[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]


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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\
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    \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.
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    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.
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    \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'').
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    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\
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    \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)
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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
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[[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.
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    \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.
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    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.
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    \5\ The CRP Service Agreement is filed as an exhibit to this 
Application.
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    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.
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    \6\ See HCAR No. 27464 (November 8, 2001).
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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.
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    \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