[Federal Register Volume 69, Number 49 (Friday, March 12, 2004)]
[Notices]
[Pages 11902-11919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5587]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27808]


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

March 5, 2004.
    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 March 29, 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 29, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Exelon Corporation (70-10189)

    Exelon Corporation (``Exelon''), a registered holding company; 
Exelon's public utility subsidiaries: Commonwealth Edison (``ComEd''); 
Exelon Generation Company, LLC (``Genco''), 300 Exelon Way, Kennet 
Square, PA 19348; PECO Energy Company (``PECO'') 2301 Market Street, 
Philadelphia, PA 19101; Commonwealth Edison Company of Indiana (``ComEd 
Indiana''); Exelon's nonutility registered holding company subsidiaries 
Exelon Energy Delivery Company, LLC (``Delivery'') and Exelon Ventures 
Company, LLC (``Ventures''); and Exelon's nonutility subsidiaries 
(``Nonutility Subsidiaries'') \1\ Exelon Business Services Company 
(``Exelon Business Services''); ECP Telecommunications Holdings, LLC 
(``ECP Telecommunications''); EEI Telecommunications Holding, LLC 
(``EEI Telecommunications''); Energy Trading Company; Exelon Capital 
Partners, Inc. (``Exelon Capital Partners''); Exelon Communications 
Company, LLC (Exelon Communications''); Exelon Communications Holdings, 
LLC (``Exelon Communications Holdings''); Exelon Energy Company; Exelon 
Energy Delivery Company, LLC (``Exelon Energy Delivery''); Exelon 
Enterprises Company, LLC (``Exelon Enterprises''); Exelon Enterprises 
Investments, Inc. (``Exelon Enterprises Investments''); Exelon 
Enterprises Management, Inc. (``Exelon Enterprises Management''); 
Exelon New Trust Company; Exelon Services, Inc.; Exelon Thermal 
Development, Inc. (``Exelon Thermal Development''); Exelon Thermal 
Holding, Inc. (``Exelon Thermal Holding''); Exelon Thermal Technologies 
Inc. (``Exelon Thermal Technologies''); F&M Holdings Company, LLC 
(``F&M Holdings Company''); PECO Energy Power Company (``PEPCO''), 
Susquehanna Power Company, Susquehanna Electric Company; Unicom Power 
Holdings, LLC (``Unicom Power Holdings''); Unicom Power Marketing, Inc. 
(``Unicom Power Marketing''); Unicom Investments, Inc. (``UII''); and 
Adwin Equipment Company (``Adwin'') all except PECO and Genco located 
at 10 South Dearborn Street, Chicago, IL 60603, have filed an 
application-declaration (``Application'') under sections 6(a), 7, 9(a), 
10, 12, 13(b), 32, 33, and 34 of the Act and rules 42, 43, 44, 45, 46, 
53, and 54 under the Act.
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    \1\ The Utility Subsidiaries, Ventures, Delivery, and the 
Nonutility Subsidiaries are collectively referred to as 
``Subsidiaries.''
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I. Background

    By order dated October 19, 2000 (HCAR No. 27256) (``Merger 
Order''), the Commission authorized Exelon to exchange its common stock 
for the common stock of PECO, followed by a merger of Unicom with and 
into Exelon (``Merger''). By orders dated November 2, 2000 (HCAR No. 
27266) (``November Order'') and December 8, 2000 (HCAR No. 27296) 
(``December Order'' and together with the November Order, ``Prior 
Orders''), Applicants were authorized to engage in certain financing 
transactions through March 31, 2004.

II. Description of the Parties to the Transaction

A. Utility Subsidiaries

    Applicants state that by March 31, 2004, Exelon will have four 
operating public utility company subsidiaries (``Utility 
Subsidiaries''):
    1. PECO, a public utility company engaged (i) in the purchase, 
transmission, distribution and sale of electricity and (ii) in the 
purchase, distribution, and sale of natural gas in Pennsylvania;
    2. ComEd, a public utility company engaged in the purchase, 
transmission, distribution, and sale of electricity in Illinois;
    3. Genco, a public utility company and a registered holding company 
engaged in the purchase, generation and sale of electricity in 
Pennsylvania, Illinois and elsewhere; and
    4. ComEd of Indiana, a public utility company that has no retail 
customers.
    In addition, Applicants state that Exelon has the following public 
utility subsidiaries (``Conowingo Companies''):
    1. PEPCO, which is also a registered holding company and the parent 
company of Susquehanna Power Company,
    2. Susquehanna Power Company, and
    3. Susquehanna Electric Company.
    Applicants state that each of the Conowingo Companies is 
exclusively engaged in owning and/or operating a hydroelectric 
generation project, the power of which is sold at wholesale. Applicants 
state that Exelon will cause each of the Conowingo companies to make 
the necessary filing with the FERC to become exempt wholesale 
generators (``EWGs''), as that term is defined in section 32 of the Act 
prior March 31, 2004.

B. Nonutility Subsidiaries

    1. Delivery is the intermediate registered holding company for 
ComEd and PECO;
    2. Exelon Business Services Company (``Exelon Business Services''), 
is the service company for the Exelon System;
    3. Ventures, is a registered holding company and a first tier 
Subsidiary of Exelon which has as wholly owned subsidiaries, Genco and 
Exelon Enterprises Company, LLC (``Exelon Enterprises''); and
    4. Exelon Enterprises, the principal Subsidiary through which 
Exelon conducts its nonutility businesses.
    Applicants state that effective as of January 1, 2001, Exelon 
effectuated a corporate restructuring (``Restructuring'') contemplated 
in the Merger Order. The Restructuring consisted of the transfer of 
electric

[[Page 11903]]

generating assets of ComEd and PECO to Genco and the transfer of 
nonutility subsidiaries of PECO and Unicom Enterprises, Inc. to be 
indirect subsidiaries of Ventures. Applicants state that since the date 
of the Restructuring, the Exelon system has included four registered 
holding companies in addition to Exelon: Ventures, which was required 
for tax purposes to serve as a holding company for Genco and 
Enterprises; Delivery, which serves to enhance the integration of 
Exelon's principal state regulated utilities ComEd and PECO; Genco, 
which controls all of the Exelon system's generating assets including 
the Conowingo Companies; and PEPCO.
    Applicants state that, with the conversion of the Conowingo 
Companies to EWGs, Genco and PEPCO will no longer own a public utility 
company subsidiary within the meaning of the Act. Consequently, 
Applicants request that Genco and PEPCO each receive authorization to 
de-register under section 5(d) of the Act.

II. Overview of the Requests

    Applicants request authorization to engage in the following 
financing transactions during the period from the effective date of the 
order in this filing through April 15, 2007 (``Authorization Period'').
    i. External issuances by Exelon of common stock, preferred stock, 
preferred securities (``Preferred Securities''), as defined below, 
equity linked securities (``Equity Linked Securities''), as defined 
below, long-term debt, and short-term debt to increase Exelon's 
capitalization by up to $8.0 billion over existing capitalization at 
the time of the order in this matter (``External Limit'');
    ii. External issuances by Exelon of common stock, preferred stock, 
Preferred Securities, Equity Linked Securities, long-term debt, and 
short-term debt to refund or replace existing securities without 
increasing capitalization;
    iii. External issuances of up to 21 million shares of Exelon common 
stock under Exelon's dividend reinvestment plan, certain incentive 
compensation plans, and certain other employee benefit plans;
    iv. The entering into by Exelon of hedging transactions;
    v. External issuances by Genco of membership interests (``Member 
Interests''),\2\ preferred equity interests, Preferred Securities, 
Equity Linked Securities, long-term debt, and short term debt to 
increase its capitalization, subject to the $8 billion limitation 
applicable to Exelon, or to refund or replace existing securities 
without increasing capitalization or to assume certain pollution 
control obligations currently outstanding for ComEd or PECO;
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    \2\ Applicants state that because Genco is a wholly owned 
Pennsylvania limited liability company, it does not have ``common 
stock'' but rather has Member Interests in accordance with 
Pennsylvania Limited Liability Company Law. Applicants state that 
the rights attendant to the Member Interests are equivalent to the 
rights of common stockholders.
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    vi. The formation of financing entities and the issuance by 
financing entities of securities otherwise authorized to be issued and 
sold through authority granted in this Application or applicable 
exemptions under the Act, including intra-system guarantees of 
securities;
    vii. The issuance of intra-system advances and guarantees, to the 
extent not exempt by rules 45(b) and 52, by Exelon to or on behalf of 
its Subsidiaries and others, by the Nonutility Subsidiaries to or on 
behalf of other Nonutility Subsidiaries and others and by the Utility 
Subsidiaries to or on behalf of the Utility Subsidiary's direct or 
indirect subsidiaries and others;
    viii. Issuances by the Utility Subsidiaries of short-term debt 
securities (including commercial paper) in an amount not to exceed $2.7 
billion issued and outstanding at any time and external issuances of 
long-term debt or short-term debt to refund or replace existing 
securities without increasing capitalization, to the extent not exempt 
under rule 52;
    ix. The entering into of hedging transactions by the Utility 
Subsidiaries;
    x. Modifications to the Utility Money Pool and the Nonutility Money 
Pool;
    xi. Intra-system financings through Ventures, Genco, and Delivery;
    xii. Payment of dividends out of capital or unearned surplus by the 
Nonutility Subsidiaries;
    xiii. Payment of dividends out of capital up to $500 million by 
Exelon and ComEd;
    xiv. Use of up to $7.0 billion of financings for investments in 
EWGs and FUCOs;
    xv. Payment of dividends out of capital by ComEd of Indiana; and
    xvi. Authorization for Genco to become obligated for certain 
pollution control obligations of PECO and ComEd.

IV. Parameters for Financing Authorization

    Applicants request authorization to engage in certain financing 
transactions during the Authorization Period for which the specific 
terms and conditions are not at this time known, and which may not be 
covered by rule 52, without further prior approval by the Commission. 
Applicants propose that the following general terms will be applicable 
where appropriate to the financing transactions requested (``Financing 
Parameters''):

A. Effective Cost of Money on Financings

    The effective cost of money on long-term debt of any series will 
not exceed at the time of issuance the greater of (i) 700 basis points 
over the yield to maturity of a U.S. treasury security (``Treasury 
Security'') having a remaining term approximately equal to the term of 
the series of long-term debt or (ii) a gross spread over a Treasury 
Security that is consistent with similar securities of comparable 
credit quality and maturities issued by other companies. The dividend 
or distribution rate on any series of preferred stock and other forms 
of Preferred Securities or Equity Linked Securities will not exceed at 
the time of issuance the greater of (i) 700 basis points over the yield 
to maturity of a Treasury Security having a remaining term equal to the 
term of such series or (ii) a rate that is consistent with similar 
securities of comparable credit quality and maturities (or perpetual 
preferred stock) issued by other companies. The effective cost of money 
on short-term debt will not exceed the greater of (i) 700 basis points 
over the comparable term London Interbank Offered Rate (``LIBOR'') or 
(ii) a gross spread over LIBOR that is consistent with similar 
securities of comparable credit quality and maturities issued by other 
companies.

B. Maturity

    Applicants state that the maturity of indebtedness will not exceed 
50 years. Preferred stock, Preferred Securities and Equity Linked 
Securities (other than perpetual preferred stock) will be redeemed no 
later than 50 years after issuance, unless converted into common stock.

C. Issuance Expenses

    Applicants state that the underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of securities under authority granted in this 
Application will not exceed 7% of the principal or total amount of the 
securities being issued.

[[Page 11904]]

D. Use of Proceeds

    Applicants state that the proceeds from the issuance or sale of 
securities in external financing transactions will be used for general 
corporate purposes including (i) the financing, in part, of the capital 
expenditures of the Exelon system; (ii) the financing of working 
capital requirements of the Exelon system; (iii) the acquisition, 
retirement, or redemption under rule 42 of securities previously issued 
by Exelon or its Subsidiaries or as otherwise authorized by the 
Commission; (iv) direct or indirect investment in companies authorized 
under the Act or by rule (including EWGs or FUCOs) or in a separate 
proceeding; (v) effecting a stock split of Exelon common stock; and 
(vi) other lawful purposes.
    Applicants represent that no financing proceeds will be used to 
acquire a new subsidiary unless the financing is consummated in 
accordance with an order of the Commission or an available exemption 
under the Act.

E. Common Equity Ratio

    Applicants state that, at all times during the Authorization 
Period, Exelon, the Utility Subsidiaries, Ventures, and Delivery will 
each maintain common equity (as reflected in the most recent Form 10-K 
or Form 10-Q filed with the Commission adjusted to reflect changes in 
capitalization since the balance sheet date therein) of at least 30% of 
its consolidated capitalization (common equity, minority interests, 
preferred stock, short-term debt and long-term debt, excluding 
securitization obligations, referred to as ``Consolidated 
Capitalization'') (``30% Condition''); provided that Exelon will in any 
event be authorized to issue common stock (including through a dividend 
reinvestment or employee benefit plans or by way of stock split), to 
the extent otherwise authorized in this Application.
    Applicants state that although PECO has common equity of greater 
than 30% of Consolidated Capitalization, Applicants note that the 
Commission in the Prior Orders found that PECO would work to continue 
to improve its equity ratio as securitization bonds are paid down. 
Applicants state that they continue to expect PECO's common equity 
ratio will improve as the securitization bonds are paid down and as 
Exelon settles the Receivable Contribution (defined below) and that 
PECO will reach a level of common equity of at least 30% of 
capitalization by December 31, 2010 (at which time all securitization 
bonds are expected to be retired and therefore will not be a 
consideration in the calculation).
    Applicants propose that Consolidated Capitalization exclude the 
impact of securitization bonds outstanding for the benefit of ComEd and 
PECO in determining compliance with the Commission's 30% test 
applicable to Exelon, ComEd, and PECO. Applicants state that all 
securitization bonds are rated ``AAA'' and have dedicated revenue 
streams approved by the applicable state commission ensuring that they 
will be timely paid.
    Applicants request that the Commission reserve jurisdiction over 
the issuance of securities in those circumstances where Exelon, ComEd, 
PECO, or Genco do not comply with the common equity criteria of 30% of 
Consolidated Capitalization pending completion of the record.

F. Investment Grade Ratings

    Applicants further represent that apart from securities issued for 
the purpose of funding money pool operations, no guarantees, Member 
Interests, or other securities, other than common stock, may be issued 
in reliance upon the authorization to be granted by the Commission 
under this Application, unless (i) the security to be issued, if rated, 
is rated investment grade; (ii) all outstanding securities of the 
issuer that are rated, are rated investment grade; and (iii) all 
outstanding securities of the top level registered holding company, 
that are rated, are rated investment grade (``Investment Grade 
Condition''). For purposes of this Investment Grade Condition, a 
security will be deemed to be rated ``investment grade'' if it is rated 
investment grade by at least one nationally recognized statistical 
rating organization, as that term is used in paragraphs (c)(2)(vi)(E), 
(F) and (H) of rule 15c3-1 under the Securities Exchange Act of 1934, 
as amended.
    Additionally, Applicants request that the Commission reserve 
jurisdiction over the issuance at any time of securities that the 
Investment Grade Condition is not satisfied.

V. Financial Condition

    Applicants state that the Exelon system's ratings as of September 
2003 from Standard & Poor's, Moody's, and Fitch are as follows:

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       Company and type of rating                   S&P                   Moody's                  Fitch
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Exelon:
    Corporate...........................  A-                      N/A                     N/A
    Unsecured...........................  BBB+                    Baa2                    BBB+
    Commercial Paper....................  A-2                     P-2                     F2
ComEd:
    Secured.............................  A-                      A3                      A-
    Unsecured...........................  BBB+                    Baa1                    BBB+
    Preferred Stock / Trust Securities..  BBB                     baa3                    BBB
    Commercial Paper....................  A-2                     P-2                     F2
    Transitional Trust Notes............  AAA                     Aaa                     AAA
PECO:
    Secured.............................  A                       A2                      A
    Unsecured...........................  BBB+                    A3                      A-
    Preferred Stock.....................  BBB                     baa2                    BBB+
    Trust Securities....................  BBB                     baa1                    BBB+
    Commercial Paper....................  A-2                     P-1                     F1
    Transitional Trust Notes............  AAA                     Aaa                     AAA
Genco:
    Corporate...........................  A-                      Baa1                    ......................
    Unsecured...........................  A-                      Baa1                    BBB+
    Commercial Paper....................  A2                      P-2                     F2
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[[Page 11905]]

    Applicants state that at September 30, 2003, Exelon's consolidated 
common equity as a percentage of Consolidated Capitalization was 
45.94%. Applicants also state that the Utility Subsidiaries 
Consolidated Capitalization are as follows: PECO's common equity is 
34.25% of Consolidated Capitalization; ComEd's common equity is 47.28% 
of Consolidated Capitalization; and Genco's common equity is 50.98% of 
Consolidated Capitalization.
    Applicants state that concurrent with the Restructuring, effective 
January 1, 2001, Exelon transferred assets out of PECO as a reduction 
of ``common stock'' (i.e., paid in capital) and contributed to PECO a 
$2.0 billion receivable, payable by Exelon, for the purpose of funding 
future tax payments resulting from collection of competitive transition 
charges (``Receivable Contribution''). Applicants state that the 
Receivable Contribution was reflected as an increase to common stock on 
the PECO balance sheets. However, instead of the offsetting entry being 
an asset, in accordance with the Commission's Staff Accounting Bulletin 
4.G., the Receivable Contribution was recorded as a negative adjustment 
to shareholders' equity identified as ``Receivable from Parent'' in the 
PECO balance sheets. The amount of the increase in common stock was 
equal to the amount of the reduction in shareholder's equity attributed 
to the Receivable from Parent. The combined effects of the three 
entries (reduction of common stock for transfer of assets, increase in 
common stock for the Receivable Contribution and decrease in common 
stock for the Receivable Contribution) is to reduce PECO's common 
equity, as a percentage of total capitalization calculated in 
accordance with generally accepted accounting principles (``GAAP''). 
The effect of the Receivable Contribution is included, however, in the 
34.25% ratio.
    Applicants state that the Receivable Contribution at September 30, 
2003 of $1,661 million is non-interest bearing. Applicants state that 
as Exelon makes future contributions to PECO in respect of the 
Receivable Contribution through 2010 in conjunction with the payment of 
the taxes resulting from the collection of competitive transition 
charges, and assuming that PECO achieves its projected levels of 
earnings and pays the projected level of dividends, the reduction in 
stockholders' equity will reverse, resulting in increases in overall 
stockholders' equity and increases in the proportion of common stock in 
total capitalization of PECO.
    Applicants state that excluding the effect of the Receivable 
Contribution and excluding securitization debt from PECO's 
capitalization, the equity component of PECO capitalization (calculated 
in the same manner as Consolidated Capitalization) at September 30, 
2003 would be 60.49%. Applicants further state that excluding the 
effect of the Receivable Contribution and including securitization debt 
in capitalization, the equity component of PECO capitalization at 
September 30, 2003 would be 30.79%. Applicants state that PECO 
continues to expect that its common equity ratio calculated according 
to GAAP will improve as the securitization bonds are paid down and as 
Exelon settles the Receivable Contribution and that PECO will reach a 
level of common equity of at least 30% of capitalization by December 
31, 2010 (at which time all securitization bonds are expected to be 
retired and therefore will not be a consideration in the calculation).

VI. Description of Specific Types of Financing

A. Exelon External Financing

    Exelon requests authorization to obtain funds externally through 
sales of common stock, preferred stock, Preferred Securities, Equity 
Linked Securities, long-term debt, and short-term debt securities not 
to exceed the $8.0 billion External Limit. With respect to common 
stock, Exelon also requests authority to issue common stock to third 
parties in consideration for the acquisition by Exelon or a Nonutility 
Subsidiary of equity or debt securities of a company being acquired 
under an exemption under the Act or specific authorization by another 
Commission order. In addition, Exelon seeks the flexibility to enter 
into certain hedging transactions to manage interest rate or price 
risk.

B. Common Stock

    Exelon requests authority to sell common stock in any one of the 
following ways: (i) Through underwriters or dealers; (ii) through 
agents; (iii) directly to a limited number of purchasers or a single 
purchaser; or (iv) directly to employees (or to trusts established for 
their benefit), shareholders and others. Applicants request that 
issuances of common stock under Exelon's employee benefit plans and 
stock purchase and dividend reinvestment plans not count towards the 
External Limit. Applicants state that if underwriters are used in the 
sale of the securities, these securities will be acquired by the 
underwriters for their own account and may be resold from time to time 
in one or more transactions, including negotiated transactions, at a 
fixed public offering price or at varying prices determined at the time 
of sale. The securities may be offered to the public either through 
underwriting syndicates (which may be represented by a managing 
underwriter or underwriters designated by Exelon) or directly by one or 
more underwriters acting alone. Exelon also states that the securities 
may be sold directly by Exelon or through agents designated by Exelon 
from time to time. If dealers are utilized in the sale of any of the 
securities, Exelon will sell securities to the dealers as principals. 
Any dealer may then resell such securities to the public at varying 
prices to be determined by such dealer at the time of resale. If common 
stock is being sold in an underwritten offering, Exelon may grant the 
underwriters thereof a ``green shoe'' option permitting the purchase 
from Exelon at the same price of additional shares then being offered 
solely for the purpose of covering over-allotments. Public 
distributions may be pursuant to private negotiation with underwriters, 
dealers or agents as discussed above or effected through competitive 
bidding among underwriters. In addition, Exelon requests that sales may 
be made through private placements or other non-public offerings to one 
or more persons. All common stock sales will be with terms and 
conditions, at rates or prices and under conditions negotiated or based 
upon, or otherwise determined by, competitive capital markets.
1. Acquisitions
    Exelon requests authority to issue its common stock in exchange for 
the acquisition of the securities of companies engaged in ``energy-
related businesses'' as described in rule 58, exempt telecommunications 
companies (``ETCs''), as defined in section 34 of the Act, EWGs, and 
FUCOs or companies whose acquisition is exempt under the Act or 
authorized in this Application or another filing. Exelon states that 
certain tax benefits arise out of using common stock for these 
purchases. The Exelon common stock to be exchanged may be purchased on 
the open market under rule 42, or may be original issue. Original issue 
stock may be registered under the Securities Act of 1933, as amended 
(``1933 Act''), but at present Exelon expects that the common stock 
would not be registered and the common stock acquired by the third 
parties would be subject to resale restrictions under Rule 144 under 
the 1933 Act. Exelon states that the common stock would be valued at 
market value based upon the closing price on the day prior to the date 
of

[[Page 11906]]

issuance (or, if appropriate, the date of a binding contract providing 
for the issuance of the common stock) or based upon average high and 
low prices for a period as negotiated by the parties.
2. Stock Split
    Applicants further request that Exelon issue its common stock to 
effect any stock split (which may include a stock split in the form of 
a stock dividend) approved by its board of directors. In a stock split, 
shareholders would receive additional shares of common stock in respect 
of their existing shares (for example, each holder may receive one 
additional share for each share held in a so called ``2 for 1'' stock 
split). Applicants state that the stock split will not increase the 
equity of the issuer, as no consideration is paid by shareholders, and 
does not affect any shareholder's proportionate interest in the issuer. 
Because an increased number of shares will be outstanding after a stock 
split, the stock's market price normally will reduce to reflect the 
split (for example in a 2 for 1 split, the price would be expected to 
fall to one-half the pre-split price). Applicant state that the stock 
split will be accomplished in accordance with Pennsylvania Business 
Corporation Act under which Exelon is organized.
    Applicants state that Exelon expects to amend its articles of 
incorporation to effect a stock split and/or increase the number of 
authorized shares of common stock that may be outstanding in order to 
accommodate planned and future stock splits. Pennsylvania law, under 
which Exelon is incorporated, allows a corporation to amend its charter 
without shareholder vote to effect a stock split and to increase the 
number of authorized shares to accommodate stock splits. Accordingly, 
Exelon states that it will not be soliciting shareholders in connection 
with such amendment to its articles or in connection with declaring or 
effectuating any stock split and therefore is not seeking any approval 
under section 12 of the Act or rules 60 through 62 for a solicitation.
    Exelon seeks authority to issue an indeterminate number of shares 
of common stock to effectuate any stock split (including a stock split 
in the form of a stock dividend), a reclassification of shares or other 
method permitted by law to effectuate the stock split. Because a stock 
split does not involve payment of consideration to the issuer or change 
the dollar value of an issuer's capitalization, Exelon proposes that 
any stock split will not count towards any limitation on the issuance 
of securities imposed in this Application.

C. Preferred Stock, Preferred Securities, and Equity Linked Securities

    Exelon requests authority to issue preferred stock and to issue 
directly or indirectly through one or more Financing Subsidiaries (as 
defined below) preferred securities, including, specifically, trust 
preferred securities, or monthly income preferred securities 
(``Preferred Securities'') and to issue equity linked securities, 
including units consisting of a combination of incorporated options, 
warrants and/or forward equity purchase contracts with debt, preferred 
stock, or Preferred Securities (``Equity Linked Securities''). Equity 
Linked Securities will be exercisable or exchangeable for or 
convertible, either mandatorily or at the option of the holder, into 
common stock or indebtedness or allow the holder to surrender to the 
issuer or apply the value of a security issued by the Applicant as 
approved by the Commission to such holder's obligation to make a 
payment on another security of Applicant issued as permitted by the 
Commission.\3\ Any convertible or Equity Linked Securities will be 
convertible into or linked to only securities that Exelon and its 
Subsidiaries are otherwise authorized to issue under rule or Commission 
order. Applicants state that any refunding or replacement of securities 
where capitalization is not increased from that in place at September 
30, 2003 will be through the issuance of securities of the type 
authorized in this Application.
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    \3\ Applicants state for example, an Applicant may issue common 
stock or common stock warrants linked with debt securities. The 
holder will be obligated to pay to the issuer an additional amount 
of consideration at a specified date for the common stock but is 
authorized to surrender the linked debt security to or for the 
benefit of the issuer in lieu of the cash payment.
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    Applicants state that Equity Linked Securities may combine a 
security with a fixed obligation (e.g., preferred stock, Preferred 
Securities or debt) with a conversion or exchange feature that is 
exercisable (often mandatorily) within a relatively short period (e.g., 
three to six years after issuance). These instruments may also be tax 
advantaged. Applicants state that an Equity-Linked Security may offer a 
means to raise capital at a lower overall economic or after-tax cost 
than other types of long-term securities, in that the fixed obligation 
component may have a lower after-tax cost than straight preferred stock 
and all or a portion of the interest or dividends paid may be tax 
deductible or lock in prices at which investors are obligated to 
purchase common stock or other securities at a future date. From an 
economic standpoint, these types of securities also generally carry a 
lower cost than common equity. Preferred Securities may be issued in 
one or more series with such rights, preferences, and priorities as may 
be designated in the instrument creating each series. Applicants state 
that dividends or distributions on Preferred Securities will be made 
periodically and to the extent funds are legally available for that 
purpose, but may be made subject to terms that allow the issuer to 
defer dividend payments or distributions for specified periods. 
Preferred Securities may be convertible or exchangeable into shares of 
common stock or other indebtedness and may be issued in the form of 
shares or units. Preferred stock, Preferred Securities and Equity 
Linked Securities may be sold directly or indirectly through 
underwriters or dealers or in connection with an acquisition in the 
same manner as that described for common stock in item VI. B. 1. above.

D. Long-Term Debt

    Exelon requests authority to issue unsecured, long-term debt 
securities in an aggregate principal amount not to exceed the $8.0 
billion External Limit outstanding at any time during the Authorization 
Period. At September 30, 2003 Exelon had $15.147 billion of 
consolidated long-term debt obligations outstanding. Any refunding or 
replacement of securities where capitalization is not increased will be 
through the issuance of securities authorized in this Application.
    Long-term debt securities may be comprised of bonds, notes, medium-
term notes, or debentures or subordinated debentures under one or more 
indentures (``Exelon Indenture'') or long-term indebtedness under 
agreements with banks or other institutional lenders. Applicants state 
that any long-term debt security would have a designation, aggregate 
principal amount, maturity, interest rate(s) or methods of determining 
the same, terms of payment of interest, and other terms and conditions 
as Exelon may determine at the time of issuance. Any long-term debt (i) 
may be convertible into any other securities of Exelon; (ii) will have 
maturities ranging from one to 50 years; (iii) may be subject to 
optional and/or mandatory redemption, in whole or in part, at par or at 
various premiums above the principal amount thereof; (iv) may be 
entitled to mandatory or optional sinking fund provisions; (v) may 
provide for reset of the coupon pursuant to a remarketing arrangement; 
(vi) may be subject to tender to the issuer for repurchase or be 
subject to the obligation of the issuer to repurchase at

[[Page 11907]]

the election of the holder or upon the occurrence of a specified event; 
(vii) may be called from existing investors by a third party; (viii) 
may be subject to subordination provisions; and (ix) may be entitled to 
the benefit of positive or negative financial or other covenants. 
Applicants state that the maturity dates, interest rates, redemption 
and sinking fund provisions, tender or repurchase and conversion 
features, if any, with respect to the long-term securities of a 
particular series, as well as any associated placement, underwriting or 
selling agent fees, commissions and discounts, if any, will be 
established by negotiation or competitive bidding.
    Borrowings from banks and other financial institutions will be pari 
passu with debt securities issued under the Exelon Indenture (other 
than subordinated debentures) and the short-term credit facilities (as 
described below). Applicants state that specific terms of any 
borrowings will continue to be determined by Exelon at the time of 
issuance and will comply in all regards with the Financing Parameters.

E. Short-Term Debt

    Exelon requests authority to issue and have outstanding at any one 
time during the Authorization Period unsecured, short-term debt 
securities in an aggregate principal amount outstanding at any time, 
when combined with issuances of common stock (other than for benefit 
plans or stock purchase and dividend reinvestment plans and other than 
for refunding or replacement of securities where capitalization is not 
increased as a result thereof from that in place September 30, 2003 
(i.e., $23.883 billion)) under this Application and when combined with 
issuances of preferred stock, Preferred Securities and Equity Linked 
Securities and long-term debt, as described in this section not to 
exceed $8 billion.
    Short-term debt may include institutional borrowings, commercial 
paper or bid notes and short-term debt issued under the Exelon 
Indenture or otherwise. Exelon proposes to sell commercial paper, from 
time to time, in established domestic commercial paper markets. 
Commercial paper would be sold to dealers at the discount rate or the 
coupon rate per annum prevailing at the date of issuance for commercial 
paper of comparable quality and maturities sold to commercial paper 
dealers generally. Exelon states that it expects that the dealers 
acquiring commercial paper from Exelon will re-offer this paper at a 
discount to corporate and institutional investors. Institutional 
investors are expected to include commercial banks, insurance 
companies, pension funds, investment trusts, foundations, colleges and 
universities, and finance companies.
    Exelon proposes, without counting against the limit set forth 
above, to maintain back-up lines of credit or credit facilities in 
connection with a commercial paper program in an aggregate amount not 
to exceed the amount of authorized commercial paper.
    Exelon proposes that credit lines or credit facilities may be set 
up for use by Exelon for general corporate purposes in addition to 
credit lines or credit facilities to support commercial paper as 
described in this subsection. Exelon will borrow and repay under the 
lines of credit or credit facilities, from time to time, as it is 
deemed appropriate or necessary.

F. Financing Risk Management Devices

1. Interest Rate Risk
    Exelon requests authority to enter into, perform, purchase and sell 
financial instruments intended to reduce or manage the volatility of 
interest rates, including but not limited to interest rate swaps, caps, 
floors, collars and forward agreements. Hedges may also include 
issuance of structured notes (i.e., a debt instrument in which the 
principal and/or interest payments are indirectly linked to the value 
of an underlying asset or index), or transactions involving the 
purchase or sale, including short sales, of U.S. Treasury or U.S. 
governmental agency (e.g., Fannie Mae) obligations or LIBOR based swap 
instruments (collectively, ``Hedge Instruments''). The transactions 
would be for fixed periods and stated notional amounts. Exelon would 
employ interest rate derivatives as a means of prudently managing the 
risk associated with any of its outstanding debt issued under this 
authorization or an applicable exemption by, in effect, synthetically 
(i) converting variable rate debt to fixed rate debt; (ii) converting 
fixed rate debt to variable rate debt and; (iii) limiting the impact of 
changes in interest rates resulting from variable rate debt. In no case 
will the notional principal amount of any interest rate swap exceed the 
face value of the underlying debt instrument and related interest rate 
exposure. Exelon states that because transactions will be entered into 
for a fixed or determinable period, that it will not engage in 
speculative transactions. Exelon states that it will only enter into 
agreements with counterparties (``Approved Counterparties'') whose 
senior debt ratings, as published by a national recognized rating 
agency, are greater than or equal to ``BBB,'' or an equivalent rating.
2. Anticipatory Hedges
    Exelon also requests authorization to enter into interest rate 
hedging transactions with respect to anticipated debt offerings 
(``Anticipatory Hedges''), subject to certain limitations and 
restrictions. Exelon states that Anticipatory Hedges would only be 
entered into with Approved Counterparties, and would be utilized to fix 
and/or limit the interest rate risk associated with any new issuance 
through (i) a forward sale of exchange-traded Hedge Instruments 
(``Forward Sale''); (ii) the purchase of put options on Hedge 
Instruments (``Put Options Purchase''); (iii) a Put Options Purchase in 
combination with the sale of call options Hedge Instruments (``Zero 
Cost Collar''); (iv) transactions involving the purchase or sale, 
including short sales, of Hedge Instruments; or (v) some combination of 
a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other 
derivative or cash transactions, including, but not limited to, 
structured notes, caps and collars, appropriate for the Anticipatory 
Hedges. Exelon states that Anticipatory Hedges may be executed on-
exchange (``On-Exchange Trades'') with brokers through the opening of 
futures and/or options positions traded on the Chicago Board of Trade 
(``CBOT''), the opening of over-the-counter positions with one or more 
counterparties (``Off-Exchange Trades''), or a combination of On-
Exchange Trades and Off-Exchange Trades. Exelon or the appropriate 
Subsidiary will determine the optimal structure of each Anticipatory 
Hedge transaction at the time of execution. Exelon or the appropriate 
Subsidiary may decide to lock in interest rates and/or limit its 
exposure to interest rate increases.

G. Accounting Standards

    Exelon states that it will comply with Statement of Financial 
Accounting Standards (``SFAS'') 133 (``Accounting for Derivative 
Instruments and Hedging Activities''), SFAS 138 (``Accounting for 
Certain Derivative Instruments and Certain Hedging Activities'') or 
other standards relating to accounting for derivative transactions as 
are adopted and implemented by the Financial Accounting Standards Board 
(``FASB''). Exelon states that Hedge Instruments and Anticipatory 
Hedges will qualify for hedge accounting treatment under the current 
FASB standards in effect and as determined at the date Hedge 
Instruments or Anticipatory Hedges are entered into.

[[Page 11908]]

VII. Financing Subsidiaries

    Exelon and the Subsidiaries request authority to acquire, directly 
or indirectly, the equity securities of one or more corporations, 
trusts, partnerships or other entities (``Financing Subsidiaries'') \4\ 
created specifically for the purpose of facilitating the financing of 
authorized and exempt activities (including exempt and authorized 
acquisitions) of Exelon and the Subsidiaries. Applicants propose that 
the Financing Subsidiaries issue long-term debt, Preferred Securities, 
or Equity Linked Securities to third parties and transfer the proceeds 
of these financings to Exelon or a Subsidiary. Exelon or a Subsidiary 
requests authority, if required, to guarantee or enter into support, 
servicing, or expense agreements (``Expense Agreements'') with respect 
to the obligations of Financing Subsidiaries. Applicants state that 
under an Expense Agreement, Exelon or a Subsidiary would agree to 
provide financial support and pay necessary operating expenses of the 
Financing Subsidiary in order to facilitate the Financing Subsidiaries' 
agreements with third parties in connection with the Financing 
Subsidiaries' financing activities approved in this Application. 
Applicants request authority for the Financing Subsidiaries to pledge 
revenues or other assets or grant security interests solely to 
accommodate the intra-system mirror structure of the financings 
approved in this Application; provided the security will not consist of 
the assets (other than an income stream in support of the financing) or 
stock of any operating subsidiary of Exelon. Subsidiaries may also 
provide guarantees and enter into Expense Agreements, if required, on 
behalf of Financing Subsidiaries under rules 45(b)(7) and 52, as 
applicable.
---------------------------------------------------------------------------

    \4\ Applicants propose that existing Financing Subsidiaries be 
included in the definition of Financing Subsidiaries.
---------------------------------------------------------------------------

    Exelon and the Subsidiaries also request authority to issue and 
sell to any Financing Subsidiary, from time to time in one or more 
series, unsecured debentures, unsecured promissory notes, or other 
unsecured debt instruments (``Notes''). Applicants further request 
authority for the Financing Subsidiaries to apply the proceeds of any 
external financing by a Financing Subsidiary plus the amount of any 
equity contribution made to it from time to time by its parent 
corporation and other funds that may be available to a Financing 
Subsidiary in accordance with the authority requested in this 
Application or obtained in an exempt financing transaction to purchase 
Notes. The terms (e.g., interest rate, maturity, amortization, 
prepayment terms, default provisions, etc.) of the Notes would be 
designed to parallel the terms of the securities issued by the 
Financing Subsidiary to which the Notes relate.
    Any amounts issued by Financing Subsidiaries to third parties will 
be included in the External Limit authorized for the immediate parent 
of the Financing Subsidiaries. However, Applicants request that the 
underlying intra-system mirror debt (including Notes) and parent 
guarantee shall not be so included so as to avoid double counting.
    In cases where it is necessary or desirable to ensure legal 
separation for purposes of isolating a Financing Subsidiary from its 
parent or another Subsidiary for bankruptcy purposes, the ratings 
agencies require that any Expense Agreement whereby the parent or 
Subsidiary provides services related to the financing to the Financing 
Subsidiary be at a market price so that a successor service provider 
could assume the duties of the parent or Subsidiary in the event of the 
bankruptcy of the parent or Subsidiary without interruption or an 
increase of fees. Therefore Applicants seek approval under section 
13(b) of the Act and rules 87 and 90 to provide the services described 
in this paragraph at a market price but only for so long as the Expense 
Agreement established by the Financing Subsidiary is in place.

VIII. Utility Subsidiary Financing

A. ComEd and PECO Short-Term Debt

    Authority is requested for ComEd and PECO to each issue unsecured 
short-term debt, including commercial paper and borrowings under credit 
lines and credit facilities, in the aggregate amount of $2.7 billion to 
be outstanding at any one time during the Authorization Period 
(``Utility Short-Term Debt Limit''). Applicants state that the Utility 
Short-Term Debt Limit is not included in the aggregate amount of the 
External Limit.
    ComEd and PECO request authority to sell commercial paper, from 
time to time, in established domestic commercial paper markets. 
Commercial paper would be sold to dealers at the discount rate or the 
coupon rate per annum prevailing at the date of issuance for commercial 
paper of comparable quality and maturities sold to commercial paper 
dealers generally. It is expected that the dealers acquiring commercial 
paper from ComEd or PECO will re-offer such paper at a discount to 
corporate and institutional investors. Institutional investors are 
expected to include commercial banks, insurance companies, pension 
funds, investment trusts, foundations, colleges and universities and 
finance companies.
    ComEd and PECO propose to maintain back up lines of credit in an 
aggregate amount not to exceed the amount of authorized commercial 
paper and request that these back up lines of credit or credit 
facilities not count against the Utility Short-Term Debt Limit. ComEd 
and PECO request authority to borrow and repay under lines of credit 
set up for general corporate purposes, from time to time, as it is 
deemed appropriate or necessary. Subject to the limitations described 
herein, ComEd and PECO may each engage in other types of short-term 
financings as it may deem appropriate in light of its needs and market 
conditions at the time of issuance.

B. Genco Securities

    Applicants state that although Genco is an ``electric utility 
company'' under the Act, it is not subject to the jurisdiction of any 
state commission in connection with the issuance of securities and 
therefore, all securities issuances for Genco will require approval of 
the Commission.
    Applicants state that the aggregate amount of financing obtained by 
Genco during the Authorization Period, from issuance and sale of Member 
Interests, preferred equity interests, Preferred Securities, Equity 
Linked Securities, long-term debt and short-term debt, as described in 
this section, and other than for refunding or replacement of securities 
where capitalization is not increased as a result thereof from that in 
place at September 30, 2003 (i.e., $5.790 billion), shall not exceed 
the $8 billion External Limit. Any refunding or replacement of 
securities where capitalization is not increased from that in place at 
September 30, 2003 will be through the issuance of securities 
authorized in this Application.
    Any issuance of securities by Genco to unrelated third parties 
under this authorization will reduce, dollar for dollar, the remaining 
financing authority available to Exelon; provided that issuances to 
Genco's parent companies reflecting intra-company transactions shall 
not reduce the authority available to Exelon except to the extent 
Exelon has issued securities to fund such transactions. Likewise, 
issuances by Genco related solely to intra-company transactions with 
its Subsidiaries will not count against Genco's limits to the extent 
subject to

[[Page 11909]]

and counted against another financing limit of this authorization.
    Applicants state that the manner of sale and other terms for 
issuances by Genco will be the same as the applicable terms for 
equivalent securities of Exelon. Applicants state that the specific 
terms of any securities will be determined by Genco at the time of 
issuance and will comply in all regards with the Financing Parameters.
    Genco proposes that preferred equity interests, Preferred 
Securities and Equity Linked Securities may be issued in one or more 
series with such rights, preferences, and priorities as may be 
designated in the instrument creating each series, as determined in 
accordance with Genco's governing documents.
    Genco proposes that long-term debt securities would be comprised of 
unsecured bonds, notes, medium-term notes or debentures under one or 
more indentures (``Genco Indenture'') (other than subordinated 
debentures) or unsecured long-term indebtedness under agreements with 
banks or other institutional lenders. Borrowings from the banks and 
other financial institutions or other institutional lenders will be 
unsecured and rank pari passu with debt securities issued under the 
Genco Indenture and the short-term credit facilities (as described 
below).
    Genco requests authority to issue commercial paper and establish 
unsecured credit lines or credit facilities. Applicants state that 
commercial paper would be sold to dealers at the discount rate or the 
coupon rate per annum prevailing at the date of issuance for commercial 
paper of comparable quality and maturities sold to commercial paper 
dealers generally. It is expected that the dealers acquiring commercial 
paper from Exelon will re-offer the paper at a discount to corporate 
and institutional investors. Institutional investors are expected to 
include commercial banks, insurance companies, pension funds, 
investment trusts, foundations, colleges and universities, and finance 
companies.
    Genco proposes to set up credit lines or credit facilities used for 
general corporate purposes in addition to credit lines to support 
commercial paper as described in this subsection. Genco states that it 
will borrow and repay under such lines of credit or credit facilities, 
from time to time, as it is deemed appropriate or necessary. Subject to 
the Financing Parameters, Genco may engage in other types of unsecured 
short-term financings as it may deem appropriate in light of its needs 
and market conditions at the time of issuance.

C. Financing Risk Management Devices

    To the extent not exempt under rule 52, ComEd, PECO, and Genco also 
request authority to enter into Hedge Instruments and Anticipatory 
Hedges of the same type and under the same conditions as are requested 
above by Exelon.

IX. Guarantees and Intra-System Advances

    Applicants request authority for Exelon and Genco to enter into 
guarantees, obtain letters of credit, enter into Expense Agreements or 
otherwise provide credit support with respect to the obligations of its 
Subsidiaries and non-affiliated third parties in the ordinary course of 
business (``Guarantees'') in an amount, together with the Nonutility 
Guarantees and the Utility Guarantees (each defined below), in an 
aggregate principal amount not to exceed $6.0 billion outstanding at 
any one time, excluding obligations exempt under rules 45 and 52, or 
Guarantees previously authorized under the Prior Orders (``Guarantee 
Limit'').\5\ Applicants state that the Guarantee Limit includes 
Guarantees and other credit support mechanisms by Exelon, Genco, or 
other Subsidiaries that were previously issued and were outstanding at 
September 30, 2003 in the amount of $1.913 billion.
---------------------------------------------------------------------------

    \5\ Applicants state that these include the guarantee by Exelon 
of a 12 year promissory note issued by Unicom Investment, Inc. to 
ComEd for $2.5 billion under an intercompany agreement relating to 
the sale of certain fossil generating stations by ComEd (``UII 
Note''). The UII Note payable by Unicom Investment, Inc., to ComEd, 
will remain outstanding until terminated in accordance with their 
terms or agreement of the parties. As of December 31, 2003, there is 
approximately $1.1 billion outstanding under the UII Note and the 
corresponding guarantee.
---------------------------------------------------------------------------

    Exelon or Genco, as the case may be, proposes to charge each 
Subsidiary a fee for each Guarantee provided on its behalf that is not 
greater than the cost, if any, of obtaining the liquidity necessary to 
perform the Guarantee for the period of time the Guarantee remains 
outstanding (``Guarantee Fee''). Applicants request that any guarantees 
or other credit support arrangements outstanding at the end of the 
Authorization Period will continue until expiration or termination in 
accordance with their terms.
    Applicants request that this Guarantee authority include the 
ability to guarantee debt. Applicants state that the debt guaranteed 
will comply with the Financing Parameters or be exempt.
    Applicants further request authorization for the Nonutility 
Subsidiaries to enter into Guarantees with respect to other Nonutility 
Subsidiaries and non-affiliated third parties in the ordinary course of 
their business (``Nonutility Guarantees''), in addition to Guarantees 
that are exempt under rules 45(b) and 52. Applicants state that 
Nonutility Guarantees will count towards the Guarantee Limit. 
Applicants propose that the Nonutility Subsidiary providing any credit 
support may charge its associate company a Guarantee Fee.
    Applicants also request authorization for the Utility Subsidiaries 
to enter into Guarantees with respect to their direct and indirect 
Subsidiaries or Nonutility Subsidiaries and non-affiliated third 
parties (``Utility Guarantees''), in addition to Guarantees that are 
exempt under rules 45(b) and 52. Applicants state that Utility 
Guarantees will count against the aggregate Guarantee Limit. The 
Utility Subsidiary providing credit support may charge its associate 
company a Guarantee Fee.
    Applicants state that certain Guarantees may be in support of the 
obligations which are not capable of exact quantification. In such 
cases, Applicants state that they will determine the exposure under the 
Guarantee for purposes of measuring compliance with the applicable 
limitation by appropriate means including estimation of exposure based 
on loss experience or projected potential payment amounts. If 
appropriate, Applicants state that these estimates will be made in 
accordance with GAAP and this estimation will be reevaluated 
periodically.
    Applicants request authority to Guarantee the obligations of 
unrelated third parties (``Third Party Guarantees''). From time to time 
it is appropriate for Exelon or one of its Subsidiaries to guarantee, 
as part of their normal business activities, the obligations of a third 
party with whom Exelon or the Subsidiary has a business relationship. 
For example, in the case of a sale of a Subsidiary to a third party, 
the buyer may request that Exelon or a Subsidiary guarantee obligations 
of the sold Subsidiary to its lenders or other counterparties for an 
interim period. As another example, when Exelon's predecessor company 
Unicom was involved in the startup of the Midwest Independent System 
Operator (``MISO''), Unicom issued a Guarantee of certain interim, pre-
startup debt of the MISO. Third Party Guarantees will be Guarantees 
only of long or short-term indebtedness or Guarantees of performance of 
contractual obligations of such third parties with whom Exelon has, or 
had, a business relationship.

[[Page 11910]]

X. Dividend Reinvestment Plan and Employee Plans

    Exelon proposes, from time to time during the Authorization Period, 
to issue and/or acquire in open market transactions, or by some other 
method which complies with applicable law and Commission 
interpretations then in effect, up to 21 million shares of Exelon 
common stock under Exelon's dividend reinvestment plan, employee stock 
ownership plan, certain incentive compensation plans and certain other 
employee benefit plans described below (``Plans''). Under the Prior 
Orders Exelon had authority to issue 21 million shares with respect to 
Plans through March 31, 2004. Through September 30, 2003, Exelon issued 
7.986 million shares under this authority.

XI. Authorization and Operation of the Money Pools

    Applicants request authority for Exelon to contribute surplus funds 
and to lend and extend credit to (i) the Utility Subsidiaries through 
the Utility Money Pool and (ii) the Nonutility Subsidiaries through the 
Nonutility Money Pool. Exelon will not be a borrower from either the 
Utility Money Pool or the Nonutility Money Pool.

A. Utility Money Pool

    Exelon and the Utility Subsidiaries request authorization to 
conduct the Utility Money Pool as approved in the Prior Orders, and the 
Utility Subsidiaries, to the extent not exempted by rule 52, and Exelon 
Business Services also request authorization to make, from time to 
time, unsecured short-term borrowings from the Utility Money Pool, to 
contribute surplus funds to the Utility Money Pool, and to lend and 
extend credit to (and, if applicable, acquire promissory notes from) 
one another through the Utility Money Pool. In addition, Applicants 
request authority for Unicom Investments, Inc. (``UII'') to participate 
in the Utility Money Pool as a lender to the Utility Money Pool, but 
not as a borrower from the Utility Money Pool. Applicants state that 
UII was established to invest the proceeds and facilitate a like-kind 
exchange in connection with ComEd's 1999 sale of several fossil-
generation plants. Applicants state that by order dated August 3, 1999 
in Docket Nos. 99-0273 and 99-0282, the Illinois Commerce Commission 
approved that transaction, including UII's role therein. To enable UII 
to transfer, for use in furthering the business interests of the 
Utility Subsidiaries, idle cash that might otherwise be trapped at UII, 
Applicants request that UII be authorized to participate in Exelon's 
Utility Money Pool. Applicants state that UII would participate only as 
a lender to and not as a borrower from the Utility Money Pool.
    Applicants state that borrowings from the Utility Money Pool shall 
be subject to the following limitations during the Authorization 
Period:

------------------------------------------------------------------------
                  Company                            Limitation
------------------------------------------------------------------------
ComEd and PECO............................  $2.7 billion \6\
Genco.....................................  $1.0 billion \7\
ComEd of Indiana..........................  $15 million
------------------------------------------------------------------------
\6\ Applicants state that this is an aggregate limit applicable to ComEd
  and PECO and is also aggregated with the overall short-term limit for
  those companies requested herein (i.e., this limit is included in and
  not in addition to the $2.7 billion short-term limit request for ComEd
  and PECO).
\7\ Applicants state that this amount is included in, not in addition
  to, Genco's overall financing limit of $8 billion.

    Applicants state that under the terms of the Utility Money Pool, 
short-term funds are made available from the following sources for 
short-term loans to the Utility Subsidiaries from time to time: (i) 
Surplus funds in the treasuries of Utility Money Pool participants 
other than Exelon; (ii) surplus funds in the treasury of Exelon 
(``Internal Funds''); and (iii) proceeds from bank borrowings or the 
sale of commercial paper by Exelon or the Utility Subsidiaries for loan 
to the Utility Money Pool (``External Funds''). Applicants state that 
funds would be made available from these sources in the order that 
Exelon Business Services, as administrator of the Utility Money Pool, 
determines to result in a lower cost of borrowing, consistent with the 
individual borrowing needs and financial standing of the companies 
providing funds to the pool. The determination of whether a Utility 
Money Pool participant at any time has surplus funds to lend to the 
Utility Money Pool or shall lend funds to the Utility Money Pool will 
be made by the participant's chief financial officer or treasurer, or 
by a designee thereof, on the basis of cash flow projections and other 
relevant factors, in such participant's sole discretion.
    Utility Money Pool participants propose to borrow pro rata from 
each company that lends, in the proportion that the total amount loaned 
by each such lending company bears to the total amount then loaned 
through the Utility Money Pool. On any day when more than one fund 
source, with different rates of interest, is used to fund loans through 
the Utility Money Pool, each borrower borrows pro rata from each fund 
source in the Utility Money Pool in the same proportion that the amount 
of funds provided by that fund source bears to the total amount of 
short-term funds available to the Utility Money Pool.
    Applicants state that borrowings from the Utility Money Pool 
require authorization by the borrower's chief financial officer or 
treasurer, or by a designee thereof. No party is required to effect a 
borrowing through the Utility Money Pool if it is determined that it 
could (and has authority to) effect a borrowing at lower cost directly 
from banks or through the sale of its own commercial paper. Applicants 
state that no loans through the Utility Money Pool will be made to, and 
no borrowings through the Utility Money Pool will be made by, Exelon.
    Applicants state that the cost of compensating balances, if any, 
and fees paid to banks to maintain credit lines and accounts by Utility 
Money Pool participants lending External Funds to the Utility Money 
Pool are paid by the participant maintaining that credit line. 
Applicants state that a portion of the costs, or all of the costs in 
the event a Utility Money Pool participant establishes a line of credit 
solely for purposes of lending any External Funds obtained thereby into 
the Utility Money Pool, will be retroactively allocated every month to 
the companies borrowing these External Funds through the Utility Money 
Pool in proportion to their respective daily outstanding borrowings of 
these External Funds.
    Applicants state that if only Internal Funds make up the funds 
available in the Utility Money Pool, the interest rate applicable and 
payable to or by Subsidiaries for all loans of such Internal Funds is 
the higher of the rate for high-grade unsecured 30-day commercial paper 
sold through dealers by major corporations as quoted in The Wall Street 
Journal or the rate then available to the lending company from an 
eligible investment in readily marketable money market funds or the 
existing short-term investment accounts maintained by the lender during 
the period in question. Applicants propose that providing for these 
alternatives ensures that the lending company does not forego any 
investment return that it could have obtained by investing in money 
market funds or other permitted short-term investments instead of the 
Utility Money Pool. In the event neither rate is one that is 
permissible for a transaction because of constraints imposed by the 
state regulatory commission having jurisdiction over the utility 
participating in the transaction, then the rate shall be a rate that is 
permissible for the transaction

[[Page 11911]]

determined under the requirements of that state regulatory commission.
    If only External Funds comprise the funds available in the Utility 
Money Pool, the interest rate applicable to loans of such External 
Funds will be equal to the lending company's cost for such External 
Funds (or, if more than one Utility Money Pool participant makes 
available External Funds on such day, the applicable interest rate will 
be a composite rate equal to the weighted average of the cost incurred 
by the respective Utility Money Pool participants for External Funds).
    In cases where both Internal Funds and External Funds are 
concurrently borrowed through the Utility Money Pool, the rate 
applicable to all loans comprised of such ``blended'' funds is the 
composite rate equal to the weighted average of (i) the cost of all 
Internal Funds contributed by Utility Money Pool participants (as 
determined under the second-preceding paragraph above) and (ii) the 
cost of all such External Funds. In circumstances where Internal Funds 
and External Funds are available for loans through the Utility Money 
Pool, loans may be made exclusively from Internal Funds or External 
Funds, rather than from a ``blend'' of funds, to the extent it is 
expected that such loans would result in a lower cost of borrowings.
    Funds not required by the Utility Money Pool to make loans (with 
the exception of funds required to satisfy the Utility Money Pool's 
liquidity requirements) are ordinarily invested in one or more short-
term investments, including: (i) Interest-bearing accounts with banks; 
(ii) obligations issued or guaranteed by the U.S. government and/or its 
agencies and instrumentalities, including obligations under repurchase 
agreements; (iii) obligations issued or guaranteed by any state or 
political subdivision thereof, provided that such obligations are rated 
not less than ``A'' by a nationally recognized rating agency; (iv) 
commercial paper rated not less than ``A-1'' or ``P-1'' or their 
equivalent by a nationally recognized rating agency; (v) money market 
funds; (vi) bank certificates of deposit; (vii) Eurodollar funds; 
(viii) short-term debt securities rated AA or above by Standard & 
Poor's, Aa or above by Moody's Investors Service, or AA or above by 
Fitch Ratings; (ix) short-term debt securities issued or guaranteed by 
an entity rated AA or above by Standard & Poor's, Aa or above by 
Moody's Investors Service, or AA or above by Fitch Ratings; and (x) 
other investments as are permitted by section 9(c) of the Act and rule 
40 thereunder.
    Applicants state that the interest income and investment income 
earned on loans and investments of surplus funds would be allocated 
among the participants in the Utility Money Pool in accordance with the 
proportion each participant's contribution of funds bears to the total 
amount of funds in the Utility Money Pool and the cost of funds 
provided to the Utility Money Pool by each participant.
    Applicants state that each Applicant receiving a loan through the 
Utility Money Pool would be required to repay the principal amount of 
the loan, together with all interest accrued, on demand and in any 
event not later than one year after the date of the loan. All loans 
made through the Utility Money Pool may be prepaid by the borrower 
without premium or penalty.

B. Nonutility Money Pool

    A separate Nonutility Money Pool among Exelon and certain 
Nonutility Subsidiary companies of Exelon was approved in the Prior 
Orders, however, Applicants state that Exelon has not established a 
Nonutility Money Pool. Applicants state that each Nonutility Subsidiary 
requests authority to participate in the Nonutility Money Pool.
    Applicants state that the Nonutility Money Pool is operated on the 
same terms and conditions as set forth for the Utility Money Pool, 
except that Exelon funds made available to the Money Pools will be made 
available to the Utility Money Pool first to the extent it is operated 
and thereafter to the Nonutility Money Pool. No loans through the 
Nonutility Money Pool are made to, and no borrowings through the 
Nonutility Money Pool are made by, Exelon, Ventures, or Delivery.

C. Other Contributions to Money Pool

    Applicants request that Nonutility Subsidiaries that are not 
currently participating in the Nonutility Money Pool and those that are 
acquired or formed in the future, (``Other Nonutility Subsidiaries'') 
may lend funds to the Nonutility Money Pool without the need for 
additional authority from the Commission. Applicants request that the 
Commission reserve jurisdiction with respect to the participation 
(other than lending of funds) of Other Nonutility Subsidiaries in the 
Nonutility Money Pool upon completion of the record.

D. Operation of the Money Pools and Administrative Matters

    Applicants propose that Exelon Business Services under the 
authority of the appropriate officers of the participating companies 
will continue to handle the operation of the Utility and Nonutility 
Money Pools, including recordkeeping and coordination of loans. Exelon 
Business Services administers the Utility and Nonutility Money Pools on 
an ``at cost'' basis and maintains separate records for each money 
pool. Applicants state that surplus funds of the Utility Money Pool and 
the Nonutility Money Pool may be combined in common short-term 
investments, but separate records of these funds are maintained by 
Exelon Business Services as administrator of the pools, and interest is 
separately allocated, on a daily basis, to each money pool in 
accordance with the proportion that the amount of each money pool's 
surplus funds bears to the total amount of surplus funds available for 
investment from both money pools.

XII. Borrowings by Ventures and Delivery

    Applicants state that Ventures and Delivery are registered holding 
companies. Ventures is the parent of Enterprises, which holds 
Nonutility Subsidiaries, and is the parent of Genco. Delivery is the 
parent of Com Ed and PECO. Applicants state that Ventures and Delivery 
may have occasion to issue debt or equity securities to Exelon to 
acquire funds to purchase debt or equity securities of their respective 
subsidiaries to enable Exelon to add to the capitalization of those 
subsidiaries. Applicants state that no such issuance by Ventures or 
Delivery will increase the Exelon system's securities held by third-
parties. If Exelon obtains funds to purchase such securities from an 
external source, Exelon's issuance of securities will be only as 
approved by the Commission's order in this docket and subject to the 
limitations imposed in such order, including the overall financing 
limitation of $8 billion. All securities issuances by the subsidiaries 
(i.e., Genco and Enterprises, and PECO and ComEd) to Ventures and 
Delivery, respectively will be subject to limitations imposed on that 
company regarding securities issuances and will be within the dollar 
limitations imposed by the order in this docket, if any. Consequently, 
there is no need to impose a separate dollar limitation on these 
conduit securities issuances by Ventures and Delivery. Applicants state 
that the approval sought for Ventures and Delivery is merely to cover 
the technical requirement that all their securities issuances be 
approved even in the case where they are acting as a conduit to invest 
funds by Exelon in their subsidiaries.

[[Page 11912]]

XIII. Payment of Dividends

A. Payment of Dividends Out of Capital by Exelon and ComEd

    In connection with the Merger, the Commission authorized each of 
Exelon and ComEd in the November Order to pay dividends out of 
additional paid-in capital up to the amount of $500 million. Applicants 
state that, subsequent to the Merger, Statement of Financial Accounting 
Standards (``SFAS'') 141, ``Business Combinations'' and SFAS 142, 
``Goodwill and Other Intangible Assets,'' were issued in 2001. SFAS 142 
eliminated the amortization of goodwill as was required previously and 
provides for an annual assessment to determine if goodwill amounts are 
impaired. Exelon and its Subsidiaries adopted these standards effective 
January 1, 2002, which resulted in a net write down of goodwill and a 
charge to income of $230 million net of taxes. If an analysis discloses 
an impairment, the company must take an impairment charge. Applicants 
state that Exelon has performed the analysis each year since 2002, 
which did not result in any further impairment charge to date.
    Exelon and ComEd now request authorization, notwithstanding the 
above stated accounting changes, (i) to continue to pay dividends out 
of additional paid-in capital up to the amount of $500 million and (ii) 
with respect to current earnings before any deductions resulting from 
any impairment of either goodwill or other intangibles recognized as a 
result of the Merger. Applicants state that as of September 30, 2003, 
neither Exelon nor ComEd has paid any dividends out of additional paid-
in capital. Applicants state that if all of the goodwill associated 
with the Merger were found to be impaired (i.e., $4.734 billion at 
September 30, 2003), the pro forma common equity ratio of Exelon and 
ComEd would be 26.8% and 20.1%, respectively.\8\ Applicants state that 
Exelon and ComEd believe that based on anticipated earnings and 
dividend levels, as well as estimated financings, that neither Exelon 
nor ComEd will have common equity ratios below 30% of Consolidated 
Capitalization as a result of any further impairment of goodwill.
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    \8\ Applicants state that the pro forma common equity ratio of 
Exelon and ComEd would be 18.8% and 15.7%, respectively, including 
securitization obligations.
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B. Payment of Dividends Out of Capital or Unearned Surplus by 
Nonutility Subsidiaries

    Applicants state that there may be situations in which one or more 
of the Nonutility Subsidiaries will have unrestricted cash available 
for distribution in excess of current and retained earnings resulting 
from a disposition of assets, a restructuring or other accounting 
charge that eliminated retained earnings or its normal operations 
(excluding debt financing). Consistent with these considerations, 
Applicants request authorization for the current and future Nonutility 
Subsidiaries to pay dividends out of capital and unearned surplus, 
through the Authorization Period, provided, however, that, without 
further approval of the Commission, no Nonutility Subsidiary will 
declare or pay any dividend out of capital or unearned surplus if the 
Nonutility Subsidiary derives any material part of its revenues from 
the sale of goods, services or electricity to Utility Subsidiaries.

C. Payment of Dividends Out of Capital by ComEd of Indiana

    As a result of ``push down'' accounting in the Merger, $11 million 
of the retained earnings of ComEd of Indiana were reclassified as paid 
in capital. Applicants state that ComEd of Indiana has not recorded any 
reductions to retained earnings because of operating losses or 
impairment charges. Applicants state that ComEd of Indiana has excess 
funds, including funds classified as paid in capital, and has lent 
funds to the Utility Money Pool so that these amounts might be used by 
the Utility Subsidiaries of Exelon rather than being trapped as idle 
cash at ComEd of Indiana. Applicants now request authority for ComEd of 
Indiana to pay dividends to its parent ComEd, from time to time through 
the Authorization Period, out of capital and unearned surplus to the 
extent permitted under state law up to $32 million provided that ComEd 
of Indiana's common equity ratio will not fall below 30% of 
Consolidated Capitalization. Applicants state that this authorization 
would allow the unneeded funds resulting from the events described in 
this paragraph at ComEd of Indiana to be permanently applied to ComEd's 
needs.

XIV. Changes of Capital Stock of Majority Owned Subsidiaries

    Applicants state that the portion of an individual Subsidiary's 
aggregate financing to be effected through the sale of stock to Exelon 
or other immediate parent company during the Authorization Period under 
rule 52 and/or under an order issued under this filing cannot be 
ascertained at this time. Applicants state that it may happen that the 
proposed sale of capital securities (i.e., common stock or preferred 
stock) may in some cases exceed the then authorized capital stock of 
the Subsidiary. In addition, the Subsidiary may choose to use capital 
stock with no par value. As needed to accommodate such proposed 
transactions and to provide for future issues, Applicants request 
authority to change the terms of any 50% or more owned Subsidiary's 
authorized capital stock capitalization or other equity interests by an 
amount deemed appropriate by Exelon or other intermediate parent 
company; provided that the consents of all other shareholders, if any, 
as required by law, have been obtained for the proposed change. This 
request for authorization is limited to Exelon's 50% or more owned 
Subsidiaries and will not affect the aggregate limits or other 
conditions contained herein. Applicants propose that a Subsidiary would 
be able to change the par value, or change between par value and no-par 
stock, or change the form of equity from common stock to limited 
partnership or limited liability company interests or similar 
instruments, or from these instruments to common stock, without 
additional Commission approval. Any such action by a Utility Subsidiary 
would be subject to and would only be taken upon the receipt of any 
necessary approvals by the state commission in the state or states 
where the Utility Subsidiary is incorporated and doing business. 
Applicants state that Exelon will be subject to all applicable laws 
regarding the fiduciary duty of fairness of a majority shareholder to 
minority shareholders in any 50% or more owned Subsidiary and will 
undertake to ensure that any change implemented under this paragraph 
comports with these legal requirements.

XV. Refinancing and/or Assumption of Pollution Control Obligations

    In the Prior Orders, the Commission approved, the assumption by 
Genco of up to $369 million of pollution control obligations incurred 
by PECO in connection with generation facilities that would be 
transferred to Genco. The generation assets were transferred to Genco 
effective January 1, 2001. Through September 30, 2003, $363 million of 
the originally approved $369 million has been assumed by Genco.
    Applicants now request that Genco assume all remaining outstanding 
pollution control obligations of PECO

[[Page 11913]]

and ComEd. At September 30, 2003, PECO had a total of $311 million of 
outstanding pollution control obligations and ComEd had $589 million, 
for a total of $900 million. In addition, all existing generating 
assets of ComEd were also transferred to Genco as of that date.
    Applicants currently contemplate that only the remaining $6 million 
of the PECO obligations (of the originally approved $369 million) and 
none of the ComEd obligations will be transferred to or assumed by 
Genco. To maintain flexibility however, Exelon, PECO, ComEd and Genco 
seek authority for Genco to assume any, all or none of the obligations 
listed above. In any case where Genco legally assumes these obligations 
PECO or ComEd, as the case may be, will be released from liability. 
Whether or not the pollution control facilities constructed with the 
proceeds of these pollution control obligations are still in service or 
owned by Genco, the pollution control obligations are consistent with 
the businesses conducted by Genco. Whether or not the utility is 
released, any such transfer to or assumption by Genco will have no 
impact on Exelon's consolidated capitalization. Any such assumption and 
release will, however, have the effect of decreasing the portion of 
long-term debt in the capital structure of the transferring utility and 
will commensurately improve the common equity ratio of ComEd or PECO, 
as the case may be. In appropriate circumstances the transfer of 
additional pollution control obligations from PECO will enhance the 
equity component of its capitalization which will help offset the 
effects of the Receivable Contribution discussed above.

XVI. De-Registration of Genco and PECO

    Applicants state that by March 31, 2004, the Conowingo Companies 
will have been converted into EWGs and will therefore no longer be 
public utility companies under the Act. As a result, Applicants state 
that Genco will no longer have any public utility company subsidiaries. 
One of the Conowingo Companies, PEPCO, owns another of the Conowingo 
Companies Susquehanna Power Company, previously a public utility 
company expected to be an EWG by March 31, 2004. As a result, 
Applicants state that PEPCO will no longer have any public utility 
company subsidiaries by March 31, 2004. Applicants request that Genco 
and PEPCO each be granted an order de-registering each company under 
section 5(d) of the Act.

XVII. EWG/FUCO Investment Authority Increase

    Applicants state that under the Prior Orders, Exelon currently has 
authority to invest up to $4 billion in EWGs and FUCOs. Applicants 
state that at September 30, 2003, the consolidated amount of Exelon's 
aggregate investment in EWGs and FUCOs as that term is defined in rule 
53 was $2.762 billion. At September 30, 2003, the average consolidated 
retained earnings (calculated as required by rule 53) of Exelon was 
$2.450 billion. Applicants state that the resulting permitted aggregate 
investment under rule 53 currently allowed is insufficient to meet 
Exelon's current investment level and business plans. Exelon has 
commitments of $377 million in connection with an additional EWG 
investment for AmerGen, which commitment was made on October 3, 2003. 
Accordingly, Applicants request that Exelon be allowed to invest up to 
$7.0 billion in EWGs and FUCOs.

Scottish Power plc, et al. (70-9669)

    Scottish Power plc (``ScottishPower''), a foreign registered 
holding company, Scottish Power UK Holdings Limited (``SPUK 
Holdings''), a foreign utility subsidiary of Scottish Power, Scottish 
Power UK plc (``SPUK''), a foreign utility subsidiary of Scottish 
Power,\9\ and Scottish Power NA 1 Limited and Scottish Power NA 2 
Limited, intermediate registered holding companies, all located at 1 
Atlantic Quay, Glasgow G2 8SP, Scotland, United Kingdom; PacifiCorp 
Holdings Inc. (``PHI''),\10\ an intermediate registered holding 
company, PacifiCorp., an electric utility subsidiary of PHI, PacifiCorp 
Group Holding Company (``PGHC''), an intermediate holding company for 
PacifiCorp nonutility subsidiaries, and PacifiCorp's nonutility 
subsidiaries: PPM Energy Inc., Pacific Klamath Energy, Inc.; PacifiCorp 
Financial Services, Inc.; Energy West Mining Company; Glenrock Coal 
Company; Interwest Mining Company; Pacific Minerals, Inc.; PacifiCorp 
Environmental Remediation Company; PacifiCorp Investment Management, 
Inc.; PACE Group, Inc.; Enstor, Inc.; Arlington Wind LLC; and Heartland 
Wind LLC \11\; all located at Suite 2000, 825 N.E. Multnomah Street, 
Portland, Oregon 97232 (collectively, ``Applicants''), have filed an 
application-declaration, as amended (``Application''), under sections 
6(a), 7, 9(a), 10, 12, 13(b), 32, and 33 of the Act and rules 42, 43, 
45, 46, 53, 54, 83, 87, 90, and 91 under the Act.
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    \9\ SPUK Holdings and SPUK and its subsidiaries are collectively 
referred to as the ``SPUK Holdings Group.''
    \10\ PHI, Scottish Power NA 1 Limited, Scottish Power NA 2 
Limited, and Scottish Power UK Holdings Limited are collectively 
referred to as the ``Intermediate Companies.''
    \11\ The nonutility subsidiaries of PacifiCorp are collectively 
referred to as the ``PHI Nonutility Subsidiary Companies.''
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I. Introduction

    ScottishPower registered as a holding company under the Act 
following its acquisition of PacifiCorp on November 29, 1999 
(``Merger'').\12\ Applicants request authority to engage in various 
financing transactions, credit support arrangements, and other related 
proposals, as more fully discussed below, commencing on the effective 
date of an order issued in this matter and ending March 31, 2007 
(``Authorization Period'').
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    \12\ Because ScottishPower concluded that the Merger was not 
subject to section 9(a)(2) of the Act, it did not obtain Commission 
approval for the Merger.
---------------------------------------------------------------------------

    By order dated December 6, 2000 (Holding Co. Act Release No. 27290) 
(``Financing Order''), the Commission authorized ScottishPower and 
certain of its subsidiaries to engage in various financing transactions 
from the date of the Financing Order through March 31, 2004 (``Current 
Authorization Period'').
    The Financing Order authorized the Applicants to engage in the 
following transactions through the Current Authorization Period: (i) 
External financings by ScottishPower; (ii) certain external financings 
by PacifiCorp and the PHI Nonutility Subsidiary Companies; (iii) 
certain intrasystem financings including the creation of a new 
PacifiCorp utility money pool, and guarantees of the obligations of 
PacifiCorp subsidiaries and of the subsidiaries of ScottishPower's 
foreign utility subsidiary, SPUK Holdings; (iv) the payment by 
PacifiCorp subsidiaries and, in certain circumstances, by PacifiCorp, 
of dividends out of capital or unearned surplus; (v) increases in the 
number of shares authorized by PacifiCorp or by any of PacifiCorp's 
subsidiaries with respect to any capital security of the company, as 
well as alteration of the terms of any capital security; (vi) the 
formation of financing entities and the issuance by such entities of 
securities otherwise authorized to be issued and sold under the 
authority requested in this filing; and (vii) the formation of PHI to 
hold the shares of both PacifiCorp and PGHC.

II. Financing Conditions

    Applicants represent that during the Authorization Period the 
proposed financing transactions, credit support

[[Page 11914]]

arrangements, and other related proposals will be subject to the 
following general terms and conditions:

    (i) The aggregate amount of external debt and equity issued by 
the ScottishPower system pursuant to the authority requested in this 
matter will not exceed $8 billion, at any one time outstanding;
    (ii) ScottishPower's ``aggregate investment'' in exempt 
wholesale generators (``EWGs'') and foreign utility companies 
(``FUCOs''), as defined in rule 53 under the Act, will not exceed, 
without prior Commission approval, $12.5 billion;
    (iii) The proceeds from the sale of securities in external 
financing transactions will be used for the acquisition, retirement 
or redemption of securities issued by the ScottishPower system, 
without the need for prior Commission approval and for necessary 
general corporate purposes including (a) the financing, in part, of 
the capital expenditures of the ScottishPower system, (b) the 
financing of working capital requirements of the ScottishPower 
system, and (c) other lawful general purposes;
    (iv) The Total Common Equity \13\ of PacifiCorp, as reflected in 
its most recent annual, quarterly or other periodic earnings report, 
will not fall below 30% of Total Capitalization.\14\ ScottishPower 
commits to maintain its and PacifiCorp's long-term debt rating at an 
investment grade level through the Authorization Period. 
ScottishPower and PacifiCorp will each maintain a Total Common 
Equity as a percentage of Total Capitalization, measured on a U.S. 
GAAP basis, of at least 30% through the Authorization Period;
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    \13\ Total Common Equity is defined as common stock plus 
retained earnings and accumulated other comprehensive income, 
presented on a U.S. Generally Accepted Accounting Principles 
(``GAAP'') basis.
    \14\ Total Capitalization is defined the sum of Total Common 
Equity, preferred stock, and long- and short-term debt, including 
present maturities.
---------------------------------------------------------------------------

    (v) The cost of money (interest rate giving effect to the 
economic life of the instrument) on debt financings of ScottishPower 
at the date of issuance will not exceed 300 basis points over that 
for comparable term U.S. treasury securities or government benchmark 
for the currency concerned;
    (vi) The cost of money (dividend rate giving effect to the 
economic life of the instrument) on preferred securities of 
ScottishPower at the date of issuance will not exceed 500 basis 
points over that for comparable term U.S. treasury securities or 
government benchmark for the currency concerned.

    The Applicants represent that no financing proceeds will be used to 
acquire a new subsidiary, other than a special purpose financing 
entity, unless such acquisition is consummated in accordance with an 
order of the Commission or an available exemption under the Act. The 
proceeds of external financings will be allocated to companies in the 
ScottishPower system in various ways through intrasystem financing 
discussed in this Application.
    Applicants represent that no guarantees or other securities, other 
than common stock, may be issued in reliance upon the authorization to 
be granted by the Commission, unless: (i) The security to be issued, if 
rated, is rated investment grade; (ii) all outstanding securities of 
the issuer, that are rated, are rated investment grade; and (iii) all 
outstanding securities of the top level registered holding company, 
that are rated, are rated investment grade (``Investment Grade 
Condition''). For purposes of this Investment Grade Condition, a 
security will be deemed to be rated ``investment grade'' if it is rated 
investment grade by at least one nationally recognized statistical 
rating organization, as that term is used in paragraphs (c)(2)(vi)(E), 
(F) and (H) of rule 15c3-1 under the Securities Exchange Act of 1934, 
as amended, (``1934 Act'').
    Applicants request that the Commission reserve jurisdiction over 
the issuance of any such securities that are rated below investment 
grade. Applicants further request that the Commission reserve 
jurisdiction over the issuance of any guarantee or other securities at 
any time that during the Authorization Period the conditions set forth 
in clauses (i) through (iii) above are not satisfied.

III. ScottishPower External Financing

    ScottishPower requests authorization to increase its capitalization 
by issuing and selling from time to time long-term equity and debt 
securities aggregating not more than $8 billion at any one time 
outstanding during the Authorization Period (``External Financing 
Limit''). This amount would include ScottishPower's existing financing 
arrangements and would exclude any refinancing of current debt. Such 
securities could include, but would not necessarily be limited to, 
ordinary shares, preferred shares, options, warrants, unsecured long- 
and short-term debt (including commercial paper), convertible 
securities, subordinated debt, bank borrowings and securities with call 
or put options. Such financing amount includes ScottishPower's current 
outstanding equity and debt securities.\15\ ScottishPower requests 
authorization to maintain all existing financial arrangements regarding 
outstanding equity and debt securities. ScottishPower proposes to also 
enter into currency and interest rate swaps as described below.
---------------------------------------------------------------------------

    \15\ As of September 30, 2003, ScottishPower had outstanding 
guarantees of $332 million, long-term debt of $8.33 billion, short-
term debt of $505 million and common equity of $9.15 billion.
---------------------------------------------------------------------------

A. Ordinary Shares

    ScottishPower's common stock equity consists of ordinary shares, 
with a par value of 50 pence each, that are listed on the London Stock 
Exchange. ScottishPower currently has American Depositary Shares 
(``ADSs'') in the U.S. which trade as American Depositary Receipts 
(``ADRs'') and represent four ordinary shares each. ScottishPower has 
established a sponsored ADR program in the U.S. and has its ADSs listed 
on the New York Stock Exchange and registered under the Securities Act 
of 1933, as amended (``1933 Act'').\16\
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    \16\ As a result, ScottishPower has registered under the 1934 
Act and files the periodic disclosure reports required of a foreign 
issuer with the Commission. The request contained herein with 
respect to ordinary shares refers to the issuance of ordinary shares 
directly, or indirectly, through the ADR program and, for purposes 
of this request, the ADSs are not considered separate securities 
from the underlying ordinary shares. As of September 30, 2003 
ScottishPower had 1,857,477,594 ordinary shares and one ``Special 
Share'' outstanding.
---------------------------------------------------------------------------

    ScottishPower seeks authority to use its ordinary shares (or 
associated ADSs) as consideration for acquisitions that are otherwise 
authorized or exempt under the Act. Among other things, transactions 
may involve the exchange of parent company equity securities for 
securities of the company being acquired in order to provide the seller 
with certain tax advantages. For purposes of the External Financing 
Limit, ScottishPower ordinary shares used to fund an acquisition of a 
company through the exchange of ScottishPower equity for securities 
being acquired would be valued at market value based upon the closing 
price of the ordinary shares on the London Stock Exchange on the day 
before closing of the sale or issuance.
    Ordinary share financings covered by this Application may occur in 
any one of the following ways: (i) Through underwriters or dealers; 
(ii) through agents; (iii) directly to a number of purchasers or a 
single purchaser; (iv) directly to employees (or to trusts established 
for their benefit) and other shareholders through ScottishPower system 
employee benefit schemes; or (v) through the issuance of anti-dilution 
and/or bonus shares (i.e., stock dividends) to existing shareholders.
    In addition to other general corporate purposes, the ordinary 
shares will be used to fund employee benefit plans. ScottishPower and 
PacifiCorp currently maintain a number of employee benefit plans for 
personnel in the ScottishPower system pursuant to which employees may 
acquire or may

[[Page 11915]]

be granted equity interests as part of their compensation.
    More particularly, ScottishPower intends to issue ADSs to U.S. 
employees through PacifiCorp Stock Incentive Plan, Compensation 
Reduction Plan and K Plus Employee Savings and Stock Ownership Plan 
(``U.S. Plans''). In addition, other share-based plans may be developed 
to motivate and retain key executives. In addition, ScottishPower 
intends to issue ADSs to U.S. employees and ordinary shares to U.K. 
employees through its Executive Share Option Plan 2001 (the U.S./U.K. 
plan). In addition, ScottishPower intends to issue ordinary shares to 
its U.K. employees through its Long Term Incentive Plan, its Executive 
Share Option Scheme, its Sharesave Scheme and its Employee Share 
Ownership Plan (the ``U.K. Plans'').
    ScottishPower requests authority to issue approximately 82 million 
ordinary shares to employees under its existing plans, the U.S. Plans, 
the U.K. Plans and such additional plans created after the date of the 
requested order in this matter that may be developed for the purposes 
stated above. Securities issued by ScottishPower under all of the plans 
will be included within the External Financing Limit and will be 
valued, if ordinary shares, at market value based on the closing price 
on the London Stock Exchange on the day before the award. Securities 
issued that are not ordinary shares will be valued based on a 
reasonable and consistent method applied at the time of the award.\17\
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    \17\ ScottishPower's corporate structure contains a special 
share that is currently owned by the U.K. Government (``Special 
Share''). The Special Share may only be held by the U.K. Government 
or persons acting on its behalf. It is a single non-voting share 
that prevents amendments to ScottishPower's Memorandum and Articles 
of Association. Those documents in turn restrict certain classes of 
persons from owning more than a prescribed shareholding in 
ScottishPower.
---------------------------------------------------------------------------

B. Preferred Stock

    ScottishPower proposes to issue preferred stock from time to time 
during the Authorization Period. Any such preferred stock would have 
dividend rates or methods of determining the same, redemption 
provisions, conversion or put terms and other terms and conditions as 
ScottishPower may determine at the time of issuance, provided that the 
cost of money (dividend rate giving effect to the economic life of the 
instrument) on preferred stock of ScottishPower, when issued, will not 
exceed 500 basis points over that for comparable term U.S. treasury 
securities or government benchmark for the currency concerned. In 
addition, all issuances of preferred stock will be at rates or prices 
based upon or otherwise determined by competitive capital markets.

C. Debt

1. Long-Term Debt
    The Applicants propose to issue unsecured debt securities from time 
to time during the Authorization Period. Any debt securities would have 
the designation, aggregate principal amount, interest rate(s) or method 
of determining the same, terms of payment of interest, redemption 
provisions, non-refunding provisions, sinking fund terms, conversion or 
put terms and other terms and conditions as are deemed appropriate at 
the time of issuance, provided however, that the cost of money 
(interest rate giving effect to the economic life of the instrument) on 
debt financings will not exceed 300 basis points over that for 
comparable term U.S. treasury securities or government benchmark for 
the currency concerned.
2. Short-Term Debt
    ScottishPower also seeks authority to issue additional short-term 
debt in the form of commercial paper, promissory notes and/or other 
forms of short-term indebtedness in an aggregate principal amount at 
any one time outstanding not to exceed $2 billion (``Short-term Debt 
Limit''). ScottishPower proposes to establish from time to time new 
committed bank lines of credit, provided that only the principal amount 
of any borrowings outstanding under these new committed bank lines of 
credit will be counted against the proposed Short-term Debt Limit. 
Credit lines may be set up for use by ScottishPower for general 
corporate purposes in addition to credit lines to support commercial 
paper. ScottishPower will borrow and repay under these lines of credit, 
from time to time, as it is deemed appropriate or necessary. All 
borrowings under these credit lines will mature in less than one year. 
ScottishPower may also engage in other types of short-term financing, 
including borrowings under uncommitted lines, generally available to 
borrowers with comparable credit ratings as it may deem appropriate in 
light of its needs and market conditions at the time of issuance.
    ScottishPower may also sell commercial paper in established U.S. or 
European commercial paper markets, from time to time, and this 
commercial paper would be sold to dealers at the discount rate or the 
coupon rate per annum prevailing at the date of issuance for commercial 
paper of comparable quality and maturities sold to commercial paper 
dealers generally. It is expected that the dealers acquiring commercial 
paper from ScottishPower will reoffer such paper at a discount to 
corporate, institutional and, with respect to European commercial 
paper, individual investors. Institutional investors are expected to 
include commercial banks, insurance companies, pension funds, 
investment trusts, foundations, colleges and universities and finance 
companies.

D. Hedging Transactions

1. Interest Rate Hedges
    In order to protect the ScottishPower system from adverse interest 
rate movements, the interest rate on the debt portfolio is managed 
through the use of fixed-rate debt, combined with interest rate and 
cross currency swaps, options and option-related instruments with a 
view to maintaining a significant proportion of fixed rates over the 
medium term. The proportion of debt at fixed rates is varied over time 
and within policy guidelines, depending on debt projections and market 
levels of interest rates. The resulting position as of September 30, 
2003, was that 95% of the ScottishPower system borrowings were at fixed 
rates of interest. ScottishPower requests authorization to enter into 
interest rate and currency hedges in order to reduce or manage interest 
rate cost and foreign exchange exposures, subject to certain 
limitations and restrictions, through the Authorization Period.\18\
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    \18\ Interest rate and currency hedges would only be entered 
into with counterparties (``Approved Counterparties'') whose senior 
debt ratings, or the senior debt ratings of the parent companies of 
the counterparties, as published by Standard and Poor's Ratings 
Group, are equal to or greater than BBB, or an equivalent rating 
from Moody's, Fitch Investor Service or Duff and Phelps. Interest 
rate hedges will involve the use of financial instruments commonly 
used in today's capital markets, such as interest rate and currency 
forwards, futures, swaps, caps, collars, floors, and structured 
notes (i.e., a debt instrument in which the principal and/or 
interest payments are indirectly linked to the value of an 
underlying asset or index), or transactions involving the purchase 
or sale, including short sales, of government or agency (e.g., FNMA) 
obligations or LIBOR-based swap instruments. Transactions would be 
for fixed periods and stated notional amounts. Fees, commissions or 
other amounts payable to the counterparty or exchange (excluding, 
however, the swap or option payments) in connection with an interest 
rate and currency hedge will not exceed those generally obtainable 
in competitive markets for parties of comparable credit quality.
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2. Anticipatory Hedges
    ScottishPower also requests authorization to enter into 
anticipatory hedges, subject to certain limitations and restrictions. 
ScottishPower produces accounts according to UK GAAP (Internal 
Accounting Standards

[[Page 11916]]

(``IAS'') with effect from April 1, 2005 or such later date as IAS 
becomes effective) but produces a reconciliation to U.S. GAAP which 
will comply with Statement of Financial Accounting Standard (``SFAS'') 
133 (Accounting for Derivative Instruments and Hedging Activities) and 
SFAS 138 (Accounting for Certain Derivative Instruments and Certain 
Hedging Activities) or other standards relating to accounting for 
derivative transactions as are adopted and implemented by the Financial 
Accounting Standards Board (``FASB''). Because of the international 
nature of ScottishPower's business and the complex nature of its debt 
portfolio it cannot represent that each interest rate and currency 
hedge and each anticipatory hedge will qualify for hedge accounting 
treatment under the current FASB standards in effect and as determined 
as of the date such interest rate and currency hedge or anticipatory 
hedge is entered into but it is their intention to achieve such hedge 
accounting treatment wherever possible. The Applicants will also comply 
with any future FASB financial disclosure requirements associated with 
hedging transactions.\19\
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    \19\ Anticipatory hedges would only be entered into with 
Approved Counterparties and would be utilized to fix and/or limit 
the interest rate or currency risk associated with any new issuance 
through (i) a sale of exchange-traded government futures contracts, 
government obligations and/or a forward swap (each a ``Forward 
Sale''); (ii) the purchase of put options on government obligations 
(a ``Put Options Purchase''); (iii) a Put Options Purchase in 
combination with the sale of call options on government obligations 
(a ``Collar''); (iv) transactions involving the purchase or sale, 
including short sales, of U.S. Treasury obligations; or (v) some 
combination of a Forward Sale, Put Options Purchase, Collar and/or 
other derivative or cash transactions, including, but not limited to 
structured notes, caps and collars, appropriate for the Anticipatory 
hedges.
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IV. Intermediate Companies

    Each of the Intermediate Companies is seeking authorization to 
continue to issue and sell securities to, and acquire securities from, 
its immediate parent, subsidiary companies and fellow Intermediate 
Companies, respectively. Each of the Intermediate Companies and 
ScottishPower is also seeking authorization to continue to issue 
guarantees and other forms of credit support to direct and indirect 
subsidiaries. In no case would the Intermediate Companies or 
ScottishPower borrow, or receive any extension of credit or indemnity 
from any of their respective direct or indirect subsidiary companies. 
The interest rates and maturity dates of any debt security issued by 
PacifiCorp to its immediate parent company will be designed to parallel 
the effective cost of capital of ScottishPower.
    Authority is also sought for ScottishPower to form new intermediate 
holding company entities \20\ and the issuance and acquisition by such 
entities of securities in order to permit both reinvestment and 
repatriation of the profits of PacifiCorp and the PHI Nonutility 
Subsidiary Companies to ScottishPower in a efficient manner. 
ScottishPower will continue to be the ultimate owner of PacifiCorp and 
the PHI Nonutility Subsidiary Companies.
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    \20\ None of the above-mentioned to-be-formed foreign based 
intermediate companies will be a party to PacifiCorp and PHI 
Nonutility Subsidiary Companies' consolidated tax allocation 
agreement, thereby creating any issues under rule 45 of the Act.
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V. PacifiCorp and PHI Nonutility Subsidiary Company Financings

    Applicants state that the existing financing arrangements, with the 
exception of the commercial paper transactions discussed below, of 
PacifiCorp and the PHI Nonutility Subsidiary Companies are exempt under 
rule 52 and therefore, do not require Commission authorization and will 
remain in place. The Applicants request, to the extent the Commission 
has jurisdiction, to maintain all its financing authority through the 
Authorization Period.\21\ PacifiCorp and the PHI Nonutility Subsidiary 
Companies financing authority requested below is in addition to the 
External Financing Limit requested by ScottishPower for the 
ScottishPower system.
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    \21\ As of September 30, 2003, SPUK Holdings Group has 
outstanding long-term debt of $3.86 billion, short-term debt of $75 
million and common equity of $2.51 billion, presented on a U.S. GAAP 
basis. In addition, ScottishPower has outstanding guarantees in the 
amount of approximately $332 million, presented on a U.S. GAAP 
basis.
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A. Existing Intercompany Arrangements

    Currently, PacifiCorp and the PHI Nonutility Subsidiary Companies 
have two intercompany lending arrangements. The first loan agreement 
allows for loans between PacifiCorp and certain of its associate 
companies. This intercompany loan agreement has been authorized by the 
Oregon Public Utility Commission (``OPUC'') up to $200 million for 
loans by PacifiCorp and unlimited amounts for loans to PacifiCorp. 
These loans are payable on demand, are evidenced by notes and with 
interest at PacifiCorp's short-term borrowing rate whether the loan is 
to or from PacifiCorp. The second loan agreement allows for loans up to 
$350 million to be made among PGHC and certain of its associate 
companies. These loans are payable on demand and, if from PGHC, bear 
interest at a negotiated rate or PGHC's short-term borrowing rate plus 
a margin (depending on the ratings of the borrower) or at PGHC's short-
term borrowing rate if the borrower is PGHC.\22\ Applicants request 
authorization, to the extent not exempt under rule 52, to continue 
their use of the existing loan agreements through the Authorization 
Period.
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    \22\ Borrowings from PGHC will bear interest on the outstanding 
principal amount thereof, for each day from the date such borrowing 
is made until it becomes due, at a rate per annum equal to the prime 
rate for such day plus a margin (depending on the ratings of the 
borrower) as agreed to from time-to-time by PGHC and the borrower 
and set forth in the ledger maintained by PGHC; however, in no event 
will the borrower's rate exceed PGHC's cost of short-term funds for 
such day plus 3/8%.
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B. Short-Term Debt

    Authority is requested for PacifiCorp to issue commercial paper and 
promissory notes not to exceed the aggregate amount of $1.5 billion to 
be outstanding at any one time during the Authorization Period. This 
level of debt authority has been authorized by the Federal Energy 
Regulatory Commission (``FERC'') and all of the state utility 
commissions regulating PacifiCorp's revolving credit agreements.\23\ 
The OPUC has not authorized the issuance of the commercial paper 
because it is not jurisdictional.
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    \23\ PacifiCorp is regulated by the Public Utilities Commission 
of the State of California, the Idaho Public Utilities Commission, 
the Public Service Commission of Utah, the Washington Utilities and 
Transportation Commission, the Public Service Commission of Wyoming, 
and OPUC.
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    PacifiCorp requests authority to enter into short-term financing 
arrangements described above through the Authorization Period. Subject 
to the limitations set forth in the Application, commercial paper 
borrowings will be tailored to mature at such time as excess funds from 
PacifiCorp are expected to become available for loans through the 
existing intercompany borrowing arrangements.

VI. Guarantees and Loans

    ScottishPower and the Intermediate Companies request authorization 
to the extent necessary under the Act to enter into guarantees, obtain 
letters of credit, enter into guarantee-type agreements, make loans or 
capital contributions, or otherwise provide credit support with respect 
to the obligations of PacifiCorp and the PHI Nonutility Subsidiary 
Companies and the SPUK Holdings Group as may be appropriate to enable 
such system companies to carry on their respective authorized or 
permitted businesses and to maintain, to the extent not exempted under 
rule 45, all existing guarantee and loan

[[Page 11917]]

arrangements through the Authorization Period.\24\ Such credit support 
may be in the form of committed bank lines of credit. Such guarantees 
and credit support to be made to the SPUK Holdings Group will be 
included in the aggregate investment of ScottishPower for the purposes 
of rule 53. The cost of such guarantees and loans will be at market 
rates or parallel the cost of obtaining the liquidity necessary to 
support the guarantee or loan, as the case may be.
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    \24\ PacifiCorp, the PHI Nonutility Subsidiary Companies and 
certain members of the SPUK Holdings Group, entered into most of 
their respective guarantees and loan arrangements prior to the 
completion of the Merger.
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    In addition, authority is requested for the PHI Nonutility 
Subsidiary Companies to enter into similar arrangements with one 
another, to the extent not exempted under rule 45. Guarantees, capital 
contributions, and loans entered into by ScottishPower and the 
Intermediate Companies and the PHI Nonutility Companies will be subject 
to a $8 billion limit (``Guarantee Limit'') (not included in the $8 
billion external Financing Limit), based upon the amount at risk. Such 
guarantees will include ScottishPower's currently outstanding 
guarantees.

VII. Other Transactions

A. Financing Entities/Special Purpose Entities

    Authority is sought for ScottishPower and PacifiCorp and the PHI 
Nonutility Subsidiary Companies to organize new corporations, trusts, 
partnerships or other entities created for the purpose of facilitating 
financings through their issuance to third parties of income preferred 
securities or other securities authorized hereby or issued pursuant to 
an applicable exemption through the Authorization Period. Request is 
also made for these financing entities to issue such securities to 
third parties in the event such issuances are not exempt pursuant to 
rule 52. Additionally, request is made through the Authorization Period 
to (i) issue debentures or other evidences of indebtedness by any of 
ScottishPower or PacifiCorp and the PHI Nonutility Subsidiary Companies 
to a financing entity in return for the proceeds of the financing; (ii) 
acquire voting interests or equity securities issued by the financing 
entity to establish ownership of the financing entity, by any of 
ScottishPower or PacifiCorp and the PHI Nonutility Subsidiary 
Companies; and (iii) guarantee by the Applicants of such financing 
entity's obligations in connection with such acquisition. Each of 
ScottishPower and PacifiCorp and the PHI Nonutility Subsidiary 
Companies also may enter into expense agreements with its respective 
financing entity, pursuant to which it would agree to pay all expenses 
of such entity. All expense reimbursements would be at cost.\25\ 
Applicants seek authorization for such expense reimbursement 
arrangements under section 7(d)(4) of the Act, regarding the 
reasonableness of fees paid in connection with the issuance of a 
security, and/or under section 13 of the Act and the rules thereunder 
to the extent the financing entity is deemed to provide services to an 
associate company.
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    \25\ External financing will be subject to the financing limits 
proposed in this Application.
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    Any amounts issued by such financing entities to third parties 
pursuant to this authorization will count against the external 
financing limits authorized in this matter for the immediate parent of 
such financing entity. However, the underlying intra-system mirror debt 
and parent guarantee will not count against the External Financing 
Limit or the separate ScottishPower Guarantee Limit.
    Applicants also request authorization to acquire, directly or 
indirectly, the equity securities of one or more financing/special 
purposes subsidiaries (``Financing/Special Purpose Subsidiaries'') 
organized exclusively for the purpose of acquiring, financing, and 
holding the securities of, one or more existing or future nonutility 
subsidiaries. Financing/Special Purpose Subsidiaries may also provide 
management, administrative, project development and operating services 
to these entities.
    Financing/Special Purpose Subsidiaries may be corporations, 
partnerships, limited liability companies or other entities in which 
ScottishPower, directly or indirectly, may have a 100% interest, a 
majority equity or debt position, or a minority debt or equity 
position. Financing/Special Purpose Subsidiaries would engage only in 
businesses to the extent that ScottishPower is authorized, whether by 
statute, rule, regulation or order, to engage in those businesses. 
ScottishPower commits that the requested authorization will not result 
in the entry into a new, unauthorized line of business by the SPUK 
Holdings Group or PacifiCorp and the PHI Nonutility Subsidiary 
Companies.
    Financing/Special Purpose Subsidiaries would be organized for the 
purpose of acquiring, holding and/or financing the acquisition of the 
securities of, or other interest in, one or more EWGs, FUCOs, 
subsidiaries engaged in rule 58 activities (``Rule 58 Company''), 
energy-related subsidiaries, or Exempt Telecommunications Companies 
(``ETCs''). Financing/Special Purpose Subsidiaries may also engage in 
development activities (``Development Activities'') and administrative 
activities (``Administrative Activities'') relating to the permitted 
businesses of the nonutility subsidiaries.
    Development Activities will include due diligence and design 
review; market studies; preliminary engineering; site inspection; 
preparation of bid proposals, including, in connection therewith, 
posting of bid bonds; application for required permits and/or 
regulatory approvals; acquisition of site options and options on other 
necessary rights; negotiation and execution of contractual commitments 
with owners of existing facilities, equipment vendors, construction 
firms, power purchasers, thermal ``hosts,'' fuel suppliers and other 
project contractors; negotiation of financing commitments with lenders 
and other third-party investors; and such other preliminary activities 
as may be required in connection with the purchase, acquisition, 
financing or construction of facilities or the acquisition of 
securities of, or interests in, new businesses. Administrative 
Activities will include ongoing personnel, accounting, engineering, 
legal, financial and other support activities necessary to manage 
ScottishPower and PacifiCorp and the PHI Nonutility Subsidiary 
Companies' investments in nonutility subsidiaries.
    A Financing/Special Purpose Subsidiary may be organized, among 
other things, (i) to facilitate the making of bids or proposals to 
develop or acquire an interest in any EWG, FUCO, Rule 58 Company, 
energy-related subsidiary, ETC; (ii) after the award of the a bid 
proposal, to facilitate closing on the purchase or financing of the 
acquired company; (iii) at any time subsequent to the consummation of 
an acquisition of an interest in any company in order, among other 
things, to effect an adjustment in the respective ownership interests 
in business held by ScottishPower or PacifiCorp and the PHI Nonutility 
Subsidiary Companies and non-affiliated investors; (iv) to facilitate 
the sale of ownership interests in one or more acquired nonutility 
companies; (v) to comply with applicable laws of foreign jurisdictions 
limiting, or otherwise relating to, the ownership of domestic companies 
by foreign nationals; (vi) as a part of financial optimization or tax 
planning; or (vii) to further insulate PacifiCorp from operational or 
other business risks that

[[Page 11918]]

may be associated with investments in nonutility companies.
    To the extent that these transactions are not exempt from the Act 
or are otherwise authorized or permitted by rule, regulation or order, 
ScottishPower requests authorization for the Financing/Special Purpose 
Subsidiaries to provide management, administrative, project development 
and operating services to direct or indirect subsidiaries at cost in 
accordance with section 13 of the Act and related rules, including 
rules 90 and 91. ScottishPower also proposes, however, that development 
subsidiaries would provide services and sell goods at fair market 
prices, under an exemption from the at-cost standard of section 13(b) 
of the Act and rules 90 and 91 under the Act, when the associate 
company receiving the goods or services is:

    (i) A FUCO or foreign EWG that does not derive any income, 
directly or indirectly, from the generation, transmission or 
distribution of electric energy for sale within the United States;
    (ii) An EWG that sells electricity to nonassociate companies at 
market-based rates approved by the FERC;
    (iii) A qualifying facility (``QF'') that sells electricity to 
industrial or commercial customers for their own use at negotiated 
prices or to electric utility companies at their ``avoided cost,'' 
as defined under the Public Utility Regulatory Policies Act of 1978, 
as amended (``PURPA'');
    (iv) A domestic EWG or QF that sells electricity to nonassociate 
companies at cost-based rates approved by the FERC or a state 
commission; and
    (v) A Rule 58 Company or any other authorized subsidiary that: 
(a) Is partially owned, provided that the ultimate purchaser of the 
goods or services is not an associate public-utility company or an 
associate company that primarily provides goods and services to 
associate public-utility companies; (b) is engaged solely in the 
business of developing, owning, operating and/or providing goods and 
services to nonutility companies described in items (i) through 
(iv), above; 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.

B. Corporate Restructuring

    ScottishPower anticipates that as it continues to review the 
combined operations of the ScottishPower system, it may prove prudent 
to continue to reorganize its nonutility companies. Specifically, 
ScottishPower proposes to engage in corporate restructuring or 
reorganization of its nonutility companies without prior Commission 
approval. Restructuring could involve the acquisition of one or more 
new Financing/Special Purpose Subsidiaries to acquire and hold direct 
or indirect interests in any or all of ScottishPower's existing or 
future authorized nonutility businesses. Restructuring could also 
involve consolidation, redemption and the retirement of the securities 
of such nonutility businesses or the transfer of existing subsidiaries, 
or portions of existing businesses, among the ScottishPower group 
companies and/or the reincorporation of existing subsidiaries in a 
different jurisdiction. The restructuring may also take the form of a 
nonutility subsidiary selling, contributing or transferring the equity 
securities of a subsidiary or all or part of the subsidiary's assets as 
a dividend to another nonutility subsidiary and the acquisition, 
directly or indirectly, of the equity securities or assets of a 
subsidiary, either by purchase or by receipt of a dividend.

C. Changes in Capital Stock of Majority Owned Subsidiaries

    The portion of the aggregate financing of PacifiCorp or an 
individual wholly owned subsidiary of PacifiCorp and the PHI Nonutility 
Subsidiary Companies to be effected through the sale of equity 
securities to its immediate parent company during the Authorization 
Period cannot be determined at this time. It may happen that the 
proposed sale of capital securities may in some cases exceed the then 
authorized capital stock of PacifiCorp or such PHI Nonutility 
Subsidiary Company. In addition, PacifiCorp or such PHI Nonutility 
Subsidiary Company may choose to use other forms of capital securities. 
Capital stock includes common stock, preferred stock, other preferred 
securities, options and/or warrants convertible into common or 
preferred stock, rights, and similar securities. As needed to 
accommodate the sale of additional equity, Applicants request the 
authority to increase the amount or change the terms of any wholly 
owned subsidiary of PacifiCorp and the PHI Nonutility Subsidiary 
Companies authorized capital securities, without additional Commission 
approval. The terms that may be changed include dividend rates, 
conversion rates and dates, and expiration dates. Applicants note that 
each of the Intermediate Companies will be wholly owned directly or 
indirectly by ScottishPower and that none will have third-party 
investors. Applicants request authorization to make changes to the 
capital stock of PacifiCorp or any wholly owned subsidiary of 
PacifiCorp and the PHI Nonutility Subsidiary Companies.

D. Payment of Dividends

    Applicants state that there may be situations in which one or more 
of the PHI Nonutility Subsidiary Companies will have unrestricted cash 
available for distribution in excess of current and retained earnings. 
Consistent with these considerations, the Applicants request 
authorization for the current and future PHI Nonutility Subsidiary 
Companies to pay dividends out of capital and unearned surplus, through 
the Authorization Period, provided, however, that, without further 
approval of the Commission, no PHI Nonutility Subsidiary Company will 
declare or pay any dividend out of capital or unearned surplus if the 
PHI Nonutility Subsidiary Companies derives any material part of its 
revenues from the sale of goods, services or electricity to PacifiCorp. 
In addition, the PHI Nonutility Subsidiary Companies will not declare 
or pay any dividend out of capital or unearned surplus unless it: (i) 
Has received excess cash as a result of the sale of its assets; (ii) 
has engaged in a restructuring or reorganization; and/or (iii) is 
returning capital to an associate company.
    The Applicants request authority for PacifiCorp to continue to pay 
dividends out of capital and unearned surplus to the extent of the 
proceeds it received from the sale of assets outside of its regulated 
utility business.\26\ Distributions out of capital and unearned surplus 
from the PHI Nonutility Subsidiary Companies would allow available 
funds to be utilized where appropriate within PacifiCorp and the PHI 
Nonutility Subsidiary Companies consistent with PacifiCorp's commitment 
to maintain its Total Common Equity to be at least 30% through the 
Authorization Period.
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    \26\ In 2001, PacifiCorp and certain of its associate companies 
completed the sale of its FUCO investments in Australia. The 
requested authority would allow the proceeds from any such sale to 
be distributed by PacifiCorp to its shareholder. PacifiCorp and its 
associate companies have not completed the above-mentioned dividend 
payments to its shareholder from the proceeds of the sale of the 
Australian FUCOs. The Applicants continue to believe that any such 
distribution would not have an adverse effect on PacifiCorp's 
utility operations or the public interest.
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E. EWGs and FUCOs

    ScottishPower has adopted a corporate structure that separates its 
existing foreign operations from its U.S. utility operations. The 
organization of foreign activities under SPUK, and U.S. utility 
activities under PacifiCorp, reflects ScottishPower's intent to develop 
these two business areas in a financially independent manner. To that 
end, ScottishPower is seeking authority to finance EWG and FUCO 
investments

[[Page 11919]]

and operations in an aggregate amount of up to $12.5 billion at any one 
time outstanding, during the Authorization Period.\27\ The $12.5 
billion represents approximately 420% of the ScottishPower system's 
consolidated retained earnings. As of September 30, 2003, 100% of the 
ScottishPower system consolidated retained earnings on a U.S. GAAP 
basis was $3.14 billion.\28\
    \27\ As noted above, most of ScottishPower's FUCO investments are 
held through SPUK Holdings.
    \28\ Converting at [pound]1.00: $1.661, the closing exchange rate 
at September 30, 2003.

F. Tax Allocation Agreement

    The Applicants ask the Commission to approve an amended agreement 
for the allocation of consolidated tax among PHI, PacifiCorp and the 
PHI Nonutility Subsidiary Companies (``Tax Allocation Agreement'').
    The proposed Tax Allocation Agreement requires approval because it 
now provides for cash payment to certain associate companies and 
provides for the retention by the U.S. parent of the U.S. tax filing 
group of certain tax attributes resulting from payments it has made, 
rather than the allocation of these losses to the subsidiaries in the 
U.S. tax filing group without compensation. PHI seeks to retain only 
the benefits of tax losses that have been generated by it in connection 
with the merger of ScottishPower with PacifiCorp. As a result of the 
merger with PacifiCorp, PHI now generates tax benefits from the 
interest expense on the acquisition-related debt that is non-recourse 
to PacifiCorp and is unrelated to the financing of operations.

VIII. Service Company Approvals

    PacifiCorp has been providing administrative, management, 
technical, legal and other support services to its subsidiaries for 
many years. In addition, there have been occasions when subsidiaries of 
PacifiCorp have provided services to PacifiCorp or to other PHI 
Nonutility Subsidiary Companies. PacifiCorp now proposes to continue 
these arrangements, with PacifiCorp providing services to the PHI 
Nonutility Subsidiary Companies and other associate companies in the 
holding company system pursuant to rule 87 under the Act. PHI 
Nonutility Subsidiary Companies propose to provide services to 
PacifiCorp pursuant to section 13(b). All service transactions, as 
explained above, will be priced at cost in accordance with section 13 
of the Act and the rules under the Act. In the event that the market 
rate of the services is less than cost, neither PacifiCorp nor the PHI 
Nonutility Subsidiary Companies will provide such services. PacifiCorp 
also proposes to engage in service activities with SPUK and certain 
members of the SPUK Holdings Group.
    In addition, SPUK or another member of the SPUK Holdings Group 
proposes to perform services for PacifiCorp and the PHI Nonutility 
Subsidiary Companies. All service transactions will be priced at cost 
in accordance with section 13 of the Act and the rules thereunder.
    PacifiCorp and the PHI Nonutility Subsidiary Companies request 
authorization under section 13(b) of the Act to provide services and 
sell goods to its members and the SPUK Holdings Group at fair market 
prices determined without regard to cost, and request an exemption 
under section 13(b) from the cost standards of rules 90 and 91 as 
applicable to these transactions, in any case in which the non-utility 
subsidiary purchasing these goods or services is:

    (i) A FUCO or foreign EWG which derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (ii) An EWG which sells electricity at market-based rates which 
have been approved by the FERC, provided that the purchaser is not 
PacifiCorp;
    (iii) A QF that sells electricity exclusively (a) at rates 
negotiated at arms' length to one or more industrial or commercial 
customers purchasing the electricity for their own use and not for 
resale, and/or (b) to an electric utility company at the purchaser's 
``avoided cost'' as determined in accordance with PURPA regulations;
    (iv) A domestic EWG or QF that sells electricity at rates based 
upon its cost of service, as approved by FERC or any state public 
utility commission having jurisdiction, provided that the purchaser 
is not PacifiCorp; or
    (v) A Rule 58 Company or any other non-utility subsidiary that 
(a) is partially owned by a member of the PHI Nonutility Subsidiary 
Companies or the SPUK Holdings Group, provided that the ultimate 
purchaser of such goods or services is not PacifiCorp, (b) is 
engaged solely in the business of developing, owning, operating and/
or providing services or goods to the nonutility subsidiaries 
described in clauses (i) through (iv) immediately above, 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.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-5587 Filed 3-11-04; 8:45 am]
BILLING CODE 8010-01-U