ORDER NO. 95-1332

ENTERED DEC 20 1995

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UF 4134

DISPOSITION: APPLICATION GRANTED WITH CONDITIONS

On November 20, 1995, Cascade Natural Gas Corporation (Cascade) filed an application pursuant to ORS 757.415 and OAR 860-27-030. The Company requests authority to issue preferred stock in an amount not to exceed $10 million with redemption scheduled in either 2005 or 2007.

At its December 19, 1995, public meeting, the Commission reviewed the staff report and approved the application with reporting requirements.

Based on the application and the Commission's records, the Commission makes the following:

FINDINGS OF FACT

Jurisdiction

Cascade provides natural gas service to the public in Oregon.

Cascade proposes to issue preferred stock in an amount not to exceed $10 million. This issuance will add additional equity to the company's capital structure so that its current Standard and Poor's (S&P's) bond rating is not jeopardized. On its October, 1995, balance sheet, Cascade reports its equity as 42.9 percent of its capital structure. Cascade believes this is low for a BBB+ rated company. By issuing additional preferred stock, the equity ratio will be raised to 46.3 percent, assuming the inclusion of short-term debt in the capital structure. Cascade states that the S&P will treat the issuance as equity provided that common stock is issued within a reasonable time. Due to a pending rate proceeding before the Washington Utilities and Transportation Commission, Cascade believes it has limited ability to issue common stock at this time.

Three proposals from investment banking firms were received. The proposal from A.G. Edwards & Sons, Inc. (A.G. Edwards) was the most attractive, and that is the approach Cascade intends to use. The preferred shares will be issued on a private basis at $100 per share to one or more institutional investors according to negotiated terms consistent with market rates. Depending on the number of interested parties, the shares could be issued pro-rata. Assuming that 75,000 shares are issued, net proceeds are estimated to be $7,400,000.

A.G. Edwards will receive a placement fee equal to 0.625 percent of the total issue amount with a minimum of $50,000. Total placement, legal, accounting, and miscellaneous fees are expected to be approximately $100,000. These fees are reasonable.

The preferred stock will be used to retire debt and to provide interim funding for Cascade's utility construction program, as authorized by ORS 757.415(1)(a) and (1)(c). Any debt which is retired was incurred for the purposes set forth in ORS 757.415(1)(a) and (1)(b). The Company keeps its accounts in a manner which enables the Commission to ascertain the amount of money expended and the purposes for which the expenditures were made.

There is no indication that the proposal will impair the company's ability to provide its public utility service.

OPINION

Jurisdiction

ORS 757.005 defines a "public utility" as anyone providing heat, light, water or power service to the public in Oregon. Cascade is a public utility subject to the Commission's jurisdiction.

Applicable Law

ORS 757.415(1) provides that:

A public utility may issue stocks and bonds, notes and other evidences of indebtedness, and securities for the following purposes and no others....:

(a) The acquisition of property, or the construction, completion, extension, or improvement of its facilities.

(b) The improvement or maintenance of its service.

(c) The discharge or lawful refunding of its obligations.

 

(d) The reimbursement of money actually expended from income or from any other money in the treasury of the public utility not secured by or obtained from the issue of stocks or bonds, notes or other evidences of indebtedness, or securities of such public utility, for any of the purposes listed in paragraphs (a) to (c) of this subsection except the maintenance of service and replacements, in cases where the applicant has kept its accounts and vouchers for such expenditures in such manner as to enable the commission to ascertain the amount of money so expended and the purposes for which such expenditures were made.

 

(e) The compliance with terms and conditions of options granted to its employees to purchase its stock, if the commission first finds that such terms and conditions are reasonable and in the public interest.

 

When an application involves refunding of obligations, the applicant also must show that the original borrowings were made for a permissible purpose. Avion Water Company, Inc., UF 3903, Order No. 83-244 at 3; Pacific Power & Light Co., UF 3749, Order No. 81-745 at 5.

ORS 757.415(2) provides that:

[The applicant] shall secure from the commission...an order...stating:

 

(a) The amount of the issue and the purposes to which the...proceeds...are to be applied; and

 

(b) In the opinion of the commission the [proceeds] reasonably [are]

required for the purposes specified in the order and compatible with the

public interest, which is necessary or appropriate for or consistent with the

proper performance by the applicant of service as a public utility, and will

not impair its ability to perform that service; and

 

(c) Except as otherwise permitted in the order in the case of bonds, notes, or other evidences of indebtedness, such purposes are not, in whole or in part, reasonably chargeable to operating expenses or to income.

 

The amount of issue is not to exceed $10 million. Cascade will use the proceeds for purposes consistent with ORS 757.415(1)(a), (1)(b), and (1)(c). The Company keeps its accounts in a manner which enables the Commission to ascertain the amount of money expended and the purposes for which the expenditures were made.

Utility facilities are long-term assets which should be financed with long-term capital. The proposed expenditures are not reasonably chargeable to operating expenses or income.

For ratemaking purposes, the Commission reserves judgment on the reasonableness of Cascade's capital costs and capital structure. In its next rate proceeding, the Company will be required to show that its capital costs and structure are just and reasonable. See ORS 757.210.

The Commission believes that the proposed transaction is reasonably required for the purposes stated. The Company's proposed issuance is compatible with the public interest and consistent with the proper performance of its public utility service. The proposed transaction will not impair the Company's ability to perform that service.

CONCLUSIONS

1. Cascade Natural Gas Corporation is a public utility subject to the Commission's jurisdiction.

 

2. The application meets the requirements of ORS 757.415.

 

3. The application should be granted.

 

ORDER

IT IS ORDERED that:

1. The application of Cascade Natural Gas Corporation, for authority to issue preferred stock in an amount not to exceed $10 million with redemption scheduled for either 2005 or 2007 is granted.

2. The preferred stock issue shall be used to retire debt and to provide interim funding for Cascade's utility construction program as authorized by ORS 757.415(1)(a) and (1)(c). Any debt which is retired was incurred for the purposes set forth in ORS 757.415(1)(a) and (1)(b).

3. Cascade shall file, as soon as available:

 

(a) The report of Securities required by OAR 860-27-030(4);

 

(b) A verified statement setting forth in reasonable detail the disposition of all the issuance proceeds;

 

(c) A certified copy of any resolutions of Cascade's Board of Directors related to this issue;

 

(d) A verified statement for each year the preferred stock is outstanding of the dividends paid, and

 

(e) A statement showing that the terms of the private placement are consistent with market rates for similar securities.

 

Made, entered, and effective .

A party may request rehearing or reconsideration of this order within 60 days pursuant to ORS 756.561. A party may appeal this order pursuant to ORS 756.580.