58578 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

1The indirect nonutility subsidiaries of KeySpan,

Eastern, and EnergyNorth are set forth in the

application-declaration previously filed by

KeySpan and ACJ seeking approvals relating to

KeySpan’s proposed acquisition of Eastern (‘‘Merger

U–1’’).

2 KeySpan requests that the Commission review

and rule on this application-declaration

contemporaneously with the Merger U–1.

3The Merger and the Eastern/EnergyNorth Merger

are referred to in this notice collectively as

‘‘Mergers.’’

Budget, Room 10230, New Executive

Office Building, Washington, DC 20503.

Chuck Mierzwa,

Clearance Officer.

[FR Doc. 00–25033 Filed 9–28–00; 8:45 am]

BILLING CODE 7905–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 35–27234]

Filings Under the Public Utility Holding

Company Act of 1935, as Amended

(‘‘Act’’)

September 21, 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

October 16, 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 October 16, 2000, the

application(s) and/or declaration(s), as

filed or as amended, may be granted

and/or permitted to become effective.

KeySpan Corporation, et al. (70–9699)

KeySpan Corporation(‘‘KeySpan’’), a

combination gas and electric utility

holding company claiming exemption

from registration under section 3(a)(1) of

the Act by rule 2, located at One

MetroTech Center, Brooklyn, New York

11201; KeySpan’s utility subsidiaries:

The Brooklyn Union Gas Company d/b/

a/ KeySpan Energy Delivery New York

(‘‘KeySpan New York’’), located at One

MetroTech Center, Brooklyn, New York

11201; KeySpan Gas East Corporation d/

b/a/ KeySpan Energy Delivery Long

Island (‘‘KeySpan Long Island’’); and

KeySpan Generation LLC (‘‘KeySpan

Generation’’), each located at 175 East

Old Country Road, Hicksville, New

York 11801; KeySpan’s direct nonutility

subsidiaries: ACJ Acquisition LLC

(‘‘ACJ’’); KeySpan Energy Corporation;

KeySpan Operating Services LLC;

KeySpan Exploration & Production LLC;

KeySpan Technologies Inc.; KeySpan

MHK, Inc., all located at One MetroTech

Center, Brooklyn, New York 11201;

KeySpan Corporate Services LLC

(‘‘KCS’’); KeySpan Utility Services LLC

(‘‘KUS’’); Marquez Development Corp;

Island Energy Services Company, Inc.;

LILCO Energy Systems, Inc., all located

at 175 East Old Country Road,

Hicksville, New York 11801; KeySpanRavenswood Inc.; KeySpan-Ravenswood

Services Corp., each located at 38–54

Vernon Boulevard, Long Island City,

New York 11101; KeySpan Services,

Inc., located at Octagon 10 Office

Building, 1719 Route 10, Suite 108,

Parsippany, New Jersey 07054; KeySpan

Energy Trading Services LLC, located at

100 East Old Country Road, Hicksville,

New York 11801; and KeySpan Energy

Supply LLC, located at 14–04 111th

Street, College Point, New York 11356;

and their respective nonutility

subsidiaries; Eastern Enterprises

(‘‘Eastern’’), a gas utility holding

company claiming exemption from

registration under section 3(a)(1) of the

Act by rule 2, located at 9 Riverside

Road, Weston, Massachusetts 02493;

Eastern’s gas utility subsidiaries: Boston

Gas Company (‘‘Boston Gas’’); Essex Gas

Company (‘‘Essex Gas’’); and Colonial

Gas Company (‘‘Colonial Gas’’), all

located at One Beacon Street, Boston,

Massachusetts 02108; Eastern’s direct

nonutility subsidiaries: Boston Gas

Services, Inc.; EE–AEM Company, Inc.;

EE Acquisition Company, Inc.; EEG

Acquisition Company, Inc.; Eastern

Associated Capital Corp.; Eastern

Associated Securities Corp.; Eastern

Energy Systems Corp.; Eastern

Rivermoor Company, Inc.; Eastern

Urban Services, Inc.; Mystic Steamship

Corporation; PCC Land Company, Inc.;

Philadelphia Coke Co., Inc.; Water

Products Group Incorporated; Western

Associated Energy Corp., all located at

9 Riverside Road, Weston Massachusetts

02493; Midland Enterprises Inc., located

at 300 Pike Street, Cincinnati, Ohio

45202; ServicEdge Partners, Inc.; and

AMR Data Corporation, each located at

62 Second Avenue, Burlington,

Massachusetts 01803; and their

respective subsidiaries; and

EnergyNorth, Inc. (‘‘EnergyNorth’’), a

gas utility holding company claiming

exemption from registration under

section 3(a)(1) of the Act by rule 2,

located at 1260 Elm Street, P.O. Box

329, Manchester, New Hampshire

03105; EnergyNorth’s gas utility

subsidiary, EnergyNorth Natural Gas,

Inc. (‘‘ENGI’’), also located at 1260 Elm

Street, P.O. Box 329, Manchester, New

Hampshire 03105; EnergyNorth’s direct

nonutility subsidiaries: Broken Bridge

Corporation; EnergyNorth Realty, Inc.,

each located at 1260 Elm Street, P.O.

Box 329, Manchester, New Hampshire

03105; EnergyNorth Propane, Inc.,

Located at 75 Regional Drive, Concord,

New Hampshire 03301; and

EnergyNorth Mechanicals, Inc., located

at 25 Depot Street, Manchester,

Massachusetts 03101; and their

respective subsidiaries (together,

‘‘Applicants’’) ,1 have filed an

application-declaration under sections

6(a), 7, 9(a)(1), 10, 12(b), 12(c), 13(b), 32,

and 33 of the Act, and rules 45, 46, 53,

54, and 80–92 under the Act.

In the Merger U–1, KeySpan and its

subsidiary, ACJ, seek approvals relating

to the proposed acquisition by KeySpan

of all of the issued and outstanding

common stock of Eastern (‘‘Merger’’).2 A

notice of the Merger U–1 was issued on

July 18, 2000 (HCAR No. 27201).

Eastern also has previously filed an

application-declaration with the

Commission under the Act seeking

approvals relating to the proposed

acquisition (‘‘Eastern/EnergyNorth

Merger U–1’’) by Eastern of all of the

outstanding common shares of

EnergyNorth (‘‘Eastern/EnergyNorth

Merger’’). A notice of the Eastern/

EnergyNorth Merger U–1 was issued on

July 18, 2000 (HCAR No. 27201). For

purposes of this application-declaration,

KeySpan has assumed that the Eastern/

EnergyNorth Merger will be approved

concurrently with the Merger. However,

KeySpan states that its request for

approval of the Merger is not contingent

on Commission approval of the Eastern/

EnergyNorth Merger, and further states

that the same request applies to this

application-declaration.3

Following the consummation of the

Mergers, KeySpan will have seven

utility subsidiaries: KeySpan New York;

KeySpan Long Island; KeySpan

Generation; Boston Gas; Essex Gas;

Colonial Gas; and ENGI (collectively,

Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58579

4However, KeySpan states that EnergyNorth will

be eliminated as an intermediate holding company

as soon as practicable after the Merger is completed.

5Applicants state that the terms ‘‘Subsidiaries’’

shall also include entities that become subsidiaries

of KeySpan after consummation of the Merger.

6 KeySpan estimates its existing financings,

which consist of promissory notes, preferred stock,

and credit facilities, to be approximately $1.4

billion. The Utility Subsidiaries presently have

approximately $1.8 billion of debt, preferred stock,

and capital leases. The Nonutility Subsidiaries

presently have outstanding debt and capital leases

totaling approximately $550 million.

7 KeySpan’s additional financing arrangements

before completion of the Merger will include

approximately $2.2 billion necessary for acquisition

financing related to the Mergers (‘‘Merger

Financing’’).

8 KeySpan states that, under certain

circumstances, it may be required to support its

obligations under existing promissory notes by

obtaining letters of credit. Accordingly, KeySpan

also seeks Commission approval to obtain any

letters of credit required under these notes. 9 KeySpan states that it developed the aggregate

amount of $5.1 billion by adding together the

amount required for Merger Financing

(approximately $2.2 billion), the amount of its

existing financing (approximately $1.4 billion), and

the amount of its proposed additional financing

($1.5 billion).

10This aggregate amount does not include any

existing financing or Refinancing described in

Section I of this notice.

11 KeySpan also seeks authority to issue common

stock in consideration for an acquisition by

KeySpan or a Nonutility Subsidiary of securities or

assets of a business, the acquisition of which has

been approved by the Commission in this

proceeding or is exempt under the Act of the rules

under the Act.

‘‘Utility Subsidiaries’’). In addition,

KeySpan states that KeySpan Energy

Corporation (‘‘KEC’’), Eastern and

EnergyNorth (collectively,

‘‘Intermediate Holding Companies’’)

will remain in existence after the

Mergers as first tier public utility

holding company subsidiaries of

KeySpan.4

Each of the entities that will be

directly and indirectly owned

subsidiaries of KeySpan upon

consummation of the transactions

described in the Merger U–1 is referred

to individually as a ‘‘Subsidiary’’ and

collectively as ‘‘Subsidiaries.’’ 5 All of

KeySpan’s direct and indirect

Subsidiaries, other than the Utility

Subsidiaries and the Intermediate

Holding Companies, shall be referred to

as ‘‘Nonutility Subsidiaries.’’

Applicants propose to enter into, or to

maintain, numerous types of financing

transactions to meet KeySpan’s capital

requirements immediately following the

Mergers and to plan future financing.

Applicants request authorization to

engage in the proposed financing

transactions for the period beginning

with the effective date of the

Commission’s Order in this matter and

continuing for a period of three years

from the date of that Order

(‘‘Authorization Period’’). In addition,

Applicants request the Commission to

authorize various proposed intrasystem

transactions. Applicants further request

that the Commission reserve jurisdiction

over certain proposed investments in

nonutility businesses, as described

below.

Financings by each Applicant will be

subject to the following conditions

(‘‘Financing Conditions’’): (1) during the

Authorization Period, KeySpan’s

common equity will be at least 30% of

its consolidated capitalization, and each

Utility Subsidiary’s common equity will

be at least 30% of its capitalization; (2)

any long-term debt issued to KeySpan to

unaffiliated parties under the authority

requested in this application-declaration

will be rated or will meet the

qualifications for being rated investment

grade by a nationally recognized

statistical rating organization; (3) the

effective cost of money on long-term

debt financings will not exceed 500

basis points over comparable term U.S.

Treasury securities and the effective

cost of money on short-term debt

financings will not exceed 500 basis

points over the comparable term

London Interbank Offered Rate

(‘‘LIBOR’’); (4) the effective cost of

money on preferred stock and other

fixed-income oriented securities will

not exceed 500 basis points over LIBOR;

(5) the maturity of indebtedness will not

exceed 50 years; (6) the underwriting

fees, commissions, and other similar

remuneration paid in connection with

the non-competitive issue, sale

ordistribution of a security will not

exceed an amount or percentage of the

principal or total amount of the security

being issued that would be charged to

other companies with a similar credit

rating and credit profile in a comparable

arm’s-length transaction; and (7)

KeySpan’s ‘‘aggregate investment’’ in

exempt wholesale generator (‘‘EWGs’’)

and foreign utility companies

(‘‘FUCOs’’), as that term is defined in

rule 53 under the Act, will not exceed

an amount equal to 250% of the

consolidated retained earnings of

KeySpan after giving effect to the

accounting adjustments required in

connection with the Mergers.

The proceeds from the financings

proposed in this application-declaration

will be used for lawful corporate

purposes, including: (1) Financing

investments by and capital expenditures

of KeySpan and its Subsidiaries; (2) the

repayment, redemption, refunding or

purchase by KeySpan or any Subsidiary

of any of its own securities under rule

42 under the Act; and (3) financing

working capital requirements of

KeySpan and its Subsidiaries.

I. Existing Financing Arrangements

KeySpan requests Commission

authorization to maintain in effect

through the Authorization Period all

existing financing arrangements of

KeySpan and its Subsidiaries as of the

date of the completion of the Mergers,6

as well as any additional financing

arrangements entered into before

completion of the Mergers,7 and to

amend, renew, extend, supplement and/

or replace these arrangements

(‘‘Refinancings’’). Any Refinancing that

occurs after completion of the Mergers

and that is subject to Commission

approval under the Act will comply

with the Financing Conditions and,

absent prior Commission approval, will

not: (1) Provide for an increase in the

aggregate amount of indebtedness

incurred; or (2) provide for a final

maturity date that is beyond the

Authorization Period.8 The total of all

outstanding securities issued by

KeySpan under any Refinancing,

together with the additional equity and

debt financing authority requested by

KeySpan in this application-declaration,

will not exceed $5.1 billion during the

Authorization Period.9

II. KeySpan External Financing

A. Common and Preferred Stock

KeySpan proposes, through the

Authorization Period, to issue common

stock and preferred stock in amounts

that, when combined with KeySpan’s

proposed additional debt and

convertible securities described below,

will not exceed $1.5 billion outstanding

at any one time (‘‘Additional Financing

Amount’’).10 All common stock sales by

KeySpan will be through underwritten

public offerings, in private placements

or in exchange for securities or assets

being acquired from other companies,

provided that the Commission has

authorized the acquisition of these

equity securities or assets in a separate

proceeding, or that acquisition is

exempt under the Act or the rules under

the Act.11 Preferred stock or other types

of preferred or equity-linked securities

may be issued by KeySpan in one or

more series with rights, preferences, and

priorities to be designated by KeySpan’s

board of directors. The divided rate on

any series of preferred securities issued

by KeySpan under this authority would

comply with the Financing Conditions.

B. Debt Financings

KeySpan proposes to issue long-term

and short-term debt during the

Authorization Period in amounts that,

when combined with the equity

58580 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

12 KeySpan states that maturity, interest rates,

redemption provisions, sinking fund terms, and

other terms of the proposed long-term debt

securities, medium-term notes, and institutional

debt would be determined by KeySpan at the time

of issuance.

13 KeySpan states that it presently issues

commercial paper to accredited investors, as that

term is defined in the 1933 Act, and that such

issuances are exempt under section 4(2) of the 1933

Act. KeySpan anticipates that future issuances of

commercial paper also will be exempt under the

1933 Act.

14 KeySpan currently has approximately $1.3

billion in Guarantees outstanding, which are

expected to remain in place following the Merger.

15Any amounts issued to third parties by these

Financing Subsidiaries under this authorization

will be included in the overall financing limitation

applicable to the immediate parent of that

Financing Subsidiary. However, the underlying

intrasystem mirror debt and parent guaranty shall

not be included in that limitation.

16Applicants state that these services may be

rendered at fair market prices to the extent that they

qualify for any exceptions from the ‘‘at cost’’

standards of the Act requested by KeySpan in this

application-declaration.

financings described above, will not

exceed $1.5 billion outstanding at any

one time. The long-term debt securities

would comply with the Financing

Conditions and may include various

types of debt securities to be issued

under an indenture to be entered into

between KeySpan and the Chase

Manhattan Bank, as trustee (‘‘KeySpan

Indenture’’). KeySpan states that any

securities issued under the KeySpan

Indenture, or under an exemption from

the registration requirements of the

Securities Act of 1933, as amended

(‘‘1933 Act’’), will be unsecured and

unsubordinated obligations and will

rank equally with all other unsecured

and unsubordinated debt of KeySpan.12

KeySpan’s proposed additional shortterm debt would include, but would not

be limited to, institutional borrowings,

commercial paper (including back-up

short-term credit facilities), and bid

notes. KeySpan states that the proposed

short-term debt will be unsecured and

will be issued in accordance with the

Financing Conditions.13 KeySpan states

that it may use the proceeds of any

short-term debt issuance to refund preMerger short-term debt and Mergerrelated debt, and to provide financing

for general corporate purposes, working

capital requirements, and Subsidiary

capital expenditures until long-term

financing can be obtained.

C. Guarantees

Following the Mergers, KeySpan

requests authority during the

Authorization Period to enter into

guarantees, letters of credit, expense

agreements and other forms of credit

support (‘‘Guarantees’’) with respect to

the payment and performance

obligations of the Subsidiaries in an

aggregate principal amount not to

exceed $2 billion outstanding at any one

time, not including obligations exempt

in accordance with rule 45 under the

Act. KeySpan states that this limit on

the aggregate principal amount of

Guarantees is separate from the amount

applicable to its proposed debt and

equity financing, and is in addition to

its existing Guarantees.14 KeySpan

further seeks authority to maintain in

effect and to amend, renew, extend,

and/or replace all Guarantees existing at

the time of the Mergers.

III. Subsidiary Financing

A. Utility and Nonutility Subsidiaries

The Utility Subsidiaries request

authority to issue and sell, during the

Authorization Period, additional debt

securities with maturities of one year or

less, up to the following aggregate

principal amounts (‘‘Additional Utility

Subsidiary Financing Amounts’’) and in

accordance with the Financing

Conditions:

Utility subsidiary

Aggregate

principal

amount ($

millions)

KeySpan New York .................. $250

KeySpan Long Island ............... 185

KeySpan Generation ................ 50

Boston Gas ............................... 150

Colonial Gas ............................. 75

Essex Gas ................................ 20

ENGI ......................................... 35

Total ................................... 765

B. Special-Purpose Subsidiaries

The Applicants seek Commission

approval to acquire the equity securities

of one or more special-purpose

subsidiaries (‘‘Financing Subsidiaries’’)

organized solely to facilitate a financing.

Applicants seek authority for these

Financing Subsidiaries to issue to third

parties income preferred securities or

other securities to the extent not exempt

under the Act.15 In addition, authority

is requested for: (1) The issuance of

debentures or other evidences of

indebtedness by any of the Subsidiaries

to a Financing Subsidiary in return for

the proceeds of the financing; (2) the

acquisition by any of the Subsidiaries of

voting interests or equity securities

issued by a Financing Subsidiary to

establish the Subsidiary’s ownership of

the Financing Subsidiary; and (3) the

guaranty by KeySpan of a Financing

Subsidiary’s payment and performance

obligations. Each of the Subsidiaries

also requests authority to enter into an

expense agreement with its respective

Financing Subsidiary, under which it

would agree to pay all expenses of the

Financing Subsidiary.

KeySpan and its Subsidiaries also

seek authority to invest in one or more

Subsidiaries (‘‘Intermediate

Subsidiaries’’) that would be organized

exclusively for the purpose of acquiring,

holding and/or financing the acquisition

of the securities of or other interest in

one or more EWGs or FUCOs, as defined

in sections 32 and 33, respectively, of

the Act, ‘‘energy-related’’ companies as

defined in rule 58 under the Act (‘‘Rule

58 Subsidiaries’’), exempt

telecommunications companies within

the meaning of section 34 of the Act

(‘‘ETCs’’), or other Nonutility

Subsidiaries authorized by order of the

Commission. KeySpan states that

Intermediate Subsidiaries also may

engage in development and

administrative activities relating to

these EWGs, FUCOs, Rule 58

Subsidiaries, and other Nonutility

Subsidiaries, and requests authority for

Intermediate Subsidiaries to provide

management, administrative, and other

services to these entities.16

KeySpan further requests that the

Commission reserve jurisdiction over

the acquisition, directly or indirectly, of

the securities of one or more new

Subsidiaries (‘‘New Subsidiaries’’),

pending completion of the record. These

New Subsidiaries would be organized

exclusively for the purpose of engaging

in one or more of the activities in which

any of KeySpan’s existing Nonutility

Subsidiaries is engaged at the effective

time of the Mergers.

Investments in Intermediate

Subsidiaries of New Subsidiaries may

take the form of any combination of the

following: (1) Purchase of capital shares,

partnership interests, member interests

in limited liability companies, trust

certificates or other forms of equity

interests; (2) capital contributions; (3)

open account advances with or without

interest; (4) loans; and (5) guarantees

issued, provided or arranged in respect

of the securities or other obligations of

any Intermediate Subsidiaries or New

Subsidiaries. In addition, KeySpan

requests authority to consolidate or

otherwise reorganize its ownership

interests in existing and future

Nonutility Subsidiaries under one or

more direct or indirect Intermediate

Subsidiaries. Funds for any direct or

indirect investment in any Intermediate

Subsidiaries or New Subsidiaries will be

derived from (1) financings authorized

in this proceeding; (2) any appropriate

future debt or equity securities issuance

authorization from the Commission; and

(3) other available cash resources,

including proceeds of securities sales by

Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58581

17 KeySpan’s consolidated retained earnings as of

June 30, 2000 totaled approximately $528 million,

which reflects the effects of an earlier merger

consummated on May 28, 1999. KeySpan’s pro

forma combined consolidated retained earnings

after giving effect to the Mergers will be

substantially the same.

18 KeySpan New York and KeySpan Long Island

will be limited to borrowing from the Money Pool

only.

a Nonutility Subsidiary under rule 52.

To the extent that KeySpan provides

funds or issues guarantees directly or

indirectly to support the obligations of

an Intermediate Subsidiary which are

incurred for the purpose of making an

investment in any EWG or FUCO or a

Rule 58 Subsidiary, the amount of these

funds or guarantees will be included in

KeySpan’s ‘‘aggregate investment’’ in

those entities, as calculated in

accordance with rule 53 or rule 58

under the Act, as applicable.

IV. EWG and FUCO Financing

Following the Mergers, KeySpan

seeks authority to finance the

acquisition of EWGs and FUCOs, either

directly or indirectly through

intermediate companies, partnerships or

other corporate entities during the

Authorization Period. KeySpan further

requests that the Commission authorize

KeySpan to invest up to an amount

equal to 250% of the consolidated

retained earnings of KeySpan in EWGs

and FUCOs. Applicants state that

KeySpan’s aggregate investment in

EWGs and FUCOs as of September 11,

2000 was approximately $690 million,

and that KeySpan will have an aggregate

investment of 130.74% of its retained

earnings in EWGs and FUCOs as of the

date the Merger is completed.17

KeySpan further states that it currently

plans to invest in two additional EWGs

and that this investment, if

consummated, would bring KeySpan’s

total aggregate investment to 227.5% of

retained earnings.

V. Other Proposed Financing

Transactions

A. KeySpan System Money Pools

KeySpan and the Utility Subsidiaries

propose to establish a utility money

pool (‘‘Utility Money Pool’’). The Utility

Subsidiaries also request authorization

to make unsecured short-term

borrowings from the Utility Money Pool,

contribute surplus funds to the Utility

Money Pool, and lend and extend credit

to (and acquire promissory notes from)

one another through the Utility Money

Pool. KeySpan may invest in, but not

borrow from, the Money Pool.18 Each of

the Utility Subsidiaries may borrow

from the Utility Money Pool up to its

respective Additional Utility Subsidiary

Financing Amount at any one time

outstanding.

In addition, KeySpan and the

Nonutility Subsidiaries request

authorization to establish a nonutility

money pool (‘‘Nonutility Money Pool,’’

and collectively, ‘‘Money Pools’’).

Applicants state that rule 52 exempts

the Nonutility Money Pool activities of

the Nonutility Subsidiaries from the

Act’s prior approval requirements.

KeySpan requests authority to

contribute surplus funds and to lend

and extend credit to: (1) The Utility

Subsidiaries through the Utility Money

Pool; and (2) the Nonutility Subsidiaries

through the Nonutility Money Pool.

Funds made available by KeySpan for

loans through the Money Pools will be

made available first for loans through

the Utility Money Pool and then for

loans through the Nonutility Money

Pool.

Funds not required by the Utility

Money Pool to make loans (with the

exception of funds required to satisfy

the Utility Money Pool’s liquidity

requirements) would ordinarily be

invested in one or more short-term

investments, including: (1) Interestbearing accounts with banks; (2)

obligations issued or guaranteed by the

U.S. government and/or its agencies and

instrumentalities, including obligations

under repurchase agreements; (3)

obligations issued or guaranteed by any

state or political subdivision, provided

that the obligations are rated not less

than ‘‘A’’ by a nationally recognized

rating agency; (4) commercial paper

rated not less than ‘‘A–1’’ or ‘‘P–1’’ or

their equivalent by a nationally

recognized rating agency; (5) money

market funds; (6) bank certificates of

deposit; (7) Eurodollar funds; and (8)

other investments that are permitted by

section 9(c) of the Act and rule 40 under

the Act.

KCS will administer the Money Pool

on a ‘‘at cost’’ basis and will maintain

separate records for each money pool

Surplus funds of the Money Pools may

be combined in common short-term

investments, but KCS will maintain

separate records of these funds.

Applicants request that the Commission

reserve jurisdiction over the

participation by future companies

formed or acquired by KeySpan in the

relevant money pool, until a specific

post-effective amendment is filed that

names the Subsidiary to be added as a

participant in that money pool.

B. Hedging Transactions

KeySpan and, to the extent not

exempt under rule 52, the Subsidiaries

request authority to continue existing,

and to enter into additional interest rate

hedging transactions with respect to

existing indebtedness (‘‘Interest Rate

Hedges’’), subject to certain limitations

and restrictions, in order to reduce or

manage interest rate costs. Applicants

state the Interest Rate Hedges would

involve the use of financial instruments

commonly used in today’s capital

markets, including interest rate sways,

caps, collars, floors, and structured

notes, or transactions involving the

purchase or sale, including short sales,

of U.S. Treasury obligations.

In addition, the Applicants request

authority to continue existing, and to

enter into additional interest rate

hedging transactions with respect to

anticipated debt offerings, subject to

certain limitations and restrictions

(‘‘Anticipatory Hedges’’). Anticipatory

Hedges would be utilized to fix and/or

limit the interest rate risk associated

with any new issuance through the use

of various derivative or cash

transactions, including, but not limited

to, structured notes, caps and collars.

C. Changes in Capital Stock of

Subsidiaries and Payment of Dividends

Out of Capital or Unearned Surplus

Applicants request authority to

change the terms of any wholly owned

Subsidiary’s authorized capital stock

capitalization by an amount deemed

appropriate by KeySpan or other

immediate parent company. This

authority would allow a Subsidiary to

change the par value, or change between

par and no-par stock, without additional

Commission approval. Any action by a

Utility Subsidiary would be subject to

and would only be taken upon receipt

of necessary approvals by the state

commission in the state or states where

the Utility Subsidiary is incorporated

and doing business.

The Applicants will account for the

Mergers using the purchase method of

accounting. Under this method of

accounting, the Mergers will give rise to

a substantial level of goodwill which, in

accordance with the Commission’s Staff

Accounting Bulletin No. 54, Topic 5J

(‘‘Staff Accounting Bulletin’’), will be

‘‘pushed down’’ to Eastern,

EnergyNorth, and their respective

subsidiaries and reflected as additional

paid-in capital in their financial

statements. In addition, as a result of the

push-down of the goodwill, the retained

earnings of Eastern and EnergyNorth

and their subsidiaries will be effectively

set to zero as if they were new

companies, with the balance being

reflected in paid-in capital.

Accordingly, the Applicants request

authorization to pay dividends out of

the additional paid-in capital accounts

of Eastern, EnergyNorth, Midland

58582 Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices

19Midland and Transgas are nonutility

subsidiaries of Eastern.

20Following the Mergers, Eastern’s and

EnergyNorth’s stock plans will cease to operate and

may be assumed by KeySpan. However, KeySpan

may issue shares of its common stock under the

authorization sought in this application-declaration

in order to satisfy the obligations of Eastern and

EnergyNorth under all these discontinued plans.

Therefore, KeySpan also requests authority to issue

and/or to sell shares of its common stock for this

purpose.

21As of December 31, 1999, substantially all

options currently authorized under the 1996 Stock

Option Plan had been granted.

22MHK was formed to establish and maintain an

Internet-based website offering certain energy and

home-related goods and services. As of April 18,

2000, KeySpan owned an approximate 18.2%

beneficial interest in MHK through KeySpan’s

wholly owned subsidiary, KeySpan MHK Inc. MHK

also expects to issue and sell common stock in an

initial public offering for purposes of raising capital

to finance the business activities contemplated by

its current business plan.

23Under its existing stock plan, MHK may issue

incentive stock options, nonstatutory stock options

and stock purchase rights to participating

employees, directors and consultants. Shares of

MHK’s common stock also have been reserved for

issuance under an option granted to one of MHK’s

directors.

24 In addition, KeySpan requests that the

Commission find that this application is deemed to

constitute a filing on Form U–13–1 for purposes of

rule 88 under the Act, or, alternatively, that the

filing of a Form U–13–1 is not necessary under the

Act.

25 KeySpan states that, because of certain

requirements of the New York Public Service

Commission (‘‘NYUPSC’’) and the New York State

Education Law, the services offered by KUS and

KENG must be provided by separate entities in

order to protect the public.

26As a result of certain restrictions imposed by

the NYPSC, KUS will provide gas and electric

transmission and distribution systems planning,

marketing, gas supply planning and procurement,

research and development, and meter repair

operations, to only the following Subsidiaries:

KeySpan New York; KeySpan Long Island; KeySpan

Generation; KeySpan Electric Services LLC

(‘‘KESquo;); and KeySpan Energy Trading Services

LLC. Each of Boston Gas, Colonial Gas, Essex Gas,

and ENGI will provide these types of services to

themselves respectively and will not receive them

from KUS.

27LIPA is a corporate municipal instrumentality

of the State of New York that purchases the electric

generation capacity of KeySpan Generation at

wholesale. KES provides certain operation,

maintenance, and construction maintenance

services to LIPA.

Enterprises, Inc. (‘‘Midland’’), and

Transgas, Inc. (‘‘Transgas’’),19, up to the

amount of their respective retained

earnings immediately prior to the

Mergers and out of earnings before the

amortization of the goodwill after the

Mergers.

Applicants state that there may be

situations in which one or more

Nonutility Subsidiaries will have

unrestricted cash available for

distribution in excess of current and

retained earnings. Accordingly,

Applicants propose that the direct and

indirect Nonutility Subsidiaries be

permitted to pay dividends from time to

time out of capital and unearned

surplus through the Authorization

Period, to the extent permitted under

applicable laws, and to acquire, retire

and redeem securities that the

Nonutility Subsidiaries have issued to

any associate company, any affiliate, or

any affiliate of an associate company.

Without further approval of the

Commission, no Nonutility Subsidiary

will declare or pay any dividend out of

capital or unearned surplus if that

Nonutility Subsidiary derives any

material part of its revenues from the

sale of goods, services, electricity or

natural gas to any of the Utility

Subsidiaries.

D. Foreign Gas Related Investments

KeySpan states that it currently holds

interests in Nonutility Subsidiaries that

directly or indirectly engage in activities

in Canada which involve the supply of

natural gas, including exploration,

development, production, marketing, or

other activities within the meaning of

the Gas Related Activities Act of 1990

(‘‘GRAA’’). KeySpan expects that it may

expand its investments in companies

engaged in Canadian GRAA activities

(‘‘GRAA Canadian Subsidiaries’’).

Therefore, Applicants request that the

Commission reserve jurisdiction over

additional investments by existing

Nonutility Subsidiaries in existing

partially owned GRAA Canadian

Subsidiaries.

VI. Benefit and Dividend Reinvestment

Plans

KeySpan seeks authorization to issue

and sell its common stock from time to

time, during the Authorization Period

and subject to the Additional Financing

Amount, under its benefit plans and

dividend reinvestment plan. 20 Shares of

KeySpan common stock for use under

these plans may be either newly issued

shares, treasury shares, or shares

purchased in the open market.

Applicants also seek authority for The

Houston Exploration Company

(‘‘Houston Exploration’’), a wholly

owned subsidiary of KeySpan, to issue

securities under its 1996 and 1999 Stock

Option Plans from time to time during

the Authorization Period. Options

granted under Houston Exploration’s

1996 Stock Option Plan may not exceed

10% of the shares of Houston

Exploration’s common stock

outstanding from time to time.21 Under

the 1999 Stock Option Plan, 400,000

options were authorized of which

111,800 options were granted during

1999. Applicants further request

authorization for KeySpan’s indirect

subsidiary, MyHomeKey.com, Inc.

(‘‘MHK’’),22 to issue and sell, and to

repurchase, from time to time during the

Authorization Period under certain

existing stock plans, shares of MHK’s

common stock or options or other stock

purchase rights.23

VII. Tax Allocation Agreement

Applicants request approval of an

agreement for the allocation of

consolidated tax among KeySpan and its

subsidiaries following the Merger (‘‘Tax

Allocation Agreement’’). KeySpan states

that the Tax Allocation Agreement is

subject to approval by the Commission

under the Act because it provides for

the retention by KeySpan of certain

payments for tax losses that KeySpan

has incurred in connection with

acquisition-related debt related to the

Mergers.

VIII. Affiliate Transactions

A. Subsidiary Service Companies

KeySpan request that the Commission

approve two existing subsidiary service

companies, KCS and KUS, and one

additional service company, KeySpan

Engineering & Survey Inc. (‘‘KENG’’), as

subsidiary service companies in

accordance with rule 88(b) under the

Act (collectively, ‘‘Service

Companies’’) 24 Applicants state that

each of these three Service Companies

would provide a distinct set of services

to its affiliate companies.25 KCS would

provide traditional corporate and

administrative services to KeySpan and

the Subsidiaries. KUS would provide

only limited services to five

Subsidiaries.26 KENG would provide

engineering and surveying services

primarily to the Utility Subsidiaries as

well as to KeySpan’s direct nonutility

subsidiary KES, and to the Long Island

Power Authority (‘‘LIPA’’).27

Each of KCS, KUS, adn KENG propose

to enter into separate service agreements

(‘‘Service Agreements’’) with some or all

of KeySpan and its Subsidiaries, each of

which has been structured to comply

with the accounting and cost allocation

requirements of section 13 of the Act

and the Commission’s rules under the

Act. Under each of the Service

Agreements, charges for services

provided to client companies would be

at cost, in compliance with rules 90 and

91 under the Act.

KCS and KUS each propose to add to

their respective existing employee

rosters by transferring personnel for the

current rosters of certain Intermediate

Holding Companies, Utility

Federal Register / Vol. 65, No. 190 / Friday, September 29, 2000 / Notices 58583

1 15 U.S.C. 78k–1(a)(3).

2 17 CFR 240.11Aa3–2.

3On July 28, 2000, the Commission approved a

national market system plan for the purpose of

creating and operating an intermarket options

market linkage proposed by the American Stock

Exchange LLC (‘‘Amex’’), the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’), and the

International Securities Exchange LLC (‘‘ISE’’). See

Securities Exchange Act Release No. 43086 (July 28,

2000), 65 FR 48023 (August 4, 2000).

4The Plan defines an ‘‘eligible exchange’’ as a

national securities exchange registered with the

Commission pursuant to Section 6(a) of the Act, 15

U.S.C. 78f(a), that is a participant in the Options

Clearing Corporation and a party to the Options

Price Reporting Authority Plan.

5 In approving this proposed Linkage Plan

amendment, the Commission has considered the

proposal’s impact on efficiency, competition, and

capital formation. 15 U.S.C. 78c(f).

6 15 U.S.C. 78k–1(a)(1)(D).

7 17 CFR 240.11Aa3–2.

Subsidiaries, and other Subsidiaries.

KENG would be staffed by transferring

certain existing personnel from KUS.

The capitalization of each of KCS, KUS,

and KENG would consist of no more

than 10% equity.

In order to allow time to develop all

required systems, Applicants seek

authority to delay the full

implementation of its proposed service

company plan until January 1, 2001.

During the period between completion

of the Merger and that date, KeySpan

states that it would use certain interim

measures for allocating costs and

assigning services within the combined

registered holding company system.

B. Other Affiliate Transactions

Applicants request authority for the

Nonutility subsidiaries to provide

certain construction, goods or services a

fair market value, under certain

circumstances, to any nonutility

associate company in the KeySpan

system. In addition, certain Nonutility

Subsidiaries of KeySpan currently

participate in certain transactions with

affiliates at rates that may exceed cost

under existing arrangements. KeySpan

requests an interim exemption from the

cost standards of rules 90 and 91 under

the Act to allow these Nonutility

Subsidiaries to continue participating in

these arrangements for a period of not

longer than 12 months following the

date of the Commission’s order in this

matte. Specifically, KeySpan requests

this interim approval for Northeast Gas

Markets LLC, a wholly owned nonutility

subsidiary of KeySpan, to continue to

provide contract administrative services

at market rates to two nonutility affiliate

companies, Alberta Northeast Gas

Limited and Boundary Gas Inc., for the

specified 12-month period: KeySpan

also requests an exemption from the

cost standards of rules 90 and 91 under

the Act to allow another Nonutility

Subsidiary, Transgas, Inc., to continue

providing gas transportation services to

the Utility Subsidiaries to the extent

that these services are not exempt under

rule 81.

For the Commission by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–24975 Filed 9–28–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43310, File No. 4–429]

Joint Industry Plan; Notice of Filing

and Order Granting Temporary

Effectiveness of Amendment to the

Options Intermarket Linkage Plan

September 20, 2000.

Pursuant to Section 11A(a)(3) of the

Securities and Exchange Act of 1934

(‘‘Act’’) 1 and rule 11Aa3–2 thereunder,2

notice is hereby given that on

September 18, 2000, the Pacific

Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’)

submitted to the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) an amendment to the

Options Intermarket Linkage Plan

(‘‘Linkage Plan’’).3 The amendment

proposes to add the PCX as a participant

to the Linkage Plan. The Commission is

publishing this notice and order to

solicit comments from interested

persons on the proposed Linkage Plan

amendment, and to grant temporary

effectiveness to the proposed Linkage

Plan amendment through January 18,

2001.

I. Description and Purpose of the

Amendment

The current participants to the

Linkage Plan are Amex, CBOE, and ISE.

The proposed amendment to the

Linkage Plan would add the PCX as a

participant to the Linkage Plan. The

PCX has submitted a singed copy of the

Linkage Plan to the Commission in

accordance with the procedures set

forth in the Linkage Plan regarding new

participants. Sections 4(c) and 5(c)(ii) of

the Linkage Plan provide for the

admission of new participants, in which

eligible exchanges 4 may become a party

to the plan by: (i) executing a copy of

the plan, as then in effect; (ii) effecting

an amendment to the plan reflecting the

addition of the new participant’s name

and obtaining the Commission’s

approval of the plan as amended to

reflect the new participant; and (iii)

paying the applicable fee.

II. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed Linkage

Plan amendment is consistent with the

Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609. Copies of the submission, all

subsequent amendments, and all written

statements with respect to the proposed

Linkage Plan amendment that are filed

with the Commission, and all written

communications relating to the

proposed Linkage Plan amendment

between the Commission and any

person, other than those withheld from

the public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of the filing also will be

available at the principal offices of the

PCX. All submissions should refer to

File No. 4–429 and should be submitted

by October 30, 2000.

III. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Plan Amendment

After careful review, the Commission

finds that the proposed Linkage Plan

amendment is consistent with the

requirements of the Act and the rules

and regulations thereunder.5

Specifically, the Commission believes

that the proposed amendment, which

permits PCX to become a participant to

the Linkage Plan, is consistent with

Section 11A(a)(1)(D) of the Act,6 in

which Congress found that the linking

of all markets for qualified securities

through communication and data

processing facilities will foster

efficiency, enhance competition,

increase the information available to

brokers, dealers, and investors, facilitate

the offsetting of investors’ orders, and

contribute to best execution of such

orders. The Commission believes the

proposed amendment to include PCX as

a participant in the Linkage Plan is also

consistent with Rule 11Aa3–2 7 in that

it will contribute to the maintenance of

fair and orderly markets and remove

impediments to and perfect the

mechanisms of a national market system