(Release No. 35-27670; 70-9641)
KeySpan Corporation, et al.
Supplemental Order Authorizing the Retention of Nonutility Subsidiaries
KeySpan Corporation ("KeySpan"), a registered holding company and KeySpan's nonutility holding company subsidiary, KeySpan Services, Inc. ("KSI"), KSI's wholly owned nonutility holding company subsidiaries: KeySpan Business Solutions, LLC ("KBS"); KeySpan Home Energy Services, LLC ("KHES"); KeySpan Communications Corp. ("Communications") and KeySpan Energy Supply, Inc. ("KESI")1 have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment ("Post-Effective Amendment No. 12") under sections 9(a), 10, and 11 of the Public Utility Holding Company Act of 1935, as amended ("Act"), and rule 54 under the Act to a previously filed application-declaration ("Application"). The Commission issued a notice of the underlying application on October 20, 2000 (HCAR No. 27257).
By order dated November 7, 2000 (HCAR No. 27271),2 KeySpan was authorized to acquire Eastern Enterprises ("Merger Order").3 In the Merger Order, the Commission reserved jurisdiction over KeySpan's retention of certain nonutility subsidiaries,4 including those held by KSI ("KSI Nonutilities") and Energy North Mechanical Inc. ("ENI Mechanical").5
Subsequent to the Merger, under authorization received in the Financing Order, KeySpan restructured the ownership of its Nonutilities. As a result of this overall reorganization, KSI's direct subsidiaries are KBS, KHES, KESI and Communications. Applicants state that KBS, through its subsidiaries, will focus on the larger commercial, industrial, and institutional customers, while KHES, through its subsidiaries, will focus primarily on the residential and small commercial market. KESI will continue to obtain or broker supplies of electricity and gas to help satisfy the retail energy services needs of the customers of the KBS and KHES subsidiaries served through KESI.
Applicants state that KBS and KHES engage in no activity other than as intermediate nonutility holding companies. As part of their role as nonutility holding companies, Applicants propose that KBS and KHES may enter into various contracts on behalf of their respective subsidiaries to purchase equipment, supplies and services. In addition, Applicants propose that KBS and KHES enter into contracts with customers involving multiple of their respective subsidiaries' disciplines and then subcontract the work to these subsidiaries. To the extent that KBS or KHES contract to provides services or goods to their subsidiaries, they will do so in accordance with the affiliate rules under the Act.
II. KSI and the KSI Nonutilities
KBS owns directly and indirectly the following companies: KeySpan Energy Management, LLC ("KEM"); Fourth Avenue Enterprise Piping, LLC ("Fourth Avenue"); WDF, Inc ("WDF"); KSI Contracting, LLC ("KSI Contracting"); KSI Electrical, LLC ("KSI Electrical"); KSI Mechanical, LLC ("KSI Mechanical"); R.D. Mortman & Co., LLC ("Mortman"); Delta KeySpan, LLC ("Delta"); Paulus, Sokolowski & Sartor, LLC ("PSS"); KeySpan Engineering Associates, Inc. ("Engineering"); Binsky & Snyder LLC ("Binsky"); Elling Brothers ("Elling"), Elling Service Company, Inc. ("Elling Service"); a ninety percent ownership interest in Binsky & Synder Plumbing, LLC ("BSI Plumbing"); Binsky & Snyder Service, LLC ("BSS") Northern Peabody, Inc. ("Northern Peabody"), Granite State Plumbing & Heating, Inc. ("Granite State") and EnergyNorth Mechanicals, Inc. ("ENI Mechanical").
KHES owns directly and indirectly the following companies: KeySpan Energy Services Inc. ("KESI"); KeySpan Energy Solutions LLC ("Solutions"); a ninety percent ownership interest in KeySpan Plumbing and Heating Solutions, LLC ("KPH"); KeySpan Plumbing Solutions, Inc. ("KeySpan Plumbing"); Fritze KeySpan, LLC ("Fritze") and Active Conditioning, LLC ("Active").
Applicants state that the following two Nonutilities engage in energy marketing and brokering activities which have been found retainable under rule 58:
Applicants state that the following eighteen companies provide heating, ventilation, and air conditioning ("HVAC") services which have been found retainable under rule 58 or Commission precedent.6
Applicants state that the following company engages in mechanical contracting services which have been found retainable under Commission precedent:7
Applicants state that the following company engages in safety services which have been found retainable under Commission precedent:8
Applicants state that the following company engages in communications activities which have been found retainable under Commission precedent:9
Applicants state that the following company engages in power consulting and engineering services which have been found retainable under Commission precedent:10
Applicants state that the following company engages in engineering and consulting activities and is retainable under prior Commission precedent:11
Applicants state that the estimated fees, commissions and expenses in connection with the application are approximately $50,000 which are comprised primarily of legal fees for outside counsel.
KeySpan currently meets all of the conditions of rule 53(a) except for clause (1). At December 31, 2002, KeySpan's "aggregate investment," as defined in rule 53(a)(1), in exempt wholesale generators ("EWGs"), as defined in the Act, and foreign utility companies ("FUCOs"), as defined in the Act, was approximately $974,979,000. By Commission order dated December 6, 2002 (HCAR No. 27612), KeySpan was authorized to make investments in EWGs and FUCOs in an aggregate amount up to $2.2 billion. KeySpan has complied and will continue to comply with the record-keeping requirements of rule 53(a)(2), the limitation under rule 53(a)(3) of affiliate utility company personnel rendering services to KeySpan's EWGs or FUCOs and the requirements of rule 53(a)(4) concerning the submission of copies of certain filings under the Act to retail rate regulatory commissions. None of the circumstances described in rule 53(b) has occurred.
KeySpan states that there has been no material adverse impact on KeySpan's consolidated capitalization resulting from KeySpan's investments in EWGs and FUCOs. KeySpan says the formation of Captive would not, by itself, or even considered in conjunction with the effect of the capitalization and earnings of KeySpan's EWGs and FUCOs, have a material adverse effect on the financial integrity of the KeySpan system or an adverse impact on KeySpan's public-utility subsidiaries, their customers, or the ability of state commissions to protect the public-utility customers. As of December 31, 2002, KeySpan's consolidated capitalization consisted of 32.08% equity and 67.92% debt. These ratios comply with the requirement in KeySpan's financing order that KeySpan's common equity will be at least 30% of its capitalization. KeySpan states that the proposed transaction will have no adverse impact on KeySpan's ability to satisfy that requirement. In addition, at December 31, 2002, KeySpan's senior unsecured debt was rated "investment grade" by all the major rating agencies. In addition, KeySpan's EWG and FUCO investments have been profitable for all quarterly periods from December 31, 2000, through December 31, 2002.
KeySpan points out that all of its direct or indirect investments in EWGs and FUCOs are segregated from the public-utility subsidiaries. None of the public-utility subsidiaries 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 does not, and will not, seek recovery in the retail rates of any public-utility subsidiaries for any failed investment in, or inadequate returns from, an EWG or FUCO investment.
KeySpan states that investments in EWGs and FUCOs will not have a negative impact on the ability of the public-utility subsidiaries to fund operations and growth. The public-utility subsidiaries currently have financial facilities in place that are adequate to support their operations. The expectation of continued strong credit ratings by the public-utility subsidiaries should allow them to continue to access the capital markets to finance their operations and growth, KeySpan states.
Applicants state that, other than this Commission, no other federal or state regulatory commission has jurisdiction over the retention by KeySpan of the Nonutilities.
Due notice of the filing of this Application, as amended, has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of, or ordered by, the Commission. On the basis of the facts in the record, it is found that the applicable standards of the Act and rules under 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 jurisdiction is released over the retention of the KSI Nonutilities and that Post-Effective Amendment No. 12 be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, under delegated authority.
1 At the time KeySpan registered as a holding company, KeySpan Energy Supply, Inc. (`KE") was a direct subsidiary of KeySpan and the Merger Order permitted KeySpan to retain KE Supply (without reservation of jurisdiction) because its activities satisfied rule 58(b)(1)(v) (i.e., KE is a energy marketer). Subsequent to the Merger Order, ownership of KE Supply was reorganized for tax purposes so that it became a wholly owned subsidiary of KSI and, an indirect subsidiary of KeySpan. The reorganization was done under authority received in the Financing Order.
2 The Merger Order was modified by two supplemental orders on December 4, 2000 (HCAR Nos. 27286 and 27287.) KeySpan also received authority for various financing and reorganization activities. See HCAR No. 27272 (November 8, 2000), as corrected HCAR No. 27286 (December 1, 2000) (collectively, the "Financing Order").
3 By order dated May 29, 2002 (HCAR No. 27532), the Commission approved a reorganization of Eastern from a Massachusetts business trust to a Massachusetts limited liability company ("Conversion Order"). On May 31, 2002, under the Conversion Order, Eastern and KeySpan New England, LLC ("KNE LLC"), a newly formed Massachusetts limited liability company subsidiary of KeySpan, executed an agreement and plan of merger, with KNE LLC as the surviving entity. KNE LLC now holds the nonutility subsidiaries previously owned by Eastern and is an exempt holding company under section 3(a)(1) of the Act.
4 In the Merger Order, the Commission also reserved jurisdiction over KeySpan's retention of the following additional wholly owned, indirect nonutility subsidiaries: Eastern Enterprises Foundation ("EEF"); Eastern Urban Services, Inc. ("EUS"); Eastern Associated Capital Corp. ("EACC"), and Eastern Associated Securities Corp. ("EASC"). EEF, EUS, EACC, and EASC, are subsidiaries of KNE LLC. KeySpan will file a separate post-effective amendment addressing the retention issues regarding these companies at a later date.
5 ENI Mechanical was an indirect, wholly owned subsidiary of Eastern Enterprises. Subsequent to the Merger, ENI Mechanical and its wholly owned nonutility subsidiaries ("ENI Companies") became indirect, wholly owned subsidiaries of KeySpan. KeySpan then moved the ENI Companies under KSI and dissolved ENI Mechanical on or about August 24, 2001 under reorganization authority granted in the Financing Order.
6 Applicants state that these HVAC services are appliance services permitted under rule 58(b)(1)(iv). See Cinergy Corp., HCAR No. 26662 (February 7, 1997), See also, Conectiv, Inc., HCAR No. 26832 (February 25, 1998).
7 See GPU, Inc., HCAR No. 27165 (April 14, 2000).
8 See Consolidated Natural Gas Co., HCAR No. 26757 (August 27, 1997).
9 See The Southern Company, HCAR No. 26211 (December 30, 1994) (authorizing investment in a company that would design, construct, finance and operate a wireless communications system to serve the needs of the registered holding company system and regional nonassociates.); See also Appalachian Power Company, HCAR No. 24772 (December 9, 1988) (lease of fiber optic system)
10 See Cinergy Corp., HCAR No. 26662 (February 7, 1997); See also, Conectiv, Inc., HCAR No. 26832 (February 25, 1998).
11 See WPL Holdings, Inc., HCAR No. 26856 (April 14, 1998); See also, Central and Southwest Services, Inc., HCAR No. 26898 (July 21, 1998); General Public Utilities, et al., HCAR No. 25108 (June 26, 1990).