File No. 70-9641
(As filed June 15, 2000)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 ON FORM U-1/A
APPLICATION/DECLARATION
under
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
KeySpan Corporation
ACJ Acquisition LLC
One Metrotech Center
Brooklyn, New York 11201
(Name of companies filing this statement and
addresses of principal executive offices)
None
----------------------------------------------------
(Name of top registered holding company parent of each applicant)
Steven L. Zelkowitz
Senior Vice President and General Counsel
KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
----------------------------------------------------
(Name and address of agent for service)
The Commission is also requested to send
copies of any communications in connection with
this matter to:
Kenneth M. Simon, Esq. L. William Law, Jr., Esq.
Laura V. Szabo, Esq. Senior Vice President and General Counsel
Dickstein Shapiro Morin Eastern Enterprises
& Oshinsky LLP 9 Riverside Road
2101 L Street, NW Weston, Massachusetts 02493
Washington, D.C. 20037
Andrew F. MacDonald, Esq.
Thelen Reid & Priest LLP
701 Pennsylvania Avenue, NW
Suite 800
Washington, D.C. 20004
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Table of Contents
Item 1. Description of Proposed Transaction..............................1
A. Introduction........................................................1
1. General Request..................................................2
2. Overview of the Transaction......................................3
B. Description of the Parties to the Transaction.......................5
1. General Description..............................................5
a. KeySpan and its Subsidiaries.....................................5
i. KeySpan and ACJ.............................................5
ii The New York Utilities......................................6
iii. KeySpan's Non-Utility Subsidiaries..........................8
b. Eastern and its Subsidiaries.....................................9
i. Eastern.....................................................9
ii. The Massachusetts Utilities................................10
iii. Eastern's Non-Utility Subsidiaries.........................11
c. Energy North and its Subsidiaries...............................12
i. ENGI.........................................................13
ii EnergyNorth's Non-Utility Subsidiaries.......................13
C. Description of the Transaction.....................................14
1. Background and Negotiations Leading to the Proposed Transaction.14
2. Merger Agreement................................................16
D. Management and Operations of KeySpan Following the Transaction.....16
Item 2. Fees, Commissions and Expenses..................................17
Item 3. Applicable Statutory Provisions.................................17
A. Approval of the Transaction........................................17
1. Section 10(b)(1)................................................18
a. Interlocking Relationships......................................19
b. Concentration of Control........................................19
2. Section 10 (b) (2)..............................................21
a. Fairness of Consideration.......................................22
b. Reasonableness of Fees..........................................22
3. Section 10 (b) (3)..............................................23
a. Capital Structure...............................................23
b. Protected Interests.............................................25
4. Section 10 (c) (1)..............................................25
a. Section 8 Analysis..............................................25
b. Section 11 Analysis.............................................25
i. Capital and Corporate Structure............................26
ii Integrated Public Utility Holding Company System...........27
iii. Retention of Non-Utility Businesses........................30
5. Section 10 (c) (2)..............................................53
i. Single Area or Region Requirement..........................54
ii Economies and Efficiencies.................................56
iii. Size and Local Requirements................................58
6. Section 10 (f)..................................................58
B. Section 3(a)(1) Holding Company Exemption..........................58
Item 4. Regulatory Approvals............................................59
A. Antitrust..........................................................59
B. State Public Utility Regulation....................................60
Item 5. Procedure:......................................................61
Item 6. Exhibits and Financial Statements...............................61
A. Exhibits...........................................................61
B. Financial Statements...............................................65
Item 7. Information as to Environmental Effects:........................65
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AMENDMENT NO. 1 TO
APPLICATION/DECLARATION UNDER
SECTIONS 9, 10, AND 11 OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
This pre-effective Amendment No. 1 amends and restates the Form U-1
Application/Declaration in this proceeding, originally filed with the Securities
and Exchange Commission on March 6, 2000, as follows:
Item 1. Description of Proposed Transaction
A. Introduction
This Application/Declaration seeks approval pursuant to Sections 9(a)(2)
and 10 of the Public Utility Holding Company Act of 1935 (the "Act") for the
proposed acquisition by KeySpan Corporation ("KeySpan") and ACJ Acquisition LLC
("ACJ"), a direct wholly-owned subsidiary of KeySpan, of Eastern Enterprises
("Eastern"), pursuant to which Eastern will become a direct, wholly-owned
subsidiary of KeySpan (the "Transaction"). Following the consummation of the
Transaction, KeySpan will register with the Securities and Exchange Commission
(the "Commission") as a holding company under the Act.1
The Transaction is expected to produce substantial benefits to the public,
investors and consumers. Among other things, KeySpan and Eastern believe that
the Transaction will allow shareholders to participate in a larger, financially
stronger company, that, through a combination of the equity, management, human
resources and technical expertise of each company, they will be able to achieve
increased financial stability and strength, greater opportunities for earnings,
reduction of operating costs, efficiencies of operation, better use of
facilities for the benefit of customers, improved ability to use new
technologies, and greater retail and industrial sales diversity. In this regard,
KeySpan and Eastern believe that synergies created by the Transaction will
generate substantial cost savings. KeySpan and Eastern have estimated the dollar
value of certain initial synergies resulting from the Transaction to be
approximately $24 to $29 million, phased in over a two year period. Moreover,
KeySpan believes that the combined companies will be in a better position to
compete in the restructured and competitive energy industry with other
____________________
1 KeySpan has filed a separate application/declaration(s) with the
Commission for authorizations to engage in certain activities once the
Transaction is consummated and KeySpan registers as a holding company under the
Act ("Omnibus Application") including authorizations pursuant to Section 13 of
the Act and Rule 88 for service companies . KeySpan requests that the Commission
review and rule on the Omnibus Application(s) contemporaneously with this
Application/Declaration.
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industry participants than they would be acting alone. Upon consummation of the
Transaction (and giving effect to Eastern's acquisition of EnergyNorth, Inc.
("EnergyNorth"), as discussed below, KeySpan and Eastern together, through their
public utility company subsidiaries, will serve approximately 2.4 million retail
gas customers and provide electric service to one customer, the Long Island
Power Authority ("LIPA"), which provides retail electric service to
approximately 1.1 million customers.
1. General Request
Pursuant to Sections 9(a)(2) and 10 of the Act, KeySpan and ACJ hereby
request authorization and approval of the Commission to acquire, by means of the
Transaction, all of the issued and outstanding common stock of Eastern and,
indirectly, all of the common stock of Eastern's utility subsidiaries described
below. Following completion of the Transaction, KeySpan will register as a
holding company pursuant to Section 5 of the Act. Accordingly, KeySpan also
requests Commission approval for the retention by KeySpan of the existing
businesses, investments and non-utility activities of KeySpan and Eastern.
On January 5, 2000, Eastern filed an application/declaration with the
Commission ("Eastern/EnergyNorth Application") requesting authorization pursuant
to Sections 9(a)(2) and 10 of the Act to acquire all the issued and outstanding
common stock of EnergyNorth (hereafter referred to as the "ENI Transaction").
(See File No. 70-9605) Both Eastern and EnergyNorth are exempt holding companies
pursuant to Section 3(a)(1) of the Act. If the Commission approves the ENI
Transaction, upon consummation of the transaction, EnergyNorth will become a
direct subsidiary of Eastern, and, therefore, an indirect subsidiary of KeySpan
through consummation of the Transaction. For purposes of this
Application/Declaration, KeySpan has assumed that the ENI Transaction will be
approved concurrently with the Transaction. Accordingly, this
Application/Declaration addresses an indirect acquisition by KeySpan and ACJ of
EnergyNorth through their acquisition of Eastern. However, KeySpan and ACJ's
request for approval of the Transaction is not contingent on Commission approval
of the ENI Transaction and if such transaction is not approved, KeySpan
nevertheless requests that the Commission approve the Transaction without giving
effect to Eastern's acquisition of EnergyNorth.
In the Eastern/EnergyNorth Application/Declaration, Eastern and EnergyNorth
have requested that the Commission find that each will continue to be exempt
holding companies under Section 3(a)(1) of the Act. KeySpan requests that, to
the extent the Commission grants Eastern and EnergyNorth exemptions under
Section 3(a)(1), the Commission confirm that Eastern and EnergyNorth will
continue to qualify for exemptions
2
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under Section 3(a)(1) following the consummation of the Transaction and
KeySpan's registration as a holding company.2
Likewise, KeySpan requests the Commission's confirmation that KeySpan
Energy Corporation ("KEC"), a direct, wholly-owned subsidiary of KeySpan, will
continue to be an exempt holding company under Section 3(a)(1) of the Act
following consummation of the Transaction. KEC is a holding company which
directly owns 100% of the outstanding voting securities of The Brooklyn Union
Gas Company d/b/a/ KeySpan Energy Delivery New York ("KeySpan New York"),3 a gas
utility company which operates gas distribution facilities, and sells gas at
retail, within the state of New York. KEC is currently an exempt holding company
under Section 3(a)(1) of the Act and Rule 2.4
2. Overview of the Transaction
Pursuant to the Agreement and Plan of Merger dated as of November 4, 1999,
as modified by Amendment No. 1 dated January 26, 2000 (the "Merger Agreement"),
KeySpan, through ACJ, will acquire all of the issued and outstanding common
stock of Eastern in an all-cash transaction. A copy of the Merger Agreement is
provided as Exhibit B hereto. The Transaction contemplates that ACJ, a
Massachusetts limited liability company and a direct wholly-owned subsidiary of
KeySpan, will be merged into Eastern with Eastern being the surviving entity in
the merger. Eastern will become a direct wholly-owned subsidiary of KeySpan and
KeySpan will register as a holding company under Section 5 of the Act. An
organizational chart of the KeySpan holding company system following
consummation of the Transaction is attached hereto as Exhibit E-4.
Upon consummation of the Transaction, the common stockholders of Eastern
will receive $64.00 in cash, without interest, for each share of common stock
held (other than shares in respect of which appraisal rights have been
perfected), plus an additional $0.006 per share ("Additional Amount") for each
day the Transaction has not closed after the later of (a) August 4, 2000 or (b)
ninety days after the New Hampshire Public Utilities Commission ("NHPUC") gives
final regulatory approval to the ENI Transaction.5 The
_____________________
2 As discussed more fully in Item 3.A.4.b.i of this Application/Declaration,
EnergyNorth will be eliminated as an intermediary holding company as soon as
practicable after consummation of the Transaction.
3 On May 2000, Brooklyn Union filed an assumed name change certificate with the
appropriate New York authorities.
4 Although KEC, Eastern and EnergyNorth's may retain their status as holding
companies exempt from registration after KeySpan registers, they will
nevertheless remain subject to PUHCA regulation with respect to their status as
subsidiaries of a registered holding company.
5 However, the aggregate Additional Amount will be reduced by the aggregate
amount of any per share increase in any dividend actually paid that is
attributable to any period in which the Additional Amount accrues.
3
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acquisition premium is estimated to be approximately $1.1 billion. Shares of
Eastern common stock held by KeySpan, ACJ or any other wholly owned subsidiary
of KeySpan will be cancelled when the Transaction is consummated.6
KeySpan anticipates that it will pay approximately $1.7 billion dollars to
acquire Eastern's common stock. KeySpan anticipates that such cash will
initially be obtained through the issuance of commercial paper under and
expanded KeySpan commercial paper program backed by a combination of short-term
and long-term credit facilities. After closing on the Transaction, KeySpan
anticipates replacing a significant portion of the commercial paper program (and
some or all of the initial short-term acquisition financing) with proceeds from
the issuance of debt and preferred and/or convertible securities.
The Transaction was approved by Eastern's shareholders at Eastern's annual
meeting which was held on April 26, 2000. Eastern filed with the Commission a
Proxy Statement to solicit the shareholders' votes on March 15, 2000. Eastern's
Proxy Statement is incorporated by reference as Exhibit C. In addition, the
Transaction requires (i) approval of the NHPUC for the indirect acquisition by
KeySpan and ACJ of EnergyNorth through their acquisition of Eastern,7 and (ii)
clearance by the Antitrust Division of the U.S. Department of Justice (the
"DOJ") and the Federal Trade Commission (the "FTC") under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). (See Item 4
below for additional detail regarding these regulatory approvals.) Apart from
the approvals of the Commission under the Act, the foregoing approvals are the
only regulatory approvals required for the Transaction. In order to permit
timely consummation of the Transaction and the realization of the substantial
benefits it is expected to produce, KeySpan requests that the Commission
commence and proceed with its review of this Application/Declaration as
expeditiously as practicable.
_____________________
6 In the ENI Transaction, Eastern will acquire all of the issued and outstanding
common stock of EnergyNorth pursuant to an Agreement and Plan of Reorganization
dated as of July 14, 1999, as amended by Amendment No. 1 dated as of November 4,
1999 (the "ENI Merger Agreement"). As more fully described in the
Eastern/EnergyNorth Application, the ENI Merger Agreement sets forth the terms
of the ENI Transaction. If, as is expected, the ENI Transaction and the
KeySpan's acquisition of Eastern through the Transaction close
contemporaneously, Merger Sub (a wholly-owned subsidiary of Eastern) will be
merged into EnergyNorth, with EnergyNorth as the surviving corporation and a
direct, wholly-owned subsidiary of Eastern.
7 The NHPUC issued an order on May 8, 2000, approving the ENI Transaction.
4
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B. Description of the Parties to the Transaction
1. General Description
a. KeySpan and its Subsidiaries
i. KeySpan and ACJ
KeySpan. KeySpan is a diversified public utility holding company currently
exempt from registration under the Act pursuant to Section 3(a)(1) of the Act8
and Rule 2 of the Commission's regulations promulgated under the Act.9 On May
28, 1998, KeySpan became the holding company of three public utility
companies:KeySpan New York,10 KeySpan Gas East Corporation d/b/a KeySpan Energy
Delivery Long Island ("KeySpan Long Island")11 and KeySpan Generation LLC
("KeySpan Generation") (collectively, the "New York Utilities").12 As further
described below, the New York Utilities provide gas or electric service to
customers located in New York City and on Long Island, New York. Together,
KeySpan New York and KeySpan Long Island distribute natural gas to approximately
1.6 million retail customers. KeySpan Generation sells electricity and capacity
at wholesale to one customer, LIPA (which is a state agency that resells the
energy at retail). KeySpan's non-utility subsidiaries are engaged in a variety
of non-utility energy related businesses which are described more fully in Item
1.B.1.a(iii) below. An organizational chart of KeySpan's current subsidiaries is
attached as Exhibit E-2 hereto. Attached as Exhibit E-13 hereto is a list of
KeySpan's direct and indirect subsidiaries.
_______________________
8 KeySpan originally obtained its exemption by
order of the Commission dated May 15, 1998. BL Holding Corp., Holding Co. Act
Rel. No. 26875.
9 17 C.F.R.ss.250.2.
10 KeySpan New York, formerly known as Brooklyn Union, is an indirect subsidiary
of KeySpan. KeySpan New York is directly owned by KEC which, as noted above, is
a direct, wholly-owned subsidiary of KeySpan. Like KeySpan, KEC is a utility
holding company exempt from regulation by the Commission under the Act (except
for 9(a)(2) thereof) pursuant to Section 3(a)(1) of the Act and Rule 2
thereunder.
11 On May 2000, KeySpan Gas East filed an assumed name change certificate with
the appropriate New York authorities.
12 In BL Holding, supra, the Commission approved the transactions by which
KeySpan (i) acquired Long Island Lighting Company's ("LILCO") non-nuclear
electric generating facilities, gas distribution operations and common plant;
and (ii) acquired KEC, the parent company of Brooklyn Union. KeySpan Long Island
(which owns the former LILCO gas assets) and KeySpan Generation (owner of the
former LILCO non-nuclear generation assets) are direct, wholly-owned
subsidiaries of KeySpan.
5
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KeySpan's principal office is at One MetroTech Center, Brooklyn, New York.
KeySpan's common stock is publicly traded on the New York Stock Exchange and
Pacific Stock Exchange under the symbol "KSE."
For the year ended December 31, 1999, KeySpan reported operating revenues
of $3 billion of which $1.8 billion (or approximately 59%) were derived from
regulated sales of gas and gas transportation, and $861.6 million (or
approximately 29%) were derived from electric operations. For the year ended
December 31, 1999, KeySpan had operating income of $482.2 million and net income
of $258.6 million. At December 31, 1999, KeySpan had consolidated assets of $6.7
billion, including net property and equipment of $4.2 billion. At December 31,
1999, KeySpan had issued and outstanding 133.9 million shares of common stock,
par value $0.01 per share. More detailed information concerning KeySpan and its
subsidiaries is contained in KeySpan's Annual Report on Form 10-K for the year
ended December 31, 1999, a copy of which is incorporated herein by reference as
Exhibit H-1.
KeySpan's debt is rated investment grade. Standard and Poors currently
rates KeySpan's senior unsecured debt as A-.
ACJ. ACJ is a wholly owned subsidiary of KeySpan. It has been formed solely
to serve as the acquisition vehicle of Eastern. At the time the Transaction is
consummated, ACJ will be merged out of existence with the surviving entity being
Eastern.
ii. The New York Utilities
The New York Gas Utilities: KeySpan New York and KeySpan Long Island.
KeySpan New York and KeySpan Long Island (the "New York Gas Utilities") are both
New York corporations and gas utility companies regulated by the New York Public
Service Commission ("NYPSC") as to rates, corporate, financial, operational,
reliability, safety and other matters, and affiliate transactions.
KeySpan New York distributes natural gas at retail to approximately 1.1
million residential, commercial and industrial customers in the New York City
Boroughs of Brooklyn, Staten Island and Queens. It has been in the gas business
for over 100 years. KeySpan New York's properties consist primarily of natural
gas distribution systems and related facilities and local offices. KeySpan New
York has approximately 4,043 miles of gas mains and 1,485 Mdt of liquefied
natural gas ("LNG") storage capacity. For the year ended December 31, 1999,
KeySpan New York had operating revenues of $1,116,041,000. For the year ended
December 31, 1999, KeySpan New York had operating income of $198,511,000 and net
income of $189,648,000. At December 31, 1999, KeySpan New York had assets of
$2,196,055,000. Copies of KeySpan New York's balance sheet and income statement
for the year ended December 31, 1999, are attached hereto as Exhibit H-4.
6
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KeySpan Long Island distributes natural gas at retail to approximately
500,000 customers located on Long Island, New York in Nassau and Suffolk
counties and the Rockaway Peninsula in Queens County. Although KeySpan Long
Island has been owned by KeySpan since 1998, through previous owners, it has
been in the gas business for over 90 years. KeySpan Long Island's properties
consist primarily of natural gas distribution systems and related facilities and
local offices. KeySpan Long Island has approximately 6,679 miles of gas mains
and 568 Mdt of LNG storage capacity. For the year ended December 31, 1999,
KeySpan Long Island had operating revenues of $640,705,000. For the year ended
December 31, 1999, KeySpan Long Island had operating income of $114,416,000 and
net income of $41,588,000. At December 31, 1999, KeySpan Long Island had assets
of $2,092,853,000. Copies of KeySpan Long Island's balance sheet and income
statement for the year ended December 31, 1999, are contained in its Annual
Report on Form 10-K which is incorporated by reference hereto as Exhibit H-5.
Together, the facilities of KeySpan New York and KeySpan Long Island
consist of approximately 10,700 miles of gas mains and more than 960,000 service
connections, all in Brooklyn, Staten Island, Queens and Nassau and Suffolk
counties. In 1999, the New York Gas Utilities had total gas and transportation
sales of 330.4 billion cubic feet ("Bcf") of gas. Most of the gas delivered on
the systems of the New York Gas Utilities is derived from sources outside of the
northeast United States, primarily the producing areas of Texas and Louisiana.
Gas is delivered by interstate pipelines pursuant to long-term contracts at
rates approved by the Federal Energy Regulatory Commission ("FERC"). KeySpan New
York and KeySpan Long Island each currently have firm transportation agreements
with Tennessee Gas Pipeline Company ("Tennessee"), TransContinental Gas Pipe
Line Company ("Transco"), Texas Eastern Transmission Company ("TETCO") and
Iroquois Gas Transmission System, L.P. ("Iroquois"). KeySpan New York and
KeySpan Long Island buy gas from gas producers in Texas and Louisiana as well as
from Canadian suppliers.
KeySpan Generation. KeySpan Generation is a New York limited liability
company which owns and operates approximately 4,032 megawatts ("MW") of electric
generation capacity located on Long Island ("KeySpan Generation Facilities").
The KeySpan Generation Facilities consist of approximately 53 oil and gas-fired
generating facilities located throughout Long Island. All of the capacity from
the KeySpan Generation Facilities is sold at wholesale to LIPA pursuant to a 15
year power supply agreement entered into in June 1997 and effective as of May
1998 at contractual, cost-of-service based rates approved by the FERC.13 LIPA
provides electricity to approximately 1 million customers on Long Island.
KeySpan Generation does not own any electric transmission or distribution
facilities other than limited facilities necessary to interconnect its
generating facilities with LIPA's transmission and distribution system. KeySpan
Generation is a public utility under the Federal Power Act subject to the
jurisdiction of the FERC. KeySpan
__________________
13 LIPA is a New York state public authority.
7
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Generation is also a New York utility subject to regulation by the NYPSC as an
"electric corporation" with respect to financial, corporate, reliability and
safety matters and affiliate transactions.
For the year ended December 31, 1999, KeySpan Generation had operating
revenues of $318,864,000. For the year ended December 31, 1999, KeySpan
Generation had operating income of $49,566,000 and net income of $20,854,000. At
December 31, 1999, KeySpan Generation had assets of $1,111,436,000. Copies of
KeySpan Generation's balance sheet and income statement for the year ended
December 31, 1999, are attached hereto as Exhibit H-6.
iii. KeySpan's Non-Utility Subsidiaries
KeySpan has seventeen (17) direct, wholly-owned subsidiaries which, either
directly or indirectly through their subsidiaries, engage in non-utility
businesses.14 The businesses of each of these companies and their subsidiaries
are described in greater detail in Exhibit E-5 attached hereto and Item
3.A.4.b.iii of this Application/Declaration.
Together, at December 31, 1999, KeySpan's non-utility subsidiaries and
investments constituted approximately 34% of the consolidated assets of KeySpan
and its subsidiaries, 33% of consolidated net income and 30% of consolidated net
revenues. Attached as Exhibit E-6 hereto are copies of the balance sheet and
financial statements of the following non-utility subsidiaries in which KeySpan
owns a direct or indirect interest of 50% or more and which had total revenues
of at least $10 million as of December 31, 1999. The table attached as Exhibit
E-7 hereto shows the percentage of KeySpan's consolidated revenues contributed
by each subsidiary in which KeySpan owns an interest of 50% or more.
_____________________
14 KeySpan's 17 direct non-utility subsidiaries are as follows: KEC, KeySpan
Operating Services, LLC; KeySpan Exploration and Production, LLC; KeySpan
Corporate Services LLC; KeySpan Utility Services LLC; KeySpan Electric Services
LLC; KeySpan Energy Trading Services LLC; Marquez Development Corporation;
Island Energy Services Company, Inc.; LILCO Energy Systems Inc.;
KeySpan-Ravenswood Inc.; KeySpan-Ravenswood Services Corp.; KeySpan Energy
Supply, LLC; KeySpan Services Inc.; Honeoye Storage Corporation;, KeySpan
Technologies Inc.; and KeySpan MHK, Inc. In addition, KeySpan's gas utility
subsidiary, KeySpan New York, owns all or part interests in three (3)
subsidiaries that are engaged in non-utility businesses.
8
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b. Eastern and its Subsidiaries
i. Eastern
Eastern is a Massachusetts voluntary association. It is a public utility
holding company exempt from registration under the Act pursuant to Section
3(a)(1) of the Act.15 Eastern conducts all of its business activities through
its operating subsidiaries. Eastern currently owns all of the outstanding common
stock of three gas utility companies operating exclusively within Massachusetts:
Boston Gas Company ("Boston Gas"), Colonial Gas Company ("Colonial Gas") and
Essex Gas Company ("Essex Gas") (collectively referred to herein as the
"Massachusetts Utilities"). The Massachusetts Utilities are described in greater
detail below. Eastern has four (4) wholly-owned, active non-utility
subsidiaries: Midland Enterprises, Inc. ("Midland"), Transgas Inc. ("Transgas"),
AMR Data Corporation ("AMR") and ServiceEdge Partners, Inc. (ServiceEdge"). As
described in more detail below, the principal non-utility activities of
Eastern's subsidiaries are water barging activities, including the hauling of
fuel and other cargo; transporting by truck LNG and propane; providing meters
and meter reading services to municipal utilities; and, providing heating,
ventilation and air conditioning services. An organizational chart of Eastern
and its current subsidiaries is attached hereto as Exhibit E-3. Exhibit E-14 is
a list of Eastern's direct and indirect subsidiaries.
Eastern's principal office is at 9 Riverside Drive, Weston, Massachusetts.
For the year ended December 31, 1999, Eastern reported gross revenues of
$978,702,000, of which $690,809,000 (or approximately 70.6%) were derived from
regulated sales of gas and gas transportation, operating earnings of
$113,439,000, and earnings before extraordinary items of $55,093,000. At
December 31, 1999, Eastern had consolidated assets of $2,019,757,000, including
net utility property and equipment of $953,502,000. At April 27, 2000, Eastern
had issued and outstanding 27,146,678 shares of common stock, par value $1.00
per share. Eastern's shares are listed for trading on the New York, Boston and
Pacific Stock Exchanges; however, they will be delisted and cease to be publicly
traded after consummation of the Transaction. More detailed information
concerning Eastern and its subsidiaries is contained in the Annual Report on
Form 10-K for the year ended December 31, 1999, a copy of which is incorporated
by reference as Exhibit H-2.
______________________
15 See Eastern Enterprises, Holding Co. Act Release No. 27059 (August 12, 1999).
9
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Eastern does not have any long-term debt. The long-term debt securities of
Boston Gas and Colonial Gas are currently rated "A" by Standard and Poors.16
ii. The Massachusetts Utilities
The Massachusetts Utilities are organized under the laws of the
Commonwealth of Massachusetts. They are Massachusetts public utilities subject
to regulation by the Massachusetts Department of Telecommunications and Energy
("MDTE") as to retail rates, transportation rates, affiliate transactions,
securities issuances and other matters. Together, the Massachusetts Utilities
serve approximately 735,000 retail gas customers. Each of the utilities is
described below.
Boston Gas. Boston Gas, a regulated utility, distributes natural gas to
approximately 541,000 customers located in Boston and 73 other cities and towns
throughout eastern and central Massachusetts. Boston Gas has been wholly-owned
by Eastern since 1929 and has been in the gas business for 177 years, making it
the second oldest gas company in the United States.
For the year ended December 31, 1999, Boston Gas had operating revenues of
$592,719,000, operating income of $ 297,697,000 and net income of $37,912,000.
At December 31, 1999, Boston Gas had assets of $902,892,000. Copies of Boston
Gas' balance sheet and income statement for the year ended December 31, 1999,
are contained in Boston Gas' Annual Report on Form 10-K for the year ended
December 31, 1999 which is incorporated by reference as Exhibit H-7.
Essex Gas. Essex Gas, a regulated utility, distributes natural gas to
approximately 43,000 customers in 17 cities and towns in an area of eastern
Massachusetts that is contiguous to Boston Gas's service territory. Essex Gas
has been in business for 147 years and was acquired by Eastern in September
1998.17 For the year ended December 31, 1999, Essex Gas had operating revenues
of $44,096,000, operating income of $25,931,000 and net income of $5,936,000. At
December 31, 1999, Essex Gas had assets of approximately $97,196,000. Copies of
Essex Gas' balance sheet and income statement for the year ended December 31,
1999, are contained in Essex Gas' Annual Report on Form 10-K for the year ended
December 31, 1999 which is incorporated by reference as Exhibit H-8.
Colonial Gas. Colonial Gas, a regulated utility, distributes natural gas to
approximately 158,000 customers in 24 communities located in northeastern
Massachusetts (contiguous to Boston Gas's service territory) and on Cape Cod.
Colonial
____________________
16 Essex Gas does not have a credit rating.
17 See Eastern Enterprises, Holding Co. Act Release No. 26923 (September 30,
1998).
10
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Gas has been in business for 151 years. Eastern completed its acquisition of
Colonial Gas on August 31, 1999.
For the year ended December 31, 1999, Colonial Gas had operating revenues
of $176,724,000, operating income of $85,317,000 and net income of $7,233,000.
At December 31, 1999, Colonial Gas had assets of $584,047,000. Copies of
Colonial Gas' balance sheet and income statement for the year ended December 31,
1999, are contained in Colonial Gas' Annual Report on Form 10-K for the year
ended December 31, 1999 which is incorporated by reference as Exhibit H-9.
The facilities of the Massachusetts Utilities together consist of
approximately 10,000 miles of mains and 598,000 service connections, all in
Massachusetts, and LNG storage facilities located in Dorchester, Lynn, Salem,
Haverhill, Tewksbury and South Yarmouth, Massachusetts. In 1999, the three
companies delivered a total of 154 billion cubic feet ("Bcf") of gas, including
gas sold on a "bundled" basis to retail customers and gas delivered to
transportation-only customers. Gas is delivered to the Massachusetts Utilities
by interstate pipelines pursuant to long-term contracts at rates approved by the
FERC. The Massachusetts Utilities currently have firm transportation agreements
with Tennessee, TETCO, Algonquin Gas Transmission Company ("Algonquin") and
Iroquois.18 The Massachusetts Utilities purchase gas from producers in Texas,
Louisiana and Canada.
iii. Eastern's Non-Utility Subsidiaries
Eastern's principal non-utility subsidiaries are as follows:
Midland. Midland is primarily engaged, through wholly-owned subsidiaries,
in the operation of a fleet of towboats, tugboats and barges, principally on the
Ohio River and Mississippi River and their tributaries, the Gulf Intracoastal
Waterway and the Gulf of Mexico. Midland has been operating on the nation's
inland waterways since 1925 and transports dry bulk commodities, a major portion
of which is coal. Through other subsidiaries, Midland also performs repair work
on marine equipment, operates a rail-to-barge coal dumping terminal, a phosphate
chemical fertilizer terminal, and cargo transfer facilities, and provides
refueling and barge fleeting services.
Transgas. Transgas is an unregulated energy trucking company, which
provides over-the-road transportation of LNG, propane and other commodities.
Transgas is the nation's largest over-the-road transporter of LNG.
ServiceEdge. ServiceEdge offers heating, ventilation and air conditioning
services, primarily to residential customers in eastern Massachusetts.
_____________________
18 TETCO and Algonquin are both subsidiaries of Duke Energy Gas Transmission
("Duke Energy").
11
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AMR. AMR provides customized metering equipment and performs automated
meter reading services to municipal utilities.
Together, at December 31, 1999, Eastern's non-utility subsidiaries and
investments constituted approximately 23% of the consolidated assets of Eastern
and its subsidiaries, 11% of consolidated operating income and 29% of
consolidated revenues. Midland, Transgas and ServiceEdge are nonutility
subsidiaries in which Eastern owns directly or indirectly a 50% or greater
interest and which had total revenues of at least $10 million for the year ended
December 31, 1999. Attached as Exhibit E-8 hereto are copies of the balance
sheets and income statements of Transgas and ServiceEdge. Copies of Midland's
balance sheet and income statement for the year ended December 31, 1999, are
contained in Midland's Annual Report on Form 10-K for the year ended December
31, 1999 which is incorporated by reference as Exhibit E-9. The table attached
as Exhibit E-10 hereto shows the percentage of Eastern's consolidated revenues
(for the period ended December 31, 1999) contributed by each non-utility
subsidiary.
c. Energy North and its Subsidiaries
If the ENI Transaction is consummated, EnergyNorth will be a direct,
wholly-owned subsidiary of Eastern. EnergyNorth, a New Hampshire corporation,
owns all of the issued and outstanding common stock of one gas utility company:
EnergyNorth Natural Gas, Inc. ("ENGI"). EnergyNorth's material non-utility
subsidiaries are principally engaged in installing and servicing commercial
heating, ventilation and air conditioning equipment and distributing propane.
ENGI and the non-utility subsidiaries are more fully described below. An
organizational chart of EnergyNorth and its subsidiaries is attached hereto as
Exhibit E-3. Exhibit E-15 is a list of EnergyNorth's direct and indirect
subsidiaries.
EnergyNorth's principal office is at 1260 Elm Street, New Hampshire.
For the fiscal year ended September 30, 1999, EnergyNorth reported
consolidated operating revenues of $119,172,000, of which $76,617,000 (or 64%)
represented regulated gas sales and transportation, operating income of
$9,621,000, and net income of $4,537,000. At September 30, 1999, EnergyNorth had
$168,325,000 in total assets, including net utility plant of $113,730,000. As of
April 27, 2000, EnergyNorth had issued and outstanding 3,322,903 shares of
common stock, par value $1.00 per share. Its shares are listed and traded on the
New York Stock Exchange; however, they will be delisted and cease to be publicly
traded upon the consummation of the ENI Transaction. More detailed information
concerning EnergyNorth and its subsidiaries is contained in the Annual Report on
Form 10-K for the fiscal year ended September 30, 1999, a copy of which is
incorporated by reference as Exhibit H-3.
12
<PAGE>
EnergyNorth does not have any long-term debt.19
i. ENGI
ENGI is a New Hampshire corporation and a gas utility company operating
exclusively within New Hampshire. It distributes natural gas to approximately
73,000 residential, commercial and industrial customers in 27 cities and towns
in an area covering approximately 922 square miles and having a total population
of approximately470,000. ENGI's service area is located in southern and central
New Hampshire, with the exception of the City of Berlin, which is located in
northern New Hampshire. ENGI owns approximately 1,113 miles of distribution
mains and 702 miles of service connections. ENGI's service area in New Hampshire
is contiguous to Colonial Gas's service area in Massachusetts and is within 30
to 85 miles of the greater Boston area. ENGI also serves the City of Berlin, in
northern New Hampshire, which has approximately 12,000 inhabitants. As a public
utility under the laws of the State of New Hampshire, ENGI is subject to the
regulatory supervision of the NHPUC as to gas sales, transportation rates,
securities issuances and other matters. For the year ended September 30, 1999,
ENGI had operating revenues of $76,617,000, operating income of $8,640,000 and
net income of $3,831,000. At September 30, 1999, ENGI had total assets of
$150,757,000. Copies of ENGI's balance sheet and income statement for the twelve
months ended September 30, 1999, are contained in ENGI's Annual Report on Form
10-K for the year ended September 30, 1999 which is incorporated by reference as
Exhibit H-10.
Like the Massachusetts Utilities, ENGI purchases most of its gas from
sources outside New England (chiefly the producing areas of Texas and
Louisiana). All of the pipeline gas delivered to ENGI's principal system in
southern and central New Hampshire is transported on the Tennessee pipeline
system. ENGI also purchases gas from Canadian sources, which is delivered by
Iroquois to Tennessee for ultimate delivery to ENGI and by Portland Natural Gas
Transmission System.
ii. EnergyNorth's Non-Utility Subsidiaries
EnergyNorth's principal non-utility subsidiaries are as follows:
EnergyNorth Propane, Inc. ("ENPI"). ENPI sells propane to approximately
15,300 customers in more than 150 communities located primarily within a 50-mile
radius of Concord, New Hampshire. Propane distribution does not require a
regulatory franchise in New Hampshire. ENPI operates from separate headquarters
and plant facilities that it owns in Concord, New Hampshire and has distribution
centers in Bedford and Gilford, New Hampshire. Propane is transported in bulk
supply by trucks to and from ENPI's
____________________
19 ENGI does not have a credit rating.
13
<PAGE>
distribution centers. ENPI owns a 49% interest in VGS Propane, LLC (VGSP), a
joint venture with Northern New England Gas Corporation, which owns the other
51%. VGSP is a Vermont limited liability company which provides propane service
to approximately 10,000 customers in the state of Vermont. In August 1999, ENGI
exercised an option to offer to sell its interest in VGSP to Northern New
England Gas Corporation. This transaction is expected to close in the late
summer of 2000.
ENI Mechanicals, Inc. ("ENM"). ENM owns all of the outstanding stock of
Northern Peabody, Inc. ("NPI") and Granite State Plumbing and Heating, Inc.
("GSPH"). NPI and GSPH are mechanical contractors engaged in the design,
construction and service of plumbing, heating, ventilation, air conditioning and
process piping systems. They serve commercial, industrial and institutional
customers in northern and central New England. NPI and GSPH operate from
separate headquarters and facilities located in Manchester, New Hampshire and
Goffstown, New Hampshire, respectively.
Together, atSeptember 30,1999, EnergyNorth's non-utility subsidiaries and
investments constituted approximately 4.8% of the consolidated assets of
EnergyNorth and its subsidiaries, and 35% of consolidated revenues. Attached as
Exhibit E-10 hereto are copies of the balance sheet and income statements of
ENPI and ENM which are nonutility subsidiaries in which EnergyNorth owns a
direct or indirect interest of 50% or more and which had total revenues of at
least $10 million for the fiscal year ended September 30, 1999. The table
attached as Exhibit E-11 hereto shows the percentage of EnergyNorth's
consolidated revenues (for the period ended September 30, 1999) contributed by
each non-utility subsidiary.
C. Description of the Transaction
1. Background and Negotiations Leading to the Proposed Transaction
During the past several years, Eastern's board of trustees has regularly
reviewed and evaluated Eastern's long-term objectives and strategy, particularly
in light of the energy industry's trend toward deregulation and consolidation.
In July 1999, Eastern's board and management decided to explore alternatives to
enhance shareholder value including a strategic combination with another
company.
Since its creation in 1998, KeySpan has considered a variety of
acquisitions and strategic alternatives to enable it to compete more effectively
in the deregulated energy industry. The acquisition of regional gas and/or
electric companies were among the strategic alternatives considered by KeySpan's
management consistent with KeySpan's strategic plans and possible acquisition
candidates were reviewed by KeySpan's board of directors. The board encouraged
management's investigation of strategic options including a possible acquisition
of Eastern.
14
<PAGE>
In September of 1999, Eastern's financial advisor, Salomon Smith Barney,
identified a number of potential strategic partners, including KeySpan, and
contacted them to determine their initial interests in engaging in a strategic
transaction with Eastern. On October 13, 1999, Salomon Smith Barney reported to
Eastern's board that a number of companies, including KeySpan, had submitted
non-binding indicative bids. During the month of October, KeySpan and other
companies conducted due diligence reviews of Eastern's business. On November 1,
1999, Salomon Smith Barney reported to the Eastern board that two companies, one
of which was KeySpan, had provided binding offers to acquire Eastern at prices
significantly higher than those previously offered. The board instructed
management to begin negotiations with KeySpan and the other bidder on a merger
agreement.
Eastern then entered into intensive negotiations with KeySpan and the other
bidder. On November 3, 1999, Salomon Smith Barney reported to the Eastern board
that KeySpan and Eastern had reached agreement on all outstanding price and
non-price terms, and that although the price offered by the other bidder was
comparable to KeySpan's proposal, discussions with the other bidder had not
resulted in acceptable resolution of other important terms. Salomon Smith Barney
also told the board that since November 1, 1999, another company had submitted a
binding offer but at a price below that offered by KeySpan and the other bidder.
On November 4, 1999, KeySpan and Eastern signed the Merger Agreement. A more
fulsome description of the events leading up to the execution of the Merger
Agreement and the Transaction is contained in Eastern's Proxy Statement which is
incorporated by reference as Exhibit C hereto.
The merger of KeySpan and Eastern (including EnergyNorth) will result in an
integrated natural gas utility serving approximately 2.4 million retail gas
customers located in three (3) contiguous states. In addition, KeySpan will
continue to serve one wholesale electric customer in New York. The companies
believe that by combining resources they will be well positioned to succeed in
an increasingly competitive energy marketplace, particularly in the northeastern
United States. The companies expect that the Transaction will result in greater
shareholder value than either company could achieve on its own. KeySpan and
Eastern believe that the increased size and scope of the combined operation will
improve their opportunities for expansion and ability to offer a broad line of
energy products. Further, the companies are geographically compatible because
they are located in contiguous states. Moreover, the characteristics of their
respective service territories are similar, consisting of both mature, densely
populated urban centers and suburbs. These facts provide them with an excellent
ability to share resources and achieve synergies in the increasingly competitive
northeast sector of the country. For example, much of the service territories of
the New York Gas Utilities and the Massachusetts Utilities have low saturations
of gas heating for residential and small commercial customers. The combined
companies, based on increased size and scope, could utilize common resources to
promote increased use of natural gas through oil-to-gas conversions and more
effectively compete as suppliers in such developing markets where no gas service
currently exists.
15
<PAGE>
2. Merger Agreement
The Merger Agreement provides for Eastern to be merged with and into ACJ
with Eastern being the surviving entity. Eastern will then become a wholly-owned
direct subsidiary of KeySpan and KeySpan will register as a holding company
under Section 5 of the Act. KeySpan will acquire all of Eastern's common stock
in an all cash transaction. Shares held by Eastern, KeySpan, or any of KeySpan's
wholly-owned subsidiaries will be cancelled in the Transaction. The closing of
the Transaction will occur on the second business day immediately following the
satisfaction or waiver of the conditions to the Transaction unless Eastern and
KeySpan mutually agree to another time.
Treatment of Eastern Shareholders: As a result of the Transaction, Eastern
shareholders will receive $64.00 in cash, without interest, for each share of
Eastern common stock, unless the shareholder is entitled to and has perfected
its dissenters' appraisal rights. Eastern shareholders will receive an
additional $0.006 per share ("Additional Amount") for each day the Transaction
has not closed after the later of (a) August 4, 2000 or (b) ninety days after
the New Hampshire Public Utilities Commission ("NHPUC") gives final regulatory
approval to the ENI Transaction, though the aggregate Additional Amount will be
reduced by the aggregate amount of any per share increase in any dividend
actually paid that is attributable to any period in which the Additional Amount
accrues.
Closing Conditions: The Transaction is subject to customary closing
conditions, including receipt of all required regulatory approvals, such as
approval by the Commission under the Act.
Tax Consequences: The receipt of the consideration by Eastern shareholders
for each share of Eastern common stock will be a taxable transaction for federal
income tax purposes. Each holder's gain or loss per share of Eastern common
stock will be equal to the difference between the holder's tax basis in that
particular share of the Eastern common stock and the amount of cash received
therefor. Such gain or loss generally will be a capital gain or loss assuming
the Eastern common stock is held as a capital asset at the time of the
Transaction.
Accounting Treatment: The Transaction will be accounted for as a purchase
for accounting and financial reporting purposes.
D. Management and Operations of KeySpan Following the Transaction
Following consummation of the Transaction, KeySpan will be the direct
parent company of Eastern. KeySpan's board of directors will be composed of 15
members. Robert Catell will remain as the Chief Executive Officer and Chairman
of the Board of
16
<PAGE>
Directors of KeySpan. J. Atwood Ives, the current Chief Executive Officer of
Eastern, will be elected to KeySpan's board of directors. The main corporate
headquarters and principal executive offices of the combined company will remain
in Brooklyn, New York; however, Eastern will maintain offices in the Boston area
and EnergyNorth will maintain offices in New Hampshire.
Item 2. Fees, Commissions and Expenses
The estimated fees, commissions and expenses in connection with the
proposed Transaction are set forth in Exhibit I hereto.
Item 3. Applicable Statutory Provisions
The following sections of the Act and the Commissions rules thereunder are
or may be applicable to the proposed Transaction:
Section of the Act Transactions to which Section is or may be applicable
------------------ -----------------------------------------------------
3(a)(1) Confirmation that Eastern, EnergyNorth and KEC will
continue to be exempt holding companies under the Act
4, 5 Registration of KeySpan as a holding company following
the consummation of the Transaction
8, 9(a)(2), 10 Acquisition by KeySpan of common stock of Eastern
11(b) Retention by KeySpan of (i) its electric utility
operations (i.e., KeySpan Generation) and (ii) the
non-utility businesses of KeySpan, Eastern and
EnergyNorth
To the extent that other sections of the Act and the Commission's rules
thereunder are or may be applicable to the Transaction, such sections and rules
should be considered to be set forth in this Item 3.
A. Approval of the Transaction.
Section 9(a)(2) provides in pertinent part that:
17
<PAGE>
Unless the acquisition has been approved by the Commission under
section 10, it shall be unlawful . . . for any person. . . to
acquire, directly or indirectly, any security of any public
utility company, if such person is an affiliate, under clause (A)
of paragraph 11 of subsection (a) of section 2, of such company
and of any other public utility or holding company, or will by
virtue of such acquisition become such an affiliate.
For purposes of section 9(a)(2), an "affiliate" of a specified company is any
person that directly or indirectly owns, controls, or holds with power to vote
5% or more of the outstanding voting securities of such specified company.
KeySpan already owns, directly or indirectly, 100% of the common stock of the
New York Utilities, which are public utility companies within the meaning of
Section 2(a)(5) of the Act. Accordingly, the Transaction requires approval
pursuant to Section 9(a)(2) because it contemplates that KeySpan will indirectly
acquire 100% of the common stock of the Massachusetts Utilities and ENGI, each
of which are public utility companies as defined in the Act.
Section 10 of the Act sets forth the statutory standards that the
Commission must consider in evaluating an acquisition which requires Section
9(a)(2) approval. As demonstrated below, the Transaction complies with all of
the applicable provisions of Section 10 of the Act and should be approved by the
Commission. Accordingly,
o the Transaction will not 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) of the Act);
o the consideration to be paid in the Transaction is fair and
reasonable (Section 10(b)(2) of the Act);
o the Transaction will not result in an unduly complicated capital
structure for the KeySpan-Eastern combined system and will not be
detrimental to the public interest or the interest of investors
or consumers (Section 10(b)(3) of the Act);
o the Transaction is not unlawful under Section 8 and is not
detrimental to the carrying out of Section 11 of the Act (Section
10(c)(1) of the Act);
o the Transaction tends towards the economical and efficient
development of an integrated public utility system (Section
10(c)(2) of the Act); and
o the Transaction will be consummated in compliance with all
applicable state laws (Section 10(f) of the Act).
1. Section 10(b)(1)
18
<PAGE>
a. Interlocking Relationships
By its nature, any merger results in new links between theretofore
unrelated companies. However, these links are not the types of interlocking
relationships targeted by Section 10(b)(1), which was primarily aimed at
preventing business combinations unrelated to operating synergies.20
The Merger Agreement provides for the board of directors of KeySpan to be
composed of members from the boards of both KeySpan and Eastern. This is
necessary to integrate Eastern fully into the KeySpan system and will therefore
be in the public interest and the interests of investors and consumers. Forging
such relations is beneficial to the protected interests under the Act and thus
is not prohibited by Section 10(b)(1) and is consistent with the composition of
other boards for holding companies registered under the Act.
b. Concentration of Control
Section 10(b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system.21 In applying Section
10(b)(1) to utility acquisitions, the Commission must determine whether the
acquisition will create "the type of structures and combinations at which the
Act was specifically directed."22 As discussed below, the Transaction will not
create a "huge, complex and irrational system," but rather will afford the
opportunity to achieve economies of scale and efficiencies that are expected to
benefit investors and consumers.23
Size: If approved, the KeySpan system will provide gas distribution service
to approximately 2.4 million residential, commercial and industrial customers
located in New York, New Hampshire and Massachusetts as well as wholesale
electric service to one customer, LIPA, in Nassau and Suffolk counties and the
Rockaway Peninsula of Queens County, New York. The combined assets and revenues
of KeySpan and Eastern (including EnergyNorth) will be less than, those of
Dominion Resources, Inc. ("Dominion"), a
_________________
20 Northeast Utilities, 50 SEC 427,443(1990), as
modified, 50 SEC 511 (1991), aff'd sub nom., City of Holyoke Gas & Electric
Dept. v. SEC, 972 F.2d 358 (D.C. Cir. 1992) ("interlocking relationships are
necessary to integrate [the two merging entities]").
21 American Electric Power Co., 46 SEC 1299, 1309 (1978).
22 Vermont Yankee Nuclear Corp., 43 SEC 693, 700 (1968).
23 American Electric Power Co., 46 SEC at 1307 (1978).
19
<PAGE>
combination registered holding company recently approved by the Commission.24
Dominion's acquisition of Consolidated Natural Gas Company resulted in a
combined gas and electric utility holding company system serving nearly 4
million retail customers in five (5) states, including approximately 2 million
gas retail customers, and total consolidated assets of $29.059 billion and
revenues of $8.8 billion.25
Efficiencies and Economies: As noted above, the Commission has rejected a
mechanical size analysis under Section 10(b)(1) in favor of assessing the size
of the resulting system with reference to the efficiencies and economies that
can be achieved through the integration and coordination of utility
operations.26 The Commission has concluded that size is not determinative. In
Centerior Energy Corp.,27 the Commission stated flatly that a "determination of
whether to prohibit enlargement of a system by acquisition is to be made on the
basis of all the circumstances, not on the basis of size alone." In addition,
the SEC Division of Investment Management ("Division") recommended in its 1995
report on the Regulation of Public Utility Holding Companies (the "1995 Report")
that the Commission approach its analysis on merger and acquisition transactions
in a flexible manner with emphasis on whether the proposed transaction would
create an entity subject to effective regulation and would be beneficial to
shareholders and customers as opposed to focusing on rigid, mechanical tests.28
By virtue of the Transaction, the combined companies will be in a position
to realize the substantial opportunities to become an effective competitor in a
rapidly deregulating and increasingly competitive energy market that neither
KeySpan nor Eastern, acting alone, would be in a position to achieve. Among
other things, the Transaction is expected to yield significant capital
expenditure and operating cost savings through consolidation of facilities and
corporate and administrative functions, non-gas purchasing economies and the
coordinated management of gas supply. The combination of KeySpan and Eastern
offers the same type of synergies and efficiencies sought by the applicants
(both exempt and registered companies) in NIPSCO Industries, Inc.,29 TUC Holding
Company,30 WPL Holdings, Inc.,31 and New Century Energies, Inc.32 These expected
economies and
_______________________
24 KeySpan will file with the Commission, as an amendment to this
Application/Declaration, the financial data on KeySpan and Eastern's combined
assets and utility revenues.
25 Dominion Resources, Holding Co. Act Release No. 27113 (December 15, 1999).
26 American Electric Power, supra,. at 1309.
27 Centerior Energy Corp., 49 SEC 472 at 475 (1986).
28 1995 Report at 73-4.
29 Holding Co. Act Release No. 26975 (February 10, 1999).
30 Holding Co. Act Release No. 26749 (August 1, 1997).
31 Holding Co. Act Release No. 26856 (April 14, 1998).
32 Holding Co. Act Release No. 26748 (August 1, 1997).
20
<PAGE>
efficiencies from the combined operations of KeySpan and Eastern are projected
to result in annual net savings of $24 to $29 million, phased in over a two year
period. Additional synergies from the combination of the utility operations of
both companies are described in greater detail in Item 3.A.5.ii below.
After the Transaction is consummated, the retail gas utility company
operations of KeySpan, Eastern and EnergyNorth will continue to be fully subject
to the jurisdiction of the state regulators in the states in which such
operations are conducted (i.e., New York, Massachusetts and New Hampshire,
respectively). KeySpan's electric utility company, KeySpan Generation, will also
remain subject to the same NYPSC and FERC regulation that applied prior to the
merger. Therefore, completion of the Transaction will not affect current state
regulation of the combined companies' utility operations.
Competitive Effects: As the Commission stated in Northeast Utilities,33 the
"antitrust ramifications of an acquisition must be considered in light of the
fact that the public utilities are regulated monopolies and that federal and
state administrative agencies regulate the rates charged consumers." On May 1,
2000, KeySpan and Eastern filed Notification and Report Forms with the DOJ and
FTC pursuant to the HSR Act describing the effects of the Transaction on
competition in the relevant market. It is a condition to the consummation of the
Transaction that the applicable waiting periods under the HSR Act shall have
expired or been terminated. The HSR Act waiting period expired on June 1, 2000.
In the past, the Commission has largely relied on, or "watchfully deferred"
to,34 the determination of other regulators with respect to anti-competitive
considerations and has declined to reconsider issues of size and market power
that have been considered by other federal antitrust regulators.35
In sum, for the reasons set forth above, the Transaction will not "tend
toward interlocking relations or the concentration of control" of public utility
companies, of a kind or to the extent detrimental to the public interest or the
interests of investors or consumers within the meaning of Section 10 (b)(1), and
the Commission may justifiably rely on the DOJ/FTC's review of the Transaction
with respect to anti-competitive issues.
2. Section 10 (b) (2)
Section 10(b)(2) requires the Commission to determine whether the
consideration to be paid by KeySpan to the holders of Eastern's common stock in
_______________________
33 Northeast Utilities, 50 SEC 427 (Dec. 21, 1990).
34 See City of Holyoke Gas & Electric Dept., supra.
35 WPL Holdings, Inc., et al., Holding Co. Act Release No. 26856 (April 14,
1998), aff'd sub nom., Madison Gas and Electric Company v. SEC (D.C. Cir. 1999);
New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1, 1997).
21
<PAGE>
connection with the Transaction, including all fees commissions and other
remuneration, is reasonable and whether it bears a fair relation to the
investment in and earning capacity of the utility assets underlying the
securities being acquired. The Commission has recognized that when the
consideration to be paid in a proposed transaction is the result of arm's-length
negotiations, and supported by opinions of financial advisors, there is
persuasive evidence that Section 10(b)(2) is satisfied.36
For the reasons set forth below, the Transaction satisfies the requirements
of Section 10(b)(2).
a. Fairness of Consideration
The consideration for the Transaction is the result of a competitive
process and substantial arm's-length negotiations between KeySpan and Eastern.
The negotiations were preceded by KeySpan's extensive due diligence, analysis
and evaluation of the assets, liabilities and business prospects of the combined
companies. See "Background of the Merger" of Eastern's Proxy Statement in
Exhibit C hereto.
In addition, nationally recognized investment bankers for each of KeySpan
and Eastern reviewed extensive information concerning the companies and analyzed
the Transaction consideration employing several valuation methodologies.
KeySpan's financial advisor was JP Morgan Securities, Inc. ("JP Morgan") and it
has provided a "fairness" opinion to KeySpan's Board of Directors with respect
to the consideration to be paid in the Transaction. Salomon Smith Barney has
also rendered an opinion to Eastern that the Transaction consideration is fair
from a financial point of view to Eastern's common stockholders. JP Morgan's
opinion is attached hereto as Exhibit G-1 and Salomon Smith Barney's opinion is
incorporated by reference as Exhibit G-2.
b. Reasonableness of Fees
KeySpan believes that the overall fees, commissions and expenses incurred
and to be incurred in connection with the Transaction are (i) reasonable and
fair in light of the size and complexity of the Transaction relative to other
similar transactions and the anticipated benefits of the Transaction to the
public, investors and consumers, (ii) consistent with recent precedent and (iii)
meet the standards of Section 10(b)(2).
As set forth in Item 2 of this Application/Declaration, KeySpan and Eastern
together expect to incur a combined total of approximately $ 22 million in fees,
commissions and expenses in connection with the Transaction. KeySpan believes
that the
__________________
36 See Entergy Corp., et al., 51 SEC 869 (1993); The
Southern Co., et al. Holding Co. Act Release No. 24579 (February 12, 1988); Ohio
Power Co., 44 S.E.C. 340, 346 (1970).
22
<PAGE>
estimated fees and expenses in this matter bear a fair relation to the value of
the combined company and the strategic benefits to be achieved by the
Transaction and that the fees and expenses are fair and reasonable in light of
the size and complexity of the Transaction.37 Based on a price for Eastern's
common stock at $64.00 per share, the Transaction price is valued at
approximately $1.7 billion. The total estimated fees and expenses of $22 million
represent approximately 1.3% of the value of the consideration to be paid to the
Eastern shareholders. This percentage is consistent with percentages previously
approved by the Commission.38
3. Section 10 (b) (3)
Section 10 (b) (3) requires the Commission to determine whether the
Transaction will unduly complicate KeySpan's capital structure or will be
detrimental to the public interest, the interest of investors or consumers or
the proper functioning of KeySpan's system.
a. Capital Structure
The Commission has found that an acquisition satisfies the Section 10(b)(3)
analysis where the effect of a proposed acquisition on the acquirer's capital
structure is negligible and the equity position is at or above the traditionally
acceptable 30% level prescribed by the Commission.39 Under these standards,
KeySpan's proposed acquisition of Eastern will not unduly complicate the capital
structure of the combined system. Set forth below are summaries of the
historical capital structures of KeySpan, Eastern and EnergyNorth as of December
31, 1999.
_____________________
37 See Northeast Utilities, Holding Co. Act Release No. 25548 (June 3, 1992),
modified on other grounds, Holding Co. Act Release No. 25550 (June 4, 1992).
38 See, e.g., Entergy Corp., Holding Co. Act Release No. 25952 (1993) (fees and
expenses represented approximately 1.7% of the consideration paid to the
shareholders of Gulf State Utilities); Northeast Utilities, Holding Co. Act
Release No. 325548 (June 3, 1992) (fees and expenses represented approximately
2% of the assets to be required).
39 See, e.g., Entergy Corp., 55 S.E.C. 2035 (1993); Northeast Utilities, 47
S.E.C. 1279 (1990).
23
<PAGE>
KeySpan, Eastern and EnergyNorth
Pre-Transaction Historical December 31, 1999 Consolidated Capital Structures
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
KeySpan Eastern EnergyNorth
Common Shareholders Equity $ 2,715,025 $ 754,630 $ 52,631
Preferred Stock not subject to mandatory
redemption 84,339 ------- -------
Preferred Stock subject to mandatory
redemption 363,000 ------- -------
Debt (long and short term) 1,682,702 638,453 46,481
Total $ 4,845,066 $ 1,393,083 $ 99,112
</TABLE>
<TABLE>
<CAPTION>
Post-Transaction KeySpan Pro Forma Consolidated Capital Structure
(Dollars in Thousands)
(unaudited)
<S> <C> <C>
KeySpan Percentage of Total
Common Stock Equity (including paid in capital) $ 2,733,899 37.0%
Preferred stock not subject to mandatory redemption 84,339 1.1%
Preferred stock not subject to mandatory redemption 26,454 0.4%
Debt (long and short term) 4,542,349 61.5%
Total $7,387,041 100.0%
</TABLE>
24
<PAGE>
KeySpan's consolidated equity to total capitalization ratio after the
consummation of the Transaction will exceed the traditionally accepted 30%
level.
b. Protected Interests
As set forth more fully in the discussion of the standards of Section
10(c)(2) in Item 3.A.5. below, the Transaction will create opportunities for
KeySpan and Eastern to achieve substantial cost savings and synergies, and will
integrate and improve the efficiency of the KeySpan and Eastern utility systems.
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 the resulting holding company system.
4. Section 10 (c) (1)
Section 10 (c)(1) of the Act prohibits the Commission from approving an
acquisition under Section 9(a) of the Act if such acquisition is unlawful under
Section 8 of the Act or is detrimental to the carrying out of Section 11 of the
Act. As demonstrated below, the Transaction is not unlawful under Section 8 nor
will it be detrimental to the enforcement of the provisions under Section 11 of
the Act.
a. Section 8 Analysis
Section 8 prohibits registered holding companies from acquiring, owning
interests in, or operating both a gas and an electric utility serving
substantially the same area if prohibited under state law. The Transaction
involves KeySpan's indirect acquisition of the Massachusetts Utilities and ENGI
which are exclusively gas utility companies. Accordingly, the Transaction does
not raise any issue under Section 8 since it does not involve an acquisition in
which the newly acquired gas companies will be serving the same areas of any
affiliated electric utility company.40
b. Section 11 Analysis
Section 10(c)(1) of the Act requires that an acquisition not be detrimental
to carrying out the provisions of Section 11. For the reasons set forth below,
the Transaction meets the requirements of Section 10(c)(1).
______________________
40 KeySpan currently owns two gas utility companies (KeySpan New York and
KeySpan Long Island) and one electric utility company (KeySpan Generation) which
are all located in New York. In 1998, KeySpan's acquisition of the companies was
approved by the Commission, in BL Holdings, supra, and the NYPSC. The service
territories of the Massachusetts Utilities and ENGI will not overlap with the
areas served by KeySpan Generation.
25
<PAGE>
i. Capital and Corporate Structure
Section 11(a) of the Act requires the Commission to examine the corporate
structure of registered holding companies to ensure that unnecessary
complexities are eliminated and voting power is fairly and equitably
distributed. As described above in Item 3.A.3.a of this Application/Declaration,
the Transaction will not result in unnecessary complexities or unfair
distribution of voting powers.
Section 11(b)(2) directs the Commission to
ensure that the corporate structure or continued existence of any
company in the holding company system does not unduly or unnecessarily
complicate the structure, or unfairly or inequitably distribute voting
power among security holders, of such holding company system. In
carrying out the provisions of this paragraph the Commission shall
require each registered holding company (and any company in the same
holding company system with such holding company) to take such action
as the Commission may find necessary in order that such holding
company shall cease to be a holding company with respect to each of
its subsidiary companies which itself has a subsidiary company which
is a holding company.
After the Transaction is consummated, there will be two tiers of holding
companies between ENGI and KeySpan (i.e., ENGI's parent, EnergyNorth, will be a
subsidiary of Eastern, a holding company, which will be a direct subsidiary of
KeySpan). This structure raises two issues under Section 11(b)(2): whether
EnergyNorth's existence will complicate the structure of KeySpan's holding
company system after the Transaction is consummated; and, whether the
Transaction will result in an unfair or inequitable distribution of voting power
among the security holders of the holding company system. As discussed below,
EnergyNorth's existence does not raise the complexities Section 11(b)(2) seeks
to address. Moreover, as soon as reasonably practicable after the consummation
of the Transaction, KeySpan intends to eliminate EnergyNorth as an intermediary
holding company so that ENGI will become a direct utility subsidary company of
Eastern.
EnergyNorth's continued existence is necessary to ensure a smooth
transition toward the coordination of ENGI's operations with those of the
Massachusetts Utilities and the New York Gas Utilities. Because KeySpan will
indirectly own all of the outstanding common stock of Eastern and EnergyNorth,
the continued existence of EnergyNorth during a transitional period raises no
concern over any undue complexities in the holding company structure or a risk
of unfair or inequitable distribution of voting power within the
26
<PAGE>
holding company system.41 Therefore, KeySpan requests that the Commission permit
the continued existence of EnergyNorth following the consummation of the
Transaction.42
ii. Integrated Public Utility Holding Company System
Section 11(b)(1) generally requires a registered holding company system to
limit its operations "to a single integrated public utility system, and to such
other businesses as are reasonably incidental, or economically necessary or
appropriate to the operation of such integrated public utility system."
Ordinarily, the single system can provide either electric or gas service,
however, Section 11(b)(1) (A-C) of the Act (the "ABC Clauses") provides an
exception to the "single system" requirement and permits a registered holding
company to own one or more additional integrated public utility systems (e.g.,
both gas and electric) if the criteria of the ABC Clauses are met.
As described more fully in Item 3.A.5.i below, the principal utility system
of the combined companies, comprised of the gas operations conducted by KeySpan
New York and KeySpan Long Island and Eastern's gas operations (i.e., the
Massachusetts Utilities and ENGI), satisfy the requirements for a single
integrated gas utility system. Moreover, as set forth below, retention is
permissible of (a) KeySpan Generation because it qualifies as an additional
electric system under the ABC Clauses, and (b) the non-utility businesses of
KeySpan, Eastern and EnergyNorth because they satisfy standards for retention
under Section 11(b)(1) of the Act.
(1) Retention of Electric Operations:
The ABC Clauses under Section 11 (b)(1) permit the retention of additional
integrated public-utility systems if the Commission finds the following:
________________
41 KeySpan will issue debt to acquire Eastern and, like acquisitions recently
approved by the Commission which resulted in newly registered holding companies,
such debt is consistent with that permitted under Section 7(c)(2)(A) of the Act
for such acquisitions. SCANA Corporation, Holding Company Act. Release No. 27133
(February 9, 2000); Dominion Resources, Holding Co. Act Release No. 27113
(December. 15, 1999).
42 The Commission has the ability to exercise its reasonable discretion to
permit a "great grandparent" holding company structure when the specifics of the
transaction do not raise the concerns Section 11(b)(2) was intended to address.
See, e.g., National Grid, Holding Co. Act Release No. 27154 (March 15, 2000)
(expressly authorized the continued existence of multiple intermediate holding
companies); West Penn Railways Co., Holding Co. Act Release No. 953 (January 3,
1938) (expressly authorizing the continued existence of an intermediate holding
company); West Texas Utilities Co., Holding Co. Act Release No. 4068 (January
25, 1943) (reserving jurisdiction under Section 11(b)(2) in connection with a
transaction which would result in the a "great grandparent" holding company).
27
<PAGE>
(a) each of the additional systems cannot be operated as an
independent system without the loss of substantial economies
which can be secured by the retention of control by such
holding company of such system;
(b) all of the additional systems are located in one state,
in adjoining states or in a contiguous foreign country; and
(c) the continued combination of such systems is not so
large (considering the state of the art and the area or
region affected) as to impair the advantages of localized
management, efficient operation or the effectiveness of
operation.
Historically, the Commission considered the question of whether a
registered holding company could retain a separate system by applying a strict
standard that required a showing of a loss of substantial economies before
retention would be permitted.43 Under the Commission's previous narrow
interpretation of Section 11(b)(1)(A), when considering whether to permit
primarily electric utility holding companies to keep their gas assets, the
Commission, as a guide to determining whether lost economies are substantial,
gave consideration to four ratios which measure the projected loss of economies
as a percentage of: (1) total gas operating revenues; (2) total gas expense or
"operating gas revenue deductions"; (3) gross gas income; and (4) net gas income
or net gas utility operating income. Although the Commission has declined to
draw a bright-line numerical test under Section 11(b)(1)(A), it has indicated
that cost increases resulting in a 6.78% loss of operating revenues, a 9.72%
increase in operating revenue deductions, a 25.44% loss of gross income and a
42.46% loss of net income would afford an "impressive basis for finding a loss
of substantial economies."44
However, in its 1995 Report, the Division recommended that the Commission
"liberalize its interpretation of the `A-B-C' clauses."45 Accordingly, the
Commission has explicitly rejected a rigid interpretation of the requirements of
the ABC Clauses in a number of recent decisions in which it has approved newly
formed combined utility registered holding company systems.46 In these cases,
the Commission has found that, due
______________________
43 See New England Electric System, 41 S.E.C. 888 (1964).
44 See Engineers Public Service Co., 12 SEC 41, 59 (1942). Recently, in Ameren,
Conectiv, New Century and WPL Holdings, the Commission permitted the applicants
to retain their additional gas systems because the ratios set forth in their
severance studies exceeded the Commission guidelines.
45 1995 Report at 74.
46 See, e.g., SCANA, supra; New Century Energies, Inc., Holding Co. Act Release
No. 26748, 1997 SEC LEXIS 1583 (1997); Conectiv, Inc., Holding Co. Act Release
No. 26832 (February 25, 1998), 1998 SEC LEXIS 326 (1998); WPL Holdings, Inc.,
Holding Co. Act Release No. 26856 (April 14, 1998), 1998 SEC
(footnote continued on next page)
28
<PAGE>
to the convergence of the energy and gas industries, retention of an additional
system is desirable where separation of the gas business from the electric
business could cause the divested entities to be weaker competitors.47 Thus,
even a small loss of economies could be harmful to each entity's competitive
position if they were required to separate.48
The Commission's review of the Transaction and its retention of KeySpan
Generation under the ABC Clauses should be evaluated based on its more recent
precedent and policy advocating a more flexible approach to combined electric
and gas systems. If KeySpan Generation were divested, KeySpan would lose (i) its
ability to economically meet its current power supply obligations to LIPA; and
(ii) the potential competitive benefits of a combined electric and gas company
in the emerging converged energy market because the loss of its electric assets
would hamper its future ability to provide customers with a full range of energy
options.
Nevertheless, even under the Commission's more stringent historical
analysis, KeySpan Generation would experience significant lost economies if
operated on a stand alone basis without any increase in benefits to consumers.49
Attached to this Application/Declaration as Exhibit J is an "Analysis of the
Economic Impact of Divestiture of the Electric Operations of KeySpan Generation
LLC" hereafter referred to as the Retention Study. As demonstrated in the
Retention Study, if KeySpan Generation were divested and forced to operate on a
stand alone basis, it would result total lost economies of $17.4 million,
increased operation and maintenance expenses of 16.4%, a 60.8% loss of gross
income (pre-tax net income), and a 48.3% loss of net electric income. Here, the
lost economies that would be experienced if the electric facilities were to be
operated on a stand alone basis exceed the Commission's guidelines even under a
narrow interpretation of the Section 11(b)(1)(A).
Clause (B) of Section 11(b)(1) is met because the electric operations of
KeySpan Generation are located in one state (New York). KeySpan Generation will
be in the same
____________________
LEXIS 676 (1998);
Conectiv, supra; Dominion Resources, Holding Co. Act Release No. 27113 (Dec. 15,
1999).
47 See New Century, supra, 1997 SEC LEXIS 1583, *50.
48 WPL Holdings, supra, 1998 SEC LEXIS 676, *61.
49 By way of background, KeySpan Long Island and KeySpan Generation have a long
historical relationship because their gas and electric assets were originally
owned and operated by LILCO on an integrated basis. When KeySpan acquired the
assets in 1998, they were transferred into the separate companies. Ten out of
eleven of KeySpan Generation's steam generating plants are capable of burning
gas to generate electricity. In BL Holdings, supra, the Commission approved
KeySpan's acquisition of KeySpan Long Island (formerly known as KeySpan Gas
East) and KeySpan Generation and found de facto integration of the separate gas
and electric systems based on factors such as their shared physical
interconnections and common gas sources and administrative coordination.
29
<PAGE>
state as the New York Gas Utilities which are part of KeySpan's proposed
principal integrated gas system.
With respect to clause (C) of Section 11(b)(1), KeySpan Generation's
continued electric operations under KeySpan are not so large (considering the
state of art and the area or region affected) as to impair the advantages of
localized management, efficient operation or the effectiveness of regulation.
KeySpan Generation's electric system is confined to a relatively small area
(i.e., Long Island). Moreover, management currently is, and will remain after
the Transaction, in the New York city metropolitan area, thereby preserving the
advantages of localized management. The Transaction will have no impact on
effective regulation because KeySpan Generation will remain subject to the
jurisdiction of the FERC and the NYPSC. Finally, as discussed above, the
electric operations enjoy substantial economies as part of the KeySpan system
and should realize additional economies after the Transaction.
iii. Retention of Non-Utility Businesses
Section 11(b)(1) permits a registered holding company to retain non-utility
businesses which are reasonably incidental, or economically necessary or
appropriate, and not detrimental to the proper functioning of the holding
company systems. Although the Commission has traditionally interpreted this
provision to require an operating or functional relationship50 between the
non-utility activity and the system's core non-utility business, in its release
promulgating Rule 58,51 the Commission stated that it "has sought to respond to
developments in the industry by expanding its concept of a functional
relationship." The Commission concluded in the Rule 58 Release "that various
considerations, including developments in the industry, the Commission's
familiarity with the particular non-utility activities at issue, the absence of
significant risks inherent in the particular venture, the specific protections
provided for consumers and the absence of objections by the relevant state
regulators, made it unnecessary to adhere rigidly to the types of administrative
measures" used in the past. Furthermore, in the 1995 Report, the Commission's
staff recommended that the Commission replace the use of bright-line limitations
with a more flexible standard that would take into account the risks inherent in
the particular venture and the specific protections provided for consumers.52
With respect to diversified activities that fall outside the scope of Rule 58,
the Commission Staff recommended "a more flexible interpretation of the
provisions of the Act concerning
_____________________
50 Michigan Consolidated Gas. Co., 44 SEC 361 (1970), affd. Michigan
Consolidated Gas Company v. SEC, 444 F.2d 913 (1970).
51 Exemption of Acquisition by Registered Public-Utility Holding Companies of
Securities of Nonutility Companies Engaged in Certain Energy-Related and
Gas-Related Activities, Holding Co. Act Release No. 26667 (February 14, 1997)
("Rule 58 Release").
52 1995 Report at 81-87, 91-92
30
<PAGE>
diversification. Specifically the Division contemplates an interpretation of the
language of Section 11(b)(1) that would allow registered holding companies to
engage in non-utility businesses that are economically appropriate and in the
public interest, regardless of whether such activities are ancillary to the
utility business."53
Registered holding companies and their subsidiaries are permitted to invest
in energy related companies, as defined under the Commission's Rule 58(b)(1),
without prior Commission approval under the Act if the aggregate investment in
all such energy related companies does not exceed the greater of $50 million or
15% of the consolidated capitalization of the registered holding company.
However, the Commission has disregarded existing investments in these types of
activities, for purposes of calculating the dollar limitation upon investments
in energy related companies, which were made by a holding company prior to its
registration under the Act.54 KeySpan requests that the Commission grant the
same treatment to its, Eastern's and EnergyNorth's existing non-utility
subsidiaries which may fall within the meaning of a Rule 58(b) energy related
companies.
Rule 58(b)(2) permits gas registered holding companies to invest in gas
related companies without the Commission's prior approval and such activities
are not subject to any dollar limitation. A gas registered holding company, for
purposes of Rule 58, is defined as a holding company that is registered solely
by reason of ownership of voting securities of gas utility companies or a
subsidiary company thereof.55 A gas related company is a company that derives,
or will derive, substantially all of its revenues from one or more activities
permitted under the Gas Related Activities Act ("GRAA").56 Rule 58(b)(2)(i) and
Section 2(a) of the GRAA apply to activities related to the transportation and
storage of natural gas; Rule 58(b)(2)(ii) and Section 2(b) of the GRAA apply to
activities related to the supply of natural gas. The "GRAA does not impose any
geographic boundaries within which a gas registered system may engage in the
listed activities."57 Thus, the GRAA
_______________________
53 1995 Report at 91.
54 See, e.g., Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25,
1998); see also Ameren Corporation, Holding Co. Act Release No. 26809 (December
30, 1997). The Commission reached this conclusion in previous orders because the
companies involved in the mergers were not previously subject to the Section
11(b)(1) restrictions on non-utility investments which apply only to registered
holding companies.
55 Because KeySpan will register solely by reason of its acquisition of gas
utility companies (i.e., the Massachusetts Utilities and ENGI), it qualifies for
the exemptions related to ownership of gas related companies under Rule 58.
56 Pub. L. No. 101-527, 104 Stat. 2810 (November 15, 1990), codified as a note
to Section 11 of the Act.
57 Consolidated Natural Gas Company, Holding Co. Act Release No. 26595 (October
25, 1996).
31
<PAGE>
permits registered gas utility holding companies to own companies engaged in
international gas related activities.58
KeySpan is presently a holding company exempt from registration under the
Act, as are Eastern and EnergyNorth. As exempt holding companies, each has been
free to invest in a variety of non-utility businesses and activities without the
need to obtain prior Commission approval under Section 9(a) of the Act. The
companies' non-utility investments have been successful overall, have resulted
in tangible benefits to their respective shareholders, and have been undertaken
in compliance with applicable state laws and regulations in a manner to minimize
risks to the ratepayers of their respective utilities. Moreover, continued
diversification into energy related non-utility businesses will enable the
KeySpan system, after it registers, to better compete with exempt registered
holding company systems in the electric utility and gas utility industry. As
such, KeySpan must continue its efforts to be a full service provider of energy
and energy-related products and services "on both sides of the meter." The
Commission has recognized the importance of this fact by permitting other
registered holding companies to retain or acquire a wider range of non-utility
businesses because many customers will choose their utilities based on the other
products and services offered.59 In sum, the Commission has taken into account
industry trends and competitive pressures that make it important for registered
holding companies to be able to compete with other utilities not subject to the
Act.60
Except as discussed in Item 3.b.iii.4 below, the non-utility business
interests that KeySpan will hold, directly or indirectly, after the consummation
of the Transaction meet the Commission's standards for retention. As discussed
more fully below, these companies are engaged in the same types of activities
that the Commission has previously allowed registered holding companies to
acquire, or newly registered holding companies to retain because they meet the
Commission's increasingly more flexible interpretation of the Section 11(b)(1)
standard. Like the Commission has done with other newly registered or existing
registered holding companies, it should authorize the retention of KeySpan's,
Eastern's and EnergyNorth's non-utility business, especially when viewed in
light of the Commission's Rule 58 exemptions and more flexible, broader
interpretation of the functional relationship test in light of utility industry
trends to offer services on both sides of the meter. The following is a
description of the specific bases under which the existing non-utility
investments of KeySpan, Eastern and EnergyNorth may be retained pursuant to
Section 11(b)(1).61
______________________
58 Id.
59 GPU Inc., Holding Co. Act Release No. 27165 (April 14, 2000) (hereafter
referred to as "GPU, Inc.").
60 See e.g., Entergy Corp., Holding Co. Act Release No. 26812 (January 6, 1998);
SEI Holdings, Holding Co. Act Release No. 26581 (September 26, 1996); and Rule
58 Release at note 65.
61 KeySpan Corporate Services LLC, a direct subsidiary of KeySpan provides
corporate administrative services to KeySpan and its subsidiaries. KeySpan
Utility Services LLC, also a direct subsidiary of KeySpan, provides
(footnote continued on next page)
32
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(1) KeySpan's Non-Utility Subsidiaries62
Rule 58(b)(1) Energy Related Companies. As discussed above, an energy
related company which satisfies the criteria set forth in Rule 58(b)(1) is
deemed to be functionally related to a registered holding company's business. A
company is an energy related company if it directly or indirectly derives
substantially all of its revenues from one or more of the activities (within the
United States) which are enumerated in Rule 58(b)(1). Although KeySpan, as an
exempt holding company, is not currently subject to Rule 58 with respect to its
acquisition of energy related companies, the following KeySpan non-utility
companies engage in energy related activities within the meaning of Rule
58(b)(1) and, therefore, should be retainable by KeySpan.
A Rule 58 (b)(1)(iv) energy related company is defined as a company that
sells, installs and/or services: electric and gas appliances; equipment to
promote new technologies, or new applications for existing technologies, that
use gas or electricity; and/or equipment that enables the use of gas or
electricity as an alternative fuel. The business activities of the following
companies are energy related activities within the meaning of Rule 58
(b)(1)(iv):
o KeySpan Technologies Inc. ("KTI") derives all of its
revenues from developing, demonstrating, marketing, and
servicing for its residential and commercial customers fuel
cells that use gas. All of its customers are located in the
United States. Accordingly, KTI is in the business of
selling equipment that promotes new technologies for the use
of gas which is a Rule 58 (b)(1)(iv) activity.
A Rule 58 (b)(1)(v) energy related company is defined as an entity which
engages in the brokering and marketing of energy commodities, including but not
limited to electricity, natural or manufactured gas and other combustible fuels.
The following companies engage in energy marketing and brokering activities
within the meaning of Rule 58 (b)(1)(v), and are retainable by KeySpan:
o KeySpan Energy Services, Inc. is engaged in the business of
a gas and retail electricity marketer. All of the gas that
it buys is resold to customers located in the United States.
____________________
gas and electric transmission and distribution system planning and marketing
services, gas supply planning and procurement, research and development, and
meter repair operations to certain of KeySpan's subsidiaries. KeySpan will
request the requisite service company approvals for KeySpan Corporate Services
LLC and KeySpan Utility Services LLC in the separate Omnibus Application.
62 Exhibit E-5 contains more detailed factual descriptions of KeySpan's
non-utility subsidiaries.
33
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o KeySpan Energy Trading Services LLC is a broker of
electricity and fuel as agent for LIPA. Specifically, as
agent for LIPA, KETS is responsible for (a) the purchase
from third parties of additional capacity and energy that
LIPA needs to serve its customers, (b) the off-system sale
of LIPA's energy which it does not require to meet the needs
of its system customers; and (c) fuel procurement, delivery,
storage and management to meet LIPA's obligations to provide
fuel to its electricity supplier to generate power to
provide LIPA for its retail and wholesale customers.63
o KeySpan Energy Supply, LLC ("KESL") is engaged in energy
brokering activities for customers located in the United
States. KESL's brokering activities consist of purchasing
gas and electricity as agent for its customers, and managing
the bidding of its affiliated EWG's power into the wholesale
electricity market.
o Boundary Gas, Inc. is a gas marketer. It is engaged in the
business of buying natural gas from Canada which it resells
to utilities located in the northeast United States,
including affiliated utilities.
A Rule 58 (b)(1)(vii) energy related company is defined as a company that
sells technical, operational, management, and other similar kinds of services
and expertise, developed in the course of utility operations in such areas as
power plant and transmission system engineering, development, design and
rehabilitation; construction; maintenance and operation; fuel procurement,
delivery and management; and environmental licensing, testing and remediation.
The business activities of the following companies are energy related activities
within the meaning of Rule 58 (b)(1)(vii):
o KeySpan Electric Services LLC provides day-to-day operation
and maintenance services and construction management
services to LIPA for its electric transmission and
distribution system ("T&D Facilities") and management and
administration services to LIPA for its interests in the
Nine Mile Point Unit 2 nuclear facility ("NMP2"). In 1998,
LIPA acquired the T&D Facilities and NMP2 interests from
LILCO in a contemporaneous transaction related to the
combination of LILCO and KEC which resulted in KeySpan's
indirect acquisition of LILCO's non-nuclear generation
assets. LIPA entered into the services arrangement with KES
since
________________________
63 KeySpan Energy Trading Services LLC also provides LIPA with energy supply
portfolio management and risk management. These activities fall within the
activities permitted under Rule 58 (b)(1)(v). See Rule 58 Release at 48
(Commission stated that energy and risk management activities are part of the
activities covered by Rule 58 (b)(1)(v) when done to minimize risks associated
with the purchase and sale of commodities and not to engage in speculation).
34
<PAGE>
it was a beneficiary of the experience and expertise
developed by LILCO in operating the T&D Facilities and the
NMP2.
o KeySpan-Ravenswood Services Corporation ("KRS") is primarily
engaged in providing day-to-day operation and maintenance
services for generation facilities owned by its EWG
affiliate, KeySpan-Ravenswood, Inc. Its services and
expertise were developed and exist as the result of its
utility affiliates' operations. Specifically, the Ravenswood
generation facilities were acquired by KeySpan-Ravenswood
Inc. in June of 1999 from The Consolidated Edison Company of
New York, Inc. ("Con Edison"). At the time of the
acquisition, employees of Con Edison which operated the
Ravenswood facility were transferred to KRS. Accordingly,
these employees bring to KRS existing expertise in the
operation of the Ravenswood facility which were developed as
part of the facility's utility operations.64
Rule 58(b)(2) Gas Related Companies. A Rule 58(b)(2) gas related company is
deemed to be functionally related to the business of a gas registered holding
company. A gas related company is defined as a company that directly or
indirectly derives substantially all of its revenues from one or more of the
activities (within the United States) which are enumerated in Rule 58(b)(2).
Though KeySpan is not currently subject to Rule 58(b)(2) because it is an exempt
holding company, its non-utility subsidiary companies described below are
engaged in gas related activities within the meaning of Rule 58(b)(2) and should
be retainable by KeySpan.
Rule 58 (b)(2)(i) defines a gas related company as one that engages in
activities permitted under Section 2(a) of the GRAA which are those of a natural
gas company or a company that participates in activities involving the
transportation or storage of natural gas. The business activities of the
following companies, either directly or through subsidiaries, are gas related
activities within the meaning of Rule 58 (b)(2)(i):
_____________________
64 Moreover, in New Century Energies, Inc., Holding Co. Act Rel. No. 26-748
(Aug. 1, 1997), the Commission permitted a company that intended to register as
a holding company to retain a non-utility subsidiary that provided operation and
maintenance services to generation facilities in which the holding company owned
an interest and non-associated companies. Accordingly, independent of Rule 58,
KSR is retainable with respect to its operation and maintenance activities
because it is like the company in New Century Energies, Inc. Finally, KRS also
provides small amounts of electricity to Con Edison, which is an energy
marketing activity within the meaning of Rule 58 (b)(1)(v). In addition, KRS
also provides day to day operation and maintenance services to Con Edison for
its steam distribution plant located in New York adjacent to the EWG's
facilities. Rule 58(b)(1)(vi) defines the following as an energy related
activity: the production, conversion, sale and distribution of thermal energy,
including steam, and the servicing of thermal energy facilities. Although KRS
does not own the steam plant or itself sell steam, the operation and maintenance
services it provides for the steam facilities are Rule 58 (b)(1)(vi) activities.
35
<PAGE>
o Honeoye Storage Corporation is engaged in the business of
providing gas storage services for customers located in the
United States. It owns an underground gas storage facility
in Ontario County, New York consisting of 28
injection/withdrawal wells, 12 observation wells, 19 miles
of field gathering lines, compressor units totaling 2700 hp
and 10.5 miles of transmission pipeline connecting the
facilities to the Tennessee Gas Pipeline gas transmission
system. Honeye is regulated by the FERC with respect to its
natural gas activities.
o KeySpan Cross Bay LLC ("KeySpan Cross Bay") was formed to
own a 25% interest in the Cross Bay Pipeline Company, LLC
("Cross Bay"). Cross Bay is developing the Cross Bay
Pipeline, which is a proposed natural gas interstate
pipeline to be located in the United States that would be
subject to FERC jurisdiction.
o Each of LILCO Energy Systems Inc. and North East
Transmission Co., Inc., are general partners in the Iroquois
Gas Transmission System, L.P. ("Iroquois"). Iroquois is a
FERC regulated natural gas transportation pipeline located
in the United States. Iroquois' wholly owned subsidiary,
Iroquois Pipeline Operating Company, operates the Iroquois'
pipeline.65
o Adrian Associates L.P. owns a natural gas storage facility
in New York and is in the business of providing natural gas
storage services. The facility consists of 9
injection/withdrawal wells, an observation well, 2 miles of
field gathering lines, compressor units totaling 2700 hp and
13.5 miles of transmission pipeline connecting the
facilities to the gas transportation pipeline owned by
Tennessee Gas Pipeline. Adrian provides up to 6.2 BCF of
storage service to gas distribution companies located in New
Jersey and Massachusetts.
The activities of a Rule 58 (b)(2)(ii) gas related company are defined as
activities specified in Section 2(b) of the GRAA which are the supply of natural
gas, including exploration, development, production, marketing, manufacture, or
other similar activities related to the supply of natural or manufactured gas.66
The Commission has also found
____________________
65 Iroquois will continue to qualify for an exemption under 17 C.F.R. ss.250.16.
After consummation of the Transaction, no more than 50% of the voting interests
in Iroquois will be held by a registered holding company.
66 Rule 58(b)(ii) also states that the acquisition by a registered holding
company of a gas related company engaged in the activities set forth in Section
2(b) of the GRAA must be approved by the Commission
(footnote continued on next page)
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that other activities associated with the natural gas supply chain including
exploration and production of associated petroleum are GRAA permitted activities
and therefore are activities in which a Rule 58(b)(2(ii) gas related company may
engage.67 Accordingly, the business activities of the following companies,
either directly or through subsidiaries, qualify as gas related activities
within the meaning of Rule 58 (b)(2)(ii), and are retainable by KeySpan:68
o Northeast Gas Markets, LLC ("Northeast") provides natural
gas procurement, contract management and marketing services
for companies located in the United States.69
o The Houston Exploration Company ("Houston Exploration") is
engaged in the exploration, development and acquisition of
domestic gas and oil properties. It also owns associated
gathering systems and is engaged in small scale marketing,
supplying, transportation and storage. The company has
offshore properties in the Gulf of Mexico and onshore
properties in Texas, Louisiana, Arkansas and West Virginia.
Houston Exploration's wholly-owned subsidiary, Seneca-Upshur
Petroleum, Inc., owns interests in oil and gas properties.
Houston Exploration manages, operates and drills the wells
for Seneca.
o KeySpan Exploration and Production, LLC is part of a joint
venture with Houston Exploration that owns certain
properties for offshore gas and oil exploration and
development in the Gulf of Mexico.
___________________
pursuant to Section 9 and 10 of the Act. Since KeySpan was not a registered
holding company at the time it invested in companies described in this
Application/Declaration as engaged in activities defined in Section 2(b) of the
GRAA, it was not required to obtain prior Commission approval for these
acquisitions.
67 See Rule 58 Release at 82-3.
68 Retention of these companies is also consistent with Commission precedent it
which it has authorized new registered holding companies to retain, or existing
registered holding companies to acquire, businesses involved in the exploration,
ownership, development and acquisition of natural gas and oil properties. See
WPL Holdings Inc., Holding Co. Act Release No. 26856 (April 14, 1998); New
Century Energies, Inc., Holding Co. Act Release No. 26748 (August 1, 1997); New
England Energy Inc., Holding Co. Act Release No. 23988 (January 13, 1986).
69 Northeast's gas marketing activities also qualify it as an energy related
company under 17 C.F.R. ss.250.58(2)(b)(1)(v).
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o KeySpan Natural Fuels, LLC owns interests in onshore
wells located in the United States of Houston
Exploration that produce oil and gas.
International Gas Related Activities. Described below are international
companies in which KeySpan has invested that are engaged in gas related
businesses identical to those defined in and the GRAA. 70 As noted above, the
Commission has found that the GRAA permits registered gas utility holding
companies to own companies located outside the United States.71 Moreover, the
GRAA was intended to give gas registered holding companies "the same flexibility
as exempt or non-PUHCA regulated gas companies in the acquisition of interests
in certain ventures related to gas supply."72
KeySpan has targeted investments in international gas related companies
because it is a natural extension of KeySpan's expertise in the gas business,
which stems from its core gas utility business, and is necessary to remain
competitive in the increasingly global energy business. These international
investments are not detrimental to KeySpan's domestic gas customers because any
possible losses from these businesses cannot be recovered from its utilities'
ratepayers. In addition, these investments are not harmful to the proper
functioning of KeySpan's holding company system because they make up a small
part of the entire KeySpan system. KeySpan holds a 50% or smaller equity
interest in each of the international companies listed below and such
international investments currently total approximately $279 million.
The following international company is retainable by KeySpan because it is
engaged in international gas related activities within the meaning of Section
2(a) of the GRAA:
o Premier Transco Limited is a natural gas pipeline company owning
and operating natural gas and transportation facilities in the
United Kingdom. Gas transportation activities are expressly
permitted under Section 2(a) of the GRAA.73
_____________________
70 They are also the same activities defined in Rule 58(b)(2) for gas related
companies. Except for the fact that these companies conduct their business
outside of the United States, they would be considered Rule 58(b)(2) gas related
companies.
71 The Commission has determined that the "GRAA does not impose any geographic
boundaries within which a gas registered system may engage in the listed
activities." Consolidated Natural Gas Company, Holding Co. Act Release No. 26595
(October 25, 1996) and Holding Co. Act Release No. 26608 (November 19, 1996).
72 136 Cong. Record S17585 (October 27, 1990) (floor statement of Sen. D'Amato).
73 Premier is an international gas pipeline like the international gas pipelines
in which the Commission has permitted other gas registered holding companies to
invest. See, e.g., Consolidated Natural Gas Company, Holding Co. Act Release No.
26595 (October 25, 1996) and Holding Co. Act Release No. 26608
(footnoe continued on next page)
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The following companies engage in international gas related activities
within the meaning of Section 2(b) of the GRAA (i.e., the supply of natural gas,
including exploration, development, production, marketing, manufacture, or other
similar activities related to the supply of natural or manufactured gas) and are
retainable by KeySpan:
o GMS Facilities Limited ("GMF") owns an interest in, and
operates, one natural gas processing plant in Alberta,
Canada and a crude oil and natural gas liquids
transportation facilities. It also owns interests in natural
gas liquids fractionation and storage facilities located in
Alberta.
o Gulf Midstream Services Partnership ("GMSP") owns interests
in 11 natural gas processing plants and associated gathering
facilities located in Alberta and Saskatchewan, Canada. GMSP
also markets natural gas, on behalf of approximately 40
producers, to about 50 customers in the United States and
Canada, and markets natural gas products (including propane,
butane and sulphur), on behalf of approximately 130
producers to about 50 customers in the United States and
Canada.
o Gulf Midstream Services Limited ("GMSL") is the managing
partner for GMSP and is the agent for GMF and GMSP. Because
neither GMSP nor GMF have employees or office facilities,
GMSP and GMF act through GMSL, which conducts all GMSP and
GMF business, including operating the assets for which those
entities have operating responsibility, and executing and
performing all GMSP and GMF contracts.
o KeySpan Energy Canada Ltd. owns an interest in The Taylor
Gas Liquids Partnership ("Taylor "). Taylor owns an interest
in a natural gas liquids and extraction plant in western
Canada.
o Alberta Northeast Gas, Ltd. is a gas marketer which buys
Canadian natural gas and resells it at the Canadian/United
States border to its gas utility customers, including
affiliates, for delivery to their operations in the
northeast United States.
Oil Production Company. The Commission has authorized registered holding
companies to own businesses involved in the exploration, ownership, development
and
____________________
(November 19, 1996) (Commission allowed gas registered holding company to invest
in foreign pipeline projects located in South America pursuant to the GRAA).
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acquisition of natural gas and oil properties.74 For example in WPL Holdings,
the Commission authorized a subsidiary of WPL to purchase, develop and produce
crude oil and gas. In Consolidated Natural Gas, the Commission found that the
establishment of a subsidiary to engage in natural gas and oil exploration met
the functional relation requirements of the Act.Since the following company
engages in the ownership of oil production facilities like those approved by the
Commission in WPL Holdings and Consolidated Natural Gas as functionally related
to a registered holding company's business, it is retainable under the Act:
o Solex Production Limited owns and is developing a producing
oil field located in Canada.
HVAC Companies. The Commission has also permitted registered holding
companies to acquire, or new registered holding companies to retain, non-utility
businesses that design, construct, install, maintain and service new and
retrofit heating, ventilating, and air conditioning, electrical and power
systems, motors, pumps, lighting, water and plumbing systems, and related
structures for non-associate industrial, commercial and residential customers.75
In addition, a Rule 58 (b)(1)(iv) energy related company is defined as a company
that sells, installs and/or services: electric and gas appliances; equipment to
promote new technologies, or new applications for existing technologies, that
use gas or electricity; and/or equipment that enables the use of gas or
electricity as an alternative fuel. Because the following non-utility
subsidiaries of KeySpan are engaged in activities that are the same or
substantially similar to those approved by the Commission in Cinergy and
Conectiv (as described above) and described under Rule 58(b)(1)(iv), they
satisfy the functional relationship test under the Act and, therefore, are
retainable:
o Fritze KeySpan, LLC designs, builds, installs and services
heating, ventilating, and air conditioning systems for
commercial and residential customers in New Jersey.76
o KeySpan Plumbing Solutions, Inc. provides plumbing and
maintenance services to customers in the New York
metropolitan area.77
__________________
74 WPL Holdings Inc., Holding Co. Act Release No. 26856 (April 14, 1998); New
Century Energies, Inc., Holding Co. Act Release No. 26748 (August 1, 1997); New
England Energy Inc., Holding Co. Act Release No. 23988 (January 13, 1986).
75 Cinergy Corp., Holding Co. Act Release No. 26662 (February 7, 1997); See also
Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25, 1998).
76 These heating, ventilation and air conditioning services are like those
services permitted under Rule 58(b)(1(iv) and provided by a subsidiary of
Conectiv which were found to be functionally related, and , therefore,
retainable. See Cinergy, supra, and Conectiv, Inc., supra.
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o KeySpan Energy Management, Inc., and its subsidiary R.D.
Mortman, LLC, install and construct power supply, heating,
ventilation78 and air conditioning systems including burners
and boilers for heating purposes.79 They serve large scale
residential and commercial customers located in the New York
metropolitan area.
o Delta KeySpan, Inc. designs, builds, installs and services
heating, ventilating and central air conditioning systems
for commercial customers in New England.80
o KeySpan Energy Solutions, LLC provides service and
maintenance for heating equipment, water heaters, central
air conditioners and gas appliances. It also offers related
safety products and services to its gas customers which
include safety inspections, repair services, energy
assessment and safety checks (i.e., testing for carbon
monoxide and faulty wiring), and products which promote safe
energy use, increased energy efficiency or detect carbon
monoxide, smoke or fire. The Commission has previously found
the provision of gas appliance and safety products and
services to be functionally related.81 For instance, in
Consolidated, the Commission found that the sale and
installation of energy related appliances, products to
promote safe energy use, and safety inspection and repair
services activities in which a registered holding company
system was permitted to engage.
o Fourth Avenue Enterprise Piping Corp. is engaged in
providing maintenance and installation of boilers and
heating, ventilation and air conditioning systems to
customers located in New York.82
_____________________
77 Plumbing and maintenance services were permitted in Cinergy, supra., as
retainable, functionally related activities.
78 KeySpan Energy Management, Inc., may also engage in activities similar to its
subsidiary, KeySpan Engineering Associates, Inc. which are described below, and
such activities are functionally related for the same reasons described below.
79 These are like the heating, ventilation and air conditioning services defined
under Rule 58(b)(1(iv) and found to be functionally related in Conectiv, Inc.,
supra, and Cinergy, supra.
80 See id.
81 Consolidated Natural Gas Co., Holding Co. Act Release No. 26757 (August 27,
1997); see also The Columbia Gas System, Inc., Holding Co. Act Release No. 26498
(March 25, 1996) (authorizing a business engaged in safety inspections, such as
carbon monoxide and radon testing and wiring safety checks). see also The
Columbia Gas System, Inc., Holding Co. Act Release No. 26498 (March 25, 1996).
82 These are like the heating, ventilation and air conditioning services defined
under Rule 58(b)(1(iv) and found to be functionally related in Conectiv, Inc.,
supra, and Cinergy, supra.
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o Active Conditioning Corp. is engaged in maintenance and
installation of boilers and heating, ventilation and air
conditioning systems to customers located in New York.83
o WDF, Inc. provides mechanical contracting services to
commercial and industrial customers in New York. The
mechanical contracting services include the design,
construction, alteration, maintenance and repair of plumbing
and heating, air conditioning and ventilation systems.84
o Roy Kay, Inc. provides mechanical and general contracting
services to commercial customers. Roy Kay, Inc. installs and
renovates heating, ventilation and air conditioning systems,
as well as oil and gas boilers and burners used for heating.
Its services include the installation of all piping
equipment, as well as the design and fabrication of piping
and sheet metal incidental to its mechanical contracting
services which are an integral component of the heating,
ventilation and air conditioning systems that it installs.85
Mechanical Contracting Services. As noted above, recently in GPU, Inc., the
Commission authorized GPU's acquisition of MYR Group, Inc. which, inter alia,
provides commercial and industrial services consisting of electrical, mechanical
and maintenance contracting, including construction activities such as the
installation of complete electrical systems wiring for utilities and commercial
and industrial facilities. The business of the following company is
substantially the same as that approved in GPU Inc., and therefore should be
retainable under the Act.
o Roy Kay Electrical Company engages in electrical contracting
services including upgrading the wiring and power supply of
buildings for commercial and industrial customers located in
New York and New Jersey.
Safety Services. As discussed above, the Commission has authorized
registered holding companies to retain businesses engaged in selling safety
products and services, including such products as smoke and fire detectors and
fire extinguishers.86 Since the
__________________
83 See id.
84 See id. Also, the mechanical contracting services WDF provides are similar to
a business that the Commission recently allowed a registered holding company to
acquire in GPU, Inc., supra In GPU Inc., the registered holding company was
authorized to acquire a subsidiary whose primary business was the installation
of electrical system wiring for utilities and commercial and industrial
facilities including the installation of complex piping systems.
85 See id.
86 Consolidated Natural Gas Co., Holding Co. Act Release No. 26757 (August 27,
1997).
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following company is engaged in the business of providing safety products
similar to the fire detectors and fire extinguishers found to be functionally
related in Consolidated, it should be retainable under the Act:
o Roy Kay Mechanical, Inc., engages in the installation and
renovation of sprinkler systems and fire suppression
systems, including related piping fabrication for the
systems it installs, for customers located in New York and
New Jersey.
Telecommunications Company. The Commission has allowed registered holding
companies to own subsidiaries engaged in telecommunication activities which
provide services to both affiliated and non-affiliated companies.87 Such
activities have included the owning and/or leasing to affiliates and
non-affiliates of fiber optic cables for telecommunication activities.88 The
activities of the following company are substantially similar to those approved
by the Commission in Central and South West, thus, the company is retainable by
KeySpan:
o KeySpan Communications Corp. owns a fiber optic network
which is used by affiliates and nonaffiliates for
telecommunication services such as voice communications and
data transmission.
Power Consulting/Engineering Services. In prior orders, the Commission has
permitted registered holding companies to invest in businesses that engage in
consulting with large industrial and commercial customers on improving their
power supply sources and designing and engineering electric facilities
(including generation and HVAC systems) for for affiliated or non-affiliated
customers.89 In Cinergy, the Commission approved the acquisition by a registered
holding company of a subsidiary that would engage in a wide range of energy
related activities including the ones described above. The activities of the
following company are substantially the same as those approved by the Commission
in Cinergy:
o KeySpan Engineering Associates, Inc. reviews the power
supply needs of its large commercial, industrial and
institutional customers and designs
___________________
87 Southern Co., Holding Co. Act Release No. 26211 (December 30, 1994)
(authorizing investment in a company that would design, construct, finance and
operate a wireless communications system to serve the needs of the registered
holding company system and regional nonassociates.); see also Appalachian Power
Co., Holding Co. Act Release No. 24772 (December 9 , 1988) (lease of fiber optic
system).
88 See Central and South West Corporation, Holding Co. Act Rel. No. 26061 (June
13, 1994) (special subsidiary formed by a registered holding company to acquire
the fiber optic system developed by an affiliated electric utility for lease to
the utility and to non-affiliates).
89See Cinergy Corp., Holding Co. Act Rel. No. 266662 (Feb. 7, 1997).
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efficient, new power supply systems, such as cogeneration
facilities to meet energy needs.
Mining Company. The Commission has approved registered holding company
investments in companies involved in fuel and fuel-related interests,90
including the ownership of mines that are a source of fuel for a utility
system.91 The following business is retainable by KeySpan because it is
substantially similar to the types of businesses approved by the Commission in
System Fuels, Inc.:
o Marquez Development Corporation owns an inactive uranium
mine and mill which are in the process of being dismantled.
Like the company in System Fuels, the mine was originally
purchased by LILCO, the predecessor of KeySpan Generation
and KeySpan Long Island, as a fuel source for its nuclear
plants. KeySpan acquired its 75% interest in Marquez as part
of its acquisition in 1998 of LILCO's fossil fuel and gas
assets.
Engineering/Consulting Activities. The Commission has previously authorized
registered holding companies to retain and acquire companies engaged in
consulting and engineering services.92 In WPL, the Commission permitted the
retention of non-utility companies that provided a wide range of environmental
consulting and engineering services, such as management services for solid waste
management, hazardous waste management, industrial health safety, strategic
environmental management services and facility and process design. In Central,
the Commission approved a registered holding company's ownership of a company
engaged in engineering and environmental services relating to consulting and
design engineering, environmental and occupational health permitting, and
environmental and occupational health management systems. The Commission should
permit KeySpan's retention of the following company whose activities are similar
to those approved in Central and WPL Holdings.
o Paulus, Sokolowski & Sartor, Inc. ("PSS") is similar because
it is engaged in engineering and consulting services
relating to design and permitting. The services include
mechanical, electrical, civil, structural, sanitary,
geotechnical and architectural design and permitting,
licensing and environmental compliance for large commercial
customers such as corporate offices, hotels, laboratories,
warehouses, pharmaceutical companies and power plants.
Moreover, PSS improves KeySpan's
_____________________
90 North American Co., 11 SEC 194 (1942), aff'd, 133 F. 2d 148 (2d Cir. 1943,
aff'd on constitutional issues, 327 U.S. 686 (1946); See also 1995 Report at 82.
91 System Fuels, Inc. Holding Co. Act Release No. 20441 (March 9, 1978)
(authorizing a uranium exploration program to assure an adequate supply of
uranium) see also 1995 Report at 83.
92 WPL Holdings, Inc. Holding Co. Act Release No. 26856 (April 14, 1998);
Central and South West Services, Holding Co. Act Release No. 26898 (July 21,
1998).
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position to compete in today's energy service market and
attract customers on both sides of the meter because its
services are ancillary to the types of services offered by
KeySpan's other non-utility subsidiaries described above
(e.g, HVAC service providers, mechanical contracters, power
supply consultant/engineer). As a result, energy customers
would be more likely to do business with KeySpan because it
could provide one-stop shopping.
EWGs and FUCOs. Registered holding companies are permitted to acquire and
own, without obtaining prior Commission approval, both exempt wholesale
generators ("EWGs") pursuant to Section 32 of the Act93 and foreign utility
companies pursuant to Section 33 of the Act ("FUCOs").94 In addition, the Act
expressly states that EWGs and FUCOs are deemed to be functionally related to a
registered holding company system's business.95 Accordingly, KeySpan can
maintain its ownership interests in the following EWGs and FUCOs:
o KeySpan - Ravenswood, Inc. which is an EWG located in New
York.
o Phoenix Natural Gas Limited which is a FUCO that operates a
local gas distribution system in Northern Ireland.
o FINSA Energeticos, S. de R.L. de C.V. which is a FUCO.
Power Development Companies The Commission has authorized registered
holding companies to retain non-utility businesses engaged directly or
indirectly in the development of power generation projects96 and EWG project
development.97 KeySpan
____________________
93 15 U.S.C.ss.79z-5a(g).
94 15 U.S.C.ss.79z-5b(c).
95 Section 32(h) expressly states that a registered holding company's ownership
of an EWG shall be considered " reasonably incidental, or economically necessary
or appropriate, to the operations of an integrated public utility system." 15
U.S.C.ss.79z-5a(h)(2). Similarly, Section 33(c)(3) states that FUCOs are
considered to be "reasonably incidental, or economically necessary or
appropriate, to the operations of an integrated public utility system, within
the meaning of Section 11." 15 U.S.C.ss.79z-5b(c)(3).
96 See Central and Southwest Corp., Holding Co. Act Release No. 25162 (September
28, 1990) (authorizing Central and Southwest Corp. to conduct preliminary
studies of, to investigate, to research, to develop, to consult with respect to,
and to agree to construct, such construction subject to further Commission
authorization, QFs, qualifying small power production facilities and independent
power facilities ("IPPs"), except no need to consult with respect to IPPs);
Energy Initiatives, Inc., Holding Co. Act Release No. 25876 (September 7, 1993)
(authorizing the acquisition of an ownership interest in a non-affiliate engaged
in the business of developing, owning and operating co-generation and
independent power generation projects).
97 Ameren Corp., Holding Co. Act Release No. 27053 (July 23, 1999) (authorizing
the acquisition of securities of subsidiaries which would be organized
exclusively for the purpose of acquiring, holding and/or
(footnote continued on next page)
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may retain the following company because its activities are substantially
similar to those approved by the Commission for investment by registered holding
companies in Central and South West Corp., Energy Initiatives, Inc., and Ameren
Corp.:
o GTM Energy, LLC is a joint venture engaged in the
development of an electric generation power project, which
may become an EWG.
Energy Related Internet Activities. In previous orders the Commission has
permitted registered holding companies to invest in companies which provided a
wide range of energy related and home services including utility bill
insurance,98 centralized bill payment centers,99 energy audits,100 automated
meter reading services,101 warranty plans for appliances,102 sale and
installation of energy related equipment, such as electric and gas
appliances,103 safety inspection and repair services to detect and correct
problems such as carbon monoxide leaks and faulty equipment wiring,104 home
security monitoring, 105and energy consumption monitoring devices, including
software programs.106 Additionally, in Consolidated Natural Gas, the Commission
allowed a registered holding company to acquire a business which provided
residential, commercial and industrial customers a variety of measurement and
billing services including, in the case of residential customers, the ability to
use a home phone or computer to determine their energy bills and in the case of
large industrial consumers, the ability to continuously monitor energy
consumption and prices.107 As in these cases, GPU, Inc. and the Rule 58 release,
the Commission recognizes that a registered holding company needs increasing
flexibility to "after the meter" services in order to compete in the evolving
energy industry.
KeySpan, through its wholly-owned subsidiary, KeySpan MHK, Inc. ("KMHK"),
has acquired an approximately 18.2% equity interest (calculated on a fully
diluted basis as of April 18, 2000) in MyHomeKey.com, Inc. ("MHK"). MHK will
______________________
financing the acquisition of the securities of, or other interest in, one or
more EWG's); see also Cinergy Corp., Holding Co. Act Release No. 26984 (March 1,
1999).
98 Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25, 1998).
99 Id.; see Consolidated Natural Gas Company, Holding Co. Act Release No. 26363
(August 28, 1995).
100 Consolidated Natural Gas Company, supra note 2.
101 Ameren Corporation, Holding Co. Act Release No. 26809 (December 30, 1997).
102 Id.
103 Consolidated Natural Gas Company, Holding Co. Act Release No. 26757 (August
27, 1997).
104 Id.
105 Scana Corporation, Holding Co. Act Release No. 27133 (February 9, 2000).
106 Id.
107 Id.
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establish and maintain an Internet-based website which will serve as (1) a
national platform for local websites offering energy and home-related goods and
services and (2) a contractor for energy and home-related services from goods
and services providers of national scope. Although MHK and KMHK will not
actually provide goods and services to customers, as further described below,
the website links made available by MHK and KMHK will be for services analogous
to the broad range of energy related and consumer services approved by the
Commission in Consolidated Natural Gas, Conectiv, Inc., Ameren Corporation and
Scana Corporation as discussed above, therefore, MHK and KMHK should be
retainable by KeySpan.
Specifically, MHK will act as a national website which incorporates
software and software integration systems which can be accessed by local
websites operated by MHK licensees. It is intended that MHK licensees will be
energy companies throughout the United States. Each licensee will establish and
maintain its own website which will be accessed through the MHK master site. The
users of the MHK licensees' websites will be able to access a wide variety of
services, including (i) identifying and scheduling local and national providers
of routine and emergency energy and home-related services (plumbing; HVAC
installation, maintenance and repair; roofing; carpet cleaning; security system
installation and monitoring; etc.); (ii) purchasing and scheduling installation
of home appliances; (iii) monitoring and remotely controlling energy usage and
the home environment; (iv) purchasing energy through links with other websites;
(v) paying utility and other bills; (vi) monitoring community calendars (e.g.,
civic events, governmental meetings, Little League games); (vii) making
reservations and purchasing tickets for local activities (e.g., restaurants,
movies, sporting events); and (viii) managing residential relocations. KMHK has
entered into a license agreement with MHK pursuant to which KMHK will develop,
operate and maintain a local website featuring KeySpan companies. The local
websites will be co-branded" so that, in the case of KeySpan, the local website
will be known as "KeySpan MyHomeKey." KMHK's license agreement with MHK
designates six states as KMHK's geographic territory (i.e., New York, New
Jersey, Connecticut, Massachusetts, New Hampshire and Rhode Island). Any person
residing within those six states can become a registered user of the KeySpan
MyHomeKey local website at no charge.
Consistent with Commission precedent, the MHK and KMHK websites are
functionally related to KeySpan's energy business. For example, the home
products internet link will offer services, such as the sale of gas and electric
appliances, that are similar to those approved by the Commission in previous
orders108 and permitted under Rule 58 (b)(1)(iv). Similarly, KeySpan's
involvement in MHK establishes a platform for it to market its other energy
related businesses that will be retainable (e.g., its HVAC and energy management
services). In sum, MHK and KMHK will enable KeySpan to be more competitive in
the energy industry as a provider of "before and after the meter services." It
will attract new customers, and appeal to existing customers through the
convenience of Internet access to the myriad of services offered by KeySpan's
core utility business and energy related companies.
_____________________
108 see Consolidated Natural Gas Company, supra note 6.
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Companies to be Sold. KeySpan Operating Services LLC ("KOS"), a wholly
owned subsidiary of KeySpan holds a 51% interest in KeySpan Energy Construction,
LLC ("KECL"). KECL is in the business of providing electric field services which
include the installation, maintenance and replacement of electric transmission
and distribution equipment to affiliates and nonaffiliates. KOS intends to
divest its interest in KECL in the summer of 2000 and KOS will be dissolved as
soon as practicable thereafter.
Inactive Companies. KeySpan owns interests in the following companies which
are inactive:
o GEI Timna
o Island Energy Services Company
o GEI Development Corp.
Non-Utility Holding Companies. In addition to the companies discussed
above, KeySpan has several other subsidiaries whose functions are to be the
non-utility holding companies of certain of the non-utility subsidiaries
described above. Through their subsidiaries, they are engaged in a variety of
businesses and are retainable because all of their investments are in companies
described above which have been demonstrated to be retainable under the Act:
o KeySpan North East Ventures, Inc. which owns KeySpan's 90%
interest in Northeast Gas Markets, LLC.
o KeySpan Energy Development Corporation which owns KeySpan's
interests in the following non-utility subsidiaries: Honeoye
Storage Corporation; KeySpan International Corporation; GEI
Timna, Inc.; KeySpan Cross Bay, LLC; KeySpan Midstream LLC; GTM
Energy LLC; Adrian Associates; and Solex Production Limited.
o KeySpan International Corporation which holds KeySpan's interests
in KeySpan CI Ltd. and KeySpan CI II, Ltd. KeySpan CI Ltd.'s sole
business is to hold interests in KeySpan UK Limited,109 Phoenix
Natural Gas Limited and Premier Transco Limited. KeySpan CI II,
Ltd.'s sole business, through its wholly owned subsidiary, Grupo
KeySpan S. R.L. de C.V., is to hold KeySpan's interest in FINSA
Energeticos, S. de R.L. de C.V.
____________________
109 KeySpan UK Limited's is a wholly owned subsidiary of KeySpan CI Ltd. which
was formed to hold part of KeySpan's interests in Premier Transco Limited.
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o KeySpan Midstream, LLC which indirectly owns KeySpan's interests
in GMS Facilities Limited, Gulf Midstream Services Limited, Gulf
Midstream Services Partnership and KeySpan Energy Canada, Ltd.110
o THEC Holdings Corp. which holds KeySpan's interest in Houston
Exploration.
o KeySpan Services, Inc. which is the non-utility holding company
of KeySpan's interests inKeySpan Communications Corp., KeySpan
Energy Management, Inc. (which owns KeySpan Engineering
Associates, Inc. and R.D. Mortman, LLC), KeySpan Energy Services
Inc., KeySpan Energy Solutions, LLC (which owns KeySpan Plumbing
Solutions, Inc.), Fritze KeySpan, LLC, Delta KeySpan, Inc.,
Paulus, Sokolowski & Sartor, Inc., WDF, Inc., RoyKay, Inc., Roy
Kay Electrical Company, Roy Kay Mechanical, Inc., Fourth Avenue
Enterprise Piping Corp. and Active Conditioning Corp.
(2) Eastern's Non-Utility Subsidiaries
HVAC Company. As discussed above with respect to KeySpan's HVAC companies,
the Commission has permitted registered holding companies to acquire, or new
registered holding companies to retain, non-utility businesses that design,
construct, install, maintain and service new and retrofit heating, ventilating,
and air conditioning, electrical and power systems, motors, pumps, lighting,
water and plumbing systems, and related structures for non-associate industrial,
commercial and residential customers.111 These are also activities permitted
under Rule 58(b)(1)(iv). Because the following non-utility subsidiary of Eastern
is engaged in activities that are the same or substantially similar to those
approved by the Commission in Cinergy and Conectiv and permitted under Rule
58(b)(1)(iv), it satisfies the functional relationship test under the Act and,
therefore, is retainable:
o ServiceEdge Partners, Inc. which installs and services heating,
ventilation and air conditioning equipment.
Gas Related Company. As discussed above, a Rule 58(b)(2) gas related
company is deemed to be functionally related to the business of a gas registered
holding company and is defined as a company that directly or indirectly derives
substantially all of its revenues from one or more of the activities (within the
United States) which are enumerated in Rule 58(b)(2). Eastern is not currently
subject to Rule 58(b)(2) because it is an exempt holding
______________________
110 As described in Exhibit E-5, KeySpan Midstream LLC has a chain of
subsidiaries whose sole purpose is to directly or indirectly hold KeySpan's
interests in GMS Facilities Limited., Gulf Midstream Services Limited, Gulf
Midstream Services Partnership and KeySpan Energy Canada, Ltd.
111 Cinergy Corp., Holding Co. Act Release No. 26662 (February 7, 1997); See
also Conectiv, Inc., Holding Co. Act Release No. 26832 (February 25, 1998).
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company, however, as explained below, the following companies are gas related
companies within the meaning of Rule 58.
A Rule 58 (b)(2)(i) gas related company is defined as a company engaged in
activities permitted under Section 2(a) of the GRAA which includes a company
that participates in activities involving the transportation or storage of
natural gas. Eastern is not currently subject to Rule 58(b)(2) because it is an
exempt holding company, however, the business activities of the following
company are gas related activities within the meaning of Section 2(a) of the
GRAA and Rule 58 (b)(2)(i), involving the transportation and storage of natural
gas, therefore it is retainable:
o LNG Storage, Inc. (a subsidiary of Essex Gas Company) holds title
to LNG storage facilities.
A Rule 58 (b)(2)(i) gas related company is defined as a company that
engages in activities specified in Section 2(a) of the GRAA which are include
the supply of natural or manufactured gas. The business activities of the
following company are gas related activities within the meaning of Section 2(b)
of the GRAA and Rule 58 (b)(2)(ii), relating to the supply of natural or
manufactured gas, and, therefore, is retainable:
o Transgas, Inc. provides over-the-road transportation of liquefied
natural gas, propane and similar commodities.112
Real Estate Activities. The following subsidiaries are engaged in real
estate activities are substantially identical to those approved by the
Commission in UNITIL Corporation:113
o Eastern Rivermoor Company, Inc. holds title to real estate used
by Boston Gas Company in its operations (e.g., for service
centers, garages, etc.).
o PCC Land Company, Inc. holds title to real property in
Pennsylvania that was the site of a coke plant operated by
Philadelphia Coke Co., Inc., an associate company that is now
inactive.
Civic Investments. The Commission has permitted registered holding
companies to make and retain investments that are passive and/or de minimis in
civic, charitable, and economic development ventures, including investments in
venture capital partnerships, that are important to the responsibilities of good
corporate citizenship.114 The following subsidiaries of Eastern hold
substantially similar types of investments:
______________________
112 See Consolidated Natural Gas Company, et al., Holding Co. Act Release No.
26363 (August 28, 1995).
113 Holding Co. Act Release No. 25524 (Apr. 24, 1992).
114 See WPL Holdings, Holding Co. Act Release No. 26856 (April 14, 1998); Ameren
Corporation, Holding Co. Act Release No. 26809 (December 30, 1997).
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o Eastern Enterprises Foundation makes charitable contributions.
o Eastern Urban Services, Inc., beginning in the 1960s, invested in
a number of limited partnerships which acquired, rehabilitated
and operated existing low-income housing projects for which
Federal financing was available. Only one of these partnerships,
Amiff Housing Associates, continues to operate.
o Eastern Associated Capital Corp., which was formed to make
passive investments.
o Eastern Associated Securities Corp. which was formed to hold
investment securities.
Meter Services. AMR Data Corporation provides customized metering equipment
and performs automated meter reading services for municipal utilities. These
activities are substantially similar to those approved by the Commission in
other cases.115
The following direct and indirect subsidiaries of Eastern (other than
direct and indirect subsidiaries of Midland) are inactive and have no material
assets:
o EE-AEM Marketing Company, Inc.
o Boston Gas Services, Inc.
o Eastern Energy Systems Corp.
o Mystic Steamship Corporation
o Philadelphia Coke Co., Inc.
o Water Products Group Incorporated
o Western Associated Energy Corp.
o CGI Transport Ltd. (an indirect subsidiary of Colonial Gas Company)
o Colonial Energy (an indirect subsidiary of Colonial Gas Company)
o Northern Energy Company, Inc (a subsidiary of Essex Gas Company)
___________________
115 See New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997); Central and South West Corp., Holding Co. Act Release No. 26250 (March
14, 1995); and Appalachian Power Co., Holding Co. Act Release No. 26639 (January
2, 1997).
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o Massachusetts LNG Storage Incorporated (a subsidiary of Boston
Gas Company)
(3) EnergyNorth's Non-Utility Subsidiaries
HVAC Companies. The same legal analysis which is discussed above with
respect to KeySpan's and Eastern's HVAC companies applies to the following
non-utility subsidiaries of EnergyNorth. They derive substantially all of their
revenues from activities permitted under Rule 58(b)(1)(iv), and therefore, are
retainable:
o Northern Peabody, Inc., designs, installs and services commercial
and industrial plumbing, heating, ventilation and air
conditioning equipment, and process piping systems.
o Granite State Plumbing & Heating, Inc. designs, installs and
services commercial and industrial plumbing, heating, ventilation
and air conditioning equipment, and process piping systems.
o EnergyNorth Mechanicals, Inc. which holds all of the stock
Northern Peabody, Inc. and Granite State Plumbing & Heating, Inc.
Rule 58(b)(1)(v) Energy Related Company. A Rule 58(b)(1)(v) company is one
which derives substantially all of its revenue from the brokering or marketing
of energy commodities including natural gas, manufactured gas or other
combustible fuels. EnergyNorth Propane, Inc. is retainable by KeySpan because it
distributes propane in bulk containers, which is a fuel marketing activity
within the meaning of Rule 58(b)(1)(v).
Real Estate Activities. The following subsidiaries of EnergyNorth are
engaged in real estate activities that are substantially identical to those
approved by the Commission in UNITIL Corporation:
o Broken Bridge Corporation owns undeveloped real estate.
o EnergyNorth Realty, Inc., owns and leases a corporate
headquarters building to associate companies.
(4) Midland
Eastern's predominant non-utility subsidiary, Midland,116 is engaged,
through wholly owned subsidiaries, in activities which KeySpan recognizes do not
satisfy the standard for retention by a registered gas utility holding company
under Section 11(b)(1)
____________________
116 Midland files annual and other periodic reports with the Commission pursuant
to Section 12(g) of the Securities Exchange Act of 1934. See File No. 2-39895.
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of the Act. Midland's activities primarily consist of operating a fleet of
towboats, tugboats and barges which transport a variety of commodities including
stone, grain, sand, scrap, coal, steel, coke; performing repair work on marine
equipment; operating coal dumping and other river terminals and a ship loading
terminal for phosphate rock; and provide refueling and barge fleeting
services.117 KeySpan requests that any order that the Commission issues which
approves the Transaction but requires KeySpan to divest of Midland pursuant to
Section 11(b)(1) of the Act permits KeySpan to take the appropriate actions to
effect the sale of all of its interests in Midland, its subsidiaries and assets,
within three years after the Transaction is consummated.
5. Section 10 (c) (2)
Section 10(c)(2) of the Act requires the Commission to find that a proposed
transaction will serve the public interest by tending towards the economical and
efficient development of an integrated public utility system. An "integrated
public utility system" is defined in Section 2(a)(29) to mean:
(B) As applied to gas utility companies, a system consisting of one or
more gas utility companies which are so located and related that
substantial economies may be effected by being operated as a single
coordinated system confined in its operations 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.
For the reasons stated below, the Transaction meets the Section 10(c)(2)
requirements. The gas utility operations of KeySpan and Eastern, after the
closing of the Transaction, will constitute a coordinated gas utility system
within the meaning of Section 2(a)(29).118 Through the Transaction, the
companies will produce qualitative and
________________________________________
117 The principal operations of Midland (specifically, ORCO) were acquired by
Eastern (then known as Eastern Gas and Fuel Associates) in 1961 as part of a
business combination in which the former shareholders of ORCO acquired
approximately 15% of Eastern's common stock in exchange for the stock of ORCO.
"New" Midland was subsequently formed by Eastern to serve as a holding company
for ORCO and other related entities. Although certain aspects of the transaction
were approved by the Commission, the Commission specifically noted its lack of
jurisdiction over Eastern's acquisition of the stock of ORCO inasmuch as Eastern
had been granted an exemption pursuant to Section 3(a)(1) of the Act some years
earlier. See Midland Enterprises Inc., et al., Holding Co. Act Release No. 14486
(July 25, 1961). Thus, the Commission has not previously considered the
affiliation between Eastern and Midland in light of the retention standards of
Section 11(b)(1), which, by its terms, applies only to registered holding
companies.
118 As discussed in Item 3.A.4.b.(ii) above, KeySpan's retention of the electric
operations of KeySpan Generation is permissible under the ABC clauses as an
additional system and will tend toward the economic
(footnote continued on next page)
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qualitative economies and efficiencies and become an entity well suited to
compete effectively.
i. Single Area or Region Requirement
The operations of the combined gas systems of the New York Gas Utilities,
the Massachusetts Utilities and ENGI will be confined to "a single area or
region" as required by Section 2(a)(29)(B). The combined systems will operate in
the three contiguous states of New York, Massachusetts and New Hampshire. The
distance from the New York City area to Boston is about 200 miles. By contrast,
other registered public utility holding company systems, such as Columbia and
CNG, which both extend from Tidewater Virginia to western Ohio, are spread over
a much larger area. Consolidated Natural Gas, et. al, HCAR 25040 (2/14/90); The
Columbia Gas System, Inc., HCAR #22155 (8/20/81). Moreover, utilities in the New
York and Boston areas share the same challenges of being distant from gas
producing areas and near the end of the nation's gas transportation systems. New
York, Massachusetts and southern New Hampshire are part of the Northeast United
States, an area generally recognized as a single region of the country,
particularly in the energy industry.119
In addition, the Section 2(a)(29)(B) requirement that a combined gas system
confine its operations to "a single area or region" may be deemed satisfied when
gas utilities derive natural gas from a common source of supply. In a number of
recent decisions, the Commission has determined that even acquisitions involving
geographically dispersed gas systems meet the "single area or region" statutory
test when those systems acquire gas from common sources.120
The Commission has found that "[t]he concept of a `common source of supply'
is susceptible of a different understanding today than in 1935, when the `single
area or region' was generally defined in terms of the pipeline delivery points
(i.e., the city-gate) where the local distribution companies purchased their
gas."121 The Commission's inquiry
___________________
and efficient development of KeySpan's proposed holding company system through
shared economies and efficiencies.
119 The Commission has recognized in certain contexts that it is reasonable to
consider New York and New England together a single region of the country, See
Eastern Utilities Associates, Holding Co. Act Release No. 26232, 1995 SEC LEXIS
395 (February 15, 1995); Eastern Utilities Associates, Holding Co. Act Release
No. 256636, 1992 SEC LEXIS 2343 (September 17, 1992); Northeast Utilities,
Holding Co. Act Release No. 25114, 1990 SEC LEXIX 2720 (July 27, 1190).
120 See, e.g., NIPSCO Industries, Inc., 69 S.E.C. Docket 245, 1999WL 61423
(S.E.C.) (1999) ("NIPSCO") (systems in Indiana and Massachusetts); Sempra
Energy, 69 S.E.C. Docket 104, 1999 WL 38638 (S.E.C.) (1999) ("Sempra") (systems
in California and North Carolina); MCN Corporation, 62 S.E.C. Docket 2379, 1996
WL 529043 (S.E.C.) 1996 ("MCN") (systems in Michigan and Missouri).
121 NIPSCO at WL 61423, *8; see also Sempra at WL 38638, *6.
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now focuses upon whether the proposed combined utilities purchase substantial
quantities of gas produced in the same supply basins and upon whether there is
sufficient transportation capacity available to assure economical and reliable
delivery.122 In this regard, the Commission also looks at whether the systems
are served by common pipelines, and has recognized that, in today's gas market,
purchases of gas from the same basins are facilitated by the development of
market centers, hubs and pooling points.123
The gas portfolios of the New York Gas Utilities, the Massachusetts
Utilities and ENGI substantially overlap with respect to sources of supply. All
of the utilities derive large portions of their total gas requirements from two
primary areas: the New York Gas Utilities, the Massachusetts Utilities and ENGI
derive 63.2%, 91.1% and 90%, respectively, from the supply basins in the U.S.
Gulf Coast.124 The New York Gas Utilities purchase 36.7% of their gas supplies
from the Western Canada Sedimentary Basin, which is also a source of supply for
the Massachusetts Utilities (3.6%) and ENGI (8.8%). KeySpan and Eastern's gas
utilities also utilize common gas transportation pipelines. The New York Gas
Utilities, the Massachusetts Utilities and ENGI hold significant portions of
their firm transportation capacity on Tennessee (20.2%, 24.4% and 93.8%,
respectively), Iroquois (10.1%, 8.9% and 5.0%, respectively) and Duke Energy's
pipelines, TETCO and Algonquin (the New York Gas Utilities hold 23% on TETCO and
the Massachusetts Utilities hold 25.8% on TETCO and 35.1% on Algonquin).
Furthermore, the New York Utilities, the Massachusetts Utilities and ENGI all
have access to the Leidy, Pennsylvania trading hub at a point at which the
pipelines on which they hold transportation capacity intersect.
The commonality of supply sources and transporters of KeySpan and Eastern's
gas utilities is comparable to that found to constitute "common source of
supply" in recent Commission cases. For example, in NIPSCO, the Commission found
that the two proposed combined gas systems derived gas from common supply
sources based on the facts that (i) the NIPSCO and Bay State gas utilities
derived, respectively, 89% and 40% of their total gas requirements from the same
Texas and Louisiana supply basins and (ii) each system had contracted with
Tennessee for a significant portion (36% and 27%, respectively) of total firm
transportation capacity. The Commission also observed that while the systems had
only one pipeline in common, pipelines on which they held capacity intersect at,
and form, industry-recognized trading hubs. Moreover, in NIPSCO, the gas
utilities were located in non-contiguous states of Indiana and Massachusetts
while the proposed combined gas companies in Sempra were in California and North
Carolina. 125 In contrast,
_______________________
122Id.
123 NIPSCO at WL 61423, *8.
124 The U.S. Gulf Coast producing areas are comprised of Texas, Louisiana and
Mississippi.
125 The Commission specifically ruled that the distances between the systems to
be combined in those cases did not contravene the policy of the Act against
"scatteration" - the ownership of widely dispersed utility properties which do
not lend themselves to efficient operation - noting that the acquiring system is
required to maintain an integrated gas system. NIPSCO at WL 61423, *8; Sempra at
WL 38638, *6. Here, as noted
(footnote continued on next page)
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the systems proposed to be combined here are located in contiguous states in a
generally recognized region. For that reason and because of the substantial
commonality of supply and transportation sources among the New York Gas
Utilities, the Massachusetts Utilities and ENGI, the combination of KeySpan's
and Eastern's gas utilities satisfies the "single area or region" requirement
under Section 2(a)(29)(B).
ii. Economies and Efficiencies
The combined operations of KeySpan and Eastern will achieve substantial
economies. Although many of the anticipated economies and efficiencies will be
fully realizable only in the longer term, they are properly considered in
determining that the Section 10(c)(2) criteria have been met.126 The Commission
has also recognized that while some potential benefits cannot be precisely
estimated, they are nevertheless entitled to consideration.127
(1) Coordination of Gas Operations
Coordination of the operations of the gas supply departments of the New
York Gas Utilities and the Massachusetts Utilities (and ENGI) will, consistent
with the limitations imposed on the New York Gas Utilities by reason of the "two
county" rule of Section 103 of the Internal Revenue Code, be achieved through
joint and coordinated management of the gas supply function for all of the gas
utilities to be owned by the combined companies. By 2002, all of the gas assets
owned by the New York Gas Utilities and the Massachusetts Utilities (including
ENGI) will be operated and managed jointly by a single entity and a joint
strategy will be pursued for the gas supply portfolios of both utility systems
(including ENGI). For the period ending October 31, 2002, each of the
Massachusetts Utilities is party to an asset management agreement with El Paso
Energy Marketing Company ("El Paso") pursuant to which the majority of the
Massachusetts Utilities' gas supply assets upstream of the city gate are managed
by El Paso. The El Paso asset management agreement will be amended to cover the
gas supply assets of ENGI as well. The gas asset management arrangements which
currently cover the gas supply assets of the New York Gas Utilities are being
replaced with a single arrangement that will terminate March 31, 2002. Following
termination of those agreements, there will be
________________________
above, the gas systems of KeySpan, Eastern and ENGI are located in the
contiguous states of New York, Massachusetts and New Hampshire. Because they are
not widely dispersed like in NIPSCO and Sempra, there is no possibility they the
combination could contravene the policy of the Act against "scatteration."
126 See American Electric Power Co., 46 S.E.C. 1299, 1320-1321 (1978).
127 Centerior Energy Corp., 49 S.E.C. at 480 ("[s]pecific dollar forecasts of
future savings are not necessarily required; demonstrated potential for
economies will suffice even when these are not precisely quantifiable."); see
also Energy East Corp., Holding Co. Act Release No. 26976 (Feb. 12, 1999)
(authorizing acquisition based on strategic benefits and potential but presently
unquantifiable savings).
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significant opportunities for the two systems to realize substantial synergies.
The gas supply portfolios (including firm supply, transportation and storage
assets) of the New York Gas Utilities and the Massachusetts Utilities (including
ENGI) will be jointly managed in a coordinated way, thereby providing a greater
degree of diversity and operational flexibility. This will enable the two
systems to achieve greater efficiencies through asset optimization in order to
enhance opportunities to minimize gas costs as well as to generate additional
value. For example, as a result of the increased diversity of the combined
portfolios, the combined companies will have increased price arbitrage
opportunities to maximize revenues.
In addition, the joint company will be able to maximize the benefits of
deregulation. Depending on how the various state unbundled transportation
programs evolve, the combined companies will have greater opportunities to
maximize efficiencies to reduce gas costs as they decontract assets previously
contracted for to provide bundled sales service. Also, the flexibility and
reliability of the unbundled transportation and balancing services that the
combined companies provide to the firm transportation customers will be further
enhanced by the increased diversity and operational flexibility offered by the
combined portfolios. Furthermore, there will be new opportunities to provide
products and services in the deregulated market that will yield additional value
through the combined utility assets.
Even in the interim period between consummation of the Transaction and
2002, when the asset management agreements terminate, there may be opportunities
to achieve modest synergies to generate value and realize gas cost savings with
those gas assets that are excluded from the two asset management agreements.
Finally, both the New York Gas Utilities and the Massachusetts Utilities
rely on the Altra Gas Management System, using the same products acquired from
the same vendor. The systems currently employed by the New York Gas Utilities
and the Massachusetts Utilities will be integrated, enhancing the ability to
coordinate the gas supply functions of all of the utilities of both companies
(including ENGI).
(2) Other Efficiencies and Economies
Based on preliminary estimates, the Transaction is expected to result in
annual savings of $24-29 million, phased in over a two year period. This is
equal to 2.2 to 2.8% of annual gas utility operating expenses. The bulk of the
savings would occur as a result of employee reductions, which are expected to
result in savings of approximately $15 million as a result of the consolidation
of corporate and administrative functions and the elimination of approximately
200 full time positions. Another $2-4 million would be saved as a result of the
consolidation of corporate facilities, including control rooms and the IT data
center. A net savings of $4 to $7 million would be experienced as a result of
reductions in duplicate functions including shareholder services, outside
director expenses, and services of legal, financial and investment
professionals, insurance, information services,
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etc. Approximately $200,000 is expected to be saved in non-fuel purchasing
economies as a result of increased purchasing power. In addition, reductions in
employee benefit costs such as pensions, post-employment benefits and other
employee benefit related economies are expected to generate between $2.5 and $3
million in savings.
In addition, the Transaction would produce approximately $5 to $7 million
in avoided development costs for information systems and software applications.
The information technology in use at KeySpan and Eastern is largely compatible.
There are opportunities in the short run to consolidate a data center as well as
to consolidate the applications portfolios of the two systems. In the long run,
there is a potential for significant staff reductions.
KeySpan and Eastern are also in the process of identifying additional
opportunities for the merged companies to achieve additional administrative
savings in such areas as accounting, tax, purchasing, legal, planning, human
resources, information services, financial services and regulatory relations.
iii. Size and Local Requirements
As demonstrated above, the combined system will not be "so large" as to
contravene the statutory standards with respect to localized management,
efficient operations and the effectiveness of regulation. Each of the KeySpan,
Eastern and ENGI utilities will maintain offices and operational functions in
the state in which it provides services. There will be a substantial local
executive presence in Boston, including several officers of Boston Gas who will
be retained to manage the operations of the Massachusetts Utilities and ENGI.
The Transaction will result in substantial economies and efficiencies, as
discussed immediately above. Finally, each of the New York Utilities, the
Massachusetts Utilities and ENGI will remain subject to regulation by its
respective state regulators in New York, Massachusetts and New Hampshire.
6. Section 10 (f)
Section 10 (f) prohibits the Commission from approving the Transaction
unless the Commission is satisfied that the consummation of the Transaction will
comply with applicable state laws. As described in Item 4 of this Application,
and as evidenced by the application before the NHPUC, KeySpan intends to comply
with all applicable state laws related to the proposed Transaction.
B. Section 3(a)(1) Holding Company Exemption
After completion of the Transaction, KeySpan will have three subsidiaries
which will be holding companies. KeySpan requests that the Commission confirm
that they will
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each continue to be exempt holding companies under Section 3(a)(1) of the Act.
These exemptions, however, will have no effect on the status of these companies
as "subsidiary companies" of KeySpan once it registers as a holding company.
KEC will continue to qualify for a Section 3(a)(1) exemption after
consummation of the Transaction. It is a New York corporation and will continue
to directly own all of the common stock of KeySpan New York, which is also a New
York corporation operating exclusively in New York.
Eastern and EnergyNorth have each requested a Section 3(a)(1) exemption in
the Eastern/EnergyNorth Application. KeySpan requests that to the extent the
Commission grants them such exemptions in that proceeding, it confirm that those
exemptions will continue after the Transaction.
Item 4. Regulatory Approvals
Set forth below is a summary of the regulatory approvals that KeySpan and
Eastern have obtained or expect to obtain in connection with the Transaction in
addition to the Commission approvals required under the Act.
A. Antitrust
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Transaction) may not be consummated until certain
information has been submitted to the DOJ and FTC and specified HSR Act waiting
period requirements have been satisfied. On May 1, 2000, KeySpan and Eastern
submitted Notification and Report Forms and all required information to the DOJ
and FTC and the Transaction will not be consummated unless the applicable
waiting period has expired or has been terminated. The expiration period for the
Transaction expired on June 1, 2000. Eastern and EnergyNorth will also submit
Notification and Report Forms and all required information to the DOJ and FTC
with respect to the ENI Transaction which will not be consummated unless the
applicable waiting period has expired or has been terminated.
The expiration of the HSR Act waiting period does not preclude the
Antitrust Division of the FTC from challenging the Transaction on antitrust
grounds; however, KeySpan believes that the Transaction will not violate Federal
antitrust laws. If the Transaction is not consummated within twelve months after
the expiration or earlier termination of the initial HSR waiting period, KeySpan
and Eastern would be required to submit new information to the DOJ and FTC, and
a new HSR waiting period would have to expire or be earlier terminated before
the Transaction could be consummated.
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B. State Public Utility Regulation
New Hampshire
ENGI, EnergyNorth's wholly-owned subsidiary, is a New Hampshire public
utility subject to the jurisdiction of the NHPUC. Under the applicable statutes,
the NHPUC must determine that Eastern's acquisition of EnergyNorth, and
KeySpan's indirect acquisition through its acquisition of Eastern, will not have
an adverse affect on the rates, terms, service, or operations of ENGI and is
lawful, proper and in the public interest. On December 3, 1999, KeySpan, Eastern
and EnergyNorth filed a joint application with the NHPUC which requests approval
for Eastern's direct, and KeySpan's indirect, acquisition of EnergyNorth. See
Exhibit D-1. On May 8, 2000, the NHPUC issued an order approving Eastern's
direct, and KeySpan's indirect, acquisition of EnergyNorth. The NHPUC order is
attached hereto as Exhibit D-2.
New York
The New York Utilities, wholly-owned subsidiaries of KeySpan, are subject
to the NYPSC's jurisdiction. The NYPSC does not have statutory jurisdiction over
the Transaction.128
Massachusetts
The Massachusetts Utilities, wholly-owned subsidiaries of Eastern, are
subject to MDTE jurisdiction. The MDTE does not have statutory jurisdiction over
the Transaction.129
_____________________
128 KeySpan notes that immediately after the Transaction was publicly announced,
it informed high level officials at the NYPSC about the Transaction and since
that time neither the NYPSC or its staff has expressed to KeySpan any concern
about the Transaction or its effect on rates, regulation or competition in New
York. Additionally, the NYPSC does not have statutory jurisdiction over the
Transaction.
129 Immediately after the Transaction was publicly announced, KeySpan informed
high level officials at the MDTE about the Transaction. Neither the MDTE nor its
staff has expressed to KeySpan, since that time, any concern about the
Transaction or its effect on rates, regulation or competition in Massachusetts.
Moreover, the MDTE does not have statutory jurisdiction over the Transaction.
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Item 5. Procedure:
The Commission is respectfully requested to issue and publish, as soon as
practible, the requisite notice under Rule 23, with respect to the filing of
this Application/Declaration.
It is submitted that a recommend decision by a hearing or other responsible
officer of the Commission is not needed for approval of the proposed
Transaction. The Division of Investment Management may assist in the preparation
of the Commission's decision, unless the Division opposes the proposals
contained herein. There should be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
A. Exhibits
A-1 Articles of Incorporation of KeySpan. (Incorporated herein by
reference to Exhibit 3.1 to KeySpan's Form 10-Q for the quarter
ended June 30, 1999, File No. 1-14161)
A-2 By-Laws of KeySpan as in effect on September 10, 1998. (Filed as
Exhibit 3.1 to KeySpan's Form 8-K/A, Amendment No. 2, filed on
September 29, 1998 File No. 1-14161 and incorporated by reference
herein)
A-3 Certificate of Organization of ACJ as in effect on November 3,
1999
A-4 Operating Agreement of ACJ as in effect on November 16, 1999
A-5 Declaration of Trust of Eastern, dated as of July 18, 1929, as
amended through April 27, 1989. (Incorporated herein by reference
to Exhibit 3.1 to Eastern's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, File No. 1-2297)
A-6 By-Laws of Eastern, as amended through February 24, 1999.
(Incorporated herein by reference to Exhibit 2.3 to Eastern's
Annual Report on Form 10-K for the year ended December 31, 1998,
File No. 1-2297)
A-7 Articles of Incorporation of EnergyNorth as amended, as amended
February 22, 1996 (Incorporated herein by reference to Exhibit
3.1
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to EnergyNorth's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, File No. 1-11441)
A-8 By-Laws of EnergyNorth, as amended through February 3, 1999.
(Incorporated herein by reference to Exhibit 4 to Energy North's
Post Effective Amendment No. 2 to Registration Statement on Form
S-3, dated November 21, 1996 in File No. 33-58127)
B Agreement and Plan of Merger by and Among Eastern, KeySpan and
ACJ dated November 4, 1999, as amended by Amendment No. 1 dated
January 26, 2000. (Incorporated herein by reference as Appendix A
to Exhibit C below)
C Proxy Statement of Eastern in connection with the Transaction to
be distributed to the shareholders in connection with the annual
meeting. (Filed with the Commission on March 15, 2000, File No.
1-02297 and incorporated by reference herein)
D-1 Joint Petition of EnergyNorth, Eastern and KeySpan filed with the
NHPUC dated December 3, 1999.
D-2 Order of the NHPUC (including Settlement Agreement)
E-1 Map of Combined Service Territories of KeySpan, Eastern and ENGI.
(Previously filed with the Commission in paper format on Form SE)
E-2 Updated Pre-Transaction Organizational Chart of KeySpan and
Subsidiaries. (Filed in paper format on Form SE)
E-3 Pre-Transaction Organizational Chart of Eastern and Subsidiaries
and EnergyNorth and Subsidiaries. (Incorporated herein by
reference to Exhibits I-1 and I-2 Eastern's Form U-1
Application/Declaration under the Act with respect to the
Eastern/EnergyNorth Transaction filed with the Commission on
January 5, 2000, as amended by Form U-1/A on February 3, 2000,
File No. 70-9605)
E-4 Post-Transaction Organizational Chart of KeySpan and
Subsidiaries. (Previously filed with the Commission in paper
format on Form SE)
E-5 Updated Description of KeySpan's Non-Utility Subsidiaries.
E-6 Balance Sheet and Income Statements for the year ended December
31, 1999 of KeySpan's Non-Utility Subsidiaries in which KeySpan
owned at least a 50% interest and which had total revenues of at
least $10 million. (Filed with the Commission, on a confidential
basis, in paper format on Form SE)
E-7 Table Demonstrating the percentage contributed to KeySpan's
consolidated revenues for KeySpan's Non-Utility Subsidiaries in
which
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KeySpan owns at least a 50% interest. (Filed with the Commission,
on a confidential basis, in paper format on Form SE)
E-8 Balance Sheet and Income Statements for the year ended December
31, 1999 of Transgas and ServiceEdge, Non-Utility Subsidiaries of
Eastern. (Filed with the Commission, on a confidential basis, in
paper format on Form SE)
E-9 Annual report of Midlands Enterprises on Form 10-K for the year
ended December 31, 1999. (Filed with the Commission on March 13,
2000, File No. 2-39895 and incorporated by reference herein)
E-10 Table Demonstrating the percentage contributed to Eastern's
consolidated revenues for the year ended December 31, 1999 by
Eastern's Non-Utility Subsidiaries. (Filed with the Commission,
on a confidential basis, in paper format on Form SE)
E-11 Balance Sheet and Income Statements for the year ended December
31, 1999 of ENI Mechanical and EnergyNorth Propane, Non-Utility
Subsidiaries of EnergyNorth. (Filed with the Commission, on a
confidential basis, in paper format on Form SE)
E-12 Table Demonstrating the percentage contributed to EnergyNorth's
consolidated revenues for the year ended December 31, 1999 by
EnergyNorth's Non-Utility Subsidiaries. (Filed with the
Commission, on a confidential basis, in paper format on Form SE)
E-13 List of KeySpan's Direct and Indirect Subsidiaries.
E-14 List of Eastern's Direct and Indirect Subsidiaries.
E-15 List of EnergyNorth's Direct and Indirect Subsidiaries.
F-1 Opinion of Counsel. (To be filed by amendment)
F-2 Past Tense Opinion of Counsel. (To be filed pursuant to Rule 24)
G-1 Opinion of JP Morgan.
G-2 Opinion of Salomon Smith Barney. (Included in Exhibit C)
G-3 Financial Data Schedule.
H-1 Annual report of KeySpan on Form 10-K for the year ended December
31, 1999. (Filed with the Commission on March 15, 2000, File No.
1-14161 and incorporated by reference herein)
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H-2 Annual report of Eastern on Form 10-K for the year ended December
31, 1999. (Filed with the Commission on March 10, 2000 File No.
1-02297 and incorporated by reference herein)
H-3 Annual report of EnergyNorth on Form 10-K for the fiscal year
ended September 30, 1999. (Filed with the Commission on December
17, 1999, File No. 1-11441 and incorporated by reference herein)
H-4 KeySpan New York's Balance Sheet and Income Statement for the
fiscal year ended December 31, 1999. (Included in Exhibit E-6)
H-5 Annual report of KeySpan Long Island on Form 10-K for the year
ended December 31, 1999. (Filed with the Commission on April 14,
2000, File No. 333-92993-01 and incorporated by reference herein)
H-6 KeySpan Generation's Balance Sheet and Income Statement for the
fiscal year ended December 31, 1999. (Included in Exhibit E-6)
H-7 Annual report of Boston Gas on Form 10-K for the year ended
December 31, 1999. (Filed with the Commission on March 14, 2000,
File No. 2-23416 and incorporated by reference herein)
H-8 Annual report of Essex Gas on Form 10-K for the year ended
December 31, 1999. (Filed with the Commission on March 15, 2000,
File No. 1-8154 and incorporated by reference herein)
H-9 Annual report of Colonial Gas on Form 10-K for the year ended
December 31, 1999. (Filed with the Commission on March 14, 2000,
File No. 0-1007 and incorporated by reference herein)
H-10 Annual report of ENGI on Form 10-K for the year ended September
30, 1999. (Filed with the Commission on December 20, 1999, File
No. 000-25305 and incorporated by reference herein)
H-11 Annual report of The Houston Exploration Company on Form 10-K for
the year ended December 31, 1999. (Filed with the Commission on
March 27, 2000, File No. 1-11899 and incorporated by reference
herein)
I Schedule of Estimated Fees, Commissions and Expenses.
J Analysis of the Economic Impact of Divestiture of KeySpan
Generation.
K Proposed Form of Notice.
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B. Financial Statements
FS-1 KeySpan Unaudited Pro Forma Condensed Consolidated Balance Sheet,
Statement of Income and Related Notes
FS-2 KeySpan Consolidated Balance Sheet as of December 31, 1999
(Included in Exhibit H-1)
FS-3 KeySpan Consolidated Statement of Income for the twelve months
ended December 31, 1999 (Included in Exhibit H-1)
FS-4 Eastern Consolidated Balance Sheet as of December 31, 1999
(Included in Exhibit H-2)
FS-5 Eastern Consolidated Statement of Income for the twelve months
ended December 31, 1999 (Included in Exhibit H-2)
FS-6 EnergyNorth Consolidated Balance Sheet as of September 30, 1999
(Included in Exhibit H-3)
FS-7 EnergyNorth Consolidated Statement of Income for the twelve
months ended September 30, 1999 (Included in Exhibit H-3)
Item 7. Information as to Environmental Effects:
The Transaction does not involve a "major federal action" nor will 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 expiration of the
waiting period under the HSR Act and the other approvals and actions described
in Item 4 of this Application/Declaration. Consummation of the Transaction will
not result in changes in the operation of KeySpan, Eastern or their subsidiaries
that will have an impact on the environment. KeySpan is not aware of any federal
agency that has prepared or is preparing an environmental impact statement with
respect to the transaction.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this statement to be singed on its
behalf by the undersigned officer thereunto duly authorized.
KEYSPAN CORPORATION
/s/ Steven Zelkowitz
----------------------
Steven Zelkowitz
Senior Vice President and General
Counsel
ACJ ACQUISITION LLC
/s/ Steven Zelkowitz
--------------------
Steven Zelkowitz
Manager
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