File No. 70-9641
(As filed October 2, 2000)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 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
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(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
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(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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AMENDMENT NO. 3 TO
APPLICATION/DECLARATION UNDER
SECTIONS 9, 10, AND 11 OF THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
This pre-effective Amendment No. 3 amends the Form U-1
Application/Declaration previously filed in this proceeding with the Securities
and Exchange Commission in the following respects:
Item 1. Description of Proposed Transaction
Item 1.B.i.a.iii is amended as follows:
(a) Delete "seventeen (17)" in the first sentence and replace it with
"sixteen (16)."
(b) Footnote 14 is amended by deleting the reference to "KeySpan
Operating Services, LLC"1 and adding the following sentence to the end of the
footnote:
"KeySpan anticipates acquiring an additional direct, wholly-owned,
non-utility subsidiary, to be named KeySpan Engineering & Survey Inc.
("KENG"), which will be a service company that provides general
engineering services to the companies within the KeySpan system. KENG
is described in greater detail in the Omnibus Application and such
description is incorporated herein by reference."
Item 3. Applicable Statutory Provisions
1. Item 3.A.1.b "Concentration of Control" is amended by deleting it
in its entirety and replacing it with the following:
"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
___________________
1 KeySpan Operating Services, LLC has been dissolved and its subsidiary, KeySpan
Energy Construction, LLC, has been sold.
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system.2 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."3 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.4
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 combination registered holding
company recently approved by the Commission.5 Dominion's acquisition of
Consolidated Natural Gas Company ("CNG") 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.6
When comparing KeySpan's proposed combined gas operations on a pro
forma basis to the gas operations of other utilities on in the Northeast and
Mid-Atlantic Regions, KeySpan will only be the second largest gas company in
terms of customers, gas revenues and gas assets. (See Exhibit L attached
hereto.) After the Transaction is consummated, on a pro forma basis KeySpan's
total gas customers will be nearly 2.4 million, gas revenues will be
approximately $2.5 billion, and gas assets will be approximately $5.6 billion.
However, the proposed combination of Nisource and Columbia Energy Group
("Columbia") will result in a larger gas company with gas customers of
approximately 3.2 million, gas revenues of approximately $3.6 billion and gas
assets of approximately $11 billion. Moreover, KeySpan's proposed combined
system will be approximately the same size as Columbia without giving effect to
the proposed Nisource merger. Columbia currently has approximately 2.1 million
gas customers, $2 billion in gas revenues and $8.1 billion in gas assets. In
addition, KeySpan's combined operations will be only slightly larger than the
combined gas operations of CNG and Dominion, which are approximately 1.8 million
gas customers, approximately $2 billion in gas revenues and approximately $9
billion in gas assets.
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2 American Electric Power Co., 46 SEC 1299, 1309 (1978).
3 Vermont Yankee Nuclear Corp., 43 SEC 693, 700 (1968).
4 American Electric Power Co., 46 SEC at 1307 (1978).
5 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.
6 Dominion Resources, Holding Co. Act Release No. 27113 (December 15, 1999).
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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.7 The Commission has concluded that size is not
determinative. In Centerior Energy Corp.,8 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.9
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.,10 TUC Holding Company,11 WPL Holdings, Inc.,12 and New Century Energies,
Inc.13 These expected economies and 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,
___________________
7 American Electric Power, supra,. at 1309.
8 Centerior Energy Corp., 49 SEC 472 at 475 (1986).
9 1995 Report at 73-4.
10 Holding Co. Act Release No. 26975 (February 10, 1999).
11 Holding Co. Act Release No. 26749 (August 1, 1997).
12 Holding Co. Act Release No. 26856 (April 14, 1998).
13 Holding Co. Act Release No. 26748 (August 1, 1997).
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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,14 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. After making the requisite filings under the HSR Act
on May 1, 2000, the Bureau of Competition of the FTC and the Antitrust Division
of the DOJ jointly made an informal request for certain information from
KeySpan, Eastern and EnergyNorth in order to determine whether a request for
additional information (a so-called "Second Request") should be issued at the
expiration of the initial thirty day waiting period and the waiting period be
extended until the parties complied with the Second Request. After supplying the
additional information requested by the DOJ and FTC, as described below, they
did not issue a Second Request and the HSR Act waiting period expired on June 1,
2000. In the past, the Commission has largely relied on, or "watchfully
deferred" to,15 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.16
Specifically, the DOJ and FTC requested the following information from
KeySpan, Eastern and EnergyNorth, on a voluntary basis, to further analyze the
competitive effects of the proposed Transaction:
a) system maps for each company's gas utility subsidiary
showing the pipeline interconnections;
b) each location on any interstate pipeline on which each
company has a right to receive gas ("receipt point"),
including the nature and amount of each company's right at
each receipt point, the volume of gas received by each
company at each receipt point, and the total capacity of the
pipeline as it goes by each receipt point;
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14 Northeast Utilities, 50 SEC 427 (Dec. 21, 1990).
15 See City of Holyoke Gas & Electric Dept., supra.
16 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).
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c) the volume delivered to each city gate owned or operated by
each company; and
d) the identity of each customer to whom one company sold gas
for delivery in the service area of the other two companies.
KeySpan, Eastern and EnergyNorth provided written responses and
certain maps to the FTC and DOJ, and representatives of the companies were
interviewed by the FTC on May 23, 2000. The major points that were communicated
to the FTC and DOJ were as follows:
a) Neither KeySpan, Eastern nor EnergyNorth have any
overlapping gas delivery customers in the service areas of
their respective gas utility subsidiaries.
b) A combination of the existing interstate pipeline capacity
rights of the three companies would not have any adverse
effect on an existing or potential competitor in the areas
served by KeySpan, Eastern or EnergyNorth. In that regard,
the FTC's primary focus was the combined capacity on the
Tennessee gas pipeline and, more specifically, in Zone 6 of
that pipeline. KeySpan documented to the FTC that, after
November 1, 2000, KeySpan had reduced pipeline capacity on
the Tennessee pipeline and that none of KeySpan's deliveries
would be in Zone 6, which was the FTC's area of interest. In
addition, none of KeySpan's current Tennessee capacity was
in Zone 6. The FTC also examined the capacity of the
combined companies on the other pipelines used by one or
more of the companies, including Transco, Iroquois, CNG,
Texas Eastern, Algonquin and Portland Natural Gas, but
voiced no concerns as to any of those pipelines.
As noted above, after receiving this additional information from
KeySpan, Eastern and EnergyNorth, on June 1, 2000, the initial 30 day waiting
period under the HSR Act expired without a Second Request and the FTC and DOJ
concluded their investigation of the proposed Transaction without any extension
of the initial waiting period.
Finally, the Transaction does not raise vertical market power
concerns. Neither Eastern's nor EnergyNorth's utilities engage in the sale of
electric energy, therefore, the Transaction will not result in any new
combination of gas and electricity services in the gas service territories of
the combined companies.17 Although KeySpan currently has existing gas and
electric operations, after the Transaction they will not overlap with the
service territories of Eastern and EnergyNorth. Finally, KeySpan's current
combined gas and electric utility operations are the result of the 1998 merger
of LILCO and Brooklyn Union
____________________
17 Cf. Sempra Energy, Holding Co. Act Rel. No. 26890 (June 26, 1998) (Commission
examined vertical market power concerns raised by intervenors because the
combined companies would have overlapping gas and electricity service
territories).
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which, after viewing, inter alia, the competitive effects of the transaction,
the Commission, the NYPSC and the Federal Energy Regulatory Commission approved.
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. The paragraph entitled "Oil Production Company" in Item 3.A.4.b.iii
is hereby amended by adding the following footnote at the end of the bullet
point describing Solex Production Limited:
"Solex has entered into an asset purchase and sale agreement pursuant
to which it will sell all or substantially all of its interests in the Canadian
gas and oil field it owns and, upon closing of the sale, will no longer be the
operator of such field. The transaction is expected to close in October 2000,
and after closing, Solex will be dissolved as soon as practicable.
The paragraph entitled "HVAC Companies" in Item 3.A.4.b.iii is hereby amended by
adding the following bullets to the list under that paragraph:
o Binsky & Snyder, Inc. ("BSI") installs heating, ventilating
and air conditioning systems for commercial and industrial
customers located primarily in New Jersey.
o Binsky & Snyder Service, Inc. ("BSSI") services and
maintains heating, ventilating and air conditioning systems
for commercial and industrial customers located primarily in
New Jersey.
3. The paragraph entitled "Inactive Companies" in Item 3.A.4.b.iii is
hereby amended by deleting references to GEI Timna and KeySpan Operating
Services LLC. GEI Timna and KeySpan Operating Services LLC have been deleted
from the list because they have been dissolved.
4. The paragraph entitled "Non-Utility Holding Companies" in Item
3.A.4.b.iii is hereby amended by deleting references to (a) GEI Timna in the
bullet point which describes the companies owned by KeySpan Energy Development
Corporation and (ii) adding BSI and BSSI to the list of companies owned by
KeySpan Services, Inc.
Item 6. Exhibits and Financial Statements
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The following is added to the list of Exhibits:
Exhibit L Northeast and Mid-Atlantic Gas Company Data
The following Exhibits are hereby deleted in their entirety and replaced by the
new exhibits attached hereto
Exhibit E-2 Updated Pre-Transaction Organizational Chart of KeySpan
and Subsidiaries (Filed in paper format on Form SE)
Exhibit E-5 KeySpan's Non-Utility Subsidiaries
Exhibit E-13 List of KeySpan's Direct and Indirect Subsidiaries.
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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
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Steven Zelkowitz
Senior Vice President and General
Counsel
ACJ ACQUISITION LLC
/s/ Steven Zelkowitz
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Steven Zelkowitz
Manager
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