[Federal Register Volume 64, Number 200 (Monday, October 18, 1999)]
[Notices]
[Pages 56236-56239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27037]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27085]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

October 8, 1999.
    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 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 November 12, 1999, 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 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 November 12, 1999, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

The National Grid Group plc, et al. (70-9473)

    The National Grid Group plc (``National Grid''), a public limited 
company incorporated under the laws of England and Wales, National Grid 
(US) Holdings Limited, National Grid (US) Investments, National Grid 
(Ireland) 1 Limited, National Grid (Ireland) 2 Limited, National Grid 
General Partnership, and NGG Holdings, Inc. (except for National Grid, 
``Intermediate Companies''),\1\ each located at National Grid House, 
Kirby Corner Road, Coventry CV4 8JY, United Kingdom, and New England 
Electric System (``NEES''),\2\ a registered holding company, located at 
25 Westborough Drive, Westborough, Massachusetts 01582, (collectively, 
``Applicants'') have filed a joint application-declaration under 
sections 2(a)(7), 2(a)(8), 9(a), 10, 13(b), 32 and 33 of the Act and 
rules 45, 52, 53, 54, under the Act.
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    \1\ The Intermediate Companies either have been or will be 
formed prior to the consummation of the Merger. The Intermediate 
Companies will require the approval of their respective boards of 
directors to engage in the activities contemplated by this filing.
    \2\ On February 1, 1999, NEES announced that it had entered into 
an agreement to acquire all of the outstanding common stock of 
Eastern Utilities Associates (``EUA''), a registered holding company 
under the Act. Consummation of the merger between NEES and EUA is 
not conditional on, and is proceeding independently from, the 
closing of the Merger. NEES and EUA have an application pending 
(File No. 9537) for NEES to acquire all of the outstanding voting 
securities of EUA.
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Summary of Proposal

    As described in more detail below, National Grid proposes: (a) To 
acquire, by means of the merger described below, (``Merger''), all of 
the issued and outstanding common stock of NEES (``NEES Common Stock'') 
and, as a result of the acquisition of NEES Common Stock, indirectly 
acquire (i) all of NEES' interest in its electric utility subsidiary 
companies and (ii) all of the issued and outstanding common stock of 
NEES' nonutility subsidiaries; (b) to retain NEES as a subsidiary 
public utility holding company registered under section 5 of the Act; 
(c) to engage in acquisition-related financing transactions; (d) to 
retain National

[[Page 56237]]

Grid's existing nonutility activities, businesses and investments; (e) 
to retain NEES' nonutility businesses; and (f) that the Commission find 
that the Intermediate Companies are not ``holding companies'' for 
purposes of section 11(b)(2) of the Act.
    Following consummation of the Merger, National Grid will register 
with the Commission as a holding company under section 5 of the Act. 
NEES is currently a holding company registered under section 5 of the 
Act and will remain registered following consummation of the Merger.\3\ 
In addition, the Intermediate Companies will each register as holding 
companies under the Act.
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    \3\ As more particularly described below, NEES will be merged 
into NGG Holdings, Inc. with NGG Holdings, Inc. as the surviving 
entity. All references to NEES in this notice are to NEES and its 
potential corporate successor.
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National Grid and Subsidiaries

    National Grid is a public limited company formed in 1989 under the 
laws of England and Wales. Other than the Intermediate Companies, 
National Grid currently has one direct subsidiary National Grid 
Holdings plc. (``National Grid Holdings''). National Grid Holdings was 
formed under the laws of England and Wales to serve as a holding 
company over National Grid Company plc (``National Grid Company''), a 
utility company, and the other subsidiaries of National Grid that would 
not be in the NEES of ownership. Prior to consummation of the Merger, 
National Grid Holdings will file a notification of a foreign utility 
company status a quality as a FUCO within the meaning of Section 33 of 
the Act. The parties expect that National Grid Holdings will retain 
this status following the Merger.
    National Grid Holdings' other direct subsidiaries are: National 
Grid Insurance Limited; National Grid International Limited; The 
National Grid Group Quest Trustees Limited; NGG Telecoms Holdings 
Limited; and Natgrid Finance Holdings Limited.
    National Grid Company is the only electric transmission company in 
England and Wales.\4\ It now owns 4,300 miles of overhead transmission 
lines and 400 miles of underground cables, all in England and Wales, as 
well as interconnections with Scotland and France. The principal 
functions of National Grid Company in the competitive British power 
supply market are to: (a) Provide transmission services on a for-
profit, non-discriminatory basis, (b) maintain and make all needed 
improvements to optimize access to the transmission system; (c) procure 
ancillary services on the transmission system; (d) match demand and 
supply; (e) manage the daily system of half-hourly bids for competing 
generators; and (f) calculate market prices and make the payments due 
from each day's energy trading. National Grid Company is subject to 
regulatory controls overseen by the United Kingdom's Director General 
of Electricity Supply with regard to the prices it may charge for 
transmission services in England and Wales. Transmission price control 
arrangements are in effect for National Grid Company and are expected 
to remain in force until March 31, 2001.
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    \4\ As part of the United Kingdom government's privatization 
efforts, the Central Electricity Generating Board, which owned and 
operated the vast majority of electric generation and transmission 
facilities in England and Wales, was split into three competing 
generation companies, and an independent transmission company, which 
is now National Grid Company.
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    National Grid Insurance Limited is an insurance subsidiary formed 
in connection with the self-insured retention of National Grid 
Company's transmission assets. National Grid International Limited is 
an intermediate holding company for certain of the overseas activities 
of national Grid.\5\ These activities include automated meter reading 
and billing, telecommunications and electric transmission and 
distribution. The National Grid Group Quest Trustees Limited is the 
trustee company for National Grid's qualifying employee share ownership 
trust. NGG Telecoms Holdings Limited Indirectly holds National Grid's 
interest, currently at 48.3%, in Energis plc (``Energis''), a 
telecommunications company that focuses on the business marketplace in 
the United Kingdom. Natgrid Finance Holdings Limited is an intermediate 
holding company for entities that provide financial management services 
to National Grid.
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    \5\ Some of these activities are pursued in the United States by 
Teldata International Limited and National Grid USA Inc., first-tier 
subsidiaries of National Grid International Limited. Through its 
subsidiaries Teldata Inc. and First Point Services Inc., Teldata 
International Limited provides metering and billing services to 
electric, gas and water utilities and energy service providers. 
National Grid USA Inc. was formed to investigate potential 
opportunities in the United States market for National grid. No 
other National Grid companies conduct operations in the U.S.
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    National Grid's ordinary shares are listed on the London Stock 
Exchange (``LSE'').\6\ According to a report filed by National Grid 
with the Commission on October 4, 1999 in accordance with section 12(b) 
of the Securities Exchange Act of 1934 on Form 20-F, there were 
1,478,080,576 ordinary shares and one special share \7\ issued as of 
September 15, 1999. As of the fiscal year ended March 31, 1999, 
National Grid had revenues, net income and assets of $2.49 billion, 
$1.65 billion and $8.35 billion, respectively.\8\
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    \6\ National grid has an unsponsored American depositary Receipt 
(``ADR'') program under which a relatively small amount of its 
shares trade in the United States as ADRs. National Grid is 
preparing the necessary documentation which will enable it to become 
listed on a public exchange in North America through a full ADR 
program sometime prior to the closing of this transaction.
    \7\ This special share is owned by the government of the United 
Kingdom and is commonly referred to as the ``goldern share'' in 
National Grid. The golden share is a single non-voting share that 
prevents amendments to National Grid's Memorandum and Articles of 
Association without the consent of the holder of the golden share. 
The Memorandum and Articles of Association contain restrictions on 
certain classes of persons holding more than a prescribed 
shareholding in National Grid (as the indirect holder of the England 
and Wales transmission License through The National Grid Company). 
In particular, the Memorandum and Articles of Association restrict 
companies that trade electricity in England and Wales from owning 
more than 1% of the shares of National grid and also requires that 
no party may own more than 15% of National Grid's shares. The golden 
share is a means to preserve the status of national Grid as an 
independent provider of transmission services.
    \8\ All figures are presented on a U.S. Generally Accepted 
Accounting Procedures (``GAAP'') basis. The figures for revenues and 
net income were translated into dollars using a rate of U.S. $1.65 
for one pound (Noon Buying Rate on the last business day of each 
month during the year ended March 31, 1999), and the figure for 
assets was translated using a rate of U.S. $1.61 for one pound (Noon 
Buying Rate on March 31, 1999). Consistent with U.S. GAAP, National 
Grid's share of joint ventures and associates' businesses is 
included in net income and assets but is omitted from revenues. For 
the year ended March 31, 1999, National Grid's investment in Energis 
accounted for $36 million of National Grid's net income (calculated 
in the same manner as overall revenue).
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NEES and Subsidiaries

    NEES is a registered holding company organized as a voluntary 
association under the laws of the Commonwealth of Massachusetts. The 
NEES system covers more than 4,500 square miles with a population of 
approximately 3 million. NEES owns all of the voting securities of four 
electric distribution subsidiaries, Massachusetts Electric Company 
(``Mass. Electric''), The Narragansett Electric Company 
(``Narragansett''), Granite State Electric Company (``Granite State'') 
and Nantucket Electric Company (``Nantucker''). In addition, NEES has 
four other electric utility subsidiaries: New England Power Company 
(``NEP''); New England Electric Transmission (``NEET''); New England 
Hydro-Transmission Corporation (``N.H. Hydro''); and New England Hydro-
Transmission Electric Company (``Mass. Hydro'').\9\
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    \9\ NEES owns certain percentages, represented in parentheses, 
of the outstanding voting securities of the following utility 
subsidiaries: NEP (99.97%); N.H. Hydro (53.97%); and Mass. Hydro 
(53.97%). All of NEES' other utility subsidiaries are wholly owned 
by NEES.

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[[Page 56238]]

    Mass. Electric provides electric energy to approximately 980,000 
customers in an area comprising approximately 43 percent of 
Massachusetts. At the end of 1998, Mass. Electric had total assets of 
$1.45 billion, operating revenues of $1.49 billion and net income of 
$50.4 million. Mass. Electric is subject to regulation by the Federal 
Energy Regulatory Commission (``FERC'') and the Massachusetts 
Department of Telecommunications and Energy (``MDTE'').
    Narragansett provides electric energy to approximately 335,000 
customers in Rhode Island. At the end of 1998, Narragansett had total 
assets of $644.1 million, operating revenues of $475 million and net 
income of $32.3 million. Narragansett is subject to regulation by the 
FERC, the Rhode Island Public Utility Commission (``RIPUC'') and the 
Rhode Island Division of Public Utilities and Carriers (``RIDIV'').
    Granite State provides electric energy to approximately 37,000 
customers in 21 New Hampshire communities.\10\ At the end of 1998, 
Granite State had total assets of $61.8 million, operating revenues of 
$65.7 million, and net income of $3.2 million. Granite State is subject 
to regulation by the FERC and the New Hampshire Public Utilities 
Commission (``NHPUC'').
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    \10\ Granite State also provides a range of energy and energy-
related services, including: sales of electric energy, audits, power 
quality, fuel supply, repair, maintenance, construction, design, 
engineering and consulting.
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    Nantucket provides electric utility service at retail to 
approximately 10,000 customers on Nantucket Island in Massachusetts. At 
the end of 1998, Nantucket had total assets of $44 million, operating 
revenues of $15.1 million, and net income of $567,000. Nantucket is 
subject to regulation by the FERC and the MDTE.
    NEP is also a holding company because it owns more than ten percent 
of the outstanding voting securities of Vermont Yankee Nuclear Power 
Corporation, the licensed operator of the Vermont Yankee nuclear 
facility.\11\ At the end of 1998, NEP had total assets of $2.41 
billion, operating revenues of $1.2 billion and net income of $122.9 
million. NEP is subject to regulation by the FERC, the Nuclear 
Regulatory Commission (``NRC''), the RIDIV, the MDTE, the NHPUC, the 
Vermont Public Service Board (``VPSB'') the Connecticut Department of 
Public Utility Control (``CDPUC''), and the Maine Public Utilities 
Commission.
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    \11\NEP also has minority interests in Yankee Atomic Electric 
Company, Maine Yankee Atomic Power Company and Connecticut Yankee 
Atomic Power Company, all of which have permanently ceased 
operations. As a holding company, NEP is exempt form registration 
under the Act. See Yankee Atomic Electric Company, Holding Co. Act 
Release no. 13048 (Nov. 25, 1955); Connecticut Yankee Atomic Power 
Company, Holding Co. Act Release No. 14768 (Nov. 15, 1963).
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    NEET owns and operates a direct current/alternating current 
converter terminal facility for the first phase of the Hydro-Quebec and 
New England interconnection (``Interconnection'') as well as six miles 
of high voltage direct current transmission line in New Hampshire. N.H. 
Hydro operates 121 miles of high-voltage direct current transmission 
line in New Hampshire for the second phase of the Interconnection, 
extending to the Massachusetts border. Mass. Hydro operates a direct 
current/alternating current terminal and related facilities for the 
second phase of the Interconnection and 12 miles of high-voltage direct 
current transmission line in Massachusetts.
    In addition to its utility subsidiaries, NEES has the following 
nonutility subsidiaries: New England Power Service Company (``Service 
Company''); New England Hydro Finance Company, Inc.; NEES 
Communication, Inc. (``NEESCom''); NEES Telecommunications Corp.; NEES 
Global, Inc. (``NEES Global''); NEES Energy, Inc. (``NEES Energy''); 
AllEnergy Marketing Company, L.L.C. (``AllEnergy''); Texas Liquids, 
L.L.C. (``Texas Liquids''); AEDR Fuels L.L.C. (``AEDR''); Weatheride 
USA (``Weatheride''); Texas-Ohio Gas, Inc.; Granite State Energy, Inc. 
(``Granite State''); Metro West Realty, L.L.C.; 25 Research Drive, 
L.L.C.; New England Energy, Inc.; and Nexus Energy Software, Inc. 
(``Nexus'').\12\ NEES also holds a 0.8% ownership interest in UNITIL 
Company (``Unitil''), which is registered holding company headquartered 
in New England.\13\
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    \12\ All of these subsidiaries are either directly or indirectly 
wholly owned by NEES, except for (a) Nexus in which NEES Global has 
a 40.3% ownership interest, (b) AEDR, in which Texas Liquids has a 
fifty percent voting interest, and (c) Weatheride, in which Texas 
Liquids has a ten percent voting interest.
    \13\ NEES acquired the Unitil interest in exchange for NEES's 
interest in Fitchburg Gas and Electric Company when that company was 
merged with Unitil.
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    New England Power Service Company, provides a variety of 
administrative and consulting services for the NEES system under a 
service agreement approved by the Commission in accordance with the 
requirements of rule 90 under the Act. New England Hydro Finance 
Company, Inc., which is owned in equal shares by Mass. Hydro and N.H. 
Hydro, provides the debt financing required by the owners to fund the 
capital costs of their participation in the Interconnection. NEES 
Communication, Inc. is an exempt telecommunications company that 
provides telecommunications and information-related goods and services. 
NEES telecommunications Corp. is wholly owned by NEESCom and is 
presently inactive. NEES Global provides consulting services and 
product licenses to unaffiliated utilities in the area of electric 
utility restructuring and customer choice. NEES Energy, Inc. owns 
ninety nine percent of the voting securities of AllEnergy,\14\ which 
markets energy products and provides a wide range of energy-related 
services to customers in the competitive power markets of New England 
and New York. Texas Liquids engages principally in the marketing and 
sale of propane and energy in the New Jersey area. AEDR is principally 
engaged in the home heating oil business. Weatheride is engaged in 
providing energy management, demand side management, technical services 
and utility hedging services. Metro West Realty, L.L.C. conducts real 
estate investment and management activities. 25 Research Drive, L.L.C. 
was formed to facilitate the proposed acquisition of Eastern Utilities 
Associates. New England Energy, Inc. is currently inactive. Nexus 
develops and licenses its software to utilities and operates a website 
which targets energy consumers for the purpose of helping them make 
energy choices.\15\
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    \14\ NEES Global owns the remaining one percent.
    \15\ In addition to these nonutility subsidiaries, NEES Global 
has a 4%ownership interest in Monitoring Technologies, Inc. 
(``MTC'') and a voting interest of 4.67% in Separation Technologies, 
Inc. (``STI''). MTC designs, develops, manufactures and markets 
microprocessor-based products that monitor wear and forecast failure 
of components in machinery. STI is a provider of ash processing 
equipment, project financing, operations and marketing services 
related to its equipment.
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    NEES Common Stock is listed on the New York Stock Exchange and the 
Boston Stock Exchange. As of December 31, 1998,there were 59,171,015 
shares of NEES Common stock outstanding. On a consolidated basis at the 
end of 1998, NEES had total assets of $5.07 billion, net utility assets 
of $2.5 billion, total operating revenues of $2.42 billion, utility 
operating revenues of $2.24 billion, and net income of $190 million.

The Proposed Merger and Subsequent Corporate Structure

    In accordance with an Agreement and Plan of Merger (``Merger 
Agreement''), dated as of December 11, 1998 by and among National Grid, 
NGG Holdings, LLC, a Massachusetts limited liability

[[Page 56239]]

company and a wholly owned subsidiary of National Grid, and NEES, NEES 
will become an indirect, wholly owned subsidiary of National Grid. The 
Merger will be accomplished in several steps. Specifically, NEES will 
merge with and into NGG Holdings, LLC, with NEES as the surviving 
entity, and then merge again into another to-be-formed limited 
liability company (which survives), which in turn will merged into NGG 
Holdings, Inc. with NGG Holdings, Inc. as the surviving entity.
    As consideration for each common share of NEES outstanding at the 
time of the Merger, NEES shareholders will receive $53.75 per share in 
cash. This cash payment will increase by $0.003288 per share, up to 
$0.60 per share, for each day that the Merger closing is delayed longer 
than six months after NEES shareholders approve the Merger.\16\ NEES 
shareholders will not obtain any stock consideration from National Grid 
in the Merger. Applicants state that the Merger is expected to have no 
effect on the outstanding public debt and preferred securities of the 
NEES Subsidiary Companies.\17\
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    \16\ NEES Shareholders approved the Merger on May 3, 1999.
    \17\ NEES currently has no public security holders other than 
common stockholders.
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    National Grid intends to establish the Intermediate Companies \18\ 
as intermediate holding companies in the corporate structure between 
National Grid and NEES. The purpose of this structure is to permit both 
reinvestment and repatriation of the profits of NEES in a tax efficient 
manner. These entities exist primarily for the purpose of creating an 
economically efficient and viable structure for the transaction and the 
ongoing operations of NEES. Applicants, however, note that certain 
adjustments in this structure may be necessary to reflect tax and 
accounting changes as well as management decisions prior to 
consummation of the Merger.
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    \18\ Applicants note that there will be no third party 
interests, including lenders, minority equity interest holders or 
customers, in the Intermediate Companies.
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    Section 11(b)(2) requires, in effect, that a registered holding 
company may not have as an indirect subsidiary a company which is 
itself a holding company as defined in the Act. Section 2(a)(7), which 
defines what constitutes a holding company within the meaning of the 
Act, provides that the Commission may, under certain circumstances, 
determine that a company is not a holding company as defined in that 
section. Applicants propose that the Intermediate Companies not be 
deemed holding companies under section 2(a)(7), solely for purposes of 
section 11(b)(2).
    Following consummation of the Merger, National Grid will file under 
section 5 as a registered holding company, with NEES as an indirect 
wholly owned subsidiary registered holding company. National Grid will 
seek to qualify National Grid Holdings as a foreign utility company 
within the meaning of section 33 of the Act. Applicants maintain that, 
as a FUCO, National Grid Holdings will be exempt from all provisions of 
the Act, except as provided in section 33. In this regard, Applicants 
seek confirmation that National Grid's investment in National Grid 
Holdings at the time of consummation of the Merger will not be counted 
toward the limitation on ``aggregate investment'' for purposes of rule 
53 under the Act. In addition, national Grid will seek to qualify NGG 
Telecoms Limited and certain subsidiaries of National Grid 
International Limited as exempt telecommunications companies within the 
meaning of section 34 of the Act.
    Following consummation of the Merger, NEES Common Stock will be 
deregistered under the Securities Exchange Act of 1934, as amended, and 
delisted from the New York Stock Exchange and the Boston Stock 
Exchange. The NEES Agreement and Declaration of Trust will be replaced 
by corporate bylaws for the surviving entity in the Merger.\19\ The 
Merger Agreement provides that the headquarters of NEES will remain in 
Massachusetts, with offices for utility operations in Massachusetts, 
Rhode Island and New Hampshire. The post-Merger NEES board of directors 
will be comprised of up to nine members designated from among the 
officers of National Grid and NEES, as mutually agreed by National Grid 
and NEES. The Merger Agreement provides that the chief executive 
officer of NEES and an additional director of NEES, each a United 
States citizen, will serve on National Grid's board of directors. In 
addition, the then-current outside directors of NEES will be appointed 
to an advisory board to be maintained for at least two years after the 
effectiveness of the Merger. The function of the advisory board will be 
to advise the surviving entity's board of directors with respect to 
general business opportunities and activities in the surviving entity's 
market area as well as customer relations issues.
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    \19\ Although it is anticipated that NGG Holdings will be the 
surviving entity in the Merger, Applicants currently intend to 
convert the surviving entity into a more conventional business 
corporation, which Applicants anticipate will have the name NEES 
Holdings, Inc.
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Financing the Merger

    National Grid intends to finance the acquisition of NEES through a 
combination of borrowings under existing bank facilities and other 
internal cash sources. It is expected that the acquisition price will 
be approximately $3.2 billion. On March 5, 1999, National Grid entered 
into a fully committed bank facility providing for up to $2.750 billion 
in borrowings. The facility has a maturity of three to five years. 
Applicants seek confirmation that National Grid's borrowing under this 
credit facility for purposes of financing the Merger would be 
permissible under the Act.\20\
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    \20\ National Grid, NGG Holdings, the Intermediate Companies, 
NEES and NEES's subsidiaries have filed an application before the 
Commission (File No. 70-9519), requesting authority to engage in a 
variety of post-merger financing and related transactions.

Margaret H. McFarland,
Deputy Secretary.
    For the Commission, by the Division of Investment Management, 
under delegated authority.
[FR Doc. 99-27037 Filed 10-15-99; 8:45 am]
BILLING CODE 8010-01-M