(As filed July 18, 2002)
File No. 70-[____]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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NATIONAL FUEL GAS COMPANY
NATIONAL FUEL GAS DISTRIBUTION CORPORATION
NATIONAL FUEL GAS SUPPLY CORPORATION
HORIZON ENERGY DEVELOPMENT, INC. AND ITS SUBSIDIARIES
HIGHLAND FOREST RESOURCES, INC.
LEIDY HUB, INC.
DATA-TRACK ACCOUNT SERVICES, INC.
SENECA INDEPENDENCE PIPELINE COMPANY
10 Lafayette Square
Buffalo, New York 14203
SENECA RESOURCES CORPORATION AND ITS SUBSIDIARIES
UPSTATE ENERGY INC.
NIAGARA INDEPENDENCE MARKETING COMPANY
1201 Louisiana Street, Suite 400
Houston, Texas 77002
NATIONAL FUEL RESOURCES, INC.
HORIZON POWER, INC.
165 Lawrence Bell Drive, Suite 120
Williamsville, New York 14221
(Names of companies filing this statement and
addresses of principal executive offices)
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NATIONAL FUEL GAS COMPANY
(Name of top registered holding company parent)
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Ronald J. Tanski, Senior Vice President
and Controller
National Fuel Gas Distribution Corporation
10 Lafayette Square
Buffalo, New York 14203
(Name and address of agent for service)
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The Commission is requested to send copies of all notices, orders and
communications in connection with this Application or Declaration to:
James P. Baetzhold, Senior Attorney Michael F. Fitzpatrick, Jr., Esq.
National Fuel Gas Supply Corporation Thelen Reid & Priest LLP
10 Lafayette Square 40 W. 57th Street
Buffalo, New York 14203 New York, New York 10019
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TABLE OF CONTENTS
Item 1. Description of Proposed Transaction...................................1
1.1 Introduction..........................................................1
1.2 The Applicants' Current Financing Authority...........................2
1.3 Summary of Requested Approvals........................................3
1.4 Use of Proceeds.......................................................4
1.5 External Financing By National........................................5
1.5.1 Long-term Securities...........................................5
(a) Common Stock..............................................5
(b) Preferred Securities......................................7
(c) Long-term Debt............................................7
(d) Stock Purchase Contracts and Stock Purchase Units.........7
1.5.2 Short-term Debt................................................8
(a) Commercial Paper..........................................8
(b) Other Credit Facilities...................................8
(c) Other Securities..........................................9
1.6 Financing Subsidiaries and Special Purpose Subsidiaries...............9
1.6.1 Financing Subsidiaries.........................................9
1.6.2 Special Purpose Subsidiaries..................................10
1.7 Financing by Subsidiaries............................................11
1.7.1 Financing by Distribution.....................................11
1.7.2 Non-Utility Subsidiaries......................................11
1.8 Continuation of Money Pool Arrangements..............................12
1.9 Guarantees...........................................................14
1.10 Hedging Transactions.................................................15
1.10.1 Interest Rate Derivatives.....................................15
1.10.2 Anticipatory Hedges...........................................15
1.11 Changes in Capital Structure of Majority-Owned Subsidiaries..........16
1.12 Non-Utility Subsidiary Reorganizations...............................17
1.13 Certificates of Notification.........................................17
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Item 2. Fees, Commissions and Expenses.......................................19
Item 3. Applicable Statutory Provisions......................................19
3.1 General..............................................................19
3.2 Compliance with Rules 53 and 54......................................19
Item 4. Regulatory Approvals.................................................20
Item 5. Procedure............................................................20
Item 6. Exhibits and Financial Statements....................................21
A. Exhibits.............................................................21
B. Financial Statements.................................................22
Item 7. Information as to Environmental Effects..............................23
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
1.1 Introduction. National Fuel Gas Company ("National") is a registered
holding company under the Public Utility Holding Company Act of 1935, as amended
(the "Act"). Its wholly-owned gas utility subsidiary, National Fuel Gas
Distribution Corporation ("Distribution"), distributes natural gas at retail to
approximately 732,000 residential, commercial and industrial customers
(including transportation-only customers) in portions of western New York and
northwestern Pennsylvania.
National's direct non-utility subsidiaries, all of which are wholly-owned,
and the principal business or businesses of each such subsidiary, are as
follows:
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SUBSIDIARY PRINCIPAL BUSINESS
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National Fuel Gas Supply Corporation Transportation and storage of natural gas
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Seneca Resources Corporation Engages, directly and through partnerships in
which it is an investor, in natural gas and
oil exploration and production in the United
States and Canada
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Horizon Energy Development, Inc. Engages, directly and through subsidiaries, in
development and ownership of exempt foreign
utilities and domestic and foreign electric
generation projects
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Seneca Independence Pipeline Company Owns a one-third general partnership interest
in Independence Pipeline Company, which was
formed to construct and operate a proposed
400-mile interstate natural gas pipeline
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Niagara Independence Marketing Company Owns a one-third general partnership interest
in DirectLink Gas Marketing Company, which was
formed to engage in natural gas marketing in
part by subscribing for firm transportation
capacity on the proposed Independence Pipeline
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Highland Forest Resources, Inc. Together with Seneca Resources Corporation,
Northeast Division, engages in marketing of
timber hardwood from New York and Pennsylvania
property holdings, and operation of saw mills
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Leidy Hub, Inc. Provides natural gas hub services to customers
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National Fuel Resources, Inc. Marketing and brokerage of natural gas and
provision of energy management services
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Upstate Energy Inc. Wholesale natural gas marketing and other
energy-related activities
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Data-Track Account Services, Inc. Provides collection services, primarily for
associate companies
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Horizon Power, Inc. Exempt wholesale generator
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Filed herewith as Exhibit E is a current organizational chart showing the
relationship of National and its direct and indirect subsidiaries.
The non-utility companies listed in the table above, and the wholly- or
partly- owned direct and indirect subsidiaries of such companies, are referred
to in this Application or Declaration as the "Non-Utility Subsidiaries." The
term Non-Utility Subsidiary also includes any other non-utility company in which
National hereafter acquires an interest, directly or indirectly, pursuant to any
available exemption (such as Rule 58) or pursuant to the terms of any order
issued by the Securities and Exchange Commission ("Commission"). Distribution
and the Non-Utility Subsidiaries are collectively referred to as the
"Subsidiaries." National and the Subsidiaries are collectively referred to as
the "Applicants" or "System."
1.2 The Applicants' Current Financing Authority. By order dated
March 20, 1998,(1) as modified by order dated April 21, 2000(2) (as modified,
the "Current Order"), National and the Subsidiaries are authorized to engage in
a program of external financing, intrasystem financing and other related
transactions through December 31, 2002. Specifically, the Commission authorized:
(i) National to issue and sell from time to time additional long-term debt and
equity securities outstanding at any one time not to exceed $2 billion,
excluding any common stock issued under National's shareholder rights plan,(3)
and to utilize the proceeds thereof to make investments in its Subsidiaries, and
for other corporate purposes; (ii) National to issue and sell from time to time
up to $750 million principal amount of short-term debt having maturities of up
to 270 days in the form of commercial paper and borrowings under credit
facilities; (iii) National to enter into interest rate hedges with respect to
outstanding indebtedness and to enter into certain anticipatory interest rate
hedging transactions; (iv) to the extent such transactions are not exempt under
Rule 52(a), Distribution to issue and sell debt securities of any type to
persons other than National in an aggregate principal amount not to exceed $250
million; (v) National to guarantee securities of its Subsidiaries and provide
other forms of credit support with respect to obligations of its Subsidiaries as
may be necessary or appropriate to enable such Subsidiaries to carry on in the
ordinary course of business in an aggregate amount not to exceed $2 billion
outstanding at any one time;(4) (vi) National to continue to administer the
National System Money Pool ("Money Pool"), to invest surplus funds and proceeds
of external short-term borrowings in the Money Pool, and, to the extent not
exempt under Rule 52, the Subsidiaries to invest surplus funds in and to make
borrowings from National and from each other through the Money Pool, subject to
certain limitations; and (vii) National and Non-Utility Subsidiaries to organize
and acquire the securities of one or more entities (each a "Financing
Subsidiary") formed for the purpose of effecting financing transactions for
National and its
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(1) National Fuel Gas Company, et al., Holding Co. Act Release No. 26847, File
No. 70-9153.
(2) National Fuel Gas Company, et al., Holding Co. Act Release No. 27170, File
No. 70-9153.
(3) See National Fuel Gas Company, Holding Co. Act Release No. 26532, File No.
70-8841 (June 12, 1996) (authorizing National to adopt and implement a
rights agreement and to issue rights thereunder that entitle the holders
thereof to purchase from National shares of common stock upon the
occurrence of certain events).
(4) Under the April 21, 2000 order (referenced at footnote 2 above), National
was authorized to provide up to $30 million of Guarantees with respect to
the obligations of Horizon Power, Inc. (formerly NFR Power, Inc.).
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Subsidiaries and, to the extent not exempt under Rules 45(b) and 52, to
guarantee the obligations of such Financing Subsidiaries.
National's authorized capitalization consists of 200 million shares of
common stock, par value $1.00 per share, and 10 million shares of preferred
stock, par value $1.00 per share. At May 31, 2002, National had issued and
outstanding 80,015,191 shares of common stock, and no shares of preferred stock
issued or outstanding. Also, at May 31, 2002, National had issued and
outstanding long-term debt securities (excluding current portion) totaling
$1,049,829,923, and commercial paper and other short-term debt (including
current portion of long-term debt) totaling $481,584,802. At May 31, 2002,
National's consolidated capitalization consisted of the following components:
common equity - 41.5%; long-term debt (excluding current maturities) - 40.1%;
and short-term debt (including current maturities of long-term debt) - 18.4%.
1.3 Summary of Requested Approvals. The Applicants herein request approval
for a program of external financing, credit support arrangements, intra-system
financing, and other related proposals for the period through December 31, 2005
("Authorization Period"). It is intended that the order issued in this
proceeding will replace and supersede the Current Order effective upon the date
of the order issued in this proceeding.
Specifically, the Applicants are requesting authorization for:
(i) National to increase its equity and long-term debt capitalization
through the issuance and sale from time to time of Common Stock,
Preferred Securities, Long-term Debt, Stock Purchase Contracts
and/or Stock Purchase Units (as such terms are defined and described
in Item 1.5 below), in an aggregate amount of up to an additional
$1.5 billion, excluding any shares of Common Stock that may be
issued under National's shareholder rights plan.
(ii) In connection with the issuance and sale of Preferred Securities,
Long-term Debt, Stock Purchase Contracts or Stock Purchase Units,
National to organize and acquire the equity securities of one or
more Financing Subsidiaries or Special Purpose Subsidiaries (as such
term is defined and described in Item 1.6 below), to guarantee the
securities issued by such Financing Subsidiaries or Special Purpose
Subsidiaries, and to borrow or otherwise receive a transfer of the
proceeds of any financing by any Financing Subsidiary or Special
Purpose Subsidiary. Non-Utility Subsidiaries also seek approval to
organize and acquire the securities of Financing Subsidiaries and
Special Purpose Subsidiaries.
(iii) National to issue and sell commercial paper and other forms of
indebtedness having maturities of less than one year ("Short-term
Debt") in an aggregate principal amount at any time outstanding not
to exceed $750 million.
(iv) National and the Non-Utility Subsidiaries to make loans to any other
Non-Utility Subsidiary that is less than wholly-owned at interest
rates and maturities designed to provide a return to the lending
entity of not less than its effective cost of capital.
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(v) National to invest surplus funds and proceeds of external borrowings
in the Money Pool, and, to the extent not exempt under Rules 52 and
45(b), participating Subsidiaries to invest surplus funds in and to
make borrowings from National and from each other through the Money
Pool, subject to certain limitations.
(vi) National to issue guarantees and provide other forms of credit
support with respect to the securities or other obligations of its
Subsidiaries in an aggregate principal or nominal amount not to
exceed $2 billion at any time outstanding, in addition to any
guarantees that are exempt pursuant to Rule 45(b), subject to
certain limitations.
(vii) National and, to the extent not exempt under Rule 52, any Subsidiary
to enter into hedging transactions with respect to outstanding
indebtedness of such company ("Interest Rate Hedges") in order to
manage interest rate costs, and to enter into hedging transactions
with respect to anticipated debt issuances ("Anticipatory Hedges")
in order to lock-in current interest rates and/or manage interest
rate risk exposure.
(viii) National to change the authorized capitalization of any
majority-owned Subsidiary without further Commission approval,
subject to certain limitations.
(ix) National to consolidate or otherwise reorganize all or any part of
its direct or indirect investments in Non-Utility Subsidiaries.
1.4 Use of Proceeds. National proposes to utilize the proceeds of the
financings authorized by the Commission pursuant to this Application or
Declaration, together with other available funds, (i) to make investments in
Subsidiaries in order to finance capital expenditures by such Subsidiaries, (ii)
to fund short-term loans to certain Subsidiaries either directly or through the
Money Pool, (iii) to finance future investments in "exempt wholesale generators"
("EWGs") and "foreign utility companies" ("FUCOs"), subject to the limitations
of Rule 53 or other order of the Commission,(5) and "energy-related" and
"gas-related" companies, subject to the limitations of Rule 58, (iv) to acquire,
retire or redeem securities issued by National or any Financing Subsidiary or
Special Purpose Subsidiary, and (v) for working capital and other general
corporate purposes of National and its Subsidiaries. Distribution proposes to
utilize the proceeds of authorized Money Pool borrowings to temporarily fund
capital projects, to finance inventories, and for other general corporate
purposes.
The terms of intercompany loans by National to its Subsidiaries will be
designed to parallel the effective cost of National's Long-term Debt or
Short-term Debt, as applicable, and therefore will reflect an equitable
allocation of placement fees, commitment fees, underwriting or selling fees and
commissions and discounts, if any, as well as any associated rating agency fees
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(5) In a separate proceeding (File No. 70-9987), National is requesting
Commission approval to increase its investments in EWGs and FUCOs to an
amount that exceeds the limitation contained in Rule 53(a).
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paid or incurred by National in connection with the issuance of Long-term Debt
or Short-term Debt.
The Applicants represent that no financing proceeds will be used to acquire
the equity securities of any new company unless such acquisition has been
approved by the Commission in this proceeding or in a separate proceeding or in
accordance with an available exemption under the Act or rules thereunder,
including Sections 32 and 33 and Rule 58. National further represents that it
will not undertake any transaction otherwise authorized by the Commission during
the Authorization Period that would cause the common equity of National, as a
percentage of its consolidated capitalization (inclusive of Short-term Debt), to
fall below 30%, and will not undertake any transaction otherwise authorized by
the Commission during the Authorization Period that would cause the common
equity of Distribution, as a percentage of capitalization of Distribution, to
fall below 30%. National's forecasted cash flow analysis and capitalization
forecast for the calendar years 2002 through 2005 (filed herewith as Exhibit H),
which assumes that National will issue during the Authorization Period $351
million of Common Stock out of the $1.5 billion overall long-term financing
authority requested herein, indicate that National's common equity will remain
above 30% of its consolidated capitalization for the period forecasted in
Exhibit H.
1.5 External Financing By National.
1.5.1 Long-term Securities. National requests authority to increase
its equity and long-term debt capitalization during the Authorization Period in
an aggregate amount of up to an additional $1.5 billion through the issuance and
sale from time to time, directly or indirectly through one or more Financing
Subsidiaries or Special Purpose Subsidiaries, of any combination of Common
Stock, Preferred Securities, Long-term Debt, Stock Purchase Contracts and/or
Stock Purchase Units, but excluding any shares of Common Stock that may be
issued under National's shareholder rights plan.
Except in accordance with a further order of the Commission in this
proceeding, National will not publicly issue any Long-term Debt or Preferred
Securities (or to the extent they are rated, Stock Purchase Contracts and/or
Stock Purchase Units) unless such securities are rated at the time of issuance
at the investment grade level as established by at least one "nationally
recognized statistical rating organization," as that term is used in paragraphs
(c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of
1934. It is requested that the Commission reserve jurisdiction over the issuance
by National of any such securities that are rated below investment grade.
(a) Common Stock. National may issue and sell additional shares
of its authorized common stock, par value $1.00 per share ("Common Stock"), or
options or warrants exercisable for Common Stock, pursuant to underwriting or
purchase agreements of a type generally standard in the industry. Public
distributions may be pursuant to private negotiation with underwriters,
purchasers, dealers or agents, as discussed below, or effected through
competitive bidding. In addition, sales may be made through private placements
or other non-public offerings to one or more persons. All such Common Stock
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sales will be at prices and under conditions negotiated or based upon, or
otherwise determined by, competitive capital markets.
Specifically, National may issue and sell Common Stock through underwriters
or dealers, through agents, or directly to a limited number of purchasers or a
single purchaser. If underwriters are used in the sale of Common Stock, such
securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Common Stock may be offered to the public either through
underwriting syndicates (which may be represented by a managing underwriter or
underwriters designated by National) or directly by one or more underwriters
acting alone. Common Stock may be sold directly by National or through agents
designated by National from time to time. If dealers are utilized in the sale of
Common Stock, National will sell such Common Stock to the dealers, as
principals. Any dealer may then resell such Common Stock to the public at
varying prices to be determined by such dealer at the time of resale.
National may also issue Common Stock and/or purchase shares of its Common
Stock in the open market for purposes of reissuing such shares, and/or options,
warrants or other stock purchase rights exercisable for Common Stock, in public
or privately-negotiated transactions in exchange for the equity securities or
assets of other companies, provided that the acquisition of any such equity
securities or assets has been authorized in a separate proceeding or is exempt
under the Act or the rules thereunder (e.g., Rule 58). The value of Common Stock
issued in exchange for equity securities or assets of another company will be
counted against the overall limitation on financing proposed herein. Such value
will be as determined in accordance with any agreement with the seller or, if no
such value is specified in any such agreement, then such value will be the
closing price of National's Common Stock on the New York Stock Exchange on the
trading day next preceding the date of the acquisition.
National also proposes to issue Common Stock under plans ("Stock Plans")
that allow shareholders, customers, officers, employees, nonemployee directors
and new investors to acquire shares of Common Stock. Currently, National
maintains the National Fuel Direct Stock Purchase and Dividend Reinvestment
Plan, which provides a simple, cost-effective method for purchasing shares of
Common Stock directly from National and permits participants to reinvest cash
dividends in shares of Common Stock without the payment of any brokerage
commissions or service charges in connection with such reinvestment. National
also maintains (i) 401(k) and Employee Stock Ownership Plans that allow
employees the opportunity to invest in Common Stock and reinvest cash dividends
paid on such Common Stock, in addition to a variety of other investment
alternatives, (ii) various award and option plans that provide for the issuance
of one or more of the following to key employees: incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, and
performance units or performance shares, and (iii) a Director Stock Plan, under
which it issues shares of Common Stock to its non-employee directors as partial
consideration for their services as directors.
National proposes to issue shares of its Common Stock, as well as stock
options, restricted stock awards, performance units, performance shares, and
other Common Stock-based awards in order to satisfy its obligations under the
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Stock Plans. Shares of Common Stock issued or purchased for delivery under the
Stock Plans may either be newly issued shares, treasury shares or shares
purchased by National in the open market with its own funds (either currently or
under forward contracts) for purposes of reissuance under any Stock Plan.
National will make open-market purchases of Common Stock in accordance with the
terms of or in connection with the operation of the Stock Plans pursuant to Rule
42. National also proposes, within the limitations set forth herein, to issue
and/or purchase shares of Common Stock pursuant to these existing Stock Plans,
as they may be amended or extended, and similar plans or plan funding
arrangements hereafter adopted without any additional Commission order. Stock
transactions of this variety would thus be treated the same as other stock
transactions permitted pursuant to this Application or Declaration. Finally, in
connection with the adoption of any new Stock Plan or any extension of or
amendment to an existing Stock Plan, National also requests authorization to
solicit any required shareholder approvals without further order of the
Commission.
(b) Preferred Securities. National, directly or through a
Financing Subsidiary or Special Purpose Subsidiary, also proposes to issue and
sell shares of its authorized preferred stock, par value $1.00 per share and/or
other types of unsecured preferred securities (collectively, "Preferred
Securities") in one or more series with such rights, preferences, and priorities
as may be designated in the instrument creating each such series, as determined
by National's board of directors or a committee thereof. Preferred Securities
may be redeemable or may be perpetual in duration. The dividend or distribution
rate on any series of Preferred Securities will not exceed at the time of
issuance 500 basis points over the yield to maturity of a U.S. Treasury security
having a remaining term equal to the term of such securities. Dividends or
distributions on any series of Preferred Securities will be made periodically
and to the extent funds are legally available for such purpose, but may be made
subject to terms which allow the issuer to defer dividend payments or
distributions for specified periods. Preferred Securities may be convertible or
exchangeable into shares of Common Stock.
(c) Long-term Debt. National, directly or through a Financing
Subsidiary, also proposes to issue and sell from time to time additional
long-term indebtedness ("Long-term Debt"). Long-term Debt of a particular series
(a) will be unsecured, (b) may be convertible into any other authorized
securities of National, (c) will have a maturity ranging from one year to 50
years, (d) will bear interest at a rate not to exceed at the time of issuance
500 basis points over the yield to maturity of a U.S. Treasury security having a
remaining term equal to the term of such Long-term Debt, (e) may be subject to
optional and/or mandatory redemption, in whole or in part, at par or at various
premiums above the principal amount thereof, (f) may be entitled to mandatory or
optional sinking fund provisions, (g) may provide for reset of the coupon
pursuant to a remarketing arrangement, and (h) may be called from existing
investors by a third party. The maturity dates, interest rates, redemption and
sinking fund provisions and conversion features, if any, with respect to the
Long-term Debt of a particular series, as well as any associated placement,
underwriting or selling agent fees, commissions and discounts, if any, will be
established by negotiation or competitive bidding.
(d) Stock Purchase Contracts and Stock Purchase Units. National,
directly or through a Financing Subsidiary, may also issue and sell from time to
time stock purchase contracts ("Stock Purchase Contracts"), including contracts
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obligating holders to purchase from National and/or National to sell to the
holders, a specified number of shares or aggregate offering price of Common
Stock at a future date. The consideration per share of Common Stock may be fixed
at the time the Stock Purchase Contracts are issued or may be 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 Long-term Debt
and/or Preferred Securities and/or debt securities of third parties, including
U.S. Treasury securities, securing holders' obligations to purchase Common Stock
under the Stock Purchase Contracts. The Stock Purchase Contracts may require
holders to secure their obligations thereunder in a specified manner.
1.5.2 Short-term Debt. To provide financing for general corporate
purposes, including making advances to participating Subsidiaries through the
Money Pool (see Item 1.8 below), making advances directly to Non-Utility
Subsidiaries, and to temporarily fund investments in new or existing
Subsidiaries, National requests authorization to issue and reissue from time to
time during the Authorization Period, up to $750 million at any time outstanding
of unsecured short-term debt securities in the form of promissory notes
evidencing borrowings under its credit facilities, commercial paper notes, and
other forms of short-term financing generally available to borrowers with
investment grade credit ratings. The maturity of all Short-term Debt will be
less than one year and will bear interest at a rate not to exceed at the time of
issuance 300 basis points over the London Interbank Offered Rate (LIBOR) for
maturities of up to one year.
(a) Commercial Paper.Commercial paper may be sold by National,
from time to time, in established domestic or foreign commercial paper markets
directly or through dealers and placement agents at prevailing discount rates,
or at prevailing coupon rates, at the date of issuance for commercial paper of
comparable quality and maturities sold to commercial paper dealers generally. It
is expected that the dealers and placement agents acquiring commercial paper
from National will re-offer such paper at a discount to corporate, institutional
and, with respect to foreign commercial paper, also to individual investors.
Such corporate and institutional investors may include, among others, commercial
banks, insurance companies, pension funds, investment trusts, mutual funds,
foundations, colleges and universities, finance companies and nonfinancial
corporations.
Back-up bank lines of credit for 100% of the outstanding amount of
commercial paper may be required in order to obtain an investment grade rating
by the credit rating agencies. National currently has a committed credit
facility which acts as back-up to its commercial paper program.
(b) Other Credit Facilities. National also proposes to establish
credit facilities with various banks and/or other financial institutions and to
issue and sell, from time to time, short-term notes. Such notes would bear
interest at rates comparable to, or lower than, those available through other
forms of short-term borrowing with similar terms as contemplated in this
Application or Declaration. The total amount of notes outstanding at any time,
when added to the aggregate amounts of short-term borrowing outstanding under
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other forms of short-term borrowing contemplated in this Application or
Declaration, would not exceed the total amount of Short-term Debt for which
authorization is requested. Such borrowing arrangements with the banks and
financial institutions may require compensating balances and/or commitment fees
or similar fees. National, at all times, will attempt to negotiate the most
favorable effective borrowing rate taking into account any such compensating
balances and/or other fees.
(c) Other Securities. National may also engage in other types of
short-term financing as it may deem appropriate in light of its needs and market
conditions at the time of issuance. Such short-term financing may include,
without limitation, bank borrowings under uncommitted lines and issuance of bid
notes to individual banks.
1.6 Financing Subsidiaries and Special Purpose Subsidiaries. National
requests authority to acquire, directly or indirectly, the equity securities of
one or more Financing Subsidiaries and/or Special Purpose Subsidiaries, which
would be organized specifically for the purpose of facilitating the issuance of
certain types of long-term securities described in Item 1.5. Certain of the
Non-Utility Subsidiaries also propose to organize and acquire the equity
securities of Financing Subsidiaries or Special Purpose Subsidiaries in order to
facilitate financing of their operations. National represents that it has in
place sufficient internal controls to enable it to monitor the creation and use
of any such entities.(6)
No Financing Subsidiary or Special Purpose Subsidiary shall acquire or
dispose of, directly or indirectly, any interest in any "utility asset," as that
term is defined under the Act.
1.6.1 Financing Subsidiaries. National proposes to acquire all of the
outstanding shares of common stock or other equity interests of one or more
Financing Subsidiaries. A separate Financing Subsidiary may be used by National
with respect to financings of different types of non-core businesses. In
connection with such financing transactions, National may enter into one or more
guarantee or other credit support agreements in favor of the Financing
Subsidiary. The amount of any such guarantees or credit supports would not count
against the limit on Guarantees that is proposed under Item 1.9 below.
National has not heretofore created any direct Financing Subsidiary
pursuant to the authority contained in the Current Order. However, National's
natural gas and oil exploration and production subsidiary, Seneca Resources
Corporation, is currently in the process of organizing certain Financing
Subsidiaries, which are expected to increase the tax efficiencies of its
operations in Canada. Any Financing Subsidiary or Special Purpose Subsidiary
organized by National pursuant to the authority granted by the Commission in
this proceeding shall be organized only if, in management's opinion, the
creation and utilization of such Financing Subsidiary or Special Purpose
Subsidiary, will likely result in tax savings, increased access to capital
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(6) The authority requested in this Item 1.6 (including certain commitments
contained in this Item 1.6 and elsewhere in this Application or
Declaration) is substantially the same as the Commission has granted to
other registered holding companies. See e.g., American Electric Power
Company, Inc., Holding Co. Act Release No. 27517 (Apr. 11, 2002); Reliant
Energy, Inc., et al., Holding Co. Act Release No. 27548 (July 5, 2002).
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markets and/or lower cost of capital for National.
1.6.2 Special Purpose Subsidiaries. In connection with the issuance of
certain types of Preferred Securities, National and/or a Financing Subsidiary
proposes to organize one or more separate special purpose subsidiaries as any
one or any combination of (a) a limited liability company under the Limited
Liability Company Act (the "LLC Act") of the State of Delaware or other
jurisdiction considered advantageous by National, (b) a limited partnership
under the Revised Uniform Limited Partnership Act of the State of Delaware or
other jurisdiction considered advantageous by National, (c) a business trust
under the Business Trust Act of the State of Delaware or other jurisdiction
considered advantageous by National, or (d) any other entity or structure,
foreign or domestic, that is considered advantageous by National. The special
purpose subsidiaries to be so organized are herein referred to individually as a
"Special Purpose Subsidiary" and collectively as the "Special Purpose
Subsidiaries." In the event that any Special Purpose Subsidiary is organized as
a limited liability company, National or the Financing Subsidiary may also
organize a second special purpose wholly-owned subsidiary under the General
Corporation Law of the State of Delaware or other jurisdiction ("Partner Sub")
for the purpose of acquiring and holding Special Purpose Subsidiary membership
interests in order to comply with any requirement under the applicable law that
a limited liability company have at least two members. In the event that any
Special Purpose Subsidiary is organized as a limited partnership, National or
the Financing Subsidiary also may organize a Partner Sub for the purpose of
acting as the general partner of such Special Purpose Subsidiary and may
acquire, either directly or indirectly through such Partner Sub, a limited
partnership interest in such Special Purpose Subsidiary to ensure that such
Special Purpose Subsidiary will have a limited partner to the extent required by
applicable law.
National, the Financing Subsidiary and/or a Partner Sub will acquire all of
the common stock or all of the general partnership or other common equity
interests, as the case may be, of any Special Purpose Subsidiary for an amount
not less than the minimum required by any applicable law (i.e., the aggregate of
the equity accounts of such Special Purpose Subsidiary) (the aggregate of such
investment by National, the Financing Subsidiary and/or a Partner Sub being
referred to herein as the "Equity Contribution"). National and/or the Financing
Subsidiary may issue and sell to any Special Purpose Subsidiary, at any time or
from time to time in one or more series, unsecured subordinated debentures,
unsecured promissory notes or other unsecured debt instruments (individually, a
"Note" and collectively, the "Notes") governed by an indenture or other
document, and such Special Purpose Subsidiary will apply both the Equity
Contribution made to it and the proceeds from the sale of Preferred Securities
by it from time to time to purchase Notes. Alternatively, National and/or the
Financing Subsidiary may enter into a loan agreement or agreements with any
Special Purpose Subsidiary under which such Special Purpose Subsidiary will loan
to National and/or the Financing Subsidiary (individually, a "Loan" and
collectively, the "Loans") both the Equity Contribution to such Special Purpose
Subsidiary and the proceeds from the sale of Preferred Securities by such
Special Purpose Subsidiary from time to time, and National and/or the Financing
Subsidiary will issue to such Special Purpose Subsidiary Notes evidencing such
borrowings. The terms (e.g., interest rate, maturity, amortization, prepayment
terms, default provisions, etc.) of any such Notes would generally be designed
to parallel the terms of the Preferred Securities to which the Notes relate.
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National or any Financing Subsidiary also proposes to guarantee solely in
connection with the issuance of Preferred Securities by a Special Purpose
Subsidiary (i) payment of dividends or distributions on such securities by the
Special Purpose Subsidiary if and to the extent such Special Purpose Subsidiary
has funds legally available therefor, (ii) payments to the holders of such
securities due upon liquidation of such Special Purpose Subsidiary or redemption
of the Preferred Securities of such Special Purpose Subsidiary, and (iii)
certain additional amounts that may be payable in respect of such Preferred
Securities. Alternatively, National may provide credit support for any such
guarantee that is provided by a Financing Subsidiary. The amount of any such
guarantees or credit support provided by National under this section would not
also be counted against the limitation on Guarantees, as set forth in Item 1.9
below.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of any Special Purpose Subsidiary, the holders of Preferred
Securities issued by such Special Purpose Subsidiary will be entitled to
receive, out of the assets of such Special Purpose Subsidiary available for
distribution to its shareholders, partners or other owners (as the case may be),
an amount equal to the par or stated value or liquidation preference of such
Preferred Securities plus any accrued and unpaid dividends or distributions.
The constituent instruments of each Special Purpose Subsidiary will
provide, among other things, that such Special Purpose Subsidiary's activities
will be limited to the issuance and sale of Preferred Securities from time to
time and the lending to the Financing Subsidiary or Partner Sub of (i) the
proceeds thereof and (ii) the Equity Contribution to such Special Purpose
Subsidiary, and certain other related activities.
1.7 Financing by Subsidiaries.
1.7.1 Financing by Distribution. The New York Public Service
Commission ("NYPSC") and Pennsylvania Public Utility Commission ("PaPUC") both
have jurisdiction over the issuance of securities by Distribution, other than
any evidence of indebtedness having a maturity of less than one year.
Distribution is currently authorized by the NYPSC and the PaPUC to issue and
sell up to $250 million principal amount of long-term promissory notes to
National from time to time through December 31, 2002.(7) The interest rate and
maturities of notes issued to National are designed to match the maturities and
effective interest cost of Long-term Debt issued by National. Accordingly, with
the exception of short-term debt securities, all securities issued by
Distribution, including notes issued to National having maturities of one year
or more, are exempt from the requirements of Sections 6(a) and 7 of the Act
pursuant to Rule 52(a). Proposed short-term borrowings by Distribution through
the Money Pool are described in Item 1.8 below.
1.7.2 Non-Utility Subsidiaries. National, through its Non-Utility
Subsidiaries, will continue to be active in the development and expansion of
energy-related or otherwise functionally-related, non-utility businesses. In
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(7) Distribution will be filing applications with the NYPSC and PaPUC seeking
to extend its financing authority through December 31, 2005.
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order to finance investments in such competitive businesses, it will be
necessary for the Non-Utility Subsidiaries to have the ability to engage in
financing transactions that are commonly accepted for such types of investments.
National believes that, in almost all cases, financings by the Non-Utility
Subsidiaries will be exempt from Commission authorization pursuant to Rule
52(b).
In order to be exempt under Rule 52(b), any loans by National to a
Non-Utility Subsidiary or by any Non-Utility Subsidiary, including a Financing
Subsidiary, to another Non-Utility Subsidiary must have interest rates and
maturities that are designed to parallel the lending company's effective cost of
capital. However, in the limited circumstances where the Non-Utility Subsidiary
making the borrowing is not wholly-owned by National, directly or indirectly,
authority is requested under the Act for National or any other Non-Utility
Subsidiary, as the case may be, to make such loans to such subsidiaries at
interest rates and maturities designed to provide a return to the lending entity
of not less than its effective cost of capital. However, no such loan will be
made to a less than wholly-owned Non-Utility Subsidiary if such entity sells any
services or goods to Distribution or to any other Non-Utility Subsidiary which,
in turn, sells goods or services to Distribution.(8)
As previously indicated, certain of the Non-Utility Subsidiaries (for
example, Seneca Resources Corporation) may be able to achieve tax and other
benefits by issuing securities through Financing Subsidiaries and/or Special
Purpose Subsidiaries, and, accordingly, request authorization to organize and
acquire the equity securities of such entities in the same manner as described
above in connection with the proposed financing by National. In any such case, a
Non-Utility Subsidiary may be required to provide guarantees or other forms of
credit support with respect to the securities issued by such entities and to
issue its notes to such entities to evidence the borrowing of the proceeds of
financing of and equity investments in such entities, as described above. These
transactions would be exempt pursuant to Rules 45(b)(7) and 52, as applicable.
1.8 Continuation of Money Pool Arrangements. Under the Current Order,
Distribution, National Fuel Gas Supply Corporation, Seneca Resources
Corporation, Highland Forest Resources, Inc., Leidy Hub, Inc., Horizon Energy
Development, Inc., Data-Track Account Services, Inc., National Fuel Resources,
Inc., Upstate Energy Inc., Niagara Independence Marketing Company, and Seneca
Independence Pipeline Company are authorized to participate in the Money Pool as
both borrowers and lenders. Horizon Power, Inc. ("Power") is authorized to
invest surplus funds in the Money Pool, and to withdraw those funds when needed,
but may not borrow through the Money Pool. Likewise, National is authorized to
lend funds through the Money Pool, but may not borrow funds through the Money
Pool. The Applicants now propose to continue to participate in, and, with the
exception of National and Power, incur short-term borrowings through, the Money
Pool, on the same terms as approved under the Current Order. The Applicants also
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(8) The Commission has previously authorized substantially similar proposals.
See e.g., Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999); NiSource Inc., Holding Co. Act Release No. 27265 (Nov. 1,
2000).
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propose to amend the Money Pool Agreement in one respect, as described below.
Currently, the Subsidiaries (other than: (i) Power, (ii) certain
subsidiaries of Horizon Energy Development, Inc. that are not participants in
the Money Pool, and (iii) certain subsidiaries of Seneca Resources Corporation
that are not participants in the Money Pool) satisfy all of their requirements
for short-term funds by borrowings through the Money Pool. It is proposed that
the Money Pool participants (other than National and Power) (referred to here as
the "Eligible Borrowers") borrow short-term funds through the Money Pool. The
maximum amount of Money Pool borrowings outstanding for each Eligible Borrower
will be determined by National and each Eligible Borrower in accordance with
business needs.
National will administer the Money Pool and coordinate short-term
borrowings by Eligible Borrowers. National proposes to make loans available to
Eligible Borrowers through the Money Pool utilizing the proceeds of borrowings
under various credit facilities, including but not limited to commercial paper,
short-term lines of credit, demand credit facilities, and committed credit
facilities ("Credit Facilities"), as determined by National, issued in
accordance with the authorization sought in this proceeding. In addition, at
certain times during the year, National and certain of its Subsidiaries may
generate surplus funds, which they may choose to invest in the Money Pool. Thus,
funds available for borrowings through the Money Pool will be derived from one
or more of the following sources: (1) surplus funds of National and/or one or
more of its Subsidiaries; (2) proceeds from National's sale of commercial paper;
and (3) borrowings by National under other Credit Facilities.
National will match, to the extent possible, the short-term cash surpluses
and borrowing requirements of itself and its Subsidiaries. In the event that at
any time during the Authorization Period there are insufficient funds available
from Money Pool sources to satisfy Money Pool borrowing requirements of all
Eligible Borrowers, Distribution will receive borrowing priority over the
Non-Utility Subsidiaries. Borrowings through the Money Pool would be met first
from available surplus funds of the other Subsidiaries, and then from available
surplus funds of National. Once these sources of funds become insufficient to
meet the short-term loan requests, borrowings will be made by National through
the issuance and sale of commercial paper or borrowings under other Credit
Facilities.
Pursuant to Rule 52(b), borrowings through the Money Pool by participating
Non-Utility Subsidiaries are exempt. Borrowings by Distribution, however, are
not exempt. Accordingly, Distribution hereby seeks approval to make borrowings
through the Money Pool in an amount not to exceed $500 million at any time
outstanding. Distribution proposes to repay Money Pool borrowings principally by
means of funds received as a result of providing services to its customers under
its tariffs, and from the possible sale of debt (including long-term notes
issued to National) or equity securities.
Borrowings through the Money Pool, and repayments thereof, will be
adequately documented and will be evidenced on the books of each participant
that is borrowing funds or lending surplus funds through the Money Pool. If only
internal funds (surplus funds of National and the Subsidiaries) make up the
funds available in the Money Pool, the interest rate applicable and payable to
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or by Subsidiaries for all loans of such internal funds will be the rates for
high-grade unsecured 30-day commercial paper sold through dealers by major
corporations, as quoted in The Wall Street Journal or other national financial
publications. Borrowings consisting wholly or in part of funds obtained through
the sale of commercial paper or borrowings under other Credit Facilities by
National will bear interest at a rate equal to National's net weighted daily
average cost for such external borrowings. Interest will be payable by the
borrowing Subsidiary until the principal amount borrowed is fully repaid. Fees,
commissions and expenses incurred by National to establish and maintain Credit
Facilities used to fund loans through the Money Pool, including rating agency
fees, bank commitment fees, and transaction costs (such as legal fees incurred
in connection with negotiating and documenting credit facilities), are allocated
to all Eligible Borrowers. Each Eligible Borrower's share of allocated expenses
is a fraction of the total expenses. The numerator of such fraction is the
respective per book capitalization plus the average daily balance of short-term
borrowings outstanding during the twelve months ended as of the date of the most
recent quarterly consolidating financial statements for each Eligible Borrower.
The denominator of the fraction is the sum of all the numerators used in the
calculation.
To the extent that there are excess funds available in the Money Pool from
time to time because (a) there are no borrowings under the Credit Facilities
that may be currently repaid, or (b) there is no commercial paper that is
maturing, or (c) no Eligible Borrower has a need for excess funds available from
other Money Pool participants, such excess funds will normally be invested in
one or more short-term investments. The Applicants are proposing to amend
Article IV of the Money Pool Agreement to provide that such short-term
investments may include any of the following: (i) interest-bearing accounts with
banks; (ii) obligations issued or guaranteed by the U.S. government and/or its
agencies and instrumentalities, or by any state or political subdivision
thereof; (iii) tax exempt notes; (iv) tax exempt bonds; (v) tax exempt preferred
stock; (vi) commercial paper rated not less than A-1 or P-1 or their equivalent
by a nationally recognized statistical rating organization; (vii) money market
funds; (viii) bank certificates of deposit and bankers acceptances; (ix)
Eurodollar certificates of deposit or time deposits; (x) investment grade medium
term notes, variable rate demand notes and variable rate preferred stock; (xi)
repurchase agreements with respect to any of the foregoing; and (xii) such other
investments as are permitted by Section 9(c) of the Act and Rule 40 thereunder.
The form of Amended and Restated Money Pool Agreement is filed herewith as
Exhibit B. With the exception of Article IV, no other substantive changes to the
Money Pool Agreement as currently in effect are proposed.
1.9 Guarantees. National requests authorization to enter into guarantees,
obtain letters of credit, enter into expense agreements or otherwise provide
credit support (collectively, "Guarantees") with respect to the obligations of
any Subsidiary as may be appropriate to enable such Subsidiary to carry on in
the ordinary course of its business, in an aggregate principal amount not to
exceed $2 billion outstanding at any time, excluding any forms of credit support
that are exempt under Rule 45(b), provided that any Guarantee outstanding on
December 31, 2005 shall terminate or expire in accordance with its terms, and
provided further that the amount of any Guarantees in respect of obligations of
any Subsidiaries shall also be subject to the limitations of Rule 53(a)(1) or
Rule 58(a)(1), as applicable. Guarantees of the obligations of any Financing
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Subsidiary or Special Purpose Subsidiary, as described in Item 1.6 above, will
not count against this limitation.
National requests authority to charge each Subsidiary a fee for providing
credit support that is determined by multiplying the amount of the Guarantee
provided by the cost of obtaining the liquidity necessary to perform the
Guarantee (for example, bank line commitment fees or letter of credit fees, plus
other transactional expenses, if any) for the period of time the Guarantee
remains outstanding.
1.10 Hedging Transactions.
1.10.1 Interest Rate Hedges. National, and to the extent not exempt
pursuant to Rule 52, the Subsidiaries, request authorization to enter into
Interest Rate Hedges, subject to certain limitations and restrictions, in order
to manage interest rate cost.(9) Interest Rate Hedges would only be entered into
with counterparties ("Approved Counterparties") whose senior debt ratings, or
the senior debt ratings of the parent companies of the counterparties, as
published by Moody's Investors Service, are equal to or greater than "Baa," or
an equivalent rating from Standard and Poor's Ratings Group or Fitch Inc.
Interest Rate Hedges will involve the use of financial instruments commonly
used in today's capital markets to manage the volatility of interest rates,
including but not limited to interest rate swaps, swaptions, caps, collars,
floors, forwards, rate locks, structured notes (i.e., a debt instrument in which
the principal and/or interest payments are indirectly linked to the value of an
underlying asset or index), and short sales of U.S. Treasury securities. The
Applicants would use Interest Rate Hedges as a means of prudently managing the
risk associated with any outstanding debt by, for example, (i) converting
variable rate debt to fixed rate debt, (ii) converting fixed rate debt to
variable rate debt, or (iii) limiting the impact of changes in interest rates
resulting from variable rate debt. The transactions would be for fixed periods
and stated notional amounts, which in no case would exceed the principal amount
of the underlying debt instrument. Fees, commissions and other amounts payable
to the counterparty or exchange (excluding, however, the swap or option
payments) in connection with an Interest Rate Hedge will not exceed those
generally obtainable in competitive markets for parties of comparable credit
quality.
1.10.2 Anticipatory Hedges. In addition, National and the Subsidiaries
request authorization to enter into Anticipatory Hedges, subject to certain
limitations and restrictions. Such Anticipatory Hedges would only be entered
into with Approved Counterparties, and would be utilized to fix and/or limit the
interest rate risk associated with any new issuance through (i) a forward sale
of exchange-traded U.S. Treasury futures contracts, U.S. Treasury securities
and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options
on U.S. Treasury securities (a "Put Options Purchase"), (iii) a Put Options
Purchase in combination with the sale of call options on U.S. Treasury
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(9) The NYPSC has previously authorized Distribution to enter into interest
rate swaps with respect to both short-term and long-term indebtedness, and
a request for such continued authority will be included in Distribution's
upcoming filing.
-15-
securities (a "Zero Cost Collar"), (iv) transactions involving the purchase or
sale, including short sales, of U.S. Treasury securities, or (v) some
combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or
other derivative or cash transactions, including but not limited to 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 ("CBOT"), 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. National or a Subsidiary will
determine the optimal structure of each Anticipatory Hedge transaction at the
time of execution.
National represents that each Interest Rate Hedge and Anticipatory Hedge
will be treated for accounting purposes under generally accepted accounting
principles. National will comply with Statement of Financial Accounting Standard
("SFAS") 133 (Accounting for Derivative Instruments and Hedging Activities) and
SFAS 138 (Accounting for Certain Derivative Instruments and Certain Hedging
Activities) or other standards relating to accounting for derivative
transactions as are adopted and implemented by the Financial Accounting
Standards Board.(10)
1.11 Changes in Capital Structure of Majority-Owned Subsidiaries. The
portion of an individual Subsidiary's aggregate financing to be effected through
the sale of stock to National 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. The proposed sale of capital
securities may in some cases exceed the then authorized capital stock of such
Subsidiary. In addition, the Subsidiary may choose to use capital stock with no
par value. Also, a Subsidiary may wish to engage in a reverse stock split to
reduce franchise taxes or for other corporate purposes. As needed to accommodate
such proposed transactions and to provide for future issuances of securities,
the Applicants request authority to change the terms of any majority-owned
Subsidiary's authorized capitalization by an amount deemed appropriate by
National or other parent company, provided that the consent of all other
shareholders has been obtained for such change. A Subsidiary would be able to
change the par value, or change between par value and no-par value stock, or
change the form of such equity from common stock to limited partnership or
limited liability company interests or similar instruments, or from such
instruments to common stock, without additional Commission approval. Any such
action by Distribution would be subject to and would only be taken upon receipt
of necessary approvals by the NYPSC and PaPUC.(11)
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(10) The Commission has previously authorized substantially similar proposals.
In addition to the Current Order, see Ameren Corp., et al., Holding Co. Act
Release No. 27449 (Oct. 5, 2001).
(11) The Commission has previously authorized substantially similar proposals.
See First Energy Corp., et al., Holding Co. Act Release No. 27459 (Oct. 29,
2001).
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1.12 Non-Utility Subsidiary Reorganizations. To the extent such
transactions are not exempt from the Act or otherwise authorized or permitted by
rule, regulation or order of the Commission issued thereunder,(12) National
requests approval to consolidate or otherwise reorganize all or any part of its
direct and indirect ownership interests in Non-Utility Subsidiaries, and the
activities and functions related to such investments. To effect any such
consolidation or other reorganization, National may wish to either contribute
the equity securities of one Non-Utility Subsidiary to another Non-Utility
Subsidiary or sell (or cause a Non-Utility Subsidiary to sell) the equity
securities or all or part of the assets of one Non-Utility Subsidiary to another
one. Such transactions may also take the form of a Non-Utility Subsidiary
selling or transferring the equity securities of a subsidiary or all or part of
such subsidiary's assets as a dividend to National or to another Non-Utility
Subsidiary, and the acquisition, directly or indirectly, of the equity
securities or assets of such subsidiary, either by purchase or by receipt of a
dividend. The purchasing company in any transaction structured as an intrasystem
sale of equity securities or assets may execute and deliver its promissory note
evidencing all or a portion of the consideration given. Each transaction would
be carried out in compliance with all applicable U.S. or foreign laws and
accounting requirements, and any transaction structured as a sale would be
carried out for consideration equal to the book value of the equity securities
being sold.(13)
1.13 Certificates of Notification. National proposes to file certificates
of notification pursuant to Rule 24 that report each of the transactions carried
out in accordance with the terms and conditions of and for the purposes
represented in this Application or Declaration. Such certificates would be filed
within 60 days after the end of each of the first three fiscal quarters, and 90
days after the end of the last fiscal quarter, in which transactions occur,
commencing with the report for the quarter ended March 31, 2003. The Rule 24
certificates will contain the following information for the reporting period:
(a) Any sales of Common Stock by National, the sale price per share
and the market price per share at the date of the agreement of sale;
(b) The total number of shares of Common Stock issued or issuable
under options granted under National's benefit plans or otherwise;
(c) If Common Stock has been issued as consideration in connection
with the acquisition of securities or assets of any company, the number of
shares so issued and the market price per share at the time of issuance;
(d) The amount and terms of any Preferred Securities, Long-term Debt,
Stock Purchase Contracts and/or Stock Purchase Units issued by National
directly or indirectly through a Financing Subsidiary or Special Purpose
Subsidiary;
----------
(12) Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b), 46(a) and
58, as applicable, may exempt many of the transactions described in this
paragraph.
(13) The Commission has previously authorized substantially similar proposals.
See First Energy Corp., et al., Holding Co. Act Release No. 27459 (Oct. 29,
2001).
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(e) With respect to each participant in the Money Pool, the maximum
amount of borrowings from and loans to the Money Pool, and the interest
rate(s) applied to Money Pool borrowings and loans;
(f) The amount of any Guarantee issued, and the Subsidiary on whose
behalf such Guarantee was issued;
(g) The notional amount and a brief description of any Interest Rate
Hedge or Anticipatory Hedge entered into and the identity of the parties to
such instruments;
(h) With respect to any Financing Subsidiary or Special Purpose
Subsidiary, (i) the name of such subsidiary; (ii) the value of National's
or Non-Utility Subsidiary's investment account in such subsidiary; (iii)
the balance sheet account where the investment and the cost of the
investment are booked; (iv) the amount invested in the subsidiary by
National or Non-Utility Subsidiary, as the case may be; (v) the form of
organization (e.g., corporation, limited partnership, trust, etc.); (vi)
the percentage owned by National or Non-Utility Subsidiary, as the case may
be; (vii) the identification of other owners if not 100% owned by National
or a Non-Utility Subsidiary; (viii) the purpose of the investment in any
such subsidiary; and (ix) the amounts and types of securities to be issued
by any such subsidiary;
(i) A list of Form U-6B-2 statements filed with the Commission,
including the name of the filing entity and the date of the filing; and
(j) Consolidated balance sheets as of the end of the quarter, and
separate balance sheets as of the end of the quarter for each company,
including National, that has engaged in financing transactions authorized
in this proceeding.(14)
To the extent that any securities issued by any Financing Subsidiary or
Special Purpose Subsidiary are not set forth on the balance sheet of National or
Non-Utility Subsidiary, as the case may be, a description of the terms and
conditions of such securities will be included in the applicable certificate of
notification. Such filings will also include a representation that the financial
statements of National shall account for any Financing Subsidiary or Special
Purpose Subsidiary in accordance with generally accepted accounting principles.
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(14) Any of the information described in items (a) through (j) that is provided
in filings or reports required under the Securities Act of 1933 or the
Securities Exchange Act of 1934 may be incorporated by reference into the
Rule 24 certificate.
-18-
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The fees, commissions and expenses incurred or to be incurred in connection
with the transactions proposed herein are estimated at $75,000. The above fees
do not include underwriting fees, placement fees, rating agency fees, dealer
discounts, commitment fees and/or compensating balances, registration fees, and
other similar fees and expenses that would customarily be incurred in connection
with any specific financing transaction for which authority is sought in this
Application or Declaration, the amount of which cannot be determined at this
time. The Applicants state that, for any specific financing carried out
hereunder, such fees and expenses will not exceed 6% of the proceeds of such
financing.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
3.1 General. Sections 6(a) and 7 of the Act are applicable to the issuance
and sale by National of Common Stock, Preferred Securities, Long-term Debt,
Stock Purchase Contracts, Stock Purchase Units, and Short-term Debt. Sections
6(a) and 7 are also applicable to Interest Rate Hedges, except to the extent
that they may be exempt under Rule 52, and Anticipatory Hedges, and to changes
in the capitalization of any majority-owned Subsidiary. Section 12(b) of the Act
and Rule 45(a) are applicable to the issuance of Guarantees by National, to the
extent not exempt under Rules 45(b), and Sections 6(a) and 7 of the Act are
applicable to any Guarantee issued with respect to a security of any Subsidiary
of National. Sections 9(a)(1) and 10 of the Act are applicable to National's or
any Non-Utility Subsidiary's acquisition of the equity securities of any
Financing Subsidiary or Special Purpose Subsidiary. Sections 6(a), 7, 9(a), 10
and 12(b) of the Act are applicable to borrowings and loans pursuant to the
Money Pool, except to the extent such transactions are exempt under Rules
45(b)(1) and 52. Section 12(e) of the Act and Rules 62 and 65 are applicable to
any solicitation of shareholder approval that may be required in connection with
the adoption of any new Stock Plan or any amendment to or extension of any
existing Stock Plan. Various provisions of the Act, including Sections 6(a), 7,
9(a), 10, 12(c) and 12(f), and Rules 43, 45 and 46 thereunder, may be applicable
to any reorganization of the Non-Utility Subsidiaries. Section 32 and Rule 53(c)
are applicable to National's request to utilize proceeds of financing and issue
Guarantees to fund investments in EWGs and FUCOs in amounts greater than
permitted by Rule 53(a).
3.2 Compliance with Rules 53 and 54. The transactions proposed herein are
also subject to Rules 53 and 54. Under Rule 53(a), the Commission shall not make
certain specified findings under Sections 7(d) and 12 of the Act in connection
with a proposal by a holding company to issue securities for the purpose of
acquiring the securities of or other interest in an EWG, or to guarantee the
securities of an EWG, if each of the conditions in paragraphs (a)(1) through
(a)(4) thereof are met, provided that none of the conditions specified in
paragraphs (b)(1) through (b)(3) of Rule 53 exists. Rule 54 provides that the
Commission shall not consider the effect of the capitalization or earnings of
subsidiaries of a registered holding company that are EWGs or FUCOs in
determining whether to approve other transactions if Rule 53(a), (b) and (c) are
satisfied. These standards are currently met.
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Rule 53(a)(1): Currently, National's "aggregate investment" in EWGs and
FUCOs is $140,691,698, or approximately 25.1% of National's average
"consolidated retained earnings" for the four quarters ended March 31, 2002
($560,366,500).
Rule 53(a)(2): National will maintain books and records enabling it to
identify investments in and earnings from each EWG and FUCO in which it directly
or indirectly acquires and holds an interest. National will cause each domestic
EWG in which it acquires and holds an interest, and each foreign EWG and FUCO
that is a majority-owned subsidiary, to maintain its books and records and
prepare its financial statements in conformity with U.S. GAAP. All of such books
and records and financial statements will be made available to the Commission,
in English, upon request.
Rule 53(a)(3): No more than 2% of the employees of Distribution (National's
sole domestic public utility subsidiary) will, at any one time, directly or
indirectly, render services to EWGs and FUCOs.
Rule 53(a)(4): National will submit a copy of the Application or
Declaration in this proceeding and each amendment thereto, and will submit
copies of any Rule 24 certificates required hereunder, as well as a copy of Item
9 of National's Form U5S and Exhibits G and H thereof, to each of the public
service commissions having jurisdiction over the retail rates of Distribution.
In addition, National states that the provisions of Rule 53(a) are not made
inapplicable to the authorization herein requested by reason of the occurrence
or continuance of any of the circumstances specified in Rule 53(b).
ITEM 4. REGULATORY APPROVALS.
No state commission, and no federal commission, other than the Commission,
has jurisdiction over the proposed transactions. As previously indicated, the
NYPSC (as well as the PaPUC) have each previously authorized Distribution, a New
York corporation, to issue long-term debt securities to National, the terms of
which must mirror the terms of National's Long-term Debt. The NYPSC has also
authorized Distribution to enter into Interest Rate Hedges with respect to both
long-term and short-term debt securities. Such authorizations will be requested
again, and the terms thereof are expected to coincide with the term of the
authorization sought herein. Accordingly, these transactions are exempt under
Rule 52(a).
ITEM 5. PROCEDURE.
The Commission is requested to publish a notice under Rule 23 with respect
to the filing of this Application or Declaration as soon as practicable. The
Applicants request that the Commission's order be issued not later than December
31, 2002, and that there not be a 30-day waiting period between issuance of the
Commission's order and the date on which the order is to become effective. The
Applicants hereby waive a recommended decision by a hearing officer or any other
responsible officer of the Commission and consent to the participation of the
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Division of Investment Management in the preparation of the Commission's
decision and/or order, unless the Division of Investment Management opposes the
matters proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
A. EXHIBITS.
--------
A-1 Restated Certificate of Incorporation of National dated September
21, 1998 (incorporated by reference to Exhibit 3.1 to National's
Annual Report on Form 10-K for the fiscal year ended September
30, 1998) (File No. 1-3880).
A-2 By-Laws of National, as amended on December 13, 2001
(incorporated by reference to Exhibit 3.1 to National's amended
Annual Report on Form 10-K/A for the fiscal year ended September
30, 2001) (File No. 1-3880).
B Form of Amended and Restated National System Money Pool
Agreement, including Demand Grid Note and Intrasystem Grid
Evidence of Deposit.
C-1 Registration Statement on Form S-8, as amended (relating to
National's 1983 Incentive Stock Option Plan and 1984 Stock Plan)
(incorporated by reference to File No. 2-94539).
C-2 Registration Statement on Form S-8, as amended (relating to
National's 1993 Award and Option Plan) (incorporated by reference
to File No. 33-49693).
C-3 Registration Statement on Form S-8, as amended (relating to
National's Tax-Deferred Savings Plan) (incorporated by reference
to File No. 333-03055).
C-4 Registration Statement on Form S-8, as amended (relating to
National's Tax-Deferred Savings Plan for Non-Union Employees)
(incorporated by reference to File No. 333-03057).
C-5 Registration Statement on Form S-8, as amended (relating to
National's 1997 Award and Option Plan) (incorporated by reference
to File No. 333-51595).
C-6 Registration Statement on Form S-3, as amended (relating to
National's Common Stock and debt securities) (incorporated by
reference to File No. 333-83497).
C-7 Registration Statement on Form S-3, as amended (relating to
National's Direct Stock Purchase and Dividend Reinvestment Plan)
(incorporated by reference to File No. 333-85711).
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C-8 Registration Statement on Form S-8, as amended (relating to
National's 1997 Award and Option Plan) (incorporated by reference
to File No. 333-55124).
D None.
E Organizational Chart of the National Fuel Gas System. (Form SE -
paper format filing.)
F-1 Opinion of Thelen Reid & Priest LLP, counsel to National. (To be
filed by amendment.)
F-2 Opinion of Stryker, Tams & Dill LLP, New Jersey counsel to
National. (To be filed by amendment.)
F-3 Opinion of counsel to Subsidiaries. (To be filed by amendment.)
G Proposed Form of Federal Register Notice.
H National forecast of consolidated capitalization ratios as of
December 31 for each year 2002 through 2005, including forecast
assumptions (sources and uses). (Filed confidentially pursuant to
Rule 104.)
B. FINANCIAL STATEMENTS.
--------------------
1.1 Balance Sheet of National and consolidated subsidiaries, as of
September 30, 2001 (incorporated by reference to National's
Annual Report on Form 10-K for the fiscal year ended September
30, 2001) (File No. 1-3880).
1.2 Statements of Income of National and consolidated subsidiaries
for the twelve months ended September 30, 2001 (incorporated by
reference to National's Annual Report on Form 10-K for the fiscal
year ended September 30, 2001) (File No. 1-3880).
1.3 Balance Sheet of National and consolidated subsidiaries, as of
March 31, 2002 (incorporated by reference to National's Quarterly
Report on Form 10-Q for the period ended March 31, 2002) (File
No. 1-3880).
1.4 Statements of Income of National and consolidated subsidiaries
for the three months ended March 31, 2002 (incorporated by
reference to National's Quarterly Report on Form 10-Q for the
period ended March 31, 2002) (File No. 1-3880).
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1.5 Balance Sheet of Distribution, as of March 31, 2002.
1.6 Statement of Income of Distribution for the twelve months ended
March 31, 2002.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
None of the matters that are the subject of this Application or Declaration
involve a "major federal action" nor do they "significantly affect the quality
of the human environment" as those terms are used in section 102(2)(C) of the
National Environmental Policy Act. The transaction that are the subject of this
Application or Declaration will not result in changes in the operation of the
Applicants that will have an impact on the environment. The Applicants are not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
Application or Declaration.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this Application or
Declaration filed herein to be signed on their behalf by the undersigned
thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
HORIZON ENERGY DEVELOPMENT, INC.
By: /s/ Philip C. Ackerman
-------------------------
Name: Philip C. Ackerman
Title: President
NATIONAL FUEL GAS SUPPLY CORPORATION
By: /s/ Dennis J. Seeley
-------------------------
Name: Dennis J. Seeley
Title: President
NATIONAL FUEL GAS DISTRIBUTION
CORPORATION
DATA-TRACK ACCOUNT SERVICES, INC.
By: /s/ David F. Smith
-------------------------
Name: David F. Smith
Title: President
(signatures continued on next page)
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HORIZON POWER, INC.
By: /s/ Bruce H. Hale
-------------------------
Name: Bruce H. Hale
Title: President
NATIONAL FUEL RESOURCES, INC.
By: /s/ Gerald T. Wehrlin
-------------------------
Name: Gerald T. Wehrlin
Title: President
SENECA RESOURCES CORPORATION
HIGHLAND FOREST RESOURCES, INC.
UPSTATE ENERGY INC.
NIAGARA INDEPENDENCE MARKETING COMPANY
By: /s/ James A. Beck
-------------------------
Name: James A. Beck
Title: President
LEIDY HUB, INC.
SENECA INDEPENDENCE PIPELINE COMPANY
By: /s/ Walter E. DeForest
-------------------------
Name: Walter E. DeForest
Title: President
Date: July 18, 2002
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