[Federal Register Volume 63, Number 106 (Wednesday, June 3, 1998)]
[Notices]
[Pages 30273-30276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14623]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-26878]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
May 27, 1998.
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 amendments is/are available for public
inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by June 22, 1998, to the Secretary, Securities and Exchange
Commission, Washington, D.C. 20549, 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 case of an attorney at law, by
certificate) should be filed with the request. Any request for hearing
should identify specifically the issues of fact or law that are
disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in the
matter. After June 22, 1998, the application(s) and/or declaration(s),
as filed or as amended, may be granted and/or permitted to become
effective.
NIPSCO Industries, Inc.
(70-9197)
NIPSCO Industries, Inc. (``NIPSCO''), 801 East 86th Avenue,
Merrillville, Indiana 46410, an Indiana public utility holding company
exempt under section 3(a)(1), under rule 2, from all provisions of the
Act except section 9(a)(2), has filed an application under sections
9(a)(2) and 10 of the Act, in connection with a proposed acquisition of
Bay State Gas Company (``Bay State''), a Massachusetts public utility
holding company exempt under section 3(a)(2), under rule 2, from all
provisions of the Act except section 9(a)(2).
NIPSCO owns all of the issued and outstanding common stock of three
public utility subsidiary companies that provide electric and retail
natural gas \1\ service exclusively within Indiana.
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\1\ As of December 31, 1997, the NIPSCO gas distribution system
was comprised of approximately 13,400 miles of distribution mains
and 729,400 customer meters. NIPSCO currently purchases
approximately 89% of its total system gas requirements from
production in the on-shore and off-shore Texas and Louisiana
producing areas, and approximately 8% from production in the Mid-
Continent (Oklahoma and Kansas), Permian (west Texas) and San Juan
(New Mexico) Basins. It is anticipated, however, that, beginning as
early as 1999, with the completion of construction of new pipeline
capacity from western Canada to the upper Midwest markets, NIPSCO
will begin to purchase significant amounts of lower-cost gas
produced in the Western Canadian Sedimentation Basin (Alberta and
British Columbia). NIPSCO estimates that, by 2002, western Canadian
gas could potentially account for as much as 40% of its total system
supply. Currently, NIPSCO subsidiaries have contracted for ``firm''
transportation capacity and storage service on five different long-
haul interstate pipelines (Tennessee Gas Pipeline Company
(``Tennessee Gas''), NGPL, ANR Pipeline Company, Panhandle Eastern
Pipeline Company and Trunkline Gas Company).
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[[Page 30274]]
Northern Indiana Public Service Company (``Northern Indiana''),
NIPSCO's largest and dominant utility subsidiary, is a combination gas
and electric utility company which operates in 30 counties in the
northern part of Indiana, serving an area of about 12,000 square miles
with a population of approximately 2,200,000. Northern Indiana
distributes gas to approximately 662,500 residential, commercial and
industrial customers and generates, purchases, transmits and sells
electricity to approximately 416,300 retail and wholesale customers.
Northern Indiana also provides gas transportation service to
approximately 200 customers.\2\
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\2\ 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 liquified natural gas plant
in LaPorte County, Indiana, having a storage capacity of 4.0 Bcf,
which is used for system pressure maintenance and peak season
(November-March) deliveries. Northern Indiana also holds under long-
term contract storage capacity totaling approximately 9.11 Bcf in
the Markham, Moss Bluff and Egan salt-dome storage caverns in Texas
and Louisiana. These facilities, which provide the NIPSCO system
with a significant amount of ``high deliverability'' storage
capacity are located at or near major supply ``hubs'' which have
formed at locations where interstate pipelines serving the upper
Midwest, Northeast and Southwest markets intersect.
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Kokomo Gas and Fuel Company (``Kokomo Gas'') supplies natural gas
to approximately 33,500 retail customers in a six county area of north
central Indiana having a population of approximately 100,000. The
Kokomo Gas service territory is contiguous to Northern Indiana's gas
service territory.
Northern Indiana Fuel and Light Company, Inc. (``NIFL'') supplies
natural gas to approximately 33,400 retail customers in five counties
in the northeast corner of Indiana having a population of approximately
66,700. The NIFL service territory is also contiguous to Northern
Indiana's gas service territory, and overlaps Northern Indiana's
electric service territory.\3\
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\3\ NIPSCO was originally incorporated in 1987 to serve as the
holding company for Northern Indiana and various non-utility
subsidiaries. NIPSCO was authorized to acquire Kokomo Gas in 1992,
Holding Co. Act Release No. 25470 (February 3, 1992), and NIFL in
1993, Holding Co. Act Release No. 25766 (March 25, 1993).
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NIPSCO's three utility subsidiaries (collectively, ``NIPSCO
Operating Companies'') are subject to regulation by the Indiana Utility
Regulatory Commission as to rates, service, accounts, issuance of
securities, and other matters.
NIPSCO also owns all of the outstanding common stock of Crossroads
Pipeline Company (``Crossroads''), a non-utility natural gas
transportation company that was certificated by the Federal Energy
Regulatory Commission (``FERC'') in May 1995 to operate as an
interstate pipeline.\4\ Crossroads owns and operates a 201-mile, 20-
inch, pipeline that extends from Schererville, in northwestern Indiana,
where it takes delivery from the interstate pipeline facilities of
Natural Gas Pipeline Company of America (``NGPL''), to Cygnet, in
northwestern Ohio, where it interconnects with facilities owned by
Columbia Gas Transmission Corporation (``CGTC'').\5\
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\4\ See Crossroads Pipeline Company, 71 FERC para. 61,076 (April
21, 1995).
\5\ Crossroads recently announced plans to construct a 20-mile
extension of its pipeline facility in Ohio to a point of
interconnection with a unit of Consolidated Natural Gas Company.
This extension will form a link in a chain of interstate pipeline
projects that are designed to transport natural gas from the Chicago
area market to eastern markets served by CNG Transmission Corp. and
Transcontinental Gas Pipe Line Corp. (``Transco'') by late 1999.
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NIPSCO's other principal non-utility subsidiaries include IWC
Resources Corporation which owns and operates seven subsidiaries,
including two regulated water utility companies, the Indianapolis Water
Company and Harbour Water Corporation, which provide water service in
Indianapolis, Indiana and surrounding areas;\6\ NIPSCO Development
Company, Inc., which holds various investments, including investments
in real estate and venture capital enterprises; NI Energy Services,
Inc., which is engaged in various energy-related activities, such as
retail gas marketing, energy efficient lighting sales and
installations, and gas and electricity wholesale marketing; Primary
Energy, Inc., which arranges energy-related projects with large
industrial customers; and NIPSCO Capital Markets, Inc., which handles
financing for ventures of NIPSCO and certain of its subsidiaries, other
than Northern Indiana.
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\6\ The other five subsidiaries of IWC Resources Corporation,
and each company's principal business are: (i) Utility Data
Corporation (customer billing and data processing services); (ii)
IWC Services, Inc. (waste water treatment); (iii) Waterway Holdings,
Inc. (real estate development); (iv) SM&P Utility Resources, Inc.
(utility location and marking services); and (v) Miller Pipeline
Corporation (pipeline construction).
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For the year ended December 31, 1997, the NIPSCO Operating
Companies reported combined net income of $205.3 million on combined
operating utility income of $286.2 million. Gas sales of the NIPSCO
Operating Companies (including revenues from transportation only
customers) of approximately $803 million and electric sales of
approximately $1 billion accounted for approximately 44% and 56%,
respectively, of the NIPSCO Operating Companies' gross utility revenues
of approximately $1.8 billion for the year ended December 31, 1997.
Consolidated assets of NIPSCO, its Operating Companies and its non-
utility subsidiaries (collectively, ``the NIPSCO System'') as of
December 31, 1997, were approximately $4.9 billion, consisting of $3.1
billion in net utility plant and associated facilities and $1.8 billion
in net non-utility plant and other non-utility assets. Consolidated
operating revenues, operating income and net income for the NIPSCO
System were approximately $2.6 billion, $410 million and $191 million,
respectively, for the year ended December 31, 1997.
Bay State, which is both a public utility company and a holding
company, distributes natural gas at retail in parts of Massachusetts
and, through a wholly owned subsidiary, Northern Utilities, Inc.
(``Northern''), in contiguous areas of Maine and New Hampshire.\7\
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\7\ As of December 31, 1997, the combined gas system of bay
State and Northern (together, the ``Bay State System'') consisted of
5,158 miles of distribution mains; 29 miles of transmission lines,
together with associated pumping and regulating stations; liquid
natural gas liquefaction, vaporization and storage facilities;
propane storage tanks; 270,108 customer service connections; and
306,446 customer meters. The Bay State System purchases
approximately 40% of its total system gas requirements from the on-
shore and off-shore Texas and Louisiana producing areas and
approximately 49% of its total system requirements from the Western
Canadian Sedimentation Basin. The Bay State System has contracted
for ``firm'' transportation capacity on four domestic long-haul
pipelines (Tennessee Gas, Transco, Texas Eastern Transmission Corp.
and Texas Gas Transmission Corp.) as well as on TransCanada Pipe
Line Corp. and several regional pipelines. Like NIPSCO, the Bay
State System projects that it will purchase an increasing amount of
its gas requirements from the Western Canadian Sedimentation Basin.
This gas will reach the Bay State service area directly via the
PNGTS pipeline (see below), which is scheduled to be completed in
late 1998, as well as indirectly by means of any one of several
different pipeline expansions/extensions (including the Crossroads/
CNG expansions) that have been announced and will provide the Bay
State System with greater access to supplies available in the
Chicago area market.
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Bay State provides gas service to approximately 261,000
residential, commercial and industrial customers in three separate
areas of Massachusetts covering approximately 1,344 square miles and
having a combined population of approximately 1,340,000. These include
the greater Springfield area in western Massachusetts, an area
southwest of Boston that includes the cities of Attleboro, Brockton and
Taunton, and an area north of Boston extending to the New Hampshire
border that includes the city of Lawrence. Bay
[[Page 30275]]
State is subject to regulation by the Massachusetts Department of
Telecommunications and Energy as to rates, service, accounts, issuance
of securities, and other matters.
Northern provides gas service to approximately 46,000 residential,
commercial and industrial customers in an area of approximately 808
square miles in New Hampshire and Maine having a population of
approximately 450,000. Northern's service area extends north from the
Massachusetts-New Hampshire border to the Portland/Lewiston area in
Maine. Northern is subject to regulation by the New Hampshire Public
Utilities Commission and Maine Public Utilities Commission as to rates,
service, accounts, issuance of securities, and other matters.
Bay State has one direct wholly owned non-utility subsidiary,
Granite State Gas Transmission, Inc. (``Granite State''), which owns
and operates a 105-mile-6, to 12-inch diameter, interstate pipeline
that extends from Haverhill, Massachusetts, where it interconnects with
the facilities of Tennessee Gas Pipeline Company (``Tennessee Gas''),
in a northeasterly direction to a point near Westbrook, Maine. Granite
State also leases a 166-mile, 18-inch diameter, converted oil pipeline,
which is used to transport western Canadian gas to Portland, Maine.
Through a wholly owned subsidiary, Natural Gas Development, Inc.
(``NGD''), Granite State is a partner in the Portland Natural Gas
Transmission System (``PNGTS''), which was formed to construct a 292-
mile, 24-inch diameter, natural gas transmission line in northern New
England that will form the northern link in a new gas transmission
system designed to bring western Canadian gas supplies to the New
England market. When complete, these facilities will interconnect with
the Tennessee Gas pipeline facilities near Dracut, Massachusetts, and
with Granite State at locations in Maine and New Hampshire.
In addition to NGD, Bay State also has four other indirect non-
utility subsidiaries, all of which are wholly owned subsidiaries of
Granite State: (1) EnergyUSA, Inc., a company organized to provide
unregulated energy products and services, including water heater
rentals, insurance programs for heating systems, and strategic energy
supply management; (2) EnergyEXPRESS, Inc., an unregulated natural gas,
electricity, propane and fuel oil marketer; (3) LNG Development Corp.,
which was established to invest in a proposed liquefied natural gas
storage facility in Wells, Maine; and (4) Bay State Energy Enterprises,
Inc., which is inactive.
For the year ended December 31, 1997, the combined gas revenues
(including revenues for transportation-only customers), utility
operating income and net utility income of Bay State and Northern (as
adjusted to eliminate the effect on earnings of a one-time write-off of
restructuring costs)\8\ were approximately $441 million, $39.2 million
and $21.6 million, respectively. Consolidated assets of Bay State and
its subsidiaries as of December 31, 1997 were approximately $788
million, consisting of $496.4 million in combined net utility plant of
Bay State and Northern and $291.6 million in non-utility plant and
other non-utility assets.
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\8\ The restructuring charges, which related primarily to
retirement benefits and consulting fees, totaled $11.4 million, and
had the effect of reducing the combined net utility income of Bay
State and Northern to approximately $14.7 million in 1997.
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In accordance with an Agreement and Plan of Merger dated December
18, 1997, as amended and restated as of March 4, 1998 (the ``Merger
Agreement''), NIPSCO seeks authorization to acquire all of the issued
and outstanding common stock of Bay State (``Merger'').\9\ Under the
terms of the ``preferred merger''\10\ structure set forth in the Merger
Agreement, Bay State would be merged with and into a wholly-owned
NIPSCO subsidiary to be formed under the laws of Massachusetts which,
upon completion of the Merger, would change its name to and operate
under the name of ``Bay State Gas Company.''\11\ The Merger has been
structured to qualify as a tax-free reorganization under section 368(a)
of the Internal Revenue Code of 1986, as amended.
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\9\ The Merger Agreement is subject to the approval of Bay
State's shareholders at a special meeting called for that purpose to
be held on May 27, 1998. The affirmative vote of the holders of two-
thirds of the outstanding shares of Bay State is required for
approval. The Transaction is also subject to various regulatory
approvals in addition to the approval of this Commission. Insofar as
it relates to Bay State and Northern, the Merger is subject to the
jurisdiction of the Massachusetts Department of Telecommunications
and Energy, the New Hampshire Public Utilities Commission, and the
Maine Public Utilities Commission. In addition, certain aspects of
the Merger may be subject to the jurisdiction of the Federal Energy
Regulatory Commission under the Federal Power Act. The Merger is
also subject to the notification and reporting requirements of the
Hart-Scott-Rodino Act.
\10\ Applicant states that the Merger Agreement also provides
for an ``alternative merger'' transaction which would be carried out
in the event that it is not possible to consummate the ``preferred
merger'' transaction. Applicant contends that the ``alternative
merger'' transaction would not be subject to Commission jurisdiction
under the Act and the request for approval made in its application
concerns only the ``preferred merger'' transaction.
\11\ Applicant notes that, following the Merger, the stock of
Northern may be transferred to NIPSCO, which would result in
Northern becoming a direct wholly-owned utility subsidiary of
NIPSCO. If, however, Northern is maintained as a subsidiary of Bay
State, Bay State will continue to claim exempt holding company
status under section 3(a)(2) and rule 2.
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Under the Merger Agreement, upon the effective date of the Merger,
each outstanding share of common stock of Bay State (``Bay State
Shares'') will be converted into the right to receive common shares of
NIPSCO (``NIPSCO Shares''), or at the election of any Bay State
shareholder and subject to certain limitations, cash, in either case
having a value of $40.00 per share. The number of NIPSCO Shares that
would be issued in exchange for each Bay State Share (the ``Exchange
Ratio'') would be determined by dividing (i) $40.00 by (ii) the NIPSCO
Share Price, which is the average of the closing prices of NIPSCO, as
reported in The Wall Street Journal's NYSE Composite Transactions
Report, for the 20 trading days immediately preceding the second
trading day prior to the effective date of the merger.\12\ Bay State
shareholders may elect to receive $40.00 in cash, without interest, for
some or all of their Bay State Shares (``Cash Election''). The
aggregate number of Bay State Shares that will be converted into the
right to receive $40.00 in cash in the Transaction (the ``Cash Election
Maximum)'' may not exceed an amount determined by dividing (A) the
dollar number equal to the difference between (i) one-half of the
product of (x) $40.00 multiplied by (y) the aggregate number of Bay
State Shares outstanding on the second day prior to the effective date
of the Merger less (ii) the dollar amount of a special dividend, if
any, paid by Bay State prior to the Merger and certain other cash
payments to be determined prior to such time, by (B) $40.00. Further,
cash amounts paid to electing shareholders would be subject to
proration if the aggregate number of Bay State Shares covered by the
Cash Election exceeds the Cash Election Maximum.\13\
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\12\ On a pro forma basis, based on the number of Bay State
Shares and NIPSCO Shares outstanding on April 17, 1998, and assuming
that 100% of the outstanding Bay State Shares are converted into the
right to receive NIPSCO Shares at a conversion price of $27.38 per
share (the 20-day trading average for the NIPSCO Shares determined
as of April 17, 1998), the current shareholders of Bay State would
effectively acquire, in exchange for their Bay State Shares, about
13.7% of the issued and outstanding NIPSCO Shares.
\13\ Applicant states that the terms of the Merger Agreement,
including the Exchange Ratio, reflect months of due diligence and
analysis and evaluation of the assets, liabilities and business
prospects of Bay State and were the product of extensive and
vigorous arm's-length negotiations between NIPSCO and Bay State.
Applicant also states that Bay State engaged SG Barr Devlin (``Barr
Devlin'') a nationally recognized investment banking concern, to
evaluate NIPSCO's offer for Bay State. Barr Devlin subsequently
delivered a ``fairness'' opinion to the Bay State board of directors
to the effect that, based on certain assumptions stated therein, the
consideration offered in connection with the Transaction is fair,
from a financial point of view, to the holders of Bay State Shares.
Applicant notes that a pro forma analysis prepared by Barr Devlin
indicates that the Transaction would result in accretion to Bay
State's shareholders in terms of earnings per share and that
NIPSCO's shareholders would also realize accretion in earnings per
share (assuming NIPSCO's shares continue to trade at current
levels).
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[[Page 30276]]
Following the Merger, the board of directors of ``new'' Bay State
will consist of ten members, of whom three will be officers of NIPSCO,
three will be officers of ``old'' Bay State, and four will be current
outside directors of ``old'' Bay State. The current officers of ``old''
Bay State will continue to serve in similar capacities in ``new'' Bay
State. The Merger Agreement also provides that NIPSCO shall nominate
and recommend for election to the NIPSCO board of director one ``new''
Bay State directors to be mutually determined by NIPSCO and Bay State.
``New'' Bay State will continue to maintain its principal executive
offices in Westborough, Massachusetts.
Applicant states that, upon consummation of the Merger, NIPSCO will
own an integrated gas utility system comprised of its gas distribution
system in Indiana and Bay State's gas distribution system in
Massachusetts, Maine and New Hampshire, as well as an integrated
electric utility system in Indiana.\14\
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\14\ Post-merger, the NIPSCO System will provide gas
distribution service to approximately 1,036,400 residential,
commercial and industrial customers in a 14,152-square mile area in
four states, as well as electric service to approximately 416,300
customers, all in Indiana. On a pro forma basis, the combined net
utility plant (gas and electric) of NIPSCO and Bay State as of
December 31, 1997 would have totaled approximately $3,61 billion and
combined gross utility revenues for the twelve months then ended
would have totaled approximately $2.3 billion.
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Applicant also states that the Merger is expected to produce
various benefits to the public, investors and consumers and will
satisfy all of the applicable standards under section 10 of the Act.
Among other things, applicant states that, following the Merger, the
combined companies will be better positioned to take advantage of
operating economies and efficiencies through, among other measures,
joint management optimization of their respective portfolios of gas
supply, transportation and storage assets. Applicant also notes that
the Merger is expected to provide benefits in the form of greater
flexibility and capacity in financing the operations of the combining
companies and an enhanced ability to take advantage of future strategic
opportunities in the competitive marketplace for energy and energy
services that is rapidly evolving in New England.
Applicant contends that, after the Merger, NIPSCO will remain
predominantly an intrastate (i.e., Indiana) holding company that will
not derive any material part of its income from any out-of-state
utility subsidiary and has requested an order under section 3(a)(1)
declaring NIPSCO, after consummation of the Merger, to be exempt from
all sections of the Act except section 9(a)(2).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14623 Filed 6-2-98; 8:45 am]
BILLING CODE 8010-01-M