(As filed with the Securities and Exchange Commission May 17, 2000)
File No. 70-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
New NiSource Inc.
NiSource Inc.
Northern Indiana Public Service Company
Kokomo Gas and Fuel Company
Northern Indiana Fuel and Light Company
EnergyUSA, Inc.
Primary Energy, Inc.
NiSource Capital Markets, Inc.
NiSource Finance Corp.
NiSource Pipeline Group, Inc.
IWC Resources Corporation
NiSource Development Company, Inc.
NI Energy Services, Inc.
Hamilton Harbour Insurance Services, Ltd.
NiSource Corporate Services Company
801 East 86th Avenue
Merrillville, Indiana 46410-6272
Bay State Gas Company
Northern Utilities, Inc.
300 Friberg Parkway
Westborough, Massachusetts 01581-5039
Columbia Energy Group
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
Columbia Gas of Kentucky, Inc.
Columbia Gas of Ohio, Inc.
Columbia Gas of Maryland, Inc.
Columbia Gas of Pennsylvania, Inc.
Columbia Gas of Virginia, Inc.
200 Civic Center Drive
Columbus, Ohio 43215
Columbia Energy Group Service Corporation
Columbia LNG Corporation
Columbia Atlantic Trading Corporation
Columbia Energy Services Corporation
Columbia Energy Group Capital Corporation
Columbia Pipeline Corporation
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Columbia Finance Corporation
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
Columbia Electric Corporation
13880 Dulles Corner Lane
Herndon, Virginia 20171-4600
Columbia Energy Resources, Inc.
c/o 900 Pennsylvania Avenue
Charleston, West Virginia 25302
Columbia Gas Transmission Corporation
Columbia Transmission Communications Corporation
12801 Fair Lakes Parkway
Fairfax, Virginia 22030-0146
Columbia Gulf Transmission Company
2603 Augusta, Suite 125
Houston, Texas 77057
Columbia Network Services Corporation
1600 Dublin Road
Columbus, Ohio 43215-1082
Columbia Propane Corporation
9200 Arboretum Parkway, Suite 140
Richmond, Virginia 23236
Columbia Insurance Corporation, Ltd.
20 Parliament Street
P.O Box HM 649
Hamilton HM CX, Bermuda
(Names of companies filing this statement and
addresses of principal executive offices)
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NEW NISOURCE INC.
NISOURCE INC.(1)
(Name of top registered holding company parent of each applicant or declarant)
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(1) Depending on the form of the transaction described in Item 1, either New
NiSource Inc. or NiSource Inc. will register upon completing its acquisition of
Columbia Energy Group.
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Mark T. Maassel
Vice President, Regulatory & Government Policy
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
J. W. Trost, Vice President
Columbia Energy Group Service Corporation
13880 Dulles Corner Lane
Herndon, VA 20171-4600
(Names and addresses of agents for service)
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The Commission is requested to mail copies of all orders, notices and
other communications to:
Peter V. Fazio, Jr., Esq. William T. Baker, Jr., Esq.
Schiff Hardin & Waite Thelen Reid & Priest LLP
6600 Sears Tower 40 West 57th Street
Chicago, Illinois 60606-6473 New York, New York 10019
William C. Weeden William S. Lamb, Esq.
Skadden, Arps, Slate, Meagher Joanne C. Rutkowski, Esq.
& Flom LLP LeBoeuf, Lamb, Greene & MacRae LLP
1440 New York Avenue, N.W. 125 West 55th Street
Washington, D.C. 20005 New York, New York 10019-5389
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.....................1
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1.1 INTRODUCTION............................................1
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1.2 DESCRIPTION OF NISOURCE AND ITS SUBSIDIARIES............1
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1.3 CAPITAL STRUCTURE OF NISOURCE...........................3
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1.3.1 Securities Issued in the Merger................3
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1.3.2 Other Outstanding Securities and
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Obligations of NiSource........................4
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1.4 CURRENT FINANCING AUTHORIZATION OF COLUMBIA
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ENERGY GROUP............................................5
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1.5 SUMMARY OF REQUESTED APPROVALS..........................6
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1.6 USE OF PROCEEDS.........................................9
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1.7 DESCRIPTION OF PROPOSED FINANCING PROGRAM...............9
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1.7.1 Continuation, Extension, or Renewal
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of Acquisition Debt...........................10
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1.7.2 NiSource External Financing after the Merger..10
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1.7.3 NiSource Utility Subsidiary Financing.........15
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1.7.4 Non-Utility Subsidiary Financing..............15
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1.8 GUARANTEES.............................................16
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1.8.1 NiSource Guarantees...........................16
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1.8.2 Non-Utility Subsidiary Guarantees.............16
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1.9 HEDGING TRANSACTIONS.....................................17
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1.9.1 Interest Rate Hedges..........................17
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1.9.2 Anticipatory Hedges...........................17
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1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES................18
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1.11 FINANCING SUBSIDIARIES..................................18
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1.12 INTERMEDIATE SUBSIDIARIES AND SUBSEQUENT
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REORGANIZATIONS.........................................19
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1.13 SALES OF SERVICES AND GOODS AMONG SUBSIDIARIES...........21
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1.13.1 Continuation of Certain Existing
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Arrangements with NiSource Utility
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Subsidiaries.................................21
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1.13.2 Sales and Service Contracts Among
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Non-Utility Subsidiaries.....................22
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1.14 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE
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UNITED STATES............................................23
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1.15 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND
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UNEARNED SURPLUS........................................25
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1.15.1 Payment of Dividends by Columbia and its
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Utility Subsidiaries.........................25
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1.15.2 Payment of Dividends by Non-Utility
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Subsidiaries.................................27
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1.16 TAX ALLOCATION AGREEMENT................................28
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1.17 CERTIFICATES OF NOTIFICATION............................29
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ITEM 2. FEES, COMMISSIONS AND EXPENSES................................30
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ITEM 3. APPLICABLE STATUTORY PROVISIONS...............................31
3.1 GENERAL..................................................31
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3.2 COMPLIANCE WITH RULES 53 AND 54..........................31
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ITEM 4. REGULATORY APPROVAL...........................................32
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ITEM 5. PROCEDURE.....................................................32
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.............................32
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A. EXHIBITS..................................................32
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B. FINANCIAL STATEMENTS......................................34
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.......................35
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
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1.1 INTRODUCTION. New NiSource Inc. ("New NiSource"), a Delaware
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corporation, is currently a wholly owned subsidiary of NiSource Inc.
("NiSource"), an Indiana corporation. In a separate proceeding,(2) New NiSource
and NiSource have filed an Application/Declaration on Form U-1 (the "Merger
Application") pursuant to Sections 9 and 10 and other applicable provisions of
the Public Utility Holding Company Act of 1935 (the "Act") in which they are
seeking approval for the acquisition by New NiSource of all of the issued and
outstanding common stock of NiSource and Columbia Energy Group, a Delaware
corporation ("Columbia"), through mergers of separate subsidiaries of New
NiSource with and into each of NiSource and Columbia, followed by the merger of
NiSource into New NiSource (the "Preferred Merger"). Upon consummation of these
transactions, New NiSource will immediately be renamed "NiSource Inc." In the
alternative, the Merger Application seeks Commission approval for the
acquisition by NiSource of the issued and outstanding common stock of Columbia
through the merger of a wholly owned subsidiary of NiSource with and into
Columbia (the "Alternative Merger").(3)
These two forms of the merger transaction are referred to collectively
as the "Merger" throughout the remainder of this Application/Declaration. Upon
consummation of the Merger, New NiSource or NiSource, depending on which form
the Merger takes, will register as a holding company pursuant to Section 5 of
the Act. For ease and simplicity, the new registered holding company after the
Merger is referred to throughout the remainder of this Application/Declaration
as "NiSource," whether it is the survivor of the NiSource/New NiSource merger
(in the Preferred Merger) or the current NiSource (in the Alternative Merger),
except in those instances when references to "New NiSource" are required in
order to distinguish it from the current NiSource prior to the merger of
NiSource into New NiSource in the Preferred Merger.
This Application/Declaration seeks authorization and approval of the
Commission with respect to the post-merger financing activities of the NiSource
and its subsidiaries, intrasystem guarantees, the maintenance and creation of
specified types of new subsidiaries, the payment of dividends out of capital and
unearned surplus and other related matters pertaining to the Applicants after
NiSource registers under the Act.
1.2 DESCRIPTION OF NISOURCE AND ITS SUBSIDIARIES. Upon completion
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of the Merger, NiSource will own, directly or indirectly, all of the issued and
outstanding common stock of ten public utility subsidiary companies. These
include the current wholly-owned utility subsidiaries of NiSource: Northern
Indiana Public Service Company ("Northern Indiana"), Kokomo Gas and Fuel Company
("Kokomo") and Northern Indiana Fuel and Light Company, Inc. ("NIFL"), all of
which operate exclusively in Indiana, Bay State Gas Company ("Bay State"), which
operates in Massachusetts, and Northern Utilities, Inc. ("Northern"), which
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(2) See File No. 70-9551.
(3) The Alternative Merger structure will be implemented in the event that
NiSource's shareholders do not approve the Preferred Merger. No additional
corporate or regulatory approvals would be required to implement the Alternative
Merger. NiSource's shareholders will meet on June 1, 2000 to vote on approving
the Preferred Merger, after which NiSource will promptly inform the Commission
of the result.
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operates in New Hampshire and contiguous areas in southern Maine (collectively,
the "NiSource Utility Subsidiaries"); and the five current wholly-owned utility
subsidiaries of Columbia: 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"), which distribute gas
in portions of Kentucky, Maryland, Ohio, Pennsylvania and Virginia
(collectively, the "Columbia Utility Subsidiaries," and together with the
NiSource Utility Subsidiaries, the "Utility Subsidiaries").
Upon completion of the Merger, NiSource will also hold, directly or
indirectly, all of the non-utility subsidiaries and investments owned by
NiSource, as well as those currently owned by Columbia. NiSource's principal
direct non-utility subsidiaries include EnergyUSA, Inc. ("EnergyUSA"), which
serves as a holding company with management responsibility for many of
NiSource's non-utility subsidiaries and investments, including subsidiaries
engaged in utility line locating and marking, pipeline construction, energy
marketing, gas storage, and energy management services; Primary Energy, Inc.,
which develops and invests in cogeneration and other large industrial energy
facilities; IWC Resources Corporation ("IWC Resources"), a holding company for
several water distribution companies;(4) NiSource Pipeline Group, Inc., a
holding company for NiSource's investments in interstate pipeline companies;
NiSource Development Company, Inc., which holds investments in various
businesses, primarily in real estate, that are intended to complement NiSource's
energy businesses; NiSource Capital Markets, Inc. ("Capital Markets"), which
provides financing for NiSource's subsidiaries other than Northern Indiana and,
in certain respects, IWC Resources and Bay State; and NiSource Corporate
Services Company ("Corporate Services"), which provides management,
administrative, gas portfolio management and other services to NiSource
companies. Columbia's material direct non-utility subsidiaries include Columbia
Gas Transmission Corporation and Columbia Gulf Transmission Company, which are
interstate pipeline companies; Columbia Electric Corporation, which develops,
owns and operates cogeneration facilities and "exempt wholesale generator"
("EWG") facilities; Columbia Propane Corporation, which directly and through
subsidiaries of its own purchases and sells propane and petroleum products; and
Columbia Energy Resources, Inc, which, through subsidiaries, explores for,
develops, gathers and produces natural gas and oil in the United States and
Canada.
NiSource will maintain Columbia as a direct wholly-owned subsidiary
after the Merger. Columbia, which will remain a registered holding company, will
in turn hold all of the voting securities of the Columbia Utility Subsidiaries
and its investments in other direct and indirect non-utility subsidiaries.
Applicants expect that Columbia will continue to supply substantially all of the
capital required by its subsidiaries.
A more complete description of NiSource and Columbia and their
respective subsidiaries is contained in the Merger Application, to which
reference is made.
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(4) As stated in the Merger Application, the water properties of IWC Resources
are not expected to be retainable under the standards of Section 11(b)(1) of the
Act.
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As used in the remainder of this Application/Declaration, the term
"Non-Utility Subsidiaries" shall mean each of the direct and indirect
non-utility subsidiaries of NiSource (including Columbia and the subsidiaries
owned directly or indirectly by Columbia prior to the Merger) as of the
effective date of the Merger. The term "Non-Utility Subsidiaries" also includes
any direct or indirect non-utility subsidiary acquired or formed by NiSource
after the effective date of the Merger in a transaction that has been approved
by the Commission in this proceeding (see specifically Items 1.11 and 1.12) or
in a separate proceeding, or in a transaction that is exempt under the Act
(specifically, Sections 32, 33 and 34) or the rules thereunder (including,
specifically, Rule 58). The term "Subsidiaries" means the Utility Subsidiaries
and the Non-Utility Subsidiaries. NiSource and the Subsidiaries are sometimes
hereinafter collectively referred to as the "NiSource System" or as the
"Applicants."
1.3 CAPITAL STRUCTURE OF NISOURCE.
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1.3.1 Securities Issued in the Merger. The authorized capital
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stock of New NiSource consists of 420,000,000 shares, $0.01 par value, of which
400,000,000 are common shares ("Common Stock"), and 20,000,000 are preferred
shares ("Preferred Stock"),(5) of which 4,000,000 have been designated as Series
A Junior Participating Preferred Shares and reserved for issuance under New
NiSource's Shareholder Rights Agreement ("Rights Plan") (Exhibit B-2 hereto). In
the Preferred Merger, New NiSource will issue approximately 121.1 million shares
of Common Stock in exchange for the outstanding common stock of NiSource, based
on the number of such shares outstanding on April 30, 2000, and, assuming 30% of
the outstanding Columbia shares are exchanged for Common Stock, approximately
109.2 million shares of Common Stock in exchange for the outstanding common
stock of Columbia.(6)
In addition, New NiSource will issue Stock Appreciation Income Linked
Securities(SM) ("SAILS(SM)") as part of the Preferred Merger, which will
result in the issuance of between 6.4 million and 9.0 million shares of Common
Stock on the fourth anniversary of the transaction (the actual number will
depend on the NiSource stock price), assuming 30% of the outstanding Columbia
shares are exchanged for the stock consideration in the Preferred Merger.
If the parties effect the transaction by the Alternative Merger,
NiSource will not issue any Common Stock in the Merger. Instead, it will issue
SAILS(SM) that will result in the issuance of between 10.6 million and 14.9
million shares of NiSource's Common Stock on the fourth anniversary of the
transaction (the actual number will depend on the NiSource stock price).
The cash portion of the consideration paid to Columbia shareholders in
the Merger will range from approximately $4 billion, assuming 30% of the
outstanding Columbia shares are exchanged for the NiSource stock consideration
in the Preferred Merger, to approximately $6 billion, if all of the Columbia
shares are exchanged for the cash and SAILS(SM) consideration in the Preferred
Merger or in the Alternative Merger. NiSource has organized a special purpose
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(5) NiSource has the same number of authorized shares of common and preferred
stock as New NiSource, but without par value.
(6) The actual number of shares of Common Stock issued in the Merger will
depend upon, among other things, the number of NiSource and Columbia common
shares outstanding on the date on which the Merger is consummated and the
elections made by Columbia's shareholders.
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financing subsidiary, NiSource Finance Corp. ("NiSource Finance"), to facilitate
financing the cash portion of the Merger consideration and other costs
associated with the Merger. NiSource Finance will make unsecured short-term
borrowings under a 364-day revolving credit facility, with the option to convert
outstanding loans at the expiration of such period to term loans maturing 364
days thereafter (the "Acquisition Debt"). The Acquisition Debt will be
guaranteed by NiSource.
Assuming that the transaction is accomplished under the Preferred
Merger structure and the holders of the maximum number of Columbia's shares
(30%) elect to exchange their stock for NiSource Common Stock, and that certain
non-core assets of NiSource and/or Columbia are sold before or shortly after the
Merger, common equity as a percentage of NiSource's pro forma consolidated
capitalization will be no less than 28.5%, which the Commission found acceptable
in The National Grid Group plc, Holding Co. Act Release No. 27154 (Mar. 15,
2000). Under this scenario, NiSource will be able to maintain an investment
grade rating for its long-term debt.
1.3.2 Other Outstanding Securities and Obligations of NiSource.
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In February 1999, NiSource issued 6,000,000 Premium Income Equity
Securities(SM) ("PIES(SM)"). Each PIES is a unit consisting of a stock
purchase contract issued by NiSource and a preferred security issued by NIPSCO
Capital Trust I ("Capital Trust"), a special purpose financing subsidiary of
Capital Markets. The stock purchase contracts obligate the holders thereof to
purchase from NiSource, no later than February 19, 2003, for a price of $50, a
number of shares of NiSource Common Stock based on the closing price for
NiSource Common Stock over a 20-day period prior to such date. Based on
NiSource's trading price as of March 31, 2000, the aggregate number of shares of
Common Stock that NiSource would issue pursuant to the PIES is approximately
13.1 million. Each preferred security has a stated liquidation amount of $50,
and represents an undivided ownership interest in the assets of Capital Trust
and is guaranteed by Capital Markets. The assets of Capital Trust consist solely
of the debentures of Capital Markets maturing on February 19, 2005 that Capital
Trust purchased with the net proceeds of the offering ($345 million) plus equity
invested by Capital Markets ($10.7 million).
NiSource also currently maintains certain credit arrangements for the
benefit of its subsidiaries that will remain outstanding following the Merger.
Specifically, under the terms of a Support Agreement, dated April 4, 1989, as
amended, between NiSource and Capital Markets (see Exhibit B-1), NiSource is
obligated to make payments of interest and principal on Capital Markets'
obligations in the event of a failure to pay by Capital Markets. 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. Capital Markets has entered into revolving credit agreements for $200
million, which may be used to support the issuance of commercial paper. At March
31, 2000, Capital Markets had issued $130.5 million in commercial paper but
there were no borrowings outstanding under the revolving credit agreements.
Capital Markets also has $163.0 million available in money market lines of
credit with $121.5 million of borrowings outstanding as of March 31, 2000. At
March 31, 2000, Capital Markets also had outstanding $300 million of medium-term
notes having various maturities between April 2004 and May 2027.
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In addition, the Support Agreement backs various guarantees and other
forms of credit support that have been provided by Capital Markets for the
benefit of non-utility subsidiaries of NiSource. These include guarantees of
securities issued by other subsidiaries, lease payment obligations, obligations
under energy marketing contracts, obligations of cogeneration affiliates under
operations and maintenance agreements, surety bonds and indemnification
obligations. At March 31, 2000, the maximum potential financial exposure of
Capital Markets under all of these guarantees was approximately $1 billion.
1.4 CURRENT FINANCING AUTHORIZATION OF COLUMBIA ENERGY GROUP
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Columbia currently has financing authority derived from three orders
(collectively, the "Columbia Financing Orders"). By order dated June 8, 1999,(7)
Columbia has authority to issue and sell equity and long-term debt securities in
an amount not to exceed $6 billion at any one time outstanding through December
31, 2003. In addition, Columbia is authorized to "enter into guarantee
arrangements, obtain letters of credit, and otherwise provide credit support"
for its subsidiary companies in an amount not to exceed $5 billion at any one
time outstanding through December 31, 2003. By order dated December 22, 1997,(8)
Columbia has the authority to issue and sell short-term debt securities (that
is, debt securities with maturities of one year or less) in an amount not to
exceed $2 billion at any one time outstanding through December 31, 2003.
Short-term debt may include borrowings under a revolving credit facility, the
issuance of commercial paper, bid notes to individual banks participating in the
revolving credit facility, or medium-term notes issued under the Indenture,
dated November 28, 1995, between Columbia and Marine Midland Bank, as amended.
The order also authorizes four of the Columbia Utility Subsidiaries (Columbia
Ohio, Columbia Pennsylvania, Columbia Kentucky, and Columbia Maryland) to make
direct borrowings from Columbia.(9) Columbia's Utility Subsidiaries and certain
non-utility subsidiaries also may make short-term borrowings through the
Columbia system money pool. Various restrictions on Columbia's current financing
authority are set forth in an order dated December 23, 1996.(10)
Under the Columbia Financing Orders, the effective cost of money on
debt may not exceed 300 basis points over comparable term U.S. treasury
securities; and the effective cost of money on preferred stock and other fixed
income securities may not exceed 500 basis points over 30-year term U.S.
treasury securities. Bid notes must bear interest rates comparable to, or lower
than, those available through other proposed forms of short-term borrowing with
similar terms and have maturities not exceeding 270 days. The underwriting fees,
commissions, or other similar remuneration paid in connection with the
non-competitive bid issue, sale or distribution of any securities may not exceed
5% of the principal or total amount of the financing.
Columbia is authorized under the Columbia Financing Orders to utilize
the proceeds of authorized financing for general and corporate purposes
including: (a) financing, in part, of the capital expenditures of Columbia and
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(7) Columbia Energy Group, Holding Co. Act Release No. 27035 (June 8, 1999).
(8) The Columbia Gas System, Inc., Holding Co. Act Release No. 26798 (Dec. 22,
1997).
(9) Columbia Energy Group Service Corporation and Columbia's non-utility
subsidiaries rely upon Rule 52 for borrowings from Columbia.
(10) The Columbia Gas System, Inc., Holding Co. Act Release No. 26634 (Dec. 23,
1996).
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<PAGE>
its subsidiaries; (b) in the case of short-term debt, financing gas storage
inventories, other working capital requirements and capital spending of the
Columbia system; (c) the acquisition of interests in EWGs and "foreign utility
companies" ("FUCOs"); (d) the acquisition, retirement, or redemption of
securities of which Columbia is an issuer without the need for prior Commission
approval pursuant to Rule 42 or a successor rule; and/or (e) the acquisition of
the securities of nonutility companies as permitted under any rule of the
Commission permitting such acquisitions.
The Applicants are not requesting any changes to the amounts or types
of securities and guarantees that Columbia and the Columbia Utility Subsidiaries
are authorized to issue under the terms of the Columbia Financing Orders.
Following the Merger, Columbia will continue to provide capital required by its
subsidiaries by issuing short-term and long-term debt securities. Any common
equity required by Columbia after the Merger will be provided by NiSource within
the limits set forth below in Item 1.7. NiSource proposes to make open account
advances or cash capital contributions to Columbia, purchase additional shares
of Columbia common stock, and/or make loans, directly or through a Financing
Subsidiary, evidenced by Columbia's promissory notes. The interest rate and
maturity on any borrowings by Columbia from NiSource, or its Financing
Subsidiary, will parallel the effective cost and maturity of a comparable debt
security issued by the lender.
1.5 SUMMARY OF REQUESTED APPROVALS. The Applicants request
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approval for a program of external financing, credit support arrangements, and
other related proposals following the registration of NiSource under the Act for
the period through December 31, 2003 ("Authorization Period"),(11) as follows:
(i) NiSource requests authorization to maintain the facility under
which the Acquisition Debt is issued, including any
extensions, renewals or replacements thereof during the
Authorization Period.
(ii) NiSource requests authority to issue and sell from time to time
Common Stock and Preferred Stock and, directly or indirectly
through one or more Financing Subsidiaries (as described in Item
1.11), unsecured long-term indebtedness ("Long-term Debt") and
other forms of preferred or equity-linked securities having
maturities of up to 50 years. The aggregate amount of all such
Common Stock, Preferred Stock, Long-term Debt and other forms of
preferred or equity-linked securities at any time outstanding
during the Authorization Period shall not exceed $12 billion,
provided that shares of Common Stock that are issuable with
respect to the SAILS(SM) and the outstanding PIES(SM), as
described above, and shares of Preferred Stock issued pursuant to
the Rights Plan will not count against this limit. In addition,
NiSource requests authority to issue and sell from time to time,
directly or indirectly through one or more Financing Subsidiaries,
unsecured short-term indebtedness having maturities of less than
one year ("Short-term Debt") in an aggregate principal amount at
any time outstanding not to exceed $2 billion, provided that the
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(11) The Applicants request, however, that the proposed dividend relief
requested in Item 1.15.1, below, be granted for the duration of the goodwill
amortization period described therein.
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Acquisition Debt (or any debt extending, renewing or replacing the
Acquisition Debt) will not be considered Short-term Debt
regardless of its maturity. The aggregate principal amount of all
indebtedness issued by NiSource or any Financing Subsidiary of
NiSource at any time outstanding (including, specifically,
Acquisition Debt, Long-term Debt and Short-term Debt) shall not
exceed $10 billion (the "NiSource Debt Limitation"). The amounts
of securities that NiSource is requesting authority to issue and
the dollar limitations contained in this paragraph are in addition
to the amounts of securities Columbia is currently authorized to
issue and the dollar limitations imposed on Columbia under the
Columbia Financing Orders.
(iii)The NiSource Utility Subsidiaries request authority to issue
and sell from time to time short-term debt in an aggregate
amount at any one time outstanding not to exceed the following
amounts: (A) Northern Indiana - $1 billion; (B) Kokomo - $50
million; (C) NIFL - $50 million; (D) Bay State - $250 million;
and (E) Northern - $50 million.
(iv) To the extent that such transactions are not exempt under Rule
52(b), the Non-Utility Subsidiaries (other than Columbia)
request authority to issue and sell from time to time debt and
equity securities in order to finance their operations and
future non-utility investments, provided that such future
investments are exempt under the Act or rules thereunder or
have been authorized in a separate proceeding.
(v) NiSource requests authority, directly or through one or more
Financing Subsidiaries, to guarantee indebtedness or contractual
obligations or provide other forms of credit support ("NiSource
Guarantees") on behalf or for the benefit of its Subsidiaries in
an aggregate principal or nominal amount not to exceed $5 billion
at any one time outstanding, provided that any securities issued
by Financing Subsidiaries of NiSource that are guaranteed or
supported by other forms of credit enhancement provided by
NiSource will not count against this limitation. The amount of
NiSource Guarantees is in addition to the amounts of guarantees
and other forms of credit support that Columbia is currently
authorized to issue under the terms of the Columbia Financing
Orders.
(vi) Non-Utility Subsidiaries (other than Columbia) request
authority to provide guarantees of indebtedness or contractual
obligations or provide other forms of credit support
("Non-Utility Subsidiary Guarantees") on behalf or for the
benefit of other Non-Utility Subsidiaries in an aggregate
principal or nominal amount not to exceed $2 billion at any
one time outstanding, exclusive of any guarantees that are
exempt pursuant to Rule 45(b) and Rule 52(b).
(vii)NiSource and, to the extent not exempt under Rule 52, the
Subsidiaries request authority to enter into hedging
transactions ("Interest Rate Hedges") with respect to the
indebtedness of such companies in order to manage and minimize
interest rate costs. Such companies also request authority to
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<PAGE>
enter into hedging transactions ("Anticipatory Hedges") with
respect to anticipatory debt issuances in order to lock-in
current interest rates and/or manage interest rate risk
exposure.(12)
(viii)NiSource, for itself and on behalf of the Subsidiaries,
requests authorization to change the terms of the authorized
capitalization of any Subsidiary, provided that, if a
Subsidiary is not wholly owned, all other required shareholder
consents have been obtained for such change.
(ix) NiSource and the Subsidiaries request authority to acquire the
equity securities of one or more additional special-purpose
subsidiaries ("Financing Subsidiaries") organized solely to
facilitate a financing and to guarantee the securities issued
by such Financing Subsidiaries, to the extent not exempt
pursuant to Rule 45(b) and Rule 52(b).
(x) NiSource requests authority to acquire, directly or indirectly,
the equity securities of one or more intermediate subsidiaries
("Intermediate Subsidiaries") organized exclusively for the
purpose of acquiring, financing, and holding the securities of one
or more existing or future Non-Utility Subsidiaries, including but
not limited to EWGs, FUCOs, companies engaged or formed to engage
in activities permitted by Rule 58 ("Rule 58 Subsidiaries"), or
"exempt telecommunications companies" ("ETCs"), provided that
Intermediate Subsidiaries may also provide management,
administrative, project development, and operating services to
such entities.
(xi)Corporate Services requests an exemption under Section 13(b)
of the Act to permit Corporate Services to continue to provide
certain management and administrative services to certain of
NiSource's Subsidiaries.
(xii)In addition, NiSource requests an exemption from the at-cost
requirements of Section 13(b) with respect to certain existing
arrangements between its Non-Utility and Utility Subsidiaries.
In addition, as permitted by Rule 87(b)(1), Non-Utility
Subsidiaries may from time to time provide services and sell
goods to each other. To the extent not exempt pursuant to Rule
90(d), such companies request authority to perform such
services and to sell such goods to each other at fair market
prices, without regard to "cost," as determined in accordance
with Rules 90 and 91, subject to certain limitations that are
noted below.
(xiii)NiSource requests authority on behalf of any current and
future Rule 58 Subsidiaries to engage in certain categories of
activities permitted thereunder outside the United States,
subject to certain limitations.
(xiv)If "push down" accounting is used, Columbia and the Columbia
Utility Subsidiaries request authority to pay dividends out of
- -----------------------
(12) Although Columbia has comparable authority (see The Columbia Gas System,
Inc., supra n. 11), its subsidiaries do not.
8
<PAGE>
capital and unearned surplus, subject to certain proposed
limitations. Non-Utility Subsidiaries request authority to pay
dividends out of capital and unearned surplus to the extent
permitted under applicable law and the terms of any credit
arrangements to which they may be parties. The Subsidiaries
also request the authority to acquire, retire, or redeem the
securities that they have issued to any associate company, any
affiliate, or any affiliate of an associate company.
(xv) NiSource requests approval for an agreement among NiSource and its
Subsidiaries to allocate consolidated income tax liabilities.
1.6 USE OF PROCEEDS. The proceeds from the financings authorized
---------------
by the Commission pursuant to this Application/Declaration will be used for
general corporate purposes, including (i) refinancing of the Acquisition Debt,
(ii) financing, in part, investments by and capital expenditures of NiSource and
its Subsidiaries (including equity contributions, advances and loans to
Columbia), (iii) the funding of future investments in EWGs, FUCOs, and Rule 58
Subsidiaries, (iv) the repayment, redemption, refunding or purchase by NiSource
or any Subsidiary of any of its own securities, and (v) financing working
capital requirements of NiSource and its Subsidiaries.
The Applicants represent that no financing proceeds will be used to
acquire the equity securities of any company unless such acquisition has been
approved by the Commission in this proceeding or in a separate proceeding or in
accordance with an available exemption under the Act or rules thereunder,
including Sections 32 and 33 and Rule 58. NiSource states that the aggregate
amount of proceeds of financing and NiSource Guarantees approved by the
Commission in this proceeding which are used to fund investments in EWGs and
FUCOs will not, when added to NiSource's "aggregate investment" (as defined in
Rule 53) in all such entities at any point in time, exceed 50% of NiSource's
"consolidated retained earnings" (also as defined in Rule 53).(13) Further,
NiSource represents that proceeds of financing and NiSource Guarantees and
Non-Utility Guarantees utilized to fund investments in Rule 58 Subsidiaries will
be subject to the limitations of that rule. Lastly, NiSource represents that it
will not seek to recover through higher rates of any of the Utility Subsidiaries
losses attributable to any operations of its Non-Utility Subsidiaries.
1.7 DESCRIPTION OF PROPOSED FINANCING PROGRAM.
-----------------------------------------
1.7.1 Continuation, Extension, or Renewal of Acquisition Debt
-------------------------------------------------------
As indicated, the cash portion of the consideration to be paid in the Merger and
other costs associated therewith (estimated at approximately $4.0 billion to
$6.0 billion) will be financed through borrowings by NiSource Finance under a
bank facility. After the Merger, NiSource intends to refinance some or all of
the Acquisition Debt from the proceeds of issuances of equity securities and
long-term debt securities, as described below, and/or cash proceeds from sales
- ------------------------------
(13) Columbia's "aggregate investment" in EWGs and FUCOs will be combined with
NiSource's "aggregate investment" in such entities. Consistent with this
practice, the Applicants propose that the investment limit for both NiSource and
Columbia under Rule 53 be determined with reference to NiSource's consolidated
retained earnings.
9
<PAGE>
of assets. Pending such refinancing, NiSource requests authorization to maintain
or replace the facility under which the Acquisition Debt is issued and renew or
extend the maturities of borrowings thereunder.
1.7.2 NiSource External Financing after the Merger. NiSource
---------------------------------------------
requests authority to issue and sell Common Stock and Preferred Stock and
directly or indirectly through one or more Financing Subsidiaries (as described
in Item 1.11) Long-term Debt and other forms of preferred or equity-linked
securities. The aggregate amount of all such Common Stock, Preferred Stock,
Long-term Debt and other preferred or equity-linked securities at any time
outstanding shall not exceed $12 billion, provided that shares of Common Stock
that are issuable with respect to the SAILS(SM) and the currently outstanding
PIES(SM) and shares of Preferred Stock issued pursuant to the Rights Plan, as
described below in Item 1.7.2(b), will not count against this limit. In
addition, NiSource requests authority to issue and sell, directly or indirectly
through one or more Financing Subsidiaries, Short-term Debt in an aggregate
principal amount at any time outstanding not to exceed $2 billion. As noted in
Item 1.5, the aggregate principal amount of all indebtedness issued by NiSource
or any Financing Subsidiary of NiSource at any time outstanding (including,
specifically, Acquisition Debt, Long-term Debt and Short-term Debt) will not
exceed the NiSource Debt Limitation. The amounts of securities that NiSource is
requesting authority to issue and the dollar limitations contained in this
paragraph are in addition to the amounts of securities Columbia is currently
authorized to issue and the dollar limitations imposed on Columbia under the
Columbia Financing Orders.
NiSource contemplates that the Common Stock, Preferred Stock, Long-term
Debt and other preferred or equity-linked securities would be issued and sold
directly to one or more purchasers in privately-negotiated transactions or to
one or more investment banking or underwriting firms or other entities who would
resell such securities without registration under the Securities Act of 1933 in
reliance upon one or more applicable exemptions from registration thereunder, or
to the public either (i) through underwriters selected by negotiation or
competitive bidding or (ii) through selling agents acting either as agent or as
principal for resale to the public either directly or through dealers.
(a) Common Stock. NiSource may issue and sell Common Stock, or
------------
options, warrants or other stock purchase rights exercisable for Common Stock,
pursuant to underwriting agreements of a type generally standard in the
industry. Public distributions may be pursuant to private negotiation with
underwriters, dealers or agents, as discussed below, or effected through
competitive bidding among underwriters. In addition, sales may be made through
private placements or other non-public offerings to one or more persons. All
such Common Stock sales will be at rates or prices and under conditions
negotiated or based upon, or otherwise determined by, competitive capital
markets.
Specifically, NiSource may issue and sell Common Stock through
underwriters or dealers, through agents, or directly to a limited number of
purchasers or a single purchaser. If underwriters are used in the sale of Common
Stock, such securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. Common Stock may be offered to
the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by NiSource) or directly by one
10
<PAGE>
or more underwriters acting alone. Common Stock may be sold directly by NiSource
or through agents designated by NiSource from time to time. If dealers are
utilized in the sale of Common Stock, NiSource will sell such securities to the
dealers, as principals. Any dealer may then resell such Common Stock to the
public at varying prices to be determined by such dealer at the time of resale.
If Common Stock is being sold in an underwritten offering, NiSource may grant
the underwriters thereof a "green shoe" option permitting the purchase from
NiSource at the same price of additional shares solely for the purpose of
covering over-allotments.
NiSource may also issue Common Stock or options, warrants or other
stock purchase rights exercisable for Common Stock in public or
privately-negotiated transactions as consideration for the equity securities or
assets of other companies, provided that the acquisition of any such equity
securities or assets has been authorized in a separate proceeding or is exempt
under the Act or the rules thereunder (specifically Rule 58).(14)
NiSource also proposes to issue Common Stock and/or purchase shares of
its Common Stock (either currently or under forward contracts) in the open
market for purposes of reissuing such shares at a later date under the
SAILS(SM) and PIES(SM) or other equity-linked securities, or pursuant to
stock-based plans which are maintained for stockholders, employees and
nonemployee directors. Currently, NiSource maintains three plans under which it
may directly issue or purchase in the open market shares of Common Stock. The
first is the 1994 Long-Term Incentive Plan, as amended and restated ("Long-Term
Incentive Plan"). The Long-Term Incentive Plan authorizes grants of restricted
common stock, stock options and other stock-based awards to eligible executives
and other key employees, as well as to directors of the company and its
subsidiaries. The Long-Term Incentive Plan authorizes NiSource to issue a
maximum of 5 million shares of common stock (or options, performance shares or
other rights with respect thereto). NiSource's shareholders will be asked at the
June 1, 2000, annual meeting to approve an amendment to the Long-Term Incentive
Plan to increase the number of shares of Common Stock that may be issued to 11
million. The Long-Term Incentive Plan, as amended, will expire on December 31,
2005. A copy of the Long-Term Incentive Plan is filed herewith as Exhibit J-1.
NiSource has also adopted a Nonemployee Director Stock Incentive Plan
that provides for grants of restricted common shares to nonemployee directors of
NiSource. The plan provides for a grant of 2,000 shares to each person, other
than an employee of NiSource, upon his or her election or re-election as a
director of NiSource. The grants of restricted shares vest in 20% annual
increments, with all of a director's shares vesting five years after the date of
award. A copy of the Nonemployee Director Stock Incentive Plan is filed herewith
as Exhibit J-2.
NiSource also maintains an Employee Stock Purchase Plan pursuant to
which employees of NiSource and participating subsidiaries may purchase Common
Stock through payroll deductions of not less than $10 in any pay period and not
more than $20,000 per calendar year. Amounts deducted are used to purchase
shares of Common Stock at the end of each three-month saving period at prices
- --------------------------
(14) The Commission has previously approved the issuance of common stock as
consideration for the acquisition of a new business in an exempt transaction or
transaction that has been approved in a separate proceeding. See e.g., SCANA
Corp., Holding Co. Act Release No. 27137 (Feb. 14, 2000).
11
<PAGE>
determined for that savings period. The purchase price is equal to 90% of the
fair market value, which is defined as the closing price of Common Stock on the
New York Stock Exchange on the last trading day of a savings period. As of March
31, 2000, the maximum remaining number of shares of Common Stock that may be
purchased under this plan is 371,501. A copy of the Employee Stock Purchase Plan
is filed herewith as Exhibit J-3.
NiSource proposes to issue shares of its Common Stock under the
authorization and within the limitations set forth herein in order to satisfy
its obligations under these stock-based plans. Shares of Common Stock issued
under these plans may either be newly issued shares, treasury shares or shares
purchased in the open market. NiSource will make open-market purchases of Common
Stock in accordance with the terms of or in connection with the operation of the
plans pursuant to Rule 42. NiSource also proposes to issue and/or purchase
shares of Common Stock pursuant to these existing stock plans, as they may be
amended or extended, and similar plans or plan funding arrangements hereafter
adopted without any additional prior Commission order. Stock transactions of
this variety would thus be treated the same as other stock transactions
permitted pursuant to this Application/Declaration.
(b) Preferred Stock, Long-term Debt and other Preferred or
------------------------------------------------------
Equity-Linked Securities. NiSource will not issue any shares of its authorized
- ------------------------
Preferred Stock in the Merger and will not have any shares of Preferred Stock
outstanding at the time that it registers as a holding company. However, after
it registers, NiSource seeks to have the flexibility to issue its authorized
Preferred Stock or, directly or indirectly through one or more Financing
Subsidiaries, to issue Long-term Debt and other types of preferred or
equity-linked securities (including, specifically, trust preferred securities).
The proceeds of Preferred Stock, Long-term Debt or other preferred or
equity-linked securities would enable NiSource to reduce the Acquisition Debt
and Short-term Debt or other debt issued or guaranteed by NiSource with more
permanent capital, and provide an important source of future financing for the
operations of and investments in non-utility businesses which are exempt under
the Act.(15)
Preferred Stock or other types of preferred or equity-linked securities
may be issued in one or more series with such rights, preferences, and
priorities as may be designated in the instrument creating each such series, as
determined by NiSource's board of directors. All such securities will be
redeemed no later than 50 years after the issuance thereof. The dividend rate on
any series of Preferred Stock or other preferred or equity-linked securities
will not exceed at the time of issuance 500 basis points over the yield to
maturity of a U.S. Treasury security having a remaining term equal to the term
of such securities. Dividends or distributions on Preferred Stock or other
preferred or equity-linked securities will be made periodically and to the
- --------------------
(15) Recently, the Commission approved a similar financing application filed by
Southern Company in which Southern Company requested approval to issue preferred
securities and long-term debt, directly or indirectly through special-purpose
financing entities. See The Southern Company, Holding Co. Act Release No. 27134
(Feb. 9, 2000). In that case, the Commission took account of the changing needs
of registered holding companies for sources of capital other than common equity
and short-term debt brought about primarily by the elimination of restrictions
under the Act on investments in various types of non-core businesses (e.g.,
EWGs, FUCOs, ETCs and businesses allowed by Rule 58). The Commission noted that,
without the ability to raise capital in external markets that is appropriate for
such investments, registered holding companies would be at a competitive
disadvantage to other energy companies that are not subject to regulation under
the Act.
12
<PAGE>
extent funds are legally available for such purpose, but may be made subject to
terms which allow the issuer to defer dividend payments for specified periods.
Preferred Stock or other preferred or equity-linked securities may be
convertible or exchangeable into shares of Common Stock.
As indicated, 4,000,000 shares of Preferred Stock have been designated
as Series A Junior Participating Preferred Shares ("Series A Shares") and
reserved for issuance under the Rights Plan.(16) Under the Rights Plan, each
share of Common Stock includes one preferred purchase right ("Right"), which
entitles its holder to purchase one-hundredth (1/100) of a Series A Share at a
price of $60 per one-hundredth of a share, subject to adjustment. The Rights
will become exercisable if a person or group acquires 25% or more of the voting
power of NiSource or announces a tender or exchange offer following which such
person or group would hold 25% or more of NiSource's voting power. If such an
acquisition were consummated, or if NiSource were acquired by the person or
group in a merger or other business combination, then each Right would be
exercisable for that number of shares of Common Stock or the acquiring company's
common shares having a market value of two times the exercise price of the
Right. The Rights will also become exercisable on or after the date on which the
25% threshold has been triggered, if NiSource is acquired in a merger or other
business combination in which NiSource is not the survivor or in which NiSource
is the survivor but its Common Stock is changed into or exchanged for securities
of another entity, cash or other property, or 50% or more of the assets or
earning power of NiSource and its subsidiaries is sold. At such time, each Right
will become exercisable for that number of common shares of the acquiring
company having a market value of two times the exercise price of the Right, but
the Rights will not be exercisable in this instance if the person who acquired
sufficient shares to reach the 25% threshold did so at a price and on terms
determined by the board of directors to be fair to NiSource's shareholders and
in the best interests of NiSource, provided that the price per common share
offered in the merger or other business combination is not less than the price
paid in the offer and the form of the consideration offered in the merger or
other business combination is the same as that paid in the offer. NiSource may
redeem the Rights at a price of $.01 per Right prior to the occurrence of an
event that causes the Rights to be exercisable for common shares. The Rights
will expire on March 12, 2010. NiSource requests authorization to issue
Preferred Stock upon exercise of the outstanding Rights without regard to the
$12 billion limit on issuance of Common Stock, Preferred Stock and Long Term
Debt.(17)
Long-term Debt (a) may be convertible into any other securities of
NiSource, (b) will have maturities ranging from one to 50 years, (c) may be
subject to optional and/or mandatory redemption, in whole or in part, at par or
at various premiums above the principal amount thereof, (d) may be entitled to
mandatory or optional sinking fund provisions, (e) may provide for reset of the
coupon pursuant to a remarketing arrangement, and (f) may be called from
existing investors by a third party. The maturity dates, interest rates,
- -----------------------
(16) New NiSource's proposed Shareholder Rights Agreement is substantially the
same as the Shareholder Rights Agreement that NiSource currently has in place.
See Exhibit B-3.
(17) The Commission has previously authorized registered holding companies to
adopt and implement similar shareholder rights plans. See e.g., Ameren
Corporation, Holding Co. Act Release No. 26961 (Dec. 29, 1998); Interstate
Energy Corporation, Holding Co. Act Release No. 26965 (Jan. 15, 1999).
13
<PAGE>
redemption and sinking fund provisions and conversion features, if any, with
respect to the Long-term Debt of a particular series, as well as any associated
placement, underwriting or selling agent fees, commissions and discounts, if
any, will be established by negotiation or competitive bidding. Assuming that
30% of the Columbia shares are exchanged for NiSource Common Stock in the Merger
and that certain non-core assets of NiSource and/or Columbia are sold before or
shortly after the Merger, NiSource will be able to maintain a rating for all
Long-term Debt that is at the investment grade level as established by a
nationally recognized statistical rating organization, as that term is used in
paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities
Exchange Act of 1934.
(c) Short-term Debt. Subject to the NiSource Debt Limitation,
---------------
NiSource proposes to issue and sell from time to time, directly or indirectly
through one or more Financing Subsidiaries, Short-term Debt in an aggregate
principal amount at any time outstanding not to exceed $2 billion. The
effective cost of money on Short-term Debt authorized in this proceeding will
not exceed at the time of issuance 300 basis points over the London Interbank
Offered Rate ("LIBOR") for maturities of 1 year or less.
Commercial paper will be sold, directly or indirectly through one or
more Financing Subsidiaries, in established domestic or European commercial
paper markets. Such commercial paper would typically be sold to dealers at the
discount rate per annum prevailing at the date of issuance for commercial paper
of comparable quality and maturities sold to commercial paper dealers generally.
It is expected that the dealers acquiring such commercial paper will reoffer it
at a discount to corporate, institutional and, with respect to European
commercial paper, individual investors. It is anticipated that such commercial
paper will be reoffered to investors such as commercial banks, insurance
companies, pension funds, investment trusts, foundations, colleges and
universities, finance companies and nonfinancial corporations.
NiSource also proposes to establish, directly or indirectly through one
or more Financing Subsidiaries, credit lines with banks or other institutional
lenders in an aggregate principal amount not to exceed the proposed Short-term
Debt limitation. Loans under these lines will have maturities of less than one
year from the date of each borrowing. NiSource may engage in other types of
short-term financing generally available to borrowers with comparable credit
ratings as it may deem appropriate in light of its needs and market conditions
at the time of issuance.
(d) Other Securities. In addition to the specific securities for
----------------
which authorization is sought herein, NiSource may also find it necessary or
desirable in order to minimize financing costs or to obtain new capital under
then existing market conditions to issue and sell other types of securities from
time to time during the Authorization Period. NiSource requests that the
Commission reserve jurisdiction over the issuance of additional types of
securities and the amount thereof. NiSource also undertakes to file a
post-effective amendment in this proceeding which will describe the general
terms of each such security and the amount thereof to be issued and request a
supplemental order of the Commission authorizing the issuance thereof by
NiSource.
1.7.3 NiSource Utility Subsidiary Financing The issue and sale
-------------------------------------
of most securities by the NiSource Utility Subsidiaries will be exempt from the
14
<PAGE>
preapproval requirements of Sections 6(a) and 7 of the Act pursuant to Rule
52(a), as most such securities must be approved by the public service commission
in the state in which each NiSource Utility Subsidiary is incorporated and
operating. In particular: Indiana Utility Regulatory Commission ("IURC") must
approve all financings by Northern Indiana, Kokomo, and NIFL other than
short-term indebtedness having a maturity of 12 months or less; the
Massachusetts Department of Telecommunications and Energy ("MDTE") must approve
all financings by Bay State other than short-term indebtedness having a maturity
of one year or less; and the New Hampshire Public Utilities Commission ("NHPUC")
must approve most financings by Northern other than short-term indebtedness
having a maturity of one year or less up to a maximum amount equal to 10% of net
plant.
Accordingly, the NiSource Utility Subsidiaries request authority to
issue and sell from time to time during the Authorization Period notes and other
evidences of indebtedness having a maturity of one year or less in an aggregate
principal amount outstanding at any one time not to exceed the following limits:
Northern Indiana - $1 billion; Kokomo - $50 million; NIFL - $50 million; Bay
State - $250 million; and Northern - $50 million. Subject to such limitations,
the NiSource Utility Subsidiaries may engage in short-term financing as they may
deem appropriate in light of their needs and market conditions at the time of
issuance. Such short-term financing could include, without limitation,
commercial paper sold in established domestic or European commercial paper
markets in a manner similar to NiSource, bank lines and debt securities issued
under its indentures and note programs. The effective cost of money on
Short-term Debt authorized in this proceeding will not exceed 300 basis points
over the LIBOR for maturities of 1 year or less.
1.7.4 Non-Utility Subsidiary Financing. NiSource, through the
--------------------------------
Non-Utility Subsidiaries, expects to continue to be active in the development
and expansion of energy-related or otherwise functionally-related, non-utility
businesses. In order to finance investments in such competitive businesses, it
will be necessary for the Non-Utility Subsidiaries to have the ability to engage
in financing transactions that are commonly accepted for such types of
investments. It is believed that, in almost all cases, such financings will be
exempt from prior Commission authorization pursuant to Rule 52(b).(18)
In order to be exempt under Rule 52(b), any loans by NiSource to a
Non-Utility Subsidiary or by any Non-Utility Subsidiary, including a Financing
Subsidiary, to another Non-Utility Subsidiary must have interest rates and
maturities that are designed to parallel the lending company's effective cost of
capital. However, in the limited circumstances where the Non-Utility Subsidiary
making the borrowing is not wholly owned by NiSource, directly or indirectly,
authority is requested under the Act for NiSource or a Non-Utility Subsidiary,
as the case may be, to make such loans to such subsidiaries at interest rates
and maturities designed to provide a return to the lending company of not less
than its effective cost of capital.(19) If such loans are made to a Non-Utility
Subsidiary, such company will not sell any services to any associate Non-Utility
- -----------------------
(18) Financings by Columbia will be carried out under the terms of the Columbia
Financing Orders, not Rule 52.
(19) The Commission has granted similar authority to another registered holding
company. See Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999).
15
<PAGE>
Subsidiary unless such company falls within one of the categories of companies
to which goods and services may be sold on a basis other than "at cost," as
described below in Item 1.13.2. Furthermore, in the event any such loans are
made, NiSource will include in the next certificate filed pursuant to Rule 24 in
this proceeding substantially the same information as that required on Form
U-6B-2 with respect to such transaction.
1.8 GUARANTEES.
----------
1.8.1 NiSource Guarantees. NiSource requests authorization,
-------------------
directly or indirectly through one or more Financing Subsidiaries, to provide
guarantees, obtain letters of credit, enter into capital support, "keep well,"
indemnification, reimbursement or expense agreements, or otherwise provide
credit support (collectively, "NiSource Guarantees") with respect to the debt or
contractual obligations of any Subsidiary as may be appropriate in the ordinary
course of such Subsidiary's business, in an aggregate principal amount not to
exceed $5 billion outstanding at any one time, provided however, that the amount
of any NiSource Guarantees in respect of obligations of any Subsidiaries shall
also be subject to the limitations of Rule 53(a)(1) or Rule 58(a)(1), as
applicable. The proposed limitation on NiSource Guarantees shall not include the
amount of any guarantees or other forms of credit support outstanding at the
time of the Merger or guarantees or other forms of credit support provided with
respect to securities issued by any Financing Subsidiary (the amounts of which
would count only against the proposed limitations on the amounts of debt and
equity securities that NiSource may issue). NiSource proposes to charge each
Subsidiary a fee for each guarantee provided on its behalf that is not greater
than the cost, if any, of obtaining the liquidity necessary to perform the
guarantee (for example, bank line commitment fees or letter of credit fees, plus
other transactional expenses) for the period of time the guarantee remains
outstanding.
1.8.2 Non-Utility Subsidiary Guarantees. In addition to
---------------------------------
guarantees that may be provided by NiSource, Non-Utility Subsidiaries (including
Financing Subsidiaries without credit support from NiSource, but excluding
Columbia) request authority to provide to other Non-Utility Subsidiaries
guarantees of indebtedness or contractual obligations or other forms of credit
support ("Non-Utility Subsidiary Guarantees") in an aggregate principal amount
not to exceed $2 billion outstanding at any one time, exclusive of any
guarantees and other forms of credit support that are exempt pursuant to Rule
45(b) and Rule 52(b), provided however, that the amount of Non-Utility
Guarantees in respect of obligations of any Rule 58 Subsidiaries shall remain
subject to the limitations of Rule 58(a)(1). The Non-Utility Subsidiary
providing any such credit support may charge its associate company a fee for
each guarantee provided on its behalf determined in the same manner as specified
above.
1.9 HEDGING TRANSACTIONS.
--------------------
1.9.1 Interest Rate Hedges. NiSource, and to the extent not
--------------------
exempt pursuant to Rule 52, the Subsidiaries, request authorization to enter
into interest rate hedging transactions with respect to existing indebtedness
("Interest Rate Hedges"), subject to certain limitations and restrictions, in
order to reduce or manage interest rate cost. Interest Rate Hedges would only be
entered into with counterparties ("Approved Counterparties") whose senior debt
ratings, or the senior debt ratings of the parent companies of the
16
<PAGE>
counterparties, as published by Standard and Poor's Ratings Group, are equal to
or greater than BBB, or an equivalent rating from Moody's Investors Service,
Fitch Investor Service or Duff and Phelps.
Interest Rate Hedges will involve the use of financial instruments
commonly used in today's capital markets, such as interest rate swaps, caps,
collars, floors, and structured notes (i.e., a debt instrument in which the
principal and/or interest payments are indirectly linked to the value of an
underlying asset or index), or transactions involving the purchase or sale,
including short sales, of U.S. Treasury obligations. The transactions would be
for fixed periods and stated notional amounts. In no case will the notional
principal amount of any interest rate swap exceed that of the underlying debt
instrument and related interest rate exposure. Thus, NiSource and its
Subsidiaries will not engage in speculative transactions. Fees, commissions and
other amounts payable to the counterparty or exchange (excluding, however, the
swap or option payments) in connection with an Interest Rate Hedge will not
exceed those generally obtainable in competitive markets for parties of
comparable credit quality.
1.9.2 Anticipatory Hedges. In addition, NiSource and the
-------------------
Subsidiaries request authorization to enter into interest rate hedging
transactions with respect to anticipated debt offerings (the "Anticipatory
Hedges"), subject to certain limitations and restrictions. Such Anticipatory
Hedges would only be entered into with Approved Counterparties, and would be
utilized to fix and/or limit the interest rate risk associated with any new
issuance through (i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury obligations and/or a forward swap (each a "Forward
Sale"), (ii) the purchase of put options on U.S. Treasury obligations (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination with the sale of
call options on U.S. Treasury obligations (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales, of U.S.
Treasury obligations, or (v) some combination of a Forward Sale, Put Options
Purchase, Zero Cost Collar and/or other derivative or cash transactions,
including, but not limited to structured notes, caps and collars, appropriate
for the Anticipatory Hedges.
Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades")
with brokers through the opening of futures and/or options positions traded on
the Chicago Board of Trade ("CBOT"), the opening of over-the-counter positions
with one or more counterparties ("Off-Exchange Trades"), or a combination of
On-Exchange Trades and Off-Exchange Trades. NiSource or a Subsidiary will
determine the optimal structure of each Anticipatory Hedge transaction at the
time of execution.
The Applicants will comply with the then existing financial disclosure
requirements of the Financial Accounting Standards Board associated with hedging
transactions.(20)
1.10 CHANGES IN CAPITAL STOCK OF SUBSIDIARIES. The portion of an
----------------------------------------
individual Subsidiary's aggregate financing to be effected through the sale of
stock to NiSource or other immediate parent company during the Authorization
Period pursuant to Rule 52 and/or pursuant to an order issued in this proceeding
- ------------------------------
(20) The proposed terms and conditions of the Interest Rate Hedges and
Anticipatory Hedges are substantially the same as the Commission has approved in
other cases. See New Century Energies, Inc., et al., Holding Co. Act Release
No. 27000 (April 7, 1999); and Ameren Corp., et al., Holding Co. Act Release No.
27053 (July 23, 1999).
17
<PAGE>
cannot be ascertained at this time. The proposed sale of capital securities may
in some cases exceed the then authorized capital stock of such Subsidiary. In
addition, the Subsidiary may choose to use capital stock with no par value.
Also, a Subsidiary may wish to engage in a reverse stock split to reduce
franchise taxes or for other corporate purposes. As needed to accommodate such
proposed transactions and to provide for future issuances of securities, the
Applicants request authority to change the terms of any Subsidiary's authorized
capitalization by an amount deemed appropriate by NiSource or other intermediate
parent company, provided that, if a Subsidiary is \not wholly owned, all other
required shareholder consents have been obtained for such change. A Subsidiary
would be able to change the par value, or change between par value and no-par
value stock, without additional Commission approval. Any such action by a
Utility Subsidiary would be subject to and would only be taken upon the receipt
of any necessary approvals by the state commission in the state or states where
the Utility Subsidiary is incorporated and doing business.(21)
1.11 FINANCING SUBSIDIARIES. As indicated, NiSource will issue the
----------------------
Acquisition Debt through NiSource Finance, a wholly owned special purpose
financing subsidiary. In addition, NiSource currently owns, directly and
indirectly, all of the common equity securities of two other special-purpose
entities (Capital Markets and Capital Trust) formed specifically for the purpose
of financing the activities of NiSource and certain of its Subsidiaries. In the
future, NiSource and the Subsidiaries may find it desirable to organize and
acquire the equity securities of one or more additional corporations, trusts,
partnerships or other entities (hereinafter, "Financing Subsidiaries") organized
to serve the same purpose. Specifically, Financing Subsidiaries may be organized
to issue long-term debt or equity securities, including but not limited to
monthly income preferred securities, and would dividend, loan or otherwise
transfer the proceeds of such financings to or as directed by the Financing
Subsidiary's parent company. NiSource may, if required, guarantee, provide
support for or enter into expense agreements in respect of the obligations of
any Financing Subsidiary that it organizes. The Subsidiaries may also provide
guarantees and enter into expense agreements, if required, on behalf of any
Financing Subsidiaries that they organize pursuant to Rules 45(b)(7) and 52, as
applicable. The amount of any long-term debt or preferred securities issued by
any Financing Subsidiary shall be counted against any limitation on the amounts
of similar types of securities that may be issued directly by the parent company
of a Financing Subsidiary, as set forth in this Application/Declaration (see
Item 1.7, above) or in any other Application/Declaration that may be filed in
the future, to the extent that such securities are guaranteed by such parent
company. In such cases, however, the guaranty by the parent company would not
also be counted against the limitations on NiSource Guarantees or Subsidiary
Guarantees, as the case may be, set forth in Item 1.8.1 or Item 1.8.2,
above.(22)
- ------------------
(21) The Commission has granted similar approvals to other registered holding
companies. See Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb. 26,
1998); and New Century Energies, Inc., Holding Co. Act Release No. 26750 (Aug.
1, 1997).
(22) The Commission has previously authorized registered holding companies and
their subsidiaries to create financing subsidiaries, subject to substantially
the same terms and conditions. See New Century Energies, Inc., et al., Holding
Co. Act Release No. 27000 (April 7, 1999); and Ameren Corp., et al., Holding Co.
Act Release No. 27053 (July 23, 1999); and Southern Company, Holding Co. Act
Release No. 27134 (Feb. 9, 2000).
18
<PAGE>
1.12 INTERMEDIATE SUBSIDIARIES AND SUBSEQUENT REORGANIZATIONS. NiSource
--------------------------------------------------------
proposes to acquire, directly or indirectly, the securities of one or more
Intermediate Subsidiaries, which would be organized exclusively for the purpose
of acquiring, holding and/or financing the acquisition of the securities of or
other interest in one or more EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other
non-exempt Non-Utility Subsidiaries (as authorized in this proceeding or in a
separate proceeding), provided that Intermediate Subsidiaries may also engage in
development activities ("Development Activities") and administrative activities
("Administrative Activities") relating to such subsidiaries.(23) To the extent
such transactions are not exempt from the Act or otherwise authorized or
permitted by rule, regulation or order of the Commission issued thereunder,
NiSource requests authority for Intermediate Subsidiaries to provide management,
administrative, project development and operating services to such entities.
Such services may be rendered at fair market prices pursuant to Rule 90(d),
subject to certain limitations set forth in Item 1.13, below.
Development Activities will be limited to due diligence and design
review; market studies; preliminary engineering; site inspection; preparation of
bid proposals, including, in connection therewith, posting of bid bonds;
application for required permits and/or regulatory approvals; acquisition of
site options and options on other necessary rights; negotiation and execution of
contractual commitments with owners of existing facilities, equipment vendors,
construction firms, power purchasers, thermal "hosts," fuel suppliers and other
project contractors; negotiation of financing commitments with lenders and other
third-party investors; and such other preliminary activities as may be required
in connection with the purchase, acquisition, financing or construction of
facilities or the acquisition of securities of or interests in new businesses.
Intermediate Subsidiaries request authority to expend up to $250 million during
the Authorization Period on all such Development Activities. Administrative
Activities will include ongoing personnel, accounting, engineering, legal,
financial, and other support activities necessary to manage NiSource's
investments in Non-Utility Subsidiaries.
An Intermediate Subsidiary may be organized, among other things, (1) in
order to facilitate the making of bids or proposals to develop or acquire an
interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other non-exempt
Non-Utility Subsidiary; (2) after the award of such a bid proposal, in order to
facilitate closing on the purchase or financing of such acquired company; (3) at
any time subsequent to the consummation of an acquisition of an interest in any
such company in order, among other things, to effect an adjustment in the
respective ownership interests in such business held by NiSource and
non-affiliated investors; (4) to facilitate the sale of ownership interests in
one or more acquired non-utility companies; (5) to comply with applicable laws
of foreign jurisdictions limiting or otherwise relating to the ownership of
domestic companies by foreign nationals; (6) as a part of tax planning in order
- ---------------------
(23) The Commission has previously authorized Columbia to organize intermediate
subsidiary companies to acquire and hold various non-utility subsidiaries. See
Columbia Energy Group, et al., Holding Co. Act Release No. 27099 (Nov. 5, 1999).
19
<PAGE>
to limit NiSource's exposure to U.S. and foreign taxes; (7) to further insulate
NiSource and the Utility Subsidiaries from operational or other business risks
that may be associated with investments in non-utility companies; or (8) for
other lawful business purposes.
Investments in Intermediate Subsidiaries may take the form of any
combination of the following: (1) purchases of capital shares, partnership
interests, member interests in limited liability companies, trust certificates
or other forms of equity interests; (2) capital contributions; (3) open account
advances with or without interest; (4) loans; and (5) guarantees issued,
provided or arranged in respect of the securities or other obligations of any
Intermediate Subsidiaries. Funds for any direct or indirect investment in any
Intermediate Subsidiary will be derived from (1) financings authorized in this
proceeding; (2) any appropriate future debt or equity securities issuance
authorization obtained by NiSource from the Commission; and (3) other available
cash resources, including proceeds of securities sales by Non-Utility
Subsidiaries pursuant to Rule 52. To the extent that NiSource provides funds or
guarantees directly or indirectly to an Intermediate Subsidiary that are used
for the purpose of making an investment in any EWG or FUCO or a Rule 58
Subsidiary, the amount of such funds or guarantees will be included in
NiSource's "aggregate investment" in such entities, as calculated in accordance
with Rule 53 or Rule 58, as applicable.
In addition, NiSource also requests approval to consolidate or
otherwise reorganize all or any part of its direct and indirect ownership
interests in Non-Utility Subsidiaries, and the activities and functions related
to such investments. To effect any such consolidation or other reorganization,
NiSource may wish to either contribute the equity securities of one Non-Utility
Subsidiary to another Non-Utility Subsidiary (including a newly formed
Intermediate Subsidiary) or sell (or cause a Non-Utility Subsidiary to sell) the
equity securities or all or part of the assets of one Non-Utility Subsidiary to
another one. To the extent that these transactions are not otherwise exempt
under the Act or Rules thereunder,(24) NiSource hereby requests authorization
under the Act to consolidate or otherwise reorganize under one or more direct or
indirect Intermediate Subsidiaries NiSource's ownership interests in existing
and future Non-Utility Subsidiaries.(25) Such transactions may take the form of
a Non-Utility Subsidiary selling, contributing or transferring the equity
securities of a subsidiary or all or part of such subsidiary's assets as a
dividend to an Intermediate Subsidiary or to another Non-Utility Subsidiary, and
the acquisition, directly or indirectly, of the equity securities or assets of
such subsidiary, either by purchase or by receipt of a dividend. The purchasing
Non-Utility Subsidiary in any transaction structured as an intrasystem sale of
equity securities or assets may execute and deliver its promissory note
evidencing all or a portion of the consideration given. Each transaction would
be carried out in compliance with all applicable U.S or foreign laws and
accounting requirements, and any transaction structured as a sale would be
carried out for a consideration equal to the book value of the equity securities
being sold.(26)
- ---------------------------
(24) Sections 12(c), 32(g), 33(c)(1) and 34(d) and Rules 43(b), 45(b), 46(a)
and 58, as applicable, may exempt many of the transactions described in this
paragraph.
(25) The Commission has granted similar authority to another holding company.
See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22,
1999).
(26) The Commission has authorized other registered holding companies to carry
out future reorganizations of their non-utility businesses without further
approval. See Columbia Energy Group, Inc., Holding Co. Act Release No. 27099
(Nov. 5, 1999).
20
<PAGE>
1.13 SALES OF SERVICES AND GOODS AMONG SUBSIDIARIES.
----------------------------------------------
1.13.1. Continuation of Certain Existing Arrangements between NiSource
--------------------------------------------------------------
Subsidiaries. Corporate Services currently provides management, financial,
- ------------
accounting, general administrative, budgeting, business development, systems and
procedures, training, gas supply and other services to certain of the Utility
and Non-Utility Subsidiaries of NiSource pursuant to cost-based arrangements.
In addition, Bay State provides some of these same services to its subsidiaries
under cost-based agreements that predate NiSource's acquisition of Bay State.
Within one year after the Merger, NiSource will file a separate application with
the Commission in which it will seek authorization to form a new service
company, or it may designate Corporate Services, to consolidate service
functions now provided by Corporate Services and Bay State. That filing will
also address the continuing role of Columbia Energy Group Service Corporation
("Columbia Services"), the current service company subsidiary of Columbia.
Specifically, it is contemplated that many of the services now provided by
Columbia Services may be transferred to the designated NiSource System service
company. This will allow NiSource and Columbia a practical and efficient means
to implement their transition to a centralized and unified service company.
Other Subsidiaries of NiSource provide a variety of services to other
NiSource Subsidiaries, and, in at least one case, a Columbia subsidiary, under a
variety of existing agreements. The following Subsidiaries provide services
under existing agreements that do not appear to fall within any statutory or
administrative exemption under the Act and are not cost based:
SM&P Utility Resources ("SM&P"), which provides underground facilities
locating services for utilities throughout the United States, has agreements
with Northern Indiana and NIFL under which it provides these services using
fixed hourly labor rates that are comparable to those that SM&P charges under
contracts with nonassociate companies. Currently, SM&P's work for these
Subsidiaries accounts for less than 10% of its total revenues, the balance of
which is derived from nonassociate customers. SM&P will continue to compete for
this business with other companies providing similar services to NiSource
companies.
Miller Pipeline Corp. ("Miller"), which installs, repairs and maintains
underground pipelines used for gas and water transmission and distribution
systems, provides these services to Indianapolis Water Company, Northern
Indiana, NIFL, Kokomo, and Columbia Ohio, as well as to nonassociate companies.
Under the agreements, Miller uses standard labor and equipment charges that are
comparable to those charged to nonassociate customers. Currently, Miller's work
for these Subsidiaries accounts for less than 40% of its total revenues, the
balance of which is derived from nonassociate customers. Miller will continue to
compete for this business with other companies providing similar services to
NiSource companies.
After the Merger, it is contemplated that both SM&P and Miller will
continue to provide the services described above to associate companies on
21
<PAGE>
competitive terms under these existing agreements or new agreements that may be
entered into from time to time. The cost of services provided to any associate
company by SM&P and Miller will in all cases be comparable to the costs charged
to unaffiliated third parties. To the extent needed, NiSource requests an
exemption pursuant to Section 13(a) of the Act to permit these ongoing and
similar future arrangements after the Merger.
Bay State provides repair and installation services to EnergyUSA for
propane equipment sold by EnergyUSA under an agreement entered into in December
1999. Bay State also supplies or procures necessary materials. Under the
agreement, Bay State charges a flat response fee and standard hourly labor
rates. There may be other similar kinds of arrangements in place between
Subsidiaries of NiSource for the sale of services, some of which may not be
cost-based. To the extent needed, NiSource requests an exemption pursuant to
Section 13(a) of the Act in order that these agreements may remain in place for
a period of not more than 1 year after the Merger.(27) During that period,
NiSource will assess the need to maintain these arrangements in place and will
either discontinue them or address, in a separate application, the justification
for continuing them on a permanent basis.
1.13.2. Sales and Service Contracts Among Non-Utility Subsidiaries. In the
----------------------------------------------------------
limited circumstances set forth below, NiSource's Non-Utility Subsidiaries
(other than Columbia) propose to provide services and sell goods to each other
at fair market prices determined without regard to cost, and therefore request
an exemption (to the extent that Rule 90(d) does not apply) pursuant to Section
13(b) from the cost standards of Rules 90 and 91 as applicable to such
transactions, in any case in which the Non-Utility Subsidiary purchasing such
goods or services is:
(i) A FUCO or foreign EWG that derives no part of its income,
directly or indirectly, from the generation, transmission, or distribution
of electric energy for sale within the United States;
(ii) An EWG that sells electricity at market-based rates that have
been approved by the Federal Energy Regulatory Commission ("FERC"), provided
that the purchaser is not Northern Indiana;
(iii) A "qualifying facility" ("QF") within the meaning of the
Public Utility Regulatory Policies Act of 1978, as amended ("PURPA") that sells
electricity exclusively (a) at rates negotiated at arms-length to one or more
industrial or commercial customers purchasing such electricity for their own use
and not for resale, and/or (ii) to an electric utility company (other than
Northern Indiana) at the purchaser's "avoided cost" as determined in accordance
with the regulations under PURPA;
(iv) A domestic EWG or QF that sells electricity at rates based
upon its cost of service, as approved by FERC or any state public utility
commission having jurisdiction, provided that the purchaser thereof is not
Northern Indiana; or
- -------------------------------
(27) The Commission recently granted similar interim relief under Section 13(a)
to another new registered holding company. See Dominion Resources, Inc.,
Holding Co. Act Release No. 27113 (Dec. 15, 1999).
22
<PAGE>
(v) A Rule 58 Subsidiary or any other Non-Utility Subsidiary that
(a) is partially-owned by NiSource, provided that the ultimate purchaser of such
goods or services is not a Utility Subsidiary, NiSource Services (or any other
entity within the NiSource system whose activities and operations are primarily
related to the provision of goods and services to the Utility Subsidiaries), (b)
is engaged solely in the business of developing, owning, operating and/or
providing services or goods to Non-Utility Subsidiaries described in clauses (i)
through (iv) immediately above, or (c) does not derive, directly or indirectly,
any material part of its income from sources within the United States and is not
a public-utility company operating within the United States.(28)
1.14 ACTIVITIES OF RULE 58 SUBSIDIARIES OUTSIDE THE UNITED STATES.
------------------------------------------------------------
NiSource, on behalf of any current or future Rule 58 Subsidiaries, requests
authority to engage in certain "energy-related" activities permitted by Rule 58
outside the United States. Such activities may include:
(i) the brokering and marketing of electricity, natural gas and other
energy commodities ("Energy Marketing");
(ii) energy management services ("Energy Management Services"),
including the marketing, sale, installation, operation and maintenance
of various products and services related to energy management and
demand-side management, including energy and efficiency audits;
facility design and process control and enhancements; construction,
installation, testing, sales and maintenance of (and training client
personnel to operate) energy conservation equipment; design,
implementation, monitoring and evaluation of energy conservation
programs; development and review of architectural, structural and
engineering drawings for energy efficiencies, design and specification
of energy consuming equipment; and general advice on programs; the
design, construction, installation, testing, sales and maintenance of
new and retrofit heating, ventilating, and air conditioning ("HVAC"),
electrical and power systems, alarm and warning systems, motors, pumps,
lighting, water, water-purification and plumbing systems, and related
structures, in connection with energy-related needs; and the provision
of services and products designed to prevent, control, or mitigate
adverse effects of power disturbances on a customer's electrical
systems; and
(iii) engineering, consulting and other technical support services
("Consulting Services") with respect to energy-related businesses, as
well as for individuals. Such Consulting Services would include
technology assessments, power factor correction and harmonics
mitigation analysis, meter reading and repair, rate schedule design and
analysis, environmental services, engineering services, billing
- --------------------
(28) The five circumstances in which market based pricing would be allowed
are substantially the same as those approved by the Commission in other cases.
See Entergy Corporation, et al., Holding Co. Act Release No. 27039 (June 22,
1999); Ameren Corp., et al., Holding Co. Act Release No. 27053 (July 23, 1999);
and Interstate Energy Corporation, Holding Co. Act Release No. 27069 (August 26,
1999).
23
<PAGE>
services (including consolidation billing and bill disaggregation
tools), risk management services, communications systems, information
systems/data processing, system planning, strategic planning, finance,
feasibility studies, and other similar services.
NiSource requests that the Commission (i) authorize Rule 58
Subsidiaries to engage in Energy Marketing activities in Canada and reserve
jurisdiction over Energy Marketing activities outside of Canada pending
completion of the record in this proceeding,(29) (ii) authorize Rule 58
Subsidiaries to provide Energy Management Services and Consulting Services
anywhere outside the United States,(30) and (iii) reserve jurisdiction over
other activities of Rule 58 Subsidiaries outside the United States, pending
completion of the record.
In addition, NiSource requests authorization for Rule 58 Subsidiaries
to engage in "gas-related" activities outside the United States, subject to
certain proposed limitations and a request for reservation of jurisdiction.
Specifically, NiSource requests approval for Rule 58 Subsidiaries to engage in
the development, exploration and production of natural gas and oil in Canada and
to invest up to $300 million in the equity securities or assets of new or
existing companies that derive substantially all of their income from such
activities. In addition, NiSource requests approval for Rule 58 Subsidiaries to
invest, directly or indirectly through other subsidiaries, in natural gas
pipelines or storage facilities located outside the United States. Investments
in such entities would also count against the $300 million investment
limitation. NiSource requests that the Commission (i) reserve jurisdiction over
the proposed exploration and production activities in foreign countries other
than Canada pending completion of the record, (31) and (ii) reserve jurisdiction
over investments in pipeline and storage facilities outside the United States
pending completion of the record.
1.15 PAYMENT OF DIVIDENDS OUT OF CAPITAL AND UNEARNED SURPLUS.
--------------------------------------------------------
1.15.1 Payment of Dividends by Columbia and its Utility Subsidiaries.
-------------------------------------------------------------
Under the purchase method of accounting, the excess of the purchase price over
the fair value of the identifiable net tangible and intangible (non-goodwill)
assets of the company being acquired is typically allocated to goodwill. As a
result of the Merger, approximately $3.8 billion could be allocated to goodwill
and amortized over a period not to exceed 40 years. The amortization of
- ------------------
(29) See Southern Energy, Inc., Holding Co. Act Rel. No. 27020 (May 13, 1999)
(supplemental order amending prior order to permit registered holding company
subsidiary to engage in power and gas marketing activities in Canada and
reserving jurisdiction over such activities outside the United States and
Canada); Interstate Energy Corporation, Holding Co. Act Release No. 27069
(August 26, 1999). See too, National Fuel Gas Company, et al., Holding Co. Act
Release No. 27114 (Dec. 16, 1999).
(30) The Commission has heretofore authorized non-utility subsidiaries of a
registered holding company to sell similarly-defined energy management services
and technical consulting services to customers outside the United States. See
Columbia Energy Group, et al., Holding Co. Act Release No. 26498 (March 25,
1996); and Cinergy Corp., Holding Co. Act Release No. 26662 (February 7, 1997);
and Interstate Energy Corporation, Holding Co. Act Release No. 27069 (August 26,
1999).
(31) The Commission has heretofore authorized similar programs of investing in
development, exploration and production activities in Canada. See National Fuel
Gas Company, et al., Holding Co. Act Release No. 27114 (Dec. 16, 1999); and
Columbia Energy Group, et al., Holding Co. Act Release No. 27055 (July 30,
1999).
24
<PAGE>
goodwill will reduce earnings but will not have any effect on cash flow
available for payment of dividends.
It has not yet been determined whether the acquisition premium created
in the Merger will be "pushed down" and reflected in the financial statements of
Columbia and its subsidiaries. If "push down" accounting is used, the assets and
liabilities of Columbia and its subsidiaries would be recorded at fair value and
any excess of the acquisition premium over the fair value of the assets and
liabilities would be reflected as goodwill. The increase in the net assets plus
the goodwill created would be reflected as additional paid-in capital in the
financial statements of Columbia and its subsidiaries. Importantly, the
pre-Merger retained earnings of each of these companies would be eliminated, and
the amortization of goodwill would decrease net income, and therefore future
retained earnings, the traditional source of dividend payments. The Applicants
will advise the Commission by an amendment to this Application whether "push
down" accounting will be used and, if so, which of Columbia and its subsidiaries
will be affected.
If "push down" accounting for the Merger is used, Columbia and its
Utility Subsidiaries request authorization to pay dividends out of capital and
unearned surplus in an amount up to the retained earnings of such companies
prior to the Merger. In addition, after the Merger is completed, each of these
companies requests authorization to pay dividends out of earnings before
amortization of goodwill ("Gross Earnings"). Such authorization is requested for
the duration of the goodwill amortization period.(32)
It is also contemplated that, before or shortly after the Merger,
certain non-core assets or businesses of Columbia will be sold. In that event,
the Applicants request authority for Columbia to transfer the net proceeds of
such sale or sales to NiSource, either by paying a dividend or by repurchasing
shares of its common stock that are held by NiSource. NiSource intends to use
some or all of the proceeds of such non-core asset sales to repay Acquisition
Debt.
Section 12 (c) of the Act and Rule 46 thereunder generally prohibit the
payment of dividends by a registered holding company or subsidiary thereof out
of capital or unearned surplus except pursuant to an order of the Commission. In
determining whether to permit a registered holding company or any subsidiary to
pay dividends out of capital and unearned surplus, the Commission considers
various factors, including: (i) the asset value of the company in relation to
its capitalization, (ii) the company's prior earnings, (iii) the company's
current earnings in relation to the proposed dividend, and (iv) the company's
projected cash position after payment of a dividend.(33) Further, the payment of
the dividend must be "appropriate in the public interest."(34)
- ----------------------
(32) The Commission recently granted substantially identical dividend relief
to another new registered holding company. See National Grid Group plc, et
al., Holding Co. Act Release No. 27154 (Mar. 15, 2000).
(33) See Eastern Utilities Associates, Holding Co. Act Release No. 25330
(June 13, 1991) ("EUA"), and cases cited therein.
(34) Id., citing Commonwealth & Southern Corporation, 13 S.E.C. 489, 492
(1943).
25
<PAGE>
In support of its request, NiSource asserts that each of the standards
of Section 12(c) of the Act enunciated in the EUA case are satisfied:
(i) NiSource anticipates that the consolidated cash flow and Gross
Earnings of Columbia and the Columbia Utility Subsidiaries after the Merger
should remain stable and therefore will be sufficient to support anticipated
dividends.
(ii) The projected cash flow of Columbia and the Columbia Utility
Subsidiaries after the Merger will be adequate to meet their respective
obligations. As indicated, the amortization of goodwill is a non-cash expense
that will not affect cash flow. NiSource expects that Columbia and its Utility
Subsidiaries will have sufficient cash to pay dividends in the amounts
contemplated.
(iii) Columbia and the Columbia Utility Subsidiaries have a
favorable history of earnings and consistent dividend payments in recent
years.(35)
(iv) After the Merger, and after giving effect to the "push down"
of the acquisition premium, Columbia's common stock equity as a percentage of
total capitalization will be substantially in excess of the traditional levels
of equity capitalization that the Commission has authorized for other registered
holding companies systems. The Applicants commit to maintain the capitalization
of Columbia at or above 30% common stock equity on a consolidated basis.
1.15.2 Payment of Dividends by Non-Utility Subsidiaries. NiSource
------------------------------------------------
also proposes, on behalf of itself and each of its current and future non-exempt
Non-Utility Subsidiaries that such companies be permitted to pay dividends with
respect to the securities of such companies, from time to time through the
Authorization Period, out of capital and unearned surplus (including revaluation
reserve), to the extent permitted under applicable corporate law.(36)
NiSource anticipates that there will be situations in which a
Non-Utility Subsidiary will have unrestricted cash available for distribution in
excess of such company's current and retained earnings. In such situations, the
declaration and payment of a dividend would have to be charged, in whole or in
part, to capital or unearned surplus. As an example, if an Intermediate
- -------------------------------
(35) The table below presents diluted earnings per share and dividends per
common share for the four fiscal years ending December 31, 1999 for NiSource and
Columbia, with the most recent fiscal year listed first:
--------- ---------- ------------ ----------------- -----------------
Year NiSource NiSource Columbia Columbia
Earnings Dividends Earnings Dividends
--------- ---------- ------------ ----------------- -----------------
1999 $1.27 $1.02 $3.01 $0.875
--------- ---------- ------------ ----------------- -----------------
1998 1.59 0.96 3.21 0.770
--------- ---------- ------------ ----------------- -----------------
1997 1.53 0.90 3.27 0.60
--------- ---------- ------------ ----------------- -----------------
1996 1.43 0.84 2.74 0.40
--------- ---------- ------------ ----------------- -----------------
(36) The Commission has granted similar approvals to other registered holding
companies. See Entergy Corporation, et al., Holding Co. Act Release No. 27039
(June 22, 1999); and Interstate Energy Corporation, et al., Holding Co. Act
Release No. 27069 (August 26, 1999).
26
<PAGE>
Subsidiary of NiSource were to purchase all of the stock of an EWG or FUCO, and
following such acquisition, the EWG or FUCO incurs non-recourse borrowings some
or all of the proceeds of which are distributed to the Intermediate Subsidiary
as a reduction in the amount invested in the EWG or FUCO (i.e., return of
capital), the Intermediate Subsidiary (assuming it has no earnings) could not,
without the Commission's approval, in turn distribute such cash to NiSource or
its other parent.(37)
Similarly, using the same example, if an Intermediate Subsidiary,
following its acquisition of all of the stock of an EWG or FUCO, were to sell
part of that stock to a third party for cash, the Intermediate Subsidiary would
again have substantial unrestricted cash available for distribution, but
(assuming no profit on the sale of the stock) would not have current earnings
and therefore could not, without the Commission's approval, declare and pay a
dividend to its parent out of such cash proceeds.
Further, there may be periods during which unrestricted cash available
for distribution by a Non-Utility Subsidiary exceeds current and retained
earnings due to the difference between accelerated depreciation allowed for tax
purposes, which may generate significant amounts of distributable cash, and
depreciation methods required to be used in determining book income.
Finally, even under circumstances in which a Non-Utility Subsidiary has
sufficient earnings, and therefore may declare and pay a dividend to its
immediate parent, such immediate parent may have negative retained earnings,
even after receipt of the dividend, due to losses from other operations. In this
instance, cash would be trapped at a subsidiary level where there is no current
need for it.
NiSource, on behalf of each current and future non-exempt Non-Utility
Subsidiary, represents that it will not declare or pay any dividend out of
capital or unearned surplus in contravention of any law restricting the payment
of dividends. In this regard, it should be noted that all U.S. jurisdictions
---
limit to one extent or another the authority of corporations to make dividend
distributions to shareholders. Most State corporation statutes contain either or
both an equity insolvency test or some type of balance sheet test. NiSource also
states that its subsidiaries will comply with the terms of any credit agreements
and indentures that restrict the amount and timing of distributions to
shareholders.
1.16 TAX ALLOCATION AGREEMENT. The Applicants ask the Commission to
------------------------
approve an agreement for the allocation of consolidated tax among NiSource and
the Subsidiaries (the "Tax Allocation Agreement"). Approval is necessary because
the Tax Allocation Agreement provides for the retention by NiSource of certain
payments from the Subsidiaries for tax losses that NiSource will incur due to
interest expense it will pay on the Acquisition Debt, rather than the allocation
of such losses to Subsidiaries without payment as would otherwise be required by
- ---------------------
(37) The same problem would arise where an Intermediate Subsidiary is
over-capitalized in anticipation of a bid which is ultimately unsuccessful. In
such a case, NiSource would normally desire a return of some or all of the funds
invested.
27
<PAGE>
Rule 45(c)(5). A copy of the proposed Tax Allocation Agreement will be filed as
Exhibit B-4 hereto.
Provisions in a tax allocation agreement between a registered holding
company and its subsidiaries must comply with Section 12 of the Act and Rule 45
thereunder. Rule 45(a) of the Act generally prohibits any registered holding
company or subsidiary company from, directly or indirectly, lending or in any
manner extending its credit to or indemnifying, or making any donation or
capital contribution to, any company in the same holding company system, except
pursuant to a Commission order. Rule 45(c) provides, however, that no approval
is required for a tax allocation agreement between eligible associate companies
in a registered holding company system that "provides for allocation among such
associate companies of the liabilities and benefits arising from such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:
The agreement may, instead of excluding members as provided in
paragraph (c)(4), include all members of the group in the tax
allocation, recognizing negative corporate taxable income or a negative
corporate tax, according to the allocation method chosen. An agreement
under this paragraph shall provide that those associate companies with
-------------------
a positive allocation will pay the amount allocated and those
subsidiary companies with a negative allocation will receive current
--------------------
payment of their corporate tax credits. The agreement shall provide a
method for apportioning such payments, and for carrying over
uncompensated benefits, if the consolidated loss is too large to be
used in full. Such method may assign priorities to specified kinds of
benefits. (Emphasis added).
Under the rule, only "subsidiary companies," as opposed to "associate
companies" (which includes the holding company in a holding company system), are
entitled to be paid for corporate tax credits. However, if a tax allocation
agreement does not fully comply with the provisions of Rule 45(c), it may
nonetheless be approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission
explained that the distinction between "associate companies," on the one hand,
and "subsidiary companies," on the other, represented a policy decision to
preclude the holding company from sharing in consolidated return savings. The
Commission noted that exploitation of utility companies by holding companies
through the misallocation of consolidated tax return benefits was among the
abuses examined in the investigations underlying the enactment of the Act.(38)
It must be noted, however, that the result in Rule 45(c)(5) is not dictated by
the statute and, as the Commission has recognized, there is discretion on the
part of the agency to approve tax allocation agreements that do not, by their
terms, comply with Rule 45(c) -- so long as the policies and provisions of the
Act are otherwise satisfied. In this matter, where the holding company is
- ----------------------------
(38) See Holding Co. Act Release No. 21968 (March 25, 1981), citing Sen. Doc.
92, Part 72A, 70th Congress, 1st Sess. at 477-482.
28
<PAGE>
seeking only to receive payment for tax losses that have been generated by it,
the proposed arrangement will not give rise to the types of problems (e.g.,
upstream loans) that the Act was intended to address.(39)
As a result of the Merger, NiSource will be creating tax losses
(chiefly in the form of deductions for interest expense relating to the
Acquisition Debt) that are non-recourse to the Subsidiaries. Under the proposed
Tax Allocation Agreement, NiSource would receive the benefit of those losses
through cash payments from Subsidiaries with positive taxable income.
1.17 CERTIFICATES OF NOTIFICATION. It is proposed that, with respect to
----------------------------
NiSource, the reporting system of the 1933 Act and the 1934 Act be integrated
with the reporting system under the 1935 Act. This would eliminate duplication
of filings with the Commission that cover essentially the same subject matters,
resulting in a reduction of expense for both the Commission and NiSource. To
effect such integration, the portion of the 1933 Act and 1934 Act reports
containing or reflecting disclosures of transactions occurring pursuant to the
authorization granted in this proceeding would be incorporated by reference into
this proceeding through Rule 24 certificates of notification. The certificates
would also contain all other information required by Rule 24, including the
certification that each transaction being reported on had been carried out in
accordance with the terms and conditions of and for the purposes represented in
this Application/Declaration. Such certificates of notification would be filed
within 60 days after the end of each of the first three calendar quarters, and
90 days after the end of the last calendar quarter, in which transactions occur.
The Rule 24 certificates will contain the following information for the
reporting period:
(a) The sales of any Common Stock and the purchase price
per share and the market price
per share at the date of the agreement of sale;
(b) The total number of shares of Common Stock issued or
issuable under options granted during the quarter under New NiSource's
benefit plans or otherwise;
(c) If Common Stock has been transferred to a seller of
securities of a company being acquired, the number of shares so issued,
the value per share and whether the shares are restricted to the
acquiror;
(d) The amount and terms of any Long-term Debt, Preferred
Stock or other preferred or equity-linked securities issued directly or
indirectly by NiSource during the quarter;
(e) The amount and terms of any financings consummated by
any Non-Utility Subsidiary during the quarter that are not exempt under
Rule 52;
(f) The name of the guarantor and of the beneficiary of
any NiSource Guarantee or Non-Utility Subsidiary Guarantee issued
during the quarter, and the amount, terms and purpose of the guarantee;
- -------------------
(39) See e.g., Section 12(a) of the Act.
29
<PAGE>
(g) The notional amount and principal terms of any Interest
Rate Hedge or Anticipatory Hedge entered into during the quarter and
the identity of the parties to such instruments;
(h) The name, parent company, and amount invested in any
new Intermediate Subsidiary or Financing Subsidiary during the quarter;
(i) A list of Form U-6B-2 statements filed with the
Commission during the quarter, including the name of the filing entity
and the date of the filing; and
(j) Consolidated balance sheets as of the end of the quarter,
and separate balance sheets as of the end of the quarter for each
company, including New NiSource, that has engaged in financing
transactions during the quarter.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
------------------------------
The fees, commissions and expenses incurred or to be incurred in
connection with the preparation and filing of this Application/Declaration and
certain of the Exhibits filed herewith are estimated not to exceed $100,000. The
above fees do not include underwriting fees and all other expenses incurred in
consummating specific financings, credit support arrangements, asset transfers,
or other transactions covered hereby. It is estimated that fees and expenses
incurred in connection with specific financings will not exceed 5% of the
proceeds.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
3.1 GENERAL. Sections 6(a) and 7 of the Act are applicable to the
-------
issuance and sale of Common Stock, Preferred Stock, Long-term Debt and
Short-term Debt by NiSource and to the issuance and sale of securities by the
Utility Subsidiaries and Non-Utility Subsidiaries that are not exempt under Rule
52. In addition, Sections 6(a) and 7 of the Act are applicable to Interest Rate
Hedges, except to the extent that they may be exempt under Rule 52, and to
Anticipatory Hedges. Section 12(b) of the Act and Rule 45(a) are applicable to
the issuance of NiSource Guarantees and to Non-Utility Subsidiary Guarantees, to
the extent not exempt under Rules 45(b) and 52. Sections 9(a)(1) and 10 of the
Act are also applicable to NiSource's or any Non-Utility Subsidiary's
acquisition of the equity securities of any Financing Subsidiary or Intermediate
Subsidiary, and the activities of Rule 58 Subsidiaries outside the United
States. Section 12(c) of the Act and Rule 46 are applicable to the payment of
dividends from capital and unearned surplus by Columbia and the Columbia Utility
Subsidiaries and the Non-Utility Subsidiaries. Section 13(a) applies to
NiSource's request for an exemption to allow it to render services to
Subsidiaries for a limited time. Section 13(b) of the Act and Rules 80 - 92 are
applicable to the performance of services and sale of goods among Non-Utility
Subsidiaries, but may be exempt from the requirements thereof in some cases
pursuant to Rules 87(b)(1), 90(d) and 92, as applicable. Section 12(b) of the
Act and Rule 45(c) are applicable to the proposed Tax Allocation Agreement.
30
<PAGE>
3.2 COMPLIANCE WITH RULES 53 AND 54. The transactions proposed herein
-------------------------------
are also subject to Rules 53 and 54. Under Rule 53(a), the Commission shall not
make certain specified findings under Sections 7 and 12 in connection with a
proposal by a holding company to issue securities for the purpose of acquiring
the securities of or other interest in an EWG, or to guarantee the securities of
an EWG, if each of the conditions in paragraphs (a)(1) through (a)(4) thereof
are met, provided that none of the conditions specified in paragraphs (b)(1)
through (b)(3) of Rule 53 exists. Rule 54 provides that the Commission shall not
consider the effect of the capitalization or earnings of subsidiaries of a
registered holding company that are EWGs or FUCOs in determining whether to
approve other transactions if Rule 53(a), (b) and (c) are satisfied. These
standards are met.
Rule 53(a)(1): The combined "aggregate investment" of NiSource and
Columbia in EWGs and FUCOs is approximately $7.52 million, or approximately 1%
of NiSource's pro forma "consolidated retained earnings" at December 31, 1999
($774.4 million).
Rule 53(a)(2): NiSource will maintain books and records enabling it to
identify investments in and earnings from each EWG and FUCO in which it directly
or indirectly acquires and holds an interest. NiSource will cause each domestic
EWG in which it acquires and holds an interest, and each foreign EWG and FUCO
that is a majority-owned subsidiary, to maintain its books and records and
prepare its financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP"). All of such books and records and financial
statements will be made available to the Commission, in English, upon request.
Rule 53(a)(3): No more than 2% of the employees of the Utility
Subsidiaries will, at any one time, directly or indirectly, render services to
EWGs and FUCOs.
Rule 53(a)(4): NiSource will submit a copy of the
Application/Declaration in this proceeding and each amendment thereto, and will
submit copies of any Rule 24 certificates required hereunder, as well as a copy
of NiSource's Form U5S, to each of the public service commissions having
jurisdiction over the retail rates of the Utility Subsidiaries.
In addition, NiSource states that the provisions of Rule 53(a) are not
made inapplicable to the authorization herein requested by reason of the
occurrence or continuance of any of the circumstances specified in Rule 53(b).
Rule 53(c) is inapplicable by its terms.
ITEM 4. REGULATORY APPROVAL.
-------------------
As described in Item 1.7, the IURC, MDTE and NHPUC generally have
jurisdiction over the issuance of securities by public utilities that are
subject to their jurisdiction. No state commission, and no federal commission,
other than the Commission, has jurisdiction over any of the other transactions
proposed in this Application/Declaration.
31
<PAGE>
ITEM 5. PROCEDURE.
---------
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application/Declaration as soon as practicable.
The Applicants request that the Commission's order be issued as soon as the
rules allow, and that there should not be a 30-day waiting period between
issuance of the Commission's order and the date on which the order is to become
effective. The Applicants hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission and consent that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
A. EXHIBITS.
--------
A-1 Form of Amended and Restated Certificate of
Incorporation of New NiSource (incorporated by
reference to Exhibit 3.3 to Registration Statement on
Form S-4 of New NiSource in File No. 333-33896).
A-2 Form of Amended and Restated By-Laws of New NiSource
(incorporated by reference to Exhibit 3.4 to
Registration Statement on Form S-4 of New NiSource in
File No. 333-33896).
A-3 Amended and Restated Articles of Incorporation of
NiSource dated as of May 13, 1998, as amended on
April 14, 1999 and March 2, 2000 (incorporated by
reference to Exhibit 3 to NiSource's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998,
and Exhibits 3.2 and 3.3 to NiSource's Annual Report
on Form 10-K for the year ended December 31, 1999 in
File No. 1-9776).
A-4 Amended and Restated By-Laws of NiSource effective
January 29, 2000 (incorporated by reference to
Exhibit 3.4 to NiSource's Annual Report on Form 10-K
for the year ended December 31, 1999 in File No.
1-9776).
B-1 NiSource Support Agreement, as amended (incorporated by
reference to Exhibit 4.2 to the Registration Statement
on Form S-3 of NIPSCO Industries, Inc. in File No.
33-54516).
B-2 Form of Shareholder Rights Agreement between New
NiSource and Chase Mellon Shareholder Services, L.L.C.,
as rights agent (incorporated by reference to Exhibit
4.2 to Registration Statement on Form S-4 of New
NiSource in File No. 333-33896).
B-3 Shareholder Rights Agreement between NiSource and
Harris Trust and Savings Bank, as rights agent, dated
February 17, 2000 (incorporated by reference to
32
<PAGE>
Exhibit 4.1 to Form 8-A, dated February 24, 2000, of
NiSource in File No. 1-9776).
B-4 Form of Tax Allocation Agreement (to be filed by
amendment).
F Opinion of Counsel (to be filed by amendment).
H Proposed Form of Federal Register Notice.
I-1 Actual and pro forma cash flow data for fiscal years
1997 - 2003 for NiSource and consolidated
subsidiaries, NiSource corporate (including NiSource
Financing Subsidiaries), the NiSource Utility
Subsidiaries, and Columbia and consolidated
subsidiaries (to be filed confidentially pursuant to
Rule 104 by amendment).
I-2 Actual and pro forma capitalization ratios at fiscal
year end 1997 - 2003 for NiSource and consolidated
subsidiaries, NiSource corporate (including NiSource
Financing Subsidiaries), the NiSource Utility
Subsidiaries, and Columbia and consolidated
subsidiaries (to be filed confidentially pursuant to
Rule 104 by amendment).
J-1 NiSource Long-Term Incentive Plan, as amended and
restated effective January 1, 2000 (incorporated by
reference to Annex IV to Registration Statement on
Form S-4 of New NiSource in File No. 333-33896).
J-2 Nonemployee Director Stock Incentive Plan, as amended
and restated effective February 1, 1998 (incorporated
by reference to exhibit 10.3 to NIPSCO Industries'
Annual Report on Form 10-K for the year ended
December 31, 1998 in File No. 1-9776).
J-3 Employee Stock Purchase Plan prospectus, dated May 1,
1999 (to be filed by amendment).
B. FINANCIAL STATEMENTS.
--------------------
FS-1 NiSource Consolidated See Annual Report of
Statements of Income NiSource on Form 10-K for the
for last three fiscal years year ended December 31,
ended December 31, 1999 1999 in File No. 1-9776
FS-2 NiSource Consolidated See Annual Report of NiSource
Balance Sheets as Form 10-K for the year
of December 31, 1999 ended December 31, 1999 in
File No. 1-9776
FS-3 NiSource Consolidated See Quarterly
33
<PAGE>
Statement of Income Report of NiSource on Form
for the three months ended 10-Q for the period ended
March 31, 2000 March 31, 2000
in File No. 1-9776
FS-4 NiSource Consolidated See Quarterly
Balance Sheet as of Report of NiSource Form
March 31, 2000 10-Q for the period
ended March 31, 2000
in File No. 1-9776
FS-5 Columbia Consolidated See Annual Report of
Statements of Income Columbia on Form
for the last three fiscal years 10-K for the fiscal year
ended December 31, 1999 ended December 31,
1999 in File No. 1-1098
FS-6 Columbia Consolidated Balance See Annual Report of Columbia
Sheet as of on Form 10-K for the
December 31, 1999 fiscal year ended December
31, 1999 in File No. 1-1098
FS-7 Columbia Consolidated Statement See Quarterly
of Income for the Report of Columbia on Form
three months ended 10-Q for the period
March 31, 2000 ended March 31, 2000
in File No. 1-1098
FS-8 Columbia Consolidated Balance See Quarterly Report of
Sheet as of Columbia on Form
March 31, 2000 10-Q for the
period ended March 31, 2000
in File No. 1-1098
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
None of the matters that are the subject of this
Application/Declaration involves a "major federal action" nor do such matters
"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
transactions that are the subject of this Application/Declaration will not
result in changes in the operation of the Applicants that will have an impact on
the environment. The Applicants are not aware of any federal agency that has
prepared or is preparing an environmental impact statement with respect to the
transactions that are the subject of this Application/Declaration.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, each of the undersigned companies has duly caused this
Application/Declaration to be signed on its behalf by the undersigned thereunto
duly authorized.
NEW NISOURCE INC.
NISOURCE INC.
NORTHERN INDIANA PUBLIC SERVICE COMPANY
ENERGYUSA, INC.
NISOURCE CAPITAL MARKETS, INC.
NISOURCE FINANCE CORP.
NISOURCE DEVELOPMENT COMPANY, INC.
NI ENERGY SERVICES, INC.
HAMILTON HARBOUR INSURANCE SERVICES, LTD.
NISOURCE CORPORATE SERVICES COMPANY
/s/ Gary L. Neale
-------------
Name: Gary L. Neale
Title: President of New NiSource Inc.;
Chairman, Chief Executive Officer and
President of NiSource Inc; Chairman
and Chief Executive Officer of
Northern Indiana Public Service
Company; Chairman and President of
NiSource Finance Corp.; and Chairman
of EnergyUSA, Inc., NiSource Capital
Markets, Inc., NiSource Development
Company, Inc., NI Energy
Services, Inc., Hamilton Harbour
Insurance Services, LTD., and NiSource
Corporate Services Company
KOKOMO GAS AND FUEL COMPANY
NORTHERN INDIANA FUEL AND LIGHT COMPANY
BAY STATE GAS COMPANY
NORTHERN UTILITIES, INC.
/s/ Jeffrey W. Yundt
----------------
Name: Jeffrey W. Yundt
Title: Chairman of Kokomo Gas and Fuel
Company and Northern Indiana Fuel
and Light Company; Chief Executive
35
<PAGE>
Officer and President of Bay State
Gas Company; Chairman, Chief
Executive Officer and President of
Northern Utilities, Inc.
PRIMARY ENERGY, INC.
/s/ Joseph L. Turner, Jr.
---------------------
Name: Joseph L. Turner, Jr.
Title: President
NISOURCE PIPELINE GROUP, INC.
/s/ Daniel D. Gavito
----------------
Name: Daniel D. Gavito
Title: President
IWC RESOURCES CORPORATION
/s/ James T. Morris
---------------
Name: James T. Morris
Title: Chairman, Chief Executive Officer
and President
COLUMBIA ENERGY GROUP
/s/ M. W. O'Donnell
---------------
Name: M. W. O'Donnell
Title: Senior Vice President
and Chief Financial Officer
COLUMBIA GAS OF KENTUCKY, INC.
COLUMBIA GAS OF OHIO, INC.
COLUMBIA GAS OF MARYLAND, INC.
COLUMBIA GAS OF PENNSYLVANIA, INC.
COLUMBIA GAS OF VIRGINIA, INC.
COLUMBIA NETWORK SERVICES CORPORATION
COLUMBIA PROPANE CORPORATION
COLUMBIA ENERGY GROUP SERVICE CORPORATION
COLUMBIA ATLANTIC TRADING CORPORATION
COLUMBIA ENERGY SERVICES CORPORATION
COLUMBIA ENERGY GROUP CAPITAL CORPORATION
36
<PAGE>
COLUMBIA ELECTRIC CORPORATION
COLUMBIA PIPELINE CORPORATION
COLUMBIA FINANCE CORPORATION
COLUMBIA TRANSMISSION COMMUNICATIONS
CORPORATION
COLUMBIA ENERGY RESOURCES, INC.
COLUMBIA INSURANCE CORPORATION, LTD.
/s/ R. L. Dennis
------------
Name: R. L. Dennis
Title: Vice President
COLUMBIA GULF TRANSMISSION COMPANY
COLUMBIA GAS TRANSMISSION CORPORATION
COLUMBIA LNG CORPORATION
/s/ M. E. Bockelmann
----------------
Name: M. E. Bockelmann
Title: Vice President
Date: May 17, 2000
37
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
H Proposed Form of Federal Register Notice
EXHIBIT H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-_____)
Filings under the Public Utility Holding Company Act of 1935, as
amended ("Act")
June __, 2000
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
July __, 2000 to the Secretary, Securities and Exchange Commission, 450 5th
Street, N.W., Washington, D.C. 20549, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) as specified below. Proof of
service (by affidavit or, in case of an attorney at law, by certificate) should
be filed with the request. Any request for hearing shall identify specifically
the issues of fact or law that are disputed. A person who so requests will be
notified of any hearing, if ordered, and will receive a copy of any notice or
order issued in the matter. After July __, 2000, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted to
become effective.
* * * * * *
NEW NISOURCE INC., ET AL. (70-[___])
New NiSource, Inc. ("New NiSource"), a Delaware corporation, and
NiSource Inc. ("NiSource"), an Indiana corporation, 801 East 86th Avenue,
Merrillville, Indiana 46410-6272, and Columbia Energy Group ("Columbia"), a
Delaware corporation, 13880 Dulles Corner Lane, Herndon, Virginia 20171-4600,
and their respective subsidiaries, have filed an application-declaration
pursuant to Sections 6(a), 7, 9(a), 10, 12(b), 12(c), and 13(b) of the Public
Utility Holding Company Act of 1935, as amended (the "Act"), and Rules 45, 46,
52, 53, 54, 87 and 90 - 92 thereunder.
NiSource, an exempt holding company, owns all of the outstanding common
stock of five public utility subsidiaries: Northern Indiana Public Service
Company ("Northern Indiana"), Kokomo Gas and Fuel Company ("Kokomo"), Northern
Indiana Fuel and Light Company ("NIFL"), Bay State Gas Company ("Bay State"),
and Northern Utilities, Inc. ("Northern") (collectively the "NiSource Utility
Subsidiaries"). The NiSource Utility Subsidiaries constitute an integrated gas
1
<PAGE>
utility system with operations in Indiana, Massachusetts, New Hampshire, and
Maine. Northern Indiana also generates, transmits and sells electricity in
Indiana. Columbia is a registered holding company with five wholly owned gas
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"), which distribute gas
in portions of Kentucky, Maryland, Ohio, Pennsylvania and Virginia
(collectively, the "Columbia Utility Subsidiaries," and together with the
NiSource Utility Subsidiaries, the "Utility Subsidiaries"). Both NiSource and
Columbia also own, directly and indirectly, numerous energy related, exempt, or
otherwise functionally related non-utility subsidiaries.
In a separate proceeding (File No. 70-9551), New NiSource and NiSource
have filed an Application/Declaration on Form U-1 (the "Merger Application")
pursuant to Sections 9 and 10 and other applicable provisions of the Act in
which they are seeking approval for the acquisition by New NiSource of all of
the issued and outstanding common stock of NiSource and Columbia through mergers
of separate subsidiaries of New NiSource with and into each of NiSource and
Columbia, followed by the merger of NiSource into New NiSource (the "Preferred
Merger"). Upon consummation of these transactions, New NiSource will immediately
be renamed "NiSource Inc." In the alternative, the Merger Application seeks
Commission approval for the acquisition by NiSource of the issued and
outstanding common stock of Columbia through the merger of a wholly owned
subsidiary of NiSource with and into Columbia (the "Alternative Merger," and
together with the Preferred Merger, the "Merger"). In either case, New NiSource
or NiSource, as the case may be, will register as a holding company pursuant to
Section 5 of the Act following the Merger. Columbia will be maintained as a
direct wholly owned subsidiary of New NiSource or NiSource, as the case may be,
and will continue to hold all of the common stock of the Columbia Utility
Subsidiaries and its non-utility subsidiaries.
A more complete description of NiSource and Columbia and their
respective utility and non-utility operations and the reasons for the Merger is
contained in the Merger Application. Unless otherwise indicated, the term
"NiSource" shall hereafter refer to the survivor of the NiSource/New NiSource
merger, in the Preferred Merger structure, or the current NiSource, in the
Alternative Merger structure, as the context requires. The term "Non-Utility
Subsidiaries" means the current non-utility subsidiaries of NiSource and of
Columbia, as well as any future non-utility subsidiaries of NiSource or Columbia
acquired pursuant to a separate Commission order or an available exemption.
In the Preferred Merger, NiSource will issue shares of its common stock
for the outstanding common stock of NiSource and common stock and Stock
Appreciation Income Linked Securities(SM) ("SAILS SM") in exchange for the
outstanding common stock of Columbia. In the Alternative Merger, NiSource will
not issue any common stock, but only SAILS SM. In both Merger structures,
shareholders of Columbia will also receive cash, the amount of which will range
2
<PAGE>
from approximately $4 billion to approximately $6 billion, depending on the form
of the Merger and other variables. The cash portion of the Merger consideration
will be financed through borrowings under a revolving credit facility (the
"Acquisition Debt").
In this proceeding, NiSource and the NiSource Utility Subsidiaries are
seeking approval for a program of external financing following NiSource's
registration under the Act for the period through December 31, 2003
("Authorization Period"). The applicants are not requesting any changes to the
amounts or types of securities and guarantees that Columbia and the Columbia
Utility Subsidiaries are authorized to issue under the terms of certain
currently effective Commission orders.(1) The applicants are also seeking
approval for intrasystem guarantees, the creation and maintenance of specified
types of new subsidiaries, the payment of dividends out of capital and unearned
surplus and other related matters. Specifically, the applicants are requesting
approval for the following:
1. Acquisition Debt. NiSource requests authorization to maintain the
----------------
facility under which the Acquisition Debt is issued, including
any extensions, renewals or replacements thereof during the Authorization
Period.
2. Post-Merger Financing by NiSource. NiSource requests authority to
---------------------------------
issue and sell from time to time shares of its authorized common stock and
preferred stock and, directly or indirectly through one or more Financing
Subsidiaries (as described below), unsecured long-term indebtedness ("Long-term
Debt") and other forms of preferred or equity-linked securities having
maturities of up to 50 years. The aggregate amount of all such common stock,
preferred stock, Long-term Debt and other forms of preferred or equity-linked
securities at any time outstanding during the Authorization Period shall not
exceed $12 billion, provided that shares of NiSource common stock that are
issuable with respect to the SAILS SM and certain other currently outstanding
equity-linked securities and shares of preferred stock that may be issued
pursuant to the NiSource's Shareholder Rights Agreement ("Rights Plan") will not
count against this limit. In addition, NiSource requests authority to issue and
sell from time to time, directly or indirectly through one or more Financing
Subsidiaries, unsecured short-term indebtedness having maturities of less than
one year ("Short-term Debt") in an aggregate principal amount at any time
outstanding not to exceed $2 billion, provided that the Acquisition Debt (or any
debt extending, renewing or replacing the Acquisition Debt) will not be
considered Short-term Debt regardless of its maturity. The aggregate principal
amount of all indebtedness issued by NiSource or any Financing Subsidiary of
NiSource at any time outstanding (including, specifically, Acquisition Debt,
Long-term Debt and Short-term Debt) shall not exceed $10 billion (the "NiSource
Debt Limitation"). The interest rate on Long-term Debt, preferred stock or other
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1 See Columbia Energy Group, Holding Co. Act Release No. 27035 (June 8,
1999); and The Columbia Gas System, Inc., Holding Co. Act Release Nos. 26798
(Dec. 22, 1997) and 26634 (Dec. 23, 1996).
3
<PAGE>
preferred or income-linked securities will not exceed 500 basis points over the
appropriate Treasury rate, and the interest rate on Short-term Debt will not
exceed 300 basis points over LIBOR. Underwriting fees and all other fees and
expenses incurred in consummating specific financing transactions will not
exceed 5% of the proceeds thereof.
(3) Short-term Debt of NiSource Utility Subsidiaries. The NiSource
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Utility Subsidiaries request authority to issue and sell from time to time
short-term debt in an aggregate amount at any one time outstanding not to exceed
the following amounts: (A) Northern Indiana - $1 billion; (B) Kokomo - $50
million; (C) NIFL - $50 million; (D) Bay State - $250 million; and (E) Northern
- - $50 million. The same interest rate parameters on Short-term Debt described
above shall apply. All other debt and equity securities issued by the NiSource
Utility Subsidiaries are expected to be exempt under Rule 52.
(4) Intrasystem Guarantees. NiSource requests authority, directly or
----------------------
through one or more Financing Subsidiaries, to guarantee indebtedness or
contractual obligations or provide other forms of credit support ("NiSource
Guarantees") on behalf or for the benefit of its Subsidiaries in an aggregate
amount not to exceed $5 billion at any one time outstanding, provided that any
securities issued by Financing Subsidiaries of NiSource that are guaranteed or
supported by other forms of credit enhancement provided by NiSource will not
count against this limitation, but instead will count against the limitation on
the same types of securities that NiSource is authorized to issue.
(5) Non-Utility Subsidiary Guarantees. Non-Utility Subsidiaries (other
---------------------------------
than Columbia) request authority to provide guarantees of indebtedness or
contractual obligations or provide other forms of credit support ("Non-Utility
Subsidiary Guarantees") on behalf or for the benefit of other Non-Utility
Subsidiaries in an aggregate principal or nominal amount not to exceed $2
billion at any one time outstanding, in addition to any guarantees that are
exempt pursuant to Rule 45(b) and Rule 52(b).
(6) Interest Rate Hedges. NiSource and, to the extent not exempt under
--------------------
Rule 52, its subsidiaries request authority to enter into hedging transactions
("Interest Rate Hedges") with respect to the indebtedness of such companies in
order to manage and minimize interest rate costs. Such companies also request
authority to enter into hedging transactions ("Anticipatory Hedges") with
respect to anticipatory debt issuances in order to lock-in current interest
rates and/or manage interest rate risk exposure.
(7) Changes in Capitalization of Subsidiaries. NiSource, for itself and
-----------------------------------------
on behalf of its subsidiaries, requests authorization to change the terms of the
authorized capitalization of any subsidiary, provided that, if a subsidiary is
not wholly owned, all other required shareholder consents have been obtained for
such change.
(8) Financing Subsidiaries. NiSource and its subsidiaries request
----------------------
authority to acquire the equity securities of one or more special-purpose
subsidiaries ("Financing Subsidiaries") organized solely to facilitate a
4
<PAGE>
financing and to guarantee the securities issued by such Financing Subsidiaries,
to the extent not exempt pursuant to Rule 45(b) and Rule 52(b).
(9) Intermediate Subsidiaries. NiSource requests authority to acquire,
-------------------------
directly or indirectly, the equity securities of one or more intermediate
subsidiaries ("Intermediate Subsidiaries") organized exclusively for the purpose
of acquiring, financing, and holding the securities of one or more existing or
future Non-Utility Subsidiaries, including but not limited to "exempt wholesale
generators" ("EWGs"), "foreign utility companies" ("FUCOs"), companies engaged
or formed to engage in activities permitted by Rule 58 ("Rule 58 Subsidiaries"),
or "exempt telecommunications companies" ("ETCs"), provided that Intermediate
Subsidiaries may also provide management, administrative, project development,
and operating services to such entities. Intermediate Subsidiaries may expend up
to $250 million on preliminary development activities.
(10) Sales, Service and Construction Arrangements. NiSource Corporate
--------------------------------------------
Services Company ("Corporate Services"), an existing service company subsidiary
of NiSource, requests an exemption under Section 13(b) of the Act to permit
Corporate Services to continue to provide certain management and administrative
services to certain of NiSource's subsidiaries. In addition, NiSource requests
an exemption under Section 13(b) in order to continue certain existing service
and construction arrangements between its Non-Utility and Utility Subsidiaries
and, to the extent not exempt pursuant to Rule 90(d), requests an exemption
permitting Non-Utility Subsidiaries to sell goods and services to each other at
fair market prices, without regard to "cost," as determined in accordance with
Rules 90 and 91, subject to certain proposed limitations.
(11) Activities of Rule 58 Subsidiaries Outside the United States.
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NiSource requests authority on behalf of any current and future Rule 58
Subsidiaries to engage in energy marketing and natural gas and oil exploration
and production activities in Canada, to provide energy management and technical
consulting services anywhere outside the United States, and to invest in natural
gas pipeline and storage facilities outside the United States. NiSource is
requesting the Commission to reserve jurisdiction over certain aspects of this
proposal.
(12) Payment of Dividends Out of Capital and Unearned Surplus. NiSource
--------------------------------------------------------
has not yet determined whether it will use "push down" accounting in the Merger
to reflect the premium paid for Columbia on the books of Columbia and its
subsidiaries. If "push down" accounting is used, Columbia and the Columbia
Utility Subsidiaries request authority to pay dividends out of capital and
unearned surplus, subject to certain proposed limitations. Non-Utility
Subsidiaries also request authority to pay dividends out of capital and unearned
surplus to the extent permitted under applicable law and the terms of any credit
arrangements to which they may be parties. All of NiSource's subsidiaries also
request the authority to acquire, retire, or redeem the securities that they
have issued to any associate company, any affiliate, or any affiliate of an
associate company.
(13) Consolidated Taxes. NiSource requests approval for an agreement among
------------------
NiSource and its subsidiaries to allocate consolidated income
tax liabilities in a manner other than permitted by Rule 45(c).
5
