20010828Order No 28836.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

in the matter of THE APPLICATION OF PacifiCorp FOR AN ORDER APPROVING THE TRANSFER OF THE SHARES OF COMMON STOCK OF PacifiCorp FROM NA GENERAL PARTNERSHIP TO A NEWLY FORMED AFFILIATE, PacifiCorp HOLDINGS, INC. )
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CASE NO. PAC-E-01-08

ORDER NO. 28836

On April 23, 2001, PacifiCorp filed a verified Application with the Idaho Public Utilities Commission (Commission) requesting an Order approving the transfer by PacifiCorp of all its shares of PacifiCorp common stock from NA General Partnership to a newly formed affiliate, PacifiCorp Holdings, Inc. Idaho Code § 61-328 requires Commission approval when a public utility proposes to transfer, directly or indirectly, control of property located in Idaho which is used in the generation, transmission, distribution or supply of electric power and energy to the public.
PacifiCorp proposes to implement an internal corporate restructuring whereby all of the common stock of PacifiCorp, presently held by NA General Partnership (NAGP), will be transferred to a newly formed, non-operating U.S. holding company, PacifiCorp Holdings, Inc. (PHI), in exchange for 100% of the capital stock of PHI. The PHI shares will constitute the consideration for the shares of PacifiCorp. No other consideration will be involved, so there will be no financing required for the exchange.
The corporate structure of PacifiCorp and its related entities following the restructuring which is the subject of this Application, as well as the current corporate structure, are set forth in Application Exhibits 1-A and 1-B.
Effective November 29, 1999 PacifiCorp became an indirect subsidiary of ScottishPower. The merger of PacifiCorp with ScottishPower was approved by Commission Order No. 28213 in Case No. PAC-E-99-1. To effectuate the merger, a holding company structure was adopted, whereby all the common stock of PacifiCorp came to be held by NAGP. The general partners of NAGP are ScottishPower NA 1 Limited and ScottishPower NA 2 Limited, which are direct, wholly owned subsidiaries of ScottishPower.
PacifiCorp, both prior to and since the ScottishPower merger, has been engaged in a number of non-utility activities, principally through PacifiCorp Group Holdings Company (PGHC) and its subsidiaries, all of which are wholly owned.
PHI is a newly formed, non-operating holding company incorporated under the laws of the State of Delaware. As reflected in its Application, the proposed stock exchange between NAGP and PHI will facilitate the further separation of PacifiCorp’s non-utility operations from its regulated utility operations. PacifiCorp states the Commission recognized the desirability of such “ring-fencing” in its Order approving the PacifiCorp/ScottishPower merger:
Any diversified holding and investments (e.g., non-utility business or foreign utilities) of ScottishPower and PacifiCorp shall be held in a separate company other than PacifiCorp, the entity for utility operations. Provisions shall be provided for each of these diversified activities to fully separate accounting functions and to provide full cost allocations. This condition shall not prohibit the holding of diversified businesses and investments by affiliates of PacifiCorp, such as PacifiCorp Group Holdings Company.

Case No. PAC-E-99-1, Order No. 28213, p. 14, Condition 33. In connection with the proposed internal structuring, PacifiCorp states its intention to transfer over time some or all of the non-utility businesses of PGHC and its subsidiaries to PHI, a non-regulated entity. PacifiCorp states that it is not requesting approval for the transfer of PGHC or any of its subsidiaries to PHI, as these transfers are not subject to the Commission’s jurisdiction.
Idaho Code § 61-328(3) requires the following findings by the Commission for approval of a transfer governed by the statute:
(a) That the transaction is consistent with the public interest;

(b) That the cost of and rates for supplying service will not be increased by reason of such transaction; and

(c) That the applicant for such acquisition or transfer has the bona fide intent and financial ability to operate and maintain said property in the public service.

PacifiCorp contends that the proposed stock exchange meets the standards of Idaho Code § 61-328(3).
PacifiCorp contends that the further separation of PacifiCorp’s non-utility businesses from its regulated utility operations, which will be facilitated by the proposed stock exchange, is consistent with the public interest. Specifically, PacifiCorp contends that such separation will reduce the exposure of the regulatory side of PacifiCorp’s business to any adverse results in its non-utility operations, to the benefit of PacifiCorp’s customers. The proposed restructuring, it states, will allow ScottishPower to infuse capital into and receive distributions from the non-utility businesses without involving PacifiCorp. In addition, as restructuring is implemented, PacifiCorp’s consolidated financial statements will no longer include the results of the transferred non-utility businesses, thereby presenting more clearly the results of its utility operations.
PacifiCorp affirms that the cost of and rates for supplying electric service will not be increased by reason of the proposed transaction. This, the Company states, is not a case involving the merger of two operating utilities or the sale of utility assets used for providing utility service, whereby the utility’s costs might be changed. The cost incurred to accomplish the exchange of PacifiCorp’s stock held by NAGP for the capital stock of PHI will not, PacifiCorp states, be borne by the Company’s customers, and there are no other factors which would cause PacifiCorp’s costs or rates to increase by reason of the transaction.
Finally, the Company states that PacifiCorp and ScottishPower will continue to have the bona fide intent and financial ability to operate and maintain PacifiCorp’s utility system in the public service. The proposed exchange of shares, PacifiCorp states, will have absolutely no impact on the ultimate ownership or control of PacifiCorp. PacifiCorp will continue to be an indirect subsidiary of ScottishPower, which the Commission in Case No. PAC-E-99-1 found to have the bona fide intent and financial ability to operate the PacifiCorp system in the public service. The proposed internal restructuring, the Company contends, will not affect the operations or financial conditions of PacifiCorp. PacifiCorp maintains that it will continue to own, operate and manage all of its facilities used in the generation, transmission and sale of electricity. The ownership of PacifiCorp’s common stock by PHI, a wholly owned subsidiary of NAGP, rather than NAGP itself, the Company states, will not adversely affect the ability of PacifiCorp to serve the public. After consummation of the proposed transaction, the Company contends that the Commission will continue to have the same regulatory oversight over PacifiCorp that it has currently.
In summary, PacifiCorp states that the proposed reorganization meets the standards of Idaho Code § 61-328(3) because it reduces PacifiCorp’s exposure to adverse results in non-utility affiliate operations, will not affect rates, and maintains the ultimate corporate structure previously approved by the Commission without affecting the Commission’s oversight.
PacifiCorp requests that the Commission issue an Order authorizing the transfer of all common stock of PacifiCorp from NAGP to PHI, in exchange for the capital stock of PHI. PacifiCorp submits that, but for the statutory requirement in Idaho Code § 61-328 for a hearing, the proposed reorganization is an uncomplicated matter that does not raise any significant regulatory concerns and would be appropriate for processing under Modified Procedure.

On June 27, 2001, the Commission issued Notices of Application and Modified Procedure in Case No. PAC-E-01-08. In its Notice, the Commission made the following express finding:
The Commission finds that the hearing requirement of Idaho Code § 61-328 was satisfied by the hearings held in PacifiCorp’s underlying merger case, Case No. PAC-E-99-01. The Commission views the Company’s filing in this case as a compliance filing in furtherance of the merger conditions established in Order No. 28213, Merger Conditions 21 - 43, especially Condition Nos. 33 and 37.

The deadline for filing written comments was July 25th for Commission Staff and July 27th for the public. Timely comments were filed by the Commission Staff. Pursuant to scheduling, Reply Comments were filed by the Company on July 30th.
Staff supports the exchange of stock between NA General Partnership and the newly formed non-operating holding company, PacifiCorp Holding Inc. subject to conditions.
Initially, Staff is concerned that the issues of this Application not become confused or joined with the issues of another Application for reorganization by PacifiCorp currently pending before the Commission, Case No. PAC-E-00-06. In Case No. PAC-E-00-06 the Company requests approval for its reorganization into six distribution entities, one generation entity, and one service entity. Staff recommends that the Commission consider the two Applications as separate cases, and render its decisions based solely upon the law, policy and evidence applicable to each case respectively.
Staff has examined the Application in this case to determine if the proposed transfer meets the standards set forth in Idaho Code § 61-328(3). Additionally, Staff has examined the merger Order No. 28213 to determine if the proposed exchange complies with the conditions imposed upon the parties in the merger case. Staff notes that both before and after the proposed exchange, the ultimate ownership and control of PacifiCorp, PGHC, PHI, NAGP, NA1 and NA2 will remain with ScottishPower. Staff recommends that approval of the exchange be conditioned upon the new entity being subject to the same conditions and requirements imposed upon the parties by the merger Order. Additionally, Staff recommends that none of the legal obligations, conditions or requirements ordered in the merger Order be reduced, diminished or eliminated.
Certain specific conditions of the merger Order, Staff notes, are relevant to the Company’s instant filing. Those specific obligations should obligate PHI to do the following:
Not subsidize its activities by allocating to or directly charging PacifiCorp expenses not authorized by the Commission to be allocated or directly charged. (Condition No. 28, Merger Order).
Allow access to all books of accounts, as well as all documents, data and records of all affiliated interests, which pertain to any transactions between PacifiCorp and its affiliated interests. (Condition No. 22, Merger Order).
Allow the Commission or its agents to audit the records of PHI, which are the basis for charges to PacifiCorp. PHI will cooperate fully with such Commission audits. (Condition No. 21, Merger Order).
Set forth a reasonable and acceptable method of allocation of PHI expenses between the utility and non utility-related activities. This allocation should not be greater than the current allocation of expenses to the regulated activities of PacifiCorp. (Condition No. 36, Merger Order).
In applying the standards set forth in Idaho Code § 61-328(3), Staff notes that the Commission must initially determine “that the transaction is consistent with the public interest.” Staff notes that the Commission in its merger Order set forth extensive dicta and findings in arriving at its decision that the merger of PacifiCorp and ScottishPower met the “consistent with public interest” standard. The Commission findings in that case, Staff contends, are equally applicable in its determination of the “public interest” standard in this matter.
The Commission in accordance with Idaho Code § 61-328(3) must also determine that “the cost of and rates for supplying service will not be increased by reason of the exchange.” Based on its analysis, Staff contends that there will not be any increase by reason of the proposed exchange, provided the allocation of expenses from PHI are not more than those expenses currently allocated to the utility activities of PacifiCorp by NAGP.
Finally, the Commission must statutorily determine that the applicant for the exchange “has the bona fide intent and financial ability to operate and maintain said property in the public service.” Staff contends that the Commission’s findings in the Merger Order to this effect remain controlling. PacifiCorp will continue to be an indirect subsidiary of ScottishPower. The proposed exchange does not add any additional elements that affect the Commission’s original determination regarding the statutory standard.
Staff recommends that the proposed exchange be approved as requested in the Application with the following conditions:
That the approval of this Application not be a precedent for any future action by this Commission in the PAC-E-00-06 case.
PacifiCorp Reply: This condition is acceptable to PacifiCorp .
That the newly created holding company, PHI, be subject to all conditions and requirements of either PacifiCorp, ScottishPower or any subsidiary or affiliate of either, as imposed upon them by Order No. 28213, Case No. PAC-E-99-01.
Pacificorp Reply. PacifiCorp believes the purpose of this condition will be more correctly expressed as follows:
“that PHI will be subject to all conditions and requirements imposed upon affiliates of PacifiCorp by Order No. 28213, Case No. PAC-E-99-01.” The purpose of this change, the Company states, is to reflect the fact that PacifiCorp is subject to conditions and requirements under the Merger Order that are unique to its status as a regulated utility. However, PacifiCorp will agree that PHI will be subject to the conditions and requirements imposed by the merger Order that are appropriate to an affiliate company (including upstream affiliates) of PacifiCorp. The Company believes that this is the appropriate result of the proposed transaction and that Staff’s recommendation, if applied literally, would impose burdens not contemplated in the merger Order.
That neither PacifiCorp nor ScottishPower, or any subsidiary or affiliate of either, be released from any obligation or requirement imposed upon it by Order No. 28213, Case No. PAC-E-99-01.
PacifiCorp Reply. This condition is acceptable to PacifiCorp.
That any allocation of expenses allocated to the utility activities of PacifiCorp by PHI not exceed the current allocation of expenses by NAGP.
PacifiCorp Reply. PacifiCorp agrees that approval of the proposed intra-corporate restructure should not result in greater expense allocations than would occur under the current structure. However, PacifiCorp does not believe that the allocations from PHI to PacifiCorp should be fixed at current levels because allocations by NA General Partnerships (NAGP) are not fixed. PacifiCorp assures the Commission that it does not intend to change allocation levels or procedures based upon the proposed stock transfer or the substitution of PHI for NAGP in the corporate structure.
That PHI not subsidize its activities by allocating to or directly charging PacifiCorp expenses not authorized by the Commission to be allocated or directly charged.
PacifiCorp Reply. This Condition is acceptable to PacifiCorp, as it is identical to Condition 28 imposed on ScottishPower in Order No. 28213.
That PHI allow access to all books of accounts, as well as documents, data and records of all affiliated interests which pertain to any transactions between PacifiCorp and its affiliated interests. Reference Idaho Code § 61-610.
PacifiCorp Reply. This Condition is acceptable to PacifiCorp, as it is identical to Condition 22 imposed on PacifiCorp and ScottishPower in Order No. 28213 and because it is consistent with Idaho Code § 61-610.
That PHI allow the Commission or its agents to audit the records of PHI, which are the basis for charges to PacifiCorp. PHI will cooperate fully with such Commission audits. Reference Idaho Code § 61-610.
PacifiCorp Reply. This Condition is acceptable to PacifiCorp.
That none of the costs of the proposal can be allocated to the ratepayers.
PacifiCorp Reply. This Condition is acceptable to PacifiCorp, as it is consistent with the Application.
PacifiCorp in its Reply to Staff Comments notes that Staff in its Background section states “the question of the Commission’s jurisdiction over the subsequent transfer of non-utility businesses from PacifiCorp to PHI is not at issue in this Application.” Staff Comments p. 3. Idaho Code § 61-610, as recently amended by the 2001 Idaho Legislature, states that “the Commission shall also have the right to inspect the records of a public utility’s holding company, parent, affiliate, or subsidiary that engages directly in any transaction with the regulated utility which results in expenses being incurred, allocated or otherwise attributed to regulated services of a public utility.” PacifiCorp contends that Idaho Code § 61-610 does not create independent jurisdiction over non-regulated affiliates or over affiliate transactions that do not potentially affect PacifiCorp regulated rates. Idaho Code § 61-610, PacifiCorp notes, extends only to inspection of those records that “are necessary to determine whether such expense was properly incurred and should be included, in whole or in part, in the public utilities rates.” Idaho Code § 61-610(1). Staff, the Company notes, appears to suggest that the Commission’s authority is greater than provided by statute: “it is Staff’s opinion that such transfers are within the Commission’s jurisdiction; and the Commission has the authority and should review all subsequent transfers of non-utility assets and businesses from PacifiCorp to PHI.” Staff Comments p. 3. PacifiCorp does not agree that Idaho statutes extend jurisdiction to the Commission to review transactions concerning non-utility assets and business. The present Application, the Company states, does not require the Commission to determine the scope of its jurisdiction over non-utility businesses. PacifiCorp urges the Commission to limit its Order to the issues raised and leave any possible dispute over jurisdiction to a time when the Commission has relevant facts before it.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. PAC-E-01-08 including the comments and recommendations of Commission Staff and the reply comments of PacifiCorp. The Commission continues to find it reasonable to process this matter pursuant to Modified Procedure. Reference IDAPA 31.01.01.204.
PacifiCorp has requested an Order approving the transfer by PacifiCorp of all of its shares of PacifiCorp common stock from NA General Partnership to a newly formed affiliate, PacifiCorp Holdings, Inc., a Delaware corporation. This is an internal corporate restructuring of a nature requiring approval pursuant to Idaho Code § 61-328(3). The proposed stock exchange, we find, will facilitate the further separation of PacifiCorp’s non-utility operations from its regulated utility operations. This Commission has previously approved the desirability of such “ring fencing” in the PacifiCorp/ScottishPower merger case. Reference Case No. PAC-E-99-01, Order No. 28213.
The Commission finds that the Company in its verified Application has satisfied the requirements of Idaho Code § 61-328(3). We find the conditions proposed by Staff, as restated and/or clarified by the Company, to be reasonable and find it reasonable to approve the Company’s Application subject to said conditions.
The remaining issue arguably raised by the Company in its Application pertains to transfers of “non-utility” assets and Commission jurisdiction over such transactions. As reflected in Staff comments, what the Company may choose to classify as “non-utility” assets may be characterized differently by Staff. The Company states in its reply that this is an issue that doesn’t have to be decided at this time. The Commission agrees.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over PacifiCorp dba Utah Power & Light Company, an electric utility, and the issues presented in Case No. PAC-E-01-08 pursuant to the authority and power granted it under Title 61 of the Idaho Code and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby approve the proposed transfer of PacifiCorp common stock from NA General Partnership to a newly formed affiliate, PacifiCorp Holdings, Inc. subject to the eight conditions set forth above on pages 5 to 7. Reference Idaho Code § 61-328(3).
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of August 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/ O:PAC-E-01-08_ws

ORDER NO. 28836 1

Office of the Secretary
Service Date
August 28, 2001