20040817SEC File No. 70-9669.pdf

Paul Kjellander
Commissioner Idaho Public Utilities Commission
O. Box 83720
Boise, Idaho 83720-0074
Dirk Kempthorne
Governor
August 17, 2004
Catherine A. Fisher, Assistant Director
Office of Public Utility Regulation
Securities and Exchange Commission
450 West 5th Street, NW
Washington, DC 20549
Re: ScottishPower s Request for Additional Financing Authority to Acquire EWGs and
Fueos, see File No. 70-9669
Dear Ms. Fisher:
In your letter dated March 11 , 2004, you asked the Idaho Public Utilities Commission (IPUC) to
comment on the Application by ScottishPower PLC for additional financing authority to invest
in exempt wholesale generators (EWGs) and foreign utility companies (FUCOs). Your letter
notes that ScottishPower is currently authorized by the Securities Exchange Commission (SEC)
to finance up to $4.68 billion and that ScottishPower s aggregate investment in EWGs and
FUCOs as of September 30, 2003, totaled $2.47 billion. Your letter also noted that
ScottishPower currently has an Application pending with the SEC to exceed the current
investment limits for EWGs and FUCOs. If the current Application were granted, ScottishPower
would be authorized an additional $7.82 billion in investment authority, bringing its total
investment in EWGs and FUCOs to $12.5 billion through March 31 , 2007.
Pursuant to Rule 53(c) of the Public Utility Holding Company Act of 1935 , ScottishPower is
required to affirmatively demonstrate that its use of proceeds to invest in EWGs and FUCOs will
not have an adverse impact on any utility subsidiary of ScottishPower, its customers, or on the
ability of state regulatory commissions to protect consumers. Your letter requests that the IPUC
certify that it has sufficient authority and resources to protect ratepayers in Idaho from adverse
consequences of ScottishPower s proposed additional investments in EWGs and FUCOs.
ScottishPower operates and does business in Idaho under the corporate name of PacifiCorp dba
Utah Power & Light Company. PacifiCorp is an electric corporation and public utility subject to
the jurisdiction of the IPUC with regard to its public utility operations and its retail electric rates.
Located at 472 West Washington Street, Boise, Idaho 83702
Telephone: [phone] Facsimile: [phone]
Catherine A. Fisher
August 17, 2004
Page 2
The IPUC certifies that it has the authority and resources to protect Idaho ratepayers subj ect to its
jurisdiction and it intends to exercise that authority by effectively regulating the Idaho operations
of PacifiCorp. That authority flows from Title 61 of the Idaho Code and the conditions of the
ScottishPower/PacifiCorp merger approved in Idaho as set forth in our Order No. 28213 issued
November 15, 1999. One condition is that ScottishPower and PacifiCorp agree that in future
IPUC proceedings they will not seek a higher cost of capital than that which PacifiCorp would
have been authorized on its own. This condition means that capital-financing costs (debt
preferred or common equity) should not increase by virtue of PacifiCorp s merger with
ScottishPower. This condition also applies to investments in EWGs and FUCOs.
PacifiCorp also agreed that it will not make any distribution to ScottishPower that will reduce
PacifiCorp common equity below 40 percent of PacifiCorp s total equity without IPUC
approval. The IPUC Staff and PacifiCorp may re-examine this minimum common equity
percentage as financial conditions or accounting standards change, and may request that it be
adjusted. The IPUC Staff also intends to explore other "ring fencing" provisions to determine if
additional financial safeguards are necessary. A report will be filed with the IPUC by March 31
2006.
Turning to the merits of ScottishPower s current Application, the IPUC expresses serious
concern regarding ScottishPower s request to incur an aggregate investment in EWGs and
FUCOs up to $12.5 billion through March 31 , 2007. If granted, the $12.5 billion aggregate
investment would exceed 400% of PacifiCorp' s consolidated retained earnings. Such investment
carries inherent risk that may impact the financial viability of ScottishPower and its stock value.
To monitor this concern, PacifiCorp agrees to file a copy of its SEC quarterly EWG/FUCO
reports with the IPUC. These reports shall be filed with the IPUC's audit section beginning with
the next report due the end of August 2004.
If you have further questions concerning this matter, please contact Terri Carlock at (208) 334-
0356.
Sincerely,
Paul Kjellander
President
cc:Don Howell
Terri Carlock
Laura Nelson
VldlL:Fisher dh