06072001Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
DON HOWELL
GENE FADNESS
RANDY LOBB
TERRI CARLOCK
TONYA CLARK
BEVERLY BARKER
WORKING FILE

FROM: SCOTT WOODBURY

DATE: JUNE 7, 2001

RE: CASE NO. PAC-E-01-8 (PacifiCorp)
TRANSFER OF COMMON STOCK

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 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.

Commission Decision
Idaho Code § 61-328(2) states that the Commission “shall issue a public notice and shall conduct a public hearing upon the application.” The Company has filed a verified Application as required. PacifiCorp bears the burden of showing that the standards set forth in Idaho Code § 61-328(3) have been satisfied. Staff recommends that the Commission issue a Notice of Application and by hybrid procedure, establish an intervention deadline, provide an opportunity for discovery, solicit written comment in lieu of a technical hearing and establish a hearing date for public testimony. Does the Commission agree with Staff’s proposed procedure? If not, what is the Commission’s preference?

Scott D. Woodbury

bls/M:pace018_sw
DECISION MEMORANDUM 4