SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27761; 70-10123)
KeySpan Energy Management LLC
Order Authorizing the Acquisition of a Nonaffiliate Nonutility Subsidiary
November 13, 2003
KeySpan Energy Management L.L.C. ("KEM"),1 an indirect, nonutility subsidiary of KeySpan Corporation ("KeySpan"), a registered holding company under the Act, Melville, New York, ("Applicant") has filed an application ("Application") with the Securities and Exchange Commission ("Commission") under sections 9(a) and 10 of the Public Utility Holding Company Act of 1935, as amended ("Act") seeking authorization for KEM to acquire all of the issued and outstanding securities of Metro Energy L.L.C. ("Metro Energy"), a nonaffiliated New York limited liability company ("Transaction"). A notice of the Application was issued by the Commission on October 10, 2003 (HCAR No. 27735).
KEM is engaged in the service, installation, and construction of power supply and HVAC systems, including burners and boilers for heating purposes. It operates and maintains power supply, heating, ventilation and air conditioning systems, including burners and boilers for heating purposes. KEM serves large commercial, industrial and institutional customers throughout the Northeast, and may become involved in the development, ownership, construction, financing, operation and maintenance of thermal energy facilities, including central steam and chilled water facilities.2B. Metro Energy
Metro Energy is an unaffiliated New York limited liability company in the business of developing, operating, and maintaining thermal energy systems in the New York metropolitan area. Through certain loans made to Metro Energy by KEM in the aggregate principal amount of $11,715,161.82, plus 8.38% interest per annum, KEM financed the construction of a central heating and cooling facility owned, operated, and maintained by Metro Energy at a hotel in the New York metropolitan area.
II. The Transaction
KEM proposes to acquire all of the issued and outstanding membership interests of Metro Energy. Upon consummation of the acquisition, Metro Energy will become a direct, wholly-owned subsidiary of KEM. KEM will acquire Metro Energy in a cash transaction for the purchase price of approximately $600,000 payable in three installments within a one year period, plus the conversion of the outstanding debt owed to KEM by Metro Energy, including principal and interest amounting to approximately $13,785,763, in goodwill.
The purpose of the acquisition of Metro Energy is primarily to secure KEM's interest in the heating and cooling facility. Metro Energy will conduct no other business operations outside of its operation of the heating and cooling facility. Applicants state that the operation of the heating and cooling facility is directly within the scope of the business operations of KEM that were found to be retainable in the Retention Order. The Transaction will provide KEM with the benefit of revenues currently generated by Metro Energy in furtherance of KeySpan's operations as a diversified and integrated gas and electric public utility system. Keyspan states that the ownership of Metro Energy by KEM will in no event cause KEM's business activities to fall outside the scope of its currently authorized lines of business.
Rule 54, provides that in determining whether to approve an application which does not relate to any "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"), the Commission shall not consider the effect of the capitalization or earnings of any such EWG or FUCO which is a subsidiary of a registered holding company if the requirements of rule 53(a), (b) and (c) are satisfied.
KeySpan currently meets all of the conditions of rule 53(a) except for clause (1). At June 30, 2003 , KeySpan's "aggregate investment," as defined in rule 53(a)(1), in EWGs and FUCOs was approximately $1,034,075,000. With respect to Rule 53(a)(1), by Commission order dated December 6, 2002, (HCAR No. 27612) ("Rule 53 (c) Order") KeySpan was authorized to invest in EWGs and FUCOs in an aggregate amount of up to $2.2 billion.
With respect to capitalization, there has been no material adverse impact on KeySpan's consolidated capitalization resulting from KeySpan's investments in EWGs and FUCOs. The Rule 53(c) Order was predicated, in part, upon an assessment of KeySpan's overall financial condition, which took into account, among other factors, KeySpan's consolidated capitalization ratio, and its retained earnings, both of which have improved since the date of the Rule 53(c) Order. KeySpan's investments in EWGs and FUCOs have increased from approximately $896 million as of September 30, 2002 to approximately $1 billion as of June 30, 2003. KeySpan's EWG and FUCO investments, in the aggregate, have been profitable for all quarterly periods from December 31, 2000 through June 30, 2003. KeySpan's consolidated retained earnings increased from approximately $439 million as of September 30, 2002 to approximately $616 million as of June 30, 2003. As of September 30, 2002, the most recent period for which financial statement information was evaluated in the rule 53(c) Order, KeySpan's consolidated capitalization consisted of 33.0% common equity and 66.97% debt (including long and short-term debt and preferred stock). As of June 30, 2003, KeySpan's consolidated capitalization consisted of 39.78% equity and 60.22% debt (including long and short-term debt and preferred stock).
Applicant estimates that the fees, commissions, and expenses in connection with the proposed Transaction are approximately $10,000.
Applicant states that no state commission, and no federal commission, other than the Commission, has jurisdiction over the proposed transactions.
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 ordered by the Commission. On the basis of the facts in the record, it is hereby found that the applicable standards of the Act and rules 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 the Application is granted immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
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