SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27708; 70-10136)

KeySpan Corporation, et. al.

Order Authorizing Acquisition of Nonutility Subsidiary and Related Transactions

August 5, 2003

KeySpan Corporation ("KeySpan"), KeySpan Energy Corporation ("KeySpan Energy"), KeySpan Services, Inc. ("KSI"), KeySpan Business Solutions, Inc. ("KeySpan Business Solutions") and Paulus, Sokolowski and Sartor LLC ("PS&S") (collectively, the "Applicants"), each located in Melville, New York have filed with the Securities and Exchange Commission ("Commission") an application-declaration, as amended, ("Application") under sections 9(a) and 10 of the Public Utility Holding Company Act of 1935, as amended, ("Act") and rule 54 under the Act. The Commission issued a notice of the filing of the Application on July 9, 2003 (HCAR No. 27696). The Commission did not receive comments or a request for hearing.

The Applicants propose to acquire for cash all of the issued and outstanding common shares of Bard, Roa + Athanas Consulting Engineers, Inc. ("BR+A"), a Massachusetts corporation, under the terms of a Stock Purchase Agreement dated as of June 18, 2003 (the "Agreement"). BR+A is an unaffiliated, privately held company that provides engineering services primarily related to heating, ventilating and air conditioning systems to non-associated industrial and commercial customers.

KeySpan, a New York corporation, is a registered holding company under the Act. KeySpan was formed in May 1998 as a result of the business combination of KeySpan Energy Corporation, the parent of Brooklyn Union Gas Company, and certain businesses of the Long Island Lighting Company. KeySpan owns six natural gas public utility companies, one electric public utility company and various other nonutility companies. Under KeySpan's holding company structure, it has no independent operations, conducting substantially all of its operations through its subsidiaries. KeySpan's subsidiaries operate in the following four businesses: gas distribution, electric services, energy services, and energy investments.

KeySpan Energy is a direct wholly-owned subsidiary of KeySpan. KSI is a direct, wholly-owned nonutility subsidiary of KeySpan Energy, and is a holding company of several nonutility, "energy-related" companies as such term is defined in rule 58(b)(1) of the Act or pursuant to Commission precedent. KeySpan Business Solutions is a direct wholly-owned subsidiary of KSI.

PS&S is a direct, wholly-owned nonutility subsidiary of KeySpan Business Solutions and is engaged in the business of providing engineering and consulting services relating generally to design and permitting of energy management systems, office environments and equipment installations/modifications. PS&S' clients consist primarily of large industrial customers such as utilities, corporate offices, hotels, laboratories, warehouses, pharmaceutical companies, hospitals, universities and power plants. PS&S also serves as a general environmental and engineering consultant to major utility companies in New Jersey. Subsequent to the consummation of the acquisition, BR+A will become a direct, wholly-owned subsidiary of PS&S and will be converted to a limited liability company.

By order dated April 24, 2003, the Commission released jurisdiction over the retention by KSI of certain nonutility subsidiaries.¹ These subsidiaries engage in energy-related activities that have been found retainable under rule 58 of the Act or Commission precedent. In the KeySpan Order, the Commission authorized KSI, over the next five years, either on a stand alone basis or through other methods, to increase the percentage of energy-related revenues of PS&S so that its revenues are substantially energy-related as defined by Commission rule and/or precedent.

Applicants indicate that BR+A is an unaffiliated Massachusetts corporation in the business of providing engineering services primarily related to the: (1) mechanical, electrical and plumbing components of heating, ventilating and air conditioning systems; (2) design, construction, installation, maintenance and service of new and retrofit heating, ventilating, and air conditioning, electrical and power systems, motors, pumps, lighting, water, and plumbing systems for non-associated industrial and commercial customers; and (3) sale, installation and servicing of electric and gas appliances. BR+A's principal office and operating location is in Boston, Massachusetts and the majority of its clients are based in the Northeast. BR+A also maintains sales and field support offices in New York, Philadelphia, Baltimore, Chicago and Los Angeles.

Applicants submit that the purpose of the Transaction is to increase the percentage of energy-related revenues of PS&S and its subsidiaries, consistent with the KeySpan Order. Applicants represent that, based on historical data, subsequent to the Transaction, the percentage of energy-related engineering revenues for KSI subsidiaries would be increased from 65% to approximately 81% of total business revenues. In addition, the Applicants state that consummation of the Transaction will produce tangible benefits to the public, investors and consumers by adding to the KeySpan system's ability to compete with exempt holding company systems in the electric and/or gas utility industry, as well as nonutility companies engaged in similar lines of energy-related businesses, and enhance the ability of PS&S to obtain new clients in the energy sector within KeySpan's existing geographic footprint.

Pursuant to the terms of the Agreement, PS&S intends to acquire all of the issued and outstanding shares of BR+A common stock from its ten individual shareholders who collectively own 100% of BR+A. BR+A will be purchased for: (1) $32 million in cash, with an additional $3 million to be deposited into an escrow account and held for adjustment up or down based on a subsequent determination of whether BR+A has met certain financial criteria at the time of closing, and (2) payment of up to $14.7 million in contingent consideration, subject to BR+A's performance in meeting certain target levels of net operating earnings (excluding interest income) before payment of interest and income taxes, depreciation and amortization for each of the years 2003 to 2008.

PS&S will obtain the funds necessary to complete the Transaction from two sources. Thirty-five percent of the purchase price will be obtained from a loan from KeySpan to KSI to KeySpan Business Solutions to PS&S. The loan will have a maturity equal to the estimated useful life-span of the long-lived assets acquired in the Transaction. The interest rate on the loan will match the interest rate being paid by KeySpan on already existing debt with a similar maturity. The balance of the funds needed by PS&S to complete the Transaction will be obtained from a capital contribution from KeySpan to KeySpan Energy to KSI to KeySpan Business Solutions to PS&S. ²

Under Rule 54, the Commission, in determining whether to approve the proposed Transaction, shall not consider the effect of the capitalization or earnings of any of KeySpan's subsidiaries which are an exempt wholesale generator ("EWG") or a foreign utility company ("FUCO"), if the provisions of rule 53(a) and (b) are satisfied. KeySpan meets all of the requirements of Rule 53(a) other than clause (1). With respect to clause (1) of rule 53(a), the Commission by order dated December 6, 2002 (HCAR No. 27612), determined that investments by KeySpan in EWG's and FUCO's in an aggregate amount of up to $2.2 billion would not have the adverse effects set forth in Rule 53(c). At June 30, 2003, KeySpan's "aggregate investment" as defined in rule 53(a)(1) was approximately $1,034,075,000.

As of June 30, 2003, KeySpan's consolidated capitalization consisted of 39.78% equity and 60.22% debt. Applicants' state that the purchase price, assuming the maximum contingent consideration is paid, would amount to approximately one-half of one percent of KeySpan's total consolidated capitalization and would have a negligible affect on KeySpan's capital structure. Applicants' indicate that KeySpan's consolidated equity to total capitalization ratio would be virtually unaffected by the Transaction and will remain in excess of the traditionally accepted 30% level after the consummation of the Transaction. In addition, the Applicants state that as of June 30, 2003, KeySpan's long-term public unsecured debt was rated "investment grade" by all the major rating agencies.

Fees and expenses in the estimated amount of $450,000 are anticipated in connection with the proposed Transaction. It is stated that the proposed Transaction is not subject to the jurisdiction of any state commission or of any federal commission, other than this Commission.

Due notice of the filing of the Application 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. Upon the basis of the facts in the record, it is hereby found that the applicable standards of the Act and the rules under the Act are satisfied, and that no adverse findings are necessary.

IT IS ORDERED, under applicable provisions of the Act and rules under the Act that the Application is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act and to the following:

Rule 24 certificates will be provided to the Commission within 60 days after the end of KeySpan's first three calendar quarters, and 90 days after the end of the fourth quarter, beginning with the quarter in which the Transaction is consummated, and will contain the following information:

1. Unaudited financial statements of BR+A (including balance sheets and statements of income) for the quarter then ended;

2. Unaudited financial statements of BR+A (including balance sheets and statements of income) for the calendar year then ended;

3. A schedule setting forth the segment revenue during the reporting period for BR+A in a manner similar to Exhibit G-6 to the Application; and

4. A narrative description of BR+A's principal business activities during the reporting period, including the types of facilities served and the general nature of the work performed during the reporting period.

For the Commission, by the Division of Investment Management, under delegated authority.

¹ See KeySpan Corporation, et al., HCAR No. 27670 (April 24, 2003) ("KeySpan Order").

² To the extent that the loans and capital contributions are not exempt pursuant to rule 45 under the Act, such loan and capital contributions are otherwise authorized under the order dated November 8, 2000 (KeySpan Corporation, et. al., HCAR No. 27272), as corrected by order dated December 1, 2000 (HCAR No. 27286), and as supplemented by order dated December 2, 2002 (HCAR No. 27612).

http://www.sec.gov/divisions/investment/opur/filing/35-27708.htm