[Federal Register Volume 63, Number 106 (Wednesday, June 3, 1998)]
[Notices]
[Pages 30273-30276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14623]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-26878]


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

May 27, 1998.
    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 amendments is/are available for public 
inspection through the Commission's Office 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 22, 1998, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549, 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 case of an attorney at law, by 
certificate) should be filed with the request. Any request for hearing 
should identify specifically the issues of fact 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 22, 1998, the application(s) and/or declaration(s), 
as filed or as amended, may be granted and/or permitted to become 
effective.

NIPSCO Industries, Inc.

(70-9197)

    NIPSCO Industries, Inc. (``NIPSCO''), 801 East 86th Avenue, 
Merrillville, Indiana 46410, an Indiana public utility holding company 
exempt under section 3(a)(1), under rule 2, from all provisions of the 
Act except section 9(a)(2), has filed an application under sections 
9(a)(2) and 10 of the Act, in connection with a proposed acquisition of 
Bay State Gas Company (``Bay State''), a Massachusetts public utility 
holding company exempt under section 3(a)(2), under rule 2, from all 
provisions of the Act except section 9(a)(2).
    NIPSCO owns all of the issued and outstanding common stock of three 
public utility subsidiary companies that provide electric and retail 
natural gas \1\ service exclusively within Indiana.
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    \1\ As of December 31, 1997, the NIPSCO gas distribution system 
was comprised of approximately 13,400 miles of distribution mains 
and 729,400 customer meters. NIPSCO currently purchases 
approximately 89% of its total system gas requirements from 
production in the on-shore and off-shore Texas and Louisiana 
producing areas, and approximately 8% from production in the Mid-
Continent (Oklahoma and Kansas), Permian (west Texas) and San Juan 
(New Mexico) Basins. It is anticipated, however, that, beginning as 
early as 1999, with the completion of construction of new pipeline 
capacity from western Canada to the upper Midwest markets, NIPSCO 
will begin to purchase significant amounts of lower-cost gas 
produced in the Western Canadian Sedimentation Basin (Alberta and 
British Columbia). NIPSCO estimates that, by 2002, western Canadian 
gas could potentially account for as much as 40% of its total system 
supply. Currently, NIPSCO subsidiaries have contracted for ``firm'' 
transportation capacity and storage service on five different long-
haul interstate pipelines (Tennessee Gas Pipeline Company 
(``Tennessee Gas''), NGPL, ANR Pipeline Company, Panhandle Eastern 
Pipeline Company and Trunkline Gas Company).

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[[Page 30274]]

    Northern Indiana Public Service Company (``Northern Indiana''), 
NIPSCO's largest and dominant utility subsidiary, is a combination gas 
and electric utility company which operates in 30 counties in the 
northern part of Indiana, serving an area of about 12,000 square miles 
with a population of approximately 2,200,000. Northern Indiana 
distributes gas to approximately 662,500 residential, commercial and 
industrial customers and generates, purchases, transmits and sells 
electricity to approximately 416,300 retail and wholesale customers. 
Northern Indiana also provides gas transportation service to 
approximately 200 customers.\2\
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    \2\ Northern Indiana owns and operates underground gas storage 
facilities located at Royal Center, Indiana, with a storage capacity 
of 6.75 billion cubic feet (Bcf), and a liquified natural gas plant 
in LaPorte County, Indiana, having a storage capacity of 4.0 Bcf, 
which is used for system pressure maintenance and peak season 
(November-March) deliveries. Northern Indiana also holds under long-
term contract storage capacity totaling approximately 9.11 Bcf in 
the Markham, Moss Bluff and Egan salt-dome storage caverns in Texas 
and Louisiana. These facilities, which provide the NIPSCO system 
with a significant amount of ``high deliverability'' storage 
capacity are located at or near major supply ``hubs'' which have 
formed at locations where interstate pipelines serving the upper 
Midwest, Northeast and Southwest markets intersect.
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    Kokomo Gas and Fuel Company (``Kokomo Gas'') supplies natural gas 
to approximately 33,500 retail customers in a six county area of north 
central Indiana having a population of approximately 100,000. The 
Kokomo Gas service territory is contiguous to Northern Indiana's gas 
service territory.
    Northern Indiana Fuel and Light Company, Inc. (``NIFL'') supplies 
natural gas to approximately 33,400 retail customers in five counties 
in the northeast corner of Indiana having a population of approximately 
66,700. The NIFL service territory is also contiguous to Northern 
Indiana's gas service territory, and overlaps Northern Indiana's 
electric service territory.\3\
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    \3\ NIPSCO was originally incorporated in 1987 to serve as the 
holding company for Northern Indiana and various non-utility 
subsidiaries. NIPSCO was authorized to acquire Kokomo Gas in 1992, 
Holding Co. Act Release No. 25470 (February 3, 1992), and NIFL in 
1993, Holding Co. Act Release No. 25766 (March 25, 1993).
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    NIPSCO's three utility subsidiaries (collectively, ``NIPSCO 
Operating Companies'') are subject to regulation by the Indiana Utility 
Regulatory Commission as to rates, service, accounts, issuance of 
securities, and other matters.
    NIPSCO also owns all of the outstanding common stock of Crossroads 
Pipeline Company (``Crossroads''), a non-utility natural gas 
transportation company that was certificated by the Federal Energy 
Regulatory Commission (``FERC'') in May 1995 to operate as an 
interstate pipeline.\4\ Crossroads owns and operates a 201-mile, 20-
inch, pipeline that extends from Schererville, in northwestern Indiana, 
where it takes delivery from the interstate pipeline facilities of 
Natural Gas Pipeline Company of America (``NGPL''), to Cygnet, in 
northwestern Ohio, where it interconnects with facilities owned by 
Columbia Gas Transmission Corporation (``CGTC'').\5\
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    \4\ See Crossroads Pipeline Company, 71 FERC para. 61,076 (April 
21, 1995).
    \5\ Crossroads recently announced plans to construct a 20-mile 
extension of its pipeline facility in Ohio to a point of 
interconnection with a unit of Consolidated Natural Gas Company. 
This extension will form a link in a chain of interstate pipeline 
projects that are designed to transport natural gas from the Chicago 
area market to eastern markets served by CNG Transmission Corp. and 
Transcontinental Gas Pipe Line Corp. (``Transco'') by late 1999.
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    NIPSCO's other principal non-utility subsidiaries include IWC 
Resources Corporation which owns and operates seven subsidiaries, 
including two regulated water utility companies, the Indianapolis Water 
Company and Harbour Water Corporation, which provide water service in 
Indianapolis, Indiana and surrounding areas;\6\ NIPSCO Development 
Company, Inc., which holds various investments, including investments 
in real estate and venture capital enterprises; NI Energy Services, 
Inc., which is engaged in various energy-related activities, such as 
retail gas marketing, energy efficient lighting sales and 
installations, and gas and electricity wholesale marketing; Primary 
Energy, Inc., which arranges energy-related projects with large 
industrial customers; and NIPSCO Capital Markets, Inc., which handles 
financing for ventures of NIPSCO and certain of its subsidiaries, other 
than Northern Indiana.
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    \6\ The other five subsidiaries of IWC Resources Corporation, 
and each company's principal business are: (i) Utility Data 
Corporation (customer billing and data processing services); (ii) 
IWC Services, Inc. (waste water treatment); (iii) Waterway Holdings, 
Inc. (real estate development); (iv) SM&P Utility Resources, Inc. 
(utility location and marking services); and (v) Miller Pipeline 
Corporation (pipeline construction).
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    For the year ended December 31, 1997, the NIPSCO Operating 
Companies reported combined net income of $205.3 million on combined 
operating utility income of $286.2 million. Gas sales of the NIPSCO 
Operating Companies (including revenues from transportation only 
customers) of approximately $803 million and electric sales of 
approximately $1 billion accounted for approximately 44% and 56%, 
respectively, of the NIPSCO Operating Companies' gross utility revenues 
of approximately $1.8 billion for the year ended December 31, 1997. 
Consolidated assets of NIPSCO, its Operating Companies and its non-
utility subsidiaries (collectively, ``the NIPSCO System'') as of 
December 31, 1997, were approximately $4.9 billion, consisting of $3.1 
billion in net utility plant and associated facilities and $1.8 billion 
in net non-utility plant and other non-utility assets. Consolidated 
operating revenues, operating income and net income for the NIPSCO 
System were approximately $2.6 billion, $410 million and $191 million, 
respectively, for the year ended December 31, 1997.
    Bay State, which is both a public utility company and a holding 
company, distributes natural gas at retail in parts of Massachusetts 
and, through a wholly owned subsidiary, Northern Utilities, Inc. 
(``Northern''), in contiguous areas of Maine and New Hampshire.\7\
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    \7\ As of December 31, 1997, the combined gas system of bay 
State and Northern (together, the ``Bay State System'') consisted of 
5,158 miles of distribution mains; 29 miles of transmission lines, 
together with associated pumping and regulating stations; liquid 
natural gas liquefaction, vaporization and storage facilities; 
propane storage tanks; 270,108 customer service connections; and 
306,446 customer meters. The Bay State System purchases 
approximately 40% of its total system gas requirements from the on-
shore and off-shore Texas and Louisiana producing areas and 
approximately 49% of its total system requirements from the Western 
Canadian Sedimentation Basin. The Bay State System has contracted 
for ``firm'' transportation capacity on four domestic long-haul 
pipelines (Tennessee Gas, Transco, Texas Eastern Transmission Corp. 
and Texas Gas Transmission Corp.) as well as on TransCanada Pipe 
Line Corp. and several regional pipelines. Like NIPSCO, the Bay 
State System projects that it will purchase an increasing amount of 
its gas requirements from the Western Canadian Sedimentation Basin. 
This gas will reach the Bay State service area directly via the 
PNGTS pipeline (see below), which is scheduled to be completed in 
late 1998, as well as indirectly by means of any one of several 
different pipeline expansions/extensions (including the Crossroads/
CNG expansions) that have been announced and will provide the Bay 
State System with greater access to supplies available in the 
Chicago area market.
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    Bay State provides gas service to approximately 261,000 
residential, commercial and industrial customers in three separate 
areas of Massachusetts covering approximately 1,344 square miles and 
having a combined population of approximately 1,340,000. These include 
the greater Springfield area in western Massachusetts, an area 
southwest of Boston that includes the cities of Attleboro, Brockton and 
Taunton, and an area north of Boston extending to the New Hampshire 
border that includes the city of Lawrence. Bay

[[Page 30275]]

State is subject to regulation by the Massachusetts Department of 
Telecommunications and Energy as to rates, service, accounts, issuance 
of securities, and other matters.
    Northern provides gas service to approximately 46,000 residential, 
commercial and industrial customers in an area of approximately 808 
square miles in New Hampshire and Maine having a population of 
approximately 450,000. Northern's service area extends north from the 
Massachusetts-New Hampshire border to the Portland/Lewiston area in 
Maine. Northern is subject to regulation by the New Hampshire Public 
Utilities Commission and Maine Public Utilities Commission as to rates, 
service, accounts, issuance of securities, and other matters.
    Bay State has one direct wholly owned non-utility subsidiary, 
Granite State Gas Transmission, Inc. (``Granite State''), which owns 
and operates a 105-mile-6, to 12-inch diameter, interstate pipeline 
that extends from Haverhill, Massachusetts, where it interconnects with 
the facilities of Tennessee Gas Pipeline Company (``Tennessee Gas''), 
in a northeasterly direction to a point near Westbrook, Maine. Granite 
State also leases a 166-mile, 18-inch diameter, converted oil pipeline, 
which is used to transport western Canadian gas to Portland, Maine.
    Through a wholly owned subsidiary, Natural Gas Development, Inc. 
(``NGD''), Granite State is a partner in the Portland Natural Gas 
Transmission System (``PNGTS''), which was formed to construct a 292-
mile, 24-inch diameter, natural gas transmission line in northern New 
England that will form the northern link in a new gas transmission 
system designed to bring western Canadian gas supplies to the New 
England market. When complete, these facilities will interconnect with 
the Tennessee Gas pipeline facilities near Dracut, Massachusetts, and 
with Granite State at locations in Maine and New Hampshire.
    In addition to NGD, Bay State also has four other indirect non-
utility subsidiaries, all of which are wholly owned subsidiaries of 
Granite State: (1) EnergyUSA, Inc., a company organized to provide 
unregulated energy products and services, including water heater 
rentals, insurance programs for heating systems, and strategic energy 
supply management; (2) EnergyEXPRESS, Inc., an unregulated natural gas, 
electricity, propane and fuel oil marketer; (3) LNG Development Corp., 
which was established to invest in a proposed liquefied natural gas 
storage facility in Wells, Maine; and (4) Bay State Energy Enterprises, 
Inc., which is inactive.
    For the year ended December 31, 1997, the combined gas revenues 
(including revenues for transportation-only customers), utility 
operating income and net utility income of Bay State and Northern (as 
adjusted to eliminate the effect on earnings of a one-time write-off of 
restructuring costs)\8\ were approximately $441 million, $39.2 million 
and $21.6 million, respectively. Consolidated assets of Bay State and 
its subsidiaries as of December 31, 1997 were approximately $788 
million, consisting of $496.4 million in combined net utility plant of 
Bay State and Northern and $291.6 million in non-utility plant and 
other non-utility assets.
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    \8\ The restructuring charges, which related primarily to 
retirement benefits and consulting fees, totaled $11.4 million, and 
had the effect of reducing the combined net utility income of Bay 
State and Northern to approximately $14.7 million in 1997.
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    In accordance with an Agreement and Plan of Merger dated December 
18, 1997, as amended and restated as of March 4, 1998 (the ``Merger 
Agreement''), NIPSCO seeks authorization to acquire all of the issued 
and outstanding common stock of Bay State (``Merger'').\9\ Under the 
terms of the ``preferred merger''\10\ structure set forth in the Merger 
Agreement, Bay State would be merged with and into a wholly-owned 
NIPSCO subsidiary to be formed under the laws of Massachusetts which, 
upon completion of the Merger, would change its name to and operate 
under the name of ``Bay State Gas Company.''\11\ The Merger has been 
structured to qualify as a tax-free reorganization under section 368(a) 
of the Internal Revenue Code of 1986, as amended.
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    \9\ The Merger Agreement is subject to the approval of Bay 
State's shareholders at a special meeting called for that purpose to 
be held on May 27, 1998. The affirmative vote of the holders of two-
thirds of the outstanding shares of Bay State is required for 
approval. The Transaction is also subject to various regulatory 
approvals in addition to the approval of this Commission. Insofar as 
it relates to Bay State and Northern, the Merger is subject to the 
jurisdiction of the Massachusetts Department of Telecommunications 
and Energy, the New Hampshire Public Utilities Commission, and the 
Maine Public Utilities Commission. In addition, certain aspects of 
the Merger may be subject to the jurisdiction of the Federal Energy 
Regulatory Commission under the Federal Power Act. The Merger is 
also subject to the notification and reporting requirements of the 
Hart-Scott-Rodino Act.
    \10\ Applicant states that the Merger Agreement also provides 
for an ``alternative merger'' transaction which would be carried out 
in the event that it is not possible to consummate the ``preferred 
merger'' transaction. Applicant contends that the ``alternative 
merger'' transaction would not be subject to Commission jurisdiction 
under the Act and the request for approval made in its application 
concerns only the ``preferred merger'' transaction.
    \11\ Applicant notes that, following the Merger, the stock of 
Northern may be transferred to NIPSCO, which would result in 
Northern becoming a direct wholly-owned utility subsidiary of 
NIPSCO. If, however, Northern is maintained as a subsidiary of Bay 
State, Bay State will continue to claim exempt holding company 
status under section 3(a)(2) and rule 2.
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    Under the Merger Agreement, upon the effective date of the Merger, 
each outstanding share of common stock of Bay State (``Bay State 
Shares'') will be converted into the right to receive common shares of 
NIPSCO (``NIPSCO Shares''), or at the election of any Bay State 
shareholder and subject to certain limitations, cash, in either case 
having a value of $40.00 per share. The number of NIPSCO Shares that 
would be issued in exchange for each Bay State Share (the ``Exchange 
Ratio'') would be determined by dividing (i) $40.00 by (ii) the NIPSCO 
Share Price, which is the average of the closing prices of NIPSCO, as 
reported in The Wall Street Journal's NYSE Composite Transactions 
Report, for the 20 trading days immediately preceding the second 
trading day prior to the effective date of the merger.\12\ Bay State 
shareholders may elect to receive $40.00 in cash, without interest, for 
some or all of their Bay State Shares (``Cash Election''). The 
aggregate number of Bay State Shares that will be converted into the 
right to receive $40.00 in cash in the Transaction (the ``Cash Election 
Maximum)'' may not exceed an amount determined by dividing (A) the 
dollar number equal to the difference between (i) one-half of the 
product of (x) $40.00 multiplied by (y) the aggregate number of Bay 
State Shares outstanding on the second day prior to the effective date 
of the Merger less (ii) the dollar amount of a special dividend, if 
any, paid by Bay State prior to the Merger and certain other cash 
payments to be determined prior to such time, by (B) $40.00. Further, 
cash amounts paid to electing shareholders would be subject to 
proration if the aggregate number of Bay State Shares covered by the 
Cash Election exceeds the Cash Election Maximum.\13\
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    \12\ On a pro forma basis, based on the number of Bay State 
Shares and NIPSCO Shares outstanding on April 17, 1998, and assuming 
that 100% of the outstanding Bay State Shares are converted into the 
right to receive NIPSCO Shares at a conversion price of $27.38 per 
share (the 20-day trading average for the NIPSCO Shares determined 
as of April 17, 1998), the current shareholders of Bay State would 
effectively acquire, in exchange for their Bay State Shares, about 
13.7% of the issued and outstanding NIPSCO Shares.
    \13\ Applicant states that the terms of the Merger Agreement, 
including the Exchange Ratio, reflect months of due diligence and 
analysis and evaluation of the assets, liabilities and business 
prospects of Bay State and were the product of extensive and 
vigorous arm's-length negotiations between NIPSCO and Bay State. 
Applicant also states that Bay State engaged SG Barr Devlin (``Barr 
Devlin'') a nationally recognized investment banking concern, to 
evaluate NIPSCO's offer for Bay State. Barr Devlin subsequently 
delivered a ``fairness'' opinion to the Bay State board of directors 
to the effect that, based on certain assumptions stated therein, the 
consideration offered in connection with the Transaction is fair, 
from a financial point of view, to the holders of Bay State Shares. 
Applicant notes that a pro forma analysis prepared by Barr Devlin 
indicates that the Transaction would result in accretion to Bay 
State's shareholders in terms of earnings per share and that 
NIPSCO's shareholders would also realize accretion in earnings per 
share (assuming NIPSCO's shares continue to trade at current 
levels).

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[[Page 30276]]

    Following the Merger, the board of directors of ``new'' Bay State 
will consist of ten members, of whom three will be officers of NIPSCO, 
three will be officers of ``old'' Bay State, and four will be current 
outside directors of ``old'' Bay State. The current officers of ``old'' 
Bay State will continue to serve in similar capacities in ``new'' Bay 
State. The Merger Agreement also provides that NIPSCO shall nominate 
and recommend for election to the NIPSCO board of director one ``new'' 
Bay State directors to be mutually determined by NIPSCO and Bay State. 
``New'' Bay State will continue to maintain its principal executive 
offices in Westborough, Massachusetts.
    Applicant states that, upon consummation of the Merger, NIPSCO will 
own an integrated gas utility system comprised of its gas distribution 
system in Indiana and Bay State's gas distribution system in 
Massachusetts, Maine and New Hampshire, as well as an integrated 
electric utility system in Indiana.\14\
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    \14\ Post-merger, the NIPSCO System will provide gas 
distribution service to approximately 1,036,400 residential, 
commercial and industrial customers in a 14,152-square mile area in 
four states, as well as electric service to approximately 416,300 
customers, all in Indiana. On a pro forma basis, the combined net 
utility plant (gas and electric) of NIPSCO and Bay State as of 
December 31, 1997 would have totaled approximately $3,61 billion and 
combined gross utility revenues for the twelve months then ended 
would have totaled approximately $2.3 billion.
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    Applicant also states that the Merger is expected to produce 
various benefits to the public, investors and consumers and will 
satisfy all of the applicable standards under section 10 of the Act. 
Among other things, applicant states that, following the Merger, the 
combined companies will be better positioned to take advantage of 
operating economies and efficiencies through, among other measures, 
joint management optimization of their respective portfolios of gas 
supply, transportation and storage assets. Applicant also notes that 
the Merger is expected to provide benefits in the form of greater 
flexibility and capacity in financing the operations of the combining 
companies and an enhanced ability to take advantage of future strategic 
opportunities in the competitive marketplace for energy and energy 
services that is rapidly evolving in New England.
    Applicant contends that, after the Merger, NIPSCO will remain 
predominantly an intrastate (i.e., Indiana) holding company that will 
not derive any material part of its income from any out-of-state 
utility subsidiary and has requested an order under section 3(a)(1) 
declaring NIPSCO, after consummation of the Merger, to be exempt from 
all sections of the Act except section 9(a)(2).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14623 Filed 6-2-98; 8:45 am]
BILLING CODE 8010-01-M