<PAGE>
File No. 70-9669
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1
PRE-EFFECTIVE AMENDMENT NO. 2 TO APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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(Name of company filing this statement and address for purposes of application)
<TABLE>
<CAPTION>
<S> <C>
Scottish Power plc PacifiCorp
Scottish Power NA 1 Limited Energy West Mining Company
Scottish Power NA 2 Limited Glenrock Coal Company
NA General Partnership Interwest Mining Company
Scottish Power UK plc Pacific Minerals, Inc.
PacifiCorp Environmental Remediation
Company
1 Atlantic Quay PacifiCorp Investment Management, Inc.
Glasgow G2 8SP PacifiCorp Group Holdings Company
Scotland UK New Energy Holdings Inc.
PACE Group, Inc.
PacifiCorp Energy, Inc.
PacifiCorp Energy Services, Inc.
PacifiCorp Energy Ventures, Inc.
PacifiCorp Power Marketing, Inc.
PacifiCorp Trans, Inc.
PacifiCorp Financial Services, Inc.
Suite 2000
825 N.E. Multnomah Street
Portland, OR 97232
</TABLE>
<PAGE>
(Name of top registered holding company
parent of each applicant or declarant)
------------------------------------------
Scottish Power plc
(Name and addresses of agents for service)
<TABLE>
<CAPTION>
<S> <C>
Sir Ian Robinson Alan Richardson
Chief Executive Officer President
Scottish Power plc PacifiCorp
1 Atlantic Quay Suite 2000
Glasgow G2 8SP 825 N.E. Multnomah Street
Scotland, UK Portland, OR 97232
With copies to:
Andrew Mitchell, Company Secretary M. Douglas Dunn
James Stanley, General Counsel Orlan M. Johnson
Scottish Power plc Milbank Tweed Hadley & McCloy LLP
1 Atlantic Quay 1 Chase Manhattan Plaza
Glasgow G2 8SP New York, NY 10005
Scotland, UK
</TABLE>
This Pre-effective Amendment No. 2 amends the application-declaration of
form U-1 (File No. 70-9669) filed with the Commission on April 21, 2000. The
Application-Declaration is restated in its entirety.
Defined Terms
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1. Applicants means the Intermediate Companies and Scottish Power plc.
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2. Intermediate Companies means Scottish Power NA1 Ltd., Scottish Power NA2
----------------------
Ltd., NA General Partnership and Holdco.
3. PacifiCorp means PacifiCorp and its utility divisional structure.
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4. ScottishPower means Scottish Power plc.
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5. ScottishPower System means ScottishPower and all its subsidiary companies,
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including the PacifiCorp Group.
6. PacifiCorp Group means PacifiCorp and the PacifiCorp Subsidiary Companies.
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ii
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7. PacifiCorp Subsidiary Companies means the subsidiary companies of
-------------------------------
PacifiCorp listed as applicants, all of which are nonutility companies
under the Act.
8. SPUK means Scottish Power UK plc.
----
9. SPUK Group means SPUK and the SPUK Subsidiary Companies.
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10. SPUK Subsidiary Companies means the subsidiaries of SPUK.
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11. Total Common Equity means common stock, plus retained earnings,
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capital surplus and accumulated other comprehensive income, presented on a
U.S. GAAP basis.
12. Total Capitalization means the sum of Total Common Equity,
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preferred stock, short-term debt and long-term debt, including current
maturities.
iii
<PAGE>
TABLE OF CONTENTS
ITEM 1. DESCRIPTION
A. Introduction and General Request
B. Description of Existing PacifiCorp Financing Arrangements
C. Overview of Proposed Financings
D. Specifics of Proposed Financing Arrangements
1. ScottishPower External Financing
(a) Ordinary Shares
(b) Special Share
(c) Preferred Stock
(d) Debt
(e) Interest Rate and Currency Risk Management Devices
(f) Intermediate Companies
2. PacifiCorp Group Financings
(a) Existing Intercompany Arrangements
(b) New Money Pools
(c) Guarantees and Loans
(d) Payment of Dividends Out of Capital or Unearned Surplus
(e) Approval of New Tax Allocation Agreement
(f) Short-term Debt
3. Affiliate Transactions
4. Changes in Capital Stock of Subsidiaries
iv
<PAGE>
5. Financing Entities
6. Corporate Restructuring
7. EWG/FUCO-related Financings
E. Filing of Certificates of Notification
F. Summary of Application
ITEM 2. FEES, COMMISSIONS AND EXPENSES
ITEM 3. APPLICABLE STATUTORY PROVISIONS
ITEM 4. REGULATORY APPROVALS
ITEM 5. PROCEDURE
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
ITEM 7. STATEMENT AS TO ENVIRONMENTAL EFFECTS
v
<PAGE>
ITEM 1. DESCRIPTION
A. Introduction and General Request
This Application-Declaration is submitted to obtain financing authority for
the ScottishPower System. ScottishPower is the new ultimate holding company of
the ScottishPower System formed following the reorganization of SPUK to
facilitate ScottishPower's November 29, 1999, merger with PacifiCorp, a public
utility company as defined under section 2(a)(5) of the Public Utility Holding
Company Act of 1935, as amended ("Act").
Pursuant to an Amended and Restated Agreement and Plan of Merger, a wholly
owned subsidiary of ScottishPower was merged into PacifiCorp and ScottishPower
registered as a holding company as defined in Section 2(a)(7) of the Act.
PacifiCorp and SPUK are sister companies in the new ScottishPower System. As a
result of the merger and subsequent filing of the Notification of Registration
on Form U5A on November 30, 1999, ScottishPower became the first foreign
registered holding company under the Act, and both it and its subsidiary
companies are, accordingly, regulated as members of a registered holding company
system.
The ScottishPower System has significant energy businesses in the United
States ("U.S.") and the United Kingdom ("U.K."), with approximately seven
million customers, and pro forma annual revenues of approximately $10 billion.
--- -----
SPUK is a foreign utility company ("FUCO"), as defined under Section 33 of
the Act. In addition to its utility operations, SPUK holds, through subsidiary
companies, the foreign, non-utility interests of ScottishPower. In particular,
SPUK holds Manweb plc, an English retail electric company, Southern Water plc,
an English retail water company and Thus plc, a U.K. telecommunications company.
There are various other immaterial subsidiaries and undertakings held by SPUK.
PacifiCorp is a major electric utility company in the Pacific Northwest and
Intermountain West, which currently operates through divisions in six states,/1/
although it has entered into a premerger agreement regarding the sale of its
service territory in California. PacifiCorp owns a 19.9% interest in the 1600
MW Hazelwood power station in Victoria, which is a FUCO.
--------------------------
In the instant matter, the Applicants seek authority, to the extent the
transactions are not otherwise exempt from the Act, for the following
transactions through March 31, 2004 ("Authorization Period"):
/1/PacifiCorp is subject to the jurisdiction of public utility regulatory
authorities of each of the states in which it conducts retail electric
operations as to prices, services, accounting, issuance of securities and other
matters. PacifiCorp is regulated by the Public Utilities Commission of the
State of California, the Idaho Public Utilities Commission, the Public Service
Commission of Utah, the Washington Utilities and Transportation Commission, the
Public Service Commission of Wyoming, and the Oregon Public Utility Commission
("OPUC") (collectively, "State" or "Utility Commissions").
<PAGE>
(i) financings by ScottishPower, including but not limited to the
issuance of ordinary shares and American Depositary Shares, preferred
stock, short-and long-term debt, guarantees and currency and interest rate
swaps;
(ii) certain financings by the PacifiCorp Group described below;
(iii) intrasystem financings, including (a) the continuation of
existing intercompany borrowing arrangements within the PacifiCorp Group,
(b) the creation of two new PacifiCorp money pools ("Money Pools"), (c)
guarantees of the obligations of, and other forms of credit support for the
PacifiCorp Subsidiary Companies and the SPUK Subsidiary Companies, (d) the
payment of dividends out of capital or unearned surplus for non-utility
companies, and (e) approval of a new tax allocation agreement;
(iv) the issuance by members of the PacifiCorp Group of additional
shares, or alteration of the terms of any existing capital stock;
(v) issuance by PacifiCorp up to an aggregate principal amount of
$1.5 billion of short-term debt outstanding at any one time consisting of
commercial paper and promissory notes;
(vi) the formation of financing entities and the issuance by such
entities of securities otherwise authorized to be issued and sold pursuant
to this Application-Declaration or pursuant to applicable exemptions under
the Act, including intrasystem guarantees of such securities; and
(vii) financings by ScottishPower for the purposes of acquiring, or
funding the operations of, exempt wholesale generators ("EWGs") and FUCOs.
Authority is also sought for ScottishPower to cause to be created a holding
company (herein referred to as "Holdco") below NA General Partnership to act as
a pass-through entity for the shares of both PacifiCorp and PacifiCorp Group
Holdings Company ("PGHC") which is the holding company for PacifiCorp's
investments in subsidiaries that are not public utilities./2/ Holdco will be
authorized to issue 1000 shares of common stock, par value $.01 per share.
Holdco proposes to issue its outstanding common shares to NA General Partnership
and accordingly, NA General Partnership proposes to acquire all of the
outstanding common shares of Holdco. ScottishPower will continue to be the
ultimate owner of PacifiCorp and its subsidiaries.
As explained more fully herein, the specific terms and conditions of the
requested authority are not known at this time. Accordingly, the Applicants
represent that the proposed transactions will be subject to the following
general terms and conditions:
-------------------------
/2/In 1984 PacifiCorp formed PGHC to hold the stock of PacifiCorp's
principal subsidiaries and to facilitate the conduct of businesses not regulated
as domestic electric utilities. Through its subsidiary companies, PGHC is
engaged in the acquisition or development of electrical power projects or
systems internationally, and leverage lease tax-advantages investments.
2
<PAGE>
(1) The Total Common Equity of PacifiCorp, as reflected in its most recent
annual, quarterly or other periodic earnings report, will not fall below 30% of
Total Capitalization. In addition, the Commission is requested to note that the
Total Common Equity of the ScottishPower System was 58% of Total Capitalization,
as of June 30, 2000. ScottishPower commits to maintain its and PacifiCorp's
long-term debt rating at an investment grade level through the Authorization
Period, and cause its and PacifiCorp's Total Common Equity as a percentage of
Total Capitalization, measured on a U.S. GAAP basis, to be at least 30% through
the Authorization Period./3/
(2) The cost of money (interest rate giving effect to the economic life of
the instrument) on debt financings of ScottishPower at the date of issuance will
not exceed 300 basis points over that for comparable term U.S. treasury
securities or government benchmark for the currency concerned;
(3) The cost of money (dividend rate giving effect to the economic life of
the instrument) on preferred securities of ScottishPower at the date of issuance
will not exceed 500 basis points over that for comparable term U.S. treasury
securities or government benchmark for the currency concerned;
(4) The aggregate amount of additional external debt and equity issued by
the ScottishPower System pursuant to the authority requested in this matter will
not exceed $7.5 billion, above its existing financing arrangements, at any one
time outstanding;
(5) ScottishPower's additional "aggregate investment" in EWGs and FUCOs,
as defined in Rule 53 under the Act, will not exceed, without prior Commission
approval, $4,680 million; and
(6) The proceeds from the sale of securities in external financing
transactions will be used for the acquisition, retirement or redemption of
securities issued by the ScottishPower System, without the need for prior
Commission approval and for necessary general corporate purposes including (i)
the financing, in part, of the capital expenditures of the ScottishPower System,
(ii) the financing of working capital requirements of the ScottishPower System,
and (iii) other lawful general purposes.
The Applicants represent that no financing proceeds will be used to acquire
a new subsidiary, other than a special purpose financing entity, unless such
acquisition is consummated in accordance with an order of the Commission or an
available exemption under the Act. The proceeds of external financings will be
allocated to companies in the ScottishPower System in various ways through
intrasystem financing discussed in this Application-Declaration.
------------------------
/3/ SPUK activities are objectively perceived as being safe, generating a
credit rating of "A-1" by Moody's Investor Services ("Moody's"), and "A" by
Standard and Poor's ("S&P"). PacifiCorp's senior secured debt has a credit
rating of "A-2" by Moody's and "A+" by S&P. ScottishPower does not issue debt,
therefore, it has no credit ratings.
3
<PAGE>
The requested authority will give the Applicants the flexibility to respond
quickly and efficiently to their financing needs and to changes in market
conditions to the benefit of customers and shareholders. Approval of this
Application-Declaration is consistent with existing Commission precedent, both
for newly registered holding company systems (See, e.g., Conectiv, Inc., Holding
--- --- -------------
Co. Act Release No. 26833 (Feb. 26,1998); New Century Energies, Inc., Holding
-------------------------
Co. Act Release No. 26750 (Aug. 1, 1997) The National Grid Group plc, Holding
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Co. Act Release No. 27154 (Mar. 15, 2000)), and for holding company systems that
have been registered for a longer period of time (See, e.g., The Columbia Gas
--- --- ----------------
System, Inc., Holding Co. Act Release No. 26634 (Dec. 23, 1996); Gulf States
----------- -----------
Utilities Co., Holding Co. Act Release No. 26451 (Jan. 16, 1996)).
------------
The table below shows the revenues, net income and total assets of the
ScottishPower System for the twelve months ended March 31, 2000 and the three
months ended June 30, 2000, according to U.S. GAAP./4/ These figures include the
revenues and net income of PacifiCorp since completion of the merger.
<TABLE>
<CAPTION>
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ScottishPower System
12 months ended March 31, 2000/ Three months
ended June 30, 2000
($mm)
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<S> <C>
Revenues 6,584 - 2003
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Net Income 1,411 - 111
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Total Assets 26,937 - 26,571
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</TABLE>
The table below shows the capitalization of the ScottishPower System as of
June 30, 2000, according to U.S. GAAP./5/
<TABLE>
<CAPTION>
($mm)
----------------------------------------------------------------------------------
<S> <C>
Long-term Debt 6,783
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Common Equity 10,921
----------------------------------------------------------------------------------
</TABLE>
-------------------------
/4/The figures for revenues, net income and assets were translated into dollars
using a rate of U.S. $1.52 equals one pound. Consistent with U.S. GAAP,
ScottishPower's share of joint ventures and associate businesses is included in
net income and assets, but is omitted from revenues.
/5/ Converting at (Pounds)1.00 : $1.52, the closing exchange rate at
June 30, 2000.
4
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Short-term Debt 1,045
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Total Capitalization 18,879
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</TABLE>
B. Description of Existing PacifiCorp Financing Arrangements
At the present time, PacifiCorp's outstanding securities include preferred
stock, first mortgage bonds, subordinated debt, pollution control revenue bond
financings and short-term debt, including commercial paper. Members of the
PacifiCorp Group also have a variety of interest rate and currency exchange swap
agreements. Since completion of the merger, all PacifiCorp financings have been
made pursuant to exemptions under Section 6(b) and Rules 45 and 52 of the Act.
(For additional information on existing PacifiCorp financings, see ScottishPower
---
U5B and Attachment A attached as Exhibit C-4, hereto.)
C. Overview of Proposed Financings
The authority requested herein is to provide equity and other debt
financing for the ScottishPower System and credit support for SPUK and its
subsidiaries. It should be emphasized that any parent-level credit support to
SPUK and its subsidiaries is largely driven by U.K. market practices.
Applicants believe that SPUK and its subsidiary companies will be largely or
predominantly self funding.
D. Specifics of Proposed Financing Arrangements
1. ScottishPower External Financing
--------------------------------
ScottishPower requests authorization to issue long-term equity and debt
securities aggregating not more than $6 billion at any one time outstanding
during the Authorization Period. This amount is in addition to ScottishPower's
existing financing arrangements. Such securities could include, but would not
necessarily be limited to, ordinary shares, preferred shares, options, warrants,
long- and short-term debt (including commercial paper), convertible securities,
subordinated debt, bank borrowings and securities with call or put options.
Such financing amount is in addition to ScottishPower's current outstanding
equity and debt securities./6/ ScottishPower request authorization to maintain
all existing financial arrangements regarding outstanding equity and debt
securities. ScottishPower proposes to also enter into currency and interest
rate swaps as described below.
ScottishPower proposes that the various securities to be issued would fall
within the following limits, but would not in the aggregate exceed the $6
billion limit stated above:
<TABLE>
<CAPTION>
<S> <C>
Security $ billions
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</TABLE>
----------------------
/6/ As of June 30, 2000, ScottishPower had outstanding long-term debt of $6,783
million, short-term debt of $1,045 million and common equity of $10,921 million.
5
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Equity, including options and warrants 3.0
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Preferred stock 1.0
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Bank debt 1.0
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Commercial paper 1.0
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Bond issues - straight 3.0
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Bond issues - convertible 3.0
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</TABLE>
(a) Ordinary Shares. ScottishPower's common stock equity consists of
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ordinary shares, with a par value of 50 pence each, that are listed on the
London Stock Exchange. ScottishPower currently has American Depositary Shares
("ADSs") in the U.S. which trade as American Depositary Receipts ("ADRs") and
represent four ordinary shares each. ScottishPower has established a sponsored
ADR program in the U.S. and has its ADRs listed on the New York Stock Exchange
and registered under the Securities Act of 1933, as amended ("1933 Act"). As a
result, ScottishPower has registered under The Securities Exchange Act of 1934,
as amended ("1934 Act") and files the periodic disclosure reports required of a
foreign issuer with the Commission. The request contained herein with respect
to ordinary shares refers to the issuance of ordinary shares directly, or
indirectly, through the ADR program and, for purposes of this request, the ADSs
and ADRs are not considered separate securities from the underlying ordinary
shares. As of June 30, 2000 ScottishPower had 1,847,585,937 ordinary shares and
one "Special Share" outstanding./7/
Ordinary shares may be sold pursuant to underwriting agreements of a type
generally standard in the industry in the U.K. or the U.S. (depending on the
selling location). Such public issuances may be pursuant to private negotiation
with underwriters, dealers or agents (as discussed in more detail 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 such sales of ordinary shares will be at rates or prices based
upon or otherwise determined by competitive capital markets.
Ordinary share financings covered by this Application-Declaration may occur
in any one of the following ways: (i) through underwriters or dealers; (ii)
through agents; (iii) directly to a number of purchasers or a single purchaser;
(iv) directly to employees (or to trusts established for their benefit) and
other shareholders through ScottishPower System employee benefit schemes; or (v)
through the issuance of anti-dilution and/or bonus shares (i.e., stock
dividends) to existing shareholders. If underwriters are used in the sale of
the securities, such securities will be acquired by the underwriters for their
own account and may be resold 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. The securities may be offered to
the public either through underwriting syndicates (which may be represented by a
managing underwriter or underwriters designated by ScottishPower) or directly by
one or more underwriters acting alone.
-------------------------
/2/The Special Share is a non-voting share owned by the U.K. Government, as a
means to preserve ScottishPower's status as an independent provider of
transmission services.
6
<PAGE>
The securities may be sold directly by ScottishPower or through agents
designated by ScottishPower from time to time. If dealers are utilized in the
sale of any of the securities, ScottishPower will sell such securities to the
dealers as principals. Any dealer may then resell such securities to the public
at varying prices to be determined by such dealer at the time of resale. If
ordinary shares are being sold in an underwritten offering, ScottishPower may
grant the underwriters thereof a "green shoe" option permitting the purchase
from ScottishPower at the same price additional shares then being offered solely
for the purpose of covering over-allotments.
ScottishPower seeks authority to use its ordinary shares (or associated
ADSs or ADRs) as consideration for acquisitions that are otherwise authorized or
exempt under the Act. Among other things, transactions may involve the exchange
of parent company equity securities for securities of the company being acquired
in order to provide the seller with certain tax advantages. These transactions
are individually negotiated. The ability to offer stock as consideration
provides both ScottishPower and the seller of the business with flexibility. The
ScottishPower ordinary shares to be exchanged may, among other things, be
purchased on the open market pursuant to Rule 42 or may be original issue./8/
From the perspective of the Commission, the use of stock as consideration valued
at market value is no different than a sale of ordinary shares on the open
market and use of the proceeds to acquire securities, the acquisition of which
is otherwise authorized. For purposes of the $6 billion external financing
limit, ScottishPower ordinary shares used to fund an acquisition of a company
through the exchange of ScottishPower equity for securities being acquired would
be valued at market value based upon the closing price of the ordinary shares on
the London Stock Exchange on the day before closing of the sale or issuance.
In addition to other general corporate purposes, the ordinary shares will
be used to fund employee benefit plans. ScottishPower and PacifiCorp currently
maintain a number of employee benefit plans for personnel in the ScottishPower
System pursuant to which employees may acquire equity interests as part of their
compensation.
More particularly, ScottishPower intends to issue ADRs to U.S. employees
through PacifiCorp's Stock Incentive Plan, Compensation Reduction Plan and K
Plus Employee Savings and Stock Ownership Plan ("US Plans"). See Registration
---
Statement No. 333-92095, attached as Exhibit C-5 hereto. In addition, other
share-based plans may be developed to motivate and retain key executives.
In addition, ScottishPower intends to issue ordinary shares, or certain
conditional rights relating to ordinary shares, to its U.K. personnel under the
Long Term Incentive Plan, and the ScottishPower Sharesave Scheme ("UK
Plans")./9/ ScottishPower also operates The
/8/From time-to-time ScottishPower may acquire, without prior Commission
approval pursuant to Rule 42, its ordinary shares. Ordinary shares acquired
pursuant to Rule 42 will be purchased directly or indirectly on the open market
in accordance with the applicable Listing Rules of the London Stock Exchange.
/9/In order for ScottishPower to provide ordinary shares to the participants
in the UK Plans when they are entitled to exercise their share options,
ScottishPower must provide a loan to the trustee, or the equivalent ("Trustee"),
of the employee share plans for the Trustee to acquire on the open market
ordinary
7
<PAGE>
ScottishPower Executive Share Option Scheme which applies to executive directors
and certain senior managers. All future grants under this plan have been
replaced by the company's Long Term Incentive Plan. The last grant of executive
share options to executive directors was in May 1995. Existing options remain
exercisable.
The Long Term Incentive Plan links the share rewards closely between
management and shareholders, and focuses on long-term corporate performance.
Under the Long Term Incentive Plan, awards to acquire ordinary shares of
ScottishPower at nil or at a nominal cost are made to the participants up to a
maximum value equal to 60% of base salary. The award will vest only if the
Remuneration Committee ("Committee") (a committee entirely made up of Non-
executive/outside directors) is satisfied that certain performance measures are
met. These measures relate to the sustained underlying financial performance of
ScottishPower and customer service standards, including those set by the Office
of Electricity Regulation and the Office of Water Regulation.
Assuming that the Committee is satisfied, the number of ordinary shares
that can be acquired on vesting of the award will be dependent upon how
ScottishPower ranks, in terms of its total shareholder returns performance over
a three-year performance period, in comparison to the constituent companies of
the Financial Times/Stock Exchange 100 Index ("FTSE 100") and the electricity
and water sectors. Half of each award will be measured against the FTSE 100
companies and half against the electricity and water companies.
A percentage of each half of the award will vest depending upon the
ScottishPower's ranking within the relevant comparator group as follows:
. 100% if the company ranks in the top decile
. 90% if the company ranks in the second decile
. 80% if the company ranks in the third decile
. 60% if the company ranks in the fourth decile
. 40% if the company ranks in the fifth decile
. nil if the company ranks in the sixth decile or lower
Once the company's total shareholder return performance has been measured over
the three-year performance period following the grant of the award, the award
must be held for an additional year before it may be exercised. The plan
participant may acquire the ordinary shares in respect of the percentage of the
award which has vested at any time after the fourth year up to the seventh year
after the grant of the award.
ScottishPower also operates a savings-related share option scheme, which is
open to all U.K.-based permanent employees. Under this scheme, options are
granted over ScottishPower ordinary shares at a discount of 20% from the
prevailing market price at the time of grant to eligible employees who agree to
save up to (Pounds)250 per month over a period of three or five years.
--------------------------------------------------------------------------------
shares on behalf of the eligible participants. On exercise of the
share options by the eligible participants, the option price money payable by
the share option holder is applied by the Trustee to reduce the loan amount from
ScottishPower. The loan may be payable over a 48-month period. ScottishPower
proposes to engage in such transactions, in order to provide ordinary shares to
its employees under the UK Plans.
8
<PAGE>
eligible employes who agree to save up to (Pounds) 250 per month over a period
of three or five years.
ScottishPower requests authority to issue approximately 39.1 million
ordinary shares to employees under its existing plans, the US Plans, the UK
Plans and such additional plans created after the date hereof ("Additional
Plans") that may be developed for the purposes stated above. Securities issued
by ScottishPower under all of the plans will be included within the $6 billion
external financing limit and will be valued, if ordinary shares, at market value
based on the closing price on the London Stock Exchange on the day before the
award. Securities issued that are not ordinary shares will be valued based on a
reasonable and consistent method applied at the time of the award.
ScottishPower requests that the Commission reserve jurisdiction over the
Additional Plans, pending completion of the record.
(b) Special Share. One unique aspect of ScottishPower's corporate
-------------
structure is that it has a Special Share that is currently owned by the U.K.
Government. The Special Share may only be held by the U.K. Government or
persons acting on its behalf. It is a single non-voting share that prevents
amendments to ScottishPower's Memorandum and Articles of Association. Those
documents in turn restrict certain classes of persons from owning more than a
prescribed shareholding in ScottishPower. The Special Share restricts the
ability of ScottishPower to transfer control of its transmission license to a
third party without the consent of the holder of the Special Share.
ScottishPower asserts that these rights do not create an inequitable
distribution of voting power of the kind that section 11(b)(2) is intended to
prevent. Rather, the Special Share is a means for the U.K. government to
protect a regulatory objective -- the preservation of the status of
ScottishPower as an independent provider of transmission services in the
U.K./10/
(c) Preferred Stock. ScottishPower proposes to issue preferred stock from
---------------
time to time during the Authorization Period. Any such preferred stock would
have dividend rates or methods of determining the same, redemption provisions,
conversion or put terms and other terms and conditions as ScottishPower may
determine at the time of issuance, provided that the cost of money (dividend
rate giving effect to the economic life of the instrument) on preferred stock of
ScottishPower, when issued, will not exceed 500 basis points over that for
comparable term U.S. treasury securities or government benchmark for the
currency concerned. In addition, all issuances of preferred stock will be at
rates or prices based upon or otherwise determined by competitive capital
markets.
(d) Debt. ScottishPower proposes to issue debt securities from time to
----
time during the Authorization Period. Any debt securities would have the
designation, aggregate principal amount, interest rate(s) or method of
determining the same, terms of payment of interest, redemption provisions, non-
refunding provisions, sinking fund terms, conversion or put terms and other
terms and conditions as are deemed appropriate at the time of issuance, provided
however, that the cost of money (interest rate giving effect to the economic
life of the
/10/The Special Share also does not reflect an inequitable financial
interest in ScottishPower. The Special Share confers no right to participate in
the capital or profits of ScottishPower other than in connection with a "winding
up." Under these circumstances, the holder of the Special Share is entitled to
receive the capital paid up on the Special Share (one pound sterling) in
priority to other distributions. The holder of the Special Share may also
require ScottishPower to redeem the Special Share at par (one pound sterling) at
any time.
9
<PAGE>
instrument) on debt financings of ScottishPower will not exceed 300 basis points
over that for comparable term U.S. treasury securities or government benchmark
for the currency concerned. In addition, the maturity of any debt securities
will not exceed 50 years.
The debt securities may be issued and sold pursuant to standard
underwriting agreements or under other negotiated financings through commercial
and investment banks. In the case of public debt offerings, distribution may be
effected through private negotiations with underwriters, dealers or agents, or
through competitive bidding among underwriters. In addition, the debt
securities may be issued and sold through private placements or other non-public
offerings to one or more persons or distributed by dividend or otherwise to
existing shareholders. All transactions will be at rates or prices based upon
or otherwise determined by competitive capital markets.
Parent-level debt may be issued in connection with the necessary and urgent
general and corporate purposes including, financing capital expenditures and
working capital requirements, the acquisition, retirement or redemption of
securities issued by a ScottishPower System company, and other lawful general
purposes. Section 7(c)(2)(A) expressly contemplates that a registered holding
company can issue such securities "for the purpose of refunding, extending,
exchanging, or discharging an outstanding security of the declarant and/or a
predecessor company thereof." Section 7(c)(2)(D) further provides for the
issuance of nontraditional securities if "such security is to be issued or sold
solely for necessary or urgent corporate purposes of the declarant where the
requirements of the provisions of paragraph (1) would impose an unreasonable
financial burden upon the declarant and are not necessary or appropriate in the
public interest or for the protection of investors or consumers." Registered
gas systems have relied on this provision for years in connection with their
routine financing transactions. See, e.g., The Columbia Gas System, Inc.,
--- --- ----------------------------
Holding Co. Act Release No. 26634 (Dec. 23, 1996) (authorizing Columbia to issue
external, long-term debt which, in the aggregate with equity financing issued by
Columbia, would not exceed $5 billion at any one time outstanding through
December 31, 2001). In addition, in the matter of The National Grid Group plc,
---------------------------
Holding Co. Act Release No. 27154 (Mar. 15, 2000), the Commission stated that a
"restriction against parent-level debt would create an unreasonable financial
burden that is not necessary or appropriate in the public interest or for the
protection of investors or consumers because it may interfere with [a registered
holding company's] ability to implement an optimal capital structure for its
business, including the financing of [a] merger."
To the extent that the question is not the existence of parent-level debt
per se but rather the appropriateness of debt at more than one level, again, the
Commission has resolved that issue. In the 1992 amendments to Rule 52, the
Commission eliminated the requirement that a public-utility subsidiary company
could issue debt to nonassociates only if its parent holding company had issued
no securities other than common stock and short-term debt. The rule release
explains:
Condition (6) provides that a public-utility subsidiary company may
issue and sell securities to nonassociates only if its parent holding
company has issued no securities other than common stock and short-
term debt. All eight commenters that considered this condition
recommended that it be
10
<PAGE>
eliminated. They noted that it may be appropriate for a holding
company to issue and sell long-term debt and that such a transaction
is subject to prior Commission approval. They further observed that
other controls, that did not exist when the statute was enacted,
provide assurance that such financings will not lead to abuse. These
include the likely adverse reaction of rating agencies to excessive
amounts of debt at the parent holding company level and the disclosure
required of companies seeking public capital. The Commission agrees
with these observations and also notes the power of many state utility
commissions to limit the ability of utility subsidiaries to service
holding company debt by restricting the payment of dividends to the
parent company. The Commission concludes that this provision should be
eliminated.
Exemption of Issuance and Sale of Certain Securities by Public-Utility
Subsidiary Companies of Registered Public-Utility Holding Companies, Holding Co.
Act Release No. 25573 (July 7, 1992).
We note that the issuance of debt by ScottishPower will be subject to
certain objective conditions intended to ensure the financial integrity of the
ScottishPower System. ScottishPower and PacifiCorp have committed to maintain
their Total Common Equity as a percentage of Total Capitalization, measured on a
U.S. GAAP basis, at 30% or above throughout the Authorization Period. In
addition, as previously noted, ScottishPower commits to maintain its and
PacifiCorp's long-term debt rating at an investment grade level. Credit rating
agencies have confirmed that SPUK has a strong credit rating.
(e) Interest Rate and Currency Risk Management Devices. In order to
--------------------------------------------------
protect the ScottishPower System from adverse interest rate movements, the
interest rate on the debt portfolio is managed through the use of fixed-rate
debt, combined with interest rate and cross currency swaps, options and option-
related instruments with a view to maintaining a significant proportion of fixed
rates over the medium term. The proportion of debt at fixed rates is varied
over time and within policy guidelines, depending on debt projections and market
levels of interest rates. The resulting position as of December 31, 1999 was
that 92% of the ScottishPower System borrowings were at fixed rates of interest.
ScottishPower seeks authority to continue to engage in interest rate and cross
currency swaps, options, option-related instruments, forward exchange contracts
and similar instruments through the Authorization Period.
ScottishPower maintains a central treasury department whose activities are
governed by policies and guidelines approved by the Board of Directors, with
regular reviews and monitoring by the Board. The treasury department operates
as a service center rather than as a profit center and is subject to internal
and external audit. Treasury activities are managed in a non-speculative manner
and all transactions in financial instruments or products are matched to an
underlying business requirement. ScottishPower states that these transactions
will meet the criteria established by the Financial Accounting Standards Board
in order to qualify for hedge accounting treatment or will so qualify under U.K.
GAAP. In the event transactions in financial instruments or products are
qualified for hedge accounting treatment under U.K. GAAP, but not under U.S.
GAAP, ScottishPower's financial statements filed in accordance with Form 20-F
will
11
<PAGE>
contain a reconciliation of the difference between the two methods of accounting
treatment. No gain or loss on a hedging transaction attributable to a company
outside the PacifiCorp Group will be allocated to any company in the PacifiCorp
Group, regardless of the accounting treatment accorded to the transaction.
(f) Intermediate Companies. Each of the Intermediate Companies is seeking
----------------------
authorization to issue and sell securities to, and acquire securities from, its
immediate parent, subsidiary companies and fellow Intermediate Companies,
respectively. Each of the Intermediate Companies and ScottishPower is also
seeking authorization to issue guarantees and other forms of credit support to
direct and indirect subsidiaries. In no case would the Intermediate Companies
or ScottishPower borrow, or receive any extension of credit or indemnity from
any of their respective direct or indirect subsidiary companies. The interest
rates and maturity dates of any debt security issued by PacifiCorp to its
immediate parent company will be designed to parallel the effective cost of
capital of ScottishPower.
2. PacifiCorp Group Financings
---------------------------
The existing financing arrangements transactions, with the exception of the
commercial paper transactions discussed below, of the PacifiCorp Group are
exempt under Rule 52 and therefore, do not require Commission authorization and
will remain in place./11/ The Applicants request, to the extent the Commission
has jurisdiction, to maintain all financing authority for ScottishPower, the
Intermediate Companies and the PacifiCorp Group through the Authorization
Period./12/ The PacifiCorp Group financing authority requested below is in
addition to the $6 billion external financing authority requested by
ScottishPower for the ScottishPower System.
(a) Existing Intercompany Arrangements. Currently, the PacifiCorp Group has
----------------------------------
two intercompany lending arrangements. The first loan agreement allows for
loans between PacifiCorp and certain of its subsidiaries. This intercompany
loan agreement has been authorized by the OPUC up to $200 million for loans by
PacifiCorp and unlimited amounts for loans to PacifiCorp./13/ These loans are
payable on demand, are evidenced by notes and with interest at PacifiCorp's
short-term borrowing rate whether the loan is to or from PacifiCorp. The
-------------------------
/11/The existing financing arrangements of the PacifiCorp Group are exempt
because: (1) the issuance and sale of the securities are solely for the purpose
of financing the business of PacifiCorp; (2) the issuance and sale of the
securities have been expressly authorized by the state commission of the state
in which PacifiCorp is organized and doing business; and (3) the interest rates
and maturity dates of any debt security issued to an associate company are
designed to parallel the effective cost of capital of the associate company.
Financing arrangements of certain members of the PacifiCorp Group are also
exempt because: (1) the issuance and sale of the securities are solely to
finance the existing business of the subsidiary company; and (2) the interest
rates and maturity dates of any debt security issued to an associate company are
designed to parallel the effective cost of capital of that associate company.
/12/As of June 30, 2000, SPUK has outstanding long-term debt of $6,783
million, short-term debt of $1,045 million and common equity of $10,921 million,
presented on a U.S. GAAP basis. In addition, ScottishPower has outstanding
guarantees in the amount of approximately $568 million, presented on a U.S. GAAP
basis.
/13/Id.
--
12
<PAGE>
second loan agreement allows for loans up to $350 million to be made among PGHC
and its subsidiaries, and among PGHC and certain other affiliates, PacifiCorp
Environmental Remediation Company, PacifiCorp Minerals, Inc. and PacifiCorp
Investment Management, Inc., all direct subsidiaries of PacifiCorp. These loans
are payable on demand and, if from PGHC, bear interest at a negotiated rate or
PGHC's short-term borrowing rate plus a margin (depending on the ratings of the
borrower) or at PGHC's short-term borrowing rate if the borrower is PGHC./14/
However, since completion of the merger, all loans under the above-mentioned
intercompany agreements have been made on an interest-free basis. Applicants
request authorization, to the extent not exempt under Rule 52, to maintain the
intercompany lending arrangements through the Authorization Period. The
intercompany loan agreements and the schedule showing outstanding loans are
attached hereto as Exhibits B-2, B-3 and B-6, respectively.
(b) New Money Pools. In addition to the above-mentioned intercompany
---------------
arrangements, the Applicants request authority, to the extent not exempt under
Rule 52, to create two new PacifiCorp Money Pools which will be administered by
PacifiCorp. One Money Pool will be exclusively for certain of the non-
regulated, non-utility subsidiaries of PGHC ("Non-Utility Money Pool")./15/ The
Non-Utility Money Pool will be funded by ScottishPower and/or PGHC on a short-
term basis and, to a lesser degree, by the non-utility subsidiaries that
participate in the Non-Utility Money Pool. The funds will be made available by
ScottishPower and/or PGHC to the participants in the Non-Utility Money Pool that
have a need for short-term funds.
The second Money Pool will be for PacifiCorp and certain of its
subsidiaries, including PGHC and other direct subsidiaries ("Utility Money Pool"
and, together with the Non-Utility Money Pool, the "Money Pools"). The funds
available to the Utility Money Pool will be loaned on a short-term basis and
will come from the Utility Money Pool participants themselves./16/
-------------------------
/14/Borrowings from PGHC will bear interest on the outstanding principal
amount thereof, for each day from the date such borrowing is made until it
becomes due, at a rate per annum equal to the prime rate for such day plus a
margin (depending on the ratings of the borrower) as agreed to from time-to-time
by PGHC and the borrower and set forth in the ledger maintained by PGHC;
however, in no event will the borrower's rate exceed PGHC's cost of short-term
funds for such day plus 3/8%.
The participants in the Non-Utility Money Pool will be ScottishPower, PGHC,
New Energy Holdings Inc., PACE Group, Inc., PacifiCorp Energy, Inc., PacifiCorp
Energy Services, Inc., PacifiCorp Energy Ventures, Inc., PacifiCorp
Environmental Remediation Company, PacifiCorp Minerals, Inc., PacifiCorp
Investment Management, Inc., PacifiCorp Power Marketing, Inc., PacifiCorp Trans,
Inc. and PacifiCorp Financial Services, Inc.
/16/PacifiCorp proposes to borrow up to $800 million under the Utility
Money Pool. The participants in the Utility Money Pool will be ScottishPower,
PacifiCorp, Energy West Mining Company, Glenrock Coal Company, Interwest Mining
Company, Pacific Minerals, Inc., and PGHC. PGHC will participate in this money
pool because it occurs in the chain of ownership between PacifiCorp and
subsidiaries which serve the utility operations only to the extent necessary for
the financing of those operations. Foreign EWGs, exempt telecommunication
companies ("ETC") and FUCOs will not be participants in the Utility Money Pool,
and ETCs and FUCOs will not participate in the Non-Utility Money Pool.
13
<PAGE>
Generally, under the proposed terms of the respective Money Pools, from
time to time short-term funds will be made available by ScottishPower and/or
PacifiCorp for the Utility Money Pool up to $800 million, and by ScottishPower
for the Non-Utility Money Pool up to $800 million, for short-term loans to the
participants. Funds will be made available from such sources in such order as
PacifiCorp, as administrator of the Money Pools, may determine will result in a
lower cost of borrowing, consistent with the individual borrowing needs and
financial standing of the participating subsidiaries. The proposed terms of the
Money Pools are memorialized in definitive forms of draft agreements filed
herewith as Exhibit B-4 ("Non-Utility Money Pool Agreement") and Exhibit B-5
("Utility Money Pool Agreement" and, together with the Non-Utility Agreement,
the "Money Pool Agreements"). Applicants request that the Commission reserve
jurisdiction, pending completion of the record, over the establishment and
operation of the Nonutility Money Pool. Applicants also request that the
Commission reserve jurisdiction over the participation by future companies
formed or acquired by ScottishPower or PacifiCorp in the relevant Money Pools,
until a specific post-effective amendment is filed that seeks authority to add
any participant to such Money Pool.
PacifiCorp will provide each Money Pool participant with periodic activity
and cash accounting reports that include, among other things, reports of cash
activity, the daily balance of loans outstanding and the calculation of daily
interest charged. No party will be required to effect a borrowing through a
Money Pool if it is determined that it could (and had authority to) effect a
borrowing at lower cost directly from banks or other sources.
The operation of the Money Pools is designed to match, on a daily basis,
the available cash and short-term borrowing requirements of the participants,
thereby minimizing the need for external short-term borrowings by PGHC and
PacifiCorp. To this end, the short-term borrowing requirements of the
participants may be met internally with the proceeds of borrowings available
through the Money Pools. To the extent necessary, ScottishPower, PacifiCorp
and/or PGHC will use the proceeds of external borrowings, up to the approved
limits which, if jurisdictional, are authorized by this Commission, to
accommodate the short-term requirements of the other participants. Requirements
satisfied by the Money Pools will be in the form of open account advances.
ScottishPower will be a participant in the Money Pools only insofar as it
has funds available for lending obtained either through internal generation or
from external sources. Under no circumstances will ScottishPower be permitted
to borrow funds available through the Money Pools. If at any time there are
funds remaining in the Money Pools after satisfaction of the borrowing needs of
the participating subsidiaries, PacifiCorp, as the agent of the Money Pools,
will invest these funds appropriately and consistent with applicable state and
federal regulations and allocate the earnings on any such investments between or
among those participants within each respective Money Pool according to the
amount of excess funds provided by each respective participant. The return on
the funds loaned by a subsidiary into either of the Money Pools will be
essentially equal to the cost of borrowing from the Money Pools. That is, the
applicable interest rate would be the average for the month of the CD yield
equivalent of the 30-day Federal Reserve "AA" Industrial Commercial Paper
Composite Rate (the daily rate, the "Composite") or, if no such Composite were
established for that particular day, then the
14
<PAGE>
applicable rate would be the Composite for the next preceding day for which such
Composite was established.
All borrowings from, and contributions to, the Money Pools will be
adequately documented and will be evidenced on the books of each participant
that is borrowing or contributing funds through the Money Pools. All loans will
be payable on demand, may be prepaid by any borrowing participant at any time
without premium or penalty and will be subject to interest that shall be
calculated and added to the outstanding loan balance. Such rates shall be
adjusted periodically (see below). Any participating subsidiary that
contributes funds to a Money Pool may withdraw them at any time to satisfy its
daily need of funds.
These procedures, as proposed, in addition to the intercompany arrangements
stated above, will be beneficial to the PacifiCorp financial system because they
will create significant economies from the effective use of funds that will
result in the reduction of bank balances; the reduction of administrative costs
associated with borrowings and investments by, among other things, eliminating
the need for the participants to maintain their own separate bank accounts, cash
balances and credit facilities; provide increased flexibility and control in
cash management; and the ability of PacifiCorp and PGHC, which will obtain
external financing, to defer or pre-pay short-term financing, such as loans with
banks and commercial paper borrowings.
The interest rates applicable on any day to the then outstanding loans
through the Money Pools may be fixed or variable and may be adjusted based on
the weighted average daily effective cost incurred by PacifiCorp and PGHC,
respectively, for each Money Pool for borrowings from external sources. If
there are not external borrowings outstanding from a particular Money Pool,
however, then the rate will be the CD yield equivalent of the 30-day Federal
Reserve "AA" Industrial Commercial Paper Composite Rate ("Composite"), or if no
Composite is established for that day, then the applicable rate will be the
Composite for the next preceding day for which the Composite is established.
The calculations to be used to determine the appropriate interest rates are
described in detail in the forms of the Non-Utility and Utility Money Pool
Agreements, which are included herewith as Exhibits B-4 and B-5, respectively.
As stated above, operation of the Non-Utility and Utility Money Pools,
including record keeping and coordination of loans, will be handled by
PacifiCorp under the authority of the appropriate officers of the participating
companies. PacifiCorp will administer the Money Pools on an "at cost" basis.
It will maintain separate records for each Money Pool. Funds in the Money Pools
shall be separately invested. Surplus funds of the Money Pools may be combined
in common short-term investments, but PacifiCorp will maintain separate records
of these funds.
PacifiCorp will also provide cash management and banking services to the
subsidiaries of PacifiCorp that participate in the Money Pools. These services
shall include maintaining controlled-disbursement checking accounts, electronic
disbursement facilities and cash concentration facilities. These services will
be paid for by the subsidiaries through fees calculated pursuant to different
cost bases for the Utility and the Non-Utility Money Pools to be determined by
PacifiCorp and may be collected through a variety of means, including the
payment of a fee or the inclusion of the fee into the interest payments made by
the respective subsidiaries.
15
<PAGE>
Within 45 days after the end of each calendar quarter, PacifiCorp, on
behalf of certain of the Applicants, will file a certificate with the Commission
pursuant to Rule 24 under the Act setting forth (i) each Applicant's maximum
principal amount of short-term borrowings outstanding during such quarter, (ii)
the average rate for the Utility Money Pool during such period, and (iii) the
maximum amount outstanding during such period for each source of outside
borrowings.
Also, within 45 days after the end of each calendar quarter, PacifiCorp, on
behalf of the participating subsidiaries in the Non-Utility Money Pool and on
its own behalf, will file with the Commission a certificate of notification on
Form U-6B-2 pursuant to Rule 52 including the following information for each
participating subsidiary:
(i) the aggregate dollar amount borrowed from the Non-Utility Money Pool
by such subsidiaries in the preceding calendar quarter, including as
to each month thereof;
(ii) a statement explaining the subsidiaries' use of the proceeds of such
borrowings during such calendar quarter; and
(iii) the type of business engaged in by such subsidiaries during such
calendar quarter.
(c) Guarantees and Loans. ScottishPower requests authorization to the
--------------------
extent necessary under the Act to enter into guarantees, obtain letters of
credit, enter into guaranty-type agreements or otherwise provide credit support
with respect to the obligations of the PacifiCorp Group and the SPUK Group as
may be appropriate to enable such system companies to carry on their respective
authorized or permitted businesses and to maintain, to the extent not exempted
under Rule 45, all existing guarantee and loan arrangements through the
Authorization Period./17/ Such credit support may be in the form of committed
bank lines of credit. Such guarantees and credit support to be made to the SPUK
Group will be included in the aggregate investment of ScottishPower for the
purposes of Rule 53./18/ The cost of such guarantees and loans will parallel the
cost of obtaining the liquidity necessary to support the guarantee or loan, as
the case may be.
In addition, authority is requested for the PacifiCorp Subsidiary Companies
to enter into similar arrangements with one another, to the extent not exempted
under Rule 45. Guarantees entered into by ScottishPower will be subject to a $6
billion limit (i.e., not included in the $6 billion external financing limit),
based upon the amount at risk. Such guarantees will be in addition to
ScottishPower's outstanding guarantees./19/ In addition, ScottishPower proposes
to
/17/The PacifiCorp Group and SPUK Group entered into their respective
current guarantee and loan arrangements prior to the completion of their merger.
/18/Supra note 3.
/19/Supra note 12.
16
<PAGE>
make loans or capital contributions to the SPUK Group from time to time up to an
aggregate principal amount of $3 billion through the Authorization Period. Loans
made to the SPUK Group will be of a short-term nature, payable on demand and
will parallel the cost of capital to ScottishPower. Such loans and capital
contributions will be included in the aggregate investment of ScottishPower for
the purposes of Rule 53.
(d) Payment of Dividends Out of Capital or Unearned Surplus. Section 12
-------------------------------------------------------
of the 1935 Act, and Rule 46 thereunder, generally prohibit the payment of
dividends out of "capital or unearned surplus" except pursuant to an order
of the Commission. The legislative history explains that this provision was
intended to "prevent the milking of operating companies in the interest of the
controlling holding company groups." S. Rep. No. 621, 74th Cong., 1st Sess. 34
(1935)./20/ In determining whether to permit a registered holding company to pay
dividends out of capital surplus, the Commission considers various factors,
including: (i) the asset value of the company in relation to its capitalization,
(ii) the company's prior earnings, (iii) the company's current earnings in
relation to the proposed dividend, and (iv) the company's projected cash
position after payment of a dividend. See Eastern Utilities Associates, Holding
--- ----------------------------
Co. Act Release No. 25330 (June 13, 1991), and cases cited therein. Further, the
payment of the dividend must be "appropriate in the public interest." Id.
--
(citing Commonwealth & Southern Corporation, 13 S.E.C. 489, 492 (1943)).
-----------------------------------
Applicants state that there may be situations in which one or more of the
PacifiCorp Subsidiary Companies will have unrestricted cash available for
distribution in excess of current and retained earnings. Consistent with these
considerations, the Applicants request authorization for the current and future
PacifiCorp Subsidiary Companies to pay dividends out of capital and unearned
surplus, through the Authorization Period, provided, however, that, without
further approval of the Commission, no PacifiCorp Subsidiary Company will
declare or pay any dividend out of capital or unearned surplus if such
PacifiCorp Subsidiary Company derives any material part of its revenues from the
sale of goods, services or electricity to PacifiCorp ("Non-exempt PacifiCorp
Subsidiary Company"). ScottishPower requests that the Commission reserve
jurisdiction over dividends out of capital or unearned surplus paid by any such
Non-exempt PacifiCorp Subsidiary Company.
In addition, the Applicants request authority for PacifiCorp to pay
dividends out of capital and unearned surplus up to the lesser of $900 million
or to the extent of the proceeds it receives from the sale of assets outside of
its regulated utility business./21/ Distributions out of capital and unearned
surplus from the PacifiCorp Subsidiary Companies would allow available funds to
be utilized where appropriate within the PacifiCorp Group consistent with
PacifiCorp's commitment to maintain its Total Common Equity to be at least 30%
through the Authorization Period.
(e) Approval of New Tax Allocation Agreement. The Applicants ask the
----------------------------------------
Commission to approve an amended agreement for the allocation of consolidated
tax among Intermediate
---------------------------
/20/Compare Section 305(a) of the Federal Power Act.
/21/PacifiCorp recently completed the sale of its FUCO investments in
Australia. The requested authority would allow the proceeds from any such sale
to be distributed by PacifiCorp to its shareholder. The Applicants believe that
any such distribution would not have an adverse effect on PacifiCorp's utility
operations or the public interest.
17
<PAGE>
Companies and the PacifiCorp Group ("Tax Allocation Agreement"). Provisions in a
tax allocation agreement between a registered holding company and its
subsidiaries must comply with Section 12 of the Act and Rule 45 thereunder. Rule
45(a) of the Act generally prohibits any registered holding company or
subsidiary company from, directly or indirectly, lending or in any manner
extending its credit to or indemnifying, or making any donation or capital
contribution to, any company in the same holding company system, except pursuant
to a Commission order. Rule 45(c) provides that no approval is required for a
tax allocation agreement between eligible associate companies in a registered
holding company system, that "provides for allocation among such associate
companies of the liabilities and benefits arising from such consolidated tax
return for each tax year in a manner not inconsistent with" the conditions of
the rule. The Tax Allocation Agreement is in compliance with Rule 45, as
amended. Of interest here, Rule 45(c)(5) provides that:
The agreement may, instead of excluding members as provided in
paragraph (c)(4), include all members of the group in the tax allocation,
recognizing negative corporate taxable income or a negative corporate
tax, according to the allocation method chosen. An agreement under this
paragraph shall provide that those associate companies with a positive
allocation will pay the amount allocated and those subsidiary companies
with a negative allocation will receive current payment of their
corporate tax credits. The agreement shall provide a method for
apportioning such payments, and for carrying over uncompensated benefits,
if the consolidated loss is too large to be used in full. Such method may
assign priorities to specified kinds of benefits. (Emphasis added.)
Under the rule, only "subsidiary companies," as opposed to "associate companies"
(which includes the holding company in a holding company system), are entitled
to be paid for corporate tax credits. However, if a tax allocation agreement
does not fully comply with the provisions of Rule 45(c), it may nonetheless be
approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission explained
that the distinction between associate companies, on the one hand, and
subsidiary companies, on the other, represented a policy decision to preclude
the holding company from sharing in consolidated return savings. The Commission
noted that exploitation of utility companies by holding companies through the
misallocation of consolidated tax return benefits was among the abuses examined
in the investigations underlying the enactment of the 1935 Act. Holding Co. Act
Release No. 21968 (Mar. 25, 1981), (citing Sen. Doc. 92, Part 72A, 70th
Congress, 1st Sess. at 477-82). It must be noted, however, that the result in
Rule 45(c)(5) is not dictated by the statute and, as the Commission has
recognized, there is discretion on the part of the agency to approve tax
allocation agreements that do not, by their terms, comply with Rule 45(c) - so
long as the policies and provisions of the Act are otherwise satisfied. Compare
Section 12(a) of the Act. Accordingly, the Applicants request that the
Commission approve the Tax Allocation Agreement. The Commission has approved a
similar request in the matter of The National Grid Group plc, Holding Co. Act
---------------------------
Release No. 27154 (Mar. 15, 2000).
18
<PAGE>
ScottishPower may suffer an increased U.K. tax liability without the Tax
Allocation Agreement. U.K. corporate law looks at each company as a separate
entity, even where a company is a wholly owned subsidiary of another. This
perspective requires the maintenance of corporate capital and is particularly
important for creditor protection. Each company is required to prepare and
publicly file its own statutory accounts in the U.K.
Each company is also taxed separately. The U.K. does not have a system of
consolidated groups. If one company in a group has a loss for tax purposes then
it may "surrender" that loss to another member thereby reducing its taxable
profits by the amount of the loss surrendered. The companies are separate
entities, however, for corporate law purposes and, because a tax loss is
available to reduce future taxable profits and therefore tax liabilities if not
surrendered, a loss is considered an asset which is invariably paid for if
surrendered. A payment avoids distorting the results of each entity and the
risk of voiding the surrender.
As a result thereof, payment for the losses may be necessary to assure that
the holding company will receive appropriate tax credits under U.K. law for non-
U.K. (i.e., U.S.) taxes paid on subsidiary operations. In this sense, the Tax
Allocation Agreement is not used to allocate the tax paid, but to compute the
amount of post-tax profits for determining the amount of U.K. tax credits
available to ScottishPower.
When a U.K. company receives a dividend from an overseas company it is
subject to tax on that dividend, but is given a credit for the foreign tax borne
on the profits out of which the dividend has been paid. These rules also operate
on an entity by entity basis (consistent with the general approach in the U.K.
explained above), although, under draft U.K. tax legislation announced on March
21, 2000, in certain circumstances where two or more companies resident in an
overseas territory are treated as a single tax payer under the law of the
territory concerned, then those companies will be treated as a single tax payer
for the purposes of calculating relief for underlying tax in the U.K. If the
tax paid by the foreign company has been reduced by a loss incurred by another
member of the group, the amount of relief for foreign tax can be distorted
unless the foreign entity reimburses the loss maker for the losses. This is
illustrated in the example below. This illustration assumes no acquisition
related-debt.
The calculations are as follows:
<TABLE>
<CAPTION>
With tax allocation payment Without tax allocation
$ '000 payment $'000
------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend 124.0 124.0
------------------------------------------------------------------------------------------------
Gross up 50.0 43.3
------------------------------------------------------------------------------------------------
Taxable amount 174.0 167.3
------------------------------------------------------------------------------------------------
U.K. tax @ 30% 52.2 50.2
------------------------------------------------------------------------------------------------
Less credit for US tax (50.00) (43.3)
------------------------------------------------------------------------------------------------
U.K. tax due 2.2 6.9
------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
It is important to note that various safeguards assure that the structure
proposed in this Application-Declaration cannot be used to the detriment of
investors, consumers or the public interest. Most importantly, the Tax
Allocation Agreement, attached as Exhibit B-1 hereto, provides that "under no
circumstances shall the amount of tax allocated to a member exceed its separate
tax liability."
The proposed Tax Allocation Agreement and Intermediate Company structure
should be permitted as reasonable and appropriate measures to organize
ScottishPower's ownership of PacifiCorp efficiently in a manner consistent with
the protection of investors, consumers and the public interest. The Applicants
request a reservation of jurisdiction over the implementation of the Tax
Allocation Agreement, pending completion of the record.
(f) Short-term Debt
---------------
Authority is requested for PacifiCorp to issue commercial paper and
promissory notes not to exceed the aggregate amount of $1.5 billion to be
outstanding at any one time during the Authorization Period. This level of debt
authority has been authorized by the Federal Energy Regulatory Commission
("FERC") and all of the state utility commissions regulating PacifiCorp's
revolving credit agreements. The OPUC has not authorized the issuance of the
commercial paper because it is not jurisdictional. The PacifiCorp Group's
short-term debt, as it relates to the issuance of commercial paper and
borrowings pursuant to the Money Pools will not in the aggregate exceed $3.1
billion./22/ This amount, is in addition to the PacifiCorp's Group existing
financing arrangements.
PacifiCorp may sell commercial paper, from time to time, in established
domestic paper markets. Such commercial paper would be sold to or through
dealers at discount rates or bearing interest rates per annum prevailing at the
date of issuance for commercial paper of comparable quality and maturity. It is
expected that the dealers acquiring commercial paper from PacifiCorp will
reoffer such paper at a discount to corporate, institutional investors, such as
commercial banks, insurance companies, pension funds, investment trusts,
foundations, colleges and universities, finance companies and nonfinancial
corporations.
The issuance of commercial paper by PacifiCorp would, in most periods,
result in effective interest costs lower than the interest costs of borrowing
from commercial banks. In the event, however, that borrowings from banks would
produce a lower cost of money than the issuance of PacifiCorp's commercial
paper, and to the extent that PacifiCorp's corporate funds and subsidiaries'
loans of excess funds through the Utility Money Pool or the existing
intercompany borrowing arrangements would be inadequate to fulfill the
subsidiaries' requests for short-term loans, PacifiCorp will borrow from banks,
subject to the limitations on aggregate principal amounts stated above.
--------------------------
/22/As noted above, ScottishPower commits to maintain its and PacifiCorp's
long-term debt rating at an investment grade level through the Authorization
Period, and cause its and PacifiCorp's Total Common Equity as a percentage of
Total Capitalization, measured on a U.S. GAAP basis, to be at least 30% through
the Authorization Period.
20
<PAGE>
PacifiCorp requests authority to enter into arrangements described herein
through the Authorization Period. Subject to the limitations set forth above,
commercial paper borrowings will be tailored to mature at such time as excess
funds from PacifiCorp are expected to become available for loans through the
Utility Money Pool or the existing intercompany borrowing arrangements.
3. Affiliate Transactions
----------------------
PacifiCorp has been providing administrative, management, technical, legal
and other support services to its subsidiaries for many years. In addition,
there have been occasions when subsidiaries of PacifiCorp have provided services
to PacifiCorp or to other PacifiCorp Subsidiary Companies. PacifiCorp now
proposes to continue these arrangements, with PacifiCorp providing services to
the PacifiCorp Subsidiary Companies and other associate companies in the holding
company system pursuant to Rule 87 under the Act. PacifiCorp Subsidiary
Companies propose to provide services to PacifiCorp pursuant to Section 13(b).
All service transactions, as explained above, will be priced at cost in
accordance with Section 13 of the Act and the rules thereunder. In the event
that the market rate of the services is less than costs, neither PacifiCorp nor
the PacifiCorp Subsidiary Companies will provide such services.
In addition, SPUK or another member of the SPUK Group proposes to perform,
on a limited basis, services for the PacifiCorp Group. All service transactions
will be priced at cost in accordance with Section 13 of the Act and the rules
thereunder. Consequently, the PacifiCorp Group is effectively insulated from
the financial abuses targeted by the Act.
The preliminary estimate of total charges by SPUK to PacifiCorp for the
provision of anticipated services will be approximately $12 million
annually./23/ All of the charges are expected to be made on a direct charge
basis for a variety of services including the following:
(a) Transition Plan Preparation & Implementation
--------------------------------------------
This plan involves a systematic and fundamental review of the business
activities of PacifiCorp and a critical assessment of the performance
improvement opportunity by applying the experiences obtained from similar
activities undertaken following SPUK's acquisitions of Manweb and Southern
Water. The annual charges for the transition plans will be approximately $6
million. It is anticipated that SPUK will lead the implementation of the
transition plans.
(b) Network Performance and Customer Service Improvements
-----------------------------------------------------
ScottishPower will introduce an outage monitoring system, Prosper-US, and
the technical network improvements in keeping with its merger commitments to
improve underlying network performance over the next five years. The annual
charges for the network performance and customer service improvements will be
approximately $500,000. In addition to the
--------------------
/23/Overall, ScottishPower anticipates that costs improvements at PacifiCorp
will more than offset the expected level of charges for the services to be
provided.
21
<PAGE>
commitments to improve customer service, ScottishPower also committed to reduce
System Average Interruption Duration Index (SAIDI) by 10%, System Average
Interruption Frequency Index (SAIFI) by 10% and Momentary Average Interruptions
Frequency Index (MAIFI) by 5%. See State Commission Orders attached as Exhibits
---
D-1 through D-6.
(c) Corporate Services
------------------
The corporate center of SPUK is expected to provide services to PacifiCorp
through representation on the PacifiCorp Board of Directors as well as
administrative services. These will include shareholder services, investor
relations, senior management, human resources, payroll and pensions. In
addition, there is expected to be some management oversight in the areas of
internal audit, tax and treasury, and consultation regarding engineering,
research and development projects, and transmission best practices.
The costs of services provided by SPUK, or a member of the SPUK Group,
will be directly attributed to PacifiCorp. Alternatively, whenever it is
possible to do so accurately, it will be attributed a specific PacifiCorp
Subsidiary Company. SPUK will bill PacifiCorp monthly in arrears. The billing
format will list charges by corporate department, detailing total time
applicable to PacifiCorp or the PacifiCorp Subsidiary Company multiplied by the
current rate, to give the total charge for the month. The annual charges for
the corporate services is currently estimated to be approximately $5.5 million.
All affiliate transactions among the SPUK Group, PacifiCorp and the
PacifiCorp Subsidiary Companies are subject to review by the Utility
Commissions. PacifiCorp files an annual Affiliated Interest Report with the
Utility Commissions detailing, among other things, the charges that have been
made during the previous year and the methods used to allocate costs among
itself and its associate companies./24/ A copy of the Affiliated Interest Report
for the year ended March 31, 2000, is attached hereto as Exhibit D-7.
The PacifiCorp Subsidiary Companies request authorization under Section
13(b) of the Act to provide services and sell goods to its members and the SPUK
Group at fair market prices determined without regard to cost, and request an
exemption under section 13(b) from the cost standards of Rules 90 and 91 as
applicable to these transactions, in any case in which the non-utility
subsidiary purchasing these goods or services is:
(1) A FUCO or foreign EWG which derives no part of its income, directly or
indirectly, from the generation, transmission, or distribution of electric
energy for sale within the United States;
(2) An EWG which sells electricity at market-based rates which have been
approved by the FERC, provided that the purchaser is not PacifiCorp;
(3) A "qualifying facility" ("QF") within the meaning of the Public Utility
Regulatory Policies Act of 1978, as amended ("PURPA") that sells electricity
exclusively (a) at rates negotiated at
--------------------------
/24/The OPUC requests reports twice a year on affiliate transactions between
the SPUK Group and the PacifiCorp Group.
22
<PAGE>
arms' length to one or more industrial or commercial customers purchasing the
electricity for their own use and not for resale, and/or (b) to an electric
utility company at the purchaser's "avoided cost" as determined in accordance
with PURPA regulations;
(4) 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 is not PacifiCorp; or
(5) A subsidiary engaged in Rule 58 activities or any other non-utility
subsidiary that (a) is partially owned by a member of the PacifiCorp Subsidiary
Companies or the SPUK Group, provided that the ultimate purchaser of such goods
or services is not PacifiCorp, (b) is engaged solely in the business of
developing, owning, operating and/or providing services or goods to the
nonutility subsidiaries described in clauses (1) through (4) immediately above,
or (c) 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. The Commission authorized a similar request
pursuant to an exception from the at cost provisions of section 13(b) of the Act
in Energy East Corporation, Holding Company Act Release No. 27228 (Sep. 12,
-----------------------
2000).
Additional information regarding the service activities in the
ScottishPower System is detailed in the ScottishPower methodology paper attached
as Exhibit C-6 hereto.
4. Changes in Capital Stock of Subsidiaries
----------------------------------------
The portion of the aggregate financing of PacifiCorp or an individual
wholly-owned subsidiary of the PacifiCorp Group to be effected through the sale
of equity securities to its immediate parent company during the Authorization
Period cannot be determined at this time. It may happen that the proposed sale
of capital securities may in some cases exceed the then authorized capital stock
of PacifiCorp or such PacifiCorp Subsidiary Company. In addition, PacifiCorp or
such PacifiCorp Subsidiary Company may choose to use other forms of capital
securities. Capital stock includes common stock, preferred stock, other
preferred securities, options and/or warrants convertible into common or
preferred stock, rights, and similar securities. As needed to accommodate the
sale of additional equity, Applicants request the authority to increase the
amount or change the terms of any wholly-owned subsidiary of PacifiCorp Group
authorized capital securities, without additional Commission approval. The
terms that may be changed include dividend rates, conversion rates and dates,
and expiration dates. Applicants note that each of the Intermediate Companies
will be wholly owned directly or indirectly by ScottishPower and that none will
have third-party investors. Applicants request authorization to make changes to
the capital stock of PacifiCorp or any wholly-owned subsidiary of the PacifiCorp
Group. Other than the financing authorization that exists herein, Applicants
request that the Commission reserve jurisdiction over changes to the capital
stock of PacifiCorp. The changes to capital stock referred to above affect only
the manner in which financing is conducted by the PacifiCorp Group and will not
alter the terms or limits proposed in this Application-Declaration.
5. Financing Entities
------------------
23
<PAGE>
Authority is sought for ScottishPower and the PacifiCorp Group to organize
new corporations, trusts, partnerships or other entities created for the purpose
of facilitating financings through their issuance to third parties of income
preferred securities or other securities authorized hereby or issued pursuant to
an applicable exemption through the Authorization Period. Request is also made
for these financing entities to issue such securities to third parties in the
event such issuances are not exempt pursuant to Rule 52. Additionally, request
is made through the Authorization Period to (i) the issuance of debentures or
other evidences of indebtedness by any of ScottishPower or the PacifiCorp Group
to a financing entity in return for the proceeds of the financing, (ii) the
acquisition by any of ScottishPower or the PacifiCorp Group of voting interests
or equity securities issued by the financing entity to establish ownership of
the financing entity and (iii) the guarantee by the Applicants of such financing
entity's obligations in connection therewith. Each of ScottishPower and the
PacifiCorp Group also may enter into expense agreements with its respective
financing entity, pursuant to which it would agree to pay all expenses of such
entity. All expense reimbursements would be at cost./25/ Applicants seek
authorization for such expense reimbursement arrangements under Section 7(d)(4)
of the Act, regarding the reasonableness of fees paid in connection with the
issuance of a security, and/or under Section 13 of the Act and the rules
thereunder to the extent the financing entity is deemed to provide services to
an associate company.
Any amounts issued by such financing entities to third parties pursuant to
this authorization will count against the external financing limits authorized
herein for the immediate parent of such financing entity. However, the
underlying intra-system mirror debt and parent guarantee will not count against
the external financing limits or the separate ScottishPower guarantee limits.
The Commission has approved similar transactions in New Century Energies, Inc.
-------------------------
Holding Co. Act Release No. 26750 (Aug. 1, 1997), Conectiv, Inc. Holding Co. Act
-------------
Release No. 26833 (Feb. 26, 1998) and The National Grid Group plc, Holding Co.
---------------------------
Act Release No. 27154 (Mar. 15, 2000).
6. Corporate Restructuring
-----------------------
ScottishPower proposes to engage in corporate restructuring or
reorganization of the SPUK Group without prior Commission approval.
ScottishPower has given commitments to regulators in the U.K. regarding the
reorganization of SPUK and its subsidiaries, including the incorporation of
divisions of SPUK's business (the U.K. business operation referred to above).
ScottishPower anticipates that as it continues to review the combined operations
of the ScottishPower System, it may prove prudent to reorganize its nonutility
companies to merge current FUCO investments held in the PacifiCorp Group with
those of SPUK. ScottishPower also requests authorization to consolidate or
otherwise reorganize its nonutility companies if the acquisition of the
securities of such nonutility company is exempt from prior Commission approval.
ScottishPower requests that the Commission reserve jurisdiction, pending
completion of the record, over any other consolidation or reorganization of its
direct or indirect ownership interests in any nonutility company. The
Commission has approved a similar transaction in
---------------------
/25/External financing will be subject to the financing limits proposed in
this application.
24
<PAGE>
Entergy Corporation, Holding Co. Act Release No. 27039 (Jun. 22, 1999). If
-------------------
PacifiCorp is to be reorganized, a separate application will be filed.
7. EWG/FUCO-related Financings
---------------------------
ScottishPower has adopted a corporate structure that separates its existing
foreign operations from its U.S. utility operations. The organization of
foreign activities under SPUK, and U.S. utility activities under PacifiCorp,
reflects ScottishPower's intent to develop these two business areas in a
financially independent manner. As a general matter, ScottishPower intends to
fund its FUCO activities at the SPUK level and/or Intermediate Companies,
although under certain circumstances it may be necessary from time to time for
ScottishPower to provide some investment capital or credit support for FUCO
acquisitions or operations./26/ To that end, ScottishPower is seeking authority
to retain the ScottishPower System's current EWGs and FUCOs and to finance EWG
and FUCO investments and operations in an aggregate amount of up to $4,680
million at any one time outstanding, during the Authorization Period./27/ As of
June 30, 2000, 100% of the ScottishPower System consolidated retained earnings
on a U.S. GAAP basis was $3,196/28/ million. Such financings may include the
issue or sale of a security for purposes of financing the acquisition or
operations of an EWG or FUCO, or the guarantee of a security of an EWG or FUCO.
As explained more fully below, the proposed financing will not have an adverse
effect on the financial integrity of the ScottishPower System, nor will it have
an adverse impact on the PacifiCorp Group, any customers of PacifiCorp, or the
ability of the affected state commissions to protect the PacifiCorp Group and
its customers.
ScottishPower requests reservation of jurisdiction over ScottishPower's
engagement in EWG/FUCO-related financings, pending completion of the record.
ScottishPower differs from most other registered holding companies with
FUCO investments because it developed first as a foreign utility company,/29/
involved in the generation, transmission, and distribution of electricity in
Scotland, and only secondarily has become involved, through the PacifiCorp
merger, in the U.S. energy industry. ScottishPower, therefore, joins the family
of registered holding companies with significant foreign investments and
operating experience in foreign markets. As of June 30, 2000 the ScottishPower
System had an "aggregate investment", as the term is defined in Rule 53 under
the Act, in EWGs and FUCOs of
-------------------------
/26/As previously mentioned, it may be desirable for reasons of economic
efficiency to hold certain FUCO interests outside SPUK and its subsidiary
companies.
/27/As noted above, most of ScottishPower's FUCO investments are held
through SPUK. The ScottishPower System as of June 30, 2000 did not own any EWGs.
As stated herein, ScottishPower requests that, based on a finding that its and
PacifiCorp's pre-existing investments in FUCOs will not have a substantial
adverse impact on its financial integrity or the interest of consumers and other
factors stated herein, the Commission find that ScottishPower has made the
requisite showing under Rule 53(c). The $4,680 million represents
ScottishPower's current FUCO investments plus an additional 50% of its
consolidated retained earnings.
/28/Converting at (Pounds)1.00 : $1.52, the closing exchange rate at June
30, 2000.
/29/The ScottishPower System is analogous to that of The National Grid
Group plc, which the Commission recently authorized in Holding Co. Act Release
No. 27154 (Mar. 15, 2000).
25
<PAGE>
$3,120 million. This investment represents 98% (subject to an adjustment based
on the sale of the Australian FUCO assets) of the ScottishPower System
consolidated retained earnings as of June 30, 2000 calculated in accordance with
U.S. GAAP. To that end, the above-mentioned authorization would result in an
aggregate investment of approximately $4,680 million. As stated above, due to
ScottishPower's unique history as a significant operator and investor in foreign
utility companies at the time that it will become a registered holding company,
a forward-looking view of the appropriate level of investment in EWGs and FUCOs
is the most appropriate means of determining whether the financing proposed in
this Application-Declaration will have a substantial adverse effect upon the
financial integrity of the registered holding company system. In fact, the
expertise that ScottishPower has gained in operating the Scottish generation and
transmission and distribution systems, and other transmission and distribution
systems throughout the U.K., promises to be of substantial benefit to U.S.
consumers in the management of PacifiCorp. It is unlikely that ScottishPower's
pre-existing FUCO investments will adversely affect the registered holding
company system, U.S. customers or state regulation.
ScottishPower's non-U.S. background makes it commercially impossible for
the company to comply fully with certain of the technical requirements of Rule
53, however ScottishPower will comply fully with the substantive provisions of
Rule 53. In particular, since ScottishPower has pre-existing foreign utility
operations, it would not be reasonable to expect it, and neither can it commit,
to maintain the books and records of its FUCOs in conformity with U.S. GAAP,
although it will provide reconciliation as required in Form 20-F. Nonetheless,
ScottishPower satisfies the ultimate standards, as set forth in Section 32 and
reflected in Rule 53(c), namely, any proposed investment will not have a
substantial adverse impact on the financial integrity of the ScottishPower
System, or an adverse impact on PacifiCorp or its customers, or on the ability
of state commissions to protect such subsidiary or customers. ScottishPower
makes this assertion based on an assessment of its business activities, its
capital structure, the earnings and cash flows anticipated from its assets, and
the risks that could affect the financial stability of the ScottishPower System.
ScottishPower's successful operation of the electric and water systems in
the U.K. should indicate that the company has sound management skills and
expertise in the utility industry, particularly as it relates to utility
operations foreign to the U.S. SPUK has had a record of profitability in its
FUCO or principal activities prior to becoming subject to the Act./30/
ScottishPower's only FUCO or EWG investment to date is a generation project
located in the United Kingdom. Its only overseas investment is PacifiCorp and
its subsidiaries. ScottishPower contemplates making additional investments in
FUCOs and EWGs only in developed countries. To ensure continued success in its
new ventures, ScottishPower will subject all project proposals to stringent
internal reviews.
ScottishPower's disciplined investment review process will minimize the
risks associated with FUCO activities. The majority of SPUK's activities will
be, in any event, heavily regulated so as to guarantee not simply customer
standards and competitive pricing with respect to those
-----------------------------
/30/ SPUK's consolidated earnings for the period March 31, 1996-1999 were
approximately: $450 million in 1996, $640 million in 1997, $258 million in 1998
and $765 million in 1999.
26
<PAGE>
activities, but also satisfactory rates of return to investors, and more
particularly, so as to encourage capital investment to maintain system integrity
and security. By reason of such regulation and guaranteed returns, SPUK
anticipates that it will maintain an investment grade rating through the
Authorization Period./31/
Before ScottishPower or its subsidiaries make any investment in a project,
the project will be analyzed in detail, including the specific country risk,
where applicable. The project review process will include a series of
independent internal reviews, both at the subsidiary and ScottishPower levels,
as described in further detail below.
At the outset of a foreign project, ScottishPower will seek partners with
experience in doing business locally. Such partners will help to mitigate the
risk of expropriation or unfair regulatory treatment. ScottishPower may also
obtain the participation of official or multilateral agencies in the project.
ScottishPower will evaluate and seek to limit the potential risks of an
EWG or FUCO before any commitment of funds. Major risks, in addition to
country-specific risks related to political or economic factors, may generally
be characterized as operating risk, construction risk, commercial risk,
financial risk, foreign currency exchange risk and legal risk.
With respect to commercial risk in particular, the measures to be taken will
depend in part upon whether there is a single power purchaser. ScottishPower
will assess the creditworthiness of such a purchaser over the life of the
project and will establish a contingency plan for use in an event of default.
In contrast, for projects in competitive foreign power markets where long-term
off-take contracts are generally not available and electricity prices are
determined by supply and demand, ScottishPower will investigate the electricity
markets and will seek to ensure that the project will produce electricity at or
below long-run marginal costs in the region and thus be a competitive supplier.
With respect to financial risk, ScottishPower's permanent debt financing for
EWGs and FUCOs will be, by its terms, non-recourse to ScottishPower or any
associate company (other than EWGs and FUCOs). ScottishPower will obtain from
third-party lenders long-term debt financing for construction costs incurred in
connection with EWGs and FUCOs. Unless project debt is expressly guaranteed by
ScottishPower, such borrowings will be non-recourse, directly or indirectly, to
ScottishPower and to system companies (other than another EWG or FUCO); instead,
they will be secured solely by the assets and revenues of a particular EWG or
FUCO. This method of financing will ensure that Scottish Power's exposure to
direct losses from any particular project will be limited to the amount of its
equity commitment and any limited guaranty it provides, and that the
ScottishPower operating companies and their ratepayers bear no risk of direct
losses from a project's financial distress or failure.
---------------------
/31/As previously noted, PacifiCorp's senior secured debt has a credit
rating of "A-2" by Moody's and "A+" by S&P. ScottishPower does not issue debt,
therefore, it has no credit ratings. SPUK currently generates a credit rating of
"A-1" by Moody's Investor Services, and "A" by Standard and Poor's.
27
<PAGE>
In addition, ScottishPower's project debt will be structured to correspond to
the revenue stream of the particular project. Thus, the term of such debt may be
similar to that of a related power purchase contract, and scheduled debt
payments may be covered by fixed charges under the contract. In contrast, where
there is no long-term, fixed source of revenue, the percentage of non-recourse
debt financing will typically be smaller. Accordingly, EWGs and FUCOs that have
long-term off-take contracts have debt capitalization levels in the 70% to 80%
range, whereas other projects will have debt levels at, and often below, those
of domestic regulated utilities.
The risk of fluctuations in interest rates will be addressed, in part, by
borrowing to the extent possible on a long-term, fixed-rate basis. With respect
to foreign currency exchange risk, part or all of the revenue from a project in
a country that lacks a history of a stable exchange policy will be made payable
in, or will be indexed to, hard currency, almost invariably U.S. dollars. In
addition, ScottishPower will, in some instances, negotiate back-up guarantees or
other undertakings by the central government to ensure that U.S. dollar payments
are made available by the central bank or ministry of finance when due and
payable.
Legal risks will be addressed by review of each investment by counsel,
including local and international counsel if a foreign EWG or a FUCO is
involved. Pertinent issues will include regulatory and permitting risks,
environmental risks, adequacy and enforceability of financial and other
contractual undertakings, and status of title to utility property.
Once a project is undertaken, milestones will be set to ensure that
expenditures are producing acceptable results. In addition, a project team will
be created to identify the major technical, financial, commercial and legal
risks associated with the project and to assess the measures taken to mitigate
such risks. Members of the team will have responsibility for the due diligence
investigation of identified risks, and must secure the approval of the officer
of ScottishPower who has responsibility for a particular type of risk.
Despite ScottishPower's efforts to mitigate risk, it will be impossible to
eliminate entirely the inherent risk of each particular investment.
ScottishPower believes that portfolio diversification offers the best long-term
approach to managing the risk of investing in EWGs and FUCOs. ScottishPower's
strategy in this regard includes regional diversification and an effort to
balance investments in so-called "green field" projects, i.e., those that
involve development and construction of new electric facilities, principally
generating stations, and investments in existing facilities and systems.
Although the former investments involve higher levels of risk and deferred
returns because the process of development and construction is lengthy, they
will generally produce higher rates of return on investment than do acquisitions
of existing assets.
The Statement of Financial Accounting Standards No. 121 requires a listing
of all assets of a utility that a company plans to write down and take as a
loss. ScottishPower recorded impairment losses in the fiscal year ended March
31, 2000, amounting to $155 million./32/ No
------------------------
/32/Provision has been made for impairment of assets following an
assessment of the SPUK Group's U.K. generation portfolio and the outcome of the
regulatory price reviews in the U.K. electricity industry. The impact of those
regulatory reviews is fairly reflected in the impairment losses in the fiscal
year ended March 31, 2000, amounting to $155 million, however, on the basis of
information currently
28
<PAGE>
associate EWG or FUCO has ever defaulted under the terms of any financing
document. ScottishPower undertakes to notify the Commission by filing a post-
effective amendment in this proceeding in the event that any of the
circumstances described in Rule 53(b) occurs during the Authorization Period.
The soundness of ScottishPower's financial structure and the lack of risk
to PacifiCorp consumers is further demonstrated by ScottishPower's commitment to
maintain its and PacifiCorp's long-term debt rating at an investment grade
level; and PacifiCorp's undertaking to cause PacifiCorp's Common Equity as
percentage of Total Capitalization, measured on a U.S. GAAP basis, to be at
least 30% through the Authorization Period.
The transactions proposed herein are subject to Rules 53 and 54. For the
reasons stated below, ScottishPower satisfies the requirements under Rule 53(c)
to issue securities for the purpose of acquiring the securities of or other
interest in an EWG, or to guarantee the securities of an EWG. Rule 54 provides
that the Commission shall not consider the effect of the capitalization or
earnings of subsidiaries of a registered holding company that are EWGs or FUCOs
in determining whether to approve other transactions if Rule 53(a), (b) and (c)
are satisfied. These standards are met.
Under Rule 53(c)(2), ScottishPower must demonstrate that the proposed use
of financing proceeds to invest in FUCOs will not have an "adverse impact" on
any of the PacifiCorp Group, their respective customers, or on the ability of
the state commissions having jurisdiction over PacifiCorp.
The view that PacifiCorp Group customers will not be adversely impacted by
increased levels of investment is well-supported by the following:
(i) All of ScottishPower's new investments in FUCOs will be
segregated from the PacifiCorp Group. PacifiCorp will not provide
financing for, extend credit to, or sell or pledge its assets directly or
indirectly to any FUCO in which ScottishPower owns any interest.
ScottishPower further commits not to seek recovery in retail rates for any
failed investment in, or inadequate returns from, a FUCO investment.
(ii) Investments in EWGs and FUCOs will not have any negative impact
on the ability of the PacifiCorp Group to fund operations and growth. The
PacifiCorp Group currently has financial facilities in place that are
adequate to support its operations. These facilities have continued post-
merger. The expectation of continued strong credit ratings by the
PacifiCorp Group should allow it to continue to access the capital markets
to finance operations and growth.
(iii) ScottishPower will comply with the requirements of Rule 53(a)(3)
regarding the limitation on the use of the PacifiCorp's employees in
connection with providing
--------------------------------------------------------------------------------
available, no additional impairment will arise as a result of the recent
regulatory price reviews. This impairment loss is less than one percent of the
ScottishPower System's total assets and as a result thereof, will not adversely
impact any of the PacifiCorp Group, their respective customers, or on the
ability of the Utility Commissions.
29
<PAGE>
services to FUCOs. It is contemplated that project development, management and
home office support functions for the projects will be largely performed by SPUK
and its subsidiary companies, and by outside consultants (e.g., engineers,
investment advisors, accountants and attorneys) engaged by ScottishPower or SPUK
Group. Scottish will also comply Rule 53(a)(4) on a going forward basis.
(iv) ScottishPower believes that the state commissions are able to
protect utility customers within their respective states. In connection
with the ScottishPower merger with PacifiCorp, representatives of
ScottishPower met with each of the affected state commissions and confirmed
that the state commission has absolute jurisdiction over PacifiCorp and
that the state commission will exercise this authority to protect
ratepayers. Even though not all states had jurisdiction over the merger,
ScottishPower sought and received an order in each of the states that the
merger was in the public interest.
(v) In addition, ScottishPower will provide the information required
by Form 20-F under the 1934 Act as well as U5S under the Act to permit the
Commission to monitor the effect of ScottishPower's EWG and FUCO
investments on ScottishPower's financial condition.
Finally, none of the three conditions described in Rule 53 (b) exist.
Specifically, (1) there has been no bankruptcy of any ScottishPower System
companies; (2) ScottishPower's average consolidated retained earnings for the
previous four quarters has not decreased by 10% from the average for the four
quarters preceding that period; and (3) in the past fiscal year, ScottishPower
has not reported operating losses attributable to its direct or indirect
investments in EWGs or FUCOs which exceeded 5% of its consolidated retained
earnings.
E. Filing of Certificates of Notification and a Post-effective Amendments
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It is proposed that, with respect to ScottishPower and PacifiCorp (each of
which, as noted above, has registered under the 1934 Act in connection with its
sponsored ADR program and securities outstanding in public hands, respectively),
the reporting systems of the 1934 Act and the 1933 Act be integrated with
reports under the Act. This would eliminate duplication of filings with the
Commission that cover essentially the same subject matters, and reduce burdens
on both the Commission and ScottishPower. To effect such integration, the
Applicants propose to incorporate by reference into the Rule 24 certificates of
notification under this file the portion of the 1933 Act and 1934 Act reports
containing or reflecting disclosures of transactions occurring pursuant to the
authorization granted in this proceeding. The certificates would also contain
all other information required by Rule 24, including the certification that each
transaction included in the report had been carried out in accordance with the
terms and conditions of and for the purposes represented in this Application.
Under U.K. rules, ScottishPower must prepare and publish consolidated
financial information at least semi-annually. ScottishPower will, as a result
of the merger with PacifiCorp, move to quarterly reporting of results. However,
Applicants propose to provide Rule 24 certificates on a semiannual basis,
consistent with the frequency of required financial reporting required in the
U.K.
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Applicants also request an exemption from Rule 26(a)(1) under the Act,
regarding the maintenance of financial statements in conformance with Regulation
S-X, for any subsidiary of SPUK organized outside the U.S. Due to
ScottishPower's extensive foreign holdings, significant additional work and
expense would be required for the holding company to prepare consolidated
financial statements in conformity with Regulation S-X.
The exemption would apply only to existing subsidiaries of SPUK that are
organized outside of the U.S. Any new foreign subsidiary that engages in
foreign utility operations will maintain its financial statements in accordance
with U.S. GAAP or reconcile the financial statements to U.S. GAAP in the same
manner as required by Form 20-F. SPUK or the new foreign subsidiary will file
Form U-57.
The reporting requirements imposed by the Commission, together with the
reconciliation of financial statements to U.S. GAAP will enable the Commission
to oversee the operations of the ScottishPower companies, including intrasystem
transactions.
The Applicants will file Form U5S annually within 120 days of the close of
ScottishPower's fiscal year. In addition, as required by the Securities
Exchange Act of 1934 and the Securities Act of 1933, respectively, ScottishPower
will file Form 20-F, the Form 10-Q for PacifiCorp, and reports on Form 6-K
containing material announcements as made.
To maintain a consistent presentation of financial information,
ScottishPower's Form U5S filing will present the holding company's consolidated
financial statements in the format required by Form 20-F. i.e., U.K. GAAP format
reconciled to U.S. GAAP. In addition, the Applicants propose that the Form U5S
filing will contain: (1) U.S. GAAP financial statements for all the PacifiCorp
Group companies; and (2) U.S. GAAP financial statements or financial statements
in the format required by Form 20-F for (a) ScottishPower, on a consolidated
basis, and (b) the Intermediate Companies. Form U5S filings will state amounts
in U.S. dollars.
The Rule 24 certificates will be provided to the Commission within 90 days
after the end of ScottishPower's fiscal year and within 60 days of the end of
its second fiscal quarter and will contain the following information:
(1) The principal amount, interest rate, term, number of shares, market
price per share, sales price per share (if other than market price) and
aggregate proceeds, as applicable, of any securities issued by ScottishPower or
jurisdictional transactions in the PacifiCorp Group during the reporting period,
including securities issued to dividend reinvestment plans and employee benefit
plans;
(2) The amount of guarantees issued during the reporting period by
ScottishPower or, if nonexempt, by PacifiCorp, the name of the beneficiary of
the guarantee and the terms and purpose of the guarantee;
(3) ScottishPower's aggregate investment, as defined under Rule 53, in
EWGs and FUCOs, as of the end of the reporting period in dollars and as a
percentage of ScottishPower's
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consolidated retained earnings, and a description of EWG and FUCO investments
during the reporting period;
(4) The aggregate amount of securities and the aggregate amount of
guarantees issued and outstanding by ScottishPower or, if nonexempt, by
PacifiCorp since the date of the order in this application;
(5) A list of the securities issued by the Intermediate Companies during
the reporting period, including principal amount, interest rate, term, number of
shares and aggregate proceeds, as applicable, with the acquiring company
identified;
(6) The amount and terms of any short-term debt issued by any PacifiCorp
Group company, and a list of the deposits and withdrawals by company from the
Money Pools during the reporting period;
(7) The amount and terms of any nonexempt financings consummated during
the period by PacifiCorp during the reporting period;
(8) The amount and terms of any nonexempt financings consummated by any
nonutility PacifiCorp Subsidiary Company during the reporting period;
(9) A table showing, as of the end of the reporting period, the dollar and
percentage components of the capital structures of ScottishPower, SPUK and
PacifiCorp;
(10) A courtesy copy of the annual PacifiCorp Affiliated Interest Report,
within ten days of its filing with the State Commissions;
(11) Paper copies of ScottishPower's filings of Form 20-F and reports to
shareholders; and
(12) As applicable, all ScottishPower amounts shall be expressed in U.K.
Pounds converted to U.S. dollars and shall be presented in accordance with the
U.S. GAAP reconciliation requirements of Form 20-F. In particular, the
semiannual reports provided to the Commission in Rule 24 filings under this
Application-Declaration shall be organized so that all columns showing amounts
in Pounds in financial statements or tables are accompanied by parallel columns
showing U.S. dollar amounts.
ScottishPower also will report annually, as a supplement to the Form U5-S,
service transactions among the ScottishPower System companies. The report will
contain the following information:
(1) a narrative description of the services rendered by members of the SPUK
Group for the PacifiCorp Group, by the members of the PacifiCorp Group for the
SPUK Group, and by the members of the PacifiCorp Group for each other;
(2) disclosure of the dollar amount of services rendered according to category
or department;
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(3) identification of companies rendering services and recipient companies; and
(4) disclosure of the number of PacifiCorp Group employees engaged in
rendering services to other ScottishPower System companies on an annual basis,
stated as an absolute and as a percentage of total employees.
In addition, Applicants commit to file a post-effective amendment not later
than March 31, 2001 to provide additional support on the following:
(1) Integration and coordination of PacifiCorp's electric utility
system in compliance with section 11(b)(1) of the Act;
(2) Retention of PacifiCorp's nonutility subsidiaries under section
11(b)(1) of the Act; and
(3) Status of SPUK under section 33 of the Act.
F. Summary of Application
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In summary, Applicants request (to the extent they are not otherwise
exempt from the Act) authorization to engage in:
(1) financings by ScottishPower, including but not limited to the
issuance of ordinary shares and ADSs, preferred stock, short- and long-term
debt, guarantees and currency and interest rate swaps;
(2) certain financings by the PacifiCorp Group;
(3) intrasystem financings, including (a) the continuation of existing
intercompany borrowing arrangements within the PacifiCorp Group, (b) the
creation of two new Money Pools, (c) guarantees of the obligations of, and
other forms of credit support for, the PacifiCorp Subsidiary Companies and
the SPUK Subsidiary Companies, (d) the payment of dividends out of capital
or unearned surplus, and (e) approval of a new tax allocation agreement;
(4) the issuance by members of the PacifiCorp Group of additional
shares, or alteration of the terms of any then-existing authorized
security;
(5) issuance by PacifiCorp up to an aggregate principal amount of $1.5
billion of short-term debt consisting of commercial paper and promissory
notes outstanding at any one time;
(6) the formation of financing entities and the issuance by such
entities of securities otherwise authorized to be issued and sold pursuant
to this Application-
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Declaration or pursuant to applicable exemptions under the Act, including
intrasystem guarantees of such securities; and
(7) financings by ScottishPower for the purposes of acquiring, or
funding the operations of, EWGs and FUCOs up to $4,680 million.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
An estimate of the fees and, other than underwriting fees and expenses, to be
paid or incurred by the Applicants in connection with the proposed transactions
is set forth below:
Counsel Fees in connection with this application $100,000
Total . . . . . . . . . . . . . . . . . . . . . . . . $100,000
The underwriting fees and expenses (including issuance fees for counsel,
printing, etc.) will not exceed five percent of the value of the securities
issued.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 6(a), 7, 9(a), 10, 12, 13(b), 32 and 33 of the Act and Rules 42,
43, 45, 52, 53, 54, 83, 87, 90 and 91 are considered applicable to the proposed
transactions.
To the extent that the proposed transactions are considered by the
Commission to require authorization, exemption or approval under any section of
the Act or the rules and regulations other than those set forth above, request
for such authorization, exemption or approval is hereby made.
ITEM 4. REGULATORY APPROVALS
No state or federal regulatory agency other than the Commission under the
Act has jurisdiction over the proposed transactions, except that the California,
Idaho, Utah, Washington and Wyoming public utility commissions have jurisdiction
over issuances of commercial paper by PacifiCorp.
ITEM 5. PROCEDURE
The Applicants hereby request that there be no hearing on this Application-
Declaration and that the Commission issue its order as soon as practicable after
the filing hereof. The Commission is respectfully requested to issue and publish
the requisite notice under Rule 23 with
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respect to the filing of this Application-Declaration not later than October 6,
2000 such notice to specify a date not later than October 31, 2000, by which
comments may be entered.
The Applicants hereby (i) waive a recommended decision by a hearing
officer, (ii) waive a recommended decision by any other responsible officer or
the Commission, (iii) consent that the Division of Investment Management may
assist in the preparation of the Commission's decision and (iv) waive a 30-day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
Exhibits
A-1 Articles and Memorandum of Association of ScottishPower
(filed with the Commission on May 6, 1999 - File No. 333-77877).
B-1 Form of Tax Allocation Agreement
(to be filed by amendment)
B-2 PacifiCorp Intercompany Loan Agreement
(filed on Form SE)
B-3 PGHC Intercompany Loan Agreement
(filed on Form SE)
B-4 Nonutility Money Pool Agreement
(to be filed by amendment)
B-5 Utility Money Pool Agreement
(to be filed on Form SE)
B-6 Intercompany Loan Schedule
(to be filed on Form SE)
C-1 ScottishPower Corporate Chart
(filed on Form SE)
C-2 Description of the Companies in the ScottishPower System
(filed on Form SE)
C-3 Dividend History of PacifiCorp
(filed on Form SE)
C-4 ScottishPower U5B
(filed on Form SE)
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C-5 PacifiCorp Registration Statement
(filed with the Commission on December 3, 1999 - File No. 333-92095).
C-6 ScottishPower Methodology Paper
(filed on Form SE)
D-1 Public Utilities Commission of the State of California Opinion and
Order
(filed on Form SE)
D-2 The Idaho Public Utilities Commission Order
(filed on Form SE)
D-3 The Public Utility Commission of Oregon Order
(filed on Form SE)
D-4 The Public Service Commission of Utah Report and Order
(filed on Form SE)
D-5 The Washington Utilities and Transportation Commission Order
(filed on Form SE)
D-6 The Public Service Commission of Wyoming Order
(filed on Form SE)
D-7 PacifiCorp Affiliated Interest Report
(to be filed on Form SE)
F-1.1 Opinion of counsel
(to be filed on Form SE)
F-1.2 Past-tense opinion of counsel
(to be filed on Form SE)
H-1 Annual Report of ScottishPower dated March 31, 1999.
(filed with the Commission on July 19, 1999 - File No. 001-14676).
H-2 Annual Report of PacifiCorp for the year ended December 31, 1998
(filed with the Commission on March 31, 1999 - File No. 001-05152).
H-3 Quarterly Report of PacifiCorp for the period ended December 31, 1999
(filed with the Commission on February 14, 2000 - File No. 001-05152).
I-1 Proposed Form of Notice
Financial Statements
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FS-1 ScottishPower Unaudited Pro Forma Condensed Consolidated Balance
Sheet
(filed with the Commission on May 6, 1999 - File No. 333-77877).
FS-2 ScottishPower Unaudited Pro Forma Condensed Consolidated Statement of
Income
(filed with the Commission on May 6, 1999 - File No. 333-77877).
FS-3 Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(filed with the Commission on May 6, 1999 - File No. 333-77877).
FS-4 ScottishPower Consolidated Balance Sheet as of March 31, 2000
(to be filed on Form SE)
FS-5 ScottishPower Consolidated Statement of Income as of March 31,2000
(to be filed on Form SE)
FS-6 PacifiCorp Consolidated Balance Sheet as of March 31, 2000
(to be filed on Form SE).
FS-7 PacifiCorp Consolidated Statement of Income for the twelve months
ended March 31, 2000 (to be filed on Form SE).
ITEM 7. STATEMENT AS TO ENVIRONMENTAL EFFECTS
None of the matters that are the subject of this Application-Declaration
involves a "major federal action" nor do they "significantly affect the quality
of the human environment" as those terms are used in Section 102(2)(C) of the
National Environmental Policy Act. The transactions that are the subject of
this Application-Declaration will not result in changes in the operation of the
company that will have an impact on the environment. The Applicants are not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
Application-Declaration.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the registrant has caused this Pre-effective Amendment No. 2 to the
Application-Declaration to be duly signed on its behalf in the City of Glasgow
and Country of Scotland on the 5th day of December, 2000.
Scottish Power plc
By /s/
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David T. Nish
Finance Director
Attest:
/s/
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James Stanley
Legal Director
VERIFICATION
The undersigned, being duly sworn, deposes and says that he has duly
executed the attached Pre-effective Amendment No. 2 to the Application-
Declaration dated December 5, 2000, for and on behalf of ScottishPower; that he
is the Finance Director of such company; and that all action by stockholders,
directors, and other bodies necessary to authorize deponent to execute and file
such instrument has been taken. Deponent further says that he is familiar with
such instrument and the contents thereof, and that the facts therein set forth
are true to the best of his knowledge, information and belief.
/s/
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Subscribed and sworn to before me
this 5th day of December, 2000.
/s/
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My commission expires: N/A
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