ORDER NO. 95-1337

ENTERED DEC 20 1995

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UF 4135

DISPOSITION: APPLICATION GRANTED WITH CONDITIONS

On December 8, 1995, Cascade Natural Gas Corporation (Cascade) filed this application pursuant to ORS 757.440 and OAR 860-27-035. Cascade seeks authority to guarantee the repayment of interest and principal of a $5 million note issued by its wholly owned subsidiary, Cascade Land Leasing Company (CLL).

At its December 19, 1995, public meeting, the Commission adopted the staff’s recommendation that the application be granted with reporting requirements.

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

FINDINGS OF FACT

Cascade provides natural gas service to the public in Oregon.

Order No. 90-1822 (UF-4045) authorized Cascade Natural Gas Corporation to guarantee the repayment of interest and principal of a $5 million note issued by its wholly-owned subsidiary, CLL. The promissory note, in the amount of $5 million, was issued at a rate of 9.46 percent interest, payable monthly. The principal amount was due December 15, 1995.

CLL is renewing a borrowing arrangement with ABN AMRO BANK in the amount of $5 million with a term of five years. Borrowing under the agreement will be at market rates based on the guarantee by Cascade with its BBB+ rating. CLL would be unable to secure the financing without the guarantee of Cascade.

ABN AMRO Bank was selected because it offered the greatest flexibility and had the lowest cost structure over other competing institutions for this loan. Initially, Cascade expects to borrow $2.5 million at a negotiated interest rate estimated at about 6.4 percent for a five year term. Borrowings on a short term basis will be at a rate of 0.3125 percent above the London Interbank Rate (LIBOR) with options also of using the Federal Funds rate or Prime rate. Currently, the LIBOR rate is 5.65 percent, so a 30-day loan would carry an interest rate of 5.9625 percent (0.3125 + 5.65 percent). In addition to the interest on borrowings, CLL will assume an annual commitment fee of 0.125 percent ($6,250) and a one-time closing fee of $6,250.

CLL’s primary source of business is financing installation of high-efficiency gas appliances. As of October 31, 1995, there were $2,815,000 in loans outstanding to over 1,100 Cascade customers. From 1990 through 1992, the high was $6,719,702 and the low was $5,805,778. Currently, Cascade does not offer cash incentives to customers or potential customers to install gas efficient appliances. This financing plan benefits the customer by providing loans at a rate lower than they may be able to obtain from a bank. In the long-term, conservation through switching to gas efficient appliances benefits the particular customer making the change as well as all other customers.

Funds borrowed under the credit agreement by CLL will be used to repay borrowings under the loan agreement dated December 17, 1990, with the guarantee approved by the Commission in Order No. 90-1822.

OPINION

ORS 757.005 defines a "public utility" as anyone providing gas service to the public in Oregon. Cascade is a public utility subject to the Commission’s jurisdiction.

ORS 757.440 requires that a public utility shall obtain Commission approval prior to guaranteeing another’s indebtedness. The Commission has jurisdiction over Cascade’s commitment to pay debt service and other costs associated with CLL’s $5 million note.

Cascade’s guarantee in respect to the debt services associated with CLL’s promissory note appears to be compatible with public interest and consistent with the proper performance of Cascade’s public utility service. The proposed transaction will not impair Cascade’s ability to perform that service.

CONCLUSIONS

Cascade is a public utility subject to the Commission’s jurisdiction.

 

The application meets the requirements of ORS 757.440.

 

The application should be granted.

 

ORDER

IT IS ORDERED that:

The application of Cascade Natural Gas Corporation for authority to guarantee the repayment of interest and principal of a $5 million note issued by its wholly owned subsidiary, Cascade Land Leasing Company (CLL), is granted.

 

Funds borrowed under the credit agreement by CLL will be used to repay borrowings under the loan agreement dated December 17, 1990, with the guarantee approved in Order No. 90-1822.

 

Cascade shall file as soon as available copies of all documents related to the CLL loan, as well as journal entries concerning the loan and related transactions.

 

The Commission reserves the right to review the reasonableness of all financial aspects of the transaction in any subsequent rate proceeding. Approval of the loan guarantee does not imply any ratemaking decision concerning the loan or the relationship between Cascade and CLL.

 

 

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.