File No. 70-9369
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM U-1/A
Amendment No. 1
To
FORM U-1
APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
and
Energy East Enterprises, Inc.
c/o Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
(Name of company or companies filing this statement and
address of principal executive offices)
Kenneth M. Jasinski, Esq.
Senior Vice President and General Counsel
c/o Energy East Corporation
P.O. Box 12904
Albany, New York 12212-2904
Telephone: (518) 434-3019
(Names and addresses of agents for service)
Copies to:
Frank Lee, Esq.
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
Telephone: (212) 682-6200
The Form U-1 Application in this proceeding, originally
filed with the Commission on September 30, 1998, is hereby
amended and restated to read as follows:
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Item 1. Description of Proposed Transaction.
A. Introduction
Pursuant to Sections 3(a)(1), 9(a)(2) and 10 of the Public
Utility Holding Company Act of 1935, as amended (the "Act"),
Energy East Corporation ("EEC"), a New York corporation and an
exempt public utility holding company, hereby requests that the
Securities and Exchange Commission (the "Commission") authorize
the transaction described herein (the "Transaction") pursuant to
which EEC, through Energy East Enterprises, Inc. ("EEC
Enterprises"), a Maine corporation and a wholly-owned subsidiary
of EEC, will acquire at least 50% of the voting securities of CMP
Natural Gas, L.L.C. ("Maine GasCo"), a Maine limited liability
company. Maine GasCo will construct, own and operate a small
local natural gas distribution system (the "Maine GasCo System")
which will provide on a non-exclusive basis natural gas service
in certain areas of Maine which do not currently receive natural
gas service. The remaining voting securities of Maine GasCo will
be held by CMP Group, Inc. ("CMP Group"),1 an exempt public
utility holding company, through New England Gas Development
Corporation ("New England Gas"), a wholly-owned subsidiary of CMP
Group, pursuant to a Joint Venture Agreement dated as of November
13, 1997, as amended (the "Joint Venture Agreement") between
Central Maine Power Company ("CMP"), a subsidiary of CMP Group
and New York State Electric & Gas Corporation ("NYSEG"), a
_____
1 CMP Group is filing a contemporaneous application on Form
U-1 in connection with the Transaction.
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wholly-owned subsidiary of EEC. The Joint Venture Agreement is
attached hereto as Exhibit B-1.
As noted above, EEC is currently a public utility holding
company exempt from all provisions of the Act, except Section
9(a)(2), under Section 3(a)(1) of the Act by order of the
Commission dated March 4, 1998. See, Energy East Corporation,
Holding Co. Act Release No. 26834 (1998). EEC owns all of the
outstanding common stock of two public utility companies as
defined under the Act: NYSEG and NGE Generation, Inc. ("NGE
Generation"), both of which are organized and operate virtually
exclusively in the State of New York.2
EEC seeks an order of exemption for itself and for EEC
Enterprises following the consummation of the Transaction.
Notwithstanding the fact that Maine GasCo (when it begins
commercial operation) will be a public utility subsidiary of EEC
organized and operating in Maine, EEC will continue to be a
public utility holding company entitled to an exemption under
Section 3(a)(1) of the Act because Maine GasCo will only account
_____
2 Among its other activities, NGE Generation sells some
electricity at wholesale from certain of its generating
stations into the Pennsylvania-New Jersey-Maryland
Interconnection (PJM Power Pool) which sales in 1997
accounted for less than 5% of NYSEG's total operating
revenues. However, as noted below, NGE Generation has
accepted offers to purchase its Generation Assets and
therefore, after consummation of the sale of the Generation
Assets, NGE Generation will no longer make such sales into
the PJM Power Pool. See footnote 4, below.
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for a de minimis part of EEC's utility operations.3 Thus, EEC
and each public utility subsidiary from which it derives a
material part of its income (i.e., NYSEG and NGE Generation) will
continue to be organized and to operate predominantly in the
State of New York. In addition, upon consummation of the
Transaction, EEC Enterprises will become a public utility holding
company within the meaning of the Act by virtue of its ownership
of at least 50% of the voting securities of Maine GasCo (which
will be a public utility subsidiary when it begins commercial
operation). After consummation of the Transaction, EEC
Enterprises will be entitled to an exemption under Section
3(a)(1) of the Act because EEC Enterprises and Maine GasCo will
both be organized and carry on their business in the State of
Maine, and neither EEC Enterprises nor Maine GasCo will derive a
material part of its income from a public utility subsidiary that
carries on its business and/or is organized outside of the State
of Maine.
_____
3 Specifically, it is projected that Maine GasCo's revenues in
1999, 2000 and 2001 will account for less than 1% of EEC's
consolidated revenues. Although the term "material part of
its income" is not defined in the Act, in many instances,
holding companies with out-of-state utility subsidiaries
accounting for a substantially higher percentage of holding
company revenues have been permitted to claim an exemption
under Section 3(a)(1). For example, in Yankee Atomic
Electric Co., 36 S.E.C. 552 (1948), the Commission granted
an exemption under Section 3(a)(1) in a case where 2% of the
holding company's revenues were derived from an out-of-state
utility subsidiary. See also, Commonwealth Edison, 28
S.E.C. 172 (1948) (holding that utility subsidiary
accounting for between 2.7% and 3.3% of system revenues is
not providing a material part of income).
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B. EEC
1. Description of EEC and Subsidiaries
On May 1, 1998, EEC became the holding company for (i)
NYSEG, a combination electric and gas utility company engaged in
the business of transmitting and distributing electricity,
transporting and distributing natural gas and generating
electricity from its nuclear and hydroelectric stations all in
the State of New York; and (ii) NGE Generation, an electric
utility company as defined under the Act, engaged in the business
of generating electricity. EEC's common stock is publicly traded
on the New York Stock Exchange. EEC's principal executive
offices are located at P.O. Box 12904, Albany, York 12212-2904.
EEC Enterprises was organized in 1998 and was formed to hold
the voting securities of Maine GasCo. EEC Enterprises is a
wholly-owned subsidiary of EEC. It currently holds no public
utility assets and is neither a "public utility company" nor a
"holding company" under the Act.
EEC also has a number of direct and indirect subsidiaries
that are not "public utility companies" under the Act. These
include Somerset Railroad Corporation ("SRC"), a New York
corporation, and NGE Enterprises, Inc. ("NGE Enterprises"), a
Delaware corporation. SRC is a wholly-owned subsidiary of NGE
Generation and was formed in August 1979 to own and operate a
rail line that primarily transports coal and other materials to
NGE Generation's Kintigh generating station. NGE Enterprises is
a wholly-owned subsidiary of EEC and was formed in April 1992 to
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hold the stock of certain non-utility subsidiaries and to conduct
energy service business activities through its direct and
indirect subsidiaries. NGE Enterprises' current direct and
indirect subsidiaries are as follows:
NYSEG Solutions, Inc. ("Solutions"), a New York corporation,
is a wholly-owned subsidiary of NGE Enterprises and was formed to
market electricity and natural gas to end users and provide
wholesale commodities to retail electric suppliers in the
Northeast.
Energy East Telecommunications, Inc., a Delaware
corporation, is a wholly-owned subsidiary of NGE Enterprises and
was formed to provide telecommunication services, including the
construction and operation of fiber optic networks.
NGE Technology Corporation ("NGE Technology"), a Delaware
corporation, is a wholly-owned subsidiary of NGE Enterprises and
was formed to own NGE Enterprises' investment in EnerSoft
Corporation.
EnerSoft Corporation, a Delaware corporation, is a wholly-
owned subsidiary of NGE Technology. It is in the process of
dissolving.
NGE Environmental, Inc. ("NGE Environmental"), a Delaware
corporation, is a wholly-owned subsidiary of NGE Enterprises and
was formed to own NGE Enterprises' investments in environmental
engineering and consulting services businesses.
NGE Funding Corporation, a Delaware corporation, is a
wholly-owned subsidiary of NGE Enterprises and provides financial
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services such as loans and leases for energy services-related
equipment installations.
NGE EnergyPoints, Inc., a Delaware corporation, is a wholly-
owned subsidiary of NGE Enterprises and provides energy usage
information, utility bill consolidation and bill payment services
for large, multi-site industrial customers.
S-H-N Technologies, L.L.C. ("S-H-N"), a Delaware limited
liability company, is owned 50% by NGE Environmental and 50% by
S-H-U USA Corp., a subsidiary of the German firm Saarberg-Holter
Umweltechnick GmBH. S-H-N provides clean air solutions for the
international utility market.
XENERGY Inc. ("XENERGY"), a Massachusetts corporation, is a
wholly-owned subsidiary of NGE Enterprises and is an energy
services, information systems and consulting company that
specializes in energy management, conservation engineering and
demand-side management. In addition, by order of the Federal
Energy Regulatory Commission ("FERC") dated June 9, 1997, XENERGY
received authorization to sell wholesale power at market-based
rates.
XENERGY Canada, Inc., incorporated in Quebec, Canada, is a
wholly-owned subsidiary of XENERGY and is the software developer
of a utility client management system.
XENERGY International, Inc. ("XENERGY International"), a
Delaware corporation, is a wholly-owned subsidiary of XENERGY and
is an energy services, information systems and consulting company
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that specializes in energy management, conservation engineering
and demand-side management in the United Kingdom and Spain.
KENETECH Energy Management, Inc. ("KENETECH"), a
Massachusetts corporation, is a wholly-owned subsidiary of
XENERGY and is an energy services company specializing in energy
management.
KEM 1991, Inc. ("KEM 1991"), a Delaware corporation, is a
wholly-owned subsidiary of KENETECH and is an energy services
company specializing in energy management.
KENETECH Energy Management International, Inc. ("KENETECH
International"), a Delaware corporation, is a wholly-owned
subsidiary of KENETECH and is an energy services company
specializing in energy management.
KEM Partners 1991, L.P., a Delaware limited partnership, is
a wholly-owned subsidiary of KEM 1991, and is an energy services
company specializing in energy management.
KENETECH Energy Management, Limited ("KENETECH Limited"), a
limited company formed in Ontario, Canada, is a wholly-owned
subsidiary of KENETECH International and is an energy services
company specializing in energy management.
2. Existing Utility Operations
As mentioned above, NYSEG, a regulated public utility
incorporated under the laws of the State of New York, is engaged
in the business of transmitting and distributing electricity,
transporting and distributing natural gas and generating
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electricity from its nuclear and hydroelectric stations all in
the central, eastern and western parts of the State of New York.
NYSEG provides electricity to approximately 815,000 customers and
provides natural gas to approximately 240,000 customers. In
providing this service, NYSEG is subject to regulation with
respect to retail rates by the Public Service Commission of the
State of New York (the "NYPSC") under the Public Service Law of
the State of New York and to regulation with respect to wholesale
rates by the FERC.
NYSEG currently provides natural gas service to customers
throughout twenty-nine counties, incorporating eighty-two cities
and villages, and one hundred thirty-eight towns in the State of
New York. NYSEG's natural gas business consists primarily of
rural natural gas distribution, covering 6,116 square miles with
a population of 1,072,000 people. NYSEG operates and maintains
approximately 400 miles of transmission pipeline, 3,600 miles of
distribution main, 3,400 miles of service laterals and 88
purchase stations. NYSEG has transportation and/or storage
contracts with eight major interstate pipelines, two major
intrastate pipelines, the TransCanada Pipeline and four New York
local distribution companies.
NYSEG began offering open access gas transportation to its
large commercial and industrial customers in 1986. In 1988,
NYSEG began offering unbundled transportation to small commercial
customers. In 1996, NYSEG began its aggregation transportation
program for residential and small commercial customers. NYSEG
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currently has over one thousand transportation-only customers,
which constitute more than one-third of its system throughput.
NYSEG operates its local natural gas distribution business
through thirteen division offices, each capable of constructing,
operating and maintaining a non-contiguous gas system. A
Corporate Engineering, Operations, and Quality Assurance
Department supports all field operations, operates a gas meter
testing laboratory and performs gas quality testing from
suppliers. NYSEG generally performs all engineering, operation
and maintenance work with its internal work force. Pipeline
contractors perform ninety percent of all new pipeline
construction. Independent heating dealers perform consumer
equipment conversions and new installations. NYSEG also
maintains an active trade ally program that provides training,
advertising, feedback, and other support to heating, ventilation
and air conditioning contractors. NYSEG provides gas emergency
response training to fire departments and emergency responders in
every community it serves. Additionally, NYSEG's state-of-the-
art gas control facilities include real-time data communications
from purchase stations and transportation customers. NYSEG also
contracts for and manages pipeline capacity and gas supply for
existing and new franchises in order to remain competitive with
alternative fuels.
NYSEG brings to the joint venture substantial expertise in
the natural gas industry, especially in distributing natural gas
to a disaggregated service territory. NYSEG also has experience
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in providing unbundled transportation customers with ancillary
services such as balancing, a gas supply pool, a capacity
assignment tariff and an electronic bulletin board. In addition,
NYSEG operates the only operational bedded salt storage facility
in the northeastern United States. In an effort to control
pipeline costs, it is also an active releaser of pipeline
capacity and participates in the off-system repackaged gas
market. Approximately 28.5% of NYSEG's gas supply originates
from the Western Canadian Sedimentation Basin, 63% from the Texas
and Louisiana basins, 7.2% from Appalachia, and 1.3% from other
sources.
EEC owns 100% of the capital stock of NGE Generation, which
was organized to engage in the generation business. NGE
Generation currently owns 50% of the Homer City generating
station and owns and operates the Kintigh, Milliken, Goudey,
Greenidge, Hickling and Jennison generating stations and certain
associated assets and liabilities ("Generation Assets").4 NGE
_____
4 In August 1998, NGE Generation accepted offers to sell the
Generation Assets to The AES Corporation and Edison Mission
Energy. The contract with The AES Corporation is for the
purchase of the generation assets in New York State, and the
contract with Edison Mission Energy is for the purchase of
the Homer City generating station in Pennsylvania. The
total sales price provides full recovery of the net book
value of the Generation Assets. Pursuant to NYSEG's
restructuring plan approved by the NYPSC in January 1998,
all proceeds, net of taxes and transaction costs, in excess
of the net book value of the Generation Assets, less funded
deferred taxes, will be used to write down NYSEG's 18%
investment in Nine Mile Point nuclear generating unit No. 2.
This transaction will not adversely affect the financial
condition of EEC or any of its subsidiaries. The sales are
expected to close after the approval of the sales have been
obtained from all of the appropriate regulatory bodies.
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Generation is subject to light regulation by the NYPSC and to
regulation by the FERC with respect to wholesale rates.
As stated above, EEC is currently exempt from registration
pursuant to Section 3 of the Act. In addition, there is de facto
integration of EEC's gas and electric utility properties.
Specifically, the EEC system currently consists of a large
integrated electric utility system and a smaller integrated gas
utility system which together are operated on a coordinated basis
offering services to customers in substantially the same area in
the State of New York. The entire EEC system is operated as a
single coordinated system to the extent that there is a
significant degree of centralized planning (including accounting,
financial planning and analysis, financial reporting, human
resources, regulatory affairs, information systems, insurance,
legal, payroll, purchasing, tax, training, treasury,
transportation, billing support, telecommunications, meter
installation and reading, real estate, facilities management,
call center services, engineering, construction and environmental
services and general administrative services).
C. Description of the Proposed Transaction
1. The Joint Venture Agreement
NYSEG and CMP have executed the Joint Venture Agreement,
which provides for among other things, the formation of a joint
venture company, Maine GasCo. Maine GasCo is a Maine limited
liability company, governed in accordance with the terms and
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conditions of the Joint Venture Agreement. In contemplation of
the formation of holding company structures for both parties,
the Joint Venture Agreement was made assignable by both parties
to their respective affiliates. NYSEG and CMP have assigned
their interests in the Joint Venture Agreement to EEC Enterprises
and New England Gas, respectively.
The Joint Venture Agreement provides that Maine GasCo will
engage in the business of owning, constructing, and operating a
small local natural gas distribution system that will distribute
natural gas and provide other related local services in certain
areas of Maine which do not currently receive natural gas
service. EEC Enterprises and New England Gas will be the initial
members of Maine GasCo. EEC Enterprises will hold at least 50%
of the membership interests and New England Gas will hold the
remaining membership interests. Each member's ownership interest
is subject to adjustment in accordance with the Joint Venture
Agreement. EEC Enterprises and New England Gas will each
contribute their respective shares of the initial capital of
Maine GasCo in amounts proportionate to the ownership percentages
of each such Maine GasCo member and will contribute all or some
portion of this sum in cash when the Management Committee
requires the contribution. Maine GasCo members will make
additional capital contributions if the Maine GasCo members
holding a majority interest vote to require such contributions,
or if the Manager determines that Maine GasCo's cash reserves and
reasonably anticipated revenues are less than its budgeted
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working capital needs for the next six succeeding months.
Pursuant to the Joint Venture Agreement, net profits and net
losses will be allocated between the Maine GasCo members in
proportion to the ownership percentage that each Maine GasCo
member holds.
The Joint Venture Agreement establishes a Management
Committee consisting of three EEC Enterprises appointees and
three New England Gas appointees and generally vests a designated
Manager, who will be located in Maine, with exclusive authority
to manage the business of Maine GasCo within the limitations set
forth in the Joint Venture Agreement, the Articles of
Organization, or any Statement of Authority under the Maine
Limited Liability Company Act. The Joint Venture Agreement
authorizes the Manager to perform any and all acts customary or
incident to the business of Maine GasCo. The Joint Venture
Agreement also authorizes the Manager to delegate authority and
to hire or contract for appropriate and necessary services.
Certain actions may be taken by the Manager only upon the
affirmative vote of a majority of the members of the Management
Committee. These actions include the following: incurring
indebtedness, issuing obligations, confessing certain judgments,
incurring certain liabilities, making certain capital
expenditures or incurring certain operating expenses,
consummating transactions between Maine GasCo and a Maine GasCo
affiliate or Maine GasCo member, establishing certain reserves,
making distributions to Maine GasCo members, contravening the
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Joint Venture Agreement, causing Maine GasCo to become bankrupt
or dissolve, transferring substantially all of the assets of
Maine GasCo, entering into derivative transactions, declaring a
distribution of profits, engaging in business acquisitions,
calling for certain additional capital contributions, appointing
or removing an officer, and establishing employee compensation.
A vote of the Maine GasCo members holding at least a
majority of the voting interests may remove the Manager with or
without cause. The Maine GasCo member who appoints a person to
the Management Committee may remove such person with or without
cause at any time. The Manager and any Management Committee
member may resign at any time. Maine GasCo members holding a
majority of the voting interests may fill any vacancies in the
position of Manager by affirmative vote, which Manager will hold
the position until the election and qualification of a successor,
or the Manager's resignation or removal. The Joint Venture
Agreement limits the liability of a Maine GasCo member for any
debts or losses of Maine GasCo to its respective capital
contribution to Maine GasCo, except as otherwise required by law.
The Joint Venture Agreement provides for the resolution of
stalemates or impasses among the Management Committee by appeal
to the Chief Executive Officers of the Maine GasCo members, and
by arbitration in the event that the Chief Executive Officers are
unable to resolve the impasse.
The Joint Venture Agreement contains customary
representations and warranties, including representations
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regarding corporate existence and authority to execute the Joint
Venture Agreement. The Joint Venture Agreement requires that any
and all disputes arising therefrom will be settled by arbitration
in accordance with the procedures described above for the
resolution of stalemates or impasses, but authorizes injunctive
relief when an arbitrator's award would not adequately protect
the rights of a party. The parties to the Joint Venture
Agreement have also agreed not to compete with one another with
regard to the business of Maine GasCo. In addition, any party
that ceases to be a Maine GasCo member will not hire employees of
Maine GasCo for three years after that party ceases to be a Maine
GasCo member, and the parties have agreed that Maine GasCo and
any of its subsidiaries will not employ the employees of a Maine
GasCo member or an affiliate under certain conditions. The Joint
Venture Agreement contains other customary terms and conditions,
including provisions regarding indemnification, the use of
confidential information, the holding and conduct of meetings,
distributions to Maine GasCo members, transfers of membership
interests in Maine GasCo, dissolution, and interpretation of the
Joint Venture Agreement.
2. Operations of Maine GasCo
Maine GasCo currently expects to furnish natural gas service
in Maine on a non-exclusive basis in the Bethel and Windham
areas, the greater Augusta area, the greater Waterville area, the
greater Bangor area, and the coastal area including Brunswick and
Bath. Maine GasCo also anticipates furnishing natural gas
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service to other towns, which are listed in Appendix A to this
Application. Maine GasCo expects to provide both merchant sales
and transportation services. Maine GasCo has evaluated whether
it will provide transportation services to small commercial and
residential monthly metered customers. Due to the small size of
Maine GasCo, the low load factors of such small customers, and
the lack of planned storage on the available pipelines, as well
as the administrative difficulty of tracking usage and
operationally balancing such usage and nominations for small
pools of monthly metered customers, Maine GasCo has determined
that provision of such transportation services is currently not
feasible. If and when such transportation service does become
feasible, Maine GasCo expects to propose a small customer
transportation service based upon its operational capabilities.
As set forth in more detail in Item 4 - Regulatory
Approvals, CMP Group received authorization from the Maine Public
Utilities Commission ("MPUC"), in Docket No. 96-786, to furnish
on a non-exclusive basis, through Maine GasCo, natural gas
service in such areas. In this order, the MPUC noted that
authorizing more than one local distribution company to provide
service in a given area will result in beneficial competition to
obtain customer load so that system expansion may ultimately be
greater in a given area than it would be if only one entity was
authorized to provide service in such area. A copy of this order
is attached hereto as Exhibit D-1. In addition, on May 1, 1998,
the MPUC, in Docket No. 98-077, issued its order, attached hereto
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as Exhibit D-2, authorizing the formation of New England Gas and
Maine GasCo, and authorizing the initial capitalization of Maine
GasCo. In accordance with this approval and the terms of the
Joint Venture Agreement, the proposed capital structure of Maine
GasCo will be based on fifty percent (50%) equity and fifty
percent (50%) debt, which would finance an initial $40 million
construction program. EEC Enterprises and New England Gas plan
to initially capitalize Maine GasCo with an aggregate of $20
million in equity contributions made by each party in proportion
to its ownership percentage. EEC Enterprises and New England Gas
also plan to make available additional capital as necessary and
consistent with the rules and conditions established by the MPUC.
Maine GasCo expects to derive its supply of natural gas from
the Western Canadian Sedimentation Basin via the proposed
Portland Natural Gas Transmission System pipeline ("PNGTS") and
from the gas fields near Sable Island off Nova Scotia via the
proposed Maritimes & Northeast pipeline ("M&N"), both of which
are currently under development. The FERC has issued
certificates under Section 7 of the Natural Gas Act authorizing
the construction of these pipelines. Development of these
pipelines is proceeding on schedule. PNGTS expects commercial
operation in early 1999, and M&N expects commercial operation in
November, 1999.
The NYSEG and Maine GasCo systems will be coordinated in
order to enable Maine GasCo to enter the natural gas business
with an experienced management team in place. In addition,
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affiliates of EEC Enterprises will provide administrative and
consulting services to Maine GasCo. The services may include,
among other things: accounting, regulatory affairs, legal,
purchasing, billing support, telecommunications, engineering,
construction services, mapping, training, meter services and
testing, marketing, gas supply and control, gas transportation
and general administrative support. Coordination of NYSEG's
system with the Maine GasCo System and the provision of any
services by NYSEG or any other EEC subsidiary will be done in
accordance with NYPSC approved affiliate transaction procedures.
Allocations of cost will be done pursuant to NYPSC approved cost
allocation guidelines. It is currently contemplated that the
provision of services to Maine GasCo by NYSEG and its affiliates
will be pursuant to a master services agreement which will
conform to NYPSC rules and guidelines and which must be approved
by the MPUC.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be paid or incurred,
directly or indirectly, in connection with the Transaction,
inclusive of legal fees and expenses, are estimated at not more
than $65,000.
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Item 3. Applicable Statutory Provisions.
Sections 3(a)(1), 9(a)(2) and 10 of the Act apply to the
Transaction. Section 9(a)(2) of the Act makes it unlawful,
without approval of the Commission under Section 10, "for any
person ... to acquire, directly or indirectly, any security of
any public utility company, if such person is an affiliate ... of
such company and of any other public utility or holding company,
or will by virtue of such acquisition become such an affiliate."
Because EEC presently is an "affiliate" of two public utility
companies (i.e., NYSEG and NGE Generation) and by virtue of the
Transaction will also become an "affiliate" of Maine GasCo, which
will become a gas utility company within the meaning of Section
2(a)(4) of the Act on or after the date on which it commences
making residential and commercial sales of natural gas, the
Transaction will require Commission approval under Sections
9(a)(2) and 10 of the Act. In addition, upon consummation of the
Transaction, both EEC and EEC Enterprises will be holding
companies within the meaning of Section 2(a)(7) of the Act and
will be required to register unless they can qualify for
exemptions. Accordingly, EEC and EEC Enterprises request an
order under Section 3(a)(1), exempting EEC and EEC Enterprises
from all provisions of the Act except Section 9(a)(2).
For the reasons explained below, the Commission should grant
approval of the Transaction pursuant to Section 9(a)(2) of the
Act based upon the Transaction's compliance with the applicable
standards of Section 10 of the Act. In addition, for the reasons
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described below, the Commission should by order grant EEC and EEC
Enterprises exemptions pursuant to Section 3(a)(1) from all of
the provisions of the Act (except for Section 9(a)(2) thereof).
A. Approval of the Transaction under Section 9(a)(2)
Sections 10(b), 10(c) and 10(f) of the Act set forth the
standards for approval of the Transaction. The Transaction
satisfies all of the requirements of Section 10 and should
therefore be approved. Specifically, as the following discussion
more fully explains:
- - the Transaction will not tend towards interlocking relations
or the concentration of control of public utility companies
to the detriment of investors and consumers;
- - the consideration, including all commissions and fees, to be
paid in connection with the Transaction is reasonable;
- - the Transaction will not unduly complicate the capital
structure of the EEC holding company system;
- - the Transaction is in the public interest and the interests
of consumers and investors;
- - the Transaction will tend towards the development of an
integrated gas utility system; and
- - the Transaction will comply with all applicable State laws.
1. Section 10(b)
Section 10(b) of the Act requires the Commission to approve
an acquisition pursuant to Section 9(a)(2) unless the Commission
finds that:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public
utility companies, of a kind or to an extent
detrimental to the public interest or the interest of
investors or consumers;
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(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees,
commissions, and other remuneration, to whomsoever
paid, to be given, directly or indirectly, in
connection with such acquisition is not reasonable or
does not bear a fair relation to the sums invested in
or the earning capacity of the utility assets to be
acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the
applicant or will be detrimental to the public interest
or the interest of investors or consumers or the proper
functioning of such holding company system.
The Applicants respectfully submit that no adverse finding should
be made under any of these paragraphs.
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a. Section 10(b)(1)
Section 10(b)(1) provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an
acquisition unless:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public
utility companies, of a kind or to an extent
detrimental to the public interest or the interest of
investors or consumers.
Section 10(b)(1) requires a finding that control is "of a kind or
to an extent detrimental to the public interest or the interest
of investors or consumers." The framers of the Act sought
through Section 10(b)(1) to avoid "an excess of concentration and
bigness" and "huge, complex and irrational holding company
systems," while preserving the "opportunities for economies of
scale, the elimination of duplicative facilities and activities,
the sharing of production capacity and reserves and generally
more efficient operations" afforded by certain combinations.
American Electric Power Co., Inc., 46 S.E.C. 1299, 1307-1309
(1978). The acquisition by EEC, through EEC Enterprises, of at
least 50% of the voting securities of Maine GasCo, which will own
a small local natural gas distribution system, will not increase
the size of EEC in any meaningful way. EEC will be vastly larger
than Maine GasCo and will derive only a de minimis part of its
revenues (less than 1%) from Maine GasCo's operations. The
Transaction will not create an "excess of concentration and
bigness" or a "huge, complex or irrational system" but rather, as
<PAGE>
discussed in more detail below, will afford Maine GasCo the
opportunity to achieve the economies of scale and efficiencies,
particularly in the areas of management expertise and gas supply,
that the Act's framers intended to preserve for the benefit of
investors and consumers.
EEC's current subsidiary utility operations are confined
almost exclusively to the State of New York, and its operations
will remain predominantly intrastate in character even after
acquiring Maine GasCo, which will be immaterial to EEC in terms
of size. Furthermore, the Transaction is not undertaken for the
purpose of extending EEC's control over regulated public
utilities and will not lead to the type of concentration of
control over utilities, unrelated to operating efficiencies that
Section 10(b)(1) was intended to prevent. EEC's primary
objective in acquiring an interest in Maine GasCo is to position
itself to participate, through Maine GasCo, in the growing and
increasingly deregulated New England energy market and to provide
natural gas service to areas which do not currently receive
natural gas service. As explained below, the Transaction will
combine the strengths of EEC and Maine GasCo, which will enable
them to offer customers a broader array of energy products and
services than either company alone could offer, and at the same
time create a larger and more diverse asset and customer base,
which will create opportunities for operating efficiencies.
Finally, Maine GasCo will have its own local management team and
work force. The only management interlocks that may be created
<PAGE>
are only those which are necessary and desirable in order to
integrate Maine GasCo fully into EEC's system.
b. Section 10(b)(2)
Section 10(b)(2) provides that an acquisition should be
approved unless the price paid:
is not reasonable or does not bear a fair
relation to the sums invested in or the
earning capacity of the utility assets to be
acquired or the utility assets underlying the
securities to be acquired.
In its determinations as to whether or not a price meets such
standard, the Commission has considered whether the price was
decided as the result of arm's length negotiations,5 whether the
purchaser's Board of Directors has approved the purchase price,6
the opinions of investment bankers7 and the earnings, dividends,
and the book and market value of the shares of the company to be
acquired.8
In this case, EEC, through EEC Enterprises, and CMP Group,
through New England Gas, will each make initial capital
contributions in proportion to their respective ownership
interests so that the total initial capital contribution will
equal $20 million. Since Maine GasCo is a newly formed,
_____
5 In the Matter of American Natural Gas Company, Holding Co.
Act Release No. 15620 (Dec. 12, 1966).
6 Consolidated Natural Gas Company, Holding Co. Act Release
No. 25040 (Feb. 14, 1990).
7 Id.
8 In the Matter of Northeast Utilities, Holding Co. Act
Release No. 15448 (April 13, 1966).
<PAGE>
privately held entity and, as part of the parties' efforts to
minimize costs, no outside investment bankers are involved in the
Transaction, the Commission cannot look to investment banker
opinions or publicly traded stock information to review the
reasonableness of the price. However, the amounts to be invested
were determined as a result of arm's length negotiations based on
an evaluation of what facilities would be necessary to serve
natural gas customers in Maine and were reviewed by the
respective Boards of Directors of each party to the Joint Venture
Agreement. Furthermore, these financing arrangements have been
approved by the MPUC. The MPUC can continue to monitor Maine
GasCo's expenditures through its ratemaking proceedings and
regulations with regard to other matters. In addition, each
party's contribution is to be used to finance the construction
and start up of the Maine GasCo System and effectively amounts to
a purchase made at cost. In summary, the following factors all
lead to the conclusion that the amount to be invested by EEC is
fair and does not warrant any of the negative findings that call
for disapproval under Section 10(b)(2) of the Act: (i) the amount
of the equity contributions to be made have been approved by the
MPUC as being in the public interest; (ii) these arrangements
were negotiated among the parties on an arm's length basis; and
(iii) as discussed below, the investment constitutes a de minimis
portion of EEC's overall capital.
c. Section 10(b)(3)
<PAGE>
Section 10(b)(3) directs approval of an acquisition unless
the Commission finds that:
(3) such acquisition will unduly complicate
the capital structure of the holding company
system of the applicant ... or will be
detrimental to ... the proper functioning of
such holding company system.
Section 10(b)(3) (along with Section 10(c)(1), discussed below)
relates to the corporate simplification standards of Section
11(b)(2), which require that each registered holding company take
the necessary steps:
to ensure that the corporate or continued
existence of any company in the holding-
company system does not unduly or
unnecessarily complicate the structure ... of
such holding-company system.
The intent of these requirements is to assure the financial
soundness of the holding company system, with a proper balance of
debt and equity. No such complexities will result from the
Transaction. The Transaction will have a very minimal impact on
the capitalization and earnings of EEC. EEC's investment in
Maine GasCo, through EEC Enterprises, will take the form of a
straightforward equity contribution which will not complicate
EEC's capital structure.
As set forth more fully in the discussion of the standards
in Section 10(c)(2), below, and elsewhere herein, the Transaction
will create opportunities for EEC's gas operations and Maine
GasCo to achieve savings, chiefly in the areas of management
expertise and joint management of their respective portfolios of
gas supply, transportation and storage assets. In addition,
<PAGE>
since Maine GasCo will provide, on a non-exclusive basis, natural
gas service in areas not currently receiving natural gas service,
consumers will benefit from the existence of competition among
gas companies and by having more energy choices. The Transaction
will therefore be in the public interest and the interest of
investors and consumers, and will not be detrimental to the
proper functioning of EEC's holding company system. Moreover, as
noted by the Commission in Entergy Corporation, et al., 55 SEC
Docket 2035 at 2045 (December 17, 1993), "concerns with respect
to investors' interests have been largely addressed by
developments in the federal securities laws and the securities
markets themselves." EEC is currently, and will continue to be,
a reporting company subject to the continuous disclosure
requirements of the Securities Exchange Act of 1934 following
completion of the Transaction, which will provide investors with
readily available information concerning EEC. Furthermore, the
Transaction is subject to various state regulatory approvals
which have been obtained (see Item 4 - Regulatory Approvals,
below). For these reasons, the Applicants submit that the
Commission would have no basis for making a negative finding
under Section 10(b)(3).
<PAGE>
2. Section 10(c)
The relevant provisions of Section 10(c) of the Act state
that the Commission shall not approve:
(1) an acquisition of securities or
utility assets, or of any other interest,
which is unlawful under the provisions of
section 8 or is detrimental to the carrying
out of the provisions of section 11; or
(2) the acquisition of securities or
utility assets of a public utility or holding
company unless the Commission finds that such
acquisition will serve the public interest by
tending towards the economical and the
efficient development of an integrated public
utility system.
The Applicants respectfully submit that the requirements of
Section 10(c) are satisfied.
Section 10(c)(1) requires that the proposed acquisition not
be "unlawful under the provisions of Section 8" or "detrimental
to the carrying out of the provisions of Section 11." Section 8,
by its terms, only applies to registered holding companies and
thus, the Transaction could not be unlawful under Section 8
because EEC is an exempt holding company. Approval of the
Transaction will not be detrimental to the carrying out of the
provisions of Section 11, which provides, in subsection (b)(1)
thereof, that every registered holding company and its
subsidiaries shall limit their operations "to a single integrated
public-utility system . . . ." As indicated above, EEC is an
exempt holding company and will continue to be entitled to its
current exemption following the acquisition of Maine GasCo's
voting securities. In this regard, the Commission has held on
<PAGE>
several occasions that, because Section 11 by its terms applies
only to registered holding companies, Section 10(c)(1) does not
preclude an acquisition by an exempt holding company of the
securities of another public-utility company, even though the
existing properties of the exempt holding company and those of
the company to be acquired together would not constitute a single
integrated system, provided that the acquisition is not unlawful
under Section 8 and would have the integrating tendencies
required by Section 10(c)(2). See Union Electric Company, 45 SEC
489, 501 (1974), aff'd without opinion sub nom., City of Cape
Girardeau v. SEC, 521 F.2d 324 (D.C. Cir. 1975); WPL Holdings,
Inc., Holding Co. Act Release No. 24590 (February 26, 1988),
aff'd in part and rev'd in part sub nom., Wisconsin's
Environmental Decade, Inc. v. SEC, 882 F.2d 523 (D.C. Cir. 1989),
reaffirmed 49 SEC Docket 1255 (September 18, 1991); In the Matter
of Gaz Metropolitain, Inc., et al., Holding Co. Act Release No.
26170 (November 23, 1994); TUC Holding Company, et al., 65 SEC
Docket 301 at 305 (August 1, 1997); and BL Holding Corp., Holding
Co. Act Release No. 26875 (May 15, 1998). Accordingly, as long
as the acquisition of Maine GasCo by EEC would have the
integrating tendencies required by Section 10(c)(2), discussed
below, it is of no consequence that other existing properties of
EEC (e.g., NYSEG's electric system) would not form a part of the
same integrated system as Maine GasCo's gas properties.
Section 10(c)(2) requires that an acquisition not be
approved unless the Commission finds that:
<PAGE>
[S]uch acquisition will serve the public
interest by tending towards the economical
and efficient development of an integrated
public-utility system.
Section 2(a)(29)(B) defines an "integrated public utility system"
as applied to gas utility companies as:
[A] system consisting of one or more gas
utility companies which are so located and
related that substantial economies may be
effectuated by being operated as a single
coordinated system confined in its operation
to a single area or region, in one or more
States, not so large as to impair
(considering the state of the art and the
area or region affected) the advantages of
localized management, efficient operation,
and the effectiveness of regulation:
Provided, that gas utility companies deriving
natural gas from a common source of supply
may be deemed to be included in a single area
or region.
Unlike the definition of an "integrated electric utility
system" in Section 2(a)(29)(A) of the Act, physical
interconnection of the component parts of a gas utility system is
not required. Furthermore, the Commission has not traditionally
required that the pipeline facilities of an integrated system be
interconnected.9
The acquisition by EEC of at least 50% of the voting
securities of Maine GasCo will satisfy the integration standard
_____
9 See In the Matter of Pennzoil Company, Holding Co. Act
Release No. 15963 (1968) (finding an integrated system where
respective facilities both connected with an unaffiliated
transmission company but not each other). See also, In the
Matter of American Natural Gas Company, Holding Co. Act
Release No. 15620 (1966) ("it is clear the integrated or
coordinated operations of a gas system under the Act may
exist in the absence of [physical] interconnection").
<PAGE>
set forth in Section 2(a)(29)(B) of the Act for the following
reasons:
- - EEC's investment in, and its ongoing involvement with, Maine
GasCo's operations, will be critical to the development of a
gas utility system in an area which does not currently
receive natural gas service;
- - Maine GasCo and NYSEG's gas systems will share a "common
source of supply" (the Western Canadian Sedimentation Basin)
and will be operated as a "single coordinated system;"
- - Maine GasCo will be able to achieve "substantial economies"
in gas supply through the increased purchasing power and gas
supply coordination that will result from being part of the
larger NYSEG gas system; Maine GasCo and its customers will
also benefit from NYSEG's expertise in such areas as
engineering, construction, mapping, training, meter services
and testing, marketing and gas transportation;
- - Taking into account the current "state of the art," the area
or region served by NYSEG in New York and by Maine GasCo
will not be "so large as to impair . . . the advantages of
localized management, efficient operation, and the
effectiveness of regulation." To the contrary, the day-to-
day operations of Maine GasCo will be under the direction of
its Manager, who will be located in Maine. The management
of Maine GasCo will be independent of, but coordinated with
(in order to promote efficient operation) that of NYSEG, and
will be subject to effective local regulation by the MPUC;
and
- - Because of Maine GasCo's size, EEC will continue to qualify
for an exemption under Section 3(a)(1) of the Act as an
"intrastate" holding company even after acquiring Maine
GasCo's voting securities.
Under these circumstances, and because the acquisition of Maine
GasCo will have the integrating features required by Sections
10(c)(2) and 2(a)(29)(b), the Commission should approve the
Transaction.
a. Single Area or Region
Although the NYSEG and Maine GasCo retail gas service areas
will be separated by a distance of several hundred miles and are
<PAGE>
located in non-contiguous states, such factors by themselves are
not determinative. See MCN Corporation, 62 SEC Docket 2379
(September 17, 1996) (approving acquisition of an interest in a
gas utility company by an exempt gas utility holding company
whose service area is located more than 500 miles distant in a
non-adjoining state). On the contrary, Section 2(a)(29)(B)
specifically contemplates that "gas utility companies deriving
natural gas from a common source of supply may be deemed to be
included in a single area or region." Moreover, in considering
whether an "area or region" is so large as to impair "the
advantages of localized management, efficient operation, and the
effectiveness of regulation," the Commission must consider the
"state of the art" in the industry. Both the Commission's
precedent and the "state of the art" in the natural gas industry
lead to the conclusion that, with the Maine GasCo System
included, EEC's gas utility system will operate as a coordinated
system confined in its operation to a single area or region
because Maine GasCo and NYSEG will derive natural gas from a
common source of supply.
Neither the Act, the Commission's orders and rulings nor the
Commission staff's no-action letters provide a definition as to
what constitutes a "common source of supply." Historically, in
determining whether two gas companies share a "common source of
supply," the Commission has looked to such issues as from whom
the distribution companies within the system receive a
<PAGE>
significant portion of their gas supply.10 The Commission has
also considered both purchases of gas from a common pipeline11 as
well as from different pipelines when the gas originates from the
same gas field.12 Since the time of most of these decisions, the
state of the art in the industry has developed to allow efficient
operation of systems whose gas supplies derive from many sources.
Following consummation of the Transaction, both NYSEG and
Maine GasCo will derive a significant amount of their gas from a
common source of supply under Section 2(a)(29)(B). As previously
mentioned, NYSEG receives approximately 28.5% of its gas supply
from the Western Canadian Sedimentation Basin through the
TransCanada Pipeline. Maine GasCo will take gas initially from
the proposed PNGTS pipeline, which will be interconnected with
the TransCanada Pipeline, running out of the Western Canadian
_____
10 See e.g., In the Matter of Philadelphia Company and
Standard Power and Light Company, Holding Co. Act Release
No. 8242 (1948) ("most of the gas used by these companies in
their operations is obtained from common sources of
supply"); Consolidated Natural Gas Company, Holding Co. Act
Release No. 25040 (1990) (finding integrated system where
each company derived natural gas from two transmission
companies, although one such company also received gas from
other sources).
11 In the Matter of the North American Company, Holding Co. Act
Release No. 10320 (1950) (finding Panhandle Eastern pipeline
to be a common source of supply).
12 See In the Matter of Central Power Company and Northwestern
Public Service Company, Holding Co. Act Release No. 2471
(1941), in which the Commission declared an integrated
system to exist where two entities purchase from different
pipeline companies since "both pipelines run out of the Otis
field, side by side, and are interconnected at various
points in their transmission system; and that they are
within two miles of each other at Kearney."
<PAGE>
Sedimentation Basin. Moreover, when fully developed, Maine GasCo
will continue to receive at least 50% of its gas supply from the
Western Canadian Sedimentation Basin through the TransCanada
Pipeline and the PNGTS pipeline. As noted above, purchases from
a common pipeline, as well as purchases from a common gas field,
have been found to satisfy the "common source of supply"
requirement of Section 2(a)(29)(B) of the Act. Accordingly, there
is substantial evidence that NYSEG and Maine GasCo will share a
common source of supply for a significant amount of their
respective gas supplies. In addition, when the Maine GasCo
System is fully developed, it is anticipated that its gas
purchasing needs may become significant enough for economic
efficiencies to arise by having consolidated gas purchasing for
both NYSEG and Maine GasCo. Thus, some of NYSEG's and Maine
GasCo's gas supply could be handled on a coordinated basis.
Any determination of the appropriate size of the area or
region calls for consideration of the "state of the art" in the
gas industry. In this regard, the "state of the art" in the gas
industry continues to evolve and change, primarily as a result of
decontrol of wellhead prices, the continuing development of an
integrated national gas transportation network, the construction
of new pipeline capacity, the emergence of marketers and brokers,
and the "un-bundling" of the commodity and transportation
functions of pipelines and local distribution companies in
<PAGE>
response to various FERC and state initiatives.13 Of particular
importance has been the development, evolution and operation of
market centers, trading hubs, and pooling areas. Today, trading
activity conducted at market centers and trading hubs play an
increasingly vital role in the overall management of the assets
in a gas portfolio (supply, transportation and storage).
Market centers, trading hubs and pooling areas essentially
serve to facilitate transactions through information exchanges,
physical exchanges of gas, the provision of transportation
related services (e.g., storage, parking), and the aggregation of
supplies of all merchants. Trading hubs function primarily as
physical transfer points between intersecting pipelines where
buyers, sellers and traders can sell, exchange or trade gas or
pipeline capacity or redirect deliveries to a different pipeline.
Further, various types of unbundled services are typically
available at trading hubs, such as temporary storage, parking and
loaning of gas, and balancing. Market centers are easily
accessible from many parts of the country. They can be used to
_____
13 The Commission has taken notice of the regulatory and
technological changes that have reshaped the natural gas
industry over the past two decades. See "The Regulation of
Public-Utility Holding Companies," Report of the Division of
Investment Management (June 1995), pp. 29 - 31. In its
Report, the Division of Investment Management recommended
that the Commission "interpret the single area or region
requirement [of Section 2(a)(29)] flexibly, recognizing
technological advances, consistent with the purposes and
provisions of the Act." Id. at 73. The Division also
stated that the focus of inquiry under Section 10(c)(2)
should be on whether a transaction would promote the
economic and efficient development of a utility system and
on whether the resulting system would be subject to
effective regulation.
<PAGE>
arrange storage, transportation or other ancillary services.
Pooling areas facilitate the title transfer of gas at both
production and market points. In addition to the operation of
pooling areas by interstate pipelines, several marketing
companies provide services by which interested buyers and sellers
can exchange gas at such pooling points for a fee. At some
market centers, hub services, such as parking, loaning, wheeling,
and in some instances, title transfer, are also available. Thus,
a producer in a given basin may, through such market mechanisms,
sell gas to a buyer several pipeline systems away without the
payment of additional transportation costs, thus making gas
produced in one basin more competitive with gas produced in a
geographically closer locale. This represents a significant
change from the last 50 years when LDC's typically bought all of
their gas at the city-gate from the interconnecting pipeline.
Such creative arrangements, however, are dependent upon the
existence of significant physical interconnections and market
centers between the production area and ultimate delivery point.
While these conditions may not currently exist throughout all of
the contiguous 48 states, the nation's interstate pipeline system
continues to expand at a significant rate, in terms of both long-
haul capacity and interregional interconnections. Between 1990
and the end of 1997, capacity additions on the long-haul pipeline
systems totaled 12.4 billion cubic feet (Bcf) per day, an
increase of about 17%, while interregional capacity additions
totaled 11.4 Bcf per day, or about 15%, in the same period. More
<PAGE>
than 40 projects were completed in 1997 alone. See, Energy
Information Agency, "Deliverability on the Interstate Natural Gas
Pipeline System," DOE/EIA-0618(98) (Washington, D.C., May 1998),
pp. 32-34. Several new expansion projects have been announced to
alleviate capacity constraints in those few areas of the country
where they still exist. Moreover, as previously described,
market centers and storage capacity are becoming increasingly
integrated into the pipeline network. In summing up the current
state of the nation's pipeline delivery system, taking into
account completion by the end of the year 2000 of projects that
will expand transportation capacity from the Rocky Mountains, New
Mexico, and West Texas producing areas to Midwest and Northeast
markets, the Department of Energy has observed that "the
interstate natural gas pipeline network will come closer to being
a national grid where production from almost any part of the
country can find a route to customers in almost any area."
(Emphasis added).
As a result of these developments, coordination of the
operations of two non-contiguous gas companies is no longer
dependent solely upon having contractual capacity on the same
interstate pipelines, so long as the two companies both have
access to one or more common market centers or trading hubs.
Importantly, these developments in the state of the art in the
gas industry now allow gas distribution companies operating in a
much larger area or region of the country to realize operating
economies and efficiencies from coordinated operation that were
<PAGE>
once thought to be achievable only by contiguous or nearly
contiguous gas companies supplied by the same interstate
pipelines.
As indicated above, because NYSEG and Maine GasCo will
potentially share access through their respective pipeline
transporters to industry-recognized market and supply-area hubs,
they will have the ability to physically coordinate and manage
their portfolios of supply, transportation and storage. Through
such interstate and intrastate pipeline interconnections, market
participants such as NYSEG and Maine GasCo will be able to
support, if necessary, the underlying physical side of various
financial derivatives as a means of managing price volatility.
Maine GasCo expects that such instruments, if appropriate, would
be arranged through NYSEG, which already purchases such
instruments in order to help manage its gas costs.
Given that there is substantial evidence that the
acquisition will have integrating features (e.g., common source
of supply, local management, realization of substantial economies
and efficiencies through coordinated operation and effective
local regulation) and that exempt holding companies like EEC are
not subject to the strict integration standards of Section
11(b)(1), the Commission should have little reason to interpret
the integration standards of Section 10(c)(2) and Section
2(a)(29)(B), as applied to the Transaction, in a narrow or
restrictive manner. In other recent cases involving acquisitions
by exempt holding companies, such as Gaz Metropolitain, Inc., et
<PAGE>
al., TUC Holding Company, et al., and MCN Corporation, the
Commission has exhibited a willingness to interpret the
integration standards of Section 10(c)(2) flexibly, focusing
instead on the demonstrated benefits of the transaction from the
perspectives of both investors and consumers. It should do the
same here.
b. Economies and Efficiencies
EEC's ownership of an interest in Maine GasCo will be
beneficial to the management and operations of the Maine GasCo
System and will result in the requisite economies and
efficiencies. For example, use of NYSEG's Gas Control System
will allow Maine GasCo to avoid incurring significant costs in
attempting to replicate such facilities, as discussed in more
detail below. Moreover, a Commission finding of "efficiencies
and economies" may be based "on the potential for economies
presented by the acquisition even where these are not precisely
quantifiable." See American Electric Power Co., 46 SEC 1299,
1322 (1978); accord, Centerior Energy Corp., Holding Co. Act
Release No. 24073 (April 29, 1986) ("specific dollar forecasts of
future savings are not necessarily required; a demonstrated
potential for economies will suffice even when these are not
precisely quantifiable"). In this case, the Applicants believe
that the Transaction will provide significant financial and
organizational advantages to Maine GasCo and as a result, the
potential for substantial economies and efficiencies should be
found to meet the standard of Section 10(c)(2) of the Act.
<PAGE>
Although the parties have not tried to quantify the value of all
the resulting economies and efficiencies, they believe that
having experienced management and certain centralized services
will increase the efficiency of Maine GasCo's operations
significantly.
Combining the systems of Maine GasCo and NYSEG will result
in the economic and efficient development of a coordinated gas
system because NYSEG and Maine GasCo will centralize certain
computer systems. Significant day-to-day centralization between
the Maine GasCo System and the existing NYSEG gas system will
occur via Maine GasCo's use of NYSEG's Gas Control system ("GC
System"). Maine GasCo will have a direct line to the GC System
and large customer or marketer inquiries will be handled through
an internet Electronic Bulletin Board, which is maintained by
NYSEG's GC System personnel and where customer data will be
available to Maine GasCo. NYSEG's GC System personnel will
provide frequent consulting services to the Maine GasCo personnel
on how to operate their link with the GC System and how to handle
other customer service related matters. GC System personnel, in
conjunction with Maine GasCo, will also be responsible for
reaching the appropriate operational personnel to respond to
emergency situations when necessary. It is currently
contemplated that Maine GasCo will use NYSEG's GC System to
monitor its operations around the clock. Maine GasCo, in
conjunction with GC System personnel, will gather transportation
customer usage data via electronic meters and check usage against
customer nominations through the use of electronic measurement
equipment. Maine GasCo, again in conjunction with GC System
personnel, will monitor pressures and gas flow on its
<PAGE>
distribution system, which will ensure that its distribution
system is not over pressurized and that actual gas usage is in
balance with pipeline nominations. If actual gas usage is not in
balance with pipeline nominations, GC System personnel, in
conjunction with Maine GasCo, will make nomination changes with
the interstate pipelines to flow more gas or to cut gas supplies.
Actual gas flows for Maine GasCo's sales customers and
transportation customers will be compared to pipeline data for
each pipeline interconnect. The GC System and personnel are
currently responsible for over 80 connection points with
interstate pipelines and local gas production. The additional
interconnection points which Maine GasCo will have will be
integrated into NYSEG's existing software and hardware
applications. This arrangement will also benefit NYSEG by
permitting it to more efficiently use existing personnel and
computer resources. If Maine GasCo were to attempt to develop
its own GC System, it would incur significant start-up costs.
The parties have estimated that the cost to Maine GasCo of
developing its own comparable GC System would likely exceed $1
million. In addition, Maine GasCo would have to hire additional
employees to operate the system and would also incur other
personnel and personnel training costs.
NYSEG's experience in the market for gas supply and access
to gas supplies will prove useful to Maine GasCo, as discussed in
more detail below, and will complement the financial strength EEC
brings to Maine GasCo's operations. NYSEG's GC System and
personnel work closely with NYSEG's gas acquisition group, which
is responsible for planning and purchasing NYSEG's gas supply
requirements. NYSEG's gas acquisition group, in conjunction with
<PAGE>
Maine GasCo, will coordinate the purchase, scheduling and
delivery of gas, transportation capacity and related financial
risk management products. Applicants also state that, while
Maine GasCo will always be able to purchase gas from unaffiliated
suppliers, Applicants expect NYSEG's gas acquisition group to
provide these services for the foreseeable future. Such
coordination will involve the development of periodic gas
acquisition plans for Maine GasCo. In this regard, it is
important to note that because Maine GasCo will have a direct
line into the GC System, Maine GasCo will have access to the
information available from electronic bulletin boards monitored
by NYSEG's gas acquisition group and GC System personnel and will
be able to communicate directly as necessary with NYSEG's gas
acquisition group and GC System personnel on a day-to-day basis
to schedule gas purchases and delivery based on anticipated
projections of customer growth on the Maine GasCo System, weather
conditions and market price volatility.
NYSEG's gas acquisition group, in conjunction with Maine
GasCo, will procure gas supply based upon forecasted weather and
gas prices for various supply basins and associated
transportation costs from those basins and will work with
producers, marketers and pipelines to efficiently move natural
gas to the Maine GasCo System. In addition, NYSEG's gas
acquisition group will maximize the value from pipeline capacity
by doing capacity release when capacity is not needed and
rebundled gas sales when appropriate. NYSEG's gas acquisition
group will track purchased gas and its movement through the
interstate pipelines and through the Maine GasCo System utilizing
a sophisticated accounting and tracking system which is necessary
<PAGE>
for matching purchased gas against producer and pipeline bills.
NYSEG's gas acquisition group, using a given Maine GasCo
customer's load profile, will attempt to find gas supply,
pipeline capacity, and gas balancing which, when repackaged,
meets or beats such customer's fuel alternative. To that end,
NYSEG's gas acquisition group will arrange to purchase gas from
producers from the common supply basins that are accessible by
Maine GasCo and NYSEG, currently the Western Canadian
Sedimentation Basin, and various hubs and market centers across
the country. In addition, Sable Island gas supply via the M&N
pipeline will be available to Maine GasCo and to NYSEG via the
Tennessee Gas Pipeline, which connects New York and New England.
At the same time, Gulf Coast gas supply will be available to
Maine GasCo via the Tennessee Gas Pipeline. NYSEG already holds
capacity on the Tennessee Gas Pipeline and will be able to take
advantage of arbitrage possibilities as a result.
NYSEG's gas acquisition group works with NYSEG's assets or
contracted assets, and will work with Maine GasCo's assets, to
manage weather related swings in customer requirements and at the
same time provide reliable gas supply to Maine GasCo at the
lowest possible cost. By increasing the purchasing power as a
result of its providing gas and other purchasing services to
Maine GasCo, the addition of the Maine GasCo System to NYSEG's
existing gas system will create a larger combined system able to
capture greater economies of scale and scope in such purchasing
activities which is necessary in today's competitive energy
market. Furthermore, since NYSEG sells gas primarily to
temperature-sensitive residential and small commercial customers,
NYSEG's system's load factor will be similar to Maine GasCo's.
<PAGE>
NYSEG has substantial experience in operating a disaggregated
service territory, much like the proposed natural gas system of
Maine GasCo, which will operate off of two pipelines with
multiple gate stations. NYSEG's experience in a similar
environment will no doubt benefit Maine GasCo. The coordination
of NYSEG's gas acquisition group with the Maine GasCo System will
save Maine GasCo considerable start-up costs for hardware and
software, as well as personnel training and ongoing O&M costs.
Finally, as previously discussed, NYSEG's management is
highly trained and experienced in providing gas distribution
services. It has brought its technological, operations, gas
purchasing, customer service and regulatory expertise to Maine
GasCo, and can pass on that expertise to Maine GasCo. CMP Group
does not have an equivalent level of experience in operating a
local natural gas distribution company and will derive
substantial benefits from NYSEG's expertise. The value of such
expertise and services is not readily quantifiable. However,
although the parties have not tried to quantify the value of
these services, they believe that having experienced management
advice readily available to Maine GasCo will increase the
efficiency of Maine GasCo's operations significantly and will
also permit EEC to utilize its personnel in a more efficient
manner.
In general, it is important to remember that Maine GasCo
will have very limited direct staffing personnel to operate the
local natural gas distribution system. At each step in the
construction, development, operation, marketing and promotion of
the Maine GasCo System, the Maine GasCo System has and will
benefit from NYSEG's existing expertise in these areas as well as
<PAGE>
NYSEG's rate and pricing expertise. Thus far, NYSEG's management
and engineering personnel have been closely involved in the
process of making day-to-day determinations with regard to the
installation and location of Maine GasCo's main pipeline and
distribution system. Similarly, NYSEG has worked with Maine GasCo
to decide the type of meter reading system that Maine GasCo will
use and has lent its expertise with both automated and labor
intensive meter reading systems to evaluate the best option for
the Maine GasCo System. NYSEG has also provided advice with
respect to pipeline system safety and gas appliance
infrastructure and marketing. In each instance, NYSEG has
provided Maine GasCo with existing expertise in operating a local
natural gas distribution system in this decision making process,
which will allow Maine GasCo to develop an efficient system in an
efficient manner. Without NYSEG's existing expertise in these
areas, Maine GasCo would have to hire consultants to provide the
ongoing training of its personnel as well as hire additional
personnel to conduct these operations.
NYSEG's experience in operating a local natural gas
distribution system will enable Maine GasCo to construct a safe
and efficient system of its own. Maine GasCo plans to construct
its system to current NYSEG standards, ensuring a higher level of
safety than most utilities provide. NYSEG's expertise in the gas
industry will be instrumental to establishing and maintaining
this level of safety. Furthermore, Maine GasCo has followed, and
will continue to follow, NYSEG's approach to contracting with
<PAGE>
third parties for the provision of construction and mapping
services. Maine GasCo has entered into "alliance" contracts in
which it will work as a team with the contractors in order to
complete the project successfully. NYSEG has used this approach
in New York to its significant benefit.
Similarly, as Maine GasCo will provide a new service in its
territory, its marketing plans are of particular importance. Here
again, centralized planning has benefitted, and will continue to
benefit, Maine GasCo. Maine GasCo's initial promotional material
and informational booklets distributed to potential customers
were modeled on (and are virtually identical to) those used by
NYSEG. NYSEG currently oversees the advertising, promotions and
direct mailings for Maine GasCo and will help to develop
incentive programs for Maine GasCo.
The EEC system will also meet the requirement that it be
"not so large as to impair (considering the state of the art and
the area or region affected) the advantages of localized
management, efficient operation and the effectiveness of
regulation." In In The Matter of American Natural Gas Company,
Holding Co. Act Release No. 15620 (Dec. 12, 1966), the Commission
found that the American Natural Gas system would meet the above
requirement after its acquisition of an Indiana gas utility:
Although American Natural will provide
certain central facilities, equipment and
personnel ... Central Indiana will retain its
own local management and board of directors,
a majority of whom will be residents of
Indiana. Central Indiana will continue to
be subject to regulation by the Public
Service Commission of Indiana.
<PAGE>
Maine GasCo will be operated in a similar manner. While, as
discussed above, Maine GasCo may receive a number of centralized
services from NYSEG (i.e., gas supply and control, gas
transportation, engineering, construction, mapping, training,
meter services and meter testing and marketing), allowing it to
capture economies and efficiencies for the Maine GasCo System,
the Maine GasCo System will be operated on a day-to-day basis by
a local operator (Maine GasCo), and the Maine GasCo System will
be regulated by the MPUC with regard to rates, affiliate
transactions, accounting, service standards, territory served,
the issuance of securities maturing more than one year after the
date of issuance, and various other matters. Thus, the Maine
GasCo System will be locally operated and locally regulated, but
will have the economic advantage of certain centralized services.
3. Section 10(f)
Section 10(f) provides that:
The Commission shall not approve any
acquisition ... under this section unless it
appears to the satisfaction of the Commission
that such State laws as may apply in respect
of such acquisition have been complied with,
except where the Commission finds that
compliance with such State laws would be
detrimental to the carrying out of the
provisions of section 11.
As explained below in Item 4 - Regulatory Approvals, certain
aspects of the Transaction require approval of the MPUC. The
MPUC has authorized CMP Group, through Maine GasCo, to provide on
a non-exclusive basis natural gas service in certain areas in
Maine and has approved the formation and initial capitalization
<PAGE>
of Maine GasCo. Copies of such orders are attached hereto as
Exhibits D-1 and D-2, respectively.
B. The Exemption under Section 3(a)(1)
Neither EEC nor EEC Enterprises intends to register as a
holding company under the Act. As demonstrated below, EEC and
EEC Enterprises respectfully submit that they should both be
granted, by Commission order, exemptions under Section 3(a)(1) of
the Act. Section 3(a)(1) of the Act exempts a "holding company"
from all of the provisions of the Act (except for Section 9(a)(2)
thereof) if:
such holding company, and every subsidiary
company thereof which is a public-utility
company from which such holding company
derives, directly or indirectly, any material
part of its income, are predominately
intrastate in character and carry on their
business substantially in a single State in
which such holding company and every such
subsidiary company thereof are organized.
EEC and EEC Enterprises will satisfy such requirements.
EEC, NYSEG and NGE Generation all are organized and carry
on their business substantially in the State of New York.
Neither EEC, NYSEG, nor NGE Generation will derive any material
part of its income from a utility company that carries on its
business and/or is organized outside of the State of New York.
Maine GasCo will be significantly smaller than EEC. (See
footnote 3, above). The acquisition and ownership of Maine GasCo
voting securities by EEC will therefore have no impact on the
continuing entitlement of EEC to its exemption under Section
3(a)(1) of the Act.
<PAGE>
In addition, EEC Enterprises should also be granted an
exemption under Section 3(a)(1) below. EEC Enterprises and Maine
GasCo are both organized and will carry on their business in the
State of Maine and neither EEC Enterprises nor Maine GasCo will
derive any part of its income from a utility company that carries
on its business and/or is organized outside of the State of
Maine.
Section 3(a) of the Act provides that, if an applicant
satisfies the objective requirements for an exemption, the
applicant shall be granted the exemption, "unless and except
insofar as [the Commission] finds the exemption detrimental to
the public interest or the interest of investors or consumers."
In assessing whether a proposed exemption is "detrimental," the
Commission has focused upon the presence of state regulation,
establishing that federal intervention is unnecessary when state
control is adequate. See, e.g., KU Energy Corp., Holding Co. Act
Release No. 25409 (November 13, 1991); CIPSCO Inc., Holding Co.
Act Release No. 25152 (September 18, 1990).14
The Commission should find that sufficient safeguards exist
under state law to ensure that no potential adverse consequences
would result from the Transaction. As discussed above, the MPUC
has approved the formation and initial capitalization of Maine
_____
14 Furthermore, the Commission Staff has stated its support for
greater flexibility in the administration of existing
exemptions in consultation and cooperation with state
regulators. See, Division of Investment Management, The
Regulation of Public Utility Holding Companies, supra, at
119-20.
<PAGE>
GasCo and the MPUC will regulate Maine GasCo with regard to
rates, affiliate transactions, accounting, service standards,
territory served, the issuance of securities maturing more than
one year after the date of issuance, and various other matters.
Item 4. Regulatory Approvals.
The formation of Maine GasCo and the construction and
financing of Maine GasCo's natural gas distribution system are
subject to the jurisdiction of the MPUC. The MPUC has issued
orders authorizing CMP Group to provide natural gas service on a
<PAGE>
non-exclusive basis,15 through Maine GasCo, in certain areas of
_____
15 In authorizing CMP Group, through Maine GasCo, to provide
natural gas service on a non-exclusive basis, the MPUC noted
at page 5 of its order in Docket No. 96-786:
"[A]s a general matter, authorizing more than
one LDC to serve an area will result in
beneficial competition to obtain adequate
customer load to build and serve an area in a
manner that may very likely "grow the market"
so that system expansion may ultimately be
greater than it would be if only a single
entity was authorized to serve. Nor do we
expect that market inefficiencies, such as
uneconomic duplication of facilities and lost
economies of scale, will predominate or
necessarily result in higher prices to end-
users. We expect that the efficiencies and
product diversification that are the
hallmarks of competition will result in
system expansion that is at least as socially
beneficial as that which could be achieved by
traditional means as a regulated monopoly
service.
Moreover, we do not believe that, if
customers are the selecting mechanism,
benefits would accrue to only the largest
customers to the detriment of smaller
customers. Beneficial deals and discounts to
large customers may make it more imperative
for the entity to obtain additional small
customers in order to increase throughput and
achieve an adequate return on infrastructure
development. Consequently, competition among
providers could ultimately drive deeper
penetration levels within a given area.
Consequently, we conclude that economic
efficiencies and the public interest in safe
and adequate service and facilities and
orderly infrastructure development will be
amply served by allowing multiple gas
utilities to compete to serve an area . . .
The policy has encouraged aggressive and
innovative proposals for development of
service to previously unserved areas. We see
no benefit in cutting off competition at this
point and foreclosing further benefits that
it may provide."
<PAGE>
Maine not currently receiving natural gas service and has also
authorized the formation and initial capitalization of Maine
GasCo. Copies of such orders are attached hereto as Exhibits D-1
and D-2, respectively.
No other state or federal commission has jurisdiction over
the Transaction.
Item 5. Procedure.
The Applicants hereby request that the Commission publish a
notice under Rule 23 with respect to the filing of this
Application as soon as practicable and that the Commission's
order be issued as soon as possible in order that Maine GasCo can
begin serving Maine customers. A form of notice suitable for
publication in the Federal Register is attached hereto as Exhibit
H-1.
The Applicants do not believe that there should be a
recommended decision by a hearing officer or any other
responsible officer of the Commission or that there should be a
30-day waiting period between the issuance of the Commission's
order and the date on which it is to become effective. The
Applicants request that the Commission's order become effective
immediately upon the entry thereof. The Applicants consent to
the Division of Investment Management assisting in the
preparation of the Commission's decision or order in this matter,
unless such Division opposes this application.
<PAGE>
Item 6. Exhibits and Financial Statements.
NO. DESCRIPTION METHOD OF FILING
(a) Exhibits
A-1 Articles of Organization of CMP Natural Gas, Previously
L.L.C. ("Maine GasCo.") filed.
B-1 Joint Venture Agreement dated as of November Previously
12, 1997 between Central Maine Power filed.
Company ("CMP") and New York State Electric
& Gas Corporation.
D-1 Order of the MPUC in Docket No. 96-786 Previously
authorizing CMP Group to furnish, through filed.
Maine GasCo, natural gas service in
certain areas of Maine.
D-2 Order of the MPUC in Docket No. 98-077 Previously
authorizing the formation and capitalization filed.
of Maine GasCo.
E-1 Map of natural gas service area of Previously
Maine GasCo. filed.
(paper format
filing)
F-1 Preliminary opinion of Huber Lawrence & Filed herewith.
Abell, counsel to Energy East Corporation
and Energy East Enterprises, Inc.
F-2 Past-tense opinion of Huber Lawrence & To be filed by
Abell, counsel to Energy East Corporation amendment.
and Energy East Enterprises, Inc.
H-1 Proposed form of Federal Register Notice. Previously
filed.
(b) Financial Statements
1.1 Balance sheet of Energy Incorporated herein by
East Corporation reference to Form 10-Q for the
(consolidated) quarter ended September 30,
as of September 30, 1998. 1998 filed by Energy East
Corporation - File No. 1-
14766.
1.2 Statements of Income and Incorporate herein by
Retained Earnings of Energy reference to Form 10-Q for the
East Corporation quarter ended September 30,
(consolidated) as of 1998 filed by Energy East
September 30, 1998. Corporation - File No. 1-
14766.
<PAGE>
Item 7. Information as to Environmental Effects.
The Applicants do not believe that the Transaction would involve
a "Major federal action" nor would it "significantly affect the
quality of the human environment" as those terms are used in Section
102(2)(c) of the National Environmental Policy Act. The only federal
actions related to the Transaction pertain to the Commission's
approval of this application and granting of the exemptions requested
herein. The Transaction would not result in changes in the operations
of EEC that would have any impact on the environment. No Federal
agency has prepared or is preparing an environmental impact statement
with respect to the Transaction.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, the undersigned companies have duly caused this
Amendment No. 1 to be signed on their behalf by the undersigned
thereunto duly authorized.
Energy East Corporation
Date: January 29, 1999 By: Kenneth M. Jasinski
Kenneth M. Jasinski, Esq.
Senior Vice President and
General Counsel
Energy East Enterprises, Inc.
Date: January 29, 1999 By: Kenneth M. Jasinski
Kenneth M. Jasinski, Esq.
Treasurer and Chief Financial
Officer<PAGE>
APPENDIX A
PROPOSED SERVICE AREAS
Rumford Hampden Bath
Mexico Orrington Freeport
Dixfield Bucksport Yarmouth
Bethel Clinton North Yarmouth
Farmington Waterville Baileyville
(Woodland)
Wilton Winslow Bridgton
Jay Fairfield Casco
Livermore Madison Durham
Livermore Falls Oakland Gray
Millinocket Skowhegan Harrison
East Millinocket Norridgewock Naples
Medway Augusta Norway
Lincoln Gardiner Otisfield
Howland Randolph Oxford
Orono Hallowell Paris
Old Town Farmingdale Pownal
Milford Manchester Raymond
Veazie Winthrop Standish
Bangor Topsham Windham
Brewer Brunswick
Exhibit F-1
January 29, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel for Energy East Corporation and its
wholly-owned subsidiary, Energy East Enterprises, Inc. (the
"Applicants") in connection with their Application on Form U-1
(File No. 70-9369) (the "Application"), filed with the Securities
and Exchange Commission (the "Commission") under the Public
Utility Holding Company Act of 1935, as amended. The Application
requests that the Commission issue an order authorizing the
acquisition by the Applicants, of at least 50% of the membership
interests of CMP Natural Gas, L.L.C., a Maine limited liability
company, which will be a natural gas utility company operating in
the State of Maine.
As counsel to Applicants, we are generally familiar with
their corporate proceedings and have examined the Application,
the Joint Venture Agreement dated as of November 13, 1997, as
amended, between Energy East Enterprises, Inc. and New England
Gas Development Corporation, a wholly-owned subsidiary of CMP
Group, Inc., and such other documents as we have deemed relevant
and necessary as a basis for the opinion hereinafter set forth.
In addition, we have made such other and further investigations
as we have deemed relevant and necessary as a basis for the
opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us
as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
With respect to all matters of law of the State of Maine,
insofar as they relate to this opinion, we have relied upon an
opinion of even date herewith of Anne M. Pare, Esq., Treasurer,
Corporate Counsel and Secretary of CMP Group, Inc., a copy of
which is attached hereto.
<PAGE>
Based on the foregoing and upon such further examination of
corporate records and documents and matters of law as we have
considered necessary or desirable for the purposes of this
opinion, it is our opinion that:
(a) Energy East Corporation is validly organized and duly
existing under the laws of the State of New York;
(b) CMP Natural Gas, L.L.C. is validly organized and duly
existing under the laws of the State of Maine;
(c) when the Commission has taken the action requested in
the Application (i) all state laws applicable to the
transactions contemplated in the Application will have been
complied with; (ii) the Applicants may legally acquire the
membership interests in CMP Natural Gas, L.L.C.; and (iii)
the consummation of the transactions proposed in the
Application will not violate the legal rights of the holders
of any securities issued by the Applicants or any associate
company thereof.
The opinion expressed herein is limited to the laws of the
State of New York and to applicable United States federal law and
we express no opinion as to the laws of any other jurisdiction,
except as to the State of Maine for which we are relying on the
opinion of Anne, M. Pare, Esq. referred to herein and attached
hereto.
We hereby consent to the filing of this opinion as Exhibit
F-1 to the Application.
Very truly yours,
Huber Lawrence & Abell
<PAGE>
January 29, 1999
Huber Lawrence & Abell
605 Third Avenue
New York, New York 10158
Ladies and Gentlemen:
I am Treasurer, Corporate Counsel and Secretary of CMP
Group, Inc., and am an attorney licensed to practice law in the
State of Maine. This opinion is rendered in connection with the
applications on Form U-1 of CMP Group, Inc. and New England Gas
Development Corporation (File No. 70-9367) and of Energy East
Corporation and Energy East Enterprises, Inc. (File No. 70-9369)
(collectively, the "Applications"), filed with the Securities and
Exchange Commission (the "Commission") under the Public Utility
Holding Company Act of 1935, as amended, in connection with the
acquisition of membership interests in CMP Natural Gas, L.L.C.
(the "Transaction") pursuant to a Joint Venture Agreement dated
November 13, 1997, as amended (the "Joint Venture Agreement").
For purposes of this opinion, I have examined originals or
copies, certified or otherwise identified to my satisfaction, of
(i) the Joint Venture Agreement, (ii) the Articles of
Incorporation of CMP Group, Inc., as amended and as in effect on
the date hereof, (iii) the Articles of Organization of CMP
Natural Gas, L.L.C. as in effect on the date hereof, and (iv)
such other documents, certificates and records as I have deemed
necessary or appropriate.
In such examination, I have assumed the genuineness of all
signatures, the legal capacity of natural persons, the
authenticity of all documents submitted as originals, the
conformity to original documents of all documents submitted as
certified or photostatic copies, and the authenticity of the
originals of such latter documents.
Based on the foregoing, it is my opinion that:
(a) CMP Group, Inc. and CMP Natural Gas, L.L.C. are validly
organized and duly existing under the laws of the State
of Maine; and
<PAGE>
(b) (i) all laws of the State of Maine applicable to the
Transaction will have been complied with; (ii) CMP
Group, Inc. and New England Gas Development Corporation
may legally acquire the membership interests in CMP
Natural Gas, L.L.C.; and (iii) the consummation of the
Transaction will not violate the legal rights of the
holders of any securities issued by CMP Group, Inc. or
New England Gas Development Corporation or any
associate company thereof.
The opinion expressed herein is subject to the condition
that the Commission shall have duly entered an appropriate order
or orders granting and permitting the Applications to become
effective with respect to the Transaction and that the
Transaction shall be effected in accordance with all required
approvals, authorizations, consents, certificates and orders of
any state or federal commission or regulatory authority with
jurisdiction over the Transaction and that such required
approvals, authorizations, consents, certificates and orders
shall have been obtained and remain in full force and effect.
The opinion expressed herein is limited to the laws of the
State of Maine. I understand you are delivering opinions of
approximately even date herewith to the Commission. I hereby
consent to the filing of this opinion as an attachment to your
opinions filed as Exhibit F-1 to the respective applications. I
hereby consent to reliance on this opinion with respect to Maine
law by Huber Lawrence & Abell.
Very truly yours,
Anne M. Pare
