[Federal Register Volume 68, Number 228 (Wednesday, November 26, 2003)]
[Notices]
[Pages 66506-66516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29511]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27766]


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

November 20, 2003.
    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 December 15, 2003, 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 December 15, 2003, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

KeySpan Corporation, et al. (70-10129)

    KeySpan Corporation (``KeySpan''), a registered holding company and 
KeySpan's directly owned public utility subsidiaries The Brooklyn Union 
Gas Company d/b/a KeySpan Energy Delivery New York (``KEDNY''); KeySpan 
Gas East Corporation d/b/a KeySpan Energy Delivery Long Island 
(``KEDLI''); KeySpan Generation LLC (``KeySpan Generation''); and 
KeySpan's public utility subsidiaries indirectly owned through KeySpan 
New England LLC (``KeySpan New England''), Boston Gas Company d/b/a 
KeySpan Energy Delivery New England (``Boston Gas''), Essex Gas Company 
d/b/a KeySpan Energy Delivery New England (``Essex Gas''), Colonial Gas 
Company d/b/a KeySpan Energy Delivery New England (``Colonial Gas''), 
and EnergyNorth Natural Gas, Inc. d/b/a KeySpan Energy Delivery New 
England (``ENGI'' and the

[[Page 66507]]

direct and indirect utility subsidiaries, together, ``Utility 
Subsidiaries''); KeySpan's nonutility subsidiaries (``Nonutility 
Subsidiaries''): KeySpan Energy Corporation (``KEC'') and its 
subsidiaries; KeySpan Insurance Company; KeySpan Electric Services LLC; 
KeySpan Engineering and Survey, Inc.; KeySpan Exploration & Production 
LLC; KeySpan Corporate Services LLC (``KCS''); KeySpan Utility Services 
LLC; KSNE LLC; KeySpan-Ravenswood LLC (``Ravenswood''); KeySpan 
Services, Inc. and its nonutility subsidiaries; KeySpan Energy Trading 
Services LLC, and KeySpan Energy Development Corporation and its 
nonutility subsidiaries, all located at One MetroTech Center, Brooklyn, 
New York 11201, except for KeySpan New England, Boston Gas, Essex Gas, 
Colonial Gas and ENGI, which are located at 52 Second Avenue, Waltham, 
MA 02451, (KeySpan, the Utility Subsidiaries and the Nonutility 
Subsidiaries are collectively referred to as ``Applicants'') have filed 
with the Commission an application-declaration (``Application'') under 
sections 6(a), 7, 9(a), 10, 11, 12(b), 12(f), and 13(b) of the Act, and 
rules 42, 43, 44, 45, 46, 52, 53, 54, 58, 62, 90, and 91 under the Act.

I. Introduction

    By order dated November 7, 2000 (HCAR No. 27269), as corrected by 
order issued on December 1, 2000 (HCAR No. 27281) (together, ``Merger 
Order''), KeySpan was authorized to acquire all of the issued and 
outstanding common stock of Eastern Enterprises (``Eastern'' now known 
as KeySpan New England)\1\ and EnergyNorth Inc. (``Mergers''). KeySpan 
now directly or indirectly owns the following seven public utility 
companies: (i) KEDNY, which distributes natural gas at retail to 
residential, commercial and industrial customers in the New York City 
boroughs of Brooklyn, Staten Island and Queens; (ii) KEDLI, 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; (iii) 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; (iv) Boston Gas, which distributes natural gas to customers 
located in Boston and other cities and towns in eastern and central 
Massachusetts; (v) Essex Gas, which distributes natural gas to 
customers in eastern Massachusetts to customers; (vi) Colonial Gas, 
which distributes natural gas to customers located in northeastern 
Massachusetts and on Cape Cod; and (vii) ENGI, which distributes 
natural gas to customers located in southern and central New Hampshire, 
and the City of Berlin located in northern New Hampshire. Together, 
KEDNY and KEDLI 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.
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    \1\ KeySpan New England has succeeded to Eastern's ownership 
interests in Boston Gas, Essex Gas, Colonial Gas and ENGI and the 
nonutility subsidiaries owned by Eastern, (i) is successor of 
Eastern with respect to its commitments and authorizations set forth 
by order dated November 8, 2000 (HCAR No. 27272) as corrected by 
order dated December 1, 2000 (HCAR No. 27286) (together, ``2000 
Financing Order'') and (ii) is an exempt holding company under 
section 3(a)(1) of the Act as stated in the Merger Order.
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II. General Request

    Applicants request authorization to engage in the financing 
transactions set forth below through December 31, 2006 (``Authorization 
Period'').
    (i) Issuance by KeySpan of common stock, long-term debt; Preferred 
Stock, Preferred or equity-linked securities (including units with 
incorporated options, warrants and/or forward equity purchase contracts 
or provisions that are exercisable or exchangeable for or convertible 
into common stock);
    (ii) Issuance by KeySpan of short-term debt;
    (iii) Issuance of up to 13 million shares of KeySpan common stock 
under KeySpan's direct stock purchase and dividend reinvestment plan, 
certain incentive compensation plans and certain other employee benefit 
plans;
    (iv) The entering into by KeySpan and its Subsidiaries of hedging 
transactions;
    (v) The issuance of intra-system advances and guarantees 
(``Guarantees''), and performance guarantees (``Performance 
Guarantees'') by KeySpan to or on behalf of Subsidiaries of KeySpan;
    (vi) The issuance of intra-system advances, Guarantees, Performance 
Guarantees and, to the extent not exempt under rule 52, by the 
Nonutility Subsidiaries to or on behalf of other Nonutility 
Subsidiaries;
    (vii) Issuances of short-term debt securities by the Utility 
Subsidiaries, to the extent not exempt under rule 52;
    (viii) Issuances of debt securities in foreign jurisdictions;
    (ix) The ability of the Nonutility Subsidiaries to pay dividends 
out of capital or unearned surplus;
    (x) The right of KeySpan to acquire directly or through 
Subsidiaries the securities of one or more corporations, trust, 
partnerships, limited liability companies or other entities 
(``Intermediate Subsidiaries'') in order to, among other things, 
facilitate the acquisition, holding and/or financing of KeySpan's 
nonutility investments;
    (xi) The authority for KeySpan to engage, directly or through 
Subsidiaries, in preliminary development activities (``Development 
Activities'') and administrative and management activities 
(``Administrative Activities'') in each case related to KeySpan's 
permitted nonutility investments;
    (xii) The authority for KeySpan and its Nonutility Subsidiaries to 
undertake internal reorganizations of then existing and permitted 
Nonutility Subsidiaries and businesses;
    (xiii) The authority for KeySpan and its Nonutility Subsidiaries to 
undertake internal reorganizations of then existing and permitted 
Nonutility Subsidiaries and businesses;
    (xiv) The authority for KeySpan and the Subsidiaries to make 
investments in EWGs and FUCOs up to an aggregate amount not to exceed 
$3.0 billion;
    (xv) The authority for KeySpan and the Subsidiaries to organize 
and/or acquire the equity securities of one or more additional 
corporations, trusts, partnerships or other entities organized to serve 
the purpose of facilitating financings (``Financing Subsidiaries'');
    (xvi) The authority for the Nonutility Subsidiaries to provide 
services and sell goods to each other at fair market prices determined 
without regard to cost in exemption from section 13(b) and rules 90 and 
91; and
    (xvii) Issuances by KeySpan and its Subsidiaries of common stock, 
preferred stock, preferred and equity-linked securities, long-term debt 
and short-term debt to refund, replace, repurchase or refinance 
existing securities, to the extent not exempt under rule 52.

III. Financing Parameters

    Applicants request authorization to engage in a variety of 
financing transactions, credit support arrangements and other related 
transactions, as more fully discussed below, during the Authorization 
Period for which the specific terms and conditions are not at this time 
known. Applicants state that the following general terms (``Financing 
Parameters'') would be applicable, where appropriate, to the financing 
transactions requested:
A. Effective Cost of Money on Financings
    Applicants state that the effective cost of capital on debt and 
preferred or equity-linked financings will not exceed

[[Page 66508]]

competitive market rates available at the time of issuance for 
securities having the same or reasonably similar terms and conditions 
issued by similar companies of reasonably comparable credit quality; 
provided that in no event will the effective cost of capital on (i) 
long-term debt borrowings exceed 500 basis points over the comparable 
term U.S. Treasury securities and on (ii) short-term debt borrowings 
exceed 500 basis points over the comparable term London Interbank 
Offered Rate (``LIBOR'').
B. Maturity
    Applicants state that the maturity of indebtedness will not exceed 
50 years and that preferred stock or preferred or equity-linked 
securities (other than perpetual preferred stock) will be redeemed no 
later than 50 years after its issuance, unless converted into common 
stock.
C. Issuance Expenses
    Applicants state that the underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of securities would not exceed the greater of (i) 
7% of the principal or total amount of the security being issued or 
(ii) issuance expenses that are generally paid at the time of the 
pricing for sales of the particular issuance, having the same or 
reasonably similar terms and conditions issued by similar companies of 
reasonably comparable credit quality.
D. Use of Proceeds
    Applicants state that the proceeds from the sale of securities in 
external financing transactions will be used for general corporate 
purposes including (i) the financing of the capital expenditures of the 
KeySpan system; (ii) the financing of working capital requirements of 
the KeySpan system; (iii) the acquisition, retirement or redemption 
under rule 42 of securities previously issued by KeySpan or its 
Subsidiaries or as otherwise authorized by Commission; (iv) direct or 
indirect investment in companies authorized under the Act or Commission 
rule, or by Commission order (including EWGs or FUCOs) or in a separate 
proceeding; and (v) other lawful purposes. Applicants represent that no 
financing proceeds will be used to acquire a new subsidiary unless the 
financing is consummated in accordance with a Commission order or an 
available exemption under the Act.
E. Common Equity Ratio
    Applicants state that KeySpan and each Utility Subsidiary will each 
maintain common equity (as reflected in the most recent annual or 
quarterly financial statement of each entity, as the case may be, 
adjusted to reflect changes in capitalization since the included 
balance sheet date) of at least 30% of its consolidated capitalization 
by considering common equity, preferred stock, long-term debt and 
short-term debt (``30% Test'') at all times during the Authorization 
Period.
    As of June 30, 2003, the common equity of each Utility Subsidiary 
and of KeySpan on a consolidated basis is as follows:

 
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Essex Gas Company............................................      37.44
Colonial Gas Company.........................................      42.85
Boston Gas Company...........................................      35.58
KeySpan Generation LLC.......................................      42.15
EnergyNorth Natural Gas, Inc.................................      65.00
The Brooklyn Union Gas Company...............................      58.61
KeySpan Gas East Corporation.................................      46.89
Consolidated.................................................      39.78
------------------------------------------------------------------------

F. Investment Grade Ratings
    Applicants state that apart from securities issued for the purpose 
of funding money pool operations, KeySpan and the Utility Subsidiaries 
will not issue any other securities in reliance upon this Order, unless 
(i) the security to be issued, if rated, is rated investment grade; 
(ii) all outstanding securities of the issuer, that are rated,\2\ are 
rated investment grade; and (iii) all outstanding securities of 
KeySpan, the top-level registered holding company, that are rated, are 
rated investment grade (``Investment Grade Condition''). For purposes 
of this provision, a security will be deemed to be rated ``investment 
grade'' if it is rated investment grade 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 KeySpan and the Utility 
Subsidiaries of any securities that are not able to meet the Investment 
Grade Condition.
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    \2\ Applicants state that ENGI and Essex Gas are not rated.
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IV. Current Financial Condition

    Applicants state that all outstanding long-term debt securities of 
KeySpan and each of the Utility Subsidiaries that are rated, are rated 
investment grade. For purposes of this provision, Applicants state that 
a security will be deemed to be rated ``investment grade'' if it is 
rated investment grade 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. The ratings are as follows:

 
------------------------------------------------------------------------
                                                          Standard and
                                         Moody's             Poor's
------------------------------------------------------------------------
KeySpan..........................  A3                  A
KEDLI............................  A2                  A+
KEDNY............................  A2                  A+
KeySpan Generation...............  A3                  A
Boston Gas.......................  A2                  A
Colonial Gas.....................  A2                  A
------------------------------------------------------------------------

V. Description of Specific Financings

A. KeySpan External Financing
    Applicants request that KeySpan increase its total consolidated 
capitalization through sales of common stock, preferred stock, 
preferred and equity-linked securities, long-term debt and short-term 
debt securities. Applicants also request that KeySpan be authorized to 
issue common stock to third parties in consideration for the 
acquisition by KeySpan or a Nonutility Subsidiary of equity or debt 
securities of a company being acquired through a Commission order, 
applicable rule, or exemption under the Act. Applicants request that 
the aggregate amount of common stock, preferred stock, preferred and 
equity-linked securities, and/or long-term debt to be issued by KeySpan 
during the Authorization Period, other than for refinancing, refunding 
or replacement of outstanding securities, shall not exceed $3.0 billion 
(``Long-Term Financing Limit'').
    In addition to the $3.0 billion authorization under the Long-Term 
Financing Limit, Applicants propose that KeySpan issue up to $1.3 
billion of short-term debt during the Authorization Period (``Short-
Term Financing Limit'').

1. Common Stock

(a) General
    Applicants request that KeySpan sell or otherwise issue \3\ common 
stock in any one of the following ways: (i) Through underwriters or 
dealers; (ii) through agents; (iii) directly to a limited number of 
purchasers or a single

[[Page 66509]]

purchaser; or (iv) directly to employees (or to trusts established for 
their benefit), and shareholders. Applicants request that issuances of 
common stock under KeySpan's employee benefit plans and stock purchase 
and dividend reinvestment plans not count towards the Long-Term 
Financing Limit, but that these securities be limited to 13 million 
shares as described below in V.A.1.(c).
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    \3\ Applicants request that the authority to issue common stock 
also includes authorization to contribute common stock to current or 
future employee benefit plans to satisfy current or future capital 
funding obligations.
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    Applicants state that if underwriters are used in the sale of the 
securities, the securities would 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. The 
securities may be offered to the public either through underwriting 
syndicates (which may be represented by a managing underwriter or 
underwriters designated by KeySpan) or directly by one or more 
underwriters acting alone. Applicants state that the securities may be 
sold directly by KeySpan or through agents designated by KeySpan from 
time to time and that if dealers are utilized in the sale of any of the 
securities, KeySpan would sell the securities to the dealers as 
principals. Any dealer may then resell these securities to the public 
at varying prices to be determined by the dealer at the time of resale. 
The aggregate price of the common stock being sold through any 
underwriter or dealer shall be calculated based on either the specified 
selling price to the public or the closing price of the common stock on 
the day the offering is announced. Applicants state that if common 
stock is being sold in an underwritten offering, KeySpan may grant the 
underwriters an over-allotment option permitting the purchase from 
KeySpan of additional shares at the same price then being offered 
solely for the purpose of covering over-allotments.
    Applicants state that public distributions may be through private 
negotiation with underwriters, dealers or agents as discussed above or 
effected through competitive bidding among underwriters. In addition, 
Applicants request that sales be made through private placements or 
other non-public offerings to one or more persons. Applicants state 
that these common stock sales would be with terms and conditions, at 
rates or prices and under conditions negotiated or based upon, or 
otherwise determined by, competitive capital markets.
(b) Acquisitions
    Applicants also request that KeySpan be authorized to issue common 
stock to third parties in consideration for the acquisition by KeySpan 
or a Nonutility Subsidiary of equity or debt securities of a company 
being acquired through a Commission order, applicable rule, or 
exemption under the Act. Applicants state that the KeySpan common stock 
to be exchanged in this type of transaction may be purchased on the 
open market under rule 42, or may be original issue.\4\
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    \4\ Applicants state that this common stock may be registered 
under the Securities Act of 1933, as amended (``1933 Act''), or if 
the common stock is not registered, then it would be subject to 
resale restrictions under Rule 144 under the 1933 Act.
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(c) Direct Stock Purchase and Other Employee Benefit Plans
    Applicants propose, from time to time during the Authorization 
Period, for KeySpan to issue and/or acquire in open market 
transactions, or by some other method which complies with applicable 
law and Commission interpretations then in effect, up to 13 million 
shares of KeySpan common stock (``Benefit Plan Limit'') under KeySpan's 
current or any future direct stock purchase and dividend reinvestment 
plan, certain incentive compensation plans, and certain other employee 
benefit plans. Applicants propose that any shares of common stock 
acquired by KeySpan on the open market during the Authorization Period 
under a rule 42 exemption, that were originally issued under the 
Benefit Plan Limit shall no longer count against the Benefit Plan Limit 
until the shares are reissued.

2. Preferred Stock and Preferred and Equity-Linked Securities

    Applicants request that KeySpan issue preferred stock in addition 
to preferred securities and or equity-linked securities up to the Long-
Term Security Limit. Applicants request authority for KeySpan to issue 
preferred stock, preferred securities including trust preferred 
securities, convertible preferred securities, such as, debt or 
preferred securities that are convertible or exchangeable, either 
mandatorily or at the option of the holder, into common stock of 
KeySpan, common stock of the Subsidiaries, KeySpan indebtedness, or 
forward purchase contracts for common stock.
    Applicants state that preferred or equity-linked securities may be 
issued in one or more series with rights, preferences, and priorities 
as may be designated in the instrument creating each series. Dividends 
or distributions on preferred or equity-linked securities will be made 
periodically and to the extent funds are legally available for this 
purpose, but may be made subject to terms that allow the issuer to 
defer dividend payments or distributions for specified periods. 
Applicants state that preferred or equity-linked securities may be 
convertible or exchangeable into shares of common stock or other 
indebtedness and may be issued in the form of shares or units. 
Applicants request that the conversion of equity-linked securities and 
the subsequent issuance of other securities as a direct result of the 
conversion (or the performance of forward purchase contracts), to the 
extent that no additional financing proceeds are realized, would not be 
counted against the Long-Term Financing Limit.\5\ Applicants state that 
preferred stock and preferred or equity linked securities may be sold 
directly or indirectly through underwriters or dealers in connection 
with an acquisition similar to that described for common stock, above.
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    \5\ Applicants state, for example, that in May 2002, KeySpan 
completed an offering of 9.2 million publicly traded equity-linked 
securities units. The aggregate offering price was $460 million. 
Each unit consists of a 6-year term, 8.75% senior unsecured note 
with a principal amount of $50, and a forward stock purchase 
contract to purchase $460 million of KeySpan common stock (based on 
a range of prices between $35.30 and $42.36) in May 2005. Applicants 
state that both the issuance of the note and the forward stock 
purchase contract portion (including the execution thereof) of the 
equity-linked units were issued and accounted for under KeySpan's 
Prior Financing Orders. Applicants state that because of the above, 
the conversion of the forward stock purchase contracts into KeySpan 
common stock in May 2005 shall not be counted against the $3.0 
billion Long-Term Financing Limit.
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3. Long-Term Debt

    Applicants request that KeySpan issue unsecured, long-term debt 
securities subject to the Long-Term Financing Limit through the 
Authorization Period. At June 30, 2003, KeySpan had approximately $4.9 
billion of long-term debt obligations outstanding. Long-term debt 
securities may be comprised of bonds, notes, medium-term notes, 
debentures, or similar unsecured securities under one or more 
indentures (``KeySpan Indenture'') or long-term indebtedness under 
agreements with banks or other institutional lenders. Any long-term 
debt security would have such designation, aggregate principal amount, 
maturity, interest rate(s) or methods of determining the same, terms of 
payment of interest, redemption provisions, sinking fund terms, terms 
for conversion into any other security of KeySpan or the Subsidiaries 
and other terms and conditions as KeySpan may determine at the time of 
issuance.
    Applicants state that the maturity dates, interest rates, 
redemption and sinking fund provisions, tender or repurchase and 
conversion features, if

[[Page 66510]]

any, with respect to the long-term securities 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, subject to the Financing 
Parameters. Applicants further state that borrowings from banks and 
other financial institutions will be pari passu with debt securities 
issued under the KeySpan Indenture and the short-term credit 
facilities. Specific terms of any borrowings will continue to be 
determined by KeySpan at the time of issuance and will comply in all 
regards with the Financing Parameters.

4. Short-Term Debt

    Applicants request authority for KeySpan to have outstanding, at 
any one time during the Authorization Period, up to $1.3 billion of 
short-term debt (``Short-Term Financing Limit''), which may include 
institutional borrowings, commercial paper (``Commercial Paper'') or 
bid notes and short-term debt issued under the KeySpan Indenture or 
otherwise. Applicants state that the authorization for short-term debt 
is in addition to the Long-Term Financing Limit.
    Short-term debt shall include any debt securities with a maturity 
term of one year or less. KeySpan may sell Commercial Paper, from time 
to time, in established domestic Commercial Paper markets. Applicants 
state that Commercial Paper would be sold to dealers at the discount 
rate or the coupon rate per annum prevailing at the date of issuance 
for Commercial Paper of comparable quality and maturities sold to 
Commercial Paper dealers generally. Applicants expect that the dealers 
acquiring Commercial Paper from KeySpan will re-offer it at a discount 
to corporate and institutional investors. Applicants expect 
Institutional investors to include commercial banks, insurance 
companies, pension funds, investment trusts, foundations, colleges and 
universities, and finance companies.
    KeySpan may, without counting against the Short-Term Financing 
Limit set forth above, maintain back-up lines of credit (regardless of 
the maturation term for such back-up credit) in connection with a 
Commercial Paper program in an aggregate amount not to exceed the 
amount of authorized short term debt. In no event will the amount of 
borrowings under such lines of credit plus the amount of Commercial 
Paper outstanding exceed $1.3 billion in the aggregate.
B. Utility Subsidiary and Nonutility Subsidiary Financing

1. Utility Subsidiaries

    Applicants request authority for the Utility Subsidiaries to issue 
short-term debt, including Commercial Paper and credit lines, and to 
loan and borrow funds from the utility money pool \6\ during the 
Authorization Period, in the following aggregate principal\7\ amounts 
(``Utility Financing Limit''):
---------------------------------------------------------------------------

    \6\ The Commission authorized the Utility Money Pool in the 2000 
Financing Order.
    \7\ Applicants state that the dollar limitations set forth do 
not include certain presently outstanding push-down debt resulting 
from the Merger in the following amounts: $700 million to Boston 
Gas, $100 million to Colonial Gas, $100 million to Essex Gas, and 
$150 million to ENGI.

 
------------------------------------------------------------------------
                                                             Aggregate
                                                             principal
                   Utility subsidiary                       amount  ($
                                                           million) \7\
------------------------------------------------------------------------
KEDNY...................................................             350
KEDLI...................................................             450
KeySpan Generation......................................             100
Boston Gas..............................................             500
Colonial Gas............................................             225
Essex Gas...............................................              50
ENGI                                                                 125
                                                         ---------------
                                                                   1,800
------------------------------------------------------------------------

    Applicants state that the Utility Financing Limit is in addition to 
the Long-Term Financing Limit and the Short-Term Financing Limit. 
Applicants also request authority for the Utility Subsidiaries to 
refund, refinance or replace outstanding securities; provided that in 
no event will the aggregate principal amount of outstanding securities 
for each Utility Subsidiary exceed the amounts requested above. 
Applicants request authority for the Utility Subsidiaries to sell 
Commercial Paper, from time to time, in established domestic commercial 
paper markets. Commercial Paper would be sold to dealers at the 
discount rate or the coupon rate per annum prevailing at the date of 
issuance for Commercial Paper of comparable quality and maturities sold 
to Commercial Paper dealers generally. Applicants expect that the 
dealers acquiring commercial paper from Utility Subsidiaries will re-
offer it at a discount to corporate and institutional investors. 
Applicants expect Institutional investors to include commercial banks, 
insurance companies, pension funds, investment trusts, foundations, 
colleges and universities and finance companies. Applicants request 
that the Utility Subsidiaries may, without counting against the limits 
set forth above, further maintain back up lines of credit in an 
aggregate amount not to exceed the amount of authorized Commercial 
Paper. Applicants request authority for the Utility Subsidiaries to set 
up credit lines for general corporate purposes in addition to credit 
lines to support Commercial Paper. The Utility Subsidiaries would 
borrow and repay under these lines of credit, from time to time, as it 
is deemed appropriate or necessary. Subject to the Financing 
Parameters, Applicants propose that each Utility Subsidiary may engage 
in other types of unsecured short-term financing as it may deem 
appropriate in light of its needs and market conditions at the time of 
issuance.

2. Nonutility Subsidiaries

    Applicants request authority for Nonutility Subsidiaries to borrow 
and lend funds through the operation of the KeySpan nonutility money 
pool, approved by order dated August 7, 2003 (HCAR No. 27709). 
Applicants state that short-term financings undertaken by Nonutility 
Subsidiaries that are not exempt under rule 52, but are otherwise 
authorized, will be included in the aggregate Short-Term Financing 
Limit.
C. Guarantees and Intra-System Advances
    KeySpan requests authorization to enter into Guarantees, 
Performance Guarantees, obtain letters of credit, enter into expense 
agreements or otherwise provide credit support with respect to the 
obligations of its Subsidiaries as may be appropriate or necessary to 
enable the Subsidiaries to carry on in the ordinary course of their 
respective businesses in an aggregate principal amount not to exceed 
$4.0 billion outstanding at any one time (excluding obligations exempt 
under rule 45) (``Guarantee Financing Limit''). For example, Applicants 
contemplate that during the Authorization Period, KeySpan will enter 
into Guarantees, performance Guarantees, obtain letters of credit, 
enter into expense agreements or otherwise provide credit support with 
respect to the obligations of its Subsidiaries in connection with 
transactions that are anticipated to involve generation expansion 
projects.
    Applicants state that the Guarantee Limit is in addition to the 
Long-Term Financing Limit, the Short-Term Financing Limit and the 
Utility Financing Limit. Included in this amount are existing intra-
system Guarantees and support provided by KeySpan as of June 30, 2003, 
which are expected to remain in place. Applicants request authority for 
KeySpan to charge

[[Page 66511]]

each Subsidiary a fee for each Guarantee provided on its behalf that is 
not greater than the cost, if any, of obtaining the liquidity necessary 
to perform the Guarantee for the period of time the Guarantee remains 
outstanding. Any Guarantees or other credit support arrangements 
outstanding at the end of the Authorization Period will continue until 
expiration or termination in accordance with their terms.
    Applicants request that KeySpan's guarantee authority include the 
ability to guarantee debt. Applicants state that the debt guaranteed 
will comply with the Financing Parameters or be exempt. To the extent 
that a Guarantee issued is of a security issued under the authority 
granted in this Application, Applicants request that the issuance will 
count only against the applicable limitation related to the underlying 
obligation in order to avoid a double count.
    Applicants also request authorization for the Nonutility 
Subsidiaries to enter into Guarantees, Performance Guarantees, obtain 
letters of credit, enter into expense agreements and otherwise provide 
credit support with respect to other Nonutility Subsidiaries, in an 
aggregate principal amount not to exceed the Guarantee Financing Limit. 
The Nonutility Subsidiary providing any credit support may charge its 
associate company a fee for each Guarantee provided on its behalf that 
is not greater than the cost, if any, of obtaining the liquidity 
necessary to perform the Guarantee for the period of time the Guarantee 
remains outstanding.
    Applicants state that certain of the Guarantees referred to above 
may be in support of the obligations of Subsidiaries which are not 
capable of exact quantification because they are subject to varying 
quantification. In these cases, KeySpan will determine the exposure 
under these Guarantee for purposes of measuring compliance with the 
Guarantee Financing Limit by appropriate means including estimation of 
exposure based on loss experience or projected potential payment 
amounts. Applicants state that estimates will be made in accordance 
with GAAP and that these estimations will be reevaluated periodically.
D. Refunding, Replacing, Repurchasing or Refinancing Outstanding 
Securities
    Applicants request authorization to refund, repurchase (through 
open market purchases, tender offers, or private transactions), replace 
or refinance (together, ``Refinancing'') their respective debt or 
equity securities outstanding during the Authorization Period through 
the issuance of similar or any other types of securities authorized in 
this Application. Applicants state that in no case, will Refinancing 
cause any applicable financing limit to be exceeded.
    Applicants request that the amount of a Refinancing that is equal 
to the then existing outstanding aggregate principal amount of 
securities to be refinanced not be counted against the securities' 
applicable financing limit. Only securities issued to finance the 
additional costs associated with the Refinancing will be counted 
against the applicable financing limit. The securities issued in the 
Refinancing may be issued to finance costs incurred due to redemption 
premiums, costs of acquisition or retirement of the securities, costs 
of issuance, or other similar costs including the costs expended to 
acquire securities on the open market under rule 42 and the subsequent 
costs to reissue the securities. Applicants state that any Refinancing 
of securities outstanding during the Authorization Period will be 
undertaken through the issuance of similar or any other securities of 
the types authorized in this Application and will be subject to the 
Financing Parameters.
E. Issuing Debt Securities in Foreign Jurisdictions
    Applicants state that KeySpan engages in business operations 
outside of the United States, including Canada and Ireland. In 
connection with this business, and potential expansion outside of the 
United States, Applicants request authorization to make sales of 
KeySpan's long-term and short-term debt securities, of the type 
authorized in this Application, in foreign countries. Applicants state 
that opportunities in foreign jurisdictions may arise that allow 
KeySpan to enter into financing transactions at costs lower than that 
otherwise may be available within the United States. Applicants state 
that these issuances will not exceed an aggregate of $500 million at 
any time outstanding during the Authorization Period (``Foreign Issue 
Limit''). Applicants state that consideration for foreign securities 
sales may be in foreign currency. In addition, foreign securities sales 
shall be subject to the Financing Parameters, the Long-Term Financing 
Limit and Short-Term Financing Limit, as the case may be, based on its 
value in U.S. Dollars as calculated in accordance with the currency 
exchange rate for the currency used as reported at the time of the 
sale.
F. Financing Risk Management Devices

1. Interest Rate Risk

    Applicants request authority to enter into, perform, purchase, and 
sell financial instruments intended to reduce or manage the volatility 
of interest rates, including but not limited to interest rate swaps, 
caps, floors, collars and forward agreements. Applicants state that 
hedges may also include issuance of structured notes (i.e., a debt 
instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury or U.S. governmental agency obligations or LIBOR based 
swap instruments (``Hedge Instruments''). Applicants state that the 
transactions would be for fixed periods and stated notional amounts. 
Applicants state that they would employ interest rate derivatives as a 
means of prudently managing the risk associated with any of its 
outstanding debt issued under this authorization or an applicable 
exemption by, in effect, synthetically (i) converting variable rate 
debt to fixed rate debt, (ii) converting fixed rate debt to variable 
rate debt, and (iii) limiting the impact of changes in interest rates 
resulting from variable rate debt. Applicants assert that in no case 
will the notional principal amount of any interest rate swap exceed the 
face value of the underlying debt instrument and related interest rate 
exposure. Applicants state that transactions will be entered into for a 
fixed or determinable period and that they will not engage in 
speculative transactions. Applicants state that they will only enter 
into agreements with counterparties (``Approved Counterparties'') whose 
senior debt ratings, as published by a national recognized rating 
agency, are greater than or equal to ``BBB-,'' or an equivalent rating.

2. Anticipatory Hedges

    In addition, Applicants request authorization to enter into 
interest rate hedging transactions with respect to anticipated debt 
offerings (``Anticipatory Hedges''), subject to certain limitations and 
restrictions. Applicants state that 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 Hedge Instruments 
(``Forward Sale''), (ii) the purchase of put options on Hedge 
Instruments (``Put

[[Page 66512]]

Options Purchase''), (iii) a Put Options Purchase in combination with 
the sale of call options Hedge Instruments (``Zero Cost Collar''), (iv) 
transactions involving the purchase or sale, including short sales, of 
Hedge Instruments, 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. Applicants 
state that they will determine the optimal structure of each 
Anticipatory Hedge transaction at the time of execution and that they 
may decide to lock in interest rates and/or limit its exposure to 
interest rate increases.

3. Accounting Standards

    Applicants state they will comply with Statement of Financial 
Accounting Standards (``SFAS'') 133 (``Accounting for Derivative 
Instruments and Hedging Activities''), SFAS 138 (``Accounting for 
Certain Derivative Instruments and Certain Hedging Activities'') or any 
other standards relating to accounting for derivative transactions as 
are adopted and implemented by the Financial Accounting Standards Board 
(``FASB''). The Hedge Instruments and Anticipatory Hedges will qualify 
for hedge accounting treatment under the current FASB standards in 
effect and as determined at the date the Hedge Instruments or 
Anticipatory Hedges are entered into.
G. Direct Stock Purchase and Dividend Reinvestment Plan, Incentive 
Compensation Plans and Other Employee Benefit Plans
    Applicants propose that KeySpan, from time to time during the 
Authorization Period, issue and/or acquire in open market transactions, 
or by some other method which complies with applicable law and 
Commission interpretations then in effect, up to thirteen million 
shares of KeySpan common stock under KeySpan's current or any future 
direct stock purchase and dividend reinvestment plan, certain incentive 
compensation plans and certain other employee benefit plans. Applicants 
request that any shares of common stock acquired by KeySpan on the open 
market during the Authorization Period under rule 42 that were 
originally issued under this 13 million issuable shares limitation 
shall no longer count against the 13 million issuable shares limitation 
until the shares are reissued.
H. Payment of Dividends out of Capital or Unearned Surplus by 
Nonutility Subsidiaries
    Applicants request authority for the Nonutility Subsidiaries to pay 
dividends from time to time, out of capital and unearned surplus 
(including revaluation reserve), to the extent permitted under 
applicable corporate law. Applicants state that, without further 
approval of the Commission, no Nonutility Subsidiary will declare or 
pay any dividend out of capital or unearned surplus if that Nonutility 
Subsidiary derives any material part of its revenues from sales of 
goods, services, electricity or natural gas to any of the Utility 
Subsidiaries or if at the time of the declaration or payment such 
Nonutility Subsidiary has negative retained earnings.
I. Development and Administrative Activities
    Applicants request authority for KeySpan and the Subsidiaries to 
engage in preliminary development activities (``Development 
Activities'') and administrative and management activities 
(``Administrative Activities'') in connection with future investments 
in exempt wholesale generators (``EWGs''), foreign utility companies 
(``FUCOs''), as those terms are defined in sections 32 and 33 of the 
Act, and in subsidiaries permitted under rule 58 (``Rule 58 
Subsidiaries''). Applicants state that Development Activities will be 
limited to due diligence and design review; market studies; preliminary 
engineering; site inspection; preparation of bid proposals, including 
in connection, posting of bid bonds; application for required permits 
and/or regulatory approvals; acquisition of site options and options on 
other necessary rights; negotiation and execution of contractual 
commitments with owners of existing facilities, equipment vendors, 
construction firms, power purchasers, thermal ``hosts,'' fuel suppliers 
and other project contractors; negotiation of financing commitments 
with lenders and other third-party investors; and any other preliminary 
activities as may be required in connection with the purchase, 
acquisition or construction of facilities or the securities of other 
companies.
    Applicants further request authority to form new subsidiary 
companies organized for the sole purpose of engaging in Development 
Activities. Development Activities will be designed to eventually 
result in a permitted nonutility investment.
    Applicants propose that to the extent a Subsidiary for which 
amounts were expended for Development Activities and Administrative 
Activities becomes an EWG, FUCO, or Rule 58 Subsidiary, the amount 
expended will cease to be Development Activities or Administrative 
Activities and then be considered as part of the ``aggregate 
investment'' allowed by Commission order and/or the applicable 
provisions under the Act. In the case of Rule 58 Subsidiaries, the 
aggregate investment will then count against the limitation on such 
aggregate investment under rule 58. In the case of EWGs and FUCOs, the 
aggregate investment will then be transferred from the investment 
limitation for Development Activities or Administrative Activities and 
instead count against the limitation on EWG and FUCO aggregate 
investment requested below. Applicants propose that, should the 
Development Activities or Administrative Activities fail to lead to a 
permitted nonutility investment, the expenditures will not be counted 
against the ``aggregate investment'' allowed by Commission order and/or 
the applicable provisions under the Act with respect to EWG, FUCO, or 
Rule 58 Subsidiaries. Additionally, in the event that the Development 
Activities or Administrative Activities fail to lead to a permitted 
nonutility investment, any new subsidiaries formed for the purposes of 
engaging in Development Activities or Administrative Activities shall 
be dissolved as soon as reasonably practicable.
J. Financing Subsidiaries
    KeySpan and the Subsidiaries request authorization to organize and/
or acquire the equity securities of one or more additional 
corporations, trusts, partnerships or other entities organized to serve 
the purpose of facilitating financings (``Financing Subsidiaries''). 
Applicants state that the formation and acquisition of a limited use 
subsidiary may allow KeySpan and the Subsidiaries to secure more 
favorable financing terms, at lower costs than may otherwise be 
available. In addition, Applicants state that the interposition of a 
Financing Subsidiary can serve to isolate the risks associated with 
debt securities issuances thereby providing further benefit to the 
KeySpan system.
    Specifically, Financing Subsidiaries may be organized to issue to 
third parties, long-term debt, short-term debt, preferred securities 
(including but not

[[Page 66513]]

limited to trust preferred securities), equity-linked securities, and/
or other securities that are authorized or exempt and then transfer the 
proceeds to KeySpan or the Subsidiaries. Applicants request 
authorization for KeySpan and, to the extent not exempt under rule 52, 
Subsidiaries to issue debentures and other evidence of indebtedness 
(``Financing Debt'') to any Financing Subsidiary to evidence the 
transfer of financing proceeds by a Financing Subsidiary to its parent 
company. The principal amount, maturity and interest rate on any 
Financing Debt will be designed to parallel the amount, maturity and 
interest or distribution rate on the securities issued by a Financing 
Subsidiary in respect of which the Financing Debt is issued. Each of 
the Subsidiaries also requests authorization to enter into an expense 
agreement with its respective Financing Subsidiary, under which it 
would agree to pay all expenses of the Financing Subsidiary. Applicants 
state that any affiliate transactions entered into by a Financing 
Subsidiary in connection with an expense agreement, or otherwise, would 
be conducted at fair market value without regard to cost, and 
therefore, Applicants request an exemption under section 13(b) from the 
at cost standards of rules 90 and 91 for KeySpan and the Subsidiaries 
to enter into these transactions.
    The amount of securities issued by any Financing Subsidiary to 
third parties will be included in the applicable overall external 
financing limitation, authorized for the immediate parent company of 
such Financing Subsidiary. However, to avoid double counting, the 
amount of Financing Debt issued by a parent company to its Financing 
Subsidiary will not be counted against the applicable external 
financing limitation. Applicants request that securities issued by any 
Financing Subsidiary to third parties be exempt under rule 52 (and 
therefore reportable on Form U-6B-2) only if the securities, if issued 
directly by the parent company of such the Financing Subsidiary, would 
be exempt under rule 52. Applicants propose that KeySpan or a 
Subsidiary may, if required, guarantee or enter into support or expense 
agreements in respect of the obligations of Financing Subsidiaries.

VI. EWG/FUCO Investment Authority

    Applicants request authorization for KeySpan to increase its 
``aggregate investment'', as that term is defined in rule 53, in EWG 
and FUCOs to $3.0 billion (``EWG/FUCO Limit'') outstanding at any one 
time during the Authorization Period. Applicants state that the EWG/
FUCO Limit represents approximately 528% of KeySpan's average 
consolidated retained earnings for the four quarters ended June 30, 
2003.
    At March 31, 2003, applicants state that the consolidated amount of 
KeySpan's current aggregate investment in existing EWGs and FUCOs was 
as follows:

 
------------------------------------------------------------------------
                                                          Investment  ($
                    Entity                        millions)
------------------------------------------------------------------------
KeySpan-Ravenswood LLC (EWG)............................      \8\ $776.6
Phoenix Natural Gas Limited and Finsa Energeticos                   58.9
 (FUCOs)................................................
KeySpan-Glenwood Energy Center LLC (EWG)................            95.3
KeySpan-Port Jefferson Energy Center LLC (EWG)..........           104.1
---------------------------------------------------------
  Total.................................................          $1,034
------------------------------------------------------------------------

    Applicants state that this total amount, represents approximately 
182% of KeySpan's average consolidated retained earnings, as defined in 
rule 53, of $586.3\8\ million for the four quarters ending at June 30, 
2003.
---------------------------------------------------------------------------

    \8\ Applicants state that this amount represents existing 
investment in KeySpan Ravenswood.
---------------------------------------------------------------------------

    By order dated December 6, 2002, (HCAR No. 27612), Applicants were 
authorized to make investments in an aggregate amount of up to $2.2 
billion in EWGs and FUCOs. Applicants state that $2.2 billion 
represented approximately 440% of KeySpan's average consolidated 
retained earnings for the four quarters ended September 30, 2002. 
Applicants now request authority for KeySpan and the Subsidiaries, 
directly or indirectly, to invest up to $3.0 billion in EWGs and FUCOs 
during the Authorization Period.

VII. Intermediate Subsidiaries

    Applicants propose that KeySpan create and/or acquire, directly or 
indirectly, the securities of one or more Intermediate Subsidiaries 
including corporations, trusts, partnerships, limited liability 
companies or other entities. Applicants state that Intermediate 
Subsidiaries will be organized exclusively for the purpose of acquiring 
and holding the securities of, or financing or facilitating KeySpan's 
investments in, other direct or indirect nonutility investments. 
Applicants also request authority for Intermediate Subsidiaries to 
engage in Development Activities and Administrative Activities.
    Applicants state that an Intermediate Subsidiary may be organized, 
among other things,: (i) To facilitate the making of bids or proposals 
to develop or acquire an interest in any EWG, FUCO, exempt 
telecommunications company (``ETC''), or other Nonutility which, upon 
acquisition, would qualify as a Rule 58 Subsidiary; (ii) to facilitate 
closing on the purchase or financing of an acquired company; (iii) to 
effect an adjustment in the respective ownership interests in a 
business held by the KeySpan system and non-affiliated investors; (iv) 
to facilitate the sale of ownership interests in one or more acquired 
Rule 58 Subsidiary, ETC, EWG or FUCO; (v) to comply with applicable 
laws of foreign jurisdictions limiting or otherwise relating to the 
ownership of domestic companies by foreign nationals; (vi) to limit 
KeySpan's exposure to U.S. and foreign taxes; (vii) to further insulate 
KeySpan and the Utility Subsidiaries from operational or other business 
risks that may be associated with investments in nonutility companies; 
or (viii) for other lawful business purposes.
    Applicants state that investments in Intermediate Subsidiaries may 
take the form of any combination of the following: (i) Purchases of 
capital shares, partnership interests, member interests in limited 
liability companies, trust certificates or other forms of voting or 
non-voting equity interests; (ii) capital contributions; (iii) open 
account advances without interest; (iv) loans; and (v) Guarantees 
issued, provided or arranged in respect of, the securities or other 
obligations of any Intermediate Subsidiaries.
    Applicants state that funds for any direct or indirect investment 
in any Intermediate Subsidiary will be derived from KeySpan's available 
funds. No additional financing authority is sought under this heading. 
Applicants request that to the extent that KeySpan provides funds 
directly or indirectly to an Intermediate Subsidiary which are used for 
the purpose of making an investment in any EWG, FUCO, or a Rule 58 
Subsidiary, and to the extent these funds are not expenditures in 
Development Activities, the amount of the funds will be included in 
KeySpan's ``aggregate investment'' in EWGs, FUCOs and Rule 58 
Subsidiaries.\9\
---------------------------------------------------------------------------

    \9\ Applicants request that if the Intermediate Subsidiary is 
merely a conduit, the aggregate investment will not ``double count'' 
both the conduit investment and the investment in the EWG, FUCO, 
Rule 58 subsidiary or other approved investment.

---------------------------------------------------------------------------

[[Page 66514]]

VIII. Internal Reorganization of Existing Investments

A. Nonutility Subsidiaries
    Applicants request authority for KeySpan to engage in internal 
corporate reorganizations to better organize Nonutility Subsidiaries 
and investments. Applicants request authority to sell or to cause any 
Subsidiary to sell or otherwise transfer (i) Nonutility Subsidiaries 
businesses, (ii) the securities of Nonutility Subsidiaries engaged in 
some or all of these businesses or (iii) nonutility investments which 
do not involve a Nonutility Subsidiary (i.e. less than 10% voting 
interest) to a different Subsidiary. Applicants also request authority 
to acquire the assets of nonutility businesses, Nonutility Subsidiaries 
or other then existing investment interests. Alternatively, transfers 
of these securities or assets may be effected by share exchanges, share 
distributions or dividends followed by contribution of these securities 
or assets to the receiving entity.

IX. Exemption From Section 13(b)

    Applicants request authority for Nonutility Subsidiaries to provide 
other Nonutility Subsidiaries with (i) operations and management 
services (``O&M Services''); (ii) administrative services 
(``Administrative Services''); and (iii) consulting services 
(``Consulting Services''). These services are referred to collectively 
as ``Affiliate Services.''
    Applicants state that O&M Services would include, for example, 
development, engineering, design, construction and construction 
management, pre-operational start-up, testing and commissioning, long-
term operations and maintenance, fuel procurement, management and 
supervision, technical and training, administrative support, market 
analysis, consulting, coordination and any other managerial, technical, 
administrative or consulting required in connection with the business 
of owning or operating facilities used for the generation, transmission 
or distribution of electric energy and/or natural gas (including 
related facilities for the production, conversion, sale or distribution 
of thermal energy) or coordinating their operations in the power 
market.
    Applicants state that Administrative Services would include, for 
example, corporate and project development and planning, management, 
administrative, employment, tax, legal, accounting, engineering, 
consulting, marketing, utility performance and electric data processing 
services, and intellectual property development, marketing and other 
support services.
    Applicants state that Consulting Services would include, for 
example, providing the Nonutility Subsidiary with technical 
capabilities and expertise primarily in the areas of electric power 
generation, transmission and distribution and ancillary operations.
    Applicants state that Affiliate Services would generally be 
performed by Nonutility Subsidiaries for associate Nonutility 
Subsidiaries at cost. However, the Nonutility Subsidiaries request an 
exemption pursuant to section 13(b) from the at-cost standards of rules 
90 and 91, for the Affiliate Services in any case in which the 
Nonutility Subsidiary purchasing services is:
    (i) A FUCO or foreign EWG that derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (ii) An EWG that sells electricity at market-based rates that have 
been approved by the Federal Energy Regulatory Commission (``FERC''), 
provided that the purchaser is not 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 the 
electricity for their own use and not for resale, and/or (b) 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 or wholly-owned, directly or indirectly, by KeySpan, 
provided that the ultimate purchaser of such goods or services is not a 
Utility Subsidiary (or any other entity within the KeySpan system whose 
activities and operations are primarily related to the provision of 
goods and services to the Utility Subsidiaries), (b) is engaged solely 
in the business of developing, owning, operating and/or providing 
services or goods to Nonutility Subsidiaries described in clauses (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.

Cinergy Corp. et al. (70-10172)

    Cinergy Corp. (``Cinergy''), a registered holding company, 
Cinergy's direct nonutility subsidiaries, Cinergy Investments, Inc. 
(``Cinergy Investments'') and Cinergy Global Resources, Inc. (``Global 
Resources''), CinTec LLC (``CinTec''), Cinergy Technologies, Inc. 
(``Cinergy Technologies''), and Cinergy Wholesale Energy, Inc. 
(``Cinergy Wholesale Energy'' and together, ``Applicants'') have filed 
an application-declaration with the Commission under sections 6(a), 7, 
9(a), 10, 12(c), 12(f), 13, 32, 33 and 34 of the Act and rules 43, 45, 
46, 54, 83, 87, 90 and 91.

I. Background

    By order dated March 1, 1999 (HCAR No. 26984) (``1999 Order''), 
Cinergy \10\ and its nonutility subsidiaries, Cinergy Investments and 
Cinergy Global Resources were authorized to establish one or more 
special-purpose subsidiaries (``Intermediate Parents'') \11\ through 
December 31, 2003, to hold Cinergy's direct or indirect interests in 
existing and future nonutility subsidiaries (``Nonutilty 
Subsidiaries'').\12\
    Cinergy states that it now owns numerous Nonutility Subsidiaries, 
which it holds through, Cinergy

[[Page 66515]]

Investments, Cinergy Global Resources, CinTec, Cinergy Technologies and 
Cinergy Wholesale Energy, each of which is a direct, wholly owned 
Nonutility Subsidiary of Cinergy formed to act as an Intermediate 
Parent. Applicants state that through authority granted in previous 
orders,\13\ applicable provisions of the Act and rules under the Act, 
Applicants have authority to invest in a variety of nonutility 
businesses, including:
---------------------------------------------------------------------------

    \10\ Applicants state that Cinergy also directly or indirectly 
owns all the outstanding common stock of five public utility 
companies, PSI Energy, Inc. (``PSI''), The Cincinnati Gas & Electric 
Company (``CG&E''), The Union Light, Heat and Power Company, 
Lawrenceburg Gas Company, and Miami Power Corporation (``Utility 
Subsidiaries'').
    \11\ Applicants state that certain of these ``Intermediate 
Parents'' were formed prior to the 1999 Order under express 
authorization of the Commission as noted in the 1999 Order.
    \12\ Applicants state that PSI and CG&E hold three businesses 
under a reservation of jurisdiction which are not included in the 
definition of ``Nonutility Subsidiaries'': KO Transmission Company 
(``KO''), South Construction Company, Inc. (``South Construction'') 
and Tri-State Company (``Tri-State''). Applicants state that the 
retainability of these companies is subject to a Commission 
reservation of jurisdiction, originally by order dated October 21, 
1994 (HCAR No. 26146) (``Merger Order''), the order authorizing the 
merger that created the Cinergy. The Commission extended this 
reservation of jurisdiction by order dated November 2, 1998 (HCAR 
No. 26934). Applicants assert that KO is an energy-related company 
under rule 58, which was enacted after the Merger Order. Applicants 
state that South Construction and Tri-State acquire and hold real 
estate in connection with the utility businesses of PSI and CG&E, 
respectively. South Construction and Tri-State are excluded from the 
scope of the proposed transactions in this application, except with 
respect to dividend authority as described fully below.
    \13\ See HCAR No. 27400 (May 18, 2001), HCAR No. 27581 (October 
23, 2002), HCAR No. 27393 (May 4, 2001), HCAR No. 27506 (May 21, 
2002), HCAR No. 27717 (August 29, 2003).
---------------------------------------------------------------------------

    (1) Exempt wholesale generator (``EWG''), as that term is defined 
in section 32 of the Act;
    (2) Foreign utility company (``FUCO''), as that term is defined in 
section 33 of the Act;
    (3) Exempt telecommunications company (``ETC''), as that term is 
defined in section 34 of the Act;
    (4) Nonutility company, which, upon acquisition, would qualify for 
exemption from the Act under rule 58 (``Rule 58 Company'');
    (5) Companies providing certain infrastructure services (``IS 
Company'');
    (6) Companies providing energy management services and energy-
related consulting services outside the United States;
    (7) Companies brokering and marketing energy commodities in Canada 
and Mexico; and
    (8) Certain nonutility energy-related assets (``Energy-Related 
Asset'').
    Applicants state that, (i) an ``Authorized Nonutility Business'' 
means any nonutility business in which Cinergy is currently authorized 
or may hereafter become authorized under the Act to invest, and 
includes, without limitation, the types of nonutility businesses 
enumerated in (1) through (8) above; (ii) a ``Nonutility Subsidiary'' 
means any existing or future associate company of Cinergy (including 
any Intermediate Subsidiary) formed for the purpose of engaging in an 
Authorized Nonutility Business; and (iii) a ``Nonutility Investment'' 
means any existing or future Authorized Nonutility Business in which 
Cinergy invests, but which investment does not cause such Authorized 
Nonutility Business to become an associate company of Cinergy.

II. Current Request

A. Overview
    Applicants request authorization for Authorized Nonutility 
Businesses to engage in the following activities through March 31, 2007 
(``Authorization Period):
    (i) Acquire the securities of corporations, limited liability 
companies, partnerships, trusts or other entities that would be formed 
exclusively to acquire, hold, finance or facilitate the acquisition of, 
and/or sell goods, services or construction to Nonutility Subsidiaries 
and/or Nonutility Investments, whether directly or indirectly through 
one or more subsidiaries thereof formed exclusively for the same 
purpose (``Intermediate Subsidiaries'');\14\
---------------------------------------------------------------------------

    \14\ Applicants state that the term Intermediate Subsidiary also 
includes any Intermediate Parents formed under authority from the 
1999 Order and any other Nonutility Subsidiaries performing a 
corresponding function formed by Cinergy under prior Commission 
orders.
---------------------------------------------------------------------------

    (ii) Undertake internal corporate reorganizations or restructurings 
of Nonutility Subsidiaries and Nonutility Investments;
    (iii) Declaration and payment by Nonutility Subsidiaries and KO, 
South Construction, and Tri-State dividends out of capital or unearned 
surplus, subject to certain conditions; and
    (iv) Enter into agreements to perform certain services for certain 
specified categories of Nonutility Subsidiaries at other than cost 
under an exemption from section 13(b) under the cost standards of rules 
90 and 91.
B. Acquisition of Intermediate Subsidiaries
    Applicants request authority to acquire Intermediate Subsidiaries. 
Applicants propose that an Intermediate Subsidiary may be organized, 
among other things: (i) In order to facilitate the making of bids or 
proposals to develop or acquire an interest in any exempt wholesale 
generator (``EWG''), as that term is defined in section 32 of the Act, 
foreign utility company (``FUCO''), as that term is defined in section 
33 of the Act, exempt telecommunications company (``ETC''), as that 
term is defined in section 34 of the Act, or other nonutility company 
which, upon acquisition, would qualify for exemption from the Act under 
rule 58 (``Rule 58 Company'') or other Authorized Nonutility Business; 
(ii) after the award of a bid proposal, in order to facilitate closing 
on the purchase or financing of the acquired company; (iii) at any time 
subsequent to the consummation of an acquisition of an interest in any 
of these companies in order, among other things, to effect an 
adjustment in the respective ownership interests in the business held 
by Cinergy and non-affiliated investors; (iv) to facilitate the sale of 
ownership interests in one or more acquired Authorized Nonutility 
Business; (v) to comply with applicable laws of foreign jurisdictions 
limiting or otherwise relating to the ownership of domestic companies 
by foreign nationals; (vi) as a part of tax planning in order to limit 
Cinergy's exposure to U.S. and foreign taxes; (vii) to insulate Cinergy 
and its utility subsidiaries from operational or other business risks 
that may be associated with investments in Authorized Nonutility 
Business; or (viii) for other lawful business purposes.
    Applicants state that investments in Intermediate Subsidiaries may 
take the form of (i) purchases of capital shares, partnership 
interests, membership interests in limited liability companies, trust 
certificates or other forms of voting or non-voting equity interests; 
(ii) capital contributions; (iii) loans; or (iv) guarantees issued, 
provided or arranged in respect of the securities or other obligations 
of any Intermediate Subsidiaries. Applicants state that Cinergy will 
obtain funds for initial and subsequent investments in Intermediate 
Subsidiaries from available internal sources or external sources 
involving issuances of its securities under the June 2000 Order (or any 
future order supplementing or superseding that order in whole or in 
part). The other Applicants will obtain funds for initial and 
subsequent investments in Intermediate Subsidiaries from available 
cash, capital contributions or loans from Cinergy, or external 
borrowings or sales of capital stock under the exemption afforded by 
rule 52(b). To the extent that Cinergy provides funds directly or 
indirectly to an Intermediate Subsidiary that are used for an 
investment in an EWG or FUCO, a Rule 58 Company, an IS Company or an 
Energy-Related Asset, the amount of the funds will be included in 
Cinergy's ``aggregate investment'' in the appropriate entity, as 
calculated in accordance with rule 53 or rule 58, as applicable, or the 
terms of the Commission order authorizing Cinergy's investment in an IS 
Company or Energy-Related Asset, as applicable.
C. Nonutility Reorganizations
    Applicants seek authority to effect corporate reorganizations or 
restructurings of Nonutility Subsidiaries and Nonutility Investments. 
Specifically Applicants request authority (i) for each Nonutility 
Subsidiary to sell or otherwise transfer the securities or assets (in 
whole or in part) of any Nonutility Subsidiary or Nonutility Investment 
to any other Nonutility Subsidiary or Nonutility Investment, and (ii) 
for each Nonutility Subsidiary to acquire these securities or assets.

[[Page 66516]]

Alternatively, transfers of these securities or assets may be effected 
by share exchanges, share distributions or dividends followed by 
contribution of these securities or assets to the receiving entity, or 
by mergers or liquidations, or otherwise, and Applicants request 
approval for these forms of restructuring transactions as well.
    Applicants state that the corporate reorganizations or 
restructurings of Nonutility Subsidiaries and Nonutility Investments 
would be undertaken in order to eliminate corporate complexities, to 
combine related business segments for staffing and management purposes, 
to eliminate administrative costs, to achieve tax savings, or for other 
ordinary and necessary business purposes. Applicants state that none of 
these reorganizations or restructurings will involve the sale or other 
disposition of any utility assets of the Utility Subsidiaries or any 
corporate reorganization involving the Utility Subsidiaries, nor does 
the approval sought in this subsection extend to the acquisitions of 
any new businesses or activities not constituting an Authorized 
Nonutility Business.
D. Payment of Dividends by Nonutility Subsidiaries
    To the extent not otherwise exempt under the Act, Applicants 
request authority for each Nonutility Subsidiary and KO, South 
Construction, and Tri-State to declare and pay dividends out of capital 
or unearned surplus to its respective parent company, where permitted 
under applicable corporate law, and where the dividend will not be 
detrimental to the financial integrity or working capital of any 
company in the Cinergy holding company system. Additionally, Applicants 
state that, without further approval of the Commission, no Nonutility 
Subsidiary will declare or pay any dividend out of capital or unearned 
surplus if that Nonutility Subsidiary derives any material part of its 
revenues from sales of goods, services, electricity or natural gas to 
any of the Utility Subsidiaries or if at the time of the declaration or 
payment such Nonutility Subsidiary has negative retained earnings.
E. Exemptions from Section 13(b)
    Applicants request authority for Nonutility Subsidiaries to enter 
into agreements to perform services Applicants request authority for 
Nonutility Subsidiaries to perform certain services (namely, project 
development services and administrative services and other support 
services) \15\ for any Nonutility Subsidiary within any of the five 
categories enumerated immediately below at fair market prices 
determined without regard to cost, and therefore request an exemption 
from section 13(b) and the cost standards of rules 90 and 91.
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    \15\ Applicants state that project developmental services are 
anticipated to include such services as research and due diligence 
with respect to potential projects and transactions, preparation of 
bid documents, investment proposals, customer proposals and the 
like, preliminary engineering, construction, licensing and 
operational studies and analyses, acquisitions of options, and other 
legal, accounting, marketing, engineering, financial and similar 
services relating to acquisitions of project investments and 
consummating transactions with customers. Applicants state that 
administrative and other support services include without limitation 
overall strategic planning, operations and maintenance, 
environmental, information systems, engineering and construction, 
risk management, marketing, finance, legal, accounting, employment 
and tax.
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    (i) A FUCO or an EWG that derives no part of its income, directly 
or indirectly, from the generation, transmission, or distribution of 
electric energy for sale within the United States;
    (ii) An EWG that sells electricity at market-based rates which have 
been approved by the Federal Energy Regulatory Commission (``FERC'') or 
an appropriate state public utility commission, provided that the 
purchaser of the EWG's electricity is not an affiliated public utility 
or an affiliate that re-sells such power to an affiliated public 
utility;
    (iii) A ``qualifying facility'' (``QF''), as defined under the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA''), 
that sells electricity exclusively at rates negotiated at arm's length 
to one or more industrial or commercial customers purchasing such 
electricity for their own use and not for resale, or to an electric 
utility company other than an affiliated electric utility at the 
purchaser's ``avoided cost'' determined under PURPA;
    (iv) An EWG or a QF that sells electricity at rates based upon its 
costs of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser of the 
electricity is not an affiliated public utility; or
    (v) A Nonutility Subsidiary that is a Rule 58 Company or any other 
Nonutility Subsidiary that (a) is partially owned, provided that the 
ultimate purchaser of goods or services is not an affiliated public 
utility, (b) is engaged solely in the business of developing, owning, 
operating and/or providing services or goods to Nonutility Subsidiaries 
described in (i) through (iv) above or (c) does not derive, directly or 
indirectly, any part of its income from sources within the United 
States and is not a public utility company operating within the United 
States.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29511 Filed 11-25-03; 8:45 am]
BILLING CODE 8010-01-P