[Federal Register Volume 68, Number 230 (Monday, December 1, 2003)]
[Notices]
[Pages 67232-67249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29763]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27767]


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

November 21, 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.

Great Plains Energy Incorporated (70-9861)

    Great Plains Energy Incorporated (``GPE''), a registered public 
utility holding company; Kansas City Power & Light Company (``KCPL''), 
a public utility subsidiary company of GPE; Great Plains Power 
Incorporated (``GP Power'') a subsidiary company of GPE; \1\ Kansas 
City Power & Light Receivables Company (``KCPL Receivables''), a 
nonutility subsidiary of KCPL; \2\ all located at 1201 Walnut, Kansas 
City, MO 64106; and KLT, Inc., an intermediate holding company of GPE 
at 10740 Nall Street, Overland Park, KS 66211 (collectively, 
``Applicants'') have filed an application-declaration (``Application'') 
under sections 6(a), 7, 9(a)(1), 10 and 12(c) of the Act and rules 45 
and 46 under the Act.
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    \1\ GPE states that GP Power currently is not an independent 
power producer (``IPP'') or an exempt wholesale generator (``EWG''), 
and has no interests in IPPS. It is engaged in certain preliminary 
project development and administrative activities, such as obtaining 
options to purchase real estate for a potential plant site, filing 
applications for air, wetlands and other pre-construction matters 
and filing a market-based rate schedule with the Federal Energy 
Regulatory Commission (``FERC'').
    \2\ KCPL Receivables engages in accounts receivables management.
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I. Prior Authorization

    By order dated September 7, 2001 (HCAR No. 27436) (``September 
Order''), the Commission authorized GPE and its subsidiaries, among 
other things, to engage in (A) a program of external financing, (B) 
intrasystem credit support arrangements, (C) interest rate hedging 
measures, and (D) other intrasystem transactions from time to time 
through December 31, 2004 (``Authorization Period''). In particular, 
the Commission authorized GPE to issue and sell common stock and, 
directly or indirectly, short-term and long-term debt securities and 
other forms of preferred or equity-linked securities. The aggregate 
amount of all such securities issued by GPE during the Authorization 
Period was limited to $450 million under the conditions of the 
September Order, and the Commission reserved jurisdiction over (A) the 
retainability of KLT Investment II until October 1, 2004 and (B) 
payment of dividends by any nonexempt nonutility subsidiary.

II. Current Requests

    Applicants request that the current proposal supersede and replace 
the authorizations under the September Order through December 31, 2005 
(``New Authorization Period'').

A. Financing

    GPE requests authorization to issue and sell directly, or 
indirectly through financing subsidiaries, $1.2 billion in the 
aggregate amount of common stock, short term and long term debt 
securities and other forms of preferred or equity-linked securities. 
GPE may issue and sell common stock through underwriters or dealers, 
through agents, or directly to a limited number of purchasers or a 
single purchaser. Also, it requests authority to issue common stock, 
performance shares options, SARs, warrants or other stock purchase 
rights exercisable for common stock in public or privately negotiated 
transaction as consideration for the equity securities or assets of 
other existing companies, provided that the acquisition of any such 
equity securities or assets has been authorized in a separate 
proceeding or is exempt under the Act or the rules under the Act. GPE 
will directly issue preferred and equity-linked securities, including 
specifically, debt or preferred securities that are convertible, either 
manditorily or at the option of the holder, into common stock or GPE 
indebtedness and forward purchase contracts for common stock. Long term 
debt of GPE may be in the form of unsecured notes (``Debentures'') 
issued in one or more series. To provide for financing for general 
corporate purposes, other working capital requirements and investments 
in new enterprises until long-term financing can be obtained, GPE may 
sell, directly or indirectly through one or more financing 
subsidiaries, commercial paper or establish bank lines of credit.
    KCPL requests authorization to issue and sell notes and other 
evidence of indebtedness having a maturity of one year or less in an 
aggregate principal amount outstanding at any one time not to exceed 
$500 million, including without limitation commercial paper, bank lines 
of credit, and other debt securities.\3\
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    \3\ The issuance by KCPL of commercial paper and other short 
term indebtedness having a maturity of less than 12 months will not 
be exempt under rule 52(a) since it is not subject to approval by 
its state regulatory commission; however, KCPL must obtain the 
authorization of the Missouri Public Service commission for any 
mortgage or other encumbrance of KCPL franchise, works, or system.

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[[Page 67233]]

    GPE, the nonutility subsidiaries listed in Exhibit J (``Exhibit J 
Subsidiaries''), and any future nonutility subsidiaries request 
authority to make loans to any such associate company at interest rates 
and maturities designed to provide a return to the lending company of 
not less than its effective cost of capital when the borrowing Exhibit 
J Subsidiary is: (1) Not wholly-owned directly or indirectly by GPE and 
(2) does not sell goods or services to KCPL.
    GPE and, to the extent not exempt pursuant to rule 52, KCP&L, the 
Exhibit J Subsidiaries, and any future nonutility subsidiaries request 
authorization to enter into interest rate hedging transactions with 
respect to existing indebtedness, subject to certain limitations and 
restrictions, in order to reduce or manage interest rate cost. Interest 
Rate Hedges would only be entered into with counterparties whose senior 
debt ratings, or the senior debt ratings of the parent companies of the 
counterparties, as published by Standard and Poor's Ratings Group, are 
equal to or greater than BBB, or an equivalent rating from Moody's 
Investors Service, Fitch, or Duff and Phelps.

B. Guarantees

    GPE proposes to enter into guarantees and other forms of support 
agreements on behalf or for the benefit of any subsidiary during the 
New Authorization Period in an aggregate principal amount not to exceed 
$600 million outstanding at any one time.
    Applicants also request authorization for nonutility subsidiaries 
to provide credit support on behalf and for the benefit of other 
nonutility subsidiaries in an aggregate principal amount not to exceed 
$300 million outstanding at any one time, exclusive of any guarantees 
and other forms of credit support exempt under rule 45(b)(7) or rule 
52(b).

C. Other Requests

    Collectively the Applicants request authorization to: (1) Change 
any wholly owned Exhibit J Subsidiary's capital stock capitalization; 
(2) acquire, directly or indirectly, the equity securities of one or 
more corporations, trusts, partnerships or other entities created 
specifically for the purpose of facilitating the financing of the 
authorized and exempt activities (``Financing Subsidiaries''); (3) 
acquire, directly or indirectly through a nonutility subsidiary, the 
securities of one or more new intermediate subsidiary companies which 
may be organized exclusively for the purpose of acquiring, holding and/
or financing the acquisition of the securities of or other interest in 
one or more EWGs, foreign utility companies (``FUCOs''), exempt 
telecommunications companies, rule 58 companies or other nonutility 
subsidiaries (as authorized in this proceeding); and finally (4) on 
behalf of the following specified subsidiaries: GP Power; Innovative 
Energy Consultants Inc.; Home Service Solutions Inc.; Worry Free 
Service Inc.; KLT Inc., KLT Investments II Inc.; KLT Energy Services 
Inc.; Custom Energy Holdings, LLC; Strategic Energy LLC, KLT Gas Inc.; 
Apache Canyon Gas LLC; FAR Gas Acquisitions Corporation; Forest City, 
LLC; Forest City Gathering Company; and Patrick KLT Gas, LLC 
(collectively, ``Specified Subsidiaries'') that the Specified 
Subsidiaries be permitted to pay dividends out of capital and unearned 
surplus (including revaluation reserve), provided that no Specified 
Subsidiary at the time of payment derives any material part of its 
revenues from the sale of goods, services, electricity or natural gas 
to KCPL.

D. Use of Proceeds

    GPE states that the proposed increase in the authorized limit on 
issuing common stock, short-term and long-term debt securities and 
other forms of preferred or equity-linked securities will enable it to 
(1) finance investments and capital expenditures by it and its 
subsidiaries, (2) to fund future investments in any exempt 
telecommunications company or energy-related or gas-related company 
within the meaning of rule 58, (3) to repay, redeem, refund or purchase 
by it or its subsidiaries of their respective securities, and (4) to 
finance the working capital requirements of it and its subsidiaries. 
GPE further states that the proposed increase in the authorized limit 
will provide additional liquidity to it and the ability to increase its 
equity to total capitalization ratio, which will strengthen its 
financial position and enhance its access to the capital markets. GPE 
does not request authority at this time to invest in EWGs or FUCOs.
    More specifically, GPE requests authority to invest, directly or 
indirectly, up to $10 million in the aggregate in GP Power to be used 
for the same types of preliminary project development and 
administrative activities as described in the preceding paragraph 
without obtaining further authorization of the Commission; provided 
that if GP Power becomes an EWG, investments in GP Power may be made 
subject to the restrictions of rule 53 under the Act.\4\
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    \4\ GPE has invested, directly or indirectly, approximately $3.3 
million in GP Power as of September 30, 2003.
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E. Financing Parameters

1. Interest Rates on Indebtedness
    The interest rate on long-term debt securities (debt securities 
having maturities of one year or more) issued to non-associate 
companies pursuant to Commission authorization will not exceed at the 
time of issuance the greater of (1) 500 basis points of the yield to 
maturity of a U.S. Treasury security having a remaining term 
approximately equal to the term of such debt, or (2) competitive market 
rates for securities of comparable credit quality with similar terms 
and features. The interest rate on GPE bank lines of credit and short-
term debt securities (debt securities having maturities of less than 
one year) issued to non-associate companies pursuant to Commission 
authorization will not exceed at the time of issuance the greater of 
(i) 500 basis points over the comparable term London Interbank Offered 
Rate (``LIBOR''), or (ii) a gross spread over LIBOR that is consistent 
with similar securities of comparable credit quality with similar terms 
and features.
2. Investment Grade Ratings
    Apart from securities issued either for intrasystem financings, or 
by KCPL in the form of commercial paper or short-term bank facilities, 
no guarantees or other securities, other than common stock, may be 
issued in reliance upon the authorization granted by the Commission 
unless (1) the security to be issued, if rated, is rated investment 
grade; (2) all outstanding securities of the issuer (except in the case 
of GPE, its preferred stock) that are rated are rated investment grade; 
and (3) all outstanding securities of GPE (except for GPE's preferred 
stock) that are rated are rated investment grade. The preferred stock 
of GPE currently is not rated investment grade. GPE currently has four 
series of preferred stock outstanding, each of which was originally 
issued by KCPL. These four series aggregate $39 million in face amount, 
or approximately 0.2% of GPE's consolidated capitalization. The below-
investment grade rating on the preferred stock is a result of the 
rating agencies' methodology, which views preferred stock to be 
structurally subordinated to any debt issued by GPE. It would not be 
economically efficient

[[Page 67234]]

for GPE to redeem the preferred stock at this time.
3. Common Equity Capitalization
    GPE & KCPL will not issue guarantees or other securities in 
reliance upon the authorization by the Commission unless, on a pro-
forma basis, taking into account the issuance of guarantees, or other 
securities up to $1.2 billion, the consolidated common equity 
capitalization of GPE and KCPL will remain at least 30%.

F. Services

    GPE requests authority for these new intermediate subsidiaries, as 
well as existing intermediate subsidiaries (collectively, the 
``Intermediate Subsidiaries''), to provide management, administrative, 
project development and operating services to such entities at fair 
market prices determined without regard to cost, and therefore requests 
an exemption (to the extent that rule 90(d) does not apply) pursuant to 
section 13(b) from the cost standards of rules 90 and 91 as applicable 
to such transactions, in any case in which the nonutility subsidiary 
purchasing such goods or services is:
    (1) A FUCO or foreign EWG that derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (2) An EWG that sells electricity at market-based rates which have 
been approved by the FERC, provided that the purchaser is not KCPL;
    (3) A ``qualifying facility'' (``QF'') within the meaning of the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA'') 
that sells electricity exclusively (a) at rates negotiated at arms'-
length to one or more industrial or commercial customers purchasing 
such electricity for their own use and not for resale, and/or (b) to an 
electric utility company at the purchaser's ``avoided cost'' as 
determined in accordance with the regulations under PURPA;
    (4) A domestic EWG or QF that sells electricity at rates based upon 
its cost of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser thereof is 
not KCPL; or
    (5) A rule 58 subsidiary or any other nonutility subsidiary that 
(a) is partially-owned by GPE, provided that the ultimate purchaser of 
such goods or services is not KCPL (or any other entity that GPE may 
form whose activities and operations are primarily related to the 
provision of goods and services to KCPL), (b) is engaged solely in the 
business of developing, owning, operating and/or providing services or 
goods to nonutility subsidiaries described in clauses (1) through (4) 
immediately above, or (c) does not derive, 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.

Entergy Mississippi, Inc. (70-10157)

    Entergy Mississippi, Inc. (``Entergy Mississippi''), 308 East Pearl 
Street, Jackson, MI 39201, an electric utility subsidiary of Entergy 
Corporation, a registered holding company under the Act, has filed an 
application-declaration under sections 6(a), 7, 9(a), 10, 12(c), 12(d), 
12(e), 32 and 33 of the Act and rules 42, 53, and 54 under the Act.
    Entergy Mississippi seeks authorization to issue and sell, from 
time to time through March 31, 2007, up to $900 million combined 
aggregate principal amount of (a) its first mortgage bonds (``Bonds''), 
(b) its preferred stock (``Preferred Stock''), (c) unsecured long-term 
indebtedness (``Long-term Debt''), and, (d) directly or indirectly 
through one or more financing subsidiaries, other forms of preferred or 
equity-linked securities (``Equity Interests'') (collectively, 
``Securities'').
    The Bonds (a) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at premiums above their 
principal amount, (b) may be entitled to mandatory or optional sinking 
fund provisions, (c) may be issued at fixed or floating rates of 
interest, (d) may provide for reset of the coupon under a remarketing 
arrangement, (e) may be called from existing investors by a third 
party, (f) may be backed by a bond insurance policy and (g) would have 
a maturity ranging from one year to 50 years. The maturity dates, 
interest rates, redemption and sinking fund provisions and conversion 
features, if any, with respect to the Bonds of a particular series, as 
well as any associated placement, underwriting or selling fees, 
commissions and discounts, if any, would be established by negotiation 
or competitive bidding. The maturity dates, interest rates, redemption 
and sinking fund provisions and conversion features, if any, with 
respect to Bonds of a particular series, as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, if any, would be established by negotiation or competitive 
bidding.
    The Preferred Stock or Equity Interests may be issued in one or 
more series with whatever rights, preferences and priorities, including 
those related to redemption, are designated in the instrument creating 
each series. The Preferred Stock or Equity Interests may be redeemable 
or may be perpetual.
    The Long-term Debt of a particular series (a) would be unsecured, 
(b) may be convertible into any other securities of Entergy Mississippi 
(except common stock), (c) would have a maturity ranging from one year 
to 50 years, (d) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at premiums above its 
principal amount, (e) may be entitled to mandatory or optional sinking 
fund provisions, (f) may be issued at fixed or floating rates of 
interest, (g) may provide for reset of the coupon in accordance with 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 Long-term Debt of a particular series, as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, if any, would be established by negotiation or competitive 
bidding. Entergy Mississippi states that it presently contemplates 
selling the Securities by competitive bidding, negotiated public 
offering or private placement.
    Entergy Mississippi proposes to use the net proceeds derived from 
the issuance and sale of the Securities for general corporate purposes, 
including (a) financing its capital expenditures, (b) repaying, 
redeeming, refunding or purchasing any of its securities issued in 
accordance with rule 42 under the Act and/or those issued on Entergy 
Mississippi's behalf in accordance with section 9(c)(1) of the Act, and 
(c) financing its working capital requirements.
    Entergy Mississippi also proposes to enter into arrangements to 
finance or refinance on a tax-exempt basis certain pollution control 
facilities and/or sewage or solid waste disposal facilities 
(``Facilities''). Entergy Mississippi proposes, from time to time 
through March 31, 2007, to enter into one or more leases, subleases, 
installment sale agreements, refunding agreements or other agreements 
(``Agreements'') and/or supplements and/or amendments to those 
Agreements (``Facilities Agreements'') with one or more issuing 
governmental authorities (``Authorities''), under which the Authority 
may issue one or more series of tax-exempt bonds (``Tax-exempt Bonds'') 
in an aggregate principal amount not to exceed $50 million (including 
the possible issuance and pledge by Entergy Mississippi of up to $55 
million in aggregate principal

[[Page 67235]]

amount of Entergy Mississippi Collateral Bonds (as defined below), 
which $55 million is not included in the $900 million referenced 
above). The net proceeds from the sale of Tax-exempt Bonds would be 
applied to financing, or refinancing tax-exempt bonds issued for the 
purpose of financing, the Facilities. Entergy Mississippi further 
proposes, under the Facilities Agreement, to purchase, acquire, 
construct and install the Facilities unless the Facilities are already 
in operation. Under the Facilities Agreements, Entergy Mississippi 
would be obligated to make payments sufficient to pay the principal or 
redemption price of, premium, if any, and the interest on, and other 
amounts owing with respect to, the Tax-exempt Bonds, together with 
related expenses.
    The Tax-exempt Bonds of a particular series (a) would have a 
maturity ranging from one year to 50 years, (b) may be subject to 
optional and/or mandatory redemption, in whole or in part, at par or at 
premiums above their principal amount, (c) may be entitled to mandatory 
or optional sinking fund provisions, (d) may be issued at fixed or 
floating rates of interest, (e) may provide for reset of the coupon 
under a remarketing arrangement, (f) may be called from existing 
investors by a third party, (g) may be backed by a municipal bond 
insurance policy, (h) may be supported by credit support such as a bank 
letter of credit and reimbursement agreement, (i) may be supported by a 
lien subordinate to EMI's Mortgage and Deed of Trust, as amended and 
supplemented both in the past and in the future (``Mortgage''), on the 
Facilities related to those Tax-exempt Bonds and (j) may be supported 
by the issuance and pledge of Bonds issued as collateral security for 
those Tax-exempt Bonds (``Collateral Bonds''). The maturity dates, 
interest rates, redemption and sinking fund provisions and conversion 
features, if any, with respect to Tax-exempt Bonds of a particular 
series, as well as any associated placement, underwriting or selling 
agent fees, commissions and discounts, if any, would be established by 
negotiation or competitive bidding.
    Entergy Mississippi also proposes to enter into arrangements to 
issue up to $300 million in aggregate principal amount of municipal 
securities (``Municipal Securities'') (including the possible issuance 
and pledge by Entergy Mississippi of up to $350 million in aggregate 
principal amount of Entergy Mississippi Municipal Collateral Bonds (as 
defined below), which $350 million is not included in the $900 million 
referenced above). Entergy Mississippi proposes, from time to time 
through March 31, 2007, to enter into one or more agreements, either 
directly or through an affiliate (``Municipal Securities Agreements''), 
with one or more issuing governmental authorities (``Municipal 
Entities''), under which a Municipal Entity could issue securities to 
the public on behalf of Entergy Mississippi or loan money to Entergy 
Mississippi through a bank, an affiliate of Entergy Mississippi, or 
other person. The net proceeds from the sale of Municipal Securities 
would be applied to finance certain costs of Entergy Mississippi. Under 
any Municipal Securities Agreement, Entergy Mississippi would be 
obligated to make payments sufficient to provide for payment by the 
Municipal Entity of the principal or redemption price of, premium, if 
any, and interest on, and other amounts owing with respect to the 
Municipal Securities, together with related expenses.
    The Municipal Securities of a particular series (a) would have a 
maturity ranging from one year to fifty years, (b) may be subject to 
optional and/or mandatory redemption, in whole or in part, at par or at 
premiums above their principal amount, (c) may be entitled to mandatory 
or optional sinking fund provisions, (d) may be issued at fixed or 
floating rules of interest, (e) may provide for reset of the coupon 
under a remarketing arrangement, (f) may be called from existing 
investors by a third party, (g) may be backed by a municipal securities 
insurance policy, (h) may be supported by credit support such as a bank 
letter of credit and reimbursement agreement, (i) may be supported by a 
lien subordinate to the Mortgage on certain of EMI's facilities and 
other assets, and (j) may be supported by the issuance and pledge of 
Bonds issued as collateral security for them (``Municipal Collateral 
Bonds''). The maturity dates, interest rates, redemption and sinking 
fund provisions and conversion features, if any, with respect to 
Municipal Securities of a particular series as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, if any, would be established by negotiation or competitive 
bidding.
    Entergy Mississippi also proposes to (a) acquire the equity 
securities of one or more financing subsidiaries and/or special-purpose 
subsidiaries, organized solely to facilitate financing, (b) to 
guarantee the securities issued by those financing subsidiaries and/or 
special purpose subsidiaries, and (c) to have the financing 
subsidiaries and/or special purpose subsidiaries pay Entergy 
Mississippi, either directly or indirectly, dividends out of capital.

Entergy Gulf States, Inc. (70-10158)

    Entergy Gulf States, Inc. (``Entergy Gulf States''), 350 Pine 
Street, Beaumont, Texas 77701, an electric utility subsidiary of 
Entergy Corporation, a registered holding company under the Act, has 
filed an application-declaration under sections 6(a), 7, 9(a), 10, 
12(c), 12(d), 12(e), 32 and 33 of the Act and rules 42, 53, and 54 
under the Act.
    Entergy Gulf States seeks authorization to issue and sell, from 
time to time through March 31, 2007, up to $2 billion combined 
aggregate principal amount of (a) its first mortgage bonds (``Bonds'') 
including first mortgage bonds of the medium term note series 
(``MTNs''), (b) its preferred stock (``Preferred Stock''), (c) its 
preference stock (``Preference Stock''), (d) unsecured long-term 
indebtedness (``Long-term Debt''), and (e) directly or indirectly 
through one or more financing subsidiaries, other forms of preferred or 
equity-linked securities (``Equity Interests'').
    The Bonds and MTNs (a) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at premiums above their 
principal amount, (b) may be entitled to mandatory or optional sinking 
fund provisions, (c) may be issued at fixed or floating rates of 
interest, (d) may provide for reset of the coupon under a remarketing 
arrangement, (e) may be called from existing investors by a third 
party, (f) may be backed by a bond insurance policy and (g) would have 
a maturity ranging from one year to fifty years. The maturity dates, 
interest rates, redemption and sinking fund provisions and conversion 
features, if any, of the Bonds of a particular series, as well as any 
associated placement, underwriting or selling fees, commissions and 
discounts, would be established by negotiation or competitive bidding. 
The maturity dates, interest rates, redemption and sinking fund 
provisions and conversion features, if any, of Bonds of a particular 
series, or MTNs of a particular sub-series, as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, would be established by negotiation or competitive bidding.
    The Preferred Stock or Equity Interests may be issued in one or 
more series with whatever rights, preferences and priorities, including 
those related to redemption, are designated in the instrument creating 
each series. The Preferred Stock or Equity Interests may be redeemable 
or may be perpetual.

[[Page 67236]]

    The Long-term Debt (a) would be unsecured, (b) may be convertible 
into any other securities of Entergy Gulf States (except common stock), 
(c) would have a maturity ranging from one year to fifty years, (d) may 
be subject to optional and/or mandatory redemption, in whole or in 
part, at par or at premiums above its principal amount, (e) may be 
entitled to mandatory or optional sinking fund provisions, (f) may be 
issued at fixed or floating rates of interest, (g) may provide for 
reset of the coupon under 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 Long-term Debt of a particular 
series, as well as any associated placement, underwriting or selling 
agent fees, commissions and discounts, would be established by 
negotiation or competitive bidding.
    Entergy Gulf States proposes to use the net proceeds from the 
issuance and sale of Bonds, and/or MTNs and/or the Preferred Stock and/
or the Preference Stock and/or the Long-term Debt and/or the Equity 
Interests for general corporate purposes, including (a) financing its 
capital expenditures, (b) repaying, redeeming, refunding or purchasing 
any of its securities under rule 42 and/or those issued on Entergy Gulf 
States' behalf under section 9(c)(1), and (c) financing its working 
capital requirements.
    Entergy Gulf States states that it contemplates selling the Bonds 
and/or MTNs and/or the Preferred Stock and/or the Preference Stock and/
or the Long-term Debt and/or the Equity Interests by competitive 
bidding, negotiated public offering or private placement.
    Entergy Gulf States also proposes to enter into arrangements to 
finance or refinance on a tax-exempt basis certain facilities eligible 
to be financed with tax-exempt debt, including, but not limited to, 
sewage and/or solid waste disposal facilities (``Facilities''). Entergy 
Gulf States proposes, from time to time through March 31, 2007, to 
enter into one or more leases, subleases, installment sale agreements, 
refunding agreements or other agreements (``Agreements'') and/or 
supplements and/or amendments to those Agreements (``Facilities 
Agreements'') with one or more issuing governmental authorities 
(``Authorities''), under which the Authorities may issue one or more 
series of tax-exempt bonds (``Tax-exempt Bonds'') in an aggregate 
principal amount up to $500 million (including the possible issuance 
and pledge by Entergy Gulf States of up to $560 million in aggregate 
principal amount of Entergy Gulf States Collateral Securities (as 
defined below), which $560 million is not included in the $2 billion 
mentioned above). The net proceeds from the sale of Tax-exempt Bonds 
would be applied to financing, or refinancing tax-exempt bonds issued 
for the purpose of financing, the Facilities.
    Under the terms of the Facilities Agreements, Entergy Gulf States 
may commit to purchase, acquire, construct, install, operate and/or 
maintain the Facilities. Under the Facilities Agreements, Entergy Gulf 
States would be obligated to make payments sufficient to pay the 
principal or redemption price of, premium, if any, and the interest on, 
and other amounts owing with respect to, the Tax-exempt Bonds, together 
with related expenses.
    The Tax-exempt Bonds (a) would have a maturity ranging from one 
year to fifty years, (b) may be subject to optional and/or mandatory 
redemption, in whole or in part, at par or at premiums above their 
principal amount, (c) may be entitled to mandatory or optional sinking 
fund provisions, (d) may be issued at fixed or floating rates of 
interest, (e) may provide for reset of the coupon under a remarketing 
arrangement, (f) may be called from existing investors by a third 
party, (g) may be backed by a municipal bond insurance policy, (h) may 
be supported by credit support such as a bank letter of credit and 
reimbursement agreement, (i) may be supported by a lien subordinate to 
Entergy Gulf States' Indenture of Mortgage (as before and later amended 
and supplemented) on the Facilities related to those Tax-exempt Bonds 
and (j) may be supported by the issuance and pledge of Bonds issued as 
collateral security for those Tax-exempt Bonds (``Collateral 
Securities''). The maturity dates, interest rates, redemption and 
sinking fund provisions and conversion features, if any, with respect 
to Tax-exempt Bonds of a particular series, as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, would be established by negotiation or competitive bidding.
    Entergy Gulf States also proposes to (a) acquire the equity 
securities of one or more financing subsidiaries and/or special-purpose 
subsidiaries, organized solely to facilitate financing, (b) to 
guarantee the securities issued by those financing subsidiaries and/or 
special purpose subsidiaries, and (c) to have the financing 
subsidiaries and/or special purpose subsidiaries pay Entergy Gulf 
States, either directly or indirectly, dividends out of capital.

Ameren Corporation, et al. (70-10159)

    Ameren Corporation (``Ameren''), a registered holding company, 
Ameren Energy, Inc., and Ameren's nonutility subsidiaries Ameren 
Development Company (``Ameren Development''), Ameren ERC, Inc. 
(``Ameren ERC''), Ameren Energy Resources Company (``Ameren Energy 
Resources''), Ameren Energy Marketing Company, Ameren Energy Fuels and 
Services Company, Illinois Materials Supply Co., Missouri Central 
Railroad Company, Union Electric Development Company (``UEDC''), AFS 
Development Company, LLC, all located at 1901 Chouteau Avenue, St. 
Louis, Missouri 63103, and nonutility subsidiaries CIPSCO Investment 
Company (``CIC''), 607 East Adams Street, Springfield, Illinois 62739, 
CILCORP Investment Management Inc., CILCORP Ventures Inc., CILCORP 
Energy Services, Inc., QST Enterprises Inc., CILCO Exploration and 
Development Company, and CILCO Energy Corporation, all located at 300 
Liberty Street, Peoria, Illinois 61602, and nonutility subsidiaries 
AmerenEnergy Medina Valley Cogen (No. 4), L.L.C., AmerenEnergy Medina 
Valley Cogen (No. 2) L.L.C., AmerenEnergy Medina Valley Cogen, L.L.C., 
an exempt wholesale generator (``EWG'') and AmerenEnergy Medina Valley 
Operations, L.L.C., a nonutility subsidiary all at P.O. Box 230, 
Mossville, Illinois, 61552-0230 (collectively, ``Applicants'' and 
excluding Ameren ``Nonutility Subsidiaries'') have filed an 
application-declaration (``Application'') under sections 6(a), 7, 9(a), 
10, 12(b), 12(c) and 13(b) of the Act and rules 43, 45, 46, 90 and 91 
under the Act.
    By order dated July 23, 1999 (the ``1999 Order''),\5\ Ameren, 
Ameren Union Electric Company d/b/a AmerenUE, and certain direct and 
indirect non-utility subsidiaries of Ameren were authorized to engage 
in various transactions from time to time through December 31, 2003, 
relating generally to Ameren's reorganization of its nonutility 
subsidiary companies and the acquisition and ownership of new non-
utility subsidiaries.
---------------------------------------------------------------------------

    \5\ Holding Co. Act Release No. 27053.
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    In this Application, the Applicants are seeking to extend and 
restate their current authorization under the 1999 Order for the period 
through December 31, 2006 (the ``Authorization Period''), subject to a 
continuation of the Commission's reservation of jurisdiction over 
certain specified proposals, as described below.

[[Page 67237]]

I. Intermediate Subsidiaries

    Ameren proposes to acquire, directly or indirectly through the 
Nonutility Subsidiaries, the securities of one or more new subsidiaries 
(``Intermediate Subsidiaries'') organized exclusively for the purpose 
of acquiring, holding and/or financing the acquisition of the 
securities of or other interest in EWGs, foreign utility companies 
(``FUCOs''), exempt telecommunications companies'' (``ETCs'') under 
section 34 of the Act, energy-related companies'' under rule 58 (``Rule 
58 Subsidiaries'') or other non utility companies the acquisition of 
which has been expressly authorized by the Commission. Applicants state 
that the Intermediate Subsidiaries would be organized exclusively for 
the purpose of acquiring, holding and/or financing the acquisition of 
the securities of or other interest in one or more of EWGs, FUCOs, ETCs 
under section 34 of the Act, (collectively, ``Exempt Subsidiaries''), 
Rule 58 Subsidiaries, or other current or future non-exempt 
subsidiaries that have been authorized by the Commission (``Non-Exempt 
Subsidiaries''), provided that Intermediate Subsidiaries may also 
engage in Development Activities \6\ and Administrative Activities \7\ 
relating to such subsidiaries.
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    \6\ Development Activities are limited to due diligence and 
design review; market studies; preliminary engineering; site 
inspection; preparation of bid proposals, including, in connection 
therewith, 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 such 
other preliminary activities as may be required in connection with 
the purchase, acquisition or construction of facilities or the 
securities of other companies.
    \7\ Administrative Activities include ongoing personnel, 
accounting, engineering, legal, financial, and other support 
activities necessary to manage Development Activities and 
investments in non-utility subsidiaries.
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II. Financing Subsidiaries

    Applicants request authority to acquire, directly or indirectly, 
the equity securities of one or more new subsidiaries (``Financing 
Subsidiaries'') organized exclusively for the purpose of issuing long-
term debt or equity securities to investors other than Ameren in order 
to finance, in whole or in part, Ameren's direct or indirect 
acquisition of Exempt Subsidiaries and Rule 58 Subsidiaries created 
specifically for the purpose of facilitating the financing of the 
Applicants' authorized and exempt activities (including exempt and 
authorized acquisitions) through the issuance of long-term debt or 
equity securities to third parties and the transfer of the proceeds of 
such financings to the parent company of the Financing Subsidiary.
    The amount and terms (i.e., interest rate, maturity, etc.) of any 
long-term debt or preferred equity securities issued by a Financing 
Subsidiary of Ameren will count against the limitation and comply with 
the specific terms applicable to that type of security under the any 
applicable order approving financing by Ameren. Ameren also proposes, 
if required, to guarantee or enter into expense agreements in respect 
of the obligations of any such Financing Subsidiaries. To avoid double 
counting, however, the guarantee of that security by Ameren would not 
also be counted against the then current limit on guarantees that 
Ameren is authorized to issue under any applicable order. Nonutility 
Subsidiaries may also provide guarantees and enter into expense 
agreements, if required, on behalf of such entities pursuant to rules 
45(b)(7) and 52, as applicable. Ameren further requests authorization 
to issue its unsecured subordinated promissory notes (``Subordinated 
Notes'') to any Financing Subsidiary to evidence a loan of the proceeds 
of any financing by a Financing Subsidiary to Ameren. The amount and 
terms (i.e., interest rate, maturity, default provisions, prepayment 
terms, etc.) of any Subordinated Notes issued by Ameren to a Financing 
Subsidiary will be designed to parallel the amount and terms of the 
specific securities of a Financing Subsidiary in respect of which such 
Subordinated Notes are issued. Again, to avoid double counting, the 
amount of Subordinated Notes issued by Ameren to any Financing 
Subsidiary will not be counted against the then applicable limit on 
long-term debt and preferred equity securities that Ameren is 
authorized to issue.

III. Special Purpose Subsidiaries

    Ameren requests authority to acquire, directly or indirectly 
through a Nonutility Subsidiary, the equity securities of one or more 
new subsidiaries (``Special Purpose Subsidiaries'') organized to 
purchase or otherwise acquire any of the assets of or securities held 
by UEDC and/or CIC at the time Ameren became a registered holding 
company, and UEDC and CIC request authorization to sell or otherwise 
transfer such assets or securities to Special Purpose Subsidiaries. In 
addition, Special Purpose Subsidiaries may also be formed to engage in 
any of the following additional business activities:
    (i) Making or guaranteeing loans to customers to finance the 
purchase of home and business heating, ventilation and cooling 
equipment; energy conservation and management equipment, products and 
services; lighting equipment and supplies; and home and business 
security systems. Ameren proposes that the aggregate principal amount 
of loans, guarantees or customer installment obligations with respect 
to which there is recourse to any Special Purpose Subsidiary shall not 
exceed $300 million at any one time during the Authorization Period.
    (ii) Development Activities and operations and maintenance, 
construction and construction management, fuel procurement and other 
types of services for or on behalf of any Nonutility Subsidiary. The 
Applicants are requesting a continuation of their current authority to 
expend up to $250 million in the aggregate outstanding at any time 
during the Authorization Period on all Development Activities.
    (iii) The marketing of energy bill payment insurance in Illinois 
and Missouri, which would enable utility customers to pay their energy 
bills in the event of unemployment, illness, disability or death. This 
program would be underwritten and administered by an independent 
insurance company or companies.
    (iv) The offering of economic development services for businesses 
wishing to expand or relocate their facilities to anywhere within the 
wholesale or retail service area of the Union Electric Company d/b/a 
AmerenUE (``AmerenUE''), Central Illinois Public Service Company d/b/a 
AmerenCIPS (``AmerenCIPS''), and Central Illinois Light Company, d/b/a 
AmerenCILCO (``AmerenCILCO,'' and together with AmerenUE and 
AmerenCIPS, the ``Utility Subsidiaries''), including consultation with 
local economic development officials, building and site screening, 
customized tax comparison studies and workforce analyses, liaison 
services to identify financing and leasing sources for building 
construction, equipment and working capital, and other similar 
services. These services will be similar in scope to those which the 
Utility Subsidiaries have in the past provided to relocating 
businesses, often without charge. Ameren states that minimal capital 
will be required to provide these types of services and that, without 
further order of the Commission, it will not acquire any securities of 
or other interest in any industrial/commercial

[[Page 67238]]

development enterprise except as may be permitted by rule 40(a)(5).
    (v) The offering of customer goodwill or retention programs, such 
as packaged discounts on products for the home, travel, and health 
services, prepaid phone cards or ``affinity'' cards to promote customer 
goodwill, and programs to help customers stay informed and protect 
their credit rating, driving record, and social security number.
    (vi) The marketing of ``outage'' insurance, which would enable 
customers to protect against lost revenues due to power interruptions, 
and surge protection service. Ameren requests authorization to invest 
in Special Purpose Subsidiaries an aggregate amount at any time 
outstanding not to exceed $250 million.

IV. Guarantees by Nonutility Subsidiaries

    Nonutility Subsidiaries request authorization to provide guarantees 
or other forms of credit support in respect of obligations of each 
other in an aggregate principal amount at any time outstanding during 
the Authorization Period not to exceed $300 million, in addition to any 
guarantees that are exempt under rules 45(b) and 52(b), as applicable, 
provided that any guaranty or other form of credit support outstanding 
on December 31, 2006, shall remain in effect until it expires in 
accordance with its terms.

V. Sales of Services and Goods Among Nonutility Subsidiaries

    Nonutility Subsidiaries request authorization to provide services 
or sell goods to each other at fair market prices determined without 
regard to cost, and therefore request an exemption pursuant to section 
13(b) from the cost standard of rules 90 and 91 as applicable to such 
transactions, in any case in which any of the following circumstances 
may apply:
    (i) The client company is 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) The client company is an EWG that sells electricity at market-
based rates which have been approved by the Federal Energy Regulatory 
Commission (``FERC''), provided that the purchaser thereof is not a 
Utility Subsidiary;
    (iii) The client company is 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 (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) The client company is 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 a Utility Subsidiary; or
    (v) The client company is a Rule 58 Subsidiary or any other 
Nonutility Subsidiary that (1) is partially-owned, provided that the 
ultimate purchaser of such goods or services is not a Utility 
Subsidiary or Ameren Services Company (``Ameren Services''), a service 
company subsidiary, (or any other entity within the Ameren system whose 
activities and operations are primarily related to the provision of 
goods and services to the Utility Subsidiaries, (2) is engaged solely 
in the business of developing, owning, operating and/or providing 
services or goods to Nonutility Subsidiaries described in paragraphs 
(i) through (iv) immediately above, or (3) 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.

VI. Sale of Certain Goods and Services by Rule 58 Subsidiaries and 
Special Purpose Subsidiaries Outside the United States

    Rule 58 Subsidiaries and Special Purpose Subsidiaries request 
authority to sell goods and services to customers both within and 
outside the United States. These goods and services include:
    (i) The brokering and marketing of electricity, natural gas and 
other energy commodities;
    (ii) Energy Management Services, which include the marketing, sale, 
installation, operation and maintenance of various products and 
services related to energy management and demand-side management, 
including energy and efficiency audits; facility design and process 
control and enhancements; construction, installation, testing, sales 
and maintenance of (and training client personnel to operate) energy 
conservation equipment; design, implementation, monitoring and 
evaluation of energy conservation programs; development and review of 
architectural, structural and engineering drawings for energy 
efficiencies, design and specification of energy consuming equipment; 
and general advice on programs; the design, construction, installation, 
testing, sales and maintenance of new and retrofit heating, 
ventilating, and air conditioning (``HVAC''), electrical and power 
systems, alarm and warning systems, motors, pumps, lighting, water, 
water-purification and plumbing systems, and related structures, in 
connection with energy-related needs; and the provision of services and 
products designed to prevent, control, or mitigate adverse effects of 
power disturbances on a customer's electrical systems;
    (iii) Performance contracting services aimed at assisting customers 
in realizing energy and other resource efficiency goals in the areas of 
process control, fuel management, and asset management services 
(including operation and maintenance services) in respect of energy-
related systems, facilities and equipment located on or adjacent to the 
premises of a customer and used by that customer in connection with 
business activities, including: (a) Distribution systems and 
substations, (b) transmission, storage and peak-shaving facilities, (c) 
gas supply and/or electrical generation facilities (i.e., stand-by 
generators and self-generation facilities), (d) boilers and chillers, 
(e) alarm/warning systems, (f) HVAC, water and lighting systems, and 
(g) environmental compliance, energy supply and building automation 
systems and controls;
    (iv) Technical Support Services, which include technology 
assessments, power factor correction and harmonics mitigation analysis, 
meter reading and repair, rate schedule design and analysis, 
environmental services, engineering services, billing services 
(including consolidation billing and bill disaggregation tools), risk 
management services, communications systems, information systems/data 
processing, system planning, strategic planning, finance, feasibility 
studies, and other similar services;
    (v) Certain retail services, including the provision of centralized 
bill payment centers for payment of all utility and municipal bills and 
related services; annual inspection, maintenance and replacement of 
energy-related equipment and appliances; service line repair and 
extended warranties with respect to all of the utility- or energy-
related service lines internal and external to a customer's premises; 
provision of surge protection equipment and services; marketing 
services to associate and nonassociate businesses in the form of bill 
insert; and automated meter-reading services;

[[Page 67239]]

    (vi) Sale of monitoring and response goods and services, which 
include products used in connection with energy and gas-related 
activities that enhance safety, increase energy/process efficiency; 
sale of energy-related information, as well as repair services, in 
connection with such problems as carbon monoxide leaks and faulty 
equipment wiring; operation of call/dispatch centers on behalf of 
associate and nonassociate companies in connection with the proposed 
sale of goods and services or with activities that Nonutility 
Subsidiaries are otherwise authorized to engage in under the Act;
    (vii) Sale of energy-peaking services via propane-air or liquefied 
natural gas (``LNG''), which involves the provision of back-up 
electricity or gas supply in periods of high or ``peak'' energy demand 
using a propane-air mixture or LNG as fuel sources for such back-up 
services; and
    (viii) Project development and ownership activities, which involves 
the installation and ownership of gas-fired turbines for on-site 
generation and consumption of electricity.
    In addition, Nonutility Subsidiaries request authorization to 
provide other energy-related goods and services that may not be 
permitted under Rule 58. These include incidental goods and services 
closely related to the consumption of energy and the maintenance of 
energy consuming property by customers, provided that the proposed 
incidental goods and services would not involve the manufacture of 
energy consuming equipment but could be related to, among other things, 
the maintenance, financing, sale or installation of such equipment.
    The Applicants request that the Commission (1) authorize 
electricity and energy commodity brokering and marketing activities in 
Canada and reserve jurisdiction over such activities outside the United 
States and Canada pending completion of the record in this proceeding, 
(2) authorize the proposed sale of Energy Management Services and 
Technical Support Services and related customer financing anywhere 
outside the United States, and (3) continue to reserve jurisdiction 
over sale of the remaining goods and services described above outside 
the United States, pending completion of the record.

VII. Sale of Agency Services by Ameren Energy and AE Marketing to 
Utility Subsidiaries

    Ameren Energy requests authorization to continue to act as agent 
for AmerenUE in connection with the brokering and marketing of 
electricity and other energy commodities by AmerenUE. Such services 
include negotiation and administration of power sales agreements with 
third parties and negotiation of associated credit support and risk 
management documents. Ameren Energy will provide agency and any other 
incidental services at cost, determined in accordance with rules 90 and 
91. Ameren Energy Marketing Company (``AE Marketing''), an ``energy-
related company'' under rule 58, requests authorization to provide 
similar agency services to AmerenEnergy Resources Generating Company 
(f/k/a Central Illinois Generation, Inc.) (``AERG''), in connection 
with brokering and marketing of electricity produced by AERG.

VIII. Investments in Energy Assets

    Ameren, indirectly through one or more Nonutility Subsidiaries 
(including any Rule 58 Subsidiary), requests authorization to acquire 
or construct nonutility energy assets in the United States, including, 
without limitation, natural gas production, gathering, processing, 
storage and transportation facilities and equipment, liquid oil 
reserves and storage facilities, and associated facilities 
(collectively, ``Energy Assets''), that would be incidental or 
functionally related to energy marketing, brokering and trading. Ameren 
requests authorization to invest up to $400 million at any one time 
during the Authorization Period (the ``Investment Limitation'') in 
Energy Assets or in the equity securities of existing or new companies 
substantially all of whose physical properties consist or will consist 
of Energy Assets. Such Energy Assets (or equity securities of companies 
owning Energy Assets) may be acquired for cash or in exchange for 
common stock or other securities of Ameren or any Nonutility 
Subsidiary. If common stock of Ameren is used as consideration in 
connection with any such acquisition, the market value of the stock on 
the date of issuance will be counted against the proposed Investment 
Limitation. The stated amount or principal amount of any other 
securities issued as consideration in any such transaction will also be 
counted against the Investment Limitation. Under no circumstances will 
Ameren Energy or any marketing subsidiary acquire, directly or 
indirectly, any assets or properties the ownership or operation of 
which would cause such companies to be considered an ``electric utility 
company'' or ``gas utility company'' as defined under the Act.

IX. Payment of Dividends Out of Capital and Unearned Surplus

    Ameren, on behalf of its direct or indirect Nonutility 
Subsidiaries, requests that these Nonutility Subsidiaries be permitted 
to pay dividends with respect to the securities of these Nonutility 
Subsidiaries and/or reacquire their securities that are held by any 
associate company, from time to time through the Authorization Period, 
out of capital and unearned surplus (including revaluation reserve), to 
the extent permitted under applicable corporate law, provided 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 such declaration or payment, 
such Nonutility Subsidiary has negative retained earnings.

X. Anticipatory Interest Rate Hedges by Nonutility Subsidiaries

    Nonutility Subsidiaries request authorization to enter into 
interest rate hedging transactions with respect to anticipated debt 
offerings (``Anticipatory Hedges''), subject to certain limitations and 
restrictions. These Anticipatory Hedges would only be entered into with 
counterparties whose senior debt ratings, or the senior debt ratings of 
the parent companies of the counterparties, as published by Standard 
and Poor's Ratings Group, are equal to or greater than BBB, or an 
equivalent rating from Moody's Investors Service, Fitch Investor 
Service or Duff and Phelps.

XI. Changes in Capitalization of Non-Utility Subsidiaries; Subsequent 
Internal Reorganizations of Non-Utility Subsidiaries

    Applicants request authorization to change the terms of any 
Nonutility Subsidiary's authorized capitalization by an amount deemed 
appropriate by Ameren or other parent company, provided that, if a 
Nonutility Subsidiary is not wholly owned, the consent of all other 
shareholders has been obtained for such change. Thus, a Nonutility 
Subsidiary would be able to increase the number of its authorized 
shares of capital stock, change the par value of its capital stock, 
change between par value and no-par value stock, or convert from one 
form of business organization to another without additional Commission 
approval.

[[Page 67240]]

    In addition, to the extent that such transactions are not otherwise 
exempt under the Act or rules under the Act, Ameren requests approval 
to consolidate, sell, transfer or otherwise reorganize all or any part 
of its direct and indirect ownership interests in Nonutility 
Subsidiaries, as well as investment interests in entities that are not 
subsidiary companies. To effect any such consolidation or other 
reorganization, Ameren may wish to either contribute the equity 
securities of one Nonutility Subsidiary to another Nonutility 
Subsidiary (including a newly formed Intermediate 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. Such 
transactions may also take the form of a Nonutility Subsidiary selling 
or transferring the equity securities of a subsidiary or all or part of 
such subsidiary's assets as a dividend to an Intermediate Subsidiary or 
to another Nonutility Subsidiary, and the acquisition, directly or 
indirectly, of the equity securities or assets of such subsidiary, 
either by purchase or by receipt of a dividend. The purchasing 
Nonutility Subsidiary 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. 
Ameren may also liquidate or merge Nonutility Subsidiaries.

Ohio Valley Electric Corporation (70-10160)

    Ohio Valley Electric Corporation (``OVEC''), 3932 U.S. Route 23, 
P.O. Box 468, Piketon, Ohio 45661, an electric public utility 
subsidiary of American Electric Power Company, Inc. (``AEP''), 
Allegheny Energy, Inc. (``Allegheny''), and FirstEnergy Corporation 
(``FirstEnergy''), each a registered public utility holding company 
under the Act, has filed a declaration (``Declaration'') under sections 
6 and 7 of the Act and rule 54 under the Act.
    By order dated December 6, 1999 (Holding Company Act Release No. 
35-27109) OVEC was authorized to incur short-term indebtedness through 
the issuance and sale of notes to banks or other financial institutions 
in an aggregate principal amount not to exceed $100 million outstanding 
at any one time, from time-to-time, through December 31, 2003, provided 
that no note would mature later than June 30, 2004.
    OVEC requests authorization to incur short-term indebtedness 
through the issuance and sale of notes (``Notes'') to banks or other 
financial institutions in an aggregate principal amount not to exceed 
$200 million outstanding at any one time, from time-to-time, through 
December 31, 2006, provided that no note shall mature later than June 
30, 2007. OVEC requests that the Commission reserve jurisdiction over 
the issuance of $100 million principal amount of Notes, out of the $200 
million principal amount of debt authority requested, until completion 
of the record.
    OVEC and its wholly-owned subsidiary, Indiana-Kentucky Electric 
Company, own two generating stations located in Ohio and Indiana with a 
combined electric production capability of approximately 2,256 
megawatts. OVEC is owned by AEP, Allegheny, FirstEnergy and other 
utilities.\8\ AEP owns directly and indirectly 44.2% of OVEC, of which 
4.35% is owned by its subsidiary Columbus Southern Power Company. 
FirstEnergy owns indirectly 20.5% of OVEC through its subsidiaries Ohio 
Edison Company (16.5%) and The Toledo Edison Company (4.0%). Allegheny 
owns directly 12.5% of OVEC. The owners, or their affiliates, purchase 
power from OVEC according to the terms of an inter-company power 
agreement.
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    \8\ The other utilities that own OVEC are: The Cincinnati Gas & 
Electric Company (9.0%), a subsidiary of Cinergy Corp.; Louisville 
Gas and Electric Company (4.9%) and Kentucky Utilities Company 
(2.5%), both subsidiaries of E.ON AG; The Dayton Power and Light 
Company (4.9%), a subsidiary of DPL Inc.; and Southern Indiana Gas 
and Electric Company (1.5%), a subsidiary of Vectren Corp. Both 
Cinergy and E.ON AG are registered public utility holding companies 
under the Act.
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    The operation of OVEC's generating stations requires the storage of 
substantial quantities of coal to ensure the availability of power to 
pay its customers. OVEC has used short term debt to finance the coal 
inventory at its plants, to purchase SO2 allowances, to purchase 
material supplies and inventory, to provide interim financing of 
capital improvements pending the issuance of long-term debt, and for 
cash management to pay general obligations. The proceeds of the short-
term debt incurred by OVEC will be used to pay for these and other 
general obligations and for other corporate purposes.
    The Notes will mature not more than 365/366 days after the date of 
issuance or renewal, provided that no Note will mature later than June 
30, 2007. Notes will be offered at terms consistent with those of 
similar companies and will bear interest at an annual rate not greater 
than the prime commercial rate of Citibank, N.A. (or any successor) in 
effect from time-to-time. Any credit arrangements may require payment 
of a fee that is not greater than \1/2\ of 1% of the size of the line 
of credit made available by the bank and the maintenance of additional 
balances of not greater than 20% of the line of credit. Any other line 
of credit fees will be consistent with fees paid for like transactions. 
The maximum effective annual interest cost under the above 
arrangements, assuming full use of the line of credit, will not exceed 
125% of the prime commercial rate in effect from time to time or not 
more than 7.5% on the basis of a prime commercial rate of 6%.

NiSource, Inc., et al. (70-10169)

    NiSource Inc. (``NiSource''), a registered public-utility holding 
company, Northern Indiana Public Service Company (``Northern 
Indiana''), Kokomo Gas and Fuel Company (``Kokomo'') and its 
subsidiary, Northern Indiana Fuel and Light Company, Inc. (``NIFL''), 
all public-utility company subsidiaries of NiSource, and its 
subsidiary, EnergyUSA, Inc., and its subsidiaries, PEI Holdings, Inc. 
(f/k/a Primary Energy, Inc.), NiSource Capital Markets, Inc. (``Capital 
Markets''), NiSource Corporate Services Company (``NiSource 
Services''), a subsidiary service company, NiSource Finance Corp. 
(``NiSource Finance''), Granite State Transmission, Inc., Crossroads 
Pipeline Company, NiSource Development Company, Inc., and its 
subsidiaries, NI Energy Services, Inc., and its subsidiaries, NiSource 
Energy Technologies, Inc., IWC Resources Corporation and its 
subsidiaries; Columbia Energy Group (``Columbia''), a registered 
public-utility holding company, Columbia Atlantic Trading Corporation, 
Columbia Deep Water Services Company, Columbia Energy Services 
Corporation and Columbia Remainder Corporation and its subsidiary, all 
located at 801 East 86th Avenue, Merrillville, Indiana 46410-6272; Bay 
State Gas Company (``Bay State''), Northern Utilities, Inc. (``Northern 
Utilities''), both gas utility companies, and Bay State GPE, Inc., 
located at 300 Friberg Parkway, Westborough, Massachusetts 01581-5039; 
Columbia Gas of Kentucky, Inc. (``Columbia Kentucky''), Columbia Gas of 
Maryland, Inc. (``Columbia Maryland''), Columbia Gas of Ohio, Inc. 
(``Columbia Ohio''), Columbia Gas of Pennsylvania, Inc. (``Columbia 
Pennsylvania''), Columbia Gas of Virginia, Inc. (``Columbia 
Virginia''), all gas utility companies, and Columbia Accounts 
Receivable Corporation, 200 Civic Center Drive, Columbus, Ohio

[[Page 67241]]

43215; Columbia Gas Transmission Corporation, located at 12801 Fair 
Lakes Parkway, Fairfax, Virginia 22030-0146; Columbia Gulf Transmission 
Company, located at 2603 Augusta, Suite 125, Houston, Texas 77057; 
Columbia Network Services Corporation and its subsidiary, both located 
at 1600 Dublin Road, Columbus, Ohio 43215-1082; and NiSource Insurance 
Corporation Limited (f/k/a Columbia Insurance Corporation, Ltd.), 
located at 20 Parliament Street, P.O. Box HM 649, Hamilton HM CX, 
Bermuda (collectively ``Applicants''), have filed an application-
declaration, as amended (``Application''), under sections 6(a), 7, 
9(a), 10, 12(b), (c) and (f) and 13(b) and rules 26(c), 45(a) and (c) 
and 46. NiSource and its direct and indirect public-utility and 
nonutility subsidiary companies are seeking to extend, restate and 
modify their current authorizations under various orders to engage in 
external and intrasystem financing and related transactions (``Current 
Orders'')\9\ during the period through December 31, 2006 
(``Authorization Period'') and replace and supersede the Current 
Orders.
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    \9\ See NiSource, Inc., et al., Holding Co. Act Release Nos. 
27263 (Oct. 30, 2000 (``Merger Order'')), 27265 (Nov. 1, 2000 
(November 1, 2000 Order'')), 27361 (Mar. 21, 2001) (authorizing 
increase in NiSource Short-term Debt from $2 billion to $3.4 
billion), 27567 (Sept. 12, 2002) (authorizing tax allocation 
agreement), 27479 (Dec. 19, 2001), 27535 (June 3, 2000) (releasing 
jurisdiction over Bay State and Northern Utilities money pool 
participation), 27559 (Aug. 8, 2002) (releasing jurisdiction over 
Granite State Gas Transmission, Inc., money pool participation); 
Columbia Energy Group, Inc., et al., Holding Co. Act Release Nos. 
26634 (Dec.23, 1996), 26798 (Dec. 22, 1997), 27035 (June 8, 1999).
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I. Background

    NiSource and its wholly owned subsidiary, Columbia, also a 
registered public-utility holding company, own ten public-utility 
company subsidiaries: Northern Indiana, Kokomo and NIFL, Bay State,\10\ 
Northern Utilities, Columbia Kentucky, Columbia Maryland, Columbia 
Ohio, Columbia Pennsylvania and Columbia Virginia (collectively 
``Utility Subsidiaries''). Together, the Utility Subsidiaries 
distribute gas at retail in portions of Indiana, Ohio, Virginia, 
Maryland, Kentucky, Pennsylvania, Massachusetts, New Hampshire and 
Maine. Northern Indiana also generates, transmits and sells electricity 
in 21 counties in the northern part of Indiana.
---------------------------------------------------------------------------

    \10\ Bay State is also a section 3(a)(2) exempt holding company. 
See SEC File No. 69-340.
---------------------------------------------------------------------------

    NiSource also holds, directly or indirectly, numerous nonutility 
subsidiaries and investments. Its principal nonutility subsidiaries 
are: NiSource Services, a subsidiary service company; Columbia Gas 
Transmission Corporation, Columbia Gulf Transmission Company, Granite 
State Transmission, Inc., and Crossroads Pipeline Company, all of which 
are engaged in interstate natural gas transportation and storage; PEI 
Holdings (f/k/a Primary Energy, Inc.), an intermediate subsidiary that 
owns all of the outstanding common stock of Whiting Clean Energy, Inc., 
an ``exempt wholesale generator'' (``EWG'') under section 32 of the 
Act; EnergyUSA, Inc., which serves as the holding company for 
subsidiaries that are engaged in energy marketing and in providing 
energy management services; NiSource Development Company, Inc., which 
holds passive investments in affordable housing projects that qualify 
for federal income tax credits and in other real estate ventures that 
are intended to complement NiSource's energy businesses; and NiSource 
Insurance Corporation Limited, a captive insurance subsidiary. NiSource 
also owns IWC Resources Corporation, which was previously the holding 
company for several water distribution companies;\11\ and two special 
purpose financing subsidiaries, NiSource Finance and Capital Markets, 
through which NiSource issues long-term and short-term debt securities. 
The term ``Nonutility Subsidiaries'' shall mean each of the direct and 
indirect nonutility subsidiaries of NiSource (other than Columbia). The 
term ``Nonutility Subsidiaries'' also includes any direct or indirect 
nonutility subsidiary acquired or formed, directly or indirectly, by 
NiSource after the effective date of the order in this proceeding 
pursuant to the authorization of the Commission (including the 
authorizations requested in the Application) or in a transaction that 
is exempt under the Act (specifically, sections 32, 33 and 34) or the 
rules (including, specifically, rule 58). The term ``Subsidiaries'' 
means the Utility Subsidiaries and the Nonutility Subsidiaries. 
NiSource, Columbia and the Subsidiaries are sometimes collectively 
referred to as ``Applicants.''
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    \11\ The principal operating assets of IWC Resources Corporation 
and its subsidiaries were sold in April 2002 in accordance with the 
Commission's divestiture order under section 11(b)(1) of the Act. 
See Merger Order.
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    NiSource and Columbia and their respective subsidiaries are 
authorized to engage in a program of external and intrasystem 
financing, to issue guarantees and other forms of credit support, to 
organize and acquire the securities of specified types of new 
subsidiaries, to pay dividends out of capital and unearned surplus, to 
reorganize and recapitalize subsidiaries and to engage in other related 
transactions through December 31, 2003. See the Current Orders.
    Applicants now request the following authorizations through the 
Authorization Period:
    1. For NiSource to increase its capitalization by issuing and 
selling, through one or more financing subsidiaries: (i) additional 
shares of common stock or other rights that are exercisable or 
exchangeable for or convertible into common stock, (ii) preferred 
securities (including trust preferred securities) (together ``Preferred 
Securities'') and equity-linked securities (``Equity-linked 
Securities''), and (iii) unsecured long-term debt securities (``Long-
term Debt'') and unsecured short-term indebtedness (``Short-term 
Debt'');
    2. For Columbia to increase its capitalization by issuing 
additional shares and/or Long-term Debt to NiSource or a financing 
subsidiary (``Financing Subsidiary''), as further defined below in 
section VII (Financing Subsidiaries), of NiSource or to third party 
lenders;
    3. For Columbia Maryland to issue and sell, and Columbia to 
acquire, additional shares of Columbia Maryland's common stock and 
unsecured and secured Long-term Debt;
    4. For NiSource, through Nonutility Subsidiaries, to make loans to 
less than wholly owned subsidiaries at interest rates and maturities 
designed to provide a return of not less than its effective cost of 
capital, in the circumstance where the borrowing Nonutility Subsidiary 
is not wholly owned by NiSource;
    5. To continue the Money Pool and to permit additional Nonutility 
Subsidiaries to participate, as investors only, without further 
Commission approval;
    6. For NiSource, directly or through Financing Subsidiaries, and 
Columbia to guarantee indebtedness or contractual obligations or 
provide other forms of credit support (``Parent Guarantees'') on behalf 
of, or for, their Subsidiaries;
    7. For Nonutility Subsidiaries to provide guarantees of 
indebtedness or contractual obligations, or other credit support, on 
behalf of, or for, the other Nonutility Subsidiaries (``Nonutility 
Subsidiary Guarantees'');
    8. For NiSource, Columbia and the Subsidiaries to enter into 
interest rate hedging transactions (``Interest Rate Hedges'') and or 
anticipatory hedging transactions (``Anticipatory Hedges'') with 
respect to interest rates;

[[Page 67242]]

    9. For NiSource and the Subsidiaries to change the terms of the 
authorized capitalization of any Subsidiary;
    10. For NiSource and Columbia to acquire the equity securities of 
one or more additional Financing Subsidiaries, to guarantee securities 
issued by Financing Subsidiaries and to issue unsecured subordinated 
notes to any Financing Subsidiary;
    11. For NiSource to acquire equity securities of intermediate 
subsidiaries organized to acquire, finance and hold securities of 
existing or future Nonutility Subsidiaries, including, but not limited 
to, EWGs, foreign utility holding companies (``FUCOs''), exempt 
telecommunications companies (``ETCs'') and subsidiaries exempt under 
rule 58 (``Rule 58 Subsidiaries'') (all ``Intermediate Subsidiaries''), 
also to authorize Intermediate Subsidiaries to provide management, 
administrative, project development and operating services to one 
another, and to exempt Intermediate Subsidiaries from section 13(b) of 
the Act, permitting them to charge fair market rates in certain 
circumstances;
    12. For NiSource to reorganize its Nonutility Subsidiaries and 
their activities and functions;
    13. For Nonutility Subsidiaries (including Intermediate 
Subsidiaries) to expend up to $250 million on preliminary development 
activities relating to potential nonutility investments;
    14. For Nonutility Subsidiaries to perform services and sell goods 
to each other at fair market prices, determined without regard to 
``cost'';
    15. For NiSource, on behalf of any current and future Rule 58 
Subsidiaries, to engage in certain rule 58 categories of activities 
outside the United States and reserving jurisdiction with respect to 
certain jurisdictions, pending completion of the record;
    16. For Columbia, and for Nonutility Subsidiaries, to pay dividends 
out of capital and unearned surplus and/or to reacquire shares of its 
common stock held by NiSource, and by any associate company, 
respectively; and
    17. For Applicants to continue to allocate consolidated income tax 
liabilities in accordance with the Tax Allocation Agreement previously 
approved by the Commission for tax years ending during the 
Authorization Period.

II. The Proposed External Financings

A. General Terms and Conditions

    Financing transactions with third parties will be subject to the 
following general terms and conditions (including, without limitation, 
securities issued for the purpose of refinancing or refunding 
outstanding securities of the issuer) (``Financing Parameters''):
    Effective Cost of Money. The effective cost of capital on Long-term 
Debt, Preferred Securities, Equity-linked Securities, and Short-term 
Debt will not exceed 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. Applicants state that in no event will the effective cost of 
capital (i) on any series of Long-term Debt exceed 500 basis points 
over a U.S. Treasury security having a remaining term equal to the term 
of such series, (ii) on any series of Preferred Securities or Equity-
linked Securities exceed 600 basis points over a U.S. Treasury security 
having a remaining term equal to the term of such series, and (iii) on 
Short-term Debt exceed 500 basis points over the London Interbank 
Offered Rate for maturities of less than one year.
    Maturity. The maturity of Long-term Debt will be between one and 50 
years after the issuance. Preferred Securities and Equity-linked 
Securities will be redeemed no later than 50 years after the issuance, 
unless converted into common stock, except that Preferred Stock issued 
directly by NiSource may be perpetual in duration.
    Issuance Expenses. The underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of securities will not exceed the greater of (i) 
5% of the principal or total amount of the securities 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.
    Common Equity Ratio. At all times during the Authorization Period, 
NiSource, Columbia and each Utility Subsidiary will maintain common 
equity of at least 30% of its consolidated capitalization (common 
equity, preferred stock, long-term debt and short-term debt); 
nevertheless, NiSource and Columbia will be authorized to issue common 
stock (including common stock issued pursuant to stock-based plans 
maintained for shareholders, employees and management) to the extent 
authorized.
    Investment Grade Ratings. Applicants further represent that, except 
for securities issued for the purpose of funding Money Pool operations, 
no guarantees or other securities, other than common stock, may be 
issued in reliance upon the authorization to be granted by the 
Commission, unless (i) the security to be issued, if rated, is rated 
investment grade; (ii) all outstanding securities of the issuer, that 
are rated, are rated investment grade; and (iii) all outstanding 
securities of the top level registered holding company, that are rated, 
are rated investment grade. 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, 
as amended. Applicants request that the Commission reserve jurisdiction 
over the issuance of any such securities that are rated below 
investment grade. Applicants further request that the Commission 
reserve jurisdiction over the issuance of any guarantee or other 
securities at any time that the conditions set forth in clauses (i) 
through (iii) above are not satisfied.

B. NiSource External Financing

    NiSource requests authorization, through the Authorization Period, 
to increase its capitalization through the issuance and sale of common 
stock, Preferred Securities, Equity-linked Securities and/or unsecured 
Long-term Debt.\12\ The aggregate amount of new long-term financing 
obtained by NiSource, during the Authorization Period, from the 
issuance and sale of common stock, when combined with the amount of new 
financing obtained from the issuance and sale of Preferred Securities, 
Equity-linked Securities and/or Long-term Debt, shall not exceed $6 
billion. Applicant states, however, that (a) securities issued for 
purposes of

[[Page 67243]]

refunding or replacing other outstanding long-term securities, where 
NiSource's capitalization is not increased as a result, and (b) any 
shares of Preferred Stock issued under the NiSource Shareholder 
Agreement (``Rights Plan'')\13\ shall not be counted against this 
limitation.
---------------------------------------------------------------------------

    \12\ NiSource contemplates that securities will be issued and 
sold directly to one or more purchasers in privately negotiated 
transactions or to one or more investment banking or underwriting 
firms or other entities who would resell such securities without 
registration under the Securities Act of 1933, as amended (``1933 
Act'') in reliance upon one or more applicable exemptions from 
registration, or to the pubic, either (i) through underwriters 
selected by negotiation or competitive bidding or (ii) through 
selling agents acting either as agent or as principal for resale to 
the public, or (iii) through dealers.
    NiSource and NiSource Finance have filed under the 1933 Act 
utilizing the ``shelf'' registration process, under which NiSource, 
directly or through NiSource Finance, may offer for sale, in one or 
more transactions, any combination of common stock, Preferred Stock, 
warrants to purchase common stock or Preferred Stock, Long-term Debt 
of NiSource Finance and Equity-Linked Securities in an aggregate 
amount up to $2,807,500,000. The prospectus contained in the 
Registration Statement provides a general description of the 
securities NiSource may offer.
    \13\ Under this plan, 4,000,000 shares of Preferred Stock 
(designated as Series A Junior Participating Preferred Shares 
(``Series A Shares'')) and reserved for issuance. Each share 
includes one preferred purchase right (``Right''), which entitles 
its holder to purchase one-hundredth (1/100) of a Series A Share at 
a price of $60 per one-hundredth of a share, subject to adjustment. 
The Rights become exercisable if a person or group acquires 25% or 
more of the voting power of NiSource or announces a tender or 
exchange offer following which such person or group would hold 25% 
or more of NiSource's voting power. If such an acquisition is 
consummated, or if NiSource is acquired by the person or group in a 
merger or other business combination, then each Right will be 
exercisable for that number of shares of common stock or the 
acquiring company's common shares having a market value of two times 
the exercise price of the Right. The Rights will also become 
exercisable on or after the date on which the 25% threshold is 
triggered, if NiSource is acquired in a merger or other business 
combination in which NiSource is not the survivor or in which 
NiSource is the survivor but its common stock is changed into or 
exchanged for securities of another entity, cash or other property, 
or 50% or more of the assests or earning power of NiSource and its 
subsidiaries is sold. At such time, each Right will become 
exercisable for that number of common shares of the acquiring 
company having a market value of two times the exercise price of the 
Right, but the Rights will not be exercisable in this instance if 
the person who acquired sufficient shares to reach the 25% threshold 
did so at a price and on terms determined by the board of directors 
to be fair to NiSource's shareholders and in the best interests of 
NiSource, provided that the price per common share offered in the 
merger or other business combination is not less than the price paid 
in the offer and the form of the consideration offered in the merger 
or other business combination is the same as that paid in the offer, 
NiSource may redeem the Rights at a price of $.01 per Right prior to 
the occurrence of an event that causes the Rights to be exercisable 
for common stock. The Rights will expire on March 12, 2010.
---------------------------------------------------------------------------

    NiSource also requests authority to issue and sell, directly or 
indirectly, through one or more Financing Subsidiaries, Short-term Debt 
in an aggregate principal amount at any time outstanding not to exceed 
$2.5 billion. All securities issued by NiSource under this 
authorization, including, without limitation, securities issued for the 
purpose of refunding or retiring outstanding securities, will comply 
with the Financing Parameters described above.

C. Financing by Columbia

    To provide capital to its subsidiaries, as well as to retire and/or 
prepay its outstanding long-term indebtedness, Columbia requests 
authorization to issue (1) additional shares of its common stock 
directly to NiSource and (2) unsecured notes evidencing long-term 
borrowings from NiSource Finance or another Financing Subsidiary of 
NiSource and/or unaffiliated third party lenders in an aggregate amount 
not to exceed $3 billion (excluding securities issued for purposes of 
refunding or replacing other outstanding securities of Columbia where 
Columbia's capitalization is not increased as a result).\14\ The 
interest rate and maturity of any series of Long-term Debt issued by 
Columbia to NiSource Finance or another Financing Subsidiary of 
NiSource will parallel the effective cost of funds of Long-term Debt 
recently issued by NiSource Finance or any other Financing Subsidiary 
of NiSource. Applicants state further that, in the event no Long-term 
Debt was issued during the previous calendar quarter, then the interest 
rate and maturity of any series of Long-term Debt issued by Columbia to 
NiSource Finance, or another Financing Subsidiary of NiSource, will be 
either the estimated new long-term rate that would be in effect if 
NiSource Finance, or another Financing Subsidiary of NiSource, were to 
issue Long-term Debt, as projected by a major investment bank, or the 
prevailing market rate for a newly issued BBB-rated utility bond. Long-
term Debt of any series of Columbia issued to an unaffiliated third 
party lender will comply with the Financing Parameters.
---------------------------------------------------------------------------

    \14\ Columbia will continue to provide equity and long-term debt 
capital to its Utility and Nonutility Subsidiaries in the form of 
purchases of additional equity securities, cash capital 
contributions and open account advances under rule 45(b), and 
intercompany loans, which, except in the case of Columbia Maryland, 
are exempt under rule 52.
---------------------------------------------------------------------------

D. Utility Subsidiary Financing

    Columbia Maryland requests authorization to issue and sell, and 
Columbia requests authorization to acquire, additional shares of 
Columbia Maryland's common stock and Long-term Debt, during the 
Authorization Period. The aggregate amount of common stock and/or Long-
term Debt to be issued by Columbia Maryland, during the Authorization 
Period, will not exceed $40 million. Columbia Maryland will use the 
proceeds of common stock and Long-term Debt to finance, in part, 
capital expenditures and other general and corporate purposes.\15\
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    \15\ Because Columbia Maryland is a Delaware corporation, it is 
not able to rely upon rule 52(a) for an exemption from sections 6(a) 
and 7 of the Act. Other than Columbia Maryland, the issue and sale 
of securities by the utility Subsidiaries will be exempt, under rule 
52(a), from the preapproval requirements of sections 64(a) and 7 of 
the Act, as most such securities must be approved by the public 
service commission in the state in which each Utility Subsidiary is 
incorporated and operating.
    Specifically, the Indiana Utility Regulatory Commission must 
approve all financings by Northern Indiana, Kokomo and NIFL, other 
than short-term indebtedness having a maturity of 12 months or less; 
the Massachusetts Department of Telecommunications and energy must 
approve all financings by Bay State other than short-term 
indebtedness having a maturity of one year or less; the New 
Hampshire Public Utilities Commission (``NHPUC'') must approve most 
financings by Northern Utilities other than short-term indebtedness 
having a maturity of one year or less up to a maximum amount equal 
to 10% of net plant; the Public Utilities Commission of Ohio must 
approve all financings by Columbia Ohio other than short-term 
indebtedness with a maturity of less than one year, the Public 
Service Commission of Kentucky must approve all financings by 
Columbia Kentucky other than notes with a maturity of less than two 
years; the Pennsylvania Public Utilities Commission must approve all 
financings by Columbia Pennsylvania other than short-term 
indebtedness with a maturity of one year or less or having no fixed 
maturity but payable on demand; and the Virginia State Corporation 
Commission must approve all financings by Columbia Virginia other 
than short-term indebtedness with a maturity of less than one year 
if the amount is less than 12% of total capitalization of Columbia 
Virginia.
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    Long-term notes issued by Columbia Maryland to Columbia may have 
maturities of up to 30 years and may be either secured or unsecured. 
The Utility Subsidiaries do not intend to issue any Short-term Debt 
externally. Instead, the Utility Subsidiaries will satisfy their short-
term borrowing needs through borrowings under the Money Pool, described 
below.

E. Nonutility Subsidiary Financing

    NiSource, through the Nonutility Subsidiaries, expects to continue 
to be active in the development and expansion of energy-related, or 
otherwise functionally-related, nonutility businesses. To finance 
investments in such competitive businesses, the Nonutility Subsidiaries 
will need the ability to engage in financing transactions that are 
commonly accepted for such types of investments.
    NiSource, or a Nonutility Subsidiary, as the case may be, request 
authority to make loans to less than wholly owned subsidiaries at 
interest rates and maturities designed to provide a return to the 
lending company of not less than its effective cost of capital, in the 
limited circumstances where the Nonutility Subsidiary making the 
borrowing is not wholly owned, directly or indirectly, by NiSource.\16\ 
In the

[[Page 67244]]

event loans are made to a less than wholly owned Nonutility Subsidiary, 
Applicants represent that the company will not sell any services to any 
associate company unless it falls within one of the categories of 
companies to which goods and services may be sold on a basis other than 
``at cost,'' as described below in section XI (Sales of Services and 
Goods Among Subsidiaries).
---------------------------------------------------------------------------

    \16\ Applicants believe that, in almost all cases, financings by 
the Nonutility Subsidiaries will be exempt from Commission 
authorization pursuant to rule 52(b). To be exempt under rule 52(b), 
any loans by NiSource to a Nonutility Subsidiary, or by any 
Nonutility Subsidiary, including a Financing Subsidiary, to another 
Nonutility Subsidiary, must have interest rates and maturities that 
are designed to parallel the lending company's effective cost of 
capital.
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III. Continuation of Money Pool

    NiSource, the Utility Subsidiaries and certain Nonutility 
Subsidiaries request authorization to continue to participate in the 
Money Pool. The Money Pool participants request authorization, during 
the Authorization Period, to make unsecured short-term borrowings from 
the Money Pool, to contribute surplus funds to the Money Pool and to 
lend and extend credit to (and acquire promissory notes from) one 
another through the Money Pool. NiSource, directly or indirectly, 
through NiSource Finance, requests authorization to invest surplus 
funds and/or lend and extend credit to the participating subsidiaries 
through the Money Pool.
    The following direct and indirect Nonutility Subsidiaries are 
participants in the Money Pool, in addition to NiSource and Columbia 
and the ten Utility Subsidiaries:

NiSource Corporate Services Company
EnergyUSA, Inc. (an Indiana corporation)
EnergyUSA-TPC Corp.
EnergyUSA, Inc. (a Massachusetts corporation)
PEI Holdings, Inc.
NiSource Capital Markets, Inc.
NiSource Finance Corp.
Granite State Transmission, Inc.

Crossroads Pipeline Company
NiSource Development Company, Inc.
NI Energy Services, Inc.
NiSource Energy Technologies, Inc.
Columbia Gas Transmission Corporation
Columbia Gulf Transmission Company
Columbia Assurance Agency, Inc.
Columbia Accounts Receivable Corporation
Columbia Atlantic Trading Corporation
Columbia Deep Water Services Company
Columbia Remainder Corporation
Columbia Energy Services Corporation
NiSource Insurance Corporation Limited
    In addition, Applicants propose that other existing or new 
nonutility subsidiaries of NiSource may participate in the Money Pool, 
as investors only, without further approval of the Commission. 
NiSource, Columbia, NiSource Finance and Capital Markets will continue 
to participate in the Money Pool as investors only and not as 
borrowers. EWGs, FUCOs, and ETCs will be specifically excluded from 
participating in the Money Pool as borrowers.
    The Utility Subsidiaries (other than Columbia Virginia)\17\ request 
authority to make borrowings through the Money Pool in the following 
maximum amounts at any time outstanding:
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    \17\ Columbia Virginia borrowings under the Money Pool are 
exempt under rule 52(a).
    \18\ Borrowings by Northern Utilities under the Money Pool that 
are in excess of 10% of its net fixed plant must be approved by the 
NHPUC and, therefore, would be exempt under rule 52(a).

------------------------------------------------------------------------
                  Utility subsidiary                    Borrowing limit
------------------------------------------------------------------------
Northern Indiana.....................................     $1,000,000,000
Kokomo...............................................         50,000,000
NIFL.................................................         50,000,000
Bay State............................................        300,000,000
Northern Utilities \18\..............................         50,000,000
Columbia Ohio........................................        700,000,000
Columbia Kentucky....................................         80,000,000
Columbia Pennsylvania................................        300,000,000
Columbia Maryland....................................         50,000,000
------------------------------------------------------------------------

Borrowings from the Money Pool by participating Subsidiaries that are 
authorized to borrow from the Money Pool (i.e., ``Eligible 
Borrowers''), other than Utility Subsidiary borrowers, are exempt under 
rule 52(b).

IV. Guarantees

    Parent Guarantees. NiSource, directly or indirectly, through one or 
more Financing Subsidiaries, and Columbia request authorization to 
provide Parent Guarantees of debt securities or contractual obligations 
of any Subsidiary as may be appropriate in the ordinary course of a 
Subsidiary's business, in an aggregate principal or nominal amount, in 
the case of NiSource, not to exceed $3.5 billion and, in the case of 
Columbia, not to exceed $3.5 billion outstanding at any one time. In 
addition, Applicants state that the amount of any Parent Guarantees of 
any Subsidiary obligations shall also be subject to the limitations of 
rule 53(a)(1) or rule 58(a)(1), as applicable. Parent Guarantees may 
take the form of, among others, direct guarantees, reimbursement 
undertakings under letters of credit, ``keep well'' undertakings, 
indemnification agreements and expense reimbursement agreements. Any 
Parent Guarantee that is outstanding at the end of the Authorization 
Period shall remain in force until it expires or terminates in 
accordance with its terms.
    In addition, NiSource and Columbia request authorization to charge 
each Subsidiary a fee for each Parent Guarantee. The fee proposed will 
not be greater than the cost, if any, of obtaining the liquidity 
necessary to perform on the Parent Guarantee (for example, bank line 
commitment fees or letter of credit fees, plus other transactional 
expenses) for the period of time that it remains outstanding.
    Nonutility Subsidiary Guarantees. In addition to guarantees that 
may be provided by NiSource or Columbia or by a Financing Subsidiary of 
either, as described above, Nonutility Subsidiaries (including 
Financing Subsidiaries without credit support from NiSource or 
Columbia) request authority to provide, to other Nonutility 
Subsidiaries, Nonutility Subsidiary Guarantees (i.e., guarantees of 
indebtedness or contractual obligations, or other forms of credit 
support, in an aggregate principal amount not to exceed $2 billion 
outstanding at any one time, exclusive of any guarantees and other 
forms of credit support that are exempt under rules 45(b) and 52(b)). 
Nonutility Subsidiaries request authorization to charge associate 
companies a fee for each guarantee, determined in the same manner as 
specified above.

V. Hedging Transactions

    NiSource and the Subsidiaries request authorization to enter into 
Interest Rate Hedges in order to reduce or manage interest rate cost, 
subject to certain limitations and restrictions. NiSource and the 
Subsidiaries also request authorization to enter into Anticipatory 
Hedges, subject to certain limitations and restrictions.

VI. Changes in Capitalization of Majority-Owned Subsidiaries

    In order to accommodate the proposed sale of capital securities 
(i.e., common stock or Preferred Stock) transactions and provide for 
future issues, NiSource and the Subsidiaries request authority to 
change the terms of any 50% or more owned Subsidiary's authorized 
capital stock capitalization, or other equity interests, by an amount 
deemed appropriate by NiSource or other intermediate parent 
company.\19\ Applicants state that the consents of all other 
shareholders will have been

[[Page 67245]]

obtained for the proposed change. This request for authorization is 
limited to NiSource's 50% or more owned Subsidiaries and is not 
intended to affect aggregate limits or other conditions.
---------------------------------------------------------------------------

    \19\ Applicants state that the portion of an individual 
Subsidiary's aggregate financing to be effected through the sale of 
stock to NiSource or another immediate parent company during hte 
Authorization Period cannot be ascertained at this time. The sale of 
capital securities (i.e., common stock or Preferred Stock) may in 
some cases exceed the then authorized capital stock of a Subsidiary 
and a Subsidiary may choose to use capital stock with no par value.
---------------------------------------------------------------------------

    Applicants further propose that a Subsidiary would be able to 
change the par value, or to change between par value and no par stock, 
or to change the form of equity from common stock to limited 
partnership or limited liability company interests or similar 
instruments, or from such instruments to common stock, without 
additional Commission approval. Any action by a Utility Subsidiary 
would be subject to, and would only be taken upon, the receipt of any 
necessary approvals by the state commission in the state or states 
where the Utility Subsidiary is incorporated and doing business. In 
addition, Applicants state that NiSource will be subject to all 
applicable laws regarding the fiduciary duty of fairness of a majority 
shareholder to minority shareholders in any such 50% or more owned 
Subsidiary and NiSource will undertake to ensure that any change 
comports with such legal requirements.

VII. Financing Subsidiaries

    NiSource and the Subsidiaries request authority to organize and 
acquire the equity securities of one or more corporations, trusts, 
partnerships or other entities organized specifically for the purpose 
of financing the activities of NiSource and certain of its Subsidiaries 
(``Financing Subsidiaries''), in addition to the two previously 
authorized.\20\ Specifically, Financing Subsidiaries may be organized 
to issue Preferred Securities (including but not limited to monthly 
income preferred securities), Long-term Debt and Short-term Debt to 
third parties and to transfer the proceeds of the financings to 
NiSource or other Subsidiaries.
---------------------------------------------------------------------------

    \20\ NiSource, as noted previously, currently owns the stock of 
two Financing Subsidiaries: NiSource Finance and Capital Markets.
---------------------------------------------------------------------------

    NiSource and Subsidiaries also request authorization to issue their 
subordinated unsecured notes (``Subordinated Notes'') 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 such Subordinated Notes will be 
designed to parallel the amount, maturity and interest or distribution 
rate on the securities issued by a Financing Subsidiary. The amount of 
securities issued by any Financing Subsidiary to third parties will be 
included in the overall external financing limitation, if any, 
authorized for the immediate parent company of the Financing 
Subsidiary. The amount of Subordinated Notes issued by a parent company 
to its Financing Subsidiary will not be counted against the external 
financing limitation, to avoid double counting.

VIII. Intermediate Subsidiaries

    NiSource requests authority to acquire, directly or indirectly, 
during the Authorization Period, the securities of one or more 
additional Intermediate Subsidiaries, which would be organized 
exclusively for the purpose of acquiring, holding and/or financing the 
acquisition of the securities of, or other interest in, one or more 
EWGs or FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt 
Nonutility Subsidiaries (as may be authorized in this proceeding or in 
a separate proceeding).\21\ In addition, NiSource requests that its 
Intermediate Subsidiaries be permitted to engage in administrative 
activities and development activities (``Administrative Activities'' 
and ``Development Activities,'' respectively, as defined further below) 
relating to such subsidiaries. ``Administrative Activities'' include 
ongoing personnel, accounting, engineering, legal, financial and other 
support activities necessary to manage NiSource's investments in 
Nonutility Subsidiaries. ``Development Activities'' will be limited to 
due diligence and design review; market studies; preliminary 
engineering; site inspection; preparation of bid proposals, including, 
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 such other preliminary activities 
as may be required in connection with the purchase, acquisition, 
financing or construction of facilities or the acquisition of 
securities of or interests in new businesses.
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    \21\ The Commission has previously authorized Columbia to 
organize intermediate subsidiary companies to acquire and hold 
various nonutility subsidiaries. See Columbia Energy Group, Inc., et 
al., Holding Co. Act Release No. 27099 (Nov. 5, 1999).
---------------------------------------------------------------------------

    NiSource also requests an exemption under section 13(b) of the Act 
for Intermediate Subsidiaries to provide management, administrative, 
project development and operating services to associate companies at 
fair market prices in the specific circumstances discussed further 
below. See section XI (Sales of Services and Goods Among Subsidiaries).
    Applicants state that investments in Intermediate Subsidiaries may 
take the form of any combination of the following: (1) Purchases of 
capital shares, partnership interests, member interests in limited 
liability companies, trust certificates or other forms of equity 
interests; (2) capital contributions; (3) open account advances with or 
without interest; (4) loans; and (5) guarantees issued, provided or 
arranged, for the securities or other obligations of any Intermediate 
Subsidiaries. Applicants state, further, that funds for any direct or 
indirect investment in any Intermediate Subsidiary will be obtained 
from (1) financings authorized in this proceeding; (2) any appropriate 
future debt or equity securities issuance authorization of NiSource; 
and (3) other available cash resources, including proceeds of 
securities sales by Nonutility Subsidiaries under rule 52.\22\
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    \22\ Applicants state that, to the extent that NiSource provides 
funds or guarantees, directly or indirectly, to an Intermediate 
Subsidiary that are used to make an investment in any EWG or FUCO or 
a Rule 58 Subsidiary, the amount of such funds or guarantees will be 
included in NiSource's ``aggregate investment'' in such entities, as 
calculated in accordance with rule 53 or rule 58, as applicable.
---------------------------------------------------------------------------

IX. Reorganizations of Nonutility Subsidiaries

    NiSource 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 
such investments. NiSource requests authorization to consolidate, or 
otherwise reorganize under one or more, direct or indirect, 
Intermediate Subsidiaries, NiSource's ownership interests in existing 
and future Nonutility Subsidiaries. The transactions may take the form 
of a Nonutility Subsidiary selling, contributing or transferring the 
equity securities of a subsidiary or all or part of such subsidiary's 
assets as a dividend to an Intermediate Subsidiary, 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 Nonutility Subsidiary in any 
transaction structured as an intrasystem sale of equity securities or 
assets may execute and deliver its promissory note

[[Page 67246]]

evidencing all, or a portion, of the consideration given.\23\
---------------------------------------------------------------------------

    \23\ Applicants state that 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 a consideration equal to the book value of the 
equity securities being sold. The Commission has authorized other 
registered holding companies to carry out future reorganizations of 
their nonutility businesses without further approval. See Columbia 
Energy Group, Inc., et al., Holding Co. Act Release No. 27099 (Nov. 
5, 1999).
---------------------------------------------------------------------------

X. Expenditures on Development Activities

    NiSource requests a continuation of its authority under the 
November 1, 2000 Order to make expenditures on Development Activities, 
as defined above, in an aggregate amount of up to $250 million. 
NiSource proposes a ``revolving fund'' concept for permitted 
expenditures on Development Activities: The revolving fund concept 
would be that, to the extent expenditures on Development Activities are 
made for a Nonutility Subsidiary which then becomes an EWG or FUCO, or 
qualifies as an ``energy-related company'' under rule 58, the amount 
expended will cease to be an expenditure for Development Activities and 
will, instead, be counted as part of the ``aggregate investment'' in 
the entity under rule 53 or 58, as applicable.

XI. Sales of Services and Goods Among Subsidiaries

    The Nonutility Subsidiaries request an exemption under section 
13(b) from the at cost standards of rules 90 and 91, to the extent 
necessary, to provide services and sell goods to one another at fair 
market prices, determined without regard to cost, where the Nonutility 
Subsidiary purchasing the service or good 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 U.S.; (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 Northern 
Indiana; (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 electricity for their own use and not for resale, and/or 
(ii) to an electric utility company (other than Northern Indiana) at 
the purchaser's ``avoided cost,'' as determined in accordance with 
PURPA regulations; (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 is not Northern Indiana; or (v) a Rule 58 Subsidiary or any 
other Nonutility Subsidiary that (a) is partially owned by NiSource, 
provided that the ultimate purchaser of the goods or services is not a 
Utility Subsidiary, NiSource Services (or any other entity within the 
NiSource system whose activities and operations are primarily related 
to the provision of goods and services to 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 U.S. and is not a public-utility company operating within 
the U.S.

XII. Activities of Energy-Related Subsidiaries Outside the U.S.

    NiSource, on behalf of any current or future Nonutility 
Subsidiaries, requests authority for its Nonutility Subsidiaries to 
engage in certain ``energy-related'' activities outside the U.S. Such 
activities may include: (i) The brokering and marketing of electricity, 
natural gas and other energy commodities (``Energy Marketing''); (ii) 
energy management services (``Energy Management Services''), including 
the marketing, sale, installation, operation and maintenance of various 
products and services related to energy management and demand-side 
management, including energy and efficiency audits; facility design and 
process control and enhancements; construction, installation, testing, 
sales and maintenance of (and training client personnel to operate) 
energy conservation equipment; design, implementation, monitoring and 
evaluation of energy conservation programs; development and review of 
architectural, structural and engineering drawings for energy 
efficiencies, design and specification of energy consuming equipment; 
and general advice on programs; the design, construction, installation, 
testing, sales and maintenance of new and retrofit heating, 
ventilating, and air conditioning, electrical and power systems, alarm 
and warning systems, motors, pumps, lighting, water, water-purification 
and plumbing systems, and related structures, in connection with 
energy-related needs; and the provision of services and products 
designed to prevent, control, or mitigate adverse effects of power 
disturbances on a customer's electrical systems; and (iii) engineering, 
consulting and other technical support services (``Consulting 
Services'') with respect to energy-related businesses, as well as for 
individuals. Such Consulting Services would include technology 
assessments, power factor correction and harmonics mitigation analysis, 
meter reading and repair, rate schedule design and analysis, 
environmental services, engineering services, billing services 
(including consolidation billing and bill disaggregation tools), risk 
management services, communications systems, information systems/data 
processing, system planning, strategic planning, finance, feasibility 
studies, and other similar services.
    NiSource requests authority for Nonutility Subsidiaries to engage 
in Energy Marketing activities in Canada. NiSource also requests the 
Commission to reserve jurisdiction over Energy Marketing activities 
outside of Canada, pending completion of the record. Further, NiSource 
requests authority for Nonutility Subsidiaries to provide Energy 
Management Services and Consulting Services anywhere outside the United 
States. NiSource asks the Commission to reserve jurisdiction over other 
activities of Nonutility Subsidiaries outside the United States, 
pending completion of the record. In addition, NiSource requests 
authorization for Nonutility Subsidiaries to engage in ``gas-related 
company'' activities outside the United States, subject to certain 
proposed limitations and a request for reservation of jurisdiction. 
Specifically, NiSource requests approval for Nonutility Subsidiaries to 
engage in the development, exploration and production of natural gas 
and oil in Canada and to invest up to $300 million in the equity 
securities or assets of new or existing companies that derive 
substantially all of their income from such activities. NiSource also 
requests approval for Nonutility Subsidiaries to invest, directly or 
indirectly, through other Subsidiaries, in natural gas pipelines or 
storage facilities located outside the U.S. Investments in the entities 
would count against the $300 million investment limitation. NiSource 
requests the Commission (i) to reserve jurisdiction over the proposed 
exploration and production activities in foreign countries, other than 
Canada, pending completion of the record.

[[Page 67247]]

XIII. Distributions Out of Capital or Unearned Surplus

    Distributions by Columbia. Columbia requests authorization to 
transfer some or all of the net proceeds of any sale or sales of the 
securities or assets of Nonutility Subsidiaries of Columbia to 
NiSource, either by paying a dividend or by repurchasing shares of its 
common stock that are held by NiSource. Columbia has sold or entered 
into agreements to sell the stock or assets of several of its 
Nonutility Subsidiaries since being acquired by NiSource and seeks to 
distribute some or all of the proceeds to NiSource.\24\ The ability of 
Columbia to distribute the cash proceeds from the sales to NiSource as 
a dividend is limited by section 12(c) of the Act and rules 26(c) and 
46. Columbia states that it will not pay any dividend to NiSource or 
repurchase shares of its common stock from NiSource if, as a result, 
common equity as a percentage of its capitalization would be less than 
30% on a consolidated basis.
---------------------------------------------------------------------------

    \24\ Columbia has sold or announced its agreement to sell the 
stock or assets of Columbia LNG Corporation, Columbia Energy Retail 
Corporation, Columbia Electric Corporation and its subsidiaries, 
Columbia Propane Corporation, Columbia Petroleum Corporation, 
Columbia Energy Resources, Inc. and its subsidiaries, Columbia 
Transmission Communications Corporation and Columbia Service 
Partners, Inc. and its subsidiaries.
---------------------------------------------------------------------------

    Payment of Dividends by Nonutility Subsidiaries. NiSource also 
proposes, on behalf of its current and future Nonutility Subsidiaries, 
that they be permitted to pay dividends, through the Authorization 
Period, out of capital and unearned surplus, to the extent permitted 
under applicable corporate law and the terms of any credit agreements 
and indentures that restrict the amount and timing of distributions to 
shareholders.

XIV. Tax Allocation Agreement

    Applicants request authorization to continue to file consolidated 
income tax returns for tax years ending during the Authorization Period 
in accordance with the previously approved Tax Allocation Agreement. 
Applicants are authorized to file consolidated income tax returns and 
allocate the consolidated income tax liability of the group in 
accordance with the Tax Allocation Agreement which does not conform in 
all respects to the requirements of rule 45(c). See Supplemental Order 
dated September 12, 2002 (SEC File No. 70-9681). Specifically, under 
the Tax Allocation Agreement, NiSource is permitted to retain the 
benefit (i.e., the tax savings) in consolidated tax liability that is 
attributable to the interest expense on the acquisition debt,\25\ 
subject to certain limitations and restrictions.
---------------------------------------------------------------------------

    \25\ The acquisition debt includes $2.95 billion of senior 
unsecured notes with varying maturities, between April 15, 2003 and 
November 15, 2010, that were issued by NiSource Finance to refinance 
most of the commercial paper borrowings incurred by NiSource Finance 
during the merger in order to fund the cash portion of the 
consideration paid for Columbia's shares and certain debentures. The 
term also includes indebtedness that may be incurred by NiSource or 
NiSource Finance during the Authorization Period for the purpose of 
refinancing any of the acquisition indebtedness. For the tax year 
ended December 31, 2001, the tax benefit attributable to the 
interest expense on the debt was approximately $100.2 million and, 
for the tax year ended December 31, 2002, it is estimated that the 
tax benefit will be approximately $97.0 million.
---------------------------------------------------------------------------

E.ON AG, et al. (70-10171)

    E.ON AG (``E.ON''), a registered public-utility holding company 
under the Act, and Hibernia Industriewerte GmbH (``Hibernia''), a 
wholly owned nonutility subsidiary (together ``Applicants''), both 
located at E.ON-Platz 1 40479 D[uuml]sseldorf, Germany, have filed an 
application (``Application'') under sections 6(a), 7, 9(a), 10 and 
12(b) of the Act and rules 45 and 54. The Applicants request 
authorization to modify certain terms of the E.ON nonutility money pool 
(``E.ON Nonutility Money Pool'') permitted by a previous Commission 
order, dated June 14, 2002 (Holding Co. Act Release No. 27539) (``June 
2002 Order'').
    E.ON proposes (1) that the E.ON Nonutility Money Pool be 
administered by Hibernia, an E.ON subsidiary currently used to provide 
financing to all of the companies in the E.ON registered holding 
company system (the ``E.ON Group''), and (2) that the interest rate 
paid to lenders to the pool be set at market rates.

Background

    By the June 2002 Order, the Commission authorized E.ON to acquire 
Powergen plc, a registered public-utility holding company, and, 
subsequent to the acquisition, E.ON registered as a public-utility 
holding company. The June 2002 Order also authorized E.ON and its 
subsidiaries to issue and sell securities and, further, authorized E.ON 
to establish three money pools, including the E.ON Nonutility Money 
Pool, to facilitate the financing of the E.ON Group.\26\ The E.ON 
Nonutility Money Pool, the subject of the Application, includes as 
participants all the companies in the E.ON Group, as borrowers and 
lenders to the pool, except E.ON, the registered holding company 
subsidiaries of E.ON, and LG&E Energy and its subsidiaries. E.ON and 
its registered holding company subsidiaries may lend funds to the E.ON 
Nonutility Money Pool.
---------------------------------------------------------------------------

    \26\ Specifically, E.ON was authorized to organize: (1) A 
Utility Money Pool to include E.ON's public utility subsidiary 
companies, Louisville Gas and Electric Company and Kentucky 
Utilities Company as borrowers and lenders to the pool, and certain 
other companies as lenders only; (2) a U.S. Nonutility Money Pool to 
include the nonutility subsidiaries of LG&E Energy Corp., as 
borrowers and lenders to the pool, and certain other companies as 
lenders only, and; (3) the E.ON Nonutility Money Pool.
---------------------------------------------------------------------------

    Under the June 2002 Order, the E.ON Nonutility Money Pool was 
authorized to ``be administered by E.ON at no charge or by E.ON NA or 
its special purpose subsidiary at cost. The interest rate charged by 
the pool would be set according to the Market Rate Method \27\ and 
surplus funds would be invested in the same manner proposed for the 
Utility Money Pool. The interest rate paid on deposits to the E.ON 
Nonutility Money Pool [would] be a weighted average of the rates 
charged borrowers and the money pool investment rate.'' \28\
---------------------------------------------------------------------------

    \27\ In determining a lending rate under the Market Rate Method, 
the Money Pool administrator would review the nature of each 
borrowing subsidiary's business, evaluate its capital structure, the 
particular risks to which it is subject and generally prevailing 
market conditions, all in the context of information from third 
parties (such as banks) that would indicate the prevailing market 
rates for similar businesses. Information on the range of rates used 
by one or more banks for loans to similar businesses would serve as 
an index against which an appropriate market rate could be 
determined. This analysis is referred to as the Market Rate Method 
and would be provided to the Commission upon request. June 2002 
Order at 109.
    \28\ June 2002 Order at 83.
---------------------------------------------------------------------------

The Proposal

    E.ON now proposes that the E.ON Nonutility Money Pool be 
administered by Hibernia, a different affiliate, and that the interest 
rate paid to lenders to the pool be set at market rates. First, with 
respect to the change in the money pool administrator, the Applicants 
state that Hibernia would receive financial management services from 
E.ON employees in connection with managing the pool, and conducting 
Hibernia's other functions, as an E.ON Group financing entity. The 
Applicants state that these services would be provided at no charge, 
unless a Commission exemption from the restrictions of section 13(a) is 
obtained. In addition, the E.ON Nonutility Money Pool will operate as 
described in the June 2002 Order \29\ and as elaborated on in the 
Application.
---------------------------------------------------------------------------

    \29\ See generally June 2002 Order at 81-83.
---------------------------------------------------------------------------

    Secondly, Applicants state that authorizing the proposed change in 
interest rates to the payment of market rates will avoid the transfer 
pricing issues that arise in loans between affiliated companies when 
transactions

[[Page 67248]]

are not priced at market rates.\30\ Applicants state that the 
intercompany loans from pool participants to Hibernia for the E.ON 
Nonutility Money Pool should be priced at market rates in order to 
better meet the transfer pricing and affiliate transactions 
requirements.\31\ Applicants state, furthermore, that changing to 
market interest rates on money pool deposits is fair to a lender 
because it provides the lender with an arm's-length interest rate that 
is better, or equivalent to, what a lender could earn in separate bank 
account.
---------------------------------------------------------------------------

    \30\ The transfer pricing issues were described in E.ON's 
application in SEC File No. 70-9985, which formed the basis in part 
for the June 2002 Order. E.ON's application stated that, in 
transactions between German companies and their foreign 
subsidiaries, German tax law assumes market rate financing between 
companies in the same corporate group because market rate pricing 
assures that intercompany loans will not be used to transfer profits 
from one related entity to another (including, to transfer profits 
to entities based outside Germany in jurisdictions with lower tax 
rates). Section 1 of the German Foreign Tax Law provides: ``If the 
income of a taxpayer resulting from his transaction with the related 
party is reduced because the taxpayer has, in the transaction with 
the foreign related party, agreed on terms and conditions which 
deviate from those which unrelated third parties would have agreed 
to upon under the same or similar circumstances, then the taxpayer's 
income shall, not withstanding other provisions, be so determined as 
if such income would have been earned under terms and conditions 
agreed upon between unrelated parties.''
    \31\ The Applicants state that German corporations also are 
required by corporate law to conduct affiliate transactions on an 
arm's-length basis. German corporate law requires all joint stock 
companies to provide a dependency statement that addresses affiliate 
relationships in their annual financial reports. The dependency 
statement almost always concludes that all transactions with 
affiliated companies have been conducted on an arm's-length basis 
and not to the reporting company's disadvantage because a failure to 
follow arm's-length terms could subject the company to a shareholder 
suit.
    German joint stock company law sets additional specific 
requirements for the conduct of business between group companies. 
Any disadvantageous influence of the parent company on its 
subsidiary is restricted and any damage caused by the parent must be 
compensated. If not compensated, the parent and its legal 
representatives (in this context, the management board and the 
supervisory board), would be subject to damage claims. Under Section 
57 of the Joint Stock Company Act (Germany), a German joint stock 
company may not repay to its shareholders any capital contributed by 
them. Any payments to shareholders must be made only from company 
profits as shown in the balance sheet. A prohibited repayment of 
capital can occur implicitly if a transaction between a company and 
its shareholder shows a disproportion or incongruity between 
consideration and performance. This would be the case if there are 
market prices or rates for the respective consideration and these 
are not taken into account in the relevant transaction. The legal 
consequence under the Joint Stock Company Act of any such repayment 
of capital is that the respective transaction or contract would be 
legally void, overpayments must be reimbursed and the management 
board may be subject to damage claims. Interest payments on funds 
loaned to affiliated companies that are either above or below market 
can, therefore, raise difficult issues under German law and in many 
cases would be prohibited.
---------------------------------------------------------------------------

    The Applicants state that the requirement under German law that 
affiliate transactions be conducted at arm's length makes it important 
that Hibernia pay pool depositors interest at market rates. Applicants 
state that, in addition, new legislation recently introduced in the 
German parliament will require documentation of all transactions with 
affiliated companies to substantiate that the transactions are 
conducted at arm's length. Applicants further state that, operating the 
E.ON Nonutility Money Pool, as currently authorized, may cause Hibernia 
to pay interest at above-market rates and may conflict with this 
proposed legislation. Applicants assert that having Hibernia operate 
the E.ON Nonutility Money Pool to pay market rates on both sides of the 
pool transactions will provide a solution consistent with the Market 
Rate Method financing authorization of the Commission in the June 2002 
Order, consistent with current and proposed requirements of German law 
and be fair to the E.ON Group participants in the pool.

E.ON AG, et al. (70-10176)

    E.ON AG (``E.ON''), E.ON-Platz 1, 40479 Dusseldorf, Germany, a 
registered holding company, E.ON U.S. Investments Corp. (``EUSIC''), a 
registered holding company, and LG&E Energy Corp. (``LG&E Energy''), a 
subsidiary of E.ON and a public utility holding company exempt from 
registration by order under section 3(a)(1) of the Act, both located at 
220 West Main Street, Louisville, Kentucky 40202 (collectively, 
``Applicants''), have filed an application-declaration 
(``Application'') under sections 3(a)(1), 6(a), 7, 9(a), 10 and 12(d) 
of the Act and rules 43 and 54 under the Act. Applicants request 
authority to reorganize LG&E Energy resulting in a change of 
organizational form from a Kentucky corporation to a Kentucky limited 
liability company (the ``Transaction'').
    E.ON became a registered holding company under the Act on July 1, 
2002, as a result of E.ON's acquisition of Powergen plc (``Powergen''). 
The Commission approved the acquisition in Holding Company Act Release 
No. 27539 (June 14, 2002) (the ``Acquisition Order''). E.ON owns LG&E 
Energy, which in turn owns two public utility companies, Louisville Gas 
and Electric Company (``LG&E'') and Kentucky Utilities Company 
(``KU''). E.ON's interest in LG&E Energy is held indirectly through 
several intermediate holding companies with EUSIC being the direct 
parent of LG&E Energy.
    As stated above, LG&E Energy is a wholly-owned, first tier 
subsidiary of EUSIC. LG&E Energy proposes to change its organizational 
form from a Kentucky corporation to a Kentucky limited liability 
company. Applicants state that in order to accomplish the Transaction 
under Kentucky law and in a tax-efficient manner, the following 
successive steps must be completed. First, New LG&E Energy will be 
formed by EUSIC as a Kentucky limited liability company. At this point, 
EUSIC will be the sole member of New LG&E Energy. Second, LG&E Energy 
will transfer to New LG&E Energy substantially all of its assets and 
liabilities in exchange for membership interests in New LG&E Energy. 
Then, pursuant to an agreement and plan of merger, LG&E Energy will 
merge with and into New LG&E Energy (the ``Merger''), with New LG&E 
Energy as the surviving entity and as successor to LG&E Energy. To 
effect the Merger, New LG&E Energy will file Articles of Merger with 
the Secretary of State of the Commonwealth of Kentucky. The Merger will 
be effective upon acceptance of such filing by the Secretary of State 
of the Commonwealth of Kentucky. Thus, when the Transaction is 
completed, LG&E Energy will continue to be wholly-owned by EUSIC, with 
the only substantive change being that LG&E Energy will have changed 
its organizational form from a Kentucky corporation to a Kentucky 
limited liability company.
    In addition to requesting authorization under the Act for the 
Transaction, Applicants request that the Commission issue an order 
exempting New LG&E Energy, as the owner of LG&E and KU, from 
registration under the Act under section 3(a)(1) of the Act. LG&E 
Energy is exempt from registration under the Act pursuant to section 
3(a)(1) of the Act. Applicants state that the proposed Transaction, 
which merely effects a change of the organizational structure of LG&E 
Energy, does not change any of the facts underlying the qualification 
of LG&E Energy for exemption from registration under the Act pursuant 
to section 3(a)(1) of the Act and, accordingly, that New LG&E Energy, 
as the successor to LG&E Energy, qualifies for the exemption from 
registration under the Act pursuant to section 3(a)(1) of the Act.
    New LG&E Energy will succeed to LG&E Energy's ownership of LG&E and 
KU, as well as its nonutility subsidiaries. New LG&E Energy will also 
be the successor of LG&E Energy with respect to its commitments and 
authorizations set forth in the

[[Page 67249]]

Acquisition Order and any and all other orders of the Commission 
applicable to LG&E Energy.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29763 Filed 11-28-03; 8:45 am]
BILLING CODE 8010-01-P