ALJ/MCK/jgo Mailed 12/12/2001

Decision 01-12-013 December 11, 2001

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of PacifiCorp (U 901-E) for Exemption from the Acquisition of Control of A Public Utility Requirements of Cal. Pub. Util. Code Sec. 854.

Application 01-04-034 (Filed April 24, 2001)

OPINION AUTHORIZING REORGANIZATION AND
GRANTING EXEMPTION FROM THE REQUIREMENTS
OF SECTION 854 OF THE PUBLIC UTILITIES CODE

In the instant application, PacifiCorp, an indirectly-held subsidiary of ScottishPower, requests that we grant an exemption pursuant to § 853(b) of the Pub. Util. Code from the requirements of § 854(a), which applies to mergers and other forms of reorganization that result in a change of control over a public utility regulated by this Commission. The transaction for which the exemption is sought is the proposed transfer of all of the common stock of PacifiCorp from NA General Partnership (NAGP), a Nevada partnership indirectly controlled by ScottishPower, to a newly-formed non-operating Delaware holding company, PacifiCorp Holdings, Inc. (PHI), that is also an indirect subsidiary of ScottishPower.

Although PacifiCorp takes the position that § 854(a)¹ does not apply to this type of transaction-an argument we previously accepted in Decision (D.) 99-06-049-it requests that in order "to avoid controversy and facilitate prompt closing of the transaction," we issue an order pursuant to our authority under § 853(b)² holding the proposed transaction exempt from the requirements of § 854(a). In the alternative, PacifiCorp requests that we approve the proposed transaction under § 854(a).³

In its application, PacifiCorp states that the purpose of the transaction is to separate PacifiCorp's utility operations from its unregulated, non-utility businesses, a "separation [that] will reduce the exposure of the regulatory side of PacifiCorp's business to any adverse results in its non-utility operations . . ." (Application, p. 11.) This appears to be the kind of transaction for which the § 853(b) exemption was intended, and does not appear adverse to the public interest. Accordingly, we will grant the application.

A. Background and Nature of the Application

PacifiCorp is an Oregon corporation that holds certificates of public convenience and necessity (CPCNs) from this Commission to offer electric service in the counties of Modoc, Del Norte, Siskiyou and Shasta in Northern California. However, the approximately 41,000 retail customers that PacifiCorp serves in these counties account for only 3.3 per cent of the retail customers served system-wide by PacifiCorp; the other customers are located in the states of Oregon, Washington, Idaho, Utah and Wyoming. Applications seeking approval of the proposed reorganization have been filed with the public service commissions in four of these states,⁴ as well as with the Federal Energy Regulatory Commission (FERC), and all of these agencies have given their approval.

This application is a follow-up to D.99-06-049, in which we approved the application of PacifiCorp to be acquired through a merger by ScottishPower, one of the largest electric utilities in the United Kingdom. The merger took effect on November 29, 1999.

ScottishPower does not hold PacifiCorp directly; rather, all of the common stock of the latter corporation is held by NAGP, a general partnership organized under the laws of Nevada. According to the application, the general partners of NAGP are ScottishPower NA 1 Limited and ScottishPower NA 2 Limited, both of which are direct, wholly-owned subsidiaries of ScottishPower. (Id. at 5.)

The application states that "both prior to and since the ScottishPower merger, [PacifiCorp] has been engaged in a number of non-utility activities, principally through PacifiCorp Group Holdings Company (PGHC) and its subsidiaries, all of which are wholly owned." By this application, PacifiCorp is proposing to separate the ownership of these non-utility businesses from the utility itself. The vehicle for doing so is PHI, a non-operating holding company that was recently organized under the laws of Delaware. The application describes the proposed transaction as follows:

"PHI is . . . a direct, wholly-owned subsidiary of NAGP and an indirect, wholly-owned subsidiary of ScottishPower. Upon consummation of the proposed transaction, NAGP, the current direct holding company of PacifiCorp, will transfer all of the outstanding common stock of PacifiCorp to PHI in exchange for 100 percent of the capital stock of PHI. The PHI shares will constitute the consideration for the shares of PacifiCorp. No other consideration will be involved . . ." (Id. at 8.)

After the proposed transfer, PHI will hold both PacifiCorp and PGHC as separate subsidiaries. The application describes the purpose of the transfer as follows:

"The further separation of PacifiCorp's non-utility businesses from its regulated utility operations, which will be facilitated by the proposed stock exchange, is consistent with the public interest. Specifically, such separation will reduce the exposure of the regulatory side of PacifiCorp's business to any adverse results in its non-utility operations, to the benefit of PacifiCorp's customers. The proposed restructuring will also allow ScottishPower to infuse capital into and receive distributions from the non-utility businesses without involving PacifiCorp. In addition, as the restructuring is implemented, PacifiCorp's consolidated financial statements would no longer include the results of the transferred non-utility businesses, thereby presenting more clearly the results of its utility operations." (Id. at 10-11.)

The application also emphasizes that the proposed restructuring will have no effect on the utility operations of PacifiCorp. On this issue, applicant states:

"The transaction is a simple internal corporate reorganization involving a change in the stock ownership of PacifiCorp. It is not a consolidation of operating utilities with all the regulatory complexities that entails . . . As explained in this Application, no change in operations will result from the transaction, no transfer of assets or [CPCNs] is involved, and the transaction will not have any effects whatsoever on competition, service to customers, or rates. (Id. at 6-7.)

Finally, PacifiCorp requests that it be relieved of the filing requirements set forth in Rules 17 and 36 of our Rules of Practice and Procedure, inasmuch as the proposed transaction does not involve a merger.

"No person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from the commission. The commission may establish by order or rule the definitions of what constitutes merger, acquisition, or control activities which are subject to this section. Any merger, acquisition or control without that prior authorization shall be void and of no effect."

"The commission may from time to time by order or rule, and subject to those terms and conditions as my be prescribed therein, exempt any public utility or class of public utility from this article [i.e, Pub. Util. Code §§ 851-856] if it finds that the application thereof with respect to the public utility or class of public utility is not in the public interest. The commission may establish rules or impose requirements deemed necessary to protect the interest of the customers or subscribers of the public utility or class of public utility exempted under this subdivision. These rules or requirements may include, but are not limited to, notification of a proposed sale or transfer of assets or stock and provision for refunds or credits to customers or subscribers."