C. Nature of the Non-Utility Businesses Now Held by PacifiCorp
Although the application does not describe the nature of the non-utility businesses that would be affected by the proposed transfer of PacifiCorp common stock to PHI, the applicant has furnished this information in response to an inquiry from the assigned Administrative Law Judge (ALJ). On November 21, 2001, counsel for PacifiCorp sent a facsimile of a data response originally furnished to the staff of the Washington Utilities and Transportation Commission (WUTC), one of the four other state public service commissions required to approve the transaction.5 The data response summarizes the status of the non-utility businesses as follows:
"Through subsidiaries, PacifiCorp is involved with non-utility businesses, including financial services and various ownership interests in real estate, technology and other assets. PacifiCorp operates none of these businesses. These activities are principally conducted through subsidiaries of [PGHC], including PacifiCorp Financial Services, Inc. (PFS), PacifiCorp Energy Ventures, PacifiCorp Energy, Inc. [PEI], PacifiCorp Energy Services, Inc., PacifiCorp International Group Holdings Company and others. PacifiCorp plans to transfer some or all of these subsidiaries to PHI over time as conditions warrant."6
According to counsel, the largest and most active of the current PGHC subsidiaries is PacifiCorp Power Marketing (PPM), a wholesale power marketing company. The data response also gives brief summaries of the other non-utility subsidiaries, summaries that were extracted from Exhibit C-7 of the filing that was made with the Securities and Exchange Commission (SEC) on December 6, 2000 as part of ScottishPower's registration as a holding company pursuant to Section 5 of the Public Utility Holding Company Act of 1935, 15 U.S.C. § 79 et seq. According to these summaries, PEI "was formed to provide services to [the] wholesale power market relating to fuel supply, trading, procurement and transportation," while PFS is a "nonutility holding company
for leveraged leasing, synthetic fuel production, equipment lease and commercial finance asset recoveries, and miscellaneous properties."7
In a November 27, 2001 letter to the assigned ALJ, counsel for PacifiCorp asserts that for two reasons, "there is no ratepayer subsidy of these non-regulated affiliates and there will not be under the proposed new structure." First, "the capital investment in these affiliates has come from shareholder funds and direct affiliate borrowings, which are neither guaranteed nor supported by PacifiCorp." Second, counsel states:
"[T]ransactions between PacifiCorp and its affiliates, which might provide an opportunity to use ratepayer funds to subsidize the affiliates, are strictly regulated by PacifiCorp's state commissions. Oregon statutes and rules, for example, require [Oregon PUC] approval of purchases of goods or services from an affiliate. The transfer pricing rules in Oregon . . . generally require that for ratemaking purposes[,] transactions between PacifiCorp and its affiliates be priced at cost or market, whichever is more favorable to ratepayers. This rule is similar to the affiliate transaction pricing rule in California."
Counsel concludes that "required compliance with the foregoing conditions, rules and reporting requirements by PacifiCorp's non-regulated subsidiaries will be unaffected by PacifiCorp's proposed new structure."
5 The WUTC recently approved the proposed transaction with certain conditions. See, "Order Approving Corporate Reorganization To Create Holding Company, With Conditions," Docket No. UE-010594, issued September 26, 2001 (hereinafter referred to as the "WUTC Order"). 6 On the issue of who will ultimately control PacifiCorp's non-utility businesses, the application states:"In connection with the proposed restructuring, PacifiCorp intends to transfer over time some or all of the non-utility businesses of PGHC and its subsidiaries to PHI, a non-regulated entity. PacifiCorp is not requesting approval for the transfer of PGHC or any of its subsidiaries to PHI, as these transfers are not subject to the Commission's jurisdiction." (Application, p. 9.)7 It seems clear from the summaries that the importance of these various businesses has changed over time. While PPM is the most important non-utility subsidiary today, that position used to be held by PFS. The data response has the following to say about the change in PFS's situation:
"PFS is in the process of winding its operation to only the leveraged leasing and tax-advantage investments. In 1989, PFS was a $2 billion finance company with over 1,000 employees nationwide. Currently, PFS has one full-time employee and has assets of approximately $320 million, 82% of which are the leverage leasing and tax advantage investments. PFS and its subsidiaries are in the process of winding down the balance of their respective investments." (Response to WUTC Staff Data Request 1, dated June 8, 2001.)Other PGHC subsidiaries that were formed to hold foreign utility investments are being wound down, as well. For example, PacifiCorp Bakun Energy BV and PacifiCorp Generation International, BV each used to hold a one-third interest in Philippine Luzon Hydro, but both are now inactive businesses, and PacifiCorp states that it plans to dissolve them by the end of June 2002.
