<PAGE>
File No. 70-9669
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM U-1
PRE-EFFECTIVE AMENDMENT NO. 1 TO APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
-------------------------------
(Name of company filing this statement and address for purposes of application)
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
<PAGE>
(Name of top registered holding company
parent of each applicant or declarant)
-------------------------------------
Scottish Power plc
(Name and addresses of agents for service)
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
This Pre-effective Amendment No. 1 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
-------------
1. Applicants means the Intermediate Companies and Scottish Power plc.
----------
2. Intermediate Companies means Scottish Power NA1 Ltd., Scottish Power NA2
----------------------
Ltd., NA General Partnership and Nevada Holdco.
3. PacifiCorp means PacifiCorp and its utility divisional structure.
----------
4. ScottishPower means Scottish Power plc.
-------------
5. ScottishPower System means ScottishPower and all its subsidiary companies,
--------------------
including the PacifiCorp Group.
6. PacifiCorp Group means PacifiCorp and the PacifiCorp Subsidiary Companies.
----------------
ii
<PAGE>
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.
----------
10. SPUK Subsidiary Companies means the subsidiaries of SPUK.
-------------------------
11. Total Common Equity means common stock, plus retained earnings, plus
-------------------
accumulated other comprehensive income, presented on a U.S. GAAP basis.
12. Total Capitalization means the sum of Total Common Equity, preferred stock,
--------------------
short-term debt and long-term debt, including current maturities.
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
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
(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
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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 SUK 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, each of 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 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 create Nevada Holdco to act as
pass through entity regarding 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/ Nevada Holdco will
be authorized to issue 1000 shares of common stock, par value $.01 per share.
Nevada 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 Nevada 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 March 31, 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.
(2) The cost of money 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 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 external debt and equity issued by
ScottishPower pursuant to the authority requested in this matter will not exceed
$6 billion 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, 154 percent of the consolidated retained earnings of the ScottishPower
System; 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.
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
---------------------------
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
3
<PAGE>
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, according to
U.S. GAAP./3/ These figures include the revenues and net income of PacifiCorp
since completion of the merger.
----------------------------------------------------------
ScottishPower System
($mm)
----------------------------------------------------------
Revenues 6,584
----------------------------------------------------------
Net Income 1,411
----------------------------------------------------------
Total Assets 26,937
----------------------------------------------------------
The table below shows the capitalization of the ScottishPower System as of
March 31, 2000, according to U.S. GAAP./4/
----------------------------------------------------------
($mm)
----------------------------------------------------------
Long-term Debt 6,936
----------------------------------------------------------
Common Equity 11,248
----------------------------------------------------------
Short-term Debt 1,107
----------------------------------------------------------
Total Capitalization 19,291
----------------------------------------------------------
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
____________________
/3/ The figures for revenues, net income and assets were translated into
dollars using a rate of U.S. $1.60 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.
/4/ Converting at (Pounds)1.00 : $1.60, the closing exchange rate at March
31, 2000.
4
<PAGE>
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 Rules 45 and 52 of the Act. (For additional information on existing
PacifiCorp financings, see ScottishPower U5B 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 proposes to issue long-term equity and debt securities
aggregating not more than $6 billion at any one time outstanding during the
Authorization Period. 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./5/ ScottishPower may 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:
Security $ billions
---------------------------------------------------------------------------
Equity, including options and warrants 3.0
---------------------------------------------------------------------------
Preferred stock 1.0
---------------------------------------------------------------------------
Bank debt 1.0
---------------------------------------------------------------------------
Commercial paper 1.0
---------------------------------------------------------------------------
Bond issues - straight 3.0
---------------------------------------------------------------------------
Bond issues - convertible 3.0
---------------------------------------------------------------------------
(a) Ordinary Shares. ScottishPower's common stock equity consists of
---------------
ordinary shares, with a par value of 50 pence each, that are listed on the
London Stock Exchange. ScottishPower
___________________________
/5/ Currently, ScottishPower has outstanding long-term debt of $6,966
million, short-term debt of $1,107 million and common equity of $11,248 million.
5
<PAGE>
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 March 31, 2000,
ScottishPower had 1,847,585,937 ordinary shares and one "Special Share"
outstanding./6/
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. 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
_________________
/6/ 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>
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. 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")./7/ ScottishPower also operates The 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
_________________
/7/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 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.
7
<PAGE>
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.
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 ("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.
8
<PAGE>
(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./8/
(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 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 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.
___________________
/8/ 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>
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 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.
10
<PAGE>
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 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.
11
<PAGE>
2. PacifiCorp Group Financings
---------------------------
The existing financing arrangements of the PacifiCorp Group are exempt
under Rule 52 and therefore, do not require Commission authorization and will
remain in place./9/ 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./10/ 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./11/ 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 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./12/
However, since completion of the merger, all loans under the above-mentioned
intercompany agreements have been made on an interest-free basis. Applicants
request
__________________
/9/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.
/10/Currently, ScottishPower has outstanding long-term debt of $6,966
million, short-term debt of $1,107 million and common equity of $11,248 million.
In addition, ScottishPower has outstanding guarantees in the amount of
approximately $568 million.
/11/Id.
---
/12/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%.
12
<PAGE>
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")./13/ 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./14/
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 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.
______________
/13/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.
/14/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. 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>
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 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;
14
<PAGE>
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.
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.
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;
15
<PAGE>
(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. The Applicants request authorization 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 SPUK Group as may be appropriate to enable such system
companies to carry on their respective authorized or permitted businesses
through the Authorization Period. 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.
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./15/ In addition, ScottishPower proposes
to 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 carry an interest rate of Royal Bank of Scotland Base plus 1%. 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)./16/ 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,
________________
/15/Supra note 10.
/16/Compare Section 305(a) of the Federal Power Act.
16
<PAGE>
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./17/ 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 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.
________________
/17/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>
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).
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
18
<PAGE>
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:
-------------------------------------------------------------------------------
With tax allocation payment Without tax allocation
$'000 payment $'000
-------------------------------------------------------------------------------
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
-------------------------------------------------------------------------------
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.
(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.
19
<PAGE>
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.
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 on occasion the
PacifiCorp Subsidiary Companies providing services to PacifiCorp and other
associate companies in the holding company system pursuant to rule 87 under the
Act. All service transactions 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.
20
<PAGE>
The preliminary estimate of total charges by SPUK to PacifiCorp for the
provision of anticipated services will be approximately $12 million
annually./18/ 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 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 will 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
_________________
/18/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>
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./19/ A
copy of the Affiliated Interest Report for the year ended March 31, 2000, is
attached hereto as Exhibit D-7.
To a lesser extent, the PacifiCorp Subsidiary Companies may provide
incidental services to SPUK or members of the SPUK Group at other than cost in
compliance with Rules 83, 87, 90(d)(1) of the Act. The PacifiCorp Subsidiary
Companies request authorization 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 (to the extent rule 90(d) of the Act does not
apply) 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 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.
_______________
/19/The OPUC requests reports twice a year on affiliate transactions
between ScottishPower and the PacifiCorp Group.
22
<PAGE>
4. Changes in Capital Stock of Subsidiaries
----------------------------------------
The portion of an individual PacifiCorp Group Company's aggregate financing
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 such PacifiCorp Subsidiary Company. In
addition, the 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 the PacifiCorp Group's 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 that the Commission reserve jurisdiction, if
any, 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 (other than PacifiCorp) and will not alter the terms or
limits proposed in this Application-Declaration.
5. Financing Entities
------------------
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. 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
23
<PAGE>
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 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./20/ To that end, ScottishPower is seeking authority to finance EWG
and FUCO investments and operations in an aggregate amount of up to 154% of its
consolidated retained earnings at any one time outstanding, during the
Authorization Period./21/As of March 31, 2000, 100% of the
_______________________
/20/As previously mentioned, it may be desirable for reasons of economic
efficiency to hold certain FUCO interests outside SPUK and its subsidiary
companies.
/21/As noted above, most of ScottishPower's FUCO investments are held
through SPUK. The ScottishPower System does not currently 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 154% represents ScottishPower's current
FUCO investments plus an additional 50% of its consolidated retained earnings.
24
<PAGE>
ScottishPower System consolidated retained earnings on a U.S. GAAP basis was
$3,116/22/ 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 differs from most other registered holding companies with
FUCO investments because it developed first as a foreign utility company,/23/
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 March 31, 2000 the ScottishPower
System had an "aggregate investment", as the term is defined in Rule 53 under
the Act, in EWGs and FUCOs of $3,239 million. This investment represents 104 %
(subject to an adjustment based on the sale of the Australian FUCO assets) of
the ScottishPower System consolidated retained earnings as of March 31, 2000
calculated in accordance with U.S. GAAP. To that end, the above-mentioned
authorization would result in an aggregate investment of approximately 154%, or
approximately $4,797 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. 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
________________________
/22/Converting at (Pounds)1.00 : $1.60, the closing exchange rate at March
31, 2000.
/23/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>
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. To ensure continued success in its new ventures,
ScottishPower subjects all project proposals to stringent internal reviews.
ScottishPower's disciplined investment review process minimizes the risks
associated with FUCO activities. The majority of SPUK's activities are in any
event heavily regulated so as to guarantee not simply customer standards and
competitive pricing with respect to those 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 activities are objectively perceived as
being safe, generating a credit rating of "A-1" by Moody's Investor Services,
and "A" by Standard and Poor's. Before ScottishPower or its subsidiaries make
any investment in a project, the project is analyzed in detail, including the
specific country risk, where applicable. The project review process includes a
series of independent internal reviews, both at the subsidiary and ScottishPower
levels.
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. No 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.
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 one or more such utility
subsidiaries to protect such public utility companies or such customers.
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. The PacifiCorp Group will not provide
financing for, extend credit to, or sell or pledge its assets directly or
indirectly to any FUCO in which
26
<PAGE>
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 Group's employees in
connection with providing 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.
(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.
E. Filing of Certificates of Notification
--------------------------------------
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.
27
<PAGE>
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.
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 or PacifiCorp organized outside the U.S.
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 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;
28
<PAGE>
(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) Paper copies of ScottishPower's filings of Form 20-F and reports to
shareholders; and
(11) 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.
F. Summary of Application
----------------------
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-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.
29
<PAGE>
ITEM 2. FEES, COMMISSIONS AND EXPENSES
Fees, commissions and expenses incurred in connection with the proposed
transactions this Application-Declaration will be approximately:
To be filed by amendment
ITEM 3. APPLICABLE STATUTORY PROVISIONS
Sections 6(a), 7, 9(a), 10, 12, 13(b) 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 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).
30
<PAGE>
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 by amendment)
B-6 Intercompany Loan Schedule
(to be filed by amendment)
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)
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)
31
<PAGE>
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 by amendment)
F-1.2 Past-tense opinion of counsel
(to be filed by amendment)
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
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)
32
<PAGE>
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.
33
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the registrant has caused this Pre-effective Amendment No. 1 to the
Application-Declaration to be duly signed on its behalf in the City of Glasgow
and Country of Scotland on the __th day of October, 2000.
Scottish Power plc
By /s/
___________________________________
David T. Nish
Finance Director
Attest:
/s/
___________________________
James Stanley
Legal Director
VERIFICATION
The undersigned, being duly sworn, deposes and says that he has duly
executed the attached Pre-effective Amendment No. 1 to the Application-
Declaration dated October __, 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/
__________________________
Subscribed and sworn to before me
this __ day of October, 2000.
/s/
___________________________
My commission expires: N/A
34
