DF 98-040
                         NORTHERN UTILITIES, INC.
       Merger of Northern Utilities, Inc., NIPSCO Industries, Inc.,
                and Northern Indiana Public Service Company
                Approval of Merger and Related Transactions
                          O R D E R   N O. 22,983
                               July 20, 1998
         APPEARANCES: LeBoeuf, Lamb, Greene & MacRae by Meabh
     Purcell, Esq. and Paul B. Dexter, Esq. for Northern Utilities,
     Inc.; Day, Berry & Howard by Robert Knickerbocker, Esq. for
     NIPSCO Industries, Inc. and Northern Indiana Public Service
     Company; and Eugene F. Sullivan, III, Esq. for the Staff of the
     New Hampshire Public Utilities Commission.
               On March 20, 1998, Northern Utilities, Inc. (Northern),
     NIPSCO Industries, Inc. (NIPSCO) and Northern Indiana Public
     Service Company (Northern Indiana) jointly filed with the New
     Hampshire Public Utilities Commission (Commission) a petition for
     Approval of a Merger and Related Transactions.  The petition
     requested permission for NIPSCO or its affiliate, Northern
     Indiana, to acquire Northern, or its parent, Bay State Gas
     Company, Inc. (Bay State) under two alternative acquisition
     plans.  The petition specified a preferred and an alternative
     plan of merger. 
               Under the preferred plan of merger, Bay State would
     merge into a newly created wholly-owned subsidiary of NIPSCO,
     formed for purposes of the merger.  Sometime after the merger,
     Northern's stock would be transferred from Bay State to NIPSCO
     and Northern would operate as a direct subsidiary of NIPSCO.  The
     preferred merger, however, requires an exemption from the
     provisions of the Public Utility Holding Company Act of 1935 by
     the Securities and Exchange Commission (SEC).  
               The alternate merger would have Bay State and Northern
     merged into NIPSCO's public utility subsidiary, Northern Indiana. 
     Subsequently, Northern and Bay State would operate as divisions
     of Northern Indiana with no independent corporate identity.  Both
     the preferred and alternate mergers require the approval of the
     Maine and New Hampshire Public Utilities Commissions because
     Northern provides service in both States.   
               On April 9, 1998, the Commission issued an Order of
     Notice setting a prehearing conference for April 28, 1998.  No
     Motions to Intervene were filed; the Office of the Consumer
     Advocate (OCA) is a statutorily recognized intervenor. On April
     22, 1998, Staff submitted a letter to the Commission stating that
     Northern, NIPSCO and Northern Indiana, the Maine Public Utilities
     Commission (MPUC), the Maine Public Advocate Office (Public
     Advocate) the OCA and Staff had agreed, for purposes of
     administrative efficiency, to hold two joint technical sessions
     in Portsmouth, New Hampshire to review the essentially identical
     petitions filed in Maine and New Hampshire and to allow Northern
     to provide any amendments or updates to the filings.  
               Following the prehearing conference, the Commission
     issued Order No. 22,930 (May 13, 1998) approving a procedural
     schedule to govern its investigation into the petition.  In
     accordance with the procedural schedule, the parties and Staff
     engaged in formal discovery and the joint technical sessions with
     the State of Maine in Portsmouth.
               On June 12, 1998, the MPUC issued an order approving
     the proposed merger under either the preferred or alternative
     structures.  In addition, on June 16, 1998, the MPUC submitted a
     letter to the SEC supporting the merger and recommending the SEC
     grant the necessary exemptions to permit the preferred structure.           On June 8, 1998, Northern, NIPSCO, OCA and Staff
     entered into a Stipulation and Agreement (Stipulation) resolving
     or leaving to subsequent proceedings all of the issues in this
     proceeding.  The Stipulation was substantially the same as a
     Stipulation and Agreement executed among Northern, NIPSCO, the
     Maine Public Advocate and the Staff of the MPUC.  A hearing on
     the merits was held on July 1, 1998 at which the parties
     presented the Stipulation and supporting testimony.
               Pursuant to the Stipulation, Northern, NIPSCO, OCA and
     Staff agreed that the merger is consistent with the public
     interest standard of RSA 374:33 under either the Preferred or the
     Alternate structures proposed in the March 20, 1998 petition, and
     should be approved subject to the following provisions:
     1.   Commission Jurisdiction.   The jurisdiction of the
               Commission over Northern's operations will not be changed
               under either the Preferred or the Alternate Merger structure
               or form of merger.
     2.   Support Preferred Structure.  Northern, NIPSCO, OCA and
               Staff agree that the Commission should express its support
               for the Preferred Merger structure because it simplifies
               accounting for the subsidiary's operations and regulation of
               those operations.
     3.   Alternate Merger.  Northern, NIPSCO, OCA and Staff agree
               that if the Preferred Merger structure is not possible, the
               Alternate Merger structure is in the public good.
     4.   Recovery of Acquisition Premium.  Northern, NIPSCO, OCA and
               Staff agree that Northern may request recovery of the
               amortization of the acquisition premium in future ratemaking
               proceedings to the extent that Northern can demonstrate that
               the benefits of the merger to customers equal or exceed the
               amount of the premium being sought to be amortized.
     5.   Capital Structure.  Northern, NIPSCO, OCA and Staff agree
               that no Party will be bound in any future ratemaking
               proceedings to utilize the capital structure of Northern
               that results from entries to account for the merger.
               After careful review of the Stipulation and Agreement
     and the testimony and exhibits offered at the July 1, 1998
     hearing, we find that the Stipulation is reasonable and that the
     proposed acquisitions are lawful, proper and in the public
     interest.  RSA 374:33
               Under the public interest standard to be applied by the
     Commission where a utility or public utility holding company
     seeks to acquire, directly or indirectly, a jurisdictional
     utility, the Commission must determine that the proposed
     transaction will not harm ratepayers.  Grafton County Electric
     Light and Power Co. v. State, 77 N.H. 539 (1915); Id., Eastern
     Utilities Associates, 76 N.H.P.U.C. 236, 252 (1991); Re Hampton
     Water Works Company, Inc., 80 N.H.P.U.C. 468, 473 (1995) and 
     Cf., Parker-Young Co. v. State, 83 N.H. 551 (1929)(application of
     "net benefits" test where there are competing offers to acquire).
               As was noted above, there are two different acquisition
     scenarios proposed in this petition, the preferred and alternate
     plans.  The primary difference between the preferred and
     alternate plans is that Northern remains a corporate entity with
     its own Board of Directors under the preferred merger.
     In testimony, NIPSCO/Northern Indiana represented that if the
     alternate merger was required by the SEC, an Advisory Board could
     be established for Northern to provide local input into decisions
     affecting Northern's customers.
               At this time, we express our support and preference for 
     the "preferred acquisition scenario" because it provides for the
     continued corporate existence of Northern and the attendant
     corporate formalities that we believe will provide greater
     protection or representation of Northern's interests in the new
     corporate structure, such as a corporate Board of Directors.  
     The preferred merger would also impose a legal requirement that
     Northern maintain separate books and records which will
     facilitate our continued review and oversight of Northern and its
     operations in New Hampshire. 
               In order to ensure that there is no harm to Northern
     ratepayers, we direct that should the alternate merger be
     implemented, such an Advisory Board be established.  The Advisory
     Board should be comprised of members involved in the New
     Hampshire community and it should have real authority to ensure
     that New Hampshire customers receive the full benefits of this
     merger and that the Northern Division and its customers'
     interests are not neglected in the merged company.  We expect
     more than token representation of Northern's interests on either
     the Board of Directors or the Advisory Board.
                Under either of the acquisition plans, there is no
     evidence that ratepayers will be harmed.  Under both the
     preferred and alternative acquisition scenarios Northern's
     operations are to remain unchanged or will improve as the new
     Company seeks to expand its area of service.  Moreover, separate
     books and records will be maintained under both the preferred and
     alternate acquisition scenarios, facilitating the Commission's
     continued review and oversight of Northern and its operations in
     New Hampshire.
               We note, however, that the inclusion of the acquisition
     premium in ratebase and the effect of the acquisition premium on
     the capital structure of Northern would in all likelihood lead us
     to the conclusion that Northern ratepayers would be harmed by the
     acquisition without the conditions contained in the Stipulation. 
     Those conditions require Northern to substantiate any savings to
     ratepayers that have resulted from the merger before Northern may
     include any part of the acquisition premium in ratebase for
     ratemaking purposes.  The same condition applies to the effect of
     the acquisition premium on the capital structure of the resultant
               For the purpose of SEC approvals, we note that we have
     the necessary authority and responsibility to protect Northern's
     New Hampshire ratepayers and the preferred merger will facilitate
     our continued exercise of that authority.  Accordingly, we will
     notify the SEC of our support for the preferred merger for
     consideration in its review of NIPSCO, Inc.'s merger application.
               As noted above, the provisions in the Stipulation which
     defer consideration of the capital structure and ratemaking
     issues for a subsequent proceeding are appropriate.  Northern
     will have the right to request recovery of an acquisition premium
     in a future proceeding to the extent it can substantiate the
     reasonableness of that action, just as all parties are free to
     argue in support of or opposition to such recovery as they see
     fit.  Likewise, in a future rate recovery proceeding, any party
     may argue that a hypothetical capital structure may be more
     appropriate in determining a rate of return.  We will consider
     such requests and related arguments when filed.
               Before such a proceeding, however, Northern shall file
     its annual reports in a form that allows for an analysis of its
     earnings with and without the effects of the acquisition premium,
     both from the perspective of ratebase and the weighted cost of
               Based upon the foregoing, it is hereby 
               ORDERED, that the Stipulation and Agreement is APPROVED
     subject to the forgoing analysis; and it is
               FURTHER ORDERED, that this Order, which indicates our
     support for the preferred merger, shall be submitted to the
     Securities and Exchange Commission for consideration in its
     review of NIPSCO, Inc.'s merger application; and it is
               FURTHER ORDERED, that if the alternate merger is
     implemented, a Northern Advisory Board shall be established.
               By order of the Public Utilities Commission of New
     Hampshire this twentieth day of July, 1998. 
        Douglas L. Patch    Bruce B. Ellsworth        Susan S. Geiger
            Chairman           Commissioner            Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary