SEMPRA ENERGY
U-1/A, 1999-09-29
GAS & OTHER SERVICES COMBINED
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                          (As filed September 29, 1999)

                                                               File No. 70-9511

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
            --------------------------------------------------------
                                 Amendment No. 1
                                       on
                                   FORM U-1/A

                           APPLICATION OR DECLARATION
                                    UNDER THE
                   PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
            ---------------------------------------------------------

            Sempra Energy                 Bangor Pacific, Inc.
            101 Ash Street                555 West Fifth Street, Suite 2900
            San Diego, California 92101   Los Angeles, California 90013-1001

                  (Names of companies filing this statement and
                    addresses of principal executive offices)
              -----------------------------------------------------

                                      None

                 (Name of top registered holding company parent)
             ------------------------------------------------------

                                  John R. Light
                  Executive Vice President and General Counsel
                                  Sempra Energy
                                 101 Ash Street
                           San Diego, California 92101

                     (Name and address of agent for service)

                  The Commission is requested to send copies of all
                  notices, orders and communications in connection with
                  this Application or Declaration to:

            Donald C. Liddell, Esq.               Richard M. Farmer, Esq.
            Sempra Energy                         Andrew F. MacDonald, Esq.
            633 West Fifth Street, Suite 5200     Thelen Reid & Priest LLP
            Los Angeles, California 90071         40 West 57th Street
                                                  New York, New York 10019


<PAGE>


     The Application-Declaration filed in this proceeding on June 1, 1999, is
hereby amended as follows:

     1.   References to KN Energy, Inc. and to File No. 70-9489 in ITEM 1.1 --
INTRODUCTION AND DESCRIPTION OF APPLICANT'S BUSINESS and to "KN" in ITEM 3.5 --
- ----------------------------------------------------
SECTION 3(A)(1) should be ignored as Sempra's proposal to acquire KN Energy,
- ---------------
Inc. has been abandoned.

     2.   ITEM 6 -- EXHIBITS AND FINANCIAL STATEMENTS, is supplemented by the
                    ---------------------------------
filing of the following exhibits:

          A-1  Articles of Organization of Bangor Gas Company LLC.

          A-2  Operating Agreement of Bangor Gas Company LLC.

          D-1  Consolidated Application dated October 27, 1997, of Bangor Gas
               Company LLC and Bangor Hydro-Electric Company to the Maine Public
               Utilities Commission for various approvals (MPUC Docket
               Nos. 97-795 and 97-796).

          D-2  Order of the MPUC granting a petition for gas service authority,
               dated June 30, 1998.

          D-3  Petition dated June 24, 1998, of Bangor Gas Company LLC to the
               Maine Public Utilities Commission for approval to furnish gas
               service (MPUC Docket No. 98-468).

          D-4  Order of the MPUC granting a petition for gas service authority,
               dated October 22, 1998.

          E    Map of natural gas pipelines interconnecting the service areas of
               SoCalGas, SDG&E, Frontier Energy and Bangor Gas, common supply
               basins and market centers and hubs. (Paper format filing).

          F-1  Opinion of counsel to Sempra Energy.

          F-2  Opinion of special Maine counsel to Sempra Energy.


<PAGE>


                                    SIGNATURE

     Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this statement
filed herein to be signed on their behalf by the undersigned thereunto duly
authorized.

                                        SEMPRA ENERGY
                                        By: /s/ Warren I. Mitchell
                                           -------------------------------
                                        Name: Warren I. Mitchell
                                        Title: Group President - Regulated
                                               Business Units

                                        BANGOR PACIFIC, INC.
                                        By: /s/ Eric B. Nelson
                                           -------------------------------
                                        Name: Eric B. Nelson
                                        Title: President


Date:    September 29, 1999






<PAGE>

                                  EXHIBIT INDEX


      Exhibit     Description
      -------     -----------


       A-1        Articles of Organization of Bangor Gas Company LLC.

       A-2        Operating Agreement of Bangor Gas Company LLC.

       D-1        Consolidated Application dated October 27, 1997, of Bangor
                  Gas Company LLC and Bangor Hydro-Electric Company to the
                  Maine Public Utilities Commission for various approvals
                  (MPUC Docket Nos. 97-795 and 97-796)

       D-2        Order of the MPUC granting a petition for gas service
                  authority, dated June 30, 1998.

       D-3        Petition dated June 24, 1998, of Bangor Gas Company LLC to
                  the Maine Public Utilities Commission for approval to
                  furnish gas service (MPUC Docket No. 98-468).

       D-4        Order of the MPUC granting a petition for gas service
                  authority, dated October 22, 1998.

       F-1        Opinion of counsel to Sempra Energy.

       F-2        Opinion of special Maine counsel to Sempra Energy.






                                                                    Exhibit A-1



                                            FILING FEE $250.00
                                          ----------------------
                 DOMESTIC
         LIMITED LIABILITY COMPANY



              STATE OF MAINE



        ARTICLES OF ORGANIZATION OF
         LIMITED LIABILITY COMPANY
                                          ---------------------------
                                           Deputy Secretary of State
                                          --------------------------------------
      (Check box only if applicable)      A TRUE COPY WHEN ATTESTED BY SIGNATURE

This is a professional limited liability
company formed pursuant to 31             ---------------------------
MRSA ss.611 and 13 MRSA Chapter 22.        Deputy Secretary of State
|_|



Pursuant to 31 MRSA ss.622, the undersigned adopt(s) the following articles of
organization:

FIRST:  The name of the limited liability company is

        Bangor Gas Company LLC
        ------------------------------------------------------------------------
        (The name must contain one of the following:"Limited Liability Company",
         "L.L.C." or "LLC"; ss.603.1.A)


SECOND: The name of its Registered Agent, an individual Maine resident or a
        corporation, foreign or domestic, authorized to do business or carry on
        activities in Maine, and the address of the registered office shall be
        Bangor Hydro-Electric Company
        ------------------------------------------------------------------------
                                     (name)


        Attn: Mr. Frederick S. Samp, Vice President - Law and Finance,
              33 State Street, Bangor, ME 04401
        ------------------------------------------------------------------------
        (physical location - street (not P.O. Box), city, state and zip code)



        ------------------------------------------------------------------------
                    (mailing address if different from above)



THIRD:  ("X" one box only)


   |X| A.      The management of the company is vested in a member or members.

   |_| B. 1.   The management of the company is vested in a manager or managers.
               The minimum number shall be _________ managers and the maximum
               number shall be ________ managers.

          2.   If the initial managers have been selected, the name and
               business, residence or mailing address of each manager is:

                       NAME                                 ADDRESS

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

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

         |_| Names and addresses of additional managers are ttached hereto as
             Exhibit ____, and made a part hereof.

FOURTH: ("X" one box only)  These articles may be amended upon approval of the
        following: (ss.623.4.)

   |_| A.      A majority of the members (if no box is checked, the statute
               requires that).

   |X| B.      A majority in interest of the members.

   |_| C.      Other


FIFTH:  Other provisions of these articles, if any, that the members determine
        to include are set forth in Exhibit _____ attached hereto and made a
        part hereof.





ORGANIZER(S)*                                      DATED  August 22, 1997
                                                         -----------------------

/s/Michael B. Peisner                              Michael B. Peisner
- --------------------------------              ----------------------------------
   (signature)                                            (type or print name)


- --------------------------------              ----------------------------------
   (signature)                                            (type or print name)


- --------------------------------              ----------------------------------
   (signature)                                            (type or print name)






FOR ORGANIZER(S) WHICH ARE ENTITIES

Name of Entity
               -----------------------------------------------------------------

By
   -----------------------------              ----------------------------------
        (authorized signature)                (type or print name and capacity)

By
   -----------------------------              ----------------------------------
        (authorized signature)                (type or print name and capacity)

By
   -----------------------------              ----------------------------------
        (authorized signature)                (type or print name and capacity)


<PAGE>



THE FOLLOWING SHALL BE COMPLETED BY THE REGISTERED AGENT UNLESS THIS DOCUMENT IS
ACCOMPANIED BY FORM MLLC-18 (SS.607.2.).

The undersigned hereby accepts the appointment as registered agent for the above
named limited liability company.


REGISTERED AGENT                                   DATED  August 22, 1997
                                                         -----------------------

- --------------------------------              ----------------------------------
   (signature)                                            (type or print name)


FOR REGISTERED AGENT WHICH IS A CORPORATION



Name of Corporation  Bangor Hydro-Electric Company
                     -----------------------------------------------------------

                                              Frederick S. Samp, Vice President
By                                               - Law and Finance
   -----------------------------              ----------------------------------
   (authorized signature)                     (type or print name and capacity)


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

*Articles must be signed by all ORGANIZERS (ss.627.1.A.). The execution of the
articles constitutes an oath or affirmation, under the penalties of false
swearing under Title 17-A, section 453, that, to the best of the signers'
knowledge and belief, the facts stated in the articles are true (ss.627.3.).

   SUBMIT COMPLETED FORMS TO: CORPORATE EXAMINING SECTION, SECRETARY OF STATE,
                              101 STATE HOUSE STATION, AUGUSTA, ME  04333-0101
                                          TEL. (207) 287-4195

FORM NO. MLLC--6     Rev. 7/23/96



                                                                    Exhibit A-2


                             BANGOR GAS COMPANY LLC
                    AMENDED AND RESTATED OPERATING AGREEMENT


         This AMENDED AND RESTATED OPERATING AGREEMENT made and entered
into as of October __ 1997, is by and among Bangor Pacific ("Pacific"), a
California corporation with a principal place of business at 633 West Fifth
Street, Los Angeles, California, Bangor Hydro-Electric Company ("BHE"), a Maine
corporation with a principal place of business at 33 State Street, Bangor,
Maine, and Bangor Gas Company LLC, a Maine limited liability company (the
"Company"). Capitalized terms used herein and not otherwise defined shall be
used with the meanings given them in Exhibit A hereto.

         WHEREAS, on August 27, 1997, Pacific and BHE formed the Company
pursuant to the provisions of the Act, and on August 28, 1997 Pacific and BHE
entered into an Operating Agreement (the "Original Operating Agreement") for the
Company;

         WHEREAS, the Company was formed for the purpose of designing,
engineering, financing, constructing, testing, managing, marketing, owning and
operating a local gas distribution company (the "Project" or the "System");

         WHEREAS, Pacific is a wholly-owned subsidiary of Energy Pacific LLC, a
California limited liability company ("Energy Pacific"), which is owned 50-50 by
subsidiaries of each of Pacific Enterprises and Enova Corporation. As a
condition to its execution of the Original Operating Agreement, BHE required
Energy Pacific to execute and deliver to it an Agreement to Fund Certain
Obligations, and to be Bound Under Certain Other Obligations Under Operating
Agreement;

         WHEREAS, subsections (e)(v) and (e)(vi) of Section 3.2 of the Original
Operating Agreement permit either Member to be excused from making any further
Capital Contributions, or at its election, to immediately terminate the
Operating Agreement, upon the assertion by the United States Securities and
Exchange Commission (the "SEC") that such Member's ownership interest in the
System could affect the exemption of such Member or its parent entity from the
Public Utility Holding Company Act of 1935, as amended ("PUHCA"; BHE and Pacific
Enterprises are each exempt holding companies under PUHCA);

         WHEREAS, under Section 9(a)(2) of PUHCA, the Members' participation in
the Project in the manner contemplated in, and with the percentages of voting
interest stated in, the Original Operating Agreement, may require SEC approval
before commercial operation of the System may be commenced;

         WHEREAS, the Members believe that BHE could obtain SEC approval as to
its participation in the Project, but that Pacific may be unable to do so;

          WHEREAS, the Members believe (a) that PUHCA may be repealed before the
System's commencement of commercial operations, and (b) that even if PUHCA is
not repealed by such date, Pacific's participation in the Project may be
restructured so that SEC approval would not be required for Pacific to
participate in a manner satisfactory to the Members (the "Restructuring",
defined in Section 23.6 below);

         NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members agree that the
Original Operating Agreement is amended and restated in its entirety as follows:

                             SECTION 1 - DEFINITIONS

          For the purposes of this Agreement, the definitions shall be as set
forth in Exhibit "A" attached hereto and incorporated herein by reference.

                       SECTION 2 - CONTINUATION OF COMPANY

         2.1. Continuation. Pacific and BHE confirm that they are Members of the
Company, which was formed under the Maine Limited Liability Company Act for the
purpose of designing, engineering, financing, constructing, testing, managing,
marketing and operating the System.

         2.2. Name. The Company shall operate under the name "Bangor Gas Company
LLC", or such other name as the Board of Directors may select. Either Member
shall execute any assumed or fictitious name certificate or certificates
required by law to be filed in connection with the formation of the Company and
shall cause such certificate or certificates to be filed in the appropriate
offices as required by law.

         2.3. Place of Business. The principal place of business for the Company
is 33 State Street, Bangor, Maine or such other place or places as shall be
unanimously agreed upon by the Members.

         2.4. Company Property. All Company Property shall be deemed owned by
the Company as an entity, and no Member, individually, shall have any ownership
of such property. The Members hereby expressly covenant and agree to waive any
and all rights to partition the Company Property or cause a dissolution of the
Company except to the extent provided in Section 5.10(c), below. A Member who
breaches this covenant shall be liable to the non-breaching Members for damages,
including, without limitation, reasonable costs and attorneys' fees. A Member's
interest in the Company shall be considered personal property for all purposes.

         2.5. No Other Agreement Or Restriction. Except as expressly provided
herein, this Agreement does not limit the power or rights of any Member hereto
to carry on its business for its own sole benefit.

             SECTION 3 - MEMBERSHIP AND ECONOMIC INTERESTS; CAPITAL
                                 CONTRIBUTIONS;
                        ADDITIONAL CAPITAL CONTRIBUTIONS

         3.1. Membership and Economic Interests. The Membership and Economic
Interests owned by the Members shall be as shown on Schedule 3.1 hereto, as it
may be amended from time to time.

         As soon as the necessary approval is obtained from the Maine Public
Utilities Commission (the "PUC") and any other necessary governmental authority,
the Membership Interests shall automatically change to 50% for each Member,
subject to possible subsequent change in the event that the Restructuring occurs
and is not rescinded, as provided in Section 23. The Members agree to amend
Schedule 3.1 whenever necessary. Membership and Economic Interests shown on
Schedule 3.1 may be changed only by amendment of Schedule 3.1, and as provided
above. Until agreed otherwise by all of the Members, Economic Interests shall
remain proportional to Capital Contributions.

          3.2. Initial Capital Contributions; Conditions Precedent to Capital
Contributions. (a) As of the date hereof, Pacific and BHE have made the Capital
Contributions shown on Schedule 3.1.

         (b) So long as BHE has first obtained all necessary approvals,
including those from the PUC and BHE's lenders, on terms reasonably satisfactory
to BHE, BHE agrees to transfer, within ninety (90) days after the date hereof,
all of its interests hereunder to a wholly-owned subsidiary, which shall
hereinafter be referred to as "Gassub". At such time, Pacific and Gassub will
each contribute cash in an amount to be agreed upon, not less than $50,000 and
not greater than $100,000, with the exact amount to be contributed by each
Member being the amount which equalizes the Capital Contributions.

          (c) The Members agree to make Capital Contributions, in addition to
those referenced in subsections (a) and (b) above, at such time or times and in
such portions as set forth in a capital contribution and construction budget,
which the Members agree to finalize within thirty (30) days of the date hereof,
which budget shall be attached hereto as Appendix 3.2 (the "Budget") or voted by
the Board of Directors. In the event that Gassub is unable to make the entire
amount of any such Capital Contribution at the time agreed to, Pacific shall
advance the amount of Gassub's deficiency. So long as Gassub makes at least 20%
of the agreed-upon contribution, it shall retain its 50% Membership Interest, so
long as it pays in the deficiency within six (6) months after the date on which
Pacific makes its Capital Contribution; when Gassub pays in the deficiency, the
amount advanced by Pacific to make up Gassub's deficiency will be returned to
Pacific. In the event that Gassub either (a) fails to make such 20%
contribution, or (b) the 6-month period has expired without its making up the
deficiency, its Membership Interest shall be reduced to a percentage equal to
its Economic Interest. The foregoing shall apply until the second anniversary of
the first Capital Contributions totaling $500,000 or more to be made by both
Members (the "Second Anniversary"). Starting on the Second Anniversary, the
Membership Interest of each Member shall be a percentage equal to its Economic
Interest. The foregoing provisions, as they affect Membership Interests, are
subject to possible subsequent change in the event that the Restructuring occurs
and is not rescinded, as provided in Section 23.

         (d) Some of the Capital Contributions agreed to be made above will be
in property and services (including the work of in-house personnel). Such
Capital Contributions shall be valued at their book value, as determined by the
written agreement of the Members.

         (e) Notwithstanding the foregoing, either Member may, upon written
notice to the other, elect to be excused from making any further Capital
Contributions, or at its election, may immediately terminate this Agreement,
upon the occurrence of any of the following:

                  i.       failure of the Company to secure satisfactory terms
                           and conditions of gas supply and transportation from
                           Maritimes Northeast Pipeline LLC ("Maritimes");

                  ii.      failure of the Company to secure satisfactory terms
                           and conditions of approval of the operations and
                           rates of the Company by the PUC;

                  iii.     failure of the Maritimes pipeline to be installed on
                           its FERC-approved route or such alternate route as
                           provides comparable or better gas service at a
                           comparable or better price;

                  iv.      an occurrence which makes unacceptable to either
                           party any material assumption in the pro forma
                           contained in the Project Implementation Plan, the
                           effect of which occurrence is reasonably likely, in
                           the opinion of such party, to materially change
                           Project performance;

                  v.       except to the extent provided in Section 23.10,
                           assertion by the SEC that Pacific's ownership
                           interest in the System could affect the exemption
                           from PUHCA of Pacific Enterprises or its successor in
                           interest as a result of a merger which is pending as
                           of the date hereof, or result in initiation of an
                           enforcement action by the SEC; and

                  vi.      except to the extent provided in Section 23.9,
                           assertion by the SEC that BHE's ownership interest in
                           the System could affect BHE's exemption from PUHCA,
                           or result in initiation of an enforcement action by
                           the SEC.

Upon such election, such Member's interests hereunder shall be subject to the
provisions of Sections 14.4 and 11.1, below.

         3.3.     Capital Calls.

                    i.   If the Board of Directors shall determine that (a)
                         additional capital is needed immediately for the
                         activities of the Company, beyond that which had been
                         contemplated or projected by the Project Implementation
                         Plan, (b) the Company would incur material liabilities
                         or otherwise suffer serious harm if the capital were
                         not made available, (c) the capital is not reasonably
                         available from any other source, and (d) all Members
                         have contributed to the capital of the Company in
                         proportion to their Membership Interests, then the
                         Board of Directors shall give each Member a written
                         notice (the "Call Notice") setting forth (i) the
                         aggregate amount of Additional Capital needed (the
                         "Additional Capital"), (ii) each Member's proportionate
                         share of such Additional Capital and (iii) the due date
                         (the "Due Date") of such contribution, such Due Date to
                         be not less than 15 days after the deemed delivery date
                         of such Call Notice; provided however, that the amount
                         of any such capital call made pursuant to this Section
                         3.3(i) shall not exceed the amounts set forth in the
                         Budget. Not later than the Due Date, each Member shall
                         contribute cash in an amount equal to the product of
                         Additional Capital called times such Member's
                         Membership Interest.

                    ii.  If any Member shall fail to make any contribution of
                         Additional Capital within ten (10) days after the Due
                         Date, the other Member or Members shall be given the
                         opportunity to make the needed Capital Contributions on
                         a pro rata basis determined in accordance with the
                         ratio of the Member's Membership Interest to the total
                         Membership Interests at such time, minus the Membership
                         Interest of the Member not making an additional Capital
                         Contribution, and upon any such Capital Contribution
                         the Membership Interests of the contributing Members
                         shall be adjusted to a level determined by the Board of
                         Directors, based on the then-current Market Value of
                         the Company.

         3.4.     Additional Capital.

         Without imposing upon any Member any obligation to do so, any Member,
upon approval of all the other Members, may make additional contributions to
Capital consisting of any combination of cash, equipment, or materials. For the
purposes of this Section 3.4, "additional" means in addition to those provided
for in Section 3.2, above. All such additional contributions to capital
consisting of equipment or materials shall be valued at Market Value. If any
Additional Capital Contribution is made by a Member, the Members' Membership
Interest shall be adjusted accordingly, based on the then-current Market Value
of the Company.


                    SECTION 4 - ALLOCATIONS AND DISTRIBUTIONS


         4.1. Special Distribution to Gassub. The Company shall pay Gassub a
special distribution equal to two percent (2%) of the Company's net income for
the period starting on the second (2nd) anniversary of the date of the Original
Operating Agreement and ending on the eighth (8th) anniversary of such date,
payable no less frequently than quarterly. This special distribution shall be
treated as a "guaranteed payment" under the Code. The amount of each
distribution shall be based on the net income received during the quarter for
which the distribution is being made. (For purposes of this Section 4.1, the
Company's net income shall be as determined under generally accepted accounting
principles. Payment of the special distribution to Gassub pursuant to this
Section 4.1 shall at all times be subordinate to regular payments of principal
and interest due under any loan or loans (the "Construction Loan") on terms
acceptable to the Board of Directors and in a principal amount sufficient to
fund that portion of the costs of constructing and developing the System which
is not supplied by Capital Contributions, as estimated in the Project
Implementation Plan. No such subordination shall require any deferral of any
special distribution hereunder, so long as such principal and interest are paid
when due. If any portion of any such special distribution is deferred for any
reason, it shall remain an obligation of the Company until paid in full. Any
such special distribution to Gassub shall be deducted from the amount, if any,
to be allocated in accordance with Membership Interests. If the Company does not
have Profits in the amount of such special distribution at such time, any
resulting decrease in the Members' Capital Accounts shall be allocated pro rata
to the Members in accordance with their Membership Interests, to the extent that
such allocation is consistent with the other provisions of this Agreement, in
order to achieve the intent that such special distributions not affect the
relative amounts of the Members' Capital Accounts. The Company shall not make
any regular distributions to Members unless all special distributions owed to
Gassub under this Section 4.1 (including any deferred amounts) have been paid in
full. If all or substantially all of the Company's assets are sold as a result
of a deadlock as provided in Section 5.10(c), such assets shall remain subject
after such sale to Gassub's rights to the special distribution under this
Section 4.1, including both unpaid amounts then due and the right to future
distributions for the maximum period permitted under applicable law; other
sales, including on any foreclosure of the Construction Loan, shall be free and
clear of such rights.


         4.2. Profits. After giving effect to the special allocations set forth
in Sections 4.1, 4.4 and 4.5 hereof, Profits for any fiscal year shall be
allocated to the Members in proportion to their Membership Interests.

         4.3. Losses. After giving effect to the special allocations set forth
in Sections 4.1, 4.4 and 4.5 hereof, Losses for any fiscal year shall be
allocated to the Members in proportion to their Membership Interests.

         4.4. Special Allocations. The special allocations under Regulations
Section 1.704-2(f) under the Code shall be made in the order set forth in
Exhibit "B" attached hereto and specifically incorporated by reference as if
separately set forth herein.

         4.5. Tax Allocations: Code Section 704(c). If there is any variance
between the adjusted basis (for federal income tax purposes) of any property
contributed to the Capital of the Company and its initial Gross Asset Value,
then income, gain, loss, and deductions with respect to such property shall,
solely for tax purposes, be allocated among the Members in the manner which is
most equitable to both Members, in accordance with Code Section 704(c) and the
Regulations thereunder.

         In the event the Gross Asset Value of any Company Asset is adjusted
pursuant to the definition of Gross Asset Value, and such adjustment results in
a variance between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value, then subsequent allocations of income, gain,
loss, and deduction with respect to such asset shall similarly be made in the
manner which is most equitable to both Members, in accordance with Code Section
704(c) and the Regulations thereunder.

         Any elections or other decisions relating to such allocations shall be
made by the CFO, subject to the limitations in Section 6.5, in any manner that
reasonably reflects the purpose and intention of this Agreement.

         4.6. Distributions - Net Cash From Operations. After first making the
special distribution provided in Section 4.1, and except as otherwise provided
in Section 11 hereof, Net Cash From Operations, if any, shall be distributed, at
such times as the Board of Directors may determine, to the Members in proportion
to their Membership Interests.

         4.7. Distributions - Net Cash From Sale, etc. Net cash from the sale,
condemnation, casualty loss adjustment or other disposition of all or a
substantial part of the Property or upon a termination of the Company shall be
distributed as provided in Section 11.2 hereof.

         4.8.     Allocation of Profits and Losses from Sale, etc.

                  (a) The Profits arising from the sale, condemnation, casualty
         loss adjustment or other disposition of all or a substantial part of
         the Property or upon a termination of the Company shall be allocated
         among the Members as follows:

                  First, if the Capital Accounts of any Members have a negative
                  balance, Profits shall be credited to the Capital Accounts of
                  such Members in proportion to such negative balances until
                  such time as the Capital Accounts of all such Members equal
                  zero;

                  Second, Profits shall be allocated pro rata to the Members
                  until the balance in each Member's Capital Account equals the
                  amount of such Member's Capital Contribution; and

                  Third, the balance of such Profits shall be allocated to the
                  Members pro rata in accordance with their respective
                  Membership Interests.

                  (b) The Losses arising from the sale, condemnation, casualty
         loss or other disposition of all or a substantial part of the Company's
         assets or upon a termination of the Company shall be allocated among
         the Members as follows:

                  First, if the Capital Accounts of any Members have a positive
                  balance, Losses shall be allocated to the Capital Accounts of
                  such Members in proportion to such positive balances, until
                  such time as the Capital Accounts of all such Members equal
                  zero; and

                  Second, the balance of such Losses shall be allocated to the
                  Members pro rata in accordance with their respective
                  Membership Interests.

         4.9. Amounts Withheld. All amounts withheld pursuant to the Code or any
provision of any state or local tax law with respect to any payment or
distribution to the Company or the Members shall be treated as amounts
distributed to the Members pursuant to Section 4.5 for all purposes under this
Agreement. The CFO, subject to the limitations in Section 6.5, may allocate any
such amounts among the Members in any manner that is in accordance with
applicable law.

                     SECTION 5 - MEMBERS; BOARD OF DIRECTORS

         5.1. Voting Rights. All Members who have not Dissociated shall be
entitled to vote on any matter submitted to a vote of the Members.

         5.2. Management by Board of Directors. The business and affairs of the
Company shall be managed under the direction and control of a Board of
Directors, consisting of two directors appointed by Pacific and two appointed by
BHE (Gassub, after the transfer provided for in Section 3.2); provided, however,
that if Alternative Structure 1 is put in place and is not rescinded, (a)
Pacific shall appoint only one director, (b) management shall be vested in a
manager, and (c) further amendments to this Operating Agreement shall be
necessary to implement the new management structure. Any Member, at any time and
from time to time, may designate an individual to replace a Director previously
serving as appointee of such Member. Neither Member may take any action on
behalf of the Company, other than voting as a Member and appointing its
Directors, without the approval of the Board of Directors, as provided below.
Each Member delegates to the Board of Directors the exclusive authority to
manage the Company's business except as to those matters as to which (a) the
approval of the Members is expressly required by this Agreement or by the Act,
(b) the Board of Directors refuses to act, or (c) the Board of Directors submits
the matter for approval to the Members. The authority of the Board of Directors
shall be delegated to officers to the extent provided in Section 6, subject to
the limitations provided therein. Decisions of the Board of Directors within the
scope of its authority shall be binding on the Company and each Member. Any
Member who takes any action or binds the Company in violation of this Section
5.2 shall be solely responsible for any loss and expense incurred as a result of
the unauthorized action and shall indemnify and hold the Company harmless with
respect to the loss or expense.

         5.3. Chair. The Directors shall elect a chair for a one-year term. The
chair shall alternate each year between Pacific and BHE (Gassub, after the
transfer provided for in Section 3.2) Directors, provided that if Alternative
Structure 1 is put in place and is not rescinded, the chair shall always be from
Gassub. The chair shall preside at all meetings of the Board, and shall have the
power to call meetings, but no other authority as chair.

         5.4.     Meetings; Minutes.

         (a) Members. Meetings of the Members for any purpose may be called by
the President appointed pursuant to Section 6 or any Member.

         (b) Board of Directors. Meetings of the Board of Directors may be
called by the President appointed pursuant to Section 6, the Chairman or any
Director, provided that the Board of Directors as a group shall have the
authority to establish a regular meeting schedule.

Attendance at meetings of either the Members or the Board of Directors may be by
speaker telephone or other communications device whereby all those participating
in the meeting may hear each other. The Board of Directors shall keep written
minutes of all meetings, and the minutes of each meeting shall be signed by the
Directors attending or participating by conference call on behalf of each
Member. The minutes shall be included in the records of the Company.

         5.5. Place of Meetings; Notice. The call for each meeting shall specify
the location for the meeting, which may be either within or outside the State of
Maine. If no designation is made, the place of meeting shall be the principal
executive office of the Company. Written Notice stating the place, day and hour
of the meeting and the purpose or purposes for which the meeting is called shall
be sent not less than three (3) nor more than sixty (60) days before the date of
the meeting, by or at the direction of the President or person calling the
meeting, to each Member or Director entitled to vote at such meeting.

         5.6. Meeting of All Members or Directors. If all of the Members or
Directors shall meet at any time and place and consent to the holding of a
meeting at such time and place, such meeting shall be valid without call or
notice, and at such meeting lawful action may be taken.

         5.7. Rules and Guidelines; Project Implementation Plan. The Board of
Directors may adopt such rules and guidelines governing the operation of the
Company and the construction of the System ("Rules and Guidelines") as it deems
appropriate. The Board of Directors shall finalize a Project Implementation Plan
within ninety (90) days of the receipt of the last of (a) PUC approval of BHE's
application to carry out the intent of this Agreement, which approval must be
satisfactory to the Members, and (b) all other approvals required as a
prerequisite to the obligations of BHE and Gassub under Section 3.2(b), below.
Any amendment to the Project Implementation Plan or material deviation therefrom
shall require approval of the Board of Directors as provided in Section 6.4(p),
below.

         5.8. Record Date. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the record date for the
determination of Members shall be the date on which notice of the meeting is
mailed or the date on which the resolution declaring such distribution is
adopted, as the case may be. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.

         5.9.     Quorum.

         (a) Members. Attendance by both Members shall constitute a quorum at
any meeting of Members.

         (b) Directors. Attendance by three Directors shall constitute a quorum
at any meeting of the Board of Directors.

         5.10.    Manner of Acting.

         (a) Members. If a quorum is present, the affirmative vote of Members
holding 51% of the Membership Interests represented in person or by proxy shall
be the act of the Members, unless the vote of a greater or lesser proportion or
number is otherwise required by the Act, by the Certificate, or by this
Agreement. In no event shall the percentage of Membership Interests required to
be voted in favor of an issue be less than the percentage of Director votes that
would be required if the same matter were submitted to the Board of Directors.

         (b) Directors. The Directors shall vote as representatives of the
Members, in the same proportion as Membership Interests. There shall be one
hundred (100) voting points, and each Member shall have one point for each
percentage point of Membership Interest. If two (2) Directors representing a
Member are present at a meeting, each Director shall vote one-half (1/2) of the
points allocated to such Member. If only one (1) such Director is present, that
Director shall vote all of the points allocated to such Member. The affirmative
vote of Directors voting 51 points shall be the act of the Board, except that if
Alternative Structure 1 is put in place and is not rescinded, the affirmative
vote of Directors voting 96 points shall be the act of the Board as to the
matters listed in Section 23.4(b).

          (c) Deadlocks. A deadlock shall be deemed to exist if, with respect to
any material issue submitted to either the Members or the Board of Directors
concerning the Company's affairs or management, there are not sufficient votes
for resolving the issue as a result of each Member or its Director(s) voting
differently from the other Member or its Director(s), or refusing to vote, on
such issue. If a deadlock occurs and is not resolved, then the issue shall
promptly, and in no event any later than thirty (30) days after the first
occurrence of such deadlock, be submitted for resolution to the chief executive
officer of the parent entity of each Member (as of the date of this Agreement,
BHE and Pacific Parent), or, in lieu of either of them, an individual with the
same authority as such chief executive officer to act on such matter. If they
are unable to resolve the matter within thirty (30) days of submission, they
shall try to agree on a neutral third party to whom the matter may be submitted
for resolution, such decision to be binding on both Members. If the appointees
are unable to agree on the selection of the neutral third party within thirty
(30) days after the date on which the matter was originally referred to them,
they shall either (i) agree to submit the matter to Arbitration, or (ii) if they
cannot agree to submit the matter to arbitration, the Company shall be dissolved
and its assets sold, as provided in Section 11.2, below. The Members agree that
neither they nor any of their Affiliates nor any entities in which they have an
ownership or controlling interest shall purchase, lease or otherwise acquire the
assets of the Company in any sale resulting from the dissolution of the Company
pursuant to option (ii) above in this subsection (c). Notwithstanding the
foregoing, either Member or its Affiliate may purchase the assets of the Company
or all of the Membership Interests of the other Member, on terms agreed to with
such other Member, at any time before option (ii) is reached.

         For the purposes hereof, "Arbitration" shall mean the following
procedures: the dispute shall first be submitted to non-binding mediation in
accordance with the rules established by the American Arbitration Association.
If mediation does not result in the resolution of such dispute within thirty
(30) days, the matter shall be submitted to binding arbitration administered by
the American Arbitration Association under its Commercial Arbitration Rules, as
further provided in Section 22 hereof. Both the mediation and the arbitration
shall be held in Boston, Massachusetts. Judgment on any award rendered by either
the neutral third party referenced in the second sentence of this subsection (c)
or the arbitrator(s) may be entered in any court having jurisdiction.

         (d) Votes by Interested Member or Director. Unless otherwise expressly
provided herein or required under applicable law, a Member, or Directors
appointed by a Member who have an interest (economic or otherwise) in the
outcome of any particular matter upon which the Members or Directors vote or
consent, may vote or consent upon any such matter.

         5.11. Proxies. At all meetings of Members a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the President before or at the
time of the meeting.

          5.12. Action Without a Meeting. Action required or permitted to be
taken at a meeting of Members or Directors may be taken without a meeting if the
action is evidenced by one or more written consents describing the action taken,
signed by each Member or Director, as the case may be, entitled to vote and
delivered to the President for inclusion in the minutes or for filing with the
Company records. Action taken under this Section is effective when all Members
or Directors, as the case may be, entitled to vote have signed the consent,
unless the consent specifies a different effective date. The record date for
determining Members entitled to take action without a meeting shall be the date
the first Member signs a written consent.

         5.13. Waiver of Notice. When any notice is required to be given to any
Member or Director, a waiver thereof in writing signed by the person entitled to
such notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.

         5.14. Liability of Members. No Member shall be liable as such for the
liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Agreement or the Act shall not be grounds
for imposing personal liability on the Members for liabilities of the Company.

         5.15. (a) Indemnification of Parties. The Company shall indemnify a
Person who was or is a party or is threatened to be made a party to a
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, because that Person is or was a
Member, Director, employee or agent of the Company or is or was serving at the
request of the Company as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses, including reasonable attorneys' fees
(subject to Section 5.15(e) below), judgments, fines and amounts paid in
settlement actually and reasonably incurred by that Person in connection with
such an action, suit or proceeding; provided that no indemnification may be
provided for a Person with respect to a matter for which that Person is finally
adjudicated:

          i.        Not to have acted honestly or in the reasonable belief that
                    that Person's action was in, or not opposed to, the best
                    interests of the Company or its Members;

          ii.       With respect to a criminal action or proceeding, to have had
                    reasonable cause to believe that that Person's conduct was
                    unlawful; or

          iii.      To have acted in a grossly negligent or fraudulent manner,
                    or to have engaged in wilful misconduct.

A final adjudication as to any one of items i, ii or iii above shall be
sufficient to relieve the Company from any obligation to indemnify. The
termination of an action, suit or proceeding by judgment, order or conviction
adverse to that Person, or by settlement or plea of nolo contendere or its
equivalent, does not of itself create a presumption that that Person did not act
honestly or in the reasonable belief that that Person's action was in or not
opposed to the best interests of the Company or its Members and, with respect to
a criminal action or proceeding, had reasonable cause to believe that that
Person's conduct was unlawful.

          (b) Indemnification Prohibited if Party Liable to Company; Exception.
Notwithstanding any provision of subsection (a), the Company shall not indemnify
a Person with respect to a claim, issue or matter asserted by or in the right of
the Company for which that Person is finally adjudicated to be liable to the
Company unless the court in which the action, suit or proceeding was brought
determines that, in view of all the circumstances of the case, that Person is
fairly and reasonably entitled to indemnity for such amounts as the court
determines reasonable.

         (c) Indemnification Proper and in the Best Interests of the Company.
Any indemnification under subsection (a), may be made by the Company only as
authorized in the specific case upon a determination by the Board of Directors
or Members, subject to the requirements of 31 M.R.S.A. ss.654.4, or any
comparable successor provision, that indemnification of the Member, Director,
employee or agent is proper in the circumstances and in the best interests of
the Company.

         (d) Payment of Expenses in Advance. Expenses incurred in defending a
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Company in advance of the final disposition of that action,
suit or proceeding upon a determination made in accordance with the procedure
established in subsection (c) that, based solely on the facts then known to
those making the determination and without further investigation, the Person
seeking indemnification satisfied the standard of conduct prescribed by
subsection (a), and upon receipt by the Company of: (i) a written undertaking by
or on behalf of the Member, Director, employee or agent to repay that amount if
that Person is finally adjudicated not to be entitled to indemnification under
this Agreement, and (ii) a written affirmation by the Member, Director, employee
or agent that the Person has met the standard of conduct necessary for
indemnification by the Company as authorized in this section. The undertaking
required by subsection (i) must be an unlimited general obligation of the Person
seeking the advance but need not be secured and may be accepted without
reference to financial ability to make the repayment.

         (e) Restrictions on Payment for Separate Counsel. The Company shall not
pay for counsel for any Person when such counsel is not also counsel for the
Company in the proceeding unless expressly approved in advance. The Company
shall have no obligation to pay for such separate counsel for a Member if the
only potential liability of the Member is, in the reasonable opinion of the
Company and its counsel, a liability under an exception to 31 M.R.S.A. ss.645,
or any comparable successor provision, the requirements of which exception are
unlikely, in the reasonable opinion of the Company and its counsel, to be met,
even if there is an actual or potential conflict of interest between the Company
and the Member on the relevant matter.

         (f) Intent; Amendments. It is not the intent of the foregoing to
provide for indemnification outside the scope of what is permitted under
applicable law, including the Act, as it may be amended from time to time. If
any future amendment to the Act or other applicable law reduces the scope of
permitted indemnification, this Section 5.15 shall be deemed to be amended to
eliminate any provision which is not thereafter permitted. The right to
indemnification under this Section 5.15 shall be fully vested with respect to
any matter occurring while this Section 5.15 was in effect in its current form.

         5.16. Conflicts of Interest. A Member, a Director, or an Affiliate of
either Member, does not violate a duty or obligation to the Company merely
because the Member's or the Director's or such Affiliate's conduct -- which
conduct may include lending money to, or transacting other business with, the
Company -- furthers the Member's or the Director's or such Affiliate's own
interest. A Member, Director or Affiliate of either Member may enter into
agreements, transactions, contracts, instruments or other transactions with the
Company so long as any agreement, contract, instrument or other transaction
between the Company and the Member, Director or such Affiliate is either (i)
entered into pursuant to BHE's (Gassub's, after the transfer provided for in
Section 3.2) preferential bidding rights, as provided for in Section 5.20, or
(ii) at no greater than market rates, on commercially reasonable terms and
conditions such as are no less favorable to the Company than would be available
in a bona fide arm's length transaction with a Person which is not an Affiliate,
and has been approved by the Board of Directors or the Members (such approval
not to be unreasonably withheld if it has been determined that the proposed
transaction meets the other conditions of this subsection (ii))

 The rights and obligations of a Member or a Director who thus lends money to or
transacts business with the Company are the same as those of a person who is not
a Member or Director, subject to other applicable law and the terms of this
Agreement. No transaction with the Company shall be voidable solely because a
Member, a Director or an Affiliate of either Member has a direct or indirect
interest in the transaction if either the transaction is fair to the Company or
the Board of Directors or the Members, in either case knowing the material facts
of the transaction and the Member's or Director's or Affiliate's interest,
authorize, approve, or ratify the transaction.



         5.17.    Pacific Responsibilities and Rights.

         (a) Responsibilities. Pacific will provide at its expense, from its own
resources or that of its parent, the services of its Directors. Pacific or its
affiliates may provide other services pursuant to a Support Services Agreement,
at the Company's expense. Until such time as the PUC approves the Support
Services Agreement, Pacific will provide the services of its Officers pursuant
hereto, from its own resources or that of its parent. Pacific will keep accurate
and detailed records of such services, After such PUC approval, (a) Pacific will
be credited with the value of such services, at the rates provided pursuant to
the Support Services Agreement, as a Capital Contribution, and (b) thereafter,
such services will be provided pursuant to the Support Services Agreement.

         5.18.    BHE Responsibilities and Rights.

          (a) Matters to be Undertaken at BHE Expense; Name. BHE (Gassub, after
the transfer provided for in Section 3.2) shall provide the services of its
Directors. In addition, BHE will permit the Company to use a name popularly
associated with BHE or some close approximation thereto. Such obligation shall
continue after the transfer provided for in Section 3.2. Until such time as the
PUC approves the Support Services Agreement, BHE will provide the services of
its Officers pursuant hereto, at its own expense. BHE will keep accurate and
detailed records of such services, After such PUC approval, (a) BHE will be
credited with the value of such services, at the rates provided pursuant to the
Support Services Agreement, as a Capital Contribution, and (b) thereafter, such
services will be provided pursuant to the Support Services Agreement.

         (b) Matters to be Undertaken by BHE at the Company's Expense. BHE may
provide certain services pursuant to a Support Services Agreement, at the
Company's expense.

         5.19.    Expansion to Future Markets;

                    i.        Expansion of the System will be determined by the
                              Board of Directors after evaluation of market
                              economics. If either Member, or any Affiliate,
                              wishes to obtain any ownership interest in, or
                              otherwise participate in any business venture
                              having as its purpose, in whole or in part, the
                              construction or operation of gas distribution
                              system in any portion of the Future Market,
                              whether directly or indirectly, it may do so only
                              if the Company does not, within ninety (90) days
                              after such Member delivers written notice of such
                              intent, elect to construct or operate such gas
                              distribution system, either on its own or together
                              with such Member or Affiliate.

                    ii.       BHE, Gassub and BHE's other Affiliates may bid for
                              the construction of the System on a competitive
                              bid basis without violating their obligations to
                              the Company.

                    iii.      Each Member agrees that neither it nor any of its
                              Affiliates will provide any gas distribution
                              service in or to any community in either the
                              Selected Market or the Future Market or to any
                              entity providing such service without first
                              complying with the provisions of Subsection (i)
                              above.


         5.20. Procurement of Goods and Services. BHE (Gassub, after the
transfer provided for in Section 3.2, above) may elect to make available any of
its assets and services, or those of its Affiliates to the Company. Except as
provided herein for specific items, all goods and services acquired by the
Company shall, whenever practical, be acquired on a competitive bid basis.

         5.21 Notwithstanding any other provision of this Agreement, any
services of either Member used by the Company whose pricing is not explicitly
provided for elsewhere in this Agreement or in a Support Services Agreement will
be purchased at Market Value.

                              SECTION 6 - OFFICERS

          6.1.    Appointment of Officers.

         i. President. The day-to-day affairs of the Company shall be managed by
a President and such other officers, appointed to such positions and on such
terms as the Board of Directors determines; provided that no officer shall have
a title that includes the word "manager", it being the intent that no person
shall be a manager for purposes of the Act. Whenever in this agreement the word
"President" is used, it shall also mean such other duly authorized officer as is
appointed by the Board of Directors to act in the absence of the President. The
President shall be a nominee of Pacific; provided that if Alternative Structure
1 is put in place and is not rescinded, the President shall be a nominee of
Gassub.

         ii. CFO. The Board of Directors shall also appoint a chief financial
officer ("CFO"), who shall be a nominee of BHE (Gassub, after the transfer
provided for in Section 3.2). The CFO shall have such duties as are provided by
the Board of Directors and in this Agreement.

         6.2. Budget. No later than ninety (90) days before the end of each
fiscal year, the President shall prepare and send to the Board of Directors
proposed annual budgets of operations, maintenance, administrative and marketing
expenses, capital expenditures, revenues, and cash flows for the next fiscal
year. Such budgets shall be acted on by the Board of Directors prior to the end
of the fiscal year; provided that should the Board of Directors fail to approve
any budget prior to the end of the fiscal year, then the budget as presented by
the President shall be deemed approved, and shall remain in effect for the
balance of the next fiscal year unless modified by action of the Board of
Directors. The President shall manage the business of the Company in accordance
with such budget and shall not take any action that materially varies from a
budgeted item without the approval of the Board of Directors except upon
compliance with the provisions of Section 6.4(g).

         6.3.     Authority and Duties of President.

         (a) Authority. Subject to Section 5 and Section 6.4, hereof the
President has the power, on behalf of the Company, to do all things necessary or
convenient to carry out the business and affairs of the Company, including,
without limitation:

          i.        The institution, prosecution and defense of any Proceeding
                    in the Company's name;

          ii.       The purchase, receipt, lease or other acquisition,
                    ownership, holding, improvement, use and other dealing with,
                    Property, wherever located;

          iii.      The sale, conveyance, mortgage, pledge, lease, exchange, and
                    other disposition of Property;

          iv.       Entering into contracts and guaranties; incurring of
                    liabilities; borrowing money, issuance of notes, bonds, and
                    other obligations; and the securing of any of its
                    obligations by mortgage or pledge of any of its Property or
                    income;

          v.        The lending of money, investment and reinvestment of the
                    Company's funds, and receipt and holding of Property as
                    security for repayment, including, without limitation, the
                    lending of money to, and otherwise helping Members,
                    officers, employees, and agents;

          vi.       The conduct of the Company's business, the establishment of
                    Company offices, and the exercise of the powers of the
                    Company within or without the State;

          vii.      The appointment of employees and agents of the Company, the
                    defining of their duties and authority, the establishment of
                    their compensation;

          viii.     The payment of compensation, or additional compensation to
                    any or all employees on account of services rendered to the
                    Company, whether or not an agreement to pay such
                    compensation was made before such services were rendered;
                    and

          ix.       The taking of any other action that furthers the business
                    and affairs of the Company.

         (b) Duties. The President, either individually or together with such
other officers as are appointed by the Board of Directors, will have the
following duties:

          i.        evaluation, selection, and purchase of System equipment
                    (pipes, etc.);

          ii.       System design, engineering and walkout;

          iii.      construction management;

          iv.       timeline and budget management;

          v.        capital procurement;

          vi.       reporting (at scheduled or noticed meetings) to the Board of
                    Directors on the construction and operation of the System;

          vii.      all the work to be performed under the Project
                    Implementation Plan to build the System and all matters
                    relating thereto;

          viii.     responsibility for the compliance by the Company with all
                    applicable Maine and federal laws, rules and regulations
                    relating to the construction, maintenance and operation of
                    the System, including, without limitation, all laws, rules,
                    regulations and licensing requirements relating to the
                    provision of engineering advice and services in the State of
                    Maine;

          ix.       coordinating the activities undertaken by the Members and
                    their Affiliates pursuant to Sections 5.17 and 5.18 with the
                    other activities of the Company; and

          x.        such other duties as the Board of Directors may, from time
                    to time, designate.

         6.4. Restrictions on Authority of the President. Notwithstanding
anything to the contrary in Section 6.3 or elsewhere in this Agreement, neither
the President nor any other officer shall have any authority to take any of the
following actions without first obtaining the consent of the Board of Directors
as provided in Section 5, above; for all matters listed below, the vote required
shall be 51 voting points:

                  (a) Contracts with Members or Affiliates. Approval, pursuant
         to Section 5.16, of the terms of any material agreement, contract,
         instrument or other transaction between the Company and any Member or
         any Affiliate of a Member, except as explicitly provided for elsewhere
         herein;

                  (b) Merger, Sale of Assets. Authorization of the merger or
         consolidation of the Company with any Person, any liquidation or
         dissolution of the Company, any change to the form of the organization
         of the Company or any sale, lease, exchange, transfer of all or
         substantially all of the assets of the Company (disagreement on such
         vote can trigger the "put" rights in Section 14.5);

                  (c) Indebtedness, Including System Loan and Bonds.
         Authorization of the incurrence, assumption or guaranty by the Company
         of, or suffering the existence by the Company of, the System Loan, the
         Bonds, and any other indebtedness in excess of the sum of (A) two
         hundred and fifty thousand dollars ($250,000) in the aggregate during
         any one fiscal year and at any one time outstanding, (B) indebtedness
         secured by Permitted Liens and (C) any other indebtedness in an
         operating budget previously approved by the Board of Directors or
         otherwise permitted under subsection (g) below;

                    (d)       Material Agreements.

                    (i)       Approval of the terms of a "Material Agreement"
                              (as defined below),

                    (ii)      Amendment or modification of any Material
                              Agreement,

                    (iii)     Waiver of compliance with any material provision
                              of a Material Agreement,

                    (iv)      Termination, assignment of any material rights the
                              Company may have under, or consenting to or
                              permitting the assignment by any other Person of
                              any material right such Person may have under a
                              Material Agreement,

                    (v)       Giving consents or exercising any other material
                              rights under a Material Agreement.

         "Material Agreement" shall mean any agreement for the construction,
         installation, operation, maintenance or provision of other services to
         the System with a value of over two hundred fifty thousand dollars
         ($250,000), or the purchase of equipment with a value of over two
         hundred fifty thousand dollars ($250,000), or any other material
         agreement to which the Company is a party:

                  (e) Liens. Creating or otherwise allowing any Lien to be on,
         or otherwise to affect, any of the Company's property, except Permitted
         Liens;

                  (f) Settlements. Confession of judgment or entry into any
         settlement of any dispute, where the amount of the resulting liability
         of the Company is greater than fifty thousand dollars ($50,000).

                  (g) Budget and Capital Improvements. Approval of the annual
         budgets as provided in Section 6.2, and of capital expenditures
         exceeding the limits therein or as otherwise approved hereunder;
         notwithstanding the foregoing, the President may authorize capital
         expenditures or indebtedness arising out of an emergency which requires
         immediate action, so long as the President gives notice to the
         Directors as soon as possible of the incurrence of such expenditures
         and obtains any requisite consent to the continuation of any such
         expenditures after the immediate emergency has passed;

                  (h) Charges. Annual approval (at the same time as the budget
         is approved as per paragraph (g) above) of all charges under the
         agreements or contracts referenced in paragraphs (a), (d) or (g) above,
         and any exercise of any material rights or elections under such
         agreements or contracts;

                  (i) Bankruptcy Filing. (i) Taking, or causing the Company to
         commence any case, proceeding or other action (A) under any existing or
         future law of any jurisdiction, domestic or foreign, relating to
         bankruptcy, insolvency, reorganization or relief of debtors, seeking to
         have an order for relief entered with respect to it, or seeking to
         adjudicate it a bankrupt or insolvent, or seeking reorganization,
         arrangement, adjustment, winding-up, liquidation, dissolution,
         composition or other relief with respect to it or its debts, or (B)
         seeking appointment of a receiver, trustee, custodian or other similar
         official for it or for all or any substantial part of its assets, or
         making a general assignment for the benefit of its creditors; or (ii)
         if there shall be commenced against the Company any case, proceeding or
         other action of a nature referred to in clause (i) above, taking any
         action in furtherance of, or indicating its consent to, approval of, or
         acquiescence, therein, or (iii) admitting in writing its inability to
         pay its debts as they become due;

                  (j) Sale of Valuable Assets. Sell, assign or otherwise
         transfer title to any asset, or any group of assets in the same
         transaction, or in related transactions, having an aggregate value in
         excess of fifty thousand dollars ($50,000);

                  (k) Acts in Contravention of This Agreement. Knowingly do
          any act in contravention of this Agreement;

                    (l) Thwarting Ordinary Business. Knowingly do any act which
          would make it impossible to carry on the ordinary business of the
          Company, except as otherwise provided in this Agreement;

                    (m) Possessing Property for Non-Company Purpose. Possess
          property, or assign rights in specific property, for other than a
          Company purpose;

                    (n) Jeopardizing Tax Treatment. Knowingly take any steps
          which could jeopardize the treatment of the Company as a partnership
          under the Code;

                    (o) Deviating from Project Implementation Plan. Take any
          action which materially deviates from what is set forth in the Project
          Implementation Plan, or make any amendment to the Project
          Implementation Plan; and

                    (p) Usurpation of Board Function. Take any step within the
          realm normally governed by boards of directors of corporations,
          including but not limited to the setting of basic policies and the
          setting of the President's compensation and benefits.

          6.5. Limitations on Authority of CFO. Any delegation of authority to
the CFO in this Agreement with regard to tax matters shall be subject to the
requirement that the CFO determine if any proposed action is likely to have a
material adverse effect on either Member, and if it does, to obtain the approval
of the Board of Directors or such Member before taking any such action.

         6.6. Liability for Certain Acts. The President and other officers shall
exercise their powers and discharge their duties in good faith with a view to
the interests of the Company and its Members with that degree of diligence, care
and skill that ordinarily prudent persons would exercise under similar
circumstances in like positions. No officer shall be liable, responsible or
accountable in damages or otherwise to the Company or to any Member for any
action taken or any failure to act on behalf of the Company within the scope of
the authority conferred on the officer by this Agreement or by law; provided
that the officer shall be liable if it is reasonably determined by the Board of
Directors that the relevant action or failure to act would disqualify the
officer for indemnification under the provisions of Section 5.15.

         6.7. Bank Accounts. The President or CFO may from time to time open
bank accounts in the name of the Company. The manual signatures of two (2)
officers shall be required for all disbursements over a level to be determined
by the Board of Directors; in the absence of such determination, such level
shall be five thousand dollars ($5,000). Any withdrawal of funds in excess of
one hundred fifty thousand dollars ($150,000.00), other than transfers between
Company accounts, shall require approval of the Board of Directors if the
expenditure is not contemplated by the Project Implementation Plan or a budget
approved as provided in Section 6.2.

          6.8. Removal. At a meeting called expressly for that purpose, any
officer may be removed at any time, with or without cause, by the vote of the
Board of Directors.


              SECTION 7 - BOOKS AND RECORDS; TAX RETURNS; INSURANCE

         7.1. Books and Records. All books, records, and financial accounts of
the Company shall be kept by the President and the CFO at the principal place of
business of the Company (as provided in Section 2.3, above), or at such other
location as is determined by the Board of Directors.

         7.2. Audit. A periodic audit (or, if agreed upon, review) of the books
and records of the Company shall be made by an independent firm of accountants
or by such individuals and at such intervals as may be selected by the Board of
Directors, and a like audit or review shall be made upon completion of the
System. The cost of any audits or reviews shall be borne by the Company. Upon
the completion of the System, a true and correct accounting shall be rendered to
the Members of all costs, expenses, and other data relating to the performance
and affairs of the Company.

          7.3. Inspection of Records. Each Member shall have the right at all
reasonable times, during usual business hours, to have its independent
accountant or any other agent or employee audit, examine, and, at such Member's
expense, make confidential copies of or extracts from the books and records
maintained in connection with the Company. Such Member shall bear all expenses
incurred in its examination.

         7.4. Maintenance of Records after Winding-up. To the extent that the
books and records of the Company are required to be kept subsequent to its
winding-up, they shall be kept at such place or places as the President or other
Person responsible for such winding-up may from time to time determine. The cost
of maintaining and storing the books and records after the winding-up of the
Company shall be paid from the funds set aside pursuant to subsection (iii) of
Section 11.2, below.

          7.5. Fiscal Year. The fiscal year of the Company shall be the calendar
year, except as otherwise required by the Code.

         7.6.     Income Tax Returns.

                  i.       All income tax returns of the Company shall be
                           prepared by accountants selected by the Board of
                           Directors.

                  ii.      Any provision hereof to the contrary notwithstanding,
                           for federal income tax purposes, the Members hereby
                           recognize and agree that the Company will be treated
                           as a partnership in accordance with the provisions of
                           the Code, as the same may from time to time be
                           amended; provided, however, that the filing of
                           partnership tax returns shall not be construed to
                           extend the purposes of the Company or expand the
                           obligations or liabilities of the Members.

                  iii.     The CFO shall cause to be prepared all tax returns
                           and statements, if any, which are required to be
                           filed on behalf of the Company with the appropriate
                           taxing authorities. Such returns and statements shall
                           be submitted by the CFO to the Members in draft, in
                           time for the approval of the Board of Directors to be
                           made by May 1 of each year, and in final form prior
                           to filing, and when approved by the Board of
                           Directors, shall be filed promptly.

                  iv.      Pacific shall serve as the tax matters Member of the
                           Company for purposes of the Internal Revenue Code.

          7.7. Insurance. The Company shall maintain such insurance as the Board
of Directors deems appropriate.


                                SECTION 8 - BONDS

         Pacific shall use its best efforts to obtain the performance and
payment bonds (the "Bonds") and other security in the name of the Company that
the Company may be required by any institutional lender in connection with the
construction of the System. No Bond shall be binding on the Company until its
terms and conditions shall have been approved or ratified by the Board of
Directors pursuant to Section 6.4(c).

                         SECTION 9 - INVESTMENT OF FUNDS

         All cash Capital Contributions made to the Company by the Members and
all revenues received by the Company shall be deposited in an account or
accounts in the name of the Company at such bank or other financial institution
as the Board of Directors may select, or shall be invested in such short-term,
investment quality investments as shall be selected by the Board of Directors.
Such funds shall be withdrawn on such signatures as the Board of Directors shall
determine as provided in Section 6.7, above.

                      SECTION 10 - DISSOCIATION OF A MEMBER

          10.1. Dissociation. A Person shall cease to be a Member ("Dissociate")
upon the happening of any of the following events:

                  (a) an Insolvency Event occurs with respect to the Member or
         any affiliate which directly or indirectly owns more than 50% of the
         Member's voting equity, as provided in Section 10.2 below;

                  (b) in the case of a Member who is a natural person, the death
         of the Member or the entry of an order by a court of competent
         jurisdiction adjudicating the Member incompetent to manage the Member's
         personal estate;

                  (c) in the case of a Member who is acting as a Member by
         virtue of being a trustee of a trust, the termination of the trust (but
         not merely the substitution of a new trustee);

                  (d) in the case of a Member that is a separate entity other
         than a corporation, the dissolution and commencement of winding up of
         the separate entity;

                  (e) in the case of a Member that is a corporation, the filing
         of a certificate of dissolution, or its equivalent, for the corporation
         or the revocation of its charter;

                    (f) in the case of an estate, the distribution by the
          fiduciary of the estate's entire interest in the Company; or

                  (g) change of control (control being defined as owning more
         than 50% of voting equity) of a Member, or of any affiliate which
         directly or indirectly owns more than 50% of the Member's voting
         equity.

          10.2. Effect of Insolvency Event and Other Acts of Dissociation on
Membership Interest.

         (a) Effective at the time when an Insolvency Event occurs with respect
to a Member or an affiliate described in Section 10.1(a), its Membership
Interest shall automatically become an Economic Interest.

         (b) The Membership Interest of any Dissociating Member shall be subject
to Sections 14.4 (offer to the other Members) and 14.6 (sale of voting rights to
the Company).

                     SECTION 11 -DISSOLUTION AND WINDING UP

         11.1. Liquidating Events. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following (each
a "Liquidating Event"):

          i.        The sale of all or substantially all of the Company's
                    Property;

          ii.       The vote by the Members to dissolve, wind up, and liquidate
                    the Company;

          iii.      Either Member elects not to make further Capital
                    Contributions under Section 3.2(e), and within 180 days
                    thereafter, neither of the following occurs -- (A) the other
                    Member buys all interests of the electing Member under
                    Section 14.4, or (B) the electing Member sells all of its
                    interests to another party who agrees to continue making
                    Capital Contributions at the agreed-upon schedule, including
                    making any Capital Contributions previously due; the
                    foregoing is not intended to apply to Gassub inability to
                    make Capital Contributions under Section 3.2(c);

          iv.       A deadlock is reached, pursuant to the procedures described
                    in Section 5.10(c) above, and the parties are unable to
                    reach any resolution other than to dissolve the Company.

          The Members hereby agree that, notwithstanding any provision of the
Act, the Company shall not dissolve prior to the occurrence of a Liquidating
Event. If it is determined by a court of competent jurisdiction that the Company
has dissolved prior to the occurrence of a Liquidating Event, the Members hereby
agree to continue the business of the Company without a winding up or
liquidation. In the event of the occurrence of a Liquidating Event described in
subparagraph (v) above, the Members agree that no dissolution shall be deemed to
have occurred until forty-five (45) days after written notice of such failure is
delivered by BHE (Gassub, after the transfer provided for in Section 3.2) to
Pacific and only then if BHE or Gassub, as the case may be, during such
forty-five (45) day period, has expended its good faith best efforts, consistent
with commercial reasonableness, to cooperate with Pacific and the Company in an
attempt to procure project financing.

         11.2. Winding Up. Upon the occurrence of a Liquidating Event, the
Company shall continue solely for the purposes of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members. No Member shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the Company's
business and affairs. The President (or, in the event that at the time of such
Liquidating Event, there is no President, any Member elected by the Members)
shall be responsible for overseeing the winding up and dissolution of the
Company and shall take full account of the Company's liabilities and Company
Property and the Company Property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom, to
the extent sufficient therefor, shall be applied and distributed in the
following order:

          i.        First, to the payment and discharge of all of the Company's
                    debts and liabilities to creditors other than Members;

          ii.       Second, to the payment and discharge of all of the Company's
                    debts and liabilities to Members, including but not limited
                    to liability for the special distribution to Gassub under
                    Section 4.1;

          iii.      Third, the Company shall fund reserves for contingent
                    liabilities to the extent deemed reasonable by the President
                    or other Person responsible for the winding up;

          iv.       Fourth, to each Member with a positive balance in its
                    Capital Account (determined after taking into account all
                    applicable allocations, including but not limited to those
                    in Section 4.8, below), in proportion to such balances until
                    such balances are reduced to zero; and

          v.        Fifth, the balance, if any, to the Members in proportion to
                    their Membership Interests.

          No Member shall receive any additional compensation for any services
performed pursuant to this Section 11.

          11.3. Compliance With Timing Requirements of Regulations.

          If any Member has a deficit balance in its Capital Account (after
giving effect to all contributions, distributions and allocations for all
taxable years, including those made pursuant to Section 11.2, above, and other
distributions made in the year during which such liquidation occurs), such
Member shall have no obligation to make any contribution to the capital of the
Company with respect to such deficit, and such deficit shall not be considered a
debt owed to the Company or to any other Member for any purpose whatsoever. In
the discretion of the CFO, subject to the limitations in Section 6.5, a pro rata
portion of the distributions that would otherwise be made to the Members
pursuant to this Section 11 may be:

          i.        distributed to a trust established for the benefit of the
                    Members for the purposes of liquidating Company assets,
                    collecting amounts owed to the Company, and paying any
                    contingent or unforeseen liabilities or obligations of the
                    Company or of the Members arising out of or in connection
                    with the Company. The assets of any such trust shall be
                    distributed to the Members, in the same proportions as the
                    amount distributed to such trust by the Company would
                    otherwise have been distributed to the Members pursuant to
                    this Agreement; or

          ii.       withheld to provide a reasonable reserve for Company
                    liabilities (contingent or otherwise) and to reflect the
                    unrealized portion of any installment obligations owed to
                    the Company, provided that such withhold amounts shall be
                    distributed to the Members as soon as practicable.

         11.4.    Deemed Distribution and Recontribution.

         Notwithstanding any other provision of this Section 11, in the event
the Company is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Company Property
shall not be liquidated, the Company's liabilities shall not then be paid or
discharged, and the Company's affairs shall not be wound up. Instead, the
Company shall be deemed to have distributed the Company Property in kind to the
Members, who shall be deemed to have assumed and taken subject to all Company
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the Members shall be deemed to have recontributed the
Company Property in kind to the Company, which shall be deemed to have assumed
and taken subject to all such liabilities.

         11.5.    Rights of Members.

          Except as otherwise provided in this Agreement, (a) each Member shall
look solely to the assets of the Company for the return of its Capital
Contribution and shall have no right or power to demand or receive property
other than cash from the Company, and (b) no Member shall have priority over any
other Member as to the return of its Capital Contributions, distributions, or
allocations.

         11.6.    Notice of Dissolution.

          In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of Section 11.1, above, result in a dissolution of the
Company, the President shall, within thirty (30) days thereafter, provide
written notice thereof to each of the Members and to all other parties with whom
the Company regularly conducts business (as determined in the discretion of the
President) and shall publish notice thereof in a newspaper of general
circulation in each place in which the Company regularly conducts business (as
determined in the discretion of the President).


                  SECTION 12 -CROSS-INDEMNIFICATION BY MEMBERS

         12.1.    Cross-Indemnification by Members.

          Each Member (the "Indemnifying Party") agrees to hold harmless,
indemnify, protect and defend each other Member (the "Indemnified Party") and
its officers, directors, employees, shareholders and agents, against any and all
liabilities, damages, claims, costs, decrees, judgments, suit, actions, and
expenses suffered or incurred by the Indemnified Party (collectively, the
"Liabilities"), including reasonable attorneys' fees and court costs, arising
out of or in connection with (a) the failure by the Indemnifying Party or its
personnel to perform the Indemnifying Party's obligations, representations or
covenants under this Agreement, or (b) any business conducted or operated by the
Indemnifying Party or any Affiliate of such Indemnifying Party other than the
business affairs of the Company. Notwithstanding the foregoing, neither Gassub
nor BHE shall have any liability hereunder arising from or in connection with
the sale, production, or delivery of electrical power by BHE, or the maintenance
and operation of its systems and equipment used therefor.

         12.2.    Other Provision.

         Nothing contained in this Agreement with regard to the sharing of the
losses and liabilities of the Company shall in any way limit the Indemnifying
Party's liability to the Indemnified Party for liabilities arising out of (i)
the intentional breach by the Indemnifying Party or its personnel of (x) this
Agreement or (y) the obligations assigned to the Indemnifying Party under this
Agreement or (ii) actions taken by the Indemnifying Party or its personnel in
bad faith or constituting willful misconduct.

                             SECTION 13 -PRIOR COSTS

          Each party shall bear all costs incurred by it prior to the execution
of this Agreement except for costs specifically permitted in this Agreement to
be recovered by a Member from the Company.

                        SECTION 14 -TRANSFER OF INTERESTS

          14.1. Limitation on Transfers; Pacific Consent to Transfer to Gassub.
Except to the extent provided in Sections 3.2 and 14.3(iv) hereof, no Member
shall transfer, sell, assign, or convey all or any portion of its Membership
Interests (the "Offered Interest") unless such Member (the "Seller") (a) first
offers to sell the Offered Interest pursuant to the terms of this Section 14 and
(b) obtains the prior written consent of the other Members to a transfer of the
Offered Interest. Any purported transfer of Membership Interests that is not
effected pursuant to the terms of this Section 14 shall be null and void and of
no effect whatever. So long as BHE shall have executed and delivered to Pacific
an Agreement to Fund Certain Obligations, and to Remain Bound Under Certain
Other Obligations Under Operating Agreement substantially in the form of Exhibit
14.1 hereto, Pacific hereby consents to the transfer of BHE's Membership
Interest to Gassub as provided in Section 3.2, and to Gassub thereafter becoming
a full Member instead of BHE for all purposes of this Agreement.

         14.2. Right of First Refusal. No transfer may be made under this
Section unless the Seller has received a bona fide written offer (the "Purchase
Offer") from a Person (the "Purchaser") to purchase the Offered Interest for a
purchase price (the "Offer Price") denominated and payable in United States
dollars at closing or according to specified terms, with or without interest,
which offer shall be in writing signed by the Purchaser and shall be irrevocable
for a period ending no sooner than the day following the end of the Offer
Period, as hereinafter defined.

         14.3. Offer Notice. Prior to making any transfer that is subject to the
terms of this Section 14, the Seller shall give to the Company and each other
Member written notice (the "Offer Notice") which shall include a copy of the
Purchase Offer and an offer (the "First Offer") to sell the Offered Interest to
the other Members (the "Offerees") for the Offer Price, payable according to the
same terms as (or more favorable terms than) those contained in the Purchase
Offer, provided that the First Offer shall be made without regard to the
requirement of any earnest money or similar deposit required of the Purchaser
prior to closing, and without regard to any security (other than the Offered
Interest) to be provided by the Purchaser for any deferred portion of the Offer
Price.

          i.        Offer Period. The First Offer shall be irrevocable for a
                    period (the "Offer Period") ending at 11:59 p.m., local time
                    at the Company's principal office, on the ninetieth day
                    following the day of the Offer Notice.

          ii.       Acceptance of First Offer. At any time during the first 60
                    days of the Offer Period, any Member may accept the First
                    Offer as to that portion of the Offered Interest that
                    corresponds to the ratio of its Membership Interests to the
                    total Membership Interests held by all Members, by giving
                    written notice of such acceptance to the Seller and the
                    other Members. In the event that Offerees ("Accepting
                    Offerees"), in the aggregate, accept the First Offer with
                    respect to all of the Offered Interest, the First Offer
                    shall be deemed to be accepted. If Accepting Offerees do not
                    accept the First Offer as to all of the Offered Interest
                    during the Offer Period, the First Offer shall be deemed to
                    be rejected in its entirety.

          iii.      Closing of Purchase Pursuant to First Offer. In the event
                    that the First Offer is accepted, the closing of the sale of
                    the Offered Interest shall take place within thirty (30)
                    days after the First Offer is accepted or, if later, the
                    date of closing set forth in the Purchase Offer. The Seller
                    and all Accepting Offerees shall execute such documents and
                    instruments as may be necessary or appropriate to effect the
                    sale of the Offered Interest pursuant to the terms of the
                    First Offer and this Section 14.

          iv.       Sale Pursuant to Purchase Offer If First Offer Rejected. If
                    the First Offer is not accepted in the manner herein above
                    provided, the Seller may sell the Offered Interest to the
                    Purchaser at any time within 60 days after the last day of
                    the Offer Period, provided that such sale shall be made on
                    terms no more favorable to the Purchaser than the terms
                    contained in the Purchase Offer, and provided that if the
                    Seller has not received the prior written consent of the
                    other Members to transfer the Offered Interest as provided
                    in Section 14.1, only an Economic Interest may be sold to
                    the Purchaser. In the event that the Offered Interest is not
                    sold in accordance with the terms of the preceding sentence,
                    the Offered Interest shall again become subject to all of
                    the conditions and restrictions of this Section 14.

         14.4. Option to Purchase on Certain Events: Upon (i) the death of any
Member or Economic Interest Owner, (ii) any inter vivos gift of an Economic
Interest or Membership Interest, (iii) any event described in Section 10.1(a) or
10.1(g) (certain Insolvency Events and changes of control), or (iv) a Member
electing not to make further Capital Contributions under Section 3.2(e), the
other Members shall have an option to purchase all of the Membership Interest or
Economic Interest owned by such Person or such Person's predecessor in interest
(or, in the case of the debtor in possession, owned by such Person), for a
period of one hundred and eighty (180) days after such triggering event. If the
Company does not receive a notice of such triggering event or the related offer,
the rights of the other Members shall accrue upon the receipt of actual notice
by the Company of the event triggering the rights hereunder. In the event that
there is no such notice, the Company shall send the other Members a notice of
their rights hereunder within sixty (60) days after the Company receives actual
notice. The purchase price for such interest shall be fair market value, as
agreed to by the Company and the holder of such Membership Interest or Economic
Interest; if they are unable to agree to such value or to an independent
appraiser to determine such value within thirty (30) days of submission, such
value shall be determined in accordance with the provisions of Section 22
hereof. The provisions of Section 14.1 above shall also govern in the event that
the options under this Section 14.4 are not fully exercised.

          14.5. Option to Sell on Certain Events: Upon a vote described in
Section 6.4(b) (merger, dissolution, etc.) any Member disagreeing with the vote
and having voting power of less than 50% (a "Minority Member") shall have an
option to sell to the other Member, and the other Member shall have the
obligation to buy, all of the Minority Member's Membership Interest or Economic
Interest owned by such Person or such Person's predecessor in interest (or, in
the case of the debtor in possession, owned by such Person), by sending notice
to the other Member within fifteen (15) days after such triggering event. The
purchase price for such interest shall be fair market value, as agreed to by the
Members; if they are unable to agree to such value or to an independent
appraiser to determine such value within thirty (30) days of submission, such
value shall be determined in accordance with the provisions of Section 22
hereof. Closing on such sale shall take place within sixty (60) days after
determination of the price. Payment shall be, at the option of the other Member,
in cash or partly in cash and partly by note, but in any event not less than
one-fourth in cash. Any promissory note shall be dated as of the effective date
of the purchase, shall mature in not more than three (3) years, shall be payable
in equal installments of principal and interest that come due monthly, shall
bear interest at the Prime Rate, plus two (2) percentage points per annum. The
Minority Member shall retain a security interest in such interest until pay-off.

         14.6. Sale of Remaining Membership Rights to the Company. Upon and
contemporaneously with any sale or other disposition, including a sale or
disposition resulting from an Act of Dissociation, of a Member's Economic
Interest in the Company which does not at the same time transfer the balance of
the rights associated with the Economic Interest transferred by the Member
(including, without limitation, the rights of the Member to participate in the
management of the business and affairs of the Company), the Company shall have
an option, which shall remain effective for the maximum period under applicable
law, to purchase from such Member or the executor or other successor in interest
to such Member, and such Member or the executor or other successor in interest
to such Member shall, upon exercise of such option, sell to the Company for a
purchase price of one hundred dollars ($100.00), all remaining rights and
interests retained by such Member or the executor or other successor in interest
to such Member which immediately prior to such sale or other transfer were
associated with the transferred Economic Interest. No other writing, in addition
to this Agreement, shall be necessary to evidence such option.

                   SECTION 15 -ADMISSION OF ADDITIONAL PARTIES

         The Board of Directors may determine to issue Membership Interests in
the Company in return for cash or in-kind capital contributions, and on such
other terms as the Board of Directors may approve, provided, however, that no
such issuance of Membership Interests shall have the effect of reducing BHE's
(Gassub's, after the transfer provided for in Section 3.2) Membership Interests;
and provided further that no Membership Interests will be issued to any Member
or any Affiliate of such Member who, directly or indirectly, sells energy on a
wholesale or retail basis, without the written consent of BHE (Gassub, after the
transfer provided for in Section 3.2).

                            SECTION 16 -CHOICE OF LAW

         This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Maine.

                             SECTION 17 -INTEGRATION

         This Agreement is the complete and final agreement of the parties and
supersedes any prior agreements or understandings with respect to the subject
matter hereof.

                     SECTION 18 -OWNERSHIP OF DESIGNS, PLANS
                               AND SPECIFICATIONS

          Notwithstanding any other provision of this Agreement, all Designs
that have been developed by or for a party hereto shall be the property of the
Company, except that if the Company has not paid in full therefor, the Designs
shall remain the property of the party that developed the Designs and shall be
deemed Confidential for purposes of Section 19, below. At all times during the
term of the Company, each party hereto shall have full and complete right and
license, free of charge, to use the Designs in connection with the construction
and operation of the System. Upon and after the termination of the Company
pursuant to Section 11, above, the Designs shall be an asset of the Company that
shall be sold to the purchaser of the System or distributed to either or both
Members as part of a liquidating distribution.


                      SECTION 19 -CONFIDENTIALITY AGREEMENT

         19.1. Confidential Information. With respect to a party hereto (the
"Disclosing Party"), "Confidential Information" shall mean technical, business
and financial information including, where appropriate and without limitation,
any information, business and financial data, software, structures, models,
techniques, processes, compositions, formulas, inventions, schematics, and
apparatus relating to the same disclosed by the Disclosing Party to another
party hereto (the "Receiving Party") or obtained by the Receiving Party through
observation or examination of information, but only to the extent that such
information is maintained as confidential by the Disclosing Party and is marked
or otherwise identified as confidential when disclosed to the Receiving Party
or, in the case of information given verbally, is identified as confidential to
the Receiving Party at the time of such verbal disclosure to the Receiving
Party. Confidential Information shall not be deemed to be or include promotional
materials prepared and approved by the Board of Directors.

          19.2. Receiving Party. Each of the Members agrees that the Disclosing
Party is the owner or licensee of the Confidential Information. The Receiving
Party shall not use any of the Confidential Information of the Disclosing Party
at any time except for the purposes of constructing and operating the System and
evaluating the desirability of a mutually beneficial business relationship. The
Receiving Party shall not disclose any of the Confidential Information other
than on a need-to-know basis, as reasonably necessary for such evaluation, to
his or its directors, officers, employees, attorneys, accounts, bankers,
financial advisors or consultants who are bound by written agreements with the
Receiving Party to maintain the Confidential Information in confidence or who
are otherwise under obligations of confidentiality to the Receiving Party. Each
of the Members agrees to hold the Confidential Information disclosed to it by
the Disclosing Party in strict confidence and to take reasonable precautions to
protect such Confidential Information (including, without limitation, all
precautions the Receiving Party employs with respect to its own Confidential
Information).

          19.3. Liability. Notwithstanding anything to the contrary in this
Agreement, the Receiving Party shall have no liability to the Disclosing Party
for the use or disclosure of (1) such information as required by applicable law
or regulation, provided that the Receiving Party shall give the Disclosing Party
prompt written notice and sufficient opportunity to object to such use or
disclosure, or to request confidential treatment to the Confidential
Information; or (2) such information as the Receiving Party can establish by
written documentation to:

          i.        have been publicly known prior to disclosure by the
                    Disclosing Party of such information to the Receiving Party;

          ii.       have become publicly known without fault on the part of the
                    Receiving Party, subsequent to disclosure to the Disclosing
                    Party of such information to the Receiving Party;

          iii.      have been received by the Receiving Party at any time from a
                    source, other than the Disclosing Party, lawfully having
                    possession of and the right to disclose such information;

          iv.       have been otherwise known by the Receiving Party prior to
                    disclosure by the Disclosing Party to the Receiving Party of
                    such information; or

          v.        have been independently developed by the Receiving Party
                    without use of such information.

         19.4. No Adequate Remedy at Law. Each of the Members acknowledges and
agrees that due to the unique nature of the Disclosing Party's Confidential
Information, there can be no adequate remedy at law for any breach of its
obligations hereunder, that any such breach may allow the Receiving Party or
third parties to unfairly compete with the Disclosing Party, and therefore, that
upon any such breach or any threat thereof, the Disclosing Party shall be
entitled to appropriate equitable relief in addition to whatever remedies it
might have at law. The Receiving Party will notify the Disclosing Party in
writing immediately upon the occurrence of any such unauthorized release or
other breach of which it is aware.

                             SECTION 20 -NO RECOURSE

          Neither party hereto shall have any recourse under this Agreement for
any breach hereof by the other party against any officer, employee, director,
shareholder or agent of such other party or against any party related to or
affiliated with such other party, recourse of each party hereunder for breach of
this Agreement being strictly limited to recourse against the other party that
is a signatory hereto and to any successors or permitted assigns of such party.

                          SECTION 21 -SURVIVAL; BENEFIT

          The provisions of Sections 5.10(c), 12, 18, 19, 20 and 22 of this
Agreement shall survive any termination hereof. This Agreement is solely for the
benefit of the parties hereto and their successors and permitted assigns. No
third party is granted or shall have any rights hereunder.


                         SECTION 22 -DISPUTE RESOLUTION

         22.1. Arbitration. Except for matters covered under Section 5.10(c),
all claims, disputes and other matters in question arising out of or pertaining
to this Agreement or the breach thereof shall be decided by arbitration in
accordance with the Arbitration Rules of the American Arbitration Association,
to be conducted in Portland, Maine. Arbitration shall be before a single
arbitrator if the parties can agree on such an arbitrator within five (5)
business days of submission. If the parties cannot so agree within such period,
then each party shall choose a single arbitrator, and the two arbitrators thus
chosen shall choose the third arbitrator. If the first two arbitrators cannot
agree on the third arbitrator within ten (10) business days of submission, such
arbitrator shall be chosen by the American Arbitration Association. Should the
arbitrator find the non-prevailing party's claim(s) or defense(s) to be
frivolous, the arbitrator may compel as part of the award the non-prevailing
party to pay all fees and costs of arbitration, including but not limited to the
reasonable attorneys' fees of the prevailing party. This Agreement to arbitrate
shall be specifically enforceable. The award rendered by the arbitrators shall
be final, and judgment may be entered upon it in accordance with applicable law.

         22.2. Demand for Arbitration. Written demand for arbitration shall be
filed by a party hereto requesting the same with the American Arbitration
Association, with notice to all other parties. The demand for arbitration must
be filed within a reasonable period of time after the claim, dispute or other
matter in question has arisen, and in no event shall it be made after
institution or legal or equitable proceedings based on such a claim, dispute or
other matter in question would be barred by the applicable statute of
limitations.

                      SECTION 23 - POTENTIAL RESTRUCTURING

          The provisions of this Section 23 are intended to address the
situation described in the 4th through 7th "Whereas" clauses. The parties desire
to address now several potential future scenarios by agreeing to the basic terms
of a preferred form of restructuring, an alternate form of restructuring and a
worst case form of restructuring in recognition that some form of restructuring
may ultimately be determined by agreement of the parties taking account of the
relevant factors including, without limitation, PUHCA, the PUC, financing for
the System, and the mutual interests of the parties in developing an optimum
capital structure for the System. It is the intent of the parties to maintain
the economic interests of the Members while modifying the voting and management
structure of the Company in order to avoid the application of PUHCA Section
9(a)(2) as to Pacific.

         23.1. Legislative Monitoring. Pacific agrees to monitor closely the
progress of legislation to repeal or amend PUHCA, and to keep BHE apprised of
material developments from time to time.

         23.2. Construction Monitoring. The Company agrees to keep Pacific and
BHE apprised, no less frequently than once a month, of the progress of
construction and development of the System with each report to contain an
estimate of the amount of time remaining before the System commences commercial
operations (the "Completion Period"); if the Company is not doing so, BHE shall
assume the responsibility of reporting to Pacific.

         23.3. Financing Schedule. The Company agrees to keep Pacific and BHE
apprised, no less frequently than once a month, of the progress of obtaining the
System Loan, with each report to contain an estimate of the amount of time
remaining before a lender or group of lenders reasonably would require
assurances on any PUHCA-related issues which implicate the future structure of
the Company (the "Financing Period"); if the Company is not doing so, Pacific
shall assume the responsibility of reporting to BHE.

         23.4 Alternative Structures (in general); Alternative Structure 1. The
Members agree that if PUHCA is not repealed, or amended in relevant part, before
the commencement of commercial operations of the System as a public utility,
there are at least three alternative structures that would be acceptable to
them, under the conditions set forth below. The first such structure
("Alternative Structure 1") contains the following elements:

         (a) Assuming all necessary governmental approvals, including but not
limited to that from the PUC (if required), the Membership Interests shall
change to what is shown under "Situation B" in Schedule 3.1 -- 4.9% to Pacific
and 95.1% to Gassub. An amendment to the Company's articles of organization
shall be filed, changing the form of management to manager-run, and Gassub shall
be named as the first manager. The Members agree to amend this Operating
Agreement to reflect the change in management authority (including the removal
of all apparent authority from the Members), and the other changes required by
this Section 23.

         (b) This Operating Agreement shall be amended to provide that the
manager may be removed for cause, which shall include failure to seek approval
of major matters materially affecting the business of the Company in the manner
provided in subsection (c) below. In the event of such removal, a new manager,
not affiliated with either Member, shall be appointed by agreement of the
Members.

         (c) Approval of major matters materially affecting the business of the
Company shall require the affirmative vote of Directors voting 96 points or of
Members holding 96% of all Membership Interests. Such matters shall include, but
not be limited to, the following:

                    (i) the sale, exchange, lease, mortgage, or other
                    disposition of 25% or more of the fair market value of the
                    business or assets of the Company, or the merger or the
                    consolidation with another entity;

                    (ii) incurring or prepaying indebtedness (or providing
                    guaranties of another entity's indebtedness) other than in
                    the ordinary course of business or, if in the ordinary
                    course of business, in an amount in excess of $1,000,000;

                    (iii) admitting any additional Member;

                    (iv) dissolving or liquidating the Company or appointing a
                    liquidating Member other than BHE;

                    (v) commencing a voluntary, or admitting a material
                    allegation in an involuntary, proceeding in bankruptcy in
                    the name of the Company;

                    (vi) entering into or amending any material provision of the
                    gas purchase agreements or other material contracts used and
                    useful in the business of the Company;

                    (vii) making any capital expenditure in excess of $500,000;

                    (viii) amending any material government permit, amending any
                    filing with any governmental body, or seeking any
                    governmental action other than is ordinarily required in the
                    ordinary conduct of business;

                    (ix) making a determination with respect to the disposition
                    of insurance proceeds in excess of $500,000 or the repair or
                    rebuilding of any material portion of the System in the
                    event of substantial damage or destruction;

                    (x) settling a dispute or litigation involving the Company
                    that would materially adversely affect the Company or
                    require payment by the Company or more than $1,000,000;

                    (xi) engaging in any transaction with a Member or any
                    affiliate of either Member except where such transaction is
                    effectuated on terms no less favorable to the Company in an
                    arm's-length transaction with an unaffiliated entity;

                    (xii) adopting and operating a maintenance budget that
                    includes an increase of 10% or more for any category of
                    expenses over the amount included in the prior year's
                    budget, or an aggregate increase of 15%; or

                    (xiii) modifying the budget to result in a material increase
                    for any category or expense or an aggregate increase of 15%.

         (d) Pacific or an affiliate with equal or greater experience and
expertise in the business of operating a local gas distribution company shall at
all times be party to a Support Services Agreement with the Company pursuant to
which it makes available to the Company, at commercially reasonable rates, the
services of its employees on matters involving the day-to-day operations of the
Company. Such services shall be provided as agent for the Board of Directors and
shall be subject to the exclusive direction and control of the Board of
Directors and the officers of the Company.

         23.5 Alternative Structure 2. "Alternative Structure 2" would be one by
which the Company would merge into and become a division of Southern California
Gas Company. This would be acceptable to the Members, but only if (a) both
Members agree that the potential extra costs involved in this alternative
outweigh the risks of the other alternatives, (b) both Members agree to enter
into agreements that they reasonably determine would preserve the division of
profits and losses (after all taxes, if any, on distributions), and the other
benefits, burdens and voting power set forth in this Operating Agreement, and
(c) all necessary governmental approvals are obtained, including but not limited
to that from the PUC.

          23.6 Alternative Structure 3. "Alternative Structure 3" contains the
following elements:

         (a) Assuming all necessary governmental approvals, including but not
limited to that from the PUC (if required), the Company shall be converted to a
limited partnership (the "Partnership") with Gassub as the general partner and
Pacific as the limited partner. Pacific will have no role in managing the
business and affairs of the Company.

         (b) The Partnership's agreement of limited partnership (the
"Partnership Agreement") shall provide that the general partner may be removed
for cause, which shall include failure to seek approval of major matters
materially affecting the business of the Partnership in the manner provided in
subsection (c) below. In the event of such removal, Gassub's interest shall be
converted to that of a limited partner and a new general partner, not affiliated
with either partner, shall be appointed by agreement of the partners. The
Members agree that in such event they shall each, in their capacities as
partners of the Partnership, (i) transfer to such new general partner such
partnership interest as is necessary, each partner transferring an equal
portion, and (ii) provide such new general partner (or its parent entity) with
such assurances (which may include indemnification) as are necessary to induce
such person to incur the liability of a general partner.

          (c) Approval of major matters materially affecting the business of the
Partnership shall require the affirmative vote of partners holding at least 51%
of all partnership interests. Such matters shall include, but not be limited to,
the following:

                  (i) the sale, exchange, lease, mortgage, or other disposition
                  of 25% or more of the fair market value of the business or
                  assets of the Partnership, or the merger or the consolidation
                  with another entity;

                  (ii) incurring or prepaying indebtedness (or providing
                  guaranties of another entity's indebtedness) other than in the
                  ordinary course of business or, if in the ordinary course of
                  business, in an amount in excess of $1,000,000;

                  (iii) admitting any additional partner;

                  (iv) dissolving or liquidating the Partnership or appointing a
                  liquidating partner other than BHE;

                  (v) commencing a voluntary, or admitting a material allegation
                  in an involuntary, proceeding in bankruptcy in the name of the
                  Partnership;

                  (vi) entering into or amending any material provision of the
                  gas purchase agreements or other material contracts used and
                  useful in the business of the Partnership;

                  (vii) making any capital expenditure in excess of $500,000;

                  (viii) amending any material government permit, amending any
                  filing with any governmental body, or seeking any governmental
                  action other than is ordinarily required in the ordinary
                  conduct of business;

                  (ix) making a determination with respect to the disposition of
                  insurance proceeds in excess of $500,000 or the repair or
                  rebuilding of any material portion of the System in the event
                  of substantial damage or destruction;

                  (x) settling a dispute or litigation involving the Partnership
                  that would materially adversely affect the Partnership or
                  require payment by the Partnership or more than $1,000,000;

                  (xi) engaging in any transaction with a partner or any
                  affiliate of either partner except where such transaction is
                  effectuated on terms no less favorable to the Partnership in
                  an arm's-length transaction with an unaffiliated entity;

                  (xii) adopting and operating a maintenance budget that
                  includes an increase of 10% or more for any category of
                  expenses over the amount included in the prior year's budget,
                  or an aggregate increase of 15%; or

                  (xiii) modifying the budget to result in a material increase
                  for any category or expense or an aggregate increase of 15%.

The term "Restructuring" as used in this Operating Agreement is a generic term
meaning any of the Alternative Structure 1, Alternative Structure 2, Alternative
Structure 3 or the Targeted Restructuring (as defined in Section 23.9 below).

         23.7 Submissions to the SEC. At any time when the Members agree that
further assurances are necessary, whether for financing purposes or otherwise,
Pacific agrees promptly to submit to the SEC a request for a "no-action letter"
under Section 9(a)(2) of PUHCA for a Restructuring alternative agreed to by the
Members for purposes of obtaining such no-action letter, and BHE agrees promptly
to submit to the SEC a request for approval of its participation in the Company.
Each Member agrees to diligently pursue its submission, and to cooperate to the
fullest extent reasonable to assist the other Member upon request.

         23.8 Determination of Approval Period. For the purposes hereof, if the
Members agree to implement either Alternative Structure 3 or Alternative
Structure 1, then "Approval Period" shall mean two (2) months. If it appears
reasonably likely that the Members will agree to a different structure, then the
Members shall have their attorneys determine the estimated amount of time needed
to obtain all necessary regulatory approvals to permit the Members to
participate in the Project following the System's commencement of commercial
operations, without requiring further SEC action under Section 9(a)(2) of PUHCA
in the event that PUHCA is not timely repealed. Changes to statutes shall not be
included within the scope of necessary approvals, but such attorneys shall be
instructed to include any possible regulatory procedures, including but not
limited to an SEC no-action letter and approvals of the PUC. Based on the report
of such attorneys, the Members shall agree on an amount of time to obtain the
necessary approvals which shall be a substitute "Approval Period".

          23.9 Implementation of Restructuring. In the event that, by the time
(the "Activation Date") that the estimated Completion Period is no more than
three months greater than the Approval Period, PUHCA has not been repealed or
amended in relevant part, and Pacific in good faith determines (i) that its
participation in the Project in the manner contemplated in this Operating
Agreement (assuming no Restructuring) would require SEC approval under Section
9(a)(2), and (ii) that such approval is not likely to be obtained, the Members
shall meet to attempt to determine which structure to pursue. If they are unable
to agree within ten (10) days after the Activation Date, then they shall pursue
Alternative Structure 3. The structure determined in accordance with this
Section 23.9 shall be referred to as "Targeted Restructuring." Thereafter, the
Members and the Company shall initiate and diligently pursue all governmental
approvals (or no-action letters) necessary to implement the Targeted
Restructuring, and thereafter, subject to such approvals (or no-action letters)
having been obtained, shall take all steps necessary or prudent to effect the
Targeted Restructuring.

         23.10 Suspension of Rights to Withdraw or Withhold Capital
Contributions. So long as both Members are complying with the foregoing
provisions of this Section 23 in all material respects, neither Member shall
invoke the provisions of subsections (e)(v) and (e)(vi) of Section 3.2 hereof.

         23.11 No Commencement of Commercial Operations Before Receiving All
Necessary SEC Approvals. Notwithstanding anything to the contrary in this
Operating Agreement or in any other document or instrument relating to the
System, the Company will not commence commercial operations of the System unless
and until any and all approvals required under Section 9(a)(2) of PUHCA have
been obtained or no-action letters have been received to the effect that some of
such approvals will not be required; such commencement is expressly conditioned
on such approvals and no-action letters having been obtained.

         23.12 Rescission of Restructuring. In the event that PUHCA is repealed,
any and all steps theretofore taken to effect the Targeted Restructuring shall
be rescinded as quickly as is reasonably possible, and the structure of the
Company shall be returned to what it was before such restructuring, without
affecting any changes made which are not related to the Targeted Restructuring.
The Company and the Members shall cooperate to obtain all governmental approvals
required.

         23.13 Transfers of Membership Interests After Restructuring. In the
event that after the Targeted Restructuring is fully implemented, (a) Pacific
transfers its Membership Interest (or partnership interest) in a manner that
permits the transferee to become a Member under this Operating Agreement (or a
partner under the Partnership Agreement), and (b) such transferee is permitted,
under all applicable law and regulations, to participate in the Project with a
Membership Interest equal to its Economic Interest, then, if the Company is
still a limited liability company, the Membership Interests of all Members shall
thereafter be what they would have been if the Targeted Restructuring had not
taken place. The Members agree to vote for and implement such changes as are
necessary, in such event, to return the structure of the Company or the
Partnership to what it would be if the Targeted Restructuring had not taken
place, including having the voting interest of Pacific's transferee be equal to
its economic interest.


                               SECTION 24 -GENERAL

          24.1. Project Finance: Limitation on Obligations of BHE and Gassub.
With respect to the terms and conditions of the System Loan, or any other debt
of the Company, the Members agree that neither BHE nor Gassub will provide any
guarantee or other financial accommodation to the Company or to any lender, nor
will it provide any pledge, mortgage, or other security interests in its assets,
and (b) that parties holding security interests in BHE's assets will not be
requested to enter into non-disturbance agreements regarding the use by the
Company of any of BHE's assets.

         24.2. Further Cooperation. The Parties hereto agree to execute and
furnish any and all papers and documents which may reasonably be necessary to
carry out the terms of this Agreement and to further the interests of the
Company, including, without limitation, any financial statements, corporate
resolutions, and other documentation and information as may be required by
bonding companies, insurers, depositories of funds of the Company, construction
and permanent lenders and public agencies involved in the funding of the Project
Implementation Plan and to permit granting authorities relative to permits
required for the performance of the Project Implementation Plan.

         24.3. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

         24.4. Notices. All notices, request, demands and other communications
required hereunder shall be in writing and shall be deemed to have been duly
given or made if delivered personally, sent by facsimile transmission or telex
confirmed in writing within two (2) business days, or sent by registered or
certified mail, postage prepaid, as follows:

                  In the event of notice to Pacific:

                           Bangor Pacific
                           633 W. Fifth Street, Suite 5200
                           Los Angeles, CA 90071-2071
                           Attention: President
                           Fax: 213-629-9651

                  and with a copy to:

                           Donald C. Liddell, Esq.
                           Law Department
                           Pacific Enterprises
                           633 W. Fifth Street, Suite 5200
                           Los Angeles, CA 90071-2071
                           Fax: 213-629-9647

                  and in the event of a notice to BHE (Gassub, after the
transfer provided for in Section 3.2) to:

                           Mr. Frederick S. Samp
                           Bangor Hydro-Electric Company
                           Vice President, Law and Finance
                           P.O. Box 932
                           Bangor, Maine 04402-0932
                           Fax: 207-990-6990

                  and with a copy to:

                           Kimball L. Kenway, Esq.
                           Curtis Thaxter Stevens Broder & Micoleau LLC
                           One Canal Plaza
                           P.O. Box 7320
                           Portland, ME   04112-7320
                           Fax: 207-775-0612

                  and in the event of a notice to the Company:


                           Bangor Gas LLC
                           33 State Street
                           Bangor, Maine 04402-0932
                           Attention: Frederick S. Samp, CFO

                  and with a copy to:

                           Bangor Pacific
                           633 W. Fifth Street, Suite 5200
                           Los Angeles, CA 90071-2071
                           Attention: President
                           Fax: 213-629-9651

Any Party may change the address to which such communications are to be sent to
it by giving written notice of change of address to the other party in the
manner provided above for giving notice.

          24.5. Attorneys Fees. The prevailing party shall be entitled to
reasonable attorneys' fees and expenses in the event of any litigation arising
out of or related to this Agreement or the System.

          24.6. Authorization; Enforceability. This Agreement has been duly
authorized by all corporate and other action required by Pacific and BHE,
respectively, and constitutes the valid, binding and enforceable obligation of
such party.

          24.7. Amendments. The provisions of this Agreement may not be amended,
modified or waived except by a written instrument executed by each Member.

          24.8. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

         24.9. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.

          IN WITNESS WHEREOF the parties have entered this Agreement as of the
date hereinbefore set forth.

                                       BANGOR PACIFIC
ATTEST:

                                       By:  /s/Andrew R. Rea
Donald C. Liddell                      Name:     Andrew R. Rea
                                       Title:    Vice President


                                       BANGOR HYDRO-ELECTRIC
                                       COMPANY



ATTEST                                 By:  /s/Robert S. Briggs
                                       Name:     Robert S. Briggs
                                       Title:    President & CEO
Karen L. LaPlante

                                       BANGOR GAS COMPANY LLC
                                       By its Members:

                                       BANGOR PACIFIC



                                       By:  /s/Andrew R. Rea
Alan G. Stone                          Name:     Andrew R. Rea
                                       Title:    Vice President

                                       and

                                       BANGOR HYDRO-ELECTRIC
                                       COMPANY


                                       By:  /s/Douglas S. Morrell
Alan G. Stone                          Name:     Douglas S. Morrell
                                       Title:    Vice President - Bangor Office


<PAGE>

                                   EXHIBIT "A"

                                   DEFINITIONS

          "Accepting Offerees" has the meaning set forth in Section 14.3 hereof.

          "Act" shall mean the Maine Limited Liability Company Act, 31 M.R.S.A.
ss.601 et. seq.

          "Additional Capital" has the meaning set forth in Section 3.3(i)
hereof.

          "Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:

          i.   Credit to such Capital Account any amounts which such Member is
     obligated to restore pursuant to any provision of this Agreement or is
     deemed to be obligated to restore pursuant to Sections 1.704-2(g)(1) and
     1.704-2(i)(5) of the Regulations; and

          ii.  Debit to such Capital Account the items described in Sections
     1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
     1.704-1(b)(2)(ii)(d)(6) of the Regulations. The foregoing definition of
     Adjusted Capital Account Deficit is intended to comply with the provisions
     of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
     consistently therewith.

          "Affiliate" shall mean, as to any party to this Agreement, any Person
controlling, controlled by or under common control with, such Person.

          "Agreement" shall mean this Operating Agreement, as the same may be
amended from time to time hereafter.

          "Alternative Structure 1" has the meaning set forth in Section 23.4
hereof.

          "Alternative Structure 2" has the meaning set forth in Section 23.5
hereof.

          "Alternative Structure 3" has the meaning set forth in Section 23.6
hereof

          "Approval Period" has the meaning set forth in Section 23.8 hereof.

          "Arbitration" has the meaning set forth in Section 5.10(c) hereof.

          "Assumption Agreement" means any agreement among the Company, any of
the Members, and any Person to whom the Company is indebted pursuant to a loan
agreement, any seller financing with respect to an installment sale, a
reimbursement agreement, or any other arrangement (collectively referred to as a
"loan" for purposes of this Agreement) pursuant to which any Member expressly
assumes any personal liability with respect to such loan. The amount of any such
loan shall be treated as assumed by the Members for all purposes under this
Agreement in the proportions set forth in such Assumption Agreement and their
respective amounts so assumed shall be credited to their respective Capital
Accounts. To the extent such loan is repaid by the Company, the Members' Capital
Accounts shall be debited with their respective shares of the repayments. To the
extent such loan is repaid by some or all of the Members from their own funds,
there shall be no adjustments to their Capital Accounts.

          "Board of Directors" shall mean the body established in Section 5.2 to
govern the Company to the extent provided therein and thereafter.

          "Bonds" has the meaning set forth in Section 8 hereof.

          "Budget" has the meaning set forth in Section 3.2(c) hereof.

          "CFO" means the chief financial officer of the Company, as provided in
Section 6.1(ii).

          "Call Notice" has the meaning set forth in Section 3.3(i) hereof.

          "Capital Account" shall mean, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:

          i.   To each Member's Capital Account there shall be credited such
     Member's Capital Contributions, such Member's distributive share of
     Profits, the amount of any Company liabilities assumed by such Member or
     which are secured by any Property distributed to such Member, and any
     amounts actually paid by such Member to any Company lender pursuant to the
     terms of any Assumption Agreement; and

          ii. To each Member's Capital Account there shall be debited the amount
     of cash and the Gross Asset Value of any Property distributed to such
     Member pursuant to any provision of this Agreement, such Member's
     distributive share of Losses, and the amount of any liabilities of such
     Member assumed by the Company or which are secured by any property
     contributed by such Member to the Company.

          iii. In the event all or a portion of an Economic Interest is
     transferred in accordance with the terms of this Agreement, the transferee
     shall succeed to the Capital Account of the transferor to the extent it
     relates to the transferred Economic Interest. In determining the amount of
     any liability for purposes of this definition, there shall be taken into
     account Code Section 752(c) and any other applicable provisions of the Code
     and Regulations.

     The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the CFO, subject to the
limitations in Section 6.5, shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Company or the Members) are computed in order to comply with such Regulations,
the CFO, subject to the limitations in Section 6.5, may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Member pursuant to Section 11 hereof upon the dissolution
of the Company. The CFO, subject to the limitations in Section 6.5, also shall
(i) make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Members and the amount of capital reflected
on the Company's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b).

          "Capital Contributions" means, with respect to any Member, the amount
of money and the Market Value, as of the date of contribution, of any property
(other than money) contributed to the Company with respect to the interest in
the Company held by such Member, all as shown on Schedule 3.1 hereto. The
principal amount of a promissory note which is not readily traded on an
established securities market and which is contributed to the Company by the
maker of the note shall not be included in the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and to the
extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2).

          "Code" means the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law).

          "Company Property" means all real and personal property acquired by
the Company and any improvements thereto, and shall include both tangible and
intangible property.

          "Completion Period" has the meaning set forth in Section 23.2 hereof.

          "Confidential Information" has the meaning set forth in Section 19.1
hereof.

          "Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year or other period.

          "Designs" shall mean all designs, plans, drawings, models, procedures,
and specifications produced for the Project Implementation Plan or operation of
the System.

          "Director" shall mean a member of the Board of Directors.

          "Disclosing Party" has the meaning set forth in Section 19.1 hereof.

          "Dissociate" has the meaning set forth in Section 10.1 hereof.

          "Due Date" has the meaning set forth in Section 3.3(i) hereof.

          "Economic Interest" shall mean a Member's or Economic Interest Owner's
share of one or more of the Company's Profits, Losses and distributions of the
Company's assets pursuant to this Agreement and the Act, but shall not include
any right to participate in the management or affairs of the Company.

          "Economic Interest Owner" shall mean the owner of an Economic Interest
who is not a Member.

          "Financing Period" has the meaning set forth in Section 23.3 hereof.

          "First Offer" has the meaning set forth in Section 14.3 hereof.

          "Future Market" shall mean the State of Maine other than the Selected
Market..

          "Gassub" has the meaning set forth in Section 3.2 hereof.

          "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:

          i. The initial Gross Asset Value of any asset contributed by a Member
     to the Company shall be the gross fair market value of such asset, as
     determined by the contributing Member and the Company;

          ii. The Gross Asset Values of all Company assets shall be adjusted to
     equal their respective gross fair market values, as determined by the CFO,
     subject to the limitations in Section 6.5, as of the following times: (a)
     the acquisition of an additional interest in the Company by any new or
     existing Member in exchange for more than a de minimis Capital
     Contribution; (b) the distribution by the Company to a Member of more than
     a de minimis amount of Property as consideration for an interest in the
     Company; and (c) the liquidation of the Company within the meaning of
     Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that
     adjustments pursuant to clauses (a) and (b) above shall be made only if the
     CFO, subject to the limitations in Section 6.5, reasonably determines that
     such adjustments are necessary or appropriate to reflect the relative
     economic interests of the Members in the Company;

          iii. The Gross Asset Value of any Company asset distributed to any
     Member shall be the gross fair market value of such asset on the date of
     distribution; and

          iv. The Gross Asset Values of Company assets shall be increased (or
     decreased) to reflect any adjustments to the adjusted basis of such assets
     pursuant to Code Section 734(b) or Code Section 743(b), but only to the
     extent that such adjustments are taken into account in determining Capital
     Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
     however, that Gross Asset Values shall not be adjusted pursuant to this
     subsection (iv) to the extent the CFO, subject to the limitations in
     Section 6.5, determines that an adjustment pursuant to subsection (iii)
     hereof is necessary or appropriate in connection with a transaction that
     would otherwise result in an adjustment pursuant to this subsection (iv).
     If the Gross Asset Value of an asset has been determined or adjusted
     pursuant to subsections (i), (ii) or (iv) hereof, such Gross Asset Value
     shall thereafter be adjusted by the Depreciation taken into account with
     respect to such asset for purposes of computing Profits and Losses.

          "Indemnified Party" has the meaning set forth in Section 12.1 hereof.

          "Indemnifying Party" has the meaning set forth in Section 12.1 hereof.

          "Insolvency Event" shall mean, as to any party hereto, the occurrence
of any of the following with respect to such party: such party shall (a) be
determined by any court to be insolvent, (b) file for bankruptcy, (c) have a
petition in bankruptcy filed against it that is not discharged within one
hundred eighty (180) days, (d) be declared bankrupt, (e) dissolve, (f)
liquidate, (g) make an assignment for the benefit of creditors, or (h) otherwise
cease to do business.

          "Issuance Items" has the meaning set forth in subsection (viii) of
Exhibit B hereto.

          "Liabilities" has the meaning set forth in Section 12.1 hereof.

          "Lien" shall mean any mortgage, deed of trust, security interest,
pledge, hypothecation, encumbrance, lien (statutory or other), or other security
agreement and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction in respect of any of the foregoing).

          "Liquidating Event" has the meaning set forth in Section 11.1 hereof.

          "Losses" has the meaning set forth below under the definition of
"Profits" and "Losses".

          "Market Value" means fair market value, as determined by the Board of
Directors, or, if they are unable to agree, as determined by an independent
appraisal.

          "Material Agreement" has the meaning set forth in Section 6.4(d)
hereof.

          "Members" shall mean the signatories to this Agreement.

          "Membership Interest" shall mean each Member's percentage ownership
interest in the Company, and all related rights and obligations of such Member
in such capacity hereunder.

          "Net Cash From Operations" shall mean the gross cash proceeds from
Company operations less the portion thereof used to pay or establish reserves
for all Company expenses, debt payments, capital improvements, replacements, and
contingencies. "Net Cash From Operations" shall not be reduced by depreciation,
amortization, cost recovery deductions, or similar allowances, but shall be
increased by any reductions of reserves previously established.

          "Nonrecourse Deductions" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.

          "Nonrecourse Liability" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.

          "Offered Interest" has the meaning set forth in Section 14.1 hereof.

          "Offerees" has the meaning set forth in Section 14.3 hereof.

          "Offer Notice" has the meaning set forth in Section 14.3 hereof.

          "Offer Period" has the meaning set forth in Section 14.3 hereof.

          "Pacific Parent" means (i) after the merger between Pacific
Enterprises and Enova Corporation, the entity which will result from or survive
such merger, and (ii) before such merger, Energy Pacific LLC, a California
limited liability company.

          "Partner Nonrecourse Debt" has the meaning set forth in Section
1.704-2(b)(4) of the Regulations.

          "Partner Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(I)(3) of the
Regulations.

          "Partner Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(I)(1) and 1.704-2(I)(2) of the Regulations.

          "Partnership" has the meaning set forth in Section 23.6 hereof.

          "Partnership Agreement" has the meaning set forth in Section 23.6
hereof.

          "Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.

          "Permitted Liens" shall mean (a) Liens created by the security
documents in connection with a loan from any lender which provides financing for
the purchase and installation of any portion of the System and/or any extension
or refinancing thereof; (b) materialmen's, mechanics', workers', repairmen's,
employees' or other like Liens in favor of any Person which arise in the
ordinary course of business of the Company but not (unless otherwise permitted
by this Agreement) in connection with any indebtedness or guarantee obligation;
(c) Liens arising out of judgments, awards or appeals with respect to which at
the time an appeal or proceeding for review is being prosecuted in good faith
and which have been bonded or for the payment of which adequate reserves shall
have been provided; (d) any Lien securing indebtedness permitted under Section
6.4; and (e) minor defects, irregularities, encumbrances and clouds on title and
statutory liens which do not materially impair the property affected thereby and
which do not individually or in the aggregate materially impair the performance,
cost efficiency, value, utility, remaining economic useful life, reliability or
residual value of the Property or the use thereof for its intended purpose.

          "Person" shall mean any individual, partnership, limited liability
company, corporation, trust or other entity.

          "Prime Rate" shall mean the "prime rate" quoted by the Wall Street
Journal as the base rate on corporate loans posted by at least 75% of the thirty
(30) largest commercial banks in the United States.

          "Proceeding" shall mean any administrative, judicial, or other
adversary proceeding, including, without limitation, litigation, arbitration,
administrative adjudication, mediation, and appeal or review of any of the
foregoing.

          "Project Implementation Plan" shall mean the Project Implementation
Plan approved by the Board of Directors pursuant to this Agreement, which Plan
shall serve as a guide for the construction and operation of the System in the
Selected Market and specify the timing of construction and the construction
budget for the Selected Market.

          "Property" shall mean any property real or personal, tangible or
intangible, including money and any legal or equitable interest in such
property, but excluding services and promises to perform services in the future.

          "Profits" and "Losses" means, for each fiscal year or other period, or
as applied to any applicable transaction, an amount equal to the Company's
taxable income or loss for such year, period, or transaction determined in
accordance with Code Section 703(a)(for this purpose, all items of income, gain,
loss, or deduction required to be stated separately pursuant to Code Section
703(a)(1) shall be included in taxable income or loss), with the following
adjustments:

          i.   Any income of the Company that is exempt from federal income tax
     and not otherwise taken into account in computing Profits or Losses shall
     be added to such taxable income or loss;

          ii.  Any expenditures of the Company described in Code Section
     705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
     to Regulations Section 1.704-1(b)(2)(iv)(1), and not otherwise taken into
     account in computing Profits or Losses shall be subtracted from such
     taxable income or loss; and

          iii. In lieu of the depreciation, amortization, and other cost
     recovery deductions taken into account in computing such taxable income or
     loss, there shall be taken into account Depreciation for such fiscal year
     or other period, computed in accordance with the definition of
     Depreciation.

          "Project" has the meaning set forth in the second "Whereas" clause
hereof.

          "PUC" means the Maine Public Utilities Commission.

          "PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.

          "Purchase Offer" has the meaning set forth in Section 14.2 hereof.

          "Purchaser" has the meaning set forth in Section 14.2 hereof.

          "Receiving Party" has the meaning set forth in Section 19.1 hereof.

          "Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).

          "Regulatory Allocations" has the meaning set forth in subsection (ix)
of Exhibit B hereto.

          "Alternative Structure 1" has the meaning set forth in Section 23.4
hereof.

          "SEC" means the United States Securities and Exchange Commission.

          "Selected Market" shall mean that portion of BHE's service area in
which the Company will be constructing the initial portion of the System. The
Selected Market is hereby designated to be those portions of Bangor, Brewer, Old
Town, Veazie and Orono, Maine which can be served economically by a gas
distribution system, provided that the Selected Market may be modified in the
Project Implementation Plan, as adopted by the Board of Directors.

          "Seller" has the meaning set forth in Section 14.1 hereof.

          "System" shall mean the system for distributing natural gas to be
constructed by the Company in the Selected Market, and possibly in portions of
the Future Market.

          "System Loan" shall be a loan or loans on terms acceptable to the
Board of Directors and in a principal amount used to fund a portion of the Total
Capital Need as estimated in the Project Implementation Plan.

          "Restructuring" is a generic term meaning any of Alternative
Structures 1, 2 or 3.

          "Total Capital Need" shall mean the total amount of capital needed to
carry out the initial phase of the Company's business activities, as identified
and agreed to by the Board of Directors in the Project Implementation Plan.
Total Capital Need shall include, without limitation, the Company's construction
budget for the initial build-out plus its initial working capital needs.


<PAGE>



                                   EXHIBIT "B"

                               SPECIAL ALLOCATIONS

         i.   Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of Section 4
or this Exhibit B, if there is a net decrease in Partnership Minimum Gain during
any fiscal year, each Member shall be specially allocated items of Company
income and gain for such fiscal year (and, if necessary, subsequent fiscal
years) in an amount equal to such Member's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This
subsection (i) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.

         ii.  Partner Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, notwithstanding any other provision of
Section 4 or this Exhibit B, if there is a net decrease in Partner Nonrecourse
Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Company
fiscal year, each Member who has a share of the Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Section 1.704-2(i)(5) of the Regulations, shall be specially allocated
items of Company income and gain for such fiscal year (and, if necessary,
subsequent fiscal years) in an amount equal to such Member's share of the net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This
subsection (ii) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(I)(4) of the Regulations and shall be interpreted
consistently therewith.

         iii. Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5) or Section
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain
shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this subsection (iii) shall be made only if and to the
extent that such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in Section 4 and this Exhibit B have been
tentatively made as if this subsection (iii) were not in this Agreement.

         iv.  Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Company fiscal year which is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially
allocated items of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this subsection
(iv) shall be made only if and to the extent that such Member would have a
deficit Capital Account in excess of such sum after all other allocations
provided for in Section 4 and this Exhibit B have been made as if subsection
(iii) hereof and this subsection (iv) were not in the Agreement.

         v.   Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year
shall be specially allocated in proportion to Membership Interests.

         vi.  Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any fiscal year shall be specially allocated to the Member who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).

         vii. Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Member in complete liquidation of its interest in the Company,
the amount of such adjustment to Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Members in accordance with their interests in the Company in
the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Member to whom such distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.

         viii. Allocations Relating to Taxable Issuance of Membership Interests.
Any income, gain, loss or deduction realized as a direct or indirect result of
the issuance of an interest by the Company to a Member (the "Issuance Items")
shall be allocated among the Members so that, to the extent possible, the net
amount of such Issuance Items, together with all other allocations under this
Agreement to each Member, shall be equal to the net amount that would have been
allocated to each such Member if the Issuance Items had not been realized.

          ix. Curative Allocations. The allocations set forth in subsections (i)
through (viii) hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to Section 4 or this Exhibit B
Therefore, notwithstanding any other provision of Section 4 or this Exhibit B
(other than the Regulatory Allocations), the CFO, subject to the limitations
below and in Section 6.5, shall make such offsetting special allocations of
Company income, gain, loss or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital Account
balance such Member would have had if the Regulatory Allocations were not part
of the Agreement and all items were allocated pursuant to Sections 4.1, 4.2, and
4.3. In exercising its discretion under this subsection (ix), the CFO shall take
into account future Regulatory Allocations under subsections (i) and (ii) that,
although not yet made, are likely to offset other Regulatory Allocations
previously made under subsections (v) and (vi). No allocation shall be made
under this subsection (ix) if such allocation is reasonably likely to jeopardize
the treatment of the Company as a partnership under the Code, cause the Internal
Revenue Service to reallocate Membership Interests for tax purposes, or have any
other adverse tax or economic consequences to either Member.

          x.  Other Allocation Rules.

               a. For purposes of determining the Profits, Losses, or any other
          items allocable to any period, Profits, Losses, and any such other
          items shall be determined on a daily, monthly, or other basis, using
          any permissible method under Code Section 706 and the Regulations
          thereunder.

               b. All allocations to the Members pursuant to Section 4 or this
          Exhibit B shall, except as otherwise provided, be divided among them
          in proportion to the Membership Interests held by each.

               c. The Members are aware of the income tax consequences of the
          allocations made by Section 4 and this Exhibit B and hereby agree to
          be bound by the provisions of Section 4 and this Exhibit B in
          reporting their shares of Company income and loss for income tax
          purposes.

               d. To the extent permitted by Section 1.704-2(h)(3) of the
          Regulations, the CFO, subject to the limitations in Section 6.5, shall
          endeavor to treat distributions of Net Cash From Operations or Net
          Cash from Sales or Refinancings as having been made from the proceeds
          of a Nonrecourse Liability or a Partner Nonrecourse Debt only to the
          extent that such distributions would cause or increase an Adjusted
          Capital Account Deficit for any Member.


<PAGE>

<TABLE>

<CAPTION>
                                                 SCHEDULE 3.1
                                           TO OPERATING AGREEMENT OF
                                            BANGOR GAS COMPANY LLC

                                      Situation A:  As of the date hereof

<S>                                           <C>                <C>               <C>
Name and address of Member                  Capital           Economic          Membership
                                            Contribution      Interest          Interest*

Bangor Pacific                              $50               50%               95%
633 West Fifth Street
Los Angeles, California

Bangor Hydro-Electric Company               $50               50%                5%
33 State Street
Bangor, Maine

- ------
*        As provided in Section 3.1, as soon as the necessary approval is obtained from the
PUC and any other necessary governmental authority, the Membership Interests
shall automatically change to 50% for each Member.
- -------

                     Situation B:  If the structure is changed as provided in Section 23.4

Name and address of Member                  Capital           Economic          Membership
                                            Contribution      Interest          Interest*

Bangor Pacific                              $50               50%                  4.9%
633 West Fifth Street
Los Angeles, California

[Gassub]                                    $50               50%                 95.1%
33 State Street
Bangor, Maine


- ------
* This structure will not go into effect without all necessary governmental
approvals, including but not limited to that from the PUC.


</TABLE>


                                                                    Exhibit D-1



                                 STATE OF MAINE
                           PUBLIC UTILITIES COMMISSION




              CONSOLIDATED PETITIONS OF BANGOR GAS COMPANY, L.L.C.
                        AND BANGOR HYDRO-ELECTRIC COMPANY

                           BANGOR GAS COMPANY, L.L.C.
                                Docket No. 97-795

                 Petition for Approval to Furnish Gas Service in
                               the State of Maine
                           35-A MRSA ss.ss. 2104, 2105

                      Application for Approval of Financing
                                35-A MRSA ss. 902

                           Application for Approval of
                   Affiliated Transactions Between Bangor Gas
             and Bangor Hydro and Bangor Pacific; and/or Request for
              Exemption of Provisions with Regard to Bangor Pacific
                                35-A MRSA ss.707

                 Request for Order Exempting Bangor Pacific From
                    the Provisions of Reorganization Approval
                             35-A MRSA ss.708(2)(A)

                        Request for Advisory Opinion With
                         Regard to Limited Liability Co.

                                    *********

                          BANGOR HYDRO-ELECTRIC COMPANY
                                Docket No. 97-796

              Petition for Reorganization Approvals and Exemptions
                                35-A MRSA ss. 708

             Application for Approval of Affiliated Transactions and
                                   Exemptions
                                35-A MRSA ss. 707


I.   COUNT I:  BANGOR GAS COMPANY, L.L.C. PETITIONS, APPLICATIONS AND
REQUESTS. (DOCKET NO. 97-795)

     Pursuant to Sections 2104 and 2105 of 35-A MRSA, Bangor Gas Company, L.L.C.
("Bangor Gas" or "Applicant") hereby files this Petition for Approval to Furnish
Gas Service, and related authorizations necessary to finance, construct,
install, own, operate and maintain certain new natural gas pipelines and
ancillary facilities, and to operate as a local distribution company ("LDC") in
the following Maine municipalities: Bangor, Brewer, Old Town, Orono and Veazie.
These municipalities are not currently receiving natural gas service from any
supplier.

     Bangor Gas also files for approval of proposed financing pursuant to 35-A
MRSA ss.902, and for approval of certain affiliated transactions pursuant to
35-A MRSA ss.707.

     Bangor Hydro-Electric Company has also filed, as Count II of this Pleading,
a Petition for Reorganization Approvals and Exemptions and For Affiliated
Interest Transaction Approvals and Exemptions (35-A MRSA ss.ss. 707-708), Docket
97-796, to enable it, through a wholly-owned subsidiary, to participate in the
Bangor Gas venture, and to enter into certain transactions with Bangor Gas, all
as more fully set forth therein. Bangor Gas and Bangor Hydro respectfully ask
that these Petitions, Applications and Requests be consolidated and considered
together because they are related, involving the same operative facts and
issues.

     Bangor Gas is a Maine limited liability company that was formed on August
27, 1997 pursuant to an agreement between Bangor Hydro-Electric Company ("Bangor
Hydro"), and Bangor Pacific ("Pacific") for the purpose of designing,
engineering, financing, constructing, testing, managing, marketing and operating
a local gas distribution company (the "System").1/

     In support of this Petition, Bangor Gas would show as follows:

                                        I
                                EXECUTIVE SUMMARY

     In December 1996, Bangor Hydro Electric Co. and Pacific Enterprises began
to study the construction and operation of an LDC in the Bangor area. This was
prompted by the proposal of Maritimes and Northeast Pipeline, LLC ("Maritimes")
to build a natural gas pipeline from the Sable Offshore Energy Project near
Sable Island, Nova Scotia through Maine to an interconnect with the Tennessee
Gas pipeline at Dracut, Massachusetts - a project which is scheduled to be
completed in late 1999. Because the pipeline would run seven miles from Bangor,
it was believed that construction and operation of a natural gas LDC in the
Bangor area would, for the first time, be possible and economically feasible.

     The combination of Bangor Hydro's years of public service, dedication, and
experience in providing electric service to the Bangor area, Pacific
Enterprises' expertise, experience, resources and excellent reputation and

- --------
1/   The original Operating Agreement between Bangor Hydro and Bangor Pacific
     envisioned that a member's ownership interest in the System might affect
     the exemption of such Member or its parent entity from the Public Utility
     Holding Company Act of 1935 ("PUHCA") upon commencement of actual
     operation(Bangor Hydro and one of Pacific's parent entities, Pacific
     Enterprises are each exempt holding companies under PUHCA). To address this
     issue, the members have amended and restated the Operating Agreement to
     provide for an alternative structure for Pacific's participation in the
     project, and the structure of ownership, control and management by the
     parties, upon commencement of commercial operation, in the event that PUHCA
     is not repealed by Congress by that date. The implication of PUHCA and the
     alternative structure of Pacific's participation is discussed in the
     Prefiled Direct testimony of Andrew Rea, attached as Exhibit F. Bangor Gas
     seeks unconditional approval of the application as structured in the
     Operating Agreement as Amended and Restated on October 27, 1997 (attached
     as Exhibit B).


respect in the gas industry (throughout the nation and internationally), and the
prior excellent relationship between the parties as partners in the West Enfield
hydroelectric project, made for a perfect match to accomplish this goal. The
result will to be to provide a low cost and clean alternative source of energy
to the Bangor area and to foster economic development.

     Phase I of the Maritimes project has now been approved by FERC, and the
project is becoming a reality. Bangor Gas seeks unconditional authority to
provide LDC service at this time, so that construction can begin according to a
schedule that will enable Maine customers in the greater Bangor area to receive
the benefits of natural gas service when the Maritimes pipeline becomes
operational in 1999.

     In order to provide a reasonable opportunity for Bangor Gas, a startup
utility, to successfully engage in this project, which will involve the
investment of approximately $33 million, it has designed and proposed a
multi-year rate plan for approval and implementation as part of this
authorization. This plan is based on an alternative form of rate regulation
pursuant to enabling legislation that has been introduced in the State
Legislature. The rate plan is more fully described in the Prefiled Direct
Testimony of Johannes Van Lierop, attached hereto as Exhibit I.

     Applicant has filed an application for financing approval. Financing of the
project is described more fully in the Prefiled Direct Testimony of Frederick S.
Samp, attached hereto as Exhibit G.

     Bangor Gas also seeks approval of certain affiliated transactions, and
exemptions from others, pursuant to Maine Statutes. In this regard it has
attached, as Exhibit C, for review and approval a Support Services Agreement
between Bangor Gas and Energy Pacific LLC and Bangor Hydro, created pursuant to
the Operating Agreement as amended and restated ("the Support Services
Agreement"). The Support Services Agreement attempts to incorporate policies of
the Commission as reflected in similar Commission approved agreements by other
utilities in Maine. Bangor Gas also seeks an exemption of the Support Services
Agreement between Bangor Gas and Energy Pacific, LLC from the provisions of 35-A
MRSA ss.707. (35-A MRSA ss.707(3)(C)). Energy Pacific is an unregulated
out-of-state affiliate that will be providing services in a competitive market.
Exemption of such classes of transactions as set forth in the Support Services
Agreement will not be adverse to the public interest. See e.g. MAINECOM
SERVICES, Order Granting Authority to Provide Local and Interexchange Telephone
Services, Docket No. 97-249, p. 4-5 (Sept. 19, 1997 MPUC). The affiliated
transactions are described more fully in the Prefiled Direct Testimony of
Frederick S. Samp.

     Bangor Gas also seeks exemption, pursuant to 35-A MRSA ss.708(2)(A) of
approval of any reorganization relating to the creation of an affiliated
interest, or otherwise, with regard to Bangor Gas and its non-Bangor Hydro
affiliates, including Pacific Enterprises, Bangor Pacific, and Energy Pacific
LLC. See MAINECOM, supra.

     In 1995 the Maine Legislature passed the Limited Liability Company Law, 31
MRSA, Section 601 et seq., thus joining nearly 40 other states that have passed
similar legislation. Such entities are common today, including those involved in
the provision of energy resources. For example, Maritimes is a Limited Liability
Company. Although we believe that the Maine Statutes permit a public utility to
be a limited liability company, and, indeed, there is no legitimate reason not
to so construe the statute, the statutes have not, since 1995 directly addressed
this change in the law.

     Accordingly, Bangor Gas respectfully seeks a determination that a gas
utility may be a limited liability company under Maine Law. Concurrent with this
application, Bangor Gas has proposed legislation to specifically recognize that
gas companies can be limited liability company's under Maine law.

     Bangor Gas desires to obtain unconditional authority to serve the five
communities listed above, and is looking forward to working with the Commission,
the State and localities, potential customers, and others to accomplish the
construction of the facilities and the provision of local natural gas service to
the greater Bangor area in the most efficient and expeditious manner.

                                       II

                                     GENERAL

     The exact legal name of the applicant is Bangor Gas Company, L.L.C.
("Bangor Gas"). Bangor Gas is a limited liability company organized and existing
under the laws of the State of Maine and has its principal place of business at
33 State Street, Bangor, Maine. Bangor Gas will be operated pursuant to an
Operating Agreement, as Amended and Restated, dated October 27, 1997.

     The names, titles, and mailing addresses of the persons to whom
correspondence and communications concerning this Petition should be addressed
are:

Donald C. Liddell, Esq.                        Alan G. Stone, Esq.
Pacific Enterprises                            Clifford, Stone & Herman
633 W. Fifth Street, Ste. 5200                 640 Main St.
Los Angeles, CA 90051                          Lewiston, Maine 04243-0590
(213) 895-5166                                 (207) 784-7381

Frederick S. Samp, Vice President
Bangor Hydro-Electric Company
P. O Box 932
Bangor, Maine 04402-0932
(207) 941 6653

Petitioner also requests that the following persons be placed on the service
list:

Andrew Rea                                     Douglas S. Morrell
Pacific Enterprises                            Bangor Hydro Electric Company
633 W. Fifth Street, Ste. 5200                 P.O. Box 932
P.O. Box 4690                                  Bangor, Maine 04402-0932
Los Angeles, CA 90051                          (207) 990-6980
(213) 895-5734

Kimball L. Kenway, Esq.
Curtis Thaxter Stevens Broder & Micoleau LLC
One Canal Plaza
P.O. Box 7320
Portland, ME 04112-7320
207-775-2361

                                       III

                                   THE MEMBERS

     Pursuant to the Operating Agreement, Pacific and Bangor Hydro constitute
the Members of Bangor Gas under the Maine Limited Liability Company Act for the
purpose of designing, engineering, financing, constructing, testing, managing,
marketing and operating the system. The provisions of the Operating Agreement ,
including the respective ownership interests of the parties, are explained in
the prefiled direct testimony of Frederick S. Samp.

     Bangor Hydro is a public utility engaged in the generation, purchase,
transmission, distribution and sale of electric energy to its customers in east
and east coastal Maine. It is a Maine corporation with a principal place of
business at 33 State Street, Bangor, Maine. Today it provides electric power to
more than 110,000 residents in over 4,900 square miles, and is the second
largest electric utility in Maine. It has been providing such service since
1924. Bangor Hydro plays a significant role in the local economy of the region,
and is committed to the municipalities, businesses and people it serves.

     Pacific is a California corporation with a principal place of business at
633 West Fifth Street, Los Angeles, California. Pacific is a wholly owned
subsidiary of Energy Pacific LLC, a California limited liability company, which
is owned 50-50 by subsidiaries each of Pacific Enterprises and Enova
Corporation. (Pacific Enterprises and Enova are in the process of a merger).
Pacific Enterprises is a California-based utility holding company, with $5.4
billion in assets, whose principal subsidiary is Southern California Gas Company
(SoCalGas). SoCalGas is the nation's largest natural gas distribution utility
with over 4.8 million customers, a service territory population based of
approximately 17 million, and annual gas throughput of one trillion cubic feet.
Energy Management Services , a business unit of Pacific Enterprises, provides
customer-focused value-added energy products and services. Pacific Enterprises
and its subsidiaries are described more fully in the Prefiled Direct testimony
and exhibits of Andrew Rea attached hereto as Exhibit F.

                                       IV

                  DESCRIPTION OF PROPOSED OPERATION AND SERVICE

     Bangor Gas requests authority to construct, install, own, operate and
maintain pipelines and ancillary facilities in Bangor, Brewer, Old Town, Orono
and Veazie, Maine where natural gas service is currently not being provided to
Maine municipalities, businesses and residents.

     Bangor Gas will be a LDC, providing a full range of distribution, customer
and energy services to provide safe, reliable and adequate natural gas service
to customers in the greater Bangor area, including sale, transportation,
scheduling, balancing, metering and billing. These facilities will be used to
transport gas from the Maritimes & Northeast Pipeline LLC ("Maritimes"), at
receipt points and to distribute gas and provide local natural gas service in
its service area, as depicted in the engineering plans. Through contractual
relationships with Maritimes, those areas not currently being served with
natural gas will have a new reliable and competitively priced energy supply and
service. Bangor Gas has also proposed to engage in a limited form of unbundling
at the present time, subject to further investigation of this issue by the PUC.


                                        V

                       DESCRIPTION OF PROPOSED FACILITIES

     Bangor Gas has developed engineering studies and plans in support of the
construction and operation of the LDC in the Bangor area. The Bangor Gas system
will consist of Transmission (high pressure operating near 800 psig) and
Distribution (medium pressure operating near 50 psig) pipelines. This pipeline
network would bring Natural Gas into the homes and businesses in the greater
Bangor area, for space heating, cooking, clothes drying and water heating.
Originating outside the Brewer, the Transmission Backbone would bring gas
supplies into the area with the proposed termination of the system being in the
Old Town area to the north of Bangor. The source pipeline for the Bangor Gas
system will be the Old Town/Millinocket Lateral which originates from the
Maritimes main pipeline outside of the City of Brewer. However, if savings on
gas cost warrant it the source for the Bangor Gas system may be the Maritimes
main pipeline. The Bangor Gas pipeline will be installed through Brewer, Bangor
and north to its termination in the Old Town area. The engineering and
construction of the system is described more fully in the prefiled direct
testimony of Andrew Rea and David G. Schiller, both of which are attached
hereto.

     It is estimated that the Maritimes Pipeline will be in service by November
of 1999. Assuming all regulatory approvals for Bangor Gas are in place, Bangor
Gas estimates commencing construction in the summer of 1998, with completion of
the majority of system to occur by the fall of 1999. It is Bangor Gas' objective
to begin servicing its initial customers in time for the start of the 1999-2000
heating season, with the complete system in place by the following heating
season. The cost of these facilities is estimated to be approximately $33
million dollars.

                                       VI

                                     SUPPLY

     Bangor Gas proposes to obtain its supply of gas from marketers of natural
gas from the Sable Island project. Bangor Gas' resource plan, and the experience
of Pacific Enterprises, and its affiliates including Energy Pacific, the
Southern California Gas Company, and AIG Trading Corporation in purchasing and
managing gas supply, is described in the prefiled direct testimony of Andrew
Rea, attached hereto.


                                       VII

             ABILITY TO MEET STATUTORY STANDARDS FOR AUTHORIZATION;
                APPROVAL FOR FINANCING; OTHER REQUIRED APPROVALS

     1.  Application for Authority to Serve

     Bangor Gas seeks unconditional approval to provide natural gas service in
Bangor, Brewer, Old Town, Orono and Veazie, pursuant to 35-A MRSA ss.ss. 2104,
2105. Bangor Gas also requests that its Petition be placed on an expedited
track. Expeditious processing of this Application is in the overall public
interest of the State of Maine and its residents in having immediately available
a new, reliable, low cost, and environmentally sound energy source. Such
processing will be consistent with Maine's energy and economic policies, by
providing an attractive mix of energy resources, and will attract businesses to
Maine.

     This Commission has recently set forth the legal standards and evidentiary
showing necessary to obtain authority under 35-A MRSA ss.ss.2104 and 2105. Mid
Maine Gas Utilities Inc. Request for Approval to Furnish Gas Service, Docket No.
96-465 (MPUC March 7, 1997 (hereinafter, "Mid Maine")). The Commission has
established a three part test to evaluate whether a petition to provide service
is in the public interest and should be approved. Id. p. 9. Petitioner satisfies
all three parts of the test:

     A. There is a public need for the proposed service. This is met by the fact
that no such service is being provided in the areas Bangor Gas is seeking
authority to serve.

     B. The applicant has the technical ability to provide the service. The
Applicant has provided pertinent descriptions and summaries of qualifications of
its experience and expertise to construct, operate and service the proposed
natural gas facilities.

     The Members have substantial experience in constructing facilities and
providing service similar to that being proposed, and possess general and
relevant educational and engineering qualifications. Pacific Enterprises is the
parent of the largest natural gas distribution company in the United States, and
has been involved in the construction and operation of LDC systems in the United
States and throughout the world. Bangor Hydro has been engaged in the energy
business and has been constructing facilities and operating an electric system
in the Bangor area for over seventy years.

     The Members have demonstrated competence, through involvement in regulatory
proceedings at the federal level and throughout the United States, in
recognizing the need for and selecting consulting, engineering and construction
assistance, or affiliation with competent and experienced providers. Bangor
Hydro has regularly appeared in practically all administrative regulatory
agencies in Maine, and has been involved in Federal regulatory proceedings, as
part of its operation as a public utility. Pacific, likewise, has similar
experience elsewhere in the nation and internationally. They have an expert
knowledge of industry practice and understanding of local conditions and
requirements, and have established reputations for credibility and accuracy
relating to such subjects. They have established and developed company standards
of conduct or procedures to be implemented to assure safety and reliability of
service.

     Bangor Gas is technically capable of providing safe and reliable service at
just and reasonable rates, and meets the standard of technical capability to
provide the service.

     C. The Applicant possesses adequate financial resources to complete the
project.

     Bangor Gas is financially capable of providing safe and reliable service at
just and reasonable rates. The Members have substantial experience and ability
in financing projects of similar size and complexity. The ability and plans of
the applicant to finance the project is described in the prefiled direct
testimony and exhibits of Andrew Rea and Frederick S. Samp, attached hereto.

     D. Unconditional Authorization to Serve

     In Mid Maine, supra, the Commission granted "conditional" authority to the
applicant, by requiring, prior to providing service to any customer, commencing
construction or obtaining financing, that applicant file for Commission review
and approval:

     (1)  Its proposed financing for the project pursuant to 35-A MRSA ss. 902.

     (2)  Construction plans and cost estimates for its proposed facilities.

     (3)  A resource plan indicating its sources(s) of supply or the
          availability of unbundled service and demonstrating such source or
          unbundled supply option is adequate to serve the needs of its proposed
          customers.

         Bangor Gas does not seek conditional approval to provide LDC service,
but rather seeks unconditional approval. Accordingly, it has provided, as part
of this filing and for Commission review and approval the material required by
the Commission in the Mid Maine case. Because of the sensitive nature of
material being provided, certain information is or will be provided pursuant to
Protective Order.2/

     2. Application for Financing Authorization, Affiliated Transactions and
Other Required Approvals:

        A. Application for Financing Authorization, Pursuant to 35-A MRSA
ss.902, Bangor Gas respectfully asks that the Commission issue an order
authorizing the financing described in the Application (attached hereto and
incorporated herein as Exhibit E), the amount of the issuances, and stating that
in the opinion of the Commission the proceeds of the issuances of the L.L.C.
membership interests and the indebtedness are required in good faith for
purposes enumerated in 35-A MRSA ss.901. This request for financing approval is
discussed in the prefiled direct testimony of Frederick S. Samp.

        B. Application for Affiliated Transaction Approval Pursuant to 35-A MRSA
ss.707, Bangor Gas is seeking approval (or, as stated below, exemption from
approval) of the following transactions: (a) Support Services Agreement (Exhibit
C), and (b) the Operating Agreement (Exhibit B). Bangor Hydro has similarly
requested approval of these agreements in its Application. As noted previously,
Bangor Gas respectfully asks that the Commission issue an order either (a)
exempting all affiliated interest transactions between Bangor Gas and its
non-Bangor Hydro affiliates from the requirements of Section 7, or (b) finding
that said agreements are not adverse to the public interest and giving them its
written approval. Energy Pacific (and its affiliates Pacific, Southern
California Gas Company Pacific Enterprises and Enova) are out of state

- --------
2/   See Motion for Protective Order dated and filed in these Docket on October
     20, 1997 and Proposed Protective Order No. 1.



affiliates that will or may be providing services in a competitive market.
Exemption of such classes of transactions, including those set forth in the
Support Services Agreement, will not be adverse to the public interest. See e.g.
MAINECOM SERVICES, Order Granting Authority to Provide Local and Interexchange
Telephone Services, Docket No. 97-249, p. 4-5 (Sept. 19, 1997 MPUC).

     C. Application for Exemption from Reorganization Approval for the Non-BHE
Affiliates of Bangor Pacific. Bangor Gas respectfully asks that the Commission
issue an order determining that approval for reorganization need not be obtained
with respect to any activity to be undertaken by any non-BHE related affiliate
of Bangor Gas. The effect of this exemption would be to eliminate any
requirement that Pacific, Energy Pacific, Pacific Enterprises, Southern
California Gas Company obtain approval of this Commission prior to engaging in
any reorganization activities described in Section 708. The reasons for this
exemption is the same as those discussed in the previous section of this
Application.

                                       IX

                          RATES (MULTI-YEAR RATE PLAN)

     Bangor Gas' application is premised on its being able to implement and
maintain the proposed multi-year rate plan ("the Plan") as described in the
prefiled direct testimony of Jan Van Lierop. The Plan incorporates a price cap
using a standard rate indexing formula. The starting point to set the initial
rate for the first year of the Plan would be the gas-equivalent cost of the
primary competitive fuel (No. 2 heating oil). The term of the rate plan is ten
(10) years. This type of rate structure is necessary to afford reasonable
financial certainty and protection to Bangor Gas during the period of start up,
initial investment, and a reasonable period of initial operation (10 years).

     Following the issuance of its certificate of need and authorization to
serve, Bangor Gas respectfully plans to file initial schedules pursuant to 35-A
MRSA ss.304, and cost of gas adjustment charges pursuant to 35-A MRSA ss.4703,
for Commission review and approval as an integral part of its approval of
authority in this case.

                                        X

                      SUMMARY OF PREFILED DIRECT TESTIMONY
                        LIST OF EXHIBITS AND ATTACHMENTS


Prefiled Direct Testimony:

     Bangor Gas has filed in support of this Petition, the Prefiled Direct
Testimony of the following individuals.

1.   Andrew Rea. Mr. Rea is Vice President of Energy Pacific, a joint venture of
     Pacific Enterprises and Enova Corporation. Mr. Rea is Executive Vice
     President and Chief Operating Officer of Bangor Gas Company. Mr. Rea will
     outline the business plan of Bangor Gas, a venture between and through
     affiliates of Bangor Hydro and Energy Pacific, and describe the project,
     including the market analysis, qualifications of the participants. Mr. Rea
     will also describe the Company's resource plan, and Energy Pacific's
     interests and involvement in financing the project.

2.   Frederick S. Samp. Mr. Samp is Vice President and Chief Financial Officer
     of Bangor Hydro. Mr. Samp is also the Chief Financial Officer of Bangor
     Gas. Mr. Samp will discuss the financing of Bangor Gas and Bangor Hydro's
     investment in Bangor Gas. Mr. Samp will explain the details of the Bangor
     Gas Company LLC Operating Agreement, including the organizational and
     financial structure of Bangor Gas, its initial capitalization and matters
     regarding voting control. He will also testify about the project costs and
     explain project financing. Mr. Samp will also address the Support Services
     Agreement.

3.   Carroll R. Lee. Mr Lee is Executive Vice President at Bangor Hydro. He is
     also a Director and Executive Vice President of Bangor Gas Company LLC. Mr.
     Lee provides an overview of the project, describes Bangor Hydro's excellent
     relationship with Pacific Enterprises and how this relationship and
     Pacific's experience in the gas industry foster a solid partnership for the
     development, construction and operation of a local gas system in the Bangor
     area. Mr Lee also discusses the benefits of the project to Bangor Hydro and
     the community. He will also describe the project schedule and scope of the
     project. Mr. Lee addresses how the Applicant has satisfied the criteria for
     the issuance of a certificate of need, as set forth by the Maine Public
     Utilities Commission in the Mid Maine case. Carroll Lee discusses the
     proposed multi-year rate plan and the need for and principles underlying
     such an plan; he also addresses the development of multi-year contractual
     arrangements with customers.

4.   Johannes Van Lierop. Mr. Van Lierop is the Director of Governmental and PUC
     Regulatory Affairs of Southern California Gas Company, an affiliate of
     Pacific Enterprises. Mr. Van Lierop will testify about the general
     ratemaking framework (alternative form of regulation) that is appropriate
     in light of the fact that Bangor Gas is a startup utility and will be
     operating in a market that will be sharply competitive with alternative
     fuels. In this regard, he will also describe Bangor Gas' multi-year rate
     proposal, including initial rates, escalation factors, rate flexibility and
     rate design. Mr. Van Lierop will discuss projected capital investments for
     the project, and projected costs of service. He will also discuss Bangor
     Gas' position on unbundling, as reflected in this application. Bangor Gas
     will be filing separate generic comments relating to unbundling, and
     addressing issues raised by Commission's Notice of Inquiry in Maine PUC
     Docket No. 97-267.

5.   David G. Schiller. Mr. Schiller is employed by Energy Pacific as Technical
     Operations Manager. One of his responsibilities in this capacity is to
     evaluate and develop pipeline and other technical requirements for new and
     expanding gas utility projects. Mr. Schiller will describe the technical
     aspects of the proposed Bangor Gas pipeline infrastructure, including the
     cost of construction and also the expected capacity of the system. Mr.
     Schiller will explain the engineering and construction of the project,
     including pipeline installation and safety.

List of Exhibits:

Exhibit A Organizational Documents
Exhibit B Operating Agreement
Exhibit C Support Services Agreement
Exhibit D Funding Agreement
Exhibit E Application for Approval of Financing
Exhibit F Prefiled Direct Testimony and Exhibits of Andrew Rea
Exhibit G Prefiled Direct Testimony and Exhibits of Frederick S. Samp
Exhibit H Prefiled Direct Testimony and Exhibits of Carroll R. Lee
Exhibit I Prefiled Direct Testimony and Exhibits of Johannes Van Lierop
Exhibit J Prefiled Direct Testimony and Exhibits of David G. Schiller


                                       XL

                         RELIEF REQUESTED BY BANGOR GAS

     WHEREFORE, for the reasons set forth herein above, Bangor Gas respectfully
requests the Commission to:

     (1) Grant Bangor Gas, pursuant to 35-A MRSA ss.2104 and 2105, unconditional
authority to construct and operate necessary facilities and to furnish natural
gas service in the following municipalities,

     (2) Issue an Order approving the proposed financing described herein,
pursuant to 35-A MRSA ss.902, the affiliated contracts or arrangements described
herein, pursuant to 35-A MRSA ss.707, and other approvals and exemptions
requested herein,

     (3) Approve the multi-year rate plan described herein, and

     (4) Issue such other authority and/or exemptions and waivers, and such
other relief as may be deemed necessary the Commission to facilitate
implementation of the proposals contained herein.

II. COUNT II: BANGOR HYDRO ELECTRIC COMPANY PETITIONS, APPLICATIONS AND
REQUESTS. (DOCKET NO. 97-796)

                                        I
                      INCORPORATION BY REFERENCE OF COUNT I

     Bangor Hydro adopts and incorporates herein the allegations and statements,
and references to Prefiled Direct Testimony and Exhibits, contained in Count I,
Sections I, II, III, IV, V, VI, and X of this Consolidated Petition.

                                       II

                         SUMMARY OF BANGOR HYDRO FILING

     Bangor Hydro seeks all necessary approvals for it to participate, through a
wholly-owned subsidiary, in Bangor Gas, and to enter into certain transactions
with Bangor Gas, which will become and affiliated interest of Bangor Hydro.
Pursuant to the Operating Agreement (Exhibit B, attached hereto), Bangor Pacific
owns 95% of Bangor Gas, and Bangor Hydro owns 5%. As contemplated in the
Operating Agreement, Bangor Hydro plans to participate in Bangor Gas through a
corporate subsidiary, tentatively called "Gassub", and will be making
investments in Bangor Gas, through Gassub. It will also permit Bangor Gas to
make limited use of Bangor Hydro's name and associated goodwill. Bangor Hydro
has also entered into the Support Services Agreement with Bangor Gas (Exhibit C,
attached hereto).

     Accordingly, Bangor Hydro files for reorganization approvals and exemptions
pursuant to 35-A MRSA ss.708, and for affiliated interest transaction approvals
pursuant to 35-A MRSA ss.707, including Section 707 (3)(G) relating to the value
of the goodwill assets. Bangor Hydro will also be asking for exemptions, where
appropriate, from the provisions of Section 707.

     In summary:

1.   Bangor Hydro seeks the following Section 708 Reorganization Approvals :

     (1) Bangor Hydro's formation and initial capitalization of Gassub,
including authorization for Gassub to hold up to a fifty percent (50%)
membership and economic interest in Bangor Gas without having to obtain further
Commission approval. Bangor Hydro also requests that the Commission exempt from
the operation of Section 708 any changes in Bangor Hydro's interest in Bangor
Gas (through Gassub) and Gassub's interest in Bangor gas, so long as Bangor
Hydro's interest (through Gassub), and, thus, Gassub's interest, does not exceed
50%.

     (2) Bangor Hydro's capital contributions to Bangor Gas, through Gassub, in
an amount up to a total of $2,500,000. This amount includes the initial
expenditures made to date of approximately three hundred seventy-five thousand
dollars ($375,000) associated with the formation of Bangor Gas and the approval
process. As explained in Mr. Samp's prefiled testimony, Bangor Hydro also
proposes to infuse an additional $5,750,000 in Gassub, for investment in Bangor
Gas, but will return to the Commission for authority to do so at the appropriate
time.

     (3) Gassub's investment and participation in Bangor Gas. Bangor Hydro also
requests that Gassub be permitted to invest an unlimited amount of capital in
Bangor Gas (beyond what it invests through infusions from Bangor Hydro). The
sources of such investments would be (1) distributions from Bangor Gas, and (2)
borrowings by Gassub. Any such borrowings would be on a non-recourse basis as to
Bangor Hydro.

     (4) Bangor Hydro becoming an affiliate of Gassub and Bangor Gas.

2.   Bangor Hydro seeks the following Section 707 Affiliated Interest Approvals:

     (1) Approval of Bangor Hydro's participation in the Operating Agreement,
including those provisions of the Operating Agreement relating to the provision
of officer and director services and authorization, upon the creation of Gassub,
to enter into the form Funding Agreement attached as Schedule 14.1 to the
Operating Agreement.

     (2) Approval of the Support Services Agreement.

     (3) Required determinations and approvals under Section 707(3)(G),
regarding the value to Bangor Gas of the limited use of Bangor Hydro's name.

                                       III

              COMPLIANCE WITH THE STANDARDS OF SECTIONS 707 AND 708


     The relief requested by Bangor Hydro should be granted because the
transactions will be in the public interest, will be consistent with the
interests of Bangor Hydro's ratepayers and investors, and will not impair Bangor
Hydro's credit nor its ability to attract capital on reasonable terms nor its
ability to provide safe, reasonable and adequate electric service. The
transactions, including the formation and operation of, and Bangor Hydro's
participation in, Gassub will be structured and carried out in accordance with
the Commission's findings in Robert D. Cochrane v. Bangor Hydro-Electric
Company, Docket No. 96-053, Order (MPUC January 28, 1996) (hereinafter referred
to as "Cochrane"), and with the newly enacted LD 502 (35-A MRSA Section
707(3)(G).

     Consistent with Cochrane, Bangor Hydro's electric utility ratepayers will
be insulated from any financial risks associated with the creation, existence or
activities of Gassub, a separate wholly owned subsidiary created for the
purposes of carrying on a non-core activity. Gassub will not impact at all on
Bangor Hydro's core electric utility business. All costs associated with Bangor
Hydro's and Gassub's activities in Bangor Gas will be treated "below the line."
Gassub will serve only to hold Bangor Hydro's interest in Bangor Gas; it will
own no assets other than its membership in Bangor Gas. Gassub will not engage in
any other activities without first securing the permission of the Commission
under the affiliated interest statute, nor will it create or participate in the
formation of any new entities without first securing the permission of the
Commission under the reorganization statute. The Commission will have access to
Gassub's books and records for inspection and review, subject to reasonable
protective arrangements as may be necessary to protect the confidentiality of
information.

                                       IV

                        RELIEF REQUESTED BY BANGOR HYDRO


     WHEREFORE, for the reasons set forth herein above, Bangor Hydro
respectfully requests the Commission to:

     (1)  Grant Bangor Hydro Reorganization approval and exemptions, pursuant to
          35-A MRSA ss.708 as described in Section II, above.

     (2)  Issue an Order approving affiliated contracts or arrangements as
          described in Section II, pursuant to 35-A MRSA ss.707, and other
          approvals and exemptions requested herein.

     (3)  Issue such other authority and/or exemptions and waivers, and grant
          such further relief, as may be deemed necessary the Commission to
          facilitate implementation of the proposals contained herein.

DATED:   October 27, 1997


                                               Respectfully submitted,

                                               Bangor Gas Company, L.L.C.



                                               /s/Alan G. Stone
                                               By:  Alan G. Stone, Esq.
                                               Clifford, Stone & Herman
                                               640 Main Street
                                               Lewiston, Maine 05243-0590
                                               (207) 784-7381
                                               Its Attorneys


                                               Bangor Hydro Electric Company



                                               /s/Kimball L. Kenway
                                               By: Kimball L. Kenway, Esq.
                                               Curtis, Thaxter, Stevens, Broder
                                               Micoleau L.L.C.
                                               1 Canal Plaza
                                               Portland, Maine 04112-7320
                                               (207) 774-9000
                                               Its Attorneys



                                                                    Exhibit D-2




STATE OF MAINE                                            DOCKET NO. 97-795
PUBLIC UTILITIES COMMISSION
                                                          JUNE 30, 1998

BANGOR GAS COMPANY                                        ORDER GRANTING
PETITION FOR APPROVAL TO PROVIDE                          UNCONDITIONAL SERVICE
GAS SERVICE IN THE GREATER BANGOR AREA                    AUTHORITY


                 WELCH, CHAIRMAN; NUGENT AND HUNT, COMMISSIONERS

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


                                TABLE OF CONTENTS


I.       SUMMARY..............................................................2

II.      PROCEDURAL HISTORY...................................................2

III.     INTRODUCTION.........................................................2

IV.      CONTENTS OF THE RECORD...............................................3

V.       MOTION IN LIMINE TO STRIKE OR EXCLUDE PORTIONS OF SCOTT RUBIN'S
         TESTIMONY............................................................3

VI.      ANALYSIS OF BANGOR GAS'S APPLICATION.................................4
         1.       Standard of Review..........................................4
                  a.       Motion for Partial Summary Judgement...............4
                  b.       Evidence Considered by the Commission..............6
         2.       Financing Plan..............................................6
         3.       Engineering Plans and Safety................................8
         4.       Resource Plan...............................................9
         5.       Ability to Provide Service at Just and Reasonable Rates ...11
         6.       Summary and Conclusion ....................................12

VI.      REORGANIZATION AND AFFILIATED INTERESTS.............................12

VIII.    STIPULATION.........................................................13

IX.      CONCLUSION..........................................................14

APPENDIX A:  PROCEDURAL HISTORY..............................................16

APPENDIX B:  RATE COMPARISON.................................................19

<PAGE>



I.       SUMMARY

         We grant Bangor Gas Company LLC (Bangor Gas) authority to begin
construction of a local distribution company and to provide natural gas service
as a public utility in Bangor, Brewer, Old Town, Orono, and Veazie, subject to
the requirements contained herein.

II.      PROCEDURAL HISTORY

         The Procedural History is contained in Appendix A to this Order.

III.     INTRODUCTION

         When the March 9th Examiner's Report was issued, we had before us two
interrelated motions. The first was Bangor Gas's Motion for Partial Summary
Judgment (MSJ) and to Strike or Exclude Portions of the Testimony of Scott Rubin
on behalf of the Public Advocate (Motion to Strike) and Incorporated Memorandum.
Bangor Gas filed with these motions a Statement of Facts Not in Dispute and a
Stipulation executed by it and two of the other parties to this proceeding,
Bangor Hydro Electric Company (BHE) and Maritimes and Northeast Pipeline
Inc.(MNE). Bangor Gas sought a determination that it was entitled to a grant of
full service authority for the greater Bangor area as a matter of fact and law.

         The second was the Public Advocate's Motion for Expedited Comparative
Proceeding as amended on February 19, 1998. The Public Advocate (OPA) requested
that the Commission conduct a comparative proceeding in order to select the best
applicant to serve the greater Bangor area.

         We considered each motion separately, deliberating the OPA's Motion for
Comparative Proceeding on April 28, 1998 and deferring consideration of Bangor
Gas's Motion. After hearings and briefs on certificate issues, we considered the
Bangor Gas application on its merits in conjunction with our determination of
Bangor Gas's proposed rate plan on May 18, 1998.1

         As discussed further in Section VI. below, because we considered Bangor
Gas's application for unconditional service authority after a supplemental
evidentiary hearing and briefs on this subject, this order does not address
Bangor Gas's application under the legal standards for summary judgment as
presented in the March 9th Examiner's Report but, rather, addresses the
application fully on its merits.

         In this order we also deny Bangor Gas's Motion in Limine to Strike or
Exclude Portions of the Testimony of Scott Rubin on behalf of the Public
Advocate and reject Bangor Gas's proposed stipulation.


- ---------
1    See Order Approving Bangor Gas Company Rate Plan dated June 26 1998.


IV.      CONTENTS OF THE RECORD

         The evidentiary record includes all prefiled testimony, data responses,
hearing transcripts and exhibits in this proceeding. In addition, as requested
by Bangor Gas, we include its response to Advisors' Data Request No.1, Question
9 (Confidential) in Docket No. 97-796,2 as well as the technical conference
transcripts of January 26 and February 25th.3

V.       MOTION IN LIMINE TO STRIKE OR EXCLUDE PORTIONS OF SCOTT
         RUBIN'S TESTIMONY

         In its Motion to Strike, Bangor Gas moves to exclude from the record
portions of the testimony of Scott Rubin in which he addresses engineering
plans, financing plans, and source of supply, and in which he recommends that
the Commission conduct a contested certification proceeding. Bangor Gas argues
that Mr. Rubin's testimony on the technical adequacy of Bangor Gas's filing is
not admissible pursuant to Maine Rules of Evidence 702-704 because Mr. Rubin, a
lawyer, is not qualified and competent as an expert witness on these matters.4

         In addition, Bangor Gas argues that Mr. Rubin's testimony recommending
a comparative proceeding5 is not the proper subject for expert testimony under
Rule 702 because it is not based on "scientific, technical, or other specialized
knowledge" which will assist the trier of fact to understand the evidence or to
determine a fact in issue. Finally, Bangor Gas argues that Mr. Rubin's testimony

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2    Bangor Hydro Electric Company, Petition for Affiliated Interest and
     Reorganization Approval Needed in Connection with Bangor Gas Company
     Transaction.

3    No party objected to the admission of these materials as allowed by the
     March 9th Examiner's Report, note 3.

4    The testimony regarding the adequacy of Bangor Gas's financial, engineering
     and gas supply plans that Bangor Gas seeks to exclude appears on page 7,
     lines 11-20, as follows:

     Q.   Has Bangor Gas provided this additional information?

     A.   Bangor Gas has provided some, but not all, of this information. Bangor
          Gas has provide a general financing plan, but without any specific
          information concerning the source of financing, actual capital
          structure, and actual interest rates or other terms and conditions.
          While Bangor Gas has indicated the range of financing options that it
          considers to be reasonable and available, there is no specific
          financing proposal at this point. Similarly, Bangor Gas has provided
          general construction plans and cost estimates, but has not provided a
          specific construction schedule or time line. Its resource plan for gas
          supply again consists of general statements concerning the options
          that it is examining. As of this point, however, Bangor Gas has not
          entered into any definitive agreements ensuring the supply of natural
          gas.

5    The testimony appearing on pages 8-16 addresses Mr. Rubin's assessment of
     the need for a comparative proceeding.


is outside the scope of this proceeding as established by our Mid-Maine Order
and in the Examiners preheating conference report.

         We will address each of these arguments in turn.

         We deny Bangor Gas's Motion to strike on grounds that Mr. Rubin is not
qualified to render an expert opinion on the matters contained in his testimony.
Mr. Rubin's testimony primarily regards policy and regulatory considerations.
While it may be true that Mr. Rubin is not qualified as an engineer, a financier
or a gas supply procurer, he has sufficient experience to qualify him to provide
an opinion generally regarding the regulatory determinations we are considering
in this case. Mr. Rubin has demonstrated his expertise in other recent
proceedings before this Commission. We will take Mr. Rubin's experience and
limitations into account when we consider his testimony. As we have often
recognized, as an expert adjudicatory body, we are competent to assess the
weight and credibility of the witnesses and evidence before us.

         We also decline to exclude Mr. Rubin's testimony recommending a
comparative proceeding on the grounds that it is beyond the scope of this
proceeding as established in Mid- Maine and by the Examiner's Post-Conference
Report in this case. It is always within our discretion to consider policies and
issues as they arise in cases before us. Notwithstanding our statements in the
Mid-Maine case, we chose not to restrict the scope of issues on this case to
exclude OPA's request for a comparative proceeding because of the importance of
this issue to establishing sound public policies in the development of the
natural gas industry in Maine.

VI.      ANALYSIS OF BANGOR GAS'S APPLICATION

         1. Standard of Review

            a.   Motion for Partial Summary Judgement

            Prior to hearings in this case, Bangor Gas requested that the
Commission grant it, as a matter of partial summary judgment,6 an unconditional
certificate of public convenience and necessity to provide natural gas service
in the greater Bangor area. Bangor Gas also requested that the Commission
approve its related affiliated interest transactions and all other applications
and requests for exemptions contained in its October 29, 1997 filing, except for
its multi-year rate plan proposal.7


- ---------

6    Bangor Gas's Motion was made pursuant to Maine Rules of Civil Procedure
     Rule 56. These rules are made applicable to MPUC proceedings by Chapter
     110, section 101 of the Commission's Rules of Practice and Procedure.

7    Bangor Gas proposed to have its multi-year rate plan considered within the
     full remaining schedule for this case.

            Bangor Gas claimed that there were no genuine issues of material
fact and that it had otherwise met the legal requirements entitling it to a
grant of unconditional authority to provide service as a public utility in the
greater Bangor area. Bangor Gas also argued that expeditious resolution of
service authority and related issues in this manner would promote administrative
economy and would allow Bangor Gas to prepare for and begin construction of the
system to coincide with local street opening projects scheduled to occur during
the upcoming construction season of 1998. Finally, Bangor Gas requested that,
for the same reasons, the Commission grant it all related approvals and
exemptions.

            Bangor Gas further claimed that it had met the standards for a grant
of conditional service authority as established by this Commission in Mid-Maine
Gas Utilities, Inc., Request for Approval to Furnish Gas Service, Docket No.
96-465 (Mid-Maine), Order dated March 7, 1997, citing Standish Telephone Co. v.
PUC, 499 A.2d 458. under these standards, applicants must establish that 1)
public need for the proposed service exists, 2) the applicant has the technical
ability to provide the service, and 3) that the applicant has adequate financial
resources to complete the project. In addition, these standards must be met in a
manner consistent with providing safe and reliable service at just and
reasonable rates, to ensure that the project will be in the overall public
interest. Mid-Maine at 9.

            Bangor Gas provided with its Motion its Statement of Material Facts
Not in Dispute with citations to portions of the record in this case.8 OPA
opposed the Motion, arguing that Bangor Gas had not supplied sufficiently
complete information regarding its financing proposal, resource plan, and
construction plans and cost estimates to support a grant of unconditional
authority at this time. OPA conceded, however, that Bangor Gas has met the
standards to merit a conditional grant of authority.9 Specifically, Mr. Rubin
stated that Bangor Gas can be found to have the requisite technical and
financial fitness to operate a public utility in Maine. Furthermore, Mr. Rubin
concluded that there is a need for the service in the greater Bangor area
because the area is not presently served, numerous segments of the public would
be interested in obtaining natural gas, and no other utility currently holds an
unconditional certificate of public convenience and necessity to provide service
in the area.

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8    Bangor Gas argued that it was entitled to a favorable decision because no
     party had submitted a contravening list of issues in dispute as required
     under the rule. However, both OPA and CMP contested the grant of
     unconditional authority to Bangor Gas, and the Examiner ultimately
     conducted a hearing on factual issues later raised by CMP. The Commission
     may liberally construe its rules "to secure just, speedy and economic
     determination of all issues presented to the Commission." See Ch. 110,
     ss.102. Here, the Examiner recognized that there were disputed matters,
     even though not raised in a manner and time frame set out in the rules of
     court. See also 35-A M.R.S.A. ss.104.

9    OPA later filed a letter stating its "agreement not to contest Bangor Gas
     on the issues of engineering, financing and gas supply" for purposes of
     awarding unconditional service authority, while continuing to advocate a
     comparative selection process.


            No other party offered testimony or responses challenging the
findings proposed by Bangor Gas.

            Consequently, on the record at the time of Bangor Gas's MSJ, there
were no disputed facts as to Bangor Gas's overall competence to provide service
as a public utility under the Mid-Maine standards for conditional authority.
However, there was an apparent dispute as to whether Bangor Gas, on the basis of
that record, should be granted unconditional, or full, authority to serve.

            Bangor Gas argued that the requirements stated in the Mid-Maine
order provide the standard for whether an entity merits a grant of full
authority. In Mid-Maine, we granted conditional authority to serve and required
Mid-Maine Gas, prior to providing service to any customer, commencing
construction or obtaining financing, to file for Commission review and approval
its (1) proposed financing for the project pursuant to ss.902, (2) construction
plans and cost estimates for its proposed facilities, and a (3) resource plan
indicating its source(s) of supply or the availability of unbundled service and
demonstrating such source or unbundled supply option is adequate to serve the
needs of its proposed customers.

            Bangor Gas argued in its MSJ that it had met these standards on the
basis of the record to that date. Bangor Gas also argued that Mr. Rubin's
testimony should be excluded,10 making these issues uncontroverted, and that the
Commission alone must decide the adequacy of the case presented on these
matters.

            b. Evidence Considered by the Commission

            The Maine Rules of Civil Procedure Rule 56 requires the Commission
to determine whether or not there is any genuine issue of material fact before
granting summary judgement. Our review of the evidence presented at the time of
Bangor's motion, including Mr. Rubin's testimony, revealed that the case did
contain factual issues in dispute. Moreover, CMP requested an opportunity to
cross-examine Bangor Gas's witnesses at hearing on these issues. A hearing was
held for that purpose and parties submitted briefs.

            In making our dispositions of the issues in this case we have thus
considered all the evidence and argument presented to us, and not only the
"uncontroversial facts" submitted by Bangor Gas. We set forth below our
conclusions concerning Bangor Gas's financial and technical abilities, resource
plan, and ability to serve customers at just and reasonable rates.

            2. Financing Plan

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10   See section IV of this Report denying Bangor Gas's Motion to Strike or
     Exclude Testimony of Scott Rubin.


            Bangor Gas Company seeks approval of the financing needed to
construct the gas distribution system. The Company has indicated that after
construction is complete it will repay the construction loan by arranging for
permanent financing that would be supported by the distribution system as its
collateral.

            Bangor Gas seeks authority to issue membership interests of up to
$17,500,000 in itself as a Limited Liability Company (LLC) in accordance with
the terms of the Operating Agreement between the members, that is, Gassub, a
wholly owned subsidiary of BHE, and Bangor Pacific. These membership interests
would constitute the equity in the new company. Bangor Gas also seeks authority
to borrow up to $21,000,000 in secured construction loans for a period of up to
18 months. Security for the loans would be the assets of the system as it is
constructed. In Mr.Samp's testimony on behalf of BHE, he states that Bangor Gas
would like to have an interest rate cap of 11% in any Commission order, but that
the Company felt that financing could be obtained for about 8%. Mr. Rea, on
behalf of Bangor Gas, concurred with Mr. Samp's assessment that 8% was a
plausible assumption for the debt cost, but that the Company would accept a
not-to-exceed rate of 9%. Of course, the final loan rate will depend on market
conditions existing when Bangor Gas actually seeks financing. Nevertheless, we
observe that interest rates have remained relatively stable during the course
of this proceeding, and we have no reason to doubt the Company's predictions
about the cost of construction debt financing, given its relatively recent
experience in arranging financing for a startup gas operation in North Carolina.

            Bangor Gas has indicated that it would pursue construction financing
from commercial banking sources, but if the terms of such loans were not
acceptable to the Company, Bangor Gas would seek to borrow the funds from an
affiliate of Energy Pacific. In the latter case, the transaction would require
our approval as an affiliated interest transaction, or require an exemption from
the requirements of 35-A M.R.S.A. ss. 708.

            Bangor Gas has stated that because its rates will not be linked
directly to cost of service under its rate proposal, the Commission should not
be overly concerned about the actual cost of capital for Bangor Gas. Further, if
at some later point Bangor Gas's rates are set on a cost of service basis, the
Commission will have the ability to examine the Company's cost rates and its
capital structure. Finally, given the size and experience of Energy Pacific's
parent company, Pacific Enterprises, Bangor Gas claims there is little doubt
that the project can be financed in a cost-effective manner.

            The Company has stated that although it has not finalized its
financing plans, the Commission should grant authority for Bangor Gas to enter
into financing arrangements, because lenders may be reluctant to provide
financing if the Company only possesses a conditional right to serve. For the
reasons stated by Mr. Samp, the Company believes there is little risk of harm to
Bangor Gas's eventual ratepayers from allowing it the flexibility to pursue the
best financing deal it can obtain.

            The OPA has questioned whether some of terms that might be included
in any proposed financing would be in the public interest. Specifically, nothing
is currently known about what covenants might be placed on any financing, given
the fact that this is a startup operation. OPA believes we should examine any
loan agreements prior to approval, or state what terms and conditions would be
acceptable in any financing agreement.

            In Mid-Maine, the Commission set forth five criteria that it would
examine in determining whether to grant financing approval for the project.
Those factors are:

              1) the past experience of the principles in financing similar
                 projects

              2) the level of equity investment

              3) the entity's current assets and liabilities

              4) any existing commitments from lenders, and

              5) the entity's credit history where relevant.

            We find that Bangor Gas has satisfied the standard we established in
Mid-Maine. We are confident that the Company will be able to obtain debt
financing on reasonable terms. However, because this is a new company with no
track record in Maine, we will not grant the debt financing approval sought by
Bangor Gas. We will approve the equity portion of the Company's application,
allowing Bangor Gas to make capital calls as provided for in the Operating
Agreement.

            As for the debt financing authority, we find that the Company's
proposed use of debt financing meets the criteria of 35-A M.R.S.A. ss. 901, but
that we will not approve the actual debt instrument until the Company is able to
provide more specific information about the terms and conditions of the loan. We
envision a prompt examination of any proposed financing, unless it were to
contain a number of nonstandard terms, conditions or covenants. We would allow
the Company to bring us alternative proposals that contained more specificity
regarding the proposed terms of the instrument, if it wishes to pursue
commercial financing or financing from an affiliate. We have no intention of
delaying the project, but we cannot approve borrowing without knowing more about
the conditions which will attach. Nor will we rely on the rate plan as a basis
to defer a closer examination of the Company's proposed financing.

            3. Engineering Plans and Safety

            In his prefiled testimony, Mr. Rubin argues that Bangor Gas has not
provided sufficient detail of its construction schedule or time line. We
disagree.

            The engineering plans submitted by Bangor Gas are adequate for us to
evaluate the technical merits of the project. Bangor Gas proposes a three-phase
approach to system development and provides a "Gantt" type chart showing the
development of each phase along with the preparation activities for each. The
cost estimates submitted by Bangor Gas are quite detailed. The estimated
construction costs provided by Bangor Gas are also similar to those that can be
found in the "R.S. Means, Construction Cost estimation" handbooks. Bangor's
system development cost projections resemble those we have observed regionally
and they appear to be realistic. Finally, Bangor Gas has provided detailed
month-by-month construction budget.

            Natural gas pipeline safety is guided by Chapter 420 of the MPUC
rules and Part 192 of the Code of Federal Regulations. Bangor Gas proposes to
construct its system and train its personnel in accord with these rules and
standards. Bangor Gas's proposed plan includes an eight month training program
for local employees on gas pipeline safety issues.

            The information provided by Bangor Gas provides us a sufficient
information on the construction plans and costs of their proposed distribution
system. We do not require more for purposes of this application.

            4. Resource Plan

            The Office of Public Advocate argues Bangor Gas should not receive
an unconditional certificate because it has not provided an actual gas supply
plan ensuring that it will be able to provide gas consumers in the Bangor
service territory with an adequate, competitively priced supply of natural gas.
According to the OPA, the Commission should require Bangor Gas to enter "into
supply contracts definitive enough to show that all of its future customers will
have gas service on the coldest January day." Mr. Rubin cites ordering paragraph
1.c of the Commission's Order in Mid-Maine, which required this Mid Maine Gas to
provide

                  A resource plan indicating its source(s) of supply or the
                  availability of unbundled service and demonstrating such
                  source or unbundled supply option is adequate to serve the
                  needs of its proposed customers.

            Before applying verbatim the requirements of the Mid-Maine Order to
Bangor Gas, we believe it instructive to review the circumstances under which we
issued Mid-Maine Gas's certificate. The conditions faced by Bangor Gas are
different from those faced by Mid-Maine Gas and the application itself is
substantially different. Under the circumstances now presented to us, a
different assessment is warranted.

            Mid-Maine Gas filed its petition on August 16, 1996, at a time when
there was a greater level of regulatory uncertainty associated with the MNE
pipeline project. Regulatory agencies in both the United States and Canada were
in the early stages of reviewing the MNE application. In Canada, a competing
pipeline application was also under review. The TransMaritimes Gas Transmission
(TMGT) and TransQuebec and Maritimes (TQM) extension projects were considered to
be mutually exclusive with the MNE project. Had these projects been permitted
they would have completely circumvented the Bangor area, and the MNE project
would not have been built. In the United States, the Maritimes pipeline
facilities was faced with a sequence of reviews by the Federal Energy Regulatory
Commission (FERC). In addition to uncertainty about whether the pipeline would
be approved and constructed, there was concern about whether there would be
adequate resources available for Maine consumers11 on the MNE facilities. In
fact, so uncertain were the prospects for the MNE facilities in the Mid-Maine
proceeding the OPA questioned the need to rule on the Mid-Maine petition.12
Under such uncertain circumstances, it was appropriate for the Commission to
condition the Mid-Maine certificate on the production of a more definite
resource plan than it was able to provide at that time.

            A second distinguishing characteristic is the nature of the
applications themselves. The testimony and application put forth by Mid-Maine
Gas Company were devoid of any discussion of gas supply issues, contained little
detail Mid-Maine's rate structure, and discussed unbundled rates for large
customers only. By contrast, Bangor Gas described in some detail its approach to
gas supply. Bangor Gas has determined that preliminarily, it will be more
economical to contract for gas supply at the city gate instead of contracting
for gas supplies at the wellhead and reserving pipeline capacity. The Company
has satisfied (and us) that sufficient capacity and gas supplies will be
available to operate this way. During the technical conference of January 26,
Mr. Rea, representing Bangor Gas, explained that discussions with MNE were in
progress, that there was adequate capacity and supply available to serve the
Company's needs, and that Bangor Gas had received a precedent agreement from
MNE. These statements were later corroborated by Mr. Harwood, representing MNE.
In addition, Mr. Van Lierop provided city gate gas prices quoted from marketers.
The applications of Mid-Maine and Bangor Gas are further distinguished by the
level of detail provided regarding rate plans. Bangor Gas proposes a specific
inflation based index for the non-gas component of its rates, and commits to
provide unbundled transportation service for all classes of customers. Combining
the indexed non-gas rate with the city gate prices quoted to Mr. Van Lierop
provides an estimate for initial burner tip gas costs to Bangor customers that
is competitive with the estimated fuel oil price.

            In summary, we do not believe it is necessary for Bangor Gas to
provide executed precedent agreements or contracts prior to the issuance of a
certificate. What is important is whether customers of Bangor Gas will receive

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11   See Maritimes and Northeast Pipeline L.L.C., Application for Certificate of
     Public Convenience and Necessity, Docket No. 97-809-000 and 97-810-000.

12   At the Public Advocate's request, the Commission took official notice of
     its findings in Northern Utilities, Inc., Proposed Precedent Agreement with
     Portland Natural Gas Transmission System for Transportation Service, Docket
     No. 96-558, Order dated December 19, 1996, that there was substantial
     uncertainty surrounding the timing and availability of various gas supply
     projects including MNE. See Mid-Maine Order at p. 15, n. 3.



safe and reliable service at reasonable rates. Prior to the unbundling of rates
into transportation and commodity service in the gas industry and competitive
retail access in the electric industry, utility resource plans were reviewed to
assure that monopoly services were being provided to consumers at the lowest
possible cost, and that the sources of supply were reliable. With the advent of
competitive retail access in the electric and gas industries, consumers are no
longer required to purchase supplies from a single monopoly entity. If the
prices for bundled service are unreasonable, consumers may purchase supplies
from competitive suppliers. What remains is to ensure that the supply of
resources provided to consumers will be safe and reliable. The level of
regulatory uncertainty associated with the Maritimes and Northeast Pipeline has
diminished substantially in the year and a half since Mid-Maine Gas filed its
application with this Commission. Discussions with the Bangor Gas witnesses and
with Mr. Harwood in the technical conferences have provided ample assurance that
adequate capacity to serve the needs of the Bangor area will be available on the
MNE facilities. In addition, commodity supplies of gas and storage services will
be available to Bangor Gas (and presumably to marketers) through back haul from
sources other than the Sable Offshore Energy Project (SOEP). Given the current
state of the gas industry in Maine, we believe Bangor Gas has provided the
necessary demonstration required in Mid Maine:

                  A resource plan indicating its source(s) of supply or the
                  availability of unbundled service and demonstrating such
                  source or unbundled supply option is adequate to serve the
                  needs of its proposed customers.

See Mid-Maine Order at 20.

            5. Ability to Provide Service at Just and Reasonable Rates

            Finally, we review Bangor Gas's proposal to determine whether Bangor
Gas has adequately shown that it will be able to provide service at just and
reasonable rates. The Bangor Gas proposal is unusual in one regard: under its
multi-year rate plan, Bangor Gas proposes to charge customers not on the basis
of cost of service, but with a rate capped at an estimated price of alternative
fuel. Consequently, rates do not depend on the start-up company's cost
structure. Since Bangor Gas's multi-year rate plan does not tie cost to rates,
our review of these aspects of Bangor Gas's proposal is not as critical as if
rates were directly related to cost; the issue of whether Bangor Gas will be
able to provide service at just and reasonable rates depends on the price cap
structure it has proposed. OPA's arguments concerning the rate plan submitted by
Bangor Gas (which we have approved in our order dated June 26, 1998 imply that
rates for Bangor Gas must be linked directly to cost regardless of the practical
limitation on prices imposed by competition from other fuels, especially oil. We
disagree. Applying traditional rate of return regulation to a start-up gas
utility, whose costs and markets are at best uncertain, might easily discourage
the investment in gas distribution infrastructure that is likely to bring
significant benefits to the Bangor area and ultimately throughout Maine. Under
the Bangor Gas approach, the Commission will, after ten years, have the
opportunity to assess whether costs and prices should be linked more directly.
In the meantime, customers will have the benefits of competition from a new
energy source, and will be assured (by the operation of the price cap) that they
will be no worse off than they are today.

            The price of competitive fuels provides a market-related limit to
how high Bangor Gas will be able to price its service. Bangor Gas's proposal to
price its service on an attractive comparative basis to those fuels with which
it will compete for customers is designed to assist it in developing its
customer base. Growth of the utility's customer base will enable the venture to
recover its investment in the system over time.

            Finally, Mr. Van Lierop demonstrates that Bangor Gas's rates compare
favorably with gas rates elsewhere in New England. Rate comparisons done by
Commission Advisory Staff using readily available data confirm that, under its
proposal, Bangor Gas is capable of serving Maine customers at rates that are
comparable to others existing and imposed in the region. See Appendix B to this
Order: Rate Comparison.

            6. Summary and Conclusion

            Bangor Gas has clearly met and exceeded the standards articulated in
Mid-Maine to receive a conditional certificate. Bangor Gas's engineering plan is
sufficiently complete to satisfy the requirement for a grant of full authority.
Bangor Gas's resource plan is sufficiently complete at this state of the
planning process and is also adequate in the context of Bangor Gas's proposed
rate plan, which we have also approved.13

            Finally, as discussed above, while Bangor Gas's financing capability
is clear and its options are reasonable, we will await the Company's specific
financing proposal before granting 35-A M.R.S.A. ss. 902 approval.

            We conclude that Bangor Gas has made an adequate showing on the
whole for us to grant it full service authority, subject to further review of
those elements noted herein.

VI.         REORGANIZATION AND AFFILIATED INTERESTS

            Bangor Gas seeks approval of certain affiliated transactions and
exemptions from others. Specifically, the Company seeks approval of a Support
Services Agreement (SSA) between Bangor Gas, Energy Pacific LLC and Bangor
Hydro. The SSA was created pursuant to the Operating Agreement entered into
among the companies, and is designed to enunciate the terms under which certain
services needed to operate the business will be provided to Bangor Gas by BHE or
Energy Pacific. The Company states that the agreement attempts to incorporate

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13   See Order dated June 26, 1998. We do not require, nor is it realistic to
     expect, at this point in time, signed supply agreements. However, if Bangor
     Gas begins charging bundled rates based on cost of service, we may require
     such agreements.


the policies of the Commission as evidenced in prior Commission approvals of
similar instruments.

            Bangor Gas also seeks an exemption of the SSA between itself and
Energy Pacific from the provisions of ss.707. The Company states that Energy
Pacific is an unregulated out-of-state affiliate that will be providing services
in a competitive market, and the Company asserts that granting an exemption will
not be adverse to the public interest. In addition, the Company seeks an
exemption from the requirements of 35-A M.R.S.A. ss. 708 for any reorganization
relating to the creation of an affiliated interest with regard to Bangor Gas and
its non-Bangor Hydro affiliates, including Pacific Enterprises, Bangor Pacific
and Energy Pacific LLC.

            We find that the affiliated interest approvals and exemptions
requested by the Company are reasonable and we approve them. Consistent with our
past practice, we grant exemptions of certain categories of affiliate interest
dealings. Consistent with Chapter 820 of our Rules, we grant no exemption to any
affiliated interest transaction that involves an arrangement with Bangor Gas,
that is, one that would result in an accounting entry on Bangor Gas's books of
account. Similarly, while we grant a limited exemption from the reorganization
requirements contained in ss.708 as explained below, we grant no exemption for
any reorganization involving Bangor Gas or any affiliate that is likely to
provide any goods or services to Bangor Gas.

            The SSA generally follows the principles set forth in the proposed
Chapter 820, and the Agreement contains a clause that indicates it will be
modified, if necessary, in order to remain in compliance with Chapter 820 as it
is finally adopted. We find that the SSA is reasonable, and it provides a
reasonable basis for the charges for the services that are to be provided under
it, and we approve it with the caveat that it must be modified, if necessary, to
remain in compliance with Chapter 820 as it is finally adopted.

            Because the record is not well developed as to the nature of the
transactions for which Bangor Gas seeks an exemption, we will allow only those
exemptions that are consistent with our regulatory practice to date.14
Specifically, we will not grant a ss.707 exemption for any transaction or
arrangement that involves the provision of goods or services between Bangor Gas
and Energy Pacific, or between Bangor Gas and Bangor Hydro, unless the service
provided is utility service that is provided at a tariffed rate. This is
consistent with the proposed SSA which we approve.

            Finally, we grant a limited exemption from 35-A M.R.S.A. ss. 708 for
any reorganization undertaken by Energy Pacific and its affiliates or by BHE
that does not involve Bangor Gas.15 This limited exemption does not apply to any
reorganization that involves an affiliate that is likely to enter into a

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14   Our ruling does not prohibit Bangor Gas from seeking additional exemptions
     if it so desires.

15   As an electric utility operating in Maine, BHE is currently required to
     obtain section 708 approval for its reorganizations.



transaction or arrangement with Bangor Gas. Further, this exemption does not
apply to any affiliate that becomes a public utility or would otherwise be
subject to our jurisdiction in Maine.

VIII.    STIPULATION

         Bangor Gas filed a stipulation among three of the parties to this case
with its Motion. The signatories were Bangor Gas, BHE, and MNE. The stipulation
recommends that the Commission approve Bangor Gas's requests for approvals and
exemptions relating to granting it full (unconditional) authority to serve in
the greater Bangor area. The OPA and CMP opposed the Stipulation.

         We will not independently consider the stipulation. The fact that the
stipulation is contested requires us to determine whether there is a genuine
issue of material fact with respect to the conclusions contained in the
stipulation. See Chapter 110, section 744(d). If we determine that there are
disputed issues of material fact, we may hold a hearing or reject the
stipulation and resume the adjudicatory process. See Ch. 110, section 744(e).
Because we have considered, and resolved, all disputed issues of fact raised
here, further review of the stipulation is unnecessary.

         Furthermore, as we have previously stated,16 we are not inclined to
approve stipulations made solely among parties holding the same or very similar
interests. We are more likely to conclude that stipulations among parties with a
broad cross-section of interests do justice to the competing public and private
interests in the case. The stipulation presented here falls within the former
category; the interests of Bangor Gas, BHE and MNE are not sufficiently diverse.
See Central Maine Power Company, Re: Proposed Increase in Rates, Docket No.
92-345(II), Detailed Opinion and Subsidiary Findings (January 10, 1995) at 2-3.


IX.      CONCLUSION

         For the aforegoing reasons, we

                                    O R D E R

         1. That Bangor Gas Company L.L.C.'s Motion to Strike or Exclude
Portions of the Testimony of Scott Rubin on behalf of the Public Advocate is
denied;

         2. That Bangor Gas Company L.L.C.'s petition for approval of full
service authority to provide service in the municipalities of Bangor, Brewer,

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16   See Central Maine Power Company, Petition for Approval of Affiliated
     Interest Transactions and Reorganization of FiveCom Entities, Docket No.
     98-319, Order (June 11, 1998) at p. 5.


Veazie, Old Town and Orono is granted, subject to the filing and approval of its
actual financing proposal pursuant to 35-A M.R.S.A. ss.902 and any other
requirements of this Commission;

         4. That the Support Services Agreement between Bangor Gas Company
L.L.C. and Bangor Hydro Electric and Energy Pacific is approved;

         5. That certain reorganizations among affiliates of Energy Pacific and
Bangor Hydro Electric Company are exempted from Commission review under 35-A
M.R.S.A. ss.708, as described herein;

         6. That Bangor Gas may commence construction prior to receiving
financing approval; and

         7. That this Order does not confer on Bangor Gas guaranteed ratemaking
treatment of costs it incurs in developing its distribution system, obtaining
gas supply commitments, and does not constitute a finding of prudence for any
act or practice in which it engages in its endeavor to establish a local
distribution company.

         Dated at Augusta, Maine this 30th day of June, 1998.

                                             BY ORDER OF THE COMMISSION


                                             ----------------------------------
                                             Dennis L. Keschl
                                             Administrative Director



COMMISSIONERS VOTING FOR: WELCH
                          NUGENT

COMMISSIONER HUNT DID NOT PARTICIPATE IN THIS DECISION.


This document has been designated for publication.

<PAGE>

APPENDIX A:  PROCEDURAL HISTORY

         On October 20, 1997, Bangor Gas Company, L.L.C. (Bangor Gas) filed a
request for a protective order to allow it to file confidential information with
the Commission, initiating this docket. The Examiners issued a Procedural Order
Issuing Temporary Protective Order on October 28, 1997.

         On October 29, 1997, Bangor Gas and Bangor Hydro Electric Company (BHE)
filed their Consolidated Petitions consisting of Bangor Gas' Petition for
Approval to Furnish Gas Service in the State of Maine, pursuant to 35-A ss.ss.
2104 and 2105, and BHE's Application for approval of or exemption from various
affiliated transactions and reorganization, pursuant to 35-A M.R.S.A. ss.ss. 707
and 708. Bangor Gas seeks authority to provide natural gas service in the
municipalities of Bangor, Brewer, Old Town, Orono and Veazie.

         Bangor Gas's filing contains the prefiled testimonies of Andrew Rea,
Vice President of Energy Pacific; Frederick S. Samp, Vice President - Finance
and Law, for BHE; Carroll R. Lee, Senior Vice President and Chief Operating
Officer, BHE; Johannes Van Lierop, Director of Governmental and PUC Regulatory
Affairs for Southern California Gas Company (SoCalGas); and David G. Schiller,
Technical Operations Manager for Energy Pacific, a joint venture between
SoCalGas and Enova (parent company of San Diego Gas and Electric).

         In the filing, Bangor Gas and BHE requested that their petitions be
consolidated into one proceeding. On November 18, 1997, the Examiners in both
dockets jointly issued a Procedural Order Denying Request for Consolidation of
the two cases but did commit to scheduling the hearings and technical
conferences in both proceedings in a manner that would avoid the need for Bangor
Pacific personnel to travel to Maine on different dates.

         On November 21, 1997, the Commission issued a Notice of Proceeding and
scheduling a preheating conference for December 9, 1997 in this docket. At the
prehearing conference, the Examiner granted the interventions of the Office of
the Public Advocate (OPA), Bangor Hydro- Electric Company (BHE), Northern
Utilities, Inc. (Northern), Mid-Maine Gas Utilities Inc. (Mid-Maine), Central
Maine Power Company (CMP), Maritimes & Northeast Pipeline, L.L.C., and the Maine
Oil Dealers Association (MODA).

         On January 2, 1998, the Examiner issued a Prehearing Conference Report
and Procedural Order establishing a schedule for this case. That Report also
established the scope of this proceeding, following the policy stated by the
Commission in Mid-Maine Gas Utilities Inc., Request for Approval to Furnish Gas
Service, Docket No. 95-465, Order (March 7, 1997). The Examiner also issued a
Clarifying Procedural Order on January 12, 1998 regarding scope and
intervention.

         The OPA filed the prefiled direct testimony of its consultant, Scott J.
Rubin, on February 3, 1998.

         On February 6, 1998, the Examiners in Docket Nos. 97-795 and 97-796
jointly issued a Procedural Order Revising Schedules.

         On February 11, 1998, Bangor Gas filed a Motion for Partial Summary
Judgment and to Strike or Exclude Portions of the Testimony of Scott Rubin on
Behalf of the Public Advocate and Incorporated Memorandum, as well as its
Statement of Material Facts Not in Dispute, pursuant to Rule 7 and 56 of the
Maine Rules of Civil Procedure. In addition, a stipulation among Bangor Gas, BHE
and MNE was filed with the motion. On February 13, 1998, the OPA filed a Motion
for Expedited Comparative Certificate Proceeding requesting that the Commission
render a decision by April 10, 1998. The Examiners issued a Procedural Order
requesting that parties responses to these motions be filed by February 23,
1998. On February 19, 1998, the OPA filed an amendment to its motion to
suggesting that the comparative proceeding be a 120- or 180- day proceeding to
allow adequate time in which to conduct the proceeding. OPA, CMP, and Northern
filed comments regarding the motions on February 23rd. CMP and Northern took no
position on the OPA's motion. CMP opposed Bangor Gas's motion.

         On February 20, 1998, Bangor Gas filed the original sworn affidavits of
Frederick S. Samp, Andrew R. Rea, Johannes Van Lierop, Carroll R. Lee, David G.
Schiller and Douglas S. Morrell in support of Bangor Gas's Motion for Partial
Summary Judgment, placing under oath the testimony, exhibits, data responses,
and testimony at discovery conferences.

         Technical conferences for the purpose of oral discovery were held on
January 26 and February 25, 1998.

         Bangor Gas filed a request to have Protective Order No. 1 extended to
cover certain financing documents which it intended to file to support its
request for ss.902 financing approval. The Examiner granted Bangor Gas's request
by procedural order dated February 27, 1998. Bangor Gas filed the confidential
financing documents on March 4, 1998.

         On March 3, 1998, the Bangor City Manager filed a letter with attached
Bangor City Council Resolve 98-104, urging the Commission to select Bangor Gas
to serve the greater Bangor area.

         On February 27, 1998, the Examiners issued a Procedural Order inviting
further comments of the parties on issues raised by the pending motions. Bangor
Gas, CMP, Northern, OPA, BHE and MNE filed responsive comments on March 5, 1998.

         An Examiners Report on the pending motions and stipulation was issued
March 9, 1998, exceptions were due March 12, 1998, and deliberations on the
Report were scheduled for March 13, 1998. The March 13th deliberations on the
OPA's Motion were rescheduled for April 28, 1998.

         On March 16, 1998, OPA filed a letter indicating that it had agreed not
to contest Bangor Gas on the issues of engineering, financing and gas supply,
although OPA continued to support the comparative proceeding selection process.

         On March 17, 1998, Bangor Gas submitted an earnings sharing proposal as
an alternative to its original rate plan proposal. A hearing was held on March
18, 1998 on issues regarding Bangor Gas's rate plan proposals; Bangor Gas
explained its alternative earnings sharing proposal. In addition, CMP conducted
cross-examination on issues relating to Bangor Gas's fitness to receive service
authority (i.e. non-rate plan issues).

         On March 27, 1998, CMP filed a brief on the certificate (non-rate plan)
issues that were explored in the hearing. Bangor Gas filed its reply brief on
non-rate plan issues on April 1, 1998. Rate plan briefs and reply briefs were
filed on April 1st and 10th, respectively, by OPA, CMP and Bangor Gas.

         The Commission held Oral Argument on the motions on April 2, 1998 and
subsequently requested further comment from parties on issues raised by Northern
regarding service territory boundaries and finding need in areas with differing
degrees of service and service authority.17 Bangor Gas, CMP, OPA, MNE and
Northern filed further comments on these issues on April 17th and 21st.

         The Commission held deliberations on April 28, 1998 on the OPA's
Amended Motion for Comparative Proceeding.

         An Examiners' Report on the rate plan was issued May 4, 1998.
Exceptions were filed by OPA and CMP. Bangor Gas filed a letter suggesting a
compliance proceeding to develop the rate change notice requirement. The
Commission deliberated and approved the certificate issues and proposed rate
plan on May 18, 1998.

- ---------
17   Northern had also raised these issues in its Motion for Reconsideration of
     Award of Conditional Authority in Central Maine Power Company, Petition for
     Approval to Furnish Gas Service in and to Areas Not Currently Receiving
     Natural Gas Service, Docket No. 96-786.

<PAGE>



APPENDIX B:  RATE COMPARISONS

Note:  Rate class definitions may differ.

BANGOR GAS

Customer Class              Bundled Rate                       Non-gas Rate

R                           70.8 cents per therm                35.9
Small C&I                   59.7                                24.8
Large C&I                   57.5                                23.7

(Source: Van Lierop, p. 11-13. Assumes gas cost of 35.0 cents per therm.
Includes customer charge, unitized for standard size customer.)

NORTHERN UTILITIES (Non-gas rate, exclusive of customer charge (from tariffs).)

R                 42.45         (50)       29.98

C                 37.84         (100)      27.70       (1000)    23.88

I                 20.52         (5000)     19.51       (20000)   16.90

XLV  Summer   6.93              Winter     16.43

NORTHERN UTILITIES (Non-gas rates, including non-gas portion of customer charge,
applied to BGC's standard size customer.)

R                          37.2

C                          33.7

I                          27.9

NORTHERN UTILITIES  (Bundled rate (average effective))

R                          78.8

C                          71.4

I                          53.1

(Source:  EIA, 1996 data.  I includes interruptible sales.)


NEW ENGLAND (Bundled rate (average effective - calculated by EVM from same EIA
data)).

R                          90.7

C                          69.4

I                          51.5

REED MAINE MARKET STUDY  (Non-gas rate)

R                          47.5

C                          45.5

I                          20.0




                                                                    Exhibit D-3


                                 STATE OF MAINE
                           PUBLIC UTILITIES COMMISSION

                                  CONFIDENTIAL
                     PETITION OF BANGOR GAS COMPANY, L.L.C.
                   FOR APPROVAL TO FURNISH GAS SERVICE IN THE
                   MUNICIPALITIES OF HAMPDEN, HERMON, MILFORD,
               BRADLEY, ORRINGTON, EDDINGTON AND BUCKSPORT, IN THE
                                 STATE OF MAINE.
                             35-A MRSA ss.2104, 2105

                          MAINE PUC DOCKET NO. 98- 468


                                  INTRODUCTION

         Pursuant to Sections 2104 and 2105 of 35-A MRSA, Bangor Gas Company,
L.L.C. ("Bangor Gas" or "Applicant") hereby files this Petition for Approval to
Furnish Gas Service, and related authorizations necessary to construct, install,
own, operate and maintain certain new natural gas pipelines and ancillary
facilities, and to operate as a local distribution company ("LDC") in the
following Maine municipalities: Hampden, Hermon, Milford, Bradley, Orrington,
Eddington and Bucksport, in the State of Maine (the "Surrounding Communities").
These municipalities are not currently receiving natural gas service from any
supplier.

     On May 18,1998, in Docket 97-795 Bangor Gas received full authority and
unconditional certification from the Maine Public Utilities Commission to
construct, install, own, operate and maintain a local gas distribution company
in Bangor, Brewer, Old Town, Orono and Veazie (the "Core Communities")
(hereinafter referred to as "Authorization."


     In support of this Petition, Bangor Gas will show as follows:

                                        I
                                EXECUTIVE SUMMARY

     In December 1996, Bangor Hydro-Electric Co. and Pacific Enterprises began
to examine the feasibility of constructing and operating an LDC in the Core
Communities. This was prompted by Maritimes and Northeast Pipeline, LLC's
("Maritimes") proposal to build a natural gas pipeline from the Sable Offshore
Energy Project near Sable Island, Nova Scotia through Maine to an interconnect
with the Tennessee Gas pipeline at Dracut, Massachusetts -- a project which is
scheduled to be completed in late 1999. Because the pipeline would run very
close to Bangor, it was believed that construction and operation of a natural
gas LDC in the Bangor area would, for the first time, be economically feasible.
The study prepared by Bangor Hydro-Electric and Pacific Enterprises confirmed
this belief. Consequently, on August 27, 1997, Bangor Gas Company, L.L.C. was
formed as a Maine limited liability company pursuant to an agreement (amended on
October 27, 1997) between Bangor Hydro-Electric Company ("Bangor Hydro"), and
Bangor Pacific ("Pacific") for the purpose of designing, engineering, financing,
constructing, testing, managing, marketing and operating an LDC in the greater
Bangor area.

     On October 29, 1997 Bangor Gas filed, inter alia, a Petition for
unconditional authority to provide LDC service in the Core Communities. After
discovery, technical conferences and hearings, on May 18, 1998 the Maine Public
Utilities Commission granted the Petition. In its Authorization, the Commission
also authorized Bangor Gas to charge rates to customers in the Core Communities
pursuant to a ten-year rate plan (the "Rate Plan"). Bangor Gas has commenced
construction of the LDC. Service to the Core Communities will commence in the
late fall of 1999, assuming timely completion of the Maritimes pipeline.

     At this time, Bangor Gas desires to obtain unconditional authority to
construct a gas system in, and full authority to provide service to, the
Surrounding Communities. These communities are adjacent to or in close proximity
to the Core Communities. This proposal represents a logical and economical
extension of the LDC service previously authorized by the Commission. In
addition, depending on the ultimate location of the Maritimes pipeline Bangor
Gas proposes to construct a lateral directly to the Maritimes pipeline in
Orrington.1

     As it has in the past, Bangor Gas looks forward to working with the
Commission, the State and municipalities, potential customers, and others to
accomplish the construction of the facilities and the provision of local natural
gas service to the Surrounding Communities in the most efficient and expeditious
manner.

     In light of the fact that the Commission has, in its Authorization,
resolved most all of the issues relevant to the issuance of an unconditional
certification to Bangor Gas as requested in this Petition, (including all issues
relevant to the Rate Plan), and in light of the Commission's previously stated
position regarding standards for approving LDCs in areas in which there is no
gas service, there are few, if any, issues for litigation in this case.

- ----------
1    On or about June 18, 1998, FERC issued its final environmental impact
     statement on the proposed Maritimes pipeline. Bangor Gas will study the EIS
     and evaluate construction of a lateral from Orrington in light of the EIS.
     Bangor Gas intends to file an update to the supporting material by July 8,
     1998.

     For this reason, and in order to promote administrative efficiency, Bangor
Gas has proposed a procedure and schedule for this case that would screen out
those issues that have already been resolved by the Commission, and would
require any party to identify in good faith any genuine issues of material fact
in dispute. This proposed procedure and schedule is described in Exhibit A,
hereto. Bangor Gas believes that proceeding in this fashion would expedite the
processing of this case, save costs and result in administrative efficiency.
Because Bangor Gas believes that there are no or very few genuine issues of
material fact in this case, it has also filed with this Petition a Motion for
Full or Partial Summary Judgment.

                                       II
                                     GENERAL

     The exact legal name of the applicant is Bangor Gas Company, L.L.C. Bangor
Gas is a limited liability company organized and existing under the laws of the
State of Maine and has its principal place of business at 33 State Street,
Bangor, Maine. Bangor Gas is being operated pursuant to an Operating Agreement,
as Amended and Restated, dated October 27, 1997.

     The names, titles, and mailing addresses of the persons to whom
correspondence and communications concerning this Petition should be addressed
are:

Donald C. Liddell, Esq.                     Alan G. Stone, Esq.
Pacific Enterprises                         Clifford, Stone & Hermon
633 W. Fifth Street, Ste. 5200              640 Main Street
Los Angeles, CA 90051                       Lewiston, Maine 04243-0590
(213) 895-5166                              (207) 784-7381


Frederick S. Samp, Vice President
Bangor Hydro-Electric Company
P. O Box 932
Bangor, Maine 04402-0932
(207) 941 6653

Petitioner also requests that the following persons be placed on the service
list:

Andrew R. Rea                               Douglas S. Morrell
Sempra Energy Utility Ventures              Bangor Hydro-Electric Company
633 W. Fifth Street, Ste. 56K               P.O. Box 932
P.O. Box 4690                               Bangor, Maine 04402-0932
Los Angeles, CA 90051                       (207) 990-6980
(213) 895-5734

Kimball L. Kenway, Esq.
David P. Silk, Esq.
Curtis Thaxter Stevens Broder & Micoleau LLC
One Canal Plaza
P.O. Box 7320
Portland, Maine 04112-7320
207-775-2361

                                       III
                                   THE MEMBERS

       Bangor Pacific, a wholly-owned subsidiary of Sempra Energy Utility
Ventures, formerly Energy Pacific and Penobscot Gas Company Inc., a wholly-owned
subsidiary of Bangor Hydro-Electric Company, are the Members of Bangor Gas.

                                       IV
                  DESCRIPTION OF PROPOSED OPERATION AND SERVICE

     Bangor Gas requests authority to construct, install, own, operate and
maintain pipelines and ancillary facilities in and provide natural gas service
in and to Hampden, Hermon, Milford, Bradley, Orrington, Eddington and Bucksport,
Maine (the Surrounding Communities). Natural gas service is currently not being
provided to any portion of these municipalities.

                                        V
                       DESCRIPTION OF PROPOSED FACILITIES

     Bangor Gas has developed engineering studies and plans in support of the
construction and operation of the LDC in the Surrounding Communities. The
engineering and construction of the system is described more fully in the
prefiled direct testimony of Andrew R. Rea and David G. Schiller, both of which
are submitted herewith.

     It is estimated that the Maritimes Pipeline will be in service by November
of 1999. Bangor Gas has filed a construction schedule as part of its engineering
report relating to the Surrounding Communities. The cost of these facilities is
estimated to be approximately $10.9 million dollars.

                                       VI
                                     SUPPLY

     Bangor Gas' resource plan, and the experience of Pacific Enterprises, and
its affiliates including Sempra Energy Utility Ventures (formerly Energy
Pacific), the Southern California Gas Company, and Sempra Energy Trading
(formerly AIG Trading Corporation) in purchasing and managing gas supply, is
described in the prefiled direct testimony of Andrew Rea, attached hereto. This
is the same gas supply plan the Commission found to be reasonable in its
Authorization.


                                       VII
              COMPLIANCE WITH STATUTORY STANDARDS FOR AUTHORIZATION

     1.   Application for Authority to Serve

          This Commission has recently set forth the legal standards and
evidentiary showing necessary for an LDL to obtain authority under 35-A MRSA
ss.2104 and 2105, and in its Authorization has made findings and conclusions
relative to Bangor Gas which effectively resolve, as a matter of law, many of
the issues in this case.

     Bangor Gas satisfies all of the following standards for unconditional
certification:

          A.  There is a public need for the proposed service.

          This is met by the fact that no natural gas distribution service is
being provided in the Surrounding Communities. Although in the late 1960's the
Commission authorized Northern Utilities Inc. ("Northern") to provide gas
service to the Surrounding Communities, Northern is not serving those areas, and
has not taken the position in other cases that its authority in these particular
municipalities raises the bar to a second applicant seeking authority. See
Central Maine Power Company, Docket 96-786, Phase II, Order on Reconsideration
(March 11, 1998). Accordingly, the need standard has been met.

          B.  The applicant has the technical ability to provide the service.

          The Commission has made the determination that Bangor Gas has the
technical ability to provide natural gas service in the Core Communities.
Authorization, supra. This resolves the issue of Bangor Gas's technical ability
to provide the service to the surrounding communities.

          Bangor Gas' members have substantial experience in constructing
facilities and providing service similar to that being proposed, and possess
general and relevant educational and engineering qualifications. Pacific
Enterprises is, in turn, the parent of Southern California Gas Company, one of
the largest natural gas distribution companies in the United States, and has
been involved in the construction and operation of LDC systems in the United
States and internationally. Penobscot Gas Company's parent, Bangor Hydro, has
been engaged in the energy business and has been constructing facilities and
operating an electric system in the Bangor area for over seventy years.

          The Members' parents have demonstrated competence, through involvement
in regulatory proceedings at the federal level and throughout the United States,
in recognizing the need for and selecting consulting, engineering and
construction assistance, or affiliation with competent and experienced
providers. Bangor Hydro has regularly appeared before practically all
administrative regulatory agencies in Maine, and has been involved in Federal
regulatory proceedings, as part of its operation as a public utility. Pacific
Enterprises, likewise, has similar experience elsewhere in the nation and
internationally. They have expert knowledge of industry practice and
understanding of local conditions and requirements, and have established
reputations for credibility and accuracy relating to such subjects. Pacific
Enterprises has established and developed company standards of conduct or
procedures to be implemented to assure safety and reliability of service.

          C.  Bangor Gas possesses adequate financial resources to complete
              the project.

          Bangor Gas is financially capable of providing safe and reliable
service at just and reasonable rates. The Members' parents have substantial
experience and ability in financing projects of similar size and complexity. The
ability and plans of the applicant to finance the project is described in the
prefiled direct testimony and exhibits of Andrew R. Rea and Frederick S. Samp,
attached hereto. The Commission has made the determination that Bangor Gas has
adequate financial resources to complete the project in the Core Communities,
which resolves the issue of financial ability to complete the project in this
case. Authorization.

          D.  The Financing Plan is reasonable.

          Bangor Gas' financing plans for construction and operation of the
system in the Surrounding Communities are discussed by Mr. Rea and Mr. Samp in
their prefiled testimony. Bangor Gas is seeking financing approval in the same
manner as authorized in 97-795. As discussed in the prefiled testimony of Mr.
Rea and Mr. Samp, through either internal financing or third party financing
Bangor Gas will raise up to $10.9 M to pay for the construction costs for
extending the system to the Surrounding Communities. In Docket 97-795, Bangor
Gas received approval to issue up to $21M in debt (subject to review of the
actual debt instrument) and also to obtain capital contributions up to $17.5M.
Bangor Gas seeks approval to increase the debt ceiling to $27.54 M and the
capital contribution ceiling to $22.95M. Included in this filing is an
Application for Financing Authority submitted pursuant to 35-A M.R.S.A. ss. 902.


          E.  Bangor Gas' Engineering Plans are reasonable.

          The engineering plans and issues of safety are discussed in the
prefiled testimony and exhibits of Mr. Schiller. These plans follow those which
the Commission found to be reasonable in Docket 97-795. Accordingly, Bangor Gas
seeks similar approval here.

          F.  Bangor Gas' Resource Plan is reasonable.

          The Resource Plan is discussed in the prefiled testimony and exhibits
of Mr. Rea. It is the same resource plan as was approved by the Commission as
reasonable in Docket 97-795. Accordingly, Bangor Gas seeks similar approval as
that issued by the Commission in 97-795.

          4.  Bangor Gas has the ability to serve at just and reasonable rates.

          Bangor Gas proposes to provide service pursuant to the Rate Plan
approved by the Commission in Docket 97-795. In that Docket, the Commission
found that Bangor Gas Company has the ability to provide service at just and
reasonable rates

                                       VII
                      SUMMARY OF PREFILED DIRECT TESTIMONY
                        LIST OF EXHIBITS AND ATTACHMENTS

          Prefiled Direct Testimony:

          Bangor Gas has filed in support of this Petition, the Prefiled Direct
Testimony of the following individuals.

     1. Andrew R. Rea. Mr. Rea is Vice President of Sempra Energy Utility
Ventures, formerly Energy Pacific, a joint venture of Pacific Enterprises and
Enova Corporation, and Senior Vice President and Chief Operating Officer of
Bangor Gas Company. Mr. Rea will outline the business plan of Bangor Gas
relative to the Surrounding Communities. Mr. Rea will also describe the
Company's resource plan, and Sempra Energy Utility Ventures' interest and
involvement in financing the project. Mr. Rea addresses how the Applicant has
satisfied the criteria for the issuance of a certificate of need, as set forth
by the Maine Public Utilities Commission in the Bangor Gas case. He further
explains that Bangor Gas intends to charge the same rates in the Surrounding
Communities as those to be charged in the Core Communities, all subject to the
multi-year rate plan recently approved by the Commission.

     2. Frederick S. Samp. Mr. Samp is Vice President and Chief Financial
Officer of Bangor Hydro and Chief Financial Officer of Bangor Gas. Mr. Samp will
discuss Bangor Gas' plan for financing the construction and operation of an LDC
in the Surrounding Communities. He will also testify about the project costs and
explain project financing.

     3. David G. Schiller. Mr. Schiller is employed by Sempra Energy Utility
Ventures as Technical Operations Manager. Mr. Schiller will explain the
engineering and construction of the project in the Surrounding Communities.

                                       VII
                         RELIEF REQUESTED BY BANGOR GAS

 WHEREFORE, for the reasons set forth herein above, Bangor Gas respectfully
requests the Commission to:

     (1)  Grant Bangor Gas, pursuant to 35-A M.R.S.A. ss.ss.2104 and 2105,
          unconditional certification and full authority to construct and
          operate necessary facilities and to furnish natural gas service in
          Hampden, Hermon, Milford, Bradley, Orrington, Eddington and Bucksport,
          in the State of Maine, and

     (2)  Confirm the applicability of the Bangor Gas multi-year rate plan to
          the rates to be charged in the above municipalities, and

     (3)  Grant approval to the proposed financing as described herein, pursuant
          to 35 M.R.S.A. ss.901, and

     (4)  Grant such other and further relief as shall be just and reasonable.


DATED:   June 24, 1998.

                                                     Respectfully submitted,
                                                     Bangor Gas Company, L.L.C.



                                                     /s/ Alan G. Stone
                                                     --------------------------
                                                     By:  Alan G. Stone, Esq.
                                                     Clifford, Stone & Herman
                                                     640 Main Street
                                                     Lewiston, Maine 05243-0590
                                                     (207) 784-7381
                                                     Its Attorneys



                                                                    Exhibit D-4


                                REDACTED VERSION


STATE OF MAINE                                           DOCKET NO. 98-468
PUBLIC UTILITIES COMMISSION
                                                         OCTOBER 22, 1998

BANGOR GAS COMPANY, L.L.C.,                              ORDER
PETITION FOR APPROVAL TO PROVIDE GAS
SERVICE IN THE MUNICIPALITIES OF HAMPDEN,
HERMON, MILFORD, BRADLEY, EDDINGTON,
ORRINGTON, AND BUCKSPORT

               WELCH, CHAIRMAN; NUGENT AND DIAMOND, COMMISSIONERS

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

I.   SUMMARY

     We grant Bangor Gas Company, L.L.C.'s (Bangor Gas) authority to provide
natural gas service in the municipalities of Hampden, Hermon, Milford, Bradley,
Eddington, Orrington, and Bucksport as proposed.

II.  PROCEDURAL HISTORY

     On June 24, 1998, Bangor Gas filed its petition for authority to provide
service to seven municipalities: Hampden, Hermon, Milford, Bradley, Eddington,
Orrington, and Bucksport (Surrounding Communities). These seven municipalities
are located adjacent to five municipalities in the greater Bangor where we
previously authorized Bangor Gas to serve, i.e. Bangor, Brewer, Orono, Old Town
and Veazie (Core Communities). See Bangor Gas Company, L.L.C., Petition to
Provide Gas Service in the Greater Bangor Area, Docket No. 97-795, Order
Granting Unconditional Service Authority (June 30, 1998) (June 30th Order).
Bangor Gas provided copies of its filing to the Office of the Public Advocate
(OPA) and counsel for CMP Natural Gas (CMP NG), Northern Utilities, Inc.
(Northern), Maritimes & Northeast Pipeline LLC (MNE), and the Maine Oil Dealers
Association (MODA), all intervenors in Docket No. 97-795.

     Bangor Gas included in its filing the prefiled direct testimonies and
exhibits of Andrew Rea, Frederick S. Samp and David G. Schiller. Bangor Gas
filed both confidential and redacted versions of these testimonies and exhibits.
In addition, Bangor Gas filed a proposed schedule for the proceeding and a
Motion for Summary Judgment with its petition.

     The Hearing Examiner issued Protective Order No. 1 on June 23, 1998
granting confidential treatment to certain business information contained in
Bangor Gas's filing. Specifically, information relating to system design or
engineering of the proposed system, market research or marketing information,
projected costs, revenues, and earnings, and its proposed terms of debt capital,
are afforded confidential treatment in this proceeding. In addition, similar
confidential information provided in Docket No. 97-795 that may be used in this
proceeding is also afforded confidential treatment under this protective order.

     The Examiner issued a Notice of Proceeding and Prehearing Conference on
July 1, 1998 by mail to parties in Docket Nos. 97-795 and 96-786 and by
publication in newspapers of general circulation in the Bangor area.

     A Prehearing Conference was held on July 14, 1998. The Hearing Examiner
granted the intervention of the OPA, Bangor Hydro Electric Company (BHE), MODA,
Northern, CMP NG, and Maritimes. The Examiner established the schedule for this
proceeding by Procedural Order dated July 23, 1998. The schedule included a date
for parties to respond to Bangor Gas's Motion for Summary Judgment for
disposition in advance of the filing date for intervenor testimony.

     On July 13, 1998, Bangor Gas filed affidavits of its witnesses in support
of its motion for summary judgment. On July 8th and 23rd respectively, Bangor
Gas filed the Supplemental Confidential and Redacted Prefiled Testimony and
Exhibits of David G. Schiller and two corrected pages to the Confidential
Engineering Report, Exhibit A thereto. On August 6, 1998, Bangor Gas filed
Revised Confidential Tables 1 through 5, attachments to the testimony of Andrew
Rea.

     On August 20, 1998, Northern, CMP, and OPA filed comments in response to
Bangor Gas's Motion for Summary Judgment. No party raised any outstanding issues
of fact requiring further testimony and hearing. Bangor Gas filed responsive
comments on August 24th. By Procedural Order issued on September 1, 1998, the
schedule was modified to eliminate further litigation of this case and to allow
for the preparation of an Examiner's Report, parties' exceptions, and Commission
decision.

     The Examiner's Report was issued on October 5th. OPA filed a letter
offering no exceptions and supporting a policy that places the risk of start-up
ventures on shareholders on October 13th. The Commission deliberated on October
19, 1998.

III. CONTENTS OF THE RECORD

     We incorporate in the record all prefiled testimony and exhibits,
discovery, and other filings made in this case, as well as transcripts of the
prehearing conference.

IV.  STANDARD OF REVIEW

     A.   MOTION FOR SUMMARY JUDGMENT

          Bangor Gas seeks authority to serve in the seven additional
municipalities by means of a Commission ruling on its Motion for Summary
Judgment that, as a matter of both fact and law, Bangor Gas is entitled to be
granted unconditional service authority. CMP argues that a decision on summary
judgment is not an appropriate means for the Commission to grant service
authority because the Commission must also consider matters other than fact and
law, specifically public interest issues, in making its decision. We agree.
Public interest issues are an important part of the consideration of whether an
entity should be authorized to serve any particular area. See Central Maine
Power Company, Petition for Approval to Furnish Gas Service In and To Areas Not
Currently Receiving Natural Gas, Docket No. 96-786, Order (August 17, 1998)
(CMP).1

          In this case, no party has raised issues of fact or law in opposition
to Bangor Gas's application for service authority to the surrounding
communities. Rather, CMP has raised several public interest issues for our
consideration with Bangor Gas's application. See CMP's Comments in Response to
Bangor Gas's Motion for Summary Judgment dated August 20, 1998.

          Consequently, herein we will address Bangor Gas's application on its
merits, not only to allow consideration of public interest matters but also to
provide a clearer indication of the basis on which we grant service authority.

     B.   STATUTORY PROVISIONS

          Bangor Gas seeks approval pursuant to 35-A M.R.S.A.
ss.ss.2104-ss.2105. Title 35- A Section 2104 requires every gas utility to
obtain commission approval before furnishing service in or to any municipality
even if no other gas utility is furnishing or is authorized to furnish gas
service therein. Section 2102(l) requires a public utility to obtain the
approval of the Commission before it may furnish service "in or to any
municipality in or to which another public utility is furnishing or is
authorized to furnish service ..."

          Section 2105(l) further requires the commission to find that public
convenience and necessity require a second public utility where a public utility
is already authorized to serve. Both sections 2104 and 2105 require us to
determine, as a public interest matter, that the proposed service will be
provided in a safe and adequate manner at rates that are just and reasonable.
See Mid-Maine Gas Utilities, Inc., Request for Approval to Furnish Gas Service,
Docket No. 96-465 (Mid-Maine), Order at 6 (March 7, 1997).

          An applicant generally has the burden of proof to show that there is a
need for service in areas in which it proposes to serve and that it is able to,
in a timely manner, provide safe and adequate service at just and reasonable
rates. See 35-A M.R.S.A. ss. 1314. However, a previously authorized utility
contesting an application can present evidence to the contrary. See 35-A
M.R.S.A. ss. 2105(2).

- --------
1    In granting Bangor Gas service authority in Docket No. 97-795, we
     considered the application on its merits rather than on Bangor Gas's Motion
     for Summary Judgment, finding that there were matters of fact in dispute.
     Those matters were taken up at a hearing.


     C.   THE MID-MAINE PRECEDENT

          For a grant of conditional service authority for gas utilities, an
applicant must establish that 1) public need for the proposed service exists, 2)
the applicant has the technical ability to provide the service, and 3) that the
applicant has adequate financial resources to complete the project. In addition,
these standards must be met in a manner consistent with providing safe and
reliable service at just and reasonable rates, to ensure that the project will
be in the overall public interest. For a grant of unconditional service
authority, gas applicants must file and receive approval of detailed plans for
construction, engineering, and financing before commencing service. See CMP at
9.

V.   ANALYSIS OF BANGOR GAS'S APPLICATION

     A.   CONDITIONAL AUTHORITY

          Bangor Gas argues that it has met the standards for a grant of
conditional service authority in the surrounding communities as established by
this Commission in Mid-Maine. Bangor Gas's overall competence to provide service
as a public utility under the Mid-Maine standards for conditional authority to
serve is not disputed by any party. The question of whether Bangor Gas has
sufficient financial and technical capability to provide service as a public
utility was resolved by our findings in Docket No. 97-795. Nothing has been
raised in this proceeding to suggest that that conclusion should be changed.

          Similarly, a need for service exists because no natural gas service is
currently being provided in these municipalities. Northern and CMP Natural Gas
also have authority to serve in the surrounding municipalities, but, to date,
they are not providing service. In both Mid-Maine and CMP we determined that we
would authorize multiple entities to serve an area, thereby promoting the public
benefit by encouraging competition among potential providers. Neither Northern
nor CMP has raised any issues in this proceeding to suggest that harm will occur
if we authorize an additional entity (or, more specifically, Bangor Gas) to
provide service to the surrounding municipalities.

     B.   UNCONDITIONAL AUTHORITY

          The remaining elements presented for our review in determining whether
to grant Bangor Gas unconditional authority for the surrounding communities
involve the specifics of its proposal to construct and operate a system to serve
seven additional municipalities. We must determine whether Bangor Gas's
engineering proposal, financing plan, and resource plan support a conclusion
that Bangor Gas can provide safe and reliable service at just and reasonable
rates under the terms of its proposal. We consider these matters below.

          Because the proposal in this proceeding simply incorporates additional
municipalities into the overall proposal presented and approved in Docket No.
97-795, our review of this petition builds on our review in Docket No. 97-795.
Consequently, our review of each aspect of the current proposal begins with a
summary of what was proposed and approved in the prior proceeding.

     1.   FINANCING PLAN

          In Docket No. 97-795, Bangor Gas sought authority to issue total
membership interests of up to $17,500,000 in itself as a Limited Liability
Company (LLC) in accordance with the terms of the Operating Agreement between
the members, that is, Gassub, a wholly owned subsidiary of BHE and Bangor
Pacific. These membership interests would constitute the equity in the new
company. Bangor Gas also sought authority to borrow up to $21,000,000 in secured
construction loans for a period of up to 18 months. Security for the loans would
be the assets of the system as it is constructed. The Company disclosed
anticipated loan rates which we found acceptable and indicated that it would
pursue construction financing from commercial banking sources or would seek to
borrow the funds from an affiliate of Energy Pacific.2

          In this petition, Bangor Gas requests authority to increase both its
debt and equity components. It requests approval to obtain capital contributions
of up to $22,950,000 from its members and up to $27,540,000 in secured
construction debt. See "Application for Approval of Issue of Securities,"
appended as Exhibit 3 to the June 23, 1998 filing, at para. 17. The difference
between the amounts we approved in Docket No. 97-795 and those contained in this
petition is the additional financing amount necessary for the construction of a
system into the seven additional municipalities.

          In Docket No. 97-795, the Commission approved a securities issuance of
up to $17,500,000 in capital contributions. Bangor Gas is incorrect, however,
that we approved $21,000,000 in secured construction debt for Bangor Gas in
Docket No. 97-795, subject to later review of the actual debt instrument. In
Docket No. 97-795, we found that Bangor Gas had satisfied the standard we
established in Mid-Maine and were confident that the Company would be able to
obtain debt financing on reasonable terms. However, we did not grant the debt
financing approval sought by Bangor Gas. Rather, we approved the equity portion
of the Company's application, allowing Bangor Gas to make capital calls as
provided for in the Operating Agreement. We also found that the Company's
proposed use of debt financing met the criteria of 35-A M.R.S.A. ss. 901, but
stated that we would not approve the actual debt instrument until the Company
provides more specific information about the terms and conditions of the loan.

- --------
2    This transaction would require our approval as an affiliated interest
     transaction, or require an exemption from the requirements of 35-A M.R.S.A.
     ss. 708.


          We approve Bangor Gas's request to be allowed an additional $5,450,000
in capital contributions, up to a total of $22,950,000. Further, we generally
approve Bangor Gas's debt financing plan for up to $27.54 million as proposed in
the current petition. That is, we find Bangor Gas's proposal meets the criteria
in 35-A M.R.S.A. ss. 901 but, as we stated in Docket No. 97-795, we will not
finally approve the debt financing until we receive the actual debt instrument
pursuant to 35-A M.R.S.A. ss. 902.


          In sum, we approve Bangor Gas's financing plan for the surrounding
communities although we have not finally approved the debt component.

     2.   ENGINEERING PLANS AND SAFETY

          In our June 30th Order in Docket No. 97-795, we found that the
engineering plans and cost estimates provided by Bangor Gas in support of its
first certificate application provided us sufficient information to find that
its engineering plans were reasonably designed to provide safe and adequate
service. The support provided here for its certificate application to serve the
surrounding communities is of a similar nature and is likewise sufficient for
our purposes here. No party to this proceeding has disputed any aspect of its
engineering or safety proposal.

          Bangor Gas proposes to provide local distribution company (LDC)
service in the towns of Hampden, Hermon, Milford, Bradley, Orrington, Eddington,
and Bucksport. The engineering studies, system maps and models, construction
diagrams and technical discussion, cost estimates, and construction schedule for
this proposal are found in the Prefiled Testimony and Exhibits of David
Schiller.

          Bangor Gas provided cost estimates for the . enumerating quantities
and costs for various sizes of pipe, as well as costs for meters and services,
regulator stations and pressure limiting stations, and for engineering, permits
and rights of way. Total costs for this project, including the Bucksport
lateral, are estimated in these schedules to be about $10.9 million. A
construction schedule, by month, for each of these projects is provided with
work beginning in

          As discussed in our June 30th Order, gas pipeline safety is guided by
Chapter 420 of Commission's rules and by Part 192 of the Code of Federal
Regulations. Bangor Gas has proposed to construct its system and train its
personnel in accord with these rules and standards.

          We find that the information provided by Bangor Gas regarding
engineering, costs and safety is sufficient to enable us to determine Bangor
Gas's engineering plan is reasonable and adequately designed to provide safe and
adequate service.

     3.   RESOURCE PLAN

          Bangor Gas's resource plan for serving the surrounding communities is
discussed in the Confidential Prefiled Testimony and Exhibits of Andrew R. Rea.
It is the same plan that was approved in Docket No. 97-795. See June 30th Order
at 12-15. Primary potential sources of supply include Sprague Energy (Shell
Sable Island Gas), Duke Energy, and Sempra Energy Trading. All would supply
Bangor Gas with Sable Island gas via the Maritimes pipeline. Other resources
would also be available on the Maritimes system.

          Because Bangor Gas's non-gas rates are set independently of the actual
cost of gas and the risks of under-pricing falls on shareholders under Bangor
Gas's 10-year rate plan, we need not inquire into the details and cost of Bangor
Gas's supply portfolio, other than to determine that supply will be reliable and
adequate.3 The named suppliers are well-established vendors and Bangor Gas will
have ample incentive to supply its system with reliable and adequate supplies of
gas in order to maintain consumer confidence and to protect its investment in
the construction of the natural gas system. Finally, as we noted in Docket No.
97-795, Bangor Gas's rate proposal adequately ensures that rates will be just
and reasonable.

          Consequently, we believe Bangor Gas has demonstrated that it will have
adequate resources to provide safe and reliable service at just and reasonable
rates.

     4.   ABILITY TO PROVIDE SERVICE AT JUST AND REASONABLE RATES:  UNCHANGED
          RATES AND RATE PLAN

          Next, we review Bangor Gas's expanded proposal to determine whether
Bangor Gas has adequately shown that it will be able to provide service at just
and reasonable rates. Bangor Gas proposes to provide service to the surrounding
communities under the same rate plan, rate schedules, and terms and conditions

- --------
3    Prior to the unbundling of rates into transportation and commodity service
     in the gas industry and competitive retail access in the electric industry,
     utility resource plans were reviewed to assure that monopoly services were
     being provided to consumers at the lowest possible cost, and that the
     sources of supply were reliable. With the advent of competitive retail
     access in the electric and gas industries, consumers are no longer required
     to purchase supplies from a single monopoly entity. If the prices for
     unbundled service are unreasonable, consumers may purchase supplies from
     competitive suppliers. What remains is to ensure that the supply of
     resources provided to consumers will be safe and reliable.

    See June 30th Order at 13-14. Consumers may also convert to alternative
    energy sources, including fuel oil and propane.


used or approved for the core communities. We discussed and analyzed rate issues
in our June 30th Order, p. 13-14 and more extensively in our June 26th Order
where we approved Bangor Gas's rates and rate plan, subject to approval of final
tariffs. See Order Approving Rate Plan, Docket No. 97-795 (June 26, 1998) (June
26th Order) p. 13-14.

          In Docket No. 97-795, we noted that the Bangor Gas proposal is unusual
in one regard: under its multi-year rate plan, Bangor Gas proposes to charge
customers not on the basis of cost of service, but with a rate capped at an
estimated price of alternative fuel. Consequently, we found that rates do not
depend on the start-up company's cost structure. We determined in Docket No.
97-795, that since Bangor Gas's multi-year rate plan does not tie rates to
costs, our review of this aspect of Bangor Gas's proposal is not as critical as
if rates were directly related to costs; the issue of whether Bangor Gas will be
able to provide service at just and reasonable rates depends on the price cap
structure it has proposed.

          Nevertheless, in support of its first application Bangor Gas provided
a 12-year forecast of financial performance to demonstrate that its proposal was
financially sound. See Table 5, in the Prefiled Testimony and Exhibits of
Johannes Van Lierop. This forecast showed negative returns in the early years,
offset by high returns in later years, for an average return of
____________________________. We found in our June 26th order, that this exhibit
supported the justness and reasonableness of Bangor Gas's rates and rate plan.

          In support of its second application, Bangor Gas filed an update of
Table 5, adding the results of its cost and revenue projections for the
surrounding communities to the . . . same data for the core communities. The
average rate of return for the combined system was . . . No parties disputed the
facts in the updated exhibit.

          Despite the uncertainty of such projections, we find that addition of
the surrounding communities results in the financial performance of the original
and the expanded LDC being largely the same. Moreover, ratepayers will not be
subject to risk of inadequate earnings over the 10-year term of the rate plan.

          In Docket No. 97-795, Mr. Van Lierop demonstrated, and Advisory Staff
confirmed, that Bangor Gas's rates compare favorably with gas rates elsewhere in
New England. Consequently, we found that under its proposed rate plan, Bangor
Gas was capable of serving Maine customers at rates that are comparable to
others existing and imposed in the region. In addition, we noted that the
Commission will, after ten years, have the opportunity to assess whether costs
and prices should be linked more directly. In the meantime, we held that
customers will have the benefits of competition from a new energy source, and
that the price of competitive fuels provides a market-related limit to how high
Bangor Gas will be able to price its service. Bangor Gas's proposal to price its
service attractively, compared to those fuels with which it will compete for
customers, is designed to assist it in developing its customer base. Growth of
the utility's customer base will enable the venture to recover its investment in
the system over time.

          Bangor Gas has not proposed to modify its proposed rates or rate plan.
Therefore, based on the same reasoning as in our approval of Bangor Gas's prior
proposal, we find that the extension of Bangor Gas's rates and rate plan to the
surrounding communities will result in just and reasonable rates.

V.   PUBLIC INTEREST ISSUES

     CMP requests that we consider three policy or public interest issues before
acting on Bangor Gas's application. CMP states that its principal concern is in
ensuring fair competition and that it is necessary to subject both CMP Natural
Gas and Bangor Gas the same regulatory treatment.

     The public interest issues raised by CMP and its requested relief are as
follows:

     A.   REQUIRE BANGOR GAS TO PROVIDE TRANSPORTATION SERVICE TO COMPETING
          UTILITIES

          CMP requests that we require Bangor Gas to provide transportation
service to competing gas utilities as one method of avoiding "dual trenching" in
areas where LDC service territories overlap. CMP states that Northern has
represented it would provide transportation service under its tariffs. CMP has
stated that it would consider negotiating special arrangements to provide
transportation service to competing utilities, but Bangor Gas stated at
technical conference that it had not considered providing this service to a
competing LDC. CMP also points out that requiring LDCs to provide transportation
service to one another is consistent with our statements at deliberations in
Docket No. 96-786 encouraging utilities to consider joint projects or other
methods for avoiding duplication of facilities. CMP also asks us to require
Bangor Gas to identify whether it will do so through negotiated special
contracts or tariffs.

          Bangor Gas argued that we can address "dual trenching" if it becomes
an actual problem.

          We decline to require the provision of transportation service to
competing utilities. This issue has not been fully developed in this case. While
we do not wish to discourage the negotiation of such arrangements between
authorized utilities, we decline to impose that as a condition of Bangor Gas's
service authority in this docket. We would prefer to address such policy issues
in an investigation, inquiry, or rulemaking that would be applicable to all LDCs
in Maine.

     B.   MAKE IT EXPLICIT THAT BANGOR GAS'S SHAREHOLDERS BEAR THE RISK OF
          STARTUP AND UNECONOMIC EXPANSION, AS ORDERED FOR CMP IN DOCKET
          NO. 96-786

          CMP argues that the Commission must apply the same standard to both
Bangor Gas and CMP NG. CMP requests that we state that project startup and
uneconomic expansion risk will be borne by Bangor Gas's shareholders. In its
response, Bangor Gas states that its plan has been approved and there is no need
to expand beyond that.

          In our recent holding in Docket No. 98-786, we made clear that the
shareholder risk standard does apply to all LDCs operating in Maine from here
forward. We stated


          . . . the risks associated with a distribution company's startup
          and uneconomic expansion in this competitive circumstance must
          fall on the utility's shareholders, not ratepayers. Setting this
          as a ground rule for all Maine gas utilities for future system
          expansion to unserved areas places all LDCs on equal footing.

See CMP at 14. (emphasis added) we intend to implement this policy in our rate
making decisions going forward for all Maine utilities.4

     C.   DO NOT CHARACTERIZE SERVICE AUTHORITY APPROVALS AS "CONDITIONAL" OR
          "UNCONDITIONAL"

          CMP argues that the way we characterize its service authority approval
is used to maximum competitive effect by competing utilities and our current
designations influence or even mislead customers about a utility's ability to
provide service.5

          CMP notes that this distinction is not made in the statute. CMP notes
that we granted Bangor Gas "unconditional" authority yet required it to file
tariffs for approval before providing service, thereby imposing a condition.
Yet, our order denying CMP Natural Gas unconditional authority until such time
as it files and receives approval of a further submission puts CMP in a similar
regulatory posture as Bangor Gas. CMP urges us not to use the terms

- --------
4    See also order dated October 5, 1998, in Docket No. 96-786.

5    CMP notes that the language in the CMP order's summary and conclusion
     appears inconsistent. The introductory summary states: "We grant CMP
     unconditional authority to serve ... subject to submission and approval of
     a revised proposal. . .". The conclusion states: "we do not grant CMP
     [Natural Gas] unconditional authority to serve . . . at this time, but will
     do so upon submission and approval of an acceptable revised proposal.."
     While the statements in their entirety are essentially consistent, we
     recognize that the wording difference could be confusing to some and could
     be played to advantage in marketing strategies. We will not issue a
     modified order to attempt to resolve any possible confusion at this point
     in time because CMP Natural Gas's revised proposal is now before us and
     will be acted upon very soon.


"conditional" or "unconditional", but to let the final orders speak for
themselves. Bangor Gas argues that the terms were coined and defined in the
Mid-Maine case and everyone knows what they mean at this point.

          We note the potential for ambiguity and confusion with the use of this
terminology and will endeavor to clarify these terms as we continue to use them.
We developed the distinction between "conditional" and "unconditional" service
authority in an effort to assist fledgling natural gas utilities obtain early
preliminary approval of their efforts to develop distribution infrastructure
within the state. See Mid-Maine. We regret any confusion that our use of these
terms may have created, particularly for potential customers, given that
competitors may exploit these terms to their maximum advantage.

          CMP is correct that the terms are not legally necessary, i.e. they do
not appear in statutory language or in Commission orders prior to Mid-Maine.
They also have limited value in describing the nature of the authority, because
the need for additional regulatory approvals may vary in each instance. On the
other hand, the terms have been in use in a number of recent decisions, and
parties are familiar with them.

          On the whole, we would prefer to retain the terms for continuity in
this area of law and practice before us. They are useful insofar as having an
preliminary level of regulatory approval can assist nascent ventures in
obtaining credibility with financial lenders.

          Finally, we emphasize that a prospective gas utility need not apply in
a two-step process (i.e. first for conditional authority, followed by
application for unconditional authority). Rather, if it is sufficiently
prepared, a utility can simply file a complete application for full authority.

VI.  SUMMARY AND CONCLUSION

     We grant Bangor Gas authority to provide service to the surrounding
communities. Bangor Gas's engineering plan for the additional seven
municipalities satisfies our requirement for a grant of full authority. Bangor
Gas's resource plan is sufficiently complete at this state of the planning
process and is also adequate in the context of Bangor Gas's proposed rate plan.
Its rates and rate plan are unchanged, and were previously found reasonable.

     In addition, as discussed above, while Bangor Gas's financing capability is
clear and its options are reasonable, we will await the Company's specific
financing proposal before granting 35-A M.R.S.A. ss. 902 approval.

     We have addressed CMP's public interest issues in our order above. None of
these issues requires us to suspend approval of Bangor Gas's application for
service authority to the surrounding communities.

     We conclude that Bangor Gas has made an adequate showing on the whole for
us to grant it full service authority.


Dated at Augusta, Maine this 22nd day of October, 1998.

                                            BY ORDER OF THE COMMISSION



                                            ----------------------------------
                                            Dennis L. Keschl
                                            Administrative Director




COMMISSIONERS VOTING FOR: WELCH
                          NUGENT
                          DIAMOND



<PAGE>


                      NOTICE OF RIGHTS TO REVIEW OR APPEAL

     5 M.R.S.A. ss. 9061 requires the Public Utilities Commission to give each
party to an adjudicatory proceeding written notice of the party's rights to
review or appeal of its decision made at the conclusion of the adjudicatory
proceeding. The methods of adjudicatory proceedings are as follows:

     1.   Reconsideration of the Commission's Order may be requested under
          Section 6(N) of the Commission's Rules of Practice and Procedure
          (65-407 C.M.R.11) within 20 days of the date of the Order by filing a
          petition with the Commission stating the grounds upon which
          consideration is sought.

     2.   Appeal of a final decision of the Commission may be taken to the Law
          Court by filing, within 30 days of the date of the Order, a Notice of
          Appeal with the Administrative Director of the Commission, pursuant to
          35-A M.R.S.A. ss. 1320 (l)-(4) and the Maine Rules of Civil Procedure,
          Rule 73 et seq.

     3.   Additional court review of constitutional issues or issues involving
          the justness or reasonableness of rates may be had by the filing of an
          appeal with the Law Court, pursuant to 35-A M.R.S.A. ss. 1320 (5).

Note:    The attachment of this Notice to a document does not indicate the
         Commission's view that the particular document may be subject to review
         or appeal. Similarly, the failure of the Commission to attach a copy of
         this Notice to a document does not indicate the Commission's view that
         the document is not subject to review or appeal.





                               September 27, 1999
                                                                    Exhibit F-1



Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549


         RE:  Sempra Energy, et al.
              Application on Form U-1
              SEC File No. 70-9511

Dear Ladies and Gentlemen:

         On behalf of Sempra Energy and Bangor Pacific, Inc. ("Bangor Pacific")
(jointly, the Applicants) and Bangor Gas L.L.C., I have examined the Application
on Form U-1, dated June 1, 1999, under the Public Utility Holding Company Act of
1935 (the "Act"), filed by the Applicants with the Securities and Exchange
Commission (the "Commission") and docketed by the Commission in SEC File NO.
70-9511 of which this opinion is to be a part. The Application is hereinafter
referred to as the "Application." Capitalized terms not defined herein have the
meanings set forth in the Application.

         As set forth in the Application, the Applicants have acquired a 50%
membership interest of Bangor Gas Company, L.L.C. ("Bangor Gas"), which will
become a "gas utility company" within the meaning of the Act (the "Proposed
Transaction").

         I am an attorney licensed in the State of California and am counsel for
the Applicants. I am familiar with the issuance of securities by Sempra Energy
and its associate companies. I have examined copies, signed, certified or
otherwise proven to my satisfaction, of the Application. In addition, I have
examined such other instruments, agreements and documents and made such other
investigation as I have deemed necessary as a basis for this opinion.

         For the purposes of the opinions expressed below, I have assumed
(except, and to the extent set forth in my opinions below, as to the Applicants)
that all of the documents referred to in this opinion letter will have been duly
authorized, executed and delivered by, and will constitute legal, valid, binding


<PAGE>


and enforceable obligations of, all of the parties to such documents, that all
such signatories to such documents will have been duly authorized, that all such
parties are duly organized and validly existing and will have the power and
authority (corporate, partnership or other) to execute, deliver and perform such
documents and that such authorization, execution and delivery by each such party
will not, and such performance will not, breach or constitute a violation of any
law of any jurisdiction. Based upon the foregoing, I am of the opinion, insofar
as the laws of California are concerned that:

          a) all California laws applicable to the Proposed Transaction will
     have been complied with.

          b) Sempra Energy is a corporation validly organized and duly existing
     under the laws of the State of California.

          c) The Applicants will legally acquire the membership interests of
     Bangor Gas being acquired.

          d) Consummation of the Proposed Transaction will not violate the legal
     rights of the holders of any securities issued by the Applicants or any
     associate company thereof.

     The opinions expressed above are subject to the following assumptions or
conditions:

          a) The Commission shall have duly entered an appropriate order or
     orders granting and permitting the Application to become effective with
     respect to the Proposed Transaction.

          b) The Proposed Transaction shall be effected in accordance with
     required approvals, authorizations, consents, certificates and orders of
     any state or federal commission or regulatory authority with respect to the
     Proposed Transaction and all such required approvals, authorizations,
     consents, certificates and orders shall have been obtained and remain in
     full force and effect.

     I hereby consent to the filing of this opinion as an exhibit to the
Application and in any proceedings before the Commission that may be held in
connection therewith.


                                        Sincerely,



                                        Donald C. Liddell


                                                                    Exhibit F-2


                                 August 16, 1999



Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC   20549

Re:      Sempra Energy et al
         Application on Form U-l
         SEC File No. 70-9511

Dear Mr. Katz:

         On behalf of Sempra Energy and Bangor Pacific, Inc. ("Bangor Pacific")
(jointly, the Applicants) and Bangor Gas Company, L.L.C. we have examined the
Application on Form U-1 dated June 1, 1999 under the Public Utility Holding
Company Act of l935 (the "Act"), filed by the Applicants with the Securities and
Exchange Commission (the "Commission") and docketed by the Commission in SEC
file No. [70-9511] of which this opinion is to be a part. The Application is
hereinafter referred to as the "Application". Capitalized terms not defined
herein have the meanings set forth in the Application.

         As set forth in the Application, the Applicants have acquired a 50%
membership interest of Bangor Gas Company, L.L.C. ("Bangor Gas") which will
become a "gas utility company" within the meaning of the Act (the "Proposed
Transaction").

         The attorneys signing this letter on behalf of Clifford, Stone & Herman
are attorneys licensed in the State of Maine and are counsel for the Applicants
regarding state regulatory matters. We have examined copies, signed, certified
or otherwise proven to my satisfaction, of the Application. In addition, we have
examined such other instruments, agreements and documents and made such other
investigation related to Maine state approvals, certificates, and licenses as we
have deemed necessary as a basis for this opinion. We have also relied upon
representations and statements of officials and agents of Sempra Energy, Bangor
Pacific and Bangor Gas Company L.L.C. regarding the Proposed Transaction that is
the subject of the Application.


<PAGE>


Jonathan G. Katz
August 16,1999
Page 2


         For the purposes of the opinions expressed below, we have assumed
(1)(a) that all of the documents referred to in this opinion letter will have
been duly authorized, executed and delivered by, and (b) will constitute legal,
valid, binding and enforceable obligations of all of the parties to such
documents, (2) that all such signatories to such documents will have been duly
authorized, (3) that all such parties are duly organized and validly existing
and will have the power and authority (corporate, partnership or other) to
execute, deliver and perform such documents, and (4)(a) that such authorization,
execution and delivery by each such party will not, and (b) that such
performance pursuant to such documents will not, breach or constitute a
violation of any laws of any jurisdiction. Based upon the foregoing, we are of
the opinion, insofar as the laws of Maine are concerned, that:

         (a)   All Maine laws applicable to the Proposed Transaction will have
been complied with.

         (b)   Bangor Gas Company L.L.C. is validly organized and duly existing.

         (c)   The Applicants will legally acquire the membership interests
being acquired.

         (d)   Consummation of the Proposed Transaction will not violate the
legal rights of the holders of any securities issued by the Applicants or any
associate company thereof, to the extent any such rights are subject to Maine
law.

         The opinions expressed above are subject to the following assumptions
or conditions:

         (a)   The Commission shall have duly entered an appropriate order or
orders granting and permitting the Application to become effective with respect
to the Proposed Transaction.

         (b)   The Proposed Transaction shall be effected in accordance with
required approvals, authorizations, consents, certificates and orders of any
state or federal commission or regulatory authority with respect to the Proposed
Transaction and all such required approvals, authorizations, consents,
certificates and orders shall have been obtained and remain in full force and
effect.

         (c)   No act or event other than as described herein shall have
occurred subsequent to the date hereof which could change the opinion expressed
above.


<PAGE>


Jonathan G. Katz
August 16,1999
Page 3


         In addition, we express no opinion regarding the effectiveness or
enforceability of any particular terms, commitments, warrantees, guarantees, or
other provisions of the underlying contracts, understandings, agreements, or
other documents between or among the parties to the Proposed Transaction that
may be separate or severable from the specific right and authority to acquire
the membership interest that are the subject of the Application and that are the
sole subject of this opinion letter. Further, this opinion herein is qualified
by and is subject to, and we render no opinion with respect to, the limitations
and exceptions to the enforceability of contracts and obligations generally,
including without limitation: (a) the effect of bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent transfer or conveyance,
preference, equitable subordination (whether arising under State laws or the
U.S. Bankruptcy Code), bulk sales or bulk transfer laws and other similar laws
relating to or affecting the rights or creditors generally; (b) the effect of
general principles of equity and similar principles, including, without
limitation, concepts of materiality, reasonableness, unconscionability, good
faith and fair dealing and the possible unavailability of specific performance,
injunctive relief or other equitable remedies, regardless of whether considered
in a proceeding in equity or at law, and the effect of public policy; (c) the
enforceability of the indemnification and contribution provisions of the
Agreement and any ancillary agreements; (d) compliance or noncompliance with
antifraud provisions of applicable state and federal statutes, rules and
regulations concerning the issuance and sale of securities; and (d) the effect
of Maine, federal or other laws relating to usury or permissible rates of
interest or other charges for loans, forebearances or the use of money.

         Our opinion is limited to the laws of the State of Maine and we express
no opinion with respect to the laws of any other state or jurisdiction,
including, but not limited to, federal securities, tax, trade regulation, or
antitrust laws or regulations, or to any local laws or ordinances. By rendering
our opinion, we do not undertake to advise you of any changes in the law that
may occur after the date hereof. These opinions have been prepared at your
request and they are intended solely for your use in connection with the
Proposed Transaction that is the subject of the Application and may not be
relied upon by any other party or entity.

         We hereby consent to the filing of this opinion as an exhibit to the
Application and in any proceedings before the Commission that may be held in
connection therewith.

                                   Sincerely,

                                   CLIFFORD, STONE & HERMAN



                                   Alan G. Stone

AGS/dmn



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