[Federal Register Volume 64, Number 207 (Wednesday, October 27, 1999)]
[Notices]
[Pages 57910-57918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27092]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

October 21, 1999.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendments is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by November 15, 1999, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in case of an attorney at law, by 
certificate) should be filed with the request. Any request for hearing 
should identify specifically the issues of facts 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 the 
matter. After November 15, 1999, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Dominion Resources Inc., et al. (70-9477)

    Dominion Resources, Inc. (``DRI''), 120 Tredegar Street, Richmond, 
Virginia 23219, a Virginia corporation and public utility holding 
company exempt from registration under section 3(a)(1) and rule 2 under 
the Act, and Consolidated Natural Gas Company (``CNG''), CNG Tower, 625 
Liberty Avenue, Pittsburgh, Pennsylvania 15222, have filed an 
application-declaration in connection with a proposed merger between 
the two companies under sections 6(a), 7, 10 and 13(b) of the Act and 
rules 54, 87, 88, 90 and 91 under the Act.
    DRI and CNG have entered into an amended and restated agreement and 
plan of merger (``Merger'') dated as of May 11, 1999.\1\ The Merger 
contemplates a two-step transaction. In the first step, a wholly owned 
subsidiary of DRI will merge (``First Merger'') with and into DRI, in 
which DRI will be the surviving corporation.\2\ In the second step, CNG 
will either merge (``Second Merger'') (1) with and into another wholly 
owned subsidiary of DRI (``CNG Acquisition'') in a transaction in which 
CNG Acquisition will be surviving corporation, or (2) with and into DRI 
in a transaction in which DRI will be the surviving corporation. The 
First Merger and Second Merger, are hereinafter referred to as the 
``Merger,'' are each conditioned on the other occurring. As a result of 
the Merger and other transactions contemplated by the Merger Agreement, 
either CNG Acquisition, as the successor in interest to CNG, will 
become a direct subsidiary of DRI or each of CNG's public utility 
subsidiaries will become direct subsidiaries of DRI.\3\
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    \1\ DRI, CNG, and their respective subsidiaries have also filed 
in S.E.C. file no. 70-9517 an application-declaration related to the 
financing of the proposed DRI registered holding company system and 
CNG's registered holding company system. A notice of that filing is 
being issued simultaneously with this notice.
    \2\ As part of their approval of the Merger, DRI shareholders 
approved an amendment to the DRI Articles of Incorporation to 
increase the authorized shares of common stock of DRI from 300 
million to 500 million.
    \3\ CNG's public utility subsidiaries include: Virginia Natural 
Gas, Inc. (``VNG''), Hope Gas, Inc. (``Hope''), The Peoples Natural 
Gas Company (``Peoples''), and The East Ohio Gas Company (``East 
Ohio'').
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    In the Merger, shareholders of both DRI and CNG will have the 
option to elect to receive either cash or DRI common stock in return 
for each of their DRI or CNG shares, as the case may be, subject to 
allocation and certain limitations. In exchange for each share of DRI 
common stock held, DRI shareholders will have the option to receive 
either $43.00 in cash or one share of DRI common stock. In either case, 
this option is subject to the limitation that the aggregate amount of 
cash to be distributed to DRI shareholders in the First Merger shall be 
equal to $1,251,055,526 (plus any cash paid for fractional shares).\4\ 
In exchange for each share of CNG common stock held, CNG shareholders 
will have the option to receive either $66.60 in cash or shares of DRI 
common stock at an exchange rate, plus an amount in cash

[[Page 57911]]

equal to 1.52 multiplied by the excess, if any, of $43.816 over the 
Average Price.\5\ The CNG exchange ratio will be (1) $66.60 divided by 
the Average Price of DRI common stock, if the DRI Average Price is no 
less than $43.816 and (2) 1.52, if the DRI Average Price is less than 
$43.816. In either case, this option is subject to the proration so 
that 38,159,060 shares of CNG common stock (including any fractional 
shares exchanged for cash) will be converted into the right to receive 
cash in the Second Merger. However, DRI may reallocate the cash and 
shares of DRI commons stock to be received by CNG shareholders to 
follow more closely the actual elections of CNG shareholders as long as 
the reallocation does not affect the desired tax treatment of the 
Second Merger.
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    \4\ Under the terms of the Merger, DRI has the right to increase 
this amount to $1,668,400,000.
    \5\ Average Price is defined as the average market price of DRI 
common stock over a twenty consecutive day trading period ending on 
the tenth business day before the closing.
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    Following the proposed Merger, current DRI shareholders will own 
approximately 65% of the combined company and current CNG shareholders 
will own approximately 35% of the combined company.
    As a result of the Merger, the combined company will have pro forma 
1998 assets of $28.0 billion as of March 31, 1999 and revenues of $8.8 
billion for the year ended December 31, 1998. The combined company will 
also have an energy portfolio of approximately 20,000 MW of domestic 
power generation, 2.9 trillion cubic feet equivalent in natural gas and 
oil reserves producing nearly 300 billion cubic feet equivalent 
annually. It will operate a major interstate gas pipeline system and 
the largest natural gas storage system in North America with 
approximately 900 Bcfe of storage and will have approximately 5,000 
miles of electric transmission lines. The combined company will be the 
eleventh largest independent oil and gas producer in the United States, 
measured by reserves.
    Following completion of the Merger, DRI will register as a holding 
company with the Commission under section 5 of the Act and CNG may 
continue to register as a holding company with the Commission.

Parties to the Merger

DRI and Its Subsidiaries
    DRI seeks authorization to retain its interest in its utility and 
nonutility business and to acquire and retain the interests of CNG's 
utility and nonutility business.
    DRI is a diversified utility holding company \6\ whose principal 
subsidiary is Virginia Electric and Power Company (``Virginia 
Power''),\7\ an electric public utility company primarily engaged in 
the generation, transmission, distribution and sale of electric energy 
within a 30,000 square-mile area in Virginia and northeastern North 
Carolina.\8\ Virginia Power operates nuclear, fossil fuel and 
hydroelectric generating units with an aggregate capability of 13,635 
MW. It supplies energy at retail to approximately two million customers 
and sells electricity at wholesale to rural electric cooperatives, 
power marketers and certain municipalities. The Virginia service area 
represents 65% of Virginia's total land area and accounts for over 80% 
of its population. The North Carolina service area is comprised of 
retail customers located in the northeastern region of the state, 
excluding certain municipalities. Virginia Power also engages in off-
system wholesale purchases and sales of electricity and purchases and 
sales of natural gas. In 1998, Virginia Power accounted for $4,285 
million in revenues.
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    \6\ At December 31, 1998, DRI and its subsidiaries had 11,033 
full time employees.
    \7\ The term ``Virginia Power'' refers to the entirety of 
Virginia Electric and Power Company, including its Virginia and 
North Carolina operations and all of its subsidiaries. In Virginia 
it trades under the name ``Virginia Power'' and in North Carolina it 
trades under the name ``North Carolina Power.''
    \8\ Virginia Power has made investments in some nonutility 
business and supports the investment and financing needs of its 
subsidiaries on a stand-alone basis.
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    DRI's other major subsidiaries are Dominion Energy, Inc. (``DEI''), 
an independent power and natural gas subsidiary, and Dominion Capital, 
Inc. (``DCI''), a financial services company.\9\ DRI also owns and 
operates a 365 MW natural gas fired generating facility in the United 
Kingdom.
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    \9\ DRI states that it will divest its interest in DCI and DCI's 
subsidiary companies within three years following completion of the 
Merger.
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    DEI is primarily engaged in the competitive electric power 
generation business and in the development, exploration and operation 
of natural gas and oil reserves. DEI is involved in power projects in 
five states in Argentina, Bolivia, Belize and Peru.\10\ Domestic power 
projects include the Kincaid Power Station, a 1,108 MW coal fired 
station in central Illinois; a 600 MW gas-fired peaking facility under 
construction in central Illinois; two geothermal projects and one solar 
project in California; three small hydroelectric projects in New York; 
a waste coal-fueled project in West Virginia and a waste wood and coal-
fueled project in Maine. Additionally, DEI has interests in various 
generation and small power production facilities in the United States 
all of which are qualifying facilities (``QFs'') as defined in the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''), 
or exempt wholesale generators (``EWGs'') as defined in section 32 
under the Act. DEI is also involved in natural gas and oil development, 
exploration and production in Canada, the Appalachian Basin, the 
Michigan Basin, the Illinois Basin, the Black Warrior Basin, the Uinta 
Basin, the San Juan Basin and owns proven oil and natural gas reserves 
of approximately 1.2 trillion cubic feet of natural gas equivalent. 
DEI, through its subsidiaries, is involved in the wholesale 
aggregation, marketing and trading of natural gas and storage capacity 
positions, on behalf of DEI and third parties. In 1998, DEI accounted 
for $383 million in revenues.
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    \10\ International power projects include a hydroelectric and a 
gas-fired project in Argentina, two hydroelectric projects in 
Bolivia, a run-of-river hydroelectric project in Belize, and two 
hydroelectric and six diesel oil-fueled projects in Peru.
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    DCI is a diversified financial services holding company with 
several subsidiaries in the commercial lending, merchant banking and 
residential lending business.\11\ Its principal subsidiaries are First 
Source Financial, LLP, First dominion Capital LLC, Saxon Mortgage, Inc. 
and Stanton Associates, Inc. DCI also owns a 46% interest in Cambrian 
Capital LLP. First Source Financial provides cash-flow and asset-based 
financing to middle-market companies seeking to expand, recapitalize or 
undertake buyouts. First Dominion Capital is an integrated merchant 
banking and asset management business. Saxon Mortgage and its 
affiliates originate and securitize home equity and mortgage loans to 
individuals. Cambrian Capital provides financing to small and mid-sized 
independent oil and natural gas producers undertaking acquisitions, 
refinancings and expansions. Stanton

[[Page 57912]]

Associates, Inc. engages in real estate investment and management.
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    \11\ DCI's financial activities include providing commercial 
finance through senior secured loans, unsecured or subordinated debt 
or mezzanine investments, bridge loans and equity investments. 
Senior secured loans have a first priority lien on all assets which 
includes, but is not limited to, accounts receivable, inventory, 
real and personal property, equipment, trademarks, and copyrights. 
Corporate finance activities include underwriting and syndication of 
debt and equity instruments and debt and equity securities, managing 
assets for third parties and broker-dealer operations. Consumer 
finance comprises origination, purchase, securitization and 
servicing of mortgages. Other operations include investments in real 
estate, a lease in a hydroelectric facility, venture capital and a 
portfolio of preferred and equity securities.
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    DRI, either directly or indirectly is also involved in the 
following business activities: oil and natural gas exploration and 
development, both domestically and internationally, transportation and 
processing of natural gas and the manufacture and sale of equipment 
used in connection therewith, energy marketing and brokering, 
telecommunications, real estate activities, energy lending, and debt 
and equity financing to commercial businesses and consumers. DRI, 
through DCI, also holds minority interests in various other businesses, 
of which the aggregate amount of investments made by DCI at March 31, 
1999, was $176 million. In 1998, DCI accounted for $409 million in 
revenues.
CNG and Its Subsidiaries
    CNG is engaged solely in the business of owning and holding all of 
the outstanding equity securities of nineteen directly owned subsidiary 
companies. CNG and its subsidiaries are engaged in all phases of the 
natural gas business including: distribution, transmission, storage, 
exploration and production.
    VNG, Hope, Peoples and East Ohio are the four public utility 
subsidiaries of CNG. Principal cities served on a retail basis include: 
Cleveland, Akron, Youngstown, Canton, Warren, Lima, Ashtabula and 
Marietta in Ohio; Pittsburgh (a portion), Altoona and Johnstown in 
Pennsylvania; Norfolk, Newport News, Virginia Beach, Chesapeake, 
Hampton and Williamsburg in Virginia; and Clarksburg and Parkersburg in 
West Virginia. CNG serves approximately two million residential, 
commercial and industrial gas sales and transportation to retail 
customers.
    CNG Transmission Corporation operates a regional interstate 
pipeline system and provides gas transportation and storage services to 
each of CNG's public utility subsidiaries and to non-affiliated 
utilities, end-users and others in the Midwest, the mid-Atlantic states 
and the Northeast. Through its wholly owned subsidiary, CNG Iroquois, 
Inc., CNG Transmission Corporation holds a 16% general partnership 
interest in the Iroquois Gas Transmission System, L.P., which owns and 
operates an interstate natural gas pipeline extending from the Canada 
United States border near Iroquois, Ontario, to Long island, New York. 
The Iroquois pipeline transports Canadian gas to utility and power 
generation customers in metropolitan New York and New England.
    CNG Producing Company is CNG's exploration and production 
subsidiary. Its activities are conducted primarily in the Gulf of 
Mexico, the southern and western United States, the Appalachian region, 
and in Canada.
    CNG Retail Services Corporation markets natural gas, electricity 
and related products and services to residential, commercial and small 
industrial customers. CNG Products and Services, Inc. also provides 
energy-related services to customers of CNG's local distribution 
subsidiaries and others.
    CNG International Corporation invests in foreign energy activities. 
CNG International Corporation currently owns interests in natural gas 
pipeline companies in Australia, and gas and electric utility companies 
in Argentina.

Establishment of a Service Company and Service Agreement

    DRI intends to establish a new direct subsidiary service company, 
DRI Services, which will assume from DRI all of the service functions 
currently performed for affiliates of DRI and all employees performing 
those functions will become employees of DRI Services.\12\
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    \12\ Initially, DRI Services will issue 100 shares of common 
stock, no par value, all of which will be subscribed to DRI at $1 
per share.
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    It is contemplated that as a result of the Merger, some 
centralization of service functions will occur. Initially, DRI and CNG 
proposed to commence their combined operations with two subsidiary 
service companies. Upon closing of the Merger, DRI Services and other 
DRI affiliates will enter into a new single systemwide Service 
Agreement with CNG, CNG Services and other subsidiaries of CNG. The new 
agreement will be modeled after the current service agreement in effect 
for the CNG system.\13\ The combined company will operate with two 
service companies, and each DRI-CNG affiliate will have the opportunity 
to elect to purchase services from either company.
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    \13\ On August 26, 1966 (Holding Co. Act Release No. 15548), the 
Commission authorized formation of CNG's service company. Several 
amendments to the service agreement have been approved by the 
Commission under ``60-day letter proceedings.''
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    Over time it is anticipated that the provision of services within 
the combined DRI-CNG system will be rationalized. However, in the 
interim, DRI and CNG each seek authorization to engaged, through their 
respective service companies, the following service activities: 
accounting, auditing, legal and regulatory services, information 
technology, electronic transmission and computer services, software 
pooling, employee benefits and pension investment, employee relations, 
operations, executive and administrative services, business and 
operations services, exploration and development services, risk 
management, marketing, medical services, corporate planning, 
purchasing, rate structure analysis, research, tax services, corporate 
secretary services, and investor relations.
    Following completion of the Merger, DRI states that all services 
will be provided to system companies in compliance with all applicable 
provisions of the Act, including section 13(b) and rules 90 and 91 
under the Act. DRI does, however, request and exemption from the at-
cost standard of section 13(b) of the Act and rules 90 and 91 under the 
Act in one or more of the following situations: (1) to permit Virginia 
Power to continue to provide services to exempt nonutility associate 
companies which are subject to the Virginia State Corporation 
Commission's 1986 settlement order; and (2) to permit Virginia Power to 
provide future service arrangements to exempt nonutility associate 
companies within the DRI-CNG system. Exempt nonutility associate 
companies are defined as: (1) FUCOs and EWGs which do not derive any 
part of their income either directly or indirectly, from the generation 
and sale of electric energy within the United States; (2) EWGs which 
sell electricity at market based rates that have been approved by the 
Federal Energy Regulatory Commission (``FERC'') or relevant state 
public utility commission, provided that the purchaser is not an 
electric utility company affiliate of DRI; (3) a QF that sells 
electricity exclusively at rates negotiated at arm's length to one or 
more industrial or commercial customers purchasing the electricity for 
their own use and not for resale, or to an electric utility company 
that is not a DRI affiliate company at the purchaser's ``avoided cost'' 
as determined under the regulations under PURPA; and (4) an EWG or QF 
that sells electricity based upon its cost of service, as approved by 
the FERC or any state public utility commission having jurisdiction, 
provided that the purchaser of the electricity is not an electric 
utility company affiliate of DRI.

Dominion Resources, Inc. (70-9517)

    Dominion Resources, Inc. (``DRI''), 120 Tredgar Street, Richmond, 
Virginia 23219, a Virginia corporation and holding company exempt from 
registration under section 3(a)(1) of the Act and rule 2, has filed an 
application-declaration under sections 6(a), 7, 9,(a),

[[Page 57913]]

10, 12(b) of the Act and rules 42, 45, 53 and 54 under the Act.
    This application-declaration is submitted in connection with DRI's 
proposed acquisition of Consolidated Natural Gas Company (``CNG''), a 
Delaware corporation and registered holding company (``Merger'') 
(S.E.C. file No. 70-9477). As result of the Merger and other related 
transactions, either (1) CNG Acquisition, as the successor in interest 
to CNG, will become a direct subsidiary of DRI or (2) each of CNG's 
four public utility subsidiaries will become direct subsidiaries of 
DRI. Following completion of the Merger, DRI will register as a holding 
company with the Commission under section 5 of the Act.
    To effectuate the merger,\14\ shareholders of DRI will have the 
option to receive either $43.00 in cash or one share of DRI common 
stock in exchange for each share of DRI common stock held, subject to 
certain cash distribution limitations. Shareholders of CNG common stock 
will have the option to receive either $66.60 in cash or shares of DRI 
common stock in exchange for each share of CNG common stock held, 
subject to certain cash distribution limitations.
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    \14\ The Merger transaction is more fully described in File No. 
70-9477, which has been noticed contemporaneously.
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    Applicants seek authority for: (1) DRI to issue common stock of DRI 
to shareholders of CNG in connection with the Merger; (2) DRI to issue 
additional equity, preferred and/or debt securities for general 
corporate purposes for the period from and after the Merger through the 
second anniversary of the effectiveness of the Merger (``Authorization 
Date''); (3) DRI and its subsidiaries, including CNG, to maintain in 
effect for the period from and after the Merger through the 
Authorization Date, all existing credit facilities and financing 
arrangements and to maintain outstanding all indebtedness and similar 
obligations created thereunder as of the date of the closing of the 
Merger (including, without limitation, any facilities, financing 
arrangements, indebtedness or similar obligations incurred in 
connection with or to finance the Merger) and to amend, renew, extend 
and/or replace any of these credit facilities, financing arrangements, 
indebtedness or similar obligations up to the aggregate dollar amounts 
specified below, provided that no amendment, renewal, extension and/or 
replacement which is effected following completion of the Merger shall 
provide for an increase in the aggregate amount of indebtedness which 
occurs after the Authorization Date, unless otherwise approved by the 
Commission; (4) DRI and its subsidiaries, including CNG, to incur 
additional indebtedness and similar obligations including guarantees 
and other credit support; and (5) DRI to issue up to 45.5 million 
shares of common stock under dividend reinvestment and stock-based 
management incentive and employee benefit plans.

Issuance of Securities and Incurrence of Indebtedness

    Shareholders of DRI and CNG will, in connection with the Merger, be 
given the option to receive either cash or shares of DRI common stock 
in exchange for each share of DRI or CNG common stock held, subject to 
limitations on the aggregate amount of cash that may be distributed in 
connection with Merger. Accordingly, indebtedness will be incurred to 
finance cash payments to DRI and CNG shareholders in connection with 
the Merger. DRI anticipates that approximately $4.5 billion will be 
required to finance the cash portion of the Merger. Of this amount, $1 
billion will be obtained through equity securities or securities 
convertible into equity securities and the remaining financing will be 
obtained through debt securities with a maturity not to exceed 50 years 
and an interest rate not in excess of 500 basis points over the 
comparable London Interbank Offered Rate (``LIBOR'').
    DRI anticipates that cash will initially be obtained through the 
issuance of commercial paper under an expanded DRI commercial paper 
program backed by a combination of short-term and long-term credit 
facilities similar to the types of credit facilities that DRI currently 
has in place. After closing of the Merger, DRI anticipates replacing a 
significant portion of the commercial paper program with proceeds from 
(1) the issuance of debt, preferred and/or convertible securities, (2) 
divestiture of DRI's financial serves subsidiary, Dominion Capital, 
Inc. (``DCI''), and (3) the sale of other non-core assets.\15\
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    \15\ DRI states that it will divest its interest in DCI and 
DCI's subsidiary companies within three years following completion 
of the Merger.
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    At present, DRI has established various financing arrangements with 
respect to its equity, preferred and debt securities 
(``Securities'').\16\ DRI has entered into various credit facilities 
with outside lenders, has issued debt securities, and has guaranteed or 
otherwise supported the obligations of its nonutility subsidiaries. DRI 
seeks authorization to maintain its, and CNG's, existing financing 
arrangements and other commitments through the Authorization Date.\17\
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    \16\ DRI filed a universal shelf registration with the 
Commission on September 12, 1997 (Registration No. 333-35501). The 
shelf registration covers equity, preferred and debt securities and 
allows DRI to issue any one or more of the foregoing types of 
securities provided that the aggregate principal amount of proceeds 
of securities issuances that may be obtained does not exceed $950 
million. As of the date of the application-declaration, DRI issued 
common stock under the universal shelf registration and derived $275 
million of proceeds from the issuance.
    \17\ By order dated March 28, 1996 (Holding Co. Act Release No. 
26500) (``Omnibus Order''), CNG was authorized to engage in various 
financing and related transactions through March 31, 2001.
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    DRI proposes through the Authorization Date to issue equity, 
preferred and/or debt securities including, without limitation, for the 
purpose of refinancing indebtedness incurred to finance the cash 
component of the consideration to be paid to DRI and CNG shareholders 
in connection with the Merger. DRI seeks authorization to issue the 
above-mentioned securities provided that the aggregate principal amount 
of the proceeds not exceed $1.5 billion and provided that the cost of 
money with respect to these securities shall not exceed 500 basis 
points over LIBOR.\18\
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    \18\ The dividends payable on preferred stock and the interest 
rate and maturity of debt securities which may be issued under this 
authorization will be determined at the time of issuance and will 
not exceed those generally obtainable at the time of issuance for 
securities having the same or reasonably similar maturities, terms, 
conditions and features issued by utility companies or utility 
holding companies of reasonably comparable credit quality.
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    In addition to the Securities, DRI proposes to issue other 
securities (``Other Securities''). DRI currently maintains in effect 
the following credit and financing facilities:
    (1) DRI sells commercial paper in regional and national markets. 
Proceeds of commercial paper issuances are used for general corporate 
purposes and are made available to DRI's nonutility subsidiaries under 
intercompany credit agreements. DRI's nonutility subsidiaries repay 
these financings through cash flows and proceeds of permanent 
financings. DRI's commercial paper is supported by bank lines of credit 
maintained by DRI. At December 31, 1998, the aggregate outstanding 
maximum face amount of DRI commercial paper was $3.1 million.
    (2) DRI has entered into an Amended and Restated Credit Agreement 
dated April 3, 1996 and amended by the First Amendment dated April 2, 
1997 (``DRI Credit Agreement''), among DRI, the lenders identified, and 
NationsBank,

[[Page 57914]]

N.A., as agent for the lenders, under which the lenders have agreed to 
make loans to DRI in an aggregate principal amount not to exceed $300 
million at any one time outstanding. Proceeds of the loans may be used 
for general corporate purposes and to support commercial paper. The 
commitment of the lenders under the DRI Credit Agreement will expire on 
April 3, 2002 if not canceled or terminated.
    (3) DRI has entered into a Second Amended and Restated Short-Term 
Credit Agreement dated March 31, 1999 (``DRI Short-Term Credit 
Agreement''), among DRI, the lenders identified, and NationsBank, N.A., 
as administrative agent for the lenders, under which the lenders have, 
subject to the terms and conditions set forth in the DRI Short-Term 
Credit Agreement, agreed to make loans to DRI in an aggregate principal 
amount not to exceed $300 million at any one time outstanding. Proceeds 
of loans may be used for general corporate purposes and to support 
commercial paper. The commitment of the lenders under the DRI Short-
Term Credit Agreement will expire 364 days after the date thereof if 
not canceled or terminated.
    (4) DRI has in place an Indenture dated as of December 1, 1997 
(``DRI Indenture'') between DRI and The Chase Manhattan Bank under 
which DRI may, subject to the terms and conditions set forth in the DRI 
Indenture, issue an unlimited amount of Junior Subordinated Debentures 
in one or more series. As of the date of this application-declaration, 
DRI has entered into a First Supplemental Indenture dated December 1, 
1997 with The Chase Manhattan Bank under which DRI has issued $257.7 
million aggregate principal amount of 7.83% Junior Subordinated 
Debentures to Dominion Resources Capital Trust I, which has in turn 
issued $250 million aggregate principal amount of Capital Securities to 
investors. Proceeds of the issuance of the Capital Securities by 
Dominion Resources Capital Trust I are used solely to acquire Junior 
Subordinated Debentures. Payments on account of the Junior Subordinated 
Debentures are used by Dominion Resources Capital Trust I to make 
payments on account of the Capital Securities. Proceeds of the issuance 
of the Junior Subordinated Debentures are used by DRI for general 
corporate purposes including debt repayment. Amounts in respect of the 
Capital Securities are guaranteed by DRI under the Capital Securities 
Guarantee Agreement dated as of December 8, 1997 between DRI and The 
Chase Manhattan Bank, as guarantee trustee, and the New Capital 
Securities Guarantee Agreement dated as of June 18, 1998 between DRI 
and The Chase Manhattan Bank, as guarantee trustee.
    (5) DRI has entered into a five-year End Loaded Lease Financing 
(``ELLF'') as of September 9, 1998. The ELLF is structured as an off-
balance sheet financing with a single purpose grantor trust, the 
lessor, formed to purchase, improve and own certain assets which are 
then leased to DRI. The lease structure is designed to permit DRI to 
finance the assets on an off-balance sheet basis while allowing DRI to 
maintain control of the property and retain the benefits of ownership 
for tax purposes. The assets which are financed under the ELLF include 
an office building and two aircraft. Payments made by DRI under this 
leasing arrangement are intended to cover the periodic interest and 
principal payments required to be made by the lessor which has financed 
its acquisition of the lease assets. The estimated aggregate amount of 
lease payment that DRI is required to make under the lease are $12.5 
million.
    (6) DRI has issued a note in the face amount of $28.4 million due 
in 2008 which bears interest at a rate of 9.25% per year. As of 
December 31, 1998, the principal balance outstanding of the note was 
$18.6 million.
    (7) DRI has also entered into a Guarantee Agreement dated as of 
October 30, 1998 in favor of Bayerische Landesbank Girozentrale in 
connection with the Pounds Sterling 33,500,000 Committed Multi-Currency 
Revolving Advances Facility dated as of October 30, 1998 between DR 
Group Holdings, a special purpose financing subsidiary company 
organized under the laws of the United Kingdom, and Bayerische 
Landesbank Girozentrale.
    DRI requests Commission authorization to maintain outstanding the 
Other Securities which currently total approximately $955.31 million. 
DRI further requests authorization to issue additional other securities 
(``Additional Other Securities'') with financing arrangements similar 
to those described above in paragraphs (1) through (7), through the 
Authorization Date, provided that the additional aggregate principal 
amount of the Additional Other Securities shall not exceed $250 
million, the cost of money shall not exceed 500 basis points above 
LIBOR and the final maturity date of the Additional Other Securities 
shall not exceed 50 years.

Guarantees and Other Credit Support

    As of December 31, 1998, Dominion Energy, Inc. (``DEI''), a 
nonutility subsidiary of DRI,\19\ had paid-in-capital from equity 
investments made by DRI of $456.4 million. DRI has entered into an 
Intercompany Credit Agreement dated as of August 31, 1987 between DRI 
and DEI under which DEI may, subject to the terms and conditions of the 
Intercompany Credit Agreement, borrow up to $350 million aggregate 
principal amount at any one time outstanding from DRI. Proceeds from 
borrowings may be used by DEI for general corporate and working capital 
purposes. As of the date of this application-declaration, DRI has 
guaranteed $122.312 million aggregate principal amount of payment 
obligations of DEI and its subsidiaries.
---------------------------------------------------------------------------

    \19\ DEI has interests in various generation and small power 
production facilities in the United States, all of which are 
qualifying facilities (QFs'') as defined in the Public Utility 
Regulatory Policies Act of 1978, as amended, or exempt wholesale 
generators (``EWGs'') as defined in section 32 of the Act.
---------------------------------------------------------------------------

    DEI has also entered into an engagement letter dated July 13, 1999 
with Bank of America Leasing and Capital Group, an affiliate of 
NationsBank, with respect to a $825 million lease financing for the 
construction and lease of ten to fourteen new gas-fired turbines and 
associated equipment to be installed at various new power generation 
facilities currently under development by DEI.\20\ The terms of the 
engagement letter require that DRI guarantee the obligations of the 
lessee under the lease financing documents.
---------------------------------------------------------------------------

    \20\ It is anticipated the generation facilities will be 
``eligible facilities'' within the meaning of section 32(a)(2) of 
the Act and their owners will qualify as EWGs.
---------------------------------------------------------------------------

    DRI requests authorization to maintain in place the above guarantee 
and other credit support arrangements, which total approximately 
$947.312 million through the Authorization Date. In addition, DRI 
proposes, through the Authorization Date, to provide additional 
guarantees or other credit support for DEI and it subsidiaries up to an 
aggregate principal amount of $1.5 billion.
    As of December 31, 1998, DCI had paid-in-capital from equity 
investments made by DRI of $593.5 million. As of the date of this 
application-declaration, except as described below, DRI has not entered 
into any capital contribution agreement or similar arrangement which 
expressly requires DRI to make additional cash capital contributions to 
DCI or any of the other DCI Companies. As of the date of this 
application-declaration, DRI has entered into an Intercompany Credit 
Agreement dated as of December 20, 1985 between DRI and DCI under which 
DCI may, subject

[[Page 57915]]

to the terms and conditions of the Intercompany Credit Agreement, 
borrow up to $250 million aggregate principal amount at any one time 
outstanding from DRI. Proceeds of borrowings by DCI may be used for 
general corporate and working capital purposes.
    As of the date of this application-declaration, DRI has guaranteed 
$47.5 million aggregate principal amount of payment obligations of DCI 
and its subsidiaries and has provided liquidity support under the 
following agreements:
    (1) Guaranty Agreement dated as of May 13, 1996 by DRI in favor of 
DYNEX Capital, Inc. (formerly Resource Mortgage Capital, Inc.). The 
Guaranty was given in connection with a $47.5 million promissory note 
made by Dominion Mortgage Services, Inc., an indirect wholly owned 
subsidiary of DRI.
    (2) Support Agreement dated as of February 5, 1999 made by DRI in 
favor of DCI in connection with the implementation of a $400 million 
commercial paper financing program by DCI. The Support Agreement 
requires DRI to maintain 100% ownership of DCI voting stock, to 
maintain a net worth $100 million for DCI and to provide liquidity 
support for DCI.
    DRI requests authorization to maintain in place the foregoing 
guarantees and other credit support arrangements for the benefit of 
DCI. DRI further requests through the Authorization Date, to provide 
additional guarantees or other credit support for DCI and its 
subsidiaries up to an aggregate principal amount of $1.6 billion.

Incentive Compensation Plans and Employee Benefit Plans

    DRI maintains a direct stock purchase plan (``Dominion Direct'') 
with a dividend reinvestment feature, incentive compensation plans,\21\ 
and other employee benefit plans. Following the Merger, Dominion 
Direct, DRI's incentive compensation plans, and other employee benefit 
plans will remain in effect.
---------------------------------------------------------------------------

    \21\ Performance grants, restricted stock awards, goal-based 
stock awards, stock options and stock appreciation rights may be 
granted under the DRI incentive compensation plans.
---------------------------------------------------------------------------

    CNG maintains a dividend reinvestment plan (``CNG DRIP''). DRI 
proposes, following consummation of the Merger, to terminate the CNG 
DRIP. CNG also maintains several stock incentive plans. Following 
consummation of the Merger, DRI proposes to compensate plan 
participants for all benefits, grants of awards, and options with an 
appropriate amount of cash. CNG also maintains employee benefit plans. 
DRI proposes that following consummation of the Merger, that the 
employee benefit plans be either maintained, modified to provide for 
the issuance of DRI common stock in lieu of CNG common stock, or 
terminated.

CNG and Its Subsidiaries

    By Commission order dated March 28, 1996, (Holding Co. Act Release 
No. 26500) (``Omnibus Order''), CNG was authorized to engage in various 
financing and related transactions through March 31, 2001. The Omnibus 
Order allows CNG financing if CNG meets the following conditions: (1) 
CNG's long-term debt must be rated investment grade by at least one 
nationally recognized statistical rating organization; (2) CNG's common 
equity, as reflected in its most recent Form 10-K or Form 10-Q an as 
adjusted to reflect subsequent events that affect capitalization, will 
be at least 30% of consolidated capitalization; (3) the effective cost 
of money for debt may not exceed 300 basis points over the interest 
rate on United States Treasury securities of a comparable term; (4) the 
effective cost of money for preferred stock and other fixed securities 
may not exceed 500 basis points over the interest rate on 30-year 
United States Treasury securities; (5) the maturity of debt may not be 
more than 50 years; (6) issuance expenses in connection with an 
offering of securities, including any underwriting fees, commissions or 
other similar compensation, may not exceed 5% of the total amount of 
securities being issued; (7) proceeds of the proposed financing may not 
be used to invest in an EWG or a FUCO; (8) at the time of each 
financing transaction, CNG must be in compliance with the requirements 
of rule 53 under the Act; and (9) proceeds of the proposed financing by 
subsidiaries of CNG must be used only in connection with their 
respective existing businesses.
    Under the Omnibus Order CNG may issue and sell common stock, 
preferred stock, short-term debt, long-term debt and other securities 
from time to time through March 31, 2001, provided that the aggregate 
amount of short-term and revolving debt outstanding at any one time and 
the aggregate amount of common stock, preferred stock, long-term debt 
and other securities issued during the period shall not exceed $7 
billion. All sales and issuances of common stock, short-term debt and 
long-term debt by CNG subsequent to March 28, 1996 have occurred under 
the Omnibus Order.
    CNG issues and sells commercial paper under the Omnibus Order to 
dealers at the discount rate prevailing at the date of issuance for 
comparable commercial paper. The dealers reoffer this commercial paper 
at a discount to investors. The amount of commercial paper outstanding 
at any one time varies according to the seasonal working capital needs 
of CNG. There was $558.9 million principal amount of CNG commercial 
paper outstanding on December 31, 1998.
    Currently outstanding under the Omnibus Order is a credit agreement 
dated as of June 27, 1997 (``CNG Credit Agreement''), among CNG and 
several banks with The Chase Manhattan Bank, as agent. The CNG Credit 
Agreement provides a line of credit of up to $775 million as back-up 
for commercial paper. No loans are currently outstanding under the 
Credit Agreement.
    As of December 31, 1998, CNG had an aggregate of $1,392,875 
principal amount of senior debentures outstanding (excluding current 
maturities). Of this amount, $950 million principal amount were issued 
under an Indenture, dated as of April 1, 1995, between CNG and United 
States Trust Company of New York, as trustee. The remaining 
$442,875,000 principal amount was issued under an Indenture, dated as 
of May 1, 1971, between CNG and The Chase Manhattan Bank, as successor 
trustee.
    CNG, and certain of its subsidiaries, are authorized under the 
Omnibus Order to enter into guarantee arrangements, obtain letters of 
credit and otherwise provide credit support with respect to the 
obligations of its subsidiaries. The aggregate amount of all these 
arrangements cannot exceed $2 billion. Approximately $169.3 million in 
guarantees is currently outstanding.
    DRI proposes to make the following modifications to the Omnibus 
Order: (1) that the term of the Omnibus Order be extended through the 
Authorization Date; (2) that the amount of financing permitted under 
the Omnibus Order, as extended, be increased from $7 billion to $10 
billion; (3) that the aggregate amount of guarantees and credit support 
that may be given by CNG and its subsidiaries be increased from $2 
billion to $3 billion; and (4) that CNG be authorized to give 
guarantees and other credit support for the benefit of any of its 
direct and indirect subsidiaries as needed to support the subsidiary's 
normal course of business.
    There are also several individual outstanding authorizations 
granted to CNG system companies under the Act in addition to the 
Omnibus Order.

[[Page 57916]]

    (1) CNG Money Pool. By orders dated June 12 and July 16, 1986 
(Holding Co. Act Release Nos. 24128 and 24150, respectively), as 
amended by orders dated May 27, 1987 (Holding Co. Act Release No. 
24399), February 14, 1990 (Holding Co. Act Release No. 25040), May 13, 
1991 (Holding Co. Act Release No. 25311), April 8, 1994 (Holding Co. 
Act Release No. 26021), and July 18, 1997 (Holding Co. Act Release No. 
26742), the Commission authorized the establishment and operation of 
the Consolidated System Money Pool.
    (2) Iroquois Pipeline. By orders dated January 9, 1991, February 
28, 1991, May 7, 1991, July 6, 1993, and September 12, 1996 (Holding 
Co. Act Release Nos. 25239, 25263, 25308, 25845 and 26571, 
respectively), the Commission authorized CNG Transmission Corporation 
(``CNGT'') to provide financing to its wholly owned subsidiary, CNG 
Iroquois, Inc. (``CNGI''), for use relating to CNGI's 16% general 
partnership interest in Iroquois Gas Transmission System L.P. 
(``Iroquois''). The interstate pipeline owned by Iroquois was completed 
in 1992. Financing of CNGT's interest in Iroquois was accomplished 
through the purchase by CNGT of common stock of CNGI. Related 
authorizations concerning credit support expire on June 30, 2001.
    (3) Hub Market Center. By order dated October 21, 1994 (Holding Co. 
Act Release No. 26148), the Commission authorized CNG to provide its 
subsidiary, CNG Power Company (``CNG Power'') with up to $2 million in 
financing to be used by CNG Power to invest in its special purpose 
wholly owned subsidiary, CNG Market Center Services, Inc. (``CNGMC''). 
Financing can be provided by CNG through the purchase of CNG Power 
common stock, the making of open account advances, long-term loans to 
CNG Power, or any combination thereof. The authorization expires on 
July 1, 2004.
    (4) Energy Related Services. By orders dated August 28, 1995 and 
August 27, 1997 (Holding Co. Act Release Nos. 26363 and 26757, 
respectively), the Commission authorized CNG Products and Services, 
Inc. (``CNGP&S'') to engage in the business of providing several 
categories of energy-related services to customers of CNG's local 
distribution companies and to others, primarily customers of utilities 
not affiliated with CNG. CNG was authorized to provide CNGP&S with up 
to $10 million of financing through the sale of debt and common stock 
to its immediate parent, or through the obtaining of open account 
advances from its parent. The authorization expires on December 31, 
2000.
    (5) Partnerships. By orders dated July 26, 1995 and December 30, 
1997 (Holding Co. Act Release Nos. 26341 and 26807, respectively), the 
Commission authorized a former wholly owned subsidiary of CNG, CNG 
Energy Services Corporation (``Energy Services''), to acquire ownership 
interests with nonaffiliates in projects that involve gas-related 
activities. The dollar limit on these investments is $200 million. 
Under this authorization, Energy Services formed CNG Main Pass Gas 
Gathering Corporation and CNG Main Pass Oil Gathering System. In 
connection with the sale of Energy Services to an unaffiliated third 
party, ownership in these two companies was transferred to CNG, and the 
authority to form partnerships with nonaffiliates without prior 
Commission approval was transferred to CNG Producing Company. This 
authorization expires on December 31, 2002.
    (6) Power Services Guarantees. By order dated August 2, 1996 
(Holding Co. Act Release No. 26551), the Commission authorized CNG to 
issue parent guarantees up to an aggregate of $250 million on behalf of 
its wholly owned subsidiary, CNG Power Services Corporation (``CNG 
Power Services''). CNG Power Services is engaged in the purchase and 
sale of electricity at wholesale. The authorization expires on March 
13, 2001.
    (7) Energy Marketing. By order dated January 15, 1997 (Holding Co. 
Act Release No. 26652), the Commission authorized Energy Services to 
invest up to $250 million to expand its business to market electricity 
and other energy commodities and to engage in fuel management and other 
incidental related activities. Energy Services was authorized to 
acquire interests in other entities, including corporations, 
partnerships, limited liability companies, and joint ventures. CNG 
Retail Corporation was formed on January 30, 1997 under the order to 
engage in the business of selling natural gas, electricity and other 
products at retail. On July 29, 1998 (Holding Co. Act Release No. 
26900), CNG Retail Corporation became a direct subsidiary of CNG and 
succeeded to the authorizations and reporting obligations under the 
order subsequent to the sale of Energy Services by CNG to an 
unaffiliated party. The authorization expires on December 31, 2001.
    (8) CNG International. By order dated May 30, 1996 (Holding Co. Act 
Release No. 26523), the Commission authorized CNG to form CNG 
International Corporation (``CNG International''), to acquire directly 
or through intermediary companies interests in foreign EWGs and FUCOs. 
The order also authorized CNG to provide CNG International up to $300 
million credit support with respect to its investments. Jurisdiction 
was retained over CNG's request to invest up to $300 million in certain 
foreign energy activities including foreign gas pipelines. By 
supplemental order dated October 25, 1996 (Holding Co. Act Release No. 
26595), the Commission released jurisdiction over proposed investments 
of up to an aggregate of $75 million in two gas pipelines, one in 
Bolivia and the other in Argentina. No direct investment was made by 
CNG International under this authorization, and the authorization is 
regarded as having lapsed. By supplemental order dated November 19, 
1996 (Holding Co. Act Release No. 26608), the Commission released 
jurisdiction over a proposed investment of up to $75 million in three 
gas pipelines in Australia. Approximately $38.8 million was invested in 
these projects in late 1996. As a result of these transactions, CNG 
International now indirectly holds a 30% ownership interest in Epic 
Energy Pty Ltd., an Australian company. By supplemental order dated 
February 12, 1998 (Holding Co. Act Release No. 26824), the Commission 
released jurisdiction over a proposed investment of up to $165 million 
by CNG International in the Alinta gas pipeline in Western Australia. 
In March 1998, CNG International paid approximately $143.2 million to 
acquire its 33% equity interest in the pipeline, through intermediate 
companies including Epic Energy Australia Trust. By supplemental order 
dated April 9, 1999 (Holding Co. Act Release No. 27002), the Commission 
released jurisdiction over a proposed investment of up to $100 million 
by CNG International in a gas pipeline being privatized by the state of 
Victoria, Australia. CNG International was not the winning bidder for 
the pipeline, and no investment will be made under this authorization.
    DRI requests Commission authorization to maintain in effect the 
above described CNG financing arrangements and to extend through the 
Authorization Date, all of the above described authorizations which are 
stated to expire prior to December 31, 2002.

Energy East Corporation, et al. (70-9545)

    Energy East Corporation (``Energy East''), a New York corporation 
and a public utility holding company exempt from registration under 
section 3(a)(1) of the Act from all provisions of the Act, except 
section 9(a)(2), and Merger Co.,

[[Page 57917]]

a Connecticut corporation wholly owned by Energy East which is not 
currently subject to the Act, c/o Energy East, each at P.O. Box 1196, 
Stamford, Connecticut 06904, seek an order under sections 9(a)(2) and 
10 of the Act authorizing them to acquire all of the issued and 
outstanding common stock of Connecticut Energy Corporation 
(``Connecticut Energy''), a Connecticut corporation and a public 
utility holding company exempt from registration under section 3(a)(1) 
of the Act from all provisions of the Act, except section 9(a)(2). 
Energy East and Merger Co. also request exemptions under section 
3(a)(1) from all provisions of the Act, except section 9(a)(2), upon 
consummation of the proposed transaction.
    Energy East is an exempt holding company by order of the 
Commission.\22\ Energy East's principal subsidiaries are New York State 
Electric & Gas Corporation (``NYSEG''), a combined gas and electric 
public utility company, and Energy East Enterprises, Inc. 
(``Enterprises''), a non utility company which is also a public utility 
holding company by virtue of its ownership of a majority of the voting 
securities of CMP Natural Gas, L.L.C. (``Maine GasCO''), a gas public 
utility company.
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    \22\ See Energy East Corporation. Holding Co. Act Release No. 
26976 (Feb. 12, 1999).
---------------------------------------------------------------------------

    NYSEG, a New York corporation, is engaged in generating,\23\ 
purchasing, transmitting, and distributing electricity, and purchasing, 
transporting, and distributing natural gas. NYSEG's electric service 
territory covers about 19,900 square miles and NYSEG's natural gas 
service territory covers about 6,594 square miles, both in the central, 
eastern, and western parts of the State of New York. NYSEG serves about 
826,000 electric customers and about 244,000 natural gas customers. 
NYSEG's retail electric and gas service, among other things, is 
regulated by the Public Service Commission of the State of New York 
(``NYPSC''), and its wholesale sales of electricity are regulated by 
the Fedora Energy Regulatory Commission (``FERC'').
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    \23\ NYSEG generates electricity from its 18% share of a nuclear 
station and its hydroelectric stations. NYSEG has agreed to sell its 
share of the nuclear station, which is expected to be completed by 
early next year.
---------------------------------------------------------------------------

    Enterprises, a wholly owned subsidiary of Energy East, is an exempt 
holding company by order of the Commission.\24\ Enterprises owns 
natural gas and propane air distribution companies including a majority 
of the voting securities of Maine Gas Co. Enterprises' nonutility 
subsidiaries are: New Hampshire Gas Corporation, an energy services 
company in New Hampshire specializing in propane air distribution 
systems; Southern Vermont Natural Gas Corporation, which is developing 
a combined natural gas supply and distribution project that includes an 
extension of a pipeline from New York to Vermont and the development of 
natural GS distribution systems in Vermont; and Seneca Lake Storage, 
Inc., which proposes to own and operate a gas storage facility in New 
York.
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    \24\ See Energy East Corporation, Holding Co. Act Release No. 
26976 (Feb. 12, 1999).
---------------------------------------------------------------------------

    Maine GasCo, a Maine corporation, is an emerging gas utility 
company which began providing service to retail customers in May 1999. 
Maine GasCo is in the process to constructing a local natural gas 
distribution system in the State of Maine.
    Energy East also owns several non-utility subsidiaries, including: 
(1) Enterprises, which, besides serving as Main GasCo's parent, owns 
natural gas and propane air distribution companies; (2) XENERGY 
Enterprises; Inc., which provides energy and telecommunications 
services and owns several nonutility subsidiary companies; (3) Energy 
East Management Corporation, which invests the proceeds of the sale of 
NGE Generation, Inc.'s generation assets; (4) Oak Merger Co., which was 
formed solely for the purpose of consummating the proposed merger with 
COG Resources, Inc., an exempt gas utility holding company; and (5) EE 
Merger Corp., which was formed solely for the purpose of consummating 
the proposed merger with and into CMP Group, Inc., an exempt electric 
and gas utility holding company.
    For the 12 months ended June 30, 1999, Energy East's operating 
revenues and total utility plant on a consolidated basis were 
approximately $2.5 billion and $2.2 billion, respectively. Also as of 
June 30, 1999, Energy East had 115,878,000 outstanding shares of common 
stock, $0.01 par value; 25,000,000 outstanding shares of preferred 
stock subject to mandatory redemption; and 10,131,000 outstanding 
shares of preferred stock redeemable solely at the option of the 
subsidiary.
    Connecticut Energy claims an intrastate exemption by rule 2. 
Connecticut Energy wholly owns The Southern Connecticut Gas Company 
(``Southern Connecticut''), a gas utility company, which is Connecticut 
Energy's sole public utility subsidiary. Connecticut Energy also 
directly and indirectly owns several non utility subsidiaries, 
including: CNE Energy Services Group, Inc., which provides an array of 
energy products and services to commercial and industrial customers, 
including sales of bulk energy, operation of a liquefied natural gas 
open access storage facility, and sales of natural gas for peak-shaving 
and emergency deliveries; CNE Development Corporation, which is a 
16.67% equity participant in East Coast Natural Gas Cooperative, LLC, 
which purchases and stores gas spot supplies, provides storage service 
utilization services and is involved in bundled sales; and CNE Venture-
Tech, Inc., which invests in ventures that produce or market 
technologically advanced energy-related products.
    Southern Connecticut, a Connecticut corporation, is engaged in the 
transportation and retail distribution of natural gas in a service 
territory along the southern Connecticut coast from Westport to Old 
Saybrook, including Bridgeport and New Haven. Southern Connecticut 
serves about 158,000 customers. Southern Connecticut is subject to 
retail rate regulation, among other things, by the Connecticut 
Department of Public Utility Control (``DPUC'').
    For the 12 months ended June 30, 1999, Connecticut Energy's 
operating revenues and total utility plant on a consolidated basis were 
$230 million and $277 million, respectively. Also as of June 30, 1999, 
Connecticut Energy had 10,388,000 outstanding shares of common stock, 
$1 par value.
    Energy East also states that the merged gas system will meet the 
standards of section 2(a)(29)(B) as the gas operations of Energy East 
and Connecticut Energy will be integrated. Energy East states that 
Connecticut Energy's gas system and Energy East's gas system will share 
a ``common source of supply'' and will be operated as a ``single 
coordinated system.'' Energy East further states that Connecticut 
Energy and Energy East will be able to achieve ``substantial 
economies'' in gas supply through the increased purchasing power and 
gas supply coordination that will result from being part of the larger 
combined gas system. Finally, Energy East states that the area or 
region served by NYSEG and by Southern Connecticut will not be ``so 
large as to impair * * * the advantages of localized management, 
efficient operation, and the effectiveness of regulation.''
    Merger Co. was formed to facilitate the merger of Energy East and 
Southern Connecticut. Energy East owns all of Merger Co.'s issued and 
outstanding shares. Merger Co. owns no subsidiary companies.

[[Page 57918]]

    Under the Agreement and Plan of Merger, dated as of April 23, 1999, 
as amended as of July 15, 1999 (``Merger Agreement''), Energy East will 
acquire all of the issued and outstanding common stock of Connecticut 
Energy.\25\ Upon completion of the proposed transaction, Merger Co. 
will be the surviving party, remain a wholly-owned subsidiary of Energy 
East, and change its name to, and operate under, the name of 
``Connecticut Energy Corporation.'' Southern Connecticut will become a 
direct, wholly-owned subsidiary of Merger Co. and an indirect, wholly-
owned subsidiary of Energy East.
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    \25\ The transaction will be accounted for as an acquisition of 
Connecticut Energy by energy east under the purchase method of 
accounting in accordance with generally accepted accounting 
principles. A portion of the purchase price will be allocated to 
nonutility assets and liabilities of Connecticut Energy based on 
their estimated fair market values at the date of acquisition. As a 
regulated utility, the assets and liabilities of Southern 
Connecticut will not be revalued. The difference between the 
purchase price, representing fair value, and the recorded amounts 
will be shown as goodwill on the balance sheet of Connecticut 
Energy.
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    For the transaction, all outstanding shares of common stock of 
Connecticut Energy (other than those held by Connecticut Energy 
shareholders who have not voted in favor of the transaction and have 
properly demanded dissenters' rights) will be converted into the right 
to receive the merger consideration. Connecticut Energy shareholders 
can elect to receive cash, Energy East shares, or a combination of cash 
and Energy East shares. The cash consideration amounts to $42 in cash, 
without interest, per share. The stock consideration is a number of 
Energy East shares that will vary depending on the ``Average Market 
Price,''which is defined in the Merger Agreement as the average of the 
closing prices of Energy East shares on the New York Stock Exchange 
during the 20 trading days immediately preceding the second trading day 
prior to the effective time of the transaction. If the Average Market 
Price is equal to or more than $23.10 per share and equal to or less 
than $29.40 per share, then a Connecticut Energy share will be 
exchanged for $42 worth of Energy East shares. If the Average Market 
Price is less than $23.10, then a Connecticut Energy share will be 
exchanged for 1.82 Energy East shares. If the Average Market Price is 
more than $29.40, then a Connecticut Energy share will be exchanged for 
1.43 Energy East shares.
    Subject to an adjustment for tax reasons, 50% of all outstanding 
Connecticut Energy shares will be converted into cash and 50% will be 
converted into Energy East shares. Connecticut Energy shareholders as a 
group may submit elections to convert more than half of the outstanding 
Connecticut Energy shares into cash or more than half into Energy East 
shares. If either cash or Energy East shares is oversubscribed, then an 
equitable pro rata adjustment will be made to ensure that half of the 
outstanding Connecticut Energy shares are converted into cash and half 
are converted into Energy East shares.
    Energy East states that the transaction will produce benefits to 
the consumers of electricity and gas in the northeastern United States 
by operating more cost-effectively, increasing financial flexibility 
and providing strategic growth opportunities that will benefit the 
combined company and its shareholders and customers. Energy East also 
states that, after the transaction, the combined system will be better 
positioned to take advantage of operating economies and efficiencies 
through, among other measures, joint management and optimization of 
their respective portfolios of gas supply, transportation, and storage 
assets. Furthermore, Energy East states that the combination of the 
companies' complementary expertise and infrastructure will provide the 
combined system with the size and scope necessary to be an effective 
participant in the emerging and increasingly competitive electric and 
natural gas markets. Finally, Energy East states that the combined 
system will be financially stronger and will have a broader customer 
base than Connecticut Energy has as an independent entity.
    The application states that, following the transaction, Energy East 
and Merger Co. will each meet the requirements for an exemption under 
section 3(a)(1) of the Act. It is stated that each of Energy East and 
Merger Co. and their respective public utility subsidiaries will be 
predominantly instrastate in character and will carry on their business 
substantially in New York and Connecticut, respectively, the states in 
which they are organized. It is also stated that Enterprises will 
continue to be entitled to an exemption under section 3(a)(1) of the 
Act as the transaction will have no impact on the status of Enterprises 
as a holding company.

    For the Commission by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secrertary.
[FR Doc. 99-27984 Filed 10-26-99; 8:45 am]
BILLING CODE 8010-01-M