File No. 70-9197
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
Amendment No. 1
to
FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________________________________
NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
(Name of company filing this statement and
address of principal executive offices)
_____________________________________________________
None
(Name of top registered holding company parent)
______________________________________________________
Peter V. Fazio, Jr., General Counsel
NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
Mark T. Maassel, Vice President Andrew F. MacDonald, Esq.
NIPSCO Industries, Inc. William C. Weeden
801 East 86th Avenue Reid & Priest LLP
Merrillville, Indiana 46410 701 Pennsylvania Ave., N.W.
Washington, D.C. 20004
Michael L. Meyer, Esq.
Schiff Hardin & Waite
7200 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
<PAGE> 2
The Applicant hereby amends and restates ITEM 1 - DESCRIPTION OF
PROPOSED TRANSACTION in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
-----------------------------------
1.1. Introduction and Summary of Transaction.
---------------------------------------
NIPSCO Industries, Inc. ("Industries"), an Indiana corporation
whose principal executive offices are located at 801 East 86th Avenue,
Merrillville, Indiana 46410, herein requests authority pursuant to
Section 10 of the Public Utility Holding Company Act of 1935, as
amended (the "Act"), to acquire all of the issued and outstanding
common stock of Bay State Gas Company ("Bay State"), whose principal
executive offices are located at 300 Friberg Parkway, Westborough,
Massachusetts 01581. Industries, an exempt holding company pursuant
to Section 3(a)(1) of the Act and Rule 2 thereunder, owns all of the
issued and outstanding common stock of three public-utility subsidiary
companies that provide electric and retail natural gas service
exclusively within the State of Indiana. Bay State, a gas-utility
company, distributes natural gas at retail in parts of Massachusetts
and, through a wholly-owned subsidiary, Northern Utilities, Inc.
("Northern"), in contiguous areas of Maine and New Hampshire.
Industries and Bay State have entered into an Agreement and Plan
of Merger, dated as of December 18, 1997, as amended and restated as
of March 4, 1998 (the "Merger Agreement"), pursuant to which
Industries has agreed to acquire all of the issued and outstanding
common stock of Bay State. The Merger Agreement sets forth the terms
of a "preferred merger" structure pursuant to which Bay State would be
merged with and into a wholly-owned Industries' subsidiary which, upon
completion of the merger, would change its name to and operate under
the name of "Bay State Gas Company." The Merger Agreement also
provides that, in the event it is not possible to consummate the
"preferred merger" structure, the parties would, subject to certain
conditions, carry out an "alternative merger" transaction in which Bay
State and then Northern would be merged directly into Northern Indiana
Public Service Company ("Northern Indiana"), Industries' principal
public-utility subsidiary. The request for approval made herein
concerns only the "preferred merger" transaction (hereinafter referred
to as the "Transaction"); the "alternative merger" is not subject to
the jurisdiction of this Commission. The Merger Agreement is filed
herewith as Exhibit B-1.
The Transaction is expected to produce benefits to the public,
investors and consumers and will satisfy all of the applicable
standards under Section 10 of the Act. Industries and Bay State have
both stated that they believe that the Transaction will provide
important strategic and financial benefits to their respective
shareholders, as well as to their employees and customers and the
communities in which they provide public utility service. Among other
things, the parties believe that the Transaction will provide benefits
in the form of greater flexibility and capacity in financing their
<PAGE> 3
operations and an enhanced ability to take advantage of future
strategic opportunities in the competitive marketplace for energy and
energy services that is rapidly evolving in New England. Further, as
explained more fully in ITEM 3 - APPLICABLE STATUTORY PROVISIONS,
Industries believes that, following the merger, the combined companies
will be better positioned to take advantage of operating economies and
efficiencies through, among other measures, joint management and
optimization of their respective portfolios of gas supply,
transportation and storage assets.
1.2 Description of Parties to the Transaction.
-----------------------------------------
(a) NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES.
Industries, an Indiana corporation, was incorporated in 1987 to
serve as the holding company for Northern Indiana and various non-
utility subsidiaries and has since acquired two additional public-
utility subsidiaries, Kokomo Gas and Fuel Company ("Kokomo Gas")<1>
and Northern Indiana Fuel and Light Company, Inc. ("NIFL").<2>
Industries is an exempt holding company pursuant to Section 3(a)(1) of
the Act and Rule 2 thereunder.<3>
Northern Indiana, Industries' largest and dominant subsidiary, is
a combination gas and electric utility company which operates in 30
counties in the northern part of Indiana, serving an area of about
12,000 square miles with a population of approximately 2,200,000.
Northern Indiana distributes gas to approximately 662,500 residential,
commercial and industrial customers and generates, purchases,
transmits and sells electricity to approximately 416,300 retail and
wholesale electric customers. Northern Indiana also provides gas
transportation service to approximately 200 customers. Kokomo Gas
supplies natural gas to approximately 33,500 retail customers in a six
county area of north central Indiana having a population of
approximately 100,000. The Kokomo Gas service territory is contiguous
to Northern Indiana's gas service territory. NIFL supplies natural
gas to approximately 33,400 retail customers in five counties in the
northeast corner of Indiana having a population of approximately
66,700. The NIFL service territory is also contiguous to Northern
Indiana's gas service territory, and overlaps Northern Indiana's
electric service territory. The three operating utility subsidiaries
of Industries are subject to regulation by the Indiana Utility
____________________
<1> The Commission authorized Industries to acquire all of the issued
and outstanding common stock of Kokomo Gas in 1992. SEE NIPSCO
INDUSTRIES, INC., 50 SEC Docket 1231 (February 5, 1992).
<2> The Commission authorized Industries to acquire all of the issued
and outstanding common stock of NIFL in 1993. SEE NIPSCO INDUSTRIES,
INC., 53 SEC Docket 1997 (March 25, 1993).
<3> SEE File No. 69-340.
<PAGE> 4
Regulatory Commission ("IURC") as to rates, service, accounts,
issuance of securities, and other matters.
For the year ended December 31, 1997, Industries' three utility
subsidiaries reported combined net income of $205.3 million on
combined operating utility income of $286.2 million. Gas sales
(including revenues from transportation-only customers) of
approximately $803 million and electric sales of approximately $1
billion accounted for approximately 44% and 56%, respectively, of the
combined gross utility revenues of Industries' three utility
subsidiaries in 1997. Consolidated assets of Industries and its
subsidiaries as of December 31, 1997, were approximately $4.9 billion,
consisting of $3.1 billion in net utility plant and associated
facilities and $1.8 billion in net non-utility plant and other non-
utility assets. For the twelve months then ended, consolidated
operating revenues, operating income and net income for Industries and
its subsidiaries were approximately $2.6 billion, $410 million and
$191 million, respectively.
Industries also owns all of the outstanding common stock of
Crossroads Pipeline Company ("Crossroads"), a non-utility natural gas
transportation company that was certificated by the Federal Energy
Regulatory Commission ("FERC") in May 1995 to operate as an interstate
pipeline.<4> Crossroads owns and operates a 201-mile, 20-inch,
pipeline that extends from Schererville, Indiana, in the northwestern
corner of the state, where it takes delivery from the interstate
pipeline facilities of Natural Gas Pipeline Company of America
("NGPL"), to Cygnet, Ohio, which is located in northwestern Ohio,
where it interconnects with facilities owned by Columbia Gas
Transmission Corporation ("Columbia"). Recently, Crossroads announced
plans to construct a 20-mile extension of its pipeline facility in
Ohio to a point of interconnection with a unit of Consolidated Natural
Gas Company.<5> The Crossroads extension will form a link in a
chain of interstate pipeline projects that are designed to transport
natural gas from the Chicago area market to eastern markets served by
CNG Transmission Corp. ("CNG") and Transcontinental Gas Pipe Line
Corp. ("Transco") by late 1999.
Industries' other principal non-utility subsidiaries include IWC
Resources Corporation, which owns and operates seven subsidiaries,
including two regulated water utility companies, Indianapolis Water
Company and Harbour Water Corporation, which provide water service in
____________________
<4> SEE CROSSROADS PIPELINE COMPANY, 71 FERC Para. 61,076 (April 21,
1995).
<5> Crossroads recently concluded its FERC-mandated "open season."
SEE "RACE INTENSIFIES AS RIVALS LINE UP TO BUILD PIPELINES TO EASTERN
U.S.," INSIDE F.E.R.C.'S GAS MARKET REPORT, January 23, 1998 (McGraw-
Hill Companies, Inc.), p. 17.
<PAGE> 5
Indianapolis, Indiana and surrounding areas;<6> NIPSCO Development
Company, Inc., which holds various investments, including investments
in real estate and venture capital enterprises; NI Energy Services,
Inc., which is engaged in various energy-related activities, such as
retail gas marketing, energy efficient lighting sales and
installations, and gas and electricity wholesale marketing; Primary
Energy, Inc., which arranges energy-related projects with large
industrial customers; and NIPSCO Capital Markets, Inc., which handles
financing for ventures of Industries and certain of its subsidiaries,
other than Northern Indiana.
(b) BAY STATE GAS COMPANY AND SUBSIDIARIES.
Bay State provides gas service to approximately 261,000
residential, commercial and industrial customers in three separate
areas of Massachusetts covering approximately 1,344 square miles and
having a combined population of approximately 1,340,000. These
include the greater Springfield area in western Massachusetts, an area
southwest of Boston that includes the cities of Attleboro, Brockton
and Taunton, and an area north of Boston extending to the New
Hampshire border that includes the city of Lawrence. Bay State is
subject to regulation by the Massachusetts Department of
Telecommunications and Energy ("MDTE") as to rates, service, accounts,
issuance of securities, and other matters.
Bay State's wholly-owned subsidiary, Northern, provides gas
service to approximately 46,000 residential, commercial and industrial
customers in an area of approximately 808 square miles in New
Hampshire and Maine having a population of approximately 450,000.
Northern's service area extends north from the Massachusetts-New
Hampshire border to the Portland/Lewiston area in Maine.<7>
Northern is subject to regulation by the New Hampshire Public
Utilities Commission ("NHPUC") and Maine Public Utilities Commission
("MPUC") as to rates, service, accounts, issuance of securities, and
other matters.
For the year ended December 31, 1997, the combined gas revenues
(including revenues from transportation-only customers), utility
_____________________
<6> The other five subsidiaries of IWC Resources Corporation, and
each such company's principal business, are: Utility Data Corporation
(customer billing and data processing services); IWC Services, Inc.
(waste water treatment); Waterway Holdings, Inc. (real estate
development); SM&P Utility Resources, Inc. (utility location and
marking services); and Miller Pipeline Corporation (pipeline
constructions).
<7> Bay State is an exempt holding company under Section 3(a)(2) and
Rule 2 thereunder. SEE File No. 69-249. Following the merger, it is
contemplated that the stock of Northern may be transferred to
Industries. If Northern is maintained as a subsidiary of Bay State,
however, Bay State will continue to claim exemption pursuant to
Section 3(a)(2) and Rule 2.
<PAGE> 6
operating income, and net utility income of Bay State and Northern (as
adjusted to eliminate the effect on earnings of a one-time write-off
of restructuring costs)<8> were approximately $441 million, $39.2
million and $21.6 million, respectively. Consolidated assets of Bay
State and subsidiaries as of December 31, 1997, were approximately
$788 million, consisting of $496.4 million in net utility plant and
$291.6 million in non-utility plant and other non-utility assets.
Bay State has only one direct non-utility subsidiary, Granite
State Gas Transmission, Inc. ("Granite State"), which owns and
operates a 105-mile, 6 to 12-inch diameter, interstate pipeline that
extends from Haverhill, Massachusetts, where it interconnects with the
facilities of Tennessee Gas Pipeline Company ("Tennessee Gas"), in a
northeasterly direction to a point near Westbrook, Maine. Granite
State also leases a 166-mile, 18-inch, converted oil pipeline, which
is used to transport western Canadian gas to Portland, Maine. Through
a wholly-owned subsidiary (Natural Gas Development, Inc.), Granite
State is a partner in the Portland Natural Gas Transmission System
("PNGTS"), which was formed to construct a 292-mile, 24-inch, natural
gas transmission line in northern New England that will form the
northern link in a new gas transmission system designed to bring
western Canadian gas supplies to the New England market.<9> When
complete, these facilities will interconnect with the Tennessee Gas
pipeline facilities near Dracut, Massachusetts, and with Granite State
at locations in Maine and New Hampshire.
Granite State owns all of the stock of four other direct non-
utility subsidiaries: EnergyUSA, Inc., a company organized to provide
unregulated energy products and services, including water heater
rentals, insurance programs for heating systems, and strategic energy
supply management; EnergyEXPRESS, Inc., an unregulated natural gas,
electricity, propane and fuel oil marketer; LNG Development Corp.,
which was established to invest in a proposed liquefied natural gas
storage facility in Wells, Maine; and Bay State Energy Enterprises,
Inc., which is inactive.
____________________
<8> The restructuring charges, which related primarily to retirement
benefits and consulting fees, totaled $11.4 million, had the effect of
reducing combined net utility income of Bay State and Northern to
approximately $14.7 million in 1997.
<9> SEE PORTLAND NATURAL GAS TRANSMISSION SYSTEM, 76 FERC Para.
61,123 (July 31, 1996). NI Energy Services Development Corp., an
indirect subsidiary of Industries, has acquired 50% of Bay State's
equity interest in PNGTS.
<PAGE> 7
1.3 Description of Gas Utility Operations and Associated
Facilities.
----------------------------------------------------
(a) INDUSTRIES' GAS UTILITY OPERATIONS.
At December 31, 1997, the Industries gas distribution system was
comprised of approximately 13,400 miles of distribution mains and
729,400 customer meters. In addition, Northern Indiana owns and
operates underground gas storage facilities located at Royal Center,
Indiana, with a storage capacity of 6.75 billion cubic feet (Bcf), and
a liquefied natural gas (LNG) plant in LaPorte County, Indiana, having
a storage capacity of 4.0 Bcf, which is used for system pressure
maintenance and peak season (November-March) deliveries. Northern
Indiana also holds under long-term contract storage capacity totaling
approximately 9.11 Bcf in the Markham, Moss Bluff and Egan salt-dome
storage caverns in Texas and Louisiana. These facilities, which
provide the Industries system with a significant amount of "high
deliverability" storage capacity,<10> are located at or near
major supply "hubs" which have formed at locations where interstate
pipelines serving the upper Midwest, Northeast and Southwest markets
intersect.
Currently, Industries purchases approximately 89% of its total
system gas requirements from production in the on-shore and off-shore
Texas and Louisiana producing areas, and approximately 8% from
production in the Mid-Continent (Oklahoma and Kansas), Permian (west
Texas) and San Juan (New Mexico) Basins. It is anticipated, however,
that, beginning as early as 1999, with the completion of construction
of new pipeline capacity from western Canada to the upper Midwest
markets, Industries will begin to purchase significant amounts of
lower-cost gas produced in the Western Canadian Sedimentation Basin
(Alberta and British Columbia) .<11> Industries estimates that,
____________________
<10> "High deliverability," which is an operational characteristic of
salt-dome storage caverns, means the ability to inject and withdraw
gas on a frequent (I.E., daily) basis, year-round and at a high rate
of flow. Utilization of the capacity of such facilities is measured
in terms of both their storage volume and frequency of the
injection/withdrawal cycle (I.E., cycling). In contrast, Industries'
storage facilities in Indiana only allow for gas injection and
withdrawal on a seasonal basis. The "high deliverability" facilities
in Texas and Louisiana provide Northern Indiana with added flexibility
in managing deliveries to and from interstate pipelines, which, in
turn, allows Northern Indiana to take advantage of price volatility
and to balance its system load requirements on a daily basis.
<11> FERC has already granted certificate authority under Section 7(c)
of the Natural Gas Act of 1938, as amended, for a major expansion of
the Northern Border Pipeline, which runs from the Montana-Saskatchewan
border to its present terminus at Harper, Iowa, and a 243-mile
extension thereof to a new terminus south of Chicago. SEE NORTHERN
(continued...)
<PAGE> 8
by 2002, western Canadian gas could potentially account for as much as
40% of its total system supply.
Currently, Industries' subsidiaries have contracted for "firm"
capacity and storage service on five different long-haul interstate
pipelines: Tennessee Gas, NGPL, ANR Pipeline Company ("ANR"),
Panhandle Eastern PipeLine Company ("Panhandle Eastern"), and
Trunkline Gas Company ("Trunkline"); as well as several other regional
pipelines.
(b) BAY STATE'S GAS UTILITY OPERATIONS.
At December 31, 1997, Bay State's and Northern's combined gas
system consisted of 5,158 miles of distribution mains; 29 miles of
transmission lines, together with associated pumping and regulating
stations; LNG liquefaction, vaporization and storage facilities;
propane storage tanks; 270,108 customer service connections; and
306,446 customer meters.
Bay State purchases approximately 40% of its total system gas
requirements from the on-shore and off-shore Texas and Louisiana
producing areas and approximately 49% of its total system requirements
from the Western Canadian Sedimentation Basin. Bay State has
contracted capacity on four domestic long-haul pipelines: Tennessee
Gas, TransContinental Gas Pipe Line Corp. ("Transco"), Texas Eastern
Transmission Corp. ("Texas Eastern"), and Texas Gas Transmission Corp.
("Texas Gas"); as well as on TransCanada PipeLine Corp. and several
regional pipelines. Like Industries, Bay State projects that, as
transmission constraints are eliminated, it will purchase an
increasing amount of its gas requirements from the Western Canadian
Sedimentation Basin. This gas will reach Bay State's service area
directly via the PNGTS pipeline, which is scheduled to be completed in
late 1998, as well as indirectly by means of any one of several
different pipeline expansions/extensions (including the Crossroads/CNG
expansions) that have been announced and which will provide Bay State
with greater access to supplies available in the Chicago area market.
____________________
<11>(...continued)
BORDER PIPELINE COMPANY, 76 FERC Para. 61,141 (August 1, 1996) and 80
FERC Para. 61,152 (August 1, 1997). The Northern Border extension
will have the capacity to deliver up to 2.5 Bcf per day of natural gas
into the Chicago market by 1999. Northern Border is proposing to
extend its system to connect with Northern Indiana's facilities near
North Hayden, Indiana. FERC has also given preliminary approval to
the construction of the Alliance Pipeline project, an 887-mile, 36-
inch, line designed to transport 1.325 Bcf per day of gas from western
Canada to the Chicago market. SEE ALLIANCE PIPELINE L.P., 80 FERC
Para. 61,149 (August 1, 1997).
<PAGE> 9
1.4 General Description of the Transaction.
--------------------------------------
Under the Merger Agreement, upon the effective date of the
merger, each outstanding share of common stock of Bay State ("Bay
State Shares") will be converted into the right to receive common
shares of Industries ("Industries Shares"), or, at the election of any
Bay State shareholder and subject to certain limitations, cash, in
either case having a value of $40.00 per share. The Transaction has
been structured to qualify as a tax-free reorganization pursuant to
section 368(a) of the Internal Revenue Code of 1986, as amended.
The number of Industries Shares that would be issued in exchange
for each Bay State Share would be determined by dividing (i) $40.00 by
(ii) the Industries Share Price, which is the average of the closing
prices of Industries Shares, as reported in THE WALL STREET JOURNAL'S
NYSE Composite Transactions Report, for the 20 trading days
immediately preceding the second trading day prior to the effective
date of the merger. Bay State shareholders may elect to receive
$40.00 in cash, without interest, for some or all of their Bay State
Shares (a "Cash Election"). However, the aggregate number of Bay State
Shares that will be converted into the right to receive $40.00 in cash
in the Transaction (the "Cash Election Maximum") may not exceed an
amount determined by dividing (A) the dollar number equal to the
difference between (i) one-half of the product of (x) $40.00
multiplied by (y) the aggregate number of Bay State Shares outstanding
on the second day prior to the effective date of the merger less (ii)
the dollar amount of a special dividend, if any, paid by Bay State
prior to the merger and certain other cash payments to be determined
prior to such time, by (B) $40.00. Further, cash amounts paid to
electing shareholders would be subject to proration if the aggregate
number of Bay State Shares covered by a valid Cash Election ("Cash
Election Shares") exceeds the Cash Election Maximum.
On a PRO FORMA basis, based on the number of Bay State Shares and
Industries Shares outstanding on April 17, 1998, and assuming that
100% of the outstanding Bay State Shares are converted into the right
to receive Industries Shares at a conversion price of $27.38 per share
(the 20-day trading average for the Industries Shares determined as of
April 17, 1998), the current shareholders of Bay State would
effectively acquire, in exchange for their Bay State Shares, about
13.7% of the issued and outstanding Industries Shares.
The Merger Agreement is subject to the approval of Bay State's
shareholders at a special meeting called for that purpose to be held
on May 27, 1998. The Transaction is also subject to various
regulatory approvals in addition to the approval of this Commission.
SEE ITEM 4 - REGULATORY APPROVALS. Reference is made to the joint
Proxy Statement and Prospectus of Bay State and Industries, which is
filed herewith as Exhibit C-2, for a more complete description of the
Transaction and the terms of the Merger Agreement.
Upon consummation of the Transaction, Industries would own an
integrated gas utility system comprised of its existing gas
<PAGE> 10
distribution system in Indiana and Bay State's gas distribution system
in Massachusetts, Maine and New Hampshire, as well as an integrated
electric utility system in Indiana. The utility operations of
Industries in Indiana are substantially larger than those of Bay State
and Northern. Even giving effect to the Transaction, Industries will
remain predominantly an intrastate (I.E., Indiana) holding company
that will not derive any material part of its income from any out-of-
state utility subsidiary. Accordingly, Industries will continue to
claim exemption under the Act pursuant to Section 3(a)(1) and Rule 2.
Following the merger, the board of directors of Bay State will
consist of ten members, of whom three will be officers of Industries,
three will be officers of Bay State, and four will be current outside
directors of Bay State. The current officers of Bay State will
continue to serve in similar capacities of the surviving company of
the merger (I.E., "new" Bay State). The Merger Agreement also
provides that Industries shall nominate and recommend for election to
the Industries board of directors one Bay State director to be
mutually determined by Industries and Bay State. Bay State will
continue to maintain its principal executive offices in Westborough,
Massachusetts.
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this Amendment No.1 to the Application or Declaration
previously filed herein to be signed on its behalf by the undersigned
thereunto duly authorized.
NIPSCO INDUSTRIES, INC.
By: /s/ Gary L. Neale
-----------------------------
Name: Gary L. Neale
Title: Chairman and President
Date: May 14, 1998
