File No. 70-9551
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3 ON
FORM U-1/A
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NiSource Inc. New NiSource Inc.
801 East 86th Avenue 801 East 86th Avenue
Merrillville, Indiana 46410-6272 Merrillville, Indiana 46410-6272
(Names of companies filing this statement and addresses of
principal executive offices)
None
(Name of top registered holding company parent of each applicant or declarant)
Mark T. Maassel
Vice President, Regulatory
& Government Policy
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders and
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 & Flom LLP Joanne C. Rutkowski, Esq.
1440 New York Avenue, NW LeBoeuf, Lamb, Greene & MacRae LLP
Washington, D.C. 20005 125 West 55th Street
New York, New York 10019-5389
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION................................3
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION............................3
1. Principal Terms of the Merger Agreement............................5
2. Financing of the Offer and Transaction.............................7
3. Accounting Treatment...............................................8
4. Resulting Management...............................................9
5. Benefit Plans......................................................9
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION...........................9
1. General Description................................................9
a. NiSource and its Subsidiaries.................................9
b. Columbia and its Subsidiaries................................15
2. Description of Utility Facilities.................................19
a. NiSource.....................................................19
i. Natural Gas Facilities....................................19
ii. Electric Utility Facilities..............................21
b. Columbia.....................................................22
i. Natural Gas Facilities....................................22
ITEM 2. FEES, COMMISSIONS AND EXPENSES....................................23
ITEM 3. APPLICABLE STATUTORY PROVISIONS...................................23
A. LEGAL ANALYSIS.........................................................24
1. Section 9(a)(2)...................................................24
2. Section 10(b).....................................................25
a. Section 10(b)(1).............................................25
i. Interlocking Relationships................................25
ii. Concentration of Control.................................26
b. Section 10(b)(2).............................................28
i. Fairness of Consideration.................................28
ii. Reasonableness of Fees...................................28
c. Section 10(b)(3).............................................29
3. Section 10(c).....................................................31
a. Section 10(c)(1), including, by reference, Sections
8 and 11.....................................................31
i. Retention of Electric Operations..........................32
ii. Non-Utility Businesses...................................35
b. Section 10(c)(2).............................................40
i. Efficiencies and Economies................................40
ii. Integrated Gas Utility System............................43
4. Section 10(f) - State Laws........................................46
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ITEM 4. REGULATORY APPROVALS..............................................46
ITEM 5. PROCEDURE.........................................................46
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.................................47
A. EXHIBITS...............................................................47
B. FINANCIAL STATEMENTS...................................................49
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS...........................49
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The Application/Declaration filed in this proceeding on September 20, 1999,
as amended by amendments dated October 28, 1999 and April 5, 2000, is hereby
amended and restated in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
A. INTRODUCTION AND OVERVIEW OF THE TRANSACTION
--------------------------------------------
NiSource Inc., an Indiana corporation ("NiSource"), and New NiSource
Inc., a Delaware corporation and a wholly-owned subsidiary of NiSource ("New
NiSource") (each of New NiSource and NiSource is referred to as an "Applicant,"
and are collectively referred to as the "Applicants"), herein request authority
pursuant to the applicable standards of the Public Utility Holding Company Act
of 1935, as amended (the "Act"), for a proposed business combination and for the
related transactions herein described under the Agreement and Plan of Merger
among Columbia Energy Group, a Delaware corporation ("Columbia"), NiSource, New
NiSource, Parent Acquisition Corp., an Indiana corporation and wholly-owned
subsidiary of New NiSource ("Parent Acquisition"), Company Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of New NiSource ("Company
Acquisition"), and NiSource Finance Corp., an Indiana corporation, dated as of
February 27, 2000, as amended and restated as of March 31, 2000 (the "Merger
Agreement"). In the proposed business combination, upon receipt of all
approvals, including shareholder approvals, Parent Acquisition will merge into
NiSource, and Company Acquisition will merge into Columbia. Except as described
in the following paragraph, NiSource and Columbia will be the surviving
corporations in those mergers and will become wholly-owned by New NiSource.
Immediately after these mergers, NiSource will merge into New NiSource. New
NiSource will then change its name to "NiSource Inc." and serve as a holding
company for Columbia and the current subsidiaries of NiSource (the "Merger
Structure").
In the alternative, if the NiSource shareholders do not approve the
Merger Agreement, then the merger between NiSource and a wholly-owned subsidiary
of New NiSource will not occur. Instead, Columbia will become a wholly-owned
subsidiary of NiSource, rather than of New NiSource, and Columbia's shareholders
will receive different consideration than under the Merger Structure (the
"Alternative Merger Structure"). The proposed business combination, whether it
proceeds under the Merger Structure or the Alternative Merger Structure, is
referred to herein as the "Transaction."
Diagrams showing the Merger Structure and the Alternative Merger
Structure are filed as Exhibits E-2(a) and E-2(b).
Columbia is a registered holding company under the Act which, through
its subsidiaries, operates an integrated natural gas transmission and
distribution system and engages in exploration and production for natural gas
and oil and other activities. NiSource, currently an exempt holding company
pursuant to an order issued under Section 3(a)(1) of the Act, directly or
indirectly owns all of the issued and outstanding common stock of three public
utility subsidiary companies that provide electric and retail natural gas
service within the state of Indiana and two public utility subsidiary companies
that provide retail natural gas service in the states of Maine, Massachusetts
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and New Hampshire.1 Following the completion of the Transaction under the Merger
Structure, NiSource and Columbia would become subsidiaries of New NiSource, and
New NiSource will register with the Securities and Exchange Commission (the
"Commission") as a holding company pursuant to Section 5 of the Act. However, if
the Transaction proceeds under the Alternative Merger Structure, Columbia would
become a subsidiary of NiSource, and NiSource will register with the Commission
as a holding company, pursuant to Section 5 of the Act.
On June 25, 1999, NiSource commenced a tender offer pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), to purchase all of
the outstanding shares of common stock of Columbia. The tender offer was
subsequently amended and extended, and finally allowed to expire on February 11,
2000. On February 18, 2000, NiSource submitted a proposal to purchase Columbia
and, after negotiations, on February 27, 2000, the NiSource and Columbia boards
of directors each approved, and the two companies entered into, the original
Merger Agreement, which was amended and restated as of March 31, 2000. The
shareholders of NiSource and Columbia will be asked to approve and adopt the
Merger Agreement. NiSource and New NiSource have filed a Registration Statement
on Form S-4 pursuant to the Securities Act of 1933, as amended (the "1933 Act"),
which registers securities to be issued in connection with the Transaction and
includes the joint proxy statement ("Proxy Statement") filed pursuant to the
1934 Act to be used in connection with NiSource's and Columbia's shareholder
meetings. See Exhibit C hereto.
Pursuant to Sections 9(a)(2) and 10 of the Act, the Applicants hereby
request authorization and approval of the Commission for (i) 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, if the Transaction is accomplished under the Merger Structure, or (ii)
the acquisition by NiSource of all of the issued and outstanding common stock of
Columbia through the merger of a wholly-owned subsidiary of NiSource with and
into Columbia, if the Transaction is accomplished under the Alternative Merger
Structure.
The Applicants believe the Transaction will produce significant
benefits to the public, investors and consumers and will satisfy all of the
applicable standards of the Act. The Applicants expect that the Transaction will
enable them to take advantage of future strategic opportunities in the
increasingly competitive and rapidly evolving markets for energy and energy
services in the United States. Specifically, the Applicants believe that,
following the Transaction, the combined companies will be better positioned to
take advantage of operating economies and efficiencies through, among other
measures, joint management and optimization of their respective portfolios of
gas supply, transportation and storage assets. The Applicants also believe that
the Transaction will provide important strategic benefits to NiSource's
shareholders and Columbia's shareholders, as well as to their respective
employees and customers and the communities in which they provide public utility
service.
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1 See NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10,
1999).
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Prior to completion of the Transaction, the Applicants intend to file
one or more separate Applications/Declarations under the Act with respect to the
ongoing financing activities of New NiSource or NiSource and its subsidiaries
after the merger, service company arrangements and other affiliate transactions,
and other related matters. In addition, Columbia will file a separate
application relating to the solicitation of proxies for its shareholders'
meeting relating to the merger.
1. Principal Terms of the Merger Agreement
If the shareholders of both NiSource and Columbia approve the Merger
Agreement, then the Transaction will be completed under the Merger Structure and
each of NiSource and Columbia will be merged with a separate, wholly-owned
subsidiary of New NiSource, after which NiSource will merge into New NiSource.
Under this structure, NiSource shareholders will receive one common share of New
NiSource for each of their NiSource common shares and after the merger the
NiSource shareholders will own no less than 53% of the New NiSource shares.
Columbia shareholders will receive, for each of their Columbia common shares,
either (i) $70 in cash, and $2.60 stated amount of a New NiSource Stock
Appreciation Income Linked SecuritySM ("SAILS"), which is a unit consisting of a
zero coupon debt security and a forward equity contract having the terms
described below, or (ii) if the Columbia shareholder elects, the number of New
NiSource common shares equal to $74 divided by the average trading price of
NiSource common shares for the 30 consecutive trading days ending two trading
days before the completion of the merger, which number may never be more than
4.4848. Stock elections are subject to proration if the elections exceed 30% of
Columbia's outstanding shares. Also, unless Columbia shareholders make stock
elections for at least 10% of Columbia's outstanding shares, all Columbia
shareholders will receive cash and New NiSource SAILS in the merger.
If the shareholders of NiSource do not approve the Merger Agreement,
then the Transaction will be completed under the Alternative Merger Structure
and Columbia will merge with a wholly-owned subsidiary of NiSource. Under this
structure, NiSource common shares will remain unchanged, and Columbia
shareholders will receive, for each of their common shares, $70 in cash, and
$3.02 stated amount of a NiSource SAILS.
Under both the Merger Structure and the Alternative Merger Structure,
if the merger is not completed by February 27, 2001, Columbia shareholders will
receive, for each of their Columbia common shares, an additional amount in cash
equal to interest at 7% per annum on $72.29 for the period beginning on February
27, 2001 and ending on the day before the completion of the merger, less the
amount of any cash dividends paid on Columbia common shares with a record date
after February 27, 2001.
Each SAILS is a unit consisting of a share purchase contract and a
debenture. The share purchase contract represents the holder's obligation to
purchase common shares on the fourth anniversary of completion of the merger,
and the debenture is pledged to secure that obligation. Under the share purchase
contract, a holder will receive for each New NiSource SAILS, on the fourth
anniversary of the completion of the merger, the following number of New
NiSource common shares: (1) if the average closing price of the common shares on
the New York Stock Exchange over a 30-day period before the fourth anniversary
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equals or exceeds $23.10, the holder will receive 0.1126 common shares; (2) if
the average closing price is less than $23.10 but greater than $16.50, the
holder will receive a number of common shares equal to $2.60 divided by the
average closing price; and (3) if the average closing price is less than or
equal to $16.50, the holder will receive 0.1576 common shares. The debenture
that is initially part of each New NiSource SAILS will have a principal amount
of $2.60. The debenture will not pay interest for the first four years after the
merger.
Unless a holder chooses to make a cash payment of $2.60 to settle the
purchase contract, the debenture that is pledged as collateral will be
remarketed shortly before the fourth anniversary of the merger, and the proceeds
will be used to pay the amount the holder would owe under the purchase contract.
If the remarketing is successful, proceeds from the sale will be delivered to
New NiSource as payment for the common shares. If the remarketing agent cannot
remarket the debentures, New NiSource will exercise its rights as a secured
party and take possession of the debentures. In either case, the holder's
obligation to purchase shares of New NiSource common stock will be fully
satisfied, and the holder will receive New NiSource common shares.
If the merger is completed using the Alternative Merger Structure, the
SAILS, including the related debentures, will be issued by NiSource rather than
New NiSource. In that case, each SAILS will include a share purchase contract
under which the number of common shares to be received would be based on $3.02
rather than $2.60. The stated amount of each debenture also would be $3.02. In
all other ways, NiSource SAILS would be the same as New NiSource SAILS.
Shareholders of Columbia at the time of the merger who do not vote in
favor of the merger will have the right under the Delaware General Corporation
Law (the "DGCL") to dissent and demand appraisal of, and receive payment in cash
of the fair value of, their shares outstanding immediately prior to the
effective date of the merger in accordance with Section 262 of the DGCL.
The Merger Agreement is filed as Exhibit B-1 hereto.
Consummation of the Transaction is also subject to various regulatory
approvals, including approval of the Commission under the Act. See ITEM 4,
below.
Upon consummation of the Transaction, Applicant will own an integrated
gas utility system comprised of the gas utility properties of NiSource's
subsidiaries in Indiana, Massachusetts, Maine and New Hampshire and the gas
utility properties of Columbia's subsidiaries in Ohio, Pennsylvania, Maryland,
Kentucky and Virginia. In addition, NiSource's principal operating utility
subsidiary in Indiana will continue to own an integrated electric utility system
in Indiana. Further, Applicant will own the existing non-utility businesses of
NiSource and Columbia which, with certain exceptions, are retainable under the
standards of Section 11(b)(1) of the Act.
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2. Financing of the Offer and Transaction
In the Merger Structure, New NiSource will issue approximately 124.7
million shares of common stock, par value $.01 per share, in exchange for the
outstanding common stock of NiSource, based on the number of such shares
outstanding on February 29, 2000. Assuming 30% of the outstanding Columbia
shares are exchanged for New NiSource common stock (which NiSource believes is a
reasonable assumption), approximately 109.2 million shares of New NiSource
common stock will be issued in the merger to Columbia's shareholders.
In addition, in the Merger Structure, New NiSource will issue SAILS,
which will result in the issuance of between 6.4 million and 9.0 million shares
of New NiSource common stock on the fourth anniversary date of the merger
depending on the New NiSource stock price, assuming 30% of the outstanding
shares are exchanged for the stock consideration.
NiSource estimates that the cash payments to Columbia shareholders in
the merger will range from approximately $4 billion, assuming 30% of the
outstanding Columbia shares are exchanged for the stock consideration, to
approximately $6 billion, if all of the Columbia shares are exchanged for the
cash and SAILS consideration. In addition, NiSource expects approximately $2.4
billion of Columbia's existing debt to remain outstanding after the merger.
NiSource has accepted a commitment letter ("Commitment Letter") from
Credit Suisse First Boston Corporation, New York Branch ("Credit Suisse First
Boston") and Barclays Bank PLC ("Barclays", and together with Credit Suisse
First Boston, the "Underwriters"), pursuant to which, subject to specified
conditions, the Underwriters agree to provide the NiSource borrower a 364-day
revolving credit facility from the date of the Commitment Letter in the amount
of $6 billion, with the option to convert outstanding loans at the expiration of
such period into term loans maturing 364 days thereafter (the "Facility") to
finance the Transaction. A portion of the Facility may be provided by a
syndicate of banks and other financial institutions arranged by the
Underwriters. Credit Suisse First Boston will act as administrative agent for
the Facility; Barclays will serve as documentation agent for the Facility; and
Credit Suisse First Boston and Barclays will act as lead arrangers and
co-syndication agents.
The proceeds of the Facility may be used to finance the cash portion
of the Transaction, to refinance existing indebtedness and to pay related fees
and expenses. The proceeds of the Facility also are permitted to be used to
support a commercial paper program used for these purposes.
Upon the issuance by the Applicant or any of its subsidiaries of any
debt or equity (in each case subject to exceptions to be agreed upon), the
Facility will be reduced by an amount equal to the net cash proceeds of such
debt or equity financing. Loans under the Facility ("Loans") must be repaid on
the date of any such reduction to the extent the amount of outstanding Loans
exceeds the amount of the Facility as so reduced.
The Loans will bear interest at specified spreads above LIBOR
(adjusted for reserves) or Credit Suisse First Boston's base rate or at a
negotiated competitive bid rate. Loans bearing interest at rates based upon
LIBOR will be for interest periods of one, two, three or six months. All
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interest will be paid at the end of the applicable interest period or quarterly,
whichever is earlier. In addition, a utilization fee will be payable at a
specified per annum rate on the outstanding principal amount at any time more
than 25% of the commitment has been borrowed, and a facility fee will be payable
at a specified per annum rate on the entire amount of the Facility, whether or
not utilized.
The credit agreement and related documentation for the Facility are
filed as Exhibit B-2 hereto.
The Facility represents interim acquisition financing for the
Transaction. The combined cash flow of NiSource and Columbia is expected to be
adequate to service the interest requirements of the Facility without adverse
impact on any of the Applicant's utility subsidiaries. The Applicants anticipate
that the Facility will be repaid with internally generated funds, including
those generated by Columbia and its subsidiaries, and from the proceeds of sales
of non-core assets and/or the issuance of equity and other securities. See
Subsection A.2.d. of ITEM 3, below, for information relating to the capital
structure of the combined systems after the merger. Prior to the consummation of
the Transaction, the Applicants will file a separate Application/Declaration
under the Act with respect to the issuance of equity and other securities for
the purposes of refinancing the Facility and with respect to other proposed
financing activities of the Applicant.
3. Accounting Treatment
The Transaction will be accounted for as a purchase of Columbia by
Applicant. This accounting treatment is based on various factors present in the
merger, including the majority ownership of the combined company by NiSource's
shareholders and the role of NiSource's management following the merger. As a
result, the consolidated financial statements of Applicant after the merger will
reflect the assets and liabilities of NiSource at book value and the assets and
liabilities of Columbia at fair value.
The purchase contracts included in the New NiSource SAILS will be
forward transactions in New NiSource's common shares. Upon settlement of a
purchase contract four years after completing the merger, New NiSource will
receive the stated amount of $2.60 on the purchase contract and will issue the
agreed number of New NiSource common shares. The amount received will be
credited to shareholders' equity and allocated between the common shares and
paid-in capital accounts.
Prior to the issuance of New NiSource common shares upon settlement of
the purchase contracts, New NiSource expects that the SAILS will be reflected in
its diluted earnings per share calculations using the treasury stock method.
Under this method, the number of common shares used in calculating diluted
earnings per share is deemed to be increased by the excess, if any, of the
number of shares issuable upon settlement of the purchase contracts over the
number of shares that could be purchased by New NiSource in the market at the
average market price during the period using the proceeds receivable upon
settlement. As a result, New NiSource expects there will be no dilutive effect
on its earnings per share except during periods when the average market price of
the common shares is above $23.10.
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If the merger is completed using the Alternative Merger Structure,
NiSource will account for the merger, the purchase contracts included in the
NiSource SAILS and the NiSource common shares to be issued upon settlement of
the purchase contracts in the same manner.
4. Resulting Management
After the merger, the Board of Directors of New NiSource will consist
of those persons who serve as directors of NiSource immediately preceding the
merger. Mr. Gary L. Neale, the Chairman, President and Chief Executive Officer
of NiSource, will serve after the merger as Chairman of the Board, President and
Chief Executive Officer of New NiSource. The New NiSource Board of Directors
will elect the remaining officers of New NiSource taking into consideration the
recommendations of the President and Chief Executive Officer.
5. Benefit Plans
Information regarding the effect of the Transaction on the stock-based
employee benefit and shareholder benefit plans of NiSource and Columbia will be
provided in the separate Application/Declaration on Form U-1 to be filed by the
Applicants relating to the ongoing financing requirements of the new system
after the merger.
B. DESCRIPTION OF THE PARTIES TO THE TRANSACTION
---------------------------------------------
1. General Description
a. NiSource and its Subsidiaries
NiSource, formerly NIPSCO Industries, Inc.2, an Indiana corporation,
was incorporated in 1987 to serve as the holding company for Northern Indiana
Public Service Company ("Northern Indiana"), which is a public utility under the
Act, and various non-utility subsidiaries. NiSource has four additional, direct,
or indirect, public utility subsidiaries, Kokomo Gas and Fuel Company ("Kokomo
Gas"),3 Northern Indiana Fuel and Light Company, Inc. ("NIFL"),4 Bay State Gas
Company ("Bay State")5 and Northern Utilities, Inc. ("Northern"). NiSource is
currently an exempt holding company pursuant to an order under Section 3(a)(1)
of the Act.6
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2 On April 14, 1999, NiSource announced that its shareholders approved
changing its name from NIPSCO Industries, Inc. to NiSource Inc.
3 The Commission authorized NiSource to acquire all of the issued and
outstanding common stock of Kokomo Gas in 1992. See NIPSCO Industries,
Inc., Holding Co. Act Release No. 25470 (Feb. 3, 1992).
4 The Commission authorized NiSource to acquire all of the issued and
outstanding common stock of NIFL in 1993. See NIPSCO Industries, Inc.,
Holding Co. Act Release No. 25766 (Mar. 25, 1993).
5 The Commission authorized NiSource to acquire all of the issued and
outstanding common stock of Bay State in February 1999. Northern is a
wholly-owned subsidiary of Bay State. See NIPSCO, Industries, Inc., Holding
Co. Act Release No. 26975 (Feb. 10, 1999).
6 Id.
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Northern Indiana, NiSource's largest subsidiary, is a combination gas
and electric utility company which operates in 30 counties in the northern part
of Indiana, serving an area of about 12,000 square miles with a population of
approximately 2,200,000. Northern Indiana distributes gas to approximately
681,100 residential, commercial and industrial customers and generates,
purchases, transmits and sells electricity to approximately 426,000 electric
customers. Kokomo Gas supplies natural gas to approximately 34,500 customers in
a six-county area of north central Indiana having a population of approximately
100,000. The Kokomo Gas service territory is contiguous to Northern Indiana's
gas service territory. NIFL supplies natural gas to approximately 35,500
customers in five counties in the northeast corner of Indiana having a
population of approximately 66,700. The NIFL service territory is also
contiguous to Northern Indiana's gas service territory and overlaps Northern
Indiana's electric service territory. Northern Indiana has initiated a
multi-phase customer choice program to allow residential and small commercial
customers the right to choose alternative gas suppliers. The three Indiana
operating utility subsidiaries of NiSource are subject to regulation by the
Indiana Utility Regulatory Commission ("IURC") as to rates, service and other
matters.
Bay State provides gas service to approximately 271,900 residential,
commercial and industrial customers in three separate areas of Massachusetts
covering approximately 1,344 square miles and having a combined population of
approximately 1,340,000. These include the greater Springfield area in western
Massachusetts, an area southwest of Boston that includes the cities of
Attleboro, Brockton and Taunton, and an area north of Boston extending to the
New Hampshire border that includes the city of Lawrence. Bay State initiated a
multi-phase customer choice program to allow residential and commercial
customers the right to choose alternative gas suppliers. In November 1998, the
Massachusetts Department of Telecommunications and Energy ("MDTE") issued a
generic order implementing statewide customer choice for gas customers. Bay
State is complying with this order. Bay State is subject to regulation by the
MDTE as to rates, service and other matters.
Northern provides gas service to approximately 48,100 residential,
commercial and industrial customers in an area of approximately 808 square miles
in New Hampshire and Maine having a population of approximately 450,000.
Northern's service area extends north from the Massachusetts-New Hampshire
border to the Portland/Lewiston area in Maine. Northern is subject to regulation
by the New Hampshire Public Utilities Commission ("NHPUC") and the Maine Public
Utilities Commission ("MPUC") as to rates, service and other matters. At this
time, Northern remains an indirect subsidiary of NiSource, through Bay State,
pending consummation of the Transaction and registration by New NiSource or
NiSource, and it is expected to continue to be an indirect subsidiary of New
NiSource after the merger with Columbia, or under the Alternative Merger
Structure, an indirect subsidiary of NiSource.
For the twelve months ended December 31, 1999, the gas and electric
public utility subsidiaries of NiSource reported operating income of $467.6
million ($113.0 million gas and $354.6 million electric) on combined operating
gas and electric utility revenues of approximately $2.1 billion. Results for
this period included eleven months of combined operations with Bay State and
Northern. Gas sales (including transportation revenues) accounted for
approximately 52% and electric sales accounted for approximately 48% of
NiSource's gross utility revenues. Consolidated assets of NiSource and its
subsidiaries as of December 31, 1999, were approximately $6.8 billion,
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consisting of $5.2 billion in gas and electric utility assets ($2.4 billion gas
and $2.8 billion electric) and $1.6 billion in other non-utility assets.
NiSource owns all of the outstanding common stock of NiSource Pipeline
Group, Inc. ("NPG"). NPG consists of Granite State Gas Transmission, Inc.
("Granite State") and PNGTS Holding Corp. ("PNGTS Holding"). Crossroads Pipeline
Company ("Crossroads"), a subsidiary of NI Energy Services, Inc., which in turn
is a direct subsidiary of NiSource, is a natural gas transportation company that
was certificated by the Federal Energy Regulatory Commission ("FERC") in May
1995 to operate as an interstate pipeline.7 Crossroads owns and operates a
201-mile, 20-inch diameter pipeline that extends from Schererville, Indiana, in
the northwestern corner of Indiana, to Cygnet, Ohio, which is located in
northwestern Ohio. At Cygnet, Crossroads' facilities interconnect with those of
Columbia Gas Transmission Corporation ("Columbia Transmission"). Crossroads
receives gas from Natural Gas Pipeline Company of America ("NGPL"), Trunkline
Gas Company ("Trunkline") and Panhandle Eastern Pipeline Company ("Panhandle
Eastern"). Crossroads delivers gas to Northern Indiana, Ohio Gas Company, NIFL,
Columbia Transmission and KNG Energy Incorporated.
Granite State owns and operates a 105-mile, 6 to 12-inch diameter,
interstate pipeline that extends from Haverhill, Massachusetts, where it
interconnects with the facilities of Tennessee Gas Pipeline Company ("Tennessee
Gas"), to a point near Westbrook, Maine, where it interconnects with Portland
Natural Gas Transmission System ("PNGTS"). PNGTS Holding, together with Granite
State, hold a 19.06% interest in PNGTS. PNGTS is a 292-mile, 24 to 30-inch
diameter, natural gas transmission line that provides New England access to
Michigan Storage fields8, the Western Canada supply basin supply and the Chicago
market center. PNGTS interconnects with the Tennessee Gas pipeline facilities
near Dracut, Massachusetts, Northern and Granite State at locations in Maine and
New Hampshire, and Trans Quebec Maritimes Pipeline Incorporated at Pittsburgh,
New Hampshire.
EnergyUSA, Inc. ("EnergyUSA"), a wholly-owned subsidiary of NiSource,
serves as an intermediate holding company for many of NiSource's non-utility
businesses and coordinates the energy-related diversification efforts of
NiSource. Through subsidiaries, EnergyUSA owns businesses engaged in the
following activities:
o Energy Marketing: Through various subsidiaries, EnergyUSA markets
gas to commercial and industrial entities, on a national basis,
including customers in areas served by NiSource's gas
distribution utilities and provides gas asset management to gas
utilities. EnergyUSA also provides gas supply services to other
NiSource affiliates, including Kokomo Gas and NIFL. EnergyUSA-TPC
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7 See Crossroads Pipeline Co., 71 FERCP. 61,076 (1995).
8 The Michigan Storage fields have played an increasingly important role in
the natural gas portfolio for upper Midwest market participants. Their
geographical location is strategic in accessing Gulf Coast, Mid-continent
and Chicago market centers, Western Canada supply basins and local
production in the state of Michigan. Michigan Storage is interconnected
with major interstate and intrastate transmission systems which serve
markets located in Iowa, Minnesota, Wisconsin, Illinois, Indiana, Ohio and
the New England areas. Pipeline interconnects accessing Michigan Storage
include, among others, ANR Pipeline Company ("ANR"), Panhandle Eastern,
Trunkline and Vector Pipeline Limited Partnership ("Vector").
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Corp. ("TPC") was acquired on April 1, 1999 by EnergyUSA. TPC
operates gas marketing and gas asset management and optimization
businesses. The significant assets of TPC consist of: (i) gas
marketing contracts, (ii) asset management and optimization
contracts, (iii) computer systems and equipment to support the
aforementioned activities and (iv) various parcels of land
adjacent to, or in proximity to, the gas storage facilities owned
by MHP.
o Storage: NiSource, through EnergyUSA subsidiaries and other
subsidiaries, indirectly owns 100% of Market Hub Partners, L.P.
("MHP"), which develops and operates underground gas storage
facilities. Through MHP and various other subsidiaries, NiSource
provides gas storage services to a number of utilities, gas
marketers and other customers, including Northern Indiana.
o Residential/Small Commercial Gas and Propane Marketing; Appliance
Leasing: EnergyUSA Retail, Inc. provides gas and other
energy-related products and services to residential and small
commercial customers of utilities that allow competitive
suppliers to market in their service territories. EnergyUSA
Retail, Inc. provides certain of Bay State's, Columbia's and
Northern Indiana's customers with natural gas. EnergyUSA Retail
also sells propane and leases water heaters to customers in New
England.
o Oil and Gas Exploration and Production: EnergyUSA has equity
interests in a domestic oil and gas producer with properties
located in Texas, Oklahoma and Louisiana.
o Energy Management Services: EnergyUSA Commercial Energy Services,
Inc. provides traditional energy management services, including
power quality consulting and energy management, to commercial and
industrial entities.
o EnergyUSA is a partner in Mosaic Energy LLC, a new venture
created to develop and market proprietary fuel cell distributed
generation technology.
Primary Energy, Inc. ("Primary"), a wholly-owned subsidiary of
NiSource, arranges energy-related projects for large energy-intensive industrial
facilities. Primary offers expertise to large energy customers in managing the
engineering, construction, operation and maintenance of these energy-related
projects.
o Primary's wholly-owned subsidiary, Harbor Coal Company ("Harbor
Coal"), invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility, which
began commercial operation in August 1993. The facility receives
raw coal, pulverizes it and delivers it to Ispat Inland, Inc.
("Ispat") for use in the operation of blast furnaces for
manufacturing operations. Harbor Coal is a 50% partner in the
project with an Ispat affiliate. NiSource guarantees the payment
and performance of the partnership's obligations under a sale and
leaseback of a 50% undivided interest in the facility.
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o North Lake Energy Corporation ("North Lake"), a wholly-owned
subsidiary of Primary, entered into a lease for the use of a
75-megawatt energy facility located at Ispat. The facility uses
steam generated by Ispat to produce electricity which is
delivered to Ispat. The facility began commercial operation in
May 1996. NiSource guarantees North Lake's obligations relative
to the lease and certain obligations to Ispat relative to the
project.
o Lakeside Energy Corporation ("LEC"), a wholly-owned subsidiary of
Primary, entered into a lease for the use of a 161-megawatt
energy facility located at USS Gary Works. The facility processes
high-pressure steam into electricity and low-pressure steam for
delivery to USX Corporation-U.S. Steel Group ("U.S. Steel"). A
15-year tolling agreement with US Steel commenced on April 16,
1997 when the facility was placed in commercial operation.
NiSource Capital Markets Inc. ("Capital Markets"), a wholly-owned
financing subsidiary of NiSource, guarantees certain limited LEC
obligations to the lessor.
o Portside Energy Corporation ("Portside"), a wholly-owned
subsidiary of Primary, operates a 63-megawatt energy facility at
the Midwest Division of National Steel Corporation ("National")
to process natural gas into electricity, steam and heated water
to be provided to National for a 15-year period. Portside entered
into a lease for use of the facility. Capital Markets guarantees
certain Portside obligations to the lessor. The facility began
commercial operation on September 26, 1997.
o Primary's wholly-owned subsidiary, Cokenergy, Inc. ("CE"),
operates an energy facility at Ispat's Indiana Harbor Works to
scrub flue gases and recover waste heat from the coke facility
constructed by Indiana Harbor Coke Company, LP ("Harbor Coke")
and to produce steam and electricity from the recovered heat
which is then delivered to Ispat. CE leases these facilities from
a third party. CE has a 15-year service agreement and a related
15-year fuel supply agreement with Ispat and Harbor Coke. Capital
Markets guarantees certain CE obligations relative to the lease.
o Primary's wholly-owned subsidiary, Whiting Clean Energy, Inc.
("Whiting"), has an electric facility currently under
construction which is expected to be an Exempt Wholesale
Generator within the meaning of Section 32 of the Act ("EWG") and
sell power into the wholesale market. In 1999, Whiting signed an
agreement with BP Amoco Oil Company ("BP Amoco") for the lease,
operation and maintenance of a net 525 MW natural gas-fired
cogeneration plant on land adjacent to BP Amoco's refinery in
Whiting, Indiana. The plant will provide process steam to BP
Amoco's refinery operations and sell power into competitive
wholesale markets. Completion of the plant is expected by the
second quarter of 2001. Capital Markets has guaranteed certain
Whiting obligations to the owner/lessor and to BP Amoco.
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o Primary's wholly-owned subsidiary, Ironside Energy LLC
("Ironside"), acting as agent for a third party owner/lessor, has
entered into contracts for the construction of a 50 megawatt
cogeneration plant. The facility is to be located in LTV Steel
Company, Inc's ("LTV") Indiana Harbor Works plant in northwest
Indiana. Ironside intends to enter into an agreement to lease the
facility from the owner/lessor upon completion of construction.
Ironside will sublease the facility to LTV and LTV will utilize
the facility to produce high-pressure steam and electricity upon
completion of construction, presently anticipated to occur in
August, 2001. Certain Ironside obligations to the owner/lessor
and to LTV are guaranteed by Capital Markets.
SM&P Utility Resources, Inc. ("SM&P"), Colcom Incorporated ("Colcom")
and Underground Technology, Inc. ("UTI") (of which NiSource owns 50%) perform
underground facilities locating for utilities throughout the United States.
During 1999, SM&P, Colcom and UTI performed approximately 6.6 million line
locates. Miller Pipeline Corporation ("Miller") installs, repairs and maintains
underground pipelines used in gas and water transmission and distribution
systems. Miller also sells products and services related to infrastructure
preservation and replacement.
NiSource, through an intermediate holding company, IWC Resources
Corporation ("IWCR"), owns all of the stock in six water companies (Indianapolis
Water Company, Harbour Water Corporation, Liberty Water Corporation, Irishman's
Run Acquisition Corp., The Darlington Water Works Company and IWC Morgan Water
Corporation) and has an operating agreement with the City of Lawrence, Indiana,
which is being treated as a purchase by IWCR in accordance with generally
accepted accounting principles (collectively, the "Water Utilities"). The Water
Utilities supply water to residential, commercial and industrial customers and
for fire protection service in Indianapolis, Indiana and surrounding areas. The
territory served by the Water Utilities covers an area of approximately 650
square miles in seven counties of central Indiana and the Water Utilities serve
approximately 275,000 customers as of December 31, 1999. As of December 31,
1999, assets of the Water Utilities amounted to $685.3 million, and revenues of
the Water Utilities for the twelve months then ended, amounted to $98 million.
NiSource Development Company, Inc. ("Development") has investments in
various activities, primarily in real estate, intended to complement NiSource's
energy businesses. These investments are hereinafter discussed in ITEM 3, below.
South Works Power Company ("South Works"), a wholly-owned subsidiary of
Development, leases electric generating and transmission facilities owned by
U.S. Steel and located in south Chicago, Illinois. The facilities, which are
presently not in operation, are indirectly interconnected with the electric
transmission system of Northern Indiana.
Capital Markets provides financing for certain of NiSource's
subsidiaries other than Northern Indiana. Capital Markets has entered into
revolving credit agreements for $200 million. These agreements provide financing
flexibility to Capital Markets and may be used to support the issuance of
commercial paper. At December 31, 1999, Capital Markets had issued $137.0
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 $142.5 million of borrowings outstanding as
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of December 31, 1999. For the same period, Capital Markets had $450 million in
long-term debt outstanding.
The financial obligations of Capital Markets are subject to a support
agreement ("Support Agreement") between NiSource and Capital Markets which
provides that NiSource make payments of 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. Under the terms of the Support Agreement, in addition to the
cash flow from cash dividends paid to NiSource by any of its consolidated
subsidiaries, the assets of NiSource, other than the stock and assets of
Northern Indiana, are available as recourse for the benefit of Capital Markets'
creditors. The carrying value of the assets of NiSource, other than the assets
of Northern Indiana, as reflected in the consolidated financial statements of
NiSource, was approximately $3.2 billion at December 31, 1999.
NiSource Corporate Services Company ("Corporate Services") provides
management, administrative, gas portfolio management, accounting and other
services to the various NiSource companies. Hamilton Harbour Insurance Services,
Ltd. provides various insurance services to the NiSource companies.
The non-utility assets of NiSource comprised, as of December 31, 1999,
24% of the consolidated assets of NiSource.
b. Columbia and its Subsidiaries
Columbia, formerly The Columbia Gas System, Inc., and its subsidiaries
comprise an integrated natural gas system engaged in natural gas transmission,
natural gas distribution and exploration for and production of natural gas and
oil. Columbia is also engaged in related energy businesses including the
distribution of propane and petroleum products, marketing of natural gas and
electricity and the generation of electricity, primarily fueled by natural gas.
As a registered holding company, Columbia derives substantially all its revenues
and earnings from the operating results of its 20 direct subsidiaries. Columbia
owns all of the securities of these direct subsidiaries except for approximately
8% of the stock in Columbia LNG Corporation.
Distribution Utilities: Columbia provides natural gas distribution
services in a five-state region in the Midwest and mid-Atlantic United States
through its five wholly-owned public utility subsidiaries: Columbia Gas of
Kentucky, Inc. ("Columbia Kentucky"), Columbia Gas of Maryland, Inc. ("Columbia
Maryland"), Columbia Gas of Ohio, Inc. ("Columbia Ohio"), Columbia Gas of
Pennsylvania, Inc. ("Columbia Pennsylvania") and Columbia Gas of Virginia, Inc.
("Columbia Virginia"). Columbia's five distribution subsidiaries provide natural
gas service to nearly 2.1 million residential, commercial and industrial
customers in Kentucky, Maryland, Ohio, Pennsylvania and Virginia. Approximately
32,400 miles of distribution pipelines serve these major markets. The
distribution subsidiaries have initiated transportation programs that allow
residential and small commercial customers the opportunity to choose their
natural gas suppliers and to use the distribution subsidiaries for
transportation service. This ability to choose a supplier was previously limited
to larger commercial and industrial customers.
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Columbia Kentucky supplies natural gas to approximately 142,000 retail
customers in a 31-county area of central and eastern Kentucky having a
population of approximately 965,000. Columbia Kentucky is subject to regulation
by the Kentucky Public Service Commission ("KPSC") as to rates, service and
other matters.
Columbia Maryland supplies natural gas to approximately 31,800 retail
customers in a three-county area of western Maryland having a population of
approximately 227,000. Columbia Maryland is subject to regulation by the
Maryland Public Service Commission ("MPSC") as to rates, service and other
matters.
Columbia Ohio supplies natural gas to approximately 1,309,200 retail
customers in a 53-county area of north central and southeastern Ohio having a
population of approximately 6,700,000. Columbia Ohio is subject to regulation by
the Public Utilities Commission of Ohio ("PUCO") as to rates, service and other
matters.
Columbia Pennsylvania supplies natural gas to approximately 390,000
retail customers in a 26-county area of central and southwestern Pennsylvania
having a population of approximately 2,380,000. Columbia Pennsylvania is subject
to regulation by the Pennsylvania Public Utility Commission ("PPUC") as to
rates, service and other matters.
Columbia Virginia supplies natural gas to over 177,000 retail
customers throughout Virginia. Columbia Virginia is subject to regulation by the
Virginia State Corporation Commission ("VSCC") as to rates, service and other
matters.
Transmission and Storage Operations: Columbia's two interstate
pipeline subsidiaries, Columbia Transmission and Columbia Gulf Transmission
Company ("Columbia Gulf"), own a pipeline network of approximately 16,250 miles
extending from offshore in the Gulf of Mexico to Lake Erie, New York and the
eastern seaboard. In addition, Columbia Transmission operates one of the
nation's largest underground natural gas storage systems. Together, Columbia
Transmission and Columbia Gulf serve customers in fifteen northeastern,
mid-Atlantic, midwestern and southern states and the District of Columbia.
Columbia Gulf's pipeline system extends from offshore Louisiana to West Virginia
and transports a major portion of the gas delivered by Columbia Transmission. It
also transports gas for third parties within the production areas of the Gulf
Coast. Columbia Transmission and Columbia Gulf provide an array of competitively
priced natural gas transportation and storage services for local distribution
companies and industrial and commercial customers who contract directly with
producers or marketers for their gas supplies.
In 1999, Columbia Transmission completed construction of the largest
expansion of its storage and transportation system in its history. The expansion
adds approximately 500,000 Mcf per day of firm storage to 23 customers. Columbia
Transmission is also participating in the proposed 442-mile Millennium Pipeline
Project that has been submitted to FERC for approval. As proposed, the project
will transport approximately 700,000 Mcf per day of natural gas from the Lake
Erie region to eastern markets.
Columbia Gulf has announced its participation in the proposed 160
mile, 24-inch diameter, Volunteer Pipeline Project ("Volunteer"). As proposed,
the project will transport approximately 250,000 Mcf per day from Portland,
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Tennessee to a point near Chattanooga, Tennessee. In May, 1999, Volunteer
concluded an open season in which nearly a dozen companies requested more than
440,000 Mcf per day of capacity. Potentially expandable to approximately 500,000
Mcf per day, Volunteer expects to provide firm natural gas transportation from
the mid-continent into the Atlanta, Georgia, and other southeastern markets. The
timing of a FERC construction application is contingent upon a final
determination of market demand.
Columbia Gulf also announced plans in September 1998 to consider an
expansion of its onshore East Lateral system to add approximately 600,000 Mcf
per day of incremental firm gas transportation capacity. Columbia Gulf is also
participating in the proposed SunStar Pipeline project, a 56-mile offshore
pipeline project with a capacity of 660,000 Mcf of natural gas per day from the
Gulf of Mexico to its onshore lateral.
Effective November 30, 1999, Columbia Gulf sold its 33% interest in
the Trailblazer Pipeline, a 350-mile natural gas pipeline that extends from
northeast Colorado to Gage County in Nebraska.
Columbia Pipeline Corporation and its wholly-owned subsidiary,
Columbia Deep Water Services Company, were formed to operate pipeline and
gathering facilities that are not regulated by FERC.
Exploration and Production Operations: Through its wholly-owned
subsidiaries, Columbia's exploration and production subsidiary, Columbia Energy
Resources, Inc. ("Columbia Resources"), explores for, develops, gathers and
produces natural gas and oil in Appalachia and Canada.9 As of December 31, 1999,
Columbia Resources' subsidiaries held interests in approximately 3.9 million net
acres of gas and oil leases and had proved gas reserves of 965.8 billion cubic
feet of natural gas equivalent. Columbia Resources' subsidiaries own and operate
8,188 wells and 6,069 miles of gathering facilities and have expanded their
reserve base and production through an aggressive drilling and acquisition
program. During 1999, Columbia Resources' subsidiaries purchased 800 wells,
gathering assets and approximately 800,000 undeveloped acres in the U.S. and
Canada. Through its subsidiaries' operations in north-central West Virginia,
southern Kentucky, northern Tennessee and New York, Columbia Resources is one of
the largest-volume independent natural gas and oil producers in the Appalachian
Basin.
Energy Marketing Operations: Columbia Energy Services Corporation
("Columbia Energy Services") and its subsidiaries conduct Columbia's
non-regulated natural gas and electric power marketing operations and provide
service to residential and small commercial customers as a result of the
unbundling of services that is occurring at the local distribution level.
Columbia Energy Services, through its subsidiary, Columbia Service Partners,
Inc., provides a variety of energy-related services to both homeowners and
businesses. Columbia Energy Services recently sold its wholesale gas and
electric trading operations and decided to exit its major accounts business.
Columbia Propane Corporation ("Columbia Propane") sells propane at wholesale and
retail to more than 350,600 customers in 31 states and the District of Columbia.
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9 In 1997, Columbia Transmission sold 2,700 miles of gathering lines to
Columbia Resources. Effective January 1999, Columbia Transmission sold an
additional 750 miles of gathering facilities to Columbia Resources.
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Power Generation, LNG and Other Operations: Columbia Electric
Corporation's ("Columbia Electric") primary focus has been the development,
ownership and operation of natural gas-fueled power plants. Columbia Electric is
part owner in three operating cogeneration projects. These facilities produce
both electricity and useful thermal energy and are fueled principally by natural
gas. Columbia Electric holds various interests in these facilities, which have a
total capacity of approximately 248 megawatts.
In June 1998, Columbia Electric and LG&E Power Inc., a subsidiary of
LG&E Energy Corporation, announced an agreement for Columbia to participate in
the development of a gas-fired cogeneration project that would have a total
equivalent capacity of approximately 550 megawatts.10 The facility will provide
steam and electric services to a Reynolds Metals plant in Gregory, Texas and
will also provide electricity to the Texas energy market. Construction began in
August 1998 and the facility is anticipated to start operations in the summer of
2000.
Under PURPA and its implementing regulations, no more than 50% of the
equity interests in a qualifying facility ("QF") may be held by a company that
is an electric utility or an electric utility holding company or any combination
of such companies. Electric utility holding companies now own up to 50% of the
equity interests in each of the four QFs referred to in the two preceding
paragraphs in which Columbia holds an interest. Columbia currently is not an
electric utility holding company, but its interest in QFs will be held by an
electric utility holding company as a result of the merger with NiSource.
Consequently, the 50% limitation on total interests held by electric utility
holding company affiliates would be exceeded. To avoid jeopardizing the QF
status of the projects and to comply with Columbia's obligations to other
participants in the projects, Columbia is evaluating the transfer of its
interests in the four QFs. Columbia plans to relinquish its ownership interests
in the four QFs before the merger closes in order to maintain their QF status.
Construction of the Liberty Electric Project, a gas-fired electric
generation plant which is expected to provide approximately 500 megawatts of
electricity, is anticipated to commence in spring 2000 in Eddystone,
Pennsylvania. Ownership of the Liberty Electric Project was jointly held by
Columbia Electric and subsidiaries of Westcoast Energy, Inc. ("Westcoast"). In
December 1999, the ownership agreement between Columbia and Westcoast was
terminated due to allocation of capital to other projects by Westcoast in
geographic areas more closely aligned with other Westcoast operating assets and
the desire of Westcoast to focus its resources in ventures that will generate
near-term operating income. Columbia Electric announced on February 16, 2000,
that it purchased Westcoast's 50% interest and now owns 100% of the Liberty
Electric Project.11
In December 1999, a limited partnership company established between
Columbia Electric and Atlantic Generation, Inc. completed a transaction
terminating a long-term power purchase contract. Columbia Electric's portion was
approximately $71 million pre-tax under the terms of the buyout. The partners
will continue to operate the facility as a merchant power plant.
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10 The project was certified as a "qualifying facility" under the Public
Utility Regulatory Policies Act of 1978, as amended ("PURPA"). See Gregory
Power Partners L.P., 87 F.E.R.C.P. 62,048 (Apr. 12, 1999).
11 The Liberty Electric Project will seek EWG certification.
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Columbia LNG Corporation ("Columbia LNG"), together with its
affiliates, own a liquefied natural gas facility located in Cove Point,
Maryland, which is one of the largest natural gas peaking and storage facilities
in the United States. The facility has the capacity to liquefy natural gas at a
rate of 15,000 Mcf per day. The facility enables liquefied natural gas to be
stored until needed for the winter peak-day requirements of utilities and other
large gas users.
Telecommunications: Columbia Transmission Communications Corporation,
a wholly-owned subsidiary of Columbia, and its subsidiaries provide
telecommunications and information services and assist personal communications
services and other microwave radio service licensees in locating and
constructing antenna facilities. Columbia Transmission Communications
Corporation also is involved in the development of a dark fiber optics network
for voice and data communications.
As a registered holding company, Columbia and its utility subsidiary
companies are an integrated gas utility system under the Act. The non-utility
companies in the Columbia System are related to, and supportive of, its utility
operations and, by virtue of continued operations, retainable under the
standards of the Act.
2. Description of Utility Facilities
a. NiSource
i. Natural Gas Facilities
At December 31, 1999, the NiSource gas distribution system in Indiana
included approximately 13,924 miles of distribution mains to serve 751,100
customers. In addition, Northern Indiana owns and operates underground gas
storage facilities located at Royal Center, Indiana with a storage capacity of
6.75 billion cubic feet (Bcf), and a liquefied natural gas ("LNG") plant in
LaPorte County, Indiana having a storage capacity of 4.0 Bcf, which is used for
system pressure maintenance and peak season (November-March) deliveries.
Northern Indiana also holds under long-term contract storage capacity totaling
approximately 9.11 Bcf in the Markham, Moss Bluff and Egan salt-dome storage
caverns in Texas and Louisiana and the Rotherwood Facility in Texas.
These facilities, which provide Northern Indiana with a significant
amount of "high deliverability" storage capacity,12 are located at two of the
industry recognized and acknowledged market centers and gas trading points which
provide buyers and sellers supply basin and transportation capacity choice.
These market centers and gas trading points are formed at locations where
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12 "High deliverability," which is an operational characteristic of salt-dome
storage caverns, means the ability to inject and withdraw gas on a frequent
(i.e., daily) basis, year-round and at a high rate of flow. Utilization of
the capacity of such facilities is measured in terms of both their storage
volume and frequency of the injection/withdrawal cycle (i.e., cycling). In
contrast, Northern Indiana's underground storage facilities in Indiana only
allow for gas injection and withdrawal on a seasonal basis. The "high
deliverability" facilities in Texas and Louisiana provide Northern Indiana
with added flexibility in managing deliveries to and from interstate
pipelines, which, in turn, allows Northern Indiana to take advantage of
price volatility and to balance its system load requirements on a daily
basis.
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interstate pipelines serving the upper Midwest, Northeast, Gulf Coast,
mid-Atlantic and Ohio Valley intersect.
At December 31, 1999, NiSource's New England gas distribution
utilities included 5,450 miles of distribution mains, 116 miles of transmission
lines, and customer connections to serve 320,000 customers. Bay State and
Northern also own and operate LNG liquefaction, vaporization and storage
facilities and propane storage tanks used to store supplemental and peak shaving
supplies. At December 31, 1999, NiSource's combined gas system consisted of
19,374 miles of distribution mains, together with associated compressing and
regulating stations, LNG liquefaction, vaporization and storage facilities,
propane storage tanks and 1,071,221 customers.
Currently, NiSource's Midwest and New England utilities purchase
approximately 50% of their total system gas requirements from production in the
Gulf Coast Basin (onshore and offshore Texas and Louisiana producing areas),
approximately 42% from production in the Mid-Continent (Oklahoma, Kansas and
Arkansas) and Permian (West Texas) supply basins, and 8% from production in the
Western Canada supply basin. By the 2000-2001 winter heating season, new
interstate pipeline capacity in New England and the upper Midwest states of
Illinois, Indiana and Michigan will provide for further diversification of
NiSource's Midwest and New England gas portfolios and for access to gas supplies
sourced from multi-regional supply basins, market centers and gas trading
points.
NiSource's gas distribution subsidiaries have currently contracted for
"firm" capacity and storage service on nine different long-haul interstate
pipelines: ANR, NGPL, Panhandle Eastern, PNGTS, Tennessee Gas, Midwestern Gas
Transmission ("Midwestern"), Texas Eastern Transmission Corp. ("Texas Eastern"),
Texas Gas Transmission Corp. ("Texas Gas"), Transco and Trunkline. NiSource's
subsidiaries also have firm transportation capacity agreements with TransCanada
PipeLines Limited ("TransCanada"), a Canadian interprovincial pipeline, and with
several other regional pipelines, such as Algonquin Gas Transmission Company
("Algonquin"), Crossroads, Granite State and National Fuel Gas Supply Company
("National Fuel").
NiSource expects that, as areas in New England begin to experience gas
portfolio restructuring similar to that experienced in the Midwest beginning in
1995 and transmission constraints are eliminated as new pipeline capacity begins
commercial service, the NiSource gas distribution utilities will be
well-positioned to create opportunities to supplement their gas portfolios with
surplus from additional multi-regional supply basins and market centers,
including the Western Canada supply basin, Appalachian basin and Michigan
Storage fields. NiSource's Midwest and New England and Columbia's gas
distribution utilities' portfolios will interact at market centers and gas
trading points directly through existing and new pipelines, such as PNGTS,
Northern Border, Vector and Alliance Pipeline Ltd., as well as indirectly by
means of any one of several existing pipeline interconnections between
Crossroads and Columbia Transmission; Tennessee Gas and PNGTS; Tennessee Gas and
Columbia Transmission; Vector, Millennium, Algonquin and Columbia Transmission;
and Northern Border, Vector, ANR and NGPL.
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ii. Electric Utility Facilities
Northern Indiana owns and operates four coal-fired electric generating
stations with an aggregate net capability of 3,179 MW, two hydroelectric
generating plants with an aggregate net capability of 10 MW, and four gas-fired
combustion turbine generating units with an aggregate net capability of 203 MW,
for a total system net capability of 3,392 MW. During the year ended December
31, 1999, Northern Indiana generated 89.9% and purchased 10.1% of its electric
requirements.
Northern Indiana's transmission system consists of 3,068 circuit miles
of lines with voltages ranging from 34.5 kV to 345 kV. Northern Indiana's
electric distribution system extends into 21 counties in the northern third of
Indiana and consists of 7,800 circuit miles of overhead and 1,571 cable miles of
underground primary distribution lines operating at various voltages ranging
from 2.4 to 12.5 kV.
Northern Indiana's electric control area peak load (the highest level
of electrical utility usage in the control area) of 3,307 MW was set on July 30,
1999. Northern Indiana's electric control area includes Northern Indiana, Wabash
Valley Power Association, Inc. ("WVPA") and Indiana Municipal Power Agency
("IMPA"). Northern Indiana's internal peak load, which excludes WVPA and IMPA,
of 2,962 MW, was also set on July 30, 1999.
Northern Indiana's electric system is interconnected with the systems
of American Electric Power, Commonwealth Edison Company, Cinergy Corp.,
Consumers Energy and Ameren Corporation, formerly Central Illinois Public
Service Company. Electric energy is purchased from, sold to, or exchanged with
various other utilities and power marketers under Northern Indiana's power sales
and open access transmission tariffs.
Northern Indiana provides WVPA with transmission and distribution
service, operating reserve requirements and capacity deficiency service, and
provides IMPA with transmission service, operating reserve requirements and
capacity deficiency service in Northern Indiana's control area. Northern Indiana
also engages in sales and services under interconnection agreements with WVPA
and IMPA. WVPA supplies electricity to 12 distribution membership cooperatives
located in Northern Indiana's control area. IMPA provides service to the
municipal electric system of the city of Rensselaer located in Northern
Indiana's control area. Northern Indiana and WVPA have executed a supplemental
agreement for unit peaking capacity and energy. Unit peaking capacity is the
capacity used to serve peak demand from a specific peaking generation unit.
Pursuant to this agreement, which runs through December 2001, WVPA purchases 90
MW of capacity per month.
Northern Indiana also serves the Town of Argos as a full requirements
customer and provides network integration service to seven other municipal
wholesale customers.
Northern Indiana is a member of the East Central Area Reliability
Coordination Agreement ("ECAR"). ECAR is one of nine regional electric
reliability councils established to coordinate planning and operations of member
electric utilities regionally and nationally.
Fuel Supply: The generating units of Northern Indiana are located at
the Bailly, Mitchell, Michigan City and Schahfer Generating Stations. Coal is
the primary source of fuel for 10 of Northern Indiana's 13 steam generating
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units; natural gas is the primary fuel for the other three. Northern Indiana's
four combustion turbine generating units are also fired by gas. Fuel
requirements for Northern Indiana's generation for 1999 were supplied as
follows:
Coal 97.9%
Natural Gas 2.1%
b. Columbia
i. Natural Gas Facilities
At December 31, 1999, Columbia's five natural gas public utility
subsidiaries owned a total of 32,403 miles of distribution pipeline and customer
connections to serve approximately 2.1 million customers, as detailed by state
in the table below:
Distribution Distribution
Pipeline (miles) Customers
---------------- ---------
Columbia Kentucky 2,433 141,817
Columbia Maryland 601 31,934
Columbia Ohio 18,387 1,347,671
Columbia Pennsylvania 6,961 389,574
Columbia Virginia 4,021 177,945
Columbia's natural gas public utility subsidiaries receive their
natural gas supplies through Columbia's two wholly-owned interstate pipelines,
Columbia Transmission and Columbia Gulf, major non-affiliated pipelines such as
Transco, ANR, Panhandle Eastern, Tennessee Gas and Texas Eastern, and regional
pipelines such as CNG Transmission Corporation and National Fuel. In addition to
receiving supplies from the Gulf Coast Basin from Columbia Gulf, Columbia
Transmission transports gas sourced from supply basins and/or trading centers
which access the Mid-Continent and Western Canada supply basins through
interconnections with ANR, Panhandle Eastern, Tennessee Gas, Texas Eastern,
Transco and Crossroads. Columbia Transmission also transports Appalachian gas
produced by Columbia's exploration and production subsidiaries.
Columbia's natural gas public utility subsidiaries have long-term firm
transportation contracts with Columbia Gulf, Columbia Transmission, Panhandle
Eastern, Tennessee Gas, Texas Eastern, Transco, CNG Transmission Corporation,
ANR and National Fuel to meet the peak day needs of their customers. In
addition, the gas utilities have contractual access to the natural gas storage
owned by Columbia Transmission. Columbia Pennsylvania is the only gas utility to
own underground storage, supported by eight wells on 3,300 acres. Columbia
Virginia and other unaffiliated local distribution utilities subscribe to LNG
storage services provided by Columbia Transmission from a facility located in
Chesapeake, Virginia. Columbia Kentucky, Columbia Ohio and Columbia Virginia
subscribe to LNG storage services offered by Cove Point LNG Limited Partnership.
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For the year 1999, Columbia's natural gas public utility subsidiaries
purchased, on a weighted average basis, approximately 90% of their natural gas
supplies from the Gulf Coast Basin, and the remaining 10% from the Appalachian,
Mid-Continent and Mobile Bay basins.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
It is currently estimated that the fees, commissions and expenses paid
or incurred, or to be paid or incurred, directly or indirectly, in connection
with the Transaction, including the Commission's filing fees under the
Securities Act of 1933 and expenses associated with soliciting proxies, will
total approximately $50 million. The following is a detailed breakdown of these
fees, commissions and expenses:
Commission filing fee for Registration Statement on Form S-4............$747,154
Accountants' fees..............................................................*
Legal fees and expenses relating to the Act....................................*
Other legal fees and expenses..................................................*
Shareholder communications and proxy solicitation..............................*
NYSE listing fee...............................................................*
Exchanging, printing and engraving of stock certificates.......................*
Investment bankers' fees and expenses..........................................*
Consulting fees related to the Transaction.....................................*
Miscellaneous..................................................................*
TOTAL.........................................................................$*
* To be filed by amendment
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The following sections of the Act are, or may be, directly or
indirectly, applicable to the proposed Transaction:
Section of Transactions to which section is, or
the Act may be, applicable:
- ------------- -------------------------------------------------
4 and 5 Registration of New NiSource (in the case of
the Merger Structure) or NiSource (in the case of
the Alternative Merger Structure) as a holding
company following consummation of the Transaction
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9 and 10 Acquisition of Columbia's common stock and,
in the case of the Merger Structure, common stock
of NiSource's public utility subsidiary companies
8 and 11(b) Retention by New NiSource of Northern
Indiana's electric operations and various of
NiSource's and Columbia's non-utility businesses
and investments
To the extent that other sections of the Act or the Commission's rules
thereunder are deemed applicable to the Transaction, such sections and rules are
hereby incorporated into this ITEM 3.
A. LEGAL ANALYSIS
--------------
1. Section 9(a)(2)
Section 9(a)(2) makes it unlawful, without approval of the Commission
under Section 10, "for any person ...to acquire, directly or indirectly, any
security of any public utility company, if such person is an affiliate of such
company and of any other public utility or holding company, or will by virtue of
such acquisition become such an affiliate." 15 U.S.C. Section 79i(a)(2). Under
the definition set forth in Section 2(a)(11), an "affiliate" of a specified
company means "any person that directly or indirectly owns, controls, or holds
with power to vote, 5 per centum or more of the outstanding voting securities of
such specified company", and "any company 5 per centum or more of whose
outstanding voting securities are owned, controlled, or held with power to vote,
directly or indirectly, by, such specified company." 15 U.S.C. Section
79b(a)(11)(A)-(B).
Columbia Kentucky, Columbia Maryland, Columbia Ohio, Columbia
Pennsylvania and Columbia Virginia are public utility companies as defined in
Section 2(a)(5) of the Act. Because Applicant will indirectly acquire (through
its acquisition of Columbia) more than 5% of the voting securities of each of
Columbia Kentucky, Columbia Maryland, Columbia Ohio, Columbia Pennsylvania and
Columbia Virginia as a result of the Transaction, Applicant must obtain the
approval for the Transaction under Sections 9(a)(2) and 10 of the Act. The
statutory standards to be considered by the Commission in evaluating the
proposed Transaction are set forth in Sections 10(b), 10(c) and 10(f) of the
Act.
As set forth more fully below, the Transaction complies with all of
the applicable provisions of Section 10 of the Act and should be approved by the
Commission:
o the consideration to be paid in the Transaction is fair and
reasonable;
o the Transaction will not create detrimental interlocking
relations or concentration of control;
o the Transaction will not result in an unduly complicated capital
structure for the New NiSource system;
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o the Transaction will not be unlawful under the provisions of
Sections 8 of the Act or detrimental to the carrying out of the
provisions of Section 11 of the Act;
o the Transaction will have the integrating tendencies required by
Section 10(c)(2) of the Act and will be in the public interest
and the interests of investors and consumers; and
o the Transaction will comply with all applicable state laws.
2. Section 10(b)
Section 10(b) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a)
unless:
o such acquisition will tend towards interlocking relations or the
concentration of control of public utility companies, of a kind
or to an extent detrimental to the public interest or the
interests of investors or consumers;
o in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or
o such acquisition will unduly complicate the capital structure of
the holding company system of the applicant or will be
detrimental to the public interest or the interests of investors
or consumers or the proper functioning of such holding company
system.
15 U.S.C. Section 79j(b).
a. Section 10(b)(1)
i. Interlocking Relationships
Although any merger results in new links between heretofore unrelated
companies, as discussed in ITEM 1, the relationships that will result from the
Transaction are not the types of interlocking relationships prohibited by
Section 10(b)(1), which was primarily aimed at preventing business combinations
unrelated to operational and economic benefits to the integrated utility system.
See Northeast Utilities, Inc., 50 S.E.C. 427, 443 (1990) ("Northeast
Utilities"), as modified, 50 S.E.C. 511 (1990), aff'd sub nom., City of Holyoke
v. SEC, 972 F.2d 358 (D.C. Cir. 1992) (finding that interlocking relationships
are necessary to integrate the two merging entities).
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ii. Concentration of Control
Section 10(b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system. American Electric
Power Company, Inc., 46 S.E.C. 1299, 1309 (1978) ("AEP"). In applying Section
10(b)(1) to utility acquisitions, the Commission must determine whether the
acquisition will create "the type of structures and combinations at which the
Act was specifically directed." Vermont Yankee Nuclear Power Corp., 43 S.E.C.
693, 700 (1968). As discussed below, the Transaction will not create a "huge,
complex, and irrational system," but rather will afford the opportunity to
achieve economies of scale and efficiencies which are expected to benefit
investors and consumers. AEP, 46 S.E.C. at 1307.
Size: If approved, the New NiSource gas utility system will serve
approximately 3.2 million gas customers in nine states and 426,000 electric
customers in Indiana. As a result of the Transaction, excluding any non-core
asset sales, and taking into account required accounting adjustments, the
combined NiSource/Columbia system would have, on a pro forma basis as of
December 31, 1999, total assets of approximately $18.1 billion13 and operating
revenues of approximately $6.3 billion. By comparison, the Commission has
approved mergers resulting in similarly sized and considerably larger
combination gas and electric utility holding companies. See, e.g., TUC Holding
Co., Holding Co. Act Release No. 26749 (Aug. 1, 1997) ("TUC Holding Co.")
(acquisition by Texas Utilities Company of ENSERCH Corp. resulting in a system
having pro forma combined assets of over $21 billion); and Dominion Resources,
Inc., Holding Co. Act Release No. 27113 (Dec. 15, 1999) ("Dominion Resources,
Inc.") (acquisition by Dominion Resources, Inc. of Consolidated Natural Gas
Company resulting in a system having pro forma combined assets of approximately
$29.0 billion). See also Houston Industries, Inc., Holding Co., Act Release No.
26744 (July 24, 1997) ("Houston Industries, Inc.") (granting exemption to
combination gas and electric holding company system which, as of December 31,
1998, had total assets of $19.138 billion and total revenues of $11.488
billion). In addition, in terms of number of customers, New NiSource will be
significantly smaller than Sempra Energy, which had 5.4 million gas and 1.2
million electric customers as of the date the Commission approved the merger of
Pacific Enterprises and Enova Corp. to form Sempra. See Sempra Energy, Holding
Co. Act Release No. 26890 (June 26, 1998) ("Sempra Energy").
As the foregoing demonstrates, following the consummation of the
Transaction, New NiSource will be within the size range of existing registered
and exempt holding companies with which it will compete as a total energy
supplier, including, in particular, Dominion Resources, Inc., whose gas
transportation and distribution systems operate in substantially the same areas
as NiSource's and Columbia's gas transportation and distribution systems. As
such, its operations would not exceed the economies of scale of current and
developing holding company systems or provide undue power or control to New
NiSource in the regions in which it will provide service.
- ------------------------
13 Pro Forma total assets includes an adjustment of approximately $3.8 billion
to reflect the premium paid for Columbia's common stock and estimated
merger costs.
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Efficiencies and Economies: In addition to analyzing the size of the
utility system, the Commission must also assess the efficiencies and economies
that can be achieved through the integration and coordination of utility
operations. As the Commission has stated, a "determination of whether to
prohibit enlargement of a system by acquisition is to be made on the basis of
all the circumstances, not on the basis of size alone." Centerior Energy Corp.,
49 S.E.C. 472 at 475 (1986) ("Centerior Energy Corp."). By enhancing the size
and geographic diversity of NiSource's existing gas system and combining
NiSource's electric business with Columbia's gas business, the Transaction will
significantly enhance each company's competitive position in an increasingly
competitive energy market. The electric and gas utility industries are merging
in order to provide greater value to customers and, thus, allow companies to
compete effectively in the increasingly competitive business environment.
In Consolidated Natural Gas Co., Holding Co. Act Release No. 26512
(Apr. 30, 1996), the Commission recognized that "fundamental changes in the
energy industry are leading to an increasingly competitive and integrated
market, in which marketers deal in interchangeable units of energy expressed in
British thermal unit values, rather than in natural gas or electricity. To
retain and attract wholesale and industrial customers, utilities need to provide
competitively priced power and related customer services. . . . It appears that
the restructuring of the electricity industry now underway will dramatically
affect all United States energy markets as a result of the growing
interdependence of natural gas transmission and electric generation, and the
interchangeability of different forms of energy, particularly gas and
electricity." The combination of NiSource and Columbia will offer the same type
of synergies and efficiencies that the Commission has recognized in approving
the creation of other combination holding company systems, some of which have
registered under the Act. See, e.g., TUC Holding Co., supra; Houston Industries,
Inc., supra; Sempra Energy, supra; Dominion Resources, Inc., supra; and SCANA
Corp., Holding Co. Act. Release No. 27133 (Feb. 9, 2000) ("SCANA Corp.").
For further information concerning economies and efficiencies which
are expected to result from the Transaction, see Subparagraph A.3.b.i, of ITEM
3, below.
Competitive Effects: As the Commission noted in Northeast Utilities,
supra, at 445, the "antitrust ramifications of an acquisition must be considered
in light of the fact that public utilities are regulated monopolies and that
federal and state administrative agencies regulate the rates charged consumers."
On July 19, 1999, NiSource filed the Notification and Report Forms with the
Department of Justice ("DOJ") and Federal Trade Commission ("FTC") pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. Section
1311, et seq. Act ("HSR Act") describing the effects of the Transaction on
competition in the relevant markets, and the applicable waiting period expired
on August 4, 1999. However, because NiSource's clearance to complete an
acquisition of Columbia remains valid only until August 4, 2000, NiSource and
Columbia will file new forms with the DOJ and the FTC under the HSR Act. It is a
condition to the consummation of the Transaction that the applicable waiting
periods under the HSR Act shall have expired or been terminated.
The competitive effects of the Transaction will also be reviewed by
the FERC, which has jurisdiction under Section 203 of the Federal Power Act over
the change in control of Northern Indiana and the two other subsidiaries of
NiSource that have authority from FERC to sell wholesale power at market-based
rates under the Merger Structure and the change in control of Columbia's power
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marketing subsidiary under either merger structure. Among other things, it is
expected that FERC will look at the impact of the Transaction on competition in
wholesale electricity markets.
b. Section 10(b)(2)
i. Fairness of Consideration
Section 10(b)(2) requires the Commission to determine whether the
consideration to be given to the holders of Columbia common stock in connection
with the Transaction is reasonable and whether it bears a fair relation to
investment in and earning capacity of the utility assets underlying the
securities being acquired. The Commission has found "persuasive evidence" that
the standards of Section 10(b)(2) are satisfied where, as here, the agreed
consideration for an acquisition is the result of arms-length negotiations
between the managements of the companies involved, supported by opinions of
financial advisors. See Entergy Corp., 51 S.E.C. 869 at 879 (1993); ("Entergy
Corp.") Southern Company, Holding Co. Act Release No. 24579 (Feb. 12, 1988)
("Southern Company").
The merger consideration was the product of extensive and vigorous
arms-length negotiations between Columbia and NiSource following a period of
nine months in which NiSource had made a formal invitation for tenders from
Columbia's shareholders. During this period, Columbia also considered potential
business combinations with other companies. The negotiations which culminated in
the Merger Agreement were preceded by intensive due diligence, analysis and
evaluation of the assets, liabilities and business prospects of each of the
respective companies. As recognized by the Commission in Ohio Power Co., 44
S.E.C. 340, 346 (1970), prices arrived at through arms-length negotiations are
particularly persuasive evidence that Section 10(b)(2) is satisfied.
Nationally-recognized investment bankers for Columbia and NiSource
have reviewed extensive information concerning the companies, analyzed the
merger consideration employing a variety of valuation methodologies, and opined
that the merger consideration is fair, from a financial point of view, to the
holders of Columbia common stock and to NiSource as of February 27, 2000. See
Exhibits G-5, G-6 and G-7 hereto. The assistance of independent consultants in
establishing the agreed-upon consideration has been recognized by the Commission
as evidence that the requirements of Section 10(b)(2) have been met. Southern
Company, supra.
ii. Reasonableness of Fees
Another consideration under Section 10(b)(2) is the overall fees,
commissions and expenses to be incurred in connection with the Transaction.
NiSource believes that these items will be reasonable and fair in light of the
size and complexity of the Transaction relative to other utility mergers and
acquisitions, and that the anticipated benefits of the Transaction to the
public, investors and consumers are consistent with recent precedents and meet
the standards of Section 10(b)(2).
The Applicants estimate that a combined total of approximately $50
million will be incurred in fees, commissions and expenses in connection with
the Transaction. (See ITEM 2, above). By comparison, American Electric Power
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Company, Inc. and Central and South West Corporation have represented that they
expect to incur total transaction fees and regulatory processing fees of
approximately $53 million in connection with their proposed merger. Dominion
Resources, Inc. and Consolidated Natural Gas Company estimated fees and other
merger expenses aggregating $55.5 million in their recent merger; Cincinnati Gas
and Electric Company and PSI Resources incurred $47.12 million in fees in
connection with their combination in 1994 as subsidiaries of Cinergy Corp., and
Northeast Utilities, Inc. alone incurred $46.5 million in fees and expenses in
connection with its acquisition in 1990 of Public Service of New Hampshire
Company, Inc. - which amounts all were approved as reasonable by the Commission.
See Dominion Resources, Inc., supra; CINergy Corp., Holding Co. Act Release No.
26146 (Oct. 21, 1994); and Northeast Utilities, Inc., Holding Co. Act Release
No. 25548 (June 3, 1992).
The Applicants believe that the estimated fees and expenses in this
matter bear a fair relation to the value of their respective companies and the
benefits to be achieved by the Transaction, and further that the fees and
expenses are fair and reasonable in light of the size and complexity of the
Transaction. The aggregate consideration to be given in exchange for Columbia's
common stock is valued at approximately $6 billion, based on certain
assumptions. The total estimated fees and expenses of approximately $50 million
represent approximately 0.83% of the value of the consideration to be paid. This
is consistent with (and in fact generally lower than) percentages previously
approved by the Commission. See, e.g., Entergy Corp., supra (fees and expenses
represented approximately 1.7% of the value of the consideration paid to the
shareholders of Gulf States Utilities Company); Dominion Resources, Inc., supra
(fees and expenses represented approximately 0.87% of the estimated total
consideration to be paid to shareholders of Consolidated Natural Gas Company).
c. Section 10(b)(3)
Section 10(b)(3) requires the Commission to determine whether the
Transaction will "unduly complicate the capital structure" or be "detrimental to
the public interest or the interest of investors or consumers or the proper
functioning" of the Applicant's system.
The capital structure of the Applicant's system will be similar in
most respects to the capital structures approved by the Commission in other
recent orders. See, e.g., Dominion Resources, Inc., supra; Southern Company,
Holding Co. Act Release Nos. 27061 and 27134 (Aug. 18, 1999 and Feb. 9, 2000);
and The National Grid Group plc, Holding Co. Act Release No. 27154 (Mar. 15,
2000) ("The National Grid Group plc"). In the Merger Structure, NiSource
shareholders will receive common stock of New NiSource and Columbia's
shareholders will receive, initially, a combination of cash and New NiSource's
SAILS, which will automatically result in the issuance of New NiSource's common
stock on the fourth anniversary of the merger, and may receive shares of New
NiSource common stock. In the Alternative Merger Structure, initially Columbia's
shareholders will instead receive a combination of cash and NiSource's SAILS,
which will automatically result in the issuance of NiSource common stock. In
either case, New NiSource (or NiSource, as the case may be) will own, directly
or indirectly, 100% of the common stock of all of the gas utility subsidiaries
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of NiSource and Columbia and of the electric utility subsidiary of NiSource.
Hence, the Transaction will not create any publicly-held minority stock interest
in any public utility company. The only voting securities that will be publicly
held after the Transaction will be New NiSource's common stock in the case of
the Merger Structure or NiSource's common stock in the case of the Alternative
Merger Structure.
The continued existence of Columbia as a secondary holding company in
the same holding company system will not unduly complicate Applicant's capital
structure. In this regard, the Commission has permitted the continued existence
of a secondary holding company where it appeared that the overall benefits of an
acquisition would outweigh any historical preference for a single holding
company structure. See Dominion Resources, Inc., supra; and The National Grid
Group plc, supra. As was true in Dominion Resources, Inc., where the Commission
allowed the continued existence of Consolidated Natural Gas Company as a
secondary holding company, the continued existence of Columbia will preserve
certain financing and structural benefits that have already been achieved by
Columbia as a registered gas holding company.
Moreover, the incurrence by New NiSource of indebtedness to finance
the cash portion of the purchase price will not result in an unduly complicated
capital structure for the resulting New NiSource system. Acquisition financing
of the type contemplated by New NiSource is expressly permitted by Section
7(c)(2)(A) of the Act. As will be addressed in detail in a separate application,
New NiSource intends to refinance the acquisition debt following the merger
through the issuance of longer term securities, additional equity issuances,
using proceeds from the sale of certain non-core assets and/or internally
generated cash flow. The Commission has previously authorized registered holding
companies to issue debt to finance an acquisition under similar circumstances.
See Dominion Resources, Inc., supra; SCANA Corp., supra; and The National Grid
Group plc, supra.
Finally, the issuance of the SAILS will not represent a permanent
component of Applicant's capitalization. As previously explained, the stock
purchase contracts included in the SAILS automatically settle for New NiSource's
common stock on the fourth anniversary of the merger without any further action
by the holders of the SAILS or Applicant. Moreover, from the date of the initial
issuance, the SAILS will be afforded a significant amount of equity credit by
the credit rating agencies for the purpose of Applicant's consolidated
capitalization.
In connection with the merger, NiSource may incur, at a maximum, up to
$6 billion of additional short-term debt. This maximum assumes that no shares of
common stock of Columbia are exchanged for New NiSource shares in the Merger
Structure or that the merger is completed under the Alternative Merger
Structure. NiSource believes that its shareholders will approve the Merger
Agreement and that the Transaction therefore will be completed using the Merger
Structure. Further, NiSource believes that holders of the maximum number of
Columbia's shares (30%) will elect to exchange their stock for NiSource stock,
given the Columbia shareholder profile, the tax-free nature of the proposed
share exchange, the dividend expected to be paid on the New NiSource shares and
the adverse tax consequences of original issue discount in the SAILS in case the
holder does not elect to be, and is not, paid in stock. In this event, and
assuming sales of certain non-core assets of NiSource and/or Columbia before and
shortly after the merger (which sales the Applicants believe will be
accomplished), the Applicants believe that pro forma consolidated common stock
equity of the combined system will be no less than 28.5% of pro forma combined
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capitalization at December 31, 2000. Based on similar circumstances, the
Commission has previously held that such pro forma consolidated capitalization
will satisfy the requirements of Section 10(b)(3). See The National Grid Group
plc, supra; and Northeast Utilities, Inc., Holding Co. Act Release No. 25221
(Dec. 21, 1990).
3. Section 10(c)
Section 10(c) of the Act provides that, notwithstanding the provisions
of Section 10(b), the Commission shall not approve:
o an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of section 8 or
is detrimental to the carrying out of the provisions of section
11; or
o the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system.
15 U.S.C. Section 79j(c).
a. Section 10(c)(1), including, by reference, Sections 8 and 11
Section 10(c)(1) requires that an acquisition be lawful under Section
8 of the Act. Section 8 prohibits registered holding companies from acquiring,
owning interests in or operating both a gas and an electric utility serving
substantially the same area if it is prohibited by state law. As discussed
below, the Transaction does not raise any issues under Section 8 of the Act.
Indeed, Section 8 indicates that a registered holding company may own both gas
and electric utilities where the relevant state utility commission supports such
an arrangement.
Section 10(c)(1) also requires that the transactions not be
detrimental to carrying out the provisions of Section 11 of the Act. Section
11(a) of the Act requires the Commission to examine the corporate structure of
registered holding companies to ensure that unnecessary complexities are
eliminated and voting powers are fairly and equitably distributed. As described
above in ITEM 3. A.2, the Transaction will not result in unnecessary
complexities or unfair voting powers.
Section 11(b)(1) of the Act generally requires a registered holding
company system to limit its operations "to a single integrated public-utility
system, and to such other businesses as are reasonably incidental, or
economically necessary or appropriate to the operations of such integrated
public-utility system." 15 U.S.C. Section 79k(b)(1). However, Section 11(b)(1)
further provides that "one or more additional integrated public-utility systems"
may be retained if certain criteria are met. Id. Section 11(b)(2) directs the
Commission "to ensure that the corporate structure or continued existence of any
company in the holding-company system does not unduly or unnecessarily
complicate the structure, or unfairly or inequitably distribute voting power
among security holders, of such holding-company system." 15 U.S.C. Section
79k(b)(2).
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As detailed below, the Transaction is lawful under Section 8 and is
not detrimental to carrying out the provisions of Section 11.
i. Retention of Electric Operations
The retention of the electric operations of Northern Indiana by
Applicant is lawful under Section 8 of the Act and is not detrimental to
carrying out the provisions of Section 11 of the Act.
Section 8 of the Act provides that:
Whenever a State law prohibits, or requires approval or authorization
of, the ownership or operation by a single company of the utility
assets of an electric utility company and a gas utility company
serving substantially the same territory, it shall be unlawful for a
registered holding company, or any subsidiary company thereof . . .
(1) to take any step, without the express approval of the State
commission of such State, which results in its having a direct or
indirect interest in an electric utility company and a gas company
serving substantially the same territory; or (2) if it already has any
such interest, to acquire, without the express approval of the State
commission, any direct or indirect interest in an electric utility
company or gas utility company serving substantially the same
territory as that served by such companies in which it already has an
interest.
15 U.S.C. Section 79h. A plain reading of Section 8 indicates that, with the
support of the relevant state utility commissions (in this case the IURC), a
registered holding company can include both electric and gas utility systems. A
more detailed examination of Section 8 in light of its legislative history
indicates that the purpose of this section is to preclude ownership by a
registered holding company of separate gas and electric utility companies with
overlapping service territories in an attempt to circumvent state law
restrictions that preclude ownership of gas and electric assets by the same
company.14
Section 8 of the Act and the public interest both permit Applicant's
retention of Northern Indiana electric operations upon completion of the
Transaction and Applicant's registration as a holding company. Northern
Indiana's existing gas and electric operations in Indiana, which are in
overlapping service territories, are in conformity with Indiana law. These
utility operations will not change as a result of the Transaction. Consequently,
Applicant is not using its holding company structure to circumvent state
regulation. The IURC currently exercises, and will continue to exercise,
jurisdiction over Applicant's Indiana gas and electric operations.
- ------------------------
14 The Report of the Committee on Interstate Commerce, S. Rep. No. 621 at 29
(1935) (Section 8 of the Act "is concerned with competition in the field of
distribution of gas and electric energy, a field which is essentially a
question of State policy, but which becomes a proper subject of Federal
action where the extra-State device of a holding company is used to
circumvent state policy.").
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In addition to Section 8 of the Act, Section 11 contains provisions
that permit the retention by Applicant of Northern Indiana's electric
operations. Section 11(b)(1) of the Act permits a registered holding company to
control one or more additional integrated public utility systems, i.e., electric
as well as gas utility systems, if:
o each of such additional systems cannot be operated as an
independent system without the loss of substantial economies
which can be secured by the retention of control by such holding
company of such system;
o all of such additional systems are located in one state,
adjoining states, or a contiguous foreign country; and
o the continued combination of such systems under the control of
such holding company is not so large (considering the state of
the art and the area or region affected) as to impair the
advantages of localized management, efficient operation, or the
effectiveness of regulation.
15 U.S.C. Section 79k(b)(1).
These three subsections of Section 11(b)(1) are frequently referred to
as the "ABC Clauses" and each clause is addressed separately below.
Clause A: The Commission has interpreted Clause A "to require an
affirmative showing by a registrant that an additional system could not be
operated under separate ownership without a loss of economies which are `so
important as to cause a serious impairment of that system' and `substantial in
the sense that they were important to the ability of the additional system to
operate soundly.'" New Century Energies, Inc., Holding Co. Act. Release No.
26748 (Aug. 1, 1997) ("New Century Energies, Inc."), quoting New England
Electric System, 41 S.E.C. 888, 892-3 (1964). A registered holding company
generally satisfies the requirements of Clause A by preparing a "divestiture" or
"severance" study which examines the estimated loss of economies precipitated by
a hypothetical divestiture "expressed in terms of the ratio of increased
expenses to the system's total operating revenues, operating revenue deductions
(excluding federal income taxes), gross income and net income before federal
income taxes." Id. In an early leading decision, the Commission found that cost
increases which resulted in a 6.78% loss of operating revenues, a 9.72% increase
in operating revenues deductions, a 25.44% loss of gross income and a 42.46%
loss of net income provided an "impressive basis for finding a loss of
substantial economies." Engineers Public Service Co., 12 S.E.C. 41, 59 (1942)
rev'd on other grounds and remanded, 138 F.2d 936 (D.C. Cir. 1943), vacated as
moot, 332 U.S. 788 (1947).
The Applicants will prepare and by amendment file as Exhibit I hereto
a study of the lost economies that would result if the Commission were to direct
the divestiture of Northern Indiana's electric utility operations. These lost
economies will result primarily from the need to replicate corporate and
administrative services, loss of scale, and increased operating costs.
In addition to quantitative factors, the Commission also considers
qualitative factors in its determination under Clause A. First, the Commission
in recent decisions has approved the retention by new registered electric
utility holding companies of relatively small gas systems because "separation of
gas and electric businesses may cause the separated entities to be weaker
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competitors than they would be together." See New Century Energies, Inc., supra;
CINergy Corp., Holding Co. Act Release No. 26934 (Nov. 2, 1998); and WPL
Holdings, Inc., Holding Co. Act Release No. 26856 (Apr. 14, 1998) ("WPL Holding,
Inc."), aff'd sub nom., Madison Gas & Electric Co. v. SEC, 168 F.3d 1337 (D.C.
Cir. 1999).15 The logic of these cases has been extended in recent cases
involving acquisitions by electric utility holding companies of neighboring gas
utility systems. See Dominion Resources, Inc., supra; SCANA Corp., supra; and
Northeast Utilities, Holding Co. Act Release No. 27127 (Jan. 31, 2000). Like
these other companies, Applicant's competitive position in the market would
suffer if it were directed to divest Northern Indiana's electric operations
because, as the utility industry moves toward a complete energy services
concept, energy suppliers must be able to offer customers a total range of
energy options to meet their energy needs. The combination of electric and gas
operations in a single company offers that company a means to compete more
effectively in the emerging energy services business. Accordingly, the
Transaction should be evaluated in light of the evolutionary changes taking
place in the utility industry.
The Commission has also noted that the DOJ and FERC typically have
concomitant jurisdiction over public utility mergers and typically consider
anticompetitive consequences of any proposed transactions. New Century Energies,
Inc., supra. In this case, the Transaction is subject to the notification and
report procedures under the HSR Act and approval by FERC under the Federal Power
Act. Thus, to the extent that there are remaining concerns about the effects on
competition of common ownership of both gas and electric businesses in the same
holding company system, such concerns will be addressed by other regulatory
agencies.
In addition, in its analysis of the requirements of Clause A, the
Commission considers whether the electric and gas utilities have long been under
common control and whether retention would alter the status quo with respect to
utility operations. Northern Indiana's electric and gas operations have been
under common control since 1926 and permitting the retention of Northern
Indiana's electric business would not alter the status quo with respect to its
utility operations. Finally, the Commission determines whether the proposed
acquisition has not "elicited any adverse reaction from interested state
commissions." Id. This factor should not present a problem because the
Applicants anticipate receiving all necessary regulatory approvals from relevant
state commissions.
Clause B: The requirements of Clause B are met because Northern
Indiana's electric operations are located in the same state as its gas
operations (Indiana).
Clause C: The requirements of Clause C are met because the continued
combination of the electric and gas operations under Applicant is not so large
(considering the state of the art and the area or region affected) as to impair
the advantages of localized management, efficient operation or the effectiveness
of regulation. Northern Indiana's electric system is confined to a relatively
small geographic area. Applicant will maintain management of electric operations
geographically close to Northern Indiana's electric operations, thereby
preserving the advantages of localized management. Northern Indiana's electric
operations will also remain subject to the IURC's jurisdiction, thereby
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15 In New Century Energies, Inc., the Commission further noted that the
"empirical basis" for the assumptions underlying its decision in New
England Electric System., 41 S.E.C. 888 (1964), rev'd, SEC v. New England
Electric System, 346 F.2d 399 (1st Cir. 1965), rev'd and remanded, 384 U.S.
176 (1966), on remand, 376 F.2d 107 (1st Cir. 1967), rev'd, 390 U.S. 207
(1968) was "rapidly eroding."
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maintaining the effectiveness of regulation. Finally, Northern Indiana's
electric operations will continue to enjoy substantial economies as part of
Applicant's system, and will realize additional economies as a result of the
Transaction from becoming part of a combined NiSource/Columbia system. Far from
impairing the advantages of efficient operation, the continued combination of
Northern Indiana's electric and gas operations will continue to facilitate and
enhance efficiency.
ii. Non-Utility Businesses
Section 11(b)(1) limits the non-utility interests of a registered
holding company to "interests that are `reasonably incidental, or economically
necessary or appropriate to the operations of such integrated public-utility
system,' on a finding by the Commission that such interests are `necessary or
appropriate in the public interest or for the protection of investors or
consumers and not detrimental to the proper functioning' of the integrated
system." New Century Energies, Inc., supra. "The Commission has interpreted
these provisions to require the existence of an operating or functional
relationship between the utility operations of the registered holding company
and its non-utility activities." Id. All of the non-utility businesses and
investments currently held by the Applicants, with certain exceptions, are
retainable under this test.
Several of the subsidiaries of NiSource and Columbia are exempt under
the Act, including the integration standards of Section 11(b)(1), pursuant to
Sections 32, 33 or 34. Many of Columbia's existing non-utility investments were
the subject of specific approvals granted by the Commission. In addition, Rule
58 provides exemptions for investments by registered gas utility holding
companies in certain "energy-related" companies (subject to a limit on aggregate
investment equal to 15% of the consolidated capitalization) and "gas-related"
companies (which is not subject to any limitation on the amount invested). 17
C.F.R. Section 250.58. Further, the Commission has determined that existing
investments in "energy-related" companies (as of the date of the consummation of
the merger) of an exempt holding company which became a registered holding
company as a result of the merger should be disregarded for purposes of
calculating the dollar limitations imposed by Rule 58. See New Century Energies,
Inc., supra; and Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25,
1998) ("Conectiv, Inc.").
NiSource is currently a holding company that is exempt from the
registration requirements of the Act.16 As an exempt holding company, NiSource
has been free to invest in a variety of non-utility businesses and activities
without the need to obtain prior Commission approval under Section 9(a) of the
Act. The Transaction will result in New NiSource or NiSource becoming a
registered holding company. Therefore, it is necessary to evaluate each of
NiSource's non-utility business activities within the retention restrictions of
the Act and the Commission's rules promulgated thereunder. Columbia has been
subject to regulation as a registered holding company for an extended period.
Therefore, Columbia's ability to engage in non-utility businesses has been
subject to the approval requirements of Section 9, and each of Columbia's
existing non-utility businesses has been either approved by the Commission or
falls within the exemptions of Sections 32, 33 and 34 under the Act or Rule 58.
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16 See NIPSCO Industries, Inc., Holding Co. Act Release No. 26975 (Feb. 10,
1999).
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Consequently, the discussion below focuses on the retention of NiSource's
non-utility businesses as appropriate either under the exemptions of Rule 58 or
prior Commission precedent.
Natural Gas Pipeline, Storage and Gathering: NiSource has two
wholly-owned interstate natural gas pipeline subsidiaries. Crossroads operates
an interstate pipeline from Indiana to Ohio connecting NGPL, Trunkline and
Panhandle Eastern with Columbia Transmission and gas utility customers in Ohio
and Indiana. Granite State operates an interstate pipeline extending from
Massachusetts, where it interconnects with Tennessee Gas, through New Hampshire
and into Maine, where it interconnects at several points with PNGTS. Granite
State serves Northern and Bay State in all three states. In addition, NiSource
indirectly owns an interest in a pipeline in northern New England (PNGTS), an
intrastate natural gas pipeline in Texas and indirectly owns natural gas salt
cavern storage facilities in Texas, Louisiana and a facility under development
in Pennsylvania.
These companies engage in "gas-related activities" under Section 2(a)
of the Gas-Related Activities Act of 1990 ("GRAA"), and registered gas utility
holding companies may acquire the securities of such companies without
Commission approval pursuant to Rule 58(b)(2)(i).
Exploration and Production Operations: EnergyUSA has equity interests
in a domestic oil and gas producer with properties located in Texas, Oklahoma
and Louisiana.
The exploration of natural resources or the holding of rights to such
resources are "gas-related activities" under Section 2(b) of the GRAA, and
registered gas utility holding companies may acquire the securities of such
companies without Commission approval pursuant to Rule 58(b)(2)(ii).
Energy Marketing: Through direct and indirect subsidiaries, NiSource
provides natural gas sales and management services to industrial and commercial
customers and to affiliated and non-affiliated gas distribution utilities. The
ownership of businesses engaged in the brokering and marketing of energy
commodities is specifically authorized under Rule 58(b)(1)(v) and the retention
of such businesses has routinely been permitted in prior Commission orders
approving mergers and the creations of new registered holding companies. WPL
Holdings, Inc., supra; Conectiv, Inc., supra; and New Century Energies, Inc.,
supra.
Energy-Related Projects: NiSource's subsidiary, Primary, arranges
energy-related projects for large energy-intensive facilities through Harbor
Coal, North Lake, LEC, Portside, CE, Whiting and Ironside. The Commission Staff
issued a no-action letter concurring with NiSource that North Lake is not an
"electric utility" under Section 2(a)(3) of the Act with respect to its
involvement in the processing of steam into electricity which is owned and used
solely by Ispat in its manufacturing operations. NIPSCO Industries, Inc., 1996
SEC No-Act. LEXIS 541 (Jan. 19, 1996). LEC, Ironside, Portside and CE process
steam into electricity under similar circumstances to North Lake. Whiting
recently announced an agreement with Amoco Oil Company to lease and operate a
net 525 MW natural-gas fired cogeneration facility adjacent to Amoco's refinery
in Whiting, Indiana. None of Primary's subsidiaries engages in activities that
would cause it to be a public utility company under the Act. The Commission has
permitted registered gas utility holding companies to invest in subsidiaries
engaged in providing similar energy and energy management services. See Columbia
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Energy Group, et al., Holding Co. Act Release No. 26868 (May 6, 1998). In
addition, the operation and maintenance of power plants are "energy-related"
activities permitted under Rule 58(b)(I)(vii) and Rule 58(b)(I)(viii), as
applicable.
Energy Management: EnergyUSA Commercial Energy Services, Inc., along
with its affiliates, provide energy management services, to industrial and large
commercial customers, which enhance competitiveness through cost reductions,
modernizing infrastructure and improving cost accountabilities. Rule 58(b)(1)(i)
specifically permits registered holding companies to invest in a business that
derives substantially all of its revenues from "the rendering of energy
management services and demand-side management services."
HVAC Services: Two subsidiaries of EnergyUSA provide HVAC services to
industrial and commercial customers. The Commission has permitted wholly-owned
subsidiaries of registered holding companies to provide services to system
utilities and non-affiliates related to heating, ventilation, and air
conditioning. Conectiv, Inc., supra and CINergy Corp., Holding Co. Act Release
No. 26662 (1997). In addition, these activities are permitted under Rule
58(b)(1)(iv).
Customer Information Services ("CIS"): Customer Information Services,
Inc., a wholly-owned subsidiary of Development, participates with IBM in a joint
venture to enhance a CIS system (and training for the system) which it markets
to other utilities. The Commission has permitted retention by registered holding
companies of a business that provides technical and consulting services,
including billing services and information systems or data processing, to
affiliated and non-affiliated companies. Conectiv, Inc., supra (consulting
services related to information system/data processing); New Century Energies,
Inc., supra (intellectual property owned or developed in the course of utility
operations); Central and South West Services, Inc., Holding Co. Act Release No.
25132 (Aug. 10, 1990) (licensing and sale of computer programs developed in the
course of utility business). In addition, these services are expressly permitted
under Rule 58 (b)(l)(vii), since they involve technical expertise developed in
the course of utility operations.
Utility Related Services: SM&P, Colcom and UTI provide underground
utility locating and marking services in Indiana and other states. Miller
installs, repairs and maintains underground pipelines used in gas, water and
sewer transmission and distribution systems. The locating subsidiaries provide
services to four utility industries: telephone, gas, electricity and water.
Miller provides services to both gas and water utilities. The Commission has
approved a registered holding company's ownership of a business engaged in
providing construction, engineering and operation and maintenance services
primarily to nonaffiliates. Central and South West Services, Inc., Holding Co.
Act Release No. 26280 (Apr. 26, 1995) (provisions of engineering and
construction services to nonaffiliates); Entergy Corp., Holding Co. Act Release
No. 26322 (June 30, 1995) (provision of development, design, engineering,
construction and maintenance and management services to domestic and foreign
power projects); New England Electric System, Holding Co. Act Release No. 26017
(Apr. 1, 1994) (provision of consulting services, including engineering, design
and construction, to nonaffiliates); General Public Utilities Corp., Holding Co.
Act Release No. 25108 (June 26, 1990) (provision of engineering and management
services in connection with investments in power production facilities and
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related projects); New Century Energies, Inc., supra (engineering, construction
and related services primarily to non-affiliates).
Financing: Capital Markets provides financing for NiSource's
non-utility subsidiaries and certain utility subsidiaries. The Commission has on
a number of occasions authorized registered holding companies to own
subsidiaries that provide financing and related financial services to their
affiliated companies. See Southern Company, Holding Co. Act Release No. 27134
(Feb. 9, 2000); Allegheny Power System, Inc., Holding Co. Act Release No. 26401
(Oct. 27, 1995); and CSW Credit, Inc., Holding Co. Act Release No. 26437 (Dec.
22, 1995).
Real Estate: NiSource and its subsidiaries have invested in several
different types of real estate ventures. These fall into several different
categories, as described below.
o A wholly-owned subsidiary of Development manages or sells off
excess real estate owned by Development and other NiSource
subsidiaries. These investments are functionally related to the
activities of system utilities and therefore, under Commission
precedent, Applicant should be allowed to retain the investment
after NiSource becomes a registered holding company. See, e.g.,
Conectiv, Inc., supra; Unitil Corp., Holding Co. Act Release No.
25524 (Apr. 24, 1992) ("Unitil Corp."); WPL Holdings, Inc.,
supra.
o JOF Transportation Company, a wholly-owned subsidiary of
Development, owns a 40% passive interest in railroad assets in
the vicinity of several electric generating plants owned by
Northern Indiana and which Northern Indiana currently uses to
deliver coal to its electric generating plants. Retention of
NiSource's interest would enable Applicant to construct
additional power lines or gas pipelines in the future and to
ensure continued access to tracks needed to deliver coal to
electric generating plants owned by Northern Indiana. The
Commission has held that a registered public utility holding
company may hold property that will be needed in the future to
support operations of the utility company. See New Century
Energies, Inc., supra (water rights held in connection with the
future addition of generation capacity); WPL Holdings, Inc.
(undeveloped property for the future development of
utility-related assets). The Commission has also allowed
subsidiaries of registered public utility holding companies to
acquire or maintain rail lines and rolling stock for the benefit
of system utilities. See Southern Company, Holding Co. Act
Release No. 25734 (Jan. 13, 1993); North American Co., Holding
Co. Act Release No. 3405 (Apr. 15, 1942); New Century Energies,
Inc., supra (railroad maintenance facility); and WPL Holdings,
Inc. supra (ownership and operation of rail lines).
o NDC Douglas Properties, Inc., a wholly-owned subsidiary of
Development, has 15 passive interests in multiple-family
residential developments, most of which are in the service
territory of NiSource's utility subsidiaries. These investments
are divided into six limited partnerships and nine limited
liability companies and are held by NiSource in order to generate
low-income housing tax benefits under Section 42 of the Internal
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Revenue Code. The investments are part of the continued
commitment by NiSource to provide high quality, energy efficient,
affordable housing to the residents of various geographic and
economic regions served by its utilities. The Commission has
allowed subsidiaries of registered holding companies to invest in
low income housing provided that the holding company is a passive
investor and that the purpose of the investment is to obtain
federal and state income tax credits as well as fulfilling civic
responsibilities. See Ameren Corp., Holding Co. Act Release 26809
(Dec. 30, 1997) ("Ameren Corp."); and Georgia Power Co., Holding
Co. Act Release No. 26220 (Jan. 24, 1995).
o KOGAF Enterprises, Inc. ("KOGAF"), a wholly-owned subsidiary of
Development, has invested in a project to revitalize downtown
Kokomo, Indiana, which is in the service territory of Kokomo Gas.
KOGAF has a passive interest in a limited partnership which is
conducting the revitalization project. KOGAF's total investment
in the project is less than $100,000. Under Rule 40(a)(5),
registered holding companies are permitted to invest up to $5
million annually in qualified state sponsored industrial
development companies and up to $1 million annually in other
local industrial or non-utility enterprises. 18 C.F.R. Section
250.40(a)(5). See Ameren Corp., supra; Ohio Power Co., Holding
Co. Act Release No. 25604 (Aug. 11, 1992).
o Lake Erie Land Company ("Lake Erie"), a wholly-owned subsidiary
of Development, owns wetlands that can be used as offsets to
enable developers to obtain approval for projects that require
filling of wetlands. These offsets could be used for construction
projects by Applicant system utilities and are also sold to other
developers in need of offsets. Because it is difficult and
economically inefficient to identify discrete, small tracts of
wetlands to be restored each time a need for a small amount of
offsets arises, it is beneficial to have a large bank of restored
wetlands available to serve these needs as they arise and to sell
the offsets to third parties to the extent that the available
bank exceeds near term utility system needs. Commission precedent
supports the retention of property held for future utility needs.
WPL Holdings, Inc., supra. Furthermore, larger tracts of wetlands
are environmentally preferable to smaller tracts that
collectively comprise the same number of acres. Thus, Applicant
will be able to serve as a good environmental citizen as well as
meeting its system utility needs for wetlands offsets by holding
tracts of restored wetlands larger than the minimum necessary for
the foreseeable needs of its system utilities. Divestiture of
these assets would impose an economic hardship because of the
difficulty and expense Applicant would incur if it had to
purchase wetlands each time it needed wetlands offsets for
utility development.
o Lake Erie and a subsidiary also develop and operate tracts of
land within the service territories of NiSource utility
subsidiaries into model communities that serve community
development and environmental interests. In order to assure the
developments meet NiSource's goals for architectural, urban
planning, and environmental considerations, NiSource has made an
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active investment in these projects. These investments, however,
represent just over 1% of NiSource's net assets, and they are
managed by a subsidiary that is separate from the system utility
companies, so that any losses from these projects will have no
adverse impact on the utilities or their ratepayers. The
Applicants request that the Commission permit retention of this
investment, given that these projects impose no significant risks
on ratepayers and taking into consideration the limitations that
Applicant would incur if it were required to divest itself of
these projects after the substantial commitments it has made to
ensure that the developments meet the established community
development, urban planning and environmental goals. The
Commission has allowed retention of real estate operations
created by exempt holding companies before becoming registered
even though such operations were not strictly related to utility
operations. WPL Holdings, Inc., Holding Co. Act Release No. 26856
(Apr. 14, 1998); Conectiv, Inc., supra; Ameren Corp., supra; and
New Century Energies, Inc., supra. The Commission has also
authorized real estate investments where they benefited utility
operations. Unitil Corp., supra; and American Electric Power Co.,
Holding Co. Act Release No. 21898 (Jan. 27, 1981).
Water Utilities: The Water Utilities supply water for residential,
commercial and industrial uses in Indianapolis, Indiana and surrounding areas
and were acquired beginning in 1997. The Water Utilities are not part of a
unified utility franchise and do not share a common utility customer base with
any of NiSource's public utility companies. Moreover, they were acquired and are
maintained as a distinct business unit and represent a significant investment of
NiSource, See Subparagraph B.1.a of ITEM 1, above. If the Commission determines
that NiSource may not retain the Water Utilities under Section 11(b)(i) of the
Act and therefore must divest the Water Utilities, the Applicants request that
the Commission include in its order with respect to this Transaction statements
that (a) a sale of all of the stock of the Water Utilities for cash is necessary
or appropriate to effectuate the provisions of Section 11(b) of the Act; (b) the
Applicants will sell all of the stock of the Water Utilities within two years of
the merger; and (c) all of the net proceeds from the sale of the Water Utilities
must be contributed to the capital of NiSource Finance Corp., a new system
finance subsidiary.
b. Section 10(c)(2)
The Transaction will tend toward the economical and efficient
development of an integrated public utility system, thereby serving the public
interest, as required by Section 10(c)(2) of the Act.
i. Efficiencies and Economies
The Applicants expect to achieve substantial economic benefits from
the merger.
First, the Applicants expect to realize potential cost savings related
to the elimination of redundant management functions and other administrative
overhead, along with limited revenue enhancements.
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In addition, the Applicants believe that the merger will create a
significantly larger and more diverse energy company that will have strategic
and operational opportunities that would not be available to either NiSource or
Columbia as separate systems. In particular, the Applicants believe that the
combined company will have three elements that are key to success in the
increasingly deregulated and competitive energy marketplace: (1) increased size,
scope and scale, (2) access to strategic geographic markets, and (3) a broad
range of complementary assets.
Increased Size, Scope and Scale, Diversity: The combined company will
have the size, scope and scale necessary to compete more effectively.
o The merger of NiSource and Columbia will create a super-regional
energy company serving more than 3.6 million gas and electric
utility customers located primarily in nine states.
o Increased volumes of gas throughput and gas sales, along with
more extensive local delivery systems, pipeline assets and a
variety of gas storage facilities, will increase the flexibility
and efficiency of the combined systems in delivering gas.
o The merger will result in a company with pro forma 1999 operating
revenues of $6.3 billion from a substantially larger and more
diverse customer base.
o The broader geographic range of the market areas served by the
NiSource and Columbia utility companies distributing gas and
electricity should moderate the risk that unseasonably warm
winters or cool summers in one area will adversely affect the
entire company at any particular time.
Access to Strategic Markets:
o The merger advances NiSource's previously announced strategy for
expanding its presence within a natural gas distribution corridor
stretching from Texas, through Chicago, to Maine. After the
merger, the additional Columbia gas storage assets, pipeline
assets and customers also fall along this corridor, linking
NiSource's existing assets and allowing for better utilization of
all of the combined systems' assets.
o Pipelines from Canada and the Gulf of Mexico to the Chicago
market have made natural gas plentiful and relatively inexpensive
in Chicago and northern Indiana. In contrast, in the Northeast,
constrained pipeline capacity has resulted in higher gas prices
and low usage of natural gas. With significant natural gas
reserves and storage capacity, 19,000 miles of gas pipeline from
Texas to Maine and an extensive local distribution network, the
Applicants believe the combined system will be able to deliver
lower cost gas to a Northeast market that has the potential for
growth as an increasing number of customers, including power
plant operators, switch to clean natural gas as their fuel of
choice.
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o The broader geographic coverage of the combined system, including
Columbia's natural gas distribution territory and its pipeline
systems, will also provide more opportunities to expand
NiSource's electric cogeneration business for industrial
customers.
Broad Range of Complementary Assets:
o The merger will enable the combined system to use strong local
utility brand names to offer customers a broader mix of products
and services than either system alone could offer. For example,
the combined system will be able to offer more competitive
management of customers' complete gas supply needs to a broader
group of customers by combining NiSource's supply area gas
storage with Columbia's market area gas storage and combining
high deliverability storage for peak needs with standard storage
for baseload needs.
o The merger will permit the combined system to offer a broader
range of energy products and services and will reduce the risk
presented by NiSource's dependence on sales of gas and
electricity to large industrial customers in northwest Indiana.
o The merger will allow the combined system to take advantage of
arbitrage opportunities that may exist among natural gas, coal
and electricity. Similar opportunities may be available based on
differences in weather, time of day, geographic location of
customers, and physical location of fuel supplies and gas storage
along the Texas to Maine corridor. As an example, the combined
system will be able to choose how best to use natural gas
supplies, whether by selling the gas on the open market, swapping
it, transporting it for sale in another market, putting it into
storage for future use or sale, or using it to produce
electricity in its own power plants.
o The merger will add key members of Columbia's operating
management team, which has successfully managed its company
during a period of deregulation in multiple states, increased
competition and rapid change in the gas industry, to NiSource's
management team, which has skills and experience in efficiently
managing assets and delivering energy products and services.
Although some of the anticipated economies and efficiencies will be
fully realizable only on a long-term basis and some of the potential benefits
cannot be precisely estimated, they are properly considered in determining
whether the standards of Section 10(c)(2) have been met. See AEP at 1320-21
(1978); Centerior Energy Corp. at 480 (1986) ("[S]pecific dollar forecasts of
future savings are not necessarily required; a demonstrated potential for
economies will suffice even when these are not precisely quantifiable.")
(footnote omitted). See also Energy East Corp., Holding Co. Act Release No.
26976 (Feb. 12, 1999) (authorizing acquisition based on strategic benefits and
potential but presently unquantifiable savings); and The National Grid Group
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plc, supra. There is no requirement in Section 10(c)(2) that the specific dollar
estimates of future savings be large in relation to the gross revenues of the
companies involved. See American Natural Gas Co., 43 S.E.C. 203 (1966)
("American Natural Gas Co.").
ii. Integrated Gas Utility System
Under Section 10(c)(2), the Commission must affirmatively find that
the Transaction "will serve the public interest by tending towards the
economical and the efficient development of an integrated public-utility
system." 15 U.S.C. Section 79j(c)(2). An "integrated public-utility system" is
defined in Section 2(a)(29), 15 U.S.C. Section 79j(c)(2) to mean:
(B) As applied to gas utility companies, a system consisting of one or
more gas utility companies which are so located and related that
substantial economies may be effectuated by being operated as a single
coordinated system confined in its operations to a single area or region,
in one or more States, not so large as to impair (considering the state of
the art and the area or region affected) the advantages of localized
management, efficient operation, and the effectiveness of regulation;
provided, that gas utility companies deriving natural gas from a common
source of supply may be deemed to be included in a single area or region.17
The combination of Columbia's gas utility operations and NiSource's
gas utility operations will create an integrated gas-utility system within the
meaning of Section 2(a)(29)(B) of the Act. Indeed, because Columbia's integrated
transmission, storage and distribution system forms a bridge between the Midwest
and the mid-Atlantic and northeast regions, the Transaction will forge an even
more substantial link between NiSource's Midwestern and New England operations
than the link that this Commission noted in 1999 in approving NiSource's
acquisition of Bay State.
Single Area Or Region: The gas utility system resulting from the
Transaction will include eight gas utilities located in the contiguous states of
Indiana, Kentucky, Ohio, Pennsylvania, Virginia and Maryland and two gas
utilities located in the contiguous states of Massachusetts, New Hampshire and
Maine. The utilities located in contiguous states will be directly
interconnected by affiliated and non-affiliated interstate pipelines and
storage. All of the utilities will be effectively connected by
industry-recognized trading centers and market hubs. The entire system will
integrate its process of portfolio management and efficiently and economically
deploy its pipeline and storage capacity and supply sources through these direct
and indirect interconnects and market centers.
Section 2(a)(29)(B) specifically contemplates that "gas utility
companies deriving natural gas from a common source of supply may be deemed to
be included in a single area or region." 15 U.S.C. Section 79b(a)(29)(B).
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17 Unlike the definition of an "integrated electric utility system" in Section
2(a)(29)(A) of the Act, physical interconnection of the component parts of
a gas utility system is not required. Further, the Commission has
previously recognized that "integrated or coordinated operations of a gas
system under the Act may exist in the absence of [physical]
interconnection." American Natural Gas Co., 43 S.E.C. at 207, n.5.
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Moreover, in considering whether an "area or region" is so large as to impair
"the advantages of localized management, efficient operation, and the
effectiveness of regulation," the Commission must consider the "state of the
art" in the industry. Id.
The integration of NiSource's Massachusetts, New Hampshire and Maine
gas utility operations and its Indiana gas utility operations has already been
established. This was an essential finding in the Commission order approving
NiSource's acquisition of Bay State. NIPSCO Industries, Inc., Holding Co. Act
Release No. 26975 (Feb. 10, 1999). With the exception of NiSource's New England
operations, the gas distribution operations of Columbia and NiSource are in
contiguous states and, given their location and reliance on many of the same
interstate pipelines, are readily susceptible to being operated as an integrated
system.
Common Source Of Supply: Historically, in determining whether two
distant gas companies share a "common source of supply," the Commission has
placed primary importance on whether the gas supply of the two companies is
derived from the same gas producing areas (or basins), recognizing that the most
significant economies and efficiencies that two gas utilities can achieve is
through the coordination and management of gas supply. The Commission has also
considered whether the two companies hold capacity on one or more common
pipelines, although the separation of the merchant and transportation functions
of the pipelines and the trend towards greater reliance by local distribution
companies on short-term transportation obtained in the capacity release market,
giving rise to what FERC now refers to as "virtual pipelines,"18 has arguably
made the existence of long-term (or "firm") transportation arrangements on the
same pipeline(s) much less important.
In its more recent decisions, the Commission has held that "[t]he
concept of a `common source of supply' is susceptible of a different
understanding today than in 1935, when the `single area or region' was generally
defined in terms of the pipeline delivery points (i.e., the city-gate) where the
local distribution companies purchased their gas." NIPSCO, supra. The
Commission's inquiry now focuses upon whether the combined utilities purchase
substantial quantities of gas produced in the same supply basins and upon
whether that gas is "deliverable" on the interstate pipeline network on an
economical and reliable basis. Id. In this regard, the Commission has also
recognized that, in today's gas market, purchases from the same supply basins
are facilitated by the availability of a variety of services (e.g., gas parking,
lending, and pooling) at market centers, hubs and pooling points which have
developed throughout the United States and Canada.
As indicated above, the gas portfolios of Columbia and NiSource
overlap substantially with respect to sources of supply. Both companies now
purchase and will continue to purchase most of their gas from the Gulf Coast
Basin (onshore and offshore Texas and Louisiana producing region). Moreover,
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18 See Regulation of Short-term Natural Gas Transportation Services, and
Regulation of Interstate Natural Gas Transportation Services, Order No.
637, 65 FR 10156 (Feb. 25, 2000). As explained by FERC, "[a] virtual
pipeline can be created when a marketer or other shipper acquires capacity
on interconnecting pipelines and can schedule gas supplies across the
interconnect, creating in effect a new pipeline between receipt and
delivery points that are not physically connected under a single pipeline
management." 65 FR at 10162.
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they will each have enhanced opportunities to increase their respective
purchases of gas produced in the Mid-Continent and Western Canada supply basins.
The NiSource and Columbia gas utility systems also currently hold firm
transportation service agreements on a number of the same interstate pipelines,
including ANR, Panhandle Eastern, Tennessee Gas, Texas Eastern and Transco. The
NiSource Midwestern gas utilities are physically linked through Crossroads'
interconnections with Columbia Transmission, Trunkline and Panhandle Eastern
with a common interstate transmission system (Columbia Transmission) that serves
each of the Columbia gas distribution utilities. The Columbia and NiSource gas
distribution utilities also make use of other regional pipelines to transport
and deliver Gulf Coast, Mid-Continent, Canadian and Appalachian-sourced
supplies, including Crossroads, National Fuel and CNG Transmission Corp. In
addition, gas purchased by the unregulated marketing affiliate of NiSource is
transported by NiSource subsidiary, Crossroads, and Columbia subsidiary,
Columbia Transmission, for further delivery to utility customers served by
NiSource's and Columbia's gas public utilities located in Indiana, Ohio and
Pennsylvania. These links, and the increased presence which the combined
NiSource and Columbia utilities will have in both upstream (i.e., producing
area) and downstream (i.e., market area) trading hubs and market centers, will
facilitate coordinated management of interstate transportation, storage and gas
supplies. Additional efficiencies and arbitrage opportunities can be realized
over time through the combined companies' use of a single data management system
to record gas transaction data, single distribution "send-out" models which help
design the portfolio to meet requirements and single e-Commerce trading systems
which are experiencing increasing growth in industry portfolios.
Gas trading points and market centers, trading "hubs" and market
centers have rapidly grown in importance as a result of the construction of new
pipeline capacity, the unbundling of interstate transportation from gas sales
mandated by FERC Orders 436 and 636,19 the development of high deliverability
salt cavern gas storage facilities and local distribution companies'
"de-contracting" of firm pipeline and storage capacity. Trading hubs and market
centers now provide market participants with access to gas supplies sourced from
multiple, widely separated producing areas and transportation capacity, by way
of any number of interconnected interstate pipeline facilities at a manageable
number of common geographic points. These hubs and centers have contributed to
the establishment of a fully integrated, competitive marketplace in which
real-time pricing is available.20 Using many of the same hubs and market
centers, the NiSource and Columbia gas public utilities and their affiliates
will have opportunities to coordinate and manage their gas supply and
transportation portfolios. This can lead to increased efficiencies and economies
over time in areas of coordinated gas supply, optimized use of transportation
capacity, ability to take advantage of geographic diversity between NiSource's
and Columbia's core markets, more efficient use of gas storage facilities and
enhanced ability to benefit from new supply contracts.
- ------------------------
19 Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order
No. 436, 50 FR 42408 (Oct. 18, 1985); and Pipeline Service Obligation and
Revisions to Regulations Governing Self-Implementing Transportation Under
Part 284 of the Commission's Regulations, Order No. 636, 57 FR 13267 (Apr.
16, 1992).
20 As a result of the evolution of an integrated, competitive marketplace for
both supply and transportation, the duration of contracts has shortened
considerably.
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No Impairment: The resulting integrated gas system to be formed by the
combination of Columbia's gas properties with those of NiSource will not be "so
large as to impair (considering the state of the art and the area or region
affected) the advantages of localized management, efficient operation, and the
effectiveness of regulation."
In this case, the separate corporate identity and current headquarters
of each of Columbia's five natural gas public utility subsidiaries will be
maintained. Further, following the Transaction, each of the Columbia and
NiSource public utilities will remain subject to regulation as to rates,
service, and other matters by the regulatory agencies in each of the states in
which they provide public utility services.
4. Section 10(f) - State Laws
Section 10(f) of the Act provides that:
The Commission shall not approve any acquisition as to which an application
is made under this section unless it appears to the satisfaction of the
Commission that such State laws as may apply in respect to such acquisition
have been complied with, except where the Commission finds that compliance
with such State laws would be detrimental to the carrying out of the
provisions of section 11. 15 U.S.C. Section 79k(f).
As described in ITEM 4, below, the Applicants will comply with all
applicable state laws related to the Transaction.
ITEM 4. REGULATORY APPROVALS
Certain aspects of the Transaction are, or may be, subject to approval
by the following state public utility commissions: the VSCC, the PPUC, the KPSC,
the MPUC and the NHPUC. Furthermore, certain aspects of the Transaction are
subject to the jurisdiction of FERC under the Federal Power Act, as amended, and
of the Federal Communications Commission ("FCC") under the Communications Act of
1934, as amended. The Transaction is also subject to the notification and
reporting requirements of the HSR Act. No other state or federal commission
approvals of the Transaction are necessary with respect to the public-utility
companies, as defined under the Act, of NiSource and Columbia as a result of the
Transaction.
ITEM 5. PROCEDURE
The Applicants respectfully request the Commission to expedite its
approval of this Application/Declaration. A proposed form of notice is attached
hereto as Exhibit H. The Applicants hereby waive a recommended decision by a
hearing officer or any other responsible officer of the Commission, request that
there be no thirty-day waiting period between the issuance of the Commission's
Order and date on which it is to become effective, 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 Transaction.
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
--------
A-1 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
the NiSource Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, and Exhibits 3.2 and 3.3 to the
NiSource Annual Report on Form 10-K for the year ended
December 31, 1999).
A-2 Amended and Restated By-Laws of NiSource Inc. effective
January 29, 2000. (Incorporated by reference to Exhibit 3.4
to the NiSource Annual Report on Form 10-K for the year
ended December 31, 1999).
A-3 Amended and Restated Certificate of Incorporation of
Columbia effective January 16, 1998, as amended on June 1,
1999. (Incorporated by reference to Exhibit 3-A to Columbia
Gas System, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-1098), and Exhibit 3-D
to Columbia's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (as corrected in Exhibit 4-A-3 to
Columbia's Registration Statement on Form S-8, filed with
the Commission on June 16, 1999 (File No. 333-80797)), and
Exhibit 3-D to Columbia's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
A-4 Amended and Restated By-Laws of Columbia dated as of
February 22, 2000. (Incorporated by reference to Exhibit 3-D
to the Columbia Annual Report on Form 10-K for the year
ended December 31, 1999).
A-5 Articles of Incorporation of New NiSource. (See Exhibit 3.3
to Exhibit C hereto).
A-6 By-Laws of New NiSource. (To be filed by amendment).
B-1 Agreement and Plan of Merger between Columbia, NiSource, New
NiSource, Parent Acquisition, Company Acquisition and
NiSource Finance Corp. dated as of February 27, 2000, as
amended and restated as of March 31, 2000. (Incorporated by
reference to Exhibit 2.1 to the NiSource Current Report on
Form 8-K dated March 31, 2000).
B-2 Credit Agreement and related documentation. (To be filed by
amendment).
C Registration Statement of New NiSource and NiSource on Form
S-4 (including joint proxy statement of NiSource and
Columbia). (Filed with the Commission on April 3, 2000, File
No. 333-33896 and incorporated by reference herein).
D-1 Application to the FERC under the Federal Power Act. (To be
filed by amendment).
D-2 Order of the FERC. (To be filed by amendment).
D-3 Application to the VSCC. (To be filed by amendment).
D-4 Order of the VSCC. (To be filed by amendment).
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D-5 Application to the PPUC. (To be filed by amendment).
D-6 Order of the PPUC. (To be filed by amendment).
D-7 Application to the KPSC (To be filed by amendment).
D-8 Order of the KPUC. (To be filed by amendment).
D-9 Application to the MPUC. (To be filed by amendment).
D-10 Order of the MPUC. (To be filed by amendment).
D-11 Application to the NHPUC (To be filed by amendment).
D-12 Order of the NHPUC. (To be filed by amendment).
D-13 Application to the FCC. (To be filed by amendment).
D-14 Order of the FCC. (To be filed by amendment).
E-1 Map of service territories of subsidiaries of NiSource and
Columbia and common pipelines. (To be filed by amendment).
E-2 Corporate Organization Chart of companies after merger. (To
be filed by amendment).
E-2(a) Merger Structure Diagram. (To be filed by amendment).
E-2(b) Alternative Merger Structure Diagram. (To be filed by
amendment).
F Opinions of Counsel. (To be filed by amendment).
G-1 Annual Report of NiSource on Form 10-K for the year ended
December 31, 1999. (Filed with the Commission on March 30,
2000, File No. 1-9776 and incorporated by reference herein).
G-2 Annual Report of Columbia on Form 10-K for the year ended
December 31, 1999. (Filed with the Commission on March 2,
2000, File No. 1-1098 and incorporated by reference herein),
as amended by the Amended Annual Report on Form 10-K/A
(Filed with the Commission on March 3, 2000, File No. 1-1098
and incorporated by reference herein).
G-3 Form U5S of Columbia for the year ended December 31, 1999.
(To be filed by amendment).
G-4 Opinion of Credit Suisse First Boston Corporation. (Included
as Annex III to Exhibit C).
G-5 Opinion of Morgan Stanley & Co. Incorporated. (To be filed
by amendment to Exhibit C).
G-6 Opinion of Salomon Smith Barney Inc. (To be filed by
amendment to Exhibit C).
H Proposed Form of Notice. (To be filed by amendment).
I Electric Divestiture Study of Northern Indiana. (To be filed
by amendment).
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B. FINANCIAL STATEMENTS
--------------------
FS-1 New NiSource Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet as of December 31, 1999.
(Included in Exhibit C).
FS-2 New NiSource Unaudited Pro Forma Combined Condensed
Consolidated Statement of Income from Continuing Operations
for the twelve months ended December 31, 1999. (Included in
Exhibit C).
FS-3 Notes to New NiSource Unaudited Pro Forma Condensed
Consolidated Financial Statements. (Included in Exhibit C).
FS-4 NiSource Consolidated Balance Sheet as of December 31, 1999.
(Included in Exhibit G-1).
FS-5 NiSource Consolidated Statement of Income for the twelve
months ended December 31, 1999. (Included in Exhibit G-1).
FS-6 Columbia Consolidated Balance Sheet as of December 31, 1999.
(Included in Exhibit G-2).
FS-7 Columbia Consolidated Statement of Income for the twelve
months ended December 31, 1999. (Included in Exhibit G-2).
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Transaction does not involve a "major federal action" nor will it
"significantly affect the quality of the human environment" as those terms are
used in section 102(2)(C) of the National Environmental Policy Act. The
Transaction that is the subject of this Application/Declaration will not result
in changes in the operation of NiSource or its subsidiaries or Columbia or its
subsidiaries 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 Transaction.
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, each of the undersigned companies has duly caused this
Amendment filed herein to be signed on its behalf by the undersigned thereunto
duly authorized.
NISOURCE INC.
/s/ Gary L. Neale
----------------------------------
Name: Gary L. Neale
Title: Chairman, President and
Chief Executive Officer
NEW NISOURCE INC.
/s/ Gary L. Neale
----------------------------------
Name: Gary L. Neale
Title: Chairman, President and
Chief Executive Officer
Date: April 14, 2000
50
