[Federal Register Volume 67, Number 198 (Friday, October 11, 2002)]
[Notices]
[Pages 63465-63474]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25944]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27573]


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

October 4, 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 October 29, 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 October 29, 2002, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Energy East Corporation, et al. (70-9609)

    Energy East Corporation (``Energy East''), P.O. Box 12904, Albany, 
New York 12212-2904, a registered holding company under the Act, along 
with its direct and indirect subsidiaries listed below, has filed a 
post-effective

[[Page 63466]]

amendment to its previously filed Application/Declaration 
(``Application'') under sections 6(a), 7, 9(a), 10, 12(b), 12(c) and 
13(b) of the Act and Rules 45, 46, 54 and 80-92 under the Act. The 
other applicants are (i) Energy East Enterprises, Inc. (``Energy East 
Enterprises''), a Maine corporation that is a wholly-owned subsidiary 
of Energy East and a public utility holding company exempt from 
registration by order under section 3(a)(1); (ii) Maine Natural Gas 
Corporation (``Maine Natural Gas''), a Maine corporation and a wholly-
owned subsidiary of Energy East; (iii) Energy East Capital Trust 1, a 
wholly-owned subsidiary of Energy East, all of P.O. Box 12904, Albany, 
New York 12212-2904; (iv) RGS Energy Group, Inc. (``RGS''), a New York 
corporation that is a wholly-owned subsidiary of Energy East and a 
public utility holding company exempt from registration by order under 
section 3(a)(1); (v) RGS's wholly-owned subsidiary, New York State 
Electric & Gas Corporation (``NYSEG''), a New York corporation; (vi) 
RGS's wholly-owned subsidiary, Rochester Gas and Electric Corporation 
(``RG&E''), a New York corporation, all of 89 East Avenue, Rochester 
New York 14649-0001; (vii) CMP Group, Inc. (``CMP''), a Maine 
corporation that is a wholly-owned subsidiary of Energy East and is a 
public utility holding company exempt from registration by order under 
section 3(a)(1); (viii) CMP's wholly-owned subsidiary, Central Maine 
Power Company (``Central Maine Power''), a Maine corporation and a 
public utility holding company exempt by order under section 3(a)(2); 
(ix) Maine Electric Power Company, Inc., (``MEPCo''), a Maine 
corporation in which CMP has a 78.3% voting interest;\1\ (x) Central 
Maine Power's wholly-owned subsidiary, NORVARCO,\2\ a Maine 
corporation, all of 83 Edison Drive, Augusta, Maine 04336; (xi) Energy 
East's wholly-owned subsidiary, Connecticut Energy Corporation 
(``Connecticut Energy''), 855 Main Street, Bridgeport, Connecticut 
06604, a Connecticut corporation and a public utility holding company 
exempt from registration by order under section 3(a)(1) of the Act; 
(xii) The Southern Connecticut Gas Company (``SCG''), a Connecticut 
corporation and wholly-owned subsidiary of Connecticut Energy at the 
same address as Connecticut Energy; (xiii) Energy East's wholly-owned 
subsidiary, CTG Resources, Inc. (``CTG''), 10 State House Square, 
Hartford, Connecticut 06144-1500, a public utility holding company 
exempt from registration by order under section 3(a)(1); (xiv) CTG's 
wholly-owned subsidiary, Connecticut Natural Gas Corporation (``CNG''), 
a Connecticut corporation at the same address as CTG; (xv) Energy 
East's wholly-owned subsidiary, Berkshire Energy Resources (``Berkshire 
Energy''), 115 Cheshire Road, Pittsfield, Massachusetts 01201, a 
Massachusetts corporation and a public utility holding company exempt 
from registration by order under section 3(a)(1); and (xvi) Berkshire 
Energy's wholly-owned subsidiary, The Berkshire Gas Company 
(``Berkshire Gas''), a Massachusetts corporation, at the same address 
as Berkshire Energy. Connecticut Energy, RGS, CMP, CTG Resources, and 
Berkshire Energy are referred to as the ``Intermediate Holding 
Companies.'' NYSEG, Southern Connecticut Gas, Maine Natural Gas, 
Central Maine Power, MEPCo, NOVARCO, Connecticut Natural Gas, Berkshire 
Gas and RG&E are referred to as the ``Utility Subsidiaries.'' Energy 
East also owns other subsidiary companies that are not public-utility 
companies under the Act (collectively, ``Nonutility Subsidiaries'').
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    \1\ The remaining interests are owned by two other Marine 
utilities. MEPCo owns and operates a 345kV transmission 
interconneciton between the Maine-New Brunswick, Canada, 
international border at Orient, Maine.
    \2\ NORVASRCO holds a 50% general partnership interest in 
Chester SVC Partnership, a general partnership that owns a static 
var compensator located in Chester, Maine, adjacent to MEPCo's 
transmission interconnection.
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    On August 31, 2000, the Commission issued an order (Holding Company 
Act Release No. 27224) (``First Merger Order'') authorizing Energy 
East's acquisition of CMP, CTG, and Berkshire Energy (``First 
Merger'').
    On September 12, 2000, the Commission issued an order (Holding 
Company Act Release No. 27228) (``Financing Order'') authorizing (i) 
ongoing financing activities of Energy East and its subsidiaries; (ii) 
intrasystem extensions of credit; (iii) the creation, acquisition or 
sale of Nonutility Subsidiaries; (iv) the payment of dividends out of 
capital and unearned surplus; and (v) other related matters pertaining 
to Energy East and its subsidiaries.
    On June 27, 2002, the Commission issued an order authorizing the 
acquisition of RGS by Energy East (Holding Company Act Release No. 
27546) (``RGS Merger Order''), by which RGS became a direct subsidiary 
of Energy East (``RGS Merger'').
    The amended application seeks several modifications of the 
authorizations granted in the Financing Order with respect to the 
ongoing financing activities of Energy East and its subsidiaries and 
other related matters. The proposed modifications are required in order 
to reflect the acquisition of RGS and the inclusion of RGS and its 
subsidiaries as new direct and indirect subsidiaries of Energy East.
    In the Financing Order, the following authorizations, among others, 
were granted for the authorization period beginning September 12, 2000, 
and ending March 21, 2003:
    1. Energy East was granted authorization to issue and sell common 
stock, preferred stock, and unsecured debentures having maturities of 
up to 50 years (``Debentures'') in an aggregate amount not to exceed 
$2.5 billion, and unsecured short-term indebtedness having maturities 
of one year or less (``Short-Term Debt'') in an aggregate principal 
amount at any time outstanding not to exceed $750 million, provided 
that the aggregate principal amount of all indebtedness of Energy East 
at any time outstanding (including Short-Term Debt, Debentures, and 
debt incurred to finance the First Merger and the RGS Merger) would not 
exceed $1.5 billion (``Energy East Debt Limitation'').
    2. The Nonutility Subsidiaries were authorized to enter into 
guaranties, obtain letters of credit, enter into expense agreements and 
otherwise provide credit support to or on behalf of other Nonutility 
Subsidiaries in an aggregate principal amount not to exceed $700 
million outstanding at any one time, exclusive of any guaranties and 
other forms of credit support that are exempt under rule 45(b) and rule 
52, provided that the amount of any Nonutility Subsidiary guaranties 
with respect to obligations of any rule 58 subsidiary shall also be 
subject to the limitations of rule 58(a)(1). The Nonutility 
Subsidiaries providing this credit support were also authorized to 
charge each subsidiary a fee for each guaranty provided on its behalf 
that is not greater than the cost, if any, of obtaining the liquidity 
necessary to perform the guaranty.
    3. The Nonutility Subsidiaries were authorized to acquire or 
construct Nonutility energy assets in the United States (``Energy-
Related Assets'') that would be incidental to their energy marketing, 
brokering and trading operations in an amount up to $500 million.
    Financings authorized in the Financing Order were subject to the 
following limitations: (1) The effective cost of money on Energy East 
short-term debt will not exceed the competitive market rates available 
at the time of issuance to companies with comparable credit ratings 
with respect to debt having similar maturities; the effective

[[Page 63467]]

cost of money on all short-term financing with respect to Utility 
Subsidiaries will not at the time of issuance exceed 300 basis points 
over the comparable term London Interbank Offered Rate (``LIBOR''); (2) 
maturity of long-term indebtedness will not exceed 50 years; (3) the 
underwriting fees, commissions, or similar remuneration paid in 
connection with the issue, sale, or distribution of a security are 
estimated not to exceed 5% of the principal amount of the financing; 
and (4) Energy East's common equity, as reflected on its most recent 
From 10-K or Form 10-Q and as adjusted to reflect subsequent events 
that affect capitalization, will be at least 30% of its pro forma 
consolidated capitalization throughout the authorization period. 
Similarly, the common stock equity of each Intermediate Holding Company 
and each Utility Subsidiary will be at least 30% of total 
capitalization throughout the authorization period. The Financing Order 
stated that proceeds from the financings would be used for general 
corporate purposes, including: (1) Financing, in part, investments by 
and capital expenditures of Energy East and its subsidiaries, including 
the funding of future investments in exempt wholesale generators, as 
defined in section 32 of the Act, foreign utility companies, as defined 
in section 33 of the Act, companies engaged or formed to engage in 
activities permitted by rule 58 (``Rule 58 Subsidiaries''), and exempt 
telecommunications companies; (2) the repayment, redemption, refunding 
or purchase by Energy East or any subsidiary of any of its own 
securities under rule 42 under the Act; and (3) financing working 
capital requirements of Energy East and its subsidiaries.
    Energy East and its subsidiaries request approval of the following 
modifications to the authorizations granted by the Commission in the 
Financing Order:
    1. Energy East requests authority to extend the authorization 
period (currently ending March 31, 2003) so that the new authorization 
period will end on September 30, 2005 (``Authorization Period'').
    2. Energy East requests authority to increase, from $2.5 billion to 
$3.9 billion, Energy East's authority to issue and sell from time to 
time during the Authorization Period common stock, preferred stock, and 
unsecured debentures having maturities of up to 50 years 
(``Debentures''), subject to the sublimit on outstanding indebtedness 
in paragraph 3 below.\3\
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    \3\ Energy East proposes to leave the amount of Short-Term Debt 
authorized in the Financing Order unchanged at $750 million.
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    3. Energy East requests authority to increase the Energy East Debt 
Limitation from $1.5 billion to $2.3 billion, and to increase to $2.3 
billion the aggregate principal amount of Debentures it is authorized 
to issue and sell.
    4. Energy East requests authority for RG&E to issue, sell and have 
outstanding at any one time during the Authorization Period debt 
securities, to the extent not otherwise exempt in accordance with Rule 
52(a), with maturities of one year or less in the aggregate principal 
amount of $200 million. This short-term financing could include, 
without limitation, commercial paper sold in established commercial 
paper markets, bank lines and debt securities issued under RG&E's 
respective indentures and note programs.
    5. Energy East requests authority for RGS to issue, sell and have 
outstanding at any one time during the Authorization Period debt 
securities with maturities of one year or less in the aggregate 
principal amount of $100 million. This short-term financing could 
include, without limitation, commercial paper sold in established 
commercial paper markets, bank lines and debt securities issued under 
RGS's respective indentures and note programs. In addition, RGS will 
not issue any indebtedness in contravention of any pre-existing orders 
of any state utility commission.
    6. Energy East requests authority for RGS during the Authorization 
Period to provide guaranties and other forms of credit support with 
respect to the securities or other obligations of subsidiaries of RGS 
(``RGS Guaranties'') in an aggregate principal amount not to exceed 
$100 million, provided that the amount of any RGS Guaranties in respect 
of any Rule 58 Subsidiary shall also be subject to the limitations of 
Rule 58(a)(1). RGS may charge its subsidiaries a fee for each guaranty 
provided on its behalf that is not greater than the cost, if any, of 
providing the liquidity necessary to perform the guaranty (for example, 
bank line commitment fees or letter of credit fees, plus other 
transactional expenses). RGS will not issue any guaranties in 
contravention of any orders of any state utility commission.
    7. Energy East requests authority to increase from $700 million to 
$750 million Energy East's Nonutility Subsidiaries' authority during 
the Authorization Period to provide guaranties and other forms of 
credit support with respect to obligations of other Nonutility 
Subsidiaries, exclusive of any guaranties that are exempt in accordance 
with rule 45(b) and rule 52 (``Nonutility Subsidiary Guaranties''). 
Nonutility Subsidiary Guaranties would be subject to the terms and 
conditions of the Financing Order.
    8. Energy East requests authority to increase from $500 million to 
$750 million the authority of Energy East's Nonutility Subsidiaries 
during the Authorization Period to invest in certain types of 
nonutility energy-related assets (``Energy-Related Assets'') that are 
incidental to the energy marketing activities of those companies or the 
capital stock of companies substantially all of whose physical assets 
consist of Energy-Related Assets, in accordance with the terms and 
conditions of the Financing Order. Energy East intends to file a post-
effective amendment in this proceeding which will describe the general 
terms and amounts of each non-exempt security and request a 
supplemental order of the Commission authorizing the issuance of those 
securities.
    In order to be exempt under rule 52(b), any loans by Energy East to 
a Nonutility Subsidiary or by one Nonutility Subsidiary to another must 
have interest rates and maturities that are designed to parallel the 
lending company's effective cost of capital. Applicants request that in 
the limited circumstances where the Nonutility Subsidiary making the 
borrowing is not wholly-owned by Energy East, directly or 
indirectly,\4\ that Energy East or a Nonutility Subsidiary, as the case 
may be, be authorized to make loans to these subsidiaries at interest 
rates and maturities designed to provide a return to the lending 
company of not less than its effective cost of capital. Applicants 
state that if these loans are made to a Nonutility Subsidiary, that 
company will not sell any services to any associate Nonutility 
Subsidiary unless that company falls within one of the categories of 
companies to which goods and services may be sold on a basis other than 
``at cost.'' \5\ Furthermore, in

[[Page 63468]]

the event any of these loans are made, Energy East will include in the 
next certificate filed under rule 24 in this matter substantially the 
same information as that required on Form U-6B-2 with respect to each 
transaction.
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    \4\ Energy East's current, less-than-wholly-owned Nonutility 
Subsidiaries are: Downtown Cogeneration Associates, LP, South Jersey 
Energy Solutions, LLC, PEI Power II, LLC, and South Glens Falls 
Energy, LLC.
    \5\ These companies include:
    (i) A FUCO or foreign EWG which derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (ii) An EWG which sells electricity at market-based rates which 
have been approved by the Federal Energy Regulatory Commission 
(``FERC''), provided that the purchaser is not one of the Utility 
Subsidiaries;
    (iii) 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 such electricity for their own use and not for 
resale, and/or (ii) to an electric utility company (other than a 
Utility Subsidiary) at the purchaser's ``avoided cost'' as 
determined in accordance with the regulations under PURPA;
    (iv) 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 one of the Utility Subsidiaries; or
    (v) A Rule 58 Subsidiary or any other Nonutility Subsidiary that 
(a) is partially-owned by Energy East, provided that the ultimate 
purchaser of such goods or services is not a Utility Subsidiary or 
EE Management (or any other entity that Energy East may form whose 
activities and operations are primarily related to the provision of 
goods and services to the Utility Subsidiaries or EE Management), 
(b) is engaged solely in the business of developing, owning, 
operating and/or providing services or goods to Nonutility 
Subsidiaries described in clauses (i) through (iv) immediately 
above, or (c) does not derive, directly 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.
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    9. As a result of the accounting treatment of the RGS Merger, the 
retained earnings of RGS were greatly reduced. For this reason RGS 
requests authorization to pay dividends out of capital and unearned 
surplus in an amount up to its retained earnings prior to the Merger. 
In addition, RGS and its subsidiaries seek authorization to pay 
dividends out of earnings before any amortization of intangibles 
recognized as a result of the Merger and any impairment of either 
goodwill or other intangibles recognized as a result of the Merger.\6\
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    \6\ As a result of the Merger, RGS recognized approximately $634 
million of goodwill and $12 million of intangible assets. Statement 
of Financial Accounting Standards No. 142 requires that goodwill no 
longer be amortized, but instead be tested at least annually for 
impairment. Statement 142 also requires an intangible asset with an 
indefinite life that is not amortized to be tested for impairment 
annually, or more frequently if circumstances indicate it might be 
impaired. Approximately $4 million of the intangible assets 
recognized as a result of the Merger are being amortized. The annual 
amortization expense is $1.4 million.
    In the Financing Order, the Commission authorized the companies 
Energy East previously acquired to pay dividends out of earnings 
before amortization of goodwill. Because goodwill and certain 
intangible assets recognized as a result of the RGS' Merger with 
Energy East are not amortized, any decrease in the value of those 
assets is recognized as an impairment instead of amortization 
expense. Therefore, RGS is requesting authorization to pay dividends 
out of earnings before any impairment of goodwill and any impairment 
or amortization of intangible assets recognized as a result of the 
Merger.
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    Applicants state that the transactions authorized under the 
requested supplemental order would be undertaken in accordance with the 
terms and conditions set forth in the Financing Order and in the 
amended Application. To the extent that the following listed general 
terms and conditions set forth in the amended Application and recited 
below conflict with any general terms and conditions set forth in the 
Financing Order, the general terms and conditions set forth in the 
Financing Order would be deemed to be modified:
    The effective cost of money on long-term debt borrowings in 
accordance with authorizations granted under the Application will not 
exceed the greater of (a) 500 basis points over the comparable-term 
U.S. Treasury securities or (b) a gross spread over U.S. Treasuries 
that is consistent with similar securities of comparable credit quality 
and maturities issued by other companies. The effective cost of money 
on short-term debt borrowings in accordance with the authorizations 
granted in the Application will not exceed the greater of (a) 500 
points over the comparable-term LIBOR or (b) a gross spread over LIBOR 
that is consistent with similar securities of comparable credit quality 
and maturities issued by other companies. The dividend rate on any 
series of Preferred Stock will not exceed the greater of (a) 500 basis 
points over the yield to maturity of a U.S. Treasury security having a 
remaining term equal to the term of that series of Preferred Stock or 
(b) a rate that is consistent with similar securities of comparable 
credit quality and maturities issued by other companies. The maturity 
of indebtedness will not exceed 50 years. Preferred Stock may not have 
any mandatory redemption provisions. The underwriting fees, 
commissions, or other similar remuneration paid in connection with the 
non-competitive issue, sale, or distribution of a security in a 
accordance with the Application (not including any original issue 
discount) will not exceed 5% of the principal or total amount of the 
security being issued.
    All outstanding Debentures issued by Energy East under the 
Financing Order were at the time of issuance, and will continue to be, 
rated at least investment grade by a nationally recognized statistical 
rating organization. In addition, Energy East undertakes that it will 
not issue any Debentures that are not at the time of original issuance 
rated at least investment grade by a nationally recognized statistical 
rating organization. NYSEG, RG&E and Central Maine Power commit to 
maintain at least investment grade senior secured and senior unsecured 
debt ratings by at least one nationally recognized rating agency.
    Energy East also requests that the Commission release jurisdiction 
over the Tax Allocation Agreement previously filed as Exhibit B in Pre-
effective Amendment No. 1 to the Application. Energy East seeks to 
retain the benefit (in the form of the reduction in consolidated tax) 
that is attributable to its interest expense associated with the 
Debentures issued to help finance the cash portions of the 
consideration paid in the RGS Merger and the unsecured debt issued to 
help finance the cash portions of the consideration in the First 
Merger.
    In all other respects, Energy East proposes that the Financing 
Order remain unchanged as a result of the amended Application and any 
supplemental order issued by the Commission in response, except that 
the new Authorization Period shall also apply to all other 
authorizations in the Financing Order that are not modified in any 
supplemental order.

National Fuel Gas Company, et al. (70-10074)

    National Fuel Gas Company (NFG), a registered holding company; 
National Fuel Gas Distribution Corporation (``Distribution''); National 
Fuel Gas Supply Corporation; Horizon Energy Development Inc. and its 
subsidiaries; Highland Forest Resources Inc.; Leidy Hub Inc.; Data-
Track Account Services Inc.; Seneca Independence Pipeline Company, all 
of 10 Lafayette Square, Buffalo, New York 14203; Seneca Resources 
Corporation and its subsidiaries; Upstate Energy Inc.; Niagara 
Independence Marketing Company, all of 1201 Louisiana Street, Suite 
400, Houston, Texas 77002; National Fuel Resources Inc. and Horizon 
Power Inc. (``Horizon Power''), both of 165 Lawrence Bell Drive, Suite 
120, Williamsville, New York 14221, (collectively, ``Applicants''), 
have filed an application-declaration (``Application'') under sections 
6(a), 7, 9(a), 10, 12(b), 12(c), 12(e) and 12(f) of the Act and rules 
43, 45, 46, 62, and 65 under the Act.
    The Applicants include one utility subsidiary, which is 
Distribution. The remaining Applicants, excluding NFG, are nonutility 
subsidiaries (``Nonutility Subsidiaries''). Distribution and the

[[Page 63469]]

Nonutility Subsidiaries are collectively referred to as 
``Subsidiaries.''
    In summary, the Applicants request approval to: (a) Carry out a 
program of external financing, credit support arrangements, and 
intrasystem financing; (b) acquire financing subsidiaries (``Financing 
Subsidiaries'') and special purpose subsidiaries (``Special Purpose 
Subsidiaries''); (c) continue the NFG money pool; (d) enter into 
hedging transactions; (f) make changes in the capital structure of 
majority-owned Subsidiaries; and (g) reorganize Nonutility 
Subsidiaries. Authority for the various requests is sought for the 
period through December 31, 2005 (``Authorization Period''). The 
financing authority sought in this proceeding will replace the current 
financing order for NFG (``Current Financing Order'') (HCAR No. 26847, 
March 20, 1998, as modified by HCAR No. 27170, April 21, 2000).

External Financing by NFG

    NFG requests authority to increase its equity and long-term debt 
capitalization during the Authorization Period in an aggregate amount 
of up to an additional $1.5 billion through the issuance and sale from 
time to time, directly or indirectly through one or more Financing 
Subsidiaries or Special Purpose Subsidiaries, of any combination of 
common stock, preferred securities, unsecured long-term debt, stock 
purchase contracts and/or stock purchase units, excluding any shares of 
common stock that may be issued under NFG's shareholder rights plan.
    Except in accordance with a further order of the Commission, NFG 
will not publicly issue any long-term debt or preferred securities (or 
to the extent they are rated, stock purchase contracts and/or stock 
purchase units) unless these securities are rated at the time of 
issuance at the investment grade level as established by at least one 
``nationally recognized statistical rating organization,'' as that term 
is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under 
the Securities Exchange Act of 1934. Applicants request that the 
Commission reserve jurisdiction over the issuance by NFG of any 
securities that are rated below investment grade.
    NFG proposes to use the proceeds of the financings authorized by 
the this Application, together with other available funds, to (i) make 
investments in Subsidiaries so they can finance capital expenditures, 
(ii) fund short-term loans to certain Subsidiaries either directly or 
through the NFG money pool as described below, (iii) finance future 
investments in ``exempt wholesale generators'' (``EWGs'') and ``foreign 
utility companies'' (``FUCOs''), subject to the limitations of rule 53 
or other order of the Commission, and ``energy-related'' and ``gas-
related'' companies, subject to the limitations of rule 58, (iv) 
acquire, retire or redeem securities issued by NFG or any Financing 
Subsidiary or Special Purpose Subsidiary as described below, and (v) 
provide working capital and other general corporate needs of NFG and 
its Subsidiaries. Distribution proposes to utilize the proceeds of 
authorized money pool borrowings temporarily to fund capital projects, 
to finance inventories, and for other general corporate purposes.
    The terms of inter-company loans by NFG to its Subsidiaries will be 
designed to parallel the effective cost of NFG's long-term debt or 
short-term debt, as applicable, and the terms will reflect an equitable 
allocation of placement fees, commitment fees, underwriting or selling 
fees and commissions and discounts, if any, as well as any associated 
rating agency fees paid or incurred by NFG in connection with the 
issuance of long-term debt or short-term debt.
    The Applicants represent that no financing proceeds will be used to 
acquire the equity securities of any new company unless this 
acquisition has been approved by the Commission or is in accordance 
with an available exemption under the Act. NFG further represents that 
it will not undertake any transaction otherwise authorized by the 
Commission during the Authorization Period that would cause the common 
equity of NFG, as a percentage of its consolidated capitalization 
(inclusive of short-term debt), to fall below 30%, and will not 
undertake any transaction otherwise authorized by the Commission during 
the Authorization Period that would cause the common equity of 
Distribution, as a percentage of capitalization of Distribution, to 
fall below 30%. NFG's forecasted cash flow analysis and capitalization 
forecast for the calendar years 2002 through 2005, which assumes that 
NFG will issue $351 million of common stock out of the $1.5 billion 
overall long-term financing authority requested, indicate that NFG's 
common equity will remain above 30% of its consolidated capitalization 
for the period.
    Common Stock: NFG seeks authority to issue and sell additional 
shares of its authorized common stock, par value $1.00 per share 
(``Common Stock''), or options or warrants exercisable for Common 
Stock, according to underwriting or purchase agreements of a type 
generally standard in the industry. Public distributions may be 
according to private negotiation with underwriters, purchasers, dealers 
or agents, as discussed below, or effected through competitive bidding. 
In addition, sales may be made through private placements or other non-
public offerings to one or more persons. All Common Stock sales will be 
at prices and under conditions negotiated or based upon, or otherwise 
determined by, competitive capital markets.
    Specifically, NFG may 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, the securities will be acquired by the 
underwriters for their own account and may 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. Common Stock may be offered to the public either through 
underwriting syndicates (which may be represented by a managing 
underwriter or underwriters designated by NFG) or directly by one or 
more underwriters acting alone. Common Stock may be sold directly by 
NFG or through agents. If dealers are utilized in the sale of Common 
Stock, NFG will sell the Common Stock to the dealers as principals. Any 
dealer may then resell the Common Stock to the public at varying prices 
to be determined by the dealer at the time of resale.
    NFG may also issue Common Stock and/or purchase shares of its 
Common Stock in the open market for purposes of reissuing the shares, 
and/or options, warrants or other stock purchase rights exercisable for 
Common Stock, in public or privately negotiated transactions in 
exchange for the equity securities or assets of other companies, 
provided that the acquisition of any equity securities or assets has 
been authorized in a separate proceeding or is exempt under the Act or 
the rules under the Act. The value of Common Stock issued in exchange 
for equity securities or assets of another company will be counted 
against the overall limitation on financing. The value will be as 
determined in accordance with any agreement with the seller or, if no 
value is specified in any agreement, then the value will be the closing 
price of NFG's Common Stock on the New York Stock Exchange on the 
trading day next preceding the date of the acquisition.
    NFG also proposes to issue Common Stock under plans (``Stock 
Plans'') that allow shareholders, customers, officers, employees, non-
employee directors and new investors to acquire shares of

[[Page 63470]]

Common Stock. Currently, NFG maintains the National Fuel Direct Stock 
Purchase and Dividend Reinvestment Plan, which provides for purchasing 
shares of Common Stock directly from NFG and permits participants to 
reinvest cash dividends in shares of Common Stock without the payment 
of any brokerage commissions or service charges. NFG also maintains (i) 
401(k) and Employee Stock Ownership Plans that allow employees to 
invest in Common Stock and reinvest cash dividends paid on the Common 
Stock, in addition to a variety of other investment alternatives, (ii) 
various award and option plans that provide for the issuance of one or 
more of the following to key employees: Incentive stock options, 
nonqualified stock options, stock appreciation rights, restricted 
stock, and performance units or performance shares, and (iii) a 
Director Stock Plan, under which it issues shares of Common Stock to 
its non-employee directors as partial consideration for their services 
as directors.
    NFG proposes to issue shares of its Common Stock, as well as stock 
options, restricted stock awards, performance units, performance 
shares, and other Common Stock-based awards in order to satisfy its 
obligations under the Stock Plans. Shares of Common Stock issued or 
purchased for delivery under the Stock Plans may either be newly issued 
shares, treasury shares or shares purchased by NFG in the open market 
with its own funds (either currently or under forward contracts) for 
purposes of reissuance under any Stock Plan. NFG will make open-market 
purchases of Common Stock in accordance with the terms of or in 
connection with the operation of the Stock Plans as provided for in 
rule 42 under the Act. NFG also proposes, within the limitations set 
forth in the Application, to issue and/or purchase shares of Common 
Stock, according to these existing Stock Plans as they may be amended 
or extended, and similar plans or plan funding arrangements adopted 
without any additional Commission order. Stock transactions of this 
variety would, therefore, be treated the same as other stock 
transactions for which authority is sought in this Application. 
Finally, in connection with the adoption of any new Stock Plan or any 
extension of or amendment to an existing Stock Plan, NFG requests 
authorization to solicit any required shareholder approvals without 
further order of the Commission.
    Preferred Securities: NFG, directly or through a Financing 
Subsidiary or Special Purpose Subsidiary, also proposes to issue and 
sell shares of its authorized preferred stock, par value $1.00 per 
share and/or other types of unsecured preferred securities 
(collectively, ``Preferred Securities'') in one or more series with 
rights, preferences, and priorities as may be designated in the 
instrument creating each series, as determined by NFG's board of 
directors or a committee of the board. Preferred Securities may be 
redeemable or may be perpetual in duration. The dividend or 
distribution rate on any series of Preferred 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 or closest to 
the term of the Preferred Securities. Dividends or distributions on any 
series of Preferred Securities will be made periodically and to the 
extent funds are legally available for that purpose, but may be made 
subject to terms which allow the issuer to defer dividend payments or 
distributions for specified periods. Preferred Securities may be 
convertible or exchangeable into shares of Common Stock.
    Long-term Debt: NFG, directly or through a financing subsidiary, 
also proposes to issue and sell from time to time additional long-term 
indebtedness (``Long-term Debt''). Long-term Debt of a particular 
series (a) will be unsecured, (b) may be convertible into any other 
authorized securities of NFG, (c) will have a maturity ranging from one 
year to 50 years, (d) will bear interest at a rate not to 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 or closest to the term 
of the Long-term Debt, (e) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at various premiums above 
the principal amount, (f) may be entitled to mandatory or optional 
sinking fund provisions, (g) may provide for reset of the coupon 
according to a remarketing arrangement, and (h) 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.
    Stock Purchase Contracts and Stock Purchase Units: NFG, directly or 
through a financing subsidiary, may also issue and sell from time to 
time stock purchase contracts (``Stock Purchase Contracts''), including 
contracts obligating holders to purchase from NFG and/or NFG to sell to 
the holders, a specified number of shares or aggregate offering price 
of Common Stock at a future date. The consideration per share of Common 
Stock may be fixed at the time the Stock Purchase Contracts are issued 
or may be determined by reference to a specific formula set forth in 
the Stock Purchase Contracts. The Stock Purchase Contracts may be 
issued separately or as part of units (``Stock Purchase Units'') 
consisting of a Stock Purchase Contract and Long-term Debt and/or 
Preferred Securities and/or debt securities of third parties, including 
U.S. Treasury securities, securing holders' obligations to purchase 
Common Stock under the Stock Purchase Contracts. The Stock Purchase 
Contracts may require holders to secure their obligations in a 
specified manner.
    Short-term Debt: To provide financing for general corporate 
purposes, including making advances to participating subsidiaries 
through the NFG money pool, making advances directly to nonutility 
subsidiaries, and temporarily funding investments in new or existing 
subsidiaries, NFG requests authorization to issue and reissue from time 
to time during the Authorization Period, up to $750 million at any time 
outstanding of unsecured short-term debt securities in the form of 
promissory notes evidencing borrowings under its credit facilities, 
commercial paper notes, and other forms of short-term financing 
generally available to borrowers with investment grade credit ratings. 
The maturity of all Short-term Debt will be less than one year and will 
bear interest at a rate not to exceed at the time of issuance 300 basis 
points over the London Interbank Offered Rate (LIBOR) for maturities of 
up to one year.
    Commercial Paper: Commercial paper may be sold by NFG, from time to 
time, in established domestic or foreign commercial paper markets 
directly or through dealers and placement agents at prevailing discount 
rates, or at prevailing coupon rates, at the date of issuance for 
commercial paper of comparable quality and maturities sold to 
commercial paper dealers generally. It is expected that the dealers and 
placement agents acquiring commercial paper from NFG will re-offer the 
paper at a discount to corporate, institutional and, with respect to 
foreign commercial paper, also to individual investors. Corporate and 
institutional investors may include, among others, commercial banks, 
insurance companies, pension funds, investment trusts, mutual funds, 
foundations, colleges and universities, finance companies and 
nonfinancial

[[Page 63471]]

corporations. Back-up bank lines of credit for 100% of the outstanding 
amount of commercial paper may be required in order to obtain an 
investment grade rating by the credit rating agencies. NFG currently 
has a committed credit facility which acts as back-up to its commercial 
paper program.
    Other Credit Facilities: National also proposes to establish credit 
facilities with various banks and/or other financial institutions and 
to issue and sell, from time to time, short-term notes. These notes 
would bear interest at rates comparable to, or lower than, those 
available through other forms of short-term borrowing with similar 
terms as contemplated in this Application. The total amount of notes 
outstanding at any time, when added to the aggregate amounts of short-
term borrowing outstanding under other forms of short-term borrowing 
contemplated in this Application, would not exceed the total amount of 
Short-term Debt for which authorization is requested. Borrowing 
arrangements with banks and financial institutions may require 
compensating balances and/or commitment fees or similar fees. NFG, at 
all times, will attempt to negotiate the most favorable effective 
borrowing rate taking into account any compensating balances and/or 
other fees.
    Other Securities: NFG may also engage in other types of short-term 
financing as it may deem appropriate in light of its needs and market 
conditions at the time of issuance. This short-term financing may 
include, without limitation, bank borrowings under uncommitted lines 
and issuance of bid notes to individual banks.

Financing Subsidiaries and Special Purpose Subsidiaries

    NFG requests authority to acquire, directly or indirectly, the 
equity securities of one or more Financing Subsidiaries or Special 
Purpose Subsidiaries, which would be organized specifically for the 
purpose of facilitating the issuance of certain types of long-term 
securities described above. Certain of the Nonutility Subsidiaries also 
propose to organize and acquire the equity securities of Financing 
Subsidiaries or Special Purpose Subsidiaries in order to facilitate 
financing of their operations. NFG represents that it has in place 
sufficient internal controls to enable it to monitor the creation and 
use of any of these entities. No Financing Subsidiary or Special 
Purpose Subsidiary shall acquire or dispose of, directly or indirectly, 
any interest in any ``utility asset,'' as that term is defined under 
the Act. Of the overall $1.5 billion authorization for long-term 
securities requested in this Application, NFG requests authority to 
issue up to $500 million outstanding at any one time through Financing 
Subsidiaries and/or Special Purpose Subsidiaries.
    Financing Subsidiaries: NFG proposes to acquire all of the 
outstanding shares of common stock or other equity interests of one or 
more Financing Subsidiaries. A separate Financing Subsidiary may be 
used by NFG with respect to financings of different types of non-core 
businesses. In connection with these financing transactions, NFG may 
enter into one or more guarantees or other credit support agreements in 
favor of the Financing Subsidiary. The amount of any guarantees or 
credit support would not count against the limit on guarantees that is 
proposed in this Application.
    NFG has not created to date any direct Financing Subsidiary under 
the authority contained in the current financing order. However, NFG's 
natural gas and oil exploration and production subsidiary, Seneca 
Resources Corporation, is currently in the process of organizing 
certain Financing Subsidiaries, which are expected to increase the tax 
efficiencies of its operations in Canada. Any Financing Subsidiary or 
Special Purpose Subsidiary organized by NFG under the authority granted 
by the Commission in this proceeding shall be organized only if, in 
management's opinion, the creation and utilization of a Financing 
Subsidiary or Special Purpose Subsidiary, will likely result in tax 
savings, increased access to capital markets and/or lower cost of 
capital for NFG.
    Special Purpose Subsidiaries: In connection with the issuance of 
certain types of Preferred Securities, NFG and/or a Financing 
Subsidiary proposes to organize one or more separate Special Purpose 
Subsidiaries as any one or any combination of (a) a limited liability 
company, (b) a limited partnership, (c) a business trust, or (d) any 
other entity or structure, foreign or domestic, that is considered 
advantageous by NFG. In the event that any Special Purpose Subsidiary 
is organized as a limited liability company, NFG or the Financing 
Subsidiary may also organize a second special purpose wholly-owned 
subsidiary (``Partner Sub'') for the purpose of acquiring and holding 
Special Purpose Subsidiary membership interests in order to comply with 
any requirement under the applicable law that a limited liability 
company have at least two members. In the event that any Special 
Purpose Subsidiary is organized as a limited partnership, NFG or the 
Financing Subsidiary also may organize a Partner Sub for the purpose of 
acting as the general partner of a Special Purpose Subsidiary and may 
acquire, either directly or indirectly through the Partner Sub, a 
limited partnership interest in a Special Purpose Subsidiary to ensure 
that the Special Purpose Subsidiary will have a limited partner to the 
extent required by applicable law.
    NFG, the Financing Subsidiary and/or a Partner Sub will acquire all 
of the common stock or all of the general partnership or other common 
equity interests, as the case may be, of any Special Purpose Subsidiary 
for an amount not less than the minimum required by any applicable law 
(i.e., the aggregate of the equity accounts of the Special Purpose 
Subsidiary). The aggregate of the investment by NFG, the Financing 
Subsidiary and/or a Partner Sub is referred to in this Application as 
the equity contribution (``Equity Contribution''). NFG and/or the 
Financing Subsidiary may issue and sell to any Special Purpose 
Subsidiary, at any time or from time to time in one or more series, 
unsecured subordinated debentures, unsecured promissory notes or other 
unsecured debt instruments (individually, a ``Note'' and collectively, 
the ``Notes'') governed by an indenture or other document, and the 
Special Purpose Subsidiary will apply both the Equity Contribution made 
to it and the proceeds from the sale of Preferred Securities by it from 
time to time to purchase Notes. Alternatively, NFG and/or the Financing 
Subsidiary may enter into a loan agreement or agreements with any 
Special Purpose Subsidiary under which the Special Purpose Subsidiary 
will loan to NFG and/or the Financing Subsidiary (individually, a 
``Loan'' and collectively, the ``Loans'') both the Equity Contribution 
to the Special Purpose Subsidiary and the proceeds from the sale of 
Preferred Securities by the Special Purpose Subsidiary from time to 
time, and NFG and/or the Financing Subsidiary will issue to the Special 
Purpose Subsidiary Notes evidencing these borrowings. The terms (e.g., 
interest rate, maturity, amortization, prepayment terms, and default 
provisions) of any Notes would be designed to parallel the terms of the 
Preferred Securities to which the Notes relate.
    NFG or any Financing Subsidiary also proposes to guarantee solely 
in connection with the issuance of Preferred Securities by a Special 
Purpose Subsidiary (i) payment of dividends or distributions on the 
securities by the Special Purpose

[[Page 63472]]

Subsidiary if and to the extent the Special Purpose Subsidiary has 
funds legally available for this use, (ii) payments to the holders of 
the securities due upon liquidation of the Special Purpose Subsidiary 
or redemption of the Preferred Securities of the Special Purpose 
Subsidiary, and (iii) certain additional amounts that may be payable in 
respect of the Preferred Securities. Alternatively, NFG may provide 
credit support for any guarantee that is provided by a Financing 
Subsidiary. The amount of any guarantees or credit support provided by 
NFG for this purpose would not be counted against the limitation on 
guarantees as set forth in this Application.
    In the event of any voluntary or involuntary liquidation, 
dissolution or winding up of any Special Purpose Subsidiary, the 
holders of Preferred Securities issued by the Special Purpose 
Subsidiary will be entitled to receive, out of the assets of the 
Special Purpose Subsidiary available for distribution to its 
shareholders, partners or other owners (as the case may be), an amount 
equal to the par or stated value or liquidation preference of the 
Preferred Securities, plus any accrued and unpaid dividends or 
distributions.
    The constituent instruments of each Special Purpose Subsidiary will 
provide, among other things, that the Special Purpose Subsidiary's 
activities will be limited to the issuance and sale of Preferred 
Securities from time to time and the lending to the Financing 
Subsidiary or Partner Sub of (i) the proceeds any issuance or sale and 
(ii) the Equity Contribution to a Special Purpose Subsidiary, and 
certain other related activities.

Financing by Subsidiaries

    Distribution seeks authority to issue short-term debt securities as 
set forth in the Application. The Nonutility Subsidiaries seek 
authority to engage in financing transactions to develop and expand 
energy-related or functionally related nonutility businesses. Most 
often these financing transactions by the Nonutility Subsidiaries will 
be exempt under rule 52(b) of the Act; however, in the limited 
circumstances where the Nonutility Subsidiary making the borrowing is 
not wholly-owned by NFG, directly or indirectly, authority is requested 
for NFG or any other Nonutility Subsidiary to make loans to nonutility 
subsidiaries at interest rates and maturities designed to provide a 
return to the lending entity of not less than its effective cost of 
capital. However, no loans will be made to a Nonutility Subsidiary that 
is less than wholly-owned if the Nonutility Subsidiary sells any 
services or goods to Distribution or to any other Nonutility Subsidiary 
which, in turn, sells goods or services to Distribution.
    Certain of the Nonutility Subsidiaries may be able to achieve tax 
and other benefits by issuing securities through Financing Subsidiaries 
or Special Purpose Subsidiaries, and, accordingly, request 
authorization to organize and acquire the equity securities of these 
entities in the same manner as described above in connection with 
proposed financings by NFG.

Continuation of Money Pool Arrangements

    Under the current financing order, Distribution, National Fuel Gas 
Supply Corporation, Seneca Resources Corporation, Highland Forest 
Resources Inc., Leidy Hub Inc., Horizon Energy Development Inc., Data-
Track Account Services Inc., National Fuel Resources Inc., Upstate 
Energy Inc., Niagara Independence Marketing Company, and Seneca 
Independence Pipeline Company are authorized to participate in a money 
pool as both borrowers and lenders. Horizon Power is authorized to 
invest surplus funds in the money pool and to withdraw those funds when 
needed, but may not borrow through the money pool. NFG is authorized to 
lend funds through the money pool but may not borrow funds through the 
money pool. The Applicants propose to continue participation in, and, 
with the exception of NFG and Horizon Power, to incur short-term 
borrowings through the money pool on the same terms as approved under 
the current financing order. Authority is sought for the money pool 
participants, other than NFG and Horizon Power, (``Eligible 
Borrowers'') to borrow short-term funds through the money pool. The 
maximum amount of money pool borrowings outstanding for each Eligible 
Borrower will be determined by NFG and each Eligible Borrower in 
accordance with business needs.
    NFG will administer the money pool and coordinate short-term 
borrowings by Eligible Borrowers. NFG proposes to make loans available 
to Eligible Borrowers through the money pool utilizing the proceeds of 
borrowings under various credit facilities, including but not limited 
to commercial paper, short-term lines of credit, demand credit 
facilities, and committed credit facilities (``Credit Facilities''), as 
determined by NFG, and issued in accordance with the authorization 
sought in this proceeding. In addition, at certain times during the 
year, NFG and certain of its Subsidiaries may generate surplus funds, 
which they may choose to invest in the money pool. Therefore, funds 
available for borrowings through the money pool will be derived from 
one or more of the following sources: (1) Surplus funds of NFG or one 
or more of its Subsidiaries; (2) proceeds from NFG's sale of commercial 
paper; and (3) borrowings by NFG under other Credit Facilities.
    NFG will match, to the extent possible, the short-term cash 
surpluses and borrowing requirements of itself and its Subsidiaries. In 
the event that at any time during the Authorization Period there are 
insufficient funds available from money pool sources to satisfy money 
pool borrowing requirements of all Eligible Borrowers, Distribution 
will receive borrowing priority over the Nonutility Subsidiaries. 
Borrowings through the money pool would be met first from available 
surplus funds of the Subsidiaries and then from available surplus funds 
of NFG. Once these sources of funds become insufficient to meet the 
short-term loan requests, borrowings will be made by NFG through the 
issuance and sale of commercial paper or borrowings under other Credit 
Facilities.
    Distribution seeks approval to make borrowings through the money 
pool in an amount not to exceed $500 million at any time outstanding. 
Distribution proposes to repay money pool borrowings principally by 
means of funds received as a result of providing services to its 
customers under its tariffs, and from the possible sale of debt 
(including long-term notes issued to NFG) or equity securities.
    Borrowings through the money pool and repayments will be adequately 
documented and will be evidenced on the books of each participant that 
is borrowing funds or lending surplus funds. If only internal funds 
(surplus funds of NFG and the Subsidiaries) make up the funds available 
in the money pool, the interest rate applicable and payable to or by 
Subsidiaries for all loans from internal funds will be the rates for 
high-grade, unsecured, 30-day commercial paper sold through dealers by 
major corporations, as quoted in The Wall Street Journal or other 
national financial publications. Borrowings consisting wholly or in 
part of funds obtained through the sale of commercial paper or 
borrowings under other Credit Facilities by NFG will bear interest at a 
rate equal to NFG's net weighted daily average cost for external 
borrowings. Interest will be payable by the borrowing Subsidiary until 
the principal amount borrowed is fully repaid. Fees, commissions and 
expenses incurred by NFG to establish and maintain Credit Facilities 
used to fund loans through the

[[Page 63473]]

money pool, including rating agency fees, bank commitment fees, and 
transaction costs (such as legal fees incurred in connection with 
negotiating and documenting credit facilities), will be allocated to 
all Eligible Borrowers. Each Eligible Borrower's share of allocated 
expenses is a fraction of the total expenses. The numerator of the 
fraction is the respective per book capitalization plus the average 
daily balance of short-term borrowings outstanding during the twelve 
months ended as of the date of the most recent quarterly consolidating 
financial statements for each Eligible Borrower. The denominator of the 
fraction is the sum of all the numerators used in the calculation.
    To the extent that there are excess funds available in the money 
pool from time to time because (a) there are no borrowings under the 
Credit Facilities that may be currently repaid, or (b) there is no 
commercial paper that is maturing, or (c) no Eligible Borrower has a 
need for excess funds available from other money pool participants, the 
excess funds will normally be invested in one or more short-term 
investments. The Applicants propose amendment of Article IV of the 
Money Pool Agreement to provide that these short-term investments may 
include any of the following: (i) Interest-bearing accounts with banks; 
(ii) obligations issued or guaranteed by the U.S. government or its 
agencies and instrumentalities, or by any state or political 
subdivision of a state; (iii) tax exempt notes; (iv) tax exempt bonds; 
(v) tax exempt preferred stock; (vi) commercial paper rated not less 
than A-1 or P-1 or their equivalent by a nationally recognized 
statistical rating organization; (vii) money market funds; (viii) bank 
certificates of deposit and bankers acceptances; (ix) Eurodollar 
certificates of deposit or time deposits; (x) repurchase agreements 
with respect to any of the foregoing; and (xii) other investments as 
are permitted by the Act and the rules under the Act. With the 
exception of Article IV, no other substantive changes to the Money Pool 
Agreement as currently in effect are proposed.

Guarantees

    NFG requests authority to enter into guarantees, obtain letters of 
credit, enter into expense agreements or otherwise provide credit 
support (collectively, ``Guarantees'') with respect to the obligations 
of any Subsidiary. Authority is sought to enter into Guarantees in an 
aggregate principal amount not to exceed $2 billion outstanding at any 
time, provided that any Guarantee outstanding on December 31, 2005, 
shall terminate or expire in accordance with its terms and provided 
further that the amount of any Guarantees with respect to the 
obligations of any Subsidiaries shall be subject to the limitations of 
rule 53(a)(1) or rule 58(a)(1), as applicable. Guarantees of the 
obligations of any Financing Subsidiary or Special Purpose Subsidiary, 
as described above, will not count against this limitation.
    NFG requests authority to charge each Subsidiary a fee for 
providing credit support. The fee will be determined by multiplying the 
amount of the Guarantee provided by the cost of obtaining the liquidity 
necessary to perform the Guarantee (for example, bank line commitment 
fees or letter of credit fees, plus other transactional expenses, if 
any) for the period of time the Guarantee remains outstanding.

Hedging Transactions

    Interest Rate Hedges: NFG and, to the extent not exempt under rule 
52, the Subsidiaries, request authorization to enter into Interest Rate 
Hedges, subject to certain limitations and restrictions, in order to 
manage interest rate cost. Interest Rate Hedges would only be entered 
into with counterparties (``Approved Counterparties'') whose senior 
debt ratings, or the senior debt ratings of the parent companies of the 
counterparties, as published by Moody's Investors Service, are equal to 
or greater than ``Baa,'' or an equivalent rating from Standard and 
Poor's Ratings Group or Fitch Inc.
    Interest Rate Hedges will involve the use of financial instruments 
commonly used in today's capital markets to manage the volatility of 
interest rates, including but not limited to interest rate swaps, 
swaptions, caps, collars, floors, forwards, rate locks, 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), and short sales of U.S. Treasury securities. The Applicants 
would use Interest Rate Hedges as a means of prudently managing the 
risk associated with any outstanding debt by, for example, (i) 
converting variable rate debt to fixed rate debt, (ii) converting fixed 
rate debt to variable rate debt, or (iii) limiting the impact of 
changes in interest rates resulting from variable rate debt. The 
transactions would be for fixed periods and stated notional amounts, 
which in no case would exceed the principal amount of the underlying 
debt instrument. Fees, commissions and other amounts payable to the 
counterparty or exchange (excluding, however, the swap or option 
payments) in connection with an Interest Rate Hedge will not exceed 
those generally obtainable in competitive markets for parties of 
comparable credit quality.
    Anticipatory Hedges: In addition, NFG and the Subsidiaries request 
authorization to enter into Anticipatory Hedges, subject to certain 
limitations and restrictions. Anticipatory Hedges would only be entered 
into with Approved Counterparties, and would be utilized to fix and/or 
limit the interest rate risk associated with any new issuance through 
(i) a forward sale of exchange-traded U.S. Treasury futures contracts, 
U.S. Treasury securities and/or a forward swap (each a ``Forward 
Sale''), (ii) the purchase of put options on U.S. Treasury securities 
(a ``Put Options Purchase''), (iii) a Put Options Purchase in 
combination with the sale of call options on U.S. Treasury securities 
(a ``Zero Cost Collar''), (iv) transactions involving the purchase or 
sale, including short sales, of U.S. Treasury securities, or (v) 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 may be executed on-exchange (``On-Exchange 
Trades'') with brokers through the opening of futures and/or options 
positions traded on the Chicago Board of Trade (``CBOT''), the opening 
of over-the-counter positions with one or more counterparties (``Off-
Exchange Trades''), or a combination of On-Exchange Trades and Off-
Exchange Trades. NFG or a Subsidiary will determine the optimal 
structure of each Anticipatory Hedge transaction at the time of 
execution.
    NFG represents that each Interest Rate Hedge and Anticipatory Hedge 
will be treated for accounting purposes under generally accepted 
accounting principles. NFG will comply with Statement of Financial 
Accounting Standard (``SFAS'') 133 (Accounting for Derivative 
Instruments and Hedging Activities) and SFAS 138 (Accounting for 
Certain Derivative Instruments and Certain Hedging Activities) or other 
standards relating to accounting for derivative transactions as are 
adopted and implemented by the Financial Accounting Standards Board.

Changes in Capital Structure of Majority-Owned Subsidiaries

    The portion of an individual Subsidiary's aggregate financing to be 
effected through the sale of stock to NFG or other immediate parent 
company during the Authorization Period according to rule 52 and/or 
according to

[[Page 63474]]

an order issued in this proceeding cannot be ascertained at this time. 
The proposed sale of capital securities may in some cases exceed the 
then authorized capital stock of a Subsidiary. In addition, the 
Subsidiary may choose to use capital stock with no par value. Also, a 
Subsidiary may wish to engage in a reverse stock split to reduce 
franchise taxes or for other corporate purposes. As needed to 
accommodate these types of proposed transactions and to provide for 
future issuances of securities, the Applicants request authority to 
change the terms of any majority-owned Subsidiary's authorized 
capitalization by an amount deemed appropriate by NFG or other parent 
company, provided that the consent of all other shareholders has been 
obtained for the change. A Subsidiary would be able to change the par 
value, or change between par value and no-par value stock, or change 
the form of equity from common stock to limited partnership or limited 
liability company interests or similar instruments, or from these types 
of instruments to common stock, without additional Commission approval. 
Any action by Distribution would be subject to and would only be taken 
upon receipt of necessary approvals from state regulators.

Nonutility Subsidiary Reorganizations

    NFG requests approval to consolidate or otherwise reorganize all or 
any part of its direct and indirect ownership interests in Nonutility 
Subsidiaries and the activities and functions related to these 
investments. To effect any consolidation or other reorganization, NFG 
may wish to either contribute the equity securities of one Nonutility 
Subsidiary to another Nonutility Subsidiary or sell (or cause a 
Nonutility Subsidiary to sell) the equity securities or all or part of 
the assets of one Nonutility Subsidiary to another one. These 
transactions may also take the form of a Nonutility Subsidiary selling 
or transferring the equity securities of a subsidiary or all or part of 
a subsidiary's assets as a dividend to NFG or to another Nonutility 
Subsidiary, and the acquisition, directly or indirectly, of the equity 
securities or assets of a subsidiary, either by purchase or by receipt 
of a dividend. The purchasing company in any transaction structured as 
an intrasystem sale of equity securities or assets may execute and 
deliver its promissory note evidencing all or a portion of the 
consideration given. Each transaction would be carried out in 
compliance with all applicable U.S. or foreign laws and accounting 
requirements, and any transaction structured as a sale would be carried 
out for consideration equal to the book value of the equity securities 
being sold.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25944 Filed 10-10-02; 8:45 am]
BILLING CODE 8010-01-P