[Federal Register Volume 67, Number 161 (Tuesday, August 20, 2002)]
[Notices]
[Pages 54000-54003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21127]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27560]


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

August 14, 2002.
    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 9, 2002, 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 9, 2002, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

KeySpan, Corp. et al. (70-10063)

    KeySpan Corporation (``KeySpan''), a combination gas and electric 
registered holding company; KeySpan's utility subsidiaries: The 
Brooklyn Union Gas Company (``KED NY''); KeySpan Gas East Corporation 
(``KED LI''); and KeySpan Generation LLC (``KeySpan Generation''); 
KeySpan's direct nonutility subsidiaries: KeySpan Energy Corporation; 
KeySpan Electric Services LLC; KeySpan Exploration & Production LLC; 
KeySpan Technologies Inc.; KeySpan MHK, Inc.; KeySpan Corporate 
Services LLC; KeySpan Utility Services LLC; Marquez Development Corp.; 
Island Energy Services Company, Inc.; LILCO Energy Systems, Inc.; 
KeySpan-Ravenswood LLC; KeySpan-Ravenswood Services Corp.; KeySpan 
Services, Inc.; KeySpan Energy Trading Services LLC; and KeySpan Energy 
Supply LLC; and their respective nonutility subsidiaries; KeySpan New 
England, LLC (``KNE LLC''), a gas utility holding company exempt from 
registration under section 3(a)(1) of the Act by order; \1\ KNE LLC's 
gas utility subsidiaries: Boston Gas Company (``Boston Gas''); Essex 
Gas Company (``Essex Gas''); Colonial Gas Company (``Colonial Gas''); 
and EnergyNorth Natural Gas, Inc. (``ENGI''); KNE LLC's nonutility 
subsidiaries: EE Acquisition Company, Inc.; EEG Acquisition Company, 
Inc.; Eastern Associated Securities Corp.; Eastern Energy Systems 
Corp.; Eastern Rivermoor Company, Inc.; Eastern Urban Services, Inc.; 
Mystic Steamship Corporation; PCC Land Company, Inc.; Philadelphia Coke 
Co., Inc.; Water Products Group Incorporated; Western Associated

[[Page 54001]]

Energy Corp.; Midland Enterprises Inc.; ServicEdge Partners, Inc.; and 
AMR Data Corporation; Broken Bridge Corporation; EnergyNorth Realty, 
Inc.; and their respective subsidiaries (together, ``Applicants''), One 
MetroTech Center, Brooklyn, NY 11201, have filed an application-
declaration under sections 6(a), 7, 9(a), 10, 12(b), 32 and 33 of the 
Act and rules 45 and 53 under the Act.
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    \1\ Holding Co. Act Release No. 27532 (May 29, 2002).
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I. Background

    KeySpan is a registered public-utility holding company. In an order 
dated November 7, 2000,\2\ as supplemented by the order dated December 
1, 2000 \3\ (together, the ``Merger Order''), the Commission approved 
KeySpan's acquisition of Eastern Enterprises (``Merger''). In addition, 
on November 8, 2000, the Commission issued an order,\4\ as supplemented 
by an order issued on December 1, 2000 \5\ (together, the ``Financing 
Order''), authorizing a program of external financings, credit support 
arrangements and related proposals for KeySpan and its subsidiaries.
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    \2\ Holding Co. Act Release No. 27271.
    \3\ Holding Co. Act Release No. 27287.
    \4\ Holding Co. Act Release No. 27272.
    \5\ Holding Co. Act Release No. 27286.
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    KeySpan directly or indirectly owns the following seven public-
utility companies: (1) KED NY, which distributes natural gas at retail 
to residential, commercial and industrial customers in the New York 
City Boroughs of Brooklyn, Staten Island and Queens; (2) KED LI, which 
distributes natural gas at retail to customers in New York State 
located in the counties of Nassau and Suffolk on Long Island and the 
Rockaway Peninsula in Queens County; (3) KeySpan Generation, which owns 
and operates electric generation capacity located on Long Island all of 
which is sold at wholesale to the Long Island Power Authority 
(``LIPA'') for resale by LIPA to its approximately 1.1 million 
customers; (4) Boston Gas, which distributes natural gas to customers 
located in Boston and other cities and towns in eastern and central 
Massachusetts; (5) Essex Gas, which distributes natural gas to 
customers in eastern Massachusetts to customers; (6) Colonial Gas, 
which distributes natural gas to customers located in northeastern 
Massachusetts and on Cape Cod; and (7) ENGI, which distributes natural 
gas to customers located in southern and central New Hampshire, and the 
City of Berlin located in northern New Hampshire. KED NY, KED LI, 
KeySpan Generation, Boston Gas, Colonial Gas, Essex Gas and ENGI are 
collectively referred to as the ``Utility Subsidiaries''. Together, KED 
NY and KED LI serve approximately 1.66 million customers. Together, 
Boston Gas, Colonial Gas and Essex Gas serve approximately 768,000 
customers. ENGI serves approximately 75,000 customers. KeySpan, through 
its Subsidiaries,\6\ engages in energy related non-utility activities 
as described in the Merger Order.
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    \6\ Each directly and indirectly owned subsidiary of KeySpan is 
referred to individually as a ``Subsidiary'' and collectively as 
``Subsidiaries.''
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    In the Financing Order,\7\ the Commission authorized KeySpan and 
its Subsidiaries to engage in a program of external and intrasystem 
financings (including credit support arrangements), to organize and 
acquire the securities of specified types of subsidiaries (including 
exempt wholesale generators (``EWGs'') and foreign utility companies 
(``FUCOs'')) and to engage in other financial and structural 
transactions from time to time through December 31, 2003 
(``Authorization Period'').
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    \7\ Holding Co. Act Release Nos. 27272 (Nov. 8, 2000) and 27286 
(Dec. 1, 2000).
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    Among other specific approvals granted in the Financing Order, the 
Commission authorized:
    (1) KeySpan, directly or indirectly through its affiliates or 
Subsidiaries, to have aggregate investments in EWGs and FUCOs up to 
250% of KeySpan's consolidated retained earnings (``EWG/FUCO Investment 
Approval'');
    (2) KeySpan, subject to an aggregate amount of $5.1 billion 
(``Aggregate Financing Amount'') and other financing parameters set 
forth in the Financing Order, to (i) maintain existing financings, and 
(ii) issue and sell through the Authorization Period up to $1.5 billion 
of additional securities at any time outstanding (``Additional 
Financing Approval'');
    (3) The Utility Subsidiaries, to the extent not exempt under rule 
52, to issue, sell and have outstanding at any one time during the 
Authorization Period new debt securities with maturities of one year or 
less up to the specified amounts (``Utility Short-Term Debt Amounts''): 
KED NY ($250 million); KED LI ($185 million); KeySpan Generation ($50 
million); Boston Gas ($150 million); Colonial Gas ($75 million); Essex 
Gas ($20 million); and ENGI ($35 million);
    (4) KeySpan and the Subsidiaries to acquire the equity securities 
of one or more special-purpose subsidiaries organized solely to 
facilitate a financing and to guaranty the securities issued by these 
Financing Subsidiaries (as defined below), to the extent not exempt 
under rule 45(b) and rule 52 (``Financing Subsidiary Approval''); and
    (5) KeySpan to (i) maintain in effect and to amend, renew, extend 
and/or replace any and all of its existing guarantees, letters of 
credit, expense agreements and other forms of credit support 
(``Guarantees'') with respect to the obligations of the Subsidiaries or 
which may be entered into or given prior to the completion of the 
Merger including the Guarantees listed in Exhibit C to the application 
in SEC File No. 70-9699 (``Financing Application'') which were 
approximately $2 billion and (ii) enter into additional Guarantees 
(i.e., in addition to the existing Guarantees) up to an additional 
aggregate principal amount of $2 billion (not including the existing 
Guarantees at the time of the Merger). Included in the Exhibit C 
Guarantees authorized by the Financing Order were a $13,000,000 
guarantee and $12,000,000 guarantee KeySpan had provided to Hawkeye 
Construction, LLC (``Hawkeye''), a non-affiliate, under an agreement 
entered into in June 2000 prior to the Merger.

II. Terms and Conditions of the Financing \8\
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    \8\ These terms and conditions are the same as those set forth 
in the Financing Order.
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    Financings by each Applicant will be subject to the following 
conditions (``Financing Parameters''): (1) During the Authorization 
Period, KeySpan's common equity will be at least 30% of its 
consolidated capitalization, and each Utility Subsidiary's common 
equity will be at least 30% of its capitalization; (2) any long-term 
debt issued by KeySpan to unaffiliated parties under the authority 
requested in this application-declaration will be rated investment 
grade or will meet the qualifications for being rated investment grade 
by a nationally recognized statistical rating organization; (3) the 
effective cost of money on long-term debt financings will not exceed 
500 basis points over comparable term U.S. Treasury securities and the 
effective cost of money on short-term debt financings will not exceed 
500 basis points over the comparable term London Interbank Offered Rate 
(``LIBOR''); (4) the effective cost of money on preferred stock and 
other fixed-income oriented securities will not exceed 500 basis points 
over LIBOR; (5) the maturity of indebtedness will not exceed 50 years; 
and (6) the underwriting fees, commissions, and other similar 
remuneration paid in connection with the non-competitive issue, sale or 
distribution of a security will not exceed an amount or percentage of 
the principal or total amount of the security being issued that would 
be charged to other companies with a

[[Page 54002]]

similar credit rating and credit profile in a comparable arm's-length 
transaction.
    The proceeds from the financings proposed in this application-
declaration will be used for lawful corporate purposes, including: (1) 
Refinancing acquisition debt for the Merger; (2) financing investments 
by and capital expenditures of KeySpan and its Subsidiaries; (3) the 
repayment, redemption, refunding or purchase by KeySpan or any 
Subsidiary of any of its own securities under rule 42 under the Act; 
and (4) financing working capital requirements of KeySpan and its 
Subsidiaries.

III. Requested Authority

    Generally, KeySpan and the Subsidiaries request the following 
modifications to the Financing Order authorizations with respect to the 
above-described approvals:
    (1) Modification of the EWG/FUCO Investment Approval to permit 
KeySpan, either directly or through its affiliates or Subsidiaries, to 
make aggregate investments (as defined in rule 53) up to $2.2 billion 
dollars in EWGs and FUCOs during the Authorization Period. The proposed 
EWG/FUCO Investment Approval limit represents approximately 418% of 
KeySpan's consolidated retained earnings for the four quarters ended 
March 31, 2002;
    (2) An increase of the Additional Financing Amount from $1.5 
billion to $2.2 billion and an increase in the Aggregate Financing 
Amount from $5.1 billion to $5.8 billion, during the Authorization 
Period;
    (3) An increase in the Utility Short-Term Debt Amounts during the 
Authorization Period as specifically set forth below;
    (4) Modification of the Financing Subsidiary Approval so that 
KeySpan, in addition to the Subsidiaries, can issue long-term debt to 
the Financing Subsidiaries that may be subordinated to other long-term 
debt issued by KeySpan from time to time; and
    (5) Authorization to include within KeySpan's existing Guarantee 
authority an additional guarantee obligation of $60,000,000 it has to 
Hawkeye under the June 2000 agreement which KeySpan failed to include 
in the Financing Application.

A. EWG/FUCO Investment Approval

    In the Financing Order, the Commission authorized KeySpan, directly 
or indirectly through its affiliates and Subsidiaries, to have 
``aggregate investments'' (as defined in rule 53) in EWGs and FUCOs up 
to 250% of KeySpan's ``consolidated retained earnings'' (also as 
defined in rule 53). KeySpan requests that the Commission permit 
KeySpan, directly or indirectly through its affiliates or Subsidiaries, 
to make ``aggregate investments'' in existing and future EWGs and FUCOs 
through the Authorization Period of up to $2.2 billion, which 
represents approximately 418% of KeySpan's consolidated retained 
earnings for the four quarters ended March 31, 2002. At March 31, 2002, 
the consolidated amount of KeySpan's anticipated or current aggregate 
investment in existing EWGs and FUCOs was $791,000,000, which 
represents approximately 150% of KeySpan's consolidated retained 
earnings at March 31, 2002 ($525,588,000).

B. Additional Financing Approval

    KeySpan requests that the Commission increase the Additional 
Financing Amount of $1.5 billion approved in the Financing Order to 
$2.2 billion in the aggregate during the Authorization Period. 
Applicants state the increase of $700 million is necessary to ensure 
that KeySpan has flexibility with regard to its financing authority to 
obtain additional capital through debt or security issuances, as may be 
needed, to accommodate the EWG and FUCO investments up to the proposed 
$2.2 billion requested above. KeySpan further requests that the 
Commission increase the Aggregate Financing Amount on existing and 
Additional Financing Amounts from $5.1 billion to $5.8 billion, to 
reflect the increase of $700 million in the Additional Financing Amount 
requested.
    KeySpan also requests authorization to issue long-term debt 
securities that may be convertible into or exchanged for KeySpan common 
stock. KeySpan's issuance and sale of additional securities up to the 
$2.2 billion for the Additional Financing Amount, and $5.8 billion for 
the increase in the Aggregate Financing Amount, will be subject to the 
Financing Parameters set forth above and any other applicable 
conditions, commitments or restrictions contained in the Financing 
Order or this proceeding that are applicable to these security 
issuances.

C. Utility Subsidiary Financings

    The Utility Subsidiaries request that the Commission increase the 
Utility Short-Term Debt Amount during the Authorization Period to 
permit the Utility Subsidiaries to issue short-term debt up to the 
aggregate principal amounts and in accordance with the applicable 
Financing Parameters set forth above: KED NY ($300 million); KED LI 
($300 million); KeySpan Generation ($75 million); Boston Gas ($500 
million); Colonial Gas ($125 million); Essex Gas ($25 million); and 
ENGI ($125 million).
    In the Financing Order, the Commission also approved the ``Utility 
Money Pool'' but limited the amount each Utility Subsidiary could 
borrow at any one time during the authorization period to its 
applicable Utility Short-Term Debt Amount. The Utility Subsidiaries 
request that the aggregate amounts that each Utility Subsidiary may 
borrow at any one time from the Utility Money Pool be increased to 
correspond to the aggregate amounts for each Utility Subsidiary set 
forth above. Except for the modification in borrowing amounts, no other 
change is requested for the Utility Money Pool as approved in the 
Financing Order.

D. Financing Subsidiaries

    In the Financing Order, the Commission authorized KeySpan and the 
Subsidiaries to organize new corporations, trusts, partnerships or 
other entities created for the purpose of facilitating financings 
through their issuance to third parties of income preferred securities 
or other authorized securities or issued under an applicable exemption 
(``Financing Subsidiaries''). The Financing Order approved the 
following requests:
    1. Authorization of these Financing Subsidiaries to issue 
securities to third parties in the event the issuances are not exempt 
under rule 52;
    2. Authorization (a) to issue debentures or other evidences of 
indebtedness by any of the Subsidiaries to a Financing Subsidiary in 
return for the proceeds of the financing, (b) of the acquisition by any 
of the Subsidiaries of voting interests or equity securities issued by 
a Financing Subsidiary to establish any such Subsidiary's ownership of 
a Financing Subsidiary (the equity portion of the entity generally 
being created through a capital contribution or the purchase of equity 
securities, ranging from one to three percent of the capitalization of 
the financing entity) and (c) of the guarantee (both payment and 
performance) by KeySpan of such Financing Subsidiaries' obligations.
    3. Authorization of each of the Subsidiaries to enter into an 
expense agreement with its respective Financing Subsidiary, under which 
it would agree to pay all expenses of the Financing Subsidiary; and
    4. Any amounts issued by the Financing Subsidiaries to third 
parties under this authorization will be included in the overall 
external

[[Page 54003]]

financing limitation authorized in the Financing Application for the 
immediate parent of the financing entity. However, the underlying 
intra-system mirror debt and parent guarantee shall not be so included.
    KeySpan requests that the Commission modify the authorizations in 
the Financing Order regarding the Financing Subsidiaries as follows: 
(i) With respect to item 1 above, authorization for these Financing 
Subsidiaries to issue preferred stock or other securities that are 
convertible into or exchangeable for KeySpan common stock; (ii) with 
respect to item 2(a) above, KeySpan, in addition to its Subsidiaries, 
has authority to issue debentures or other evidences of indebtedness to 
a Financing Subsidiary in return for the proceeds of the financing; 
(iii) with respect to item 2(b) above, KeySpan, in addition to its 
Subsidiaries, has authority to acquire voting interests or equity 
securities issued by a Financing Subsidiary to establish any such 
Subsidiary's ownership of a Financing Subsidiary (the equity portion of 
the entity generally being created through a capital contribution or 
the purchase of equity securities, ranging from one to three percent of 
the capitalization of the financing entity); (iv) with respect to item 
3 above, KeySpan, in addition to each of the Subsidiaries, is 
authorized to enter into an expense agreement with its respective 
Financing Subsidiary, under which it would agree to pay all expenses of 
the Financing Subsidiary; and (v) with respect to item 4 above, any 
amounts issued by these Financing Subsidiaries to third parties under 
this authorization will be included in the overall external financing 
limitation authorized in the Financing Order or this proceeding, as 
applicable, for the immediate parent of the financing entity.
    In addition, the Financing Order authorized KeySpan to issue debt 
securities under the KeySpan Indenture. In connection with the 
modifications requested above regarding KeySpan's actions in connection 
with Financing Subsidiaries, KeySpan requests that its authorization 
under the Financing Order be modified to include the following: (a) Any 
securities issued by KeySpan will be unsecured and, except as set forth 
in (b) below, unsubordinated obligations of KeySpan, and (b) debt 
securities issued only to a direct Financing Subsidiary of KeySpan may 
be subordinated debt of KeySpan and may be issued either under the 
KeySpan Indenture, a supplemental indenture entered into with a new 
trustee under the KeySpan Indenture or under a new indenture that will 
contain provisions substantially similar to those contained in the 
KeySpan Indenture.

E. Guarantees

    In addition, the Financing Order authorized KeySpan to maintain in 
effect and to amend, renew, extend and/or replace any and all of its 
existing guarantees, letters of credit, expense agreements and other 
forms of credit support (``Guarantees'') with respect to the 
obligations of the Subsidiaries or which may be entered into or given 
prior to the completion of the Merger including the Guarantees listed 
in Exhibit C to the Financing Application. As stated in the Financing 
Application, at that time KeySpan had approximately $2 billion in 
Guarantees outstanding which were expected to remain in place following 
the Merger. The Financing Order further authorized KeySpan to enter 
into additional Guarantees (i.e., in addition to the existing 
Guarantees), subject to the appropriate Financing Parameters, with 
respect to the obligations of the Subsidiaries as may be appropriate or 
necessary to enable such companies to carry on in the ordinary course 
of their respective businesses in an aggregate principal amount not to 
exceed $2.0 billion outstanding at any one time (not taking into 
account obligations exempt under rule 45).
    At the time it received the Guarantees authorizations, KeySpan 
contemplated that all of its existing Guarantees be included within the 
scope of the Financing Order. However, in listing its existing 
Guarantees in Exhibit C of the Financing Application, KeySpan states 
that it inadvertently failed to include certain of its contractual 
obligations to Hawkeye (formerly known as KeySpan Energy Construction, 
LLC), which existed prior to the Merger under a written agreement, 
dated June 20, 2000 (``Purchase Agreement''), regarding the sale of 
KeySpan's subsidiary then known as KeySpan Energy Construction, LLC 
(``KECL''). At the Purchase Agreement closing which occurred prior to 
the Merger, all of KeySpan's ownership interests in KECL were 
transferred to WJH Equities, LLC, an unaffiliated entity. Subsequent to 
this transfer, KECL changed its name to Hawkeye.
    The Purchase Agreement, provides, inter alia, that (i) KeySpan, 
through October 25, 2004, is obligated to make and execute guarantees 
of Hawkeye's debt to Hawkeye's lenders in an aggregate principal amount 
of up to $13,000,000 (the ``$13,000,000 Guaranty''); and (ii) KeySpan, 
through October 25, 2004, is obligated take such steps (and provide 
such guarantees and assurances) as Hawkeye may require to enable it to 
obtain bonds (including payment, performance and completion bonds) as 
Hawkeye may deem necessary or desirable in connection with projects to 
be undertaken by Hawkeye up to a maximum in the aggregate of bonds 
totaling $60,000,000 in each calendar year (the ``$60,000,000 
Guaranty''). In addition, KeySpan is obligated to provide support for a 
line of credit issued to an affiliate of Hawkeye in an amount up to 
$12,000,000.
    In Exhibit C of the Financing Application, KeySpan included its 
obligations to Hawkeye with respect to the $13,000,000 Guaranty and the 
$12,000,000 support for a line of credit. However, KeySpan states that 
it inadvertently failed to include in its request the existing 
$60,000,000 Guaranty obligation to Hawkeye under the Purchase 
Agreement.
    KeySpan requests that the Commission authorize KeySpan to make and 
provide additional guarantees and assurances to Hawkeye up to an 
aggregate of $60,000,000 in any calendar year as set forth above. The 
$60,000,000 Guaranty will be included in the total dollar amount of 
Guarantees currently authorized by the Commission. KeySpan will in no 
event exceed its $2.0 billion limit on future Guarantees previously set 
by the Financing Order.
    Except as stated in the application-declaration, KeySpan and the 
Subsidiaries are not seeking any other changes or modifications to the 
terms, conditions or limitations otherwise applicable under the 
Financing Order.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21127 Filed 8-19-02; 8:45 am]
BILLING CODE 8010-01-P