File No. 70-9555
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective
Amendment No. 1
to
FORM U-1
APPLICATION OR DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
(Name of company filing this statement and address of principal
executive offices)
Dominion Resources, Inc.
(Name of top registered holding company
parent of each applicant or declarant)
James F. Stutts
Vice President and
General Counsel
Dominion Resources, Inc.
120 Tredegar Street
Richmond, Virginia 23219
(Name and address of agent for service)
The Commission is also requested to send copies of any
communication in connection with this matter to:
Norbert F. Chandler, Esq. John D. McLanahan
Managing Counsel Robert P. Edwards, Jr.
Dominion Resources Services, Inc. Troutman Sanders
Dominion Tower 600 Peachtree Street, NE
625 Liberty Avenue Suite 5200
Pittsburgh, PA 15222 Atlanta, Georgia 30308
POST EFFECTIVE
AMENDMENT NO. 1
TO
APPLICATION-DECLARATION
UNDER
Sections 6(a), 7, 9(a), 10, 12(b), 12(c), 12(f), 32 and 33
AND
RULES 42, 45, 46, 53, and 54
OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FOR APPROVAL OF
SYSTEM-WIDE FINANCING AUTHORITY
ISSUANCE OF SECURITIES, GUARANTEES AND CREDIT SUPPORT IN
CONNECTION WITH INVESTMENT IN EXEMPT WHOLESALE GENERATORS
AND FOREIGN UTILITY COMPANIES
TAX ALLOCATION AGREEMENT
AND INVESTMENT AND PARTICIPATION IN NON-UTILITY BUSINESSES
Dominion Resources, Inc. ("DRI") amends the foregoing application
solely to supplement the record and to request that the Commission release
jurisdiction it reserved over a portion of the proposed incremental
authority to invest in Exempt Wholesale Generators ("EWGs") and
Foreign Utility Companies ("FUCOs") from the proceeds of new financings or
by way of guarantees. DRI notes that the Commission previously reserved
jurisdiction in HCAR No. 27406 (May 24, 2001) over the $6,000,000,000 in
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incremental EWG and FUCO investment authority identified in Section B(3)(ii)
of the foregoing application as additional to the $2,861,000,000 amount
previously invested in EWGs and FUCOs. DRI respectfully requests that
the Commission authorize aggregate investment in EWGs and FUCOs from the
proceeds of financings authorized in this Application in the amount of
100% of consolidated retained earnings plus $4,500,000,000, and continue
reserving jurisdiction over the remaining portions of the original
requested authority of 100% of consolidated retained earnings plus
$8,000,000,000 (which currently equates to reserved jurisdiction over
$3,500,000,000 of remaining incremental authority).
The record in this matter demonstrates that the requested authority
"will not have a substantial adverse impact upon the financial integrity
of the registered 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 supplements the record in this matter by showing the
following particular facts and circumstances that support the Commission
finding that none of the prohibited adverse effects will occur as a
result of the grant or exercise of the requested authority.
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 shows the following:
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1. DRI's consolidated aggregate investment in EWGs and FUCOs as of
September 30, 2001 was $3,111,300,000. EWG investment constituted 99%
of that investment. DRI's consolidated retained earnings as of
September 30, 2001, were $1,213,000,000.
2. The requested authority represents 25% of DRI's consolidated
capitalization, 36% of net utility plant, 18% of consolidated assets, and
39% of the market value of its common stock as of September 30, 2001.
These relationships compare favorably with those reflected in applications
at the various times the Commission has approved investment of the proceeds
of registered holding company system securities issuances in excess of
50% of consolidated retained earnings. In First Energy Corp.,Inc.,
HCAR No. 27459 (October 29, 2001), ("First Energy")the Commission noted
that the historic average of requested authorizations as a percentage of
consolidated capitalization had been 21.4%; 20% of net utility plant;
14.4% of consolidated assets, and 28% of the market value of outstanding
common stock. In First Energy, the approved authorization amounted to 25%
of consolidated capitalization, 35.7% of net utility plant, 12.8% of
consolidated assets, and 58.5% of the market value of outstanding common
stock. DRI's financial ratios compare favorably with those approved in
First Energy and the above-described historic relationships.
The Commission's decisions reflect three fundamental changes that are
not reflected in averages derived from the past. First, nine years since
the passage of the Energy Policy Act, EWGs have become the main new source
of domestic power. This has occurred as a result of a number of factors,
including the increased financing flexibility and asset liquidity associated
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with EWGs and the facilitation by the Federal Energy Regulatory Commission
("FERC") of a robust wholesale power market.
Second, the risk mix has changed dramatically. Following passage of
the Energy Policy Act, exempt project investment opportunities were
predominantly FUCOs and foreign EWGs. This resulted from privatization
in Latin America and Asia, and restructuring in Europe and Australia.
Restructuring in the United States only began in earnest with the adoption
of Order 888 by FERC in 1996, increasing investment opportunities in EWGs.
The evolution of the enormous integrated wholesale power market in the
Eastern Interconnected Region of the United States is documented in
and provides the basis for the Commission's approval of the merger of the
Chicago and Philadelphia based electric utility systems in Exelon Corp.,
HCAR 27256 (October 19, 2000). The evolution of the United States and
foreign electricity market outlined in this Application is further
documented by reports periodically issued by the Energy Information
Administration of the United States Department of Energy, available at
http://www.eia.doe.gov/cneaf/electricity/page/restructure.html.
Third, as exemplified by the Exelon merger, the size of domestic
wholesale energy markets has grown significantly in the wake of FERC
Order 888, increasing the scale of domestic EWG investment opportunities.
As shown above, the importance of domestic EWGs in meeting public
service requirements in the United States through wholesale power sales
in large interconnected wholesale power markets has grown exponentially.
Also, the relative risk of exempt project investment, resulting from a
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high proportion of FUCO and foreign EWG investment versus domestic EWG
investment has declined. The order in First Energy and this Application
are consistent with these developments.
DRI's business strategy and the requested authorization reflect
this evolution of the energy market in the United States, 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 will 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.
3. DRI commits that common equity will comprise at least 30%
of its consolidated capitalization throughout the period of time this
authorization is in effect. As of September 30, 2001, its common equity
comprised 33.5% of DRI's consolidated capitalization.
4. 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 during the authorization period to maintain at least an
investment grade corporate senior unsecured debt rating from at least
one nationally recognized statistical rating agency.
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5. The success of the business strategy being pursued by DRI is shown
by several indicators. In addition to the increase in consolidated retained
earnings documented in this file, the existing investments by DRI in EWGs
and FUCOs have made a positive contribution to revenues and earnings.
Dominion Energy, Inc. ("DEI") is the entity in which virtually all of DRI's
non-utility generation operations are conducted, including EWG investments
such as the Kincaid Power Station and the Elwood Energy peaking facility in
Illinois. For the fiscal period ended December 31, 1999, DEI's domestic
power generation unit, which houses these EWG investments, recognized
revenues of $92,368,000, net income of $25,713,000, and retained earnings
of $62,894,000. For the fiscal period ended December 31, 2000, DEI's domestic
power generation unit recognized revenues of $124,758,000, net income of
$27,212,000, and retained earnings of $84,494,000.
6. DRI has suffered none of the adverse conditions specified by Rule
53(b), including bankruptcy of an associate company, 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 will promptly file
a post-effective amendment in this file should any of the adverse conditions
specified by Rule 53(b) occur.
7. Every potential investment in EWGs and FUCOs undergoes a series
of reviews by project managers responsible for identifying business
opportunities, senior management and the Board of Directors of DEI and,
in some cases, senior management and the Board of Directors of DRI.
The Board of Directors of DRI reviews each EWG or FUCO investment in
excess of $50 million.
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8. 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.
Economic Viability of the Project. Analysis of the economic
viability of the project includes consideration of the overall
industry environment (e.g. progress towards restructuring) in
the competitive region, 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.
Political and Regulatory Risk. 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. This analysis is a critical component of DRI's
investment review as each of the 50 states and the U.S. Congress
consider utility industry restructuring and has always been a
threshold level review in the analysis of non-U.S. investments.
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.
Non-Recourse Financing. To the extent commercially
practicable, DRI obtains financing for its EWG and FUCO projects
on a basis that is non-recourse to DRI, and relies upon an intermediate
subsidiary, DEI, to be the primary source of credit support for
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EWG and FUCO investment.
Strategic Fit. Finally, DRI is particularly sensitive to
ensuring that its independent energy investments contribute to DRI's
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.
9. DRI's risk mitigation includes structural separation of project
investments, and maintenance of a diverse project mix from the perspectives
of greenfield projects versus acquisitions of existing plants, geographic
diversity, risk sharing with joint venturers, and fuel diversity. DRI's
principal investments under its "MAIN to Maine" business plan are in well
established, growing, and fundamentally stable energy markets.
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 any such subsidiary or its customers impact
prohibited by Rule 53(c)(2), DRI supplements the record by showing the
following:
1. All EWG and FUCO projects will be structurally separate from public
utility company operations in that they are owned by corporations, limited
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liability companies, or partnerships that are held in corporate chains of
ownership independent of DRI's public utility company subsidiaries.
2. No public utility company subsidiary of DRI will indemnify or
guarantee the obligations of EWG or FUCO projects.
3. Each of the public utility subsidiaries of DRI maintains investment
grade corporate credit ratings and debt ratings as determined by Moody's
and S&P. 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 common equity
will comprise at least 30% of its respective consolidated capitalization.
4. The public utility company subsidiaries of DRI operate in states
with well established and duly authorized state public service commissions
which 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.
Typical of the state commission authority over regulated public utility
company rates and service rendered by DRI subsidiaries is that of the North
Carolina Public Service Commission, established by Chapter 62 of the General
Statutes of North Carolina. This statutory authority includes general
supervision over the public utility, supervision over rates and service,
the authority and responsibility to value property and establish a uniform
system of accounts, the authority to conduct investigations and inspect books
and records, and the authority and responsibility to prescribe just and
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reasonable rates based upon a fair rate of return determined in proceedings
conducted by the state commission. North Carolina Gen. Stats. Sections 62-2,
62-30, 62-32, 62-34, 62-35, 62-45, 62-133.
5. 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.
6. Within sixty days after the end of each of the first three calendar
quarters and ninety days after the end of the last calendar quarter,
commencing with the first full calendar quarter ending at least forty five
days following the date of this order, DRI will file a quarterly certificate
with the Commission pursuant to Rule 24 containing the following information
(in each case as of the end of the calendar quarter just completed, except as
otherwise noted):
1. A computation in accordance with Rule 53(a)
setting forth DRI's "aggregate investment" in all
EWGs and FUCOs, its "consolidated retained
earnings" and a calculation of the amount
remaining under the EWG/FUCO financing
authorization;
2. A breakdown showing DRI's aggregate investment
in each EWG or FUCO counting against the
EWG/FUCO authorization;
3. Consolidated capitalization ratio of DRI,
with consolidated debt to include all short-term
debt and nonrecourse debt of all EWGs and FUCOs;
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4. The market-to-book ratio of DRI's common stock;
5. Identification of any new EWG or FUCO in which
DRI has invested or committed to invest during the
preceding quarter counting against the EWG/FUCO
financing authority;
6. Analysis of the growth in consolidated retained
earnings that segregates total earnings growth of
EWGs and FUCOs from that attributable to other
subsidiaries of DRI;
7. A statement of revenues and net income for each
EWG and FUCO for the year-to-date period ending
as of the end of that fiscal quarter.
No state or other federal regulatory authority has jurisdiction over
the subject matter of this Application, and no further regulatory approval
is required.
For the reasons shown in the foregoing Application, as amended herein,
DRI has demonstrated that the exercise of the requested authority to issue
securities in order to finance investments in EWGs and FUCOs will not
have any of the adverse impacts identified by Rule 53(c). The
demonstration made herein is consistent with the Commission's decisions
in First Energy; The National Grid Group plc, HCAR No. 27154
(March 15, 2000); Conectiv, HCAR No. 27213 (August 12, 2000); and
American Electric Power Co., HCAR No. 26864 (April 27, 1998).
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The fees and expenses incurred associated with this amended
Application are $15,000.00.
DRI respectfully requests that the Commission continue to
reserve jurisdiction over the other authority and matters over
which it reserved jurisdiction in HCAR No. 27406 (May 24, 2001),
including the DRI tax allocation agreement, the effect of re-
characterization of public utility assets as eligible facilities
or their transfer to EWGs, and the remaining increased authority to
invest in EWGs and FUCOs sought in this file.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned companies have duly caused this amendment to
be signed on their behalf by the undersigned thereunto duly authorized.
Date: December 27, 2001
DOMINION RESOURCES, INC.
By: ____________________
James F. Stutts
Vice President and
General Counsel
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