EXHBIIT D-8
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, December 14, 2000
APPLICATION OF
CASE NO. PUA000064
THE POTOMAC EDISON COMPANY
d/b/a ALLEGHENY POWER
For approval of transactions under
Chapters 4 and 5 of Title 56 of
the Code of Virginia, related to
the transfer of utility assets and
utility securities to an affiliate
ORDER GRANTING APPROVAL
The Potomac Edison Company d/b/a Allegheny
Power ("AP") has filed an application with the
State Corporation Commission for approval of the
transfer of utility assets and utility securities
pursuant to 56-77, 56-88.1, 56-89, 56-90, and
56-590 B of the Code of Virginia.
The AP proposal is to transfer its Virginia
hydro electric assets, consisting of four small
hydro-power facilities, to Green Valley Hydro,
LLC, a special purpose Virginia limited liability
company ("Green Valley"), which will become a
subsidiary of Allegheny Energy Supply Company, LLC
("Genco").
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The proposed transfers are a part of AP's
functional separation plan devised to separate the
Company's generation facilities from its
transmission and distribution facilities. In AP's
application for Phase I approval of its functional
separation plan, AP stated that its Virginia hydro
electric stations would be functionally separated
from regulated service and would not at any time
be included in transmission or distribution plant
allocated to Virginia. This transfer of AP's
Virginia hydroelectric facilities to Green Valley
and the eventual transfer of Green Valley to
become a subsidiary of Genco carry out this
functional separation.
Phase I of AP's functional separation plan
was approved by Commission orders entered in Case
No. PUE000280. Under Phase I, AP transferred to
Genco all but the Virginia hydro electric stations
and certain real property associated with the once
operational, now dismantled, Riverton power
station located in Warren County, Virginia. The
Commission approved the asset transfers involved
in Phase I by order dated July 11, 2000, and
approved the rate changes by order dated July 26,
2000, which was part of a negotiated agreement
among AP, the Staff, and the Division of Consumer
Counsel, Office of the Attorney General.
The proposed asset transfer of the Virginia
hydroelectric stations is comprised of three
parts. Part one is the asset transfer, or deeding,
of AP's Virginia hydroelectric facilities to Green
Valley in exchange for the equity voting shares of
Green Valley. Part two is AP's transfer by
dividend to Allegheny Energy Systems, Inc. ("AE"),
the holding company parent of the shares of Green
Valley. Part three is the contribution by AE of
the ownership shares of Green Valley to Genco. At
the conclusion of the transfer, Green Valley will
be a subsidiary of Genco.
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According to the AP proposal, the costs
involved with this transaction will be directly
assigned. The real estate transactions, consisting
of AP's Virginia hydroelectric facilities, and the
securities transactions, consisting of the equity
shares of Green Valley, will occur at book value.
AE will contribute the ownership of the equity
shares to Genco at book value. In other words, all
transactions will be at book value. AP represents
that such intra-system transfers at book value
generate no profit or loss to participating
entities and are fair to all entities concerned.
The rate reductions and pricing assurances
approved by the Commission as part of Phase I of
AP's functional separation plan are unaffected by
the transfer of these Virginia hydroelectric
stations. In addition, AP's assurances of
available generating capacity set forth in the
Memorandum of Understanding ("MOU") approved by
the Commission as part of Phase I are not affected
by the transfer of these Virginia hydroelectric
facilities. Further, AP's commitments to operate
and maintain its Virginia distribution system at
or above historical average reliability or service
levels as set forth in the MOU approved by the
Commission in Phase I are also unaffected by the
transfer of these facilities.
The end result will be an entity owning the
same assets at the same book value as before the
transfer but with all electric generating
facilities functionally separated from
transmission and distribution facilities. These
actions of functional separation are being taken
to comply with Virginia's Electric Utility
Restructuring Act, specifically 56-590 B of the
Act. Functional separation of generation into a
non-regulated entity may or may not increase
business risk for the utility. Such legislation
assumes that the potential benefits of a
deregulated generation services market outweigh
any risks inherent in such an approach for
delivering public utility services.
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The proposed transfers will functionally
separate AP's Virginia hydroelectric facilities
from AP's distribution and transmission
facilities. This functional separation is being
carried out consistent with the requirements of
the Virginia Electric Utility Restructuring Act.
AP represents that the transfer should help
facilitate a competitive electric generation
services market and should have no affect on rates
or services provided to the citizens of Virginia.
THE COMMISSION, upon consideration of the
application and representations of AP and having
been advised by Staff, is of the opinion and finds
that the above described transfer of utility
assets and utility securities would neither impair
nor jeopardize adequate service to the public at
just and reasonable rates. It would also be in the
public interest for the transfers to be approved.
Accordingly,
IT IS ORDERED THAT:
1) Pursuant to 56-77, 56-89 and 56-90 of the
Code of Virginia, AP is hereby authorized to
transfer to, and Green Valley is hereby authorized
to acquire from AP, the Virginia hydroelectric
facilities at book value as of the closing date of
the transfer in exchange for the equity voting
shares of Green Valley.
2) Pursuant to 56-77, 56-88.1, 56-89, and
56-90 of the Code of Virginia, AP is hereby
authorized to transfer by dividend to Allegheny
Energy Systems, Inc. ("AE"), the equity voting
shares of Green Valley.
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3) Pursuant to 56-88.1, 56-89 and 56-90 of
the Code of Virginia, AE is hereby authorized to
contribute the equity voting shares of Green
Valley to Genco, a subsidiary of AE.
4) The above described transfer of
assets and securities is subject to
the terms, conditions, and
assurances set forth in the
Memorandum of Understanding
("MOU"), as supplemented,
negotiated between AP and the
Commission Staff, and approved by
Commission Order, as part of Phase
I of AP's functional separation
plan, Case No. PUE000280.
5) Within sixty (60) days of the
authorized transfer, AP shall
submit a report of action taken to
the Commission's Director of Public
Utility Accounting; such report to
include the date of transfer,
description of assets, and the
accounting entries reflecting the
transactions.
6) The Commission reserves the right
to examine the books and records of
any affiliate in connection with
the transaction approved herein
whether or not such affiliate is
regulated. by this Commission.
7) AP shall include the affiliate
transactions approved herein in its
Annual Report of Affiliated
Transactions to be submitted to the
Director of Public Utility
Accounting of the Commission.
8) There appearing nothing further to be done in
this matter, it hereby is dismissed.
AN ATTESTED COPY hereof shall be sent to the Applicant,
care of Philip J. Bray, Attorney, Allegheny Power,
10435 Downsville Pike,Hagerstown, MD 21740-1766, and
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delivered to the Director of Public Utility
Accounting and the Director of Energy Regulation
of the Commission.
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