File No. 70-
As filed with the Securities and Exchange Commission on January 18, 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
----------------------------------------------------------------------
Dominion Resources, Inc. Dominion Oklahoma Texas Exploration
120 Tredegar Street & Production, Inc.
Richmond, VA 23219 Four Greenspoint Plaza
16945 Northchase Drive, Suite 1750
Houston, TX 77060
(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, VA 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.
Managing Counsel
Dominion Resources Services, Inc.
Dominion Tower, 625 Liberty Avenue
Pittsburgh, PA 15222
APPLICATION-DECLARATION
UNDER
SECTION 12(c) AND RULE 46
OF
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
FOR APPROVAL OF
PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS
Item 1. Description of Proposed Transactions.
I. Introduction and Background
Dominion Resources, Inc. ("DRI") is a Virginia corporation and a
registered holding company under the Public Utility Holding Company Act of
1935 ("Act"). DRI, through its subsidiaries, is engaged in the energy
business, principally in retail electricity and natural gas sales,
electric and gas distribution, wholesale natural gas and electric
generation and electricity sales, interstate gas transportation, and
natural gas exploration and production activities.
One of the principal subsidiaries of DRI is Consolidated Natural Gas
Company ("CNG") which is also a registered holding company under the Act
solely by reason of ownership of voting securities of gas utility
companies.(1) CNG, through its subsidiaries, is engaged in producing,
transporting and acting as a retail marketer of natural gas serving
customers in Pennsylvania, Ohio, West Virginia, New York and other cities
focused in the Northeast and Mid-Atlantic regions of the United States.
Other major subsidiaries of DRI are (i) Virginia Electric and Power
Company, a regulated public utility engaged in the generation, transmission,
distribution and sale of electric energy in Virginia and northeastern North
Carolina, and (ii) Dominion Energy, Inc. an independent power and natural gas
company. DRI and all of its subsidiaries are referred to herein as the
"DRI System."
______________
(1) The gas utility companies in the CNG system are The East Ohio Gas
Company, The Peoples Natural Gas Company and Hope Gas, Inc.
II. Payment of Dividends Out of Capital and Unearned Surplus of Recently
Acquired Subsidiary
On November 1, 2001, CNG acquired Louis Dreyfus Natural Gas Corp. ("LD"),
a company engaged in natural gas exploration and production in the United
States.(2) The acquisition was effected pursuant to a merger agreement
("Agreement") among DRI, CNG and LD. Pursuant to the Agreement, each LD
shareholder received $20 in cash and 0.3226 shares of DRI common stock for
each share of LD common stock owned.(3) LD was merged (the "Merger") with
Dominion Oklahoma Texas Exploration & Production, Inc. ("DOTEPI"), a newly
formed wholly-owned subsidiary of DRI. DOTEPI was the surviving company
as a result of the Merger. The common shares of DOTEPI were, as part
of the acquisition transaction, immediately contributed by DRI to CNG. The
acquisition was financed in part through the issuance of long-term debt and
trust preferred securities by CNG, the proceeds of which were loaned to
DOTEPI for payment of the cash portion of the consideration paid to the LD
shareholders. The acquisition was accounted for by the purchase method of
accounting. CNG has also guaranteed payment on two series of LD publicly
owned notes which had an aggregate outstanding principal amount of $293.7
million at November 1, 2001.
DOTEPI seeks authorization to pay dividends to CNG out of its capital
and unearned surplus to compensate for the accounting treatment of the Merger
which resulted, in effect, in the recharacterization of LD's retained
earnings as paid-in-capital of DOTEPI in accordance with the application of
the purchase method of accounting. The effect of this accounting convention
left DOTEPI with no retained earnings, the traditional source of dividend
payment. But DOTEPI, nevertheless, has a strong balance sheet showing a
significant common stock equity level. In fact, DOTEPI before the acquisition
had sufficient retained earnings to pay dividends to its shareholders in
accordance with Rule 46, but such dividends are trapped at the DOTEPI level
and cannot be paid to DOTEPI's new shareholder, CNG. Thus, DOTEPI now
requests authorization to pay dividends out of its paid-in-capital account.
The amount of such dividends would be limited to the amount of LD's
retained earnings just prior to the Merger.(4)
______________
(2) The common stock of DOTEPI was acquired by CNG pursuant to
Rule 58. LD was merged into a wholly-owned subsidiary of
DRI, the common stock of which, as part of the transaction,
was immediately contributed by DRI to CNG. Continuing
Information on DOTEPI, a gas-related company under the rule,
will be reported on CNG's quarterly filings on Form U-9C-3.
(3) The issuance of DRI common stock was authorized in
Commission order dated May 24, 2001, HCAR No. 9555.
(4) The amount of LD's retained earnings as of October 31, 2001
was $302,701,000.
2
Section 12 of the Act, and Rule 46 thereunder, generally prohibit the
payment of dividends out of "capital or unearned surplus" except pursuant to
an order of the Commission. The legislative history explains that this
provision was intended to "prevent the milking of companies in the interest
of the controlling holding company groups." S. Rep. No. 621, 74th Cong.,
1st Sess. 34 (1935). In determining whether to permit a registered holding
company or a subsidiary thereof to pay dividends out of capital surplus, the
Commission considers various factors, including: (i) the asset value of the
company in relation to its capitalization, (ii) the company's prior earnings,
(iii) the company's current earnings in relation to the proposed dividend,
and (iv) the company's projected cash position after payment of a dividend.
See The National Grid Group plc, HCAR No. 35-27154 (March 15, 2000); Eastern
Utilities Associates, HCAR No. 35-25330 (June 13, 1991); and cases cited
therein. Further, the payment of the dividend must be "appropriate in the
public interest." Id., citing Commonwealth & Southern Corporation, 13 S.E.C.
489, 492 (1943). DOTEPI requests authority for it to pay dividends out of
paid-in-capital only up to the amount of LD's consolidated retained
earnings just prior to the Merger.
DOTEPI, as successor to LD, asserts that each of the standards of
Section 12(c) of the Act are satisfied.
1. DOTEPI's shareholders' equity comprised approximately 72.96%
of total capitalization as of October 31, 2001. DOTEPI has
sufficient retained earnings to support its payment of
dividends to CNG in accordance with Rule 46.
2. DOTEPI had net income of $21 million and $98 million for
the years ended December 31, 1999 and 2000, respectively.
3. The projected cash position of DOTEPI will be adequate to
meet its dividend obligations.
4. A prohibition on dividend payment out of paid-in-capital
would seriously harm the ability of CNG to service the
acquisition debt incurred in connection with the Merger.
5. DOTEPI is not a utility company, and its payment of
dividends out of paid-in-capital within the limits
requested would not adversely affect the financial health
of any utility company in the DRI System.
Based upon the above, DOTEPI's request to pay dividends from capital
surplus does not contravene the intent of Section 12. DOTEPI's proposal is
primarily motivated by an exceptional circumstance, i.e. the elimination of
its outstanding retained earnings balance as a result of the Merger.
DOTEPI's situation is not of the type that Section 12(c) is designed to
address. The granting of the request should not be detrimental to the
financial integrity or working capital of DOTEPI. The relief from dividend
restriction requested for DOTEPI herein is similar to that granted to CNG by
Commission order dated October 5, 2000, HCAR No. 27242.
3
III. Request to Pay Dividends Out of Capital and Unearned Surplus of
Nonutility Subsidiaries Generally
To the extent not exempt from the Act or not otherwise limited by prior
authorizations, DRI requests authorization for any nonutility company in the
DRI System to declare and pay dividends out of capital or unearned surplus
(including revaluation reserve) to its immediate parent companies, subject
to applicable corporate law and any applicable financing agreement that
restricts distributions to shareholders. The use of distributable excess
cash, otherwise "trapped" by the restriction on payment of dividends out of
capital or unearned surplus in Section 12(c) of the Act, to pay dividends
ultimately to DRI will benefit the DRI System by enabling the holding
company to reduce or refinance borrowings and to fund operations of the
system companies.
Similar requests for nonutility companies to pay dividends out of capital
or unearned surplus were authorized by the Commission in Entergy Corporation,
et al., HCAR No. 27039 (June 22, 1999), Nisource, Inc., et al., HCAR No. 27265
(November 1, 2000), and Progress Energy, Inc., et al., HCAR No. 27297
(December 12, 2000).
IV. Rule 53 Compliance
DRI meets all of the conditions of Rule 53(a), except for Rule 53(a)(1),
and none of the adverse conditions specified in Rule 53(b) exist. At
September 30, 2001, DRI's aggregate investment, as defined in Rule 53(a)(1),
in exempt wholesale generators ("EWGs") and foreign utility companies
("FUCOs")was approximately $3.412 billion. This amount exceeds the 50%
"safe harbor" limitation contained in the rule. DRI's consolidated retained
earnings as of September 30, 2001 were $1.213 billion. However, DRI has,
pursuant to Commission orders dated May 24, 2001 and December 28, 2001,
HCAR Nos. 27406 and 27485 respectively, authority to make investments in
EWGs and FUCOs up to its consolidated retained earnings plus $4.5 billion.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with seeking the authorizations herein requested
are estimated to be $15,000. This amount includes payments to be made to
counsel and Dominion Resources Services, Inc.
4
Item 3. Applicable Statutory Provisions.
The Section 12(c) of the Act and Rule 46 under the Act are or may be
directly or indirectly applicable to the proposed transactions for which
authorization is sought in this Application-Declaration.
Item 4. Regulatory Approvals.
No state commission and no other Federal commission has jurisdiction
over the proposed transactions.
Item 5. Procedure.
It is respectfully requested that the Commission issue and publish as
soon as possible a notice with respect to the filing of this Application-
Declaration.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the
proposed transaction. The Division of Investment Management may assist in
the preparation of the Commission's decision. There should be no waiting
period between the issuance of the Commission's order and the date on which
it is to become effective.
Item 6. Exhibits and Financial Statements
(a) Exhibits
F-1 Legal opinion.
(To be filed by amendment)
H Proposed form of Federal Register notice.
5
(b) Financial Statements
Financial statements of LD are incorporated by reference to LD's annual
report for the year ended December 31, 2000 on Form 10-K and to LD's quarterly
reports for the quarters ending March 31 and June 30, 2001 on Forms 10-Q
(File No. 1-12480). Financial statements of DOTEPI will be provided
quarterly as part of CNG's Form U-9C-3 filings. DRI will furnish any
additional financial information that the Commission shall request.
Item 7. Information as to Environmental Effects.
The authorizations requested herein do not involve a "major federal
action" nor "significantly affect the quality of the human environment" as
those terms are used in Section 10(2)(C) of the National Environmental Policy
Act, 42 U.S.C. Section 4321, et seq. The only federal actions pertain to the
Commission's approval of this Application-Declaration seeking authorization to
engage in certain financing and managerial activities under the 1935 Act.
No federal agency is preparing an environmental impact statement with respect
to this matter.
6
SIGNATURES
Pursuant to the Public Utility Holding Company Act of 1935, the
undersigned companies have caused this Application-Declaration to be signed
on their behalf by the undersigned thereunto duly authorized.
DOMINION RESOURCES, INC.
DOMINION OKLAHOMA TEXAS
EXPLORATION & PRODUCTION, INC.
By: James F. Stutts
__________________
Name: James F. Stutts
Title: Vice President and
General Counsel of
Dominion Resources, Inc.
and attorney for Dominion
Oklahoma Texas Exploration &
Production, Inc.
January 18, 2002
7
Exhibit H
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. / , 2002
_________________________________________________
In the Matter of :
:
DOMINION RESOURCES, INC., :
120 Tredegar Street :
Richmond, Virginia 23219 :
:
DOMINION OKLAHOMA TEXAS EXPLORATION :
& PRODUCTION, INC. :
Four Greenspoint Plaza :
16945 Northchase Drive, Suite 1750 :
Houston, TX 77060 :
:
(70- ) :
_________________________________________________:
NOTICE OF PROPOSED PAYMENT OF DIVIDENDS OUT OF CAPITAL AND
UNEARNED SURPLUS
Dominion Resources, Inc. ("DRI") is a registered holding company under
the Public Utility Holding Company Act of 1935 ("1935 Act"). Consolidated
Natural Gas Company ("CNG") is a wholly-owned subsidiary of DRI and a
registered gas holding company under the 1935 Act. Dominion Oklahoma
Texas Exploration & Production, Inc. ("DOTEPI") is a wholly-owned
subsidiary of CNG. DRI and DOTEPI have filed with the Commission an
Application-Declaration pursuant to the 1935 Act, designating Section 12(c)
and Rules 46 promulgated thereunder as applicable to the proposed
transactions.
On November 1, 2001, CNG acquired DOTEPI in a transaction involving the
merger of Louis Dreyfus Natural Gas Corp. into DOTEPI. The merger resulted
in a conversion of the retained earnings of Louis Dreyfus Natural Gas Corp.
into paid-in-capital on the books of DOTEPI, the surviving company of the
merger. DOTEPI seeks authorization to pay dividends to CNG out of its capital
or unearned surplus up to the amount of the converted retained earnings.
8
Additionally, DRI seeks, to the extent not exempt from the 1935 Act or
not otherwise limited by prior authorizations, authorization for any
nonutility company in the DRI system to declare and pay dividends out of
capital or unearned surplus to its immediate parent companies.
The Application or Declaration and any amendments thereto are available
for public inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing should submit
their views in writing by January , 2002 to the Secretary, Securities and
Exchange Commission, Washington, D.C. 20549, and serve a copy on DRI and LD
at the address specified above. Proof of service (by affidavit or, in case
of any attorney at law, by certificate) should be filed with the request.
Any request for a hearing shall identify specifically the issues of fact or
law that are disputed. A person who so requests will be notified of any
hearing, if ordered, and will receive a copy of any notice or order issued
in this matter. After said date, the Application-Declaration, as filed or
as it may be amended, may be permitted to become effective.
For the Commission, by the Office of Public Utility
Regulation, pursuant to delegated authority.
Jonathan G. Katz
Secretary
9