(As filed December 30, 2003)
File No. 70-10168
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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FORM U-1/A
Amendment No. 2
to
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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NATIONAL FUEL GAS COMPANY
NATIONAL FUEL GAS SUPPLY CORPORATION
EMPIRE STATE PIPELINE
UPSTATE ENERGY INC.
6363 Main Street
Williamsville, New York 14221
NATIONAL FUEL RESOURCES, INC.
165 Lawrence Bell Drive, Suite 120
Williamsville, New York 14221
SENECA RESOURCES CORPORATION
1201 Louisiana Street, Suite 400
Houston, Texas 77002
(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)
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Philip C. Ackerman
Chairman of the Board, President, and Chief Executive Officer
National Fuel Gas Company
6363 Main Street
Williamsville, New York 14221
(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, Esq. Andrew F. MacDonald, Esq.
National Fuel Gas Company Thelen Reid & Priest LLP
6363 Main Street 701 Pennsylvania Avenue, N.W.
Williamsville, New York 14221 Washington, DC 20004
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The Application or Declaration filed in this proceeding on September 16,
2003, as amended by Amendment No. 1, dated November 5, 2003, is hereby amended
and restated in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
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1.1 Description of Applicants' Business.
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National Fuel Gas Company ("National") is a public-utility holding company
registered under the Public Utility Holding Company Act of 1935, as amended (the
"Act"). Through its direct and indirect subsidiaries, National is engaged in all
phases of the natural gas business, namely: exploration, production, purchasing,
gathering, processing, transportation, storage, retail distribution, and
wholesale and retail marketing. National owns all of the issued and outstanding
common stock of National Fuel Gas Distribution Corporation ("Distribution"), a
gas-utility company which distributes natural gas at retail to approximately
733,000 residential, commercial and industrial customers (including
transportation-only customers) in portions of western New York and northwestern
Pennsylvania. National's principal gas-related non-utility subsidiaries include
National Fuel Gas Supply Corporation ("Supply"), Empire State Pipeline
("Empire"), Seneca Resources Corporation ("Seneca"), National Fuel Resources,
Inc. ("Resources"), and Upstate Energy Inc. ("Upstate Energy").
Supply, an interstate pipeline company, transports and stores natural gas
for Distribution and for other utilities, pipelines, marketers and large
industrial customers in the northeastern United States. Supply owns and operates
a 2,900-mile pipeline network that extends generally from southwestern
Pennsylvania to the U.S.-Canadian border at Niagara Falls. It is regulated by
the Federal Energy Regulatory Commission as a natural gas company under the
Natural Gas Act of 1938.
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Empire, an intrastate pipeline company, transports natural gas for
Distribution and for other utilities, large industrial customers and power
producers in New York State. Empire owns a 157-mile pipeline that extends
generally from the U.S.-Canadian border at the Chippawa Channel of the Niagara
River near Buffalo, N.Y., to near Syracuse, N.Y. It is regulated by the New York
Public Service Commission.
Seneca is engaged in the business of exploration and development of natural
gas and oil producing reserves in California, in the Appalachian region of the
United States, in Wyoming and in the Gulf Coast region of Texas and Louisiana.
In addition, Seneca conducts exploration and production operations through
subsidiaries in the provinces of Alberta, Saskatchewan and British Columbia in
Canada.
Resources markets natural gas to approximately 22,000 industrial,
commercial and residential customers under long-term agreements, and provides
other related energy services to these end-use customers. Upstate Energy engages
through subsidiaries in gas marketing and related activities. Neither Resources
nor Upstate Energy owns or operates facilities for the distribution of gas at
retail or for the generation, transmission or distribution of electricity for
sale.
For the twelve months ended June 30, 2003, National had operating revenues
of approximately $2.0 billion, of which $1.1 billion were attributable to
regulated utility gas sales, $200 million to pipeline and storage operations,
and $300 million to exploration and production activities. As of June 30, 2003,
National and its subsidiaries had total assets of approximately $3.8 billion,
including $1.3 billion in net utility (i.e., distribution) plant, $786 million
in net pipeline and storage plant, and $1.1 billion in net exploration and
production property, plant and equipment.
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1.2 Relationship to Other Authorizations.
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By order dated December 16, 1999 in File No. 70-9525,(1) the Commission
authorized National, through its non-utility subsidiaries, to acquire through
December 31, 2003 the equity and debt securities of one or more companies that
are engaged in or are formed to engage in certain categories of non-utility
gas-related operations outside the United States ("Foreign Energy Affiliates").
Specifically, the Commission authorized National and its non-utility
subsidiaries to invest up to $300 million through December 31, 2003 in the
securities of such companies. The Commission also authorized Resources and
Upstate Energy to engage directly in marketing and brokering and related
activities in Canada. By order dated December 27, 2000 in File No. 70-9525,(2)
the Commission authorized an increase in the investment limitation from $300
million to $800 million. The applicants now request that the Commission amend,
restate and modify such orders as set forth herein. The Commission's order in
this proceeding would have the effect of extending National's authority to
acquire the securities of or other interests in Foreign Energy Affiliates
through December 31, 2006.
Empire and Upstate Energy are "gas-related companies" within the meaning of
Rule 58. A description of Empire's and Upstate Energy's direct or indirect
activities outside the United States (including the amounts invested in the
securities of any Foreign Energy Affiliates) would be included as part of the
Form U-9C-3 report filed on their behalf by National.
1.3 Proposed Transactions.
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Summary: National, through Supply, Empire, Seneca, Resources and Upstate
Energy (collectively, the "Non-Utility Subsidiaries"), or through one or more
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(1) See National Fuel Gas Company, et al., Holding Company Act Rel. No. 27114.
(2) See National Fuel Gas Company, et al., Holding Company Act Rel. No. 27320.
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non-utility subsidiaries newly organized by National for such purpose, or one or
more newly organized or existing non-utility subsidiaries of Supply, Empire,
Seneca, Resources or Upstate Energy (collectively, the "Intermediate
Subsidiaries"), herein requests authority to acquire from time to time through
December 31, 2006 (the "Authorization Period"), in one or more transactions, the
securities of or other interests in one or more Foreign Energy Affiliates. In
general, the operations of Foreign Energy Affiliates would be substantially
similar to those that the Non-Utility Subsidiaries now engage in, directly, in
the United States. National and the Non-Utility Subsidiaries propose to invest
in the securities of or other interests in Foreign Energy Affiliates in an
aggregate amount not to exceed $800 million outstanding at any one time (the
"Investment Limitation"). In addition, Resources and Upstate Energy request
authority to engage directly in marketing and brokering and related activities
in Canada. Finally, the Non-Utility Subsidiaries, Intermediate Subsidiaries and
Foreign Energy Affiliates request that they be permitted to pay dividends from
time to time through the Authorization Period out of capital and unearned
surplus and/or retire or reacquire any securities that have been issued to an
associate company.
The details of National's requests are set forth in the remaining
paragraphs of this Section 1.3.
Exploration & Production Activities: National, through one or more
Intermediate Subsidiaries, and Seneca, directly or through one or more
Intermediate Subsidiaries, propose to acquire the securities of, or other
interests in, one or more Foreign Energy Affiliates that are engaged in or
formed to engage in natural gas and oil exploration and production operations
("Exploration & Production Activities"). The operations of any such companies
would be substantially similar to those of Seneca in Canada and the United
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States. National, Seneca and the Intermediate Subsidiaries request that the
Commission reserve jurisdiction over investments in Foreign Energy Affiliates
outside Canada and Mexico.
Marketing & Brokering Activities: Resources and Upstate Energy propose to
engage directly in marketing and brokering and related activities in Canada. In
additions, National, through one or more Intermediate Subsidiaries, and
Resources and Upstate Energy, directly or through one or more Intermediate
Subsidiaries, propose to acquire the securities of, or other interests in, one
or more Foreign Energy Affiliates that are engaged in or formed to engage in
brokering and marketing of natural gas and other energy commodities and
incidental and related activities ("Marketing & Brokering Activities"). These
incidental and related activities would include, for example, the operation of
natural gas or oil storage facilities, natural gas gathering and/or processing
facilities, and pipeline spurs to serve industrial customers, power generators
or utilities, and the operation of meters, regulators, and other similar
non-utility equipment. Incidental and related activities would also include the
performance of energy management services, risk management services and the
design and installation of energy saving systems. National, Resources, Upstate
Energy and the Intermediate Subsidiaries request that the Commission reserve
jurisdiction over investments in Foreign Energy Affiliates outside Canada and
Mexico.
It is contemplated that Marketing & Brokering Activities of Resources and
Upstate Energy in Canada and Mexico would be substantially similar to the
operations of Resources and Upstate Energy in the United States, allowing,
however, for such limitations or restrictions as may be imposed under applicable
regulatory laws of Canada or Mexico. Brokering transactions would involve acting
as a middle-man, usually for a fee, in structuring transactions in energy
commodities between unrelated parties. Marketing transactions may take a variety
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of forms. For example, marketing transactions may consist of purchases from, and
sales of gas and other energy commodities to, wholesale customers, end-use
customers, and other marketers, where the performance of the parties in most
instances would be by physical delivery of the underlying commodity. Marketing
transactions may also include swaps or exchanges of energy commodities, or the
sale or purchase of options, exchange traded futures contracts or other
derivative products, which may or may not be settled by physical delivery.
Resources and Upstate Energy may utilize, or cause subsidiaries to utilize, risk
mitigation measures designed to minimize price and counterparty credit risk in
all of these energy-related transactions and, in addition, certain risks
associated with foreign currency fluctuations. Similar risk mitigation measures
are already utilized in Resources' and Upstate Energy's domestic businesses.
Pipeline & Storage Activities: National, through one or more Intermediate
Subsidiaries, and Supply and Empire, directly or through one or more
Intermediate Subsidiaries, propose to acquire the securities of, or other
interests in, one or more Foreign Energy Affiliates that are engaged in or
formed to engage in the construction and/or operation of pipeline and gas
storage facilities ("Pipeline & Storage Activities"). The operations of any such
companies would be substantially similar to those of Supply and Empire in the
United States. National, Supply, Empire and the Intermediate Subsidiaries
request that the Commission reserve jurisdiction over investments in Foreign
Energy Affiliates outside Canada and Mexico.
National, Supply and Empire have not, at this time, identified any foreign
pipeline or storage venture in which they are prepared to invest. Supply is
considering, however, an investment in a U.S.-Canadian pipeline project with
TransCanada PipeLines Limited, an unaffiliated entity. This project, called the
Northwinds Pipeline, would involve the construction of a 215-mile, 30-inch
natural gas pipeline. The pipeline would originate in Kirkwall, Ontario, cross
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into the United States near Buffalo, New York and follow a southerly route to
its destination in the Ellisburg-Leidy area in Pennsylvania, where it would
interconnect with Supply and other interstate pipeline carriers. The project is
planned to help move western Canadian gas to New York and other East Coast
markets, including the gas-fired electric generation market in the northeast
United States.
Payment of Dividends Out of Capital and Unearned Surplus and Reacquisition
of Securities: The Non-Utility Subsidiaries, Intermediate Subsidiaries and
Foreign Energy Affiliates (each, a "Subsidiary" and collectively, the
"Subsidiaries") also request that they be permitted to pay dividends from time
to time through the Authorization Period out of capital and unearned surplus
and/or retire or reacquire any securities that have been issued to an associate
company, to the extent permitted under applicable corporate law and any
applicable credit or security documents. National anticipates that there would
be situations in which one or more of its Subsidiaries would have unrestricted
cash available for distribution in excess of any such company's current and
retained earnings. In such situations, the declaration and payment of a dividend
and/or payments to reacquire its own securities would have to be charged, in
whole or in part, to capital or unearned surplus. As an example, if Seneca,
indirectly through an Intermediate Subsidiary, purchases all of the stock of a
Foreign Energy Affiliate, and following such acquisition, the Foreign Energy
Affiliate incurs non-recourse borrowings, some or all of the proceeds of which
are distributed to the Intermediate Subsidiary as a reduction in the amount
invested in the company (i.e., return of capital), the Intermediate Subsidiary
(assuming it has no earnings) could not, without the Commission's approval, in
turn distribute such cash to Seneca for possible distribution to National.
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Similarly, using the same example, if an Intermediate Subsidiary, following
its acquisition of all of the stock of a Foreign Energy Affiliate, were to sell
part of that stock to a third party for cash, the Intermediate Subsidiary would
again have substantial unrestricted cash available for distribution, but
(assuming no profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval, declare and pay a
dividend to its parent out of such cash proceeds.
Further, there may be periods during which unrestricted cash available for
distribution by a Subsidiary exceeds current and retained earnings due to the
difference between accelerated depreciation allowed for tax purposes, which may
generate significant amounts of distributable cash, and depreciation methods
required to be used in determining book income.
Finally, even under circumstances in which a Subsidiary has sufficient
earnings, and therefore may declare and pay a dividend to its immediate parent,
such immediate parent may have negative retained earnings, even after receipt of
the dividend, due to losses from other operations. In this instance, cash would
be trapped at a subsidiary level where there may be no immediate need for it.
1.4 Source of Funds and Credit Support for Foreign Energy Activities.
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National intends to provide the Non-Utility Subsidiaries and Intermediate
Subsidiaries with funds and credit support necessary to enable such subsidiaries
to acquire the securities of or other interests in Foreign Energy Affiliates.
Any investments in such subsidiaries by National would be funded by available
cash and the proceeds of external financing previously approved by the
Commission by order issued November 12, 2002 (Holding Company Act Rel. No.
27600) (the "Financing Order"). Borrowings to fund the activities proposed
herein pursuant to the National system money pool by any of the Non-Utility
Subsidiaries that are participants in the money pool would also be subject to
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the terms, conditions and limitations imposed under the Financing Order, as
would any guarantees or other form of credit provided by National to or on
behalf of the Non-Utility Subsidiaries or Intermediate Subsidiaries in
connection with the proposed investments.(3) In accordance with the Financing
Order, in the event there are insufficient funds available from money pool
sources to satisfy the money pool borrowing requirements of all eligible money
pool borrowers, Distribution will receive borrowing priority over the other
borrowers.
The applicants undertake that they will not acquire any Foreign Energy
Affiliates without a reasonable expectation, at the time thereof, that such
investment would be accretive to National's earnings over a reasonable period of
time. In any event, the applicants would not seek recovery through higher rates
to the customers of Distribution for any losses National or any other applicant
might sustain, or inadequate returns they might realize, on investments in
Foreign Energy Affiliates.
In addition, Distribution will not issue any security (including the
assumption of any obligation or liability as guarantor, endorser, surety or
otherwise), or pledge or otherwise encumber any part of its utility assets, for
the purpose of financing, or otherwise in connection with, the acquisition,
ownership or operation of any Foreign Energy Affiliates. Distribution would be
further insulated from any direct impact of the proposed transactions, since
Distribution would not acquire or hold a direct or indirect ownership (or other)
interest in any Foreign Energy Affiliates, which rather in each case would be
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(3) Empire is not currently a participant in the National system money pool.
Applicants do not seek in this Application or Declaration the authority to
include Empire or the Intermediate Subsidiaries in the National system
money pool.
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separated, structurally and legally, from Distribution, held solely by one or
more non-utility subsidiaries of National (or directly by National itself).
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
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The fees and expenses to be incurred by applicants in connection with this
Application or Declaration are estimated not to exceed $15,000.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
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3.1 General.
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Sections 6(a), 7, 9(a), 10, 12(c) and 12(f) of the Act and Rules 23, 26(c),
43, 45, 46 and 54 thereunder are or may be applicable to the proposed
transactions.
3.2 Section 10 Analysis.
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The indirect acquisition by National, or the direct or indirect acquisition
by the Non-Utility Subsidiaries or Intermediate Subsidiaries, of the securities
of or other interests in any entity engaged in or formed to engage in any of the
proposed foreign energy activities constitutes the acquisition by a registered
holding company of securities and of an interest in an "other business" under
Sections 9(a)(1) and 10 of the Act. Under Section 10(c)(1) of the Act, the
Commission shall not approve a transaction meeting the requirements of Section
10(b) if it determines that such transaction would be "detrimental to the
carrying out of the provisions of section 11 . . .." Under Section 11 (b)(1),
the Commission is required to limit the non-utility operations of a registered
holding company to businesses that are "reasonably incidental, or economically
necessary or appropriate to the operations" of a registered holding company's
integrated pubic-utility system. The Commission and the courts have interpreted
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these provisions as expressing a Congressional policy against non-utility
activities that bear no operating or functional relationship to the utility
operations of the registered system.(4)
The Commission previously authorized the applicants to acquire the
securities of Foreign Energy Affiliates engaged in Exploration & Production
Activities in Canada, Marketing & Brokering Activities in Canada and, subject to
a reservation of jurisdiction, Pipeline & Storage Activities in Canada.(5) The
Commission also previously authorized Resources and Upstate Energy to engage
directly in marketing and brokering and related activities in Canada.(6)
Applicants submit that their additional proposals in this Application or
Declaration to acquire the securities of or other interests in Foreign Energy
Affiliates engaged in Exploration & Production Activities in Mexico, Marketing &
Brokering Activities in Mexico, and Pipeline & Storage Activities in Canada and
Mexico, and the proposal of Resources and Upstate Energy to engage directly in
marketing and brokering and related activities in Mexico, also satisfy the
requirements of Sections 10(c) and 11 (b)(1) of the Act. The Commission recently
authorized an electric utility holding company to engage in such non-utility
gas-related activities in the United States, Canada and Mexico, up to a
specified dollar limit.(7) In addition, here, applicants' proposals are
supported by Sections 2(a) and 2(b) of the Gas Related Activities Act of 1990
("GRAA"), which provide that such non-utility gas-related activities shall be
deemed, for purposes of Section 11(b)(1) of the Act, to be reasonably incidental
or economically necessary or appropriate to the operation of a gas utility
system.(8) In Consolidated Natural Gas, the Commission noted that the GRAA does
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(4) See Michigan Consolidated Gas Co., 44 S.E.C. 361, 363-365 (1970), aff'd
444 F.2d 913 (D.C.Cir.1971).
(5) See National Fuel Gas Company, et al., Holding Company Act Rel. No. 27114.
(6) Id.
(7) See Cinergy Corp., et al., Holding Company Act Rel. No. 27717 (August 29,
2003).
(8) See Consolidated Natural Gas Company, et al., Holding Company Act Rel.
No. 26595 (October 25, 1996).
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not impose any geographic limitations on where a registered gas utility holding
company may engage in permitted gas-related activities.(9) Finally, there is no
basis for the Commission to make any negative findings under Section 10(b) with
respect to any of the proposed foreign gas-related activities.
3.3 Rule 54 Analysis.
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Rule 54 provides that, in determining whether to approve any transaction by
a registered holding company that is unrelated to any "exempt wholesale
generator" ("EWG") or "foreign utility company" ("FUCO"), the Commission shall
not consider the effect of the capitalization or earnings of any EWG or FUCO on
the holding company system if the requirements of Rule 53(a), (b) and (c) are
met. National is currently in compliance with all requirements of Rule 53(a).
Specifically, National's "aggregate investment" (as defined in Rule 53(a)(1)) in
all EWGs and FUCOs is $152.1 million as of June 30, 2003, or 25.9% of National's
"consolidated retained earnings" (also as defined in Rule 53(a)(1)) as of
June 30, 2003 ($587.2 million). National is in compliance with and will continue
to comply with the requirements of Rule 53(a)(2), (a)(3) and (a)(4). Further,
none of the conditions or circumstances described in Rule 53(b) has occurred or
is continuing. Accordingly, Rule 53(c) is by its terms inapplicable.
ITEM 4. REGULATORY APPROVAL.
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Except as stated in this Item 4, no State commission and no Federal
commission, other than the Commission, has jurisdiction over any of the proposed
transactions. Acquisitions undertaken in accordance with the Commission's order
in this proceeding may, in some cases, be subject to pre-merger notification
filings with various U.S. Federal and/or foreign authorities. In addition, the
proposed transactions may, in some cases, be subject to foreign regulatory
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(9) Id.
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requirements. To the extent applicable, the applicants will comply with all such
requirements before consummating any transaction.
ITEM 5. PROCEDURE.
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Applicants request that the Commission issue a notice of filing of this
Application or Declaration as soon as practicable and that the Commission's
order approving the transactions proposed herein be issued not later than
December 31, 2003. The applicants waive a recommended decision by a Hearing
Officer, or any other responsible officer of the Commission, agree that the
Division of Investment Management ("Division") may assist in the preparation of
the Commission's decision, unless the Division opposes the matters proposed
herein, and request that there be no waiting period between the issuance of the
Commission's order and the date on which it becomes effective.
The applicants will submit the following information to the Commission
pursuant to certificates filed pursuant to Rule 24 under the Act, on a
semi-annual basis, for the six-month periods ended March 31 and September 30 of
each year (such reports to be submitted within 60 days after the end of the
preceding semi-annual period, commencing with the first full semi-annual period
following the issuance of the Commission's order herein): (i) a brief narrative
with respect to any transactions entered into or consummated during the
preceding semi-annual period in which any applicant acquired or agreed to
acquire any Foreign Energy Affiliate; and (ii) the amount of the aggregate
investment in Foreign Energy Affiliates as of the end of such preceding
semi-annual period.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
The following exhibits and financial statements are made a part of this
Application or Declaration:
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(a) Exhibits
F Opinion of counsel.
G Proposed form of Federal Register Notice. (Previously filed.)
(b) Financial Statements
FS-1 Consolidated Balance Sheets of National and subsidiaries as of
June 30, 2003. (Incorporated by reference to Quarterly Report on
Form 10-Q of National for the period ended June 30 2003.) (File
No. 1-3880.)
FS-2 Consolidated Statements of Income and Retained Earnings of
National and subsidiaries for the period ending June 30, 2003.
(Incorporated by reference to Quarterly Report on Form 10-Q of
National for the period ended June 30, 2003.) (File No. 1-3880.)
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
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The proposed transactions outlined herein involve no major action which
will significantly adversely affect the quality of the U.S. environment. No
federal agency has prepared or is preparing an environmental impact statement
with respect to the matters contemplated in this Application or Declaration.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this Application or Declaration
to be signed on their behalf by the undersigned thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
By: /s/ P. C. Ackerman
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Title: Chairman of the Board,
President, and Chief Executive
Officer
NATIONAL FUEL GAS SUPPLY CORPORATION
By: /s/ D. J. Seeley
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Title: President
EMPIRE STATE PIPELINE
By: /s/ D. J. Seeley
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Title: President
SENECA RESOURCES CORPORATION
By: /s/ J. A. Beck
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Title: President
NATIONAL FUEL RESOURCES, INC.
By: /s/ D. L. DeCarolis
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Title: Vice President and Secretary
UPSTATE ENERGY INC.
By: /s/ B. H. Hale
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Title: President
Date: December 30, 2003
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