[Federal Register Volume 67, Number 62 (Monday, April 1, 2002)]
[Notices]
[Pages 15426-15430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7769]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27511]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
March 26, 2002.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by April 16, 2002 to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law,
by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After April 16, 2002, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
Pepco Holdings Inc., et al. (70-9913)
Pepco Holdings, Inc. (``PHI''), a Delaware corporation and its
parent company, Potomac Electric Power Company (``Pepco''), a public
utility company; POM Holdings, Inc. (``POM''), a holding company
subsidiary of Pepco; Pepco Energy Services, a service company
subsidiary of Pepco; Pepco's direct and indirect nonutility
subsidiaries (``Pepco Nonutilities''), all located at 1900 Pennsylvania
Avenue NW, Washington, DC 20068; and Conectiv, a Delaware corporation
and a registered public utility holding company, Conectiv Resource
Partners, Inc. (``CRP''), a service company subsidiary of Conectiv and
Conectiv's direct and indirect nonutility subsidiaries (``Conectiv
Nonutilities'') located at 800 King Street, Wilmington, Delaware 19801,
(collectively, ``Applicants''), have filed a joint application-
declaration (``Application'') under sections 5, 6(a), 7, 9(a), 10,
12(b), 12(c), 13(b), 32 and 33 of the Act, and rules 42, 43, 45, 46,
52, 53, 54, 80-88, 90 and 91.
I. Introduction
Applicants request authority for transactions associated with the
acquisition of Conectiv and Pepco by PHI (``Transaction''). Applicants
propose that upon the satisfaction of certain conditions, including
receipt of all necessary regulatory approvals, Pepco and Conectiv will
become subsidiaries of PHI. PHI was incorporated under the laws of
Delaware on February 9, 2001, as a direct, wholly owned subsidiary of
Pepco to become the parent company of Pepco and Conectiv. After
consummation of the Transaction, PHI will register as a public utility
holding company under section 5 of the Act and maintain its
headquarters in Washington, DC.
II. Summary of Requests
Applicants request authorization in the Merger Application for PHI
to form two wholly owned subsidiaries that will merge with and into
Pepco and Conectiv (``Mergers''). Pepco stockholders will receive one
share of PHI's common stock for each share of Pepco common stock held
prior to the Mergers. Conectiv common stockholders and Class A common
stockholders will receive either cash or PHI common stock, subject to
proration, in order that the aggregate consideration paid to all
Conectiv stockholders will be fifty percent cash and fifty percent
stock. As a result of the Transaction, all of the outstanding shares of
common stock of PHI will be held by the former stockholders of Conectiv
and Pepco and each share of each other class of capital stock of
Conectiv and Pepco shall be unaffected and remain outstanding.
Upon completion of the Merger, PHI will own, directly or
indirectly, all of the issued and outstanding common stock of six
public utility subsidiary companies: Pepco, Atlantic City Electric
Company (``ACE''), Delmarva Power & Light Company (``Delmarva''),
Conectiv Delmarva Generation, Inc. (``CDG''), Conectiv Pennsylvania
Generation, Inc. (``CPGI'') and Conectiv Atlantic Generation, LLC
(``CAG''). PHI also will hold, directly or indirectly, all of the
nonutility subsidiaries and investments currently owned by Pepco and
Conectiv (``PHI Nonutilities'').
In addition, Applicants request: (i) To retain the nonutility
businesses and subsidiaries of Pepco and Conectiv; (ii) to retain
Conectiv's gas operations (``Conectiv Gas System''); (iii) following a
transition period, to either (a) extend the role of CRP as a system
service company to provide services to all associate companies in the
PHI system or (b) form a new system service company as a direct
subsidiary of PHI; (iv) to deviate from the ``at cost'' standards of
the Act with respect to services provided to certain subsidiaries; (v)
to reorganize PHI's direct and indirect, wholly owned, nonutility
subsidiaries without the need to seek further Commission authorization,
(vi) to enter into a tax allocation agreement and (vii) to engage in
energy-related activities outside of the United States.
III. Parties to the Transaction
A. Pepco
Pepco is a public utility company within the meaning of the Act.
Pepco transmits and distributes electric energy to 1.9 million people
in Washington DC and major portions of Prince George's and Montgomery
counties in suburban Maryland. Pepco is regulated as a public utility
in Washington DC, Maryland, and, to a limited extent, in Pennsylvania
and Virginia where it owns transmission lines and other jurisdictional
assets.
Pepco's transmission facilities are interconnected with those of
other transmission owners that are members of PJM, an Independent
System Operator (``ISO'') approved by the Federal Energy Regulatory
Commission (``FERC''). PJM administers all transmission service within
the PJM region. Pepco has an investment in the Keystone-Conemaugh 500kV
system (``EHV'') that traverses most of Pennsylvania.
Pepco is also engaged in the sale of electricity, natural gas and
telecommunications in markets throughout the mid-Atlantic region
through its wholly owned nonutility subsidiary, POM. In May 1999, Pepco
reorganized its nonutility subsidiaries into two major operating groups
to compete for market share in deregulated markets. As part of the
reorganization, POM was created as the parent company of its two wholly
owned subsidiaries,
[[Page 15427]]
Potomac Capital Investment Corporation (``PCI'') and Pepco Energy
Services, Inc. (``Energy Services'').
Potomac Electric Power Company Trust I (``Trust''), a Delaware
statutory business trust, and Edison Capital Reserves Corporation
(``Edison''), a Delaware investment holding company, are also wholly
owned subsidiaries of Pepco.\1\
---------------------------------------------------------------------------
\1\ Trust was established in April 1998 and exists for the
exclusive purposes of (i) issuing Trust securities representing
undivided beneficial interests in the assets of the Trust; (ii)
investing the gross proceeds from the sale of Trust securities in
junior subordinated deferrable interest debentures issued by Pepco
and (iii) engaging only in other activities as necessary or
incidental to the foregoing. Edison was established in 2000 and
exists for the purposes of managing and investing a significant
portion of the proceeds received from the divestiture of certain of
Pepco's generation assets.
---------------------------------------------------------------------------
For its utility operations, Pepco reported total assets of $5,010.0
million, utility operating revenues of $1,723.5 million (excluding
$29.3 million gain on divestiture of generation assets during the year)
and net income of $194.2 million for the year ended December 31, 2001.
PCI reported total assets of $1,298.8 million, operating revenues of
$112.2 million and net loss of $(36.1) million for the year ended
December 31, 2001. Energy Services reported total assets of $211.8
million, operating revenues of $643.9 million and net income of $10.3
million for the year ended December 31, 2001.
B. Conectiv
Conectiv is a registered holding company under the Act and a
Delaware corporation.\2\ Conectiv owns all of the outstanding common
stock of Delmarva, a Delaware and Virginia corporation, and of ACE, a
New Jersey corporation. Delmarva and ACE are Conectiv's largest public
utility subsidiaries and deliver electricity to customers under the
trade name Conectiv Power Delivery. Delmarva provides electric service
in Delaware, Maryland, and Virginia and natural gas service in northern
Delaware. Delmarva's regulated electric service area has a population
of approximately 1.2 million and covers an area of about 6,000 square
miles on the Delmarva Peninsula. Delmarva delivers natural gas through
its gas transmission and distribution systems to approximately 110,800
customers in a service territory that covers about 275 square miles in
northern Delaware and has a population of approximately 500,000. ACE
provides regulated electric service in an area in the southern one-
third of New Jersey, which covers approximately 2,700 square miles and
has a population of approximately 900,000. Delmarva and ACE deliver
electricity within their service areas to approximately 973,600
customers through their respective transmission and distribution
systems and also supply electricity to most of their electricity
delivery customers.
---------------------------------------------------------------------------
\2\ Conectiv was formed on March 1, 1998, through a series of
merger transactions and an exchange of common stock with Delmarva
and Atlantic Energy, Inc. See HCAR No. 26832 (February 25, 1998)
(``Conectiv Merger Order'').
---------------------------------------------------------------------------
ACE is subject to regulation as a public utility in New Jersey and
Delmarva is subject to regulation as a public utility in Delaware,
Maryland, and Virginia. Pennsylvania has jurisdiction over both ACE and
Delmarva to a limited extent.
Conectiv formed Conectiv Energy Holding Company (``CEH'') in 2000.
CEH and its subsidiaries are engaged in electricity production and
sales, energy trading, and marketing. CEH owns 100 percent of the stock
of ACE REIT, Inc. (``ACE REIT''), CESI, CPGI and CDG. ACE REIT owns 100
percent of the interests in CAG, a generation company. CDG, CAG and
CPGI are utilities within the meaning of the Act.
In addition, Conectiv is changing the types of electric generation
plants it owns by selling the majority of its baseload plants and
increasing its mid-merit generation portfolio. Based on megawatts of
generating capacity, approximately twenty-five percent (739.70 MW) of
the electric generating plants owned by Conectiv as of December 31,
2001 (2,963.70 MW) were under agreements for sale. Conectiv is building
new mid-merit electric generating plants, which Conectiv's management
expects will provide a better strategic fit with Conectiv's energy
trading activities and have more profitable operating characteristics
than the plants to be sold.
In addition, as of December 31, 2001, Conectiv's subsidiaries had
long-term purchased power contracts which provided 3,100 MW of capacity
and varying amounts of firm electricity per hour during each month of a
given year. Also, Delmarva agreed to purchase back 500 MW/hr of firm
electricity per hour from the buyer of its generating plants beginning
upon completion of the sale and continuing through December 31, 2005.
As a member of PJM, the generation and transmission facilities of
Conectiv are operated on an integrated basis with other electricity
suppliers and transmission owners in Pennsylvania, New Jersey, Maryland
and the District of Columbia, and are interconnected with other major
utilities in the eastern half of the United States. In addition to
having an investment in EHV, ACE and Delmarva each have investments in
two other 500kV systems in the PJM region.
In addition, Conectiv owns interests in various nonutility
companies authorized by rule 58 under the Act or Commission order.
C. PHI
PHI was incorporated under the laws of Delaware on February 9,
2001, as a direct, wholly owned subsidiary of Pepco. PHI has issued 100
shares of common stock, all of which are owned by Pepco. PHI was
created to become the parent company of Pepco and Conectiv and after
the consummation of the Transaction, will register as a public utility
holding company under section 5 of the Act.
For the year ended December 31, 2001, Pepco and Conectiv had the
following financial results individually, and on a pro forma combined
basis: \3\
---------------------------------------------------------------------------
\3\ In December 2000, Pepco divested substantially all of its
generation assets. This divestiture resulted in the recognition of a
pre-tax gain of approximately $423.8 million ($182 million net of
income taxes).
----------------------------------------------------------------------------------------------------------------
Pro forma
Pepco ($ Conectiv ($ combined ($
millions) millions) millions)
----------------------------------------------------------------------------------------------------------------
Total assets.................................................... 5,285.9 6,280.7 12,289.8
Total operating revenues........................................ 2,502.9 5,790.0 8,292.9
Operating income................................................ 366.4 759.2 1,125.6
Net income...................................................... 168.4 382.9 551.3
----------------------------------------------------------------------------------------------------------------
[[Page 15428]]
D. The Mergers
Under the merger agreement (``Merger Agreement''), PHI will form
two new wholly owned subsidiaries (``Merger Sub A'' and ``Merger Sub
B,'' and together, ``Merger Subs''). Merger Sub A will be a corporation
organized under the laws of the District of Columbia and Virginia.
Merger Sub B will be a corporation organized under the laws of
Delaware. PHI will designate the officers of Merger Sub A and Merger
Sub B. After the formation, the Merger Subs will become parties to the
Merger Agreement. Merger Sub A will merge with and into Pepco, in
accordance with the applicable provisions of the laws of Virginia and
the District of Columbia (``Pepco Merger''). Pepco will be the
surviving corporation and will continue its existence under the laws of
the District of Columbia and Virginia. As a result of the Pepco Merger,
Pepco will become a subsidiary of PHI. The parties currently intend
that shortly after the consummation of the Transaction, Pepco will
dividend the stock of POM to PHI so that POM will become a first tier
subsidiary of PHI.
Merger Sub B will merge with and into Conectiv, in accordance with
the laws of Delaware (``Conectiv Merger''). Conectiv will be the
surviving corporation in the Conectiv Merger and will continue its
existence under the laws of Delaware. As a result of the Conectiv
Merger, Conectiv will become a subsidiary of PHI. The officers of
Merger Sub A and Merger Sub B will become, respectively, the officers
of Pepco and Conectiv.
By virtue of the Mergers, each share of common stock, par value
$1.00 per share of Pepco (``Pepco Common Stock''), each share of common
stock, par value $.01 per share, of Conectiv (``Conectiv Common
Stock''), and each share of class A common stock, par value $.01 per
share of Conectiv (``Conectiv Class A Stock'' and together with the
Conectiv Common Stock, ``Conectiv Stock'') that are owned by Pepco,
Conectiv, or any of their subsidiaries, will be canceled and no
consideration will be delivered in exchange (``Canceled Stock'').
Shares of Pepco Common Stock (other than the Canceled Stock and shares
with respect to which the owner duly exercises the right to dissent
under applicable law) will be converted into the right to receive one
share of common stock, par value $.01 per share, of PHI (``PHI Common
Stock'' or ``Pepco Merger Consideration'').
Shares of Conectiv Common Stock (other than the Canceled Stock and
shares with respect to which the owner duly exercises the right to
dissent under applicable law) will be converted into the right to
receive: (a) $25 in cash (``Conectiv Common Stock Cash Consideration'')
or (b) the number of validly issued, fully paid and nonassessable
shares of PHI Common Stock (``Conectiv Common Stock Share
Consideration'') determined by dividing $25 by the average final price
\4\ (``Conectiv Common Stock Exchange Ratio''). The Conectiv Common
Stock Exchange Ratio may vary in accordance with the Average Final
Price within minimum and maximum exchange ratios established the Merger
Agreement. Shares of Conectiv Class A Stock other than Canceled Stock
and shares with respect to which the owner duly exercises the right to
dissent under applicable law will be converted into the right to
receive (a) $21.69 in cash (``Class A Cash Consideration'' and together
with the Conectiv Common Stock Cash Consideration, ``Conectiv Cash
Consideration'') or (b) the number of validly issued, fully paid and
nonassessable shares of PHI Common Stock (``Class A Share
Consideration'' and together with the Conectiv Common Stock Share
Consideration, ``Conectiv Share Consideration'') determined by dividing
$21.69 by the Average Final Price (``Class A Stock Exchange Ratio'').
The Class A Stock Exchange Ratio may also vary in accordance with the
Average Final Price within minimum and maximum exchange ratios
established in the Merger Agreement.
---------------------------------------------------------------------------
\4\ The average final price (``Average Final Price'') consists
of a volume-weighted average of the closing trading prices of Pepco
common stock during a certain period of time prior to the closing of
the Transaction.
---------------------------------------------------------------------------
Each record holder of Conectiv Stock immediately prior to the
consummation of the Transaction will be entitled to elect to receive
shares of PHI Common Stock or cash for all or any part of that holder's
shares of Conectiv Stock. As described in the Merger Agreement, this
election is subject to the requirement that, in the aggregate, fifty
percent of the consideration to be paid to Conectiv stockholders
consists of cash and fifty percent consists of PHI common stock. Each
share of common stock, without par value, of Merger Sub A that is
issued and outstanding immediately prior to the consummation of the
Transaction will be converted into one share of common stock, without
par value, of Pepco. Each share of common stock, par value $.01 per
share, of Merger Sub B that is issued and outstanding immediately prior
to the consummation of the Transaction will be converted into one share
of common stock, par value $.01 per share, of Conectiv.
PHI will account for the Transaction as an acquisition of Conectiv
by Pepco using the purchase method of accounting for a business
combination in accordance with generally accepted accounting principles
(``GAAP''). Under GAAP, the assets and liabilities of Conectiv will be
recorded at their fair values and, if necessary, any excess of the
merger consideration over those amounts will be recorded as goodwill.
The results of operations and cash flows of Conectiv will be included
in PHI's financial statements prospectively as of the effective time of
the transaction. Staff Accounting Bulletin No. 54 (``SAB 54''),
generally requires that the premium paid in an acquisition using the
purchase method of accounting be ``pushed down'' to the books of the
acquired company, which in this case would be Conectiv. However,
Applicants state that, under applicable exceptions to the general rule,
the premium paid in the Transaction is not required to be ``pushed
down'' to Conectiv. Specifically under SAB 54, application of push down
accounting is not required when the acquired company will continue to
have public debt after a merger. Conectiv has and will have publicly
held debt in the form of medium-term notes after the Transaction.
Before completing the Transaction, the management of Pepco and PHI
will evaluate various sources and methods of financing the amount
necessary to fund a portion of the cash consideration to be paid (the
total amount of cash consideration is approximately $1.098 billion).
Applicants may use up to approximately $400 million of the proceeds
that Pepco has received from the recent sale of its generation assets
to fund a portion of the Conectiv Cash Consideration, and anticipate
that all other funds required for the Transaction will be financed at
the PHI level through external sources. Sources of financing that PHI
is arranging include commercial and investment banks, institutional
lenders and public securities markets. Methods of financing initially
will include commercial paper and bank lines of credit, which will be
refinanced following completion of the Transaction in the public and/or
private markets with debt and preferred securities of various
maturities and types to be determined after the closing of the
Transaction. The financing for the Transaction by PHI will not be
recourse to any system companies other than PHI.
[[Page 15429]]
IV. Intrasystem Provision of Services
After consummation of the Transaction, and during the transition
period described below, both CRP and Pepco will provide Pepco Holdings,
Conectiv, Pepco and other system companies with certain system wide
administrative, management and support services. All services provided
to Pepco Holdings or to both Pepco or any of its current subsidiaries
(``Pepco Subsidiaries'') and Conectiv or any of its current
subsidiaries (``Conectiv Subsidiaries'') by either CRP or Pepco will be
billed and allocated through CRP in accordance with a revised service
agreement (``CRP Service Agreement'').\5\ As a result, during the
transition period not all services will be provided on a system-wide
basis and CRP will continue to provide certain services solely to
Conectiv companies, while Pepco companies will continue to provide
services solely to Pepco companies. The Applicants have not yet
completed their analysis of how best to accomplish the goal of
centralizing the service functions in the combined company. Once this
analysis is completed, Pepco Holdings will consolidate the provision of
services in a first tier system service company as appropriate and
subject to Commission approval.
---------------------------------------------------------------------------
\5\ The CRP Service Agreement is filed as an exhibit to this
Application.
---------------------------------------------------------------------------
Applicants propose to have CRP function as an interim service
company through January 1, 2003 (``Transition Period''). CRP will
provide services to PHI as well as both Pepco Subsidiaries and Conectiv
Subsidiaries and these services will be allocated and billed in
accordance with the CRP Service Agreement. In addition, Applicants
propose that some Pepco employees provide services to PHI, Pepco
Subsidiaries and Conectiv Subsidiaries. Pepco will bill these services
to CRP at cost, determined in accordance with rules 90 and 91 under the
Act, and CRP will then allocate and bill the costs to the appropriate
system companies in accordance with the CRP Service Agreement. During
the transition period, CRP will either be a direct or indirect
subsidiary of PHI.
Applicants commit to file, within six months of the consummation of
the Transaction, a revised service agreement, service company policy
and procedures that address the final service company arrangements to
be proposed. At this time, Applicants state that any new service
company will have been formed.
Applicants request an exemption from the at-cost requirements of
rules 90 and 91 for services rendered by PHI's nonutility subsidiaries
to certain other PHI nonutility subsidiaries, if one or more of the
following conditions apply:
(i) The purchasing nonutility subsidiary is a FUCO or an EWG that
derives no part of its income, directly or indirectly, from the
generation and sale of electric energy within the United States;
(ii) The purchasing nonutility subsidiary is an EWG that sells
electricity at market-based rates that have been approved by the FERC
or the relevant state public utility commission, provided that the
purchaser is not one of PHI's regulated public utility subsidiaries;
(iii) The purchasing nonutility subsidiary is a ``qualifying
facility'' (``QF'') under the Public Utility Regulatory Policies Act of
1978, as amended (``PURPA''), that sells electricity exclusively at
rates negotiated at arm's length to one or more industrial or
commercial customers purchasing the electricity for their own use and
not for resale, or to an electric utility company (other than one of
PHI's regulated public utility subsidiaries) at the purchaser's
``avoided costs'' as determined under the regulations under PURPA; and
(iv) The purchasing nonutility subsidiary is an EWG or QF that
sells electricity at rates based upon its cost of service, as approved
by the FERC or any state public utility commission having jurisdiction,
provided that the purchaser of the electricity is not one of PHI's
regulated public utility subsidiaries.
The nonutility subsidiaries described in clauses (i)-(iv) are
referred to collectively below as ``Exempt Nonutility Companies.'' To
the extent not exempt or otherwise authorized, Applicants request an
exemption from the at-cost requirements of rules 90 and 91 for services
rendered to any Exempt Nonutility Company that (a) is partially owned,
provided that the ultimate purchaser of the services is not a regulated
public utility subsidiary of PHI, (b) is engaged solely in the business
of developing, owning, operating and/or providing services to Exempt
Nonutility Companies or (c) does not derive, directly or indirectly,
any material part of its income from sources within the United States
and is not a public-utility company operating within the United States.
Pepco's indirect wholly owned subsidiaries W.A. Chester LLC and
W.A. Chester Corporation are in the business of installing and
maintaining utility cable systems. These companies currently provide
services to Pepco at market rates under contracts entered into before
they became part of a registered system and Applicants request that
they continue to operate under these contracts for the existing term of
the contracts. Upon consummation of the Transaction, Applicants commit
that any new service arrangements between these companies and Pepco
will be priced at cost.
Pepco entered into a lease arrangement with Edison Place, LLC
(``Edison Place''), a subsidiary of Pepco, under which it will rent
office space in the new headquarters building from Edison Place. This
fifteen year lease was entered into before Pepco and Edison Place were
part of a registered system and contains rent arrangements that Pepco
believes are more favorable to it than other available options in the
market. The rent arrangements were not determined in accordance with
the provisions of rules 90 and 91 of the Act but were an integral part
of the property sale between Pepco and Edison Place. Pepco and Edison
Place request authorization to leave the existing lease in place until
the expiration of its terms.
V. Nonutility Subsidiary Reorganizations
Applicants propose to restructure the PHI Nonutilities from time to
time as may be necessary or appropriate in the furtherance of the PHI
authorized nonutility activities. PHI requests authorization to
acquire, directly or indirectly, the equity securities of one or more
intermediate subsidiaries (``Intermediate Subsidiaries'') organized
exclusively for the purpose of acquiring, financing, and holding the
securities of one or more existing or future nonutility subsidiaries.
Intermediate Subsidiaries may also provide management, administrative,
project development and operating services to future PHI Nonutilities.
Reorganizations could involve the acquisition of one or more new
subsidiaries formed to acquire and hold direct or indirect interests in
any or all of PHI's existing or future authorized nonutility
businesses. Restructuring could also involve the transfer of existing
subsidiaries, or portions of existing businesses, to PHI or among the
PHI Nonutilities and/or the re-incorporation of existing PHI
Nonutilities in a different jurisdiction. Following any reorganization,
PHI will continue to hold, directly or indirectly, the same interest in
the voting securities of any PHI Nonutility as immediately prior to the
reorganization. This would enable PHI to consolidate similar businesses
and to participate effectively in authorized nonutility activities,
[[Page 15430]]
without the need to apply for or receive additional Commission
approval.
The direct or indirect newly created nonutility holding company
subsidiaries referred to above might be corporations, partnerships,
limited liability companies or other entities in which PHI, directly or
indirectly, will have a 100 percent voting equity interest. These
subsidiaries would engage only in businesses to the extent PHI is
authorized to engage in those businesses by statute, rule, regulation
or order. Applicants state that reorganizations will not result in PHI
entering into any new, unauthorized line of business.
VI. Energy Related Activities
Applicants request authority for PHI existing and future nonutility
subsidiaries to engage in certain ``energy-related'' activities outside
the United States. These activities may include:
(i) The brokering and marketing of electricity, natural gas and
other energy commodities (``Energy Marketing'');
(ii) Energy management services (``Energy Management Services''),
including the marketing, sale, installation, operation, and maintenance
of various products and services related to energy management and
demand-side management, including energy and efficiency audits;
facility design and process control and enhancements; construction,
installation, testing, sales, and maintenance of (and training client
personnel to operate) energy conservation equipment; design,
implementation, monitoring, and evaluation of energy conservation
programs; development and review of architectural, structural, and
engineering drawings for energy efficiencies, design and specification
of energy consuming equipment; general advice on programs; the design,
construction, installation, testing, sales and maintenance of new and
retrofit heating, ventilating, and air conditioning; electrical and
power systems; alarm and warning systems; motors, pumps, lighting,
water, water-purification and plumbing systems, and related structures,
in connection with energy-related needs; and the provision of services
and products designed to prevent, control, or mitigate adverse effects
of power disturbances on a customer's electrical systems; and
(iii) Engineering, consulting, and other technical support services
(``Consulting Services'') with respect to energy-related businesses, as
well as for individuals. Consulting Services would include technology
assessments, power factor correction, and harmonics mitigation
analysis; meter reading and repair; rate schedule design and analysis;
environmental, engineering, risk management, and billing services
(including consolidation billing and bill disaggregation tools);
communications and information systems/data processing; system and
strategic planning; finance; feasibility studies; and other similar
services.
Applicants request that the Commission (i) authorize nonutility
subsidiaries to engage in Energy Marketing activities in Canada and
reserve jurisdiction over Energy Marketing activities outside of Canada
pending completion of the record in this proceeding; (ii) authorize
nonutility subsidiaries to provide Energy Management Services and
Consulting Services anywhere outside the United States and (iii)
reserve jurisdiction over other activities of nonutility subsidiaries
outside the United States, pending completion of the record.
Applicants note that the Commission has previously granted or
reserved jurisdiction over Conectiv Nonutilities' provision of the type
of services described above through its Rule 58 Subsidiaries.\6\
Applicants request that this authorization and reservation of
jurisdiction be extended to the Pepco Nonutilities as well.
---------------------------------------------------------------------------
\6\ See HCAR No. 27464 (November 8, 2001).
---------------------------------------------------------------------------
VII. Tax Allocation Agreement
Applicants propose to enter into an agreement for the allocation of
consolidated tax among the companies within the PHI system (``Tax
Allocation Agreement''). The Tax Allocation Agreement provides for the
retention by PHI of payments for tax losses that it will incur in
connection with financing or refinancing approximately $700 million of
the cash consideration to be paid in the Transaction, rather than the
allocation of these losses to its subsidiaries without payment as would
otherwise be required by rule 45(c)(5).
VIII. Retention of Nonutility Subsidiaries and Additional Gas
System
Applicants request that PHI be authorized to retain the Pepco
Nonutilities, specifically listed in Appendix A to this notice.\7\
Additionally, Applicants request that PHI be authorized to retain the
Conectiv Gas System, which was found retainable in the Conectiv Merger
Order.
---------------------------------------------------------------------------
\7\ The Commission found the Conectiv Nonutilities to be
retainable in the Conectiv Merger Order.
For the Commission by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7769 Filed 3-29-02; 8:45 am]
BILLING CODE 8010-01-U