[Federal Register Volume 69, Number 227 (Friday, November 26, 2004)]
[Notices]
[Pages 68986-68995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3335]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27912]


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

November 19, 2004.
    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 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 December 13, 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 December 13, 2004, 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. (70-10246)

    Dominion Resources, Inc. (``DRI''), a registered holding company; 
Consolidated Natural Gas Company (``CNG''), a direct subsidiary of DRI 
and also a registered holding company, both of 120 Tredegar Street, 
Richmond, VA 23219; their public utility subsidiaries: Virginia 
Electric and Power Company (``Virginia Power''), P.O. Box 26666, 17th 
Floor, Richmond, VA, The Peoples Natural Gas Company (``Peoples''), 625 
Liberty Avenue, Pittsburgh, PA 15222, The East Ohio Gas Company (``East 
Ohio''), 1201 E. 55th Street, Cleveland, OH 44103, and Hope Gas, Inc. 
(``Hope''), 445 West Main Street, Clarksburg, WV 26301; and the 
nonutility subsidiaries (as defined below) (collectively, the 
``Applicants'') \1\ have filed an application-declaration 
(``Application'') under sections 6(a), 7, 9(a), 10, 12(b), 12(c), 
12(f), 32, 33 and 34 of the Act and rules 43, 45, 46, 53 and 54 under 
the Act.
---------------------------------------------------------------------------

    \1\ The addresses for these companies are shown on Exhibit J-1 
of the Application.
---------------------------------------------------------------------------

    DRI's utility subsidiaries are: (1) Virginia Power, a regulated 
public utility engaged in the generation, transmission and distribution 
of electric energy in Virginia and northeastern North Carolina; (2) 
Peoples, a regulated public utility engaged in the distribution of 
natural gas in Pennsylvania; (3) East Ohio, a regulated public utility 
engaged in the distribution of natural gas in Ohio; and (4) Hope, a 
regulated public utility engaged in the distribution of natural gas in 
West Virginia (collectively, the ``Utility Subsidiaries''). Virginia 
Power is a direct subsidiary of DRI. Peoples, East Ohio and Hope are 
each direct subsidiaries of CNG.
    DRI's nonutility activities are conducted through its nonutility 
subsidiaries (the ``Nonutility Subsidiaries''): (1) Dominion Energy, 
Inc. (``DEI'') which, through its direct and indirect subsidiaries 
(together with DEI, the ``DEI Companies''), is active in the 
competitive electric power generation business and in the development, 
exploration and operation of natural gas and oil reserve; \2\ (2) 
direct and indirect subsidiaries of Virginia Power, which are engaged 
in fuel procurement for Virginia Power and other DEI subsidiaries, 
energy marketing and nuclear consulting services; and (3) direct and 
indirect subsidiaries of CNG which are engaged in all phases of the 
natural gas business other than retail distribution including 
transmission, storage and exploration and production. DRI and all of 
its subsidiaries are referred to as the ``DRI System.'' \3\
---------------------------------------------------------------------------

    \2\ DEI also owns Dominion Wholesale, Inc., which provides 
inventory services to the DEI Companies and other subsidiaries of 
DRI. See HCAR No. 27772 (December 12, 2003).
    \3\ DRI has another nonutility subsidiary, Dominion Capital, 
Inc. (``DCI'' and, together with its subsidiaries, the ``DCI 
Companies''), which in the past, operated as a diversified financial 
services company with several operating subsidiaries in the 
commercial lending, merchant banking and residential lending 
businesses. Pursuant to an order dated January 28, 2003, HCAR No. 
27644, DRI is obligated to dispose of its interest in the DCI 
Companies (other than certain interests in specified independent 
power projects) by December 31, 2006.
---------------------------------------------------------------------------

Requested Authorization

A. Summary of Transactions

    By prior orders, the Applicants have been authorized to engage in 
various financing transactions, a money pool and a tax allocation 
agreement.\4\ Applicants request authority to engage in the 
transactions set forth below during the period from the effective date 
of the order issued in this filing through the period ending December 
31, 2007 (``Authorization Period''). This authority would replace and 
supersede all of the Applicants' current authorization under the prior 
orders. In particular, Applicants request:
---------------------------------------------------------------------------

    \4\ See HCAR No. 27112, December 15, 1999 (the ``Initial 
Financing Order''), HCAR No. 27406, May 24, 2001 (the ``Second 
Financing Order''), HCAR No. 27814, March 15, 2004 (the ``Third 
Financing Order''), HCAR No. 27634, January 3, 2003 (the ``Money 
Pool Order'') and HCAR No. 27845, May 13, 2004 (the ``Tax Allocation 
Order'').
---------------------------------------------------------------------------

    (1) For DRI to increase its capitalization in the aggregate amount 
of $8.0 billion over and above its capitalization as of June 30, 2004, 
other than for refunding or replacing securities where capitalization 
either is not increased (or is increased solely by operation of call 
premiums, make whole premiums, or other offering expenses, 
collectively, ``Offering Expenses''), through the issuance and/or sale 
by DRI of common stock (including forward

[[Page 68987]]

sales), preferred securities, equity-linked securities, and long-term 
debt, whether directly or through one or more financing conduits;
    (2) For DRI to issue short term debt, including, but not limited to 
the issuance of commercial paper or letters of credit in an aggregate 
amount up to $12.5 billion principal amount outstanding at any one 
time, provided, however, the authority in this subparagraph (2) will be 
reduced by the amount of securities issued and outstanding pursuant to 
the authority requested in subparagraph (1) above. This short-term debt 
authorization would enable DRI to support the DRI Money Pool and other 
short-term financing needs, which vary significantly during a calendar 
period and are not permanent capital increases;
    (3) For DRI to provide guarantees, intra-system advances and other 
credit support for all of its subsidiaries, as described below, in an 
aggregate amount not to exceed $10 billion at any time outstanding; \5\
---------------------------------------------------------------------------

    \5\ Pursuant to the prior orders, DRI continues to maintain 
guarantee and credit support arrangements for the DCI Companies. 
However, DRI is disposing of its interest in the DCI Companies and 
these arrangements will diminish and terminate when the disposition 
process is completed.
---------------------------------------------------------------------------

    (4) For DRI to issue up to 50 million shares of stock for its 
direct stock purchase and dividend reinvestment plan, incentive 
compensation plans and other employee benefit plans as described below 
(these issuances to be excluded from the increase to DRI's 
capitalization described in subparagraph 1 above);
    (5) For DRI to continue to operate the DRI Money Pool as described 
below;
    (6) For CNG to increase its capitalization in the aggregate amount 
of $6.0 billion over and above its capitalization as of June 30, 2004, 
other than through refunding or replacing securities where 
capitalization is either not increased (or is increased solely by 
Offering Expenses) through the issuance and/or sale of common stock 
(including forward sales), preferred securities, equity-linked 
securities, and long-term debt, whether directly or through one or more 
financing conduits;
    (7) For CNG to issue short-term debt, including, but not limited 
to, the issuance of commercial paper or letters of credit, in an 
aggregate amount of up to $9.25 billion principal amount outstanding at 
any one time, provided, however, the authority in this subparagraph (7) 
will be reduced by the amount of the securities issued and outstanding 
pursuant to the authority requested in subparagraph (6) above. This 
short-term debt authorization would enable CNG to support its short-
term financing needs which vary significantly during a calendar year 
and are not permanent capital increases;
    (8) For CNG to provide guarantees, intra-system advances and other 
credit support for all of its subsidiaries in an aggregate amount not 
to exceed $5.0 billion at any time outstanding;
    (9) For DRI and CNG to use financing conduits or subsidiaries to 
issue or sell debt or equity securities on DRI's or CNG's behalf either 
by DRI or CNG owning these conduits or subsidiaries or guaranteeing the 
obligations of these conduits or subsidiaries as described below;
    (10) For DRI and CNG to enter into transactions to manage interest 
rate credit and equity price risk with regard to the issuance of 
securities as described below;
    (11) For DRI and CNG to use up to $300 million of the financing for 
development costs related to investments in Exempt Subsidiaries and 
Non-Exempt Subsidiaries as defined below;
    (12) For the Utility Subsidiaries to issue short-term debt 
securities (including commercial paper) not to exceed the following 
amounts outstanding at any one time:

------------------------------------------------------------------------
          Utility subsidiary                 Short-term debt amount
------------------------------------------------------------------------
Virginia Power........................  $2.25 billion.
Peoples...............................  $100 million.
East Ohio.............................  $100 million.
Hope..................................  $100 million.
------------------------------------------------------------------------

    (13) For the Utility Subsidiaries to enter into transactions to 
manage interest rate, credit and equity price risk with regard to the 
issuance of securities as described below;
    (14) For the Nonutility Subsidiaries to pay dividends out of 
capital or unearned surplus;
    (15) For DRI and CNG to change the capital stock of subsidiaries;
    (16) For DRI and CNG to refund or replace existing securities where 
capitalization is not increased (or is increased solely by Offering 
Expenses) from that in place at June 30, 2004, all subject to the 
financing parameters set forth below;
    (17) For DRI to manage and develop DRI system nonutility real 
estate as described below;
    (18) For DRI and its subsidiaries to continue to operate under the 
terms of the Tax Allocation Agreement;
    (19) For DRI to make investments in Exempt Wholesale Generators 
(``EWG'') and Foreign Utility Companies (``FUCO'') up to an aggregate 
investment of 100% of consolidated retained earning plus $8 billion; 
and
    (20) For the issuance of intra-system advances and guarantees by 
DRI and/or CNG to or on behalf of its subsidiaries, by the Nonutility 
Subsidiaries to or on behalf of other Nonutility Subsidiaries and by 
the Utility Subsidiaries to or on behalf of the Utility Subsidiary's 
direct or indirect subsidiaries and others.

B. Parameters for Financing Authorization

    The following general terms would be applicable as appropriate to 
the financing transactions requested to be authorized in the 
Application:
    (1) Common Equity Ratio. DRI and CNG state that at all times during 
the Authorization Period, DRI, CNG and each of the Utility Subsidiaries 
would maintain common equity (as reflected in the most recent Form 10-K 
and Form 10-Q filed with the Commission) of at least 30% of its 
consolidated capitalization (common equity, preferred stock and long-
term and short-term debt); provided that DRI and CNG would in any event 
be authorized to issue common stock to the extent otherwise authorized 
in this Application.
    (2) Investment Grade Ratings. DRI, CNG and the Utility Subsidiaries 
would not issue any guarantees or other securities, other than common 
stock, member interests or securities issued for the purpose of funding 
money pool operations, unless: (i) The securities, if rated, are rated 
at least investment grade, (ii) all outstanding securities of the 
issuer that are rated, are rated investment grade, and (iii) all 
securities of DRI and CNG that are rated, are rated investment grade. 
For purposes of this provision, a security would be deemed to be rated 
investment grade if it is rated investment grade by at least one 
nationally recognized statistical rating organization, as defined in 
rule 15c3-1(c)(2)(vi)(F) under the Securities Exchange Act of 1934, as 
amended (``Securities Exchange Act''). Applicants further request that 
the Commission reserve jurisdiction over the issuance of any of these 
securities at any time that the conditions set forth above are not 
satisfied.
    (3) Effective Cost of Money on Financings. The effective cost of 
capital for long-term debt, short-term debt, preferred securities and 
equity linked securities would 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 would 
the

[[Page 68988]]

effective cost of capital on (i) any long-term debt securities exceed 
500 basis points over comparable term U.S. Treasury securities 
(``Treasury Security''); or (ii) any short-term debt securities exceed 
500 basis points over the comparable term London Interbank Offered Rate 
(``LIBOR''). The dividend and distribution rate on any series of 
preferred securities or equity linked securities will not exceed at the 
time of issuance 700 basis points over a Treasury Security.
    (4) Maturity. The final maturity of any long-term debt securities 
would not exceed 50 years. Preferred securities and equity linked 
securities would be redeemed no later than 50 years after issuance, 
except for preferred securities or equity-linked securities that are 
perpetual in duration.
    (5) Issuance Expenses. The underwriting fees and commissions paid 
in connection with the issue, sale or distribution of securities 
pursuant to this Application would not exceed 7% of the principal or 
face amount of the securities being issued or gross proceeds of the 
financing.
    (6) Use of Proceeds. The proceeds from the sale of securities 
issued by Applicants pursuant to this Application would be used for any 
lawful purposes, including: (i) The financing of the capital 
expenditures of the DRI System; (ii) the financing of working capital 
requirements of the DRI System; (iii) direct or indirect investment in 
companies or assets the acquisition of which are either exempt under 
the Act or by Commission Rule or have been authorized by the 
Commission; and (iv) general corporate purposes.

C. Description of Specific Types of Financing

(1) Equity Securities
    (a) Common Stock (including Equity-Linked Securities). From time to 
time during the Authorization Period, subject to the limits and 
conditions specified in this Application, DRI seeks authority to issue 
and sell up to $8 billion additional shares of its common stock (i) 
through solicitations of proposals from underwriters or dealers, (ii) 
through negotiated transactions with underwriters or dealers, (iii) 
directly to a limited number of purchasers or to a single purchaser, 
and/or (iv) through agents. The price applicable to additional shares 
sold in any transaction would be based on several factors, including 
the current market price of the common stock and prevailing capital 
market conditions. Additionally, DRI may seek to enter into derivative 
transactions (including the writing of options) to sell securities to 
third parties. These transactions could occur in connection with 
forward sales of DRI's common stock.
    DRI also seeks authority to issue and sell from time to time equity 
linked securities, including but not limited to contracts obligating 
holders to purchase from DRI and/or DRI to sell to the holders, a 
number of shares specified directly or by formula at an aggregate 
offering price either fixed at the time the Stock Purchase Contracts 
(``Stock Purchase Contracts'') are issued or determined by reference to 
a specific formula set forth in the Stock Purchase Contracts. The Stock 
Purchase Contracts may be issued separately or as part of units 
(``Stock Purchase Units'') consisting of a stock purchase contract and 
debt and/or preferred securities of DRI and/or debt obligations of non-
affiliates, including U.S. Treasury securities, securing holders' 
obligations to purchase the common stock of DRI under the Stock 
Purchase Contracts. The Stock Purchase Contracts may require holders to 
secure their obligations in a specified manner.
    DRI may also issue common stock as consideration, in whole or in 
part, for acquisitions of securities of businesses or the assets of 
these businesses, the acquisition of which (a) is exempt under the Act 
or by Commission rule or (b) has been authorized by prior Commission 
order issued to DRI, subject in either case to applicable limitations 
on total investments in any of these businesses. All common stock sales 
would be with terms and conditions, at rates or prices and under 
conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets.
    From time to time during the Authorization Period, subject to the 
limits and conditions specified in this Application, CNG seeks 
authority to issue up to $6 billion additional shares of its common 
stock to DRI. The consideration for the stock would be based on the 
book value of the stock determined as of the quarter end immediately 
preceding the issuance.
    (b) Preferred Securities. Subject to the limits and conditions 
specified in this Application, each of DRI and CNG also seeks authority 
to issue and sell preferred securities in one or more series. Preferred 
securities of any series (a) would have a specified par or stated value 
or liquidation value per security, (b) would carry a right to periodic 
cash dividends and/or other distributions, subject among other things, 
to funds being legally available, (c) may be subject to optional and/or 
mandatory redemption, in whole or in part, at par or at various 
premiums above the par or stated liquidation value, (d) may be 
convertible or exchangeable into common stock of DRI, (e) and may bear 
other further rights, including voting, preemptive or other rights, and 
other terms and conditions, as set forth in the applicable certificate 
of designation, purchase agreement and/or similar instruments governing 
the issuance and sale of the series of preferred securities.
    Preferred securities may be issued in private or public 
transactions. With respect to private transactions, preferred 
securities of any series may 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 who would 
resell the preferred securities without registration under the 
Securities Act of 1933, as amended (the ``Securities Act'') in reliance 
upon one or more applicable exemptions from registration. From time to 
time each of DRI and CNG may also issue and sell preferred securities 
of one or more series 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.
    The liquidation preference, dividend or distribution rates, 
redemption provisions, voting rights, conversion or exchange rights, 
and other terms and conditions of a particular series of preferred 
securities, as well as any associated placement, underwriting, 
structuring or selling agent fees, commissions and discounts, if any, 
would be established by negotiation or competitive bidding and 
reflected in the applicable certificate of designation, purchase 
agreement or underwriting agreement, and other relevant instruments 
setting forth the terms.
(2) Debt Securities
    (a) Short-Term Notes. Subject to the limits and conditions in this 
Application, each of DRI and CNG seeks authorization to make unsecured 
short-term borrowings from banks or other financial institutions, and 
when combined with issuance of common stock, preferred securities, 
equity-linked securities and long-term debt not to exceed $12.5 billion 
with respect to DRI and $9.25 billion with respect to CNG. The 
borrowings would be unsecured and evidenced by (1) ``transactional'' 
promissory notes to be dated the date of the borrowings and to mature 
not more than one year after the date thereof or (2) ``grid'' 
promissory notes evidencing all outstanding borrowings from the 
respective lender, to be dated as of the date of the first borrowing 
evidenced

[[Page 68989]]

thereby, with each borrowing maturing not more than one year 
thereafter. The notes may or may not be prepayable, in whole or in 
part, with or without a premium in the event of prepayment. Each of DRI 
and CNG states that, at any given time, some or all of its outstanding 
short-term notes would be issuable in connection with the establishment 
of back-up credit facilities to support its commercial paper program 
but that these credit facilities would not be drawn upon and no 
borrowings would occur under these facilities, except in certain 
limited circumstances at which time obligations under the related 
commercial paper would be paid. Thus, short-term notes issued in 
connection with the establishment of commercial paper back-up 
facilities backstop and duplicate commercial paper issuances and should 
not be deemed to be borrowings under DRI's or CNG's, as applicable, 
financing authorization unless and until an actual borrowing occurs 
under the related credit facility. Any other result would ``double 
count'' DRI's and CNG's, as applicable, actual financial obligation. 
Additionally, with respect to any ``grid'' notes issued by DRI or CNG, 
as applicable, only the amount actually outstanding at any given time 
shall be considered a borrowing.
    (b) Commercial Paper. Subject to the limits and conditions in this 
Application, each of DRI and CNG also seeks authority to issue and sell 
commercial paper through one or more dealers or agents or directly to 
purchasers.
    Each of DRI and CNG proposes to issue and sell the commercial paper 
at market rates with varying maturities not to exceed 270 days. The 
commercial paper would be in the form of book-entry unsecured 
promissory notes with varying denominations of not less than $1,000 
each. In commercial paper sales effected on a discount basis, no 
commission or fee would be payable; however, the purchasing dealer 
would re-offer the commercial paper at a rate less than the rate 
offered to the DRI or CNG, as applicable. The discount rate to dealers 
would not exceed the maximum market clearing discount rate per annum 
prevailing at the date of issuance for commercial paper of comparable 
quality and the same maturity. The purchasing dealer would re-offer the 
commercial paper in a manner as not to constitute a public offering 
within the meaning of the Securities Act.
    (c) Long-Term Notes. Subject to the limits and conditions in this 
Application, each of the DRI and CNG also seeks authority to issue and 
sell unsecured long-term debt securities (``Notes'') in one or more 
series.
    Notes of any series may be either senior or subordinated 
obligations of DRI or CNG, as applicable. Notes of any series (a) would 
have maturities of greater than one year, (b) may be subject to 
optional and/or mandatory redemption, in whole or in part, at par or at 
various premiums above the principal amount, (c) may be entitled to 
mandatory or optional sinking fund provisions, and (d) may be 
convertible or exchangeable into common stock of DRI or CNG, as 
applicable. Interest accruing on Notes of any series may be fixed or 
floating or ``multi-modal'' (where the interest is periodically reset, 
alternating between fixed and floating interest rates for each reset 
period, with all accrued and unpaid interest together with interest 
becoming due and payable at the end of each reset period, or at 
maturity). Notes may be issued under one or more indentures to be 
entered into between DRI or CNG, as applicable, and financial 
institutions acting as trustee(s); supplemental indentures may be 
executed in respect of separate offerings of one or more series of 
Notes.
    Notes may be issued in private or public transactions. With respect 
to the former, Notes of any series may 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 who 
would resell the Notes without registration under the Securities Act in 
reliance upon one or more applicable exemptions from registration. From 
time to time each of DRI and CNG may also issue and sell Notes of one 
or more series 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.
    The maturity dates, interest rates, redemption and sinking fund 
provisions, and conversion features, if any, with respect to the Notes 
of a particular series, as well as any associated placement, 
underwriting, structuring or selling agent fees, commissions and 
discounts, if any, would be established by negotiation or competitive 
bidding and reflected in the applicable purchase agreement or 
underwriting agreement setting forth the terms.
(3) Financing Conduits
    In addition to issuing any of the foregoing debt or equity 
securities directly, DRI and CNG request approval to form one or more 
entities for the primary purpose of issuing and selling any of the 
foregoing securities, lending, dividending or otherwise transferring 
the proceeds to DRI or CNG, as applicable, or an entity designated by 
DRI or CNG, and engaging in incidental transactions, subject to the 
limits and conditions of this Application.
    The proposed entities would comprise one or more financing entities 
(each, a ``Financing Entity'') and one or more special-purpose entities 
(each, a ``Special-Purpose Entity,'' and together with Financing 
Entities, ``Financing Conduits''). In either case the entities' 
businesses may include issuing and selling securities on behalf of, or 
to benefit, DRI or CNG. Any securities issued by the Financing Conduits 
may be guaranteed by DRI and/or CNG, either directly or indirectly.
    DRI or CNG would acquire a portion of the outstanding shares of 
common stock or other equity, membership or controlling interests of 
the Financing Entity for an amount not less than the minimum required 
by applicable law. A primary function of the Financing Entity would be 
effecting financing transactions with third parties for the benefit of 
DRI or CNG and their respective subsidiaries. As an alternative in a 
particular instance to DRI or CNG directly issuing debt or equity 
securities, or through a Special-Purpose Entity, DRI or CNG may 
determine to use a Financing Entity as the nominal issuer of the 
particular debt or equity security. In that circumstance, the 
participating Applicant may provide a guarantee or other credit support 
with respect to the securities issued by the Financing Entity, the 
proceeds of which would be lent, dividended or otherwise transferred to 
the applicable Applicant or an entity designated by the Applicant.
    One of the primary strategic reasons behind the use of a Financing 
Entity would be to segregate financings for the different businesses 
conducted by DRI or CNG, distinguishing between securities issued by 
the DRI or CNG to finance their investments in nonutility businesses 
from those issued to finance their investments in the core utility 
business. A separate Financing Entity may be used by DRI or CNG with 
respect to different types of nonutility businesses. DRI or CNG would 
use Special-Purpose Entities in connection with certain financing 
structures for issuing debt, preferred, equity-linked or equity 
securities, in order to achieve a lower cost of capital, or 
incrementally greater financial flexibility or other benefits, than 
would otherwise be the case.

[[Page 68990]]

(4) Interest Rate, Credit and Equity Price Risk Management
    In connection with the issuance and sale of securities, each of 
DRI, CNG and the Utility Subsidiaries requests authority to manage 
equity price (with regard to DRI common stock), credit and interest 
rate risk through the entering into, purchasing and selling of various 
risk management instruments commonly used in today's capital markets, 
such as interest rate, credit and equity swaps, caps, collars, floors, 
options, forwards, futures, forward issuance agreements, call spread 
options, the sale and/or purchase of various call or put options or 
warrants and similar products designed to manage market, price, rate or 
credit risks (collectively ``Hedging Instruments'').
    Each of DRI, CNG, and the Utility Subsidiaries, as applicable, 
would enter into Hedging Instruments (either directly or indirectly 
through subsidiaries) pursuant to agreements with counterparties that 
are rated at least investment grade, i.e., who, at the date of 
execution of the agreement with DRI, CNG, or a Utility Subsidiary, are 
rated (or have a parent issuing a guaranty that is rated) at least 
investment grade by at least one nationally recognized statistical 
rating organization, as defined in rule 15c3-1(c)(2)(vi)(F) under the 
Securities Exchange Act (``Authorized Counterparties''). The derivative 
transactions would be for fixed periods and the notional principal 
amount would not exceed the principal amount of the underlying security 
except to the extent necessary to adjust for differing price movements 
between the underlying and hedged securities or to allow for the fees 
related to the transaction. None of DRI, CNG or the Utility 
Subsidiaries would engage in ``leveraged'' or ``speculative'' 
derivative transactions pursuant to the authority granted under this 
Application.
    In addition, each of DRI, CNG and the Utility Subsidiaries requests 
authorization to enter into interest rate and credit hedging 
transactions with respect to anticipated debt offerings (the 
``Anticipatory Hedges''), subject to certain limitations and 
restrictions. The Anticipatory Hedges would only be entered into with 
Authorized 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 Hedging Instruments (a ``Forward 
Sale''), (ii) the purchase of put options on Hedge Instruments (a ``Put 
Options Purchase''), (iii) a Put Options Purchase in combination with 
the sale of call options Hedging Instruments (a ``Zero Cost Collar''), 
(iv) transactions involving the purchase or sale, including short 
sales, of Hedging Instruments, or (v) some combination of a Forward 
Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or 
cash transactions, including, 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 or New York Mercantile Exchange, 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. DRI, CNG, or the Utility Subsidiary would determine the optimal 
structure of each Anticipatory Hedge transaction at the time of 
execution. DRI, CNG or the Utility Subsidiary may decide to lock in 
interest rates and/or limit its exposure to interest rate increases.
    Fees and commissions charged or required in connection with any 
interest rate, credit or equity price risk management agreement would 
not exceed the then current market level.
    DRI and CNG represent that each would comply with Statement of 
Financial Accounting Standards 133 (``SFAS''), SFAS 138 or other 
standards relating to accounting for derivative transactions as are 
adopted and implemented by the Financial Accounting Standards Board 
(``FASB''). DRI and CNG state that Hedge Instruments and Anticipatory 
Hedges would qualify for hedge accounting treatment under the current 
FASB standards in effect and as determined at the date Hedging 
Instruments or Anticipatory Hedges are entered into.
(5) Guarantees
    From time to time through the Authorization Period, DRI requests 
authority to guarantee, issue and/or obtain letters of credit, enter 
into financing arrangements and otherwise provide credit support (each, 
a ``DRI Guarantee'') in respect of the debt or other securities or 
obligations of any or all of DRI's subsidiary or associate companies 
(including any formed or acquired at any time during the Authorization 
Period), and otherwise to further the business of DRI, provided that 
the total amount of Guarantees at any time outstanding does not exceed 
$10 billion (the ``DRI Guarantee Limit''), and provided further, that 
(i) any DRI Guarantees of EWGs and FUCOs shall also be subject to DRI's 
limitation on investment in EWGs and FUCOs; (ii) any Guarantees of 
energy-related companies within the meaning of Rule 58 (``Rule 58 
Companies'') shall also be subject to the aggregate investment limit of 
Rule 58; and (iii) any security guaranteed by DRI shall itself be in 
compliance with the financing parameters authorized in this Application 
or be exempt. The terms and conditions of any DRI Guarantees, and the 
underlying liabilities covered, would be established at arm's-length 
based upon market conditions.
    From time to time through the Authorization Period, CNG requests 
authority to guarantee, issue and/or obtain letters of credit, enter 
into financing arrangements and otherwise provide credit support (each, 
a ``CNG Guarantee'', and together with DRI Guarantees, collectively the 
``Guarantees'' and individually, a ``Guarantee'') in respect of the 
debt or other securities or obligations of any or all of CNG's 
subsidiary or associate companies (including any formed or acquired at 
any time during the Authorization Period), and otherwise to further the 
business of CNG, up to $5 billion (the ``CNG Guarantee Limit'') on the 
same terms and conditions as specified above for DRI.
    DRI and CNG may charge a fee to its subsidiaries for each Guarantee 
provided on their behalf that is not greater than cost, if any, of 
obtaining from any unrelated third party the liquidity necessary to 
perform the guarantee for the period of time the Guarantee remains 
outstanding.
    In the event that DRI or CNG issues any debt or equity securities 
authorized in this Application by means of any Financing Conduits, DRI 
or CNG may provide a Guarantee in respect of the payment and other 
obligations of the Financing Conduits under the securities issued by 
it. Given that any securities nominally issued by any Financing 
Conduits are in substance securities issued by DRI or CNG itself, any 
securities issued by Financing Conduits would count dollar-for-dollar 
against DRI's or CNG's financing authority. However, DRI and CNG submit 
that any Guarantees of securities of Financing Conduits should be 
excluded entirely from the DRI or CNG Guarantee Limit, as applicable, 
since inclusion would amount to ``double counting,'' in effect 
penalizing DRI or CNG for using Financing Conduits.
    As stated above, DRI and CNG request the authority to extend its 
credit through entry into performance guarantees that will be a part of 
the definition of ``Guarantee''. Such performance Guarantees may be in

[[Page 68991]]

support of the obligations of affiliates undertaking the development or 
operation of projects authorized under the Act. However, performance 
Guarantees and certain other Guarantees may be in support of 
obligations that are not capable of exact quantification. In such 
cases, DRI and CNG state that each will determine the exposure under 
such Guarantees for purposes of measuring compliance with the DRI 
Guarantee Limit or CNG Guarantee Limit, as applicable, by appropriate 
means, including estimation of exposure based on loss experience or 
projected potential payment amounts. If appropriate, DRI and CNG state 
that these estimates will be made in accordance with generally accepted 
accounting practices.
    DRI and CNG also request authority to guarantee the obligations of 
unrelated third parties (``Third Party Guarantees''). From time to 
time, it is appropriate for DRI or CNG or one of their subsidiaries to 
guarantee, as part of their normal business activities, the obligations 
of a third party with whom DRI or CNG or their subsidiary has a 
business relationship. For example, a subsidiary of DRI or CNG may 
enter into a joint venture to construct certain power generation assets 
where such subsidiary manages the power generation assets on behalf of 
the joint venture and DRI or CNG would guarantee the performance of 
such subsidiary. Third Party Guarantees will be Guarantees only of 
long- or short-term indebtedness or Guarantees of performance of 
contractual obligations of such third parties with whom DRI or CNG or 
their subsidiary has, or had, a business relationship.

D. DRI Money Pool

    DRI, CNG and the subsidiaries listed on Exhibit B-2 to the 
Application (the ``Participants'') request authorization to operate in 
a system money pool (the ``DRI Money Pool''). The DRI Money Pool would 
be operated in the same manner as previously authorized by the 
Commission. The only change to be made to the DRI Money Pool is the 
list of Participants.\6\
---------------------------------------------------------------------------

    \6\ The following Participants have been deleted from the DRI 
Money Pool agreement from the original Money Pool Order: Elwood II 
Holding, LLC, Elwood III Holdings, LLC, Kincaid Generation, LLC, 
Dominion Metering Services, Inc., and CNG Pipeline Company. No new 
Participants have been added to Account A of the DRI Money Pool. The 
following Participants have been added to Account B of the DRI Money 
Pool: NE Hub Partners L.L.C., Farmington Properties, Inc., Dominion 
Capital, Inc., Dominion Technical Solutions, Inc., Virginia Power 
Nuclear Services, Inc., Virginia Power Energy Marketing, Inc., 
Virginia Power Services Energy Corp., Inc., CNG Coal Company, 
Dominion Member Services, Inc., Tioga Properties, LLC, Dominion Cove 
Point, Inc., and Dominion South Pipeline, LP.
---------------------------------------------------------------------------

    DRI, CNG and the Participants would invest their surplus funds in 
the DRI Money Pool, and the Participants would borrow funds from the 
DRI Money Pool, provided that, with respect to each of the CNG utility 
companies (The East Ohio Gas Company, Hope Gas, Inc. and The Peoples 
Natural Gas Company), outstanding borrowings from the DRI Money Pool 
shall not exceed $750 million at any one time.
    DRI and CNG would not borrow from the DRI Money Pool, but may be 
the ultimate providers of funds to the DRI Money Pool as needed. DRI 
and/or CNG would obtain the funds to invest in the DRI Money Pool (i) 
from internally generated funds, (ii) under the prior orders, and/or 
(iii) any other current financing authorizations or exemptions that may 
be available to DRI or CNG. Dominion Resources Services, Inc. (``DRI 
Services'') would administer the DRI Money Pool on an ``at cost'' 
basis. In providing funds to DRI Money Pool Participants, DRI and CNG 
would give preference to the needs of the Utility Subsidiaries that are 
Participants. DRI would report any default under any external loan 
agreement within ten (10) days of the occurrence in a filing with the 
Commission. The filing would describe how the default under the loan 
agreement would affect preceding representations of preference to the 
needs of the Utility Subsidiary Participants.
    Funds in the DRI Money Pool would be held in two separate 
accounts--one for public utility company participants (``Account A'') 
and another for the Participants which are not public utility companies 
(``Account B''). Account A funds would not be loaned to non-public 
utility company Participants. Account B funds may be loaned to public 
utility company Participants provided that the interest charged is not 
greater than the cost of borrowing the funds to DRI or CNG, as 
applicable. A list of the Account A and Account B participants is filed 
as Exhibit B-2 to the Application. Participants that are EWGs, FUCOs, 
or exempt telecommunication companies (``ETC'') shall be permitted to 
loan funds to Account A or Account B, but shall not be permitted to 
borrow funds from either Account A or Account B.
    For each of Account A and Account B Participants, respectively, DRI 
Services would maintain a record reflecting the Participant's daily 
balance. The record would indicate the amount of the Participant's 
lending, investment or borrowing balance, as the case may be, as well 
as the Participant's share of interest and investment income and 
interest owed, if any.
    The purpose of the DRI Money Pool is to provide the Participants 
with internal and external funds and to invest surplus funds of DRI and 
the Participants in short-term money market instruments. The DRI Money 
Pool would offer the Participants lower short-term borrowing costs due 
to the elimination of banking fees, a mechanism to earn a higher return 
on interest from surplus funds that are loaned to other Participants, 
and decreased reliance on external funding sources.
    Proceeds of any short-term borrowings from the DRI Money Pool by 
the Participants may be used (i) for the interim financing of 
construction and capital expenditure programs, (ii) for working capital 
needs, (iii) for the repayment or refinancing of debt, (iv) to meet 
unexpected contingencies, payment and timing differences and cash 
requirements, (v) to otherwise finance the borrower's own business, and 
(vi) for other lawful general purposes.
    The daily interest rate on loans from the DRI Money Pool and on all 
deposits of cash in the DRI Money Pool would equal the effective 
weighted average rate of interest on DRI's outstanding commercial paper 
and/or revolving credit borrowings. If no DRI borrowings are 
outstanding on the date of any outstanding loan, then the interest rate 
would be the Federal Funds' effective rate of interest as quoted daily 
by the Federal Reserve Bank of New York. The rate to be used for 
weekends and holidays would be the rate on the prior business day. 
Funds not required by the DRI Money Pool to make loans to Participants 
or to repay borrowings incurred to provide funds to Participants would 
ordinarily be invested in one or more short-term investments including: 
(i) Obligations issued or guaranteed by the U.S. government and/or its 
agencies and instrumentalities; (ii) commercial paper; (iii) 
certificates of deposit; (iv) bankers' acceptances; (v) repurchase 
agreements; (vi) tax exempt notes; and (vii) other investments that are 
permitted by Section 9(c) of the Act and Rule 40 promulgated under the 
Act. The interest income and investment income earned on loans and 
investments of surplus funds would be allocated among the Participants 
in the DRI Money Pool in accordance with the proportion each 
Participant's contribution of funds bears to the total amount of funds 
in the DRI Money Pool.
    Each Participant receiving a loan through the DRI Money Pool would 
be required to repay the principal amount of the loan, together with 
all accrued

[[Page 68992]]

interest, on demand. Interest on outstanding loans would be paid to the 
DRI Money Pool monthly. All loans made through the DRI Money Pool could 
be repaid by the borrower without premium or penalty.
    All terms and conditions governing the operations of, and the 
participation by DRI, CNG and the Participants in, the DRI Money Pool 
are contained in a written agreement in the form as provided in Exhibit 
B-1 attached to the Application. DRI states that such agreement will be 
the same as approved in the Money Pool Order, with the inclusion of the 
restrictions on borrowing for EWGS, FUCOs and ETC as set forth above.

E. Investments in Nonutility Subsidiaries

    DRI and CNG request authority to engage in certain activities 
described below relating to EWGs, FUCOs, ETCs, and Rule 58 Companies 
(collectively, ``Exempt Subsidiaries'') and other nonutility 
subsidiaries approved by the Commission (collectively, ``Non-Exempt 
Subsidiaries''). To the extent any of these activities described in 
this Application constitute the providing of goods, services or 
construction from one associate company to another in the DRI system 
which would be subject to section 13 of the Act, these goods, services 
or construction would be provided at cost as defined in rules 90 and 91 
unless an exemption from the at cost requirement is available under the 
Act or otherwise approved in the Commission's order in this matter.
    DRI and CNG request authority to make additional investments in 
Exempt Subsidiaries and Non-Exempt Subsidiaries in the form of 
purchases of common stock and other securities, capital contributions, 
loans or open account advances, guarantees, or any combination of the 
foregoing. Direct or indirect investments by DRI and CNG in Exempt 
Subsidiaries and Non-Exempt Subsidiaries would be subject to the 
limitations applicable to investments for the subsidiaries.
    In connection with existing and future nonutility businesses, DRI 
and CNG would engage directly or through subsidiaries in preliminary 
development activities (``Development Activities'') and administrative 
and management activities (``Administrative Activities'') associated 
with the investments. Development Activities would be limited to: due 
diligence and design review; market studies; preliminary engineering; 
site inspection; preparation of bid proposals, including, posting of 
bid bonds; application for required permits and/or regulatory 
approvals; acquisition of site options and options on other necessary 
rights; negotiation and execution of contractual commitments with 
owners of existing facilities, equipment vendors, construction firms, 
power purchasers, thermal ``hosts,'' fuel suppliers and other project 
contractors; negotiation of financing commitments with lenders and 
other third-party investors; and other preliminary activities as may be 
required in connection with the purchase, acquisition or construction 
of facilities or the securities of other companies. DRI and CNG propose 
to expend directly or through Exempt Subsidiaries or Non-Exempt 
Subsidiaries up to $300 million in the aggregate outstanding at any 
time during the Authorization Period on all the Development Activities. 
Amounts expended in the development of projects that result in an 
investment in an Exempt Subsidiary or a Non-Exempt Subsidiary would not 
count against the limitation on expenditures for Development 
Activities. Administrative Activities would include ongoing personnel, 
accounting, engineering, legal, financial and other support activities 
necessary to manage Development Activities and investments in 
subsidiaries.
    DRI and CNG request authority to acquire directly or indirectly the 
securities of one or more corporations, trusts, partnerships, limited 
liability companies or other entities (collectively, ``Intermediate 
Subsidiaries''), which would 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 Subsidiaries or 
Non-Exempt Subsidiaries, provided that Intermediate Subsidiaries may 
also engage in Development Activities and Administrative Activities 
(collectively, the ``Activities''). To the extent the transactions are 
not exempt from the Act or otherwise authorized or permitted by rule, 
regulation or order of the Commission, DRI and CNG request authority 
for Intermediate Subsidiaries to engage in the Activities described 
above. To the extent that DRI and CNG provide funds directly or 
indirectly to an Intermediate Subsidiary which are used for the purpose 
of making an investment in any Exempt Subsidiary or Non-Exempt 
Subsidiary, the amount of the funds would be included in DRI's 
``aggregate investment'' in these entities, as calculated in accordance 
with rule 53 or rule 58, as applicable.

F. Direct Investment, Incentive Compensation Plans and Other Employee 
Benefit Plans

    DRI requests authority, from time to time during the Authorization 
Period, to issue and/or acquire in open market transactions or by some 
other method which complies with applicable law and Commission 
interpretations then in effect up to 50 million shares of DRI common 
stock under DRI's direct stock purchase and dividend reinvestment plan, 
certain incentive compensation plans and certain other employee benefit 
plans described below.
(1) Dominion Direct Investment
    DRI maintains Dominion Direct Investment (``Dominion Direct''), a 
direct stock purchase plan with a dividend reinvestment feature. The 
purpose of Dominion Direct is to provide eligible participants with a 
convenient and economical way to purchase DRI common stock and to 
increase ownership in DRI by reinvesting dividends and/or making 
optional monthly investments. Current shareholders of DRI and new 
investors residing in the U.S. who would like to become DRI 
shareholders are eligible to participate. Foreign citizens are eligible 
to participate as long as their participation would not violate any 
laws in their home countries.
    At DRI's discretion, shares of DRI common stock purchased under 
Dominion Direct would be either newly issued or purchased on the open 
market by an independent agent selected by the Dominion Direct 
administrator. The decision whether shares are to be purchased directly 
from DRI or in the open market would be based on DRI's need for common 
equity and other factors considered relevant by DRI. Any determination 
by DRI to change the manner in which shares would be purchased for 
Dominion Direct, and the implementation of any change, would comply 
with applicable law and Commission interpretations then in effect.
    Net proceeds from the sale of newly issued shares of DRI common 
stock would be added to the general corporate funds of DRI and would be 
used to meet its capital requirements and the capital requirements of 
its subsidiaries. DRI would not receive any proceeds from shares 
acquired in the open market.
(2) Incentive Compensation Plans
    DRI currently maintains the DRI Incentive Compensation Plan (the 
``DRI Incentive Compensation Plan'') in which employees of DRI's 
subsidiaries and employees and certain outside directors of DRI 
participate.

[[Page 68993]]

    The DRI Incentive Compensation Plan is administered by a committee 
comprised of DRI outside directors. All employees of DRI and its 
subsidiaries are eligible to receive incentive awards under the DRI 
Incentive Compensation Plan if the committee determines that the 
employee has contributed, or can be expected to contribute, 
significantly to his or her employer. The committee has the power and 
complete discretion to select eligible employees and outside directors 
to receive awards, the type of awards granted and the terms and 
conditions of the awards.
    As of June 30, 2004 there were 7,953,009 shares available under the 
DRI Incentive Compensation Plan and the annual limit of awards to any 
one individual is 1.5 million shares.
    The following types of awards may be granted under the DRI 
Incentive Compensation Plan: Performance grants; restricted stock; 
goal-based stock; stock options; and stock appreciation rights.
    Performance Grants. Performance grants are subject to the 
achievement of pre-established performance goals comprised of objective 
and quantifiable performance criteria. The committee sets target and 
maximum amounts payable under each performance grant. The employee 
receives appropriate payments at the end of the performance period if 
the performance goals (and other terms and conditions of the award) 
were met. The actual payments under a performance grant can be cash, 
DRI common stock, or both. Performance grants are administered to 
comply with Section 162(m) of the Internal Revenue Code of 1986, as 
amended (the ``Code'').
    The aggregate maximum cash amount payable pursuant to a performance 
grant to any employee in any year cannot exceed 0.5% of DRI's 
consolidated operating income, before taxes and interest. The committee 
must make performance grants prior to the 90th day of the period for 
which the performance grants relates or the completion of 25% of the 
period.
    Restricted Stock Awards. Restricted stock awards consist of shares 
of DRI common stock which are subject to certain terms and conditions. 
Recipients are not able to sell or transfer restricted stock until the 
restrictions stated in the award agreement have been met. The 
restricted stock is forfeited if the applicable terms and conditions 
are not met.
    Goal-Based Stock Awards. Goal-based stock is DRI common stock 
subject to performance goals. The stock is not issued to the employee 
until the committee certifies that the performance goals (and any other 
terms and conditions) have been met.
    Stock Options and Stock Appreciation Rights. Stock options may be 
granted to eligible employees subject to terms and conditions 
established by the committee. The exercise price of an option must be 
at least 100% of the fair market value of DRI common stock on the date 
that the option is granted. Options may be either incentive stock 
options or nonqualified stock options. Stock appreciation rights may be 
granted on all or any part of an option, and are subject to the terms 
and conditions established by the committee. Stock appreciation rights 
also may be granted separately. A stock appreciation right entitles the 
employee to receive an amount equal to the excess of (i) the fair 
market value on the date of exercise of stock covered by the 
surrendered stock appreciation right over (ii) the exercise price of 
the stock on the date the stock appreciation right was granted. The 
award can be paid in stock or cash, or both.
    When granting incentive awards, the committee can allow the awards 
to become fully exercisable upon a change in control. Employees cannot 
sell, transfer or pledge their interest in performance grants and goal-
based stock awards. Employees cannot sell, transfer or pledge shares of 
restricted stock until the stock becomes unrestricted. Options and 
stock appreciation rights may be transferred by a participant according 
to the terms and conditions for the awards.
    The DRI board of directors can amend or terminate the DRI Incentive 
Compensation Plan; however, shareholder approval is required of 
amendments that would (i) increase the number of shares of DRI common 
stock that is reserved and available for issuance under the DRI 
Incentive Compensation Plan; (ii) materially change or impact which 
employees are eligible to participate in the DRI Incentive Compensation 
Plan; or (iii) materially change the benefits that eligible employees 
may receive under the DRI Incentive Compensation Plan. Notwithstanding 
the foregoing, the DRI board can amend the DRI Incentive Compensation 
Plan as necessary and without shareholder approval to ensure that the 
DRI Incentive Compensation Plan continues to comply with Section 162(m) 
of the Code and Rule 16b-3. The DRI Incentive Compensation Plan would 
terminate at the close of business on December 31, 2006 unless the DRI 
board of directors terminates the DRI Incentive Compensation Plan prior 
to that date.
(3) Other Benefit Plans
    In addition to the plans described above, DRI has plans that 
provide for the issuance of shares of common stock. For example, DRI 
maintains the DRI Hourly Employee Savings Plan, the Dominon Salaried 
Savings Plan and certain CNG employee savings plans (the ``DRI 401(k) 
Plans''). The DRI 401(k) Plans allow participating employees to elect 
to defer a portion of their compensation and have the funds invested in 
designated investment media selected by participants, including a 
common stock fund of the sponsoring company.

G. Payment of Dividends Out of Capital or Unearned Surplus by 
Nonutility Subsidiaries

    DRI and CNG seek authority, on behalf of every direct or indirect 
Nonutility Subsidiary, that the companies be permitted to pay dividends 
with respect to the securities of the companies and/or acquire, retire 
or redeem any securities of the companies that are held by an 
associated company or affiliate, from time to time, through the 
Authorization Period, out of capital or unearned surplus, to the extent 
permitted under applicable corporate law, provided that no Nonutility 
Subsidiary would declare or pay any dividend out of capital or unearned 
surplus unless it: (i) Has received excess cash as a result of the sale 
of its assets, (ii) has engaged in a restructuring or reorganization; 
and/or (iii) is returning capital to an associate company. Further, no 
Nonutility Subsidiary that derives any material part of its revenues 
from the sale of goods, services or electricity to Utility Subsidiaries 
would declare or pay any dividend out or capital or unearned surplus. 
DRI and CNG request that the Commission reserve jurisdiction over the 
payment of such dividends out of capital or unearned surplus when any 
of these conditions are not met.

H. Changes in Capital Stock of Subsidiaries

    The portion of an individual subsidiary's aggregate financing to be 
effected through the sale of stock to DRI or other immediate parent 
company during the Authorization Period pursuant to Rule 52 and/or 
pursuant to an order issued in this proceeding cannot be ascertained at 
this time. It may happen that the proposed sale of capital securities 
may in some cases exceed the then-authorized capital stock of the 
subsidiary. In addition, the subsidiary may choose to use capital stock 
with no par value or receive a

[[Page 68994]]

capital contribution without issuing capital stock. Also, a wholly-
owned subsidiary may wish to engage in a reverse stock split to reduce 
franchise taxes. As needed to accommodate these proposed transactions, 
Applicants request authority to change the terms of any wholly-owned 
subsidiary's authorized capital stock capitalization by an amount 
deemed appropriate by DRI 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 a Utility Subsidiary 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 
the Utility Subsidiary is incorporated and doing business. DRI states 
that in the event that proxy solicitations are necessary with respect 
to any change to a subsidiary's corporate structure or internal 
corporate reorganizations, DRI would seek the necessary Commission 
approvals, under section 6(a)(2) and 12(e) of the Act, through the 
appropriate filling of a declaration.

I. Investment and Development of Nonutility Real Property

    DRI, on behalf of itself and its subsidiaries, requests 
authorization to lease, sell or otherwise grant third persons access to 
or rights in excess or unwanted real estate and to permit the 
extraction or harvesting of mineral or other resources contained on or 
in that real estate.
    DRI also requests authority to either designate an already existing 
nonutility subsidiary or form one or more new nonutility subsidiaries 
in which the real-estate activities of the DRI System would be 
centralized, so that it could act as agent for DRI System companies for 
these activities, manage the real estate portfolio of DRI and its 
associate companies, market excess or unwanted real estate and 
facilitate the development of nonutility property on or in DRI System 
real estate. The net proceeds realized from any sale or from 
development of nonutility property would be credited to the company 
that owns the subject asset. Services performed for associate companies 
would be provided at cost in compliance with Rules 90 and 91. No DRI 
company would acquire any real estate in connection with its activities 
pursuant to this authorization.

J. Tax Allocation Agreement

    DRI also requests approval to continue to operate under an 
agreement dated May 13, 2004 for the allocation of consolidated income 
tax among DRI and its subsidiaries (``Tax Allocation Agreement''). DRI 
requires the continuation of the Tax Allocation Agreement for the 
retention by DRI of certain payments for tax losses incurred from time 
to time, rather than the allocation of those losses to subsidiaries 
without payment as would otherwise be required by Rule 45(c)(5). As a 
result of its financing, DRI would be creating tax credits that are 
non-recourse to the subsidiaries. DRI states that the Tax Allocation 
Agreement is the same as approved by the Tax Allocation Order.

K. EWG/FUCO Investment Limit

    Under a prior order,\7\ the Commission authorized DRI to make 
investments in EWGs and FUCOs up to an aggregate investment (as defined 
in Rule 53) of 100% of consolidated retained earnings plus $4.5 
billion. DRI now requests that the Commission authorize DRI to make 
investments in EWGs and FUCOs up to an aggregate investment of 100% of 
consolidated retained earnings plus $8 billion.
---------------------------------------------------------------------------

    \7\ See HCAR No. 27485 (December 28, 2001).
---------------------------------------------------------------------------

Southwestern Electric Power Company et al. (70-10252)

    Southwestern Electric Power Company, a Delaware corporation 
(``SWEPCO''), an indirect public utility subsidiary of American 
Electric Power Company, Inc. (``AEP''), a registered public utility 
holding company under the Public Utility Holding Company Act of 1935, 
as amended (``Act''), and Dolet Hills Lignite Company, LLC, a Delaware 
limited liability company (``Dolet Hills''), a wholly-owned nonutility 
subsidiary of SWEPCO, all at 1 Riverside Plaza, Columbus, Ohio 43215, 
have filed a declaration under section 12(c) of the Act and rules 46 
and 54 under the Act.
    By order dated July 1, 2004, HCAR No. 27872, the Commission granted 
the direct and indirect nonutility subsidiaries of AEP authority to pay 
dividends out of capital or unearned surplus to the fullest extent of 
the law, providing however that without further approval of the 
Commission, no nonutility subsidiary would declare or pay any dividend 
out of capital or unearned surplus if the nonutility subsidiary derived 
any material part of its revenues from the sale of goods, services or 
electricity to any public utility subsidiary of its parent.
    Dolet Hills is a mining company which provides lignite to the Dolet 
Hills Power Plant (the ``Plant''), a 650-megawatt lignite fired 
generating plant located in north Louisiana. The Plant is jointly owned 
by SWEPCO, the nonaffiliate plant operator, Cleco Power LLC, and two 
other nonaffiliated minority owners. Because Dolet Hillsderives a 
material part of its revenue from the sale of lignite to its parent 
SWEPCO, the Commission's approval is required for Dolet Hills to pay 
dividends out of capital to SWEPCO.
    Dolet Hills proposes that its Board of Managers declare and pay 
dividends out of its capital surplus over time in an amount up to the 
full amount of $4,712,000, when cash is available. As of June 30, 2004, 
Dolet Hills has paid in capital of $4,712,000.
    The Delaware Limited Liability Company Act (Title 6, Chapter 18, 
Section 607) provides that: ``A limited liability company shall not 
make a distribution to a member to the extent that at the time of the 
distribution, after giving effect to the distribution, all liabilities 
of the limited liability company, other than liabilities to members on 
account of their limited liability company interests and liabilities 
for which the recourse of creditors is limited to specified property of 
the limited liability company, exceed the fair value of the assets of 
the limited liability company, except that the fair value of property 
that is subject to a liability for which the recourse of creditors is 
limited shall be included in the assets of the limited liability 
company only to the extent that the fair value of that property exceeds 
that liability.''
    SWEPCO is entitled to earn a specified rate of return on its 
capital contributions to Dolet Hills. [Louisiana Order No. U-21453, U-
20925(SC), and U-2092(SC)(Subdocket G)] This return is factored in to 
the cost of the lignite sold to the Plant. If the Commission authorizes 
Dolet Hills to pay the requested dividends out of capital, SWEPCO's 
total capital investment in Dolet Hills will be reduced by the amount 
of those dividends. The effect of this reduction in SWEPCO's capital 
investment will be to reduce the cost of the lignite provided to the 
Plant.
    Dolet Hills is therefore seeking authorization from the Commission 
to pay SWEPCO dividends in an amount up to the full amount of its 
capital surplus on its common stock to the full extent of the Delaware 
Limited Liability Company Act.


[[Page 68995]]


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3335 Filed 11-24-04; 8:45 am]
BILLING CODE 8010-01-P