As filed with the Securities and Exchange Commission on December 20, 2001
File No. 1.070-10003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
Amendment No. 1
to
FORM U-1
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
---------------------------------
PECO Energy Corporation
PECO Energy Transition Trust
c/o Exelon Corporation
10 South Dearborn Street
37th Floor
Chicago, IL 60603
(Name of company filing this statement and address of
principal executive offices)
-------------------------------------------------------------------------------
Randall E. Mehrberg
Senior Vice President and General Counsel
Exelon Corporation
10 South Dearborn Street
37th Floor
Chicago, IL 60603
(Name and address of agent for service)
---------------------------------
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
William J. Harmon
Jones, Day, Reavis & Pogue
77 West Wacker
Suite 3500
Chicago, IL 60601
(312) 782-3939
wjharmon@jonesday.com
---------------------
Table of Contents
Page
Item 1. Description of Proposed Transaction ..................... 1
Item 2. Fees, Commissions and Expenses .......................... 3
Item 3. Applicable Statutory Provisions ......................... 3
Item 4. Regulatory Approvals .................................... 4
Item 5. Procedure ............................................... 4
Item 6. Exhibits ................................................ 4
Item 7. Information as to Environmental Effects ................. 4
Item 1. Description of Proposed Transaction
This Amendment No. 1 amends and restates in its entirety the Form U-1
Application Declaration filed in this matter on November 27, 2001. Exelon
Corporation, a Pennsylvania corporation ("Exelon"), filed an
Application-Declaration on Form U-1 with the Securities and Exchange Commission
(the "Commission") in docket No. 70-9693 on June 12, 2000, as amended through
Amendment No. 5 (Third Post-Effective) (as so amended, the "Original Financing
U-1"). In that docket, Exelon and its utility subsidiary PECO Energy Company
("PECO") sought approval for PECO to refinance through PECO Energy Transition
Trust ("PETT") up to the full amount of outstanding transition bonds due March
1, 2004 and September 1, 2007 ($1.132 billion outstanding at June 30, 2000) with
refunding transition bonds having a final maturity not later than March 1, 2011.
This request was approved in the Commission's Orders of November 2, 2000
(Holding Co. Act Release No. 35-27266) and December 8, 2000 (Holding Co. Act
Release No. 35-27296) (collectively, the "Prior Order"). On March 1, 2001 PETT
refinanced approximately $805 million of the prior transition bonds through the
issuance of Series 2001-A Transition Bonds. Further details regarding PETT's
obligations and outstanding transition bonds (the "Outstanding Transition
Bonds") at September 30, 2001 are set forth in PETT's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 in File No. 333-58055.
In Amendment No. 5 (Third Post-Effective) to the Original Financing U-1,
Exelon sought approval under Section 13 of the Public Utility Holding Company
Act of 1935 (the "Act") for PECO to provide certain servicing functions to PETT
(described in more detail below) at a price not restricted to cost. Exelon will
withdraw that request from Docket 70-9693 and instead is making the same request
under this Form U-1 as more fully set forth below.
Exelon is the registered holding company parent of PECO and Commonwealth
Edison Company ("ComEd") and certain other subsidiaries. A merger creating
Exelon was approved by the Commission on October 19, 2000 (the "Merger Order,"
Holding Co. Act Release No. 35-27256; 70-9645). Exelon filed its notice of
intent to register as a holding company under the Act on October 20, 2000.
Under the terms of PECO's settlement of its 1998 restructuring proceeding
and the final order of the Pennsylvania Public Utility Commission ("Pennsylvania
Commission") approving the settlement, issued on May 14, 1998, PECO is permitted
to recover $5.26 billion in stranded costs over a twelve year period beginning
on January 1, 1999. PECO's stranded costs are collected through a non-bypassable
transition charge which must be paid by all of PECO's transmission and
distribution customers, regardless of whether the customers continue to purchase
their electric capacity or energy from PECO. Utilities are authorized to
securitize the right to recover all or a portion of these charges through the
issuance of transition bonds. This right is known as Intangible Transition
Property ("ITP").
As permitted under Pennsylvania law, certain portions of the May 14, 1998
Pennsylvania Commission order were designated a Qualified Rate Order ("QRO")
authorizing PECO to securitize up to $4 billion of its recoverable costs through
the issuance of "transition bonds." On March 16, 2000 the Pennsylvania
Commission issued a second QRO authorizing PECO to securitize an additional $1
billion. In order to accomplish the approved securitization
transactions, PECO created a PETT as an independent special purpose entity. PETT
is a statutory business trust established under the laws of the State of
Delaware, and was formed on June 23, 1998 pursuant to a trust agreement between
PECO, as grantor, First Union Trust Company, N.A., as issuer trustee, and two
beneficiary trustees appointed by PECO. See, PETT's periodic reports filed under
the Securities Exchange Act of 1934 in File No. 333-58055. PETT was organized
for the special purpose of purchasing from PECO the ITP, issuing transition
bonds, pledging its interest in the ITP and other collateral to a bond trustee
to secure the transition bonds and performing activities that are necessary and
suitable to accomplish these purposes including collecting the specific part of
ITP used to pay the bonds, i.e., Intangible Transition Charges ("ITC") collected
from PECO customers.
As part of the transactions relating to the currently Outstanding
Transition Bonds, PECO and PETT entered into an Amended and Restated Master
Servicing Agreement, dated March 25, 1999, as amended May 2, 2000 and March 1,
2001 (the "Servicing Agreement") whereby PECO, as servicer, manages and
administers the ITP sold to PETT and collects the ITC related thereto on behalf
of PETT. The Servicing Agreement is incorporated herein by reference to Exhibits
10.3 and 10.4 to PETT's Form S-3 Registration Statement in File No. 333-51740.
To help ensure the necessary legal separation for purposes of isolating
PETT from PECO for bankruptcy purposes, the rating agencies desire any servicing
arrangement to be at a market price so that a successor entity could assume the
duties in the event of the bankruptcy of PECO without interruption or an
increase in fees. Accordingly, the servicing agreement has provided for such
pricing and will continue to do so while any transition bonds remain
outstanding. PECO and PETT seek approval under Section 13 of the Act and Rules
87, 90 and 91 as are necessary from the Commission to continue this practice
during the period any transition bonds remain outstanding and the Servicing
Agreement remains in place. The Commission has approved substantially identical
arrangements in other matters.1
No further authorization is sought in this Application-Declaration
regarding financing for the Exelon system and any future financing by the Exelon
system will be pursuant to the Prior Orders and the limitations set out therein
which should remain unmodified. The order in this docket will relate only to the
pricing structure of the Servicing Agreement and will not grant any additional
financing authority. To the extent that any future issuance of transition bonds
would require Commission approval, such approval will be sought at that time.
Rule 54. The proposed transaction is also subject to the requirements of
Rule 54. Rule 54 provides that in determining whether to approve the issue or
sale of a security by a registered holding company for purposes other than the
acquisition of an "exempt wholesale generator" ("EWG") or a "foreign utility
company" ("FUCO"), or other transactions by such registered holding company or
its subsidiaries other than with respect to EWGs or FUCOs, the Commission shall
not consider the effect of the capitalization or earnings of any subsidiary
---------------------------------
1 West Penn Power Co., Holding Co. Act Release No. 27091 (Oct. 19,1999).
Exelon believes that the pricing provisions of the Servicing Agreement may be
deemed to have been approved by the Prior Orders or, at least through December
31, 2001, pursuant to the Merger Order. Exelon understands that the Commission
does not, and its order herein will not, grant retroactive approval of
arrangements under Section 13.
-2-
which is an EWG or a FUCO upon the registered holding company if paragraphs (a),
(b) and (c) of Rule 53 are satisfied.
Exelon currently does not meet all of the conditions of Rule 53(a). As of
September 30, 2001, Exelon's "aggregate investment," as defined in Rule
53(a)(1), in EWGs and FUCOs was approximately $744 million which is in excess of
the 50% of Exelon's consolidated retained earnings of $1,022 million at
September 30, 2001 which is the "safe harbor" limitation contained in Rule
53(a). However, in the Prior Orders, the Commission has authorized Exelon to
increase its "aggregate investment" in EWGs and FUCOs to an amount of up to $4
billion. Therefore, although Exelon's "aggregate investment" in EWGs and FUCOs
currently exceeds the 50% "safe harbor" limitation, this investment level is
permitted under the Prior Orders.
In any event, even taking into account the capitalization of and earnings
from EWGs and FUCOs in which Exelon has an interest, there would be no basis for
withholding approval of the proposed transaction. With regard to capitalization,
since the issuance of the Prior Orders, there has been no material adverse
impact on Exelon's consolidated capitalization resulting from Exelon's
investments in EWGs and FUCOs. At September 30, 2001, Exelon's consolidated
capitalization consists of 33 % equity, 3% preferred securities, 62 % long-term
debt (including current maturities of long-term debt), and 2 % short-term debt.
These ratios are within acceptable industry ranges. The proposed transaction
will not have any material impact on capitalization. Further, since the date of
the Prior Orders, there has been no material change in Exelon's level of
earnings from EWGs and FUCOs.
Exelon satisfies all of the other conditions of paragraphs (a) and (b) of
Rule 53. With reference to Rule 53(a)(2), Exelon maintains books and records in
conformity with, and otherwise adheres to, the requirements thereof. With
reference to Rule 53(a)(3), no more than 2% of the employees of Exelon's
domestic public utility companies render services, at any one time, directly or
indirectly, to EWGs or FUCOs in which Exelon directly or indirectly holds an
interest. With reference to Rule 53(a)(4), Exelon will continue to provide a
copy of each application and certificate relating to EWGs and FUCOs and relevant
portions of its Form U5S to each regulator referred to therein, and will
otherwise comply with the requirements thereof concerning the furnishing of
information. With reference to Rule 53(b), none of the circumstances enumerated
in subparagraphs (1), (2) and (3) thereunder have occurred. Finally, Rule 53(c)
by its terms is inapplicable since the proposed transaction does not involve the
issue or sale of a security to finance the acquisition of an EWG or FUCO.
Item 2. Fees, Commissions and Expenses
Exelon estimates that total fees, commissions and expenses related hereto
will not exceed $10,000.
Item 3. Applicable Statutory Provisions
Section 13 of the Act and Rules 54, 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 other section of the Act
-3-
or the rules and regulations other than those set forth above, request for such
authorization, exception or approval is hereby made.
Item 4. Regulatory Approvals
The Pennsylvania Commission has issued all necessary approvals for the
Outstanding Transition Bonds and the Servicing Agreement. No other state or
federal regulatory agency other than the Commission under the Act has
jurisdiction over the proposed transaction.
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. 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
Exhibit 99.1 (F) Opinion of Counsel is filed herewith.
No other exhibits are applicable hereto.
Item 7. Information as to Environmental Effects
The proposed transaction involves neither a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4321 et seq. No federal agency is preparing an environmental impact
statement with respect to this matter.
-4-
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this amendment to Application/Declaration
to be signed on their behalf by the undersigned thereunto duly authorized.
Date: December 20, 2001
PECO Energy Company
PECO Energy Transition Trust, by PECO
Energy Company
By /s/ Frank Frankowski
--------------------
Chief Financial Officer and Vice President
Finance