[Federal Register Volume 65, Number 176 (Monday, September 11, 2000)]
[Notices]
[Pages 54872-54878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23172]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27226]


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

September 1, 2000.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated 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 September 26, 2000, 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 September 26, 2000, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Energy East Corp., et. al. [70-9675]

    Energy East Corp. (``Energy East''), P.O. Box 1196, Stamford, 
Connecticut 06904-1196, a New York corporation and a public-utility 
holding company exempt from registration under section 3(a)(1) of the 
Act, by order of the Commission, \1\ CIS Service Bureau, L.L.C. 
(``CIS''), 855 Main Street, Bridgeport, CT 06604, as indirect wholly 
owned nonutility subsidiary of Connecticut Energy Corp. and The Union 
Water-Power Company (``UWP''), 526 Western Avenue, Augusta, ME 04330, a 
wholly owned nonutility subsidiary of CMP Group, Inc. (``CMP Group'') 
(collectively, ``Applicants'') have filed an application under section 
13(b) of the Act and rules 87, 88, 90, and 91 under the Act. \2\
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    \1\ Holding Co. Act Release No. 27128 (Feb. 2, 2000).
    \2\ Energy East filed two related applications seeking approvals 
required to complete the proposed acquisitions (``Merger'') by 
Energy East of CMP Group, a Maine corporation and a public-utility 
holding company exempt from registration under section 3(a)(1) of 
the Act, by order of the Commission; CTG Resources, Inc., a 
Connecticut corporation and a public-utility holding company exempt 
from registration under section 3(a)(1) by rule 2 under the Act and 
Berkshire Energy Resources, a Massachusetts corporation and a 
public-utility holding company exempt from registration under 
section 3(a)(1) by rule 2 under the Act (File No. 70-9569). By order 
dated August 31, 2000 (HCAR No. 27224) (``Merger Order'') the 
Commission authorized the Merger. The second related application 
(File No. 70-9609) was filed seeking approval for a program of 
external financing, credit support arrangements, and other related 
financing proposals.

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[[Page 54873]]

    Applicants request the Commission to authorize: (1) The designation 
of Energy East Management Corp. (``EE Management'') as a subsidiary 
service company in accordance with the provisions of rule 88 under Act; 
(2) the provision of intra-system administrative, management and 
support services by EE Management to the Energy East system companies; 
(3) the form of services agreements (``Services Agreements'') that EE 
Management proposes to enter into with each associate company; and (4) 
agreements entered into between CIS and UWP with other associate 
utility subsidiaries under an exemption to the at-cost standards of the 
Act. \3\
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    \3\ In addition, Applicants request that the Commission find 
that this application is deemed to constitute a filing on Form U-13-
1 for purposes of rule 88 under the Act, or, alternatively, that the 
filing of a Form U-13-1 is not necessary under the Act.
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    Upon completion of the Merger, Energy East will own interests in 
the following eight public-utility companies, each of which will be 
wholly owned by companies within the Energy East system, unless 
otherwise indicated: (1) New York State Electric & Gas; (2) The 
Southern Connecticut Gas Company; (3) Maine Natural Gas, L.L.C. 
(formerly CMP Natural Gas, L.L.C.); \4\ Central Maine Power Company; 
(5) Maine Electric Power Company, Inc. (``MEPCo''); \5\ (6) NORVARCO; 
(7) Connecticut Natural Gas Corporation; and (8) The Berkshire Gas 
Company (collectively, ``Utility Subsidiaries'').
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    \4\ Maine Natural Gas is a joint venture between New England Gas 
Development Corp. (holding a 19% interest), a wholly owned 
subsidiary of CMP Group, and Energy East Enterprises (holding an 81% 
interest), a wholly owned subsidiary of Energy East.
    \5\ Central Maine Power owns 78.3% voting interest of MEPCo with 
the remaining interests owned by two other Maine utilities.
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    Upon completion of the Merger, Energy East will also own various 
other subsidiary companies, described in Appendix A to the Merger 
Order, that are not public-utility companies under the Act 
(collectively, ``Nonutility Subsidiaries''). Among the Nonutility 
Subsidiaries is EE Management, a Delaware corporation and a direct 
wholly owned subsidiary of Energy East that was organized in 1999 to 
invest the proceeds of the sale of Energy East's coal-fired generation 
assets.
    Energy East will register as a public-utility holding company upon 
completion of the Merger. Following the Merger, EE Management proposes 
to provide the Energy East system companies with a variety of 
administrative, management and support services. These services will be 
provided in accordance with Services Agreements that EE Management will 
enter into with each of the Utility subsidiaries and Nonutility 
Subsidiaries that it serves. Applicants state that EE Management will 
be organized and will conduct its operations so as to meet the 
requirements of section 13 of the Act and the rules under the Act.
    Applicants also state that the Services Agreements will be 
structured and administered in accordance with the Act and rules under 
the Act. The cost of services payable to EE Management under the 
Services Agreements will be computed in accordance with the applicable 
rules under the Act and with appropriate accounting standards. Where 
more than one company is involved in or has received benefits from a 
service performed by EE Management, the Services Agreements will 
provide that client companies will pay their fairly allocated pro rata 
share in accordance with the methods set out in appendices to the 
Services Agreements. The Services Agreements will provide methodologies 
to ensure that the client companies pay to EE Management the cost of 
all services, computed in accordance with Commission rules and 
regulations under the Act and appropriate accounting standards.
    Applicants state that EE Management will be staffed by employees 
who will be transferred over time from other Energy East system 
companies. In addition, EE Management will have access to certain 
employees who will remain employees of other system companies. 
Employees of other system companies who devote a portion of their time 
to EE Management will directly charge to EE Management the applicable 
portion of their time, including allocation of overhead costs.
    Applicants request an exemption from the at-cost provisions of 
section 13(b) of the Act and rules 90 and 91 under the Act in 
connection with the sale of goods or services by the following 
companies in connection with the following agreements: (1) To permit 
UWP (which is currently party to five agreements with Central Maine 
Power having various termination dates, and proposes to enter into a 
sixth agreement) to continue to provide services to Central Maine Power 
at market-based rates, which have been or will be submitted for 
approval to the Maine Public Utilities Commission; \6\ (2) to permit 
CIS, which provides customer information services to Southern 
Connecticut Gas under an agreement for a monthly fee based on the 
number of Southern Connecticut Gas customers billed, to maintain these 
agreements in effect, including entering into any extensions and 
renewals of these agreements, following Energy East's registration as a 
holding company; and (3) to permit UWP and CIS to enter into agreements 
with other Utility Subsidiaries, on substantially the same terms, 
following Energy East's registration as a holding company.
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    \6\ After the Merger UWP proposes to offer similar services to 
other Utility Subsidiaries. UWP also provides these services to 
unaffiliated utilities and other customers.
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NiSource Inc., et al. [70-9551]

    NiSource Inc. (``NiSource''), formerly NIPSCO Industries, Inc., an 
Indiana corporation, 801 East 86th Avenue, Merrillville, Indiana 46410-
6272, a public utility holding company exempt from registration under 
section 3(a)(1) under the Act by order, New NiSource Inc. (``New 
NiSource''), 801 East 86th Avenue, Merrillville, Indiana 46410-6272, a 
wholly owned subsidiary of NiSource, and Columbia Energy Group 
(``Columbia''), 13880 Dulles Corner Lane, Herndon, Virginia 20171-4600 
(collectively, ``Applicants''), have filed a joint application-
declaration under sections 6(a), 7, 8, 9(a), 10, 11, 13(b), and rules 
87, 88, 90 and 91 under the Act.
    Applicants state that New NiSource will register as a public 
utility holding company under section 5 of the Act. \7\
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    \7\ The Applicants and certain of their subsidiaries have also 
filed in S.E.C. file no. 70-9681 an application-declaration related 
to the financing of the proposed New NiSource registered holding 
company system. A notice of that filing will be issued at a later 
date.
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The Proposed Merger

    NiSource, New NiSource, Columbia, Parent Acquisition Corporation 
(``Parent Acquisition''), a wholly owned subsidiary of New NiSource, 
and Company Acquisition Corp. (``Company Acquisition'') and NiSource 
Finance Corp., an Indiana corporation and a direct and wholly owned 
subsidiary of New NiSource, entered into an amended and restated 
agreement and plan of merger dated March 31, 2000 (``Merger 
Agreement''). Under the Merger Agreement, Parent Acquisition will merge 
into NiSource and Company Acquisition will merge into Columbia. 
NiSource and Columbia will be the surviving corporations in those 
mergers and will become wholly owned subsidiaries of New NiSource.

[[Page 54874]]

Immediately after these mergers, NiSource will merge into New NiSource. 
New NiSource will then change its name to ``NiSource Inc.'' (still 
referred to herein as ``New NiSource'') and serve as a holding company 
for Columbia and its subsidiaries and the current subsidiaries of 
NiSource (``Merger'').
    NiSource shareholders will receive one common share of New NiSource 
for each of their NiSource common shares and after the merger the 
NiSource shareholders will own no less than 53% of the New NiSource 
shares. Columbia shareholders will receive, for each of their Columbia 
common shares, either (1) $70 in cash, and $2,60 stated amount of a New 
NiSource Stock Appreciation Income Linked Security\SM\ (``SAILS''), 
which is a unit consisting of a zero coupon debt security and a forward 
equity contract having the terms described below, or (2) if the 
Columbia shareholder elects, the number of New NiSource common shares 
equal to $74 divided by the average trading price of NiSource common 
shares for the 30 consecutive trading days ending two trading days 
before the completion of the merger, which number may never be more 
than 4.4848. Stock elections are subject to proration if the elections 
exceed 30% of Columbia's outstanding shares. Also, unless Columbia 
shareholders make stock elections for at least 10% of Columbia's 
outstanding shares, all Columbia shareholders will receive cash and New 
NiSource SAILS in the merger.
    If the merger is not completed by February 27, 2001, Columbia 
shareholders will receive, for each of their Columbia common shares, an 
additional amount in cash equal to interest at 7% per annum on $72.29 
for the period beginning on February 27, 2001 and ending on the day 
before the completion of the merger, less the amount of any cash 
dividends paid on Columbia common shares with a record date after 
February 27, 2001.
    Each SAILS is a unit consisting of a share purchase contract and a 
debenture. The share purchase contract represents the holder's 
obligation to purchase common shares on the fourth anniversary of 
completion of the merger, and the debenture is pledged to secure that 
obligation. Under the share purchase contract, a holder will receive 
for each New NiSource SAILS, on the fourth anniversary of the 
completion of the merger, the following number of New NiSource common 
shares: (1) If the average closing price of the common shares on the 
New York Stock Exchange over a 30-day period before the fourth 
anniversary equals or exceeds $23.10, the holder will receive 0.1126 
common shares; (2) if the average closing price is less than $23.10 but 
greater than $16.50, the holder will receive a number of common shares 
equal to $2.60 divided by the average closing price; and (3) if the 
average closing price is less than or equal to $16.50, the holder will 
receive 0.1576 common shares. The debenture that is initially part of 
each New NiSource SAILS will have a principal amount of $2.60. The 
debenture will not pay interest for the first four years after the 
merger.
    Unless a holder chooses to make a cash payment of $2.60 to settle 
the purchase contract, the debenture that is pledged as collateral will 
be remarketed shortly before the fourth anniversary of the merger, and 
the proceeds will be used to pay the amount the holder would owe under 
the purchase contract. If the remarketing is successful, proceeds from 
the sale will be delivered to New NiSource as payment for the common 
shares. If the remarketing agent cannot remarket the debentures, New 
NiSource will exercise its rights as a secured party and take 
possession of the debentures. In either case, the holder's obligation 
to purchase shares of New NiSource common stock will be fully 
satisfied, and the holder will receive New NiSource common shares.
    Shareholders of Columbia at the time of the merger who did not vote 
in favor of the merger and who made a demand for appraisal of their 
shares under the Delaware General Corporation Law (the ``DGCL'') 
Section 262 may perfect their demand for appraisal rights of those 
shares following the effective date of the merger in accordance with 
Section 262 of the DGCL.

Financing of the Offer and Transaction

    New NiSource will issue approximately 124.7 million shares of 
common stock, par value of $.01 per share, in exchange for the 
outstanding common stock of NiSource, based on the number of shares 
outstanding on February 29, 2000. Assuming 30% of the outstanding 
Columbia shares are exchanged for New NiSource common stock (which 
NiSource believes is a reasonable assumption), approximately 109.2 
million shares of New NiSource common stock will be issued in the 
merger to Columbia's shareholders. In addition, New NiSource will issue 
SAILS, which will result in the issuance of between 6.4 million and 9.0 
million shares of New NiSource common stock on the fourth anniversary 
date of the merger depending on the New NiSource stock price, assuming 
30% of the outstanding shares are exchanged for the stock 
consideration.
    NiSource estimates that the cash payments to Columbia shareholders 
in the merger will range from approximately $4 billion, assuming 30% of 
the outstanding Columbia shares are exchanged for the stock 
consideration, to approximately $6 billion, if all of the Columbia 
shares are exchanged for the cash and SAILS consideration. In addition, 
NiSource expects approximately $2.4 billion of Columbia's existing debt 
to remain outstanding after the merger.
    As a result of the Merger, the combined company will have pro forma 
operating revenues of approximately $6.2 billion for the twelve months 
ended June 30, 2000. The combined company will also have pro forma 
assets of $17.8 billion as of June 30, 2000, including an adjustment of 
approximately $3.8 billion to reflect the premium paid for Columbia 
(``goodwill'') and estimated Merger costs. The Merger will be accounted 
for using the purchase method of accounting. New NiSource will not push 
down the goodwill to Columbia or its subsidiaries.\8\
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    \8\ See Staff Accounting Bulletin 54, Topic 5.J. question 2 
(granting an exception to push down accounting for companies with 
significant debt or preferred stock).
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Parties to the Merger

NiSource and Its Subsidiaries

    NiSource was incorporated in 1987 to serve as the holding company 
for Northern Indiana, which is a public utility under the Act, and 
various nonutility subsidiaries. NiSource has three additional direct 
public utility subsidiaries, Kokomo Gas and Fuel Company (``Kokomo 
Gas''), Northern Indiana Fuel and Light Company, (``NIFL''), Bay State, 
and one indirect public utility subsidiary, Northern Utilities, Inc. 
(``Northern''). NiSource is currently an exempt holding company 
pursuant to an order under section 3(a)(1) of the Act.\9\
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    \9\ See NIPSCO, Industries, Inc., Holding Co. Act Release No. 
26975 (Feb. 10, 1999).
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    NiSource holds all of the issued and outstanding common stock of 
Northern Indiana, which is a combination gas and electric utility 
company, which operates, in 30 counties in the northern part of 
Indiana, serving an area of about 12,000 square miles with a population 
of approximately 2,200,000. Northern Indiana distributes gas to 
approximately 681,100 residential, commercial and industrial customers 
and generates, purchases, transmits and sells electricity to 
approximately 426,000 electric customers.

[[Page 54875]]

    Northern Indiana owns and operates four coal-fired electric 
generating stations with an aggregate net capability of 3,179 MW, two 
hydroelectric generating plants with an aggregate net capability of 10 
MW, and four gas-fired combustion turbine generating units with an 
aggregate net capability of 203 MW, for a total system net capability 
of 3,392 MW. Northern Indiana's transmission system consists of 3,068 
circuit miles of lines with voltages ranging from 34.5 kV to 345 kV. 
Northern Indiana's electric distribution system extends into 21 
counties in the northern third of Indiana and consists of 7,800 circuit 
miles of overhead and 1,571 cable miles of underground primary 
distribution lines operating at various voltages ranging from 2.4 kV to 
12.5 kV.
    NiSource holds all of the issued and outstanding common stock of 
Kokomo Gas, which supplies natural gas to approximately 34,500 
customers in a six-county area of north central Indiana having a 
population of approximately 100,000. The Kokomo Gas service territory 
is contiguous to Northern Indiana's gas service territory.
    NiSource holds all of the issued and outstanding common stock of 
NIFL, which supplies natural gas to approximately 35,500 customers in 
five counties in the northeast corner of Indiana having a population of 
approximately 66,700. The NIFL service territory is also contiguous to 
Northern Indiana's gas service territory and overlaps Northern 
Indiana's electric service territory. Northern Indiana has initiated a 
multi-phase customer choice program to allow residential and small 
commercial customers the right to choose alternative gas suppliers.
    The three Indiana operating utility subsidiaries of NiSource are 
subject to regulation by the Indiana Utility Regulatory Commission 
(``IURC'') as to rates, service and other matters.
    NiSource also holds all of the issued and outstanding common stock 
of Bay State, which provides gas service to approximately 271,900 
residential, commercial and industrial customers in three separate 
areas of Massachusetts covering approximately 1,344 square miles and 
having a combined population of approximately 1,340,000. These include 
the greater Springfield area in western Massachusetts, an area 
southwest of Boston that includes the cities of Attleboro, Brockton and 
Taunton, and an area north of Boston extending to the New Hampshire 
border that includes the city of Lawrence. Bay State is subject to 
regulation by the MDTE as to rates, service and other matters. Bay 
State, which owns all of the issued and outstanding common stock of 
Northern, is currently claiming an exemption as a holding company under 
section 3(a)(2) of the Act and under rule 2 of the Act. Bay State 
intends to maintain that exemption following the merger so long as 
Northern remains its subsidiary.
    Northern, a wholly owned subsidiary of Bay State, provides gas 
service to approximately 48,100 residential, commercial and industrial 
customers in an area of approximately 808 square miles in New Hampshire 
and Maine having a population of approximately 450,000. Northern's 
service area extends north from the Massachusetts-New Hampshire border 
to the Portland/Lewiston area in Maine. Northern is subject to 
regulation by the New Hampshire Public Utilities Commission and the 
Maine Public Utilities Commission as to rates, service and other 
matters.
    At December 31, 1999, the NiSource gas distribution system in 
Indiana included approximately 13,924 miles of distribution mains to 
serve 751,100 customers. In addition, Northern Indiana owns and 
operates underground gas storage facilities located at Royal Center, 
Indiana with a storage capacity of 6.75 billion cubic feet (Bcf), and a 
liquefied natural gas (``LNG'') plant in LaPorte County, Indiana having 
a storage capacity of 4.0 Bcf, which is used for system pressure 
maintenance and peak season (November-March) deliveries. Northern 
Indiana also holds under long-term contract storage capacity totaling 
approximately 9.11 Bcf in the Markham, Moss Bluff and Egan salt-dome 
storage caverns in Texas and Louisiana and the Rotherwood Facility in 
Texas.
    At December 31, 1999, NiSource's New England gas distribution 
utilities included 5,450 miles of distribution mains, 116 miles of 
transmission lines and customer connections to serve 320,000 customers. 
Bay State and Northern also own and operate LNG liquefaction, 
vaporization and storage facilities and propane storage tanks used to 
store supplemental and peak shaving supplies. At December 31, 1999, 
NiSource's combined gas system consisted of 19,374 miles of 
distribution mains, together with associated compressing and regulating 
stations, LNG liquefaction, vaporization and storage facilities, 
propane storage tanks and 1,071,221 customers.
    For the twelve months ended June 30, 2000, the gas and electric 
public utility subsidiaries of NiSource reported operating income of 
$508.9 million ($134.2 million gas and $374.7 million electric) on 
combined operating gas and electric utility revenues of approximately 
$2.3 billion. For the twelve months ended June 30, 2000, the 
consolidated operating revenues of NiSource and its subsidiaries was 
approximately $3.6 billion, including approximately $1.2 billion gas 
and $1.1 billion electric. Gas sales (including transportation 
revenues) accounted for approximately 52% and electric sales accounted 
for approximately 48% of NiSource's gross utility revenues. 
Consolidated assets of NiSource and its subsidiaries as of June 30, 
2000, were approximately $7.2 billion, consisting of $5.5 billion in 
gas and electric utility assets ($2.7 billion gas and $2.8 billion 
electric) and $1.7 billion in other nonutility assets. As of June 30, 
2000, NiSource had 121,183,197 shares of common stock issued and 
outstanding. NiSource's common stock is listed on the New York Stock 
Exchange, the Pacific Stock Exchange and the Chicago Stock Exchange.
    NiSource owns all of the outstanding common stock of NiSource 
Pipeline Group, Inc. (``NPG''). NPG wholly owns Granite State Gas 
Transmission, Inc. (``Granite State'') and PNGTS Holding Corp. (``PNGTS 
Holding''). Granite State owns and operates an interstate pipeline. 
PNGTS Holding, together with Granite State, hold a 19.0% interest in 
PNGTS, a natural gas transmission line.
    NI Energy Service, Inc. (``NI Energy Services'') is a direct wholly 
owned subsidiary of NiSource. NI Energy Services wholly owns Crossroads 
Pipeline Company (``Crossroads''), which is a natural gas 
transportation company that was certificated by the Federal Energy 
Regulatory Commission (``FERC'') in May 1995 to operate as an 
interstate pipeline.
    EnergyUSA, Inc. (``EnergyUSA''), a wholly owned subsidiary of 
NiSource, serves as an intermediate holding company for many of 
NiSource's nonutility businesses and coordinates the energy-related 
diversification efforts of NiSource. Through subsidiaries, EnergyUSA 
owns businesses engaged in the following activities: (1) Energy 
marketing; (2) gas storage; (3) residential/small commercial gas and 
propane marketing; (4) appliance leasing; (5) oil and gas exploration 
and production; and (6) energy management services. The subsidiaries of 
EnergyUSA that engage in the activities are discussed below:
    TPC, a wholly owned direct subsidiary of EnergyUSA, markets gas to 
commercial and industrial entities, on a national basis including 
customers in areas served by NiSource's gas distribution utilities and 
provides gas

[[Page 54876]]

asset management and optimization to gas utilities.
    NI Energy Services, Inc., a wholly owned direct subsidiary of 
NiSource, and TPC Storage Holding Corp. and TPC Gas Storage Services, 
L.P., NiSource's wholly owned indirect subsidiaries, own 100% of MHP, 
which develops and operates underground gas storage facilities. Through 
MHP and its wholly owned indirect subsidiaries, Moss Bluff Hub 
Partners, L.P. and Egan Hub Partners, L.P., NiSource provides gas 
storage services to a number of utilities, gas marketers and other 
customers, including Northern Indiana.
    EnergyUSA Retail, Inc. (``EnergyUSA Retail'') provides gas and 
other energy-related products and services to residential and small 
commercial customers of utilities that allow competitive suppliers to 
market in their service territories. EnergyUSA Retail also sells 
propane and leases water heaters to customers in New England.
    EnergyUSA Commercial Energy Services, Inc. provides traditional 
energy management services, including power quality consulting and 
energy management, to commercial and industrial entities.
    EnergyUSA is a minority owner in Mosaic Energy LLC, a new venture 
created to develop and market proprietary fuel cell distribute 
generation technology. EnergyUSA also provides gas supply services to 
other NiSource affiliates, including Kokomo Gas and NIFL. Additionally, 
EnergyUSA has equity interests in a domestic oil and gas producer with 
properties located in Texas, Oklahoma and Louisiana.
    Primary Energy, Inc. (``Primary''), a wholly owned subsidiary of 
NiSource, arranges energy-related projects for large energy-intensive 
industrial facilities through its wholly owned subsidiaries: Harbor 
Coal Company, North Lake Energy Corporation, Lakeside Energy 
Corporation, Portside Energy Corporation, Cokenergy, Inc., Whiting 
Clean Energy, Inc., and Ironside Energy LLC.
    SM&P Utility Resources, Inc. (``SM&P''), Colcom Incorporated 
(``Colcom''), each a wholly owned subsidiary of NiSource, and 
Underground Technology, Inc. (``UTI'') (of which NiSource owns 50%) 
perform underground facilities locating for utilities throughout the 
United States.
    Miller Pipeline Corporation (``Miller''), a wholly owned indirect 
subsidiary of NiSource, installs, repairs and maintains underground 
pipelines used in gas and water transmission and distribution systems. 
Miller also sells products and services related to infrastructure 
preservation and replacement.
    NiSource, through an intermediate holding company, IWC Resources 
Corporation (``IWCR''), owns all of the stock in six water companies 
(Indianapolis Water Company, Harbour Water Corporation, Liberty Water 
Corporation, Irishman's Run Acquisition Corp., The Darlington Water 
Works Company and IWC Morgan Water Corporation) and has an operating 
agreement with the City of Lawrence, Indiana, which is being treated as 
a purchase by IWCR in accordance with generally accepted accounting 
principles (collectively, the ``Water Utilities''). The Water Utilities 
supply water to residential, commercial and industrial customers and 
for fire protection service in Indianapolis, Indiana and surrounding 
areas.
    NiSource Development Company, Inc. (``Development'') has 
investments in various activities, primarily in real estate, intended 
to complement NiSource's energy businesses. Development's wholly owned 
subsidiaries are: South Works Power Company (``South Works''), JOF 
Transportation Company (``JOF Transportation''), NDC Douglas 
Properties, Inc., (``Douglas Properties''), KOGAF Enterprises, Inc. 
(``KOGAF''), and Lake Erie Land Company (``Lake Erie''). The activities 
of these subsidiaries are discussed below:
    South Works leases electric generating and transmission facilities 
owned by U.S. Steel and located in south Chicago, Illinois.
    JOF Transportation owns a 40% passive interest in railroad assets 
in the vicinity of several electric generating plants owned by Northern 
Indiana and which Northern Indiana currently uses to deliver coal to 
its electric generating plants.
    Douglas Properties, Inc. has 15 passive interests in multiple-
family residential developments, most of which are in the service 
territory of NiSource's utility subsidiaries.
    KOGAF, a wholly owned subsidiary of Development, has a passive 
interest in a limited partnership which is conducting a project to 
revitalize downtown Kokomo, Indiana, which is in the service territory 
of Kokomo Gas.
    Lake Erie owns wetlands that can be used as offsets to enable 
developers to obtain approval for projects that require filling of 
wetlands. Lake Erie and a subsidiary also develop and operate tracts of 
land within the service territories of NiSource utility subsidiaries 
into model communities that serve community development and 
environmental interests.
    Capital Markets, a wholly owned subsidiary of NiSource, provides 
financing for certain of NiSource's subsidiaries other than Northern 
Indiana.
    NiSource Corporate Services Company (``Corporate Services''), a 
wholly owned subsidiary of NiSource, provides management, 
administrative, gas portfolio management, accounting and other services 
to the various NiSource companies. Hamilton Harbour Insurance Services, 
Ltd., a wholly owned subsidiary of NiSource, provides various insurance 
services to the NiSource companies.

Columbia and Its Subsidiaries

    Columbia, formerly The Columbia Gas System, Inc., is a registered 
public utility holding company. Columbia and its subsidiaries engage in 
natural gas distribution and exploration for production of natural gas 
and oil. Columbia is also engaged in related energy businesses 
including the distribution of propane and petroleum products, marketing 
of natural gas and electricity and the generation of electricity, 
primarily fueled by natural gas.
    Columbia provides natural gas distribution services in a five-state 
region in the Midwest and mid-Atlantic United States through its five 
wholly owned public utility subsidiaries: Columbia Gas of Kentucky, 
Inc. (``Columbia Kentucky''), Columbia Gas of Maryland, Inc. 
(``Columbia Maryland''), Columbia Gas of Ohio, Inc. (``Columbia 
Ohio''), Columbia Gas of Pennsylvania, Inc. (``Columbia Pennsylvania'') 
and Columbia Gas of Virginia, Inc. (``Columbia Virginia''). Columbia's 
five distribution subsidiaries provide natural gas service to nearly 
2.1 million residential, commercial and industrial customers in 
Kentucky, Maryland, Ohio, Pennsylvania and Virginia. Approximately 
32,400 miles of distribution pipelines serve these major markets. The 
distribution subsidiaries have initiated transportation programs that 
allow residential and small commercial customers the opportunity to 
choose their natural gas suppliers and to use the distribution 
subsidiaries for transportation service. This ability to choose a 
supplier was previously limited to larger commercial and industrial 
customers.
    Columbia Kentucky supplies natural gas to approximately 142,000 
retail customers in a 31-county area of central and eastern Kentucky 
having a population of approximately 965,000. Columbia Kentucky owns 
2,433 miles of distribution pipeline. Columbia Kentucky is subject to 
regulation by the

[[Page 54877]]

Kentucky Public Service Commission as to rates, service and other 
matters.
    Columbia Maryland supplies natural gas to approximately 31,800 
retail customers in a three-county area of western Maryland having a 
population of approximately 227,000. Columbia Maryland owns 601 miles 
of distribution pipeline. Columbia Maryland is subject to regulation by 
the Maryland Public Service Commission as to rates, service and other 
matters.
    Columbia Ohio supplies natural gas to approximately 1,309,200 
retail customers in a 53-county area of north central and southeastern 
Ohio having a population of approximately 6,700,000. Columbia Ohio owns 
a total of 18,387 miles of distribution pipeline. Columbia Ohio is 
subject to regulation by the Public Utilities Commission of Ohio as to 
rates, service and other matters.
    Columbia Pennsylvania supplies natural gas to approximately 390,000 
retail customers in a 26-county area of central and southwestern 
Pennsylvania having a population of approximately 2,380,000. Columbia 
Pennsylvania is subject to regulation by the Pennsylvania Public 
Utility Commission as to rates, service and other matters.
    Columbia Virginia supplies natural gas to over 177,000 retail 
customers throughout Virginia. Columbia Virginia is subject to 
regulation by the Virginia State Corporation Commission as to rates, 
service and other matters.
    Columbia also owns, directly or indirectly, various nonutility 
subsidiaries.\10\ The material nonutility businesses are: Columbia 
Transmission Corporation (``Columbia Transmission''), Columbia Gulf 
Transmission Company (``Columbia Gulf''), Columbia Pipeline Corporation 
(``Columbia Pipeline''), Columbia Energy Resources, Inc. (``Columbia 
Resources''), Columbia Energy Services Corp. (``Columbia Energy 
Services''), Columbia Propane Corporation (``Corporation Propane''), 
Columbia Petroleum Corporation (``Columbia Petroleum''),\11\ Columbia 
Electric Corporation (``Columbia Electric''), Columbia LNG Corporation 
(``Columbia LNG'') and Columbia Transmission Communications Corporation 
(``Columbia Communications'').
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    \10\ The application states that the nonutility operations of 
Columbia have all been previously authorized under the Act or have 
been established under a rule or statutory exemption.
    \11\ Columbia Propane, which sells propane at wholesale and 
retail, and Columbia Petroleum, which owns and operates petroleum 
assets, are currently being prepared for sale. They are being 
reported as discontinued operations.
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    Columbia Transmission and Columbia Gulf, Columbia's two interstate 
pipeline subsidiaries, own a pipeline network of approximately 16,250 
miles extending from offshore in the Gulf of Mexico to Lake Erie, New 
York and the eastern seaboard. In addition, Columbia Transmission 
operates an underground natural gas storage system. Together, Columbia 
Transmission and Columbia Gulf serve customers in fifteen northeastern, 
mid-Atlantic, midwestern and southern states and the District of 
Columbia. Columbia Gulf's pipeline system extends from offshore 
Louisiana to West Virginia and transports a major portion of the gas 
delivered by Columbia Transmission. It also transports gas for third 
parties within the production areas of the Gulf Coast. Columbia 
Transmission and Columbia Gulf provide natural gas transportation and 
storage services for local distribution companies and industrial and 
commercial customers who contract directly with producers or marketers 
for their gas supplies.
    Columbia Pipeline Corporation and its wholly owned subsidiary, 
Columbia Deep Water Services Company, operate pipeline and gathering 
facilities that are not regulated by FERC.
    Columbia Resources, through its wholly owned subsidiaries, explores 
for, develops, gathers and produces natural gas and oil in Appalachia 
and Canada.
    Columbia Energy Services Corporation (``Columbia Energy Services'' 
and its subsidiaries conduct Columbia's non-regulated natural gas and 
electric power marketing operations and provide service to residential 
and small commercial customers as a result of the unbundling of 
services that is occurring at the local distribution level. Columbia 
Energy Services, through its subsidiary, Columbia Service Partners, 
Inc., provides a variety of energy-related services to both homeowners 
and businesses.\12\
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    \12\ Columbia Energy Services recently sold its wholesale gas 
and electric trading operations and announced that it has entered 
into a definitive agreement to sell its retail mass marketing 
business. Columbia Energy Services has also decided to exit its 
major accounts business. These businesses are currently being 
reported as discontinued operations.
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    Columbia's Electric's primary focus has been the development, 
ownership and operation of natural gas-fueled power plants. Columbia 
Electric is part owner in four operating cogeneration projects, which 
are qualifying facilities (``QF''). Columbia is in the process of 
divesting its interest in QFs to comply with the Public Utilities 
Policies Act of 1978, as amended (``PURPA'').\13\ Columbia Electric is 
also currently constructing two gas-fired electric generation plants: 
Liberty Electric Project and Ceredo Generating Station. In December 
1999, a limited partnership company established between Columbia 
Electric and Atlantic Generation, Inc. completed a transaction 
terminating a long-term power purchase contract. Columbia Electric's 
portion was approximately $71 million pre-tax under the terms of the 
buyout. The partners will continue to operate the facility as a 
merchant power plant.
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    \13\ Pub. L. 95-617, 92 Stat. 3117 (codified in scattered 
sections of 16 U.S.C.). Columbia's interests will be held by an 
electric utility holding company as a result of the merger with 
NiSource. The application states that more than 50% of the equity 
interests in the four QFs will then be owned by electric utility 
holding companies, which is not allowed under PURPA. To avoid 
jeopardizing the QF status of the projects, Columbia is divesting 
its interests in the four QFs. Columbia plans to relinquish its 
ownership interests in the four QFs before the Merger closes.
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    Columbia LNG Corporation (``Columbia LNG'') provides transition 
services related to a liquefied natural gas facility located in Cove 
Point, Maryland.
    Columbia Transmission Communications Corporation, a wholly owned 
subsidiary of Columbia, and its subsidiaries provide telecommunications 
and information services, assists personal communications services and 
other microwave radio service licensees in locating and constructing 
antenna facilities, and is involved in the development of a dark fiber 
optics network for voice and data communications.
    For the twelve months ended June 30, 2000, the utility subsidiaries 
of Columbia reported operating income of $245.4 million on utility 
revenues of approximately $1.7 billion. Columbia's consolidated 
revenues for the same period were approximately $2.6 billion. 
Consolidated assets of Columbia and its subsidiaries were approximately 
$6.8 billion at June 30, 2000, consisting of $2.6 billion in gas 
utility assets and $4.2 billion in other utility assets. As of June 30, 
2000, Columbia had 79,512,479 shares of common stock issued and 
outstanding. Columbia's common stock is listed on the New York Stock 
Exchange.

The Combined Operations

    The application states that the gas utility operations of NiSource 
and Columbia, when combined, will constitute a gas integrated public 
utility system within the meaning of section 2(a)(29)(B) of the Act. In 
addition, the application states that the current electric utility 
operations of NiSource will be an electric integrated public utility 
system within the meaning of

[[Page 54878]]

section 2(a)(29)(A) of the Act. The Applicants propose to own the gas 
utility system as the ``primary system'' and the electric utility 
system as the ``secondary system.''
    The application states that the gas utility system resulting from 
the Transaction will include eight gas utilities located in the 
contiguous states of Indiana, Kentucky, Ohio, Pennsylvania, Virginia 
and Maryland and two gas utilities located in the contiguous states of 
Massachusetts, New Hampshire and Maine. The Applicants state that the 
utilities located in contiguous states will be directly interconnected 
by affiliated and nonaffiliated interstate pipelines and storage. 
Applicants propose that the utilities be effectively connected by 
industry-recognized trading centers and market hubs. Applicants also 
state that the entire gas system will integrate its process of 
portfolio management and efficiently and economically deploy its 
pipeline and storage capacity and supply sources through these direct 
and indirect interconnects and market centers.
    Applicants also indicate that the gas portfolios of Columbia and 
NiSource overlap substantially with respect to sources of supply. Both 
companies now purchase and will continue to purchase most of their gas 
from the Gulf Coast Basin (onshore and offshore Texas and Louisiana 
producing region). Moreover, they will each have enhanced opportunities 
to increase their respective purchases of gas produced in the Mid-
Continent and Western Canada supply basins.
    Applicants state that the NiSource and Columbia gas utility systems 
also currently hold firm transportation service agreements on a number 
of the same interstate pipelines, including ANR, Panhandle Eastern, 
Tennessee Gas, Texas Eastern and Transco. The NiSource midwestern gas 
utilities are physically linked through Crossroads' interconnections 
with Columbia Transmission, Trunkline and Panhandle Eastern with a 
common interstate transmission system (Columbia transmission) that 
serves each of the Columbia gas distribution utilities. The Columbia 
and NiSource gas distribution utilities also make use of other regional 
pipelines to transport and deliver Gulf Coast, Mid-Continent, Canadian 
and Appalachian-sourced supplies, including Crossroads, National Fuel 
and CNG Transmission Corporation.
    The electric system will consist of Northern Indiana's existing 
utility system.

Interim Service Company Agreement

    Corporate Services currently provides management, financial, 
accounting, general administrative, budgeting, business development, 
systems and procedures, training, gas supply and other services to 
NiSource as well as to certain of the public utility and nonutility 
subsidiaries of NiSource under cost-based arrangements. In addition, 
Bay States provides some of these same services to its subsidiaries 
that predate NiSource's acquisition of Bay State. The Applicants state 
that within 120 days after the Merger New NiSource will file a separate 
application to form a new service company that will serve the New 
NiSource system (``New Service Company''). The Applicants state that 
the new service company will be finalized within one year after the 
Merger.\14\
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    \14\ This is subject to New NiSource receiving all of the 
necessary regulatory approvals.
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    It is contemplated that as a result of the Merger, some 
centralization of service functions will occur. During the period of 
the year the New NiSource requests to form its New Service Company 
(``Transition Period''), Applicants propose that an interim service 
company agreement be in place. During the Transition Period, Applicants 
propose that Corporate Services will continue to provide services to 
New NiSource and to NiSource's current utility and nonutility 
subsidiaries, and Columbia Services will continue to provide services 
to its associate companies in the Columbia system under the service 
company arrangements that have been approved by the Commission. 
Corporate Service will enter into an interim service agreement with 
each client company. In addition, in order to ensure that an allocable 
portion of certain services to be provided by Corporate Services (e.g., 
executive services) are properly charged or allocated to all of 
NiSource's subsidiaries after the Merger, Corporate Services will also 
enter into a service agreement with Columbia Services. Any charges by 
Corporate Services to Columbia Services will in turn be assigned and 
allocated to Columbia and its subsidiaries in accordance with the terms 
of the existing Columbia system service arrangements.
    Following completion of the Merger, Applicants state that all 
services provided by Corporate Services to associate utility and 
nonutility companies will be provided to system companies in compliance 
with all provisions of the Act, including section 13(b) of the Act and 
rules 90 and 91 under the Act.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23172 Filed 9-8-00; 8:45 am]
BILLING CODE 8010-01-M