[Federal Register: November 26, 2003 (Volume 68, Number 228)]
[Notices]
[Page 66506-66516]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no03-146]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27766]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
November 20, 2003.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by December 15, 2003, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law,
by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After December 15, 2003, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
KeySpan Corporation, et al. (70-10129)
KeySpan Corporation (``KeySpan''), a registered holding company and
KeySpan's directly owned public utility subsidiaries The Brooklyn Union
Gas Company d/b/a KeySpan Energy Delivery New York (``KEDNY''); KeySpan
Gas East Corporation d/b/a KeySpan Energy Delivery Long Island
(``KEDLI''); KeySpan Generation LLC (``KeySpan Generation''); and
KeySpan's public utility subsidiaries indirectly owned through KeySpan
New England LLC (``KeySpan New England''), Boston Gas Company d/b/a
KeySpan Energy Delivery New England (``Boston Gas''), Essex Gas Company
d/b/a KeySpan Energy Delivery New England (``Essex Gas''), Colonial Gas
Company d/b/a KeySpan Energy Delivery New England (``Colonial Gas''),
and EnergyNorth Natural Gas, Inc. d/b/a KeySpan Energy Delivery New
England (``ENGI'' and the
[[Page 66507]]
direct and indirect utility subsidiaries, together, ``Utility
Subsidiaries''); KeySpan's nonutility subsidiaries (``Nonutility
Subsidiaries''): KeySpan Energy Corporation (``KEC'') and its
subsidiaries; KeySpan Insurance Company; KeySpan Electric Services LLC;
KeySpan Engineering and Survey, Inc.; KeySpan Exploration & Production
LLC; KeySpan Corporate Services LLC (``KCS''); KeySpan Utility Services
LLC; KSNE LLC; KeySpan-Ravenswood LLC (``Ravenswood''); KeySpan
Services, Inc. and its nonutility subsidiaries; KeySpan Energy Trading
Services LLC, and KeySpan Energy Development Corporation and its
nonutility subsidiaries, all located at One MetroTech Center, Brooklyn,
New York 11201, except for KeySpan New England, Boston Gas, Essex Gas,
Colonial Gas and ENGI, which are located at 52 Second Avenue, Waltham,
MA 02451, (KeySpan, the Utility Subsidiaries and the Nonutility
Subsidiaries are collectively referred to as ``Applicants'') have filed
with the Commission an application-declaration (``Application'') under
sections 6(a), 7, 9(a), 10, 11, 12(b), 12(f), and 13(b) of the Act, and
rules 42, 43, 44, 45, 46, 52, 53, 54, 58, 62, 90, and 91 under the Act.
I. Introduction
By order dated November 7, 2000 (HCAR No. 27269), as corrected by
order issued on December 1, 2000 (HCAR No. 27281) (together, ``Merger
Order''), KeySpan was authorized to acquire all of the issued and
outstanding common stock of Eastern Enterprises (``Eastern'' now known
as KeySpan New England)\1\ and EnergyNorth Inc. (``Mergers''). KeySpan
now directly or indirectly owns the following seven public utility
companies: (i) KEDNY, which distributes natural gas at retail to
residential, commercial and industrial customers in the New York City
boroughs of Brooklyn, Staten Island and Queens; (ii) KEDLI, which
distributes natural gas at retail to customers in New York State
located in the counties of Nassau and Suffolk on Long Island and the
Rockaway Peninsula in Queens County; (iii) KeySpan Generation, which
owns and operates electric generation capacity located on Long Island
all of which is sold at wholesale to the Long Island Power Authority
(``LIPA'') for resale by LIPA to its approximately 1.1 million
customers; (iv) Boston Gas, which distributes natural gas to customers
located in Boston and other cities and towns in eastern and central
Massachusetts; (v) Essex Gas, which distributes natural gas to
customers in eastern Massachusetts to customers; (vi) Colonial Gas,
which distributes natural gas to customers located in northeastern
Massachusetts and on Cape Cod; and (vii) ENGI, which distributes
natural gas to customers located in southern and central New Hampshire,
and the City of Berlin located in northern New Hampshire. Together,
KEDNY and KEDLI serve approximately 1.66 million customers. Together,
Boston Gas, Colonial Gas and Essex Gas serve approximately 768,000
customers. ENGI serves approximately 75,000 customers.
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\1\ KeySpan New England has succeeded to Eastern's ownership
interests in Boston Gas, Essex Gas, Colonial Gas and ENGI and the
nonutility subsidiaries owned by Eastern, (i) is successor of
Eastern with respect to its commitments and authorizations set forth
by order dated November 8, 2000 (HCAR No. 27272) as corrected by
order dated December 1, 2000 (HCAR No. 27286) (together, ``2000
Financing Order'') and (ii) is an exempt holding company under
section 3(a)(1) of the Act as stated in the Merger Order.
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II. General Request
Applicants request authorization to engage in the financing
transactions set forth below through December 31, 2006 (``Authorization
Period'').
(i) Issuance by KeySpan of common stock, long-term debt; Preferred
Stock, Preferred or equity-linked securities (including units with
incorporated options, warrants and/or forward equity purchase contracts
or provisions that are exercisable or exchangeable for or convertible
into common stock);
(ii) Issuance by KeySpan of short-term debt;
(iii) Issuance of up to 13 million shares of KeySpan common stock
under KeySpan's direct stock purchase and dividend reinvestment plan,
certain incentive compensation plans and certain other employee benefit
plans;
(iv) The entering into by KeySpan and its Subsidiaries of hedging
transactions;
(v) The issuance of intra-system advances and guarantees
(``Guarantees''), and performance guarantees (``Performance
Guarantees'') by KeySpan to or on behalf of Subsidiaries of KeySpan;
(vi) The issuance of intra-system advances, Guarantees, Performance
Guarantees and, to the extent not exempt under rule 52, by the
Nonutility Subsidiaries to or on behalf of other Nonutility
Subsidiaries;
(vii) Issuances of short-term debt securities by the Utility
Subsidiaries, to the extent not exempt under rule 52;
(viii) Issuances of debt securities in foreign jurisdictions;
(ix) The ability of the Nonutility Subsidiaries to pay dividends
out of capital or unearned surplus;
(x) The right of KeySpan to acquire directly or through
Subsidiaries the securities of one or more corporations, trust,
partnerships, limited liability companies or other entities
(``Intermediate Subsidiaries'') in order to, among other things,
facilitate the acquisition, holding and/or financing of KeySpan's
nonutility investments;
(xi) The authority for KeySpan to engage, directly or through
Subsidiaries, in preliminary development activities (``Development
Activities'') and administrative and management activities
(``Administrative Activities'') in each case related to KeySpan's
permitted nonutility investments;
(xii) The authority for KeySpan and its Nonutility Subsidiaries to
undertake internal reorganizations of then existing and permitted
Nonutility Subsidiaries and businesses;
(xiii) The authority for KeySpan and its Nonutility Subsidiaries to
undertake internal reorganizations of then existing and permitted
Nonutility Subsidiaries and businesses;
(xiv) The authority for KeySpan and the Subsidiaries to make
investments in EWGs and FUCOs up to an aggregate amount not to exceed
$3.0 billion;
(xv) The authority for KeySpan and the Subsidiaries to organize
and/or acquire the equity securities of one or more additional
corporations, trusts, partnerships or other entities organized to serve
the purpose of facilitating financings (``Financing Subsidiaries'');
(xvi) The authority for the Nonutility Subsidiaries to provide
services and sell goods to each other at fair market prices determined
without regard to cost in exemption from section 13(b) and rules 90 and
91; and
(xvii) Issuances by KeySpan and its Subsidiaries of common stock,
preferred stock, preferred and equity-linked securities, long-term debt
and short-term debt to refund, replace, repurchase or refinance
existing securities, to the extent not exempt under rule 52.
III. Financing Parameters
Applicants request authorization to engage in a variety of
financing transactions, credit support arrangements and other related
transactions, as more fully discussed below, during the Authorization
Period for which the specific terms and conditions are not at this time
known. Applicants state that the following general terms (``Financing
Parameters'') would be applicable, where appropriate, to the financing
transactions requested:
A. Effective Cost of Money on Financings
Applicants state that the effective cost of capital on debt and
preferred or equity-linked financings will not exceed
[[Page 66508]]
competitive market rates available at the time of issuance for
securities having the same or reasonably similar terms and conditions
issued by similar companies of reasonably comparable credit quality;
provided that in no event will the effective cost of capital on (i)
long-term debt borrowings exceed 500 basis points over the comparable
term U.S. Treasury securities and on (ii) short-term debt borrowings
exceed 500 basis points over the comparable term London Interbank
Offered Rate (``LIBOR'').
B. Maturity
Applicants state that the maturity of indebtedness will not exceed
50 years and that preferred stock or preferred or equity-linked
securities (other than perpetual preferred stock) will be redeemed no
later than 50 years after its issuance, unless converted into common
stock.
C. Issuance Expenses
Applicants state that the underwriting fees, commissions or other
similar remuneration paid in connection with the non-competitive issue,
sale or distribution of securities would not exceed the greater of (i)
7% of the principal or total amount of the security being issued or
(ii) issuance expenses that are generally paid at the time of the
pricing for sales of the particular issuance, having the same or
reasonably similar terms and conditions issued by similar companies of
reasonably comparable credit quality.
D. Use of Proceeds
Applicants state that the proceeds from the sale of securities in
external financing transactions will be used for general corporate
purposes including (i) the financing of the capital expenditures of the
KeySpan system; (ii) the financing of working capital requirements of
the KeySpan system; (iii) the acquisition, retirement or redemption
under rule 42 of securities previously issued by KeySpan or its
Subsidiaries or as otherwise authorized by Commission; (iv) direct or
indirect investment in companies authorized under the Act or Commission
rule, or by Commission order (including EWGs or FUCOs) or in a separate
proceeding; and (v) other lawful purposes. Applicants represent that no
financing proceeds will be used to acquire a new subsidiary unless the
financing is consummated in accordance with a Commission order or an
available exemption under the Act.
E. Common Equity Ratio
Applicants state that KeySpan and each Utility Subsidiary will each
maintain common equity (as reflected in the most recent annual or
quarterly financial statement of each entity, as the case may be,
adjusted to reflect changes in capitalization since the included
balance sheet date) of at least 30% of its consolidated capitalization
by considering common equity, preferred stock, long-term debt and
short-term debt (``30% Test'') at all times during the Authorization
Period.
As of June 30, 2003, the common equity of each Utility Subsidiary
and of KeySpan on a consolidated basis is as follows:
------------------------------------------------------------------------
Percent
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Essex Gas Company............................................ 37.44
Colonial Gas Company......................................... 42.85
Boston Gas Company........................................... 35.58
KeySpan Generation LLC....................................... 42.15
EnergyNorth Natural Gas, Inc................................. 65.00
The Brooklyn Union Gas Company............................... 58.61
KeySpan Gas East Corporation................................. 46.89
Consolidated................................................. 39.78
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F. Investment Grade Ratings
Applicants state that apart from securities issued for the purpose
of funding money pool operations, KeySpan and the Utility Subsidiaries
will not issue any other securities in reliance upon this Order, unless
(i) the security to be issued, if rated, is rated investment grade;
(ii) all outstanding securities of the issuer, that are rated,\2\ are
rated investment grade; and (iii) all outstanding securities of
KeySpan, the top-level registered holding company, that are rated, are
rated investment grade (``Investment Grade Condition''). For purposes
of this provision, a security will be deemed to be rated ``investment
grade'' if it is rated investment grade by at least one nationally
recognized statistical rating organization, as that term is used in
paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the
Securities Exchange Act of 1934. Applicants request that the Commission
reserve jurisdiction over the issuance by KeySpan and the Utility
Subsidiaries of any securities that are not able to meet the Investment
Grade Condition.
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\2\ Applicants state that ENGI and Essex Gas are not rated.
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IV. Current Financial Condition
Applicants state that all outstanding long-term debt securities of
KeySpan and each of the Utility Subsidiaries that are rated, are rated
investment grade. For purposes of this provision, Applicants state that
a security will be deemed to be rated ``investment grade'' if it is
rated investment grade by at least one nationally recognized
statistical rating organization, as that term is used in paragraphs
(c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the Securities Exchange
Act of 1934. The ratings are as follows:
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Standard and
Moody's Poor's
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KeySpan.......................... A3 A
KEDLI............................ A2 A+
KEDNY............................ A2 A+
KeySpan Generation............... A3 A
Boston Gas....................... A2 A
Colonial Gas..................... A2 A
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V. Description of Specific Financings
A. KeySpan External Financing
Applicants request that KeySpan increase its total consolidated
capitalization through sales of common stock, preferred stock,
preferred and equity-linked securities, long-term debt and short-term
debt securities. Applicants also request that KeySpan be authorized to
issue common stock to third parties in consideration for the
acquisition by KeySpan or a Nonutility Subsidiary of equity or debt
securities of a company being acquired through a Commission order,
applicable rule, or exemption under the Act. Applicants request that
the aggregate amount of common stock, preferred stock, preferred and
equity-linked securities, and/or long-term debt to be issued by KeySpan
during the Authorization Period, other than for refinancing, refunding
or replacement of outstanding securities, shall not exceed $3.0 billion
(``Long-Term Financing Limit'').
In addition to the $3.0 billion authorization under the Long-Term
Financing Limit, Applicants propose that KeySpan issue up to $1.3
billion of short-term debt during the Authorization Period (``Short-
Term Financing Limit'').
1. Common Stock
(a) General
Applicants request that KeySpan sell or otherwise issue \3\ common
stock in any one of the following ways: (i) Through underwriters or
dealers; (ii) through agents; (iii) directly to a limited number of
purchasers or a single
[[Page 66509]]
purchaser; or (iv) directly to employees (or to trusts established for
their benefit), and shareholders. Applicants request that issuances of
common stock under KeySpan's employee benefit plans and stock purchase
and dividend reinvestment plans not count towards the Long-Term
Financing Limit, but that these securities be limited to 13 million
shares as described below in V.A.1.(c).
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\3\ Applicants request that the authority to issue common stock
also includes authorization to contribute common stock to current or
future employee benefit plans to satisfy current or future capital
funding obligations.
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Applicants state that if underwriters are used in the sale of the
securities, the securities would be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
securities may be offered to the public either through underwriting
syndicates (which may be represented by a managing underwriter or
underwriters designated by KeySpan) or directly by one or more
underwriters acting alone. Applicants state that the securities may be
sold directly by KeySpan or through agents designated by KeySpan from
time to time and that if dealers are utilized in the sale of any of the
securities, KeySpan would sell the securities to the dealers as
principals. Any dealer may then resell these securities to the public
at varying prices to be determined by the dealer at the time of resale.
The aggregate price of the common stock being sold through any
underwriter or dealer shall be calculated based on either the specified
selling price to the public or the closing price of the common stock on
the day the offering is announced. Applicants state that if common
stock is being sold in an underwritten offering, KeySpan may grant the
underwriters an over-allotment option permitting the purchase from
KeySpan of additional shares at the same price then being offered
solely for the purpose of covering over-allotments.
Applicants state that public distributions may be through private
negotiation with underwriters, dealers or agents as discussed above or
effected through competitive bidding among underwriters. In addition,
Applicants request that sales be made through private placements or
other non-public offerings to one or more persons. Applicants state
that these common stock sales would be with terms and conditions, at
rates or prices and under conditions negotiated or based upon, or
otherwise determined by, competitive capital markets.
(b) Acquisitions
Applicants also request that KeySpan be authorized to issue common
stock to third parties in consideration for the acquisition by KeySpan
or a Nonutility Subsidiary of equity or debt securities of a company
being acquired through a Commission order, applicable rule, or
exemption under the Act. Applicants state that the KeySpan common stock
to be exchanged in this type of transaction may be purchased on the
open market under rule 42, or may be original issue.\4\
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\4\ Applicants state that this common stock may be registered
under the Securities Act of 1933, as amended (``1933 Act''), or if
the common stock is not registered, then it would be subject to
resale restrictions under Rule 144 under the 1933 Act.
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(c) Direct Stock Purchase and Other Employee Benefit Plans
Applicants propose, from time to time during the Authorization
Period, for KeySpan to issue and/or acquire in open market
transactions, or by some other method which complies with applicable
law and Commission interpretations then in effect, up to 13 million
shares of KeySpan common stock (``Benefit Plan Limit'') under KeySpan's
current or any future direct stock purchase and dividend reinvestment
plan, certain incentive compensation plans, and certain other employee
benefit plans. Applicants propose that any shares of common stock
acquired by KeySpan on the open market during the Authorization Period
under a rule 42 exemption, that were originally issued under the
Benefit Plan Limit shall no longer count against the Benefit Plan Limit
until the shares are reissued.
2. Preferred Stock and Preferred and Equity-Linked Securities
Applicants request that KeySpan issue preferred stock in addition
to preferred securities and or equity-linked securities up to the Long-
Term Security Limit. Applicants request authority for KeySpan to issue
preferred stock, preferred securities including trust preferred
securities, convertible preferred securities, such as, debt or
preferred securities that are convertible or exchangeable, either
mandatorily or at the option of the holder, into common stock of
KeySpan, common stock of the Subsidiaries, KeySpan indebtedness, or
forward purchase contracts for common stock.
Applicants state that preferred or equity-linked securities may be
issued in one or more series with rights, preferences, and priorities
as may be designated in the instrument creating each series. Dividends
or distributions on preferred or equity-linked securities will be made
periodically and to the extent funds are legally available for this
purpose, but may be made subject to terms that allow the issuer to
defer dividend payments or distributions for specified periods.
Applicants state that preferred or equity-linked securities may be
convertible or exchangeable into shares of common stock or other
indebtedness and may be issued in the form of shares or units.
Applicants request that the conversion of equity-linked securities and
the subsequent issuance of other securities as a direct result of the
conversion (or the performance of forward purchase contracts), to the
extent that no additional financing proceeds are realized, would not be
counted against the Long-Term Financing Limit.\5\ Applicants state that
preferred stock and preferred or equity linked securities may be sold
directly or indirectly through underwriters or dealers in connection
with an acquisition similar to that described for common stock, above.
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\5\ Applicants state, for example, that in May 2002, KeySpan
completed an offering of 9.2 million publicly traded equity-linked
securities units. The aggregate offering price was $460 million.
Each unit consists of a 6-year term, 8.75% senior unsecured note
with a principal amount of $50, and a forward stock purchase
contract to purchase $460 million of KeySpan common stock (based on
a range of prices between $35.30 and $42.36) in May 2005. Applicants
state that both the issuance of the note and the forward stock
purchase contract portion (including the execution thereof) of the
equity-linked units were issued and accounted for under KeySpan's
Prior Financing Orders. Applicants state that because of the above,
the conversion of the forward stock purchase contracts into KeySpan
common stock in May 2005 shall not be counted against the $3.0
billion Long-Term Financing Limit.
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3. Long-Term Debt
Applicants request that KeySpan issue unsecured, long-term debt
securities subject to the Long-Term Financing Limit through the
Authorization Period. At June 30, 2003, KeySpan had approximately $4.9
billion of long-term debt obligations outstanding. Long-term debt
securities may be comprised of bonds, notes, medium-term notes,
debentures, or similar unsecured securities under one or more
indentures (``KeySpan Indenture'') or long-term indebtedness under
agreements with banks or other institutional lenders. Any long-term
debt security would have such designation, aggregate principal amount,
maturity, interest rate(s) or methods of determining the same, terms of
payment of interest, redemption provisions, sinking fund terms, terms
for conversion into any other security of KeySpan or the Subsidiaries
and other terms and conditions as KeySpan may determine at the time of
issuance.
Applicants state that the maturity dates, interest rates,
redemption and sinking fund provisions, tender or repurchase and
conversion features, if
[[Page 66510]]
any, with respect to the long-term securities of a particular series,
as well as any associated placement, underwriting or selling agent
fees, commissions and discounts, if any, will be established by
negotiation or competitive bidding, subject to the Financing
Parameters. Applicants further state that borrowings from banks and
other financial institutions will be pari passu with debt securities
issued under the KeySpan Indenture and the short-term credit
facilities. Specific terms of any borrowings will continue to be
determined by KeySpan at the time of issuance and will comply in all
regards with the Financing Parameters.
4. Short-Term Debt
Applicants request authority for KeySpan to have outstanding, at
any one time during the Authorization Period, up to $1.3 billion of
short-term debt (``Short-Term Financing Limit''), which may include
institutional borrowings, commercial paper (``Commercial Paper'') or
bid notes and short-term debt issued under the KeySpan Indenture or
otherwise. Applicants state that the authorization for short-term debt
is in addition to the Long-Term Financing Limit.
Short-term debt shall include any debt securities with a maturity
term of one year or less. KeySpan may sell Commercial Paper, from time
to time, in established domestic Commercial Paper markets. Applicants
state that Commercial Paper would be sold to dealers at the discount
rate or the coupon rate per annum prevailing at the date of issuance
for Commercial Paper of comparable quality and maturities sold to
Commercial Paper dealers generally. Applicants expect that the dealers
acquiring Commercial Paper from KeySpan will re-offer it at a discount
to corporate and institutional investors. Applicants expect
Institutional investors to include commercial banks, insurance
companies, pension funds, investment trusts, foundations, colleges and
universities, and finance companies.
KeySpan may, without counting against the Short-Term Financing
Limit set forth above, maintain back-up lines of credit (regardless of
the maturation term for such back-up credit) in connection with a
Commercial Paper program in an aggregate amount not to exceed the
amount of authorized short term debt. In no event will the amount of
borrowings under such lines of credit plus the amount of Commercial
Paper outstanding exceed $1.3 billion in the aggregate.
B. Utility Subsidiary and Nonutility Subsidiary Financing
1. Utility Subsidiaries
Applicants request authority for the Utility Subsidiaries to issue
short-term debt, including Commercial Paper and credit lines, and to
loan and borrow funds from the utility money pool \6\ during the
Authorization Period, in the following aggregate principal\7\ amounts
(``Utility Financing Limit''):
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\6\ The Commission authorized the Utility Money Pool in the 2000
Financing Order.
\7\ Applicants state that the dollar limitations set forth do
not include certain presently outstanding push-down debt resulting
from the Merger in the following amounts: $700 million to Boston
Gas, $100 million to Colonial Gas, $100 million to Essex Gas, and
$150 million to ENGI.
------------------------------------------------------------------------
Aggregate
principal
Utility subsidiary amount ($
million) \7\
------------------------------------------------------------------------
KEDNY................................................... 350
KEDLI................................................... 450
KeySpan Generation...................................... 100
Boston Gas.............................................. 500
Colonial Gas............................................ 225
Essex Gas............................................... 50
ENGI 125
---------------
1,800
------------------------------------------------------------------------
Applicants state that the Utility Financing Limit is in addition to
the Long-Term Financing Limit and the Short-Term Financing Limit.
Applicants also request authority for the Utility Subsidiaries to
refund, refinance or replace outstanding securities; provided that in
no event will the aggregate principal amount of outstanding securities
for each Utility Subsidiary exceed the amounts requested above.
Applicants request authority for the Utility Subsidiaries to sell
Commercial Paper, from time to time, in established domestic commercial
paper markets. Commercial Paper would be sold to dealers at the
discount rate or the coupon rate per annum prevailing at the date of
issuance for Commercial Paper of comparable quality and maturities sold
to Commercial Paper dealers generally. Applicants expect that the
dealers acquiring commercial paper from Utility Subsidiaries will re-
offer it at a discount to corporate and institutional investors.
Applicants expect Institutional investors to include commercial banks,
insurance companies, pension funds, investment trusts, foundations,
colleges and universities and finance companies. Applicants request
that the Utility Subsidiaries may, without counting against the limits
set forth above, further maintain back up lines of credit in an
aggregate amount not to exceed the amount of authorized Commercial
Paper. Applicants request authority for the Utility Subsidiaries to set
up credit lines for general corporate purposes in addition to credit
lines to support Commercial Paper. The Utility Subsidiaries would
borrow and repay under these lines of credit, from time to time, as it
is deemed appropriate or necessary. Subject to the Financing
Parameters, Applicants propose that each Utility Subsidiary may engage
in other types of unsecured short-term financing as it may deem
appropriate in light of its needs and market conditions at the time of
issuance.
2. Nonutility Subsidiaries
Applicants request authority for Nonutility Subsidiaries to borrow
and lend funds through the operation of the KeySpan nonutility money
pool, approved by order dated August 7, 2003 (HCAR No. 27709).
Applicants state that short-term financings undertaken by Nonutility
Subsidiaries that are not exempt under rule 52, but are otherwise
authorized, will be included in the aggregate Short-Term Financing
Limit.
C. Guarantees and Intra-System Advances
KeySpan requests authorization to enter into Guarantees,
Performance Guarantees, obtain letters of credit, enter into expense
agreements or otherwise provide credit support with respect to the
obligations of its Subsidiaries as may be appropriate or necessary to
enable the Subsidiaries to carry on in the ordinary course of their
respective businesses in an aggregate principal amount not to exceed
$4.0 billion outstanding at any one time (excluding obligations exempt
under rule 45) (``Guarantee Financing Limit''). For example, Applicants
contemplate that during the Authorization Period, KeySpan will enter
into Guarantees, performance Guarantees, obtain letters of credit,
enter into expense agreements or otherwise provide credit support with
respect to the obligations of its Subsidiaries in connection with
transactions that are anticipated to involve generation expansion
projects.
Applicants state that the Guarantee Limit is in addition to the
Long-Term Financing Limit, the Short-Term Financing Limit and the
Utility Financing Limit. Included in this amount are existing intra-
system Guarantees and support provided by KeySpan as of June 30, 2003,
which are expected to remain in place. Applicants request authority for
KeySpan to charge
[[Page 66511]]
each Subsidiary a fee for each Guarantee provided on its behalf that is
not greater than the cost, if any, of obtaining the liquidity necessary
to perform the Guarantee for the period of time the Guarantee remains
outstanding. Any Guarantees or other credit support arrangements
outstanding at the end of the Authorization Period will continue until
expiration or termination in accordance with their terms.
Applicants request that KeySpan's guarantee authority include the
ability to guarantee debt. Applicants state that the debt guaranteed
will comply with the Financing Parameters or be exempt. To the extent
that a Guarantee issued is of a security issued under the authority
granted in this Application, Applicants request that the issuance will
count only against the applicable limitation related to the underlying
obligation in order to avoid a double count.
Applicants also request authorization for the Nonutility
Subsidiaries to enter into Guarantees, Performance Guarantees, obtain
letters of credit, enter into expense agreements and otherwise provide
credit support with respect to other Nonutility Subsidiaries, in an
aggregate principal amount not to exceed the Guarantee Financing Limit.
The Nonutility Subsidiary providing any credit support may charge its
associate company a fee for each Guarantee provided on its behalf that
is not greater than the cost, if any, of obtaining the liquidity
necessary to perform the Guarantee for the period of time the Guarantee
remains outstanding.
Applicants state that certain of the Guarantees referred to above
may be in support of the obligations of Subsidiaries which are not
capable of exact quantification because they are subject to varying
quantification. In these cases, KeySpan will determine the exposure
under these Guarantee for purposes of measuring compliance with the
Guarantee Financing Limit by appropriate means including estimation of
exposure based on loss experience or projected potential payment
amounts. Applicants state that estimates will be made in accordance
with GAAP and that these estimations will be reevaluated periodically.
D. Refunding, Replacing, Repurchasing or Refinancing Outstanding
Securities
Applicants request authorization to refund, repurchase (through
open market purchases, tender offers, or private transactions), replace
or refinance (together, ``Refinancing'') their respective debt or
equity securities outstanding during the Authorization Period through
the issuance of similar or any other types of securities authorized in
this Application. Applicants state that in no case, will Refinancing
cause any applicable financing limit to be exceeded.
Applicants request that the amount of a Refinancing that is equal
to the then existing outstanding aggregate principal amount of
securities to be refinanced not be counted against the securities'
applicable financing limit. Only securities issued to finance the
additional costs associated with the Refinancing will be counted
against the applicable financing limit. The securities issued in the
Refinancing may be issued to finance costs incurred due to redemption
premiums, costs of acquisition or retirement of the securities, costs
of issuance, or other similar costs including the costs expended to
acquire securities on the open market under rule 42 and the subsequent
costs to reissue the securities. Applicants state that any Refinancing
of securities outstanding during the Authorization Period will be
undertaken through the issuance of similar or any other securities of
the types authorized in this Application and will be subject to the
Financing Parameters.
E. Issuing Debt Securities in Foreign Jurisdictions
Applicants state that KeySpan engages in business operations
outside of the United States, including Canada and Ireland. In
connection with this business, and potential expansion outside of the
United States, Applicants request authorization to make sales of
KeySpan's long-term and short-term debt securities, of the type
authorized in this Application, in foreign countries. Applicants state
that opportunities in foreign jurisdictions may arise that allow
KeySpan to enter into financing transactions at costs lower than that
otherwise may be available within the United States. Applicants state
that these issuances will not exceed an aggregate of $500 million at
any time outstanding during the Authorization Period (``Foreign Issue
Limit''). Applicants state that consideration for foreign securities
sales may be in foreign currency. In addition, foreign securities sales
shall be subject to the Financing Parameters, the Long-Term Financing
Limit and Short-Term Financing Limit, as the case may be, based on its
value in U.S. Dollars as calculated in accordance with the currency
exchange rate for the currency used as reported at the time of the
sale.
F. Financing Risk Management Devices
1. Interest Rate Risk
Applicants request authority to enter into, perform, purchase, and
sell financial instruments intended to reduce or manage the volatility
of interest rates, including but not limited to interest rate swaps,
caps, floors, collars and forward agreements. Applicants state that
hedges may also include issuance of structured notes (i.e., a debt
instrument in which the principal and/or interest payments are
indirectly linked to the value of an underlying asset or index), or
transactions involving the purchase or sale, including short sales, of
U.S. Treasury or U.S. governmental agency obligations or LIBOR based
swap instruments (``Hedge Instruments''). Applicants state that the
transactions would be for fixed periods and stated notional amounts.
Applicants state that they would employ interest rate derivatives as a
means of prudently managing the risk associated with any of its
outstanding debt issued under this authorization or an applicable
exemption by, in effect, synthetically (i) converting variable rate
debt to fixed rate debt, (ii) converting fixed rate debt to variable
rate debt, and (iii) limiting the impact of changes in interest rates
resulting from variable rate debt. Applicants assert that in no case
will the notional principal amount of any interest rate swap exceed the
face value of the underlying debt instrument and related interest rate
exposure. Applicants state that transactions will be entered into for a
fixed or determinable period and that they will not engage in
speculative transactions. Applicants state that they will only enter
into agreements with counterparties (``Approved Counterparties'') whose
senior debt ratings, as published by a national recognized rating
agency, are greater than or equal to ``BBB-,'' or an equivalent rating.
2. Anticipatory Hedges
In addition, Applicants request authorization to enter into
interest rate hedging transactions with respect to anticipated debt
offerings (``Anticipatory Hedges''), subject to certain limitations and
restrictions. Applicants state that Anticipatory Hedges would only be
entered into with Approved Counterparties, and would be utilized to fix
and/or limit the interest rate risk associated with any new issuance
through (i) a forward sale of exchange-traded Hedge Instruments
(``Forward Sale''), (ii) the purchase of put options on Hedge
Instruments (``Put
[[Page 66512]]
Options Purchase''), (iii) a Put Options Purchase in combination with
the sale of call options Hedge Instruments (``Zero Cost Collar''), (iv)
transactions involving the purchase or sale, including short sales, of
Hedge Instruments, or (v) some combination of a Forward Sale, Put
Options Purchase, Zero Cost Collar and/or other derivative or cash
transactions, including, but not limited to, structured notes, caps and
collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges
may be executed on-exchange (``On-Exchange Trades'') with brokers
through the opening of futures and/or options positions traded on the
Chicago Board of Trade (``CBOT''), the opening of over-the-counter
positions with one or more counterparties (``Off-Exchange Trades''), or
a combination of On-Exchange Trades and Off-Exchange Trades. Applicants
state that they will determine the optimal structure of each
Anticipatory Hedge transaction at the time of execution and that they
may decide to lock in interest rates and/or limit its exposure to
interest rate increases.
3. Accounting Standards
Applicants state they will comply with Statement of Financial
Accounting Standards (``SFAS'') 133 (``Accounting for Derivative
Instruments and Hedging Activities''), SFAS 138 (``Accounting for
Certain Derivative Instruments and Certain Hedging Activities'') or any
other standards relating to accounting for derivative transactions as
are adopted and implemented by the Financial Accounting Standards Board
(``FASB''). The Hedge Instruments and Anticipatory Hedges will qualify
for hedge accounting treatment under the current FASB standards in
effect and as determined at the date the Hedge Instruments or
Anticipatory Hedges are entered into.
G. Direct Stock Purchase and Dividend Reinvestment Plan, Incentive
Compensation Plans and Other Employee Benefit Plans
Applicants propose that KeySpan, from time to time during the
Authorization Period, issue and/or acquire in open market transactions,
or by some other method which complies with applicable law and
Commission interpretations then in effect, up to thirteen million
shares of KeySpan common stock under KeySpan's current or any future
direct stock purchase and dividend reinvestment plan, certain incentive
compensation plans and certain other employee benefit plans. Applicants
request that any shares of common stock acquired by KeySpan on the open
market during the Authorization Period under rule 42 that were
originally issued under this 13 million issuable shares limitation
shall no longer count against the 13 million issuable shares limitation
until the shares are reissued.
H. Payment of Dividends out of Capital or Unearned Surplus by
Nonutility Subsidiaries
Applicants request authority for the Nonutility Subsidiaries to pay
dividends from time to time, out of capital and unearned surplus
(including revaluation reserve), to the extent permitted under
applicable corporate law. Applicants state that, without further
approval of the Commission, no Nonutility Subsidiary will declare or
pay any dividend out of capital or unearned surplus if that Nonutility
Subsidiary derives any material part of its revenues from sales of
goods, services, electricity or natural gas to any of the Utility
Subsidiaries or if at the time of the declaration or payment such
Nonutility Subsidiary has negative retained earnings.
I. Development and Administrative Activities
Applicants request authority for KeySpan and the Subsidiaries to
engage in preliminary development activities (``Development
Activities'') and administrative and management activities
(``Administrative Activities'') in connection with future investments
in exempt wholesale generators (``EWGs''), foreign utility companies
(``FUCOs''), as those terms are defined in sections 32 and 33 of the
Act, and in subsidiaries permitted under rule 58 (``Rule 58
Subsidiaries''). Applicants state that Development Activities will be
limited to due diligence and design review; market studies; preliminary
engineering; site inspection; preparation of bid proposals, including
in connection, posting of bid bonds; application for required permits
and/or regulatory approvals; acquisition of site options and options on
other necessary rights; negotiation and execution of contractual
commitments with owners of existing facilities, equipment vendors,
construction firms, power purchasers, thermal ``hosts,'' fuel suppliers
and other project contractors; negotiation of financing commitments
with lenders and other third-party investors; and any other preliminary
activities as may be required in connection with the purchase,
acquisition or construction of facilities or the securities of other
companies.
Applicants further request authority to form new subsidiary
companies organized for the sole purpose of engaging in Development
Activities. Development Activities will be designed to eventually
result in a permitted nonutility investment.
Applicants propose that to the extent a Subsidiary for which
amounts were expended for Development Activities and Administrative
Activities becomes an EWG, FUCO, or Rule 58 Subsidiary, the amount
expended will cease to be Development Activities or Administrative
Activities and then be considered as part of the ``aggregate
investment'' allowed by Commission order and/or the applicable
provisions under the Act. In the case of Rule 58 Subsidiaries, the
aggregate investment will then count against the limitation on such
aggregate investment under rule 58. In the case of EWGs and FUCOs, the
aggregate investment will then be transferred from the investment
limitation for Development Activities or Administrative Activities and
instead count against the limitation on EWG and FUCO aggregate
investment requested below. Applicants propose that, should the
Development Activities or Administrative Activities fail to lead to a
permitted nonutility investment, the expenditures will not be counted
against the ``aggregate investment'' allowed by Commission order and/or
the applicable provisions under the Act with respect to EWG, FUCO, or
Rule 58 Subsidiaries. Additionally, in the event that the Development
Activities or Administrative Activities fail to lead to a permitted
nonutility investment, any new subsidiaries formed for the purposes of
engaging in Development Activities or Administrative Activities shall
be dissolved as soon as reasonably practicable.
J. Financing Subsidiaries
KeySpan and the Subsidiaries request authorization to organize and/
or acquire the equity securities of one or more additional
corporations, trusts, partnerships or other entities organized to serve
the purpose of facilitating financings (``Financing Subsidiaries'').
Applicants state that the formation and acquisition of a limited use
subsidiary may allow KeySpan and the Subsidiaries to secure more
favorable financing terms, at lower costs than may otherwise be
available. In addition, Applicants state that the interposition of a
Financing Subsidiary can serve to isolate the risks associated with
debt securities issuances thereby providing further benefit to the
KeySpan system.
Specifically, Financing Subsidiaries may be organized to issue to
third parties, long-term debt, short-term debt, preferred securities
(including but not
[[Page 66513]]
limited to trust preferred securities), equity-linked securities, and/
or other securities that are authorized or exempt and then transfer the
proceeds to KeySpan or the Subsidiaries. Applicants request
authorization for KeySpan and, to the extent not exempt under rule 52,
Subsidiaries to issue debentures and other evidence of indebtedness
(``Financing Debt'') to any Financing Subsidiary to evidence the
transfer of financing proceeds by a Financing Subsidiary to its parent
company. The principal amount, maturity and interest rate on any
Financing Debt will be designed to parallel the amount, maturity and
interest or distribution rate on the securities issued by a Financing
Subsidiary in respect of which the Financing Debt is issued. Each of
the Subsidiaries also requests authorization to enter into an expense
agreement with its respective Financing Subsidiary, under which it
would agree to pay all expenses of the Financing Subsidiary. Applicants
state that any affiliate transactions entered into by a Financing
Subsidiary in connection with an expense agreement, or otherwise, would
be conducted at fair market value without regard to cost, and
therefore, Applicants request an exemption under section 13(b) from the
at cost standards of rules 90 and 91 for KeySpan and the Subsidiaries
to enter into these transactions.
The amount of securities issued by any Financing Subsidiary to
third parties will be included in the applicable overall external
financing limitation, authorized for the immediate parent company of
such Financing Subsidiary. However, to avoid double counting, the
amount of Financing Debt issued by a parent company to its Financing
Subsidiary will not be counted against the applicable external
financing limitation. Applicants request that securities issued by any
Financing Subsidiary to third parties be exempt under rule 52 (and
therefore reportable on Form U-6B-2) only if the securities, if issued
directly by the parent company of such the Financing Subsidiary, would
be exempt under rule 52. Applicants propose that KeySpan or a
Subsidiary may, if required, guarantee or enter into support or expense
agreements in respect of the obligations of Financing Subsidiaries.
VI. EWG/FUCO Investment Authority
Applicants request authorization for KeySpan to increase its
``aggregate investment'', as that term is defined in rule 53, in EWG
and FUCOs to $3.0 billion (``EWG/FUCO Limit'') outstanding at any one
time during the Authorization Period. Applicants state that the EWG/
FUCO Limit represents approximately 528% of KeySpan's average
consolidated retained earnings for the four quarters ended June 30,
2003.
At March 31, 2003, applicants state that the consolidated amount of
KeySpan's current aggregate investment in existing EWGs and FUCOs was
as follows:
------------------------------------------------------------------------
Investment ($
Entity millions)
------------------------------------------------------------------------
KeySpan-Ravenswood LLC (EWG)............................ \8\ $776.6
Phoenix Natural Gas Limited and Finsa Energeticos 58.9
(FUCOs)................................................
KeySpan-Glenwood Energy Center LLC (EWG)................ 95.3
KeySpan-Port Jefferson Energy Center LLC (EWG).......... 104.1
---------------------------------------------------------
Total................................................. $1,034
------------------------------------------------------------------------
Applicants state that this total amount, represents approximately
182% of KeySpan's average consolidated retained earnings, as defined in
rule 53, of $586.3\8\ million for the four quarters ending at June 30,
2003.
---------------------------------------------------------------------------
\8\ Applicants state that this amount represents existing
investment in KeySpan Ravenswood.
---------------------------------------------------------------------------
By order dated December 6, 2002, (HCAR No. 27612), Applicants were
authorized to make investments in an aggregate amount of up to $2.2
billion in EWGs and FUCOs. Applicants state that $2.2 billion
represented approximately 440% of KeySpan's average consolidated
retained earnings for the four quarters ended September 30, 2002.
Applicants now request authority for KeySpan and the Subsidiaries,
directly or indirectly, to invest up to $3.0 billion in EWGs and FUCOs
during the Authorization Period.
VII. Intermediate Subsidiaries
Applicants propose that KeySpan create and/or acquire, directly or
indirectly, the securities of one or more Intermediate Subsidiaries
including corporations, trusts, partnerships, limited liability
companies or other entities. Applicants state that Intermediate
Subsidiaries will be organized exclusively for the purpose of acquiring
and holding the securities of, or financing or facilitating KeySpan's
investments in, other direct or indirect nonutility investments.
Applicants also request authority for Intermediate Subsidiaries to
engage in Development Activities and Administrative Activities.
Applicants state that an Intermediate Subsidiary may be organized,
among other things,: (i) To facilitate the making of bids or proposals
to develop or acquire an interest in any EWG, FUCO, exempt
telecommunications company (``ETC''), or other Nonutility which, upon
acquisition, would qualify as a Rule 58 Subsidiary; (ii) to facilitate
closing on the purchase or financing of an acquired company; (iii) to
effect an adjustment in the respective ownership interests in a
business held by the KeySpan system and non-affiliated investors; (iv)
to facilitate the sale of ownership interests in one or more acquired
Rule 58 Subsidiary, ETC, EWG or FUCO; (v) to comply with applicable
laws of foreign jurisdictions limiting or otherwise relating to the
ownership of domestic companies by foreign nationals; (vi) to limit
KeySpan's exposure to U.S. and foreign taxes; (vii) to further insulate
KeySpan and the Utility Subsidiaries from operational or other business
risks that may be associated with investments in nonutility companies;
or (viii) for other lawful business purposes.
Applicants state that investments in Intermediate Subsidiaries may
take the form of any combination of the following: (i) Purchases of
capital shares, partnership interests, member interests in limited
liability companies, trust certificates or other forms of voting or
non-voting equity interests; (ii) capital contributions; (iii) open
account advances without interest; (iv) loans; and (v) Guarantees
issued, provided or arranged in respect of, the securities or other
obligations of any Intermediate Subsidiaries.
Applicants state that funds for any direct or indirect investment
in any Intermediate Subsidiary will be derived from KeySpan's available
funds. No additional financing authority is sought under this heading.
Applicants request that to the extent that KeySpan provides funds
directly or indirectly to an Intermediate Subsidiary which are used for
the purpose of making an investment in any EWG, FUCO, or a Rule 58
Subsidiary, and to the extent these funds are not expenditures in
Development Activities, the amount of the funds will be included in
KeySpan's ``aggregate investment'' in EWGs, FUCOs and Rule 58
Subsidiaries.\9\
---------------------------------------------------------------------------
\9\ Applicants request that if the Intermediate Subsidiary is
merely a conduit, the aggregate investment will not ``double count''
both the conduit investment and the investment in the EWG, FUCO,
Rule 58 subsidiary or other approved investment.
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[[Page 66514]]
VIII. Internal Reorganization of Existing Investments
A. Nonutility Subsidiaries
Applicants request authority for KeySpan to engage in internal
corporate reorganizations to better organize Nonutility Subsidiaries
and investments. Applicants request authority to sell or to cause any
Subsidiary to sell or otherwise transfer (i) Nonutility Subsidiaries
businesses, (ii) the securities of Nonutility Subsidiaries engaged in
some or all of these businesses or (iii) nonutility investments which
do not involve a Nonutility Subsidiary (i.e. less than 10% voting
interest) to a different Subsidiary. Applicants also request authority
to acquire the assets of nonutility businesses, Nonutility Subsidiaries
or other then existing investment interests. Alternatively, transfers
of these securities or assets may be effected by share exchanges, share
distributions or dividends followed by contribution of these securities
or assets to the receiving entity.
IX. Exemption From Section 13(b)
Applicants request authority for Nonutility Subsidiaries to provide
other Nonutility Subsidiaries with (i) operations and management
services (``O&M Services''); (ii) administrative services
(``Administrative Services''); and (iii) consulting services
(``Consulting Services''). These services are referred to collectively
as ``Affiliate Services.''
Applicants state that O&M Services would include, for example,
development, engineering, design, construction and construction
management, pre-operational start-up, testing and commissioning, long-
term operations and maintenance, fuel procurement, management and
supervision, technical and training, administrative support, market
analysis, consulting, coordination and any other managerial, technical,
administrative or consulting required in connection with the business
of owning or operating facilities used for the generation, transmission
or distribution of electric energy and/or natural gas (including
related facilities for the production, conversion, sale or distribution
of thermal energy) or coordinating their operations in the power
market.
Applicants state that Administrative Services would include, for
example, corporate and project development and planning, management,
administrative, employment, tax, legal, accounting, engineering,
consulting, marketing, utility performance and electric data processing
services, and intellectual property development, marketing and other
support services.
Applicants state that Consulting Services would include, for
example, providing the Nonutility Subsidiary with technical
capabilities and expertise primarily in the areas of electric power
generation, transmission and distribution and ancillary operations.
Applicants state that Affiliate Services would generally be
performed by Nonutility Subsidiaries for associate Nonutility
Subsidiaries at cost. However, the Nonutility Subsidiaries request an
exemption pursuant to section 13(b) from the at-cost standards of rules
90 and 91, for the Affiliate Services in any case in which the
Nonutility Subsidiary purchasing services is:
(i) A FUCO or foreign EWG that derives no part of its income,
directly or indirectly, from the generation, transmission, or
distribution of electric energy for sale within the United States;
(ii) An EWG that sells electricity at market-based rates that have
been approved by the Federal Energy Regulatory Commission (``FERC''),
provided that the purchaser is not one of the Utility Subsidiaries;
(iii) A ``qualifying facility'' (``QF'') within the meaning of the
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA'')
that sells electricity exclusively (a) at rates negotiated at arms-
length to one or more industrial or commercial customers purchasing the
electricity for their own use and not for resale, and/or (b) to an
electric utility company (other than a Utility Subsidiary) at the
purchaser's ``avoided cost'' as determined in accordance with the
regulations under PURPA;
(iv) A domestic EWG or QF that sells electricity at rates based
upon its cost of service, as approved by FERC or any state public
utility commission having jurisdiction, provided that the purchaser
thereof is not one of the Utility Subsidiaries; or
(v) A Rule 58 Subsidiary or any other Nonutility Subsidiary that
(a) is partially or wholly-owned, directly or indirectly, by KeySpan,
provided that the ultimate purchaser of such goods or services is not a
Utility Subsidiary (or any other entity within the KeySpan system whose
activities and operations are primarily related to the provision of
goods and services to the Utility Subsidiaries), (b) is engaged solely
in the business of developing, owning, operating and/or providing
services or goods to Nonutility Subsidiaries described in clauses (i)
through (iv) immediately above; or (c) does not derive, directly or
indirectly, any material part of its income from sources within the
United States and is not a public utility company operating within the
United States.
Cinergy Corp. et al. (70-10172)
Cinergy Corp. (``Cinergy''), a registered holding company,
Cinergy's direct nonutility subsidiaries, Cinergy Investments, Inc.
(``Cinergy Investments'') and Cinergy Global Resources, Inc. (``Global
Resources''), CinTec LLC (``CinTec''), Cinergy Technologies, Inc.
(``Cinergy Technologies''), and Cinergy Wholesale Energy, Inc.
(``Cinergy Wholesale Energy'' and together, ``Applicants'') have filed
an application-declaration with the Commission under sections 6(a), 7,
9(a), 10, 12(c), 12(f), 13, 32, 33 and 34 of the Act and rules 43, 45,
46, 54, 83, 87, 90 and 91.
I. Background
By order dated March 1, 1999 (HCAR No. 26984) (``1999 Order''),
Cinergy \10\ and its nonutility subsidiaries, Cinergy Investments and
Cinergy Global Resources were authorized to establish one or more
special-purpose subsidiaries (``Intermediate Parents'') \11\ through
December 31, 2003, to hold Cinergy's direct or indirect interests in
existing and future nonutility subsidiaries (``Nonutilty
Subsidiaries'').\12\
Cinergy states that it now owns numerous Nonutility Subsidiaries,
which it holds through, Cinergy
[[Page 66515]]
Investments, Cinergy Global Resources, CinTec, Cinergy Technologies and
Cinergy Wholesale Energy, each of which is a direct, wholly owned
Nonutility Subsidiary of Cinergy formed to act as an Intermediate
Parent. Applicants state that through authority granted in previous
orders,\13\ applicable provisions of the Act and rules under the Act,
Applicants have authority to invest in a variety of nonutility
businesses, including:
---------------------------------------------------------------------------
\10\ Applicants state that Cinergy also directly or indirectly
owns all the outstanding common stock of five public utility
companies, PSI Energy, Inc. (``PSI''), The Cincinnati Gas & Electric
Company (``CG&E''), The Union Light, Heat and Power Company,
Lawrenceburg Gas Company, and Miami Power Corporation (``Utility
Subsidiaries'').
\11\ Applicants state that certain of these ``Intermediate
Parents'' were formed prior to the 1999 Order under express
authorization of the Commission as noted in the 1999 Order.
\12\ Applicants state that PSI and CG&E hold three businesses
under a reservation of jurisdiction which are not included in the
definition of ``Nonutility Subsidiaries'': KO Transmission Company
(``KO''), South Construction Company, Inc. (``South Construction'')
and Tri-State Company (``Tri-State''). Applicants state that the
retainability of these companies is subject to a Commission
reservation of jurisdiction, originally by order dated October 21,
1994 (HCAR No. 26146) (``Merger Order''), the order authorizing the
merger that created the Cinergy. The Commission extended this
reservation of jurisdiction by order dated November 2, 1998 (HCAR
No. 26934). Applicants assert that KO is an energy-related company
under rule 58, which was enacted after the Merger Order. Applicants
state that South Construction and Tri-State acquire and hold real
estate in connection with the utility businesses of PSI and CG&E,
respectively. South Construction and Tri-State are excluded from the
scope of the proposed transactions in this application, except with
respect to dividend authority as described fully below.
\13\ See HCAR No. 27400 (May 18, 2001), HCAR No. 27581 (October
23, 2002), HCAR No. 27393 (May 4, 2001), HCAR No. 27506 (May 21,
2002), HCAR No. 27717 (August 29, 2003).
---------------------------------------------------------------------------
(1) Exempt wholesale generator (``EWG''), as that term is defined
in section 32 of the Act;
(2) Foreign utility company (``FUCO''), as that term is defined in
section 33 of the Act;
(3) Exempt telecommunications company (``ETC''), as that term is
defined in section 34 of the Act;
(4) Nonutility company, which, upon acquisition, would qualify for
exemption from the Act under rule 58 (``Rule 58 Company'');
(5) Companies providing certain infrastructure services (``IS
Company'');
(6) Companies providing energy management services and energy-
related consulting services outside the United States;
(7) Companies brokering and marketing energy commodities in Canada
and Mexico; and
(8) Certain nonutility energy-related assets (``Energy-Related
Asset'').
Applicants state that, (i) an ``Authorized Nonutility Business''
means any nonutility business in which Cinergy is currently authorized
or may hereafter become authorized under the Act to invest, and
includes, without limitation, the types of nonutility businesses
enumerated in (1) through (8) above; (ii) a ``Nonutility Subsidiary''
means any existing or future associate company of Cinergy (including
any Intermediate Subsidiary) formed for the purpose of engaging in an
Authorized Nonutility Business; and (iii) a ``Nonutility Investment''
means any existing or future Authorized Nonutility Business in which
Cinergy invests, but which investment does not cause such Authorized
Nonutility Business to become an associate company of Cinergy.
II. Current Request
A. Overview
Applicants request authorization for Authorized Nonutility
Businesses to engage in the following activities through March 31, 2007
(``Authorization Period):
(i) Acquire the securities of corporations, limited liability
companies, partnerships, trusts or other entities that would be formed
exclusively to acquire, hold, finance or facilitate the acquisition of,
and/or sell goods, services or construction to Nonutility Subsidiaries
and/or Nonutility Investments, whether directly or indirectly through
one or more subsidiaries thereof formed exclusively for the same
purpose (``Intermediate Subsidiaries'');\14\
---------------------------------------------------------------------------
\14\ Applicants state that the term Intermediate Subsidiary also
includes any Intermediate Parents formed under authority from the
1999 Order and any other Nonutility Subsidiaries performing a
corresponding function formed by Cinergy under prior Commission
orders.
---------------------------------------------------------------------------
(ii) Undertake internal corporate reorganizations or restructurings
of Nonutility Subsidiaries and Nonutility Investments;
(iii) Declaration and payment by Nonutility Subsidiaries and KO,
South Construction, and Tri-State dividends out of capital or unearned
surplus, subject to certain conditions; and
(iv) Enter into agreements to perform certain services for certain
specified categories of Nonutility Subsidiaries at other than cost
under an exemption from section 13(b) under the cost standards of rules
90 and 91.
B. Acquisition of Intermediate Subsidiaries
Applicants request authority to acquire Intermediate Subsidiaries.
Applicants propose that an Intermediate Subsidiary may be organized,
among other things: (i) In order to facilitate the making of bids or
proposals to develop or acquire an interest in any exempt wholesale
generator (``EWG''), as that term is defined in section 32 of the Act,
foreign utility company (``FUCO''), as that term is defined in section
33 of the Act, exempt telecommunications company (``ETC''), as that
term is defined in section 34 of the Act, or other nonutility company
which, upon acquisition, would qualify for exemption from the Act under
rule 58 (``Rule 58 Company'') or other Authorized Nonutility Business;
(ii) after the award of a bid proposal, in order to facilitate closing
on the purchase or financing of the acquired company; (iii) at any time
subsequent to the consummation of an acquisition of an interest in any
of these companies in order, among other things, to effect an
adjustment in the respective ownership interests in the business held
by Cinergy and non-affiliated investors; (iv) to facilitate the sale of
ownership interests in one or more acquired Authorized Nonutility
Business; (v) to comply with applicable laws of foreign jurisdictions
limiting or otherwise relating to the ownership of domestic companies
by foreign nationals; (vi) as a part of tax planning in order to limit
Cinergy's exposure to U.S. and foreign taxes; (vii) to insulate Cinergy
and its utility subsidiaries from operational or other business risks
that may be associated with investments in Authorized Nonutility
Business; or (viii) for other lawful business purposes.
Applicants state that investments in Intermediate Subsidiaries may
take the form of (i) purchases of capital shares, partnership
interests, membership interests in limited liability companies, trust
certificates or other forms of voting or non-voting equity interests;
(ii) capital contributions; (iii) loans; or (iv) guarantees issued,
provided or arranged in respect of the securities or other obligations
of any Intermediate Subsidiaries. Applicants state that Cinergy will
obtain funds for initial and subsequent investments in Intermediate
Subsidiaries from available internal sources or external sources
involving issuances of its securities under the June 2000 Order (or any
future order supplementing or superseding that order in whole or in
part). The other Applicants will obtain funds for initial and
subsequent investments in Intermediate Subsidiaries from available
cash, capital contributions or loans from Cinergy, or external
borrowings or sales of capital stock under the exemption afforded by
rule 52(b). To the extent that Cinergy provides funds directly or
indirectly to an Intermediate Subsidiary that are used for an
investment in an EWG or FUCO, a Rule 58 Company, an IS Company or an
Energy-Related Asset, the amount of the funds will be included in
Cinergy's ``aggregate investment'' in the appropriate entity, as
calculated in accordance with rule 53 or rule 58, as applicable, or the
terms of the Commission order authorizing Cinergy's investment in an IS
Company or Energy-Related Asset, as applicable.
C. Nonutility Reorganizations
Applicants seek authority to effect corporate reorganizations or
restructurings of Nonutility Subsidiaries and Nonutility Investments.
Specifically Applicants request authority (i) for each Nonutility
Subsidiary to sell or otherwise transfer the securities or assets (in
whole or in part) of any Nonutility Subsidiary or Nonutility Investment
to any other Nonutility Subsidiary or Nonutility Investment, and (ii)
for each Nonutility Subsidiary to acquire these securities or assets.
[[Page 66516]]
Alternatively, transfers of these securities or assets may be effected
by share exchanges, share distributions or dividends followed by
contribution of these securities or assets to the receiving entity, or
by mergers or liquidations, or otherwise, and Applicants request
approval for these forms of restructuring transactions as well.
Applicants state that the corporate reorganizations or
restructurings of Nonutility Subsidiaries and Nonutility Investments
would be undertaken in order to eliminate corporate complexities, to
combine related business segments for staffing and management purposes,
to eliminate administrative costs, to achieve tax savings, or for other
ordinary and necessary business purposes. Applicants state that none of
these reorganizations or restructurings will involve the sale or other
disposition of any utility assets of the Utility Subsidiaries or any
corporate reorganization involving the Utility Subsidiaries, nor does
the approval sought in this subsection extend to the acquisitions of
any new businesses or activities not constituting an Authorized
Nonutility Business.
D. Payment of Dividends by Nonutility Subsidiaries
To the extent not otherwise exempt under the Act, Applicants
request authority for each Nonutility Subsidiary and KO, South
Construction, and Tri-State to declare and pay dividends out of capital
or unearned surplus to its respective parent company, where permitted
under applicable corporate law, and where the dividend will not be
detrimental to the financial integrity or working capital of any
company in the Cinergy holding company system. Additionally, Applicants
state that, without further approval of the Commission, no Nonutility
Subsidiary will declare or pay any dividend out of capital or unearned
surplus if that Nonutility Subsidiary derives any material part of its
revenues from sales of goods, services, electricity or natural gas to
any of the Utility Subsidiaries or if at the time of the declaration or
payment such Nonutility Subsidiary has negative retained earnings.
E. Exemptions from Section 13(b)
Applicants request authority for Nonutility Subsidiaries to enter
into agreements to perform services Applicants request authority for
Nonutility Subsidiaries to perform certain services (namely, project
development services and administrative services and other support
services) \15\ for any Nonutility Subsidiary within any of the five
categories enumerated immediately below at fair market prices
determined without regard to cost, and therefore request an exemption
from section 13(b) and the cost standards of rules 90 and 91.
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\15\ Applicants state that project developmental services are
anticipated to include such services as research and due diligence
with respect to potential projects and transactions, preparation of
bid documents, investment proposals, customer proposals and the
like, preliminary engineering, construction, licensing and
operational studies and analyses, acquisitions of options, and other
legal, accounting, marketing, engineering, financial and similar
services relating to acquisitions of project investments and
consummating transactions with customers. Applicants state that
administrative and other support services include without limitation
overall strategic planning, operations and maintenance,
environmental, information systems, engineering and construction,
risk management, marketing, finance, legal, accounting, employment
and tax.
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(i) A FUCO or an EWG that derives no part of its income, directly
or indirectly, from the generation, transmission, or distribution of
electric energy for sale within the United States;
(ii) An EWG that sells electricity at market-based rates which have
been approved by the Federal Energy Regulatory Commission (``FERC'') or
an appropriate state public utility commission, provided that the
purchaser of the EWG's electricity is not an affiliated public utility
or an affiliate that re-sells such power to an affiliated public
utility;
(iii) A ``qualifying facility'' (``QF''), as defined under the
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''),
that sells electricity exclusively at rates negotiated at arm's length
to one or more industrial or commercial customers purchasing such
electricity for their own use and not for resale, or to an electric
utility company other than an affiliated electric utility at the
purchaser's ``avoided cost'' determined under PURPA;
(iv) An EWG or a QF that sells electricity at rates based upon its
costs of service, as approved by FERC or any state public utility
commission having jurisdiction, provided that the purchaser of the
electricity is not an affiliated public utility; or
(v) A Nonutility Subsidiary that is a Rule 58 Company or any other
Nonutility Subsidiary that (a) is partially owned, provided that the
ultimate purchaser of goods or services is not an affiliated public
utility, (b) is engaged solely in the business of developing, owning,
operating and/or providing services or goods to Nonutility Subsidiaries
described in (i) through (iv) above or (c) does not derive, directly or
indirectly, any part of its income from sources within the United
States and is not a public utility company operating within the United
States.
For the Commission by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29511 Filed 11-25-03; 8:45 am]
BILLING CODE 8010-01-P