File No. 70-9551
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NiSource Inc. CEG Acquisition Corp.
801 East 86th Avenue 801 East 86th Avenue
Merrillville, Indiana 46410-6272 Merrillville, Indiana 46410-6272
(Name of company filing this statement
and address of principal executive offices)
None
(Name of top registered holding company)
Mark T. Maassel
Vice President, Regulatory & Governmental Policy
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
Peter V. Fazio, Jr., Esq. Steven R. Loeshelle, Esq.
Schiff Hardin & Waite Dewey Ballantine LLP
6600 Sears Tower 1301 Avenue of the Americas
Chicago, IL 60606-6473 New York, New York 10019-6092
TABLE OF CONTENTS
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ITEM 1. DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . 1
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION . . . . . . . . 1
1. Background . . . . . . . . . . . . . . . . . . . . . . 3
2. Terms . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Financing of the Offer and Transaction . . . . . . . . 5
4. Resulting Management . . . . . . . . . . . . . . . . . 7
5. Benefit Plans . . . . . . . . . . . . . . . . . . . . . 8
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION . . . . . . . 8
1. General Description . . . . . . . . . . . . . . . . . . 8
a. NiSource and its Subsidiaries . . . . . . . . . . 8
b. Columbia and its Subsidiaries . . . . . . . . . . 15
2. Description of Utility Facilities . . . . . . . . . . . 19
a. NiSource . . . . . . . . . . . . . . . . . . . . . 19
i. Natural Gas Utilities . . . . . . . . . . . . 19
ii. Electric Utility . . . . . . . . . . . . . . 21
b. Columbia . . . . . . . . . . . . . . . . . . . . . 23
i. Natural Gas Utilities . . . . . . . . . . . . 23
ITEM 2. FEES, COMMISSIONS AND EXPENSES . . . . . . . . . . . . 24
ITEM 3. APPLICABLE STATUTORY PROVISIONS . . . . . . . . . . . . 24
A. LEGAL ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . 25
1. Section 9(a)(2) . . . . . . . . . . . . . . . . . . . . 25
2. Section 10(b) . . . . . . . . . . . . . . . . . . . . . 26
a. Section 10(b)(1) . . . . . . . . . . . . . . . . . 27
i. Interlocking Relationships . . . . . . . . . 27
ii. Concentration of Control . . . . . . . . . . 27
b. Section 10(b)(2) Fairness of Consideration . . . 30
c. Section 10(b)(2) Reasonableness of Fees . . . . 31
d. Section 10(b)(3) Capital Structure . . . . . . . 32
3. Section 10(c) . . . . . . . . . . . . . . . . . . . . . 33
a. Section 10(c)(1) . . . . . . . . . . . . . . . . . 33
i. Retention of Electric Operations . . . . . . 34
ii. Non-Utility Businesses . . . . . . . . . . . 38
b. Section 10(c)(2) . . . . . . . . . . . . . . . . . 47
i. Efficiencies and Economies . . . . . . . . . 47
ii. Integrated Gas Utility . . . . . . 49
4. Section 10(f) State Laws and Section 11 . . . . . . . 56
B. INTRA-SYSTEM PROVISION OF SERVICES . . . . . . . . . . . . . 56
ITEM 4. REGULATORY APPROVALS . . . . . . . . . . . . . . . . . 59
ITEM 5. PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . 60
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS . . . . . . . . . . . 60
A. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . 60
B. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 64
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS . . . . . . . . 64
NiSource Inc. and CEG Acquistion Corp. hereby amend and restate
this Application/Declaration on Form U-1 (File No. 70-9551) as
follows:
ITEM 1. DESCRIPTION OF TRANSACTION
------------------------------------
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION
--------------------------------------------
CEG Acquisition Corp. ("Acquisition Corp."), a Delaware
corporation and a wholly-owned subsidiary of NiSource Inc., an Indiana
corporation whose principal executive offices are located at 801 East
86th Avenue, Merrillville, Indiana 46410 ("NiSource"), and NiSource
herein request authority pursuant to the applicable standards of the
Public Utility Holding Company Act of 1935, as amended, 15 U.S.C.
Section 79a, ET SEQ. ("Act"), to acquire all of the outstanding common
stock of Columbia Energy Group ("Columbia"), par value $.01 per share,
and, to the extent required under the Act, for the related
transactions herein described. Subsequent to the consummation of the
acquisition, Acquisition Corp. would consummate a merger with Columbia
pursuant to the Delaware General Corporation Law ("DGCL"). The
acquisition by Acquisition Corp. of the stock of Columbia and the
subsequent merger of these companies is referred to herein as the
"Transaction." Columbia, a Delaware corporation, is a registered
holding company under the Act. NiSource, currently an exempt holding
company pursuant to Section 3(a)(1) of the Act, owns all of the issued
and outstanding common stock of three public utility subsidiary
companies that provide electric and retail natural gas service within
the state of Indiana and two public utility subsidiary companies that
provide retail natural gas service in the states of Maine,
Massachusetts and New Hampshire.
On June 25, 1999, Acquisition Corp. commenced a tender offer
pursuant to the Securities Exchange Act of 1934, as amended, 15 U.S.C.
Section 78, ET SEQ. ("1934 Act"), to purchase all of the outstanding
shares of common stock of Columbia, at $68 per share, in cash, which
was subsequently increased on October 17, 1999 to $74 per share, on
the terms and subject to the conditions set forth in Acquisition
Corp.'s Offer to Purchase and Related Letter of Transmittal
("Offer"). The purpose of the Offer and the Transaction is to enable
NiSource to acquire control of, and the entire equity interest in,
Columbia. The terms of the Offer comply with the provisions of Rule
51. The Offer is conditioned on, among other things, approval under
the Act. No fees are payable with respect to the Offer; no indemnity
is provided for market or investment risk; no transfers of tendered
shares will be made by Acquisition Corp.; and tendered shares may be
withdrawn under the circumstances contemplated by Rule 51. Upon
acquisition of the shares of Columbia common stock, and after
necessary approvals under the Act, NiSource and Acquisition Corp. will
each register as a holding company pursuant to Section 5 of the Act.
Pursuant to Sections 9(a)(2) and 10 of the Act, NiSource and
Acquisition Corp. hereby request authorization and approval of the
Securities and Exchange Commission ("Commission") (i) to acquire,
pursuant to the Offer and the Transaction as described herein, all of
the issued and outstanding common stock of Columbia, and indirectly,
all of the outstanding voting securities of the direct and indirect
subsidiaries of Columbia and (ii) for the subsequent merger of
Acquisition Corp. and Columbia. Approval is also requested under
Section 13 of the Act and the rules promulgated thereunder for the
provision of services to the resulting direct or indirect subsidiaries
of NiSource by a service company subsidiary of NiSource.
NiSource has sought to negotiate a merger transaction with
Columbia. To date, Columbia has refused to enter into negotiations
with NiSource. NiSource intends to continue to seek to negotiate with
Columbia with respect to the consummation of a consensual merger
transaction. If such negotiations occur and result in a definitive
merger agreement between Columbia and NiSource, certain material terms
of the Offer may change. Such negotiations could result in, among
other things, termination of the Offer and submission of a different
acquisition proposal to Columbia's stockholders for approval.
Accordingly, the terms and details of the Transaction will depend on a
variety of factors, legal requirements, the actions of Columbia's
board of directors and whether the conditions stated in the Offer are
satisfied in whole or in part. Although certain representations made
and approvals sought in this Application/Declaration may change if a
negotiated merger is reached with Columbia, NiSource is making the
filing at this time pursuant to the requirement of Rule 51 that the
application for approval of the Transaction contemplated by the Offer
be filed as soon as practicable. In the absence of a cooperative
relationship with Columbia, NiSource will require additional time to
obtain and reflect in the Application/Declaration certain of the
information relevant to the Transaction. In addition, as noted,
NiSource will continue to seek to negotiate with Columbia with respect
to its proposed combination of the companies. Such negotiations may
change the terms of the proposed combination, and expedite the
availability of information to NiSource. Under these circumstances,
NiSource expects to amend this Application/Declaration with additional
relevant information as it is compiled by, or becomes available to,
NiSource.
The Transaction will produce benefits to the public,
investors and consumers and will satisfy all of the applicable
standards of the Act. NiSource and Acquisition Corp. believe that the
Transaction will provide important strategic and financial benefits to
NiSource's shareholders and Columbia's shareholders, as well as to
their respective employees and customers and the communities in which
they provide public utility service. Among other things, NiSource
believes that the Transaction will provide benefits in the form of an
enhanced ability to take advantage of future strategic opportunities
in the increasingly competitive and rapidly evolving markets for
energy and energy services in the United States. Further, as
explained more fully in ITEM 3 APPLICABLE STATUTORY PROVISIONS,
NiSource believes that, following the Transaction, the combined
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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. The combination of
Columbia's gas utilities with NiSource's electric utility operations
will enhance the competitive position of Columbia's gas utilities as
the competition among various sectors of the utility/energy business
continues to accelerate.
Assuming a Transaction priced at $74 per share of common
stock of Columbia, NiSource Capital Markets Inc. ("Capital Markets"),
a wholly-owned subsidiary of NiSource, will issue notes due 364 days
after issuance in the approximate amount of, but not to exceed, $6.5
billion ("Tender Notes") to a consortium of banks in order to obtain
funds necessary for the acquisition of the stock of Columbia pursuant
to the Offer. These notes will be refinanced with longer-term
financing that will include the issuance of equity. Prior to
completion of the Transaction, NiSource will file one or more
additional Application/Declarations under the Act with respect to the
ongoing financing activities, non-utility businesses, other
investments of, and other matters pertaining to, the combined company
after giving effect to the Transaction and the registration of
NiSource and Acquisition Corp. as holding companies. Among the
transactions included in such filings will be NiSource's issuance of
common stock and other securities to refinance the Tender Notes.
1. Background
In the ordinary course of its business, NiSource engages in
the ongoing evaluation of strategic alternatives, including the
consideration of potential candidates for acquisitions and strategic
transactions. NiSource identified Columbia as a potential acquisition
that would create significant strategic benefits and opportunities for
profitable growth in view of the regulatory and technological changes
in the natural gas industry and the increasingly competitive
marketplace for energy and energy services. In discussions and
correspondence between November 1998 and early June 1999, NiSource
attempted to pursue a possible business combination with Columbia on a
friendly basis. On June 7, 1999, NiSource publicly announced its
offer to acquire all of the outstanding common stock of Columbia for
$68 per share, in cash. On June 10, 1999, Columbia rejected
NiSource's offer. On June 25, 1999, Acquisition Corp. commenced the
Offer. The Offer initially expired on August 6, 1999 but was extended
until midnight on October 15, 1999. At that time, Columbia
shareholders tendered 44,448,778 shares of stock pursuant to the Offer
which represents approximately 54% of Columbia's outstanding common
shares. On October 17, 1999, NiSource increased its offer to $74 per
share, in cash. The increased Offer will expire at midnight on
November 12, 1999.
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2. Terms
Upon consummation of the Offer, NiSource will acquire
control of, and a controlling interest in, Columbia. NiSource
currently intends, as soon as practicable following consummation of
the Offer, to propose and seek to have Columbia consummate a merger
with Acquisition Corp. The purpose of the merger under these
circumstances would be to acquire all shares not tendered and
purchased pursuant to the Offer or otherwise. Pursuant to the merger,
each then outstanding share (other than shares owned by Acquisition
Corp., shares held in the treasury of Columbia and shares owned by
stockholders who perfect available dissenters' rights under the DGCL)
would be converted into the right to receive an amount in cash equal
to the price per share paid in the Offer.
In the event that Acquisition Corp. acquires shares which
constitute at least 90% of the outstanding shares of Columbia's common
stock, it will consummate a "short-form" merger pursuant to Section
253 of the DGCL. Section 253 of the DGCL provides that if Acquisition
Corp. owns at least 90% of the outstanding shares, Acquisition Corp.
may merge with Columbia without approval or any other action on the
part of the board of directors or the stockholders of Columbia.
One of the conditions of the Offer is there being validly
tendered and not properly withdrawn shares of common stock of Columbia
which, together with any shares owned by NiSource and its
subsidiaries, represent at least 51% of the voting power of Columbia
("Minimum Condition"). If Acquisition Corp. purchases enough shares
to satisfy this condition, but does not purchase a sufficient number
of shares to effect a "short-form" merger, Acquisition Corp. would
seek to effect a merger with Columbia pursuant to Section 251 of the
DGCL. Under Columbia's certificate of incorporation and the DGCL,
approval of Columbia's board of directors and a vote of at least a
majority of the outstanding shares entitled to vote thereon would be
required to approve such a merger. If the Minimum Condition is
satisfied, Acquisition Corp. would have a sufficient number of votes
to effect the stockholder approval of a merger pursuant to Section 251
of the DGCL, which approval could be effected by a vote at a meeting
of stockholders. Approval of such a merger would nonetheless also
require the approval of Columbia's board of directors.
Columbia shareholders do not have appraisal rights as a
result of the Offer. However, if the merger is consummated,
shareholders of Columbia at the time of the merger who do not vote in
favor of the merger will have the right under the DGCL to dissent and
demand appraisal of, and receive payment in cash of the fair value of,
their shares outstanding immediately prior to the effective date of
the merger in accordance with Section 262 of the DGCL.
The agreements and documents to accomplish this merger of
Acquisition Corp. and Columbia will be filed, by amendment, as
exhibits hereto.
4
The Offer is subject to certain conditions in addition to
the Minimum Condition. One condition is that the restriction on
certain business combinations contained in Section 203 of the DGCL not
apply to NiSource or Acquisition Corp. in connection with the
Transaction. This restriction, which could delay the Transaction for
a significant period of time, may be avoided if prior to the
acceptance for payment of shares of Columbia common stock pursuant to
the Offer (i) at least 85% of the outstanding voting stock of Columbia
(other than shares held by directors who are also officers and certain
employee stock plans of Columbia) are acquired by Acquisition Corp. or
(ii) the board of directors of Columbia approves the Transaction. The
terms of the Offer and the conditions applicable thereto (including
the foregoing) are described in Exhibit 11.A.1 to Acquisition Corp.'s
Schedule 14D-1, which is attached hereto as Exhibit C-1. See also
ITEM 3, SECTION A.2.b for a description of the consideration offered
in connection with this Transaction.
Consummation of the Offer and the Transaction is also
subject to various regulatory approvals, including approval of the
Commission under the Act. SEE ITEM 4 REGULATORY APPROVALS and
Exhibit 11.A.1 of Acquisition Corp.'s Schedule 14D-1 which is attached
hereto as Exhibit C-1.
Upon consummation of the Transaction, NiSource would own an
integrated gas utility system comprised of its existing gas
distribution utilities in Indiana, Massachusetts, Maine and New
Hampshire and, through its ownership of Acquisition Corp., Columbia's
gas distribution utilities in Ohio, Pennsylvania, Maryland, Kentucky
and Virginia. In addition, NiSource would continue to own its
existing integrated electric utility system in Indiana. Accordingly,
NiSource and Acquisition Corp. would each register as a holding
company pursuant to Section 5 of the Act. Further, NiSource would
continue to own its interest in its existing non-utility businesses,
as described herein, and, through Acquisition Corp., Columbia's
existing non-utility businesses.
3. Financing of the Offer and Transaction
Assuming a Transaction priced at $74 per share of common
stock of Columbia, NiSource estimates that approximately $6.5 billion
will be required to acquire the outstanding shares of Columbia
pursuant to the Offer and to pay related fees and expenses.
Acquisition Corp. will obtain the funds required to consummate the
Offer and Transaction through advances made by Capital Markets.
NiSource has accepted a commitment letter ("Commitment
Letter") from Credit Suisse First Boston Corporation ("Credit Suisse
First Boston") and Barclays Bank PLC ("Barclays" and together with
Credit Suisse First Boston, the "Underwriters"), pursuant to which,
subject to specified conditions, the Underwriters agree to provide
Capital Markets a 364-day revolving credit facility from the date of
the Commitment Letter in the amount of $6.5 billion, with an option to
5
convert outstanding loans at the expiration of such period into term
loans maturing 364 days thereafter ("Facility") to finance the Offer
and the Transaction. A portion of the Facility may be provided by a
syndicate of banks and other financial institutions arranged by the
Underwriters. Credit Suisse First Boston will act as administrative
agent for the Facility, Barclays will serve as documentation agent for
the Facility, and Credit Suisse First Boston and Barclays will act as
lead arrangers and co-syndication agents. The Facility will be
entitled to the benefits of the Support Agreement (defined below)
between NiSource and Capital Markets pursuant to which NiSource has
agreed (i) to cause Capital Markets to maintain at all times a
positive net worth and (ii) to provide Capital Markets with the funds
necessary to make debt service payments with respect to the Facility.
The proceeds of the Facility are to be used to finance the
Offer and the Transaction, to refinance existing indebtedness and to
pay related fees and expenses. The proceeds of the Facility also are
permitted to be used to support a commercial paper program used for
these purposes.
Upon the issuance by NiSource or any of its subsidiaries of
any debt or equity (in each case subject to exceptions to be agreed
upon), the Facility will be reduced by an amount equal to the net cash
proceeds of such debt or equity financing. Loans under the Facility
("Loans") must be repaid on the date of any such reduction to the
extent the amount of outstanding Loans exceeds the amount of the
Facility as so reduced.
The Loans will bear interest, at Capital Markets' option, at
specified spreads above LIBOR (adjusted for reserves) or Credit Suisse
First Boston's Base Rate or at a negotiated competitive bid rate.
Loans bearing interest based upon LIBOR will be for interest periods
of one, two, three or six months. All interest will be paid at the
end of the applicable interest period or quarterly, whichever is
earlier. In addition, a utilization fee will be payable at a
specified per annum rate on the outstanding principal amount at any
time more than 25% of the commitment has been borrowed, and a facility
fee will be payable at a specified per annum rate on the entire amount
of the Facility, whether or not utilized.
The Underwriters' commitments to provide the Facility may by
terminated in the event of certain customary events. The conditions
precedent to the initial borrowing under the Facility include: (a)
execution and delivery of satisfactory loan documentation, (b) receipt
by Capital Markets of senior unsecured short-term debt ratings from
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Services ("S&P") of at least A2 and P2, respectively, and
senior unsecured long-term debt ratings from Moody's and S&P of a
least Baa2 and BBB, respectively, (c) the Underwriters' reasonable
satisfaction with the terms and conditions of the Offer and the
Transaction, (d) the satisfaction of the conditions to the
consummation of the Offer and the Transaction and (e) receipt of all
6
necessary consents and approvals to consummate the Transaction and the
related transactions.
The definitive documentation relating to the Facility also
will contain representations, warranties, covenants, events of default
and conditions customary for transactions of this type, including a
covenant to consummate the merger of Columbia and Acquisition Corp.
within 180 days of the consummation of the Offer. In addition, the
Facility will contain financial covenants requiring maintenance of a
minimum interest coverage ratio and a maximum leverage ratio.
NiSource will be required to pay underwriting and upfront
fees to the Underwriters and syndication fees to the lenders in
connection with the Facility. Capital Markets will be required to pay
certain expenses of, and provide customary indemnities to, the
Underwriters and (under certain circumstances) the other lenders under
the Facility.
Underwriting and upfront fees to be paid in connection with
the Facility will be specified by amendment to this
Application/Declaration. The credit agreement and related
documentation for the Facility will be filed, by amendment, as Exhibit
B-3 hereto.
The Facility represents short-term bridge financing for the
acquisition of Columbia. The combined cash flow of NiSource and
Columbia is expected to be adequate to service the interest
requirements of the Facility without adverse effect on the current
earnings levels of NiSource common stock. NiSource anticipates that
the Facility will be repaid with internally generated funds, including
those generated by Columbia and its subsidiaries, and from the
proceeds of the issuance by NiSource of additional equity and other
securities. At this time, no specific plans or arrangements have been
made for such future issuance of securities; however, the issuance of
such securities will be in such proportion as to result in a capital
structure for NiSource comparable to other registered holding
companies. Prior to the consummation of the Transaction, NiSource
will file a separate Application/Declaration under the Act with
respect to the issuance of equity and other securities for the
purposes of refinancing the Facility and with respect to its proposed
financing activities after giving effect to the Transaction.
4. Resulting Management
The successful completion of the Transaction as currently
proposed would not affect the management of NiSource. The management
of Acquisition Corp. would be substantially identical with that of
NiSource. To the extent, however, that a negotiated merger
transaction occurs, the management and boards of directors of NiSource
and Acquisition Corp. would be expected to include some of the
individuals currently serving those functions with Columbia. The
Application/Declaration will be amended to provide further detail as
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to the board of directors and management of NiSource and Acquisition
Corp.
5. Benefit Plans
Information regarding the effect of the Transaction on the
employee benefit and shareholder benefit plans of NiSource and
Columbia will be provided by amendment.
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION
---------------------------------------------
1. General Description
a. NiSource and its Subsidiaries
NiSource, formerly NIPSCO Industries, Inc.,<1> an Indiana
corporation, was incorporated in 1987 to serve as the holding company
for Northern Indiana Public Service Company ("Northern Indiana") and
various non-utility subsidiaries. NiSource has since acquired four
additional public-utility subsidiaries, Kokomo Gas and Fuel Company
("Kokomo Gas"),<2> Northern Indiana Fuel and Light Company, Inc.
("NIFL"),<3> Bay State Gas Company ("Bay State")<4> and Northern
Utilities, Inc. ("Northern"). NiSource has also acquired various
non-utility subsidiaries. NiSource is currently an exempt holding
company pursuant to an order under Section 3(a)(1) of the Act.<5>
Northern Indiana, NiSource's 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
_______________
<1> On April 14, 1999, NiSource announced that its shareholders
approved changing its name from NIPSCO Industries, Inc. to NiSource
Inc.
<2> The Commission authorized NiSource to acquire all of the
issued and outstanding common stock of Kokomo Gas in 1992. SEE NIPSCO
INDUS., INC., HCAR No. 25470 (Feb. 5, 1992).
<3> The Commission authorized NiSource to acquire all of the
issued and outstanding common stock of NIFL in 1993. SEE NIPSCO
INDUS., INC., HCAR No. 25766 (Mar. 25, 1993).
<4> The Commission authorized NiSource to acquire all of the
issued and outstanding common stock of Bay State in February 1999.
Northern is a wholly-owned subsidiary of Bay State. SEE NIPSCO
INDUS., INC., HCAR No. 26975 (Feb. 10, 1999).
<5> SEE NIPSCO INDUS., INC., HCAR No. 26975, 1999 SEC LEXIS 289 at
*60 (Feb. 10, 1999).
8
area of about 12,000 square miles with a population of approximately
2,200,000. Northern Indiana distributes gas to approximately 673,300
residential, commercial and industrial customers and generates,
purchases, transmits and sells electricity to approximately 421,000
retail and wholesale electric customers. Kokomo Gas supplies natural
gas to approximately 34,200 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
34,800 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.
Northern Indiana has initiated a multi-phase customer choice program
to allow residential and commercial customers the right to choose
alternative gas suppliers. The three Indiana operating utility
subsidiaries of NiSource are subject to regulation by the Indiana
Utility Regulatory Commission ("IURC") as to rates, service and other
matters.
Bay State provides gas service to approximately 266,570
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
initiated a multi-phase customer choice program to allow residential
and commercial customers the right to choose alternative gas
suppliers. In November 1998, the Massachusetts Department of
Telecommunications and Energy ("MDTE") issued a generic order
implementing statewide customer choice for gas customers. Bay State
is complying with this order. Bay State is subject to regulation by
MDTE as to rates, service and other matters.
Northern provides gas service to approximately 46,460
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. Northern is subject to regulation by
the New Hampshire Public Utilities Commission and the Maine Public
Utilities Commission as to rates, service and other matters. At this
time, Northern remains an indirect subsidiary of NiSource, through Bay
State, pending consummation of the Transaction and registration by
NiSource, and will continue to be an indirect subsidiary of NiSource
after the merger with Columbia.
For the twelve months ended June 30, 1999, the gas and
electric public utility subsidiaries of NiSource reported segment
profit of $237.8 million ($47.0 million gas and $190.8 million
9
electric) on combined operating gas and electric utility revenues of
approximately $2.73 billion. Results for this period included five
months of combined operations with Bay State. Gas sales (including
transportation service) accounted for approximately 53% and electric
sales accounted for approximately 47% of NiSource's gross utility
revenues. Consolidated assets of NiSource and its subsidiaries as of
June 30, 1999, were approximately $6.4 billion, consisting of $4.1
billion in net gas and electric utility plant ($1.8 gas and $2.3
electric) and associated facilities and $2.3 billion in net
non-utility plant and other non-utility assets.
NiSource owns all of the outstanding common stock of
NiSource Pipeline Group, Inc. ("NPG"). NPG consists of Crossroads
Pipeline Company ("Crossroads"), Granite State Gas Transmission, Inc.
("Granite State") and PNGTS Holding Corp. ("PNGTS Holding").
Crossroads is a non-utility natural gas transportation company that
was certificated by the Federal Energy Regulatory Commission ("FERC")
in April 1995 to operate as an interstate pipeline.<6> Crossroads
owns and operates a 201-mile, 20-inch diameter pipeline that extends
from Schererville, Indiana, in the northwestern corner of Indiana, to
Cygnet, Ohio, which is located in northwestern Ohio. Crossroads
receives gas from Natural Gas Pipeline Company of America ("NGPL"),
Trunkline Gas Company ("Trunkline") and Panhandle Eastern Pipeline
Company ("Panhandle Eastern"). Crossroads delivers gas to Northern
Indiana, Ohio Gas Pipe Line Corporation, NIFL and Columbia Gas
Transmission Corporation ("Columbia Transmission"). Crossroads is
proposing a 25-mile, 30-inch diameter pipeline from a point on its
system near Griffith, Indiana to form an interconnection with Northern
Border Pipeline Co., ("Northern Border") and NGPL. These extensions
would 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 Columbia Transmission and Transcontinental
Gas Pipe Line Corp. ("Transco").
Granite State 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 where it interconnects with Portland
Natural Gas Transmission System ("PNGTS"), a partnership venture
owning a 292-mile, 24 to 30-inch diameter, natural gas transmission
line in northern New England that forms the northern link between
western Canadian gas supplies and the New England market.<7>
Granite State delivers gas to Bay State and Northern. PNGTS Holding,
together with Granite State, holds a 19% interest in PNGTS. PNGTS
interconnects with the Tennessee Gas pipeline facilities near Dracut,
_______________
<6> SEE CROSSROADS PIPELINE CO., 71 FERC Para. 61,076 (1995).
<7> SEE PORTLAND NATURAL GAS TRANSMISSION SYS., 79 FERC Para.
61,123 (1996).
10
Massachusetts and with Granite State at locations in Maine and New
Hampshire. PNGTS also jointly owns with Maritimes and Northeast
Pipeline, L.L.C. pipeline facilities extending from Dracut,
Massachusetts to Portland, Maine.
EnergyUSA, Inc. ("EnergyUSA"), a wholly-owned subsidiary of
NiSource, serves as an intermediate holding company for many of
NiSource's non-utility businesses. Through subsidiaries, EnergyUSA
owns businesses engaged in the following activities:
* Energy Marketing: Through various subsidiaries,
including EnergyUSA-TPC Corp. ("TPC") and NESI Energy
Marketing, L.L.C., EnergyUSA markets gas and
electricity to residential, commercial and industrial
entities on a national basis, including customers in
areas served by NiSource's gas distribution utilities.
EnergyUSA also indirectly provides gas supply services
to other NiSource affiliates, including Kokomo Gas and
NIFL.
TPC was acquired on April 1, 1999 by EnergyUSA. TPC
operates gas marketing and gas asset management and
optimization businesses. TPC owns a majority interest
in Market Hub Partners, L.P. ("MHP"), which develops
and operates underground gas storage facilities. In
addition to its ownership interest in MHP, the
significant assets of TPC consist of: i) gas marketing
contracts, ii) asset management and optimization
contracts, iii) computer systems and equipment to
support the aforementioned activities and iv) various
parcels of land adjacent to, or in proximity to, the
gas storage facilities owned by MHP.
* Residential/Small Commercial Gas and Propane Marketing;
Appliance Leasing: EnergyUSA Retail, Inc. provides gas
and other energy-related products and services to
residential and small commercial customers of utilities
that allow competitive suppliers to market in their
service territories. Some of Bay State's and Northern
Indiana's customers are being provided with natural gas
by EnergyUSA Retail. EnergyUSA Retail also sells
propane and leases water heaters to customers in New
England.
* Storage: Through various subsidiaries, NiSource
provides gas storage services to a number of utilities,
gas marketers and other customers, including Northern
Indiana.
* Oil and Gas Exploration and Production: EnergyUSA has
equity interests in a domestic oil and gas producer
11
with properties located in Texas, Oklahoma and
Louisiana and a Canadian oil and gas producer.
* Energy Management Services: EnergyUSA Commercial, Inc.
provides traditional energy management services,
including power quality consulting and energy
management, to commercial and industrial entities.
Primary Energy, Inc. ("Primary"), a wholly-owned subsidiary
of NiSource, arranges energy-related projects for large
energy-intensive industrial facilities. Primary offers expertise to
large energy customers in managing the engineering, construction,
operation and maintenance of these energy-related projects.
* Primary's wholly-owned subsidiary, Harbor Coal Company
("Harbor Coal"), invested in a partnership to finance,
construct, own and operate a $65 million pulverized
coal injection facility, which began commercial
operation in August 1993. The facility receives raw
coal, pulverizes it and delivers it to Ispat Inland,
Inc. ("Ispat") for use in the operation of blast
furnaces for manufacturing operations. Harbor Coal is
a 50% partner in the project with an Ispat affiliate.
NiSource guarantees the payment and performance of the
partnership's obligations under a sale and leaseback of
a 50% undivided interest in the facility.
* North Lake Energy Corporation ("North Lake"), a wholly-
owned subsidiary of Primary, entered into a lease for
the use of a 75-megawatt energy facility located at
Ispat. The facility uses steam generated by Ispat to
produce electricity which is delivered to Ispat. The
facility began commercial operation in May 1996.
NiSource guarantees North Lake's obligations relative
to the lease and certain obligations to Ispat relative
to the project.
* Lakeside Energy Corporation ("LEC"), a wholly-owned
subsidiary of Primary, entered into a lease for the use
of a 161-megawatt energy facility located at USS Gary
Works. The facility processes high-pressure steam
into electricity and low-pressure steam for delivery to
USX Corporation-U.S. Steel Group ("U.S. Steel"). A
15-year tolling agreement with US Steel commenced on
April 16, 1997 when the facility was placed in
commercial operation. Capital Markets guarantees
certain limited LEC obligations to the lessor.
* Portside Energy Corporation ("Portside"), a wholly-
owned subsidiary of Primary, operates a 63-megawatt
energy facility at the Midwest Division of National
Steel Corporation ("National") to process natural gas
12
into electricity, steam and heated water to be provided
to National for a 15-year period. Portside entered
into a lease for use of the facility. Capital Markets
guarantees certain Portside obligations to the lessor.
The facility began commercial operation on September
26, 1997.
* Primary's wholly-owned subsidiary, Cokenergy, Inc.
("CE"), operates an energy facility at Ispat's Indiana
Harbor Works to scrub flue gases and recover waste heat
from the coke facility constructed by Indiana Harbor
Coke Company, LP ("Harbor Coke") and to produce steam
and electricity from the recovered heat which is then
delivered to Ispat. CE leases these facilities from a
third party. CE has a 15-year service agreement and a
related 15-year fuel supply agreement with Ispat and
Harbor Coke. Capital Markets guarantees certain CE
obligations relative to the lease.
* In July 1999, Primary's wholly-owned subsidiary,
Whiting Clean Energy, Inc. ("Whiting"), signed an
agreement with Amoco Oil Company for the lease,
operation and maintenance of a net 525 MW natural
gas-fired cogeneration plant on land adjacent to
Amoco's refinery in Whiting, Indiana. The plant will
provide process steam to Amoco's refinery operations
and sell power into competitive wholesale markets.
Completion of the plant is expected by the second
quarter of 2001.
SM&P Utility Resources, Inc. ("SM&P") and other NiSource
subsidiaries perform underground utility locating and marking services
in Indiana and other states.<8> SM&P performed approximately 5.7
million locates during the twelve months ended December 31, 1998.
Miller Pipeline Corporation ("Miller") installs, repairs and maintains
underground pipelines used in gas, water and sewer transmission and
distribution systems.
NiSource, through an intermediate holding company, IWC
Resources Corporation ("IWCR"), owns four water companies and has an
operating agreement with the City of Lawrence, Indiana which is being
treated as a purchase by IWCR in accordance with generally accepted
accounting principles (collectively, the "Water Utilities"). The
Water Utilities supply water to residential, commercial and industrial
customers and for fire protection service in Indianapolis, Indiana and
_______________
<8> In 1999, NiSource acquired a 100% interest in Colcom
Incorporated and a 50% interest in UGTI (doing business as Underground
Technology Inc.). Colcom provides underground utility locating and
marking services in Texas. UGTI provides underground utility locating
and marking services in California and other states.
13
surrounding areas. The territory served by the Water Utilities covers
an area of approximately 561 square miles in seven counties of central
Indiana and the Water Utilities serve approximately 270,880 customers
as of June 30, 1999.
NiSource Development Company, Inc. ("Development") has
investments in various activities, including real estate. These
investments vary widely and are hereinafter discussed in detail in
ITEM 3 APPLICABLE STATUTORY PROVISIONS. South Works Power Company
("South Works"), a wholly-owned subsidiary of Development, leases
electric generating and transmission facilities owned by U.S. Steel
and located in south Chicago, Illinois. The facilities, which are
presently not in operation, are indirectly interconnected with the
electric transmission system of Northern Indiana.
Capital Markets provides financing for NiSource's
non-utility subsidiaries. Capital Markets has entered into revolving
credit agreements for $200 million. These agreements provide
financing flexibility to Capital Markets and may be used to support
the issuance of commercial paper. At June 30, 1999, Capital Markets
had issued $204.5 million in commercial paper but there were no
borrowings outstanding under the revolving credit agreements. Capital
Markets also has $130 million available in money market lines of
credit with $114 million of borrowings outstanding as of June 30,
1999.
The financial obligations of Capital Markets are subject to
a support agreement ("Support Agreement") between NiSource and Capital
Markets which provides that NiSource make payments of principal and
interest on Capital Markets' obligations in the event of a failure to
pay by Capital Markets. Under the terms of the Support Agreement, in
addition to the cash flow of cash dividends paid to NiSource by any of
its consolidated subsidiaries, the assets of NiSource are available as
recourse for the benefit of Capital Markets' creditors except that
restrictions in the Support Agreement prohibit recourse on the part of
Capital Markets' creditors against the stock and assets of Northern
Indiana which are owned by NiSource. The carrying value of the assets
of NiSource, other than the assets of Northern Indiana, as reflected
in the consolidated financial statements of NiSource, was
approximately $2.6 billion at June 30, 1999. The Support Agreement is
filed as Exhibit B-4 hereto.
NiSource Corporate Services Company ("Corporate Services")
provides management, administrative, gas portfolio management,
accounting and other services to the various NiSource companies.
Hamilton Harbour Insurance Services, Ltd. provides various insurance
services to the NiSource companies and Shore Line Shops Incorporated
provides relocation services to NiSource employees.
14
b. Columbia and its Subsidiaries<9>
Columbia, formerly The Columbia Gas System, Inc.,<10>
and its subsidiaries comprise one of the nation's largest integrated
natural gas systems engaged in natural gas transmission, natural gas
distribution and exploration for and production of natural gas and
oil. Columbia is also engaged in related energy businesses including
the marketing of natural gas and electricity, the generation of
electricity, primarily fueled by natural gas, and the distribution of
propane. Columbia, organized under the laws of the State of Delaware
on September 30, 1926, is a registered holding company under the Act
and derives substantially all its revenues and earnings from the
operating results of its 18 direct subsidiaries. Columbia owns all of
the securities of these direct subsidiaries except for approximately
8% of the stock in Columbia LNG Corporation.
Columbia and its principal pipeline subsidiary, Columbia
Transmission, emerged from bankruptcy on November 28, 1995, after
filing separate petitions for protection under Chapter 11 of the
Federal Bankruptcy Code ("Bankruptcy Code") on July 31, 1991. During
the bankruptcy period, both Columbia and Columbia Transmission were
debtors-in-possession under the Bankruptcy Code and continued to
operate their businesses in the normal course subject to the
jurisdiction of the United States Bankruptcy Court for the District of
Delaware.
Distribution Utilities: Columbia provides natural gas
distribution services in a five-state region in the midwestern and
north central United States through its five wholly-owned public
utility subsidiaries: Columbia Gas of Kentucky, Inc. ("Columbia
Kentucky"), Columbia Gas of Maryland, Inc. ("Columbia Maryland"),
Columbia Gas of Ohio, Inc. ("Columbia Ohio"), Columbia Gas of
Pennsylvania, Inc. ("Columbia Pennsylvania") and Columbia Gas of
Virginia, Inc. ("Columbia Virginia"). Columbia's five distribution
subsidiaries provide natural gas service to nearly 2.1 million
residential, commercial and industrial customers in Ohio,
Pennsylvania, Virginia, Kentucky and Maryland. Approximately 32,000
miles of distribution pipelines serve these major markets. The
distribution subsidiaries have or plan to initiate customer choice
programs that allow residential and small commercial customers the
opportunity to choose their natural gas suppliers and to use the
_______________
<9> Information regarding Columbia and its subsidiaries was
obtained from Columbia's Annual Report or Form 10-K for the year ended
December 31, 1998, the Forms 10-Q for the quarters ended March 31,
1999 and June 30, 1999 or from other publicly available information.
None of the information has been independently verified by NiSource.
<10> On January 20, 1998, Columbia announced that its name had
been changed from The Columbia Gas System, Inc. to Columbia Energy
Group.
15
distribution subsidiaries for transportation service. This ability to
choose a supplier was previously limited to larger commercial and
industrial customers.
Columbia Kentucky supplies natural gas to approximately
137,300 retail customers in a 31-county area of central and eastern
Kentucky having a population of approximately 965,000. Columbia
Kentucky is subject to regulation by the Kentucky Public Service
Commission as to rates, service and other matters.
Columbia Maryland supplies natural gas to approximately
31,800 retail customers in a three-county area of western Maryland
having a population of approximately 227,000. Columbia Maryland is
subject to regulation by the Maryland Public Service Commission as to
rates, service and other matters.
Columbia Ohio supplies natural gas to approximately
1,309,200 retail customers in a 53-county area of north central and
south eastern Ohio having a population of approximately 6,700,000.
Columbia Ohio is subject to regulation by the Public Utilities
Commission of Ohio as to rates, service and other matters.
Columbia Pennsylvania supplies natural gas to approximately
383,900 retail customers in a 26-county area of central and south
eastern Pennsylvania having a population of approximately 2,380,000.
Columbia Pennsylvania is subject to regulation by the Pennsylvania
Public Utility Commission as to rates, service and other matters.
Columbia Virginia supplies natural gas to approximately
168,700 retail customers in a 52-county area of north central and
eastern Virginia having a population of approximately 3,366,500.
Columbia Virginia is subject to regulation by the Virginia State
Corporation Commission as to rates, service and other matters.
Transmission and Storage Operations: Columbia's two
interstate pipeline subsidiaries, Columbia Transmission and Columbia
Gulf Transmission Company ("Columbia Gulf"), operate a 16,700-mile
pipeline network extending from offshore in the Gulf of Mexico to Lake
Erie, New York and the eastern seaboard. In addition, Columbia
Transmission operates one of the nation's largest underground natural
gas storage systems. Together, Columbia Transmission and Columbia
Gulf serve customers in fifteen northeastern, midatlantic, midwestern
and southern states and the District of Columbia. Columbia Gulf's
pipeline system extends from offshore Louisiana to West Virginia and
transports a major portion of the gas delivered by Columbia
Transmission. It also transports gas for third parties within the
production areas of the Gulf Coast. Columbia Transmission and
Columbia Gulf provide an array of competitively priced natural gas
transportation and storage services for local distribution companies,
marketers, brokers and industrial and commercial customers who
contract directly with producers or marketers for their gas supplies.
16
During 1998, Columbia Transmission continued construction of
the largest expansion of its storage and transportation system in its
history. In April 1999, the final phase of storage service began.
Upon completion, the expansion will add approximately 500,000 Mcf per
day of firm service. Columbia Transmission is also participating in
the proposed 442-mile Millennium Pipeline Project that has been
submitted to FERC for approval. As proposed, the project will
transport approximately 700,000 Mcf per day of natural gas from
Western Canada through the Lake Erie region to eastern markets.
Columbia Gulf recently announced its participation in the
proposed 160 mile, 24-inch diameter, Volunteer Pipeline Project. As
proposed, the project will transport approximately 250,000 dth/day
from Portland, Tennessee to a point near Chattanooga, Tennessee.
Columbia Gulf also announced plans in September 1998 to consider an
expansion of its onshore East Lateral system at Grand Island,
Louisiana to add approximately 600,000 Mcf per day of incremental firm
gas transportation capacity. Columbia Gulf is also participating in
the proposed SunStar Pipeline project, a 56-mile offshore pipeline
project with a capacity of 660,000 Mcf of natural gas per day from the
Gulf of Mexico to its onshore lateral at Grand Isle, Louisiana.
Columbia Gulf also owns a 33% interest in the Trailblazer Pipeline, a
350-mile natural gas pipeline that extends from northeast Colorado to
Gage County in Nebraska.
Exploration and Production Operations: Columbia's
exploration and production subsidiary, Columbia Energy Resources, Inc.
("Columbia Resources"), explores for, develops, gathers and produces
natural gas and oil in Appalachia and Canada.<11> As of December
31, 1998, Columbia Resources held interests in approximately 2.7
million net acres of gas and oil leases and had proved gas reserves of
802 billion cubic feet of natural gas equivalent. In August 1997,
Columbia Resources acquired Alamco, Inc., an Appalachian gas and oil
exploration and development company. During the first quarter of
1998, Columbia Resources purchased 26 producing wells and
approximately 5,000 undeveloped acres in Ontario, Canada. On May 12,
1999, Columbia Resources acquired the production and gathering assets
of The Wise Oil Company for $28 million which consist of a working
interest in 487 natural gas and oil wells, more than 100,000 net acres
of developed and undeveloped land and a gathering system in
southeastern Kentucky and central West Virginia. On June 17, 1999,
Columbia Resources purchased the assets of Thornwood Gas, Inc. and
Northeast Gathering System, Inc., which includes a 50% interest in a
40-mile gathering pipeline system, eight natural gas wells and 70,000
developed and undeveloped acres. Through its operations in
north-central West Virginia, southern Kentucky and northern Tennessee,
_______________
<11> In 1997, Columbia Transmission sold 2,700 miles of gathering
lines to Columbia Resources. Effective January 1999, Columbia
Transmission sold an additional 750 miles of gathering facilities to
Columbia Resources.
17
Columbia Resources is one of the largest-volume independent natural
gas and oil producers in the Appalachian Basin. Columbia Pipeline
Corporation and its wholly owned subsidiary, Columbia Deep Water
Services Company, were formed to operate pipeline and gathering
facilities that are not regulated by FERC.
Marketing Operations: Columbia Energy Services Corporation
("Columbia Energy Services") and its subsidiaries conduct Columbia's
non-regulated natural gas and electric power marketing operations and
provide an array of energy supply and fuel management services to
distribution companies, independent power producers and other large
end-users both on and off Columbia's transmission and distribution
pipeline systems. Columbia Energy Services is also providing natural
gas supplies to residential and small commercial customers as a result
of the unbundling of services that is occurring at the local
distribution level. Columbia Energy Services, through its subsidiary,
Columbia Service Partners, Inc. ("Columbia Service"), provides a
variety of energy-related services to both homeowners and businesses.
In 1997, Columbia Energy Services acquired PennUnion Energy Services
L.L.C. ("PennUnion"), an energy-marketing affiliate of the Pennzoil
Company. In August 1999, Columbia Energy Services announced that it
has decided to sell its wholesale gas and electric trading operations
based in Houston, Texas.
Propane, Power Generation and LNG Operations: Columbia
Propane Corporation ("Columbia Propane") sells propane at wholesale
and retail to approximately 340,000 customers. In 1998, Columbia
Propane purchased the propane assets of three companies that added
approximately 12,500 new customers and 6.4 million gallons of annual
propane sales. On July 19, 1999, Columbia Propane completed its
acquisition of National Propane Partners, L.P., which added more than
210,000 retail and wholesale customers in 24 states. On June 16,
1999, Columbia Propane completed its acquisition of Trentane Gas, Inc.
which added more than 4,300 customers in north-central Virginia. On
May 11, 1999, Columbia Propane, through its subsidiary Columbia
Petroleum Corporation, completed its acquisition of the propane and
petroleum assets of Carlos R. Leffler, Inc., which added approximately
12,500 propane customers and 36,600 petroleum customers.
Columbia Electric Corporation's ("Columbia Electric")
primary focus has been the development, ownership and operation of
natural gas-fueled cogeneration power plants that sell electric power
to local electric utilities under long-term contracts. Columbia
Electric is part owner in three cogeneration projects. These
facilities produce both electricity and useful thermal energy and are
fueled principally by natural gas. Columbia Electric holds various
interests in these facilities, which have a total capacity of
approximately 250 megawatts.
In June 1998, Columbia Electric and LG&E Power Inc., a
subsidiary of LG&E Energy Corporation, announced an agreement for
Columbia to participate in the development of a gas-fired cogeneration
18
project that would have a total equivalent capacity of approximately
550 megawatts. The facility will provide steam and electric services
to a Reynolds Metals plant in Gregory, Texas and will also provide
electricity to the Texas energy market. Construction began in August
1998 and financing for the $257 million project was secured in
November of 1998.
In January 1998, Columbia Electric and Westcoast Energy Inc.
signed a joint ownership agreement to develop three gas-fired electric
generation plants by 2001. In total, the three plants would provide
approximately 1,000 megawatts of electricity using approximately 160
MMcf per day of natural gas. In August 1998, a site was purchased in
Pennsylvania to build the first of these plants. This plant will cost
about $300 million to develop and will produce 500 megawatts of
electricity and consume approximately 80 MMcf per day of natural gas.
Each of the sponsors will own a 50% interest in the project.
Columbia LNG Corporation is a partner with Potomac Electric
Power Company in the Cove Point LNG Limited Partnership
("Partnership"). The Partnership owns one of the largest natural gas
peaking and storage facilities in the United States located in Cove
Point, Maryland. The facility has the capacity to liquefy natural gas
at a rate of 15,000 Mcf per day. The facility enables liquefied
natural gas to be stored until needed for the peak-day requirements of
utilities and other large gas users.
Telecommunications: Columbia Network Services Corporation,
a wholly owned subsidiary of Columbia, and its subsidiaries provide
telecommunications and information services and assist personal
communications services and other microwave radio service licensees in
locating and constructing antenna facilities. Columbia Transmission
Communications Corporation, another Columbia subsidiary, is involved
in the development of a dark fiber optics network for voice and data
communications.
2. Description of Utility Facilities
a. NiSource
i. Natural Gas Utilities
At June 30, 1999, the NiSource gas distribution system in
Indiana included approximately 15,176 miles of distribution mains and
737,664 customers. 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
19
provide Northern Indiana with a significant amount of "high
deliverability" storage capacity,<12> are located at or near major
supply "hubs" which have formed at locations where interstate
pipelines serving the upper Midwest, Northeast, Gulf Coast,
mid-Atlantic and Ohio Valley markets intersect.
At June 30, 1999, NiSource's New England gas distribution
utilities included some 5,508 miles of distribution mains, 116 miles
of transmission lines and approximately 313,760 customers. Bay State
and Northern also own and operate LNG liquefaction, vaporization and
storage facilities and propane storage tanks used to store
supplemental and peak shaving supplies. At June 30, 1999, NiSource's
combined gas system consisted of 20,684 miles of distribution mains,
together with associated compressing and regulating stations, LNG
liquefaction, vaporization and storage facilities, propane storage
tanks and 1,051,424 customers.
Currently, NiSource's utilities purchase approximately 73%
of their total system gas requirements from production in the onshore
and offshore Texas and Louisiana producing areas, and approximately
16% from production in the Mid-Continent (Oklahoma, Kansas and
Arkansas), and Permian (West Texas) supply basins. Gas produced from
the Western Canadian Sedimentary Basin has also made up a significant
portion of the gas supply portfolios of Bay State and Northern. In
1999, with the completion of new pipeline capacity from western Canada
to the upper Midwest and New England markets, NiSource's gas
distribution utilities in Indiana will have the opportunity to further
diversify their gas portfolio through additional purchases of gas
produced in the Western Canadian Sedimentary Basin (Alberta and
British Columbia)<13> NiSource estimates that, by 2002, western
_______________
<12> "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, Northern
Indiana's 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.
<13> FERC granted certificate authority under Section 7(c) of the
Natural Gas Act of 1938 ("NGA"), 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
BORDER PIPELINE CO., 76 FERC Para. 61,141 (1996); NORTHERN BORDER
(cont'd. on page 21)
20
Canadian gas could potentially account for as much as 40% of its total
system supply for its Indiana gas utilities.
NiSource's gas distribution subsidiaries have currently
contracted for "firm" capacity and storage service on nine different
long-haul interstate pipelines: ANR Pipeline Company ("ANR"), NGPL,
Panhandle Eastern, PNGTS, Tennessee Gas, Texas Eastern Transmission
Corp. ("Texas Eastern"), Texas Gas Transmission Corp. ("Texas Gas"),
Transco and Trunkline. NiSource's subsidiaries also have firm
transportation capacity agreements with TransCanada PipeLines Limited
("TransCanada"), a Canadian interprovincial pipeline, and with several
other regional pipelines, such as Algonquin Gas Transmission Company
("Algonquin"), Crossroads, Granite State and National Fuel Gas Supply
Company ("National Fuel").
NiSource projects that, as transmission constraints are
eliminated and new pipeline capacity begins commercial service, the
NiSource gas distribution utilities will be well positioned to
purchase an increasing amount of their gas requirements from the
Western Canadian Sedimentary, Appalachian and Michigan producing
areas. This gas will reach NiSource's Midwest and New England gas
distribution utilities directly through new pipelines, such as PNGTS,
Northern Border and Alliance, as well as indirectly by means of any
one of several existing pipeline interconnections among Crossroads and
Columbia Transmission, Tennessee Gas and PNGTS, Tennessee Gas and
Columbia Transmission, Algonquin and Columbia Transmission and
Northern Border's expansion into Northwest Indiana.
ii. Electric Utility
Northern Indiana owns and operates four coal-fired electric
generating stations with net capabilities of 3,179 MW, two
hydroelectric generating plants with net capabilities of 10 MW and
four gas-fired combustion turbine generating units with net
capabilities of 203 MW, for a total system net capability of 3,392 MW.
During the year ended December 31, 1998, Northern Indiana generated
93.3% and purchased 6.7% of its electric requirements.
Northern Indiana has 291 substations with an aggregate
transformer capacity of 23,131,300 kilovoltamperes (kva). Northern
Indiana's transmission system with voltages from 34,500 to 345,000
_______________
(cont'd. )
PIPELINE CO., 80 FERC Para. 61,152 (1997). The Northern Border
extension added capacity that can deliver some 650,000 Mcf into the
Chicago market. Northern Border is proposing to extend its system to
connect with Northern Indiana's facilities near North Hayden, Indiana.
FERC also granted certificate authority under Section 7(c) of the NGA,
for the construction of the Alliance Pipeline project ("Alliance"), an
887-mile, 36-inch diameter, line designed to transport 1.325 Bcf per
day of gas from western Canada to the Chicago market. SEE ALLIANCE
PIPELINE L.P., 84 FERC Para. 61,239 (1998).
21
consists of 3,058 circuit miles of line. The electric distribution
system extends into 21 counties and consists of 7,814 circuit miles of
overhead and 1,497 cable miles of underground primary distribution
lines operating at various voltages ranging from 2,400 to 12,500
volts. Northern Indiana has distribution transformers having an
aggregate capacity of 11,156,320 kva and 445,117 electric watt-hour
meters.
Northern Indiana's electric control area peak load (the
highest level of electrical utility usage in the control area) of
3,307 MW was set on July 30, 1999. Northern Indiana's electric
control area includes Northern Indiana, Wabash Valley Power
Association, Inc. ("WVPA") and Indiana Municipal Power Agency
("IMPA"). Northern Indiana's internal peak load, which excludes WVPA
and IMPA, of 2,962 MW, was also set on July 30, 1999.
Northern Indiana's electric system is interconnected with
the systems of American Electric Power, Commonwealth Edison Company,
Cinergy Services, Inc., Consumers Energy and Ameren Services
Corporation, formerly Central Illinois Public Service Company.
Electric energy is purchased from, sold to, or exchanged with various
other utilities and power marketers under Northern Indiana's power
sales and open access transmission tariffs.
Northern Indiana provides WVPA with transmission and
distribution service, operating reserve requirements and capacity
deficiency service, and provides IMPA with transmission service,
operating reserve requirements and capacity deficiency service in
Northern Indiana's control area. Northern Indiana also engages in
sales and services under interconnection agreements with WVPA and
IMPA. WVPA provides service to 12 Rural Electric Membership
Corporations located in Northern Indiana's control area. IMPA
provides service to the municipal electric system of the city of
Rensselaer located in Northern Indiana's control area. Northern
Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Unit peaking capacity is the capacity
used to serve peak demand from a specific peaking generation unit.
Pursuant to this agreement, which runs through December 2001, WVPA
purchases 90 MW of capacity per month.
Northern Indiana serves the Town of Argos as a full
requirements customer and provides network integration service to
seven municipal wholesale customers.
Northern Indiana is a member of the East Central Area
Reliability Coordination Agreement ("ECAR"). ECAR is one of nine
regional electric reliability councils established to coordinate
planning and operations of member electric utilities regionally and
nationally.
Fuel Supply: The generating units of Northern Indiana are
located at the Bailly, Mitchell, Michigan City and Schahfer Generating
22
Stations. Northern Indiana's 13 steam generating units have a net
capability of 3,179 MW. Coal is the primary source of fuel for all
units, except for three, which utilize natural gas. In addition,
Northern Indiana's four combustion turbine generating units with a net
capability of 203 MW are fired by gas. Fuel requirements for Northern
Indiana's generation for 1998 were supplied as follows:
Coal . . . . . . . . . . . . . . . . . 97.5%
Natural Gas . . . . . . . . . . . . . 2.5%
In 1998, Northern Indiana used approximately 8.8 million
tons of coal at its generating stations. Northern Indiana has
established a normal level of coal stock that is expected to provide
adequate fuel supply during the year under all conditions.
b. Columbia
i. Natural Gas Utilities
At December 31, 1998, the combined distribution systems of
Columbia's five gas utilities were comprised of 31,994 miles of
distribution pipeline and approximately 2,030,900 customers, as
detailed by state in the table below:
Distribution Distribution
Pipeline (miles) Customers
---------------- ------------
Columbia Kentucky 2,404 137,300
Columbia Maryland 595 31,800
Columbia Ohio 18,140 1,309,200
Columbia Pennsylvania 6,895 383,900
Columbia Virginia 3,960 168,700
Columbia's natural gas public utility subsidiaries receive
their natural gas supplies through Columbia's two wholly-owned
interstate pipelines, Columbia Transmission and Columbia Gulf, major
non-affiliated pipelines such as Panhandle Eastern, Tennessee Gas and
Texas Eastern, and regional pipelines such as National Fuel and
Equitrans, LP. In addition to receiving supplies of Louisiana gas
from Columbia Gulf, Columbia Transmission transports gas from
Mid-Continent, onshore and offshore Texas, and western Canadian supply
basins, through interconnections with ANR, Panhandle Eastern,
Tennessee Gas, Texas Eastern, Texas Gas and Transco. Columbia
Transmission also transports Appalachian gas produced by Columbia's
exploration and production subsidiaries and others, and both receives
and transports Appalachian gas transported by Consolidated Natural Gas
Company ("CNG") and Equitrans.
Columbia's natural gas public utility subsidiaries have
long-term firm transportation contracts with, among others, Columbia
Gulf, Columbia Transmission, Panhandle Eastern, Tennessee Gas, Texas
23
Gas, Texas Eastern and Transco to meet the peak day needs of their
customers. In addition, the gas utilities have contractual access to
the natural gas storage owned by Columbia Transmission. Columbia
Pennsylvania is the only gas utility to own underground storage,
supported by eight wells on 3,300 acres. Columbia Virginia and other
unaffiliated LDC's subscribe to LNG storage services provided by
Columbia Transmission from a facility located in Chesapeake, Virginia.
Several of Columbia's gas utility subsidiaries subscribe to LNG
storage services offered by Cove Point LNG.
For the year 1998, NiSource understands that Columbia's
natural gas public utility subsidiaries received significant amounts
of natural gas supplies from Louisiana and Texas onshore or offshore
sources, Appalachian Basin and Canada.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
----------------------------------------
Estimates of the fees, commissions and expenses to be paid
or incurred, directly or indirectly, in connection with the
Transaction will be provided by amendment to this Application/
Declaration.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
-----------------------------------------
The following sections of the Act and the Commission's rules
thereunder are, or may be, directly or indirectly, applicable to the
proposed Transaction:
Section of Transactions to which section or rule is, or may
the Act be, applicable:
---------- ------------------------------------------------
4, 5 Registration of NiSource and Acquisition Corp. as
holding companies following consummation of the
Transaction
9(a)(2), 10(a), Acquisition of Columbia's common stock and the
(b), (c) and (f) merger of Acquisition Corp. and Columbia
8, 11(b), 21 Upon registration, retention by NiSource of
Northern Indiana's electric operations and
NiSource's and Columbia's non-utility businesses
13 Approval of the service agreement and performance
of certain services by Corporate Services for the
various companies owned, and to be acquired, by
NiSource
24
Rules
-----
51 Acquisition Corp.'s tender offer for Columbia's
common stock
80-91 Charges by Corporate Services to affiliated
companies
87(a)(3) Services among NiSource system companies
88 Approval of Corporate Services as a subsidiary
service company
93, 94 Accounts, records and annual reports by Corporate
Services
To the extent that other sections of the Act or the Commission's rules
thereunder are deemed applicable to the Transaction, such sections and
rules are hereby incorporated into this ITEM 3.
A. LEGAL ANALYSIS
1. Section 9(a)(2)
Section 9(a)(2) makes it unlawful, without approval of the
Commission under Section 10, "for any person . . . to acquire,
directly or indirectly, any security of any public utility company, if
such person is an affiliate . . . of such company and of any other
public utility or holding company, or will by virtue of such
acquisition become such an affiliate." 15 U.S.C. Section 79i(a)(2).
Under the definition set forth in Section 2(a)(11), an "affiliate" of
a specified company means "any person that directly or indirectly
owns, controls, or holds with power to vote, 5 per centum or more of
the outstanding voting securities of such specified company," and "any
company 5 per centum or more of whose outstanding voting securities
are owned, controlled, or held with power to vote, directly or
indirectly, by, such specified company." 15 U.S.C. Section
79b(a)(11)(A)-(B).
Columbia Kentucky, Columbia Maryland, Columbia Ohio,
Columbia Pennsylvania and Columbia Virginia are public utility
companies as defined in Section 2(a)(5) of the Act. Because NiSource
will indirectly acquire (through Acquisition Corp.'s acquisition of
Columbia) more than 5% of the voting securities of each of Columbia
Kentucky, Columbia Maryland, Columbia Ohio, Columbia Pennsylvania and
Columbia Virginia as a result of the Transaction, NiSource and
Acquisition Corp. must obtain the approval for the Transaction under
Sections 9(a)(2) and 10 of the Act. The statutory standards to be
considered by the Commission in evaluating the proposed Transaction
are set forth in Sections 10(b), 10(c) and 10(f) of the Act.
25
As set forth more fully below, the Transaction complies with
all of the applicable provisions of Section 10 of the Act and should
be approved by the Commission:
* the consideration to be paid in the Transaction is fair
and reasonable;
* the Transaction will not create detrimental
interlocking relations or concentration of control;
* the Transaction will not result in an unduly
complicated capital structure for the NiSource system;
* the Transaction is in the public interest and the
interests of investors and consumers;
* the Transaction is consistent with Sections 8 and 11 of
the Act; and
* the Transaction will comply with all applicable state
laws.
In addition, the Transaction is consistent with a number of
the recommendations made by the Division of Investment Management in
the report issued by the Division in June 1995 entitled "The
Regulation of Public Utility Holding Companies" (the "1995 Report")
and Commission precedent that has developed based upon these
recommendations.<14>
2. Section 10(b)
Section 10(b) provides that, if the requirements of Section
10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless:
(1) such acquisition will tend towards interlocking
relations or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the public
interest or the interests of investors or consumers;
(2) in case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
_______________
<14> For example, the Commission should "respond realistically to
the changes in the utility industry and interpret more flexibly each
piece of the integration equation," the "geographic requirements of
Section 2(a)(29) [should be interpreted] flexibly, recognizing
technical advances consistent with the purposes and provisions of the
Act," the Commission's analysis should focus on whether the resulting
system will be subject to effective regulation and the Commission
should liberalize its interpretation of the "A-B-C" clauses and permit
combination systems where the affected states agree. 1995 Report at
71-77.
26
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or will
be detrimental to the public interest or the interests of
investors or consumers or the proper functioning of such holding
company system.
15 U.S.C. Section 79j(b).
a. Section 10(b)(1)
i. Interlocking Relationships
Although any merger results in new links between heretofore
unrelated companies, the relationships that will result from the
Transaction are not the types of interlocking relationships prohibited
by Section 10(b)(1), which was primarily aimed at preventing business
combinations unrelated to operational and economic benefits to the
integrated utility system. SEE NORTHEAST UTILS., HCAR No. 25221, 1990
SEC LEXIS 3898 at *33 (Dec. 21, 1990), MODIFIED, HCAR No. 25273 (Mar.
15, 1991), AFF'D SUB NOM., CITY OF HOLYOKE V. SEC, 972 F2d 358 (D.C.
Cir. 1992) ("interlocking relationships are necessary to integrate
[the two merging entities]"). Under the circumstances of the Offer,no
combination of the existing boards of NiSource and Columbia is
currently proposed.
ii. 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. AMERICAN ELEC. POWER CO.,
HCAR No. 20633, 1978 SEC LEXIS 1103 at *25 (July 21, 1978). 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." VERMONT
YANKEE NUCLEAR POWER CORP., HCAR No. 15958, 1968 SEC LEXIS 925 at *15
(Feb. 6, 1968). 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 which are
expected to benefit investors and consumers. AMERICAN ELEC. POWER
CO., HCAR No. 20633, 1978 SEC LEXIS 1103 at *20 (July 21, 1978).
Size: If approved, the NiSource combined gas utility system
will serve approximately 3.1 million gas customers in nine states and
422,000 electric customers in Indiana. As of June 30, 1999: (1) the
combined assets of NiSource and Columbia would have totaled
approximately $17.23 billion and (2) the combined operating revenues
27
of NiSource and Columbia would have totaled approximately $10.7
billion.
By comparison, the Commission has approved acquisitions
resulting in similarly sized and considerably larger holding
companies. See, e.g., TUC Holding Co., HCAR No. 26749 (Aug. 1, 1997)
(acquisition of Texas Utility Company and ENSERCH Corp.; combined
assets at the time of the acquisition over $21 billion); ENTERGY
CORP., HCAR No. 25952 (Dec. 17, 1993) (acquisition of Gulf States
Utilities; combined assets at the time of the acquisition in excess of
$22 billion).
As the following table demonstrates, there are numerous
registered and non-registered holding company systems that are larger
than NiSource will be following the Transaction in terms of assets,
operating revenues, and number of customers.
Total Operating Customers
System Assets Revenues
($ Millions) ($ Millions) (Millions)<F15>
------------ ------------ ---------------
Southern 36,192 11,403 3.8
Duke 26,806 17,610 2.0
Entergy 22,848 11,495 2.5
AEP 19,483 6,346 3.0
Reliant 19,138 11,488 4.4
FirstEnergy 18,063 5,861 2.3
NiSource 17,051 10,308 3.1
In addition, NiSource will be smaller than two of the
registered holding companies to be formed as a result of recently
announced mergers American Electric Power Company, Inc. and Central
& South West Corp. (combined 1998 year-end assets of approximately
$33.23 billion and operating revenues of $11.83 billion) and Dominion
Resources, Inc. and Consolidated Natural Gas Company (combined 1998
year-end assets of approximately $28 billion, operating revenues of
$8.8 billion and nearly 4 million customers) and similar in size to
a third recently announced merger, Northern States Power Company and
New Century Energies, Inc. (combined 1998 year-end assets of
approximately $15.09 billion and operating revenues of $6.43 billion).
As consolidation within the energy industries continues, one
would expect proposals for even larger holding company systems than
exist today. Nevertheless, following the consummation of the
_______________
<15> Amounts are as of December 31, 1998. The following
information was derived from publicly-available sources and none of
the information has been independently verified by NiSource.
28
Transaction, NiSource will be within the size range of the existing
and emerging registered and exempt holding companies with which it
will compete as competition in the converging utility industries
increases. As such, its operations would not exceed the economies of
scale of current and developing holding company systems or provide
undue power or control to NiSource in the regions in which it will
provide service.
Efficiencies and Economies: In addition to analyzing the
size of the utility system, the Commission also assesses the
efficiencies and economies that can be achieved through the
integration and coordination of utility operations. More recent
pronouncements of the Commission confirm that size is not
determinative. In CENTERIOR ENERGY CORP., HCAR No. 24073, 1986 SEC
LEXIS 1655 at **6-7 (April 29, 1986), the Commission stated 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, in the 1995 Report, the
Division recommended that the Commission approach its analysis on
merger and acquisition transactions in a flexible manner with emphasis
on whether the Transaction creates an entity subject to effective
regulation and is beneficial for shareholders and customers as opposed
to focusing on rigid, mechanical tests.<16>
By enhancing the size and geographic diversity of NiSource's
existing gas system and combining NiSource's electric business with
Columbia's gas business, the Transaction will significantly enhance
each company's competitive position in an increasingly competitive
energy market. The electric and gas utility industries are merging in
order to provide greater value to customers and, thus, allow companies
to compete effectively in the increasingly competitive business
environment. By combining with NiSource's electric expertise and
operations, Columbia's competitiveness, product offerings and ability
to serve its customers will be enhanced. In CONSOLIDATED NATURAL GAS
CO., HCAR No. 26512, 1996 SEC LEXIS 1205 at **2, 17 (Apr. 30, 1996),
the Commission recognized that "fundamental changes in the energy
industry are leading to an increasingly competitive and integrated
market, in which marketers deal in interchangeable units of energy
expressed in British thermal unit values, rather than in natural gas
or electricity. To retain and attract wholesale and industrial
customers, utilities need to provide competitively priced power and
related customer services. . . . It appears that the restructuring of
the electricity industry now underway will dramatically affect all
United States energy markets as a result of the growing
interdependence of natural gas transmission and electric generation,
and the interchangeability of different forms of energy, particularly
gas and electricity." The combination offers the same type of
synergies and efficiencies that were sought and are now being realized
by the applicants (both exempt and registered) in TUC HOLDING CO.,
_______________
<16> 1995 Report at 70.
29
HCAR No. 26749 (Aug. 1, 1997); HOUSTON INDUS. INC., HCAR No. 26744
(July 24, 1997); WPL HOLDINGS, INC., HCAR No. 26856 (Apr. 14, 1998),
AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C.
Cir. 1999); and NEW CENTURY ENERGIES, INC., HCAR No. 26748 (Aug. 1,
1997).
Competitive Effects: As the Commission noted in NORTHEAST
UTILS., HCAR No. 25221, 1990 SEC LEXIS 3898 at *39 (Dec. 21, 1990),
the "antitrust ramifications of an acquisition must be considered in
light of the fact that public utilities are regulated monopolies and
that federal and state administrative agencies regulate the rates
charged consumers." On July 19, 1999, NiSource filed the Notification
and Report Forms with the Department of Justice ("DOJ") and Federal
Trade Commission pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, 15 U.S.C. Section 1311, ET SEQ. Act ("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 waiting period expired
on August 4, 1999.
In addition, FERC reviews the effects of jurisdictional
transactions on competition, rates and regulation. A copy of the
application to be filed by NiSource with FERC will be filed by
amendment to this Application/Declaration and will demonstrate the
absence of any anti-competitive effects.
In the context of the foregoing review, the Transaction will
not "tend towards 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
customers within the meaning of Section 10(b)(1). 15 U.S.C. Section
79j(b)(1).
b. Section 10(b)(2) Fairness of Consideration
Section 10(b)(2) requires the Commission to determine
whether the consideration to be given by NiSource to the holders of
Columbia common stock in connection with the Transaction is reasonable
and whether it bears a fair relation to investment in and earning
capacity of the utility assets underlying the securities being
acquired. On Friday, June 4, 1999, the last full trading day before
the first public announcement of NiSource's proposal to acquire
Columbia, the closing sale price per share of Columbia common stock on
NYSE was $55 per share. On June 23, 1999, the last full trading day
before the public announcement of the Offer, the closing sale per
share of Columbia's common stock on NYSE was $63 per share. The
fairness of the Transaction's consideration is evidenced by the fact
that NiSource is offering $6.1 billion, or $74 per share, in cash for
all outstanding shares of Columbia's common stock. This offer
represents a 28% premium over the average closing share price for
Columbia's common stock for the 30 trading days ending October 15,
30
1999 and a 45% premium over the average closing share price for
Columbia's common stock for the 30 trading days before the first
public announcement of NiSource's Offer to acquire Columbia. In
addition, as demonstrated in the table below, the quarterly price data
of Columbia common stock for the years 1997, 1998 and 1999 support
the fairness of NiSource's tender offer. The per share price offered
is considerably above Columbia's highest price prior to the
announcement of NiSource's proposal for Columbia.
Columbia Common Stock<17>
High Low Dividends
---- --- ---------
1999:
Fourth Quarter
(through Oct. 20, 1999) 62 3/8 55 1/16
Third Quarter 64 11/16 54 1/4 .225
Second Quarter 64 1/4 43 7/8 .225
First Quarter 58 44 5/8 .200
1998
Fourth Quarter 60 3/4 54 1/4 .200
Third Quarter 60 3/8 47 1/2 .200
Second Quarter 57 11/12 51 5/8 .200
First Quarter 52 17/24 47 1/3 .167
1997
Fourth Quarter 52 5/12 46 1/3 .167
Third Quarter 48 1/6 43 11/24 .167
Second Quarter 44 11/12 37 1/3 .167
First Quarter 43 11/12 38 5/12 .100
NiSource's Offer was priced after analysis and evaluation of the
assets, liabilities and business prospects of Columbia and of a
combined company. Moreover, in the context of a direct offer to
Columbia's shareholders, a presumption must exist that the price is
fair. In such circumstances, the price will be evaluated by market
forces.
In light of the foregoing, including an analysis of the
recent trading history of Columbia's common stock, NiSource and
Acquisition Corp. believe that the offer falls within the range of
reasonableness and that the Offer bears a fair relation to the sums
invested in, and the earning capacity of, Columbia's utility assets.
c. Section 10(b)(2) Reasonableness of Fees
NiSource believes that the overall fees and expenses to be
incurred in connection with the Transaction will be found reasonable
in light of the Transaction's size and complexity relative to similar
acquisitions and the anticipated benefits of the Transaction to the
_______________
<17> Amounts have been restated to reflect a three-for-two stock
split, in the form of a stock dividend, effective June 15, 1998.
31
public, investors and consumers. Details of such fees and expenses
will be provided by amendment to this Application/Declaration.
d. Section 10(b)(3) Capital Structure
Section 10(b)(3) requires the Commission to determine
whether the Transaction will unduly complicate NiSource's capital
structure or will be detrimental to the public interest, the interests
of investors or consumers or the proper functioning of NiSource's
system.
The capital structure of NiSource after the Transaction will
not be unduly complicated and will be substantially similar to capital
structures approved by the Commission in recent orders. A corporate
organizational chart of NiSource and Columbia will be filed by
amendment to this Application/Declaration. Although NiSource has not
conclusively determined its corporate structure after the Transaction
is consummated, it intends to undertake several significant steps to
simplify its organizational structure. Once the final structure is
determined, NiSource will file an amendment to this
Application/Declaration which describes its corporate structure and
provide an organizational chart of NiSource after consummation of the
Transaction.
Set forth below are summaries of the capital structures of
NiSource and Columbia as of June 30, 1999:
NiSource and Columbia Capital Structures
(dollars in millions)
NiSource Columbia
-------- --------
Common Stock Equity $1,369 $ 2,071
Preferred stock not
subject to mandatory
redemption 86 0
Preferred stock subject
to mandatory redemption 55 0
Company obligated mandatorily
preferred securities 345 0
Long-Term Debt 2,008 1,951
Short-Term Debt 494 175
Total $4,357 $4,197
32
The debt financing by NiSource of Columbia's acquisition
represents only short-term bridge financing. Although the combined
cash flow of NiSource and Columbia would comfortably service the
interest requirements of the Facility under reasonable interest rate
assumptions, NiSource intends to replace the Facility with the
issuance of equity and debt in order to improve its debt/equity ratio
after consummation of the Transaction. In refinancing the Facility,
it will issue equity and other securities to establish a debt/equity
ratio consistent with the business environment in which it operates
and comparable to other registered public utility holding companies.
As previously noted, prior to the consummation of the Transaction,
NiSource will file a separate Application/Declaration under the Act
with respect to the refinancing of the Facility and with respect to
its ongoing financing activities after giving effect to the
Transaction.
3. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the
provisions of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of section
8 or is detrimental to the carrying out of the provisions of
section 11;<18> or
(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system.
15 U.S.C. Section 79j(c).
a. Section 10(c)(1)
Section 10(c)(1) requires that an acquisition be lawful
under Section 8 of the Act. 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 it is
prohibited by state law. As discussed below, the Transaction does not
raise any issues under Section 8 of the Act. Indeed, Section 8
indicates that a registered holding company may own both gas and
_______________
<18> By their terms, Sections 8 and 11 only apply to registered
holding companies and are therefore inapplicable at present to
NiSource, since it is not now a registered holding company. The
following discussion of Sections 8 and 11 is included only because,
under the present transaction structure, NiSource will register as a
holding company after consummation of the Transaction.
33
electric utilities where the relevant state utility commission permits
such an arrangement.
Section 10(c)(1) also requires that the transactions not be
detrimental to carrying out the provisions of Section 11 of the Act.
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 powers are fairly
and equitably distributed. As described above in ITEM 3.A.2, the
Transaction will not result in unnecessary complexities or unfair
voting powers.
Section 11(b)(1) of the Act 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 operations
of such integrated public-utility system." 15 U.S.C. Section
79k(b)(1). However, Section 11(b)(1) further provides that "one or
more additional integrated public-utility systems" may be retained if
certain criteria are met. ID. 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." 15 U.S.C. Section 79k(b)(2).
As detailed below, the Transaction is lawful under Section 8
and is not detrimental to carrying out the provisions of Section 11.
i. Retention of Electric Operations
NiSource's retention of the electric operations of Northern
Indiana is lawful under Section 8 of the Act and is not detrimental to
carrying out the provisions of Section 11 of the Act.
Section 8 of the Act provides that:
Whenever a State law prohibits, or requires approval or
authorization of, the ownership or operation by a single
company of the utility assets of an electric utility company
and a gas utility company serving substantially the same
territory, it shall be unlawful for a registered holding
company, or any subsidiary company thereof . . . (1) to take
any step, without the express approval of the State
commission of such State, which results in its having a
direct or indirect interest in an electric utility company
and a gas company serving substantially the same territory;
or (2) if it already has any such interest, to acquire,
without the express approval of the State commission, any
direct or indirect interest in an electric utility company
or gas utility company serving substantially the same
territory as that served by such companies in which it
already has an interest.
34
15 U.S.C. Section 79h. A plain reading of Section 8 indicates that,
with the approval of the relevant state utility commissions, a
registered holding company can include both electric and gas utility
systems. A more detailed examination of Section 8 in light of its
legislative history indicates that the purpose of this section is to
preclude ownership by a registered holding company of separate gas and
electric utility companies with overlapping service territories in an
attempt to circumvent state law restrictions that preclude ownership
of gas and electric assets by the same company.<19>
Section 8 of the Act and the public interest both permit
NiSource's retention of its Northern Indiana operations upon
completion of the Transaction and NiSource's registration as a holding
company. NiSource's existing gas and electric operations in Indiana,
which are in overlapping service territories, are in conformity with
Indiana law. These utility operations will not change as a result of
the Transaction. Consequently, NiSource is not using its holding
company structure to circumvent state regulation. The IURC currently
exercises, and will continue to exercise, jurisdiction over NiSource's
Indiana gas and electric operations.
In addition to Section 8 of the Act, Section 11 contains
provisions that permit the retention by NiSource of Northern Indiana's
electric operations. Section 11(b)(1) of the Act permits a registered
holding company to control one or more additional integrated public
utility systems i.e., electric as well as gas utility systems if:
(A) each of such 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 such additional systems are located in one
state, adjoining states, or a contiguous foreign country;
and
(C) the continued combination of such systems under the
control of such holding company 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 regulation.
_______________
<19> The Report of the Committee on Interstate Commerce, S. Rep.
No. 621 at 29 (1935) (Section 8 of the Act "is concerned with
competition in the field of distribution of gas and electric energy
a field which is essentially a question of State policy, but which
becomes a proper subject of Federal action where the extra-State
device of a holding company is used to circumvent state policy.").
35
15 U.S.C. Section 79k(b)(1). These three subsections of Section
11(b)(1) are frequently referred to as the "ABC Clauses" and each
clause is addressed separately below.
Clause A: The Commission has interpreted Clause A "to
require an affirmative showing by a registrant that an additional
system could not be operated under separate ownership without a loss
of economies which are 'so important as to cause a serious impairment
of that system' and 'substantial in the sense that they were important
to the ability of the additional system to operate soundly.'" NEW
CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at **44-45
(Aug. 1, 1997), quoting New England Elec. Sys., HCAR No. 15035, 1964
SEC LEXIS 999 at **9, 12 (Mar. 19, 1964). A registered holding
company generally satisfies the requirements of Clause A by preparing
a "divestiture" or "severance" study which examines the estimated loss
of economies precipitated by a hypothetical divestiture "expressed in
terms of the ratio of increased expenses to the system's total
operating revenues, operating revenue deductions (excluding federal
income taxes), gross income and net income before federal income
taxes." ID. at *47 n.52. In an early leading decision, the
Commission found that cost increases which resulted in a 6.78% loss of
operating revenues, a 9.72% increase in operating revenues deductions,
a 25.44% loss of gross income and a 42.46% loss of net income provided
an "impressive basis for finding a loss of substantial economies."
ENGINEERS PUB. SERV. CO., HCAR No. 3796, 1942 SEC LEXIS 941 at *43
(Sept. 17, 1942), REV'D ON OTHER GROUNDS AND REMANDED, 138 F.2d 936
(D.C. Cir. 1943), VACATED AS MOOT, 332 U.S. 788 (1947).
NiSource will prepare a divestiture study with respect to
Northern Indiana which it expects will demonstrate substantial lost
economies if NiSource is required to divest Northern Indiana. These
lost economies will result from the need to replicate corporate and
administrative services, lost economies of scale and the costs of
reorganization, and will be described more fully in the divestiture
study which will be filed as an amendment to this
Application/Declaration.
In addition to quantitative factors, the Commission also
considers qualitative factors in its determination under Clause A.
First, the Commission in recent decisions has approved the retention
by registered holding companies of combination gas and electric
systems because "separation of gas and electric businesses may cause
the separated entities to be weaker competitors than they would be
together." NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS
1583 at *52 (Aug. 1, 1997); CINERGY CORP., HCAR No. 26934, 1998 SEC
LEXIS 2377 at *8 (Nov. 2, 1998); WPL HOLDINGS, INC., HCAR No. 26856,
1998 SEC LEXIS 676 at **62-63 (Apr. 14, 1998), AFF'D SUB NOM., MADISON
36
GAS AND ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999).<20> Due
to the recent wave of mergers between electric and gas utilities
(E.G., Duke Power Company/PanEnergy Corp., Houston Industries,
Inc./NorAm Energy Corporation, Enron Corporation/Portland General
Corporation, Dominion Resources, Inc./Consolidated Natural Gas
Company), NiSource's competitive position in the market could suffer
because as the utility industry moves toward a complete energy
services concept, competitive companies must be able to offer
customers a range of options to meet their energy needs. The
combination of electric and gas operations in a single company offers
that company a means to compete more effectively in the emerging
energy services business. SEE WPL HOLDINGS, INC., HCAR No. 26856
(Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC , 168
F.3d 1337 (D.C. Cir. 1999). Proposed transactions should continue to
be evaluated in light of this continuing evolution in the utility
industries. Second, the Commission has noted that the DOJ and FERC
typically have concomitant jurisdiction over public utility mergers
and typically consider anticompetitive consequences of any proposed
transactions. NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC
LEXIS 1583 at *55 (Aug. 1, 1997). The Transaction is expressly
conditioned on the approval of the DOJ. Third, the Commission
considers whether the electric and gas properties have long been under
common control and whether retention would alter the STATUS QUO with
respect to utility operations. Northern Indiana's electric and gas
operations have been under common control since 1926 and permitting
the retention of Northern Indiana's electric business would not alter
the STATUS QUO with respect to its utility operations. Finally, the
Commission determines whether the proposed acquisition has not
"elicited any adverse reaction from interested state commissions." Id.
at *56. This factor should not present a problem either because the
Transaction is expressly conditioned upon NiSource receiving all
necessary regulatory approvals from the relevant state commissions.
The Transaction will not go forward unless NiSource satisfies any
reservations the relevant state commissions may have regarding the
Transaction.
Clause B: The requirements of Clause B are met because
Northern Indiana's electric operations are located in the same state
as its gas operations their service territories physically overlap
and are located in an adjoining state to Columbia's gas operations in
Ohio.
_______________
<20> The Commission further noted that the "empirical basis" for
the assumptions underlying its decision in NEW ENGLAND ELEC. SYS.,
HCAR No. 15035 (Mar. 19, 1964), REV'D, SEC V. NEW ENGLAND ELEC. SYS.,
346 F.2d 399 (1st Cir. 1965), REV'D AND REMANDED, 384 U.S. 176 (1966),
ON REMAND, 376 F.2d 107 (1st Cir. 1967), REV'D, 390 U.S. 207 (1968)
was "rapidly eroding." NEW CENTURY ENERGIES, INC., HCAR No. 26748,
1997 SEC LEXIS 1583 at *54 (Aug. 1, 1997).
37
Clause C: The requirements of Clause C are met because the
continued combination of the electric and gas operations under
NiSource 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 regulation.
Northern Indiana's electric system is confined to a relatively small
geographic area. NiSource will maintain management of electric
operations geographically close to Northern Indiana's electric
operations, thereby preserving the advantages of localized management.
Northern Indiana's electric operations will also remain subject to the
IURC's jurisdiction, thereby maintaining the effectiveness of
regulation. Finally, Northern Indiana's electric operations enjoy
substantial economies as part of the NiSource system, and will realize
additional economies as a result of the Transaction from becoming part
of a combined NiSource/Columbia system. Far from impairing the
advantages of efficient operation, the continued combination of
Northern Indiana's electric and gas operations will continue to
facilitate and enhance efficiency.
ii. Non-Utility Businesses
Section 11(b)(1) limits the non-utility interests of a
registered holding company to "interests that are 'reasonably
incidental, or economically necessary or appropriate to the operations
of such integrated public-utility system,' on a finding by the
Commission that such interests are 'necessary or appropriate in the
public interest or for the protection of investors or consumers and
not detrimental to the proper functioning' of the integrated system."
NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583 at *36
n.37 (Aug. 1, 1997). "The Commission has interpreted these provisions
to require the existence of an operating or functional relationship
between the utility operations of the registered holding company and
its nonutility activities." ID. at *62 n.70.
Rule 58 provides exemptions for investments in certain
energy related businesses up to the greater of $50 million or 15% of
the consolidated capitalization of such registered holding company.
17 C.F.R. Section 250.58. Further, the Commission has determined that
existing investments in energy-related companies (as of the date of
the consummation of the merger) of an exempt holding company which
became a registered holding company as a result of the merger should
be disregarded for purposes of calculating the dollar limitations
imposed by Rule 58. SEE NEW CENTURY ENERGIES, INC., HCAR No. 26748,
1997 SEC LEXIS 1583 at *63 (Aug. 1, 1997); AMEREN CORP., HCAR No.
26809, 1997 SEC LEXIS 2719 at **39-40 (Dec. 30, 1997); CONECTIV, INC.,
HCAR No. 26832, 1998 SEC LEXIS 326 at *42 (Feb. 25, 1998).
NiSource is currently a holding company that is exempt from
the registration requirements of the Act. As an exempt holding
company, NiSource 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 Transaction will result
38
in NiSource becoming a registered holding company. Therefore, it is
necessary to evaluate each of NiSource's nonutility business
activities within the retention restrictions of the Act and the
Commission's rules promulgated thereunder. Columbia has been subject
to regulation as a registered holding company for an extended period.
Therefore, Columbia's ability to engage in nonutility businesses has
been subject to the approval requirements of Section 9, and each of
Columbia's existing nonutility businesses has been either approved by
the Commission or falls within the exemptions of Rule 58.
Consequently, the discussion below focuses on the retention of
NiSource's nonutility businesses as appropriate either under the
exemptions of Rule 58 or prior Commission precedent. Most of
NiSource's non-utility businesses are demonstrably functionally
related to its gas and electric utility operations. In addition,
NiSource believes that significant equitable arguments support the
retention of its various non-utility businesses.<21>
Natural Gas Pipeline, Storage and Gathering: NiSource has
two wholly-owned interstate natural gas pipeline subsidiaries.
Crossroads operates an interstate pipeline from Indiana to Ohio
connecting NGPL, Trunkline and Panhandle Eastern with Columbia
Transmission and gas utility customers in Ohio and Indiana. Granite
State operates an interstate pipeline extending from Massachusetts,
where it interconnects with Tennessee Gas, through New Hampshire and
into Maine, where it interconnects at several points with PNGTS.
Granite State serves Northern and Bay State in all three states. In
addition, NiSource indirectly owns an interest in a pipeline in
northern New England, an intrastate natural gas pipeline in Texas and
natural gas salt cavern storage facilities.
These companies engage in "gas-related activities" under
Section 2(a) of the Gas-Related Activities Act of 1990 ("GRAA"). The
ownership of such businesses is authorized under Rule 58(a)(2) and
such businesses have routinely been permitted to be retained in prior
Commission orders approving mergers and the creation of new registered
holding companies. WPL HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS
676 at *105 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO.
V. SEC, 168 F.3d 1337 (D.C. Cir. 1999) (gas gathering system and gas
pipeline, dehydration and compression facilities); New Century
Energies, Inc., HCAR No. 26748, 1997 SEC LEXIS 1583 at **99-100 (Aug.
1, 1997) (gas pipeline and storage facilities).
Exploration and Production Operations: EnergyUSA has equity
interests in a domestic oil and gas producer with properties located
in Texas, Oklahoma and Louisiana and a Canadian oil and gas producer.
_______________
<21> In addition to the non-utility businesses listed below,
NiSource currently owns interests in several non-utility businesses
which are either inactive or which it is in the process of divesting.
39
The exploration of natural resources or the holding of
rights to such resources are "gas-related activities" under Section
2(b) of the GRAA. The ownership of such businesses is authorized
under Rule 58(a)(2) and such businesses have routinely been permitted
to be retained in prior Commission orders approving mergers and the
creation of new registered holding companies. WPL HOLDINGS, INC.,
HCAR No. 26856, 1998 SEC LEXIS 676 at **104-05 (Apr. 14, 1998), AFF'D
SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir.
1999); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at *92 (Aug. 1, 1997). SEE ALSO NEW ENGLAND ENERGY INC., HCAR No.
21862 (Dec. 30, 1980).
Non-Regulated Natural Gas and Electric Power Marketing:
Through direct and indirect subsidiaries, NiSource provides natural
gas sales and management services to industrial and commercial
customers.
The ownership of businesses engaged in the brokering and
marketing of energy commodities is specifically authorized under Rule
58(b)(1)(v) and the retention of such businesses has routinely been
permitted in prior Commission orders approving mergers and the
creations of new registered holding companies. WPL HOLDINGS, INC.,
HCAR No. 26856, 1998 SEC LEXIS 676 at *105 (Apr. 14, 1998), AFF'D SUB
NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999);
CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS 326 at *54 (Feb. 25,
1998); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at **93-94 (Aug. 1, 1997).
Energy-Related Projects: NiSource's subsidiary, Primary,
arranges energy-related projects for large energy-intensive facilities
through Harbor Coal, North Lake, LEC, Portside, CE and Whiting. The
SEC Staff issued a no-action letter concurring with NiSource that
North Lake is not an "electric utility" under Section 2(a)(3) of the
Act with respect to its involvement in the processing of steam into
electricity which is owned and used solely by Ispat in its
manufacturing operations. NIPSCO INDUS., INC., 1996 SEC No-Act.
LEXIS 541 (Jan. 19, 1996). Lakeside, Portside and CE process steam
into electricity under similar circumstances to North Lake. Whiting
recently announced an agreement with Amoco Oil Company to lease and
operate a net 525 MW natural-gas fired cogeneration facility adjacent
to Amoco's refinery in Whiting, Indiana. None of Primary's
subsidiaries engages in activities that would cause it to be a public
utility company under the Act. The Commission has permitted newly
registered holding companies to retain businesses which provide
operation and maintenance services to generating facilities and the
sale of steam to residential, commercial and industrial customers.
WPL HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS 676 at **114-15
(Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168
F.3d 1337 (D.C. Cir. 1999) (sale of steam to residential and
commercial customers); CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS
326 at **70-72 (Feb. 25, 1998) (ownership and operation of thermal
heating and cooling systems); NEW CENTURY ENERGIES, INC., HCAR No.
40
26748, 1997 SEC LEXIS 1583 at *80 (Aug. 1, 1997) (providing steam to a
manufacturing facility); AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS
2719 at *42 (Dec. 30, 1997) (steam heating business).
Energy Management: EnergyUSA Commercial, Inc., along with
its affiliates, provide energy management services, to industrial and
large commercial customers, which enhance competitiveness through cost
reductions, modernizing infrastructure and improving cost
accountabilities.
Rule 58(b)(1)(i) specifically permits registered holding
companies to invest in a business that derives substantially all of
its revenues from "the rendering of energy management services and
demand-side management services." 17 C.F.R. Section 250.58(b)(1)(i).
SEE ALSO CONECTIV, INC., HCAR No. 26832, 1998 SEC LEXIS 326 at **60-61
(Feb. 25, 1998); CENTRAL AND SOUTH WEST CORP., HCAR No. 26367 (Sept.
1, 1995); AMERICAN ELEC. POWER CO., HCAR No. 26267 (Apr. 5, 1995);
AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719 at **44-45 (Dec. 30,
1997); NEW CENTURY ENERGIES, INC., HCAR No. 26748, 1997 SEC LEXIS 1583
at *95 (Aug. 1, 1997).
HVAC Services: Two subsidiaries of EnergyUSA provide HVAC
services to industrial and commercial customers. The Commission has
permitted wholly-owned subsidiaries of registered holding companies to
provide services to system utilities and non-affiliates related to
heating, ventilation, and air conditioning. CONECTIV, INC., HCAR No.
26832, 1998 SEC LEXIS 326 at **54-55 (Feb. 25, 1998); CINERGY CORP.,
HCAR No. 26662, 1997 SEC LEXIS 294 at *3 (1997).
Customer Information Services ("CIS"): Customer Information
Services, Inc., a wholly-owned subsidiary of Development, participates
with IBM in a joint venture to enhance a CIS system (and training for
the system) which it markets to other utilities. The Commission has
permitted retention by registered holding companies of a business that
provides technical and consulting services, including billing services
and information systems or data processing, to affiliated and
non-affiliated companies. CONECTIV, INC., HCAR No. 26832, 1998 SEC
LEXIS 326 at *64 (Feb. 25, 1998) (consulting services related to
information system/data processing); NEW CENTURY ENERGIES, INC., HCAR
No. 26478, 1997 SEC LEXIS 1583 at *83 (Aug. 1, 1997) (intellectual
property owned or developed in the course of utility operations);
CENTRAL AND SOUTH WEST SERVICES, INC., HCAR No. 25132 (Aug. 10, 1990)
(licensing and sale of computer programs developed in the course of
utility business). In addition, these services are expressly
permitted under Rule 58 (b)(l)(vii), since they involve technical
expertise developed in the course of utility operations.
Water Utilities: The Water Utilities supply water for
residential, commercial and industrial uses in Indianapolis, Indiana
and surrounding areas. Precedent exists for the retention of such
water utilities and related activities by newly registered holding
companies under circumstances where the divestiture of such interests
41
would result in economic inequities and where such activities
represent a small portion of the registered holding company's
operations.
The Water Utilities represent only a small portion of
NiSource's total operations. In 1998, the Water Utilities had
operating revenues of $84 million. This figure represents less than
one percent of the $10.3 billion PRO FORMA combined operating revenues
of NiSource following consummation of the Transaction. The Commission
has previously authorized retention of water utilities by a newly
registered holding company that had a similar, DE MINIMIS effect on
the holding company's overall revenues. WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at *73 (Apr. 14, 1998), AFF'D SUB NOM.,
MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999).
NiSource's ownership of the Water Utilities results in
significant savings to the water customers through economies of scale
provided by NiSource. All of NiSource's subsidiaries benefit from
shared administrative services, such as payroll, tax, and financial
reporting software. Potential cost savings are also present through
combined billing, call center, dispatching services and lowered
capital expenditures. NiSource will prepare and file by amendment to
this Application/Declaration a divestiture study for the Water
Utilities and it anticipates that significant lost economies will
result if NiSource is required to divest the Water Utilities.
NiSource's ownership of the Water Utilities also provides
financial benefits to NiSource's gas and electric utility
subsidiaries. NiSource realizes property tax advantages for its gas
and electric utilities by combining water property holdings with gas
and electric holdings.
In addition to the financial benefits that result to
NiSource and its customers, NiSource's ownership of the Water
Utilities also represents a strategic business opportunity as the
competition in the energy industries accelerates and the natural gas
and electric utility industries continue to deregulate. The ownership
of water utilities, as well as gas and electric utilities, will
enhance NiSource's ability to provide essential resources to all of
its customers. The Water Utilities are strategically located less
than 50 miles from NiSource's electric and gas service territory.
Through its strong reputation in Indiana as a leading provider of
electric and gas service, and through the customer loyalty it is
building by providing quality service to its water customers, NiSource
is in a strategic position to provide multiple energy services to all
of its customers once deregulation occurs in Indiana.
The Commission recently permitted Alliant Energy Corp., a
newly registered holding company, to retain ownership of three water
utilities under similar circumstances. WPL HOLDINGS, INC., HCAR No.
26856 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC,
168 F.3d 1337 (D.C. Cir. 1999). NiSource believes its circumstances
42
justify retention of the Water Utilities by reference to such
precedent and is preparing a study to address the economic
consequences of divestiture.
Waste Water Treatment: IWC Services, Inc., a wholly-owned
subsidiary of IWCR, has a 52% interest in the White River
Environmental Partnership that provides waste water treatment services
for the cities of Gary, Plainfield and Indianapolis, Indiana. The
Commission has permitted registered holding companies to own
subsidiaries engaged in the ownership, operation and servicing of
waste water treatment facilities and consulting and management
services for waste water treatment. WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at **94-96 (Apr. 14, 1998), AFF'D SUB NOM.,
MADISON GAS & ELEC. CO. V. SEC, 168 F.3d 1337 (D.C. Cir. 1999); NEW
CENTURY ENERGIES, INC., HCAR No. 26478, 1997 SEC LEXIS 1583 at *73
(Aug. 1, 1997); AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719 at
*43 (Dec. 30, 1997).
Utility Related Services: SM&P and other NiSource
subsidiaries perform underground utility locating and marking services
in Indiana and other states. Miller installs, repairs and maintains
underground pipelines used in gas, water and sewer transmission and
distribution systems. SM&P provides services to four utility
industries telephone, gas, electricity and water. Miller provides
services to both gas and water utilities. The Commission has approved
a registered holding company's ownership of a business engaged in
providing construction, engineering and operation and maintenance
services primarily to nonaffiliates. CENTRAL AND SOUTH WEST SERVS.,
INC., HCAR No. 26280 (Apr. 26, 1995) (provisions of engineering and
construction services to nonaffiliates); ENTERGY CORP., HCAR No. 26322
(June 30, 1995) (provision of development, design, engineering,
construction and maintenance and management services to domestic and
foreign power projects); NEW ENGLAND ELEC. SYS., HCAR No. 26017 (Apr.
1, 1994) (provision of consulting services, including engineering,
design and construction, to nonaffiliates); GENERAL PUB. UTILS. CORP.,
HCAR No. 25108 (June 26, 1990) (provision of engineering and
management services in connection with investments in power production
facilities and related projects); NEW CENTURY ENERGIES, INC., HCAR No.
26478, 1997 SEC LEXIS 1583 at *67 (engineering, construction and
related services primarily to non-affiliates).
Financing: Capital Markets provides financing for
NiSource's non-utility subsidiaries and certain utility subsidiaries.
The Commission has on a number of occasions authorized registered
holding companies to own subsidiaries that provide financing and
related financial services to their affiliated companies. SEE
ALLEGHENY POWER SYS., INC., HCAR No. 26401 (Oct. 27, 1995); CSW
CREDIT, INC., HCAR No. 26437 (Dec. 22, 1995).
Real Estate: NiSource and its subsidiaries have invested in
several different types of real estate ventures. These fall into
several different categories, as described below.
43
* A wholly-owned subsidiary of Development manages or
sells off excess real estate owned by Development and
other NiSource subsidiaries. These investments are
functionally related to the activities of system
utilities and therefore, under Commission precedent,
NiSource should be allowed to retain the investment
after NiSource becomes a registered holding company.
SEE, E.G., CONECTIV, INC., HCAR No. 26832, 1998 SEC
LEXIS 326 at **53, 57, 60 (Feb. 25, 1998); UNITIL
CORP., HCAR No. 25524, 1992 SEC LEXIS 1017 at *3 n.7
(Apr. 24, 1992); WPL HOLDINGS, INC., HCAR No. 26856,
1998 SEC LEXIS 676 at *102 (Apr. 14, 1998), AFF'D SUB
NOM., MADISON GAS & ELEC. CO. V. SEC, 168 F. 3d 1337
(D.C. Cir. 1999).
* JOF Transportation Company, a wholly-owned subsidiary
of Development, owns a 40% passive interest in railroad
assets in the vicinity of several electric generating
plants owned by Northern Indiana and which Northern
Indiana currently uses to deliver coal to its electric
generating plants. Retention of NiSource's interest
would enable it to construct additional power lines or
gas pipelines in the future and to ensure continued
access to tracks needed to deliver coal to electric
generating plants owned by Northern Indiana. The
Commission has held that a registered public utility
holding company may hold property that will be needed
in the future to support operations of the utility
company. SEE NEW CENTURY ENERGIES, INC., HCAR No.
26748, 1997 LEXIS 1583 at **80-81 (Aug. 1, 1997) (water
rights held in connection with the future addition of
generation capacity); WPL HOLDINGS, INC., HCAR No.
26856, 1998 SEC LEXIS 676 at *111 (Apr. 14, 1998),
AFF'D SUB NOM., MADISON GAS & ELEC. CO. V. SEC, 168
F.3d 1337 (D.C. Cir. 1999) (undeveloped property for
the future development of utility-related assets). The
Commission has also allowed subsidiaries of registered
public utility holding companies to acquire or maintain
rail lines and rolling stock for the benefit of system
utilities. SEE THE SOUTHERN CO., HCAR No. 25734 (Jan.
13, 1993); THE NORTH AMERICAN CO., HCAR No. 3405, 1942
SEC LEXIS 1069 at **85-88 (Apr. 15, 1942); NEW CENTURY
ENERGIES, INC., HCAR No. 26748, 1997 LEXIS 1583 at *75
(Aug. 1, 1997) (railroad maintenance facility); WPL
HOLDINGS, INC., HCAR No. 26856, 1998 SEC LEXIS 676 at
**103-104 (Apr. 14, 1998), AFF'D SUB NOM., MADISON GAS
& ELEC. CO. V. SEC, 168 F. 3d 1337 (D.C. Cir. 1999)
(ownership and operation of rail lines).
* NDC Douglas Properties, Inc., a wholly-owned subsidiary
of Development, has 15 passive interests in multiple-
family residential developments, most of which are in
44
the service territory of NiSource's utility
subsidiaries. These investments are divided into six
limited partnerships and nine limited liability
companies and are held by NiSource in order to generate
low-income housing tax benefits under Section 42 of the
Internal Revenue Code. The investments are part of the
continued commitment by NiSource to provide high
quality, energy efficient, affordable housing to the
residents of various geographic and economic regions
served by its utilities. The Commission has allowed
subsidiaries of registered holding companies to invest
in low income housing provided that the holding company
is a passive investor and that the purpose of the
investment is to obtain federal and state income tax
credits as well as fulfilling civic responsibilities.
SEE AMEREN CORP., HCAR No. 26809, 1997 LEXIS 2719 at
**51-53 (Dec. 30, 1997); GEORGIA POWER CO., HCAR No.
26220, 1995 SEC LEXIS 174 at *1 (Jan. 24, 1995).
* KOGAF Enterprises, Inc. ("KOGAF"), a wholly-owned
subsidiary of Development, has invested in a project to
revitalize downtown Kokomo, Indiana, which is in the
service territory of Kokomo Gas. KOGAF has a passive
interest in a limited partnership which is conducting
the revitalization project. KOGAF's total investment
in the project is less than $100,000. Under Rule
40(a)(5), registered holding companies are permitted to
invest up to $5 million annually in qualified state
sponsored industrial development companies and up to $1
million annually in other local industrial or non-
utility enterprises. 18 C.F.R. Section 250.40(a)(5).
SEE AMEREN CORP., HCAR No. 26809, 1997 SEC LEXIS 2719
at **46-47 (Dec. 30, 1997); Ohio Power Co., HCAR No.
25604 (Aug. 11, 1992).
* Lake Erie Land Company ("Lake Erie"), a wholly-owned
subsidiary of Development, owns wetlands that can be
used as offsets to enable developers to obtain approval
for projects that require filling of wetlands. These
offsets could be used for construction projects by
NiSource system utilities and are also sold to other
developers in need of offsets. Because it is difficult
and economically inefficient to identify discrete,
small tracts of wetlands to be restored each time a
need for a small amount of offsets arises, it is
beneficial to have a large bank of restored wetlands
available to serve these needs as they arise and to
sell the offsets to third parties to the extent that
the available bank exceeds near term utility system
needs. Commission precedent supports the retention of
property held for future utility needs. WPL HOLDINGS,
INC., HCAR No. 26856, 1998 SEC LEXIS 676 at *111 (Apr.
45
14, 1998), AFF'D SUB NOM., MADISON GAS & ELEC. CO. V.
SEC, 168 F.3d 1337 (D.C. Cir. 1999). Furthermore,
larger tracts of wetlands are environmentally
preferable to smaller tracts that collectively comprise
the same number of acres. Thus, NiSource is able to
serve as a good environmental citizen as well as
meeting its system utility needs for wetlands offsets
by holding tracts of restored wetlands larger than the
minimum necessary for the foreseeable needs of its
system utilities. Divestiture of these assets would
impose an economic hardship because of the difficulty
and expense NiSource would incur if it had to purchase
wetlands each time it needed wetlands offsets for
utility development.
Lake Erie and a subsidiary also develop and operate
tracts of land which were initially purchased in
bankruptcy within the service territories of NiSource
utility subsidiaries into model communities that serve
community development and environmental interests. In
order to assure the developments meet NiSource's goals
for architectural, urban planning, and environmental
considerations, NiSource has made an active investment
in these projects. These investments, however,
represent approximately $62 million or just over 1% of
NiSource's net assets, and they are managed by a
subsidiary that is separate from the system utility
companies, so that any losses from these projects will
have no adverse impact on the utilities or their
ratepayers. NiSource requests that the Commission
permit retention of this investment, given that these
projects impose no significant risks on ratepayers and
taking into consideration the economic hardship that
NiSource would suffer if it were required to divest
itself of these projects after the substantial
investments it has made to ensure that the developments
meet the established community development, urban
planning and environmental goals. The Commission has
allowed retention of real estate operations created by
exempt holding companies before becoming registered
even though such operations were not strictly related
to utility operations. WPL HOLDINGS, INC., HCAR No.
26856 (Apr. 14, 1998); CONECTIV, INC., HCAR No. 26832
(Feb. 25, 1998); AMEREN CORPORATION, HCAR No. 26809
(Dec. 30, 1997); NEW CENTURY ENERGIES, INC., HCAR No.
26748 (Aug. 1, 1997). The Commission has also
authorized real estate investments where they benefited
utility operations. UNITIL CORP., HCAR No. 25524 (Apr.
24, 1992); AMERICAN ELECTRIC POWER CO., HCAR No. 21898
(Jan. 27, 1981).
46
b. Section 10(c)(2)
The Transaction will tend toward the economical and
efficient development of an integrated public utility system, thereby
serving the public interest, as required by Section 10(c)(2) of the
Act.
i. Efficiencies and Economies
The Commission should find that the Transaction is likely to
produce substantial economies and efficiencies over time, chiefly in
the areas of coordinated gas supply for the combined gas distribution
utilities and coordinated utilization and optimization of interstate
pipeline and storage capacity and gas storage deliverability. The
Transaction will also produce economies and efficiencies relating to
the development and marketing of energy services, both regulated and
unregulated. The Transaction will make it possible for NiSource's and
Columbia's gas distribution utilities to combine their separate
portfolios of gas supply, transportation and storage arrangements.
This will make the combined entity a larger volume participant in
common supply basins and at market hubs and centers. Having this
larger volume position will enable the combined entity to achieve
larger savings and create greater efficiencies than NiSource and
Columbia distribution utilities could achieve independently,
increasing their purchasing power and creating flexibility in
balancing demand and supply requirements of their combined utility
systems. Moreover, as the dynamics in the natural gas industry
continue to change (E.G., in response to the impact of growing
Canadian gas supplies on the Midwest and Northeast markets, the
elimination of inter-regional transportation "bottlenecks," the
growing importance of hubs and market centers, the continued
unbundling of LDC "merchant" (or gas sales or resales) functions from
LDC delivery services, and the "de-contracting" of long-term firm
transportation and storage contracts currently held by gas utilities),
the marketplace will create greater opportunities for larger, more
geographically diversified market participants. At the same time, the
marketplace will place increased importance on reducing transaction
costs to enable service providers to offer services at low cost.
Competitive Rates and Services: The Transaction will permit
NiSource to meet the challenges of the increasingly competitive
environment in the utility industry more effectively than either it or
Columbia would alone. The Transaction also will create financial and
operational benefits for customers in the form of lower rates and
better services over the long-term. The Transaction will be presented
to or subject to the approval of the relevant state public service
commissions. Those regulatory bodies will address the Transaction in
the context of its effect on rates and service in each jurisdiction
and NiSource will demonstrate the benefits of the Transaction in the
process of obtaining approvals.
47
Increased Size and Stability: Shareholders will benefit
over the long-term from the greater financial strength and financial
flexibility which NiSource will obtain. NiSource will be better able
to take advantage of future strategic opportunities and to reduce its
exposure to changes in economic conditions in any particular segment
of its business.
Diversification of Service Territory: The combined service
territories of NiSource and Columbia will be larger and more
geographically diverse than the independent service territories of
each company, reducing the combined company's exposure to changes in
economic, competitive or climatic conditions in any given sector of
the combined service territory relative to the exposure NiSource and
Columbia now face.
Coordination of Diversification Programs: NiSource and
Columbia each have complementary unregulated businesses, and NiSource,
as a stronger financial entity after the Transaction, should be able
to manage and pursue these unregulated businesses more efficiently and
effectively as a result of access to lower-cost capital and
efficiencies achievable through greater size.
Complementary Operational Functions: The combination of
NiSource and Columbia will allow NiSource after the Transaction to
offer customers a more complete menu of service options and a better
operational balance. Combining Columbia's natural gas-related
businesses with NiSource's electric expertise and operations, will
enhance the range and quality of product offerings and services that
can be offered to Columbia's customers. The combined companies will
also be better positioned to manage the fluctuating weather-related
load profiles of their gas distribution utilities.
Although some of the anticipated economies and efficiencies
will be fully realizable only on a long-term basis and some of the
potential benefits cannot be precisely estimated, they are properly
considered in determining whether the standards of Section 10(c)(2)
have been met. SEE AMERICAN ELEC. POWER CO., HCAR No. 20633 (July 21,
1978); CENTERIOR ENERGY CORP., HCAR No. 24073, 1986 SEC LEXIS 1655 at
*18 (Apr. 29, 1986) ("[S]pecific dollar forecasts of future savings
are not necessarily required; a demonstrated potential for economies
will suffice even when these are not precisely quantifiable.")
(footnote omitted). SEE ALSO ENERGY EAST CORP., HCAR No. 26976 (Feb.
12, 1999) (authorizing acquisition based on strategic benefits and
potential but presently unquantifiable savings). There is no
requirement in Section 10(c)(2) that the specific dollar estimates of
future savings be large in relation to the gross revenues of the
companies involved. SEE AMERICAN NATURAL GAS CO., HCAR No. 15620
(Dec. 12, 1966).
NiSource is continuing to analyze potential cost savings
resulting from the Transaction. Details will be filed by amendment to
this Application/Declaration.
48
ii. Integrated Gas Utility System
Under Section 10(c)(2), the Commission must affirmatively
find that the acquisition of Columbia by NiSource "will serve the
public interest by tending towards the economical and the efficient
development of an integrated public-utility system." 15 U.S.C.
Section 79j(c)(2). An "integrated public-utility system" is defined
in Section 2(a)(29), 15 U.S.C. Section 79j(c)(2) 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 effectuated
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.<22>
The combination of Columbia's gas utility operations with
the NiSource gas utility operations will yield an integrated gas-
utility system within the meaning of Section 2(a)(29)(B) of the Act.
Indeed, because Columbia's gas distribution properties form a bridge
between the Midwest and the mid-Atlantic and northeast regions,
bringing NiSource's and Columbia's gas distribution operations
together will forge even more substantial links between NiSource's
Midwestern gas utility operations and its New England operations than
the links that this Commission noted in 1999 in approving NiSource's
acquisition of Bay State.
Single Area Or Region: The gas utility system resulting
from the Transaction will include eight gas utilities located in the
contiguous states of Indiana, Kentucky, Ohio, Pennsylvania, Virginia
and Maryland and two gas utilities located in the contiguous states of
Massachusetts, New Hampshire and Maine. The utilities located in
contiguous states will be effectively interconnected by affiliated and
non-affiliated interstate pipelines and storage. The two groups of
contiguous utilities will likewise be capable of effective integration
through the coordinated use of pipeline and storage capacity and
supply sources they have in common.
_______________
<22> Unlike the definition of an "integrated electric utility
system" in Section 2(a)(29)(A) of the Act, physical interconnection of
the component parts of a gas utility system is not required. Further,
the Commission has previously recognized that "integrated or
coordinated operations of a gas system under the Act may exist in the
absence of [physical] interconnection." AMERICAN NATURAL GAS CO.,
HCAR No. 15620, 1966 SEC LEXIS 469 at *11 n.5 (Dec. 12, 1966).
49
Section 2(a)(29)(B) specifically contemplates that "gas
utility companies deriving natural gas from a common source of supply
may be deemed to be included in a single area or region." 15 U.S.C.
Section 79b(a)(29)(B). Moreover, in considering whether an "area or
region" is so large as to impair "the advantages of localized
management, efficient operation, and the effectiveness of regulation,"
the Commission must consider the "state of the art" in the industry.
ID.
The Commission's prior decisions establish that separation
between the states served is not determinative as to whether utility
operations constitute an integrated public utility system. SEE MCN
CORP., HCAR No. 26576 (Sept. 17, 1996) (approving acquisition of an
interest in a gas-utility company by an exempt gas-utility holding
company whose service area is located more than 500 miles distant in a
non-adjoining state); SEMPRA ENERGY, HCAR No. 26971 (Feb. 1, 1999)
(approving natural gas utility operations in California and North
Carolina as a single integrated public-utility system). The
integration of NiSource's Massachusetts, New Hampshire and Maine gas
utility operations and its Indiana gas utility operations has already
been established. This was an essential finding in the Commission
order approving NIPSCO's acquisition of Bay State. NIPSCO INDUS.,
INC., HCAR 26975 (Feb. 10, 1999). With the exception of NiSource's
New England operations the gas distribution operations of Columbia and
NiSource are in contiguous states and, given their location and
reliance on many of the same interstate pipelines, are readily
susceptible to being operated as an integrated system.
Common Source Of Supply: Historically, in determining
whether two distant gas companies share a "common source of supply,"
the Commission has placed primary importance on whether the gas supply
of the two companies is derived from the same gas producing areas (or
basins), recognizing that the most significant economies and
efficiencies that two gas utilities can achieve is through the
coordination and management of gas supply. The Commission has also
considered whether the two entities are served by a common pipeline.
Further, the Commission has found an integrated system to exist where
two entities purchase their gas from different pipelines which
originate in the same gas producing area and/or interconnect at
various points along the transportation route. <23>
The NiSource and Columbia gas utility systems will
functionally perform as a coordinated system. They now purchase gas
from common sources of supply (including the onshore and offshore
Texas and Louisiana producing region and the mid-Continent region) and
will continue to do so. Moreover, they will each have enhanced
opportunities to increase their respective purchases of Western
Canadian Sedimentary Basin gas sourced through the Chicago market
_______________
<23> SEE MCN CORP., HCAR No. 26576 (Sept. 17, 1996); CENTRAL POWER
CO., ET AL., HCAR No. 2471 (Jan. 7, 1941).
50
center. The NiSource and Columbia gas utility systems currently hold
firm transportation service agreements on a number of the same
interstate pipelines, including ANR, Panhandle Eastern, Tennessee Gas,
Texas Gas, Texas Eastern and Transco. The NiSource Midwestern gas
utilities are physically linked through Crossroads' interconnections
with Columbia Transmission, Trunkline and Panhandle Eastern with a
transmission system (Columbia Transmission) that serves each of the
Columbia gas distribution utilities. The Columbia and NiSource gas
distribution utilities also make use of other, regional pipelines to
transport and deliver Canadian and Appalachian-sourced supplies,
including Crossroads, National Fuel and CNG. In addition, gas
purchased by the unregulated marketing affiliates of each of NiSource
and Columbia has been transported by NiSource subsidiary Crossroads
for further delivery to utility customers served by NiSource's and
Columbia's gas public utilities located in Indiana, Ohio and
Pennsylvania. These links, and the increased presence the combined
NiSource and Columbia utilities will have at Midwestern, mid-Atlantic
and northeastern market centers, will facilitate coordinated
management of interstate transportation and gas supplies. Additional
efficiencies and arbitrage opportunities will be realized over time
through the combined companies' use of a single data management system
to record gas transaction data.
Trading "hubs" and market centers have rapidly grown in
importance as a result of the construction of new pipeline capacity,
the unbundling of interstate transportation from gas sales, the
development of high deliverability salt cavern storage gas storage
facilities and local distribution companies' "de-contracting" of firm
pipeline capacity. Trading hubs and market centers now provide market
participants with access to gas supplies sourced from multiple, widely
separated producing areas, by way of any number of interconnected
interstate pipeline facilities at a manageable number of common
geographic points. These hubs and centers have contributed to the
establishment of a fully integrated, competitive marketplace in which
real-time pricing is available.<24>
Using many of the same hubs and market centers, the NiSource
and Columbia gas public utilities and their affiliates have daily
opportunities to coordinate and manage their gas supply and
transportation portfolios. These opportunities will increase in
number and scope as a consequence of the combination of the two groups
of distribution companies. The result will be increased efficiency
and economy, and a greatly enhanced ability to support retail
_______________
<24> As a result of the evolution of an integrated, competitive
marketplace for both supply and transportation, the duration of
contracts has shortened considerably. In fact, local distribution
companies now purchase significant amounts of their gas supply under
short-term (E.G., daily) arrangements. Some local distribution
companies are as a corollary reducing their exposure under long-term
firm transportation contracts (a process known as "de-contracting").
51
unbundling and performance-based ratemaking initiatives that will
benefit the distribution companies' customers and their shareholders
alike. So, for example, gas purchased, sold or exchanged at the
Lebanon Hub in Ohio can satisfy the gas distribution utility
requirements of NiSource's Indiana gas utility subsidiaries,
Columbia's gas distribution companies in the mid-Atlantic region and
NiSource's gas distribution subsidiaries in New England. By utilizing
existing NiSource capacity and deliverability entitlements at the Egan
Storage hub in Louisiana, the various NiSource and Columbia
distribution utilities can achieve additional pricing certainty and
operational flexibility, and can share these benefits through their
common use of the Columbia Gulf/Columbia Transmission, ANR,
Trunkline/Panhandle Eastern, Tennessee Gas and Texas Gas systems.
Moreover, upon the completion of various proposed pipelines and/or
pipeline expansions from the Chicago area to the eastern U.S. markets,
the combined NiSource and Columbia distribution companies, either
directly or through interstate pipeline affiliates, will have direct
access to all gas supplies entering the Chicago market center.
Industry studies indicate that the importation of low-cost
western Canadian gas is reshaping the dynamics of gas supply in
certain U.S. markets (in particular the Midwest and
Northeast).<25> Those studies conclude that, in the future, there
will be much more of a west-to-east flow of gas to the Northeast.
With the expansion of import capacity into the Chicago area, it is
projected that the Midwest will experience an excess supply situation.
This expectation has lead to various regional pipeline expansion
proposals between the Midwest and Northeast, all of which are designed
to move Midwest supplies to the supply-constrained Northeast
markets.<26> As a consequence, it is likely that the Midwest
itself will become an important supply region for gas moving to the
Northeast. The combination of the NiSource and Columbia systems will
produce a single, integrated gas utility system, whose components will
be linked by affiliated and third party interstate pipelines, in an
essentially unbroken chain extending from the northwestern corner of
Indiana through the Midwest to the mid-Atlantic region and east into
New England.
_______________
<25> SEE, E.G., Energy Information Administration, NATURAL GAS
1998: ISSUES AND TRENDS, Ch. 5 (Natural Gas Pipeline Network: Changing
and Growing), at 109-27 (Washington, D.C. May 1999).
<26> SEE GENERALLY "THE OUTLOOK FOR IMPORTED NATURAL GAS," INGAA
Foundation, Inc. Report No. F-9705 (prepared by the Brattle Group,
1997). INGAA notes (at II-21 to II-22) that 5.4 Bcf/day of import
capacity additions into the Midwest have been proposed, and that over
4 Bcf/day of pipeline capacity additions have been proposed to
facilitate the flow of gas from the Midwest to the Northeast. Most of
these projects are planned to come on line between 1998-2000.
52
State Of The Art: Any determination of the appropriate size
of the area or region calls for consideration of the "state of the
art" in the gas industry. This "state of the art" continues to evolve
and change, primarily as a result of decontrol of wellhead prices, the
continuing development of an integrated national gas transportation
network, the emergence of natural gas marketers and brokers, and the
"un-bundling" of the commodity and transportation functions of
pipelines in response to various FERC initiatives.<27> Of
particular importance has been the formation of a national network of
trading hubs at locations where interstate pipelines
intersect.<28> Today, trading activity conducted at hubs plays an
increasingly vital role in the overall management of the assets in a
gas portfolio (supply, transportation and storage). The hubs
frequently utilized as trading centers for gas supply destined for the
Midwest, mid-Atlantic, and New England markets are listed below:
NAME OF HUB LOCATION INTERCONNECTING PIPELINES
----------- -------- -------------------------
Lebanon Ohio ANR, CNG, Columbia Transmission,
Panhandle Eastern, Texas Gas,
Texas Eastern
Portland Tennessee Tennessee Gas, Midwestern Gas
Transmission Co.
_______________
<27> The Commission has taken notice of the regulatory and
technological changes that have reshaped the natural gas industry over
the past two decades. SEE 1995 Report, at 29-38. The 1995 Report
recommended that the Commission "interpret the single area or region'
requirement [of Section 2(a)(29)] flexibly, recognizing technical
advances, consistent with the purposes and provisions of the Act."
ID. at 73.
<28> The development of trading hubs and market centers was the
direct outgrowth of FERC's Order 636, which required interstate
pipelines to separate, or "un-bundle," the commodity and
transportation and storage functions of the interstate pipelines. SEE
REGULATION OF NATURAL GAS PIPELINES AFTER PARTIAL WELLHEAD DECONTROL,
Order No. 636, 57 Fed. Reg. 13,267 (Apr. 16, 1992). FERC has promoted
the development of trading hubs as a means and location for providing
services that customers of the interstate pipelines (I.E., shippers)
need in order to manage their portfolios of gas supply,
transportation, and storage, all of which can now be contracted
separately. Today, there are more than 39 trading centers and market
hubs in operation. For a comprehensive analysis of the role of market
hubs and trading centers, see ENERGY INFORMATION ADMINISTRATION,
NATURAL GAS 1996: ISSUES AND TRENDS, DOE/EIA-0560(96).
53
NAME OF HUB LOCATION INTERCONNECTING PIPELINES
----------- -------- -------------------------
Maumee Ohio ANR, Columbia Transmission,
Panhandle Eastern
Leidy Pennsylvania Transco, Texas Eastern, CNG,
National Fuel
Ellisburg Pennsylvania Tennessee Gas, National Fuel
Chicago Market Illinois ANR, NGPL, Crossroads/Columbia,
Midwestern to Tennessee Gas,
Northern Border, Alliance
(proposed), TriState or Vector
to TransCanada to Millennium
(proposed), ANR to Independence
to National Fuel and Transco
(proposed)
Henry Hub Louisiana ANR, NGPL, Texas Gas, Trunkline,
Transco, Columbia Gulf
Perryville Louisiana Tennessee Gas, Texas Gas,
Reliant Gas Transmission
Broad Run West Virginia Columbia Transmission, Tennessee
Gas
Trading hubs (including all of those listed above)
essentially function as physical transfer points between intersecting
pipelines, where shippers (I.E., buyers and sellers) and traders can
sell, exchange or trade gas or pipeline capacity or redirect
deliveries to a different pipeline. Further, various types of
unbundled services are typically available at trading hubs, such as
temporary storage, parking and loaning of gas, and balancing. Because
of the role played today by market hubs and market centers,
coordination of the operations of two or more geographically
diversified gas companies is no longer dependent solely upon having
contractual capacity on the same interstate pipelines, so long as the
companies both have access to one or more common trading hubs.
Importantly, trading hubs now allow gas distribution
companies operating in a much larger area or region of the country to
realize operating economies and efficiencies from coordinated
operation that were once achievable only by contiguous or nearly
contiguous gas companies supplied by the same interstate pipelines.
In fact, as discussed below, the opportunities to achieve operating
economies may be even greater where companies seeking to combine have
significantly different load profiles (E.G., non-coincident seasonal
54
peaks, a substantially different customer mix, etc.).<29> This
logic applies with even greater force where, as in this case, one of
the companies (NiSource) has gas distribution operations in a major
gas market center (the Chicago market center) and in a region which
industry forecasts expect to experience significant growth in demand
(the U.S. northeast) while others (the Columbia distribution
utilities) are located between the market center and the high growth
area.
Because the NiSource and Columbia distribution utilities
share access through their respective pipeline transporters to several
industry-recognized market and supply-area hubs, they will have the
ability physically to coordinate and manage their portfolios of
supply, transportation and storage. One example of this is the
potential for coordination using the Egan Storage facility and common
interconnecting pipelines described above. NiSource and Columbia also
have access to the Henry Hub in southern Louisiana via capacity on the
ANR, NGPL, Trunkline, Texas Gas, Transco and Columbia Gulf pipelines.
The Henry Hub is the recognized center for natural gas futures trading
in the U.S. Through nine interstate and four intrastate pipeline
interconnections, market participants such as Columbia and NiSource's
gas distribution utilities and other affiliates can physically
support, if necessary, the utilization of financial derivatives as a
means of managing price volatility.
Moreover, through interconnections via Crossroads and third
party pipelines between NiSource's midwestern gas distribution
utilities and the Columbia Transmission system, both NiSource's and
Columbia's gas public utilities will benefit from the ability to share
and optimize storage capacity each company owns or has under contract.
As previously stated, NiSource has access to "high deliverability"
salt dome storage capacity held by Northern Indiana in Texas and
Louisiana, while Columbia's distribution companies have contractual
rights to use the substantial storage capacity operated by Columbia
Transmission. Similar opportunities to optimize contractual
entitlements to capacity and deliverability exist with respect to the
LNG storage capacity which the NiSource and Columbia distribution
companies own or have under contract. Shared access to the various
classes of gas storage facilities would provide NiSource and Columbia
with an important gas balancing capability, which will allow the
combined companies to manage fluctuating weather-related load profiles
on their various distribution systems.
Finally, by making enhanced use of the Crossroads/Columbia
Transmission interconnect, Columbia's distribution companies would
gain direct access to the Chicago market center. Such access will be
an important gas supply resource and a vital risk management tool as
_______________
<29> For example, due to the normal effects of the west-to-east
"weather lag," Bay State's demand pattern tends to follow the NiSource
demand pattern by, on average, 24 to 48 hours.
55
the Chicago market center becomes an increasingly important source of
gas for all eastern U.S. markets.
No Impairment: The resulting integrated gas system to be
formed by the combination of Columbia's gas properties with those of
NiSource will not be "so large as to impair (considering the state of
the art and the area or region affected) the advantages of localized
management, efficient operation, and the effectiveness of regulation."
In this case, the separate corporate identity and local
headquarters of each of Columbia's five natural gas public utility
subsidiaries will be maintained. Further, following the Transaction,
each of the Columbia and NiSource public utilities will remain subject
to regulation as to rates, service, and other matters by the
regulatory agencies in each of the states in which they provide public
utility services.
4. Section 10(f) State Laws and Section 11
Section 10(f) of the Act provides that:
The Commission shall not approve any acquisition as to which
an application is made under this section unless it appears
to the satisfaction of the Commission that such State laws
as may apply in respect to such acquisition have been
complied with, except where the Commission finds that
compliance with such State laws would be detrimental to the
carrying out of the provisions of section 11.
15 U.S.C. Section 79k(f). As described in Item 4 of this
Application/Declaration, NiSource and Acquisition Corp. will comply
with all applicable state laws related to the Transaction.
B. INTRA-SYSTEM PROVISION OF SERVICES
In addition to requesting that the Commission find that
Corporate Services meets the organizational and operational
requirements of Section 13(b) for subsidiary service companies,
NiSource also requests exemptions from the provisions of Rules 90 and
91, and the at-cost requirements contained therein, in connection with
services provided by Corporate Services to any affiliated qualifying
facilities ("QFs"), independent power producers ("IPPs"), exempt
wholesale generators ("EWGs") and foreign utility companies ("FUCOs").
As described in more detail below, NiSource believes these exemptions
will help these companies compete more effectively for the provision
of services to such entities, which are either majority owned by
unaffiliated third parties (eliminating the potential for abusive
affiliate transactions) or are otherwise adequately regulated with
respect to affiliated transactions and do not otherwise present the
concerns for which the Commission developed its at-cost requirements.
The Commission has granted similar exemptions to existing registered
holding companies. All other services provided by NiSource system
56
companies to other NiSource system companies will be in accordance
with the requirements of Section 13 of the Act, unless otherwise
exempted by the Commission or the rules promulgated under the Act.
1. Corporate Services
As described above, although NiSource may maintain Columbia
Energy Services as a separate service company during a transitional
period, NiSource currently intends to combine Columbia Energy Services
with NiSource's corporate service company. Corporate Services will
provide Northern Indiana, Kokomo Gas, NIFL, Columbia Ohio, Columbia
Pennsylvania, Columbia Virginia, Columbia Kentucky and Columbia
Maryland, pursuant to an appropriate service agreement, with a variety
of administrative, management and support services, including services
relating to planning, transportation, materials management, facilities
and real estate, accounting, budgeting and financial forecasting,
finance and treasury, rates and regulation, legal, internal audit,
corporate communications, environmental, fuel procurement, corporate
planning, investor relations, human resources, marketing and customer
services, information systems, information technology management,
general administrative and executive management services and other
services. In accordance with the service agreement, any services
provided by Corporate Services will be directly assigned, distributed
or allocated by activity, project, program, work order or other
appropriate basis. To accomplish this, employees of Corporate
Services will record transactions utilizing the existing data and
accounting systems of each client company. Costs of Corporate
Services will be accumulated in accounts and directly assigned,
distributed and allocated to the appropriate client company in
accordance with the guidelines set forth in the service agreement.
NiSource is currently developing the system and procedures necessary
to implement the Commission's rules.
Corporate Services' accounting and cost allocation methods
and procedures are structured so as to comply with the Commission's
requirements for service companies in registered holding company
systems. Its billing system uses or will use the "Uniform System of
Accounts for Mutual Service Companies and Subsidiary Service
Companies" established by the Commission for service companies of
registered holding company systems.
As compensation, the service agreement would provide that
the client company will pay to Corporate Services all costs which
reasonably can be identified and related to particular services
performed by Corporate Services. Where more than one client company
has received benefits from a service performed by Corporate Services,
costs will be directly assigned, distributed or allocated, between or
among such client companies on a basis reasonably related to the
services performed. Therefore, charges for all services provided by
Corporate Services to affiliated utility companies will be on an "at
cost" basis in accordance with Rules 90 and 91 of the Act.
57
NiSource has not yet determined whether Corporate Services
will perform services to NiSource's and Columbia's non-utility
subsidiaries under the service agreement or a separate non-utility
service agreement. Nevertheless, services provided by Corporate
Services to non-utility affiliates will also be charged on an "at
cost" basis in accordance with Rules 90 and 91 of the Act, except as
authorized by the Commission to be provided at fair market value.
Section 13(b) of the Act allows the Commission to exempt
transactions, by rule, regulation or order, from the provisions of
Section 13(b) and the rules promulgated thereunder if such
transactions:
(1) are with any associate company which does not
derive, directly or indirectly, any material part of
its income from sources within the United States and
which is not a public utility company operating within
the United States or (2) involve special or unusual
circumstances or are not in the ordinary course of
business.
15 U.S.C. Section 79m(b). The Commission grants such an exemption to
permit non-utility subsidiaries of a registered holding company to
provide certain services to FUCOs, EWGs, IPPs and QFs at market-based
rates.<30> In addition, in the 1995 Report, the Division
recommended that "the SEC should also issue exemptive orders under
Section 13 allowing more nonutility subsidiaries to charge market
rates to nonutility affiliates."<31> The Commission's primary
concern under Section 13 is to protect utility subsidiaries in a
registered holding company system from abusive cross-subsidization
transactions with non-utility affiliates. Exemptions from Rules 90 and
91 for transactions solely between non-utility affiliates will not
interfere with the financial integrity of the utility affiliates, but
will benefit the holding company system by permitting it to offer
competitively priced services based on market considerations.
Therefore, Corporate Services requests that the Commission grant an
exemption from the provisions of Rules 90 and 91, and the at-cost
requirement contained therein, in order for Corporate Services to
provide services to associate FUCOs, EWGs, IPPs and QFs. No services
will be provided at market-based rates to a FUCO, EWG, IPP or QF
selling electricity to Northern Indiana unless authorized by the Act
or the Commission.
No change in the organization of Corporate Services, the
type and character of the client companies, the methodology for
_______________
<30> See, E.G., ENTERGY CORP., HCAR No. 26322 (June 30, 1995);
GENERAL PUB. UTILS. CORP., HCAR No. 26307 (June 14, 1995); THE
SOUTHERN CO., HCAR No. 26212 (Dec. 30, 1994).
<31> 1995 Report at 102.
58
allocating costs to client companies, or the scope and character of
the services to be rendered subject to Section 13 of the Act, or any
rule promulgated by the Commission thereunder, shall be made unless
and until Corporate Services shall have first provided the Commission
with written notice of the proposed change at least 60 days prior to
the proposed effective date. If, upon the receipt of such notice, the
Commission notifies Corporate Services within the 60-day period that a
question exists as to whether the proposed change is consistent with
the provisions of Section 13 of the Act, or of any rule promulgated by
the Commission thereunder, then the proposed change will not become
effective unless and until Corporate Services has filed with the
Commission an appropriate declaration regarding the proposed change
and the Commission has permitted the declaration to become effective.
NiSource submits that its service agreements will be
structured in a manner which complies with Section 13 of the Act and
the Commission's rules and regulations thereunder and requests the
Commission's approval of these agreements.
Rule 88 provides that "[a] finding by the Commission that a
subsidiary company of a registered holding company . . . is so
organized and conducted or to be conducted, as to meet the
requirements of section 13(b) of the Act with respect to reasonable
assurance of efficient and economical performance of services or
construction or sale of goods for the benefit of associate companies,
at cost fairly and equitably allocated among them (or as permitted by
[Rule 90]), will be made only pursuant to a declaration filed with the
Commission on Form U-13-1, as specified" in the instructions for that
form, by such company or the persons proposing to organize it. 17
C.F.R. Section 250.88. Notwithstanding the language of Rule 88, the
Commission has recently made findings under Section 13(b) based on
information set forth in an Application/Declaration or Form U-1,
without requiring the formal filing of a Form U-13-1. SEE CINERGY
CORP., HCAR No. 26146 (Oct. 21, 1994); UNITIL CORP., HCAR No. 25524
(April 24, 1992). In this Application/Declaration, NiSource submits
the same information as would be submitted in a Form U-13-1.
Accordingly, NiSource submits to the Commission that the
filing of a Form U-13-1 is unnecessary, or, alternatively, that this
Application/Declaration should be deemed to constitute the filing of
Form U-13-1 for purposes of Rule 88.
ITEM 4. REGULATORY APPROVALS
------------------------------
Approval of the Transaction is required, or may be required,
from, and the Transaction will be reviewed by, the following state
public utility commissions: Public Utilities Commission of Ohio,
Virginia State Corporation Commission, Maryland Public Service
Commission, Pennsylvania Public Utility Commission, Kentucky Public
59
Service Commission, Maine Public Utilities Commission and New
Hampshire Public Utilities Commission. In addition, certain aspects
of the Transaction (the transfer of control of Columbia's FERC-
jurisdictional power marketing subsidiaries to NiSource) are subject
to the jurisdiction of FERC under Section 203 of the Federal Power
Act. The Transaction is also subject to the notification and
reporting requirements of the HSR Act. The HSR waiting period expired
on August 4, 1999. No other state or federal commission has
jurisdiction over the Transaction.
ITEM 5. PROCEDURE
-------------------
NiSource and Acquisition Corp. respectfully request the
Commission to expedite its approval of this Application/Declaration.
A proposed form of notice is attached hereto as Exhibit H-1. NiSource
hereby waives a recommended decision by a hearing officer or any other
responsible officer of the Commission and consents that the Division
of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the
Transaction.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
-------------------------------------------
A. EXHIBITS
--------
A-1 Amended and Restated Articles of Incorporation of
NiSource Inc. dated as of May 13, 1998, as amended
on May 20, 1998 and April 14, 1999.
A-2 Amended and Restated By-Laws of NiSource Inc.
dated as of April 14, 1999.
A-3 Articles of Incorporation of Columbia. (To be
filed by amendment)
A-4 By-Laws of Columbia. (To be filed by amendment)
A-5 Articles of Incorporation of Acquisition Corp.
A-6 By-Laws of Acquisition Corp.
B-1 Service Agreement. (To be filed by amendment)
B-2.1 Commitment Letter dated June 23, 1999 to NiSource
Inc. from Credit Suisse First Boston Corporation
and Barclays Bank PLC. (Incorporated by reference
to Exhibit 11(b)(1) to the Schedule 14D-1 filed by
CEG Acquisition Corp. and NiSource Inc. on June
25, 1999).
60
B-2.2 Amended and Restated Commitment Letter dated
October 15, 1999 to NiSource Inc. from Credit
Suisse First Boston Corporation and Barclays Bank
PLC, (Incorporated by reference to Exhibit
11(b)(1) to the Schedule 14D-1/A, Amendment No.
25, filed by CEG Acquisition Corp. and NiSource
Inc. on October 18, 1999).
B-3 Credit Agreement and related documentation. (To
be filed by amendment)
B-4 Support Agreement dated April 4, 1989, as amended
on May 15, 1989, December 10, 1990 and February
14, 1991 between NIPSCO Industries, Inc. (now
known as NiSource Inc.) and NIPSCO Capital
Markets, Inc. (now known as NiSource Capital
Markets, Inc.). (Incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form
S-3 filed by NIPSCO Capital Markets, Inc. and
NIPSCO Industries, Inc. on November 13, 1992
(Registration No. 33-54516)).
B-5 Agreement and Documents Relevant to the Merger of
Acquisition Corp. and Columbia. (To be filed by
amendment)
C-1.1 Schedule 14D-1 filed by CEG Acquisition Corp. and
NiSource Inc. to acquire outstanding shares of
Columbia Energy Group (Filed with the Commission
on June 25, 1999, File No. 510049 and incorporated
by reference herein).
C-1.2 Schedule 14D-1/A, Amendment No. 25, filed by CEG
Acquisition Corp. and NiSource Inc. to acquire the
outstanding shares of Columbia Energy Group.
(Filed with the Commission on October 18, 1999,
File No. 510049 and incorporated by reference
herein).
D-1.1 Application to the FERC under the Federal Power
Act. (To be filed by amendment)
D-1.2 Order of the FERC. (To be filed by amendment)
D-2.1 Application to the Virginia Commission. (To be
filed by amendment)
D-2.2 Order of the Virginia Commission. (To be filed by
amendment)
D-3.1 Application to the Maryland Commission. (To be
filed by amendment)
61
D-3.2 Order of the Maryland Commission. (To be filed by
amendment)
D-4.1 Application to the Pennsylvania Commission. (To
be filed by amendment)
D-4.2 Order of the Pennsylvania Commission. (To be
filed by amendment)
D-5.1 Application to the Ohio Commission. (To be filed
by amendment)
D-5.2 Order of the Ohio Commission. (To be filed by
amendment)
D-6.1 Application to the Kentucky Commission. (To be
filed by amendment)
D-6.2 Order of the Kentucky Commission. (To be filed by
amendment)
D-7.1 Application to the Maine Commission. (To be filed
by amendment)
D-7.2 Order of the Maine Commission. (To be filed by
amendment)
D-8.1 Application to the New Hampshire Commission. (To
be filed by amendment)
D-8.2 Order of the New Hampshire Commission. (To be
filed by amendment)
E-1 Map of service territory of NiSource. (To be
filed by amendment)
E-2 Map of service territory of Columbia. (To be
filed by amendment)
E-3 Map of service territory of Bay State. (To be
filed by amendment)
E-4 NiSource Corporate Organization Chart. (To be
filed by amendment)
E-5 Columbia Corporate Organization Chart. (To be
filed by amendment)
E-6 Corporate Organization Chart of Companies after
Merger. (To be filed by amendment)
62
F-1 Opinion of Counsel. (To be filed by amendment)
F-2 Past Tense Opinion of counsel. (To be filed by
amendment)
G-1 Annual Report of NiSource on Form 10-K for the
year ended December 31, 1998. (Filed with the
Commission on March 25, 1999, File No. 1-9776 and
incorporated by reference herein).
G-2 Annual Report of Columbia on Form 10-K for the
year ended December 31, 1998. (Filed with the
Commission on March 26, 1999, File No. 1-1098 and
incorporated by reference herein).
G-3 Quarterly Report on Form 10-Q of NiSource for the
quarter ended March 31, 1999. (Filed with the
Commission on May 13, 1999, File No.1-9779 and
incorporated by reference herein).
G-4 Quarterly Report on Form 10-Q of Columbia for the
quarter ended March 31, 1999. (Filed with the
Commission on May 13, 1999, File No. 1-1098 nd
incorporated by reference herein).
G-5 Quarterly Report on Form 10-Q of NiSource for the
quarter ended June 30, 1999. (Filed with the
Commission on August 13, 1999, File No.1-9779 and
incorporated by reference herein).
G-6 Quarterly Report on Form 10-Q of Columbia for the
quarter ended June 30, 1999. (Filed with the
Commission on August 11, 1999, File No. 1-1098 and
incorporated by reference herein).
G-7 Form U-3A-2 of NiSource for the year ended
December 31, 1998. (Filed with the Commission on
February 26, 1999, File No. 69-340 and
incorporated by reference herein).
G-8 Form U5S of Columbia for the year ended December
31, 1998. (Filed with the Commission on April 30,
1999, File No. 101098 and incorporated by
reference herein).
H-1 Proposed Form of Notice.
I-1 Divestiture Study of Northern Indiana. (To be
filed by amendment)
I-2 Divestiture Study of Water Utilities. (To be
filed by Amendment)
63
B. FINANCIAL STATEMENTS
--------------------
FS-1 NiSource Unaudited Pro Forma Condensed
Consolidated Balance Sheet. (To be filed by
amendment)
FS-2 NiSource Unaudited Pro Forma Condensed
Consolidated Statement of Income. (To be filed by
amendment)
FS-3 Notes to NiSource Unaudited Pro Forma Condensed
Consolidated Financial Statements. (To be filed
by amendment)
FS-4 NiSource Consolidated Balance Sheet as of December
31, 1998. (Included in Exhibit G-1)
FS-5 NiSource Consolidated Statement of Income for the
twelve months ended December 31, 1998. (Included
in Exhibit G-1)
FS-6 Columbia Consolidated Balance Sheet as of December
31, 1998. (Included in Exhibit G-2)
FS-7 Columbia Consolidated Statement of Income for the
twelve months ended December 31, 1998. (Included
in Exhibit G-2)
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
Transaction that is the subject of this
Application/Declaration will not result in changes in the
operation of NiSource or its subsidiaries that will have an
impact on the environment. NiSource is not aware of any
federal agency that has prepared or is preparing an
environmental impact statement with respect to the
Transaction.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly
caused this Application/Declaration filed herein to be signed on its
behalf by the undersigned thereunto duly authorized.
64
NISOURCE INC.
By: /s/ Gary L. Neale
----------------------------
Name: Gary L. Neale
Title: Chairman and President
CEG ACQUISITION CORP.
By: /s/ Gary L. Neale
----------------------------
Name: Gary L. Neale
Title: Chairman and President
Date: October 28, 1999
