[Federal Register Volume 70, Number 156 (Monday, August 15, 2005)]
[Notices]
[Pages 47860-47871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4404]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28014]


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

August 9, 2005.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission under provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference. 
Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by September 5, 2005, to the Secretary, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-9303, and serve a 
copy on the relevant applicant(s) and/or declarant(s) at the 
address(es) specified below. Proof of service (by affidavit or, in the 
case of an attorney at law, by certificate) should be filed with the 
request. Any request for hearing should identify specifically the 
issues of facts or law that are disputed. A person who so requests will 
be notified of any hearing, if ordered, and will receive a copy of any 
notice or order issued in the matter. After September 5, 2005, the 
application(s) and/or declaration(s), as filed or as amended, may be 
granted and/or permitted to become effective.

Energy East Corporation, et al. (70-10298)

    Energy East Corporation (``Energy East''), P.O. Box 12904, Albany, 
New York, 12212, a registered holding company under the Act and its 
direct and indirect subsidiaries listed below (collectively, 
``Applicants''), have filed with the Securities and Exchange Commission 
(``Commission'') an application (``Application'') under sections 6(a), 
7, 9(a), 10, 12(b), 12(c), 13(b), 32 and 33 of the Act and rules 45, 
46, 54, and 80-92 under the Act. The other Applicants are: (1) Energy 
East Enterprises, Inc. (``Energy East Enterprises''), a wholly owned 
subsidiary of Energy East and a public utility holding company exempt 
from registration by order of the Commission under section 3(a)(1) of 
the Act and Energy East Enterprises' subsidiaries Maine Natural Gas 
Corporation (``Maine Natural Gas'') and Energy East Capital Trust 1, 
each at P.O. Box 12904, Albany, New York, 12212; (2) RGS Energy Group, 
Inc., (``RGS'') a wholly owned subsidiary of Energy East and a public 
utility holding company exempt from registration by order of the 
Commission under section 3(a)(1) of the Act and RGS Energy's gas and 
electric utility subsidiaries New York State Electric & Gas Corporation 
(``NYSEG'') and Rochester Gas and Electric Corporation (``RG&E), each 
of 89 East Avenue, Rochester, New York, 14649; (3) CMP Group, Inc. 
(''CMP Group''), a wholly owned subsidiary of Energy East and a public 
utility holding company exempt from registration by order of the 
Commission under section 3(a)(1) of the Act and CMP's subsidiaries 
Central Maine Power Company (``Central Maine''), a public utility 
holding company exempt from registration by order of the Commission 
under section 3(a)(1) of the Act and Maine Electric Power Company, Inc. 
(``MEPCo''), a majority owned electric utility subsidiary, each of 83 
Edison Drive, Augusta Maine 04336; (4) NORVARCO, a wholly owned 
subsidiary of Central Maine Power Company of 83 Edison Drive, Augusta, 
Maine, 04336; (5) Connecticut Energy Corporation (``Connecticut 
Energy''), a wholly owned subsidiary of Energy East and a public 
utility holding company exempt from registration by order of the 
Commission under section 3(a)(1) of the Act and Connecticut Energy's 
subsidiary The Southern Connecticut Gas Company (``Southern Connecticut 
Gas''), each of 855 Main Street, Bridgeport, Connecticut, 06604; (6) 
CTG Resources, Inc. (``CTG''), a wholly owned subsidiary of Energy East 
and a public utility holding company exempt from registration by order 
of the Commission under section 3(a)(1) of the Act and CTG's subsidiary 
Connecticut Natural Gas Corporation (``Connecticut Natural Gas''), each 
of 10 State House Square, Hartford, Connecticut, 06144; and (7) 
Berkshire Energy Resources (``Berkshire Energy''), a wholly owned 
subsidiary of Energy East and a public utility holding company exempt 
from registration by order of the Commission under section 3(a)(1) of 
the Act; and Berkshire Energy's subsidiary The Berkshire Gas Company 
(``Berkshire Gas''), each of 115 Cheshire Road, Pittsfield, 
Massachusetts, 01201.

I. Introduction

A. Authorization Period
    Applicants seek authorization under the Act to engage in various 
financing transactions discussed below through September 30, 2008 
(``Authorization Period'') and to retain certain Intermediate Holding 
Companies, as defined below.\1\ However, Applicants request that any 
Commission order granting the requests made in the Application not 
impose any obligation or requirement on the Applicants that survives 
the effective date of repeal of the Act.
---------------------------------------------------------------------------

    \1\ Energy East currently has authority to engage in various 
financing transactions through September 30, 2005. See Holding 
Company Act Release No. 27228 (Sept. 12, 2000); Holding Company Act 
Release No. 27643 (Jan. 28, 2003); and Holding Company Act Release 
No. 27794.
---------------------------------------------------------------------------

B. Description of Energy East and Its Subsidiaries
1. Energy East
    Energy East is currently a registered public utility holding 
company, and directly neither owns nor operates any physical 
properties.\2\ Through its subsidiaries (which includes all of Energy 
East's Utility Subsidiaries, the Intermediate Holding Companies and the 
Non-utility Subsidiaries, as defined below), Energy East is an energy 
services and delivery company with operations in New York, Connecticut, 
Massachusetts, Maine and New Hampshire serving approximately 1.8 
million electricity customers and 900,000 natural gas customers.
---------------------------------------------------------------------------

    \2\ Pursuant to Commission order dated March 4, 1998 (HCAR No. 
25-26834), Energy East became the parent of New York State Electric 
& Gas Corporation. Pursuant to Commission order dated February 2, 
2000 (HCAR No. 35-27128), Energy East became the parent of 
Connecticut Energy Corporation. Pursuant to Commission order dated 
August 31, 2000 (HCAR 35-27224), Energy East became the parent of 
CMP Group, Inc., CTG Resources, Inc. and Berkshire Energy Resources. 
Pursuant to Commission order dated June 27, 2002 (HCAR No. 35-
27546), Energy East became the parent of RGS Energy Group, Inc.
---------------------------------------------------------------------------

2. Public Utility Operations
    Energy East holds direct or indirect interests in nine public 
utility companies (collectively, ``Utility Subsidiaries''), each of 
which is wholly owned by companies within the Energy East system unless 
otherwise noted:

[[Page 47861]]

    (a) NYSEG, a wholly-owned subsidiary of RGS, which purchases, 
transmits and distributes electricity and natural gas in parts of New 
York;
    (b) RG&E a wholly-owned subsidiary of RGS, which generates, 
purchases, transmits and distributes electricity and purchases, 
transports and distributes natural gas in parts of New York;
    (c) Southern Connecticut Gas a wholly-owned subsidiary of 
Connecticut Energy, which is primarily engaged in the retail 
distribution and transportation of natural gas in parts of Connecticut;
    (d) Connecticut Natural Gas a wholly-owned subsidiary of CTG 
Resources, which is primarily engaged in the retail distribution and 
transportation of natural gas to parts of Connecticut;
    (e) Berkshire Gas a wholly-owned subsidiary of Berkshire Energy, 
which is primarily engaged in the retail distribution and 
transportation of natural gas to parts of Massachusetts;
    (f) Central Maine a wholly-owned by CMP Group and which is 
primarily engaged in purchasing, transmitting and distributing 
electricity in Maine;
    (g) Maine Natural Gas Corporation a wholly-owned subsidiary of 
Energy East Enterprises;
    (h) MEPCo which owns and operates a 345kV transmission 
interconnection between the Maine/New Brunswick, Canada international 
border at Orient, Maine. Central Maine presently owns a 78.3% voting 
interest in MEPCo with the remaining interests owned by two other Maine 
utilities; and
    (i) NORVARCO, which holds a 50% general partnership interest in 
Chester SVC Partnership (``Chester''), a general partnership which owns 
a static var compensator located in Chester, Maine, adjacent to MEPCo's 
transmission interconnection. NORVARCO is a wholly-owned subsidiary of 
Central Maine.
3. Non-Utility Subsidiaries
    Energy East also has a number of direct and indirect subsidiaries 
that are not ``public utility companies'' under the Act (the ``Non-
utility Subsidiaries''):
    (a) RGS, the parent of NYSEG and RG&E
    (b) Berkshire Energy, the parent of Berkshire Gas;
    (c) CMP Group, the parent of Central Maine, MEPCo, and NORVARCO;
    (d) Connecticut Energy, the parent of Southern Connecticut Gas;
    (e) CTG Resources, the parent of Connecticut Natural Gas;
    (f) The Energy Network, Inc., whose subsidiaries focus on peaking 
generation and the retail marketing of electricity and natural gas;
    (g) Energy East Enterprises, the parent of Maine Natural Gas and 
New Hampshire Gas, and is developing gas storage in upstate New York 
through a wholly-owned subsidiary, Seneca Lake Storage Inc.;
    (h) Energy East Management Corporation and Utility Shared Services 
Corporation, each of which are Commission authorized service companies 
for the Energy East holding company system which own no public utility 
assets;
    (i) Energy East Capital Trust I, a statutory business trust formed 
for the purpose of issuing trust preferred securities;
    (j) TEN Companies, Inc. (``TEN Companies''), which owns and manages 
a district heating and cooling network in Hartford, Connecticut and 
owns an interest in the Iroquois Gas Transmission System;
    (k) CNE Energy Services Group, which has an interest in two small 
natural gas pipelines that serve power plants in Connecticut and also 
leases a liquefied natural gas plant that provides peaking gas in the 
Northeast and has an equity interest in an energy technology venture 
partnership;
    (l) The Union Water-Power Company, which provides energy services 
throughout New England and New York State;
    (m) Energy East Telecommunications, which owns fiber optic lines in 
central New York that it leases to retail communications companies;
    (n) MaineCom Services, which owns fiber optic lines and provides 
telecommunications services in Maine; and
    (o) Energetix, Inc. and NYSEG Solutions, Inc., which market 
electricity and natural gas services throughout upstate and central New 
York.
    RGS, Berkshire Energy, CMP Group, Central Maine, Connecticut 
Energy, CTG Resources and Energy East Enterprises are all public 
utility holding companies exempt from all provisions of the Act except 
Section 9(a)(2). These companies are also referred to collectively as 
the ``Intermediate Holding Companies.''
4. Capital Structure of Energy East
    Energy East is authorized under its Restated Certificate of 
Incorporation, as amended, to issue 300,000,000 shares of common stock, 
par value $.01 per share and 10,000,000 shares of preferred stock, par 
value $.01 per share. At December 31, 2004, Energy East had issued and 
outstanding 147,118,329 shares of common stock. Energy East's shares 
are listed on the New York Stock Exchange.
    Energy East's consolidated capitalization (including short-term 
debt) at March 31, 2005 was as follows:

------------------------------------------------------------------------
                                                           Percentage of
                                            Book value         total
                                            (millions)       (percent)
------------------------------------------------------------------------
Common Stock Equity *...................           2,832              41
Preferred Stock.........................              47               1
Long-Term Debt..........................           3,771              55
Short-Term Debt **......................             182               3
                                         -----------------
    Total...............................           6,832          100.0
------------------------------------------------------------------------
* Including minority interests.
** Including current portion of long-term debt.

    Energy East's senior unsecured debt is currently rated BBB by 
Standard & Poor's Inc. (``S&P''), Baa2 by Moody's Investor Service 
(``Moody's'') and BBB by Fitch IBCA Inc. (``Fitch''). To the extent it 
is rated, the senior unsecured debt of the Utility Subsidiaries is 
rated as follows:

------------------------------------------------------------------------
                                     S&P         Moody's        Fitch
------------------------------------------------------------------------
Central Maine.................  BBB+........  A3..........  A-
NYSEG.........................  BBB+........  Baa1........  BBB+
RG&E..........................  BBB.........  Baa1........  BBB

[[Page 47862]]

 
Connecticut Natural Gas.......  BBB+........  A3..........  A-
Southern Connecticut Natural    n/a.........  n/a.........  A-
 Gas.
------------------------------------------------------------------------

    The Intermediate Holding Companies do not currently have external 
debt.

II. Request for Financing Authority

A. Energy East External Financing
1. General
    Energy East requests authorization to issue and sell common stock, 
preferred stock, preferred securities, equity-linked securities, 
options, warrants, purchase contracts, units (consisting of one or more 
purchase contracts, warrants, debt securities, shares of preferred 
stock, shares of common stock or any combination of these securities), 
long-term debt, subordinated debt, bank borrowings, securities with 
call or put options, and securities convertible into any of these 
securities.\3\ The aggregate amount of new financing obtained by Energy 
East during the Authorization Period (exclusive of short-term debt), 
through the issuance of securities, in each case valued at the time of 
issuance, shall not exceed $3.9 billion outstanding at any one time 
(``Energy East External Limit''),\4\ provided that securities issued 
for purposes of refunding or replacing other outstanding securities 
where Energy East's capitalization is not increased from that in place 
on December 31, 2004 shall not be counted against this limitation.\5\
---------------------------------------------------------------------------

    \3\ Any convertible or equity-linked securities would be 
convertible into or linked only to common stock, preferred 
securities or unsecured debt securities that Energy East is 
otherwise authorized to issue directly or indirectly through a 
financing entity on behalf of Energy East.
    \4\ Because the limit applies only to securities issued and 
outstanding during the Authorization Period, when a security is 
issued during the Authorization Period and later redeemed or retired 
during the Authorization Period, the aggregate amount issued and 
outstanding under the limit is reduced and additional financing 
capacity under the limit is made available.
    \5\ Any refunding or replacement of securities where 
capitalization is not increased will be through the issuance of 
securities of the type authorized by the Commission.
---------------------------------------------------------------------------

    In addition, Energy East requests authority to issue and sell from 
time to time, directly or indirectly through one or more financing 
subsidiaries, short-term debt, including commercial paper and bank 
borrowings, in an aggregate principal amount at any time outstanding 
during the Authorization Period not to exceed $750 million (``Energy 
East Short-term Limit''), provided that securities issued for purposes 
of refunding or replacing other outstanding short-term debt securities 
where Energy East's capitalization is not increased shall not be 
counted against this limitation.
    All securities issued by Energy East in accordance with the 
authorization requested, including, without limitation, securities 
issued for the purpose of refunding or retiring outstanding securities, 
will comply with the applicable financing parameters set forth below. 
Further, the aggregate principal amount of all indebtedness of Energy 
East issued and outstanding during the Authorization Period shall not 
exceed $2.3 billion (the ``Energy East Debt Limitation'').
    Energy East 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 will resell the 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 public 
either (a) through underwriters selected by negotiation or competitive 
bidding or (b) through selling agents acting either as agent or as 
principal for resale to the public either directly or through dealers. 
If underwriters are used, the securities will be acquired by the 
underwriters for their own account and may be resold from time to time 
in one or more transactions, including negotiated transactions, at a 
fixed public offering price or at varying prices determined at the time 
of sale. Securities may be offered to the public either through 
underwriting syndicates (which may be represented by a managing 
underwriter or underwriters designated by Energy East) or directly by 
one or more underwriters acting alone, or may be sold directly by 
Energy East or through agents designated by Energy East from time to 
time. If dealers are utilized, Energy East will sell the securities to 
the dealers, as principals. Any dealer may then resell the securities 
to the public at varying prices to be determined by the dealer at the 
time of resale. If common stock is being sold in an underwritten 
offering, Energy East may grant the underwriters a ``green shoe'' 
option permitting the purchase from Energy East at the same price 
additional shares then being offered solely for the purpose of covering 
over-allotments.
2. Common Stock
    Energy East may issue and sell common stock, or options, warrants 
or other stock purchase rights exercisable for common stock, pursuant 
to underwriting agreements of a type generally standard in the 
industry. Public distributions may be pursuant to private negotiation 
with underwriters, dealers or agents, or effected through competitive 
bidding among underwriters. In addition, sales may be made through 
private placements or other non-public offerings to one or more 
persons. All common stock sales will be at rates or prices and under 
conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets. Energy East may also issue common stock or 
options, warrants or other stock purchase rights exercisable for common 
stock in public or privately-negotiated transactions as consideration 
for the equity securities or assets of other companies, provided that 
the acquisition of any equity securities or assets has been authorized 
in a separate proceeding or is exempt under the Act or the rules under 
the Act (e.g., rule 58).\6\
---------------------------------------------------------------------------

    \6\ Energy East will value the equity issued in those 
circumstances in accordance with the agreement negotiated between 
the purchaser and the seller.
---------------------------------------------------------------------------

    Energy East also proposes to issue common stock and/or purchase 
shares of its common stock (either currently or under forward 
contracts) in the open market for purposes of (a) reissuing the shares 
at a later date pursuant to stock-based plans which are maintained for 
stockholders, employees and nonemployee directors or (b) managing its 
capital structure. Energy East may make open-market purchases of common 
stock in accordance with the terms of, or in connection with, the 
operation of the plans, or as part of a program to repurchase its 
securities generally. Stock repurchases would be conducted through open 
market transactions and could include the acquisition at arm's-length 
of Energy East common stock from institutional investors that may have 
an affiliate interest in Energy East.
    Energy East currently has in effect certain stock based plans which 
authorize grants of its common stock, stock options and other stock-
based awards to eligible employees and directors. Energy East may issue 
shares of its common stock under the

[[Page 47863]]

authorization and within the limitations set forth herein in order to 
satisfy any of its obligations under all the plans and under plans 
which replace any plans currently in effect. Energy East requests 
authorization to issue and/or sell shares of common stock pursuant to 
these existing and future stock plans and employee or director plans 
without any additional prior Commission order. The market value at the 
time of issuance of stock under stock-based compensation programs would 
count against the Energy East External Limit. Energy East common stock 
issued pursuant to an option would count against the Energy East 
External Limit at the time, if any, that the option is exercised.
    Energy East also has a dividend reinvestment plan under which 
shares of its common stock may be issued to shareholders reinvesting 
cash dividends and/or making optional cash investments to purchase 
additional shares of common stock. Energy East seeks authority for the 
issuance and sale of its shares in accordance with its dividend 
reinvestment plan under the authorization and within the limitations 
set forth in the Application.
    Energy East proposes to issue shares of its common stock under the 
authorization and within the limitations set forth in the Application 
in order to satisfy its obligations under each of these existing stock-
based plans, as they may be amended or extended, and similar future 
plan funding arrangements adopted without any additional Commission 
order. Shares of common stock issued under these plans may either be 
newly issued shares, treasury shares or shares purchased in the open 
market. The market value of newly issued shares will be counted against 
the Energy East External Limit.
3. Preferred Stock, Preferred Securities and Equity-Linked Securities
    Energy East also proposes to issue and sell preferred stock 
directly and/or issue, indirectly through one or more financing 
subsidiaries, other forms of preferred securities (including, without 
limitation, trust preferred securities or monthly income preferred 
securities). Preferred stock and other forms of preferred securities 
may be issued in one or more series with the rights, preferences, and 
priorities as may be designated in the instrument creating each the 
series, as determined by Energy East's board of directors, and may be 
convertible or exchangeable into shares of Energy East common stock or 
unsecured indebtedness. Dividends or distributions on the securities 
will be made periodically and to the extent funds are legally available 
for the purpose, but may be made subject to terms which allow the 
issuer to defer dividend payments for specified periods. Energy East 
may also issue and sell equity-linked securities in the form of stock 
purchase units, which combine a security with a fixed obligation (e.g., 
preferred stock or debt) with a stock purchase contract that is 
exercisable (either mandatorily or at the option of the holder).\7\ The 
dividend or distribution rates, interest rates, redemption and sinking 
fund provisions, conversion features, if any, and maturity dates with 
respect to the preferred stock or other types of preferred securities 
and equity-linked securities of a particular series, as well as any 
associated placement, underwriting or selling agent fees, commissions 
and discounts, if any, will be established by Energy East's board of 
directors, negotiation or competitive bidding.
---------------------------------------------------------------------------

    \7\ Any convertible or equity-linked securities would be 
convertible into or linked only to common stock, preferred 
securities or unsecured debt securities that Energy East is 
otherwise authorized to issue directly or indirectly through a 
financing entity on behalf of Energy East.
---------------------------------------------------------------------------

    Energy East contemplates that the preferred stock would 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 the preferred stock either without 
registration under the 1933 Act in reliance upon one or more applicable 
exemptions from registration, or to the public either (a) through 
underwriters selected by negotiation or competitive bidding or (b) 
through selling agents acting either as agent or as principal for 
resale to the public either directly or through dealers.
4. Long-Term Debt
    Long-term debt would be unsecured and may be issued directly 
through a public or private placement or indirectly through one or more 
financing subsidiaries, in the form of notes, convertible notes, 
medium-term notes or debentures under one or more indentures, or long-
term indebtedness under agreements with banks or other institutional 
lenders. The maturity dates, interest rates, redemption and sinking 
fund provisions and conversion features, if any, with respect to the 
long-term debt of a particular series, as well as any associated 
placement, underwriting or selling agent fees, commissions and 
discounts, if any, will be established by negotiation or competitive 
bidding at the time of issuance.\8\
---------------------------------------------------------------------------

    \8\ Any convertible debt issued by Energy East would be 
convertible only into common stock, preferred securities or 
unsecured debt securities that Energy East is otherwise authorized 
to issue directly or indirectly through a financing entity on behalf 
of Energy East.
---------------------------------------------------------------------------

    Energy East also requests authorization to issue and sell from time 
to time during the Authorization Period debentures in one or more 
series, subject to the Energy East Debt Limitation. The debentures (a) 
may be convertible into any other securities of Energy East, (b) will 
have maturities ranging from one to 50 years, (c) may be subject to 
optional and/or mandatory redemption, in whole or in part, at par or at 
various premiums above the principal amount thereof, (d) may be 
entitled to mandatory or optional sinking fund provisions, (e) may 
provide for reset of the coupon pursuant to a remarketing arrangement, 
and (f) may be called from existing investors by a third party. The 
debentures will be issued under an indenture to be entered into between 
Energy East and a national bank, as trustee.
    Energy East contemplates that the debentures would 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 which would resell the debentures either without 
registration under the 1933 Act in reliance upon one or more applicable 
exemptions from registration or to the public either (a) through 
underwriters selected by negotiation or competitive bidding or (b) 
through selling agents acting either as agent or as principal for 
resale to the public either directly or through dealers.
    The maturity dates, interest rates, redemption and sinking fund 
provisions and conversion features, if any, with respect to the 
debentures of a particular series, as well as any associated placement, 
underwriting or selling agent fees, commissions and discounts, if any, 
will be established by negotiation or competitive bidding and reflected 
in a purchase agreement or underwriting agreement setting forth the 
terms; provided, however, that debentures issued by Energy East shall 
be subject to the financing parameters set forth below.
5. Short-Term Debt
    Energy East proposes to issue and sell from time to time, directly 
or indirectly through one or more financing subsidiaries, unsecured 
short-term debt, in the form of commercial paper, notes issued to banks 
and other institutional

[[Page 47864]]

lenders, and other forms of short-term indebtedness, in an aggregate 
principal amount at any time outstanding during the Authorization 
Period not to exceed the Energy East Short-term Limit. Unused borrowing 
capacity under a credit facility would not count towards the Energy 
East Short-term Limit. Short-term borrowings under credit lines will 
have maturities of a year or less from the date of each borrowing.
    Commercial paper issued under any commercial paper facility would 
be sold, directly or indirectly through one or more financing 
subsidiaries, in established U.S. or European commercial paper markets. 
Commercial paper would typically be sold to dealers at the discount 
rate per annum prevailing at the date of issuance for commercial paper 
of comparable quality and maturities sold to commercial paper dealers 
generally. It is expected that the dealers acquiring commercial paper 
would re-offer it at a discount to corporate, institutional and, with 
respect to European commercial paper, individual investors. It is 
anticipated that the commercial paper would be reoffered to investors 
such as commercial banks, insurance companies, pension funds, 
investment trusts, foundations, colleges and universities, finance 
companies and non-financial corporations.
    Energy East also may establish bank lines in an aggregate principal 
amount not to exceed the aforementioned Energy East Short-term Limit. 
While the agreements may be for periods of three to five years or more, 
loans under these bank credit lines are expected to have maturities not 
more than one year from the date of each borrowing. Energy East may 
engage in other types of short-term debt financing generally available 
to borrowers with comparable credit ratings as it may deem appropriate 
in light of its needs and market conditions at the time of issuance.
6. Utility Subsidiary Financing
    Applicants state that the issue and sale of most securities by the 
Utility Subsidiaries will be exempt from the pre-approval requirements 
of sections 6(a) and 7 of the Act pursuant to rule 52(a), as most 
securities offerings by a Utility Subsidiary must be approved by the 
state utility commission with jurisdiction over the utility. However, 
certain financings by the Utility Subsidiaries for which authorization 
is requested in the Application may be outside the scope of the rule 52 
exemption because they will not be subject to state commission 
approval.
    Accordingly, the Utility Subsidiaries request authorization to 
issue and sell from time to time during the Authorization Period, 
directly or indirectly through one or more financing subsidiaries, 
short-term debt, in the form of commercial paper, notes issued to banks 
and other institutional lenders, and other forms of short-term 
indebtedness \9\ to the extent they are not otherwise exempt pursuant 
to rule 52(a), with maturities of one year or less, up to the following 
aggregate principal amounts:
---------------------------------------------------------------------------

    \9\ For example, Central Maine's borrowings are secured by an 
unperfected lien on receivables. The Utility Subsidiaries request 
the flexibility to issue short-term debt secured by their accounts 
receivable.

------------------------------------------------------------------------
                                                            Aggregate
                 Utility subsidiaries                   principal amount
------------------------------------------------------------------------
NYSEG.................................................      $275,000,000
Maine Natural Gas.....................................        50,000,000
Central Maine.........................................       150,000,000
MEPCo.................................................        30,000,000
NORVARCO..............................................        30,000,000
Southern Connecticut Gas..............................       125,000,000
Connecticut Natural Gas...............................       125,000,000
Berkshire Gas.........................................        50,000,000
RG&E..................................................       200,000,000
------------------------------------------------------------------------

7. Short-Term Debt of Intermediate Holding Companies
    Two of the Intermediate Holding Companies, Connecticut Energy and 
Berkshire Energy, historically have had short-term debt outstanding 
under bank credit facilities, although Applicants state that no debt 
securities issued to non-system companies are currently outstanding. 
Connecticut Energy and Berkshire Energy request authority to issue, 
sell and have outstanding at any one time during the Authorization 
Period unsecured short-term debt to Energy East or to third party 
lenders under credit facilities in amounts at any one time outstanding 
not to exceed $25 million and $10 million, respectively.
    In addition, RGS requests authority to issue, sell and have 
outstanding at any one time during the Authorization Period unsecured 
short-term debt securities with maturities of one year or less in the 
aggregate principal amount of $100 million. Subject to those 
limitations and pursuant to the terms and conditions set forth in the 
application, RGS may engage in short-term financing as it may deem 
appropriate in light of its needs and market conditions at the time of 
issuance. The short-term financing could include, without limitation, 
commercial paper sold in established commercial paper markets in a 
manner similar to Energy East, bank lines, debt securities issued under 
indentures, or note programs. In addition, RGS will not issue any 
indebtedness in contravention of any pre-existing orders of any state 
utility commission.
    The Intermediate Holding Companies also request authorization to 
issue and sell their securities to Energy East and to acquire the 
securities of their direct or indirect subsidiaries for the purpose of 
financing the current or future authorized or permitted businesses of 
the subsidiaries.
8. Non-Utility Subsidiary Financing
    Energy East, through its Non-utility Subsidiaries, is engaged in 
and expects to continue to engage in energy-related, telecommunications 
or otherwise functionally related, non-utility businesses, which 
include, principally, fuel transportation and storage, energy 
marketing, energy management and demand side services, district heating 
and cooling, and investments in exempt wholesale generators as defined 
in section 32 of the Act (``EWGs''), exempt telecommunications 
companies (``ETCs'') and ``qualifying facilities'' (``QFs'') within the 
meaning of the Public Utility Regulatory Policies Act of 1978, as 
amended (``PURPA''). To finance investments in these competitive 
businesses, it will be necessary for the Non-utility Subsidiaries to 
have the ability to engage in financing transactions which are commonly 
accepted for these types of investments. Applicants believe that, in 
almost all cases, the financings will be exempt from prior Commission 
authorization pursuant to rule 52(b).
    To be exempt under rule 52(b), any loans by Energy East to a Non-
utility Subsidiary or by one Non-utility Subsidiary to another must 
have interest rates and maturities that are designed to parallel the 
lending company's effective cost of capital. However, in the limited 
circumstances where the borrowing Non-utility Subsidiary is not wholly-
owned by Energy East directly or indirectly, Applicants request 
authority for Energy East or a Non-utility Subsidiary, as the case may 
be, to make loans to the subsidiaries at interest rates and maturities 
designed to provide a return to the lending company of not less than 
its effective cost of capital. If the loans are made to a Non-utility 
Subsidiary, the company will not sell any services to any associate 
Non-utility Subsidiary unless the associated purchaser falls within one 
of the categories of companies to which goods and services may be sold 
on a basis other than ``at cost.''

[[Page 47865]]

9. Guaranties
a. Energy East Guaranties
    Energy East requests authorization to enter into guaranties, obtain 
letters of credit, enter into expense agreements or otherwise provide 
credit support to or on behalf of Subsidiaries (collectively, ``Energy 
East Guaranties'') as may be appropriate to enable the Subsidiaries to 
operate in the ordinary course of business, in an aggregate principal 
amount not to exceed $1 billion issued and outstanding at any one time 
during the Authorization Period, provided however, that the amount of 
any Energy East Guaranties in respect of obligations of any EWG, 
foreign utility company as defined in section 33 of the Act (``FUCO''), 
or a company engaged or formed to engage in activities permitted by 
rule 58 (``Rule 58 Subsidiary'') shall also be subject to the 
limitations of rule 53(a)(1) or rule 58(a)(1), as applicable. Energy 
East may charge each Subsidiary a fee for each guaranty provided on its 
behalf that is not greater than the cost, if any, of obtaining the 
liquidity necessary to perform the guaranty (for example, bank line 
commitment fees or letter of credit fees, plus other transactional 
expenses).
b. Non-Utility Subsidiary Guaranties
    In addition to the guaranties that may be provided by Energy East, 
as described above, the Non-utility Subsidiaries \10\ request 
authorization to enter into guaranties, obtain letters of credit, enter 
into expense agreements or otherwise provide credit support to or on 
behalf of other Non-utility Subsidiaries (collectively, ``Non-utility 
Subsidiary Guaranties'') in an aggregate principal amount not to exceed 
$750 million issued and outstanding at any one time during the 
Authorization Period, exclusive of any guaranties and other forms of 
credit support that are exempt pursuant to rule 45(b) and rule 52, 
provided that the amount of any Non-utility Subsidiary Guaranties in 
respect of obligations of any Rule 58 Subsidiary shall also be subject 
to the limitations of rule 58(a)(1). The Non-utility Subsidiary 
providing this credit support proposes to charge each Subsidiary a fee 
for each guarantee provided on its behalf that is not greater than the 
cost, if any, of obtaining the liquidity necessary to perform the 
guaranty.
---------------------------------------------------------------------------

    \10\ Excluding CTG Resources and RGS.
---------------------------------------------------------------------------

c. Intermediate Holding Company Guaranties
    CTG Resources, an Intermediate Holding Company, has provided 
guaranties and other forms of credit support on behalf of its 
subsidiaries. Specifically, CTG Resources has guaranteed $40 million of 
promissory notes issued by a non-utility subsidiary, TEN Companies, 
that will mature in 2009 ($25 million) and 2010 ($15 million). CTG 
Resources has also provided guaranties totaling approximately $40.7 
million for other financial and contractual obligations of TEN 
Companies. These include letters of credit totaling $25.7 million 
backing development authority bonds and other similar contractual 
obligations of TEN Companies that expire at various times not later 
than 2025. CTG Resources requests authorization to maintain and replace 
as necessary these guaranties and other forms of credit support (``CTG 
Resources Guaranties'') during the Authorization Period and thereafter 
for so long as the underlying obligations of any subsidiary shall 
remain outstanding in an aggregate amount not to exceed $100 million.
    In addition, RGS requests authorization to enter into guaranties, 
obtain letters of credit, enter into expense agreements or otherwise 
provide credit support to or on behalf of its subsidiary companies 
(``RGS Guaranties'') as may be appropriate to enable the companies to 
operate in the ordinary course of business, in an aggregate principal 
amount not to exceed $100 million at any one time outstanding during 
the Authorization Period.
    The amount of CTG Resources Guaranties and RGS Guaranties would not 
count against the limit applied to Non-utility Subsidiary Guaranties. 
The amount of any guaranties in respect of obligations of any Rule 58 
subsidiary shall also be subject to the limitations of rule 58(a)(1). 
Each guarantor may charge its subsidiaries a fee for each guaranty or 
other form of credit support provided on its behalf that is not greater 
than the cost, if any, of obtaining the liquidity necessary to perform 
under the obligation (for example, bank line commitment fees or letter 
of credit fees, plus other transactional expenses).
10. Hedging Transactions
    Energy East proposes to enter into, perform, purchase and sell 
financial instruments intended to manage the volatility of currencies 
and interest rates, including but not limited to currency and interest 
rate swaps, caps, floors, collars and forward agreements or any other 
similar agreements (``Hedging Instruments''). Energy East would employ 
Hedging Instruments as a means of prudently managing the risk 
associated with any of its outstanding or anticipated debt by, for 
example, synthetically (a) converting variable rate debt to fixed rate 
debt, (b) converting fixed rate debt to variable rate debt, (c) 
limiting the impact of changes in interest rates resulting from 
variable rate debt, and (d) providing an option to enter into interest 
rate swap transactions in future periods for planned issuances of debt 
securities.
    Energy East proposes to enter into Hedging Instruments with respect 
to anticipated debt offerings (``Anticipatory Hedges'') in order to fix 
and/or limit the interest rate or currency exchange rate risk 
associated with any new issuance. In addition to the use of Hedging 
Instruments, Anticipatory Hedges may include (a) a forward sale of 
exchange-traded government securities \11\ futures contracts, 
government securities and/or a forward swap (each a ``Forward Sale''), 
(b) the purchase of put options on government securities (``Put Options 
Purchase''), (c) a Put Options Purchase in combination with the sale of 
call options on government securities (``Zero Cost Collar''), (d) 
transactions involving the purchase or sale, including short sales, of 
government securities, or (e) some combination of a Forward Sale, Put 
Options Purchase, Zero Cost Collar and/or other derivative or cash 
transactions, including, but not limited to structured notes, caps and 
collars, appropriate for the Anticipatory Hedges. Energy East may seek 
to hedge its exposure to currency fluctuations through currency swaps 
or options and forward exchange or similar transactions.
---------------------------------------------------------------------------

    \11\ Government Securities would include U.S. Treasury 
obligations or the appropriate government benchmark security for the 
currency involved in the hedge.
---------------------------------------------------------------------------

    Hedging Instruments and instruments used to affect Anticipatory 
Hedges will be executed on-exchange (``On-Exchange Trades'') with 
brokers through the opening of futures and/or options positions, the 
opening of over-the-counter positions with one or more counterparties 
(``Off-Exchange Trades''), or a combination of On-Exchange Trades and 
Off-Exchange Trades. Energy East will determine the optimal structure 
of each transaction at the time of execution. Off-Exchange Trades would 
be entered into only with Intermediate Companies or with counterparties 
whose senior debt ratings are investment grade as determined by S&P, 
Moody's or Fitch (``Approved Counterparties'').
    The Utility Subsidiaries, to the extent the securities are not 
exempt under rule 52(a), also propose to enter into Hedging Instruments 
with third-party Approved

[[Page 47866]]

Counterparties, but not other Energy East System companies, on the same 
terms generally applicable to Energy East. The Utility Subsidiaries 
expect to use the authority principally to hedge external debt. Energy 
East maintains a central treasury department whose activities are 
governed by policies and guidelines approved by the Board of Directors, 
with regular reviews and monitoring by a standing committee of the 
Board. The treasury department operates as a service center rather than 
as a profit center and is subject to internal and external audit. 
Treasury activities are managed in a non-speculative manner and all 
transactions in Hedging Instruments would be matched to an underlying 
business purpose. Consequently, Energy East and the Utility 
Subsidiaries would not enter into transactions in Hedging Instruments 
for speculative purposes or to finance businesses that are not 
permitted, authorized or exempt under the Act. Energy East will qualify 
transactions in Hedging Instruments for hedge-accounting treatment 
under generally accepted accounting principles in the U.S. No gain or 
loss on a Hedging Instrument entered into by Energy East or associated 
tax effects, will be allocated to the Utility Subsidiaries, regardless 
of the accounting treatment accorded to the transaction. Consequently, 
the Utility Subsidiaries would not be adversely affected by these 
transactions.\12\
---------------------------------------------------------------------------

    \12\ The terms applicable to Hedging Instruments entered into by 
the Utility Subsidiaries differ from those applicable to Energy East 
because to the extent a Utility Subsidiary incurs a gain or loss on 
a Hedging Instrument that it has entered into to hedge a currency or 
interest rate risk associated with a security that the Utility 
Subsidiary has issued, the gain or loss would be attributed to the 
Utility Subsidiary.
---------------------------------------------------------------------------

11. Changes in Capital Stock of Subsidiaries
    Applicants state that the portion of an individual Subsidiary's 
aggregate financing to be effected through the sale of stock to Energy 
East or other intermediate parent company during the Authorization 
Period pursuant to rule 52 and/or pursuant to an order issued in regard 
to the Application cannot be ascertained at this time. It may happen 
that the proposed sale of capital securities may in some cases exceed 
the then authorized capital stock of the Subsidiary. In addition, the 
Subsidiary may choose to use capital stock with no par value. Also, a 
wholly-owned Subsidiary may wish to engage in a reverse stock split to 
reduce franchise taxes. As needed to accommodate the proposed 
transactions and to provide for future issues, Applicants request 
authority to change any wholly-owned Subsidiary's authorized capital 
stock capitalization by an amount deemed appropriate by Energy East or 
other intermediate parent company. A Subsidiary would be able to change 
the par value, or change between par value and no-par 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.
12. Financing Subsidiaries
    Energy East and the Subsidiaries (other than Intermediate Holding 
Companies) request authority to acquire, directly or indirectly, the 
equity securities of one or more corporations, trusts, partnerships or 
other entities (``Financing Subsidiaries'') created specifically for 
the purpose of facilitating the financing of the authorized and exempt 
activities (including exempt and authorized acquisitions) of companies 
through the issuance of long-term debt or equity securities, including 
but not limited to monthly income preferred securities, to third 
parties. Any Financing Subsidiary may loan, dividend or otherwise 
transfer the proceeds of the financings to its parent or to other 
Subsidiaries, provided, however, that a Financing Subsidiary of a 
Utility Subsidiary will dividend, loan or transfer proceeds of 
financing only to the Utility Subsidiary. Energy East may, if required, 
guaranty or enter into expense agreements in respect of the obligations 
of any Financing Subsidiary that it organizes. The Subsidiaries may 
also provide guaranties and enter into expense agreements, if required, 
on behalf of any Financing Subsidiaries which they organize pursuant to 
rules 45(b)(7) and 52, as applicable. The amount of securities issued 
by a Financing Subsidiary would count against the limitation applicable 
to its parent for the securities, as if the parent company had issued 
the securities directly. In that case, however, the guaranty by the 
parent of the security issued by its Financing Subsidiary would not be 
counted against the limitations on Energy East Guaranties, CTG 
Resources or RGS Guaranties, or Non-utility Subsidiary Guaranties, as 
the case may be.
13. Intermediate Subsidiaries
    Energy East requests authorization to acquire, directly or 
indirectly, the securities of one or more 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 EWG, FUCO, Rule 58 Subsidiary, ETC or other 
Non-utility Subsidiary (as authorized by the Commission or permitted 
under the Act), provided that Intermediate Subsidiaries may also engage 
in development activities (``Development Activities'') and 
administrative activities (``Administrative Activities''), as described 
below, relating to the subsidiaries. To the extent the transactions are 
not exempt from the Act or otherwise authorized or permitted by rule, 
regulation or order of the Commission, Energy East requests authority 
for Intermediate Subsidiaries to provide management, administrative, 
project development and operating services to the entities. The 
services may be rendered at fair market prices to the extent they 
qualify for any of the exceptions from the ``at cost'' standard 
requested below.
    Development Activities will be 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 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. Intermediate Subsidiaries request 
authority to expend up to $100 million during the Authorization Period 
on all Development Activities.
    Administrative Activities will include ongoing personnel, 
accounting, engineering, legal, financial, and other support activities 
necessary to manage Energy East's investments in Non-utility 
Subsidiaries.
    Applicants state that there are several legal and business reasons 
for the use of special-purpose intermediate companies in connection 
with making investments in EWGs and FUCOs, Rule 58 Subsidiaries, ETCs 
and other Non-utility Subsidiaries. For example, the formation and 
acquisition of special-purpose subsidiaries is often necessary

[[Page 47867]]

or desirable to facilitate financing the acquisition and ownership of a 
FUCO, an EWG or another non-utility enterprise. Furthermore, the laws 
of some foreign countries may require that the bidder in a 
privatization program be organized in that country. In such cases, it 
may be necessary to form a foreign subsidiary as the entity (or 
participant in the entity) that submits the bid or other proposal.
    An Intermediate Subsidiary may be organized, among other things, 
(a) to facilitate the making of bids or proposals to develop or acquire 
an interest in any EWG or FUCO, Rule 58 Subsidiary, ETC or other Non-
utility Subsidiary; (b) after the award of a bid proposal, in order to 
facilitate closing on the purchase or financing of the acquired 
company; (c) at any time subsequent to the consummation of an 
acquisition of an interest in any company in order, among other things, 
to effect an adjustment in the respective ownership interests in the 
business held by Energy East and non-affiliated investors; (d) to 
facilitate the sale of ownership interests in one or more acquired non-
utility companies; (e) to comply with applicable laws of foreign 
jurisdictions limiting or otherwise relating to the ownership of 
domestic companies by foreign nationals; (f) as a part of tax planning 
in order to limit Energy East's exposure to state, U.S. and foreign 
taxes; (g) to further insulate Energy East and the Utility Subsidiaries 
from operational or other business risks that may be associated with 
investments in non-utility companies; or (h) for other lawful business 
purposes.
    Investments in Intermediate Subsidiaries may take the form of any 
combination of the following: (a) Purchases of capital shares, 
partnership interests, member interests in limited liability companies, 
trust certificates or other forms of equity interests; (b) capital 
contributions; (c) open account advances with or without interest; (d) 
loans; and (e) guaranties issued, provided or arranged in respect of 
the securities or other obligations of any Intermediate Subsidiaries or 
new Subsidiaries. Funds for any direct or indirect investment in any 
Intermediate Subsidiaries or new Subsidiaries will be derived from (x) 
financings authorized in this proceeding; (y) any appropriate future 
debt or equity securities issuance authorization obtained by Energy 
East from the Commission; and (z) other available cash resources, 
including proceeds of securities sales by a Non-utility Subsidiary 
pursuant to rule 52. To the extent that Energy East provides funds or 
guaranties directly or indirectly to an Intermediate Subsidiary which 
are used for the purpose of making an investment in any EWG, FUCO or a 
Rule 58 Subsidiary, the amount of funds or guaranties will be included 
in Energy East's ``aggregate investment,'' as calculated in accordance 
with rule 53 or rule 58, as applicable.
    Energy East may determine from time to time to consolidate or 
otherwise reorganize all or any part of its direct and indirect 
ownership interests in Non-utility Subsidiaries, and the activities and 
functions related to the investments, under a company, including one or 
more Intermediate Subsidiaries. To effect any consolidation or other 
reorganization, Energy East may wish to either contribute the equity 
securities of one Non-utility Subsidiary to another company or sell (or 
cause a Non-utility Subsidiary to sell) the equity securities of one 
Non-utility Subsidiary to another company. To the extent that these 
transactions are not otherwise exempt under the Act or its rules, 
Energy East is requesting authorization to consolidate or otherwise 
reorganize under one or more direct or indirect subsidiaries its 
ownership interests in existing and future Non-utility Subsidiaries. 
Transactions may take the form of a sale, contribution or transfer of 
the securities of a Non-utility Subsidiary as a dividend to a company 
and the acquisition by a company of securities either by purchase or by 
receipt of a dividend. The purchasing company in any transaction 
structured as an intra-system sale of equity securities may execute and 
deliver its promissory note evidencing all or a portion of the 
consideration given. Each transaction would be carried out in 
compliance with all applicable U.S. or foreign laws and accounting 
requirements, and any transaction structured as a sale would be carried 
out for a consideration equal to the book value of the equity 
securities being sold. Energy East will report each transaction in the 
next quarterly certificate filed pursuant to rule 24 in this 
proceeding, as described below.
14. Investments in Energy-Related Assets
    Non-utility Subsidiaries request authority to acquire or construct 
in one or more transactions from time to time during the Authorization 
Period, non-utility 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-Related Assets''), that would be incidental to 
the energy marketing, brokering and trading operations of Energy East's 
Subsidiaries. Non-utility Subsidiaries request authorization to invest 
up to $500 million (``Investment Limitation'') during the Authorization 
Period in Energy-Related Assets or in the equity securities of existing 
or new companies substantially all of whose physical properties consist 
or will consist of Energy-Related Assets. Energy-Related Assets (or 
equity securities of companies owning Energy-Related Assets) may be 
acquired for cash or in exchange for Common Stock or other securities 
of Energy East or a Non-utility Subsidiary of Energy East, or any 
combination of the foregoing. If Common Stock of Energy East is used as 
consideration in connection with any acquisition, the market value on 
the date of issuance will be counted against the requested Investment 
Limitation. The stated amount or principal amount of any other 
securities issued as consideration in any transaction will also be 
counted against the Investment Limitation. Under no circumstances will 
any Non-utility Subsidiary acquire, directly or indirectly, any assets 
or properties the ownership or operation of which would cause the 
company to be considered an ``electric utility company'' or ``gas 
utility company'' as defined under the Act. Energy East may add to the 
existing base of non-utility, marketing-related assets held by its 
subsidiaries as and when market conditions warrant, whether through 
acquisitions of specific assets or groups of assets that are offered 
for sale, or by acquiring existing companies (for example, other gas 
marketing companies which own significant physical assets in the areas 
of gas production, processing, storage, and transportation).
15. Sales of Services and Goods Among Non-Utility Subsidiaries
    Energy East's Non-utility Subsidiaries request authorization to 
provide services and sell goods to each other at fair market prices 
determined without regard to cost, and request 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 applicable to the transactions, 
in any case in which the Non-utility Subsidiary purchasing the goods or 
services is:
     A FUCO or foreign EWG which derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
     An EWG which sells electricity at market-based rates which 
have been approved by the Federal Energy Regulatory Commission 
(``FERC''),

[[Page 47868]]

provided that the purchaser is not one of the Utility Subsidiaries;
     A QF 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 (b) to an electric utility company (other than a Utility 
Subsidiary) at the purchaser's avoided cost as 
determined in accordance with the regulations under PURPA;
     A domestic EWG or QF that sells electricity at rates based 
upon its cost of service, as approved by FERC or any state public 
utility commission having jurisdiction, provided that the purchaser 
thereof is not one of the Utility Subsidiaries; or
     A Rule 58 Subsidiary or any other Non-utility Subsidiary 
that (a) is partially-owned by Energy East, provided that the ultimate 
purchaser of the goods or services is not a Utility Subsidiary service 
company (or any other entity that Energy East may form whose activities 
and operations are primarily related to the provision of goods and 
services to the Utility Subsidiaries), (b) is engaged solely in the 
business of developing, owning, operating and/or providing the services 
or goods to Non-utility Subsidiaries described 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.
16. Activities of Rule 58 Subsidiaries Within and Outside the United 
States
    Energy East, on behalf of any current or future Rule 58 
Subsidiaries, requests authority to engage in business activities 
permitted by rule 58 both within and outside the United States, 
including:
     The brokering and marketing of electricity, natural gas 
and other energy commodities (``Energy Marketing'');
     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
     Engineering, consulting and other technical support 
services (``Consulting Services'') with respect to energy-related 
businesses, as well as for individuals. 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.
    Applicants state that these investments would count against the 
rule 58 limit.
    In regard to: (a) Energy Marketing activities outside the United 
States and Canada, (b) the provision of Energy Management Services and 
Consulting Services anywhere outside the United States, and (c) other 
activities of Rule 58 Subsidiaries outside the United States, Energy 
East requests that the Commission continue to reserve jurisdiction over 
these activities pending completion of the record.
B. Payment of Dividends
1. Payment of Dividends by Energy East, the Intermediate Holding 
Companies and the Utility Subsidiaries
    Energy East, the Intermediate Holding Companies (other than Energy 
East Enterprises), and Central Maine, Southern Connecticut Gas, 
Connecticut Natural Gas and Berkshire Gas propose during the 
Authorization Period: (a) To pay dividends out of capital and unearned 
surplus in an amount equal to retained earnings prior to their 
respective mergers with Energy East, and (b) to pay dividends out of 
earnings before any amortization of intangibles recognized as a result 
of their respective mergers, and any impairment of either goodwill or 
other intangibles recognized as a result of the merger.\13\
---------------------------------------------------------------------------

    \13\ Applicants are asking for an extension of the authority 
that the Commission has previously granted them. See HCAR No. 35-
27228 (September 12, 2000) and HCAR No. 35-27643 (January 28, 2003). 
Applicants state that, although not a frequent occurrence, companies 
in the Energy East group have found it appropriate to pay dividends 
out of capital from time to time since the receipt of this 
authority.
---------------------------------------------------------------------------

    Applicants state that the requested dividend relief is an important 
tool for managing capital structures and it helps to prevent excessive 
equity levels. Applicants cite the example of a state commission 
deciding to reduce a Utility Subsidiary's amount of equity that will 
earn an equity return. In that case, it would be contrary to the 
interests of investors to maintain a higher level of equity and 
appropriate to reduce equity levels through dividends to the level on 
which earnings may accrue. In another example, a company's sale of 
assets may give rise to surplus capital and the need to pay dividends 
out of capital to re-balance the capital structure of the company. 
Finally, Applicant's note that periodic goodwill impairment tests may 
result in a goodwill impairment charge that would reduce retained 
earnings. This type of non-cash charge does not affect operating cash 
flows and Applicants state that it still may be appropriate to pay a 
dividend out of capital.
    Applicants state that because the Utility Subsidiaries would not 
pay dividends out of capital if the payments would reduce equity levels 
below 30%, or any higher levels required by state utility commission 
regulation, that the requested dividend authority is not adverse to the 
interests of investors or consumers. In addition, Energy East, the 
Intermediate Holding Companies and the Utility Subsidiaries represent 
that they will not declare or pay any dividend out of capital or 
unearned surplus in contravention of any law restricting the payment of 
dividends. In this regard, Applicants note that all U.S. jurisdictions 
limit to some extent the authority of corporations to make dividend 
distributions to shareholders. Most state corporation statutes contain 
either or both an equity insolvency test or some type of balance sheet 
test. Energy East, the Intermediate Holding Companies and the Utility 
Subsidiaries also will comply with the terms of any credit agreements 
and indentures that restrict the amount and timing of distributions to 
shareholders.
2. Payment of Dividends by Certain Non-Utility Subsidiaries
    Energy East requests authorization, on behalf of its current and 
future Non-

[[Page 47869]]

utility Subsidiaries, permitting the companies to pay dividends or to 
redeem securities (collectively, a ``Dividend''), from time to time 
through the Authorization Period, out of capital and unearned surplus.
    Energy East anticipates that there may be situations in which one 
or more Non-utility Subsidiaries will have unrestricted cash available 
for distribution in excess of the company's current and retained 
earnings. In that situation, the declaration and payment of a Dividend 
would have to be charged, in whole or in part, to capital or unearned 
surplus. As an example, if an Intermediate Subsidiary of Energy East 
were to purchase all of the stock of an EWG or FUCO and, following the 
acquisition, the EWG or FUCO incurs non-recourse borrowings, some or 
all of the proceeds of which are distributed to the Intermediate 
Subsidiary as a reduction in the amount invested in the EWG or FUCO 
(i.e., return of capital), the Intermediate Subsidiary (assuming it has 
no earnings) could not, without the Commission's approval, in turn 
distribute the cash to Energy East or its immediate parent.\14\
---------------------------------------------------------------------------

    \14\ The same problem would arise where an Intermediate 
Subsidiary is over-capitalized in anticipation of a bid which is 
ultimately unsuccessful. In such a case, Energy East would normally 
desire a return of some or all of the funds invested.
---------------------------------------------------------------------------

    Similarly, Applicants state that using the same example, if an 
Intermediate Subsidiary, following its acquisition of all of the stock 
of an EWG or FUCO, were to sell part of that stock to a third party for 
cash, the Intermediate Subsidiary would again have substantial 
unrestricted cash available for distribution, but (assuming no profit 
on the sale of the stock) would not have current earnings and therefore 
could not, without the Commission's approval, declare and pay a 
Dividend to its parent out of the cash proceeds.
    Further, Applicants state that there may be periods during which 
unrestricted cash available for distribution by a Non-utility 
Subsidiary exceeds current and retained earnings due to the difference 
between accelerated depreciation allowed for tax purposes, which may 
generate significant amounts of distributable cash, and depreciation 
methods required to be used in determining book income.
    Finally, Applicants state that even under circumstances in which a 
Non-utility Subsidiary has sufficient earnings, and therefore may 
declare and pay a Dividend to its immediate parent, the immediate 
parent may have negative retained earnings, even after receipt of the 
Dividend, due to losses from other operations. In this instance, cash 
would be trapped at a subsidiary level where there is no current need 
for it.
    Energy East, on behalf of its Non-utility Subsidiaries, represents 
that these companies will not declare or pay any Dividend out of 
capital and unearned surplus, except as permitted under the corporate 
law and state or national law applicable in the jurisdiction where each 
company is organized and the terms of any credit agreements and 
indentures that restrict the amount and timing of distributions to 
shareholders. In addition, none of the companies will declare or pay 
any Dividend out of capital or unearned surplus unless it: (a) Has 
received excess cash as a result of the sale of some or all of its 
assets; (b) has engaged in a restructuring or reorganization; and/or 
(c) is returning capital to an associate company.

III. Financing Parameters

A. General Terms and Conditions of Financing
    Applicants request authorization to engage in financing 
transactions during the Authorization Period for which the specific 
terms and conditions are not at this time known, and which may not be 
exempt under rule 52, without further prior approval by the Commission. 
The following general terms will be applicable to the proposed external 
financing activities (including, without limitation, securities issued 
for the purpose of refinancing or refunding outstanding securities of 
the issuer):
1. Effective Cost of Capital
    The effective cost of capital for long-term debt, preferred stock, 
preferred securities, and equity-linked securities issued by Energy 
East, the Utility Subsidiaries and the Non-utility Subsidiaries 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; provided that in no event will the effective cost of capital 
on (a) any long-term debt securities exceed at the time of issuance 500 
basis points over comparable term U.S. Treasury securities or other 
government benchmark for the currency concerned (``Treasury 
Securities''); or (b) any short-term debt securities exceed at the time 
of issuance 300 basis points over the London Interbank Offered Rate. 
The dividend and distribution rate on any series of preferred stock, 
preferred securities or equity-linked securities will not exceed at the 
time of issuance 700 basis points over Treasury Securities. Applicants 
request that the Commission reserve jurisdiction over issuances of 
long-term debt, short-term debt, preferred stock, preferred securities 
and equity-linked securities by Energy East, the Utility Subsidiaries 
and the Non-utility Subsidiaries, other than transactions exempt under 
the Act or any rule thereunder, where the cost of capital is in excess 
of the limits stated above but is not more than 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, until the record is complete 
with regard to such issuances.
2. Maturity
    The maturity of long-term debt will be more than one year but not 
longer than 50 years after the issuance thereof. Preferred securities 
and equity-linked securities will be redeemed no later than 50 years 
after the issuance thereof, unless converted into common stock; 
however, preferred stock issued directly by Energy East may be 
perpetual in duration. Short-term debt will have a maturity of up to 
one year.
3. Commissions
    The underwriting fees, commissions or other similar remuneration 
paid in connection with the non-competitive issue, sale or distribution 
of securities pursuant to the Application (not including any original 
issue discount) will not exceed 5% of the principal or total amount of 
the securities being issued.
4. Common Equity
    Energy East will maintain common stock equity \15\ as a percentage 
of total consolidated capitalization,\16\ as shown in its most recent 
quarterly balance sheet of at least 30%.\17\ Each Utility Subsidiary 
and Intermediate Holding Company on an individual basis (except

[[Page 47870]]

NORVARCO),\18\ will maintain common stock equity of at least 30% of 
total capitalization as shown in each company's most recent quarterly 
balance sheet.
---------------------------------------------------------------------------

    \15\ Common stock equity includes common stock (i.e., amounts 
received equal to the par or stated value of the common stock), 
additional paid-in capital, retained earnings and minority 
interests.
    \16\ Applicant will calculate the common stock equity to total 
capitalization ratio as follows: Common stock equity/common stock 
equity + preferred stock + gross debt. Gross debt is the sum of the 
long-term debt, short-term debt and current maturities.
    \17\ Energy East will be able to issue common stock (including 
pursuant to stock-based plans maintained for shareholders, employees 
and management) to the extent authorized in a Commission order 
issued pursuant to the Application.
    \18\ NORVARCO owns a 50% interest in a partnership that owns a 
transmission line and is wholly capitalized with debt to minimize 
the cost of the transmission facility.
---------------------------------------------------------------------------

5. Investment Grade Criteria
    Applicants represent that with respect to the securities issuance 
authority proposed in this application: (a) Within four days after the 
occurrence of a Ratings Event,\19\ Applicants will notify the 
Commission of its occurrence (by means of a letter, via fax, email or 
overnight mail to the Office of Public Utility Regulation); and (b) 
within 30 days after the occurrence of a Ratings Event, Applicants will 
submit a post-effective amendment to the Application explaining the 
material facts and circumstances relating to that Ratings Event 
(including the basis on which, taking into account the interests of 
investors, consumers and the public as well as other applicable 
criteria under the Act, it remains appropriate for Applicant(s) to 
issue the securities for which authorization has been requested in this 
Application, so long as Applicant(s) continue to comply with the other 
applicable terms and conditions specified in the Commission's order 
authorizing the transactions requested in the Application). 
Furthermore, no securities authorized as a result of this Application 
other than common stock or short-term debt to fund the Utility 
Subsidiaries, will be issued following the 60th day after a Ratings 
Event if the downgraded rating(s) has or have not been upgraded to 
investment grade. Applicants request that the Commission reserve 
jurisdiction over the issuance of any securities (other than common 
stock or short-term debt to fund the Utility Subsidiaries) that 
Applicants are prohibited from issuing following the 60th day after a 
Ratings Event until the record is complete with regard to the issuance.
---------------------------------------------------------------------------

    \19\ ``Ratings Event'' will occur if, during the Authorization 
Period (a) any security issued by Applicants upon original issuance, 
is rated, is rated below investment grade; and (b) any outstanding 
security of Applicants that is rated is downgraded below 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 Security Exchange Act of 1934, as amended (``the 
Act'').
---------------------------------------------------------------------------

    No security will be issued pursuant to the authorization sought 
herein after the last day of the Authorization Period, provided that 
securities issuable or deliverable upon exercise or conversion of, or 
in exchange for, securities which were issued during the Authorization 
Period, may be issued or delivered subsequent to the end of the 
Authorization Period.

B. Use of Proceeds

    The financing proceeds will be used for general corporate purposes, 
including: (a) Financing investments by and capital expenditures of 
Energy East and its Subsidiaries, including, the funding of future 
investments in EWGs, FUCOs, Rule 58 Subsidiaries, and ETCs, (b) the 
repayment, redemption, refunding or purchase by Energy East or any 
Subsidiary of any of its own securities; and (c) financing working 
capital requirements of Energy East and its Subsidiaries. Energy East 
represents that no financing proceeds will be used to acquire the 
securities of, or other interests in, any company unless the 
acquisition has been approved by the Commission in this proceeding or 
in a separate proceeding or in accordance with an available exemption 
under the Act or its rules, including sections 32 and 33 and rule 58.
    Energy East states that the aggregate amount of the proceeds of any 
financing and Energy East guaranties approved by the Commission in this 
proceeding that are used to fund investments in EWGs and FUCOs will 
not, when added to Energy East's ``aggregate investment'' (as defined 
in rule 53) in all such entities at any point in time, exceed 50% of 
Energy East's ``consolidated retained earnings'' (also as defined in 
rule 53). Furthermore, Energy East represents that the proceeds of any 
financing and Energy East Guaranties and Non-utility Subsidiary 
Guaranties utilized to fund investments in Rule 58 Subsidiaries will be 
subject to the limitations of that rule.

IV. Retention of Intermediate Holding Companies

    Energy East requests that the Commission extend the authorization 
to maintain its Intermediate Holding Companies within the Energy East 
system on a permanent basis. Applicants state that section 11(b)(2) of 
the Act is intended to eliminate the pyramiding of holding company 
groups--the interposition of one or more holding companies between the 
uppermost holding company and the operating companies--and the 
issuance, at each level of the structure, of different classes of debt 
or stock with unequal voting rights. The only Intermediate Holding 
Company which itself has a subsidiary company which is a holding 
company is CMP Group. Therefore, Applicants assert that the provisions 
of section 11(b)(2) are not triggered by Energy East's ownership of CTG 
Resources, Berkshire Energy, Connecticut Energy and Energy East 
Enterprises.
    Applicants state that although CMP Group does have a subsidiary 
which itself is a holding company the retention of CMP Group also does 
not implicate the abuses that section 11(b)(2) was designed to address. 
CMP Group is the parent of Central Maine, which is itself a public 
utility. As a public utility, Central Maine is regulated by the Maine 
Public Utilities Commission and the Federal Energy Regulatory 
Commission. Central Maine is a holding company with respect to two 
partially-owned special purpose subsidiaries: MEPCo, and, indirectly, 
Chester, a subsidiary of NORVARCO. These utility subsidiaries were 
organized to own specific transmission facilities in Maine jointly with 
unaffiliated public utilities. Central Maine and its utility 
subsidiaries were not established and are not currently maintained by 
Energy East a device to further the unfair distribution of voting 
control or an unnecessarily complicated capital structure. Given 
Central Maine's primary role as a public utility company Applicants 
assert that it is appropriate to view CMP Group in the same light as 
CTG Resources, Berkshire Energy, Connecticut Energy and Energy East 
Enterprises.\20\ These companies do not serve as a means to diffuse 
control, but rather are being maintained for the purpose of helping 
Energy East capture economic efficiencies that might otherwise be lost. 
For example, the continued existence of each company will contribute to 
shareholder value by allowing efficiencies to be captured and to the 
effective local regulation of the operating utility subsidiaries by 
preserving local name recognition, operations and supervision. It also 
provides maximum separation of utility and non-utility ventures, 
insulating each utility from any potential economic impact associated 
with Energy East's other businesses. Further, the costs associated with 
maintaining these companies continue to be minimal.
---------------------------------------------------------------------------

    \20\ Under 35-A M.R.S.A. Sec.  708, Energy East would need the 
authorization of the Maine Public Utilities Commission to effect a 
restructuring that would result in the elimination of CMP Group.
---------------------------------------------------------------------------

    The Intermediate Holding Companies do not have operational 
functions and simply serve as conduits between Energy East and Energy 
East's public utility subsidiaries with respect to financing and 
dividends. With the exception of short-term debt and

[[Page 47871]]

guarantees on behalf of their subsidiaries, the Intermediate Holding 
Companies are not used for external financing purposes, to make 
acquisitions, or to perform service, sales or construction 
contracts.\21\
---------------------------------------------------------------------------

    \21\ CMP Group does not issue securities to parties outside of 
the Energy East group to finance its subsidiaries.
---------------------------------------------------------------------------

    The continued existence of these holding companies also will help 
to preserve favorable tax attributes that would be lost if they were 
eliminated. In particular, the Intermediate Holding Companies provide 
flexibility with respect to the filing of state tax returns.\22\
---------------------------------------------------------------------------

    \22\ In addition to these structural and regulatory benefits, 
the continued existence of CTG Resources will also preserve the 
benefits associated with certain existing financing arrangements. 
Specifically, Ten Companies currently has approximately $40 million 
of private placement bonds outstanding that are supported by CTG 
Resources under the terms of a Forward Equity Purchase Agreement. 
The elimination of CTG Resources would constitute an event of 
default under the notes and the holders would have the right to 
``put'' the bonds to the issuer at a large (approximately $5 
million) make-whole premium.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4404 Filed 8-12-05; 8:45 am]
BILLING CODE 8010-01-P