(As filed with the Securities and Exchange Commission on March 28, 2002)
File No. 70-9551
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POS AMC
(POST-EFFECTIVE AMENDMENT NO. 2)
ON
FORM U-1
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
NiSource Inc. NiSource Development Company, Inc.
801 East 86th Avenue 801 East 86th Avenue
Merrillville, Indiana 46410-6272 Merrillville, Indiana 46410-6272
(Names of companies filing this statement and addresses of
principal executive offices)
NiSource Inc.
(Name of top registered holding company parent of applicant or declarant)
Jeffrey W. Grossman
Vice President and Controller
NiSource Inc.
801 East 86th Avenue
Merrillville, Indiana 46410-6272
(Name and address of agent for service)
The Commission is requested to send copies of all notices, orders and
communications to:
Peter V. Fazio, Jr., Esq. William T. Baker, Jr., Esq.
Schiff Hardin & Waite Thelen Reid & Priest LLP
6600 Sears Tower 40 West 57th Street
Chicago, Illinois 60606-6473 New York, New York 10019
The record in this proceeding is hereby supplemented as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS, is supplemented as follows:
A. Summary of Prior Proceedings and Introduction.
By order dated October 30, 2000 in this proceeding (Holding Co. Act
Release No. 27263) (the "Merger Order" ), the Securities and Exchange Commission
("Commission" or "SEC") authorized NiSource Inc. (formerly New NiSource Inc.)
("NiSource"), a Delaware corporation, to acquire all of the issued and
outstanding common stock of NiSource Inc., an Indiana corporation ("NiSource
Indiana") and Columbia Energy Group ("Columbia") through mergers of wholly-owned
subsidiaries of NiSource into NiSource Indiana and Columbia, followed
immediately by the merger of NiSource Indiana into NiSource. These transactions
(the "Merger") were consummated on November 1, 2000, and NiSource registered
with the Commission as a holding company pursuant to Section 5 of the Public
Utility Holding Company Act of 1935, as amended (the "Act"), on the same day.
NiSource directly or indirectly owns all of the issued and outstanding
common stock of ten public-utility subsidiaries (referred to collectively as the
"Utility Subsidiaries"), as follows: Northern Indiana Public Service Company
("NIPSCO"), Kokomo Gas and Fuel Company, Northern Indiana Fuel and Light
Company, Inc. and Bay State Gas Company ("Bay State"), which are owned directly
by NiSource; Northern Utilities, Inc., which is a subsidiary of Bay State; and
Columbia Gas of Kentucky, Inc., Columbia Gas of Maryland, Inc., Columbia Gas of
Ohio, Inc., Columbia Gas of Pennsylvania, Inc. and Columbia Gas of Virginia,
Inc., which are direct subsidiaries of Columbia. Together, the Utility
Subsidiaries distribute gas at retail in portions of Indiana, Ohio, Virginia,
Maryland, Kentucky, Pennsylvania, Massachusetts, New Hampshire and Maine. In
addition, NIPSCO generates, transmits and sells electricity in a portion of
northern Indiana. In addition, NiSource owns, directly or indirectly, various
non-utility subsidiary companies.
In this Post-Effective Amendment, NiSource seeks authorization by the
Commission for the retention of certain real estate interests held, and related
operations engaged in, by Lake Erie Land Company ("Lake Erie") and its
subsidiary company, SCC Services, Inc. ("SCC") and certain interests in a real
estate joint venture held by Indianapolis Water Company ("Indianapolis Water").
Lake Erie and SCC are owned indirectly by NiSource(1) through an intermediate
holding company, NiSource Development Company, Inc. ("Development").
In this Post-Effective Amendment, NiSource provides the basis for the
continued retention of certain additional non-utility investments described
below.
B. Retention of Certain Real Estate Interests
Section 11(b)(1) of the Act permits a registered holding company to
retain non-utility businesses that are reasonably incidental, or economically
necessary or appropriate, and not detrimental to the proper functioning of the
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(1) The Merger Order required that NiSource file a Post-Effective Amendment by
March 31, 2002 seeking to justify the retention of Lake Erie and SCC.
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holding company system. Although the Commission traditionally has interpreted
this provision to require an operating or functional relationship(2) between the
non-utility activity and the system's core utility business, in its release
promulgating Rule 58,(3) the Commission stated that it "has sought to respond to
developments in the industry by expanding its concept of a functional
relationship." The Commission concluded in the Rule 58 Release "that various
considerations, including developments in the industry, the Commission's
familiarity with the particular non-utility activities at issue, the absence of
significant risks inherent in the particular venture, the specific protections
provided for consumers and the absence of objections by the relevant state
regulators, made it unnecessary to adhere rigidly to the types of administrative
measure" used in the past. In the SEC Division of Investment Management 1995
report on the Regulation of Public Utility Holding Companies (the "1995
Report"), Staff recommended a more flexible interpretation of the provisions of
the Act concerning diversification and contemplated "an interpretation of the
language of Section 11(b)(1) that would allow registered holding companies to
engage in non-utility businesses that are economically appropriate and in the
public interest, regardless of whether such activities are ancillary to the
utility business."(4)
1. Lake Erie and SCC
Prior to the Merger, the predecessor of NiSource, NiSource Indiana, as
an exempt holding company, invested in Lake Erie and SCC and, as such, was free
to invest in a variety of non-utility businesses and activities without the need
to obtain prior Commission approval under Section 9(a) of the Act. The
investments in Lake Erie and SCC are reasonably incidental, have been successful
overall, resulted in tangible benefits to shareholders, and were undertaken in
compliance with applicable state laws and regulations in a manner to benefit the
environment and to minimize risks to the ratepayers of the affiliated utilities.
Moreover, these activities were undertaken to help develop, economically,
businesses and residential properties in an area of NiSource's Indiana utility
territory which had been economically depressed. In particular, various
companies and entities which formed the basis of Lake Erie were acquired out of
bankruptcy. NiSource was one of the only large companies which was in a position
to undertake this activity.(5)
Among other activities, Lake Erie owns wetlands that can be used as
offsets to enable developers to obtain approval for projects that require
filling of wetlands. These offsets can be used for construction projects by
NiSource's Indiana utilities and are also sold to others in need of offsets.
Because it is difficult and economically inefficient to identify discrete, small
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(2) Michigan Consolidated Gas Co., 44 SEC 361 (1970), aff'd sub nom., Michigan
Consolidated Gas Company v. SEC, 444 F.2d 913 (D.C. Cir. 1971).
(3) Exemption of Acquisition by Registered Public-Utility Holding Companies of
Securities of Nonutility Companies Engaged in Certain Energy-Related and
Gas-Related Activities, Holding Co. Act Release No. 26667 (Feb. 14, 1997)
("Rule 58 Release").
(4) 1995 Report at 83.
(5) See, e.g., Ameren Corp., Holding Co. Act Release No. 26809 (Dec. 30, 1997)
(Ameren permitted to retain a subsidiary which provided venture capital
financing for business and residential development projects within the
utility's service area. The Commission noted that "[a]s one of the few
large, public companies located and operating in the area, CIPSCO, through
CIPSCO Ventures, can be a source of capital for economic development when
few other sources are available.")
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tracts of wetlands to be restored each time a need for a small amount of offsets
arises, it is beneficial to have a large bank of restored wetlands available to
serve these needs as they arise and to sell the offsets to third parties to the
extent that the available bank exceeds near-term utility system needs.
Furthermore, larger tracts of wetlands are environmentally preferable to smaller
tracts that collectively comprise the same number of acres. Thus, NiSource is
able to serve as a good environmental citizen as well as meet its system utility
needs for wetlands offsets by holding tracts of restored wetlands larger than
the minimum necessary for the foreseeable needs of NiSource utilities.(6) These
offsets are similar to the air emission allowance credits, which can be traded
or used to satisfy air quality requirements. NiSource has reserved wetlands,
valued at $500,000 to be used by NiSource utilities. In addition, certain
property, valued at $15 million was also donated at December 31, 2000 to a
non-affiliated not-for-profit corporation to foster good citizenship and provide
public facilities for the use of residents of northwest Indiana.
Lake Erie and SCC also develop and operate tracts of land which were
initially purchased from non-affiliated parties in bankruptcy within the service
territories of NiSource utility subsidiaries and turned into model communities
serving residential, commercial and industrial needs and providing recreational
facilities. The primary purpose of these acquisitions was to support economic
development in northwestern Indiana, based on sound environmental protection
principles. The projects have become national models for economic and community
development premised on upgrading and protecting the environment. In order to
assure that the projects meet these goals, NiSource has made active investments
in the projects. As of December 31, 2001, these net investments amounted to
approximately $49 million, which is an amount reduced by gifts to non-affiliated
not-for profit charitable institutions. In addition, to protect these
investments and to achieve the policy goals, SCC manages the projects, including
the recreational facilities and environmental aspects. Finally, Lake Erie,
together with its affiliate, NiSource Energy Technologies, Inc., and SCC, as
manager, have been using the projects to develop the first fully integrated fuel
cell residence, combining energy cost savings with additional energy
efficiencies.(7)
Each of the aforementioned interests is retainable pursuant to
Commission precedent. The Commission has previously authorized the retention of
non-utility subsidiaries engaging in real estate activities or the formation of
non-utility subsidiaries to manage real estate portfolios, market excess or
unwanted real estate, and facilitate the exploitation of resources on or in such
real estate interests.(8) The Commission has also authorized retention of real
estate to promote economic development including residential, commercial,
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(6) See New Century Energies, Inc., Holding Co. Act Release No. 26748 (Aug. 1,
1997) (investments in environmental services companies permitted to be
retained); and Central and South West Corporation, Holding Co. Act Release
No. 26367 (Sept. 1, 1995) (same); see also Rule 58(b)(vii).
(7) See National Grid Group PLC, Holding Co. Act Release No. 27490 (Jan. 16,
2002) (Commission permitted retention of subsidiary companies involved in
development of fuel cells and energy efficiency technologies); KeySpan
Corporation, Holding Co. Act Release No. 27271 (Nov. 7, 2000) (permitting
retention of subsidiary involved in developing fuel cells that utilize
natural gas); see also Rule 58(b)(1)(ii), (iv) and (vi).
(8) See, e.g., Dominion Resources, Inc., Holding Co. Act Release No. 27406 (May
24, 2001) (authority to lease or sell excess properties to third parties
and create non-utility subsidiary to manage real estate portfolio and
market excess real estate); New Century Energies, Inc., Holding Co. Act
Release No. 27212 (Aug. 16, 2000) (permitted to retain real property
surrounding or adjacent to property used in regulated operations, and
permitting interest in a partnership that leases real property to farmers);
WPL Holdings, Inc., Holding Co. Act Release No. 26856 (Apr. 14, 1998)
(permitted non-utility holding company subsidiary that manages and sells
resort properties); Allegheny Power System, Inc., Holding Co. Act Release
No. 26401 (Oct. 27, 1995) (authorizing subsidiary to manage real estate
portfolio).
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industrial and recreational properties, and facilities, within the registered
system's utility service territory.(9)
Moreover, with respect to the properties, the Commission has
authorized subsidiaries of registered holding companies to retain and lease
property used in activities such as public recreation, agricultural uses, and
extraction of resources.(10)
Exhibit I-2 to NiSource's Amendment No. 7 to this Merger U-1 describes
the business activities of non-utility subsidiaries of NiSource. Section J of
Exhibit I-2 thereto describes, in greater detail, Lake Erie and SCC.
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(9) The Commission has authorized registered holding companies to retain
interests in industrial and other non-utility enterprises located in the
service territory of the registered holding company that were formed to
promote local economic development by creating new job opportunities,
attracting new industries and retaining existing industries. See
FirstEnergy Corp., Holding Co. Act Release No. 27459 (Oct. 29, 2001)
(permitting retention of company that makes loans to developers of housing,
commercial properties and recreational facilities); Ameren Corp., Holding
Co. Act Release No. 26809 (Dec. 30, 1997) (authorizing investments in (a) a
venture capital fund for local business development, (b) a multi-purpose
arena and (c) a limited liability company that owns 231 acres of farmland
to be used to develop an industrial park); WPL Holdings, Inc., supra
(retention of 54.55% interest in company organized to promote economic
development in downtown Cedar Rapids, Iowa and in Heartland Properties,
Inc., a developer of multi-family housing projects); The Potomac Edison
Company, Holding Co. Act Release No. 25312 (May 14, 1991) (permitting
retention of for-profit, economic development corporation created to
stimulate and promote growth and retain jobs). The properties owned by Lake
Erie and managed by SCC were formed to attract new industries and retain
existing industries.
The Commission also allowed Alliant Energy Corporation, successor to WPL
Holdings, Inc. ("Alliant"), to retain its investment in Village Lakeshares,
Inc., a limited partnership that manages and sells resort properties,
primarily timeshare properties. Alliant was in the process of selling the
timeshare properties but intended to keep 20% of its timeshares to protect
its interest until all of the properties could ultimately be sold. See WPL
Holdings, Inc., supra.
(10)See New Century Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16,
2000) (where utility needed to acquire land for utility purposes, purchase
of land in excess of utility needs was permitted by subsidiary and
subsidiary allowed to lease excess to third parties for agricultural
purposes); Pennsylvania Electric Company, Holding Co. Act Release No. 24716
(Sept. 15, 1988) (approving lease of unused tracts of land and buildings to
third parties for agricultural uses, recreational purposes, extraction of
resources, and alternative uses of buildings); Metropolitan Edison Company,
Holding Co. Act Release No. 23953 (Dec. 18, 1985) and Philadelphia Electric
Power Company, Holding Co. Act Release No. 17877 (Feb. 6, 1973) (funds
authorized to be spent to develop recreational facilities at project
sites). In these instances, the property was originally acquired in
connection with the development of electric facilities, and the Commission
permitted the properties to be retained and used for recreational and other
purposes. Here, although the properties were not originally acquired in
connection with electric facilities, the original purpose of the
acquisition was similar to permitted non-utility purposes. As the
Commission stated in the Merger Order the activities were "in some respects
similar to, but not strictly within, [Commission] precedent." Recently the
Commission has permitted a separate registered holding company to retain
and manage real property originally used for a hydro electric project even
though the project no longer served a utility function. See Emera, Inc.,
Holding Co. Act Release No. 27445 (Oct. 1, 2001); see also Conectiv, Inc.,
Holding Co. Act Release No. 26832 (Feb. 25, 1998) (subsidiary that managed
real estate originally acquired for a utility purpose that no longer
existed was retainable as a vehicle for the development and sale of this
real estate).
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2. Wellingshire
Prior to, and continuing after, the Merger, the City of Indianapolis
(the "City") has been negotiating to purchase substantially all of the assets of
IWC Resources Corporation ("IWCR"), and its subsidiary water utilities. Prior to
the Merger, one of IWCR's water utility subsidiaries, Indianapolis Water, had
entered into Wellingshire ("Wellingshire"), a 50/50 joint venture with a
non-affiliated development company, to develop land above an aquifer and
reservoir lake used in part for the water supply of the City. The City has
decided not to purchase Wellingshire as part of its purchase of substantially
all of the assets of IWCR and its subsidiaries. Indianapolis Water's
contribution to Wellingshire was the land above the aquifer, which had been
acquired over a number of years prior to the Merger as part of the water supply
to the City. Wellingshire has been developing housing and recreational
facilities on the land. The water will continue to be used for the City's water
supply. The non-affiliated developer is managing the development of the
facilities and the developer, and non-affiliated housing associations, will
manage the recreational and housing facilities, respectively, when the
facilities are complete. NiSource's interest is passive and there are no
affiliate arrangements among NiSource system companies. For the reasons set
forth in Paragraph I.B.1, and related footnotes 8, 9 and 10, above, NiSource
believes that the investment in Wellingshire can be retained.
3. Retention
As the real estate interests that NiSource proposes to retain are
consistent with Commission precedent, the Commission should approve retention of
such interests.
C. Other Non-Utility Investments
Development was authorized under the Merger Order to be retained as a
non-utility holding company subsidiary of NiSource. In addition to Development's
holdings authorized under the Merger Order, certain other investments, in funds
which invest in either energy-related businesses or in businesses in NiSource's
geographical region, were identified as held by Development in NiSource's
Registration Statement on Form U5B, which was filed post-Merger. These
investments, and the basis for their continued retention, are set forth in
Exhibit I-2(a) hereto.
D. Divestiture of Water Companies
See Item 3 below relating to an earlier post-effective amendment in
this proceeding (Post-Effective Amendment No. 1) seeking a separate Commission
order concerning divestiture of substantially all of the assets of IWCR and its
subsidiary companies.
ITEM 2. FEES, COMMISSIONS, AND EXPENSES, is supplemented as follows:
The additional estimated fees to be incurred by NiSource and
Development in connection with this Post-Effective Amendment will not exceed
$15,000.
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ITEM 3. PROCEDURE, is supplemented as follows:
On March 21, 2002, NiSource pursuant to the Merger Order, filed
Post-Effective Amendment No. 1 seeking a supplemental order of the SEC in this
proceeding relating to the required divestiture of substantially all of the
assets of IWCR, and its subsidiary companies, involved in the business of
storing, supplying, distributing and selling water to the public and in
providing ancillary services to water utilities. NiSource has requested a
separate SEC order with respect to the divestiture of substantially all the
assets of IWCR as soon as the SEC's rules allow.
NiSource requests that the Commission issue an order authorizing
NiSource's retention of the real estate interests and operations of Lake Erie
and SCC, and Wellingshire, as specified above.
ITEM 4. EXHIBITS AND FINANCIAL STATEMENTS, is supplemented as follows:
A. Exhibits
I-2(a) Retention of Certain Passive Interests
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SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned companies have duly caused this
Post-Effective Amendment to be signed on their behalf by the undersigned
thereunto duly authorized.
NISOURCE INC.
By: /s/ Michael W. O'Donnell
--------------------------------------
Name: Michael W. O'Donnell
Title: Executive Vice President
and Chief Financial Officer
NISOURCE DEVELOPMENT COMPANY, INC.
By: /s/ Gary W. Pottorff
--------------------------------------
Name: Gary W. Pottorff
Title: Secretary
Date: March 28, 2002