[Federal Register Volume 65, Number 192 (Tuesday, October 3, 2000)]
[Notices]
[Pages 59028-59035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25332]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27236]


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

September 26, 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 October 20, 2000, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
application(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 October 20, 2000, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

NiSource Inc., et al. (70-9681)

    NiSource Inc. (``NiSource''), an Indiana corporation, and New 
NiSource, Inc. (``New NiSource''), a Delaware corporation, both located 
at 801 East 86th Avenue, Merrillville, Indiana 46410-6272, NiSource's 
wholly-owned public utility subsidiaries (``NiSource Utility 
Subsidiaries''), Northern Indiana Public Service Company (``Northern 
Indiana''), Kokomo Gas and Fuel Company (``Kokomo'') and Northern 
Indiana Fuel and Light Company (``NIFL''), all located at 801 East 86th 
Avenue, Merrillville, Indiana 46410-6272, Bay State Gas Company (``Bay 
State'') and Northern Utilities, Inc., both located at 300 Friberg 
Parkway, Westborough, Massachusetts 01581-5039, and Columbia Energy 
Group (``Columbia''), a registered holding company, located at 13880 
Dulles Corner Lane, Herndon, Virginia 20171-4600, its five wholly-owned 
gas utility subsidiaries, Columbia Gas of Kentucky, Inc., Columbia Gas 
of Maryland, Inc., Columbia Gas of Ohio, Inc., Columbia Gas of 
Pennsylvania, Inc. and Columbia Gas of Virginia, Inc. (collectively, 
``Columbia Utility Subsidiaries'' and together with NiSource Utility 
Subsidiaries, ``Utility Subsidiaries''), all located at 200 Civic 
Center Drive, Columbus, Ohio 43215, and NiSource and Columbia's 
nonutility subsidiaries, EnergyUSA, Inc. (``Energy USA''), Primary 
Energy, Inc., NiSource Capital Markets, Inc., NiSource Finance Corp. 
(``NiSource Finance''), NiSource Pipeline Group, Inc., IWC Resources 
Corporation, NiSource Development Company, Inc., NI Energy Services, 
Inc., Hamilton Harbour Insurance Services, Ltd., and NiSource Corporate 
Services Company, all located at 801 East 86th Avenue, Merrillville, 
Indiana 46410-6272, Columbia Energy Group Service Corporation, Columbia 
LNG Corporation, Columbia Atlantic Trading Corporation, Columbia Energy 
Services Corporation, Columbia Energy Group Capital Corporation, 
Columbia Pipeline Corporation, Columbia Finance Corporation, and 
Columbia Electric Corporation, all located at 13880 Dulles Corner Lane, 
Herndon, Virginia 20171-4600, Columbia Energy Resources, Inc., c/o 900 
Pennsylvania Avenue, Charleston, West Virginia 25302, Columbia Gas 
Transmission Corporation and Columbia Transmission Communications 
Corporation, both located at 12801 Fair Lakes Parkway, Fairfax, 
Virginia 22030-0146, Columbia Gulf Transmission Company, located at 
2603 Augusta, Suite 125, Houston, Texas 77057, Columbia Network 
Services Corporation, located at 1600 Dublin Road, Columbus, Ohio 
43215-1082, Columbia Propane Corporation, located at 9200 Arboretum 
Parkway, Suite 140, Richmond, Virginia 23236, and Columbia Insurance 
Corporation, Ltd., located at 20 Parliament Street, P.O. Box HM 649, 
Hamilton HM CX, Bermuda (``Nonutility Subsidairies'' and together with 
NiSource Utility Subsidiaries and Columbia Utility Subsidiaries, 
``Subsidiaries'') (collectively, ``Applicants'') have filed an 
application declaration under sections 6(a) 7, 9(a), 10, 12(b), 12(c), 
13(b), 32 and 33 of the Act and rules 45, 46, 53, 54, 87, 90, 91, and 
92 under the Act.

I. Background and Summary

    NiSource and New NiSource have previously filed an application 
(``Merger Application'') \1\ seeking approvals required to complete the 
proposed acquisition by New NiSource of all of the issued and 
outstanding common stock (``Common Stock'') of NiSource and Columbia. 
This would occur through mergers of separate subsidiaries of New 
NiSource with and into each of NiSource and Columbia, followed by the 
merger of NiSource into New NiSource. Upon consummation of these 
transactions, New NiSource would immediately be renamed ``NiSource 
Inc.'' and would register as a holding company under section 5 of the 
Act. After the Merger, NiSource would own, directly or indirectly, all 
of the issued and outstanding Common Stock of the NiSource Utility 
Subsidiaries and the Columbia Utility Subsidiaries.
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    \1\ The Commission issued a notice of the Merger Application in 
S.E.C. File No. 70-9551, Holding Co. Act Release No. 27226 
(September 1, 2000).
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    Upon completion of the Merger, NiSource would also hold, directly 
or indirectly, all of the Nonutility Subsidiaries and investments owned 
by NiSource, as well as those currently owned by Columbia. NiSource has 
proposed that it would maintain Columbia as a direct wholly-owned 
subsidiary after the Merger. The merger application contemplates that 
Columbia will remain a registered holding company, will in turn hold 
all of the

[[Page 59029]]

voting securities of the Columbia Utility Subsidiaries and its 
investments in other direct and indirect nonutility subsidiaries. 
Applicants expect that Columbia will continue to supply substantially 
all of the capital required by its subsidiaries.
    Applicants now request authority with respect to the financing 
arrangements, ongoing financings and other matters pertaining to 
NiSource and its Subsidiaries after giving effect to the Merger.
    In summary, Applicants request authority for the period through 
December 31, 2003 (``Authorization Period''), unless otherwise noted, 
for: (1) Maintenance of the facility under which the debt incurred to 
effect the acquisition (``Acquisition Debt'') is issued, including any 
extensions, renewals or replacements, and the associated guarantees, 
during the Authorization Period; (2) issuance and sale of Common Stock 
and preferred stock (``Preferred Stock''), unsecured long-term 
indebtedness (``Long-Term Debt'') and other forms of preferred or 
equity-linked securities having maturities of up to fifty years and not 
to exceed $12 billion, with certain exceptions; (3) issuance and sale 
of short-term debt (``Short-Term Debt'') in specified aggregate amounts 
for the NiSource Utility Subsidiaries not to exceed $2 billion, with 
certain exceptions; (4) the Nonutility Subsidaries to issue and sell 
debt and equity securities in order to finance their operations and 
future nonutility investments, provided that these future investments 
are exempt under the Act or rules under the Act or have been authorized 
in a separate proceeding; (5) the guarantee of indebtedness or 
contractual obligations or to provide other forms of credit support on 
behalf or for the benefit of the Subsidiaries in an aggregate principal 
or nominal amount not to exceed $5 billion in addition to the amounts 
of guarantees and other forms of credit support that Columbia is 
currently authorized to issue; (6) guarantees of indebtedness or 
contractual obligations or provide other forms of credit support by 
Nonutility Subsidiaries (other than Columbia) for the benefit of other 
Nonutility Subsidiaries in an amount not to exceed $2 billion; (7) 
entrance into hedging transactions (``Interest Rate Hedges'') with 
respect to the indebtedness of NiSource and its subsidiaries, and 
entrance into hedging transactions (``Anticipatory Hedges'') with 
respect to anticipatory debt issuances; (8) changing the terms of the 
authorized capitalization of any Subsidiary, provided that, if a 
Subsidiary is not wholly-owned, all other required shareholder consents 
have been obtained for the change; (9) acquisition of the equity 
securities of one or more special-purpose financing subsidiaries 
(``Financing Subsidiaries''); (10) acquisition, directly or indirectly, 
of the equity securities of one or more intermediate subsidiaries 
(``Intermediate Subsidiaries'') organized exclusively for the purpose 
of acquiring, financing, and holding the securities of one or more 
existing or future nonutility subsidiaries, including but not limited 
to ``exempt wholesale generators'' (``EWGs''), ``foreign utility 
companies'' (``FUCOs''), companies engaged or formed to engage in 
activities permitted by rule 58 (``Rule 58 Subsidiaries'') or ``exempt 
telecommunications companies'' (``ETCs'') as defined in sections 32, 33 
and 34 of the Act, respectively; (11) exemption from the at-cost 
requirements of section 13(b) with respect to certain existing 
arrangements between certain NiSource utility and nonutility 
subsidiaries for a period of not more than one year after the merger; 
(12) for Nonutility Subsidiaries to sell goods and services to each 
other at other than cost, to the extent not exempt under rule 90(d), 
subject to certain exemptions; (13) engaging in certain categories of 
activities permitted outside the United States, subject to certain 
limitations; (14) Columbia to transfer proceeds of non-core assets 
sales to NiSource; (15) Nonutility Subsidiaries to pay dividends out of 
capital and unearned surplus to the extent permitted under applicable 
law and the terms of any credit arrangements to which they may be 
parties; Subsidiaries also seek to acquire, retire, or redeem the 
securities that they have issued to any associate company, any 
affiliate, or any affiliate of an associate company; and (16) a 
reservation of jurisdiction on the allocation of consolidated income 
tax liabilities among NiSource and its subsidiaries by agreement.
    The proceeds from the financing would be used for general corporate 
purposes, including: (1) Refinancing of the Acquisition Debt; (2) 
financing, in part, investments by and capital expenditures of NiSource 
and its Subsidiaries (including equity contributions, advances and 
loans to Columbia); (3) funding of future investments in EWGs, FUCOs, 
and Rule 58 Subsidiaries; (4) the repayment, redemption, refunding or 
purchase by NiSource or any Subsidiary of any of its own securities; 
and (5) financing working capital requirements of NiSource and its 
Subsidiaries.

II. General Terms and Conditions of Financing

    Applicants state that assuming that the holders of the maximum 
number of Columbia's shares elect to exchange their stock for NiSource 
Common Stock, and that certain non-core assets of NiSource and/or 
Columbia are sold before or shortly after the Merger, common equity as 
a percentage of NiSource's pro forma consolidated capitalization will 
be no less than 28.5%. In addition, NiSource commits that within two 
years after the date of the Commission's order approving the Merger, 
and for the remainder of the Authorization Period, the combined 
consolidated capitalization of the new holding company system would 
include no less than 30% common equity. NiSource also commits to 
maintain common equity of Columbia as a percentage of Columbia's 
consolidated capitalization at 30% or above throughout the 
Authorization Period, and also to maintain common equity as a 
percentage of capitalization of each of the NiSource Utility 
Subsidiaries at 30% or above throughout the Authorization Period.
    The aggregate principal amount of all indebtedness issued by 
NiSource or any Financing Subsidiary of NiSource at any time 
outstanding (including, specifically, Acquisition Debt, Long-Term Debt 
and Short-Term Debt) would not exceed $10 billion (``NiSource Debt 
Limitation''). The interest rate on Long-Term Debt, Preferred Stock or 
other preferred or income-linked securities would not exceed 500 basis 
points over the appropriate Treasury rate, and the interest rate on 
Short-Term Debt would not exceed 300 basis points over the London 
Interbank Offered Rate (``LIBOR''). Underwriting fees and all other 
fees and expenses incurred in consummating specific financing 
transactions would not exceed 5% of the proceeds.

III. Current Columbia and NiSource Financing Authority

A. Columbia
    Columbia currently has financing authority derived from three 
orders (collectively, the ``Columbia Financing Orders''). By order 
dated June 8, 1999, \2\ Columbia has authority to issue and sell equity 
and Long-Term Debt securities in an amount not to exceed $6 billion at 
any one time outstanding through December 31, 2003. In addition, 
Columbia is authorized to ``enter into guarantee arrangements, obtain 
letters of

[[Page 59030]]

credit, and otherwise provide credit support'' for its subsidiary 
companies in an amount not to exceed $5 billion at any one time 
outstanding through December 31, 2003. By order dated December 22, 
1997,\3\ Columbia has the authority to issue and sell Short-Term Debt 
securities in an amount not to exceed $2 billion at any one time 
outstanding through December 31, 2003. Short-Term Debt may include 
borrowings under a revolving credit facility, the issuance of 
commercial paper, and bid notes to individual banks participating in 
the revolving credit facility. The order also authorizes four of the 
Columbia Utility Subsidiaries to make direct borrowings from 
Columbia.\4\ Columbia's Utility Subsidiaries and certain nonutility 
subsidiaries also may make short-term borrowings through the Columbia 
system money pool. Various restrictions on Columbia's current financing 
authority are set forth in an order dated December 23, 1996.\5\
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    \2\ S.E.C. File No. 70-9359, Holding Co. Act Release No. 27035 
(June 8, 1999).
    \3\ S.E.C. File No. 70-9129, Holding Co. Act Release No. 26798 
(Dec. 22, 1997).
    \4\ Columbia Energy Group Service Corporation and Columbia 
nonutility subsidiaries reply upon rule 52 for borrowing from 
Columbia.
    \5\ S.E.C. File No. 70-8925, Holding Co. Act Release No. 26634 
(Dec. 23, 1996).
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    Under the Columbia Financing Orders, the effective cost of money on 
debt may not exceed 300 basis points over comparable term U.S. treasury 
securities; and the effective cost of money on Preferred Stock and 
other Fix incomes securities may not exceed 500 basis points over 30-
year term U.S. treasury securities. Bid notes must bear interest rates 
comparable to, or lower than, those available through other proposed 
forms of short-term borrowing with similar terms and have maturities 
not exceeding 270 days. The underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive bid 
issue, sale or distribution of any securities may not exceed 5% of the 
principal or total amount of the financing.
    Columbia is authorized under the Columbia Financing Orders to 
utilize the proceeds of authorized financing for general and corporate 
purposes including: (1) Financing, in part, of the capital expenditures 
of Columbia and its subsidiaries; (2) in the case of Short-Term Debt, 
financing gas storage inventories, other working capital requirements 
and capital spending of the Columbia system; (3) acquisition interests 
in EWGs and FUCOs; (4) the acquisition, retirement, or redemption of 
securities of which Columbia is an issuer without the need for prior 
Commission approval pursuant to rule 42 or a successor rule; and/or (5) 
the acquisition of the securities of nonutility companies as permitted 
under any rule of the Commission permitting these acquisitions.
    Applicants are not requesting any changes to the amounts or types 
of securities and guarantees that Columbia and the Columbia Utility 
Subsidiaries are authorized to issue under the terms of the Columbia 
Financing Orders. Applicants request that any securities or guarantees 
issued by Columbia and the Columbia Utility Subsidiaries would not 
count against the proposed limits on financing contained in this 
application declaration. Columbia's Nonutility Subsidiaries request 
authority to pay dividends out of capital and unearned surplus to the 
extent permitted under applicable law and the terms of any credit 
arrangements to which they may be parties. Columbia Utility 
Subsidiaries also request the authority to acquire, retire, or redeem 
the securities that they have issued to any associate company, any 
affiliate, or any affiliate of an associate company.
    Following the Merger Columbia would continue to provide capital 
required by its subsidiaries by issuing short-term and Long-Term Debt 
securities. NiSource proposes to make open account advances or cash 
capital contributions to Columbia, purchase additional shares of 
Columbia Common Stock and/or make loans, directly or through a 
Financing Subsidiary, evidenced by Columbia's promissory notes. The 
interest rate and maturity on any borrowings by Columbia from NiSource, 
or its Financing Subsidiary, would parallel the effective cost and 
maturity of a comparable debt security issued by the lender.
B. NiSource
    In the Merger, New NiSource would issue approximately 124.2 million 
shares of Common Stock in exchange for the outstanding Common Stock of 
NiSource, based on the number of those shares outstanding on June 30, 
2000, and assuming 30% of the outstanding Columbia shares are exchanged 
for Common Stock, approximately 96.9 million shares of Common Stock in 
exchange for the outstanding Common Stock of Columbia.\6\ The 
authorized capital stock of New NiSource consists of 420,000,000 
shares, $0.01 par value, of which 400,000,000 are common shares, and 
20,000,000 are preferred shares,\7\ of which, 4,000,000 have been 
designated as Series A Junior Participating preferred Shares and 
reserved for issuance under New NiSource's Shareholder Rights Agreement 
(``Rights Plan'').
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    \6\ The actual number of shares of Common Stock issued in the 
Merger will depend upon, among other things, the number of NiSource 
and Columbia common shares outstanding on the date on which the 
Merger is consummated and the elections made by Columbia's 
shareholders.
    \7\ NiSource has the same number of authorized shares of common 
and Preferred Stock as New NiSource, but without par value.
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    In addition, New NiSource will issue Stock Appreciation Income 
Linked Securities \SM\ (``SAILS'') as part of the Merger, which will 
result in the issuance of between 6.4 million and 9.0 million shares of 
Common Stock on the fourth anniversary of the transaction, assuming 30% 
of the outstanding Columbia shares are exchanged for the stock 
consideration in the merger.
    The cash portion of the consideration paid to Columbia shareholders 
in the Merger would range from approximately $4 billion, assuming 30% 
of the outstanding Columbia shares are exchanged for the NiSource stock 
consideration, to approximately $6 billion, if all of the Columbia 
shares are exchanged for the cash and SAILS consideration. NiSource has 
organized NiSource Finance to facilitate financing the cash portion of 
the Merger consideration and other costs associated with the Merger. 
NiSource Finance will make unsecured short-term borrowings under a 364-
day revolving credit facility, with the option to convert outstanding 
loans at the expiration of the period to term loans maturing 364 days 
afterwards (the ``Acquisition Debt''). Alternatively, NiSource Service 
would issue commercial paper back-stopped by the credit facilities. 
NiSource will guarantee the Acquisition Debt.
C. Other Outstanding Securities and Obligations of NiSource
    In February 1999, NiSource issued 6,000,000 Premium Income Equity 
Securities \SM\ (``PIES'') in conjunction with the acquisition of Bay 
State. Each PIES is a unit consisting of a stock purchase contract 
issued by NiSource and a preferred security issued by NIPSCO Capital 
Trust I (``Capital Trust''), a special purpose financing subsidiary of 
Capital Markets. The stock purchase contracts obligate the holders to 
purchase from NiSource, no later than February 19, 2003, for a price of 
$50, a number of shares of NiSource Common Stock based on the closing 
price for NiSource Common Stock over a twenty day period prior to this 
date. Based on NiSource's trading price as of June 30, 2000, the 
aggregate number of shares of Common Stock that NiSource would issue as 
part of the PIES is

[[Page 59031]]

approximately 13.1 million. Each preferred security has a stated 
liquidation amount of $50 and represents an undivided ownership 
interest in the assets of Capital Trust and is guaranteed by Capital 
Markets. The assets of Capital Trust consist solely of the debentures 
of Capital markets maturing on February 19, 2005 that Capital Trust 
purchased with the net proceeds of the offering plus equity invested by 
Capital Markets.
    NiSource also currently maintains certain credit arrangements for 
the benefit of its Subsidiaries that will remain outstanding following 
the Merger. Specifically, under the terms of a Support Agreement dated 
April 4, 1989, as amended, between NiSource and Capital Markets, 
NiSource is obligated to make payments of interest and principal on 
Capital Markets' obligations in the event of a failure to pay by 
Capital Markets. Restrictions in the Support Agreement prohibit 
recourse on the part of Capital Markets' creditors against the stock 
and assets of Northern Indiana, which are owned by NiSource. Capital 
Markets has entered into revolving credit agreements for $200 million 
which may be used to support the issuance of commercial paper. As of 
June 30, 2000, Capital markets had issued $186 million in commercial 
paper but there were no borrowing outstanding under the revolving 
credit agreements. Capital markets also has $178 million available in 
money market lines of credit with $141.5 million of borrowings 
outstanding as of June 30, 2000. Capital Markets also had outstanding 
$300 million of medium-term notes having various maturities between 
April 2004 and May 2027.
    In addition, the Support Agreement backs various guarantees and 
other forms of credit support that have been provided by Capital 
markets for the benefit of the NiSource Nonutility Subsidiaries. These 
include guarantees of securities issued by other subsidiaries, lease 
payment obligations, obligations under energy marketing contracts, 
obligations of cogeneration affiliates under operations and maintenance 
agreements, surety bonds and indemnification obligations. The maximum 
potential financial exposure of Capital Markets under all of these 
guarantees was approximately $1 billion on June 30, 2000.

IV. Requested NiSource External Financing

A. Introduction
    NiSource requests authority to issue and sell from time to time 
shares of its authorized Common Stock and preferred Stock and, directly 
or indirectly through one or more Financing Subsidiaries, Long-Term 
Debt and other forms of preferred or equity-linked securities having 
maturities of us to 50 years. The aggregate amount of all the Common 
Stock, Preferred Stock, Long-Term Debt and other forms of preferred to 
equity-linked securities at any time outstanding during the 
Authorization Period would not exceed $12 billion, provided that shares 
of NiSource Common Stock that are issued with respect to the SAILS and 
certain other currently outstanding equity-linked securities and shares 
of Preferred Stock that may be issued under the NiSource Shareholder 
Rights Agreement will not count against this limit. In addition, 
NiSource requests authority to issue and sell, directly or indirectly 
through one or more Financing Subsidiaries, Short-Term Debt in an 
aggregate principal amount at any time outstanding not to exceed $2 
billion. The aggregate principal amount of all indebtedness issued by 
NiSource or any Financing Subsidiary of NiSource at any time 
outstanding (including, specifically, Acquisition Debt, Long-Term Debt 
and Short-Term Debt) would not exceed the NiSource Debt Limitation. The 
amounts of securities that NiSource is requesting authority to issue 
and the dollar limitations here are in addition to the amounts of 
securities Columbia is currently authorized to issue and the dollar 
limitations imposed on Columbia under the Columbia Financing Orders.
    NiSource contemplates that the Common Stock, Preferred Stock, Long-
Term Debt and other preferred or equity-linked securities would be 
issued and sold directly to one or more purchasers in privately-
negotiated transactions or to one or more investment banking or 
underwriting firms or other entities who would resell these securities 
without registration under the Securities Act of 1933 in reliance upon 
one or more applicable exemptions from registration, or to the public 
either (1) through underwriters selected by negotiation or competitive 
bidding or (2) through selling agents acting either as agent or as 
principal for resale to the public either directly or through dealers.
B. Continuation, Extension or Renewal of Acquisition Debt
    As indicated, the cash portion of the consideration to be paid in 
the Merger and other associated costs (estimated at approximately $4.0 
billion to $6.0 billion) would be financed through borrowings by 
NiSource Finance under a bank facility. After the Merger, NiSource 
intends to refinance some or all of the Acquisition Debt from the 
proceeds of issuances of equity securities and Long-Term debt 
securities, as described below, and/or cash proceeds from sales of 
assets. Pending this refinancing, NiSource requests authorization to 
maintain or replace the facility under which the Acquisition Debt is 
issued and renew or extend the maturities of borrowings, and to renew 
or extend the associated guaranty.
C. Other Debt
    1. Long-Term Debt. Long-Term Debt (1) may be convertible into any 
other securities of NiSource; (2) will have maturities ranging from one 
to fifty years; (3) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount; (4) may be entitled to mandatory or optional 
sinking fund provisions; (5) may provide for reset of the coupon under 
a remarketing arrangement; and (6) may be called from existing 
investors by a third party. The maturity dates, interest rates, 
redemption and sinking fund provisions and conversion features, if any, 
with respect to the Long-Term Debt of a particular series, as well as 
any associated placement, underwriting or selling agent fees, 
commissions and discounts, if any, will be established by negotiation 
or competitive bidding. Assuming that 30% of the Columbia shares are 
exchanged for NiSource Common stock in the Merger and that certain non-
core assets of NiSource and/or Columbia are sold before or shortly 
after the Merger, NiSource states that it will be able to maintain a 
rating for all Long-Term Debt that is at the investment grade level as 
established by a nationally recognized statistical rating organization.
    2. Short-Term Debt. Subject to the NiSource Debt Limitation, 
NiSource proposes to issue and sell from time to time, directly or 
indirectly through one or more Financing Subsidiaries, Short-Term Debt 
in an aggregate principal amount at any time outstanding not to exceed 
$2 billion. The effective cost of money on Short-Term Debt authorized 
in this proceeding would not exceed at the time of issuance 300 basis 
points over the LIBOR for maturities of one year or less.
    Commercial paper would be sold, directly or indirectly through one 
or more Financing Subsidiaries, in established domestic or European 
commercial paper markets. NiSource also proposes to establish, directly 
or indirectly through one or more

[[Page 59032]]

Financing Subsidiaries, credit lines with banks or other institutional 
lenders in an aggregate principal amount not to exceed the proposed 
Short-Term Debt limitation. Loans under these lines will have 
maturities of less than one year from the date of each borrowing. 
NiSource also proposes to engage in other types of short-term financing 
generally available to borrowers with comparable credit ratings as it 
may deem appropriate in light of its needs and market conditions at the 
time of issuance.
D. Common Stock, Equity Linked Securities and Stock Based Plans
    NiSource seeks authority to issue and sell Common Stock or options, 
warrants or other stock purchase rights exercisable for Common Stock, 
under underwriting agreements of a type generally standard in the 
industry. Public distributions would be under private negotiation with 
underwriters, dealers or agents or effected through competitive bidding 
among underwriters. In addition, sales would be made through private 
placements or other non-public offerings to one or more persons. All 
Common Stock sales would be at rates or prices and under conditions 
negotiated or based upon, or otherwise determined by, competitive 
capital markets.
    NiSource would issue and sell Common Stock through underwriters or 
dealers, through agents, or directly to a limited number of purchasers 
or a single purchaser. If underwriters are used in the sale of Common 
Stock, these securities would be acquired by the underwriters for their 
own account and would be resold from time to time in one or more 
transactions, including negotiated transactions, at a fixed public 
offering price or at varying prices determined at the time of sale.
    NiSource may also issue Common Stock or options, warrants or other 
stock purchase rights exercisable for Common Stock in public or 
privately-negotiated transactions as consideration for the equity 
securities or assets of other companies, provided that the acquisition 
of any of these equity securities or assets have been authorized in a 
separate proceeding or is exempt under the Act or the rules under the 
Act (specifically rule 58).
    NiSource also proposes to issue Common Stock and/or purchase shares 
of its Common Stock (either currently or under forward contracts) in 
the open market for purposes of reissuing the shares at a later date 
under the SAILS \SM\ and PIES \SM\ or other equity-linked securities.
    In addition, NiSource proposes to issue shares of its Common Stock 
to satisfy its obligations under its stock-based plans, the 1994 Long-
Term Incentive Plan, the Nonemployee Director Stock Incentive Plan and 
the Employee Stock Purchase Plan. Shares of Common Stock issued under 
these plans may either be newly issued shares, treasury shares or 
shares purchased in the open market. NiSource would make open-market 
purchases of Common Stock in accordance with the terms of or in 
connection with the operation of the plans under rule 42. NiSource also 
proposes to issue and/or purchase shares of Common Stock under these 
existing stock plans, as they may be amended or extended, and similar 
plans or plan funding arrangements later adopted without any additional 
prior Commission order. Stock transactions of this variety would thus 
be treated the same as other stock transactions.
E. Preferred Stock
    NiSource would not issue any shares of its authorized Preferred 
Stock in the Merger and would not have any shares of Preferred Stock 
outstanding at the time that it registers as a holding company. 
However, after it registers, NiSource seeks to have the flexibility to 
issue its authorized Preferred Stock or, directly or indirectly through 
one of more Financing Subsidiaries, to issue Long-Term Debt and other 
types of preferred or equity-linked securities (including specifically, 
trust preferred securities). The proceeds of Preferred Stock, Long-Term 
Debt or other preferred or equity-linked securities would enable 
NiSource to reduce the Acquisition Debt and Short-Term Debt or other 
debt issued or guaranteed by NiSource with more permanent capital, and 
provide a source of future financing for the operations of and 
investments in nonutility businesses which are exempt under the Act.
    Preferred Stock or other types of preferred or equity-linked 
securities would be issued in one or more series with the rights, 
preferences, and priorities as may be designated in the instrument 
creating each of the series, as determined by NiSource's board of 
directors. All of these securities will be redeemed no later than fifty 
years after the issuance. The dividend rate on any series of Preferred 
Stock or other preferred or equity-linked securities will not exceed at 
the time of issuance 500 basis points over the yield to maturity of a 
U.S. Treasury security having a remaining term equal to the term of 
these securities. Dividends or distributions on Preferred Stock or 
other preferred or equity-linked will be made periodically and to the 
extent funds are legally available for this purpose, but may be made 
subject to terms which allow the issuer to defer individual payments 
for specified periods. Preferred Stock or other preferred or equity-
linked securities may be convertible or exchangeable into shares of 
Common Stock.
F. NiSource Utility Subsidiaries' Short-Term Debt
    The NiSource Utility Subsidiaries request authority to issue and 
sell from time to time Short-Term Debt in an aggregate amount at any 
one time outstanding not to exceed the following amounts: (1) Northern 
Indiana--$1 billion; (2) Kokomo--$50 million; (3) NIFL--$50 million; 
(4) Bay State--$250 million; and (5) Northern--$50 million. Subject to 
the limitations, the NiSource Utility Subsidiaries may engage in short-
term financing as they may deem appropriate in light of their needs and 
market conditions at the time of issuance. These short-term financing 
could include, without limitation, commercial paper sold in established 
domestic or European commercial paper markets in a manner similar to 
NiSource, bank lines and debt securities issued under its indentures 
and note programs. The effective cost of money on Short-Term Debt 
authorized in this proceeding will not exceed 300 basis points over the 
LIBOR for maturities of one year or less.
G. NiSource Nonutility Subsidiary Financing
    In order to finance investments in energy-related or otherwise 
functionally-related, nonutility businesses, it will be necessary for 
the Nonutility Subsidiaries to have the ability to engage in financing 
transactions that are commonly accepted for these types of investments. 
NiSource states that, in almost all cases, these financings will be 
exempt from prior Commission authorization under rule 52(b).\8\
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    \8\ Financings by Columbia will be carried out under the terms 
of the Columbia Financing Orders and not under rule 52.
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    However, in the limited circumstances where the Nonutility 
Subsidiary making the borrowings is now wholly-owned by NiSource, 
directly or indirectly, authority is requested under the Act for 
NiSource or a Nonutility Subsidiary, as the case may be, to make those 
loans to these subsidiaries at interest rates and maturities designed 
to provide a return to the lending company of not less than

[[Page 59033]]

its effective cost of capital. If these loans are made to a Nonutility 
Subsidiary, the company would not sell any services to any associate 
Nonutility Subsidiary unless the company falls within one of the 
categories of companies to which goods and services may be sold on a 
basis other than ``at cost,'' as described below. Furthermore, in the 
event those loans are made, NiSource would include in the next 
certificate filed under 24 in this proceeding substantially the same 
information as that required on Form U-6B-2 with respect to the 
transition.
H. Guarantees
    1. NiSource Guarantees. NiSource requests authority, directly or 
through one or more Financing Subsidiaries, to guarantee indebtedness 
or contractual obligations or provide other forms of credit support on 
behalf or for the benefit of its Subsidiaries in an aggregate amount 
not to exceed $5 billion at any one time outstanding (``NiSource 
Guarantees''), provided however, that the amount of any NiSource 
Guarantees in respect of obligations of any Subsidiaries shall also be 
subject to the limitations of rule 53(a)(1) or rule 58(a)(1), as 
applicable.
    Any securities issued by Financing Subsidiaries of NiSource that 
are guaranteed or supported by other forms of credit enhancement 
provided by NiSource would not count against this limitation, but 
instead would count against the limitation on the same types of 
securities that NiSource is authorized to issue. The proposed 
limitation on NiSource Guarantees would not include the amount of any 
guarantees or other forms of credit support outstanding at the time of 
the Merger or guarantees or other forms of credit support provided with 
respect to securities issued by any Financing Subsidiary (the amounts 
of which would count only against the proposed limitations on the 
amounts of debt and equity securities that NiSource may issue).
    NiSource proposes to charge each Subsidiary a fee for each 
guarantee provided on its behalf that is not greater than the cost, if 
any, of obtaining the liquidity necessary to perform the guarantee (for 
example, bank line commitment fees or letter of credit fees, plus other 
transactional expenses) for the period of time the guarantee remains 
outstanding.
    2. Nonutility Subsidiary Guarantees. Nonutility Subsidiaries 
(including Financing Subsidiaries without credit support from NiSource 
but excluding Columbia) request authority to provide guarantees of 
indebtedness or contractual obligations or provide other forms of 
credit support on behalf or for the benefit of other Nonutility 
Subsidiaries in an aggregate principal or nominal amount not to exceed 
$2 billion at any one time outstanding (``Nonutility Subsidiary 
Guaranties''). This authorization is in addition to any guarantees that 
are exempt under rules 45(b) and 52, provided that the amount of any 
Nonutility Subsidiary Guaranties in respect of obligations of any Rule 
58 Subsidiary shall also be subject to the limitations of rule 
58(a)(1). The Nonutility Subsidiary providing any of the credit support 
may charge its associate company a fee for each guarantee provided on 
its behalf determined in the same manner as specified above.
I. Interest Rate Management Devices
    1. Interest Rate Hedges. NiSource and, to the extent not exempt 
under rule 52, its Subsidiaries request authority to enter into 
Interest Rate Hedges in order to manage and minimize interest rate 
costs. Applicants assert that Interest Rate Hedges would only be 
entered into with counterparties whose senior debt ratings, or the 
senior debt ratings of the parent companies of the counterparties, as 
published by Standard and Poor's Ratings Group, are equal to or greater 
than BBB, or an equivalent rating from Moody's Investors Service, Fitch 
Investor Service or Duff and Phelps.
    Applicants state that Interest Rate Hedges would involve the use of 
financial instruments commonly used in today's capital markets, such as 
interest rate swaps, caps, collars, floors, and structured notes (i.e., 
a debt instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury securities.
    2. Anticipatory Hedges. In addition, Applicants request authority 
to enter into interest rate hedging transactions with respect to 
Anticipatory Hedges, subject to certain limitations and restrictions. 
Anticipatory Hedges would be used to fix and/or limit the interest rate 
risk associated with any new issuance through (1) a forward sale of 
exchange-traded U.S. Treasury futures contracts, U.S. Treasury 
obligations and/or a forward swap (each a ``Forward Sale''); (2) the 
purchase of put options on U.S. Treasury obligations (a ``Put Options 
Purchase''); (3) a Put Options Purchase in combination with the sale of 
call options on U.S. treasury obligations (``Zero Cost Collar''); (4) 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury obligations; or (5) some combination of a Forward Sale, 
Put Options Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including, but not limited to structured notes, caps and 
collars, appropriate for the Anticipatory Hedges.
    Anticipatory Hedges might be executed on-exchange (``On-Exchange 
Trade'') with brokers through the opening of futures and/or options 
positions traded on the Chicago Board of Trade, the opening of over-
the-counter positions traded on the Chicago Board of Trade, the opening 
of over-the-counter positions with one or more counter parties (``Off-
Exchange Trades''), or a combination of On-Exchange Trades and Off-
Exchange Trades. NiSource or a subsidiary will determine the optimal 
structure of each Anticipatory Hedge transaction at the time of 
execution.
    Applicants state that they will comply with the then existing 
financial disclosure requirements of the Financial Accounting Standards 
Board associated with hedging transactions.
J. Changes in Capital Stock of Subsidiaries
    NiSource and its Subsidiaries request authorization to change the 
terms of the authorized capital stock capitalization of any wholly-
owned Subsidiary or intermediate holding company by an amount deemed 
appropriate by NiSource or other intermediate parent company.\9\ If 
that authority were granted, a Subsidiary would be able to change the 
par value or change between par and no-par stock, without additional 
Commission approval and subject to any necessary state approvals.
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    \9\ If a subsidiary is not wholly-owned, all other required 
shareholders consent for the change would be obtained.
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K. Financing Subsidiaries
    NiSource and its Subsidiaries request authorization to acquire, 
directly or indirectly, the equity securities of one or more 
corporations, trusts, partnerships, or other entities (``Financing 
Subsidiaries'') created specifically for the purpose of facilitating 
the financing of the authorized and exempt activities of NiSource and 
its Subsidiaries. This authorization would be in addition to 
arrangements with NiSource Finance, a wholly-owned special purpose 
financing subsidiary, and two other special entities owned directly or 
indirectly by NiSource.\10\ The Financing Subsidiaries would issue 
Long-Term Debt or equity securities but not limited to monthly income 
preferred securities,

[[Page 59034]]

to third parties and would dividend, loan or otherwise transfer the 
proceeds of these financings or as directed by the Financing 
Subsidiary's parent company.
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    \10\ NiSource Capital Markets, Inc. (``Capital Markets'') and 
Capital Trust I, a special purpose financing subsidiary of Capital 
Markets.
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    NiSource would, if required, guarantee, provide support for or 
enter into expense agreements in respect of the obligations of any 
Financing Subsidiary that it organizes. The Subsidiaries may also 
provide guarantees and enter into expense agreements, if required, on 
behalf of any Financing Subsidiaries that they organize under rules 
45(b)(7) and 52, as applicable. The amount of any Long-Term Debt or 
preferred securities issued by any Financing Subsidiary would be 
counted against any limitation on the amounts of similar types of 
securities that would be issued directly by the parent company of a 
Financing Subsidiary. In those cases, however, the guaranty by the 
parent company would not also be counted against the limitations on 
NiSource Guarantees of Subsidiary Guarantees.
L. Intermediate Subsidiaries
    NiSource requests authority to acquire, directly or indirectly, the 
securities of one or more intermediate subsidiaries (``Intermediate 
Subsidiaries'') organized exclusively for the purpose of acquiring, 
financing, and holding the securities of one or more existing or future 
Nonutility Subsidiaries, including but not limited to EWGs, FUCOs, Rule 
58 Subsidiaries or ETCs. Intermediate Subsidiaries may expand up to 
$250 million on preliminary development activities. To the extent these 
transactions are not exempt from the Act or otherwise authorized or 
permitted by rule, regulation or order of the Commission, NiSource 
requests authority for Intermediate Subsidiaries to provide management, 
administrative, project development and operating services to these 
entities as fair market prices under rule 90(d), subject to the 
limitations set forth in section IV.M.2 of this notice below.
M. Sales of Services and Goods Among Subsidiaries
    NiSource seeks exemptions in two areas from the at-cost standards 
of section 13(b) of the Act and rules 90 and 91 under the Act for the 
sales of services and goods among Subsidiaries.
    1. Continuation of Certain Existing Arrangements between NiSource 
Subsidiaries. NiSource requests an exemption under section 13(b) of the 
Act in order that certain agreements \11\ would remain in place for a 
period of not more than one year after the Merger. During that period, 
NiSource would assess the need to maintain these arrangements in place 
and would either discontinue them or address, in a separate 
application, the justification for continuing them on a permanent 
basis.
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    \11\ SM&P Utility Resources and Miller Pipeline Corp., two 
NiSource Nonutility Subsidiaries, provide services to certain 
NiSource Utility Subsidiaries at market rates. In addition, Bay 
State provides repair and installation services to EnergyUSA, a 
NiSource holding company which has management responsibility for 
many of NiSource's nonutility subsidiaries and investments. The 
services are rendered for propane equipment sold by EnergyUSA under 
an agreement entered into in December 1999. Bay State also supplies 
or procures necessary materials. Under the agreement, Bay State 
charges a flat response fee and standard hourly labor rates. There 
may be other similar kinds of arrangements in place between NiSource 
Subsidiaries for the sale of services, some of which may not be 
cost-based.
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    2. Sales and Service Contracts Among Nonutility Subsidiaries. 
NiSource's Nonutility Subsidiaries (other than Columbia) request 
authorization to provide services and sell goods to each other at fair 
market prices determined without regard to cost, and therefore request 
an exemption (to the extent that Rule 90(d) does not apply) under 
section 13(b) from the cost standards of rules 90 and 91 as applicable 
to these transactions, in any case in which the Nonutility Subsidiary 
purchasing the goods or services is:
    (1) A FUCO or foreign EWG that derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (2) An EWG that sells electricity at market-based rates that have 
been approved by the Federal Energy Regulatory Commission (``FERC''), 
provided that the purchaser is not Northern Indiana;
    (3) A ``qualifying facility''(``QF'') within the meaning of the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA'') 
that sells electricity exclusively (a) at rates negotiated at arms-
length to one or more industrial or commercial customers purchasing the 
electricity for their own use and not for resale, and/or (b) to an 
electric utility company (other than Northern Indiana) at the 
purchaser's ``avoided cost'' as determined in accordance with the 
regulations under PURPA;
    (4) A domestic EWG or QF that sells electricity at rates based upon 
its cost of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser thereof is 
not Northern Indiana; or
    (5) A Rule 48 Subsidiary or any other Nonutility Subsidiary that 
(a) is partially owned by NiSource, provided that the ultimate 
purchaser of the goods or services is not a Utility Subsidiary, 
NiSource Services (or any other entity within the NiSource system whose 
activities and operations are primarily related to the provision of 
goods and services to the Utility Subsidiaries), (b) is engaged solely 
in the business of developing, owning, operating and/or providing 
services or goods to Nonutility Subsidiaries described in clauses (1) 
through (4) immediately above, or (c) does not derive, or indirectly, 
any material part of its income from sources within the United States 
and is not a public-utility company operating within the United States.
N. Activities of Rule 58 Subsidiaries Outside the U.S.
    NiSource, on behalf of any current or future Rule 58 Subsidiaries, 
requests authority to engage in certain ``energy-related'' activities 
permitted by rule 58 outside the United States. These activities would 
include: (1) The brokering and marketing of electricity, natural gas 
and other energy commodities (``Energy Marketing''); (2) energy 
management services (``Energy Management Services''), including the 
marketing, sale, installation, operation and maintenance of various 
products and services related to energy management and demand-side 
management; and (3) engineering, consulting and other technical support 
services (``Consulting Services'') with respect to energy-related 
businesses and for individuals.
    NiSource requests that the Commission authorize Rule 58 
Subsidiaries to (1) engage in Energy Marketing activities in Canada and 
reserve jurisdiction over Energy Marketing activities outside of Canada 
pending completion of the record in this proceeding; and (2) provide 
Energy Management Services and Consulting Services anywhere outside the 
United States. In addition, NiSource requests that the Commission 
reserve jurisdiction over other activities of Rule 58 Subsidiaries 
outside the United States, pending completion of the record.
    In addition, NiSource requests authorization for Rule 58 
Subsidiaries to engage in gas-related activities outside the United 
States, subject to certain proposed limitations and a requests for 
reservation of jurisdiction. Specifically, NiSource requests approval 
for Rule 58 Subsidiaries to engage in the development, exploration and 
production of natural gas and oil in Canada and to invest up to $300 
million in the equity securities or assets of new or existing companies 
that derive

[[Page 59035]]

substantially all of their income from these activities.
    In addition, NiSource requests approval for Rule 58 Subsidiaries to 
invest, directly or indirectly through other subsidiaries, in natural 
gas pipelines or storage facilities located outside the United States. 
Investments in these entities would also count against the $300 million 
investment limitation. NiSource requests that the Commission reserve 
jurisdiction over (1) the proposed exploration and production 
activities in foreign countries other than Canada pending completion of 
the record; and (2) investments in pipeline and storage facilities 
outside the United States pending completion of the record.
O. Payment of Dividends
    1. NiSource, Columbia and the Utility Subsidiaries. Applicants 
state that before or shortly after the Merger, certain non-core assets 
or businesses of Columbia would be sold. In that event, the Applicants 
request authority for Columbia to transfer the net proceeds of the sale 
or sales to NiSource, either by paying a dividend or by repurchasing 
shares of its Common Stock that are held by NiSource. NiSource intends 
to use some or all of the proceeds of these non-core asset sales to 
repay Acquisition Debt.
    2. Nonutility Subsidiaries. Applicants state that there may be 
situations in which one or more Nonutility Subsidiaries would have 
unrestricted cash available for distribution in excess of current and 
retained earnings. Accordingly, Applicants propose that the Nonutility 
Subsidiaries be permitted to pay dividends from time to time through 
the Authorization Period, out of capital and unearned surplus 
(including any revaluation reserve), to the extent permitted under 
applicable corporate law.
P. Tax Allocation Agreement
    NiSource requests that the Commission approve the tax allocation 
agreement (``Tax Allocation Agreement'') among NiSource and its 
Subsidiaries to allocate consolidate income tax liabilities in a manner 
other than permitted by rule 45(c). Applicants state that approval is 
necessary because the proposed Tax Allocation Agreement provides for 
the retention by NiSource of certain payments from the Subsidiaries for 
tax losses that NiSource will incur due to interest expense it would 
pay on the Acquisition Debt, rather than the allocation of those losses 
to Subsidiaries without payment, as rule 45(c)(5) would otherwise 
require. Applicants requests that the Commission reserve jurisdiction 
over the Tax Allocation Agreement pending completion of the record.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-25332 Filed 10-2-00; 8:45 am]
BILLING CODE 8010-01-M