File No. 70-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________
Allegheny Energy, Inc. Allegheny Energy Supply Company
10435 Downsville Pike R.R. 12, P.O. Box 1000
Hagerstown, Maryland 21740 Roseytown, Penna. 15601
The Potomac Edison Company Allegheny Energy Service Company
(d/b/a Allegheny Power) 10435 Downsville Pike
10435 Downsville Pike Hagerstown, Maryland 21740
Hagerstown, Maryland 21740
__________________________________
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, Maryland 21740
The Commission is requested to send copies of all notices, orders
and communications in connection with this Application /
Declaration to:
Thomas K. Henderson, Esq.
Vice President and General Counsel
Allegheny Energy, Inc.
10435 Downsville Pike
Hagerstown, MD 21740
Patricia J. Clark, Esq.
Deputy General Counsel
Allegheny Energy Supply Company
R.R. 12, P.O. Box 1000
Roseytown, PA 15601
Anthony Wilson, Esq.
Senior Attorney
Allegheny Energy Service Company
10435 Downsville Pike
Hagerstown, MD 21740
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TABLE OF CONTENTS Page
Item 1. Description of Proposed Transaction . . . . . . 3
A. Introduction. . . . . . . . . . . . . . . .3
B. Background . . . . . . . . . . . . . . . . . .3
C. Regulatory Environment . . . . . . . . . . . . 4
1. Maryland . . . . . . . . . . . . . . . . . . 4
2. West Virginia . . . . . . . . . . . . . . . 4
3. Virginia . . . . . . . . . . . . . . . . . . 5
D. Overview of Requested Authorizations . . . . 5
1. Potomac Edison - Maryland Assets . . . . . . 5
i. Formation of Subsidiaries . . . . . . . . .5
ii. Capitalization of Subsidiaries . . .. . . 6
iii. Transfer of Assets . . . . . . . . . . . .6
2. Potomac Edison - West Virginia . . . . . . . 6
3. Potomac Edison - Virginia . . . . . . . . . .7
4. Allegheny Energy - AE Units 1 and 2 LLC . . .7
5. Services Agreements . . . . . . . . . . . . 7
6. Financing . . . . . . . . . . . . . . . . . 8
7. Reservation of Jurisdiction . . . . . . . . 8
Item 2. Fees, Commissions and Expenses . . . . . . . . . 8
Item 3. Applicable Statutory Provisions . . . . . . . . 9
A. Sections 9 & 10 . . . . . . . . . . . . . . . 9
1. Compliance with State Law . . . . . . . . . 10
2. Capital Structure Not Unduly Complicated . .10
3. Consideration is Fair and Reasonable . . . .10
B. Section 12 & Rule 46 . . . . . . . . . . . . .11
C. Section 13(b) Compliance . . . . . . . . . . 11
D. Rule 54 Compliance . . . . . . . . . . . . . .12
Item 4. Regulatory Approvals . . . . . . . . . . . . . .12
Item 5. Procedure . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Financial Statements . . . . . . 13
A. Exhibits . . . . . . . . . . . . . . . . . . 13
B. Financial Statements . . . . . . . . . . . . 13
Item 7. Information as to Environmental Effects . . . 14
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Item No. 1. Description of the Proposed Transaction
A. Introduction
Allegheny Energy, Inc. ("Allegheny"), a registered holding
company, Allegheny Energy Service Company ("AESC"), a service
subsidiary of Allegheny, The Potomac Edison Company ("Potomac
Edison"), a wholly owned public utility electric subsidiary of
Allegheny, and Allegheny Energy Supply Company, LLC ("GENCO"), a
wholly owned subsidiary of Allegheny (collectively, "Applicants"),
<F1> hereby file this application-declaration with the Securities
and Exchange Commission ("Commission") under Sections 6(a), 7,
9(a), 10, 11, 12(b) and 13(b) of the Public Utility Holding Company
Act of 1935, as amended ("Act"), and Rules 45, 46, 54, 90 and 91
under the Act.
In Holding Company Act Release ("HCAR") No. 27101, the
Commission approved the application of West Penn Power Company to
transfer its Pennsylvania electric generating assets, rights and
associated liabilities to GENCO.<F2> Now comes Potomac Edison
seeking authorization to transfer to GENCO its allocated share of
its Maryland, West Virginia, Virginia and Federal Energy
Regulatory Commission ("FERC") jurisdictional electric generating
assets ("Generating Assets") along with other related generating
assets ("Related Assets") and liabilities ("Liabilities") and
other interests (collectively, the "Transaction"). Specifically,
Applicants request immediate authority to transfer its Maryland
and FERC allocated assets and conditional authority to transfer
the West Virginia and Virginia allocated assets. All of the
transfer will be to subject Potomac Edison's receipt of the
necessary state and federal authorizations and completion of the
record.
B. Background
Potomac Edison's Generating Assets are allocated as follows:
56.34% to Maryland; 19.80% to West Virginia; 17.98% to Virginia;
and, 5.88% to FERC. Potomac Edison owns, or has an interest in,
Generating Assets located in three states. Potomac Edison holds:
a 25% undivided interest in the Fort Martin Power station located
in Maidsville, West Virginia; a 33% interest in the Albright Power
Station located in Albright, West Virginia; a 32.76% undivided
interest in the Harrison Power Station located in Shinnston, West
Virginia; a 20% undivided interest in the Hatfield's Ferry Power
Station located in Masontown, Pennsylvania; a 30% undivided
interest in the Pleasants Power Station, located in Saint Mary's,
West Virginia; a 100% interest in the R. Paul Smith Station and R.
<F1> Potomac Edison, along with West Penn Power Company and
Monongahela Power Company collectively d/b/a Allegheny Power
deliver electric and gas energy to about 1.4 million customers in
parts of Maryland, Ohio, Pennsylvania, Virginia, and West
Virginia. Allegheny Power, together with GENCO, which operates
and markets competitive retail and wholesale electric generation
and operates regulated electric generation for its affiliates;
and, Allegheny Ventures, which actively invests in and develops
energy-related and telecommunications projects through Allegheny
Communications Connect ("ACC"), an exempt telecommunications
company ("ETC"), make up the Allegheny system.
<F2> In 70-9483, the Commission, among other things, authorized the
formation of GENCO, an LLC formed to hold all the electric
generating assets, rights, interests and associated liabilities of
Allegheny's wholly owned utility subsidiary West Penn Power
Company. See Allegheny Energy, Inc., HCAR No.35-27101, Order
Authorizing Formation of Subsidiary Company; Transfer of Assets to
Generation Company; Issuance and Acquisition of Securities;
Capital Contributions; and Service Agreements (November 12, 1999).
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Paul Smith Ash Basin both located in Williamsport, Maryland; a
100% interest in the Millville, Dam #4 and Dam #5 hydro stations
in located in West Virginia; and, the Luray, Newport, Shenandoah
and Warren hydro stations located in Virginia. Potomac Edison's
Related Assets include the transformers and facilities for each of
the aforementioned power stations and hydro facilities. The
Generating Assets have an estimated book value of $254 million as
of December 31, 1999.
Potomac Edison has other rights and interests including: an
interest in 28% of the stock of AGC, a Virginia corporation which
it jointly owns with GENCO and Monongahela, which holds a 40%
undivided interest in the Bath County pumped storage hydroelectric
generating facility and related transmission facilities ("Bath
County Rights and Obligations"); a 5.88% interest in wholesale
power production under a FERC regulated power agreement between,
Monongahela, Potomac Edison, West Penn and AGC, dated August 24,
1981 ("APS Power Agreement") governing the distribution of the
power produced; corresponding contractual rights and obligations
("Joint-Owner Operation Agreements") to four jointly owned
generation facilities;<F3> and, the right to receive 16% of the
power participation benefits of Ohio Valley Electric
Corporation ("OVEC") under the Inter-Company Power Agreement, dated
July 10, 1953 ("OVEC Power Agreement").<F4>
C. Regulatory Environment
Each of the states is at a different point in the
deregulation process. Maryland, as more fully set forth herein,
has adopted the necessary orders and statutes to implement
restructuring. West Virginia, as of the date of this application,
is in the process of considering an electric deregulation plan
adopted by the West Virginia Public Service Commission ("West
Virginia PSC") and proposed legislation, which, if enacted, would
give Potomac Edison the authority to transfer its generation
assets to an affiliate. In Virginia, the Virginia Corporation
Commission is in the preliminary stages of considering the
questions related to deregulation and asset transfers.
1. Maryland
On December 15, 1999, Potomac Edison filed for review with
the Maryland Public Service Commission ("MD PSC") an application
for the transfer of the Maryland allocated share of its generation
<F3> The jointly owned facilities are Fort Martin, Harrison,
Hatfield Ferry and Pleasants - each of which is operated pursuant
to an operating agreement ("Joint Operating Agreement"). Each
of the Joint-Owner Operation Agreements has a clause which
provides that "[t]his Agreement shall continue in full force
and effect for a period of 45 years from the date hereof and
for such longer period as the Companies shall by mutual
agreement continue to operate any of the units at the Station."
<F4> OVEC is an investor-owned utility furnishing electric service
in the Ohio River Valley area that was formed for the purpose of
providing large electric power requirements for a major uranium
enrichment complex built by the Atomic Energy Commission near
Portsmouth, Ohio. Allegheny originally had a 12.5% ownership
interest in OVEC, which has subsequently transferred to GENCO.
Allegheny, OVEC and other investor-owned utilities entered into an
agreement by which the parties thereto allocated each utility's
share of the power generated by OVEC and by the Indiana-Kentucky
Electric Corporation. See Exhibit B-8. Under the OVEC Power
Agreement, Allegheny assigned to Potomac Edison the right to
receive 16% of the power participation benefits of OVEC.
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assets.<F5> In the 1999 session the Maryland General Assembly
passed the Competition Act which in Section 7-508 provides that: an
Electric Company may transfer its [Generating Assets] to an
affiliate as part of the restructuring of the electric generation
services market in Maryland. Section 7-508(C)(2) continues on to
provide that: "[T]he [MD PSC] may review and approve the transfer
(of generation facilities) for the sole purpose of determining:
(i) that the appropriate accounting has been followed; (ii) that
the transfer does not or would not result in an undue adverse
effect on the proper functioning of a competitive electric supply
market; and (iii) the appropriate transfer price and rate making."
In Case No. 8797, the MD PSC approved a Settlement Agreement
filed by the Potomac Edison and other interested parties. The
Settlement agreement provided for customer choice of generation
suppliers by all of Potomac Edison's Maryland customers, except
those on certain contracts, beginning July 1, 2000. Section 31 of
the Settlement Agreement provided that "[A]fter full customer
choice is available as of July 1, 2000, Allegheny Power shall
either transfer its generation assets to an affiliate at book
value or shall transfer, sell, lease, assign, mortgage or
otherwise dispose of or encumber its generation assets to a third
party consistent with the Restructuring Legislation." The section
goes on to provide that: "[Potomac Edison's] generation shall be
deregulated only after full customer choice is available as of
July 1, 2000, and the generation assets are either transferred to
an affiliate or are transferred, sold, leased, assigned, or
mortgaged or otherwise disposed of or encumbered to a third
party." By this application Potomac Edison is seeking to comply
with the state's regulatory mandate.
2. West Virginia
The West Virginia PSC has passed and submitted to the West
Virginia legislature an electricity restructuring agreement,
negotiated with the state's major energy providers and other
interested parties, designed to introduce customer choice in West
Virginia for all customers beginning January 1, 2001.<F6> It is
anticipated that the legislature will consider and act on the
Commission's restructuring settlement agreement by the end of its
current session in March 2000.
3. Virginia
Pursuant to Sec. 56-90 of the Virginia Code, Potomac Edison
filed an application with the Virginia Corporation Commission for
authority to enter into a contract with its affiliate to transfer
ownership interests in certain utility assets.<F7> Potomac Edison
provides electric service to approximately 84,000 customers
located in 14 northwestern Virginia counties.<F8>
<F5> In the Matter of the Application of The Potomac Edison Company
d/b/a Allegheny Power regarding the Transfer of its Maryland
Generation Assets to an Affiliate Under Section 7-508 of the
Electric Customer Choice and Competition Act of 1999 ("Competition
Act") (Dec. 15, 1999).
<F6> Potomac Edison will file by amendment, post effective amendment
or pursuant to Rule 24 a full discussion of the electric
deregulation settlements and statutes, when adopted or enacted, in
West Virginia.
<F7> See Exhibit D-3, Application of The Potomac Edison Company .
to Acquire Utility Assets and Enter into a Contract with an
affiliated Interest (Filed February 7, 2000).
<F8> Potomac Edison will file by amendment, post effective amendment
or pursuant to Rule 24 a full discussion of the electric
deregulation settlements and statutes, when adopted or enacted, in
Virginia.
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D. Overview of Requested Authorizations
1. Potomac Edison - Maryland Assets
i. Formation of Subsidiaries
Applicants request authorization to form two or more
corporations or limited liability companies. The first would
be a wholly owned subsidiary of Potomac Edison ("PE Transferring
Agent LLC") formed for the purpose of receiving from Potomac
Edison its Generating Assets, Other Assets and Liabilities.
The second entity would be formed as a wholly owned subsidiary
of PE Transferring Agent LLC ("PE GENCO") formed for the purpose
of subsequently acquiring the interest in the Generating Assets,
Related Assets and Liabilities held by PE Transferring
Agent LLC. <F9>
ii. Capitalization of Subsidiaries
Potomac Edison and Allegheny propose to make contributions to
PE Transferring Agent LLC and PE GENCO. Contributions may take
the form of the purchase of capital shares, partnership interests,
member interests in limited liability companies, trust
certificates and other forms of equity; account advances; loans;
and, guarantees.<F10> Potomac Edison proposes an initial capital
contribution of $100,000 in interest bearing securities. Next,
Potomac Edison will contribute a note in the approximate amount of
$26.9 million ("Balancing Note").<F11> Potomac Edison proposes to
issue a non-interest-bearing note ("Liquidating Note"). The
Liquidating Note will be for approximately $325.1 million.
iii. Transfer of Assets and Interests
Potomac Edison seeks authorization to transfer its Maryland,
West Virginia, Virginia and FERC jurisdictional assets to GENCO,
subject to: 1) state approval; and 2) completion of the record.<F12>
Specifically, Applicants seek authorization for PE Transferring
Agent LLC to issue, and Potomac Edison to acquire all of the
limited liability interests in PE Transferring Agent LLC.
Specifically, in exchange for the equity interests in PE
Transferring Agent LLC, Potomac Edison
<F9> PE Transferring Agent LLC is an intermediate entity for tax
and other lawful business purposes.
<F10> The source of funds for direct or indirect contributions by
Allegheny to PE Transferring Agent LLC may include dividends
received from operating companies that are derived from proceeds
of sales of energy to customers and other available cash
resources. Loans by Allegheny or Potomac Edison to PE
Transferring Agent LLC will have interest rates and maturities
that are designed to provide a return to Allegheny or Potomac
Edison of not less than their respective effective cost of
capital.
<F11>Contribution of the Balancing Note is due to tax considerations.
<F12> Potomac Edison will file by amendment, post effective
amendment or pursuant to Rule 24 a full discussion of the
settlements and statutes of West Virginia and Virginia,
when enacted.
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proposes to transfer to PE Transferring Agent LLC, and for PE
Transferring Agent LLC to accept, both actions subject to
Commission authorization, Potomac Edison's:
(a) Generating Assets;
(b) Related Assets;
(c) AGC interests;
(d) Bath County Rights and Obligations;
(e) interests under the Joint-Owner Operating
Agreements;
(f) OVEC interests;
(g) interests under the OVEC Power Agreement; and,
(h) Liabilities.<F13>
Thereafter, PE Transferring Agent LLC seeks authorization to
transfer its assets to PE GENCO. Additionally, Potomac Edison
proposes to transfer to PE GENCO its interests in the APS
Power Agreement. After transferring its assets to PE GENCO,
PE Transferring Agent LLC will be dissolved. PE GENCO will then be
merge into GENCO and Allegheny will continue to directly own GENCO.
2. Potomac Edison - West Virginia Assets
[to be filed by amendment]
3. Potomac Edison - Virginia Assets
[to be filed by amendment]
4. Allegheny Energy, Inc. - AE Units and Interest
Allegheny requests authority to merge AE Units 1 and 2 LLC
into GENCO in exchange for GENCO assuming the outstanding debt
related to those interests.<F14>
5. Service Agreements
<F13> Associated Liabilities include deferred income taxes, advance
purchase commitments, AGC assets, accounts payable, accounts
receivable, pollution control bonds and solid waste disposal
obligations. The total amount of Associated Liabilities is
approximately $117 million as of December 31, 1999.
<F14> AE Units 1 and 2 LLC's only assets is a 100% interest in two
44 MW units.
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Under the terms of the Maryland Settlement Agreement, Potomac
Edison must provide standard offer service to customers through
2008. Potomac Edison has discretion concerning how it arranges
for its standard offer service load. Potomac Edison and GENCO
propose to enter into an energy supply agreement or series of
agreements with each one pertinent to an individual jurisdictional
supply obligation ("Agreements") sufficient to allow Potomac
Edison to meet its standard offer service obligations under the
Settlement Agreement or under similar requirements and conditions
as imposed in West Virginia or Virginia. GENCO would be free to
satisfy the standard offer service load requirements either by
dispatch of the transferred generation facilities or by purchases
in the market. The Agreements would allow Potomac Edison to
fulfill its regulatory obligations in Maryland, West Virginia or
Virginia as required.<F15> The Joint-Owner Operating Agreements
were entered into in the mid-1960's; therefore, the earliest
expiration of any of the agreements will be the year 2010, after
which time the companies may agree to continue the agreements in
full force and effect or should GENCO become the sole owner of
the plants beforehand the operating agreements may be terminated
as of that change in ownership status. GENCO plans to
perpetually operate the plants of which it will be the sole owner.
Authorization is also requested for Potomac Edison and
GENCO to enter into operating and other agreements for the
operation of all other Generating Assets. Potomac Edison will
continue to operate those Generating Assets for which it is the
operator until all necessary permits and licenses have been
obtained by or transferred to GENCO for those specific Generating
Assets.
6. Financing
In exchange for the Maryland share of the Generating Assets,
PE Transferring Agent LLC will issue to Potomac Edison an
unsecured interest-bearing note in the amount of approximately
$285 million. As of December 31, 1999, Potomac Edison has
approximately $175 million of outstanding first mortgage bonds.
Potomac Edison expects to obtain a release from the lien of the
first mortgage upon the Generating Assets by certifying to the
trustee of the first mortgage bonds indenture property additions
purchased, constructed or otherwise acquired having a cost or, if
less, a fair market value equal to the fair market value of the
Generating Assets.
Applicants seek authorization for PE GENCO to issue and PE
Transferring Agent LLC to acquire all of the limited liability
interest in PE GENCO ("Ownership Interests") in exchange for PE
Transferring Agent LLC acquiring the interests in the Generating
Assets, Related Assets and Liabilities held by PE Transferring
Agent LLC. Applicants additionally seek authorization for PE
Transferring Agent LLC to distribute the Ownership Interests and
the notes to Potomac Edison and for Potomac Edison to acquire the
Ownership Interest. Applicants further request authorization for
Potomac Edison to distribute the Ownership Interests and any other
interests in PE GENCO and for Allegheny to acquire the Ownership
Interests and any other interests in PE GENCO.
Upon completion of the Transaction, Potomac Edison's
debt/equity ratio, as set forth in Exhibit B (FS-2), will meet or
exceed the Commission's debt/equity requirements.
<F15> Potomac Edison would use the same mechanism to satisfy the
requirements in West Virginia as necessary.
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7. Reservation of Jurisdiction
Applicants request that this Commission authorize and reserve
jurisdiction over Potomac Edison's transfer of its West Virginia
and Virginia assets with a release of jurisdiction made subject
to: 1) West Virginia and / or Virginia enacting state laws and/or
approving settlements that would authorize the asset transfers;
and 2) Potomac Edison completing the record in this matter by
amendment, post effective amendment or pursuant to Rule 24.
Applicants request that the Commission reserve jurisdiction over
any transactions not specifically authorized in this order.
Item 2. FEES, COMMISSIONS AND EXPENSES
Estimated fees and expenses expected to be incurred by
Applicants in connection with the Transaction are
___________________ (to be filed by amendment).
Item 3. APPLICABLE STATUTORY PROVISIONS
The relevant standards for Commission review of this
application are Sections 9(a) and 10, and 13(b) of the Act as well
as Rules 46, 54, 90 and 91 under the Act. To the extent that
other sections of the Act or the Commission's rules thereunder are
deemed applicable to the Transaction, such sections and rules
should be considered to be set forth herein.
A. Sections 9 & 10
Section 9(a)(1) provides that unless the Commission under
Section 10 has approved the acquisition, it shall be unlawful for
any registered holding company or any subsidiary company thereof
"to acquire, directly or indirectly, any securities or utility
assets or any other interest in any business." Section 10(f)
provides that:
The Commission shall not approve any acquisition
as to which an application is made under this
section unless it appears to the satisfaction of
the Commission that such State laws as may apply
in respect of such acquisition have been complied
with, except where the Commission finds that
compliance with such State laws would be
detrimental to the carrying out of the provisions
of Section 11.
If the requirements of subsection (f) of this section are
satisfied, the Commission shall approve the acquisition unless the
Commission finds that:
(1) such acquisition will tend towards inter-
locking relations or the concentration of
control of public-utility companies, of a
kind or to an extent detrimental to the
public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities
or utility assets, the consideration,
including all fees, commissions, and
other remuneration, to whomsoever paid,
to be given, directly or indirectly, in
connection with such acquisition is not
reasonable or does not bear a fair
relation to the sums invested in or the
earning capacity of the utility assets
to be acquired or
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the utility assets underlying the securities to be acquired; or
(3) such acquisition will unduly complicate the
capital structure of the holding-company
system of the applicant or will be
detrimental to the public interest or the
interest of investors or consumers or the
proper functioning of such holding-company system.
The Transaction, for the reasons set forth below, satisfy the
standards of Section 10 of the Act.
1. The Transaction Complies With State Law
The Transaction complies with, or upon completion of the
record shall comply with, applicable state laws on the matter of
restructuring and the transfer of utility assets. Specifically,
Potomac Edison and Allegheny have structured the Transaction in
response to state laws and legislative mandates. The Transaction
puts into effect the state regulatory and legislative
determination that restructuring is in the public interest.
The Transaction is reasonably incidental, economically
necessary and appropriate to the operations of Potomac Edison,
Allegheny Power and the Allegheny system. Specifically, the
Transaction will: (a) allow Potomac Edison to continue to serve
the needs of its regulated customers while positioning the
Allegheny system for competition in the deregulated retail
generation market; (b) remove the Generating Assets from rate-
regulated Potomac Edison; (c) allow GENCO to manage and operate
the Generating Assets with due regard to market considerations;
and, (d) increase the flexibility for financing activities on cost-
effective terms that reflect the costs of capital for each area of
business activity.
2. The Capital Structure Is Not Unduly Complicated
The Transaction does not unduly complicate the capital
structure of the Allegheny system. The capital structure of the
Allegheny system on a consolidated basis will be essentially
unchanged. The Transaction will tend toward the proper
functioning of the Allegheny system in a partly deregulated,
partly regulated operating environment. The Transaction simplifies
the Allegheny structure and results in a more economical and
efficient system. The resulting increased efficiency of
operations significantly offsets any perceived added complexity
caused by the Transaction.<F16> For all of the foregoing reasons,
the Transaction satisfies the requirements of, and is entirely
consistent with the Act.
3. The Consideration is Fair and Reasonable
The consideration to be paid in connection with the
Transaction is fair and reasonable. Indeed, the MD PSC has
determined that the price (i.e., net book value) to be paid to
Potomac Edison by PE GENCO for the Generating Assets as fair and
reasonable. Moreover, in File No. 70-9483, the Commission reached
<F16> See Wisconsin's Environmental Decade, Inc. v SEC, 882 F.2d
523, 527 (D.C. Cir. 1989); Northeast Utilities, HCAR No. 25221
(Dec. 21, 1990); Entergy Corp., HCAR No. 25 136 (Aug. 27, 1990).
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a similar conclusion on the fair and reasonableness of the
consideration received in approving West Penn Power Company's
application to transfer its Pennsylvania utility assets into GENCO
at net book value under.<F17> The Commission's reasoning in that
case is equally applicable to this Transaction.
B. Section 12 & Rule 46
Section 12(c) governs the proposed dividend for which
authorization has been sought. Section 12(c) provides that:
It shall be unlawful for any registered holding
company or any subsidiary company thereof, by use
of the mails or any means or instrumentality of
interstate commerce, or otherwise, to declare or
pay any dividend on any security of such company
or to acquire, retire, or redeem any security of
such company, in contravention of such rules and
regulations or orders as the Commission deems
necessary or appropriate to protect the financial
integrity of companies in holding-company systems,
to safeguard the working capital of public-utility
companies, to prevent the payment of dividends out
of capital or unearned surplus, or to prevent the
circumvention of the provisions of this chapter or
the rules, regulations, or orders thereunder.
Allegheny expects that the distribution of the Ownership Interests
of PE GENCO to Potomac Edison and, then, by Potomac Edison to
Allegheny, in each instance will be a dividend out of "capital or
unearned surplus" within the meaning of Rule 46 under the Act.
Applicants believe that, in the overall context of the
Transaction, neither shareholders, ratepayers nor the public will
be adversely affected. The distributions have been structured as
such in order to minimize the tax burden on the Applicants. The
distributions are fundamentally necessary to effect the transfer
by Potomac Edison of the Generating Assets to an affiliate in the
Allegheny system in accordance with the Settlement Agreement.
The distributions will be the final step in the reduction of
the capitalization of Potomac Edison and the reorganization of the
Allegheny system, in accordance with, and fulfillment of, the
regulations and legislative policies and objectives that
culminated in deregulation of and competition in electrical
generation in Maryland, as described herein. The distributions
are not intended to harm the interests of Potomac Edison or,
ultimately, Allegheny. The Allegheny system will continue to own
the assets transferred by such distributions. The regulated parts
of Potomac Edison's business (transmission and distribution) are
not subject to deregulation and competition will continue to be
owned directly by Potomac Edison. Potomac Edison and the public
which it serves will not be subject to the impact of deregulation
and competition on Potomac Edison's former generation business and
will, to a large degree, be protected from the uncertainties and
possible losses affecting generation in a competitive and
deregulated retail environment. For these reasons, the proposed
<F17> See Allegheny Energy, Inc., HCAR No.35-27101, Order
Authorizing Formation of Subsidiary Company; Transfer of
Assets to Generation Company; Issuance and Acquisition
of Securities; Capital Contributions; and Service Agree-
ments (November 12, 1999).
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distributions are entirely consistent with the policies and
principles behind Section 12 of the Act.
C. Section 13(b) Compliance
Section 13(b) of the Act provides that:
It shall be unlawful for any subsidiary company
of any registered holding company or for any
mutual service company, by use of the mails or any
means or instrumentality of interstate commerce,
or otherwise, to enter into or take any step in
the performance of any service, sales, or
construction contract by which such company
undertakes to perform services or construction
work for, or sell goods to, any associate company
thereof except in accordance with such terms and
conditions and subject to such limitations and
prohibitions as the Commission by rules and
regulations or order shall prescribe as necessary
or appropriate in the public interest or for the
protection of investors or consumers and to insure
that such contracts are performed economically and
efficiently for the benefit of such associate
companies at cost, fairly and equitably allocated
between such companies.
Any transaction between GENCO and Potomac Edison, including the
Joint Owner Operating Agreements, Supply Agreement, Bath Project
Rights and Obligations, APC Power Agreement and any other service
agreements related to the Generating Assets or for the operation
of all other Generating Assets, or the provision of other
services, shall be in compliance with section 13(b) of the Act and
Rules 90 and 91 under the Act.
D. Rule 54 Compliance
Rule 54 provides that the Commission, in determining whether
to approve the Transaction by such registered holding company or
its subsidiary other than with respect to EWGs and FUCOs, will not
consider the effect of the capitalization or earnings of any
subsidiary which is an EWG or FUCO upon the registered holding
company system if the provisions of Rule 53(a), (b) and (c) are
satisfied. When the Transaction is consummated, for purposes of
compliance with Rule 54, Allegheny's aggregate investment in EWGs
and FUCOs will not exceed 50% of its consolidated retained
earnings and the provisions of Rule 53(a) will be satisfied.
Allegheny further states that none of the conditions set forth in
Rule 53(b) exist or will exist as a result of the proposed
Transaction. Therefore, Rule 53(c) is inapplicable.
Item 4. REGULATORY APPROVAL
The proposed Transaction has been authorized and pre-approved
to the extent required by the MD PSC. An application has, or will
be filed, to obtain the necessary approvals of West Virginia and
Virginia. Additionally, an application has, or will be, filed
with the Federal Energy Regulatory Commission for approval of the
transfer of jurisdictional assets of the generation facilities as
well as licenses for hydro facilities; <F18> the transfer of the
stock of AGC; and the assignment and delegation of rights and
<F18> Dam #4, Dam #5, Luray, Millville, Newport, Shenandoah and
Warren.
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obligations under the APS Power Agreement. Other than the
aforementioned, no other regulatory agency, other than this
Commission, has jurisdiction over the proposed Transaction.
Item 5. PROCEDURE
It is requested that the Commission's order granting this
Application or Declaration be issued on or before July 1, 2000.
There should be no recommended decision by a hearing or other
responsible officer of the Commission and no 30-day waiting period
between the issuance of the Commission's order and its effective
date. Applicants consent to the Division of Corporate Regulation
assisting in the preparation of the Commission's decision and
order in this matter, unless the Division opposes the Transaction
covered by this Application or Declaration.
Item 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
A-1 Certificate of Organization of Subsidiaries
(to be filed by amendment).
B-1 Fort Martin Unit No. 2 Construction and
Operating Agreement, dated December 30, 1965,
between Monongahela, Potomac Edison, and Potomac Edison
(incorporated by reference to File No. 70-9483).
B-2 Pleasants Power Station Construction and
Operating Agreement, dated as of September 15,
1977, between Monongahela, Potomac Edison and
West Penn
(incorporated by reference to File No. 70-9483 )
B-3 Hatfield's Ferry Power Station Construction
and Operating Agreement, dated April 20, 1968,
between Monongahela, Potomac Edison and
West Penn (incorporated by reference to File
No. 70-9483).
B-4 Harrison Power Station Construction and
Operating Agreement, Dated as of March 31,
1971, between Monongahela, Potomac Edison
and West Penn (incorporated by reference File
No. 70-9483)
B-5 Form of Assignment of each Joint-Owner
Operating Agreement (to be filed by amendment).
B-6 Form of Proposed Operating Agreement between
Potomac Edison and GENCO (to be filed by amendment).
B-8 Inter-Company Power Agreement between Ohio
Valley Electric Corporation, Potomac Edison
and the other parties thereto, dated July 10,
1953, as modified incorporated by reference
File No. 70-9483)
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B-9 Equity Agreement between Monongahela, Potomac
Edison and West Penn, dated June 17, 1981, as
amended (incorporated by reference File No.
70-9483)
B-10 APS Power Agreement between, Monongahela,
Potomac Edison, West Penn, And, AGC, dated
August 24, 1981
(incorporated by reference File No. 70-9483)
B-11 Form of Service Agreement to be entered into
between AESC and PE Transferring Agent LLC.
(to be filed by amendment).
D-1 Application of Potomac Edison to Maryland PSC
(to be filed by amendment)
D-2 Order of Maryland PSC Approving Plan
(to be filed by amendment)
D-3 Application of Potomac Edison to Virginia
Corp. Commission
(to be filed by amendment)
D-4 Order of Virginia Corporation Commission Approving
Plan
(to be filed by amendment)
D-5 Approval of FERC regarding Transfer of Hydro
Generating Facilities
(to be filed by amendment)
D-6 Approval by FERC regarding Transfer of Shares of
AGC from Potomac Edison to PE Transferring Agent
LLC
(to be filed by amendment).
D-7 Approval by FERC of transfer of Potomac Edison's
rights under the OVEC Agreement to PE GENCO.
(to be filed by amendment)
F Opinion of Counsel
(to be filed by amendment).
G-1 Allegheny Energy, Inc.'s Financial Data Schedule
(pro forma)
(to be filed by amendment).
G-2 Allegheny Energy, Inc.'s Financial Data
Schedule (actual).
(to be filed by amendment)
H Form of Notice
(Filed February 11, 2000)
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B. Financial Statements as of December 31, 1999
FS-1 Allegheny Energy, Inc. and subsidiaries
consolidated balance sheet, per books and pro
forma
(to be file by amendment).
FS-2 Allegheny Energy, Inc. and subsidiaries
consolidated statement of income and retained
earnings, per books and pro forma
(to be filed by amendment).
Item 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
A. The authorizations applied for herein do not require
major federal action significantly affecting the quality of the
human environment for purposes of Section 102(2)(C) of the
National Environmental Policy Act (42 U.S.C. 4232(2)(C)).
B. Not applicable.
SIGNATURE
Pursuant to the requirements of the Public Utility
Holding Company Act of 1935, the undersigned companies have duly
caused this statement to be signed on their behalf by the
undersigned thereunto duly authorized.
ALLEGHENY ENERGY, INC.
By /s/ THOMAS K. HENDERSON
Thomas K. Henderson, Esq.
Vice President
POTOMAC EDISON POWER COMPANY
By /s/ THOMAS K. HENDERSON
Thomas K. Henderson, Esq.
Vice President
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ALLEGHENY ENERGY SUPPLY COMPANY
By /s/ THOMAS K. HENDERSON
Thomas K. Henderson, Esq.
Vice President
ALLEGHENY ENERGY SERVICE COMPANY
By /s/ THOMAS K. HENDERSON
Thomas K. Henderson, Esq.
Vice President
Dated: February 11, 2000
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<PAGE>
EXHIBIT H Form of Notice
1. News Digest
THE POTOMAC EDISON COMPANY, A notice has been issued giving
interested persons until March **, 2000, to request a hearing on a
proposal by Allegheny Energy, Inc., a registered public utility
holding company, to: (1) form and capitalize a single member
limited liability corporations (PE GENCO LLC); (2) transfer The
Potomac Edison Company's generating assets and other rights and
obligations to PE GENCO LLC in exchange for the interests in PE
GENCO LLC; (3) dividend Potomac Edison's interests in PE GENCO LLC
to Allegheny; (3) issue notes; and (4) enter an energy supply
agreement. (Rel. 35-27***)
2. Notice
The Potomac Edison Company (70-9***)
Allegheny Energy, Inc., ("Allegheny"), a registered holding
company, 10435 Downsville Pike, Hagerstown, MD 21740-1766,
Allegheny Energy Service Company ("AESC"), a service subsidiary of
Allegheny, The Potomac Edison Company ("Potomac Edison"),<F1>
a wholly owned public utility electric subsidiary of Allegheny,
and Allegheny Energy Supply Company, LLC ("GENCO"), a wholly owned
subsidiary of Allegheny (collectively, "Applicants"), hereby file
this application-declaration with the Securities and Exchange
Commission ("Commission") under Sections 6(a), 7, 9(a), 10, 11,
12(b) and 13(b) of the Public Utility Holding Company Act of 1935,
as amended ("Act"), and Rules 45, 46, 54, 90 and 91 under the Act.
In Holding Co. Act Release No. 27101, the Commission approved the
application of West Penn Power Company to transfer its
Pennsylvania electric generating assets, rights and associated
liabilities to GENCO.<F2> Now comes Potomac Edison seeking
authorization to transfer to GENCO its Maryland, West Virginia,
Virginia and the Federal Energy Regulatory Commission ("FERC")
jurisdictional electric generating assets ("Generating Assets"),
along with other related generating assets and liabilities ("Other
Assets and Other Liabilities") (collectively, the "Transaction").
I. Background
Potomac Edison's Generating Assets are allocated as follows:
56.34% to Maryland; 19.80% to West Virginia; 17.98% to Virginia;
and, 5.88% to FERC. Potomac Edison owns, or has an interest in,
Generating Assets located in three states. Potomac Edison holds:
a 25% undivided interest in the Fort Martin Power station located
in Maidsville, West Virginia; a 33% interest in the Albright Power
Station located in Albright, West Virginia; a 32.76% undivided
interest in the Harrison Power Station located in Shinnston, West
Virginia; a 20% undivided interest in the Hatfield's Ferry Power
Station located in Masontown, Pennsylvania; a 30% undivided
interest in the Pleasants Power Station, located in Saint Mary's,
West Virginia; a 100% interest in the R. Paul Smith Station and R.
Paul Smith Ash Basin both located in Williamsport, Maryland; a
100% interest in the Millville, Dam #4 and Dam #5 hydro stations
in located in West Virginia; and, the Luray, Newport, Shenandoah
and Warren hydro stations located in Virginia. Potomac Edison's
Related Assets include the transformers and facilities for each of
the aforementioned power stations and hydro facilities. The
Generating Assets have an estimated book value of $254 million as
of December 31, 1999.
<F1> In addition to Potomac Edison, Monongahela Power Company
("Monongahela") is a wholly owned public utility subsidiary of
Allegheny. GENCO, Potomac Edison and Monongahela jointly own
Allegheny Generating Company ("AGC"), which owns a 40% undivided
interest in a pumped-storage hydroelectric generating facility and
related transmission facilities located in Bath County, Virginia
("Bath Project").
<F2> In 70-9483, the Commission, among other things, authorized the
formation of GENCO, a LLC formed to hold all the electric
generating assets, rights, interests and associated liabilities of
Allegheny's wholly owned utility subsidiary West Penn Power
Company. See Allegheny Energy, Inc., HCAR No.35-27101, Order
Authorizing Formation of Subsidiary Company; Transfer of Assets to
Generation Company; Issuance and Acquisition of Securities;
Capital Contributions; and Service Agreements (November 12, 1999).
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Potomac Edison has other rights and interests including: an
interest in 28% of the stock of AGC, a Virginia corporation which
it jointly owns with GENCO and Monongahela, which holds a 40%
undivided interest in the Bath County pumped storage hydroelectric
generating facility and related transmission facilities ("Bath
County Rights and Obligations"); a 5.88% interest in wholesale
power production under a FERC regulated power agreement between,
Monongahela, Potomac Edison, West Penn and AGC, dated August 24,
1981 ("APS Power Agreement") governing the distribution of the
power produced; corresponding contractual rights and obligations
("Joint-Owner Operation Agreements") to four jointly owned
generation facilities;<F3> and, the right to receive 16% of the
power participation benefits of Ohio Valley Electric Corporation
("OVEC") under the Inter-Company Power Agreement, dated July 10,
1953 ("OVEC Power Agreement").<F4>
II. Regulatory Overview
Each of the states is at a different point in the
deregulation process. Maryland, as more fully set forth herein,
has adopted the necessary orders and statutes to implement
restructuring. West Virginia, as of the date of this application,
is in the process of considering an electric deregulation plan
adopted by the West Virginia Public Service Commission ("West
Virginia PSC") and proposed legislation, which, if enacted, would
give Potomac Edison the authority to transfer its generation
assets to an affiliate. In Virginia, the Virginia Corporation
Commission is in the preliminary stages of considering the
questions related to deregulation and asset transfers.
On December 15, 1999, Potomac Edison filed for review with
the Maryland Public Service Commission ("MD PSC") an application
for the transfer of the Maryland allocated share of its generation
assets.<F5> In the 1999 session the Maryland General Assembly
passed the Competition Act which in Section 7-508 provides that: an
Electric Company may transfer its [Generating Assets] to an
affiliate as part of the restructuring of the electric generation
services market in Maryland. Section 7-508(C)(2) continues on to
provide that: "[T]he [MD PSC] may review and approve the transfer
(of generation facilities) for the sole purpose of determining:
(i) that the appropriate accounting has been followed; (ii) that
the transfer does not or would not result in an undue adverse
effect on the proper functioning of a competitive electric supply
market; and (iii) the appropriate transfer price and rate making."
In Case No. 8797, the MD PSC approved a Settlement Agreement filed
by the Potomac Edison and other interested parties. The
Settlement agreement provided for customer choice of generation
suppliers by all of Potomac Edison's Maryland customers, except
those on certain contracts, beginning July 1, 2000. Section 31 of
the Settlement Agreement provided that "[A]fter full customer
choice is available as of July 1, 2000, Allegheny Power shall
either transfer its generation assets to an affiliate at book
value or shall transfer, sell, lease, assign, mortgage or
otherwise dispose of or encumber its generation assets to a third
party consistent with the Restructuring Legislation." The section
goes on to provide that: "[Potomac Edison's] generation shall be
deregulated only after full customer choice is available as of
July 1, 2000, and the generation assets are either transferred to
an affiliate or are transferred, sold, leased, assigned, or
mortgaged or otherwise disposed of or encumbered to a third
party." By this application Potomac Edison is seeking to comply
with the state's regulatory mandate.
<F3> The jointly owned facilities are Fort Martin, Harrison,
Hatfield Ferry and Pleasants - each of which is operated pursuant
to an operating agreement ("Joint Operating Agreement"). Each of
the Joint-Owner Operation Agreements has a clause which provides
that "[t]his Agreement shall continue in full force and effect for
a period of 45 years from the date hereof and for such longer period
as the Companies shall by mutual agreement continue to operate any
of the units at the Station."
<F4> OVEC is an investor-owned utility furnishing electric service
in the Ohio River Valley area that was formed for the purpose of
providing large electric power requirements for a major uranium
enrichment complex built by the Atomic Energy Commission near
Portsmouth, Ohio. Allegheny originally had a 12.5% ownership
interest in OVEC, which has subsequently transferred to GENCO.
Allegheny, OVEC and other investor-owned utilities entered into an
agreement by which the parties thereto allocated each utility's
share of the power generated by OVEC and by the Indiana-Kentucky
Electric Corporation. See Exhibit B-8. Under the OVEC Power
Agreement, Allegheny assigned to Potomac Edison the right to
receive 16% of the power participation benefits of OVEC.
<F5> In the Matter of the Application of The Potomac Edison Company
d/b/a Allegheny Power regarding the Transfer of its Maryland
Generation Assets to an Affiliate Under Section 7-508 of the
Electric Customer Choice and Competition Act of 1999 ("Competition
Act") (Dec. 15, 1999).
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In West Virginia, the West Virginia PSC has passed and
submitted to the West Virginia legislature an electricity
restructuring agreement, negotiated with the state's major energy
providers and other interested parties, designed to introduce
customer choice in West Virginia for all customers beginning
January 1, 2001.<F6> It is anticipated that the legislature will
consider and act on the Commission's restructuring settlement
agreement by the end of its current session in March 2000.
In Virginia, pursuant to Sec. 56-90 of the Virginia Code,
Potomac Edison has filed an application with the Virginia
Corporation Commission for authority to enter into a contract with
its affiliate to transfer ownership interests in certain utility
assets.<F7> Potomac Edison provides electric service to
approximately 84,000 customers located in 14 northwestern Virginia counties.<F8>
III. Requested Authorizations
Applicants request authorization to form two or more
corporations or limited liability companies. The first would be a
wholly owned subsidiary of Potomac Edison ("PE Transferring Agent
LLC") formed for the purpose of receiving from Potomac Edison its
Generating Assets, Other Assets and Liabilities. The second
entity would be formed as a wholly owned subsidiary of PE
Transferring Agent LLC ("PE GENCO") formed for the purpose of
subsequently acquiring the interests in the Generating Assets,
Related Assets and Liabilities held by PE Transferring Agent
LLC.<F9>
Potomac Edison and Allegheny propose to make contributions to
PE Transferring Agent LLC and PE GENCO. Contributions may take
the form of the purchase of capital shares, partnership interests,
member interests in limited liability companies, trust
certificates and other forms of equity; account advances; loans;
and, guarantees.<F10> Potomac Edison proposes an initial capital
contribution of $100,000 in interest bearing securities. Next,
Potomac Edison will contribute a note in the approximate amount of
$26.9 million ("Balancing Note").<F11> Potomac Edison proposes to
issue a non-interest-bearing note ("Liquidating Note"). The
Liquidating Note will be for approximately $325.1 million.
Next, Potomac Edison seeks authorization to transfer its
Maryland, West Virginia, Virginia and FERC jurisdictional assets
to GENCO, subject to: 1) state approval; and 2) completion of the
record.<F12> Specifically, Applicants seek authorization for PE
Transferring Agent LLC to issue, and Potomac Edison to acquire all
<F6> Potomac Edison will file by amendment, post effective
amendment or pursuant to Rule 24 a full discussion of the electric
deregulation settlements and statutes, when adopted or enacted, in
West Virginia.
<F7> See Exhibit D-3, Application of The Potomac Edison Company .
to Acquire Utility Assets and Enter into a Contract with an
affiliated Interest (Filed February 7, 2000).
<F8> Potomac Edison will file by amendment, post effective
amendment or pursuant to Rule 24 a full discussion of the electric
deregulation settlements and statutes, when adopted or enacted, in
Virginia.
<F9> PE Transferring Agent LLC is an intermediate entity for tax
and other lawful business purposes.
<F10> The source of funds for direct or indirect contributions by
Allegheny to PE Transferring Agent LLC may include dividends
received from operating companies that are derived from proceeds
of sales of energy to customers and other available cash
resources. Loans by Allegheny or Potomac Edison to PE
Transferring Agent LLC will have interest rates and maturities
that are designed to provide a return to Allegheny or Potomac
Edison of not less than their respective effective cost of
capital.
<F11> Contribution of the Balancing Note is due to tax
considerations.
<F12> Potomac Edison will file by amendment, post effective
amendment or pursuant to Rule 24 a full discussion of the
settlements and statutes of West Virginia and Virginia, when
enacted.
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of the limited liability interests in PE Transferring Agent LLC.
Specifically, in exchange for the equity interests in PE
Transferring Agent LLC, Potomac Edison proposes to transfer to PE
Transferring Agent LLC, and for PE Transferring Agent LLC to
accept, both actions subject to Commission authorization, Potomac
Edison's: Generating Assets; Related Assets; AGC interests; Bath
County Rights and Obligations; interests under the Joint-Owner
Operating Agreements; OVEC interests; interests under the OVEC
Power Agreement; and, Liabilities.<F13> Thereafter, PE Transferring
Agent LLC seeks authorization to transfer its assets to PE GENCO.
Additionally, Potomac Edison proposes to transfer to PE GENCO its
interests in the APS Power Agreement. After transferring its
assets to PE GENCO, PE Transferring Agent LLC will be dissolved.
PE GENCO will then be merge into GENCO and Allegheny will continue
to directly own GENCO. Finally, Allegheny requests authority to
merge AE Units 1 and 2 LLC into GENCO in exchange for GENCO
assuming the outstanding debt related to those interests.<F14>
Under the terms of the Maryland Settlement Agreement, Potomac
Edison must provide standard offer service to customers through
2008. Potomac Edison has discretion concerning how it arranges
for its standard offer service load. Potomac Edison and GENCO
propose to enter into an energy supply agreement or series of
agreements with each one pertinent to an individual jurisdictional
supply obligation ("Agreements") sufficient to allow Potomac
Edison to meet its standard offer service obligations under the
Settlement Agreement or under similar requirements and conditions
as imposed in West Virginia or Virginia. GENCO would be free to
satisfy the standard offer service load requirements either by
dispatch of the transferred generation facilities or by purchases
in the market. The Agreements would allow Potomac Edison to
fulfill its regulatory obligations in Maryland, West Virginia or
Virginia as required.<F15> The Joint-Owner Operating Agreements
were entered into in the mid-1960's; therefore, the earliest
expiration of any of the agreements will be the year 2010, after
which time the companies may agree to continue the agreements in
full force and effect or should GENCO become the sole owner of
the plants beforehand the operating agreements may be terminated
as of that change in ownership status. GENCO plans to
perpetually operate the plants of which it will be the sole
owner.
Authorization is also requested for Potomac Edison and
GENCO to enter into operating and other agreements for the
operation of all other Generating Assets. Potomac Edison will
continue to operate those Generating Assets for which it is the
operator until all necessary permits and licenses have been
obtained by or transferred to GENCO for those specific Generating
Assets.
In exchange for the Maryland share of the Generating Assets,
PE Transferring Agent LLC will issue to Potomac Edison an
unsecured interest-bearing note in the amount of approximately
$285 million. As of December 31, 1999, Potomac Edison has
approximately $175 million of outstanding first mortgage bonds.
Potomac Edison expects to obtain a release from the lien of the
first mortgage upon the Generating Assets by certifying to the
trustee of the first mortgage bonds indenture property additions
purchased, constructed or otherwise acquired having a cost or, if
less, a fair market value equal to the fair market value of the
Generating Assets.
Applicants seek authorization for PE GENCO to issue and PE
Transferring Agent LLC to acquire all of the limited liability
interest in PE GENCO ("Ownership Interests") in exchange for PE
Transferring Agent LLC acquiring the interests in the Generating
Assets, Related Assets and Liabilities held by PE Transferring
Agent LLC. Applicants additionally seek authorization for PE
Transferring Agent LLC to distribute the Ownership Interests and
the notes to Potomac Edison and for Potomac Edison to acquire the
Ownership Interest. Applicants further request authorization for
Potomac Edison to distribute the Ownership Interests and any other
interests in PE GENCO and for Allegheny to acquire the Ownership
Interests and any other interests in PE GENCO. Upon completion of
the Transaction, Potomac Edison's debt/equity ratio will meet or
exceed the Commission's debt/equity requirements.
<F13> Associated Liabilities include deferred income taxes,
advance purchase commitments, AGC assets, accounts payable,
accounts receivable, pollution control bonds and solid
waste disposal obligations. The total amount of Associated
Liabilities is approximately $117 million as of December 31,
1999.
<F14> AE Units 1 and 2 LLC's only assets is a 100% interest
in two 44 MW units.
<F15> Potomac Edison would use the same mechanism to satisfy
the requirements in West Virginia as necessary.
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Finally, Applicants request that this Commission authorize
and reserve jurisdiction over Potomac Edison's transfer of its
West Virginia and Virginia assets with a release of jurisdiction
made subject to: 1) West Virginia and / or Virginia enacting state
laws and/or approving settlements that would authorize the asset
transfers; and 2) Potomac Edison completing the record in this
matter by amendment, post effective amendment or pursuant to Rule
24. Applicants request that the Commission reserve jurisdiction
over any transactions not specifically authorized in this order.
