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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27899; 70-9421)

Columbia Energy Group, et al.

Supplemental Order Authorizing Additional Capital Contribution to Factoring Subsidiary; and Reserving Jurisdiction

October 1, 2004

Columbia Energy Group ("Columbia Energy"), Merrillville, Indiana, a registered holding company and a wholly-owned subsidiary of NiSource Inc., also a registered holding company, and Columbia Gas of Ohio, Inc., (" Columbia Ohio"), Columbus, Ohio, a wholly-owned public utility subsidiary of Columbia Energy, (Columbia Energy and Columbia Ohio together referred to as "Applicants"), have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment ("Amendment") to an application-declaration previously filed under sections 6(a), 7, 9(a), 10, and 12(b) of the Public Utility Holding Company Act of l935, as amended ("Act") and rules 45 and 54 under the Act. The Commission issued a notice of the Amendment on July 29, 2004 (HCAR No. 27879).

Columbia Energy's public utility subsidiaries are Columbia Gas of Kentucky, Inc., Columbia Gas of Maryland, Inc., Columbia Ohio, Columbia Gas of Pennsylvania, Inc. and Columbia Gas of Virginia, Inc. Together, these companies provide gas utility service to approximately 2.2 million residential, commercial and industrial customers in portions of Ohio, Virginia, Pennsylvania, Maryland and Kentucky. Columbia Energy also directly or indirectly owns all of the outstanding securities of non-utility subsidiaries that are engaged in natural gas transportation and storage and other energy and gas-related activities.

By Commission order dated August 23, 1999 (HCAR No. 27064) ("Prior Order"), Columbia Energy was authorized to organize and acquire one or more direct or indirect subsidiaries ("Factoring Subsidiaries") to engage in the business of factoring customer accounts receivables ("Receivables") originated by Columbia Energy's associate companies as well as by certain categories of non-associate companies. The Commission authorized Columbia to capitalize Factoring Subsidiaries with any combination of debt or equity or provide guarantees for their obligations in amounts that, in the aggregate, will not exceed $25 million. As contemplated by the Prior Order, Factoring Subsidiaries would purchase Receivables from associate companies and Non-Associate Companies and immediately resell such Receivables to third party financial institutions ("Purchasers"). Factoring Subsidiaries are intended to be bankruptcy-remote vehicles that enable the originator to isolate its Receivables such that they would not be generally available to creditors of the originator. Also, assuming that certain tests under Financial Accounting Standards Board Statement No. 140 ("FASB 140") are met, the sale of the Receivables to a Factoring Subsidiary will qualify for treatment as a true sale of assets rather than as a loan secured by the Receivables. In this regard, the Prior Order specifies that Columbia will report the acquisition and sale of all Receivables as "sales" under generally accepted accounting principles. In order to achieve true sale treatment, it is necessary that a Factoring Subsidiary be capitalized with a sufficient level of equity.

In September l999, Columbia Energy, through its financing subsidiary, Columbia Finance Corporation, organized and acquired the common stock of Columbia Accounts Receivable Corporation ("CARC") to facilitate the sale of Receivables by Columbia Ohio. Under its agreement with CARC, Columbia Ohio sold, without recourse, all of its customer accounts receivable, other than certain low-income payment plan receivables, as they were originated. CARC, in turn, entered into an agreement under which it sold an undivided ownership interest in the Receivables to a commercial paper conduit formed by Canadian Imperial Bank of Commerce ("CIBC").

Effective May 13, 2004, Columbia Ohio, CARC and CIBC terminated the existing Receivables sale program, and all right, title and interest of CARC and the CIBC conduit in the Receivables were transferred back to Columbia Ohio. The next day, Columbia Ohio sold the same Receivables pool to a new Factoring Subsidiary of Columbia Ohio, Columbia of Ohio Receivables Corporation ("CORC"), which in turn sold an undivided interest in such Receivables to Beethoven Funding Corporation ("BFC"), as Purchaser. BFC is a commercial paper funding conduit formed by Dresdner Bank AG, New York Branch, as agent. Applicants state that the new Receivables sale program operates substantially similar to the CIBC program that it replaced. Columbia Ohio is obligated to sell or contribute, without recourse, all of its customer accounts receivable, with certain exceptions, to CORC at a discount using a discount rate this is based on the Purchaser's cost of funds and the collection history of Columbia Ohio. Columbia Ohio is acting as servicer under the new program with responsibility for billing and collection, for which it is paid a servicing fee equal to .25% per annum multiplied by the average daily outstanding balance of Receivables acquired by CORC from Columbia Ohio. Fees and expenses associated with the program, including the fee paid to Columbia Ohio, as servicer, are priority distributions out of collections before the balance is paid to CORC. CARC and CORC are the only Factoring Subsidiaries that Columbia Energy and its subsidiaries have organized or acquired pursuant to the Prior Order, and neither CARC nor CORC have purchased Receivables from Non-Associate Companies.

In accordance with the terms of the Receivables Sales Agreement between Columbia Ohio and CORC, on the initial closing date, Columbia Ohio made a capital contribution of Receivables having an aggregate outstanding balance of $25 million. On or before November 14, 2004, Columbia Ohio is obligated to make an additional $15 million capital contribution, in the form of a contribution of Receivables. Because the additional contribution would exceed the current contribution limit under the Prior Order, Columbia Ohio's ability to comply with this requirement is subject to receipt of a further order of the Commission in this proceeding.

Pursuant to the terms of a Receivables Purchase Agreement, CORC funded its initial purchase of Receivables and is funding each subsequent purchase of Receivables by selling, on a revolving basis, undivided ownership interests in the pool of Receivables that it owns to BFC. The maximum purchase commitment of BFC varies from between $50 million and $225 million depending upon the time of the year. As indicated, under the Receivables Purchase Agreement, Columbia Ohio, as servicer, is responsible for billing and collection of the Receivables. However, the agent has the right to replace Columbia Ohio as servicer at any time.

The amount of Receivables originated by Columbia Ohio will vary from month to month and seasonally based on the amount of gas consumed by its customers. As a result of this and other factors, the funds available to CORC under the Receivables Purchase Agreement to purchase Receivables may not match the cost of Receivables available for sale. Under Section 2.02(c) of the Receivables Sale Agreement, Columbia Ohio is obligated to make up any such shortfall by making a subordinated loan to CORC. Thus, when the amount of Receivables available for sale by Columbia Ohio exceeds the amount of cash that CORC has available, the excess will be purchased by CORC with the proceeds of a subordinated loan received from Columbia Ohio. Conversely, if, after payment of all amounts due the agent and the Purchaser, CORC develops a cash surplus due to collections of previously purchased Receivables exceeding the balance of newly created Receivables available for purchase, such surplus funds will be used to repay any subordinated loan from Columbia Ohio Through this mechanism, it is expected that CORC will not retain substantial cash balances at any time and that substantially all cash realized from the collection of the Receivables (net of the costs of the program) will be made available to Columbia Ohio.

Applicants request authorization for Columbia Ohio to make an additional $15 million capital contribution to CORC, such that the maximum aggregate capitalization in CORC is increased from $25 million to $40 million. In addition, Applicants request that the Commission reserve jurisdiction over: (i) the additional requested investment of up to $45 million, whether in CORC or in any other Factoring Subsidiary; (ii) the formation or acquisition of any securities of any Factoring Subsidiary other than CORC; and (iii) the factoring by CORC of Receivables originated by any company other than Columbia Ohio, pending completion of the record.

Rule 54 promulgated under the Act states that in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an exempt wholesale generator ("EWG") or a foreign utility company ("FUCO"), or other transactions by a registered holding company or its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO upon the registered holding company system if rules 53(a), (b) and (c) are satisfied. Applicants state, for purposes of rule 54, that the conditions specified in rule 53(a) are satisfied and that none of the adverse conditions specified in rule 53(b) exist. As a result, the Commission will not consider the effect on the NiSource system of the capitalization or earnings of any NiSource subsidiary that is an EWG or FUCO, as each is defined in sections 32 and 33 of the Act, respectively, in determining whether to approve the proposed transactions.

No state or federal commission, other than the Commission, has jurisdiction with respect to the arrangements between Columbia Ohio and CORC. The fees, commissions and expenses incurred, or to be incurred, in connection with this Amendment are estimated not to exceed $10,000. Fees, commissions and expenses associated with forming a Factoring Subsidiary are estimated not to exceed $10,000.

Due notice of the transactions covered by this Amendment 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. Based on the facts in the record, the Commission finds that, except as to those matters over which jurisdiction has been reserved, 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 the rules under the Act, that, except as to those matters over which jurisdiction has been reserved, the Amendment, as amended, be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED, that jurisdiction is reserved, pending completion of the record, over: (i) the additional investment of up to $45 million by Columbia Energy or any of its subsidiaries (including Columbia Ohio), in CORC or any other Factoring Subsidiary; (ii) the formation or acquisition or any securities of any Factoring Subsidiary, other than CORC; and (iii) the factoring by CORC of Receivables originated by any company other than Columbia Ohio.

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


Margaret H. McFarland
Deputy Secretary


http://www.sec.gov/divisions/investment/opur/filing/35-27899.htm

Modified: 10/8/2004