[Federal Register Volume 70, Number 103 (Tuesday, May 31, 2005)]
[Notices]
[Pages 30979-30981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2725]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27973]


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

May 24, 2005.
    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 June 20, 2005 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 June 20, 2005, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

KeySpan Corporation, et al. (70-10245)

    KeySpan Corporation (``KeySpan''), a registered holding company 
under the Act, and its direct subsidiaries, KeySpan Corporate Services 
LLC (``KCS''), KeySpan Utility Services LLC (``KUS'') and KeySpan 
Engineering & Survey, Inc. (``KENG'') each located at One MetroTech 
Center, Brooklyn, New York (together, ``Applicants'') have filed a 
declaration (``Declaration'') under section 13 of the Act and rules 54, 
87, 88, 90, 91, 93 and 94. KCS, KUS and KENG (collectively, ``Service 
Companies'') provide various services to KeySpan and its subsidiaries, 
as described below.

A. Background and Authority Requested

    KeySpan registered as a holding company under the Act on November 
8, 2000, as a result of KeySpan's

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acquisition of Eastern Enterprises (now known as KeySpan New England, 
LLC) and its indirect acquisition of EnergyNorth Inc. which were 
authorized by the Commission in orders issued on November 7, 2000 
(Holding Company Act Release Nos. 27269 and 27271), as modified by 
order issued on December 1, 2000 (Holding Company Act Release No. 
27287).\1\ In addition, on November 8, 2000, the Commission issued an 
order (Holding Company Act Release No. 27272), as modified by the order 
issued on December 1, 2000 (Holding Company Act Release No. 27286) 
(collectively, ``Service Company Order''), that, among other things, 
reserved jurisdiction over the allocation methodologies proposed in the 
service agreements of the Service Companies and over the use of KCS and 
KUS as separate service companies. In the Declaration, Applicants 
request that the Commission: (1) Approve the proposed allocation 
methodologies of each of the Service Companies; and (2) continue to 
reserve jurisdiction over the use of KCS and KUS as separate service 
companies, pending approval by the New York Public Service Commission, 
upon KeySpan's petition, to eliminate the need to utilize KUS as a 
separate service company.
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    \1\ KeySpan directly or indirectly owns seven public-utility 
companies in the northeastern United States. The Brooklyn Union Gas 
Company, d/b/a KeySpan Energy Delivery New York, distributes natural 
gas at retail to residential, commercial and industrial customers in 
the New York City Boroughs of Brooklyn, Staten Island and Queens; 
KeySpan Gas East Corporation, d/b/a KeySpan Energy Delivery Long 
Island, distributes natural gas at retail to customers in New York 
State located in the counties of Nassau and Suffolk on Long Island 
and the Rockaway Peninsula in Queens County; KeySpan Generation LLC 
owns and operates electric generation capacity located on Long 
Island that is sold at wholesale to the Long Island Power Authority; 
Boston Gas Company, d/b/a KeySpan Energy Delivery New England, 
distributes natural gas to customers located in Boston and other 
cities and towns in eastern and central Massachusetts; Essex Gas 
Company, d/b/a KeySpan Energy Delivery New England, distributes 
natural gas to customers in eastern Massachusetts; Colonial Gas 
Company, d/b/a KeySpan Energy Delivery New England, distributes 
natural gas to customers located in northeastern Massachusetts and 
on Cape Cod; and EnergyNorth Natural Gas, Inc., d/b/a KeySpan Energy 
Delivery New England, distributes natural gas to customers located 
in southern and central New Hampshire and the City of Berlin located 
in northern New Hampshire. KeySpan, through its subsidiaries, also 
engages in energy related non-utility activities.
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B. Services Provided by Each Service Company

    KCS provides the following services to all KeySpan system 
companies: accounting, tax, auditing, treasury and finance services, 
risk management, financial planning, investor relations and shareholder 
services, information technology, communications and computer services, 
legal and regulatory, corporate secretary functions, human resources, 
environmental services, strategic planning and corporate performance, 
customer services and communications and customer strategy, materials 
management and purchasing, facilities management, fleet management, 
security, corporate affairs, and executive and administrative services. 
KCS provides the following services to all KeySpan system companies 
except for the Brooklyn Union Gas Company and KeySpan Gas East 
Corporation (collectively, ``New York Utilities''): gas supply 
services, management and administrative functions relating to gas 
operations, operations support services relating to gas operations, 
field services relating to gas operations, transmission and delivery 
system planning services, and gas marketing and sales services.
    KUS provides the following services to the New York Utilities, over 
which the New York Public Service Commission (``NYPSC'') has 
jurisdiction: Gas and electric transmission and distribution systems 
planning, research and development, fuel management, marketing and 
sales services, meter operations, and executive and administrative 
services.\2\ KUS also provides certain sales call center services to 
the New York Utilities as well as to Boston Gas Company, Essex Gas 
Company, Colonial Gas Company and EnergyNorth Natural Gas, Inc. (each 
company does business as KeySpan Energy Delivery New England) 
(collectively, ``New England Utilities''). The sales call center avoids 
duplication of resources and call system technologies. The sales call 
center handles call responses for lead inquiries in responses to 
advertising and mailings; calls to find out the availability of gas; 
calls for additional information on gas products; calls for technical 
questions and inquiries; calls to request appointments with sales 
representatives and/or plumbers; and calls to order meter sets from 
customers, plumbers and builders.
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    \2\ KUS also provides these services to KeySpan Generation LLC, 
KeySpan Electric Services LLC, and KeySpan Energy Trading Services 
LLC. These companies either provide services to the Long Island 
Power Authority or are not subject to the jurisdiction of the NYPSC.
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    KENG provides to KCS and certain other KeySpan subsidiaries general 
engineering services and executive and administrative services.\3\
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    \3\ According to the Applicants, KeySpan is compelled to utilize 
KENG due to Title VIII, Article 145 of the New York Education Law 
which generally restricts a public service corporation from 
providing any engineering or survey services to third parties, 
including affiliates. Nevertheless, the New York Education Law does 
provide certain ``grandfather'' exemptions that allow these services 
to be provided by business corporations that have been lawfully 
practicing engineering or land surveying and were organized and 
existing under the laws of the State of New York on April 15, 1935 
and have existed continuously thereafter. KENG satisfies the 
requirements of the ``grandfathering'' provisions. Accordingly, 
KeySpan utilizes KENG as a separate service company to allow for the 
centralized provision of engineering and surveying services.
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C. Allocation Methodologies Used by the Service Companies

    Applicants state that the Service Companies allocate all their 
costs to associated regulated and non-utility companies through a 
tiered approach. All costs are allocated and billed at cost in 
accordance with section 13 and rules 90 and 91 of the Act. Costs are 
first billed directly whenever practicable, including instances when 
more than one associate company is receiving the same goods or service 
at the same time. Amounts that cannot be directly assigned will be 
allocated to client companies by means of equitable allocation 
formulae, which to the extent possible will be based on cost-causation 
relationships. All other allocations will be broad based. In some 
instances, each of the Service Companies' cost centers that perform 
work for other service company cost centers may use a surrogate 
allocation method that mimics the allocations of the receiver cost 
center. Each formula will have an appropriate basis, such as meters and 
square footage.
    Allocation percentages will be calculated on historical data where 
appropriate and updated annually.\4\ The method of assignment or 
allocation of costs shall be reviewed annually or more frequently if 
appropriate. If the use of a basis of allocation would result in an 
inequity because of a change in operation or organization, then the 
Service Companies may adjust the basis to effect an equitable 
distribution.
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    \4\ Due to the unique nature of KeySpan's relationship with the 
Long Island Power Authority (``LIPA''), the revenues and assets 
managed on its behalf will be included in the basis, with the 
appropriate client company's data, in order to determine appropriate 
allocations. KeySpan Electric Services LLC provides to LIPA all 
operation, maintenance and construction services and significant 
administrative services relating to the Long Island electric 
transmission and distribution system, supplies LIPA with generating 
capacity, energy conversion and ancillary services, and manages all 
aspects of the fuel supply for KeySpan's generating facilities, as 
well as all aspects of the capacity and energy owned by or under 
contract to LIPA. KeySpan Electric Services LLC also purchases 
energy, capacity and ancillary services in the open market on LIPA's 
behalf.
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    Applicants state that the cost of service will be determined in

[[Page 30981]]

accordance with the Act and will include all costs of doing business 
incurred by the Service Companies, including a reasonable return on 
capital which will reflect a capitalization of the Service Companies of 
no more than ten percent equity, and all associated taxes.
    Applicant's state that each Service Company will maintain an 
accounting system for accumulating all costs on a project, activity or 
other appropriate basis. Expenses for the department will include 
salaries and wages of employees, materials, and supplies and all other 
expenses attributable to the department. Labor costs will be loaded for 
fringe benefits and payroll taxes. Time records of hours worked by all 
Service Company employees, including all officers of the company (i.e., 
Chief Executive Officer, President and Vice Presidents) will be kept by 
project and activity.
    Each client company will take agreed upon services and such 
additional, general, or special services as the client company may 
request and which the particular Service Company concludes it is able 
to perform. No amendment, alteration or rescission of an activity or 
project shall release a client company from liability for all costs 
already incurred by, or contracted for, the applicable Service Company 
pursuant to the project or activity regardless of whether the services 
associated with the costs have been completed.
    Applicants state that each of the Service Companies' accounting and 
cost allocation methods and procedures have been structured so as to 
comply with the ``Uniform System of Accounts for Mutual Service 
Companies'' established by the Commission for holding company systems. 
Moreover, each of the Service Companies will file the annual report 
required by the Commission pursuant to rule 94 under the Act.
    Applicants represent that no change in the organization of a 
Service Company, the type and character of the companies to be 
serviced, the methods of allocating cost to associate companies or the 
scope or character of the services to be rendered subject to section 13 
of the Act, or any rule, regulation, or order thereunder, shall be made 
until the Service Company shall first have given the Commission notice 
of the proposed change not less than 60 days prior to the proposed 
effectiveness. If, upon the receipt of a notice, the Commission shall 
notify the Service Company within the 60 day period that a question 
exists as to whether the proposed change is consistent with the 
provisions of section 13 of the Act, or of any rule, regulation, or 
order thereunder, then the proposed change shall not become effective 
unless and until the Service Company shall have filed with the 
Commission an appropriate declaration regarding the proposed change and 
the Commission shall have permitted the declaration to become 
effective.

D. Reservation of Jurisdiction Over the Use of KCS and KUS as Separate 
Service Companies Pending Dissolution of KUS

    Applicants state that in 1998, as a condition of the NYPSC's 
approval of the formation of KeySpan as utility holding company, the 
NYPSC required KeySpan to form KCS and KUS in order to provide the 
services noted above. Applicants now request that the Commission 
continue to reserve jurisdiction over the use of KCS and KUS as 
separate service companies pending and subject to approval by the 
NYPSC, upon KeySpan's petition, to eliminate the need to utilize KUS as 
a separate service company. KeySpan proposes to petition the NYPSC to 
allow Applicants to eliminate the need to utilize KUS as a separate 
service company. The petition will generally request authorization to 
utilize KCS as the single service company that would provide to the 
entire KeySpan system both corporate administrative services as well as 
gas marketing, gas supply, gas and electric distribution planning, 
meter repair operations, and all other services currently being 
provided by KUS and KCS. Key Span proposes to file this NYPSC petition 
on or before December 31, 2005 and anticipates that the NYPSC will act 
on this petition on or before December 31, 2006.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-2725 Filed 5-27-05; 8:45 am]
BILLING CODE 8010-01-P