Holding Company Act Release 27612
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27612; 70-10063)
KeySpan Corp, et al.
Order Authorizing Use of Proceeds of Financing Transactions for Investments In Exempt Wholesale Generators and Foreign Utility Companies and Modifications to Prior Financing Authorizations
December 6, 2002
KeySpan Corporation ("KeySpan"), a registered holding company; KeySpan's utility subsidiaries: The Brooklyn Union Gas Company ("KED NY"); KeySpan Gas East Corporation ("KED LI"); and KeySpan Generation LLC ("KeySpan Generation"); KeySpan's direct nonutility subsidiaries: KeySpan Energy Corporation; KeySpan Electric Services LLC; KeySpan Exploration & Production LLC; KeySpan Technologies Inc.; KeySpan MHK, Inc.; KeySpan Corporate Services LLC; KeySpan Utility Services LLC; Marquez Development Corp.; Island Energy Services Company, Inc.; LILCO Energy Systems, Inc.; KeySpan-Ravenswood LLC; KeySpan-Ravenswood Services Corp.; KeySpan Services, Inc.; KeySpan Energy Trading Services LLC; and KeySpan Energy Supply LLC; and their respective nonutility subsidiaries; KeySpan New England, LLC ("KNE LLC"), a gas utility holding company exempt from registration under section 3(a)(1) of the Act by order;1 KNE LLC's gas utility subsidiaries: Boston Gas Company ("Boston Gas"); Essex Gas Company ("Essex Gas"); Colonial Gas Company ("Colonial Gas"); and EnergyNorth Natural Gas, Inc. ("ENGI"); KNE LLC's nonutility subsidiaries: EEG Acquisition Company, Inc.; 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.; and AMR Data Corporation; Broken Bridge Corporation; EnergyNorth Realty, Inc.; and their respective subsidiaries (collectively, "Applicants"), Brooklyn, NY, have filed an amended application-declaration under sections 6(a), 7, 9(a), 10, 12(b), 32 and 33 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 45 and 53 under the Act. On August 14, 2002, the Securities and Exchange Commission ("Commission") issued a notice of the application-declaration.2
KeySpan is a registered public-utility holding company. In an order dated November 7, 2000,3 as supplemented by the order dated December 1, 20004 (together, the "Merger Order"), the Commission approved KeySpan's acquisition of Eastern Enterprises ("Merger"). In addition, on November 8, 2000, the Commission issued an order,5 as supplemented by an order issued on December 1, 20006 (together, the "Financing Order"), authorizing a program of external financings, credit support arrangements and related proposals for KeySpan and its subsidiaries.
KeySpan directly or indirectly owns the following seven public-utility companies: (1) KED NY, which distributes natural gas at retail to residential, commercial and industrial customers in the New York City Boroughs of Brooklyn, Staten Island and Queens; (2) KED LI, which distributes natural gas at retail to customers in New York State located in the counties of Nassau and Suffolk on Long Island and the Rockaway Peninsula in Queens County; (3) KeySpan Generation, which owns and operates electric generation capacity located on Long Island all of which is sold at wholesale to the Long Island Power Authority ("LIPA") for resale by LIPA to its approximately 1.1 million customers; (4) Boston Gas, which distributes natural gas to customers located in Boston and other cities and towns in eastern and central Massachusetts; (5) Essex Gas, which distributes natural gas to customers in eastern Massachusetts; (6) Colonial Gas, which distributes natural gas to customers located in northeastern Massachusetts and on Cape Cod; and (7) ENGI, which distributes natural gas to customers located in southern and central New Hampshire, and the City of Berlin located in northern New Hampshire. KED NY, KED LI, KeySpan Generation, Boston Gas, Colonial Gas, Essex Gas and ENGI are collectively referred to as the "Utility Subsidiaries." Together, KED NY and KED LI serve approximately 1.66 million customers. Together, Boston Gas, Colonial Gas and Essex Gas serve approximately 768,000 customers. ENGI serves approximately 75,000 customers. KeySpan, through its Subsidiaries,7 engages in energy related non-utility activities as described in the Merger Order.
In the Financing Order,8 the Commission authorized KeySpan and its Subsidiaries to engage in a program of external and intrasystem financings (including credit support arrangements), to organize and acquire the securities of specified types of subsidiaries (including exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs")) and to engage in other financial and structural transactions from time to time through December 31, 2003 ("Authorization Period").
II. Existing Authority
Among other specific approvals granted in the Financing Order, the Commission authorized:
(1) KeySpan, directly or indirectly through its affiliates or Subsidiaries, to have aggregate investments in EWGs and FUCOs up to 250% of KeySpan's consolidated retained earnings ("EWG/FUCO Investment Approval");
(2) KeySpan, subject to an aggregate amount of $5.1 billion ("Aggregate Financing Amount") and other financing parameters set forth in the Financing Order, to (i) maintain existing financings, and (ii) issue and sell through the Authorization Period up to $1.5 billion of additional securities at any time outstanding ("Additional Financing Approval");
(3) The Utility Subsidiaries, to the extent not exempt under rule 52, to issue, sell and have outstanding at any one time during the Authorization Period new debt securities with maturities of one year or less up to the following specified amounts ("Utility Short-Term Debt Amounts"): KED NY ($250 million); KED LI ($185 million); KeySpan Generation ($50 million); Boston Gas ($150 million); Colonial Gas ($75 million); Essex Gas ($20 million); and ENGI ($35 million);
(4) KeySpan and the Subsidiaries to acquire the equity securities of one or more special-purpose subsidiaries organized solely to facilitate a financing and to guaranty the securities issued by these Financing Subsidiaries (as defined below), to the extent not exempt under rule 45(b) and rule 52 ("Financing Subsidiary Approval"); and
(5) KeySpan to (i) maintain in effect and to amend, renew, extend and/or replace any and all of its existing guarantees, letters of credit, expense agreements and other forms of credit support ("Guarantees") with respect to the obligations of the Subsidiaries or which may be entered into or given prior to the completion of the Merger including the Guarantees listed in Exhibit C to the application in SEC File No. 70-9699 ("Financing Application") which were approximately $2 billion and (ii) enter into additional Guarantees (i.e., in addition to the existing Guarantees) up to an additional aggregate principal amount of $2 billion (not including the existing Guarantees at the time of the Merger). Included in the Exhibit C Guarantees authorized by the Financing Order were a $13,000,000 guarantee and $12,000,000 guarantee KeySpan had provided to Hawkeye Construction, LLC ("Hawkeye"), a non-affiliate, under an agreement entered into in June 2000, prior to the Merger.
III. Terms and Conditions of the Financing
The Financing Order established the following terms and conditions ("Financing Parameters"): (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 by KeySpan to unaffiliated parties under the authority requested in this application-declaration will be rated investment grade or will meet the qualifications for being rated investment grade by a nationally recognized statistical rating organization ("NRSRO"); (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; and (6) the underwriting fees, commissions, and other similar remuneration paid in connection with the non-competitive issue, sale or distribution 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.
The proceeds from the financings proposed in this application-declaration will be used for lawful corporate purposes, including: (1) refinancing acquisition debt for the Merger; (2) financing investments by and capital expenditures of KeySpan and its Subsidiaries; (3) the repayment, redemption, refunding or purchase by KeySpan or any Subsidiary of any of its own securities under rule 42 under the Act; and (4) financing working capital requirements of KeySpan and its Subsidiaries.
IV. Requested Authority
A. EWG/FUCO Investment Approval
In the Financing Order, the Commission authorized KeySpan, directly or indirectly through its affiliates and Subsidiaries, to have "aggregate investments" (as defined in rule 53) in EWGs and FUCOs up to 250% of KeySpan's "consolidated retained earnings" (also as defined in rule 53). KeySpan requests that the Commission permit KeySpan, directly or indirectly through its affiliates or Subsidiaries, to make aggregate investments (as defined in rule 53) in existing and future EWGs and FUCOs through the Authorization Period of up to $2.2 billion, which represents approximately 440% of KeySpan's consolidated retained earnings for the four quarters ended September 30, 2002. KeySpan requests that the Commission reserve jurisdiction over KeySpan's ability to make additional investments in future FUCOs.9
B. Additional Financing Approval
KeySpan requests that the Commission increase the Additional Financing Amount of $1.5 billion approved in the Financing Order to $2.2 billion in the aggregate during the Authorization Period. Applicants state the increase of $700 million is necessary to ensure that KeySpan has flexibility with regard to its financing authority to obtain additional capital through debt or security issuances, as may be needed, to accommodate the EWG and FUCO investments up to the proposed $2.2 billion requested above. KeySpan further requests that the Commission increase the Aggregate Financing Amount on existing and Additional Financing Amounts from $5.1 billion to $5.8 billion, to reflect the increase of $700 million in the Additional Financing Amount requested. KeySpan further commits that any preferred securities issued by KeySpan will be rated at least minimum investment grade by at least one NRSRO.
KeySpan also requests authorization to issue unsecured long-term debt securities (i) that may be convertible into or exchanged for KeySpan common stock and (ii) may have maturities ranging from one (1) year to fifty (50) years. KeySpan's issuance and sale of additional securities up to the $2.2 billion for the Additional Financing Amount, and $5.8 billion for the increase in the Aggregate Financing Amount, will be subject to the Financing Parameters set forth above and any other applicable conditions, commitments or restrictions contained in the Financing Order or this proceeding that are applicable to these security issuances.
C. Utility Subsidiary Financings
The Utility Subsidiaries request that the Commission increase the Utility Short-Term Debt Amount during the Authorization Period to permit the Utility Subsidiaries to increase short-term debt up to the following aggregate principal amounts: KED NY ($300 million); KED LI ($300 million); KeySpan Generation ($75 million); Boston Gas ($500 million); Colonial Gas ($125 million); Essex Gas ($25 million); and ENGI ($125 million). Any such debt will be issued in accordance with the applicable Financing Parameters set forth above
In the Financing Order, the Commission also approved the Utility Money Pool but limited the amount each Utility Subsidiary could borrow at any one time during the authorization period to its applicable Utility Short-Term Debt Amount. The Utility Subsidiaries request that the aggregate amounts that each Utility Subsidiary may borrow at any one time from the Utility Money Pool be increased to correspond to the aggregate amounts for each Utility Subsidiary set forth above. Except for the modification in borrowing amounts, no other change is requested for the Utility Money Pool as approved in the Financing Order.
D. Financing Subsidiaries
Applicants request modification of the Financing Subsidiary Approval so that KeySpan, in addition to the Subsidiaries, can issue up to $500 million unsecured long-term debt to the Financing Subsidiaries that may be subordinated to other long-term debt issued by KeySpan from time to time. In the Financing Order, the Commission authorized KeySpan and the Subsidiaries to organize new corporations, trusts, partnerships or other entities created for the purpose of facilitating financings through their issuance to third parties of income preferred securities or other authorized securities or issued under an applicable exemption ("Financing Subsidiaries"). The Financing Order approved the following requests:
1. Authorization of these Financing Subsidiaries to issue securities to third parties in the event the issuances are not exempt under rule 52;
2. Authorization (a) to issue debentures or other evidences of indebtedness by any of the Subsidiaries to a Financing Subsidiary in return for the proceeds of the financing, (b) of the acquisition by any of the Subsidiaries of voting interests or equity securities issued by a Financing Subsidiary to establish any such Subsidiary's ownership of a Financing Subsidiary (the equity portion of the entity generally being created through a capital contribution or the purchase of equity securities, ranging from one to three percent of the capitalization of the financing entity) and (c) of the guarantee (both payment and performance) by KeySpan of such Financing Subsidiaries' obligations.
3. Authorization of each of the Subsidiaries to enter into an expense agreement with its respective Financing Subsidiary, under which it would agree to pay all expenses of the Financing Subsidiary; and
4. Any amounts issued by the Financing Subsidiaries to third parties under this authorization will be included in the overall external financing limitation authorized in the Financing Application for the immediate parent of the financing entity. However, the underlying intra-system mirror debt and parent guarantee shall not be so included.
KeySpan requests that the Commission modify the authorizations in the Financing Order regarding the Financing Subsidiaries as follows: (i) with respect to item 1 above, authorization for these Financing Subsidiaries to issue preferred stock or other securities that are convertible into or exchangeable for KeySpan common stock; (ii) with respect to item 2(a) above, KeySpan, in addition to its Subsidiaries, has authority to issue debentures or other evidences of unsecured indebtedness to a Financing Subsidiary in return for the proceeds of the financing; (iii) with respect to item 2(b) above, KeySpan, in addition to its Subsidiaries, has authority to acquire voting interests or equity securities issued by a Financing Subsidiary to establish any such Subsidiary's ownership of a Financing Subsidiary (the equity portion of the entity generally being created through a capital contribution or the purchase of equity securities, ranging from one to three percent of the capitalization of the financing entity); (iv) with respect to item 3 above, KeySpan, in addition to each of the Subsidiaries, is authorized to enter into an expense agreement with its respective Financing Subsidiary, under which it would agree to pay all expenses of the Financing Subsidiary; and (v) with respect to item 4 above, any amounts issued by these Financing Subsidiaries to third parties under this authorization will be included in the overall external financing limitation authorized in the Financing Order or this proceeding, as applicable, for the immediate parent of the financing entity.
In addition, the Financing Order authorized KeySpan to issue debt securities under the KeySpan Indenture. In connection with the modifications requested above regarding KeySpan's actions in connection with Financing Subsidiaries, KeySpan requests that its authorization under the Financing Order be modified to provide that any securities issued by KeySpan to a third party or to a Financing Subsidiary will be unsecured and may be subordinated or unsubordinated obligations of KeySpan, issued either under the KeySpan Indenture, a supplemental indenture entered into with a trustee under the KeySpan Indenture or under a new indenture that will contain provisions substantially similar to those contained in the KeySpan Indenture.
KeySpan commits that the maximum amount of securities issued by a Financing Subsidiary will not exceed $500 million during the Authorization Period.
Applicants request authorization to include within KeySpan's existing Guarantee authority an additional guarantee obligation of $60,000,000 it has to Hawkeye under a June 2000 agreement. The $60,000,000 Guaranty will be included in the total dollar amount of Guarantees currently authorized by the Commission. KeySpan will in no event exceed its $2 billion limit on future Guarantees previously set by the Financing Order.
Except as stated in this application-declaration, KeySpan and the Subsidiaries are not seeking any other changes or modifications to the terms, conditions or limitations otherwise applicable under the Financing Order.
Rule 53 provides that, if each of the conditions of paragraph (a) is met, and none of the conditions of paragraph (b) is applicable, then the Commission may not make certain adverse findings under sections 7 and 12(b) of the Act in determining whether to approve a proposal by a registered holding company to issue and sell securities to finance an investment in any EWG, or to guarantee the securities of any EWG. The Commission has applied these same criteria to financing of investments in FUCOs. Giving effect to the proposed increase in the EWG/FUCO Investment Approval, KeySpan will satisfy all of the conditions of rule 53(a) except for clause (1), since KeySpan is proposing to increase its aggregate investment in EWGs and FUCOs to more than 50% of KeySpan's consolidated retained earnings. KeySpan states that none of the conditions specified in rule 53(b) exist.
Rule 53(c) provides that, in connection with a proposal to issue and sell securities to finance an investment in any EWG, or to guarantee the securities of any EWG, a registered holding company that is unable to satisfy the requirements of paragraph (a) or (b) of rule 53 must "affirmatively demonstrate" that the proposal: (A) will not have a substantial adverse impact upon the financial integrity of the registered holding company system; and (B) will not have an adverse impact on any utility subsidiary of the registered holding company, or its customers, or on the ability of State commissions to protect such subsidiary or customers.
A. Impact on Financial Integrity
KeySpan asserts that financing investments in EWGs and FUCOs of up to $2.2 billion will not have a substantial adverse impact on the financial integrity of the KeySpan system. In support of this claim, KeySpan states the following:
1. Current EWG/FUCO Investment
KeySpan's aggregate investment in existing EWGs and FUCOs is $895,000,000, which represents approximately 180% of KeySpan's consolidated retained earnings for the four quarters ended September 30, 2002 ($498,282,000).10
2. Size of the Investment
KeySpan asserts that the amount of requested financing for investments in EWGs and FUCOs would involve a reasonable amount of capital for a company of KeySpan's size, based on various measures, and is well within the parameters set out by the Commission in other matters authorizing registered holding companies to finance investments in EWGs and FUCOs in amounts of 100% or more of retained earnings. KeySpan states that an aggregate investment of $2.2 billion in EWGs and FUCOs would represent, on a pro forma basis as of September 30, 2002, 26.7% of KeySpan's total consolidated capitalization, 46.7% of consolidated net utility plant, 18.5% of total consolidated assets, and 46.3% of the market value of KeySpan's outstanding common stock. KeySpan notes that these figures are comparable to other requests authorized by the Commission for financings for investment in EWGs and FUCOs in amounts exceeding the "safe harbor" limit specified in rule 53(a)(1) under the Act.11
3. Equity to Total Capitalization
KeySpan's common equity, expressed as a percent of consolidated capitalization, was approximately 33% as of September 30, 2002. Among other conditions imposed under the Financing Order, KeySpan is required to maintain common equity as a percentage of consolidated capitalization (inclusive of short-term debt) at 30% or above during the Authorization Period. Accordingly, KeySpan may not issue any securities unless, on a pro forma basis to take into account the issuance of such securities and the application of proceeds, common equity as a percentage of consolidated capitalization will remain at or above 30%. KeySpan has also committed to maintain common equity as a percentage of capitalization of each of the Utility Subsidiaries at 30% or above during the Authorization Period.
4. Credit Ratings
KeySpan's current long-term debt ratings are A3 and A, from Moody's Rating Service ("Moody's") and Standard & Poor's ("S&P"), respectively. KeySpan has committed to maintain a rating for all long-term debt that is at the investment grade level as established by a NRSRO.
5. Financial Performance
Applicants state that KeySpan's current investment in its operating EWGs have contributed positively to earnings. Specifically, since its acquisition in 1999, KeySpan-Ravenswood, LLC has continued to operate profitably and, accordingly, has consistently been accretive to KeySpan's earnings on a consolidated basis.
KeySpan also states that none of the adverse conditions specified in rule 53(b) exist. KeySpan states that it will file a post-effective amendment in this file should any of those circumstances occur during the Authorization Period.
6. Risk Management and Project Review Process
Applicants state that KeySpan has in place a number of formal project review procedures in order to evaluate various EWG or FUCO investments. Potential investments are evaluated against a number of investment criteria including: (i) economic viability of the project; (ii) political and regulatory risk; and (iii) strategic fit within the KeySpan system.
Analysis of the economic viability of the project includes an analysis of the overall industry environment in which the project will operate (i.e., progress towards privatization and/or restructuring, depending on where the project is located), the ability of the project to produce electricity at or below long-run marginal costs in the competitive region and the credit worthiness of potential power purchasers and other project counterparties. Applicants state that the economic viability analysis also examines construction risk, commercial risk and financial risk and appropriate methods by which to mitigate these risks.12 If non-recourse debt is chosen, such project will be secured solely by its assets, contracts and revenues, and creditors will have no ability to seek repayment upon default from KeySpan. This method of financing ensures that KeySpan's exposure to any EWG or FUCO will be limited to the amount of its equity commitment, and that the Utility Subsidiaries will bear no risk of a project's failure or financial distress. KeySpan commits that it will consider financing future EWG and FUCO investments with non-recourse debt to the extent practicable.
Analysis of political and regulatory risks involves careful review of changing political and regulatory regimes as well as long-term economic stability in the region. The analysis also includes review of permitting and environmental risks as well as legal risk associated with the ability to enforce contracts relating to the project and its financing. KeySpan's risk mitigation measures also include operating risks, interest rate risks and legal risks.
KeySpan states that it is particularly sensitive to ensuring that its independent energy investments contribute to KeySpan's overall strategic growth plan building upon KeySpan's strengths and resources to achieve broad corporate objectives within budgeting and expenditure guidelines.
B. Impact on Ratepayers
KeySpan also asserts that its request to increase its aggregate investment in EWGs and FUCOs to $2.2 billion will not have an adverse impact on any of the Utility Subsidiaries, their respective customers, or on the ability of the public service commissions in New York, New Hampshire and Massachusetts (collectively, the "State Commissions") to protect the Utility Subsidiaries or their customers. In support of this claim, KeySpan notes: (1) the insulation of the Utility Subsidiaries and their customers from potential direct adverse effects of investment in EWGs and FUCOs; (2) analyses of the Utility Subsidiaries' financial integrity; and (3) the effectiveness of the State Commissions in protecting ratepayers in their respective states from any adverse impact.
1. Insulation from Risk
Applicants state that all of KeySpan's direct or indirect investments in EWGs and FUCOs will be segregated from the Utility Subsidiaries. None of the Utility Subsidiaries will provide financing for, extend credit to, or sell or pledge its assets directly or indirectly to any EWG or FUCO in which KeySpan owns any interest. KeySpan further commits not to seek recovery in the retail rates of any Utility Subsidiary for any failed investment in, or inadequate returns from, an EWG or FUCO investment. KeySpan states that the State Commissions that regulate the Utility Subsidiaries are able to protect utility customers within their respective states.
KeySpan also states that it and its Subsidiaries will comply with the requirements of rule 53(a)(3) regarding the limitation on the use of the Utility Subsidiaries' employees in connection with providing services to EWGs and FUCOs. In addition, KeySpan states that it will comply with other conditions of rule 53(a) providing specific protections to customers of the Utility Subsidiaries and its state commissions, in particular, the requirements of rule 53(a)(2) regarding the preparation and making available of books and records and financial reports regarding EWGs and FUCOs, and the requirements of rule 53(a)(4) regarding filing of copies of applications and reports with other regulatory commissions.
2. The Utility Subsidiaries' Financial Integrity
KeySpan notes that the Utility Subsidiaries are in sound financial health, as indicated by such factors as their debt/equity ratios, credit ratings of the rated Utility Subsidiaries and earnings coverages. Common equity, expressed as a percent of consolidated capitalization as of September 30, 2002 for each of the Utility Subsidiaries is as follows: Essex Gas (35%); Colonial Gas (39%); Boston Gas (28%);13 KeySpan Generation (43%); ENGI (30%); KED NY (59%); and KED LI (45%). Each of the Utility Subsidiaries that are rated have very positive investment grade long-term debt and/or corporate credit ratings from Moody's and S&P as follows: KED LI (A2 and A+, respectively); KED NY (A2 and A+, respectively); KeySpan Generation (A3 and A, respectively); Boston Gas (A2 and A, respectively); and Colonial Gas (A2 and A, respectively).14
KeySpan asserts that additional investments in EWGs and FUCOs will not have any negative impact on the ability of the Utility Subsidiaries to fund operations and growth. KeySpan states that the Utility Subsidiaries currently have financial facilities in place that are adequate to support their operations. KeySpan further states that the expectation of continued strong credit ratings by the Utility Subsidiaries should allow them to continue to access the capital markets to finance their operations and growth.
3. Adequacy of State Commission Oversight
The Commission has received letters from the Massachusetts Department of Telecommunications and Energy, the New Hampshire Public Utilities Commission and the New York Department of Public Service. Specifically, with respect to the proposal to increase its EWG/FUCO Investment Approval: (1) the Massachusetts Department of Telecommunications and Energy took no position on the proposal, but noted that its jurisdiction over Boston Gas, Colonial Gas and Essex Gas would not be affected by the proposal; (2) the New Hampshire Public Utilities Commission and the New York Department of Public Service each state that it will not have an adverse impact on their ability to protect local ratepayers and jurisdictional public-utility companies (subject to additional representations made by KeySpan). Significantly, none of the State Commissions objected to KeySpan's requested increase in its EWG/FUCO Investment Approval.
The Commission has examined the application-declaration under the applicable standards of the Act, and has concluded that the proposed transactions are consistent with those standards. The Commission has reached these conclusions on the basis of the complete record before us.
Other than as discussed in the application-declaration, no federal or state commission other than this Commission has jurisdiction over the proposed transactions. Applicants state that fees and expenses in connection with the application-declaration will be approximately $50,000.
Due notice of the filing of the application-declaration has been given in the manner prescribed by rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that, except as to that matter over which jurisdiction has been reserved, the application-declaration, as amended, be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act and to the following:
KeySpan will file with the Commission certificates under rule 24 on a quarterly basis, beginning with the first calendar quarter after the date of this order, within sixty days after the end of each of the first three calendar quarters, and ninety days after the end of the last calendar quarter, or year end, to report transactions authorized under the Act by this order in which transactions occur, containing the following information:
- The sales of any common stock and the purchase price per share and the market price per share at the date of the agreement of sale;
- The total number of shares of common stock issued or issuable under options granted during the quarter under KeySpan's dividend reinvestment plans or employee benefit plans, including any plans subsequently adopted;
- If common stock of KeySpan has been transferred to a seller of securities of a company being acquired, the number of shares so issued, the value per share and whether the shares are restricted to the acquiror;
- The name of the guarantor and of the beneficiary of any guarantied note or KeySpan Guaranty or Nonutility Subsidiary Guaranty issued during the quarter, and the amount, terms and purpose of the guaranty;
- The amount and terms of any long-term debt or preferred stock issued directly or indirectly by KeySpan or a Utility Subsidiary during the quarter;
- The amount and terms of any financings consummated by any Nonutility Subsidiary during the quarter that are not exempt under rule 52;
- The notional amount and principal terms of any Interest Rate Hedge or Anticipatory Hedge entered into during the quarter and the identity of the parties to the instruments;
- The market-to-book ratio of KeySpan's common stock;
- The name, parent company, and amount invested in any Intermediate Subsidiary or Financing Subsidiary during the quarter;
- A list of U-6B-2 statements filed with the Commission during the quarter, including the name of the filing entity and the date of filing;
- The amount and terms of any short-term debt issued directly or indirectly by KeySpan during the quarter;
- The amount and terms of any short-term debt issued directly or indirectly by any Utility Subsidiary during the quarter;
- Consolidated balance sheets as of the end of the quarter and separate balance sheets as of the end of the quarter for each company, including KeySpan, that has engaged in jurisdictional financing transactions during the quarter;
- A table showing, as of the end of the quarter, the dollar and percentage components of the capital structures of KeySpan on a consolidated basis and each Utility Subsidiary;
- A retained earnings analysis of KeySpan on a consolidated basis, each Intermediate Holding Company and each Utility Subsidiary detailing gross earnings, goodwill amortization, dividends paid out of each capital account; and the resulting capital account balances at the end of the quarter;
- A computation in accordance with rule 53(a) setting forth KeySpan's "aggregate investment" in all EWGs and FUCOs, its "consolidated retained earnings" and a calculation of the amount remaining under the requested EWG/FUCO Investment Approval; and
- A computation in accordance with rule 53(a) setting forth KeySpan's "aggregate investment" in EWGs and FUCOs as a percentage of the following: (i) total consolidated capitalization; (ii) net utility plant; (iii) total consolidated assets; and (iv) aggregate market value of KeySpan's common equity, all as of the end of the quarter.
IT IS FURTHER ORDERED, that jurisdiction is reserved, pending completion of the record, over KeySpan's ability to make additional investments in future FUCOs.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
1 Holding Co. Act Release No. 27532 (May 29, 2002).
2 Holding Co. Act Release No. 27560.
3 Holding Co. Act Release No. 27271.
4 Holding Co. Act Release No. 27287.
5 Holding Co. Act Release No. 27272.
6 Holding Co. Act Release No. 27286.
7 Each directly and indirectly owned subsidiary of KeySpan is referred to individually as a "Subsidiary" and collectively as "Subsidiaries."
8 Holding Co. Act Release Nos. 27272 (Nov. 8, 2000) and 27286 (Dec. 1, 2000).
9 This order permits KeySpan to continue to make additional investments in its existing FUCOs.
10 KeySpan wholly owns three EWGs (KeySpan-Ravenswood, LLC, a New York limited liability company, KeySpan-Glenwood Energy Center LLC, in New York and KeySpan-Port Jefferson Energy Center LLC in New York). KeySpan also partially owns two FUCOs (Phoenix Natural Gas Limited (24.5%), a Northern Ireland company and FINSA Energeticos, S. de R.L. de C.V. (50%), a Mexican company).
11 See FirstEnergy Corp., Holding Co. Act Release No. 27459 (Oct. 29, 2001)(25%, 35.7%, 12.8% and 58.8%, respectively); Exelon Corp., Holding Co. Act Release No. 27296 (Dec. 8, 2000)(18.9%, 23.3%, 11.1% and 28.2%, respectively); Cinergy Corp., Holding Co. Act Release No. 27400 (May 18, 2001)(49.1%, 50.8%, 27.3% and 60.1%, respectively); Dominion Resources, Inc., Holding Co. Act Release No. 27485 (Dec. 28, 2001)(25%, 36%, 18% and 39%, respectively); and Allegheny Energy, Inc., Holding Co. Act Release No. 27486 (Dec. 31, 2001)( 21%, 19%, 14% and 30%, respectively).
12 With respect to financial risks KeySpan states that it generally requires sufficient quality in project contracts, creditworthy customers and merchant market participation that will allow a project to secure the maximum amount of permanent debt financing for the project that is available at reasonable cost.
13 For the period ended September 30, 2002 the common equity of Boston Gas as a percentage of consolidated capitalization was below 30% primarily because of the seasonality of the revenues realized from its gas operations. KeySpan intends to make a capital contribution to Boston Gas in the amount of $50 million no later than December 31, 2002. After giving effect to this contribution, the equity as a percentage of consolidated capitalization for the period ended September 30, 2002 would have been 32%, on a pro forma basis.
14 Essex Gas and ENGI do not have rated debt.