[Federal Register Volume 69, Number 33 (Thursday, February 19, 2004)]
[Notices]
[Pages 7824-7828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3577]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27802]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

February 12, 2004.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission under 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 March 8, 2004, 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 March 8, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Metropolitan Edison Company (70-10192)

    Metropolitan Edison Company (``Met-Ed'') and Pennsylvania Electric 
Company (``Penelec''), each at 76 South Main Street, Akron, Ohio, 
44308, and direct wholly-owned public-utility subsidiaries of 
FirstEnergy Corp. (``FirstEnergy''), a registered holding company, and 
Pennsylvania Power Company (``Penn Power''), 76 South Main Street, 
Akron, Ohio, 44308, an indirect wholly-owned public-utility subsidiary 
of FirstEnergy, have each filed an application/declaration under 
sections 6(a), 7, 9(a)(1), 10, and 12(b) of the Public Utility Holding 
Company Act of 1935, as amended (``Act'') and rules 43, 45, 46 and 54 
under the Act. Met-Ed, Penelec and Penn Power are referred to 
individually as an ``Applicant,'' and collectively as the 
``Applicants.''
    The Applicants seek authority to form and acquire all of the 
membership interests in separate Delaware limited liability companies 
(each an ``SPE'' and collectively ``SPEs'') to which Met-Ed, Penelec 
and Penn Power will sell their respective customer accounts receivables 
(``Receivables''). Each of the SPEs will be organized under Delaware 
law as a single-member limited liability company. Each SPE will have 
nominal capital (except as described below) and will conduct no 
business operations or own any assets other than the Receivables 
purchased from, or contributed by, its parent. The purpose in forming 
the SPEs is to isolate the Receivables from the Applicants who have 
originated them, so that under the Financial Accounting Standards Board 
Statement No. 140 (``FASB 140''),\1\ the sale of the Receivables to the 
SPEs qualifies for treatment as a true sale of assets by the Applicants 
rather than as a loan secured by the Receivables. This will allow the 
Receivables to be removed as assets from the books of the Applicants. 
The Applicants will not have any obligation to repurchase Receivables 
that they have sold.
---------------------------------------------------------------------------

    \1\ See FASB Statement No. 140, ``Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities,'' 
a replacement of FASB Statement No. 125 (September 2000). FASB 140 
sets forth various tests that have to be met in order for the 
transferred assets to be deemed to be isolated from (i.e., out of 
the control of) the seller. Special-purpose entities similar to 
those the Applicants propose to form are typically used to establish 
separateness.
---------------------------------------------------------------------------

    Each Applicant will enter into a substantially identical 
Receivables Sale Agreement (``RSA'') with its respective SPE. Each SPE, 
in turn, will enter into a Receivables Purchase Agreement (``RPA'') 
under which the SPE will fund its purchase of Receivables by selling, 
on a revolving basis, undivided ownership interests in the pool of 
Receivables that it owns to a conduit established to issue and sell 
commercial paper (``Conduit'') and/or one or more financial 
institutions (collectively, ``Purchasers'') through Bank One, NA, 
acting as agent (``Agent''). The maximum purchase commitment of the 
Purchasers under the RPAs are $80 million in the case of Met-Ed, $75 
million in the case of Penelec, and $25 million in the case of Penn 
Power.
    Under each RSA, an Applicant will sell and assign to its respective 
SPE all of its right, title and interest to its Receivables (together 
with any security that may have been obtained from customers and 
collections by the Applicant on the Receivables). The Receivables will 
be sold to the SPE without recourse (except as described below), at a 
discount using a discount rate to be determined from time to time based 
on, among other factors, the SPE's cost of funds (as described below), 
which takes into account the Applicant's credit rating, and the risk of 
non-payment by the obligors on the Receivables (i.e., the Applicant's 
loss experience on its accounts receivable).
    Although Receivables will be sold by each Applicant to its 
respective SPE without recourse, the SPE will be entitled to a credit 
equal to any reduction in the amount of any Receivables resulting from 
(1) any defective or rejected goods or services, any discount or any 
adjustment or otherwise in the amount of any Receivable, or (2) any 
setoff in respect of any claim affecting the Receivables. In addition, 
if any of the representations or warranties made by the Applicant in 
the RSA are no longer true with respect to any Receivable, the SPE will 
be entitled to a credit against the purchase price for the Recievable 
in an amount equal to its outstanding balance. Each Applicant has the 
right to terminate the RSA upon giving 15 business days written notice 
to the SPE.
    Each SPE will finance the purchase of the Receivables, first, using 
the funds obtained from Purchasers under the related RPA (as described 
below), second, by delivery of the proceeds of a subordinated revolving 
loan by the SPE's parent (a ``Subordinated Loan''), and third, by 
accepting a contribution of Receivables to its capital from its parent 
in an amount equal to the remaining balance of the purchase price for 
the Receivables. The note evidencing the Subordianted Loan will bear 
interest at a prime rate, which is equal to the higher of (1) the rate 
of interest per annum determined by the Agent from time to time as its 
prime commercial lending rate and (2) the federal funds effective rate 
plus .50%.
    The amount of Receivables originated by an Applicant will vary from 
month to month based on electricity usage by its customers. As a result 
of this and other factors, the funds available to an SPE to purchase 
Receivables may not match the cost of Receivables available for sale. 
The use of the Subordinated Loan/capital contribution mechanism is 
intended to address this periodic mismatch. When the amount of 
Receivables available for sale by an Applicant exceeds the amount of 
cash its SPE has available, the excess will be

[[Page 7825]]

purchased by the SPE with the proceeds of a Subordinated Loan and/or by 
accepting a capital contribution of Receivables. Conversely, if, after 
payments of all amounts due under the RPA an SPE develops a cash 
surplus due to collections of previously purchased Receivables (or 
Receivables received as a contribution) exceeding the balance of newly 
created Receivables available for purchase, the surplus funds will be 
used to repay the Subordinated Loan and/or make a cash distribution. 
Through this mechanism, it is expected that the SPEs will not retain 
substantial cash balances at any time and that substantially all cash 
realized from the collection of the Receivables (net of the costs of 
the program) will be made available to the Applicants.
    Under each RPA, the SPE is obligated to pay: (1) The Agent various 
fees (including fees paid to the Agent and the Conduit under a fee 
letter); (2) fees and costs to each Applicant for the service provided 
in billing and collecting on the Receivables the Applicant sold to the 
SPE (described further below); (3) amounts required to reduce the 
interests in the Receivables purchased by the Purchasers, (4) amounts 
required if the representations and warranties regarding the 
Receivables are no longer true; (5) broken funding costs (e.g., damages 
incurred to prepay any LIBOR borrowings); (6) default fees; and (7) 
amounts payable as yield (``Yield'') on the capital at any time 
associated with the undivided interest in purchased Receivables. The 
Yield for any interest accrual period that will be applied to capital 
provided by financial institutions that are Purchasers shall be an 
amount equal to the product of the applicable bank rate (either (1) the 
London Interbank Offered Rate (LIBOR), plus a spread, or (2) a prime 
rate, which is the higher of (a) the rate of interest per annum 
determined by the Agent from time to time as its prime commercial 
lending rate and (b) the federal funds effective rate plus .50%), 
multiplied by the capital invested. The Yield for each month that will 
be applied to capital provided by the Conduit shall be an amount based 
on the effective cost of funds on promissory notes issued by the 
Conduit in the commercial paper market.
    Each Applicant is designated as the servicer under the RPA to which 
it is a party. Thus, the transactions described above will have no 
effect on the services each Applicant provides to its customers. Among 
other things, each Applicant will continue to bill and collect all of 
its utility service accounts receivable in accordance with its current 
credit and collection policies. As compensation for the services it 
renders, each Applicant (as servicer) will be paid a monthly servicing 
fee equal to .25% of the aggregate outstanding balance of all 
Receivables during the month. Upon the occurrence of certain events, 
including, among others, a failure by an SPE to pay indebtedness or 
other fees when due or to perform or observe certain covenants under 
the RPA, an event of insolvency affecting an SPE or an Applicant, or 
the failure by an Applicant to maintain certain debt coverage and 
capitalization ratios, the Agent would have the right to designate a 
new servicer.
    The proposed transaction will provide the Applicants with an 
additional source of funds, and will save Met-Ed and Penelec 
approximately 50-125 basis points over the cost of conventional 
financing and Penn Power approximately 40-115 basis points over the 
cost of conventional financing. Based on present market conditions, the 
Applicants estimate that the current cost of the funds available under 
the Receivables program is 1.545% in the case of Met-Ed and Penelec and 
1.645% in the case of Penn Power, as compared to the estimated costs to 
the Applicants of bank financing (2.75%) and a one-year floating rate 
note (approximately 2%).
    Proceeds of the Receivables sale program will be used by the 
Applicants for general corporate purposes.

Pennsylvania Electric Company (70-10193)

    Metropolitan Edison Company (``Met-Ed'') and Pennsylvania Electric 
Company (``Penelec''), each at 76 South Main Street, Akron, Ohio, 
44308, and direct wholly-owned public-utility subsidiaries of 
FirstEnergy Corp. (``FirstEnergy''), a registered holding company, and 
Pennsylvania Power Company (``Penn Power''), 76 South Main Street, 
Akron, Ohio, 44308, an indirect wholly-owned public-utility subsidiary 
of FirstEnergy, have each filed an application/declaration under 
sections 6(a), 7, 9(a)(1), 10, and 12(b) of the Public Utility Holding 
Company Act of 1935, as amended (``Act'') and rules 43, 45, 46 and 54 
under the Act. Met-Ed, Penelec and Penn Power are referred to 
individually as an ``Applicant,'' and collectively as the 
``Applicants.''
    The Applicants seek authority to form and acquire all of the 
membership interests in separate Delaware limited liability companies 
(each an ``SPE'' and collectively ``SPEs'') to which Met-Ed, Penelec 
and Penn Power will sell their respective customer accounts receivables 
(``Receivables''). Each of the SPEs will be organized under Delaware 
law as a single-member limited liability company. Each SPE will have 
nominal capital (except as described below) and will conduct no 
business operations or own any assets other than the Receivables 
purchased from, or contributed by, its parent. The purpose in forming 
the SPEs is to isolate the Receivables from the Applicants who have 
originated them, so that under the Financial Accounting Standards Board 
Statement No. 140 (``FASB 140''),\2\ the sale of the Receivables to the 
SPEs qualifies for treatment as a true sale of assets by the Applicants 
rather than as a loan secured by the Receivables. This will allow the 
Receivables to be removed as assets from the books of the Applicants. 
The Applicants will not have any obligation to repurchase Receivables 
that they have sold.
---------------------------------------------------------------------------

    \2\ See FASB Statement No. 140, ``Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities,'' 
a replacement of FASB Statement No. 125 (September 2000). FASB 140 
sets forth various tests that have to be met in order for the 
transferred assets to be deemed to be isolated from (i.e., out of 
the control of) the seller. Special-purpose entities similar to 
those the Applicants propose to form are typically used to establish 
separateness.
---------------------------------------------------------------------------

    Each Applicant will enter into a substantially identical 
Receivables Sale Agreement (``RSA'') with its respective SPE. Each SPE, 
in turn, will enter into a Receivables Purchase Agreement (``RPA'') 
under which the SPE will fund its purchase of Receivables by selling, 
on a revolving basis, undivided ownership interests in the pool of 
Receivables that it owns to a conduit established to issue and sell 
commercial paper (``Conduit'') and/or one or more financial 
institutions (collectively, ``Purchasers'') through Bank One, NA, 
acting as agent (``Agent''). The maximum purchase commitment of the 
Purchasers under the RPAs are $80 million in the case of Met-Ed, $75 
million in the case of Penelec, and $25 million in the case of Penn 
Power.
    Under each RSA, an Applicant will sell and assign to its respective 
SPE all of its right, title and interest to its Receivables (together 
with any security that may have been obtained from customers and 
collections by the Applicant on the Receivables). The Receivables will 
be sold to the SPE without recourse (except as described below), at a 
discount using a discount rate to be determined from time to time based 
on, among other factors, the SPE's cost of funds (as described below), 
which takes into account the Applicant's credit rating, and the risk of 
non-payment by the obligors on the

[[Page 7826]]

Receivables (i.e., the Applicant's loss experience on its accounts 
receivable).
    Although Receivables will be sold by each Applicant to its 
respective SPE without recourse, the SPE will be entitled to a credit 
equal to any reduction in the amount of any Receivables resulting from 
(1) any defective or rejected goods or services, any discount or any 
adjustment or otherwise in the amount of any Receivable, or (2) any 
setoff in respect of any claim affecting the Receivables. In addition, 
if any of the representations or warranties made by the Applicant in 
the RSA are no longer true with respect to any Receivable, the SPE will 
be entitled to a credit against the purchase price for the Recievable 
in an amount equal to its outstanding balance. Each Applicant has the 
right to terminate the RSA upon giving 15 business days written notice 
to the SPE.
    Each SPE will finance the purchase of the Receivables, first, using 
the funds obtained from Purchasers under the related RPA (as described 
below), second, by delivery of the proceeds of a subordinated revolving 
loan by the SPE's parent (a ``Subordinated Loan''), and third, by 
accepting a contribution of Receivables to its capital from its parent 
in an amount equal to the remaining balance of the purchase price for 
the Receivables. The note evidencing the Subordianted Loan will bear 
interest at a prime rate, which is equal to the higher of (1) the rate 
of interest per annum determined by the Agent from time to time as its 
prime commercial lending rate and (2) the federal funds effective rate 
plus .50%.
    The amount of Receivables originated by an Applicant will vary from 
month to month based on electricity usage by its customers. As a result 
of this and other factors, the funds available to an SPE to purchase 
Receivables may not match the cost of Receivables available for sale. 
The use of the Subordinated Loan/capital contribution mechanism is 
intended to address this periodic mismatch. When the amount of 
Receivables available for sale by an Applicant exceeds the amount of 
cash its SPE has available, the excess will be purchased by the SPE 
with the proceeds of a Subordinated Loan and/or by accepting a capital 
contribution of Receivables. Conversely, if, after payments of all 
amounts due under the RPA an SPE develops a cash surplus due to 
collections of previously purchased Receivables (or Receivables 
received as a contribution) exceeding the balance of newly created 
Receivables available for purchase, the surplus funds will be used to 
repay the Subordinated Loan and/or make a cash distribution. Through 
this mechanism, it is expected that the SPEs will not retain 
substantial cash balances at any time and that substantially all cash 
realized from the collection of the Receivables (net of the costs of 
the program) will be made available to the Applicants.
    Under each RPA, the SPE is obligated to pay: (1) The Agent various 
fees (including fees paid to the Agent and the Conduit under a fee 
letter); (2) fees and costs to each Applicant for the service provided 
in billing and collecting on the Receivables the Applicant sold to the 
SPE (described further below); (3) amounts required to reduce the 
interests in the Receivables purchased by the Purchasers, (4) amounts 
required if the representations and warranties regarding the 
Receivables are no longer true; (5) broken funding costs (e.g., damages 
incurred to prepay any LIBOR borrowings); (6) default fees; and (7) 
amounts payable as yield (``Yield'') on the capital at any time 
associated with the undivided interest in purchased Receivables. The 
Yield for any interest accrual period that will be applied to capital 
provided by financial institutions that are Purchasers shall be an 
amount equal to the product of the applicable bank rate (either (1) the 
London Interbank Offered Rate (LIBOR), plus a spread, or (2) a prime 
rate, which is the higher of (a) the rate of interest per annum 
determined by the Agent from time to time as its prime commercial 
lending rate and (b) the federal funds effective rate plus .50%), 
multiplied by the capital invested. The Yield for each month that will 
be applied to capital provided by the Conduit shall be an amount based 
on the effective cost of funds on promissory notes issued by the 
Conduit in the commercial paper market.
    Each Applicant is designated as the servicer under the RPA to which 
it is a party. Thus, the transactions described above will have no 
effect on the services each Applicant provides to its customers. Among 
other things, each Applicant will continue to bill and collect all of 
its utility service accounts receivable in accordance with its current 
credit and collection policies. As compensation for the services it 
renders, each Applicant (as servicer) will be paid a monthly servicing 
fee equal to .25% of the aggregate outstanding balance of all 
Receivables during the month. Upon the occurrence of certain events, 
including, among others, a failure by an SPE to pay indebtedness or 
other fees when due or to perform or observe certain covenants under 
the RPA, an event of insolvency affecting an SPE or an Applicant, or 
the failure by an Applicant to maintain certain debt coverage and 
capitalization ratios, the Agent would have the right to designate a 
new servicer.
    The proposed transaction will provide the Applicants with an 
additional source of funds, and will save Met-Ed and Penelec 
approximately 50-125 basis points over the cost of conventional 
financing and Penn Power approximately 40-115 basis points over the 
cost of conventional financing. Based on present market conditions, the 
Applicants estimate that the current cost of the funds available under 
the Receivables program is 1.545% in the case of Met-Ed and Penelec and 
1.645% in the case of Penn Power, as compared to the estimated costs to 
the Applicants of bank financing (2.75%) and a one-year floating rate 
note (approximately 2%).
    Proceeds of the Receivables sale program will be used by the 
Applicants for general corporate purposes.

Pennsylvania Power Company (70-10194)

    Metropolitan Edison Company (``Met-Ed'') and Pennsylvania Electric 
Company (``Penelec''), each at 76 South Main Street, Akron, Ohio, 
44308, and direct wholly-owned public-utility subsidiaries of 
FirstEnergy Corp. (``FirstEnergy''), a registered holding company, and 
Pennsylvania Power Company (``Penn Power''), 76 South Main Street, 
Akron, Ohio, 44308, an indirect wholly-owned public-utility subsidiary 
of FirstEnergy, have each filed an application/declaration under 
sections 6(a), 7, 9(a)(1), 10, and 12(b) of the Public Utility Holding 
Company Act of 1935, as amended (``Act'') and rules 43, 45, 46 and 54 
under the Act. Met-Ed, Penelec and Penn Power are referred to 
individually as an ``Applicant,'' and collectively as the 
``Applicants.''
    The Applicants seek authority to form and acquire all of the 
membership interests in separate Delaware limited liability companies 
(each an ``SPE'' and collectively ``SPEs'') to which Met-Ed, Penelec 
and Penn Power will sell their respective customer accounts receivables 
(``Receivables''). Each of the SPEs will be organized under Delaware 
law as a single-member limited liability company. Each SPE will have 
nominal capital (except as described below) and will conduct no 
business operations or own any assets other than the Receivables 
purchased from, or contributed by, its parent. The purpose in forming 
the SPEs is to isolate the Receivables from the Applicants who have 
originated them, so that under the Financial Accounting Standards Board

[[Page 7827]]

Statement No. 140 (``FASB 140''),\3\ the sale of the Receivables to the 
SPEs qualifies for treatment as a true sale of assets by the Applicants 
rather than as a loan secured by the Receivables. This will allow the 
Receivables to be removed as assets from the books of the Applicants. 
The Applicants will not have any obligation to repurchase Receivables 
that they have sold.
---------------------------------------------------------------------------

    \3\ See FASB Statement No. 140, ``Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities,'' 
a replacement of FASB Statement No. 125 (September 2000). FASB 140 
sets forth various tests that have to be met in order for the 
transferred assets to be deemed to be isolated from (i.e., out of 
the control of) the seller. Special-purpose entities similar to 
those the Applicants propose to form are typically used to establish 
separateness.
---------------------------------------------------------------------------

    Each Applicant will enter into a substantially identical 
Receivables Sale Agreement (``RSA'') with its respective SPE. Each SPE, 
in turn, will enter into a Receivables Purchase Agreement (``RPA'') 
under which the SPE will fund its purchase of Receivables by selling, 
on a revolving basis, undivided ownership interests in the pool of 
Receivables that it owns to a conduit established to issue and sell 
commercial paper (``Conduit'') and/or one or more financial 
institutions (collectively, ``Purchasers'') through Bank One, NA, 
acting as agent (``Agent''). The maximum purchase commitment of the 
Purchasers under the RPAs are $80 million in the case of Met-Ed, $75 
million in the case of Penelec, and $25 million in the case of Penn 
Power.
    Under each RSA, an Applicant will sell and assign to its respective 
SPE all of its right, title and interest to its Receivables (together 
with any security that may have been obtained from customers and 
collections by the Applicant on the Receivables). The Receivables will 
be sold to the SPE without recourse (except as described below), at a 
discount using a discount rate to be determined from time to time based 
on, among other factors, the SPE's cost of funds (as described below), 
which takes into account the Applicant's credit rating, and the risk of 
non-payment by the obligors on the Receivables (i.e., the Applicant's 
loss experience on its accounts receivable).
    Although Receivables will be sold by each Applicant to its 
respective SPE without recourse, the SPE will be entitled to a credit 
equal to any reduction in the amount of any Receivables resulting from 
(1) any defective or rejected goods or services, any discount or any 
adjustment or otherwise in the amount of any Receivable, or (2) any 
setoff in respect of any claim affecting the Receivables. In addition, 
if any of the representations or warranties made by the Applicant in 
the RSA are no longer true with respect to any Receivable, the SPE will 
be entitled to a credit against the purchase price for the Recievable 
in an amount equal to its outstanding balance. Each Applicant has the 
right to terminate the RSA upon giving 15 business days written notice 
to the SPE.
    Each SPE will finance the purchase of the Receivables, first, using 
the funds obtained from Purchasers under the related RPA (as described 
below), second, by delivery of the proceeds of a subordinated revolving 
loan by the SPE's parent (a ``Subordinated Loan''), and third, by 
accepting a contribution of Receivables to its capital from its parent 
in an amount equal to the remaining balance of the purchase price for 
the Receivables. The note evidencing the Subordianted Loan will bear 
interest at a prime rate, which is equal to the higher of (1) the rate 
of interest per annum determined by the Agent from time to time as its 
prime commercial lending rate and (2) the federal funds effective rate 
plus .50%.
    The amount of Receivables originated by an Applicant will vary from 
month to month based on electricity usage by its customers. As a result 
of this and other factors, the funds available to an SPE to purchase 
Receivables may not match the cost of Receivables available for sale. 
The use of the Subordinated Loan/capital contribution mechanism is 
intended to address this periodic mismatch. When the amount of 
Receivables available for sale by an Applicant exceeds the amount of 
cash its SPE has available, the excess will be purchased by the SPE 
with the proceeds of a Subordinated Loan and/or by accepting a capital 
contribution of Receivables. Conversely, if, after payments of all 
amounts due under the RPA an SPE develops a cash surplus due to 
collections of previously purchased Receivables (or Receivables 
received as a contribution) exceeding the balance of newly created 
Receivables available for purchase, the surplus funds will be used to 
repay the Subordinated Loan and/or make a cash distribution. Through 
this mechanism, it is expected that the SPEs will not retain 
substantial cash balances at any time and that substantially all cash 
realized from the collection of the Receivables (net of the costs of 
the program) will be made available to the Applicants.
    Under each RPA, the SPE is obligated to pay: (1) The Agent various 
fees (including fees paid to the Agent and the Conduit under a fee 
letter); (2) fees and costs to each Applicant for the service provided 
in billing and collecting on the Receivables the Applicant sold to the 
SPE (described further below); (3) amounts required to reduce the 
interests in the Receivables purchased by the Purchasers, (4) amounts 
required if the representations and warranties regarding the 
Receivables are no longer true; (5) broken funding costs (e.g., damages 
incurred to prepay any LIBOR borrowings); (6) default fees; and (7) 
amounts payable as yield (``Yield'') on the capital at any time 
associated with the undivided interest in purchased Receivables. The 
Yield for any interest accrual period that will be applied to capital 
provided by financial institutions that are Purchasers shall be an 
amount equal to the product of the applicable bank rate (either (1) the 
London Interbank Offered Rate (LIBOR), plus a spread, or (2) a prime 
rate, which is the higher of (a) the rate of interest per annum 
determined by the Agent from time to time as its prime commercial 
lending rate and (b) the federal funds effective rate plus .50%), 
multiplied by the capital invested. The Yield for each month that will 
be applied to capital provided by the Conduit shall be an amount based 
on the effective cost of funds on promissory notes issued by the 
Conduit in the commercial paper market.
    Each Applicant is designated as the servicer under the RPA to which 
it is a party. Thus, the transactions described above will have no 
effect on the services each Applicant provides to its customers. Among 
other things, each Applicant will continue to bill and collect all of 
its utility service accounts receivable in accordance with its current 
credit and collection policies. As compensation for the services it 
renders, each Applicant (as servicer) will be paid a monthly servicing 
fee equal to .25% of the aggregate outstanding balance of all 
Receivables during the month. Upon the occurrence of certain events, 
including, among others, a failure by an SPE to pay indebtedness or 
other fees when due or to perform or observe certain covenants under 
the RPA, an event of insolvency affecting an SPE or an Applicant, or 
the failure by an Applicant to maintain certain debt coverage and 
capitalization ratios, the Agent would have the right to designate a 
new servicer.
    The proposed transaction will provide the Applicants with an 
additional source of funds, and will save Met-Ed and Penelec 
approximately 50-125 basis points over the cost of conventional 
financing and Penn Power approximately 40-115 basis points over the 
cost of conventional financing. Based on present market conditions, the

[[Page 7828]]

Applicants estimate that the current cost of the funds available under 
the Receivables program is 1.545% in the case of Met-Ed and Penelec and 
1.645% in the case of Penn Power, as compared to the estimated costs to 
the Applicants of bank financing (2.75%) and a one-year floating rate 
note (approximately 2%).
    Proceeds of the Receivables sale program will be used by the 
Applicants for general corporate purposes.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-3577 Filed 2-18-04; 8:45 am]
BILLING CODE 8010-01-P