur, except 90 days after the end of the end of year calendar quarter. DRI will file Rule 24 certificates containing the following information:

A computation in accordance with Rule 53(a) setting forth DRI's "aggregate investment" in all EWGs and FUCOs, if any, its "consolidated retained earnings", a calculation of the amount remaining under its Rule 53 authority, a breakdown showing DRI's aggregate investment in each EWG and FUCO counting against the EWG and FUCO authority, and identification of any new EWG or FUCO counting against the EWG and FUCO authority in which DRI has invested or committed to invest during the preceding quarter;
Total capitalization ratio of DRI, with consolidated debt to include all short-term debt and nonrecourse debt of all EWGs and FUCOs, if any;
The market-to-book ratio of DRI's common stock;
Analysis of the growth in consolidated retained earnings that segregates total earnings growth of EWGs and FUCOs, if any, from that attributable to other subsidiaries of DRI;
A statement of revenues and net income for each EWG and FUCO, if any, for the twelve months ending as of the end of that quarter;
The sales of any common stock, preferred securities or equity-linked securities by DRI or CNG, as applicable, and the purchase price per share and the market price per share at the date of the agreement of sale which shall also separately show the amount issued during the Authorization Period for each type of issued securities;
The total number of shares of DRI common stock issued or issuable under the options granted during the quarter under stock plans, employee benefit plans, incentive compensation plans and dividend reinvestment plans including plans later adopted together with the number of shares issued or issuable during the Authorization Period;
If DRI common stock has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted in the hands of the acquirer;
If a DRI Guarantee or CNG Guarantee is issued during the quarter, the name of the guarantor, the name of the beneficiary of the Guarantee and the amount, terms and purpose of the Guarantee;
The amount and terms of any DRI or CNG indebtedness, as applicable, issued during the quarter, and a chart showing the total amount of indebtedness issued during the Authorization Period versus the total amount indebtedness authorized for DRI and CNG, separately;
The amount and terms of any short-term debt issued by any Utility Subsidiary during the quarter which shall also separately show the outstanding amount of short-term debt issued during the Authorization Period for each Utility Subsidiary as well as the authorized amount of shot-term debt for the Authorization Period;
The amount and terms of any financings consummated by any Nonutility Subsidiary that is not exempt under Rule 52 which shall also separately show the amount of non-exempt securities issued by Nonutility Subsidiaries during the Authorization Period;
The notional amount and principal terms of any Hedge Instruments or Anticipatory Hedges entered into during the quarter by DRI, CNG or a Utility Subsidiary, as applicable, and the identity of the other parties to the transaction which shall also separately show the outstanding amount of Hedge Instruments or Anticipatory Hedges previously reported under this item;
The name and parent company of any Financing Conduit created during the quarter; the amount invested in any Financing Conduit during the quarter and the amount and terms of any securities issued by any Financing Conduit during the quarter, which shall also separately show the amount of all securities issued by such subsidiaries during the Authorization Period;
If any subsidiaries are Variable Interest Entities ("VIEs") as that term is used in FASB Interpretation 46R, Consolidation of Variable Interest Entities, provide a description of any financing transactions conducted during the reporting period that were used to fund such VIEs;
If any financing proceeds are used for VIEs, a description of the accounting for such transaction under FASB Interpretation 46R;
Consolidated balance sheets as of the end of the quarter and balance sheets as of the end of the quarter for each company, including DRI that has engaged in jurisdictional financing transactions during the quarter;
A table showing, as of the end of the quarter, the dollar and percentage components of the capital structure of each of DRI and CNG, on a consolidated basis, and of each Utility Subsidiary;
A chart showing the total amount of long-term and short-term debt outstanding for each of DRI, CNG, and the Utility Subsidiaries versus the total amount of long term and short-term debt authorized for each of DRI, CNG and the Utility Subsidiaries, as applicable;
A retained earnings analysis of each of DRI and CNG, on a consolidated basis, and of each Utility Subsidiary detailing gross earnings, goodwill amortization, dividends paid out of each capital account and the resulting capital account balances at the end of each quarter; and
Future registration statements filed under the Securities Act with respect to securities that are the subject of the instant Application will be filed or incorporated by reference as exhibits to the next certificate filed under Rule 24.

The fees, commissions and expenses incurred or to be incurred in connection with this Application will not exceed $25,000. Applicants maintain that no state or federal regulatory agency, other than the Commission, has jurisdiction over the requested authority.

Due notice of the filing of this 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. Based on the facts in the record, the Commission finds that, except as to those matters over which jurisdiction has been reserved, the applicable standards of the Act and rules 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, as amended, be 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 jurisdiction is reserved, pending completion of the record, over: (i) an additional $3.7 billion of authorization for increasing DRI's capitalization; (ii) an additional $4.35 billion of short-term debt authorization for DRI; (iii) the issuance of securities by DRI, CNG and/or any Utility Subsidiaries when the Investment Grade Condition is not satisfied; (iv) the entering into of Hedging Instruments and Anticipatory Hedges that do no qualify for hedge accounting treatment; (v) the issuance of Third Party Guarantees by DRI, CNG or any subsidiary; (vi) the payment of dividends out of capital or unearned surplus by any direct or indirect Nonutility Subsidiary at any time when any of the conditions specified in this Order are not satisfied; and (vii) an additional $3.0 billion in authorization for investments in EGWs and FUCOs.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary

Endnotes

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.

⁷ 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.

⁹ See Northeast Utilities, et al., HCAR 27868A (July 2, 2004), showing a chart comparison of several holding companies with the range for consolidated capitalization between 11.0% and 49.1%; the range for consolidated assets between 8.6% and 33.0%; and the range for market value of outstanding common stock between 7.8% and 60.1%. These ranges and the comparison chart found therein, show that DRI's proposed investment authority is an acceptable commitment of its assets based on the Commission's current criteria. DRI's ratios compare favorably to the ratios of other holding companies at the level of the proposed investment. See also KeySpan Corp. HCAR No. 35-27612 (December 6, 2002).

http://www.sec.gov/divisions/investment/opur/filing/35-27927.htm