pace01.8dhjltc.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

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-01-8

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of Application, Notice of Modified Procedure, Notice of Comment/Protest Deadline, Notice of Scheduling, and Order No. 28755 issued on June 27, 2001, submits the following comments.

BACKGROUND
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.
The Applicant was previously before the Commission in Case No. PAC-E-99-1, where the Commission approved the merger of PacifiCorp with ScottishPower, Order No. 28213 (hereafter referred to as Merger Order). Pursuant to the Merger Order, the current company structure is as follows: All of the outstanding common stock of PacifiCorp is owned by NA General Partnership (NAGP). NAGP is a Nevada general partnership with ScottishPower NA1 (NA1) and ScottishPower NA2 (NA2) as the general partners. Both NA1 and NA2 are direct, wholly owned subsidiaries of ScottishPower. PacifiCorp has and is currently engaged in both regulated and non-regulated activities. The non-regulated activities are principally operated through PacifiCorp Group Holding Company (PGHC) and its subsidiaries, all of which are wholly owned by PacifiCorp.
Applicant has asked the Commission to approve an intra-corporate transfer of all the outstanding common stock of PacifiCorp, currently held by NAGP to, PacifiCorp Holding, Inc. (PHI), in exchange for all the capital stock of PHI. PHI is a newly formed, non-operating holding company incorporated under the laws of Delaware. No additional consideration would be involved in the exchange.
The proposals advanced by the Applicant for this exchange are as follows:
To provide a company structure conducive to the separation of the utility from the non-utility business activities currently conducted under the shell of PacifiCorp.
To allow ScottishPower to infuse capital into and receive distributions from the non-utility businesses without involving PacifiCorp.
To reduce the exposure of the utility side of PacifiCorp business from any adverse results in its non-utility operations.
To present consolidated financial statements that will no longer include the results of the non-utility businesses.
The Applicant quotes Merger Order Condition # 33 as support for this Application stating that it meets the Commission’s directives in the Order for separation of the utility and non-utility activities.
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.

It is PacifiCorp’s intent over time to transfer its interest in its non-utility businesses to PHI contending that these transfers would not be subject to the Commission’s jurisdiction. Although 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 does not agree that any subsequent transfer is beyond the Commission’s jurisdiction. Idaho Code § 61-610, as recently amended by the 2001 Idaho Legislature, states that “(t)he 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.” The Commission, in approving the formation of a holding company for Idaho Power in Case No.
IPC-E-97-11, conditioned the approval on the continuing ability of the Commission to have reasonable access to the books and records of all of the proposed subsidiaries and entities. (Order No. 27348). 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. Such review ability would insure that the ratepayers are allocated all the value they have a claim to receive.

STAFF ANALYSIS
Staff supports the exchange of stock between NAGP 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-00-6. In Case No. PAC-E-00-6 the Company requests Commission approval for its reorganization into six distribution entities, one generation entity, and one service entity. Any action by the Commission in this case, PAC-E-01-8, should not prejudice the authority of the Commission to act independently on the issues presented in Case No.
PAC-E-00-6. Additionally, any decision by the Commission in this matter should not be considered as precedent for subsequent decisions by the Commission in its consideration of the issues in PAC-E-00-6. The Commission should consider the two applications as separate cases, and should render its decisions based solely upon the law, policy and evidence applicable to each case respectively.
Commission approval is required 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. Specifically, Idaho Code § 61-328(3) requires the Commission to find that the proposed transfer meets the following standards before granting approval:
Before authorizing the transaction, the public utilities commission shall find

(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.

Staff has examined the Application to determine if the proposed transfer meets the standards set forth in the statute. Additionally, Staff has examined the Merger Order to determine if the proposed exchange complied with the conditions imposed upon the parties in the Merger Case.
In applying the standards set forth in Idaho Code § 61-328(3), initially the Commission must determine “that the transaction is consistent with the public interest.” As part of the merger case, the Commission extensively deliberated on the question of whether or not the merger was consistent with the public interest. The Commission in the 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’s findings in that case are equally applicable in its determination of the “public interest” standard in this matter. Both before and after the proposed exchange, the ultimate ownership and control of PacifiCorp, PGHC, PHI, NAGP, NA1 and NA 2 will remain with ScottishPower. Staff recommends that approval for 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, none of the entities’ legal obligation for the conditions or requirements ordered in the Merger Order should be reduced, diminished, or eliminated.
Certain specific conditions of the Merger Order are relevant to the Company’s instant filing. Those specific conditions 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 # 28, Merger Order.)
Allow access to all books of accounts, as well as all documents, data and records of all affiliated interest, which pertain to any transactions between PacifiCorp and its affiliated interests. (Condition # 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 # 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 #36, Merger Order)
Second, the Commission must determine that “the cost of and rates for supplying service will not be increased by reason of the exchange.” With the exchange as set forth in the Application, there will not be any increase by reason of the 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 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.” The Applicant advances the position that the “proposed exchange of shares will have absolutely no impact on the ultimate ownership or control of PacifiCorp. PacifiCorp will continue to be an indirect subsidiary of ScottishPower.” The Commission previously, in the Merger Order, found that the surviving structure from the ScottishPower/PacifiCorp merger has the bona fide intent and financial ability to operate and maintain said property in the public service. The proposed exchange does not add any additional elements that should effect the Commission’s original determination regarding this statutory standard.

RECOMMENDATION
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-00-6 case.
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-99-1.
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-99-1.
That any allocation of expenses allocated to the utility activities of PacifiCorp by PHI not exceed the current allocation of expenses by NAGP.
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.
That PHI 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. Reference 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.
That none of the costs of the proposal be allocated to the ratepayers.

Respectfully submitted this day of July 2001.

____________________________________
Scott Woodbury
Deputy Attorney General

Technical Staff: Joe Leckie
Terri Carlock

SW:JL:TC:i:umisc/comments/pace01.8.swjltc

STAFF COMMENTS 6 JULY 24, 2001