[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Notices]
[Pages 33539-33562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2934]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27981]


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

June 2, 2005.
    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 June 27, 2005, 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 June 27, 2005, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

American Transmission Company LLC, et al. (70-10302)

    American Transmission Company LLC (``ATC LLC''), an electric 
transmission public-utility company under the Act, ATC Management Inc. 
(``ATCMI''), a public-utility company and a public-utility holding 
company exempt from registration under section 3(a)(1) of the Act by 
rule 2, both located at N19 W23993 Ridgeview Parkway West, Waukesha, WI 
53188, and Alliant Energy Corporation (``Alliant''), a registered 
public-utility holding company and an indirect, partial owner of ATC 
LLC and ATCMI, located at 4902 N. Biltmore Lane, Madison, WI 53707 (ATC 
LLC and ATCMI together, ``Applicants''), have filed an application-
declaration, as amended (``Application''), with the Commission under 
sections 6(a), 7, 9(a), 10 and 12(b) of the Act and rule 54.
    Applicants seek authority to enter into financing and certain 
related transactions for the period beginning with an order in this 
matter through June 30, 2008 (``Authorization Period'').

I. Background and Summary of the Request

    ATC LLC is an electric transmission company, organized as limited 
liability company under Wisconsin law, with its sole purpose to plan, 
construct, operate, maintain and expand transmission facilities, to 
provide adequate and reliable transmission services and to support 
effective competition in energy markets. ATC LLC was formed after the 
State of Wisconsin enacted legislation in 1999, encouraging, among 
other things, formation of for-profit transmission companies (``Transco 
Legislation'').\1\
---------------------------------------------------------------------------

    \1\ Applicants current financing authorization was received by 
order dated July 1, 2004 (``2004 Omnibus Financing Order''), 
American Transmission Company, et al., Holding Co. Act Release No. 
27871. Applicants received certain additional financing authority by 
order dated April 11, 2005. American Transmission Company, et al., 
Holding Co. Act Release No. 27958.
---------------------------------------------------------------------------

    ATC LLC is operated and managed by ATCMI, a Wisconsin corporation 
that also owns a nominal interest in ATC LLC.\2\ A total of 28 
investor-owned and cooperative systems contributed some combinations of 
transmission assets or cash in the process of forming ATC LLC.\3\
---------------------------------------------------------------------------

    \2\ ATC LLC, as a Wisconsin limited liability company, may elect 
to be ``member-managed'' or ``manager-managed'' and ATC LLC elected 
to be managed by ATCMI. Applicants state that ATCMI is structured as 
a corporation, rather than a limited liability company, to 
facilitate access to the public markets, including any potential 
public offering of ATCMI.
    \3\ See also Alliant Energy Corp., note 2 above. One of the 
initial members was Alliant (through its subsidiaries Wisconsin 
Power and Light Company (``WPL'') and South Beloit Water, Gas and 
Electric Company (``South Beloit''). WPL and South Beloit are both 
subsidiary companies of Alliant. WPL contributed transmission assets 
to ATC LLC, but member units were issued for the assets to WPL's 
subsidiary, WPL Transco LLC. Applicants state that neither ATC LLC 
nor ATCMI are wholly owned subsidiaries of Alliant; they are only 
partially owned by Alliant. There are a number of other equity 
investors that each hold over 10% of ATC LLC. Applicants state, in 
addition, Alliant owns 20% of the voting securities of ATCMI. 
Applicants state that they finance on their own balance sheets 
without credit support from Alliant or any upstream owners and they 
maintain an arm's length relationship with Alliant. They also state 
that all information regarding Alliant in this Application comes 
from Alliant's public filings.
---------------------------------------------------------------------------

    Applicants propose, generally, to enter into the following 
financing transactions through the Authorization Period: \4\
---------------------------------------------------------------------------

    \4\ See generally, Alliant Energy Corporation, et al., Holding 
Co. Act Release No. 27331 (Dec. 29, 2000). Applicants state that ATC 
LLC is obliged, under the Transco Legislation, to construct, 
operate, maintain and expand its transmission facilities to provide 
adequate, reliable transmission service under an open-access 
transmission tariff. Applicants state that, effective February 1, 
2002, ATC LLC transferred operational control of its facilities to 
the Midwest Independent Transmission System Operator, Inc.
---------------------------------------------------------------------------

    (i) For ATC LLC, to issue unsecured short-term debt securities and 
secured and unsecured long-term debt securities in an aggregate amount 
of up to $1.6 billion at any one time outstanding during the 
Authorization Period;
    (ii) For ATC LLC, to issue member interests and, for ATCMI, to 
issue certain equity interests and preferred securities in an aggregate 
amount of up to $1.4 billion at any one time outstanding during the 
Authorization Period; \5\
---------------------------------------------------------------------------

    \5\ Applicants state that, as of March 31, 2005, approximately 
$555.5 million of member interests and Class A and Class B Shares 
were outstanding.
---------------------------------------------------------------------------

    (iii) For ATC LLC and ATCMI, to provide guarantees and other credit 
support in an aggregate amount not to exceed $200 million outstanding 
at any one time during the Authorization Period;
    (iv) For ATC LLC and ATCMI, to enter into various interest rate 
hedging transactions; and
    (v) For ATC LLC and ATCMI, to undertake transactions to extend the 
terms of or replace, refund or refinance existing obligations, as well 
as the issuance of new obligations in exchange for existing 
obligations, subject to the limits, terms and conditions that will be 
contained in the proposed authorization.

II. The Requested Authority

A. Financing Parameters
    Applicants state that they propose that proceeds from the sale of 
securities in external financing transactions will

[[Page 33540]]

be used for general corporate purposes including (i) The financing of 
capital expenditures of ATC LLC and ATCMI; (ii) the financing of 
working capital requirements of ATC LLC and ATCMI; (iii) the 
refinancing or acquisition, retirement or redemption of securities 
previously issued by ATC LLC or ATCMI; (iv) to meet unexpected 
contingencies, payment and timing differences, and cash requirements; 
and (v) other lawful purposes.
    Applicants also propose that the requested authorizations will be 
subject to the following restrictions, among other things: (i) The 
maturity, of short-term debt, will not exceed 364 days and, of long-
term debt, will not exceed fifty years; (ii) any short-or long-term 
debt security or credit facility issued will have the designation, 
aggregate principal amount, interest rate(s) (or methods of determining 
interest rates), terms of payment of interest, collateral, redemption 
provisions, non-refunding provisions, sinking fund terms, conversion or 
put terms, and other terms and conditions as Applicants might determine 
at the time of issuance, provided that, in no event, however, will (i) 
the effective cost of money on short-term debt exceed 300 basis points 
over the London Interbank Offered Rate for maturities of one year or 
less in effect at the time; or (ii) the interest rate on long-term debt 
exceed 500 basis points over the yield-to-maturity of a U.S. Treasury 
security having a remaining term approximately equal to the average 
life of the debt; and (iii) the underwriting fees, commissions or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution, of securities under this Application will not 
exceed 7% of the principal or total amount of the securities being 
issued.
    Applicants also represent that ATCMI and ATC LLC each will maintain 
common equity of at least 30% of its consolidated capitalization 
(common equity, preferred stock, long-term and short-term debt). 
Applicants further represent that, other than Class A and Class B 
Shares and Member Interests, no security may be issued in reliance upon 
the requested order, unless: (i) The security to be issued, if rated, 
is rated investment grade; (ii) all outstanding rated securities of the 
issuer are rated investment grade; and (iii) all outstanding rated 
securities of ATCMI are rated investment grade. Applicants state that 
they will notify the Commission within five (5) business days of 
becoming aware of any downgrade in the securities of any registered 
holding company in the Alliant system and that the notice shall include 
a statement of whether the downgrade will affect Applicants' access to 
capital markets.\6\ For purposes of this condition, a security will be 
considered 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. Applicants request 
that the Commission reserve jurisdiction over the issuance by them of 
any 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 the 
conditions set forth in clauses (i) through (iii) above are not 
satisfied.
---------------------------------------------------------------------------

    \6\ Applicants note that the 30% common equity requirement and 
other financial conditions applicable to the Alliant system 
generally are contained in Alliant Energy Corp., et al., Holding Co. 
Act Release No. 27930 (Dec. 28, 2004). See also note 4 above.
---------------------------------------------------------------------------

    Applicants also state that any convertible or equity-linked 
security they issue will be convertible into, or linked, only to 
securities that ATC LLC and ATCMI are otherwise authorized to issue, by 
rule or Commission order, and the amount of the securities will be 
counted against the authorized limits for securities obtained by this 
request.
B. The Proposed Transactions
    Applicants request, in addition to the transactions described 
specifically below, that they be authorized to undertake transactions 
to extend the terms of, or replace, refund or refinance existing 
obligations, as well as the issuance of new obligations in exchange for 
existing obligations, subject to the limits, terms and conditions that 
will be contained in the proposed authorization, during the 
Authorization Period.\7\
---------------------------------------------------------------------------

    \7\ See note 1 above. Applicants were authorized, generally, to 
engage in the following transactions through June 30, 2005: (i) ATC 
LLC, to issue debt securities in an aggregate amount not to exceed 
$710 million at any one time outstanding, provided that the 
aggregate amount of short-term debt issued not exceed $200 million; 
(ii) ATC LLC, to issue Member Interests and, ATCMI, to issue equity 
interests and preferred securities in an aggregate amount of $500 
million at any one time outstanding, provided that the aggregate 
amount of Member Interests and Class A and Class B shares 
outstanding at any one time not exceed $393 million plus the value 
at that time of the Member Interests and Class A and Class B Shares 
outstanding as of the date of the 2004 Omnibus Financing Order; 
(iii) ATC LLC and ATCMI, to provide guarantees and other credit 
support in an aggregate amount not to exceed $125 million 
outstanding at any one time; (iv) ATC LLC and ATCMI, to enter into 
various interest rate hedging transactions; (v) ATC LLC and ATCMI, 
to undertake transactions to extend the terms of, or replace, refund 
or refinance, existing obligations, as well as the issuance of new 
obligations in exchange for existing obligations; and (vii) by order 
dated April 11, 2005, ATC LLC, $100 million in additional long-term 
financing authority, to issue debt securities in an aggregate amount 
not to exceed $810 million at any one time outstanding, provided 
that the aggregate amount of short-term debt issued not exceed $200 
million at any one time outstanding.
---------------------------------------------------------------------------

B.1. Short- and Long-Term Debt Securities
    Applicants request that they be authorized to issue long- and 
short-term debt securities in an aggregate amount of up to $1.6 billion 
at any one time outstanding during the Authorization Period. 
Specifically, Applicants request that ATC LLC be authorized to issue 
unsecured short-term debt and that it include institutional borrowings, 
commercial paper and privately placed notes and that ATC LLC be 
authorized to sell commercial paper or privately placed notes 
(``commercial paper''), from time to time, in established commercial 
paper markets.\8\ Applicants also ask that ATC LLC be permitted to, 
without counting against the proposed limit, maintain back up lines of 
credit in connection with one or more commercial paper programs.\9\
---------------------------------------------------------------------------

    \8\ Applicants state that the commercial paper may be sold at a 
discount or bear interest at a rate per annum prevailing at the date 
of issuance for commercial paper of a similarly situated company.
    \9\ Applicants propose that the credit lines will not be counted 
against the financing limit, that they may be utilized to obtain 
letters of credit or may be borrowed against, from time to time, as 
they deem appropriate or necessary.
---------------------------------------------------------------------------

    Applicants request that ATC LLC be authorized to issue secured or 
unsecured long-term debt securities, including notes or debentures 
under one or more indentures, or long-term indebtedness under 
agreements with banks or other institutional lenders, directly or 
indirectly. In addition, Applicants request that ATC LLC be authorized 
to issue long-term debt that is convertible or exchangeable into forms 
of equity or indebtedness, or into other securities or assets.\10\
---------------------------------------------------------------------------

    \10\ Applicants state that specific terms of any borrowings will 
be determined by ATCMI at the time of issuance and will comply in 
all regards with the general parameters set forth in above.
---------------------------------------------------------------------------

B.2. Equity Interests
    Applicants also request authority, for ATC LLC, to issue Member 
Interests \11\ and, for ATCMI, to issue Class A and B Shares in an 
aggregate amount of up to of $1.4 billion at any one time outstanding 
during the Authorization Period. Applicants request, in addition,

[[Page 33541]]

that ATCMI be authorized to issue, to each new member of ATC LLC, Class 
A Shares in an amount that is proportional to that member's interest in 
ATC LLC.\12\ ATCMI also seeks authority to issue preferred stock or 
other types of preferred securities (including convertible preferred 
securities).\13\
---------------------------------------------------------------------------

    \11\ Applicants request that Member Interests be permitted in 
the form of member interests, preferred member interests or 
convertible member interests and that ATC LLC be permitted to issue 
Member Interests in exchange for cash or transfer of transmission 
facilities to ATC LLC by current or future members or to purchase 
facilities from members or others.
    \12\ Applicants anticipate that facilities purchased would be 
financed through the issuance of new debt and equity and that equity 
required for these purchases may be received from existing or new 
members.
    \13\ Applicants state that preferred stock or other types of 
preferred securities may be issued in one or more series with 
rights, preferences and priorities as may be designated in the 
instrument creating each series, as determined by ATCMI. In 
addition, the preferred securities may be redeemable or may be 
perpetual in duration. Applicants also state, among other things, 
that dividends or distributions on preferred securities will be made 
periodically and to the extent funds are legally available for such 
purpose, but may be made subject to terms which allow Applicants to 
defer dividend payments for specified periods, and that preferred 
securities may be convertible into forms of equity or debt, or into 
other securities or assets, with the dividend rate on any series of 
preferred securities not exceeding 500 basis points over the yield 
to maturity of a U.S. Treasury security having a remaining term 
equal to the term of that series of preferred securities at the time 
of issuance.
---------------------------------------------------------------------------

B.3. Guarantees
    Applicants request authorization to enter into guarantees, obtain 
letters of credit, enter into expense agreements, or otherwise provide 
credit support, of the obligations of their affiliates or members in 
the ordinary course of business, in an amount not to exceed $200 
million outstanding at any one time during the Authorization 
Period.\14\ Applicants state, as an example, guarantees may be given, 
for generation or distribution interconnections, to bolster third party 
financing for equipment that Applicants would ultimately own under an 
interconnection agreement or for distribution customers for purchase 
and installation of equipment attaching to the distribution system that 
would enhance operation of the transmission grid. Applicants also state 
that they would not make any upstream guarantees to Alliant or its 
subsidiary companies.
---------------------------------------------------------------------------

    \14\ Applicants state that certain of the guarantees may be for 
obligations not capable of exact quantification and that, in these 
cases, they will determine the exposure of the guarantee by 
appropriate means including estimations based on loss experience or 
projected potential payment amounts and in accordance with U.S. 
generally accepted accounting principles (``U.S. GAAP'') and/or 
sound financial practices and reevaluated periodically.
---------------------------------------------------------------------------

B.4. Interest Rate Hedging Transactions
    Applicants also seek authority to enter into interest rate hedging 
transactions with respect to existing indebtedness (``Interest Rate 
Hedges''),\15\ subject to certain limitations and restrictions, in 
order to reduce or manage interest rate cost. Applicants state that 
Interest Rate Hedges will only be entered into with 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 Investors Service, or Fitch (``Approved 
Counterparties''). Applicants state that the transactions will be for 
fixed periods and stated notional amounts and that fees, commissions 
and other amounts payable to the counterparty or exchange, as 
applicable (excluding, however, the swap or option payments). in 
connection with an Interest Rate Hedge will not exceed those generally 
obtainable in competitive markets for parties of comparable credit 
quality.
---------------------------------------------------------------------------

    \15\ Applicants state that the Interest Rate Hedges will involve 
the use of financial instruments commonly used in today's capital 
markets, such as interest rate 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 U.S. Treasury obligations.
---------------------------------------------------------------------------

    Applicants also seek authority to enter into interest rate hedging 
transactions with respect to anticipated debt offerings (``Anticipatory 
Hedges''), subject to certain limitations and restrictions. Applicants 
state that Anticipatory Hedges will only be entered into with Approved 
Counterparties and will be utilized to fix and/or limit the interest 
rate risk associated with any new issuance.\16\
---------------------------------------------------------------------------

    \16\ Applicants state that Anticpatory Hedges will be entered 
into through (i) a forward sale of exchange-traded U.S. Treasury 
futures contracts, U.S. Treasury obligations and/or a forward swap 
(each, ``Forward Sale''), (ii) the purchase of put options on U.S. 
Treasury obligations (``Put Options Purchase''), (iii) a Put Options 
Purchase in combination with the sale of call options on U.S. 
Treasury obligations (``Zero Cost 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, 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.
---------------------------------------------------------------------------

    Applicants state that they 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. 
Applicants also state that they will comply with existing and future 
financial disclosure requirements of the Financial Accounting Standards 
Board associated with hedging transactions and that these hedging 
transactions will qualify for hedge accounting treatment under U.S. 
GAAP. Applicants further state that they will not engage in speculative 
transactions; that all transactions in financial instruments and 
products will be matched to an underlying business requirement; and, 
that in no case will the notional principal amount of any hedging 
instrument exceed that of the underlying instrument and related 
interest rate exposure.

Exelon Corporation, et al. (70-10296)

    Exelon Corporation, a Pennsylvania Corporation (``Exelon''), Exelon 
Ventures Company (``Ventures''), Exelon Enterprises Company, LLC 
(``Enterprises''), Exelon Generation Company, LLC (``Exelon 
Generation'') and Exelon Energy Delivery Company, LLC (``Delivery''), 
each located at 10 South Dearborn Street, 37th Floor, Chicago, Illinois 
60603 filed an application-declaration (``Application'') under sections 
6, 7, 9, 10, 11, 12, 13 32, 33 and 34 of the Act and rules 42, 43, 52, 
53, 54, 58, 90 and 91 under the Act.
    Exelon and its Subsidiaries (as defined below) seek authority to 
continue to undertake activities related to Exelon's otherwise 
permitted investments including in exempt wholesale generators 
(``EWGs''), foreign utility companies (``FUCOs''), exempt 
telecommunications companies (``ETCs''), investments permitted under 
rule 58 (``Rule 58 Subsidiaries'') and investments in businesses 
engaged in energy related activities (``Non-U.S. Energy Related 
Subsidiaries'') that, but for being conducted outside the United 
States, would constitute rule 58 exempt activities.\17\
---------------------------------------------------------------------------

    \17\ On December 20, 2004, Exelon announced a proposed merger 
with Public Service Enterprise Group Incorporated (``PSEG''). Exelon 
filed on March 15, 2005 for Commission approval of that transaction 
in File No. 70-10294. Contingent on the Commission's approval and 
the closing of the transaction, PSEG's only public utility company, 
Public Service Electric and Gas Company (``PSE&G'') will be 
considered a ``Utility Subsidiary'' for purposes of this 
Application. Each of PSEG's non-utility subsidiaries will constitute 
a Non-Utility Subsidiary. Permitted Non-Utility Investments will 
include those investments authorized to be retained in the Exelon/
PSEG merger order, subject to any further orders of the Commission 
to the contrary. (``Utility Subsidiary'', ``Non-Utility 
Subsidiary'', and ``Permitted Non-Utility Investments'' are defined 
below.)
---------------------------------------------------------------------------

    Investments in EWGs, FUCOs, ETCs and Rule 58 Subsidiaries are 
permitted pursuant to the terms of the Act and rules 53 and 58. No 
authorization is

[[Page 33542]]

sought in the Application for investments in these entities in excess 
of what is authorized by statute or rule or existing Commission order 
applicable to Exelon. As described below, the Application seeks 
approval to continue to make investments in Non-U.S. Energy Related 
Subsidiaries through June 30, 2008 (``Authorization Period''). These 
permitted investments in EWGs, FUCOs, ETCs, Rule 58 Subsidiaries and 
(assuming continued Commission approval) Non-U.S. Energy Related 
Subsidiaries (whether existing on the date of the Application acquired 
after the date of the Application) are collectively referred to as 
``Permitted Non-Utility Investments.'' \18\
---------------------------------------------------------------------------

    \18\ ``Permitted Non-Utility Investments'' also includes those 
Non-Utility Subsidiaries that Exelon currently owns, those approved 
for retention by Holding Co. Act Release No. 27256 (Oct. 19, 2000) 
at the time Exelon became a registered holding company and Non-
Utility Subsidiaries acquired later.
---------------------------------------------------------------------------

    Exelon has four operating public utility company subsidiaries 
(``Utility Subsidiaries''): \19\
---------------------------------------------------------------------------

    \19\ On April 1, 2004, the Commission issued an order 
authorizing among other things, de-registration of Exelon Generation 
and PECO Energy Power Company (PEPCO) under Section 5(d) of the Act. 
The order states that PEPCO, previously an electric utility company 
and a registered holding company, along with its public utility 
subsidiary Susquehanna Power Company and Exelon Generation's public 
utility subsidiary, Susquehanna Electric Company were converted into 
EWGs. As a result, Exelon Generation and PEPCO no longer have any 
public utility company subsidiaries as of March 22, 2004. See Exelon 
Corporation, et al., Holding Co. Act Release No. 35-27830 (April 1, 
2004).
---------------------------------------------------------------------------

     PECO Energy Company (``PECO''), a Pennsylvania corporation 
and a public utility company engaged (i) in the transmission, 
distribution and sale of electricity and (ii) in the purchase and sale 
of natural gas in Pennsylvania;
     Commonwealth Edison Company (``ComEd''), an Illinois 
corporation and a public utility company engaged in the transmission, 
distribution and sale of electricity in Illinois;
     Exelon Generation, a Pennsylvania limited liability 
company and a public utility company engaged in the generation and sale 
of electricity in Pennsylvania, Illinois and elsewhere and also engaged 
in electricity and energy commodities marketing and brokering 
activities and development and ownership of EWGs; and
     Commonwealth Edison Company of Indiana (``ComEd 
Indiana''), an Indiana corporation that owns certain transmission 
facilities in Indiana. ComEd Indiana has no retail customers and only 
provides wholesale transmission services.\20\
---------------------------------------------------------------------------

    \20\ Exelon does not currently own any FUCOs. Exelon Generation 
may also invest in Rule 58 Subsidiaries and Non-U.S. Energy Related 
Subsidiaries.
---------------------------------------------------------------------------

    Exelon and its Subsidiaries request authority to engage, directly 
or through subsidiaries (``Subsidiaries'') \21\ in the following 
general matters through the Authorization Period, all more specifically 
described below: (i) To expend $500 million directly or through Non-
Utility Subsidiaries and Exelon Generation on preliminary development 
activities (``Development Activities'') and administrative and 
management activities (``Administrative Activities'') in each case 
relating to Permitted Non-Utility Investments, (ii) to invest directly 
or through Non-Utility Subsidiaries and Exelon Generation up to $500 
million to construct and acquire energy assets (``Energy Assets'') that 
are incidental and related to the business of an electricity and energy 
commodities marketer and broker, (iii) to acquire directly or through 
Subsidiaries the securities of one or more corporations, trusts, 
partnerships, limited liability companies or entities (``Intermediate 
Subsidiaries'') which would be created and organized exclusively for 
the purpose of acquiring, holding, and/or financing or facilitating the 
acquisition of Permitted Non-Utility Investments, (iv) to undertake 
internal reorganizations of then existing and permitted Subsidiaries 
and businesses, for example by moving a Permitted Non Utility 
Subsidiary to be a subsidiary of a different parent, and (v) to engage 
though Non-Utility Subsidiaries and Exelon Generation in energy related 
activities that, but for being conducted outside the United States, 
would constitute rule 58 exempt activities. No authority is sought in 
the Application for additional financing authority.
---------------------------------------------------------------------------

    \21\ Exelon states that for purpose of the Application the term 
``Subsidiaries'' shall also include other direct or indirect 
subsidiaries that Exelon may form or acquire after the date of the 
filing of the Application with the approval of the Commission, 
pursuant to the rule 58 exemption or pursuant to sections 32, 33, or 
34 of the Act or, to the extent approved in an order in this docket, 
as Non-U.S. Energy Related Subsidiaries.
---------------------------------------------------------------------------

    In connection with existing and future Permitted Non-Utility 
Investments, Exelon requests authority to engage directly and through 
Non-Utility Subsidiaries and Exelon Generation in Development 
Activities and Administrative Activities associated with such 
investments. Intermediate Subsidiaries may also engage in Development 
Activities and Administrative Activities. Development Activities and 
Administrative Activities include preliminary activities designed to 
result in a Permitted Non-Utility Investment such as an EWG or FUCO; 
however, such preliminary activities may not qualify for such status 
until the project is more fully developed. Development Activities and 
Administrative Activities will be provided ``at cost'' in accordance 
with section 13(b) and rules 90 and 91 under the Act.
    Development Activities will include due diligence and design 
review; market studies; preliminary engineering; site inspection; 
preparation of bid proposals, including, in connection with those 
activities, 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 
securities of other companies. Development Activities will be designed 
to eventually result in a Permitted Non-Utility Investment.
    Exelon proposes to expend directly or through Non-Utility 
Subsidiaries and Exelon Generation up to $500 million in the aggregate 
outstanding at any time during the Authorization Period on all such 
Development Activities.\22\ Exelon proposes the continued use of a 
``revolving fund'' concept for permitted Development Activities. To the 
extent a Subsidiary for which such amounts were expended for 
Development Activities becomes an EWG, FUCO, Rule 58 Subsidiary or Non-
U.S. Energy Related Subsidiary, the amount so expended will cease to be 
Development Activities and then be considered as part of the 
``aggregate investment'' in such entity and will then count against the 
limitation on such aggregate investment under rules 53 or 58, as 
modified by Commission order applicable to Exelon.
---------------------------------------------------------------------------

    \22\ Expenditures in EWGs, FUCOs, Rule 58 Subsidiaries and Non-
U.S. Energy Related Subsidiaries which count against the ``aggregate 
investment'' limitation of rule 53 or rule 58, as modified by 
Commission orders applicable to Exelon, will not count against the 
$500 million limitation. Under section 34 of the Act, there is no 
limitation on the amount Exelon may invest in ETCs.
---------------------------------------------------------------------------

    According to Exelon, the approval sought in the Application will 
not increase the authorized amount of aggregate investment in EWGs and 
FUCOs permitted in the Commission order dated April 1, 2004 (Holding 
Co.

[[Page 33543]]

Act Release No. 27830) or increase the permitted aggregate investment 
authorized under rule 58.
    Exelon requests authority to expend directly or through its Non-
Utility Subsidiaries and Exelon Generation up to $500 million to 
construct or acquire Energy Assets that are incidental and related to 
its business as an electricity and energy commodities marketer and 
broker, or to acquire the securities of one or more existing or new 
companies substantially all of whose physical properties consist or 
will consist of Energy Assets; provided that the acquisition and 
ownership of such Energy Assets would not cause any Subsidiary to be or 
become an ``electric utility company'' or ``gas utility company,'' as 
defined in sections 2(a)(3) and 2(a)(4) of the Act. Energy Assets will 
not constitute additional investments in EWGs or FUCOs.
    Exelon proposes to create and acquire directly or indirectly 
through Subsidiaries the securities of one or more Intermediate 
Subsidiaries. Intermediate Subsidiaries may be corporations, trusts, 
partnerships, limited liability companies or other entities. 
Intermediate Subsidiaries will be organized exclusively for the purpose 
of acquiring and holding the securities of, or financing or 
facilitating Exelon's investments in, other direct or indirect 
Permitted Non-Utility Investments. Intermediate Subsidiaries that are 
subsidiaries of Non-Utility Subsidiaries or Exelon Generation may also 
engage in Development Activities and Administrative Activities.
    Exelon and its Subsidiaries state that there are several legal and 
business reasons for the use of Intermediate Subsidiaries in connection 
with making investments in Permitted Non-Utility Investments. For 
example, the formation and acquisition of limited purpose subsidiaries 
is often necessary or desirable to facilitate financing the acquisition 
and ownership of a FUCO, an EWG or another non-utility enterprise. 
Furthermore, the laws of some foreign countries may require that the 
bidder in a privatization program be organized in that country. In such 
cases, it would be necessary to form a foreign Non-Utility Subsidiary 
as the entity (or participant in the entity) that submits the bid or 
other proposal. In addition, the interposition of one or more 
Intermediate Subsidiaries may allow Exelon to defer the repatriation of 
foreign source income, or to take full advantage of favorable tax 
treaties among foreign countries, or otherwise to secure favorable U.S. 
and foreign tax treatment that would not otherwise be available. In 
particular, use of Intermediate Subsidiaries can achieve tax efficient 
corporate structures which will result in minimizing state or federal 
taxes for Exelon or its Subsidiaries.
    Exelon and its Subsidiaries propose that an Intermediate Subsidiary 
may be organized, among other things: (1) In order to facilitate the 
making of bids or proposals to develop or acquire an interest in any 
EWG, FUCO, ETC, or other non-utility company which, upon acquisition, 
would qualify as a Rule 58 Subsidiary or Non-U.S. Energy Related 
Subsidiary; (2) after the award of such a bid proposal, in order to 
facilitate closing on the purchase or financing of such acquired 
company; (3) at any time subsequent to the consummation of an 
acquisition of an interest in any such company in order, among other 
things, to effect an adjustment in the respective ownership interests 
in such business held by the Exelon System and non-affiliated 
investors; (4) to facilitate the sale of ownership interests in one or 
more acquired Permitted Non-Utility Investments; (5) to comply with 
applicable laws of foreign jurisdictions limiting or otherwise relating 
to the ownership of domestic companies by foreign nationals; (6) as a 
part of tax planning in order to limit Exelon's exposure to U.S. and 
foreign taxes; (7) to further insulate Exelon and the Utility 
Subsidiaries from operational or other business risks that may be 
associated with investments in non-utility companies; or (8) for other 
lawful business purposes.
    Exelon and its Subsidiaries further state that investments in 
Intermediate Subsidiaries may take the form of any combination of the 
following: (1) Purchases of capital shares, partnership interests, 
member interests in limited liability companies, trust certificates or 
other forms of voting or non-voting equity interests; (2) capital 
contributions; (3) open account advances without interest; (4) loans; 
and (5) guarantees issued, provided or arranged in respect of the 
securities or other obligations of any Intermediate Subsidiaries.
    Funds for any direct or indirect investment in any Intermediate 
Subsidiary will be derived from Exelon's available funds. No authority 
is sought for additional financing authority.
    To the extent that Exelon provides funds directly or indirectly to 
an Intermediate Subsidiary which are used for the purpose of making an 
investment in any EWG or FUCO or a Rule 58 Subsidiary or Non-U.S. 
Energy Related Subsidiary, the amount of such funds will be included in 
Exelon's ``aggregate investment'' in such entities, as calculated in 
accordance with rule 53 or rule 58, as applicable and as modified by 
Commission order applicable to Exelon.
    The authority requested for Intermediate Subsidiaries is intended 
to allow for the corporate structuring alternatives outlined above and 
will not allow any increase in aggregate investment in EWGs, FUCOs, 
Rule 58 Subsidiaries, approved Non-U.S. Energy Related Subsidiaries or 
any other business subject to an investment limitation under the Act.
    Exelon currently engages directly or through Subsidiaries in 
certain non-utility businesses. Exelon seeks authority to engage in 
internal corporate reorganizations to better organize its current and 
future Non-Utility Subsidiaries and investments.
    Exelon and Subsidiaries request authority, to the extent needed, to 
sell or to cause any Subsidiary to sell or otherwise transfer (i) such 
businesses, (ii) the securities of current Subsidiaries engaged in some 
or all of these businesses or (iii) investments which do not involve a 
Subsidiary (i.e. less than 10% voting interest) to a different 
Subsidiary, and, to the extent approval is required, Exelon requests, 
on behalf of the Subsidiaries, authority to acquire the assets of such 
businesses, Subsidiaries or other then existing investment interests. 
Alternatively, transfers of such securities or assets may be affected 
by share exchanges, share distributions, dissolutions or dividends 
followed by contribution of such securities or assets to the receiving 
entity. In the future, Exelon may determine to transfer securities or 
the assets of Non-Utility Subsidiaries to other Subsidiaries as 
described in the preceding sentence. Exelon may also liquidate or 
dissolve Non-Utility Subsidiaries or merge a Non-Utility Subsidiary 
into any other Subsidiary.
    According to Exelon and its Subsidiaries, such internal 
transactions would be undertaken in order to eliminate corporate 
complexities, to combine related business segments for staffing and 
management purposes, to eliminate administrative costs, to achieve tax 
savings, or for other ordinary and necessary business purposes. Exelon 
requests authority to engage in such transactions, to the extent that 
they are not exempt under the Act and rules under the Act, through the 
Authorization Period.
    Exelon and its Subsidiaries state that the transactions proposed 
under this heading will not involve the sale or other disposition of 
any utility assets of the Utility Subsidiaries and will not involve any 
change in the corporate

[[Page 33544]]

ownership, or involve any restructuring of, the Utility Subsidiaries. 
The approval sought does not extend to the acquisitions of any new 
businesses or activities.
    Exelon requests authority to acquire directly or indirectly Non-
U.S. Energy Related Subsidiaries. Exelon believes the following list of 
energy related activities are substantially identical to activities 
that have been approved for other registered holding companies outside 
the United States. Approval is sought for Non-U.S. Energy Related 
Subsidiaries to engage in sales of the following goods and services 
outside the United States:
     Energy Management Services. Energy management services, 
including the marketing, sale, installation, operation and maintenance 
of various products and services related to energy management and 
demand-side management, including energy and efficiency audits; meter 
data management, facility design and process control and enhancements; 
construction, installation, testing, sales and maintenance of (and 
training client personnel to operate) energy conservation equipment; 
design, implementation, monitoring and evaluation of energy 
conservation programs; development and review of architectural, 
structural and engineering drawings for energy efficiencies, design and 
specification of energy consuming equipment and general advice on 
programs; the design, construction, installation, testing, sales, 
operation and maintenance of new and retrofit heating, ventilating, and 
air conditioning (``HVAC''), electrical and power systems, alarm, 
security, access control and warning systems, motors, pumps, lighting, 
water, water-purification and plumbing systems, building automation and 
temperature controls, installation and maintenance of refrigeration 
systems, building infrastructure wiring supporting voice, video, data 
and controls networks, environmental monitoring and control, 
ventilation system calibration and maintenance, piping and fire 
protection systems, and design, sale, engineering, installation, 
operation and maintenance of emergency or distributed power generation 
systems, and related structures, in connection with energy-related 
needs; and the provision of services and products designed to prevent, 
control, or mitigate adverse effects of power disturbances on a 
customer's electrical systems.
     Consulting Services. Consulting services with respect to 
energy- and gas-related matters for associate and nonassociate 
companies, as well as for individuals. Such consulting services would 
include technical and consulting services involving technology 
assessments, power factor correction and harmonics mitigation analysis, 
meter reading and repair, rate schedule design and analysis, 
environmental services, engineering services, billing services 
(including consolidation or centralized billing, bill disaggregation 
tools and bill inserts), risk management services, communications 
systems, information systems/data processing, system planning, 
strategic planning, finance, general management consulting including 
training activities, feasibility studies, and other similar related 
services.
     Energy Marketing. The brokering and marketing of 
electricity, natural gas and other energy commodities, as well as 
providing incidental related services, such as fuel management, storage 
and procurement.
    Exelon and its Subsidiaries state that consistent with existing 
precedent, Exelon requests authority to conduct Energy Management 
Services and Consulting Services anywhere outside the United States. 
Also consistent with precedent, Exelon requests authority to conduct 
Energy Marketing activities in Canada and Mexico. Furthermore, Exelon 
requests that the Commission reserve jurisdiction over the conduct of 
Energy Marketing activities in any other country pending completion of 
the record.

The Southern Company, et al. (70-10293)

    The Southern Company (``Southern''), a registered holding company, 
and its wholly owned public-utility company subsidiary Southern Power 
Company (``Southern Power''), both at 270 Peachtree Street, NW., 
Atlanta, GA 30303, have filed an application-declaration 
(``Application'') under sections 6(a), 7, 9(a), 10, 12(b) and 12(f) of 
the Act and rules 43, 44, 45 and 54 under the Act.

I. Background

    By order dated December 27, 2000 (HCAR No. 27322, ``Prior Order''), 
the Commission authorized the formation of Southern Power. Southern 
Power is an electric utility company that constructs, owns and manages 
electric generation facilities and sells the output, under long-term 
contracts, to affiliated public-utility companies and unaffiliated 
wholesale purchasers. Accordingly, Southern Power is subject to 
regulation by the Federal Energy Regulatory Commission but is not 
regulated by any State commission. Currently, the securities issued by 
Southern Power are rated as follows: unsecured debt: rated Baa1 by 
Moody's, BBB+ by Standard & Poors (``S&P''), and BBB+ by Fitch; and 
commercial paper: rated P-2 by Moody's, A-2 by S&P, and F-2 by Fitch.
    By the Prior Order, the Commission also authorized Southern to fund 
Southern Power in an aggregate amount not to exceed $1.7 million, to 
obtain independent financing in an aggregate amount not to exceed $2.5 
billion, the proceeds of which would be used to, among other things, 
invest in exempt wholesale generators (``EWGs''). As discussed below, 
by the Application, Southern and Southern Power (collectively, 
``Applicants'') request a modification and extension of Southern 
Power's financing authority.

II. Requests for Authority

    As discussed below, Applicants seek authority for Southern to 
provide financial support to Southern Power, its public-utility company 
subsidiary, and for Southern Power to issue securities and enter into 
certain financial transactions on behalf of itself and its 
subsidiaries.
A. Support by Southern
    Applicants request authority through June 30, 2007 (``Authorization 
Period'') for Southern to: (1) Purchase common stock and debt 
securities issued by Southern Power; (2) purchase from or contribute to 
Southern Power various equity interests; (3) issue guarantees to 
support securities and other obligations of Southern Power, and 
provision of performance guarantees (collectively, ``Southern 
Guarantees'') to or for the benefit of Southern Power. The proceeds 
from these financings, including the Southern Guarantees, would be used 
to finance Southern Power's operations, including its acquisition, 
construction and operation of power generating facilities and 
investment in energy-related companies. The aggregate amount of 
financing provided by Southern to Southern Power in connection with 
these transactions would not exceed $1.2 billion (``Southern Power 
Aggregate Financing Limit'').
    The term of Southern's loans to Southern Power would not exceed 
seven years, and the interest on those loans would be designed to 
return to Southern its effective cost of capital.
    Southern Guarantees may take the form of Southern agreeing to 
guarantee, to undertake reimbursement obligations, to assume 
liabilities or to assume other obligations with respect to, or to act 
as surety on, bonds, letters of credit, evidences of indebtedness, 
equity commitments, performance and other

[[Page 33545]]

obligations undertaken by Southern Power. The terms and conditions of 
the Southern Guarantees would be established through arms-length 
negotiations based upon current market conditions. All Southern 
Guarantees issued would be without recourse to any of Southern's other 
subsidiaries. In no event would the effective cost of capital on any 
Southern Guarantee of debt of Southern Power exceed 500 basis points 
over a U.S. Treasury security having a term and an amount equal to the 
guaranteed amount.
B. Southern Power Financings
1. Guarantees
    Applicants request authority for Southern Power to provide 
guarantees and issue guarantees on behalf of its EWG and energy-related 
company subsidiaries (collectively, ``Exempt Subsidiaries''). Southern 
Power seeks the flexibility to hold its interests in and provide 
support for Exempt Subsidiaries indirectly. Therefore, Applicants also 
request authority: (1) For Southern Power to acquire interests in 
special-purpose subsidiaries (``Intermediate Companies'') organized to 
acquire and hold the securities of and finance the operation of Exempt 
Subsidiaries and engage in development activities; \23\ and (2) for the 
Intermediate Companies to: (a) Issue and sell to nonaffiliates debt 
securities that would have the same terms as the Long-Term Debt, Short-
Term Debt, Term Loan Notes and Commercial Paper proposed to be issued 
and sold by Southern Power (all described below); and (b) issue 
guarantees and enter into guarantee arrangements on behalf of Exempt 
Subsidiaries. The proposed debt securities to be issued by Intermediate 
Companies would be counted toward the Southern Power Aggregate 
Financing Limit. The total exposure of Southern Power and the 
Intermediate Companies under the guarantees and guarantee arrangements 
would not exceed $500 million at any one time (``Southern Power 
Guarantee Limit'').\24\
---------------------------------------------------------------------------

    \23\ Development activities would include project due diligence 
and design review; market studies; site inspection; preparation of 
bid proposals, including, related postings of bid bonds, cash 
deposits or the like; application for requirement permits and/or 
regulatory approvals; acquisitions 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 ``host'' users, fuels 
suppliers and other project contractors; negotiation of financing 
commitments with lenders and equity co-investors; and other 
preliminary development activities as may be required in preparation 
for the acquisition or financing of a project.
    \24\ Those guarantees would not be counted against the Southern 
Power Aggregate Financing Limit.
---------------------------------------------------------------------------

2. Other Securities
    Further, Applicants request authority through the Authorization 
Period for Southern Power to obtain financing through and in connection 
with the issuance and sale of securities. These financings would be 
counted toward and would not exceed the Southern Power Aggregate 
Financing Limit.
a. Common Stock
    Applicants request authority for Southern Power to issue and sell 
directly, and for Southern to acquire, shares of Southern Power's $0.01 
par value capital stock (``Common Stock'') to Southern. Southern would 
not pay less than the par value of the Common Stock as determined by 
Southern Power's board of directors.
b. Preferred Securities
    Applicants request authority for Southern Power to issue and sell 
preferred securities, directly or indirectly, to nonaffiliates. 
Southern Power may issue preferred securities indirectly through one or 
more special purpose financing subsidiaries (``Financing 
Subsidiaries''), and Applicants request authority for Southern Power to 
acquire Financing Subsidiaries for this purpose.
    Preferred securities would be issued in one or more series with 
such rights, preferences and priorities as may be designated in the 
instrument creating each such series, as determined by the board of 
directors of Southern Power. Preferred securities would have maturities 
of more than one year. Dividends or distributions on preferred 
securities would be made periodically and to the extent funds are 
legally available for such purpose, but might be made subject to the 
terms that would allow the issuer to defer dividend payments for 
specified periods.
    A Financing Subsidiary would lend, dividend or otherwise transfer 
to Southern Power, the proceeds of the preferred securities it issues, 
together with the equity contributed to the Financing Subsidiary. In 
turn, Southern Power would issue guarantees related to: (1) Payments of 
dividends or distributions on the preferred securities of any Financing 
Subsidiary if and to the extent that the Financing Subsidiary has funds 
legally available for this purpose; (2) payments to holders of the 
preferred securities of amounts due upon liquidation of the Financing 
Subsidiary or redemption of its preferred securities; and (3) certain 
additional amounts that may be payable in respect of the preferred 
securities (e.g., trustee's fees and expenses). Applicants request 
authority for Southern Power to issue these guarantees, which would be 
counted against the Southern Power Aggregate Financing Limit.
c. Preferred Stock
    Applicants request authority for Southern Power to issue and sell 
directly preferred stock or preference stock (collectively, ``Preferred 
Stock'') to nonaffiliates. Preferred Stock would have a specified par 
or stated value per share and, in accordance with applicable State law, 
would have such voting powers (if any), designations, preferences, 
rights and qualifications, limitations or restrictions as stated and 
expressed in the resolution or resolutions adopted by the board of 
directors of Southern Power.
d. Long-Term Debt
    Applicants request authority for Southern Power to issue and sell 
notes with maturities of between one and fifty years (``Long-Term 
Debt''). Long-Term Debt would be issued and sold to both nonaffiliated 
investors and Southern. Applicants request authority for Southern to 
acquire Long-Term Debt. These notes might be either senior or 
subordinated obligations, might be convertible or exchangeable into 
preferred stock, might have the benefit of a sinking fund and might be 
insured by an insurance policy that guarantees payment of the principal 
and interest.
e. Other Debt Securities
    Applicants request authority for Southern Power to issue and sell 
directly unsecured promissory notes with a term of one year or less 
(``Short-Term Debt''), unsecured promissory notes with terms of more 
than one year (``Term Loan Notes'') and commercial paper to 
nonaffiliated commercial lending institutions and/or to Southern. 
Correspondingly, Applicants also request authority for Southern to 
acquire Short-Term Debt, Term Loan Notes and Southern Power's 
commercial paper. Commercial paper would be issued in the form of 
promissory notes with varying maturities not to exceed one year.\25\
---------------------------------------------------------------------------

    \25\ Maturities for these securities might be subject to 
extension to a final maturity not to exceed 390 days.
---------------------------------------------------------------------------

f. Revenue Bond Arrangements
    Applicants request authority for Southern Power to enter into loan 
agreements (``Loan Agreements'') and installment sale agreements 
(``Installment Sale Agreements''). The Loan Agreements and/or 
Installment Sale Agreements would be entered into

[[Page 33546]]

in connection with one or more counties or other appropriate public 
bodies or instrumentalities (collectively, ``Counties'') issuing 
revenue bonds (``Revenue Bonds''), the proceeds of which would be used 
to either finance the costs of acquiring, constructing and/or equipping 
new sewage and solid waste disposal facilities (``Projects'') at 
certain of Southern Power's generating plants or refinance the debt 
previously incurred to acquire, construct and/or equip Southern's 
plants with Projects.
    Revenue Bonds would be sold by a County under arrangements with one 
or more purchasers, placement agents or underwriters. Southern Power 
may not be party to the purchase, placement or underwriting 
arrangements for the Revenue Bonds, but those such arrangements would 
provide that the terms of the Revenue Bonds and their sale by the 
County shall be satisfactory to Southern Power. The interest rate borne 
by the Revenue Bonds would be approved by the County, and would be 
either a fixed rate that may be converted to a rate that would 
fluctuate or a fluctuating rate that may be convertible to a fixed 
rate. The intent is that interest on the Revenue Bonds would generally 
be excludable from gross income for Federal income tax purposes, and 
Southern Power expects that, at the time of issuance, the interest 
rates on obligations, the interest on which is tax exempt, would be 
lower than the rates on similar obligations of comparable quality, 
interest on which is fully subject to Federal income taxation.
    Under the Loan Agreement, the County would loan to Southern Power 
the proceeds of the sale of the County's Revenue Bonds, and Southern 
Power may issue a non-negotiable promissory note (``Note''). Applicants 
request authority for Southern Power to issue and sell Notes in 
connection with Loan Agreements. Under the Installment Sale Agreement, 
the County would undertake to purchase and sell the related Project to 
Southern Power. The installment sale structure may be used if required 
by applicable state law or if it affords transactional advantages to 
Southern Power.
    Under either structure, the proceeds of the loan or purchase would 
be deposited with a trustee (``Trustee'') under an indenture agreement 
between the County and the Trustee (``Trust Indenture'') that provides 
for Revenue Bonds to be issued and secured. The Note, the Loan 
Agreement or the Installment Sale Agreement (as the case may be) would 
provide for payments to be made by Southern Power at times and in 
amounts that would correspond to the payments with respect to the 
principal of, premium, if any, and interest on the related Revenue 
Bonds whenever and in whatever manner the same shall become due, 
whether at stated maturity, upon redemption or declaration or 
otherwise.
    The Loan Agreement or the Installment Sale Agreement would provide 
for the assignment to the Trustee of the County's interest in, and of 
the monies receivable by the County under, the agreement or the Note. 
Both the Loan Agreement and the Installment Sale Agreement would 
obligate Southern Power to pay the fees and charges of the Trustee, and 
may allow Southern Power, at any time so long as it is not in default, 
prepay the amount due under the Loan Agreement or the Note, or the 
Installment Sale Agreement, in whole or in part, such payment to be 
sufficient to redeem or purchase outstanding Revenue Bonds in the 
manner and to the extent provided in the Trust Indenture.
    The Trust Indenture would provide that the Revenue Bonds may be 
redeemable on or after a specified date, in whole or in part at 
Southern Power's option, and may require the payment of a premium at a 
specified percentage of the principal amount, which may decline 
annually. The Trust Indenture would also provide that the Revenue Bonds 
would be redeemable in whole, at Southern Power's option, at the 
principal amount thereof plus accrued interest (but without premium) in 
certain other cases of undue burdens or excessive liabilities imposed 
with respect to the related Project, its destruction or damage beyond 
practicable or desirable repairability or condemnation or taking by 
eminent domain, or if operation of the related facility is enjoined and 
Southern Power determines to discontinue operation of it. The Revenue 
Bonds would mature not more than 40 years from the first day of the 
month in which they are initially issued and, if it is deemed advisable 
for marketability purposes, may be entitled to the benefit of a 
mandatory redemption sinking fund calculated to retire a portion of the 
aggregate principal amount of the Revenue Bonds prior to maturity.
    The Trust Indenture may give the holders of the Revenue Bonds the 
right, during such time as the Revenue Bonds bear interest at a 
fluctuating rate or otherwise, to require that the Revenue Bonds be 
repurchased from time to time and arrangements be made for the 
remarketing of the Revenue Bonds through a remarketing agent. Southern 
Power also may be required to purchase the Revenue Bonds, or the 
Revenue Bonds may be subject to mandatory redemption, at any time if 
the interest thereon is determined to be subject to federal income tax. 
The purchase price payable by or on behalf of Southern Power in respect 
of Revenue Bonds tendered for purchase at the option of the holders 
thereof would not exceed 100% of the principal amount thereof, plus 
accrued interest to the purchase date.
    In the event of taxability, interest on the Revenue Bonds may be 
effectively converted to a higher variable or fixed rate, and Southern 
Power may be required to indemnify the bondholders against any other 
additions to interest, penalties and additions to tax.
    To secure a better credit rating, Southern Power may cause an 
irrevocable letter of credit or other credit facility (``Letter of 
Credit'') of a bank or other financial institution (``Bank'') to be 
delivered to the Trustee.\26\ The Letter of Credit would oblige the 
Bank to pay to the Trustee, upon request, up to an amount necessary in 
order to pay principal of and accrued interest on the Revenue Bonds 
when due. Under a separate agreement with the Bank, Southern Power 
would agree to pay to the Bank all amounts that would be drawn under 
the Letter of Credit, as well as certain fees and expenses. In the 
event that the Letter of Credit is delivered to the Trustee, Southern 
Power may also convey to the County a subordinated security interest in 
the Project or other property of Southern Power as further security for 
Southern Power's obligations under the Agreement and the Note, and the 
subordinated security interest would be assigned by the County to the 
Trustee.
---------------------------------------------------------------------------

    \26\ Delivery of the Letter of Credit would be designed to 
obtain for the Revenue Bonds a credit rating equivalent to the 
Bank's.
---------------------------------------------------------------------------

    As an alternative to, or in conjunction with, securing its 
obligations under the Agreement and Note as above described, and to 
obtain a ``AAA'' rating for the Revenue Bonds by one or more nationally 
recognized securities rating services, Southern Power may cause an 
insurance company to issue a policy of insurance guaranteeing the 
payment when due of the principal of and interest on such series of the 
Revenue Bonds. The insurance policy would extend for the term of the 
covered Revenue Bonds and would be non-cancelable by the insurance 
company for any reason. Southern Power's payment of the premium with 
respect to the insurance policy could be in various forms, including a 
non-refundable, one-time insurance premium paid at the time the 
policies are issued, and/or an

[[Page 33547]]

additional interest percentage to be paid to the insurer in correlation 
with regular interest payments. In addition, Southern Power may be 
obligated to make payments of certain specified amounts into separate 
escrow funds and to increase the amounts on deposit in such funds under 
certain circumstances. The amount of each escrow fund would be payable 
to the insurance company as indemnity for any amounts paid pursuant to 
the related insurance policy in respect of principal of or interest on 
the related Revenue Bonds.
    The effective cost of capital to Southern Power on any series of 
the Revenue Bonds would not exceed competitive market rates available 
at the time of issuance of securities having the same or reasonably 
similar terms and conditions issued by companies of reasonably 
comparable credit quality; provided that in no event would the 
effective cost of capital exceed 200 basis points over U.S. Treasury 
securities having comparable maturities.
    The premium (if any) payable upon the redemption of any Revenue 
Bonds at the option of Southern Power would not exceed the greater of: 
(1) 5% of the principal amount of the Revenue Bonds so to be redeemed; 
or (2) a percentage of such principal amount equal to the rate of 
interest per annum borne by such Revenue Bonds. Any Letter of Credit 
issued as security for the payment of Revenue Bonds would be issued 
pursuant to a reimbursement agreement between Southern Power and the 
financial institution issuing the Letter of Credit (``Reimbursement 
Agreement''). Under the Reimbursement Agreement, Southern Power would 
agree to pay or cause to be paid to the financial institution, on each 
date that any amount is drawn under such institution's Letter of 
Credit, an amount equal to the amount of the drawing, either by cash or 
by a borrowing from the institution under the Reimbursement Agreement. 
Those borrowings may have a term of up to 10 years and would bear 
interest at the financial institution's prevailing rate offered to 
corporate borrowers of similar quality which would not exceed: (1) The 
London Interbank Offered Rate plus up to 3%; (2) the financial 
institution's certificate of deposit rate plus up to 2\3/4\%; or (3) a 
rate not to exceed the prime rate plus 1%, to be established by 
agreement with the financial institution prior to the borrowing.
C. Financing Parameters
    The following general terms would be applicable, as appropriate, to 
the proposed financing activities.
1. Effective Cost of Money
    The effective cost of capital on Long-Term Debt, preferred stock, 
preferred securities, Short-term and Term Loan Notes and Commercial 
Paper would not exceed competitive market rates available at the time 
of issuance for securities having the same or reasonably similar terms 
and conditions issued by similar companies of reasonably comparable 
credit quality. In no event would the effective cost of capital: (1) On 
any series of Long-Term Debt and any Term Loan Note with a maturity of 
greater than one year exceed 500 basis points over a U.S. treasury 
security having a remaining term equal to the term of such security; 
(2) on any series of Short-Term Debt or Term Loan Note with maturity of 
one year or less or Commercial Paper exceed 300 basis points over the 
London Interbank Offered Rate for maturities of less than one year; and 
(3) on any series of Preferred Stock or Preferred Securities exceed 500 
basis points over a U.S. Treasury security having a remaining term 
equal to the term of such series.
2. Issuance Expenses
    The underwriting fees, commissions or other similar remuneration 
paid in connection with the non-competitive issue, sale or distribution 
of Long-Term Debt and Short-term and Term Loan Notes would not exceed 
6% of the principal or total amount of the securities being issued. For 
preferred stock and preferred securities those expenses would not 
exceed 6% of the principal or total amount of the securities being 
issued. No commission or fee would be payable in connection with the 
issuance and sale of Commercial Paper, except for a commission, payable 
to the dealer, not to exceed one-eighth of one percent per annum in 
respect of Commercial Paper sold through the dealer as principal.
3. Common Equity Ratio
    At all times during the Authorization Period, Southern and Southern 
Power represent that they would each maintain a common equity ratio of 
at least thirty percent of its consolidated capitalization as reflected 
in its most recent Form 10-K or Form 10-Q filed with the Commission 
adjusted to reflect changes in capitalization since the balance sheet 
date.\27\
---------------------------------------------------------------------------

    \27\ Consolidated capitalization is defined to include, where 
applicable, all common-stock equity (comprised of common stock, 
additional paid-in capital, retained earnings, treasury stock and/or 
other comprehensive income or loss), preferred stock, preferred 
securities, equity-linked securities, long-term debt, short-term 
debt, current maturities and/or minority interests.
---------------------------------------------------------------------------

4. Investment Grade Ratings
    Southern and Southern Power further represent that no guarantees or 
securities, other than Commercial Paper or short-term bank debt (with 
maturity of one year or less), would be issued in reliance upon the 
authorization granted by the Commission in connection with this 
application, unless upon original issuance: (1) The security to be 
issued, if rated, is rated investment grade; and (2) all outstanding 
securities of Applicants that are rated are rated investment grade. For 
purposes of this provision, 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 
1934 Act. Applicants also request that the Commission reserve 
jurisdiction over the issuance of any guarantees or securities that do 
not satisfy these conditions.

Pepco Holdings, Inc. et al (70-10286)

    Pepco Holdings, Inc. (``PHI''), 701 Ninth Street, NW., Washington, 
DC 20068, a registered public utility holding company, PHI's direct and 
indirect electric and gas public utility subsidiaries: Potomac Electric 
Power Company (``Pepco''), 701 Ninth Street, NW., Washington, DC 20068, 
Atlantic City Electric Company (``ACE'') and Delmarva Power and Light 
Company (``DPL''), 800 King Street, Wilmington, DE 19899; PHI's 
registered public utility holding company subsidiary, Conectiv, 800 
King Street, Wilmington, DE 19899; PHI's direct and indirect nonutility 
subsidiary holding companies Potomac Capital Investment Corporation 
(``PCIC''), 701 Ninth Street, NW., Washington, DC 20068, Pepco Energy 
Services, Inc. (``PES'') 1300 North 17th Street, Suite 1600, Arlington, 
VA 22209, PHI Service Company (``PHISCo'') and Conectiv Energy Holding 
Company (``Conectiv Holding''), 800 King Street, Wilmington, DE 19899 
and PHI's other direct and indirect nonutility subsidiaries \28\ 
(``Nonutility Subsidiaries,'' and together, ``Applicants'') have filed 
an application-declaration (``Application'') with the Commission under 
sections 6(a), 7, 9(a), 10, 12(b), 12(c), 12(f) and 13 of the Act and 
rules 43, 45, 46, 54, 90 and 91 under the Act.
---------------------------------------------------------------------------

    \28\ See S.E.C. File No. 70-10286 for a complete list of the 
companies listed as ``Applicants'' to this transaction.

---------------------------------------------------------------------------

[[Page 33548]]

I. Background

    On August 1, 2002, Pepco and Conectiv were involved in merger 
transactions that resulted in the formation of PHI (``Merger''). 
Conectiv was a registered holding company under the Act prior to the 
Merger and continues as such. By order dated July 31, 2002 (HCAR No. 
27557) (``Financing Order''), the Commission authorized PHI and certain 
of its subsidiaries, among other things, to perform financing 
activities through the period ending June 30, 2005.
    In this Application Applicants request authorization to engage in 
various transactions described below through June 30, 2008 
(``Authorization Period'').

II. Description of the Parties

A. PHI
    The principal direct subsidiaries of PHI are:
    1. Pepco, a public utility company engaged in the transmission and 
distribution of electricity in Washington, DC and major portions of 
Prince George's and Montgomery counties in suburban Maryland;
    2. PCIC, a company which manages a portfolio of financial 
investments, primarily energy leveraged leases;
    3. PES, a competitive energy business providing non-regulated 
generation, marketing and supply of electricity and gas and related 
energy management services and
    4. PHISCo, a service company established in accordance with section 
13(b) of the Act and
    5. Conectiv, a registered holding company under the Act.
    The principal direct subsidiaries of Conectiv are:
     ACE, a public utility company engaged in the generation, 
transmission and distribution of electricity in southern New Jersey;
     DPL, a public utility company engaged in the transmission 
and distribution of electricity in Delaware and portions of Maryland 
and Virginia and the distribution of gas in northern Delaware and
     Conectiv Energy Holding Company, an intermediate holding 
company that holds interests in nonutilities involved in energy and 
related projects (including exempt projects) or that engage in energy 
trading activities.
    Pepco, ACE and DPL are referred to as the ``Utility Subsidiaries.'' 
PHI subsidiaries, other than the Utility Subsidiaries, are referred to 
as the ``Nonutility Subsidiaries.'' The Utility Subsidiaries and the 
Nonutility Subsidiaries are collectively referred to as the 
``Subsidiaries.''

III. Use of Proceeds

    The proceeds from the sale of securities will be used for general 
corporate purposes, including the financing, in part, of the capital 
expenditures and working capital requirements of PHI and the 
Subsidiaries, for the acquisition, retirement or redemption of 
securities previously issued by PHI or the Subsidiaries, for 
investments in companies organized in accordance with rule 58 under the 
Act (``Rule 58 Companies''), exempt wholesale generators (``EWGs''), 
foreign utility companies (``FUCOs''), exempt telecommunications 
companies (``ETCs'') and for other lawful purposes.
    Proceeds of any borrowings by the Nonutility Subsidiaries may be 
used by each Nonutility Subsidiary: (a) For the interim financing of 
its construction and capital expenditure programs, (b) for its working 
capital needs, (c) for the repayment, redemption or refinancing of its 
debt and equity, (d) to meet unexpected contingencies, payment and 
timing differences, and cash requirements and (e) to otherwise finance 
its own business and for other lawful general corporate purposes. The 
use of proceeds from the financings would be limited to use in the 
operations of the respective businesses in which Subsidiaries are 
already authorized to engage.

IV. Financing Parameters

    Applicants request authorization to engage in certain financing 
transactions during the Authorization Period. All securities issued by 
PHI and the Subsidiaries will be subject to the financing parameters 
(``Financing Parameters'') below.
A. Effective Cost of Money
    Applicants state that the effective cost of capital on long-term 
debt, short-term debt, preferred securities and equity-linked 
securities will not exceed competitive market rates available at the 
time of issuance for securities having the same or reasonably similar 
terms and conditions issued by similar companies of reasonably 
comparable quality; provided that in no event will the effective cost 
of capital on (a) any long-term debt security exceed 500 basis points 
over comparable term U.S. Treasury securities (``Treasury Securities'') 
or (b) any short-term debt security exceed 300 basis points over the 
comparable London Interbank Offered Rate (``LIBOR''). The dividend and 
distribution rate on any series of preferred securities or equity-
linked securities will not exceed at the time of issuance 700 basis 
points over a Treasury Security.
B. Maturity of Debt and Final Redemption on Preferred Securities
    The maturity of long-term debt securities will not exceed 50 years. 
Preferred securities and equity-linked securities will be redeemed no 
later than 50 years after issuance except for preferred securities that 
are perpetual in duration.
C. Issuance Expenses
    The underwriting fees, commissions or other similar remuneration 
paid in connection with the non-competitive issue, sale or distribution 
of a security under this Application (not including any original issue 
discount) will not exceed the greater of: (a) 5% of the principal or 
total amount of the securities being issued or (b) issuance expenses 
that are generally paid at the time of the pricing for sales of the 
particular issuance, having the same or reasonably similar terms and 
conditions issued by similar companies of reasonably comparable credit 
quality.
D. Financial Condition
    PHI states that PHI, Conectiv and the Utility Subsidiaries are 
financially sound and each has investment-grade ratings from major 
national rating agencies. PHI and Conectiv commit that each will 
maintain a common equity ratio (common equity divided by consolidated 
capitalization (``Common Equity Ratio'')) during the Authorization 
Period of at least 30%.\29\ Further, Pepco and DPL each commits that it 
will maintain a Common Equity Ratio of at least 30% and at least 
investment-grade senior unsecured and senior secured debt ratings by at 
least one nationally recognized rating agency.
---------------------------------------------------------------------------

    \29\ Applicants state that consolidated capitalization includes, 
where applicable, all common stock equity (comprised of common 
stock, additional paid in capital, retained earnings, accumulated 
other comprehensive income or loss, and/or treasury stock), minority 
interests, preferred securities, equity-linked securities, long-term 
debt, short-term debt and current maturities.
---------------------------------------------------------------------------

    Applicants state that below are the Common Equity Ratios for PHI, 
Conectiv and the Utility Subsidiaries as of December 31, 2004:

[[Page 33549]]



------------------------------------------------------------------------
                                                   Preferred    Common
                                         Debt        stock      equity
                                       (percent)   (percent)   (percent)
------------------------------------------------------------------------
PHI.................................        62.8         0.6         6.6
Pepco...............................        56.0         1.2        42.8
DPL.................................        52.1         1.7        46.2
ACE \30\............................        66.9         0.4        32.7
Conectiv............................        60.1         0.6        39.3
------------------------------------------------------------------------

    Applicants state that the following are the long-term unsecured 
debt ratings for PHI, Conectiv and the Utility Subsidiaries as of April 
30, 2005:
---------------------------------------------------------------------------

    \30\ By order dated October 28, 2002 (HCAR No. 27588), ACE is 
required to maintain a Common Equity Ratio of not less than 28% 
through December 31, 2005. After this date, Applicants state that 
ACE will maintain a Common Equity Ratio of at least 30% during the 
Authorization Period. ACE commits that it will maintain at least 
investment grade senior unsecured and senior secured debt ratings by 
at least one nationally recognized rating agency.

------------------------------------------------------------------------
                                               Standard  &
           Company                Moody's        Poor's         Fitch
------------------------------------------------------------------------
PHI..........................  Baa2.........  BBB.........  BBB
Conectiv.....................  Baa2.........  BBB.........  BBB+
Pepco........................  Baa1.........  BBB.........  A-
ACE..........................  Baa1.........  BBB.........  BBB+
DPL..........................  Baa1.........  BBB.........  A-
------------------------------------------------------------------------

    PHI and Conectiv commit that each will maintain during the 
Authorization Period at least an investment-grade corporate or senior 
unsecured debt rating by at least one nationally recognized rating 
agency.
    PHI and the Utility Subsidiaries state that they will not issue any 
guarantees or other securities, other than common stock, member 
interests or securities issued for the purpose of funding Money Pool 
operations, unless: (a) The securities, if rated, are rated at least 
investment grade, (b) all outstanding securities of the issuer that are 
rated, are rated investment grade and (c) all securities of PHI that 
are rated, are rated investment grade. For purposes of this provision, 
a security will be deemed to be rated investment grade if it is rated 
investment grade by at least one nationally recognized rating agency 
(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) 
(``Investment Grade Condition''). PHI and the Utility Subsidiaries 
further request that the Commission reserve jurisdiction over the 
issuance of any securities which do not comply with the Investment 
Grade Condition.

V. PHI Financing

    PHI seeks authorization to issue equity and debt securities 
aggregating not more than $6 billion (``PHI Financing Limit'') at any 
one time issued and outstanding during the Authorization Period. These 
securities could include, but would not necessarily be limited to, 
common stock, preferred securities, options, warrants, purchase 
contracts, units (consisting of one or more purchase contracts, 
warrants, debt securities, shares of preferred securities, shares of 
common stock or any combination of such securities), long-term debt, 
short-term debt (including commercial paper), subordinated debt, bank 
borrowings, securities with call or put options and securities 
convertible into any of these securities.\31\
---------------------------------------------------------------------------

    \31\ Applicants state that any convertible or equity-linked 
securities would be convertible into or linked only to securities 
that PHI is otherwise authorized to issue directly or indirectly 
through a financing entity on behalf of PHI.
---------------------------------------------------------------------------

A. Common Stock
    PHI seeks authorization to issue and sell common stock during the 
Authorization Period. Common stock financings may be executed under 
underwriting agreements of a type generally standard in the industry. 
Public distributions may be under private negotiation with 
underwriters, dealers or agents as discussed below or effected through 
competitive bidding among underwriters. In addition, sales may be made 
through private placements or other non-public offerings to one or more 
persons. All common stock sales will be at rates or prices and under 
conditions negotiated or based upon, or otherwise determined by, 
competitive capital markets. Underwriters may resell common stock 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. If common stock is being sold in an 
underwritten offering, PHI may grant the underwriters thereof a ``green 
shoe'' option permitting the shares to be offered solely for the 
purpose of covering over-allotments.
    PHI further requests authorization to issue and sell from time to 
time equity-linked securities, including, but not limited to, contracts 
obligating holders to purchase from PHI and/or PHI to sell to the 
holders, a number of shares specified directly or by formula at an 
aggregate offering price either fixed at the time the stock purchase 
contracts (``Stock Purchase Contracts'') are issued or determined by 
reference to a specific formula set forth in the Stock Purchase 
Contracts. The Stock Purchase Contracts may be issued separately or as 
part of units consisting of a stock purchase contract and debt and/or 
preferred securities of PHI and/or debt securities of nonaffiliates, 
including Treasury Securities, securing holders' obligations to 
purchase the common stock of PHI under the Stock Purchase Contracts. 
The Stock Purchase Contracts may require holders to secure their 
obligations in a specified manner.
    PHI also seeks authorization to issue common stock or equity linked 
securities in public or privately negotiated transactions as 
consideration for the equity securities or assets of other companies, 
provided that the acquisition of any equity securities or assets has 
been authorized by the Commission or is exempt under the Act or the 
rules thereunder. For purposes of calculating compliance with the PHI

[[Page 33550]]

Financing Limit, common stock issued in negotiated transactions would 
be valued based upon the negotiated agreement between the buyer and the 
seller.
    PHI proposes, from time to time during the Authorization Period, to 
issue and/or acquire in open market transactions or by some other 
method that complies with applicable law and Commission interpretations 
then in effect, shares of PHI common stock under PHI's dividend 
reinvestment plan, certain incentive compensation plans and other 
employee benefit plans currently existing or that may be adopted in the 
future in an amount not to exceed 20 million shares during the 
Authorization Period (``Common Stock Plan Limit''). PHI common stock 
issued under the Common Stock Plan Limit will not be included in the 
calculation of the PHI Financing Limit.
B. Preferred Securities
    PHI may issue and sell preferred securities from time to time 
during the Authorization Period. Preferred securities of any series (a) 
will have a specified par or stated value or liquidation value per 
security, (b) will carry a right to periodic cash dividends and/or 
other distributions, subject among other things, to funds being legally 
available, (c) may be subject to optional and/or mandatory redemption, 
in whole or in part, at par or at various premiums above the par or 
stated liquidation value, (d) may be convertible or exchangeable into 
common stock of PHI and (e) may bear other further rights, including 
voting, preemptive or other rights, and other terms and conditions, as 
set forth in the applicable certificate of designation, purchase 
agreement and/or similar instruments governing the issuance and sale of 
the series of preferred securities.
    The liquidation preference, dividend or distribution rates, 
redemption provisions, voting rights, conversion or exchange rights, 
and other terms and conditions of a particular series of preferred 
securities, as well as any associated placement, underwriting, 
structuring or selling agent fees, commissions and discounts, if any, 
will be established by negotiation or competitive bidding and reflected 
in the applicable certificate of designation, purchase agreement or 
underwriting agreement, and other relevant instruments setting forth 
the terms.
C. Long-Term Debt
    Applicants request authority for PHI to issue long-term debt 
securities including notes, medium-term notes, or debentures, under one 
or more indentures or long-term indebtedness under agreements with 
banks or other institutional lenders. Long-term debt issued by PHI will 
be unsecured.
    Any long-term debt security would have such designation, aggregate 
principal amount, maturity, interest rate(s) or methods of determining 
the same, terms of payment of interest, redemption provisions, sinking-
fund terms and other terms and conditions as PHI may determine at the 
time of issuance. Any long-term debt (a) may be convertible into any 
other authorized securities of PHI, (b) will have maturities ranging 
from one to 50 years, (c) 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, (d) may be entitled to mandatory or 
optional sinking-fund provisions, (e) may provide for reset of the 
coupon under a remarketing arrangement, (f) may be subject to tender or 
the obligation of the issuer to repurchase at the election of the 
holder or upon the occurrence of a specified event, (g) may be called 
from existing investors by a third party and (h) may be entitled to the 
benefit of financial or other covenants.
    Specific terms of any borrowings, such as 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, will be determined by PHI at the time of 
issuance and will comply in all regards with the Financing Parameters. 
Associated placement, underwriting or selling agent fees, commissions 
and discounts, if any, will be established by negotiation or 
competitive bidding.
D. Short-Term Debt
    PHI seeks authority to issue short-term debt during the 
Authorization Period to refund short-term debt, refund maturing long-
term debt, and for general corporate purposes, working capital 
requirements and temporary financing of Subsidiary capital expenditures 
until long-term financing can be obtained.
    Types of short-term debt securities will include borrowings under 
one or more revolving credit facilities or bank loans, commercial 
paper, short-term notes and bid notes. Specific terms of any short-term 
borrowings will be determined by PHI at the time of issuance and will 
comply in all regards with the parameters for financing authorization 
set forth in the Financing Parameters. The maturity of any short-term 
debt issued will not exceed 364 days or, if the notional maturity is 
greater than 364 days, the debt security will include put options at 
appropriate points in time to cause the security to be accounted for as 
a current liability under United States generally accepted accounting 
principles (``GAAP'').
    PHI may sell commercial paper, from time to time, in established 
domestic or European commercial paper markets. Commercial paper would 
be sold directly to investors or 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. Applicants expect that the dealers 
acquiring commercial paper from PHI will reoffer this 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.
    PHI may engage in other types of short-term financing 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. Applicants state that any additional short-term financings 
will comply in all regards with the Financing Parameters.
E. Guarantees
    PHI requests authority to enter into guarantees to third parties, 
obtain letters of credit, enter into support or expense agreements or 
liquidity support agreements or otherwise provide credit support with 
respect to the obligations of the Subsidiaries as may be appropriate to 
carry on in the ordinary course of their respective businesses in an 
aggregate amount not to exceed the $3.5 billion during the 
Authorization Period (``PHI Guarantee Limit''). Included in this amount 
are guarantees previously entered into by PHI and on behalf of the 
Subsidiaries to the extent they remain outstanding during the 
Authorization Period. Excluded from the PHI Guarantee Limit are 
obligations exempt under rule 45. Applicants state that the issuance of 
any guarantees will be subject to the limitations of rule 53(c) or rule 
58(a)(1), as applicable.
    A portion of the guarantees proposed to be issued by PHI may be in 
connection with the business of Conectiv Energy Supply, Inc. 
(``CESI''), PES and PES's subsidiaries. CESI conducts power marketing 
and trading operations. PES and its subsidiaries provide energy 
efficiency contracting, central plant and other equipment

[[Page 33551]]

construction, operation and maintenance as well as conducting gas and 
electric marketing. PHI provides credit support in connection with the 
trading positions of CESI and PES entered into in the ordinary course 
of CESI's and PES's energy marketing and trading businesses. In 
addition, PHI provides credit support for certain obligations of PES 
and its subsidiaries entered into in the ordinary course of their 
energy contracting business. The provision of parent guarantees by 
holding companies to affiliates in the generation, power marketing and 
energy contracting business is standard business practice. The portion 
of the PHI Guarantee Limit to be used on behalf of the trading 
activities of CESI and PES will be no more than half of the PHI 
Guarantee Limit at any time during the Authorization Period. A portion 
of the guarantees will be for intercompany obligations. PHI will 
guarantee all deposits in the Money Pool.
    Certain of the guarantees may be in support of obligations that are 
not capable of exact quantification. In such cases, PHI will determine 
the exposure under a guarantee for purposes of measuring compliance 
with the PHI Guarantee Limit by appropriate means, including estimation 
of exposure based on loss experience or potential payment amounts. PHI 
states that these estimates will be made in accordance with GAAP if 
appropriate and this estimation will be reevaluated periodically.
    PHI may charge each Subsidiary a fee for any 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.
F. Interest Rate Risk Management
    PHI requests authority to enter into, perform, purchase and sell 
financial instruments intended to reduce or manage the volatility of 
interest rates with respect to then existing or simultaneously created 
indebtedness, including interest rate swaps, caps, floors, collars and 
forward agreements or any other similar agreements. Hedges may also 
include the 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 agency 
(e.g., Federal National Mortgage Association) obligations or LIBOR 
based swap instruments (collectively, ``Hedge Instruments''). PHI would 
employ Hedge Instruments as a means of prudently managing the risk 
associated with any of its outstanding debt by, in effect, 
synthetically: (a) Converting variable-rate debt to fixed-rate debt, 
(b) converting fixed-rate debt to variable-rate debt, (c) limiting the 
impact of changes in interest rates resulting from variable-rate debt 
and (d) providing an option to enter into interest rate swap 
transactions in future periods for planned issuances of debt 
securities. In no case will the notional principal amount of any Hedge 
Instrument exceed that of the underlying debt instrument and related 
interest rate exposure. Thus, PHI will not engage in leveraged or 
speculative transactions. The underlying interest rate indices will 
closely correspond to the underlying interest rate indices of PHI's 
debt to which the Hedge Instruments relates. PHI will only enter into 
agreements with counterparties whose senior debt ratings, as published 
by any one nationally recognized rating agency, are investment grade 
(``Approved Counterparties'').
    In addition, PHI requests authorization to enter into interest rate 
Hedge Instruments with respect to anticipated debt offerings 
(``Anticipatory Hedges''), subject to certain limitations and 
restrictions. 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: (a) A 
forward sale of exchange-traded Hedge Instruments (``Forward Sale''), 
(b) the purchase of put options on Hedge Instruments (``Put Options 
Purchase''), (c) a Put Options Purchase in combination with the sale of 
call options on Hedge Instruments (``Zero Cost Collar''), (d) 
transactions involving the purchase or sale, including short sales, of 
Hedge Instruments or (e) 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.
    Hedge Instruments 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, 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. PHI will determine the optimal structure of each Hedge 
instrument transaction at the time of execution.

VI. Utility Subsidiary Financing

    Applicants state that the District of Columbia Public Service 
Commission (``DC Commission'') regulates the issuance of long-term debt 
and equity securities for Pepco.\32\ The New Jersey Board of Public 
Utilities (``NJBPU'') regulates issuance of short-term debt, long-term 
debt and equity securities for ACE. For DPL, the Delaware Public 
Service Commission (``DPSC'') regulates the issuance of long-term debt 
and equity securities and the issuance of short-term debt, long-term 
debt and equity securities is regulated by the VSCC.\33\
---------------------------------------------------------------------------

    \32\ Pepco is also regulated by the Virginia State Corporation 
Commission (``VSCC'') but the VSCC does not have jurisdiction over 
its securities issuances.
    \33\ Pepco currently has authorization from the DC Commission to 
issue up to $1.1 billion of long-term debt and equity securities 
through May 16, 2006, with $525 million in remaining authority 
outstanding. DPL currently has authorization from the VSCC to issue 
up to $275 million in short-term debt through March 31, 2006 and up 
to $150 million long-term debt and equity securities through 
December 31, 2006. DPL currently has authorization from the DPSC to 
issue up to $150 million long-term debt and equity securities 
through December 31, 2006. ACE currently has NJBPU authorization to 
issue up to $250 million of short-term debt through January 1, 2006. 
ACE currently has a pending request before the NJBPU to issue up to 
$105 million of long-term debt securities through December 31, 2006.
---------------------------------------------------------------------------

A. Short-Term Debt
    Pepco and DPL request authority to have outstanding short-term debt 
securities in amounts not to exceed $500 million and $275 million for 
Pepco and DPL, respectively, at any point in time during the 
Authorization Period. Pepco and DPL request authority to issue the same 
types of unsecured short-term debt securities under the same terms as 
requested for PHI above. In addition, Pepco and DPL may issue secured 
short-term debt securities. Pepco and DPL anticipate that the 
collateral for secured short-term debt securities would be limited to 
short-term assets such as the respective issuer's inventory and/or 
accounts receivable. Pepco and DPL may, without counting against the 
limit set forth above, maintain back-up lines of credit. Any 
outstanding short-term debt issued by Pepco or DPL will be included in 
the calculation of the PHI Financing Limit. Pepco and DPL also request 
authorization to participate in the Money Pool as more fully described 
below.
B. Long-Term Debt Securities and Preferred Securities
    Authority is requested for Pepco to issue an aggregate of up to 
$1.1 billion of long-term debt securities and preferred securities 
during the Authorization Period. Pepco requests authority to issue 
long-term debt

[[Page 33552]]

securities and preferred securities under the same terms as requested 
for PHI above except that Pepco may issue secured as well as unsecured 
debt securities. Any long-term debt or preferred securities issued by 
Pepco will be included in the calculation of the PHI Financing Limit.
C. Guarantees
    To the extent not exempt under rule 45(b) and rule 52(b), 
Applicants request authority for the Utility Subsidiaries to enter into 
guarantees (``Utility Guarantees'') during the Authorization Period in 
the same manner as set forth above for PHI in section V.E above. The 
Utility Guarantees will be included in the calculation of the PHI 
Guarantee Limit. The issuance of any Utility Guarantees will be subject 
to the limitations of rule 53(c) or rule 58(a)(1), as applicable.
    Certain of the Utility Guarantees may be in support of obligations 
that are not capable of exact quantification. In these cases, PHI will 
determine the exposure under a guarantee for purposes of measuring 
compliance with the PHI Guarantee Limit by appropriate means including 
estimation of exposure based on loss experience or potential payment 
amounts. PHI states that these estimates will be made in accordance 
with GAAP, if appropriate and that this estimation will be reevaluated 
periodically.
    The Utility Subsidiaries may charge associate companies a fee for 
each guarantee provided on their behalf determined in the same manner 
as specified above for guarantees issued by PHI in section V.E above.
D. Interest Rate Risk Management
    To the extent not exempt under rule 52, the Utility Subsidiaries 
request authority to enter into Hedge Instruments subject to the 
limitations and requirements applicable to PHI described in section V.F 
above.

VII. Nonutility Subsidiary Financings

A. Loans
    In the limited circumstances where a Nonutility Subsidiary making a 
borrowing is not wholly owned, directly or indirectly, by PHI, 
Applicants request authority for PHI, Conectiv or a Nonutility 
Subsidiary, as the case may be, to make loans to Subsidiaries at 
interest rates and maturities designed to provide a return to the 
lending company of not less than its effective cost of capital. If 
these loans are made to a Nonutility Subsidiary, the Nonutility 
Subsidiary will not provide any services to any associate Nonutility 
Subsidiary except to a wholly or partially owned subsidiary that meets 
one of the following conditions: (a) A FUCO or an EWG that derives no 
part of its income, directly or indirectly, from the generation, 
transmission, or distribution of electric energy for sale within the 
United States, (b) an EWG that sells electricity at market-based rates 
that have been approved by the FERC, provided that the purchaser of 
such electricity is not an associate public utility company, (c) a QF 
within the meaning of PURPA, that sells electricity exclusively (i) at 
rates negotiated at arm's-length to one or more industrial or 
commercial customers purchasing such electricity for their own use and 
not for resale, and/or (ii) to an electric utility company (other than 
an associate utility company) at the purchaser's avoided cost as 
determined in accordance with FERC's regulations under PURPA, (d) 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 of such electricity is 
not an associate public utility company, or (e) a direct or indirect 
Rule 58 Subsidiary of PHI or any other nonutility company that (i) is 
partially owned by PHI, provided that the ultimate recipient of the 
services is not an associate public utility company, or (ii) is engaged 
solely in the business of developing, owning, operating, and/or 
providing services to Nonutility Subsidiaries described in clauses (a) 
through (e) immediately above, or (iii) 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. Guarantees
    The Nonutility Subsidiaries request authority to provide to other 
Nonutility Subsidiaries guarantees and other forms of credit support 
(``Nonutility Subsidiary Guarantees'') Nonutility Subsidiary Guarantees 
would be issued subject to the limitations and requirements applicable 
to PHI as set forth in section V.E, above. The Nonutility Subsidiary 
Guarantees will be included in the calculation of the PHI Guarantee 
Limit. The issuance of any Nonutility Subsidiary Guarantees will be 
subject to the limitations of rule 53(c) or rule 58(a)(1), as 
applicable. The Nonutility Subsidiary providing the credit support may 
charge its associate company a fee for each guarantee provided on its 
behalf determined in the same manner as specified above in section V.E. 
above for guarantees issued by PHI.

VIII. Authorization and Operation of the PHI System Money Pool

    PHI and the Subsidiaries hereby request authorization to continue 
operation of the Money Pool, and the Subsidiaries, to the extent not 
exempted by rule 52, also request authorization to make unsecured 
short-term borrowings from the Money Pool, to contribute surplus funds 
to the Money Pool and to lend and extend credit to (and acquire 
promissory notes from) one another through the Money Pool. PHI requests 
authorization to contribute surplus funds and to lend and extend credit 
to the Money Pool. Applicants state that EWGs, FUCOs and ETCs will not 
be eligible to participate in the Money Pool.
    PHI and the Subsidiaries believe that the cost of the proposed 
borrowings through the Money Pool will generally be more favorable to 
the borrowing participants than the comparable cost of external short-
term borrowings, and the yield to the participants contributing 
available funds to the Money Pool will generally be higher than the 
typical yield on short-term investments.
    Under the terms of the Money Pool, short-term funds would be 
available from the following sources for short-term loans to the 
Subsidiaries from time to time: (a) Surplus funds in the treasuries of 
Money Pool participants other than PHI, (b) surplus funds in the 
treasury of PHI ((a) and (b) comprise ``Internal Funds'') and (c) 
proceeds from the issuance of short-term debt securities by Money Pool 
participants or by PHI for loan to the Money Pool (``External Funds''). 
Funds would be made available from such sources in such order as 
PHISCo, the administrator of the Money Pool, may determine would 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 Money Pool participant at any time 
has surplus funds to lend to the Money Pool or shall lend funds to the 
Money Pool would 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 the participant's sole 
discretion.
    No party would be required to effect a borrowing through the Money 
Pool if it is determined that it could (and had authority to) effect a 
borrowing at lower cost directly from other lenders. No loans through 
the Money Pool would be made to, and no borrowings through the Money 
Pool would be made by, PHI. In situations in which limited funds are

[[Page 33553]]

available in the Money Pool for loans, Applicants state that the 
Utility Subsidiaries would have first priority for these funds.
    The cost of compensating balances, if any, and fees paid to banks 
to maintain credit lines and accounts by Money Pool participants 
lending External Funds to the Money Pool would initially be paid by the 
participant maintaining the line. A portion of the costs, or all of the 
costs in the event a Money Pool participant establishes a line of 
credit solely for purposes of lending any External Funds obtained 
thereby into the Money Pool, would be retroactively allocated every 
month to the companies borrowing the External Funds through the Money 
Pool in proportion to their respective daily outstanding borrowings of 
the External Funds.
    If only Internal Funds make up the funds available in the Money 
Pool, the interest rate applicable and payable to or by Subsidiaries 
for all loans of the Internal Funds will be the rates for high-grade 
unsecured 30-day commercial paper sold through dealers by major 
corporations as quoted in The Wall Street Journal.
    If only External Funds comprise the funds available in the Money 
Pool, the interest rate applicable to loans of the External Funds would 
be equal to the lending company's weighted average of the cost for the 
External Funds (or, if more than one Money Pool participant had made 
available External Funds on that day, the applicable interest rate 
would be a composite rate equal to the weighted average of the cost 
incurred by the respective Money Pool participants for the External 
Funds).
    In cases where both Internal Funds and External Funds are 
concurrently borrowed through the Money Pool, the rate applicable to 
all loans comprised of the ``blended'' funds would be a composite rate 
equal to the weighted average of the cost of all the External Funds.
    Applicants state that funds not required by the Money Pool to make 
loans (with the exception of funds required to satisfy the Money Pool's 
liquidity requirements) would ordinarily be invested in one or more 
short-term investments, including: (a) Interest-bearing accounts with 
banks, (b) obligations issued or guaranteed by the U.S. government and/
or its agencies and instrumentalities, including obligations under 
repurchase agreements, (c) 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, 
(d) commercial paper rated not less than ``A-1'' or ``P-1'' or their 
equivalent by a nationally recognized rating agency, (e) money market 
mutual funds, (f) bank certificates of deposit, (g) Eurodollar funds 
and (h) such other investments as are permitted by section 9(c) of the 
Act and rule 40 thereunder.
    Applicants state that the interest income earned on investments in 
the Money Pool would be allocated among the participants in the Money 
Pool in accordance with the weighted average proportion each 
participant's contribution of funds bears to the total amount of funds 
in the Money Pool. Each Subsidiary receiving a loan through the Money 
Pool would be required to repay the principal amount of the loan, 
together with all interest accrued thereon, on demand and in any event 
not later than one year after the date of the loan. All loans made 
through the Money Pool may be prepaid by the borrower without premium 
or penalty.
    Applicants propose that Pepco and DPL may have up to $500 million 
and $275 million, respectively, borrowed at any one time from the Money 
Pool. Amounts borrowed by Pepco and DPL from the Money Pool would count 
against the short-term borrowing authority for Pepco and DPL referred 
to in section VII.A., above.
    Applicants state that the operation of the Money Pool, including 
record keeping and coordination of loans, will be handled by PHISCO, or 
its successor, under the authority of the appropriate officers of the 
participating companies and that the Money Pool will be administered on 
an ``at cost'' basis.

IX. Intrasystem Financing

    Applicants request that, to the extent that any intrasystem loans 
or extensions of credit are not exempt under rule 45(b) or rule 52, as 
applicable, the company making the loan or extending credit may charge 
interest at the same effective rate of interest as the daily weighted 
average effective rate of commercial paper, revolving credit and/or 
other short-term borrowings of the company, including an allocated 
share of commitment fees and related expenses. If no borrowings are 
outstanding, then Applicants propose that the interest rate shall be 
the rates for high-grade unsecured 30-day commercial paper sold through 
dealers by major corporations as quoted in The Wall Street Journal. In 
the limited circumstances where the Nonutility Subsidiary effecting the 
borrowing is not wholly owned by PHI, Conectiv or a Nonutility 
Subsidiary, directly or indirectly, Applicants request authority for 
PHI, Conectiv or a Nonutility Subsidiary to make loans to subsidiaries 
at interest rates and maturities designed to provide a return to the 
lending company of not less than its effective cost of capital. If 
these loans are made to a Nonutility Subsidiary, Applicants commit that 
the Nonutility Subsidiary will not provide any services to any 
associate Nonutility Subsidiary except a company that meets one of the 
conditions for rendering of services on a basis other than at cost as 
described in section XVI below. In the event any these loans are made, 
PHI will include in the next certificate filed under rule 24 
substantially the same information as required on Form U-6B-2 with 
respect to the transaction and that any securities issued under this 
paragraph will comply in all regards with the Financing Parameters. 
PHI, Conectiv and the Nonutility Subsidiaries request authorization to 
engage in intrasystem financings with each other and for the Nonutility 
Subsidiaries to engage in intrasystem financings among themselves, in 
an aggregate amount not to exceed $1.0 billion outstanding at any time 
during the Authorization Period.
    PHI states that it will comply with the requirements of rule 45(c) 
regarding tax allocations except as otherwise approved by the 
Commission to alter the requirements.

X. Financing Entities

    PHI and the Subsidiaries seek authorization to organize new 
corporations, trusts, partnerships or other entities (``Financing 
Entities'') that will facilitate financings by issuing short-term debt, 
long-term debt, preferred securities, equity securities, or other 
securities to third parties and transfer the proceeds of these 
financings to PHI or their respective parent Subsidiaries. To the 
extent not exempt under rule 52, the Financing Entities also request 
authorization to issue these securities to third parties. In connection 
with this method of financing, PHI and the Subsidiaries may: (a) Issue 
debentures or other evidences of indebtedness to Financing Entities in 
return for the proceeds of the financing, (b) acquire voting interests 
or equity securities issued by the Financing Entities to establish 
ownership of the Financing Entities (the equity portion of the entity 
generally being created through a capital contribution or the purchase 
of equity securities, ranging from one to three percent of the 
capitalization of the Financing Entities) and (c) guarantee a Financing 
Entity's obligations in connection with a financing transaction. Any 
amounts issued by Financing Entities to a third party under this 
authorization will be included in the PHI Financing Limit. However, the 
underlying intrasystem

[[Page 33554]]

mirror debt and parent guarantee will not be so included.\34\
---------------------------------------------------------------------------

    \34\ Specifically excluded from this limitation is the issuance 
of up to $1.108 billion of securitization securities by Atlantic 
City Electric Transition Funding LLC (``ACETF''). The Commission has 
reserved jurisdiction over this issuance by ACETF by order dated 
November 19, 2003 (HCAR No. 27765).
---------------------------------------------------------------------------

    PHI and the Subsidiaries also request authorization to enter into 
support or expense agreements (``Expense Agreements'') with Financing 
Entities to pay the expenses of any Financing Entity. In cases where it 
is necessary or desirable to ensure legal separation for purposes of 
isolating a Financing Entity from its parent or another subsidiary for 
bankruptcy purposes, the ratings agencies require that any Expense 
Agreement whereby the parent or Financing Entity provides services 
related to the Financing Entity be at a price, not to exceed a market 
price, consistent with similar services for parties with comparable 
credit quality and terms entered into by other companies so that a 
successor service provider could assume the duties of the parent or 
Financing Entity in the event of the bankruptcy of the parent or 
Financing Entity Subsidiary without interruption or an increase of 
fees. Therefore, PHI seeks approval under section 13(b) of the Act and 
rules 87 and 90 to provide the services described in this paragraph at 
a charge not to exceed a market price but only for so long as the 
Expense Agreement established by the Financing Entity financing 
subsidiary is in place.

XI. Changes in Capital Stock of Wholly Owned Subsidiaries

    Applicants state that the portion of an individual Subsidiary's 
aggregate financing to be effected through the sale of stock to PHI or 
other immediate parent company during the Authorization Period under 
rule 52 and/or under an order issued under this Application cannot be 
ascertained at this time. It may happen that the proposed sale of 
capital securities (i.e., common stock or preferred securities) 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 these proposed transactions and to 
provide for future issues, Applicants request authority to change the 
terms of any wholly owned Subsidiary's authorized capital stock 
capitalization or other equity interests by an amount deemed 
appropriate by PHI or other intermediate parent company. The requested 
authorization is limited to PHI's wholly owned Subsidiaries and will 
not affect the aggregate limits or other conditions contained within 
this Application. A Subsidiary would be able to change the par value, 
or change between par value and no-par stock, without additional 
Commission approval. This 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.

XII. Investments in EWGs and FUCOs

    As of December 31, 2004, PHI states that it's aggregate investment 
in EWGs and FUCOs as defined in rule 53(a)(1) was $3,030.9 million. In 
the Financing Order, the Commission authorized PHI to invest up to 100% 
of PHI's retained earnings plus $3.5 billion in EWGs and FUCOs. As of 
December 31, 2004, PHI's retained earnings were $863.7 million, making 
PHI's maximum investment in EWGs and FUCOs equal to $4,363.7 million. 
PHI now requests authorization to invest in EWGs and FUCOs up to $4.5 
billion (``PHI Exempt Project Limit'') during the Authorization Period.

XIII. Payment of Dividends by Nonutility Subsidiaries Out of Capital or 
Unearned Surplus

    Applicants propose that Nonutility Subsidiaries be permitted to pay 
dividends, from time to time through the Authorization Period, out of 
capital and unearned surplus, to the extent permitted under applicable 
corporate law and state and national law applicable in the jurisdiction 
where each company is organized, and any applicable financing covenants 
and, in addition, will not declare or pay any dividend out of capital 
or unearned surplus unless it: (a) Has received excess cash as a result 
of the sale of some or all of its assets, (b) has engaged in a 
restructuring or reorganization, and/or (c) is returning capital to an 
associate company.

XIV. Intermediate Subsidiaries

    PHI proposes to acquire, directly or indirectly, the securities of 
one or more entities (``Intermediate Subsidiaries''), which would be 
organized exclusively for the purpose of acquiring, holding and/or 
financing the acquisition of the securities of or other interest in one 
or more EWGs, FUCOs, Rule 58 Subsidiaries, ETCs or other non-exempt 
nonutility subsidiaries (as authorized in this proceeding or in a 
separate proceeding), provided that Intermediate Subsidiaries may also 
engage in administrative activities (``Administrative Activities'') and 
development activities (``Development Activities''), as these terms are 
defined below, relating to those subsidiaries.
    Administrative Activities include ongoing personnel, accounting, 
engineering, legal, financial and other support activities necessary to 
manage PHI's investments in nonutility subsidiaries. Development 
Activities will be limited to 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, 
acquisitions of site options and options on other necessary rights, 
negotiation and execution of contractual commitments with owners of 
existing facilities, equipment vendors, construction firms and other 
project contractors, negotiation of financing commitments with lenders 
and other third-party investors, and 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 
interest in new businesses.
    An Intermediate Subsidiary, among other things, may be organized: 
(a) To facilitate the making of bids or proposals to develop or acquire 
an interest in any EWG, FUCO, Rule 58 Subsidiary, ETC or other 
nonutility subsidiary, (b) to facilitate closing on the purchase or 
financing of the acquired company after the awarding of a bid, (c) at 
any time subsequent to the consummation of an acquisition of an 
interest in the company to, among other things, effect an adjustment in 
the respective ownership interests in the business held by PHI and 
nonaffiliated investors, (d) to facilitate the sale of ownership 
interests in one or more acquired nonutility companies, (e) to comply 
with applicable laws of foreign jurisdictions limiting or otherwise 
relating to the ownership of domestic companies by foreign nationals, 
(f) as a part of tax planning in order to limit PHI's exposure to 
taxes, (g) to further insulate PHI and the Utility Subsidiaries from 
operational or other business risks that may be associated with 
investments in nonutility companies, or (h) for other lawful purposes.
    Applicants state that investments in Intermediate Subsidiaries may 
take the form of any combination of the following: (a) Purchases of 
capital shares, partnership interests, member interests in limited 
liability companies, trust certificates or other forms of equity 
interests, (b) capital contributions, (c)

[[Page 33555]]

open account advances with or without interest, (d) loans, and (e) 
guarantees issued, provided or arranged in respect of the securities or 
other obligations of any Intermediate Subsidiaries. Funds for any 
direct or indirect investment in any Intermediate Subsidiary will be 
derived from: (a) Financings authorized in this proceeding, (b) any 
appropriate future debt or equity securities issuance authorization 
obtained by PHI from the Commission, and (c) other available cash 
resources, including proceeds of securities sales by Nonutility 
Subsidiaries under rule 52. To the extent that PHI provides funds or 
guarantees directly or indirectly to an Intermediate Subsidiary that 
are used for the purpose of making an investment in any EWG, FUCO or 
Rule 58 Subsidiary, Applicants state that the amount of funds or 
guarantees will be included in PHI's ``aggregate investment'' in these 
entities, as calculated in accordance with rule 53 or rule 58, as 
applicable.
    PHI requests authorization to make expenditures on Development 
Activities, as defined above, in an aggregate amount up to $200 
million. PHI proposes a ``revolving fund'' concept for permitted 
expenditures on Development Activities. Thus, to the extent a 
Nonutility Subsidiary in respect of which Development Activities were 
made subsequently becomes an EWG, FUCO or qualifies as an ``energy-
related company'' under rule 58, the amount so expended will cease to 
be considered an expenditure for Development Activities, but will 
instead be considered as part of the ``aggregate investment'' in the 
entity under rule 53 or rule 58, as applicable.

XV. Nonutility Reorganizations

    PHI requests authorization to consolidate or otherwise reorganize 
all or any part of its direct or indirect ownership interests in 
Nonutility Subsidiaries, and the activities and functions related to 
these investments. To effect any consolidation or other reorganization, 
PHI may wish to merge or contribute the equity securities of one 
Nonutility Subsidiary to another Nonutility Subsidiary (including a 
newly formed Intermediate Subsidiary) or sell (or cause a Nonutility 
Subsidiary to sell) the equity securities or all or part of the assets 
of one Nonutility Subsidiary to another one. To the extent that these 
transactions are not otherwise exempt under the Act or the rules 
thereunder, PHI hereby requests authorization under the Act to 
consolidate or otherwise reorganize under one or more direct or 
indirect Intermediate Subsidiaries, PHI's ownership in existing and 
future Nonutility Subsidiaries. Applicants state that transactions may 
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 an Intermediate Subsidiary or 
to another Nonutility Subsidiary, and the acquisition, directly or 
indirectly, of the equity securities or assets of the subsidiary, 
either by purchase or by receipt of a dividend. The purchasing 
Nonutility Subsidiary in any transaction structured as an intrasystem 
sale of equity securities or assets may execute and deliver its 
promissory note evidencing all or a portion of the consideration given. 
Each transaction would be carried out in compliance with all applicable 
laws and accounting requirements.\35\
---------------------------------------------------------------------------

    \35\ PHI states that in the event that proxy solicitations are 
necessary with respect to internal corporate reorganizations, PHI 
will seek the necessary Commission approvals under sections 6(a)(2) 
and 12(e) of the Act through the appropriate filing of a 
declaration.
---------------------------------------------------------------------------

XVI. Exemption of Certain Transactions From At-Cost Requirements

    PHI requests authority for the Nonutility Subsidiaries to provide, 
consistent with recent Commission orders, certain services in the 
ordinary course of their business to each other, in certain 
circumstances described below, including but not limited to cost or 
fair market prices, and they request an exemption under section 13(b) 
from the ``at cost requirement'' of rules 90 and 91 to the extent that 
a price other than ``cost'' is charged. Any services provided by the 
Nonutility Subsidiaries to the Utility Subsidiaries will continue to be 
provided at ``cost'' consistent with rules 90 and 91. A Nonutility 
Subsidiary will not provide services at other than cost to any other 
Nonutility Subsidiary that, in turn, provides the services, directly or 
indirectly, to any other associate company that is not a Nonutility 
Subsidiary, except under the requirements of the Commission's rules and 
regulations under section 13(b) or an exemption from those rules and 
regulations obtained under a separate filing.
    Accordingly, PHI requests authority for the Nonutility Subsidiaries 
to provide services to each other at other than cost in any case where 
the Nonutility Subsidiary receiving the services is: (a) A FUCO or an 
EWG that derives no part of its income, directly or indirectly, from 
the generation, transmission, or distribution of electric energy for 
sale within the United States, (b) an EWG that sells electricity at 
market-based rates that have been approved by the FERC, provided that 
the purchaser of such electricity is not an associate public utility 
company, (c) a QF within the meaning of PURPA, that sells electricity 
exclusively (i) at rates negotiated at arm's-length to one or more 
industrial or commercial customers purchasing electricity for their own 
use and not for resale, and/or (ii) to an electric utility company 
(other than an associate utility company) at the purchaser's avoided 
cost as determined in accordance with FERC's regulations under PURPA, 
(d) 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 of the 
electricity is not an associate public utility company, or (e) a direct 
or indirect Rule 58 Subsidiary of PHI or any other nonutility company 
that (i) is partially owned by PHI, provided that the ultimate 
recipient of the services is not an associate public utility company, 
or (ii) is engaged solely in the business of developing, owning, 
operating, and/or providing services to Nonutility Subsidiaries 
described in clauses (a) through (e) immediately above, or (iii) 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.

XVII. Authorization To Engage in Energy-Related Activities Outside of 
the United States

    PHI, on behalf of any current or future Nonutility Subsidiaries, 
requests authority for Nonutility Subsidiaries to engage in certain 
``energy-related'' activities outside the United States during the 
Authorization Period.
    Applicants state that activities may include:
    1. The brokering of electricity, natural gas and other energy 
commodities (``Energy Marketing''),
    2. Energy management services (``Energy Management Services''), 
including the marketing, sale, installation, operation and maintenance 
of various products and services related to energy management and 
demand side management, including energy and efficiency audits; 
facility design and process control and enhancements; construction, 
installation, testing, sales and maintenance of (and training client 
personnel to operate), energy conservation equipment; design, 
implementation, monitoring and evaluation of energy conservation 
programs; development and review of architectural, structural and 
engineering drawings for energy efficiencies, design

[[Page 33556]]

and specification of energy consuming equipment and general advice on 
programs; the design, construction, installation, testing, sales and 
maintenance of new and retrofit heating, ventilating and air 
conditioning, electrical and power systems, alarm and warning systems, 
and related structures, in connection with energy-related structures, 
in connection with energy-related needs; and the provision of services 
and products designed to prevent, control or mitigate adverse effects 
of power disturbances on a customer's electrical systems, and
    3. Engineering, consulting and other technical support services 
(``Consulting Services'') with respect to energy-related businesses, as 
well as for individuals. Consulting Services would include technology 
assessments, power factor correction and harmonics mitigation analysis, 
meter reading and repair, rate schedule design and analysis, 
environmental services, engineering services, billing services 
(including consolidation billing and bill disaggregation tools), risk 
management services, communications systems, information systems/data 
processing, system planning, finance, feasibility studies, and other 
similar services.
    Applicants request that the Commission: (a) Authorize Nonutility 
Subsidiaries to engage in Energy Marketing activities in Canada and 
Mexico and reserve jurisdiction over Energy Marketing Services anywhere 
outside of Canada and Mexico pending completion of the record in this 
proceeding, (b) authorize Nonutility Subsidiaries to provide Energy 
Management Services and Consulting Services anywhere outside the United 
States and (c) reserve jurisdiction over other activities of Nonutility 
Subsidiaries outside the United States pending completion of the 
record.

The Southern Company, et al. (70-10186)

    The Southern Company (``Southern''), a registered holding company 
under the Act, and Southern Company Holdings, Inc. (``Holdings''), each 
of 270 Peachtree Street, NW., Atlanta, Georgia, 30303; Georgia Power 
Company (``Georgia Power''), a public utility, Southern Company 
Services, Inc. (``SCS''), and Southern Company Energy Solutions, LLC, 
each located at 241 Ralph McGill Boulevard, NE., Atlanta, Georgia, 
30308 and each a wholly-owned subsidiary of Southern; Gulf Power 
Company (``Gulf Power''), One Energy Place, Pensacola, Florida, 32520 
and a wholly-owned public utility subsidiary of Southern; Mississippi 
Power Company (``Mississippi Power''), 2992 West Beach Blvd., Gulfport, 
Mississippi, 39501 and a wholly-owned public utility subsidiary of 
Southern; Savannah Electric and Power Company (``Savannah Power''), 600 
East Bay Street, Savannah, Georgia, 31401 and a wholly-owned public 
utility subsidiary of Southern; Alabama Power Company (``Alabama 
Power''), 600 North 18th Street, Birmingham, Alabama, 35291 and a 
wholly-owned public utility subsidiary of Southern; Southern Company 
Capital Funding, Inc. (``Capital Funding''), 1403 Foulk Road, Suite 
102, Wilmington, Delaware, 19803 and a wholly-owned subsidiary of 
Southern; Southern Communications Services, Inc., 5555 Glenridge 
Connector, Suite 500, Atlanta, Georgia, 30342 and a wholly-owned 
subsidiary of Southern; Southern Nuclear Operating Company, Inc., 40 
Inverness Center Parkway, Birmingham, Alabama, 35242 and a wholly-owned 
subsidiary of Southern; and Southern Power Company (``Southern Power'') 
and Southern Electric Generating Company (``SEGCO''), each of 600 North 
18th Street, Birmingham, Alabama, 35291 and each a wholly-owned public 
utility subsidiary of Southern \36\ (collectively, ``Applicants''), 
have filed a post-effective amendment (``Amendment'') under sections 
6(a), 7, 9(a), 10, 12(b) and 12(f) of the Act and rules 42, 45, 53 and 
54 under the Act, to their previously filed application-declaration 
(``Declaration'').
---------------------------------------------------------------------------

    \36\ Southern owns the following public utilities: Alabama 
Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Power, 
Southern Power Company and Southern Electric Generating Company.
---------------------------------------------------------------------------

    By order dated June 30, 2004 (Holding Company Act Release No. 
27867), as corrected by order dated July 23, 2004 (Holding Company Act 
Release No. 27867A) (collectively, ``Original Order''), the Commission 
authorized certain of the Applicants to engage in financing and related 
transactions through June 30, 2007 (``Authorization Period'').\37\
---------------------------------------------------------------------------

    \37\ The Original Order authorized: (1) Southern to issue up to 
35 million shares of its common stock; (2) Southern to issue 
unsecured notes to effect short-term, term loan and commercial paper 
borrowings in an aggregate principal amount not to exceed $3 billion 
at any time outstanding; (3) Southern to issue up to 85 million 
shares of its common stock to its dividend reinvestment plan, 
employee savings plan, employee stock ownership plan or other 
similar stock based plans adopted in the future (these shares are in 
addition to the common stock authorized in subparagraph 1, above); 
(4) the Applicants, except Capital Funding, SEGCO and Southern Power 
Company, to purchase Southern common stock to contribute to the 
employee stock ownership plan for the benefit of their employees; 
(5) Southern to provide from time-to-time guarantees on behalf or 
for the benefit of SCS in an aggregate principal amount not to 
exceed $330 million at any time outstanding; and (6) Southern and 
Capital Funding to issue and sell from time-to-time directly shares 
of their preferred stock and, directly or indirectly, preferred 
securities (including without limitation trust preferred securities) 
(``Preferred Securities''), equity-linked securities, and/or long-
term debt, in an aggregate principal amount not to exceed $1.5 
billion. Southern and Capital Funding may also to issue and sell 
Preferred Securities indirectly through one or more financing 
subsidiaries. Any securities issued by Capital Funding, or any 
Preferred Securities issued by a financing subsidiary, may be 
guaranteed by Southern. Any securities may be convertible into 
common stock of Southern, provided that the value of the common 
stock issuable upon conversion may not exceed $2 billion in the 
aggregate. The common stock issuable upon conversion is in addition 
to the common stock authorized to be issued by Southern in 
subparagraphs 1 and 3, above.
    Additionally, Southern is authorized to issue up to a total of 
71.7 million shares of common stock to several employee plans and an 
outside director plan. See Holding Company Act Release No. 27246 
(October 11, 2000) (40 million shares to the Southern Company 
Performance Stock Plan through February 17, 2007); Holding Company 
Act Release No. 27416 (June 7, 2001) (30 million shares to the 
Southern Company Omnibus Incentive Compensation Plan through May 22, 
2011); and Holding Company Act Release No. 27854 (June 4, 2004) (1.7 
million shares to the Southern Company Outside Directors Stock Plan 
through May 26, 2014).
---------------------------------------------------------------------------

I. Requested Authority

    In the post-effective amendment, Applicants request authorization, 
during the Authorization Period: (1) For the Applicants to enter into 
transactions to manage interest rate, credit and equity price risk with 
regard to the issuance of securities; (2) for Southern and Holdings to 
provide guarantees on behalf of, or for the benefit of, their 
subsidiaries in an aggregate amount not to exceed $1.5 billion at any 
time outstanding; (3) for Southern to acquire certain securities of 
certain public utility affiliates; (4) to amend the definition of 
Preferred Stock to include preference stock; and (5) for Southern and 
Holdings to acquire the securities of intermediate subsidiaries and 
subsidiaries authorized to engage in development and administrative 
activities with respect to certain businesses.
1. Financing Risk Management Devices
a. Interest Rate Hedges
    To the extent not exempt under Rule 52 of the Act, Applicants 
request authorization to enter into interest rate hedging transactions 
with respect to existing indebtedness that has been previously 
authorized for issuance by any relevant regulatory agency (``Interest 
Rate Hedges'') in order to reduce or manage interest rate cost or risk. 
Interest Rate Hedges would only be entered into with counterparties 
(``Approved Counterparties'') whose senior debt ratings, or the senior 
debt ratings of any

[[Page 33557]]

credit support providers who have guaranteed the obligations of the 
counterparty, as published by Standard & Poor's Corp., are equal to or 
greater than BBB, or an equivalent rating from Moody's Investor Service 
or Fitch Investor Service. In no case will the notional principal 
amount of any Interest Rate Hedge exceed the face value of the 
underlying debt instrument and related interest rate exposure. Because 
transactions will be entered into for a fixed or determinable period, 
the Applicants will not engage in speculative transactions. Interest 
rate hedges will involve the use of financial instruments and 
derivatives commonly used in today's capital markets, such as interest 
rate swaps, options, 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 
U.S. Treasury obligations. The transactions would be for fixed periods 
and stated notional amounts.
b. Anticipatory Hedges
    To the extent not exempt under Rule 52, the Applicants request 
authorization to enter into interest rate hedging transactions with 
respect to anticipated debt offerings (``Anticipatory Hedges''). Such 
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 (1) a forward sale 
of exchange-traded U.S. Treasury futures contracts, U.S. Treasury 
obligations and/or a forward swap (each a ``Forward Sale''); (2) the 
purchase of put options on U.S. Treasury obligations (``Put Options 
Purchase''); (3) a Put Options Purchase in combination with the sale of 
a call options on U.S. Treasury obligations (``Zero Cost Collar''); (4) 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury obligations; or (5) 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, options, 
caps and collars appropriate for Anticipatory Hedges. 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 or the Chicago Mercantile Exchange, 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.
    Each Applicant will determine the optimal structure of each 
Anticipatory Hedge transaction at the time of execution. An Applicant 
may decide to lock in interest rates and/or limit its exposure to 
interest rate increases. Fees, commissions and other amounts payable to 
the counterparty or exchange (excluding, however, the settlements 
arising from the financial instruments and derivatives, such as swap or 
option settlements) in connection with a hedge will not exceed those 
generally obtainable in competitive markets for parties of comparable 
credit quality.
    Each Applicant represents that each Interest Rate Hedge and 
Anticipatory Hedge will be treated for accounting purposes under 
generally accepted accounting principles. Each Applicant will comply 
with Statement of Financial Accounting Standards (``SFAS'') 133 
(``Accounting for Derivative Instruments and Hedging Activities), 
including any amendments to SFAS 133, or other standards relating to 
accounting for derivative transactions as are adopted and implemented 
by the Financial Accounting Standards Board (``FASB''). The Interest 
Rate Hedges and Anticipatory Hedges will qualify for hedge accounting 
under the FASB standards in effect and determined at the date the 
hedges are entered into.
2. Guarantees
    From time-to-time through the Authorization Period, Southern and 
Holdings request authority to enter into guarantees, enter into expense 
agreements or otherwise provide credit support with respect to the debt 
or other securities or obligations, whether for payment and/or 
performance, of any or all of the subsidiaries of Southern and Holdings 
(collectively, ``Guarantees''), as the case may be; provided that the 
total amount of Guarantees for Southern and Holdings at any time 
outstanding does not exceed an aggregate amount of $1.5 billion; and 
provided further that (1) the amount of any Guarantees in respect of 
obligations of any non-utility subsidiary shall also be subject to the 
limitations of rule 53(a)(1) and rule 58(a)(1), as applicable; and (2) 
that any Guarantee that is outstanding on the last day of the 
Authorization Period will expire or terminate in accordance with the 
stated terms of the Guarantee.\38\
---------------------------------------------------------------------------

    \38\ Pursuant to the Original Order, Southern currently has 
authority to provide from time-to-time guarantees on behalf of, or 
for the benefit of, SCS an aggregate principal amount not to exceed 
$330 million at any time outstanding and to provide guarantees on 
behalf of or for the benefit of Capital Funding. Southern proposes 
that the authorization requested in this Declaration would supersede 
and replace the authorization to provide guarantees to SCS contained 
in the Original Order, and be effective immediately upon the date of 
a Commission order granting this request. The authority to issue 
guarantees on behalf of, or for the benefit of, Capital Funding in 
the Original Order would not be superseded by any Commission order 
issued in regard to the present request.
    Pursuant to Holding Company Act Release 27303 (December 15, 
2000) (``Transfer Order'') Southern and Holdings are currently 
authorized to provide from time-to-time guarantees on behalf of 
their subsidiaries in an aggregate amount not to exceed $1.2 billion 
at any time outstanding and performance guarantees on behalf of 
their subsidiaries in an aggregate amount not to exceed $800 million 
at any time outstanding. Under this authorization, Southern and 
Holdings currently have, in the aggregate, approximately $57 million 
in guarantees outstanding. Southern and Holdings propose that the 
authorization sought in the Declaration would supersede and replace 
the authorization granted in the Transfer Order and be effective 
immediately upon the date of a Commission order granting this 
request.
---------------------------------------------------------------------------

    In addition to providing direct parent guarantees, Southern and 
Holdings may also provide Guarantees in the form of formal credit 
enhancement agreements, including but not limited to ``keep well'' 
agreements and reimbursement undertakings under letters of credit. 
Guarantees may, in some cases, be provided to support obligations of 
subsidiaries that are not readily susceptible of exact quantification 
or that may be subject to varying quantification. In such cases, 
Southern or Holdings, as the case may be, will determine the exposure 
under the Guarantee for purposes of measuring compliance with the 
proposed limitation on Guarantees by appropriate means, including 
estimation of exposure based on loss experience or projected potential 
payment amounts. If appropriate, estimates will be made in accordance 
with generally accepted accounting principles in the United States. The 
estimation will be reevaluated periodically.
    Southern and Holdings may each charge a fee for each Guarantee 
provided by it 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.
3. Acquisition of Securities of Certain Public Utility Affiliates
    From time-to-time during the Authorization Period, Southern 
requests authority to acquire the common stock of Gulf Power Company in 
an aggregate amount not to exceed $420 million and the common stock of 
Mississippi Power Company in an aggregate amount not to exceed $300 
million.\39\
---------------------------------------------------------------------------

    \39\ Southern currently has no authority from the Commission to 
acquire the common stock of Gulf Power Company or Mississippi Power 
Company.

---------------------------------------------------------------------------

[[Page 33558]]

4. Amend Definition of ``Preferred Stock''
    Southern and Capital Funding desire to amend the definition of 
``Preferred Stock'' set forth in the Original Order so that it includes 
the issuance of preference stock.
5. Acquisition of Securities of Intermediate Subsidiaries and 
Subsidiaries Authorized To Engage in Development and Administrative 
Activities With Respect to Exempt Businesses
    In connection with existing and future exempt businesses authorized 
pursuant to rules 53 or 58 of the Act, including investments in energy-
related companies, exempt wholesale generators (``EWGs'') or foreign 
utility companies (``FUCOs'') (collectively, ``Exempt Businesses''), 
Southern and Holdings will engage directly or through subsidiaries in 
preliminary development activities (``Development Activities'') and 
administrative and management activities (``Administrative 
Activities'') associated with the investments.\40\ Development 
Activities will be limited to: due diligence and design review, market 
studies, preliminary engineering, site inspection, preparation of bid 
proposals (including 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 other 
preliminary activities as may be required in connection with the 
Development Activities and Administrative Activities. Southern and 
Holdings request authority to acquire directly or indirectly the 
securities of one or more corporations, trusts, partnerships, limited 
liability companies or other entities (collectively, ``Intermediate 
Subsidiaries''), which would be organized exclusively for the purpose 
of acquiring, holding and/or financing the acquisition of the 
securities of, or other interests in, one or more Exempt Businesses; 
provided that Intermediate Subsidiaries may also engage in Development 
Activities and Administrative Activities. To the extent that Southern 
or Holdings provide funds directly or indirectly to an Intermediate 
Subsidiary which are used for the purpose of making an investment in 
any Exempt Business, the amount of such funds will be included in 
Southern's or Holdings' ``aggregate investment'' in these entities, as 
calculated in accordance with rules 53 and 58, as applicable.
---------------------------------------------------------------------------

    \40\ Under the Transfer Order, Southern currently has authority 
to organize one or more intermediate subsidiaries to make 
investments in Exempt Businesses and to spend up to $300 million on 
Development Activities. Southern proposes that the authorization 
sought in this Declaration would supersede and replace the 
authorization granted in the Transfer Order and be effective 
immediately upon the date of a Commission order regarding this 
request.
---------------------------------------------------------------------------

II. Financing Parameters

    Applicants state that the proposed transactions will be subject to 
the terms and conditions set forth in the Original Order, as 
applicable, except that in no event will the effective cost of capital 
on any guarantee by Southern or Holdings of their subsidiaries (other 
than Capital Funding) exceed 500 basis points over a U.S. treasury 
having an amount equal to the guaranteed amount. In particular, 
Southern and each of its public utility subsidiaries will continue to 
comply with the requirement that at all times during the Authorization 
Period they must maintain a common equity ratio of at least thirty 
percent of their consolidated capitalization (common equity, preferred 
stock, long-term and short-term debt) as reflected in its most recent 
Form 10-K and Form 10-Q filed with the Commission adjusted to reflect 
changes in capitalization since the balance sheet date, unless 
otherwise authorized.
    Additionally, no guarantees or securities, other than common stock, 
commercial paper or short-term bank debt (with a maturity of one year 
or less) may be issued in reliance upon any authorization that may be 
granted by the Commission, unless upon original issuance (a) the 
security to be issued, if rated, is rated investment grade; (b) all 
outstanding securities of the issuer that are rated are rated 
investment grade; and (c) all outstanding securities of Southern that 
are rated are rated investment grade. For purposes of this provision, 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.

III. Financial Condition

    Set forth below are the security ratings of those Applicants that 
have received them:

------------------------------------------------------------------------
                                            S&P      Moody's     Fitch
------------------------------------------------------------------------
Southern:
    unsecured debt.....................        A-         A3          A
    trust preferred securities.........      BBB+         A3   .........
    preferred stock....................  .........      Baa1   .........
    commercial paper...................       A-1        P-1        F-1
Alabama Power Company:
    unsecured debt.....................         A         A2         A+
    trust preferred securities.........      BBB+         A3          A
    preferred stock....................  .........      Baa1          A
    commercial paper...................       A-1        P-1        F-1
Georgia Power Company:
    unsecured debt.....................         A         A2         A+
    trust preferred securities.........      BBB+         A3          A
    preferred stock....................  .........      Baa1          A
    commercial paper...................       A-1        P-1        F-1
Gulf Power Company:
    unsecured debt.....................         A         A2          A
    trust preferred securities.........      BBB+         A3         A-
    preferred stock....................  .........      Baa1         A-
    commercial paper...................       A-1        P-1        F-1
Mississippi Power Company:

[[Page 33559]]

 
    unsecured debt.....................         A         A1        AA-
    trust preferred securities.........      BBB+         A2         A+
    preferred stock....................  .........        A3         A+
    commercial paper...................       A-1        P-1        F-1
Savannah Electric and Power Company,
 Inc.:
    unsecured debt.....................         A         A2
    trust preferred stock..............      BBB+         A3
    preferred stock....................  .........      Baa1   .........
    commercial paper...................       A-1        P-1
Southern Power Company:
    unsecured debt.....................      BBB+       Baa1       BBB+
    commercial paper...................       A-2        P-2   .........
Southern Company Services:
    corporate credit rating............         A
------------------------------------------------------------------------

Allegheny Energy, Inc., et al. (70-10278)

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company under the Act, West Penn Power Company (``West Penn''), a 
public-utility subsidiary of Allegheny, West Penn Funding Corporation 
(``WP Funding Corp.''), a wholly owned subsidiary of West Penn, West 
Penn Funding LLC (``WP Funding LLC''), a wholly owned limited liability 
company of WP Funding Corp., and Allegheny Energy Service Corporation 
(``AE Service Corp.''), a wholly owned subsidiary of Allegheny, all 
located at 800 Cabin Hill Drive, Greensburg, PA 15601 (together, 
``Applicants''), have filed an application-declaration, as amended 
(``Application''), with the Commission under sections 6(a), 7, 9, 10, 
12(b), 12(f) and 13(b) of the Act and rules 54, 90 and 91.

I. Summary of the Request

    Applicants seek authorizations to issue up to $115 million in new 
transition bonds (``New Transition Bonds'') and for certain related 
financial transactions in connection with West Penn's financing and 
recovery of costs associated with Pennsylvania's electric-utility 
industry restructuring.\41\ These proposed authorizations are related, 
and in addition, to a similar Commission authorization dated October 
19, 1999, by which West Penn was permitted to engage in various 
transactions, including issuance of up to $600 million in transition 
bonds (``Existing Transition Bonds'').\42\ Applicants request authority 
to engage in the following transactions, from time to time, through 
December 31, 2010, as applicable:
---------------------------------------------------------------------------

    \41\ Applicants explain that, beginning in 1997, after enactment 
of the Pennsylvania Electricity Generation Customer Choice and 
Competition Act (66 Pa. C.S. Section 2801 et seq. (together with 
regulatory interpretations, ``Competition Act'')), Pennsylvania 
restructured its electricity industry, requiring the unbundling of 
electric services into separate generation, transmission and 
distribution services with open competition in the retail sale of 
electricity, implementing a program of retail competition in the 
electricity sector. Applicants state that the retail electric 
competition program now applies to all retail customers in the 
Commonwealth. Electric distribution services are regulated by the 
Pennsylvania Public Utility Commission (``PUC''), as they were 
before. Transmission services are regulated by the Federal Energy 
Regulatory Commission, as are wholesale rates for purchases and 
sales of electric power.
    \42\ See West Penn Power Co., Holding Co. Act Release No. 27091 
(October 19, 1999).

    (i) For West Penn, (a) to utilize WP Funding or to form a new 
domestic subsidiary corporation (together, ``WP Funding''),\43\ and 
(b) to transfer intangible transition property (``ITP'') and the 
associated intangible transition charges (``ITC'') revenue stream 
(both described below), to WP Funding as a capital contribution or 
as a sale in exchange for shares of WP Funding stock;
---------------------------------------------------------------------------

    \43\ Applicants state that West Penn will issue the New 
Transition Bonds either through its existing subsidiary, WP Funding 
Corp., or a new subsidiary corporation. For convenience, however, WP 
Funding Corp. and any new subsidiary are referred to, together, as 
``WP Funding'' and all requested authorizations for WP Funding refer 
both to West Penn Funding Corp. and any newly-formed corporation, 
unless specifically noted.
---------------------------------------------------------------------------

    (ii) For WP Funding, (a) to acquire a new wholly owned limited 
liability company (``WPF LLC'') \44\ and (b) to transfer ITP and the 
associated ITC revenue stream to WPF LLC in exchange for the net 
proceeds WPF LLC receives from its proposed sale of New Transition 
Bonds, described in subparagraph (iii) below;
---------------------------------------------------------------------------

    \44\ Applicants state that, in the event New Transition Bonds 
are issued through WP Funding Corp., and not a newly-formed 
subsidiary corporation, the New Transition Bonds may be issued by WP 
Funding LLC, an existing subsidiary limited liability company, 
rather than a newly-formed limited liability company. For 
convenience, again (see also note 3 above), WP Funding LLC and a new 
limited liability company (whether a subsidiary of WP Funding Corp. 
or a newly-formed subsidiary of West Penn) are referred to, 
together, as ``WPF LLC'' and all requested authorizations for WPF 
LLC refer both to West Penn Funding LLC and any newly-formed limited 
liability company, unless specifically noted.
---------------------------------------------------------------------------

    (iii) For WPF LLC, (a) to issue New Transition Bonds in an 
amount of up to $115 million to investors, with a final maturity no 
later than December 31, 2010, and (b) to transfer, to WP Funding, 
the net proceeds from its sale of New Transition Bonds in exchange 
for ITP and the associated ITC revenue stream (which will secure the 
New Transition Bonds);
    (iv) For WP Funding, to lend, to West Penn, the net proceeds 
from the sale of the New Transition Bonds it receives from WPF LLC;
    (v) For West Penn, to issue a note of up to $115 million to WP 
Funding for the loan;
    (vi) For West Penn, to pay Allegheny, dividends out of capital 
and unearned surplus, in the amount of the loan to West Penn, not to 
exceed $115 million (to facilitate Allegheny's commitment under an 
intercreditor agreement among Allegheny, Allegheny Energy Supply 
Company, LLC (``AE Supply'') and their respective lenders); \45\
---------------------------------------------------------------------------

    \45\ See also Allegheny Energy, Inc., et al., Holding Co. Act 
Release No. 27963 (April 29, 2005).
---------------------------------------------------------------------------

    (vii) For West Penn and WPF LLC, to enter into a servicing 
agreement by which West Penn will provide services, at a market 
rate, to WPF LLC for its ITC revenue stream, including (a) billing 
customers and making collections on behalf of WPF LLC, and (b) 
making certain filings with the PUC; and
    (viii) For AE Service Corp., to enter into a service agreement 
with WP Funding and WPF LLC to provide corporate governance, 
bookkeeping and other related services.

II. Background

    West Penn is incorporated in Pennsylvania, its entire service 
territory is located in the Commonwealth of Pennsylvania and it is 
subject to the regulation of the PUC. West Penn was authorized by the 
Commission in 1999 to securitize certain costs incurred in the 
electric-utility industry restructuring of the 1990's and is now 
seeking certain further authorization related to the same Commonwealth 
of Pennsylvania restructuring (requiring unbundling of electric 
services into separate generation, transmission and distribution 
services and competition in retail sales of electricity). The 
restructuring is administered by the PUC and was expected to cause some 
utilities in Pennsylvania to incur ``stranded'' or other ``transition'' 
costs, among other things. To reduce some of

[[Page 33560]]

the cost impact, Pennsylvania's 1996 Competition Act permitted an 
electric-utility, under certain circumstances and during a transition 
period, to recover some stranded or transition costs related to 
restructuring.\46\
---------------------------------------------------------------------------

    \46\ Applicants state that Pennsylvania determined that the 
transition costs would be recoverable to the extent the PUC 
concludes the costs are just and reasonable. Transition costs 
identified are items such as regulatory assets, long-term purchased 
power commitments and other costs, including investment in 
generating plants, spent-fuel disposal, retirement costs and 
reorganization costs, among other things.
    Pennsylvania's Competition Act required utilities to submit 
restructuring plans to the PUC, among other things, addressing 
certain prescribed time periods and including identified transition 
costs. In addition, the statute implemented utility rate caps to be 
in place during the transition cost collection period (with certain 
exceptions) and, for a significant portion of the period, total 
charges to customers would not be permitted to exceed rates in place 
as of December 31, 1996.
---------------------------------------------------------------------------

    Applicants explain that the Competition Act provides that, subject 
to PUC approval and certain rate caps, these costs (after mitigation by 
the utility) may be recovered and collected by utilities from 
distribution customers through a ``competitive transition charge'' 
(``CTC'') and these costs also may be recovered through issuance of 
``transition bonds.'' \47\ The Competition Act also requires a utility 
to retrieve these costs within nine years of enactment of the 
Competition Act (or an alternate period, as permitted by the PUC, upon 
good cause shown). Applicants state that the transition bond method of 
cost recovery may be, in certain circumstances, more expeditious and 
cost-effective for the utilities and ratepayers.
---------------------------------------------------------------------------

    \47\ Applicants state that the Competition Act also permits the 
transaction to be conducted through a subsidiary of a utility or a 
third-party assignee of a utility.
---------------------------------------------------------------------------

    Applicants state that, in order for a utility to use transitions 
bonds, the statute requires the PUC to issue Qualified Rate Orders 
(``QROs'') permitting a utility to issue transition bonds and requires 
that a utility use proceeds of transition bonds principally to reduce 
qualified stranded costs and the utility's related capitalization. The 
Competition Act further provides that, to the extent the PUC declares a 
QRO (and the rates and other QRO-authorized charges) to be ``intangible 
transition property'' (i.e., ITP), the utility (1) has ITP as 
collateral, to secure the transition bonds and (2) may impose, on its 
customers, non-bypassable ``intangible transition charges'' (i.e., 
ITC), from which to repay the transition bonds.\48\
---------------------------------------------------------------------------

    \48\ Applicants state that ITCs are generally defined as amounts 
authorized by the PUC, under an irrevocable QRO, to be imposed on 
all customer bills, to recover the principal and interest on 
transition bonds, costs to cover credit enhancements, cost of 
retiring existing debt and equity, costs of defeasance, servicing 
fees and other related fees, taxes, costs and expenses (i.e., 
``qualified transition expenses'' or ``QTEs''). The ITCs are 
collected, through non-bypassable charges, by an electric-utility 
providing electric transmission and distribution services to a 
customer located in its service territory, regardless of whether 
that customer continues to purchase electricity from that electric-
utility. The ITCs are a specified dollar amount billed on each 
customer bill (determined by applying certain rates per kilowatt 
hour of usage and, in some cases, per kilowatt of demand). In a QRO, 
the PUC may provide for periodic adjustments to ITC (``true-ups''). 
Once the PUC declares a QRO to be irrevocable, none of the utility, 
the PUC, the Commonwealth of Pennsylvania, nor any state 
instrumentality, has any right to modify the ITC (subject to the QRO 
and the Competition Act).
---------------------------------------------------------------------------

    West Penn, in 1997, submitted its restructuring plan to the PUC 
and, in 1998, the PUC authorized West Penn to recover $670 million in 
transition costs by transition bonds, securitizing some of the cost 
recovery West Penn would be entitled to.\49\ West Penn states that, 
although the PUC authorized the $670 million transition cost recovery, 
West Penn has not been able to recover its full value for a variety of 
reasons, as described below.
---------------------------------------------------------------------------

    \49\ The West Penn restructuring plan, filed with the PUC in 
August 1997, among other things, unbundled generation from 
transmission and distribution. The plan was contested, was the 
subject of hearings and, finally, resulted in a settlement approved 
by the PUC on November 19, 1998. The PUC also authorized the $670 
million in stranded or transition costs to be recovered by a 
combination of stranded cost collection (subject to certain rate 
caps), lifting of generation caps from 2006 to 2008 and elimination 
of generation rate caps after December 31, 2008.
---------------------------------------------------------------------------

    West Penn issued $600 million of Existing Transition Bonds through 
West Penn Funding LLC in 1999 upon receiving the PUC's authorization in 
1998 and then the Commission's authorization, as noted above (less than 
the PUC's fully authorized amount of $670 million).\50\ Applicants 
state that, in addition, as of November 30, 2004, West Penn has 
experienced a cumulative CTC under-recovery of approximately $83 
million.\51\
---------------------------------------------------------------------------

    \50\ See note 2 above. Applicants explain that, before issuance 
of the Existing Transition Bonds, West Penn had recovered 
approximately $37 million of its stranded costs from customers. The 
$600 million of Existing Transition Bonds recovered approximately 
$584 million of additional stranded cost recovery (and paid for 
approximately $16 million in recoverable issuance costs). They 
further explain that, thus, West Penn has recovered (or is in the 
process of recovering through the ITC) approximately $621 million of 
its $670 million in stranded costs (deferring recovery of the 
remaining $49 million in stranded costs). Of this deferred $49 
million, which remains to be recovered, approximately $32 million is 
associated with periods prior to November 30, 2004 and $17 million 
is associated with future periods.
    The Existing Transition Bonds were issued in four classes, two 
of which remain outstanding. The Existing Transition Bonds consisted 
of Class A-1, Class A-2, Class A-3 and Class A-4 in amounts of $74 
million, $172 million, $198 million and $156 million, respectively 
(with Class A-3 and Class A-4 remaining outstanding with 
approximately $117 million and $156 million, respectively, as of 
December 31, 2004).
    \51\ Applicants state that the $83 million is comprised of the 
under-recovered stranded costs (approximately $32 million, noted 
above), associated interest (approximately $43 million), and West 
Penn's share of interest-related savings associated with the 
securitization (approximately $8 million).
---------------------------------------------------------------------------

    On April 21, 2005, the PUC authorized securitization of up to an 
additional $115 million for unrecovered stranded costs that Allegheny 
is entitled to under the earlier PUC authorization. Applicants state 
that this amount, as of November 30, 2004, includes: (1) The cumulative 
under-recovered CTC amount (approximately $83 million); (2) the 
remaining stranded cost scheduled for recovery through the CTC during 
future periods (approximately $17 million); and (3) transaction costs 
and West Penn's share (25 percent) of interest-related savings from 
securitization.\52\ They further state that the securitization process 
is intended to result in interest-related savings to the extent the 
interest rate payable on the transition bonds is lower than the 
interest rate authorized by the QRO for unrecovered CTC principal.\53\ 
Applicants also state that they are unable to estimate the precise 
interest-related savings associated with the issuance of the New 
Transition Bonds, although they anticipate a material amount of savings 
for West Penn's customers.
---------------------------------------------------------------------------

    \52\ Applicants state that customers also have an interest-
savings loss, since under the PUC's formula, the savings is shared 
between the utility and the ratepayer (25% and 75%, respectively).
    \53\ Applicants state that the Existing Transition Bonds were 
estimated to create approximately $46 million of interest-related 
savings. The customers' share of these savings is 75 percent 
(approximately $34.5 million) with West Penn retaining the 
remainder.
---------------------------------------------------------------------------

    Applicants state that the New Transition Bonds will be fully 
secured by West Penn's pledge of an irrevocable right to receive its 
customers' payments in amounts sufficient to service fully the New 
Transition Bonds.\54\ Applicants

[[Page 33561]]

state, in addition, that savings from securitization will be shared 
between West Penn and its customers, with 75% of net savings to be 
passed on to its customers.
---------------------------------------------------------------------------

    \54\ Applicants state that neither the general credit of West 
Penn nor that of Allegheny will be provided for the New Transition 
Bonds and neither West Penn nor Allegheny, under any circumstances, 
will be called upon to meet New Transition Bonds payments. 
Applicants state that issuance of the New Transition Bonds will not 
adversely affect West Penn's cash flows. The proposed New Transition 
Bonds will be separately rated by credit rating agencies and are not 
expected to affect Allegheny's or West Penn's credit ratings. 
Applicants state that the credit rating agencies recognize that the 
New Transition Bonds will be serviced by ITC approved by the PUC and 
are independent of Allegheny's and West Penn's credit. The Existing 
Transition Bonds are rated AAA by Standard & Poor's and Fitch and 
Aaa by Moody's and Applicants anticipate that the New Transition 
Bonds will receive similar ratings. West Penn's current credit 
ratings for its unsecured debt are B+ from Standard & Poor's, Ba1 
from Moody's, and BBB-from Fitch.
---------------------------------------------------------------------------

III. The Transactions

    Applicants state that the purpose of West Penn's New Transition 
Bonds is to enable it to recover the remaining uncollected portion of 
its $670 million in Pennsylvania transition costs in a manner that they 
anticipate to be more expeditious and cost-effective for West Penn and 
for its customers than recovering these amounts through the standard 
billing and collection of CTC. Applicants propose to effect these 
transactions as described below.
1. Formation of New Subsidiaries and Transfer of ITP and Associated ITC 
Revenue Stream
    West Penn requests authority to, either, (a) use West Penn Funding, 
the same wholly owned subsidiary it created in connection with the 
Existing Transition Bonds, or (b) instead, to form a new, wholly owned 
special purpose subsidiary for the transition cost securitization.\55\ 
West Penn also seeks authority to transfer its ITP and associated ITC 
revenue stream to WP Funding.
---------------------------------------------------------------------------

    \55\ For convenience, West Penn Funding Corporation and any new 
subsidiary, together, are referred to as ``WP Funding.'' See notes 3 
and 4, above.
---------------------------------------------------------------------------

    WP Funding, in turn, requests authority to choose, in its 
discretion, to form a new, wholly owned limited liability company (WPF 
LLC) for the securitization of the New Transition Bonds. In addition, 
in turn, WP Funding also requests authority to transfer, to WPF LLC, 
the ITP and associated ITC revenue stream it may receive from West 
Penn, pursuant to a sale agreement, in exchange for the proceeds of the 
New Transition Bonds.\56\
---------------------------------------------------------------------------

    \56\ See also section 2 (Issuance of New Transition Bonds) 
below. It is anticipated that the New Transition Bonds will be rated 
similarly to the Existing Transition Bonds, which are rated AAA by 
Standard & Poor's and Fitch and Aaa by Moody's, as noted before.
---------------------------------------------------------------------------

2. Issuance of New Transition Bonds
    Applicants request authority for WPF LLC to issue up to $115 
million in New Transition Bonds. WPF LLC may issue the New Transition 
Bonds in the form of debt securities in one or more series and each 
such series may be issued in one or more classes. Different series may 
have different maturities and coupon rates and each series may have 
classes with different maturities and coupon rates. Overall, the 
characteristics of the New Transition Bonds will be substantially 
similar to bonds issued by similar issuers in similar contexts and the 
Existing Transition Bonds issued by WPF LLC pursuant to the previous 
Commission order.\57\ Each series will be entitled to recover, through 
the ITC approved by the related QRO, QTEs based on a specified 
principal amount of New Transition Bonds for each series, including 
interest at the coupon rate or rates applicable to the series.\58\ 
Applicants also request that they be permitted to consummate the 
securitization within 120 days of the order permitting this Application 
to become effective, rather than the 60 day period for provided under 
rule 24, to provide sufficient time for West Penn to complete the 
transactions.
---------------------------------------------------------------------------

    \57\ See note 2 above.
    \58\ See also note 5 above.
---------------------------------------------------------------------------

    Applicants state that the New Transition Bonds will provide that 
they must be repaid no later than December 31, 2010.\59\
---------------------------------------------------------------------------

    \59\ Applicants note that the final maturity date may vary as 
ITC is calculated by taking into account variables such as the 
anticipated level of charge-offs, delinquencies and usage, which may 
differ from the amounts actually incurred or achieved.
---------------------------------------------------------------------------

    West Penn also states that, at this time, it anticipates using the 
proceeds from the sale of ITP funded by the $115 million of New 
Transition Bonds to pay issuance and financing costs and, the remaining 
proceeds principally to reduce its transition or stranded costs by 
reducing its existing capitalization through one or more of the 
following: (a) Retirement of outstanding debt, (b) retirement and 
repurchase of preferred stock and (c) reduction of common shareholder 
equity through stock buy backs and/or payment of dividends.\60\
---------------------------------------------------------------------------

    \60\ Applicants also state that the specific actions West Penn 
will take to reduce its capitalization will depend, in large part, 
on the date proceeds from the sale of the New Transition Bonds 
become available, then prevailing market conditions and 
circumstances at that time, including (but not limited to) the 
overall financial circumstances of West Penn and other financial 
activities that may be in progress or planned.
---------------------------------------------------------------------------

3. The Loan and the Payment of Dividends Related to the Loan
    WP Funding also requests authority to lend West Penn up to $115 
million (the proceeds from the sale of the ITP and associated ITC 
revenue stream) in exchange for West Penn's note in that amount. West 
Penn requests authority to issue a note of up to $115 million to WP 
Funding, at a market interest rate. Applicants state that the loan will 
have interest rates and maturities that are designed to provide a 
return to WP Funding of not less than WP Funding's effective cost of 
capital. Applicants state that West Penn's note to WP Funding will be 
subordinated to all outstanding West Penn debt.
    Related to the loan, Applicants also request authority to make 
certain dividend payments out of capital or unearned surplus, stating 
that West Penn may be required to pay dividends out of capital or 
unearned surplus to Allegheny in an amount of the loan, not to exceed 
$115 million, due to the terms of an intercreditor agreement between 
Allegheny and AE Supply and their respective lenders.\61\ Applicants 
state that the dividend authority is intended solely to enable 
Allegheny to comply with the terms of the intercreditor agreement. 
Applicants further state that any amounts paid to Allegheny by West 
Penn will be contributed back to West Penn immediately, regardless of 
circumstances.
---------------------------------------------------------------------------

    \61\ See Allegheny Energy, Inc., et al., Holding Co. Act Release 
No. 27963 (April 29, 2005), note 5, above, and SEC File No. 70-
10251. According to Applicants, this intercreditor agreement 
requires that, if either company or any of their subsidiaries issue 
debt or equity, then a percentage of the proceeds from the issuance, 
under certain circumstances, are to be paid as a dividend to 
Allegheny in the case where AE Supply (or one of its subsidiaries) 
is the issuer, or as a capital contribution to AE Supply if 
Allegheny (or one of its subsidiaries (other than AE Supply or its 
subsidiaries)) is the issuer. Consequently, should West Penn issue 
debt under certain circumstances specified in the intercreditor 
agreement, Allegheny must contribute a percentage of the proceeds 
temporarily to AE Supply. Applicants state that, to meet terms of 
the agreement, West Penn must pay dividends to Allegheny to provide 
Allegheny with sufficient funds to make the required contribution to 
AE Supply.
---------------------------------------------------------------------------

4. Servicing Agreement
    West Penn and WPF LLC also request authority to enter into a 
servicing agreement in which West Penn will agree to service WPF LLC's 
ITC revenue stream. West Penn will, among other things, (a) bill 
customers and make collections on behalf of WPF LLC, and (b) file with 
the PUC for adjustment to the ITC to achieve a level which allows for 
full recovery of QTEs in accordance with the amortization schedule for 
each series of Transition Bonds.\62\
---------------------------------------------------------------------------

    \62\ See also note 5 above.
---------------------------------------------------------------------------

    Applicants state that the ITC charge may be set to provide for 
recovery of an excess amount over that needed to pay expected costs and 
debt service on the New Transition Bonds.\63\ Applicants

[[Page 33562]]

state that West Penn will service the ITCs and will remit monthly (or 
more frequently) all amounts collected from the ITCs to a collection 
account maintained by the indenture trustee for the benefit of the 
bondholders of the New Transition Bonds (``Collection Account'').\64\ 
Under the terms of the servicing agreement, Applicants propose that 
West Penn will be entitled to compensation in the form of a service fee 
for its activities and reimbursement for certain of its expenses.\65\
---------------------------------------------------------------------------

    \63\ Collections of this additional amount will be deposited 
into an ``overcollateralization subaccount'' to enhance the 
creditworthiness of the New Transition Bonds. The ITC charge will be 
collected from West Penn customers over the expected amortization 
period of the New Transition Bonds. The New Transition Bonds will 
have the benefits of accounts related to the New Transition Bonds 
themselves and it is expected that amounts in these accounts will be 
no less than the amounts required to achieve AAA (or equivalent) 
rating from the rating agencies.
    \64\ Quarterly or semiannually, WPF LLC will pay out of the 
Collection Account, among other things authorized by the QRO, the 
trustee fees, servicing fees, administrative costs, operating 
expenses, accrued but unpaid interest (except for interest accrued 
prior to the collection period for the related ITCs, which will be 
capitalized) and principal (to the extent scheduled) on the New 
Transition Bonds. Any remaining balance in the Collection Account 
will be used to restore the capital subaccount, fund and replenish 
the overcollateralization subaccount (to the extent scheduled) and 
then be added to a reserve subaccount. The ITC will be adjusted at 
least annually to ensure sufficient revenues, after application of 
amounts in the reserve subaccount, to cover all these expenses.
    \65\ Specific compensation details will be contained in the 
documentation applicable to each series.
---------------------------------------------------------------------------

    As additional servicing compensation, West Penn also requests 
authority to retain all investment earnings on ITC collections from the 
time of collection until the time of remittance to the Collection 
Account. Amounts collected by West Penn for the ITC will be remitted 
monthly (or possibly more frequently if required by the rating 
agencies) to the Collection Account.
    Applicants state that, to satisfy the rating agency requirements 
for a ``bankruptcy remote'' entity, the servicing fee must be an arm's-
length fee that would be reasonable and sufficient for a third party 
performing similar services.\66\ Applicants request authority to enter 
into the fee arrangements.
---------------------------------------------------------------------------

    \66\ The rating agency requirement is meant to assure that the 
subsidiaries would be able to stand on their own and accordingly the 
fee must be sufficient to retain a third party servicer if for any 
reason West Penn could not continue to perform these services.
---------------------------------------------------------------------------

    Applicants also request that West Penn be authorized to subcontract 
with other companies to carry out some of its servicing 
responsibilities, so long as the ratings of the Transition Bonds are 
neither reduced nor withdrawn.
5. Service Agreements With Allegheny Energy Service Corporation
    WP Funding and WPF LLC request authority to enter into service 
agreements with AE Service Corp. Although WP Funding will have its own 
employees, Applicants propose that personnel employed by AE Service 
Corp. also provide services on an as-needed basis to WP Funding, as 
well as WPF LLC, under administrative service agreements (``Service 
Agreements'') to be entered into between WP Funding and AE Service 
Corp., and WPF LLC and AE Service Corp. The services will consist 
primarily of corporate housekeeping matters relating to WPF LLC and WP 
Funding, such as providing notices related to the Transition Bond 
documentation, consolidating corporate books and records into 
Allegheny's financial statements and overseeing corporate governance. 
Under the Service Agreements, WPF LLC and WP Funding will reimburse AE 
Service Corp. for the cost of services provided, computed in accordance 
with rules 90 and 91, as well as other applicable rules and 
regulations.

    For the Commission by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2934 Filed 6-7-05; 8:45 am]
BILLING CODE 8010-01-P