[Federal Register Volume 69, Number 45 (Monday, March 8, 2004)]
[Notices]
[Pages 10768-10773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27805]


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

March 2, 2004.
    Notice is hereby given that the following filings 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 amendment(s) 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 March 29, 2004 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 the 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 March 29, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

WGL, Holdings (70-10167)

    WGL, Holdings, Inc. (``WGL''), a registered public utility holding 
company, WGL's utility subsidiary, Washington Gas Light Company 
(``Washington Gas''), WGL's nonutility subsidiaries, Crab Run Gas 
Company (``Crab Run''), Hampshire Gas Company (``Hampshire''), 
Washington Gas Resources Corporation (``WGRC''), American Combustion 
Industries, Inc. (``ACI''), Brandywood Estates, Inc. (``Brandywood''), 
WG Maritime Plaza I, Inc. (``WG Maritime''), Washington Gas Energy 
Services, Inc. (``WGEServices''), Washington Gas Energy Systems, Inc. 
(``WGESystems''), Washington Gas Consumer Services, Inc. (``Consumer 
Services'') and Washington Gas Credit Corporation (``Credit Corp.''), 
all located at 101 Constitution Avenue, NW., Washington, DC 20080 
(collectively ``Applicants''), have filed an application-declaration, 
as amended (``Application''), under sections 6(a), 7, 9(a), 10, 12(b), 
12(c), 12(f), 13(b), 32, and 33 and rules 45(a), 45(c), 46, 53, and 54.

I. Background

    WGL, through its subsidiaries, sells and delivers natural gas and 
provides a variety of energy-related products and services to customers 
in the metropolitan Washington, DC, Maryland, and Virginia areas. WGL's 
subsidiary, Washington Gas, is involved in the distribution and sale of 
natural gas that is predominantly regulated by State regulatory 
commissions. WGL, through its unregulated subsidiaries, offers energy-
related products and services that are closely related to its core 
business. The majority of these energy-related activities are performed 
by wholly owned subsidiaries of Washington Gas Resources Corporation.
    Washington Gas delivers and sells natural gas to customers in 
Washington, DC and adjoining areas in Maryland, Virginia and several 
cities and towns in the northern Shenandoah Valley of Virginia. 
Effective November 1, 2000, Washington Gas and its direct or indirect 
subsidiaries became subsidiaries of WGL, a holding company registered 
under the Act.
    In addition to its regulated utility operations, WGL has three 
other wholly

[[Page 10769]]

owned subsidiaries: Crab Run, Hampshire, and WGRC. Crab Run is an 
exploration and production company whose assets are managed by an 
Oklahoma-based limited partnership. WGL's investment in this subsidiary 
and partnership is not material and management expects that future 
investments in Crab Run will be minimal. Hampshire is a regulated 
natural gas storage business that operates an underground storage field 
in the vicinity of Augusta, West Virginia. Hampshire serves Washington 
Gas under a tariff administered by the Federal Energy Regulatory 
Commission. WGRC owns the majority of the WGL's nonutility 
subsidiaries. WGRC's subsidiaries include ACI, Brandywood, WG Maritime, 
WGEServices, WGESystems, Consumer Services, and Credit Corp.
    The term ``Nonutility Subsidiaries'' means each of the existing 
nonutility subsidiaries of WGL, and their respective subsidiaries, and 
any direct or indirect nonutility company acquired or formed by WGL or 
any Nonutility Subsidiary in the future in a transaction that has been 
approved by the Commission in this filing or in a transaction that is 
exempt under the Act. The term ``Subsidiaries'' means Washington Gas 
and the Nonutility Subsidiaries.

II. Current Request

    Applicants request the following authorizations through March 31, 
2007 (``Authorization Period''): (i) A program of external financing, 
(ii) intrasystem financing and credit support arrangements, and (iii) 
interest rate hedging measures.

III. Financing Parameters

A. General Terms and Conditions

    Financing transactions with third parties will be subject to the 
following general terms and conditions, including, without limitation, 
securities issued for the purpose of refinancing or refunding 
outstanding securities of the issuer (``Financing Parameters'').
1. Effective Cost of Money
    The effective cost of capital on long-term debt (``Long-Term 
Debt''), preferred stock (``Preferred Stock''), preferred securities 
(``Preferred Securities''), equity-linked securities (``Equity-Linked 
Securities''), and short-term debt (``Short-term Debt'') will not 
exceed competitive market rates available at the time of issuance for 
securities having the same or reasonably similar terms and conditions 
issued by similar companies of reasonably comparable credit quality; 
provided that in no event will the effective cost of capital (i) on any 
series of Long-term Debt exceed 500 basis points over a U.S. Treasury 
security having a remaining term equivalent to the term of the series, 
(ii) on any series of Preferred Stock, Preferred Securities or Equity-
Linked Securities exceed 500 basis points over a U.S. Treasury security 
having a remaining term equal to the term of the series, and (iii) on 
Short-term Debt exceed 300 basis points over the London Interbank 
Offered Rate (``LIBOR'') for maturities of less than one year.
2. Maturity
    The maturity of Long-term Debt will be between one and 50 years 
after the issuance thereof. Preferred Stock and Equity-Linked 
securities issued directly by WGL or a Financing Subsidiary may be 
perpetual in duration.
3. Issuance Expenses
    The underwriting fees, commissions or other similar remuneration 
paid in connection with the non-competitive issue, sale or distribution 
of securities pursuant to this Application will not exceed the greater 
of (i) 5% of the principal or total amount of the securities being 
issued or (ii) issuance expenses that are generally paid at the time of 
the pricing for sales of the particular issuance, having the same or 
reasonably similar terms and conditions issued by similar companies of 
reasonably comparable credit quality.
4. Common Equity Ratio
    At all times during the Authorization Period, WGL and Washington 
Gas will maintain common equity of at least 30% of its consolidated 
capitalization (common equity, Preferred Stock, Long-Term Debt and 
Short-Term Debt); provided that WGL will in any event be authorized to 
issue common stock (``Common Stock'') (including under stock-based 
plans maintained for shareholders, employees, and management) to the 
extent authorized in this filing.
5. Investment Grade Ratings
    Applicants further represent that, except for securities issued for 
the purpose of funding money pool operations, no guarantees or other 
securities, other than Common Stock, may be issued in reliance upon the 
authorization granted by the Commission under this Application unless 
(i) the security to be issued, if rated, is rated investment grade; 
(ii) all outstanding securities of the issuer that are rated are rated 
investment grade; and (iii) all outstanding securities of the top level 
registered holding company that are rated are rated investment grade. 
For purposes of this provision, a security will be deemed to be rated 
``investment grade'' if it is rated investment grade by at least one 
nationally recognized statistical rating organization, as that term is 
used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the 
Securities Exchange Act of 1934, as amended. Applicants request that 
the Commission reserve jurisdiction over the issuance of any securities 
that are rated below investment grade. Applicants further request that 
the Commission reserve jurisdiction over the issuance of any guarantee 
or other securities at any time that the conditions set forth in 
clauses (i) through (iii) above are not satisfied.

IV. WGL External Financing

    WGL proposes to issue and sell from time to time during the 
Authorization Period, Common Stock and Preferred Stock and, directly or 
indirectly through one or more financing subsidiaries (``Financing 
Subsidiaries'') (as described below), Long-Term Debt and other forms of 
Preferred Securities or Equity-Linked Securities in an aggregate amount 
not to exceed $300 million during the Authorization Period. In 
addition, WGL proposes to issue and reissue Short-Term Debt not to 
exceed $300 million principal amount outstanding at any time.

A. Common Stock

    WGL proposes to issue and sell Common Stock through underwriting 
agreements of a type generally standard in the industry. Common Stock 
may be issued under private negotiation with underwriters, dealers or 
agents, as discussed below, or effected through competitive bidding 
among underwriters. In addition, sales may be made through private 
placements or other non-public offerings to one or more persons. All 
Common Stock sales will be at rates or prices and under conditions 
negotiated or based upon, or otherwise determined by, competitive 
capital markets. Although the Company has no present plans to issue 
Common Stock, if, for example, WGL Holdings were to issue $70 million 
of Common Stock at the closing price on January 30, 2004 of $27.95, it 
would result in an issuance of approximately 2.5 million shares. WGL 
also proposes to issue stock options, performance shares, stock 
appreciation rights (``SARs''), warrants, or other stock purchase 
rights that are exercisable for Common Stock and to issue Common Stock 
upon the exercise of the options, SARs, warrants, or other stock 
purchase rights.

[[Page 10770]]

B. Long-Term Debt, Preferred Stock and Other Preferred or Equity-Linked 
Securities

    WGL seeks authority to issue its authorized Preferred Stock or, 
directly or indirectly through one or more Financing Subsidiaries, to 
issue Long-Term Debt and other types of Equity-Linked Securities 
(including, specifically, trust preferred securities). Applicants state 
that the proceeds of Long-Term Debt, Preferred Stock, or other Equity-
Linked Securities would enable WGL to reduce Short-Term Debt with more 
permanent capital and provide an important source of future financing 
for the operations of and investments in non-utility businesses that 
are exempt under the Act.
    Preferred Stock or other types Equity-Linked Securities may be 
issued in one or more series with such rights, preferences, and 
priorities as may be designated in the instrument creating each series, 
as determined by WGL's board of directors. The dividend rate on any 
series of Preferred Stock or Equity-Linked Securities will not exceed 
at the time of issuance 500 basis points over the yield to maturity of 
a U.S. Treasury security having a remaining term equivalent to the term 
of these securities. Dividends or distributions on Preferred Stock or 
Equity-Linked Securities will be made periodically and to the extent 
funds are legally available for this purpose, but may be made subject 
to terms which allow the issuer to defer dividend payments for 
specified periods. Preferred Stock or other Equity-Linked Securities 
may be convertible or exchangeable into shares of Common Stock.
    Applicants state that Long-Term Debt of WGL will be in the form of 
unsecured notes (``Debentures'') issued in one or more series. The 
Debentures of any series (i) May be convertible into any other 
securities of WGL, (ii) will have a maturity ranging from one to 50 
years, (iii) will bear interest at a rate not to exceed 500 basis 
points over the yield to maturity of a U.S. Treasury security having a 
remaining term approximately equal to the term of such series of 
Debentures, (iv) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above or 
discounts below the principal amount thereof, (v) may be entitled to 
mandatory or optional sinking fund provisions, (vi) may provide for 
reset of the coupon under a remarketing arrangement, and (vii) may be 
called from existing investors or put to the company, or both. The 
Debentures will be issued under an indenture (``Indenture'') to be 
entered into between WGL and a national bank, as trustee.\1\
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    \1\ WGL contemplates that the Debentures would be issued and 
sold directly to one or more purchasers in privately-negotiated 
transactions or to one or more investment banking or underwriting 
firms or other entities that would resell the Debentures without 
registration under the 1933 Act in reliance upon one or more 
applicable exemptions from registration thereunder, or to the public 
either (i) through underwriters selected by negotiation or 
competitive bidding or (ii) through selling agents acting either as 
agent or as principal for resale to the public either directly or 
through dealers.
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C. Short-Term Debt

    Applicants request authority for WGL to issue up to an aggregate 
principal amount of $300 million of Short-Term Debt during the 
Authorization Period. The effective cost of money on Short-Term Debt 
authorized in this Application will not exceed, at the time of 
issuance, 300 basis points over the London Interbank Offer Rate 
(``LIBOR'') for maturities of one year or less. Applicants state that 
to provide financing for general corporate purposes, other working 
capital requirements and investments in new enterprises until long-term 
financing can be obtained, WGL may sell commercial paper, from time to 
time, in established domestic or European commercial paper markets. 
Commercial paper would typically be sold to dealers at the discount 
rate per annum prevailing at the date of issuance for commercial paper 
of comparable quality and maturities sold to commercial paper dealers 
generally.
    WGL also proposes to establish bank lines of credit in an aggregate 
principal amount sufficient to support projected levels of Short-Term 
Debt and to provide an alternative source of liquidity. Loans under 
these lines will have maturities not more than one year from the date 
of each borrowing. WGL may also engage in other types of Short-Term 
Debt within the limitations of the Financing Parameters, generally 
available to borrowers with comparable credit ratings as it may deem 
appropriate in light of its needs and market conditions at the time of 
borrowing.

D. Financing by Washington Gas

    Under rule 52(a), the long-term securities issued and sold by 
Washington Gas (including, specifically, Long-Term Debt and Preferred 
Stock) will be exempt from the pre-approval requirements of sections 
6(a) and 7 of the Act because these securities will have been 
specifically approved by both the Virginia State Corporation Commission 
(``SCC-VA'') and the Public Service Commission of the District of 
Columbia (``PSC-DC''), the agencies with regulatory authority over 
Washington Gas in the two jurisdictions in which it is incorporated. 
The issuance by Washington Gas of commercial paper and other short-term 
indebtedness having a maturity of less than 12 months will not be 
exempt under rule 52(a) since it is not subject to approval by both the 
SCC-VA and the PSC-DC.
    Washington Gas requests approval to issue and sell from time to 
time during the Authorization Period Short-Term Debt in an aggregate 
principal amount outstanding at any one time not to exceed $350 million 
(``Washington Gas Short-Term Debt Limit''). Short-Term Debt could 
include, without limitation, commercial paper sold in established 
domestic or European commercial paper markets in a manner similar to 
WGL, bank lines of credit and other debt securities. The effective cost 
of money on Washington Gas Short-Term Debt will not exceed at the time 
of issuance 300 basis points over LIBOR for maturities of one year or 
less.

E. Nonutility Subsidiary Financing

    In order to be exempt under rule 52(b), any loan by WGL to a 
Nonutility Subsidiary or by one Nonutility Subsidiary to another must 
have interest rates and maturities that are designed to parallel the 
lending company's effective cost of capital. However, if a Nonutility 
Subsidiary making a borrowing is not wholly owned by WGL, directly or 
indirectly, and does not sell goods or services to Washington Gas, then 
the Applicants request authority to make loans to any associate company 
at interest rates and maturities designed to provide a return to the 
lending company of not less than its effective cost of capital. 
Applicants state that, if WGL or a Nonutility Subsidiary were required 
to charge only its effective cost of capital on a loan to a less than 
wholly owned associate company when market rates were greater, the 
other owner(s) of associate company would in effect receive a subsidy 
from WGL or other lending Nonutility Subsidiary equal to the difference 
between the cost of providing the loan at its effective cost of capital 
and the other owner(s') proportionate share of the price at which it 
would have to obtain a similar loan on the open market.\2\
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    \2\ WGL states that it will include in the next certificate 
filed under rule 24 in this filing substantially the same 
information as that required on Form U-6B-2 with respect to any 
intrasystem loan transaction.

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[[Page 10771]]

V. Guarantees

A. WGL Guarantees

    WGL requests authorization to enter into guarantees and capital 
maintenance agreements, obtain letters of credit, enter into expense 
agreements or otherwise provide credit support (collectively, ``WGL 
Guarantees'') on behalf or for the benefit of any Subsidiary as may be 
appropriate to enable a Subsidiary to carry on in the ordinary course 
of its business, in an aggregate principal amount not to exceed $400 
million outstanding at any one time. Subject to this limitation, WGL 
may guarantee both securities issued by and other contractual or legal 
obligations of any Subsidiary. In addition, WGL proposes to charge each 
Subsidiary a fee for each guarantee provided on its behalf that is 
determined by multiplying the amount of the WGL Guarantee provided by 
the cost of obtaining the liquidity necessary to perform the guarantee 
(for example, bank line commitment fees or letter of credit fees, plus 
other transactional expenses) for the period of time the guarantee 
remains outstanding (``Guarantee Fee'').

B. Nonutility Subsidiary Guarantees

    In addition, Nonutility Subsidiaries request authority to provide 
guarantees and other forms of credit support (``Nonutility Subsidiary 
Guarantees'') on behalf or for the benefit of other Nonutility 
Subsidiaries in an aggregate principal amount not to exceed $200 
million outstanding at any one time, exclusive of any guarantees and 
other forms of credit support that are exempt pursuant to rule 45(b)(7) 
and rule 52(b). The Nonutility Subsidiary providing any credit support 
may charge its associate company a Guarantee Fee.

VI. Hedging Transactions

    WGL Holdings, and to the extent not exempt pursuant to rule 52, the 
Subsidiaries, request authorization to enter into interest rate hedging 
transactions with respect to existing indebtedness (``Interest Rate 
Hedges''), subject to certain limitations and restrictions, in order to 
reduce or manage interest rate cost. Interest Rate Hedges would only be 
entered into with counterparties (``Approved Counterparties'') whose 
senior debt ratings, or the senior debt ratings of the parent companies 
of the counterparties, as published by Standard and Poor's Ratings 
Group, are equal to or greater than BBB, or an equivalent rating from 
Moody's Investors Service, or Fitch Inc.
    Interest Rate Hedges will involve the use of financial instruments 
commonly used in today's capital markets to manage the volatility of 
interest rates, including but not limited to interest rate swaps, 
swaptions, caps, collars, floors, forwards, rate locks, structured 
notes (i.e., a debt instrument in which the principal and/or interest 
payments are indirectly linked to the value of an underlying asset or 
index), and short sales of U.S. Treasury securities. Applicants would 
use Interest Rate Hedges as a means of prudently managing the risk 
associated with any outstanding debt by, for example, (i) converting 
variable rate debt to fixed rate debt, (ii) converting fixed rate debt 
to variable rate debt, or (iii) limiting the impact of changes in 
interest rates resulting from variable rate debt. The transactions 
would be for fixed periods and stated notional amounts, which in no 
case would exceed the principal amount of the underlying debt 
instrument. Fees, commissions and other amounts payable to the 
counterparty or exchange (excluding, however, the swap or option 
payments) in connection with an Interest Rate Hedge will not exceed 
those generally obtainable in competitive markets.
    In addition, WGL Holdings and the Subsidiaries request 
authorization to enter into interest rate hedging transactions with 
respect to anticipated debt offerings (``Anticipatory Hedges''), 
subject to certain limitations and restrictions. Applicants state that 
Anticipatory Hedges would only be entered into with Approved 
Counterparties, and would be utilized to fix and/or limit the interest 
rate risk associated with any new issuance through (i) a forward sale 
of exchange-traded U.S. Treasury futures contracts, U.S. Treasury 
obligations and/or a forward swap (each a ``Forward Sale''), (ii) the 
purchase of put options on U.S. Treasury obligations (``Put Options 
Purchase''), (iii) a Put Options Purchase in combination with the sale 
of call options on U.S. Treasury obligations (``Zero Cost Collar''), 
(iv) transactions involving the purchase or sale, including short 
sales, of U.S. Treasury obligations, or (v) some combination of a 
Forward Sale, Put Options Purchase, Zero Cost Collar, and/or other 
derivative or cash transactions, including, but not limited to 
structured notes, caps, and collars, appropriate for the Anticipatory 
Hedges.
    Anticipatory Hedges may be executed on-exchange (``On-Exchange 
Trades'') with brokers through the opening of futures and/or options 
positions traded on the Chicago Board of Trade, the opening of over-
the-counter positions with one or more counterparties (``Off-Exchange 
Trades''), or a combination of On-Exchange Trades and Off-Exchange 
Trades. WGL Holdings or a Subsidiary will determine the optimal 
structure of each Anticipatory Hedge transaction at the time of 
execution. WGL Holdings or a Subsidiary may decide to lock in interest 
rates and/or limit its exposure to interest rate increases. All open 
positions under Anticipatory Hedges will be closed on or prior to the 
date of the new issuance and neither WGL Holdings nor any Subsidiary 
will, at any time, take possession or make delivery of the underlying 
U.S. Treasury Securities.
    Applicants represent that each Interest Rate Hedge and Anticipatory 
Hedge will be treated for accounting purposes under U.S. generally 
accepted accounting principles.

VII. Money Pool

    WGL and certain of the Subsidiaries request authorization to 
continue operating a system money pool (``Money Pool'') as previously 
authorized by the Commission. To the extent not exempted by rule 52, 
the Subsidiaries request authorization to make unsecured short-term 
borrowings from the Money Pool and to contribute surplus funds to the 
Money Pool and to lend and extend credit to (and acquire promissory 
notes from) one another through the Money Pool. WGL requests 
authorization to contribute surplus funds and/or to lend and extend 
credit to the participating Subsidiaries through the Money Pool. 
Subsidiaries participating in the Money Pool arrangement are Washington 
Gas, Crab Run, Hampshire, WGRC, WGEServices, WGESystems, ACI, 
Brandywood, Consumer Services, Credit Corp., and WG Maritime.
    Under the terms of the Money Pool, short-term funds will be 
available from the following sources for short-term loans to the 
participating Subsidiaries from time to time: (1) Surplus funds in the 
treasuries of Money Pool participants other than WGL; (2) surplus funds 
in the treasury of WGL (together, ``Internal Funds''); and (3) proceeds 
from bank borrowings and/or commercial paper sales by WGL or any Money 
Pool participant for loan to the Money Pool (``External Funds''). Funds 
will be made available from these sources in such order as WGL, as 
administrator of the Money Pool, may determine would result in a lower 
cost of borrowing, consistent with the individual borrowing needs and 
financial standing of the companies providing funds to the pool. The 
determination of whether Washington Gas at any time has surplus funds 
to lend to the Money Pool or shall lend

[[Page 10772]]

funds to the Money Pool will be made by Washington Gas' chief financial 
officer or treasurer, or by a designee thereof, on the basis of cash 
flow projections and other relevant factors, in Washington Gas' sole 
discretion.
    A participating Subsidiary that borrows from the Money Pool will 
borrow pro rata from each participant that lends, in the proportion 
that the total amount loaned by each lending Money Pool participant 
bears to the total amount then loaned through the Money Pool. On any 
day when both Internal Funds and External Funds with different rates of 
interest, are used to fund loans through the Money Pool, each borrower 
would borrow pro rata from each funding source in the Money Pool in the 
same proportion that the amount of funds provided by that fund source 
bears to the total amount of short-term funds available to the Money 
Pool.
    Proceeds of any short term borrowings from the Money Pool may be 
used by a participant: (i) For the interim financing of its 
construction and capital expenditure programs; (ii) for its working 
capital needs; (iii) for the repayment, redemption or refinancing of 
its debt and preferred stock; (iv) to meet unexpected contingencies, 
payment and timing differences, and cash requirements; and (v) to 
otherwise finance its own business and for other lawful general 
corporate purposes. Washington Gas requests authority to borrow up to 
$350 million at any one time outstanding from the Money Pool. 
Borrowings by Washington Gas from the Money Pool will be counted 
against the Washington Gas Short-Term Debt Limit. WGL Holdings will not 
make any borrowings from the Money Pool.

VIII. Changes in Capital Stock of Subsidiaries

    In order to accommodate the proposed transactions in this filing 
and to provide for future issues, Applicants request authorization to 
change the terms of any wholly owned Subsidiary's authorized capital 
stock capitalization by an amount deemed appropriate by WGL or other 
intermediate parent company in the instant case. A Subsidiary would be 
able to change the par value, or change between par value and no-par 
stock, without additional Commission approval. Any action by Washington 
Gas would be subject to and would only be taken upon the receipt of any 
necessary approvals by the state commission(s) in the state or states 
in which Washington Gas is incorporated and doing business.

IX. Financing Subsidiaries

    WGL and the Subsidiaries request authority to acquire, directly or 
indirectly, the equity securities of one or more corporations, trusts, 
partnerships or other entities (``Financing Subsidiaries'') created 
specifically for the purpose of facilitating the financing of the 
authorized and exempt activities (including exempt and authorized 
acquisitions) of WGL and the Subsidiaries through the issuance of Long-
Term Debt or Equity Securities, including but not limited to monthly 
income preferred securities, to third parties. Financing Subsidiaries 
would loan, dividend or otherwise transfer the proceeds of any 
financing to its parent or to other Subsidiaries, provided, however, 
that a Financing Subsidiary of Washington Gas will dividend, loan or 
transfer proceeds of financing only to Washington Gas. The terms of any 
loan of the proceeds of any securities issued by a Financing Subsidiary 
to WGL would mirror the terms of those securities. WGL may, if 
required, guarantee or enter into Expense Agreements in respect of the 
obligations of any Financing Subsidiary which it organizes. The 
Subsidiaries may also provide guarantees and enter into Expense 
Agreements under rules 45(b)(7) and 52, as applicable, if required on 
behalf of any Financing Subsidiaries which they organize. If the direct 
parent company of a Financing Subsidiary is authorized in this 
proceeding or any subsequent proceeding to issue Long-Term Debt or 
similar types of equity securities, then the amount of the securities 
issued by that Financing Subsidiary would count against the limitation 
applicable to its parent for those securities. In these cases, however, 
the Guarantee by the parent of the security issued by its Financing 
Subsidiary would not be counted against the limitations on WGL 
Guarantees or Nonutility Subsidiary Guarantees. In other cases, in 
which the parent company is not authorized to issue similar types of 
securities, the amount of any Guarantee not exempt under rules 45(b)(7) 
and 52 that is entered into by the parent company with respect to 
securities issued by its Financing Subsidiary would be counted against 
the limitation on WGL Holdings Guarantees or Nonutility Subsidiary 
Guarantees, as the case may be.
    Applicants state that any affiliate transactions entered into by a 
Financing Subsidiary in connection with an Expense Agreement would be 
conducted at fair market value without regard to cost, and therefore, 
Applicants request an exemption under section 13(b) from the at cost 
standards of rules 90 and 91 for WGL Holdings and the Subsidiaries to 
enter into these transactions.

X. Intermediate Subsidiaries

    WGL requests authority to acquire, directly or indirectly through a 
Nonutility Subsidiary, the securities of one or more new subsidiary 
companies (``Intermediate Subsidiaries'') which may be organized 
exclusively for the purpose of acquiring, holding and/or financing the 
acquisition of the securities of or other interest in one or more 
exempt wholesale generators (``EWGs''), as defined in section 32 of the 
Act, foreign utility companies (``FUCOs''), as defined in section 33 of 
the Act, or exempt telecommunication companies ETCs (``Exempt 
Telecommunication Companies''), exempt companies under rule 58 (``Rule 
58 Companies''), or other non-exempt Nonutility Subsidiaries (as 
authorized in this proceeding or in a separate proceeding).\3\ WGL also 
requests authority for Intermediate Subsidiaries to provide management, 
administrative, project development, and operating services to these 
entities at fair market prices determined without regard to cost, and 
requests an exemption (to the extent that rule 90(d) does not apply) 
pursuant to section 13(b) from the cost standards of rules 90 and 91 as 
applicable to these transactions, in any case in which the Nonutility 
Subsidiary purchasing such goods or services is:
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    \3\ WGL does not hold an interest in any EWG, FUCO or ETC at 
this time.
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    (i) A FUCO or foreign EWG that derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (ii) an EWG that sells electricity at market-based rates, that have 
been approved by the Federal Energy Regulatory Commission (``FERC''), 
provided that the purchaser is not Washington Gas;
    (iii) a ``qualifying facility'' (``QF''), within the meaning of the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''), 
that sells electricity exclusively (a) at rates negotiated at arm's 
length to one or more industrial or commercial customers purchasing 
electricity for their own use and not for resale, and/or (b) to an 
electric utility company (other than Washington Gas) at the purchaser's 
``avoided cost,'' as determined in accordance with PURPA regulations;
    (iv) a domestic EWG or QF that sells electricity at rates based 
upon its cost of

[[Page 10773]]

service, as approved by FERC or any state public-utility commission 
having jurisdiction, provided that the purchaser is not Washington Gas; 
or
    (v) a Rule 58 Subsidiary or any other Nonutility Subsidiary that 
(a) is partially owned by WGL, provided that the ultimate purchaser of 
the goods or services is not a Washington Gas (or any other entity 
within the WGL system whose activities and operations are primarily 
related to the provision of goods and services to Washington Gas), (b) 
is engaged solely in the business of developing, owning, operating and/
or providing services or goods to Nonutility Subsidiaries, described in 
clauses (i) through (iv) immediately above, or (c) does not derive, 
directly or indirectly, any material part of its income from sources 
within the U.S. and is not a public-utility company operating within 
the U.S.
    Applicants state that an Intermediate Subsidiary may be organized, 
among other things: (i) In order to facilitate the making of bids or 
proposals to develop or acquire an interest in any Exempt Company, Rule 
58 Company, or other non-exempt Nonutility Subsidiary, (ii) after the 
award of such a bid proposal, in order to facilitate closing on the 
purchase or financing of the acquired company, (iii) at any time 
subsequent to the consummation of an acquisition of an interest in any 
such company in order, among other things, to effect an adjustment in 
the respective ownership interests in such business held by WGL 
Holdings and non-affiliated investors, (iv) to facilitate the sale of 
ownership interests in one or more acquired nonutility companies, (v) 
to comply with applicable laws of foreign jurisdictions limiting or 
otherwise relating to the ownership of domestic companies by foreign 
nationals, (vi) as a part of tax planning in order to limit WGL 
Holdings' exposure to U.S. and foreign taxes, (vii) to further insulate 
WGL Holdings and Washington Gas from operational or other business 
risks that may be associated with investments in nonutility companies, 
or (viii) for other lawful business purposes.
    Applicants state that investments in Intermediate Subsidiaries may 
take the form of any combination of the following: (i) Purchases of 
capital shares, partnership interests, member interests in limited 
liability companies, trust certificates, or other forms of equity 
interests, (ii) capital contributions, (iii) open account advances with 
or without interest, (iv) loans, and (v) guarantees issued, provided, 
or arranged in respect of the securities or other obligations of any 
Intermediate Subsidiaries. Applicants state, further, that funds for 
any direct or indirect investment in any Intermediate Subsidiary will 
be derived from: (i) Financings authorized in this proceeding, (ii) any 
appropriate future debt or equity securities issuance authorization 
obtained by WGL from the Commission, and (iii) other available cash 
resources, including proceeds of securities sales by a Nonutility 
Subsidiary under rule 52.\4\
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    \4\ To the extent that WGL provides funds or guarantees directly 
or indirectly to an Intermediate Subsidiary which are used for the 
purpose of making an investment in any EWG or FUCO or a Rule 58 
Company, Applicants state that the amount of the funds or guarantees 
will be included in WGL's ``aggregate investment'' in these 
entities, as calculated in accordance with rule 53 or rule 58, as 
applicable.
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    WGL Holdings may, from time to time, to consolidate or otherwise 
reorganize all or any part of its direct and indirect ownership 
interests in Nonutility Subsidiaries, and the activities and functions 
related to such investments, under one or more Intermediate 
Subsidiaries. To effect a consolidation or other reorganization, WGL 
Holdings may wish to either contribute the equity securities of one 
Nonutility Subsidiary to another Nonutility Subsidiary or sell (or 
cause a Nonutility Subsidiary to sell) the equity securities of one 
Nonutility Subsidiary to another one. To the extent that these 
transactions are not otherwise exempt under the Act or rules 
thereunder, WGL Holdings hereby requests authorization under the Act to 
consolidate or otherwise reorganize under one or more direct or 
indirect Intermediate Subsidiaries WGL Holdings' ownership interests in 
existing and future Nonutility Subsidiaries. These transactions may 
take the form of a Nonutility Subsidiary selling, contributing or 
transferring the equity securities of a subsidiary as a dividend to an 
Intermediate Subsidiary, and Intermediate Subsidiaries acquiring, 
directly or indirectly, the equity securities of companies, either by 
purchase or by receipt of a dividend. The purchasing Nonutility 
Subsidiary in any transaction structured as an intrasystem sale of 
equity securities may execute and deliver its promissory note 
evidencing all or a portion of the consideration given. Each 
transaction would be carried out in compliance with all applicable U.S. 
or foreign laws and accounting requirements, and any transaction 
structured as a sale would be carried out for a consideration equal to 
the book value of the equity securities being sold. WGL Holdings will 
report each transaction in the next quarterly certificate filed under 
rule 24 in this proceeding, as described below.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-5111 Filed 3-5-04; 8:45 am]
BILLING CODE 8010-01-P