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After PUHCA Repeal: The State Response

Will the industry be able to meet capital investment and growth expectations?

Fortnightly Magazine - May 2006

December 2005. The survey pool was comprised of representatives from sell and buy-side equity firms, sell and buy-side fixed income firms, hedge funds, and credit rating agencies.

20. Elizabethtown Gas Co. was the New Jersey operating division of NUI Utilities Inc., a wholly owned subsidiary of NUI. From September 2002 to November 2003, NUI and NUI Utilities experienced multiple downgrades by various credit rating agencies resulting in a decline from investment-grade to speculative-grade ratings. These downgrades were caused primarily by failed investments of nonregulated subsidiaries, inadequate internal controls, and failure to issue timely reports as required by the SEC. Despite Elizabethtown Gas’ adequate financial results on a standalone basis, credit rating agencies were required to lower its ratings to below investment grade because of the high degree of integration between NUI and NUI Utilities. Circumstances also were aggravated by a guilty plea with respect to conduct committed by an unregulated energy trading subsidiary of NUI, resulting in the payment of a criminal fine.

These series of events prompted the board to bring in an outside auditor to review the conduct of the NUI Utilities, and ultimately to conduct an expedited proceeding to approve the acquisition of its common stock by AGL Resources Inc. (AGL), pursuant to a stipulation and agreement. That stipulation provided, among other things, that: (1) AGL establish a policy requiring NUI Utilities to pay an upstream dividend of no more than 70 percent of its quarterly earnings to AGL; and (2) AGL establish a board of directors committee (or modify such an existing committee) to include oversight of ring-fencing issues and corporate governance best practices to allow AGL to certify annually to the New Jersey Board that activities of AGL’s affiliates have not had a material adverse impact on Elizabethtown Gas.

21. Aquila was not part of a holding company, and Westar was a single state “exempt” holding company under PUHCA 1935.