File
No.
70-9477
As
filed
with the Securities and Exchange Commission on December 21, 2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
---------------------------------------------------------------------------------------------------------------------
POST-EFFECTIVE
AMENDMENT No. 18 TO
FORM
U-1
APPLICATION-DECLARATION
UNDER
THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
---------------------------------------------------------------------------------------------------------------------
Dominion
Resources, Inc.
120
Tredegar Street
Richmond,
VA 23219
(Name
of
company filing this statement and
address
of principal executive offices)
---------------------------------------------------------------------------------------------------------------------
Dominion
Resources, Inc.
(Name
of
top registered holding company
parent
of
each applicant or declarant)
---------------------------------------------------------------------------------------------------------------------
James
F.
Stutts
Vice
President and General Counsel
Dominion
Resources, Inc.
120
Tredegar Street
Richmond,
VA 23219
(Name
and
address of agent for service)
The
Commission is also requested to send copies of any
Communication
in connection with this matter to:
|
Sharon
L. Burr, Esq.
Senior
Counsel
Dominion
Resources Inc.
120
Tredegar Street
Richmond,
VA 23219
|
|
Robert
P. Edwards
Heather
A. Shirley
Troutman
Sanders LLP
600
Peachtree Street, NE
Suite
5200
Atlanta,
GA 30308-2216
|
ITEM
1. Dominion
Capital, Inc. - Divestment of Businesses and Assets
Introduction
and Background
Dominion
Resources, Inc. (“Dominion”), a Virginia corporation and a registered public
holding company under the Public Utility Holding Company Act of 1935, as
amended
(the “Act”), and Dominion Capital, Inc. (“DCI”) seek approval under this Post-
effective Amendment to continue the process of divesting the businesses and
assets held by DCI beyond the third anniversary of the effective date of
the
merger authorized in the Commission’s order of December 15, 1999 (HCAR No.
27113)(“Merger Order”) authorizing Dominion’s acquisition of Consolidated
Natural Gas Company (the “Merger”).
On
January 28, 2003, in HCAR 35-27644, 70-9477, the Commission approved an
extension period for Dominion’s divestiture of DCI until January 28, 2006 (the
“Extension Order”). The underlying application to the Extension Order made clear
that divestiture efforts would not be completed by the date granted by the
Extension Order, January 28, 2006.
Request
for Order Extension
Accordingly,
Dominion requests that the Commission issue an order authorizing an extension
of
the time to continue its divestiture effort until February 8, 2006 when the
Act
will be repealed. Henceforth,
there will be no need to file for such extension under the Merger Order.
In the
alternative, Dominion requests that the Commission waive the divestiture
requirement in light of the repeal of the Act, effective February 8, 2006
because of the hardship that would be imposed by requiring compliance under
the
circumstances.
Divestment
Activities
In
accordance with the Merger Order, Dominion has succeeded in reducing the
assets
of DCI by 85%, from a balance of $3.576 billion as of December 31, 1999 to
$543
million as of August 31, 2005. Since the last request for extension, DCI
has
reduced its total assets by $642 million from
a
balance of $1.184 billion in September 2002
( i.e.
about 54% reduction in asset value).
More
specifically, from the period of September 2002 through August 2005, DCI
completed various significant divestiture transactions, including the
following:
| 1. |
Reduction
in Saxon Mortgage Residuals (Over past three years) - $150
million
|
| 2. |
Sale
of Rincon Preferred Stocks (November 2003) - $116
million
|
| 3. |
Sale
and Restructuring of SSOFI CLO assets (December 2003) - $112
million
|
| 4. |
Sale
of Vidalia Lessor Interest (December 2003) - $80
million
|
| 5. |
Sale
of DRF Acquisition LLC (May 2004) -$14
million
|
| 6. |
Sale
of Compendia music assets (December 2004) - $8
million
|
| 7. |
Sale
of MassMicro LLC membership Interest (June 2005) - $1
million
|
| 8. |
Sale
of Celerity Private Equity Funds (July 2005) - $3
million
|
| 9. |
Sale
of 12th
Street real estate interest (July 2005) - $2
million
|
| 10. |
Sale
of the three FDF CDO investments (August 2005) - $16
million
|
Through
the extension date requested herein, DCI will endeavor to divest the remaining
assets and businesses. To recover the fair value or reasonable market value
however, DCI will be required to consider the prevailing market environment
and
characteristics of those assets in its divestment strategy. DCI will apply
prudent management and marketing effort to optimize the assets’ values rather
than through forced sale. This divestment strategy is required because of
the
diverse lines of businesses, the broad range of assets and different ownership
structures pertaining to its remaining assets and businesses, as well as
Dominion’s desire to maximize value for its shareholders.
Operating
Entities
Except
for Gichner Systems Group, there are no longer any entities wholly-owned
by DCI
which have ongoing operations. There are certain prevailing legal issues
that
prevent Gichner Systems Group from being marketed. Once the legal issues
are
resolved, Gichner Systems Group will be marketed and DCI expects to sell
Gichner
Systems Group in the 2006-2007 time frame. Gichner Systems Group has a book
value of $38 million as of August 2005.
There
are
certain final winding down matters for DCI’s Cambrian and Wilshire projects and
DCI expects these to be resolved or completed during 2006.
Equity
Funds and Investments
There
are
small non-controlling holdings in two private equity funds and various minority
investments in companies totaling $5 million. DCI expects to sell, liquidate
or
write-down (if appropriate) these assets in the 2006-2007 time frame; provided,
however, that such sale or liquidation will be conditioned on conducive market
conditions.
Collaterized
Loan Obligations
In
December 2003, DCI sold its interest in two special purpose trusts (FSLOT
and
FSLOIT), loans, First Source Financial, Inc. and other related and miscellaneous
assets. In return, DCI received $112 million in cash and $250 million in
notes
issued by Special Situations Opportunity Fund I, LLC (SSOFI). Orchard Paladin
Asset Management, LLC (an unrelated entity) was the buyer who simultaneously
sold the assets to SSOFI in this transaction. At that time, the assets on
DCI’s
books for such assets totaled $362 million. SSOFI underwent further
restructuring in early 2005 that resulted in eliminating certain obligations
arising from the previous transaction and improving the quality of the
replacement notes from the original transaction. As of August
30,
2005,
these notes have a book value of $250 million, which included $4 million
of
accrued interest that is payable in 2006. DCI plans to divest these notes
in the
2006-2007 time frame if market conditions become conducive.
DCI
also
holds interests in mortgage residuals (“Residuals”) pertaining to various
collateralized loan obligations (CLOs) arising from its past ownership and
divestment of Saxon Capital Mortgage. Residuals are passive investment resulting
from the securitizations of mortgage loans by Saxon Capital previously. In
July
2001, DCI sold Saxon but retains ownership of the Residuals. Saxon remains
as
the servicer of the CLOs. The Residuals are booked based on a mark-to-market
valuation. Periodically, the underlying CLOs are called or sold by the Saxon.
In
such instances, DCI will receive certain proceeds from those events. The
book
balance of the Residuals is $54 million as of August 30, 2005. A forced sale
of
Residuals would not enable DCI to recover the full value of its investment.
Therefore, DCI will continue to divest and/or reduce the value of DCI’s holding
of the Residuals through receipts of proceeds and mark-to-market valuations
over
time. DCI plans to sell the assets when the market conditions are
conducive.
Real
Estate
DCI
has
reduced its investment in real estate from $100 million as of December 31,
1999
to $14 million as of August 31, 2005. Investment in real estate comprises
investments in commercial real estate, development projects and raw land.
The
commercial real estate holdings are currently being sold or liquidated. DCI
expects the value for such holdings to be significantly reduced in
2006.
Other
Assets
DCI
has
executed an agreement to sell its 25% limited partnership interest in the
Vidalia hydroelectricity plant. The sale closing is currently pending, awaiting
the receipt of certain required consents. The transaction value is $44
million.
DCI
still
holds a number of non-controlling partnership interests in Low Income Housing
Partnerships with zero book values. These interests have been completely
written
off the books.
There
are
other miscellaneous assets and they will be sold, liquidated, depreciated
or
written down as appropriate. Also, there are balance sheet items including
cash,
receivables and tax-related items. DCI expects these items to diminish in
value
in conjunction with the execution of the divestment strategy.
Accounting
and Tax Treatment
Accounting
and tax treatment (including those arising from Generally Accepted Accounting
Principles (GAAP) and tax laws and changes) will impact the value of the
assets.Rule
54 Analysis
Dominion
currently meets all of the conditions of Rule 53(a), except for clause (1).
At
June 30, 2005, Dominion's “aggregate investment”, as defined in Rule 53(a)(1),
in “exempt wholesale generators” (“EWGs”) and “foreign utility companies”
(“FUCOs”), was approximately $2,949 million (of which approximately $2,942
million was in EWGs). With respect to Rule 53 (a) (1), however, the Commission
has determined that Dominion’s financing of its investment in EWGs and FUCOs in
an amount not to exceed 100% of its “average consolidated retained earnings”
plus $4.5 billion would not have either of the adverse effects set forth
in Rule
53 (c). At June 30, 2005, Dominion’s ‘average consolidated retained earnings’
were $1,568 million.
See
Dominion Resources, Inc. Holding Company Act Release No. 35-27485, dated
December 28, 2001 (the “Rule 53 (c) Order”). Dominion continues to assert that
its investment in EWGs and FUCOs will not adversely affect the Dominion
system.
In
addition, Dominion and its subsidiaries are in compliance and will continue
to
comply with the other provisions of Rule 53 (a) and (b), as demonstrated
by the
following determinations:
(i) The
Dominion system maintains books and records, and prepares financial statements,
in accordance with Rule 53 (a) (2). Furthermore, Dominion has undertaken
to
provide the Commission access to such books and records and financial statements
as it may request;
(ii) No
more
than 2% of the employees of Dominion's domestic public utility companies
render
services at any one time, to its EWGs or FUCOs;
(iii) Dominion
has submitted (a) a copy of each Form U-1 and Rule 24 certificate that has
been
filed with the Commission under Rule 53 and (b) a copy of Item 9 of the Form
U5S
and Exhibits G and H thereof to each state regulator having jurisdiction
over
the retail rates of Dominion's public utility subsidiaries;
(iv) Neither
Dominion nor any subsidiary has been the subject of a bankruptcy or similar
proceeding (unless a plan of reorganization has been confirmed in such
proceeding);
(v) Dominion's
"average consolidated retained earnings" for the four most recent quarterly
periods have not decreased by 10% or more from the average for the previous
four
quarterly periods; and
(vi) In
the
previous fiscal year, Dominion did not report operating losses attributable
to
its investment in EWGs/FUCOs exceeding 3% of Dominion's consolidated retained
earnings.
The
proposed transactions, considered in conjunction with the effect of the
capitalization and earnings of Dominion’s EWGs and FUCOs, would not have a
material adverse effect on the financial integrity of the Dominion system,
or an
adverse impact on Dominion’s public-utility subsidiaries, their customers, or
the ability of State commissions to protect such public-utility customers.
The
Rule 53 (c) Order was predicated, in part, upon an assessment of Dominion's
overall financial condition which took into account, among other factors,
Dominion's
consolidated
capitalization ratio and its retained earnings, both of which have improved
since the date of the order. In the aggregate Dominion’s EWG and FUCO
investments have been profitable for all quarterly periods ending March 31,
2002
through March 31, 2005. Dominion’s EWG and FUCO investments also were profitable
for the period from March 31, 2002 through March 31, 2005. As
of
June 30, 2005, the most recent period for which financial statement information
was evaluated in the Rule 53 (c) Order, Dominion’s consolidated capitalization
consisted of $10,778 million of common equity, $257 million of preferred
stock
and $17,940 million of debt (including long and short-term debt and preferred
stock). As of June 30, 2005, the consolidated capitalization ratios of Dominion,
with consolidated debt including all short-term debt and non-recourse debt
of
its EWGs and FUCOs, were as follows:
|
|
As
of June 30, 2005
|
|
|
%
|
|
Common
shareholders’ equity
|
37
|
|
Preferred
stock
|
1
|
|
Long-term
and short-term debt
|
62
|
|
|
100
|
Dominion’s
consolidated retained earnings increased from $1,199 million as of
March 31, 2000 to $1,745 million as of June 30, 2005 and grew from $922
million as of December 31, 2001 to $1,745 million as of June 30, 2005.
Dominion's EWGs and FUCOs have made a positive contribution to earnings by
contributing approximately $4,774 million in revenues from March 31, 2000
through June 30, 2005, and net income of $1,006 million for the same period.
Dominion's EWG and FUCO contributions to revenues and net earnings from December
31, 2001 to June 30, 2005 were $3,867 million and $723 million, respectively.
Accordingly, since the date of the Rule 53 (c) Order, the capitalization
and
earnings attributable to Dominion's investments in EWGs and FUCOs has not
had an
adverse impact on Dominion's financial integrity.
ITEM
2. FEES, COMMISSIONS AND EXPENSES
The
fees,
commissions and expenses of the applicant will depend upon the ultimate terms
of
each disposition. The fees associated with this Application are legal fees
in
the amount of $15,000.00.
ITEM
3. APPLICABLE STATUTORY PROVISIONS
Sections
10 and 11 of the Act, 15 U.S.C. Section 79j-k governed the original merger,
and
the divestiture condition was authorized by Section 10(c) of the Act. The
aspects of the businesses retained by DCI that require active management
have
management teams in place and do not depend upon Dominion or Dominion’s
public-utility company subsidiaries for goods or services. The retention
of
these businesses in order to avoid economic loss resulting from volatility
in
financial markets will not detract from the management of either the holding
company system or its integrated public utility company system operations.
The
majority of the retained assets are
essentially
passive financial assets. Retention of those assets pending improvements
in
financial markets and negotiations with purchasers, likewise, will have no
deleterious effect upon Dominion as an integrated electric and gas utility
holding company system. The divestiture of the limited partnership interests
in
the Catalyst hydro-electric facility will reduce the overall investment in
DCI.
The divestiture of the project interests therefore is consistent with reducing
Dominion’s holdings through DCI and the maintenance of an integrated electric
utility system by Dominion, and implements the overall plan approved pursuant
to
Section 11 of the Act. Accordingly, divestiture is appropriate under rule
44(c).
ITEM
4. REGULATORY APPROVALS
No
regulatory approvals are required other than that of the
Commission.
ITEM
5. PROCEDURE
No
recommended decision by a hearing officer or other responsible officer of
the
Commission is necessary or required in this matter. The Division of Investment
Management of the Commission may assist in the preparation of the Commission's
decision in this matter. There should be no thirty-day waiting period between
the issuance and effective date of any order issued by the Commission in
this
matter, and it is respectfully requested that any order be made effective
immediately upon the entry thereof.
ITEM
6. EXHIBITS AND FINANCIAL STATEMENTS
None.
ITEM
7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
None
of
the matters that are the subject of this Application-Declaration involve
a
“major federal action” nor do they “significantly affect the quality of the
human environment” as those terms are used in Section 102(2)(C) of the National
Environmental Policy Act. None of the proposed transactions that are the
subject
of this Application-Declaration will result in changes in the operation of
the
Applicants that will have an impact on the environment. The Applicants are
not
aware of any federal agency which has prepared or is preparing an environmental
impact statement with respect to the transactions proposed herein.
Pursuant
to the Public Utility Holding Company Act of 1935, each of the undersigned
companies has caused this Application-Declaration to be signed on its behalf
by
the undersigned thereunto duly authorized.
DOMINION RESOURCES, INC.
By:
/s/
James F. Stutts
Title:
Vice
President and General Counsel
Date:
December 21, 2005