[Federal Register Volume 65, Number 98 (Friday, May 19, 2000)]
[Notices]
[Pages 31943-31948]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12599]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27176]


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

May 12, 2000.
    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 6, 2000, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 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 6, 2000, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/permitted to 
become effective.

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

    Energy East Corporation (``Energy East''), a New York corporation 
and a public utility holding company exempt from registration under 
section 3(a)(1) of the Act, by order of the Commission \1\ and its 
subsidiaries, New York State Electric & Gas Corporation (``NYSEG''); 
Energy East Enterprises, Inc. (``Energy East Enterprises''); and Maine 
Natural Gas, L.L.C. (``Maine Natural Gas''), each located at One 
Canterbury Green, Stamford, Connecticut 06904; Connecticut Energy 
Corporation (``Connecticut Energy''), and its utility subsidiary, The 
Southern Connecticut Gas Company (``Southern Connecticut Gas''), each 
located at 855 Main Street, Bridgeport, CT 06604; CMP Group, Inc. 
(``CMP Group''), a Maine corporation and a public utility holding 
company exempt from registration under section 3(a)(1) of the Act, by 
order of the Commission \2\ and CMP Group's utility subsidiaries, 
Central Maine Power Company (``Central Maine Power''); Maine Electric 
Power Company, Inc. (``MEPCo''); and NORVARCO, each located at 83 
Edison Drive, Augusta, ME 04336; CTG Resources, Inc. (``CTG 
Resources''), a Connecticut corporation and a public utility holding 
company exempt from registration under section 3(a)(1) by rule 2 under 
the Act and CTG Resourses' utility subsidiary Connecticut Natural Gas 
Corporation (``Connecticut Natural Gas''), each located at 100 Columbus 
Boulevard, Hartford, CT 06103; and Berkshire Energy Resources 
(``Berkshire'') a Massachusetts corporation and a public utility 
holding company exempt from registration under section 3(a)(2) by rule 
2 under the Act and Berkshire's utility subsidiary, The Berkshire Gas 
Company (``Berkshire Gas''), each located at 115 Chesire Road, 
Pittsfield, MA 01201 (collectively, ``Applicants'') \3\ have filed an 
application-declaration under sections 6(a), 7, 9(a), 10, 12, 13(b), 
32, 33 and 34 of the Act and rules 42, 43, 45, 46, 52, 53, 54, 58 and 
80-92 under the Act.
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    \1\ Holding Co. Act Release No. 27128 (Feb. 2, 2000).
    \2\ Holding Co. Act Release No. 26977 (Feb. 12, 1999).
    \3\ Two related application-declarations (collectively, ``Merger 
Applications'') seeking approvals required to complete the proposed 
acquisitions (``Mergers'') by Energy East of Connecticut Energy 
(S.E.C. File No. 70-9545), CMP Group, CTG Resources and Berkshire 
(S.E.C. File No. 70-9569) have been filed. The Commission authorize 
the acquisition of Connecticut Energy, Holding Co. Act Release No. 
27128 (Feb. 2, 2000). A notice of the 70-9569 merger filing was 
issued, Holding Co. Act Release No. 27171 (April 21, 2000).
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    Upon completion of the Mergers, Energy East would own interests in 
the following eight public utility companies, each of which would be 
wholly owned by companies within the Energy East system, unless 
otherwise indicated: (1) NYSEG; (2) Southern Connecticut Gas; (3) Main 
Natural Gas (formerly CMP Natural Gas, L.L.C.); \4\ Central Maine 
Power, (5) MEPCo; \5\ (6) NORVARCO; (7) Connecticut Natural

[[Page 31944]]

Gas; and (8) Berkshire Gas (collectively, ``Utility Subsidiaries'').\6\
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    \4\ Maine Natural Gas is a joint venture between New England Gas 
Development Corp. (holding a 19% interest), a wholly owned 
subsidiary of CMP Group, and Energy East Enterprises, a Maine 
corporation (holding an 81% interest), a wholly owned subsidiary of 
Energy East and a public utility holding company exempt from 
registration under section 3(a)(1) of the Act, by order of the 
Commission, Holding Co. Act Release No. 26977 (Feb. 12, 1999).
    \5\ Central Maine Power owns 78.3% voting interest of MEPCo with 
the remaining interests owned by two other Maine utilities.
    \6\ A description of the Utility Subsidiaries may be found in 
the notice in S.E.C. File No. 70-9569, Holding Co. Act Release No. 
27171 (April 21, 2000).
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    As explained more fully in the Merger Applications, Applicants 
propose Connecticut Energy, CMP Group, CTG Resources and Berkshire will 
remain in existence as first tier subsidiaries of Energy East following 
the Mergers. In addition, Energy East currently owns Energy East 
Enterprises which is a public utility holding company by virtue of the 
81% interest it holds in Maine Natural Gas (collectively, 
``Intermediate Holding Companies'').
    Upon completion of the Merger, Energy East will also own 
approximately 41 other subsidiary companies that are not public utility 
companies under the Act (collectively, ``Nonutility Subsidiaries'').\7\ 
Among the Nonutility Subsidiaries is Energy East Management Corporation 
(``EE Management''). A separate application-declaration has been filed 
with the Commission by Energy East in connection with EE Management 
assuming the role of providing management, administrative and corporate 
support services to the companies in the Energy East System.\8\
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    \7\ A listing and description of the Nonutility Subsidiaries may 
be found in the notice in S.E.C. File No. 70-9569, Holding Co. Act 
Release No. 27171 (April 21, 2000).
    \8\ See S.E.C. File No. 70-9675.
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    Collectively, the Utility Subsidiaries, the Intermediate Holding 
Companies and the Nonutility Subsidiaries are referred to as the 
``Subsidiaries.'' The term ``Subsidiaries'' shall also include entities 
that become subsidiaries of Energy East after the consummation of the 
Mergers.
    Applicants state that the cash portion of the consideration to be 
paid in the Mergers will be financed in part by the issuance of 
approximately $500 million of unsecured debt (``Acquisition Debt''). 
Energy East requests authority to maintain in place the Acquisition 
Debt and to refinance such Acquisition Debt. Applicants request 
approval for a program of external financing, credit support 
arrangements, and other related proposals for the period commencing on 
the effective date of an order issued under this filing and ending 
March 31, 2003 (``Authorization Period''). As described more fully 
below, Applicants propose to enter into numerous types of financing 
transactions to meet Energy East's capital requirements immediately 
following the Mergers and to plan future financing. Applicants seek 
authorization and approval of the Commission with respect to: (1) 
Ongoing financing activities of Energy East and its subsidiaries; (2) 
intrasystem extension of credit; (3) the creation or acquisition of 
nonutility subsidiaries; (4) the payment of dividends out of capital 
and unearned surplus; and (5) other related matters pertaining to 
Energy East and its Subsidiaries.

1. General Terms and Conditions of Financing

    Financings by each Applicant will be subject to the following 
limitations: (1) The effective cost of money on short-term debt 
authorized in this proceeding will not exceed the competitive market 
rates available at the time of issuance to companies with comparable 
credit ratings with respect to debt having similar maturities; the 
obligations incurred in connection with any short-term financing with 
respect to Utility Subsidiaries will bear interest at a rate that will 
not exceed 300 basis points over the comparable term London Interbank 
Offered Rate (``LIBOR''); (2) maturity of long-term indebtedness will 
not exceed 50 years; (3) the underwriting fees, commissions, or similar 
remuneration paid in connection with the issue, sale, or distribution 
of a security is estimated not to exceed 5% of the principal amount of 
the financing; and (4) Energy East's common equity will be at least 30% 
of its pro forma consolidated capitalization.
    As explained more fully below, Energy East requests authority to 
issue and sell from time to time common stock, preferred stock, and 
unsecured debentures having maturities of up to 50 years 
(``Debentures'') in an aggregate amount not to exceed $2.5 billion, and 
unsecured short-term indebtedness having maturities of one year or less 
(``Short-Term Debt'') in an aggregate principal amount at any time 
outstanding not to exceed $750 million, provided that the aggregate 
principal amount of all indebtedness (including Acquisition Debt, 
Debentures and Short-Term Debt), of Energy East at any time outstanding 
shall not exceed $1.5 billion (``Energy East Debt Limitation '').
    Applicants state that the proceeds from the financing will be used 
for general corporate purposes, including: (1) Financing, in part, 
investments by and capital expenditures of Energy East and its 
Subsidiaries, including, the funding of future investments in exempt 
wholesale generators (``EWGs''), foreign utility companies (``FUCOs''), 
companies engaged or formed to engage in activities permitted by rule 
58 (``Rule 58 Subsidiaries''), and exempt telecommunications companies 
(``ETCs''); (2) the repayment, redemption, refunding or purchase by 
Energy East or any Subsidiary of any of its own securities under rule 
42; and (3) financing working capital requirements of Energy East and 
its Subsidiaries.

2. Energy East External Financing

    Energy East requests authority to issue and sell from time to time 
during the Authorization Period, commons stock, preferred stock, and 
Debentures in an aggregate amount not to exceed $2.5 billion and up to 
$750 million of Short-Term Debt at any time outstanding subject to the 
terms and conditions discussed below.
a. Common Stock
    Energy East requests authorization to issue and sell from time to 
time common stock during the Authorization Period, either: (1) Through 
underwritten public offering; (2) in private placements; (3) under its 
dividend reinvestment plan and stock-based management incentive and 
employee benefit plans; or (4) in exchange for securities or assets 
being acquired from other companies. Energy East also proposes to issue 
and sell common stock or options, warrants, or other stocks purchase 
rights that are exercisable for common stock and issue common stock 
upon the exercise of such options, warrants, or other stock purchase 
rights. Energy East states that it may also buy back shares of common 
stock during the Authorization Period in accordance with rule 42.
    Energy East also requests authorization to issue and/or sell shares 
of common stock under its existing stock plans and similar plans or 
plan funding arrangements later adopted, and to engage in other sales 
of its treasury shares for general business purposes, without any 
additional prior Commission order. 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 this application-declaration.
    Energy East requests authorization to issue common stock in 
consideration for an acquisition by Energy East or a Nonutility 
Subsidiary of securities or assets of a business, the acquisition of 
which has been approved by the Commission in this proceeding (see item 
11 below) or is exempt under the Act or the rules (specifically, rule 
58).
b. Preferred Stock
    Energy East requests authorization to issue and sell preferred 
stock from time to time during the Authorization Period. The dividends 
payable on any series of preferred stock, as well as all other terms 
and conditions and any associated

[[Page 31945]]

placement, underwriting or selling agent fees, commissions and 
discounts, if any, would be established by negotiation or competitive 
bidding and reflected in the applicable purchase agreement or 
underwriting agreement setting forth the terms; provided, that the 
dividend rate on any series of preferred stock would not exceed the 
rate generally obtainable at the time of issuance for preferred 
securities having the same or reasonably similar terms and conditions 
issued by utility holding companies of reasonably comparable credit 
quality, as determined by competitive capital markets.
c. Short-Term Debt
    Energy East requests authorization to have outstanding at any one 
time during the Authorization Period, up to $750 million of unsecured 
Short-Term Debt, in aggregate principal amount, subject to the Energy 
East Debt Limitation. The effective cost of money on short-Term Debt 
authorized in this proceeding will not exceed the competitive market 
rates available at the time of issuance to companies with comparable 
credit ratings with respect to debt having similar maturities.
    Energy East states that it may also establish bank lines in an 
aggregate principal amount not to exceed the $750 million limitation. 
Loans under these lines will have maturities not more than one year 
from the date of each borrowing. Energy East further states that it may 
engage in other types of short-term 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.
d. Debentures
    Energy East 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: (1) May be 
convertible into any other securities of Energy East; (2) will have 
maturities ranging from one to 50 years; (3) may be subject to optional 
and/or mandatory redemption, in whole or in part, at par, or at various 
premiums about the principal amount; (4) may be entitled to mandatory 
or optional sinking fund provisions; (5) may provide for reset of the 
coupon under a remarketing arrangement; and (6) may be called from 
existing investors by a third party. In addition, Energy East states 
that it may have the right to defer the payment of interest on the 
Debentures of one or more series (which may be fixed, floating or 
``multi-modal'' debentures, i.e., debentures where the interest is 
periodically reset for each reset period). The Debentures would be 
issued under an indenture to be entered into between Energy East and a 
national bank, as trustee. Energy East states that it will not issue 
any Debentures that are not at the time of original issuance rated at 
least investment grade by a nationally recognized statistical rating 
organization, without further Commission authorization.
e. Other Securities
    Energy East states that it may find it necessary or desirable to 
issue and sell other types of securities during the Authorization 
Period in addition to those specifically enumerated in the application-
declaration. Energy East requests that the Commission reserve 
jurisdiction over the issuance of additional types of securities and 
the amounts, subject to the Energy East Debt Limitation. Energy East 
states it will file a post-effective amendment in this proceeding which 
will describe the general terms and amounts of each security and 
request a supplemental order of the Commission authorizing the issuance 
of that security by Energy East.

3. Utility Subsidiary Financing

a. Short-Term Debt of the Utility Subsidiaries
    The Utility Subsidiaries request authority to issue and sell from 
time to time during the Authorization Period securities, to the extent 
they are not otherwise exempt under rule 52(a), with maturities of one 
year or less, up to the following aggregate principal amounts: NYSEG 
$275,000,000; Maine Natural Gas $50,000,000; Central Maine Power 
$150,000,000; MEPCo $30,000,000; NORVARCO $30,000,000; Southern 
Connecticut Gas $100,000,000; Connecticut Natural Gas $100,000,000; and 
Berkshire Gas $50,000,000.
    Applicants state that subject to these limitations, the Utility 
Subsidiaries may engage in short-term financing as they deem 
appropriate in light of their needs and market conditions at the time 
of issuance. Short-term securities could include, without limitation, 
commercial paper sold in established commercial paper markets in a 
manner similar to Energy East, notes to banks under bank lines of 
credit and debt securities issued under their respective indentures and 
note programs. The obligations incurred in connection with any short-
term security will bear interest at a rate which is not greater than 
300 basis points over LIBOR.

4. Short-Term Debt of Intermediate Holding Companies

    Each of the Intermediate Holding Companies requests authority to 
issue, sell and have outstanding at any one time during the 
Authorization Period debt securities with maturities of one year or 
less in the following aggregate principal amounts: CMP Group 
$30,000,000; Connecticut Energy $30,000,000; CTG Resources $30,000,000; 
Berkshire $30,000,000; and Energy East Enterprises $30,000,000.
    Applicants state that subject to such limitations, the Intermediate 
Holding Companies may engage in short-term financing as they deem 
appropriate in light of their needs and market conditions at the time 
of issuance. This short-term financing could include, without 
limitation, commercial paper sold in established commercial paper 
markets in a manner similar to Energy East, bank lines and debt 
securities issued under their respective indentures and note programs. 
The obligations incurred in connection with any short term financing 
will bear interest at a rate which is not greater than 300 basis points 
over LIBOR.

5. Nonutility Subsidiary Financing

    The Nonutility Subsidiaries request that the Commission reserve 
jurisdiction over the issuance by any Nonutility Subsidiary of any 
securities where the exemption under rule 52(b) would not apply. Energy 
East states that it will file a post-effective amendment in this 
proceeding which will describe the general terms of each non-exempt 
security and their amounts and request a supplemental order of the 
Commission authorizing the issuance of that security.
    Where the Nonutility Subsidiary making the borrowing is not wholly 
owned by Energy East, directly or indirectly, Applicants request 
authorization for Energy East or a Nonutility Subsidiary, to make loans 
to these subsidiaries at interest rates and maturities designed to 
provide a return to the lending company of not less than its effective 
cost of capital.

6. 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 each Subsidiary to 
operate in the ordinary course of business, in an aggregate principal 
amount not exceed $1 billion outstanding at any one time, provided,

[[Page 31946]]

that the amount of any Energy East Guaranties in respect of obligations 
of any EWG, FUCO or Rule 58 Subsidiary shall also be subject to the 
limitations of rule 53(a)(1) or rule 58(a)(1), as applicable.
b. Nonutility Subsidiary Guaranties
    Nonutility Subsidiaries 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 Nonutility 
Subsidiaries (collectively, ``Nonutility Subsidiary Guaranties'') in an 
aggregate principal amount not to exceed $700 million outstanding at 
any one time, exclusive of any guaranties and other forms of credit 
support that are exempt under rule 45(b) and rule 52, provided, that 
the amount of any Nonutility Subsidiary Guaranties in respect of 
obligations of any Rule 58 Subsidiary shall also be subject to the 
limitations of rule 58(a)(1).
c. Intermediate Holding Company Guaranties
    Each Intermediate Holding Company requests authorization to enter 
into guaranties, obtain letters of credit, enter into expense 
agreements or otherwise provide credit support to or on behalf of their 
respective subsidiary companies (collectively, ``Intermediate Holding 
Company Guaranties'') as may be appropriate to enable such companies to 
operate in the ordinary course of business, in an aggregate principal 
amount not to exceed $30 million outstanding at any one time, provided, 
that the amount of any Intermediate Holding Company Subsidiary 
Guaranties in respect of obligations of any Rule 53 Subsidiary shall 
also be subject to the limitations of rule 58(a)(1).

7. Hedging Transactions

a. Interest Rate Hedges
    Energy East, and to the extent not exempt under rule 52, the 
Subsidiaries, request authority to enter into interest rate hedging 
transactions (``Interest Rate Hedges'') with respect to outstanding 
indebtedness of such companies in order to manage and minimize interest 
rate costs. Interest Rate Hedges would only be entered into with 
counterparties (``Approved Counterparties'') whose senior debt ratings, 
or the senior debt ratings of the parent companies of the 
counterparties, as published by Standard and Poor's, are equal to or 
grater than BBB, or an equivalent rating from Moody's Investors 
Service, Fitch Investor Service or Duff and Phelps. Interest Rate 
Hedges would involve the use of financial instruments commonly used in 
today's capital markets, such as interest rate swaps, caps, collars, 
floors, and structured notes (i.e., a debt instrument in which the 
principal and/or interest payments are indirectly linked to the value 
of an underlying asset or index), or transactions involving the 
purchase or sale, including short sales, of U.S. Treasury obligations.
b. Anticipatory Hedges
    Energy East and the Subsidiaries request authorization to enter 
into interest rate hedging transactions with respect to anticipated 
debt offerings (``Anticipatory Hedges''). Anticipatory Hedges would 
only be entered into with Approved Counterparties, and would be used to 
fix and/or limit the interest rate risk associated with any new 
issuance through: (1) A forward sale of exchange-traded U.S. Treasury 
futures contracts, U.S. Treasury obligations and/or a forward swap 
(each a ``Forward Sale''); (2) the purchase of put options on U.S. 
Treasury obligations (a ``Put Options Purchase''); (3) a Put Options 
Purchase in combination with the sale of call options on U.S. Treasury 
obligations (a ``Zero Cost Collar''); (4) transactions involving the 
purchase or sale, including short sales, of U.S. Treasury obligations; 
or (5) 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.
    The Applicants state they will comply with the then existing 
financial disclosure requirements of the Financial Accounting Standards 
Board associated with all interest rate hedges and anticipatory hedges.

8. Changes in Capital Stock in Subsidiaries

    Energy East, on behalf of the Subsidiaries, requests authorization 
to change the terms of the authorized capital stock capitalization of 
any wholly owned Subsidiary or Intermediate Holding Company, by an 
amount deemed appropriate by Energy East or other intermediate parent 
company. If that authority were granted, a Subsidiary would be able to 
change the par value, or change between par and no-par stock, without 
additional Commission approval. Any action of this type by a Utility 
Subsidiary would be subject to, and would be taken only upon receipt 
of, necessary approvals by the state commission in the state or states 
where the Utility Subsidiary is incorporated and doing business.

9. Financing Subsidiaries

    Energy East and the Subsidiaries request authorization 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 of Energy East 
and the Subsidiaries. The Financing Subsidiaries would issue long-term 
debt or equity securities, including monthly income preferred 
securities, to third parties and transfer the proceeds of these 
financings by the Financing Subsidiaries to Energy East or to a 
Subsidiary.
    Applicants state that, if the direct parent company of a Financing 
Subsidiary is authorized in this proceeding or any subsequent 
proceeding to issue long-term debt or similar types of equity 
securities, then the amount of those securities issued by its Financing 
Subsidiary would count against the limitation applicable to its parent 
for those securities. In these cases, however, the guaranty by the 
parent of that security issued by its Financing Subsidiary would not 
count against the limitations on Energy East Guaranties or Intermediate 
Holding Company Guaranties or Nonutility Subsidiary Guaranties. If the 
parent is not authorized in this or in a subsequent proceeding to issue 
similar types of securities, the amount of any guaranty not exempt 
under rules 45(b)(7) and 52 that is entered into by the parent company 
with respect to securities issued by its Financing Subsidiary would 
count against the limitation on Energy East Guaranties, Intermediate 
Holding Company Guaranties or Nonutility Subsidiary Guaranties. Energy 
East requests that the Commission reserve jurisdiction over any 
transfer of proceeds of financing by any Financing Subsidiary to Energy 
East pending completion of the record.

10. Intermediate Subsidiaries

    Energy East requests authorization to acquire, directly or 
indirectly, the securities of one or more intermediate subsidiaries 
(``Intermediate Subsidiaries'' are those subsidiaries organized for the 
purpose of acquiring, holding and/or financing the acquisition of the 
securities of or other interest in one or more EWGs or FUCOs, Rule 58 
Subsidiaries, ETCs or other Nonutility Subsidiaries (as authorized in 
this proceeding or in a separate proceeding), provided that 
Intermediate Subsidiaries may also engage in development activities 
(``Development Activities'')

[[Page 31947]]

and administrative activities (``Administrative Activities''), relating 
to these subsidiaries). To the extent these 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 these entities. 
Applicants state that these services may be rendered at fair market 
prices to the extent they qualify for any of the exceptions from the 
``at cost'' standard requested in item 12, below.
    Applicants request authority for the Intermediate Subsidiaries to 
expend up to $100 million during the Authorization Period on 
Development Activities. Applicants state that Development Activities 
will be limited to due diligence and design review; market studies; 
preliminary engineering; site inspection; preparation of bid proposals, 
including, posting of bid bonds; application for required permits and/
or regulatory approvals; acquisition of site options and options on 
other necessary rights; negotiation and execution of contractual 
commitments with owners of existing facilities, equipment vendors, 
construction firms, power purchasers, thermal ``hosts,'' fuel suppliers 
and other project contractors; negotiation of financing commitments 
with lenders and other third-party investors; and such other 
preliminary activities as may be required in connection with the 
purchase, acquisition, financing or construction of facilities or the 
acquisition of securities of or interests in new businesses.
    Applicants state that 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 Nonutility Subsidiaries, and the 
activities and functions related to such investments, under one or more 
Intermediate Subsidiaries. To the extent that these transactions are 
not otherwise exempt under the Act or rules, Energy East requests 
authorization to consolidate or otherwise reorganize under one or more 
direct or indirect Intermediate Subsidiaries, Energy East's ownership 
interests in existing and future Nonutility Subsidiaries.

11. Investments in Energy-Related Assets

    Nonutility Subsidiaries request authorization to acquire or 
construct in one or more transactions during the Authorization Period, 
nonutility energy assets in the United States, including, 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 Subsidiaries. Nonutility 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 of new companies substantially all of 
whose physical properties consist or will consist of Energy-Related 
Assets. These Energy-Related Assets may be acquired for cash or in 
exchange for common stock or other securities of Energy East or a 
Nonutility Subsidiary of Energy East or any combination of the same.

12. Exemption from Section 13(b)

    Energy East's Nonutility Subsidiaries request authorization to 
provide services to sell goods to each other at fair market prices 
determined without regard to cost, and thus, request an exemption (to 
the extent rule 90(d) does not apply) under section 13(b) from the cost 
standards of rules 90 and 91 as applicable to these transactions, in 
any case in which the Nonutility Subsidiary purchasing these goods or 
services is:
    (1) 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;
    (2) An EWG which sells electricity at market-based rates which have 
been approved by the Federal Energy Regulatory Commission (``FERC''), 
provided that the purchaser is not one of the Utility Subsidiaries;
    (3) A ``qualifying facility'' (``QF'') within the meaning of the 
Public Utility Regulatory Policies Act of 1978, as amended (``PURPA'') 
that sells electricity exclusively (a) at rates negotiated at arms' 
length to one or more industrial or commercial customers purchasing 
such electricity for their own use and not for resale, and/or (b) to an 
electric utility company (other than a Utility Subsidiary) at the 
purchaser's ``avoided cost'' as determined in accordance with the 
regulations under PURPA;
    (4) A domestic EWG or QF that sells electricity at rates based upon 
its cost of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser is not one 
of the Utility Subsidiaries; or
    (5) A Rule 58 Subsidiary that (a) is partially owned by Energy 
East, provided that the ultimate purchaser of such goods or services is 
not a Utility Subsidiary or EE Management (or any other entity that 
Energy East may form whose activities and operations are primarily 
related to the provision of goods and services to Utility Subsidiaries 
of EE Management), (b) is engaged solely in the business of developing, 
owning, operating and/or providing services or goods to Nonutility 
Subsidiaries described in clauses (1) through (4) immediately above, or 
(c) does not derive, directly or indirectly, any material part of its 
income from sources within the United States and is not a public 
utility company operating within the United States.

13. Activities of Rule 58 Subsidiaries Within and Outside the United 
States

    Energy East, on behalf of any current or future Rule 58 
Subsidiaries, requests authorization to engage in business activities, 
permitted by rule 58, including energy marketing, energy management 
services and consulting services, both within and outside the United 
States. Energy East requests that the Commission: (1) Reserve 
jurisdiction over energy marketing activities outside the United States 
and Canada pending completion of the record in this proceeding; (2) 
authorize Energy East and its direct and indirect subsidiaries to 
provide energy management and consulting services anywhere outside the 
United States; and (3) reserve jurisdiction over other activities of 
Rule 58 Subsidiaries outside the United States, pending completion of 
the record.

14. Payment of Dividends

a. Energy East, the Intermediate Holding Companies and the Utility 
Subsidiaries
    Energy East, Intermediate Holding Companies and their respective 
Utility Subsidiaries request authorization to pay dividends out of 
capital and unearned surplus in an amount up to the retained earnings 
of such companies prior to the Mergers. In addition, after the Mergers 
are completed, each of these companies requests authorization to pay 
dividends out of earnings before amortization of goodwill, for the 
duration of the goodwill amortization period.
b. Nonutility Subsidiaries
    Energy East requests authorization, on behalf of itself and each of 
its current and future non-exempt Nonutility Subsidiaries, that these 
companies be permitted to pay dividends with respect to the securities 
of these companies, through the Authorization Period, out of capital 
and unearned surplus.

[[Page 31948]]

15. Tax Allocation Agreement

    Applicants request the Commission approve an agreement for the 
allocation of consolidated tax among Energy East and the Subsidiaries 
(``Tax Allocation Agreement''). Approval is necessary because the 
proposed Tax Allocation Agreement may provide for the retention by 
Energy East of certain payments for tax losses incurred, rather than 
allocate these losses to Subsidiaries without payment, as rule 45(c)(5) 
would otherwise require. Applicants state that Energy East or its 
finance subsidiary will create tax deductions chiefly in the form of 
deductions for interest expense on the Acquisition Debt that are non-
recourse to the Subsidiaries.

    For the Commission by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-12599 Filed 5-18-00; 8:45 am]
BILLING CODE 8010-01-M