As filed with the Securities and Exchange Commission on June 20, 2003
File No. 70-_____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Exelon Corporation
10 South Dearborn Street, 37/th/ Floor
Chicago, IL 60603
(Name of company or companies filing this statement and address of principal
executive offices)
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Exelon Corporation
(Name of top registered holding company parent of each applicant or declarant)
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Randall E. Mehrberg
Executive Vice President and General Counsel
Exelon Corporation
10 South Dearborn Street, 37/th/ Floor
Chicago, Illinois 60603
(Name and address of agent for service)
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The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
William J. Harmon Constance Reinhard
Michael G. Strohmeier Exelon Corporation
Jones, Day, Reavis & Pogue 10 South Dearborn Street, 35/th/ Floor
77 West Wacker, Suite 3500 Chicago, Illinois 60603
Chicago, IL 60601 312-394-3604
312-782-3939
Item 1. Description of Proposed Transaction.
A. Background.
Exelon Corporation, a registered holding company (the "Applicant"),
herein requests approval from the Commission pursuant to Sections 9(a)(1) and 10
of the Public Utility Holding Company Act of 1935, as amended (the "Act") to
acquire a membership interest in PowerTree Carbon Co., LLC (the "Company"), a
Delaware limited liability company formed to facilitate investments by the
Applicant and other energy companies in forestation projects in the Lower
Mississippi River Valley, and possibly other sites, as a means for removing
carbon dioxide (CO\2\) from the atmosphere. The Applicant proposes to acquire
such membership interest either directly or indirectly through one or more
subsidiaries, including a new subsidiary formed exclusively for the purpose of
acquiring and holding the membership interest.
Applicant has three principal operating public utility company
subsidiaries (the "Utility Subsidiaries"):/1/
. PECO Energy Company ("PECO"), a public utility company engaged (i) in the
transmission, distribution and sale of electricity and (ii) in the purchase
and sale of natural gas in Pennsylvania;
. Commonwealth Edison Company ("ComEd"), a public utility company engaged in
the transmission, distribution and sale of electricity in Illinois; and
. Exelon Generation Company, LLC ("Genco"), a public utility company and a
registered holding company/2/ engaged in the generation and sale of
electricity in Pennsylvania, Illinois and elsewhere. Genco owns, directly
or indirectly, electric generating plants in the United States having a
combined generating capability of approximately 26,241 megawatts.
The Company has been formed under the sponsorship of the electric
utility sector in cooperation with the Department of Energy ("DOE"). The Company
is part of an industry-wide effort to voluntarily address climate change through
measures designed to reduce greenhouse gas emissions in response to President
Bush's recent "Climate VISION" plan, or Climate, Voluntary Innovative Sector
Initiatives: Opportunities Now. Climate VISION is the first step in the
President's policy of encouraging industry to produce voluntary cuts in
greenhouse gas emissions. One proven means for reducing greenhouse gases is to
use trees to remove CO\2\ from the atmosphere and store it in tree biomass and
roots and soil. The Bush Administration has also proposed, as part of its Global
Climate Change program, the creation of transferable credits for measures which
reduce greenhouse gas emissions.
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/1/ "Utility Subsidiaries" also includes Commonwealth Edison company of Indiana,
PECO Energy Power Company, Susquehanna Power Company and Susquehanna Electric
Company.
/2/ Genco filed a form U5A Notification of Registration on January 23,
2001.
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The Company has obtained commitments totaling approximately $3.5
million from approximately 25 electric utilities, electric utility holding
companies and other energy concerns that will be used to fund six forestation
projects located in Louisiana, Mississippi and Arkansas. These projects will
provide multiple environmental benefits, including removing from the atmosphere
and storing over 2 million tons of CO\2\ over the projects' 100-year lifetimes.
Other benefits will include: restoring habitat for birds and animals; reducing
fertilizer inputs to waters; and stabilizing soils. Two of the projects will
involve purchase and donation of land to the U.S. Fish & Wildlife Service, while
other projects will involve obtaining easements for tree planting on private
land. The contributions of the members to the Company will be utilized for land
acquisition and to pay the cost of planting tree seedlings. It is estimated that
these projects will provide carbon benefits of more than 400 and 450 tons of
CO\2\ per acre by years 70 and 100, respectively, at a cost of less that $2.00
per ton.
Unlike some earlier forestation projects that U.S. electricity
generators have supported in the past, the Company is being formed as a
for-profit limited liability company ("LLC"), which it is believed will allow
carbon or CO\2\ reduction credits, if and when they become available, to be more
readily transferred. The LLC structure will also allow the members of the
Company to take advantage of tax benefits of land donation. Nevertheless,
although formed as a for-profit LLC, the Company is essentially a passive medium
for making investments in projects that are not expected to have any operating
revenues, and will not engage in any active business operations.
To the extent not exempt under Rule 43, the Applicant is also
requesting authorization pursuant to Section 12(f) of the Act to sell its
membership interest in the Company at any time to any of its associate
companies. Any sale by the Applicant of its membership interest in the Company
to an associate company shall be for an amount equal to the Applicant's
investment or pro rata share thereof in the case of a sale of a portion of the
Applicant's membership interest. No sale to an associate company that requires
approval by any other regulatory commission shall take place until such approval
has been obtained.
B. Capital Contribution Commitments of Initial Members.
The Applicant is one of eleven registered holding companies that have
committed to make capital contributions to the Company. The others are Ameren
Corporation, American Electric Power Company, Inc., Cinergy Corp., Dominion
Resources, Inc., Entergy Corporation, FirstEnergy Corp., Great Plains Energy
Incorporated, PEPCO Holdings, Inc., Progress Energy, Inc., and Xcel Energy, Inc.
Other energy companies that have committed to make capital contributions are:
CLECO Corporation, The Detroit Edison Company, Duke Energy Corporation,
Minnesota Power (a division of ALLETE, Inc.), OGE Energy Corp., Oglethorpe Power
Corporation, Peabody Energy Corporation, Pinnacle West Capital Corporation,
Public Service Electric and Gas Company, Public Service Company of New Mexico,
Reliant Resources, Inc., Tennessee Valley Authority, TXU Corp., We Energies (the
trade name of Wisconsin Electric Power Company and Wisconsin Gas Company), and
Wisconsin Public Service Corporation. The amount of the commitments of the
eleven registered holding companies is as follows:
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Name of Registered Holding Total Capital Contribution
Company Commitment
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Ameren Corp. $100,000
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American Electric Power $300,000
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Cinergy Corp. $100,000
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Dominion Resources $100,000
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Entergy Corp. $100,000
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Exelon Corp. $100,000
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FirstEnergy Corp. $100,000
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Great Plains Energy $ 50,000
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PEPCO Holdings $ 50,000
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Progress Energy $100,000
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Xcel Energy $100,000
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Total $1,200,000
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In the aggregate, the capital contribution commitments of the eleven
registered holding companies represent approximately 35% of the commitments of
all of the initial members.
C. Principal Terms of Operating Agreement.
Under the Company's Operating Agreement (Exhibit A hereto), the
business and affairs of the Company shall be managed by its Board of Managers.
Each member that commits to make a capital contribution of at least $100,000 is
entitled to appoint one representative to the Board of Managers. In general,
actions by the Board of Managers may be taken by a majority of the managers
present at a meeting. However, certain actions of the Board of Managers or of
any individual manager or any officer require authorization by a two-thirds vote
of the full board. These include, among others actions: the sale, exchange or
other disposition of any of the assets of the Company greater that $20,000 in
value; the commencement of a voluntary bankruptcy proceeding; the declaration or
making of any distributions to members; the incurrence of any indebtedness by
the Company; capital expenditures exceeding $20,000; and the acquisition or
lease of any real property and any sale of, donation, lease or sublease
affecting real property owned by the Company.
New members may be admitted to the Company only upon the unanimous
approval of the then existing members. Upon admission of any new member, the
percentage interests of existing members shall be reduced accordingly. A member
may transfer all or a portion of its membership interest only upon receiving
approval of two-thirds of the existing members, except that, without the prior
approval of the other members, a member may transfer all or a part of its
membership interest to an affiliate of such member or to any other member. A
two-thirds vote of the members is also required for the election of officers of
the Company. The members have equal voting rights, regardless of their
percentage interests in the Company.
The Operating Agreement provides that, so long as any member is a
registered holding company or subsidiary company thereof, any voting rights in
the Company received or otherwise obtained by such member equal to or exceeding
10% of the total outstanding voting
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rights in the Company shall be automatically (and without any requirement for
consent on the part of the affected member) allocated to the other members in
equal portions such that no registered holding company member will hold 10% or
more of voting rights in the Company. In addition, any member may elect to limit
its voting rights to less than 5% of the total voting rights in the Company, in
which case the voting rights of such member or members equal to or exceeding 5%
of the total voting rights in the Company would be automatically allocated in
equal portions to the other members.
The Operating Agreement further provides that each member (or its
designee(s) or transferee(s)) shall be entitled to claim a pro rata share of all
carbon that is determined to be sequestered by the Company's efforts to which
legal rights, if any, have been obtained ("Carbon Reductions") based on the
member's percentage interest in the Company. A member may generally utilize its
share of any Carbon Reductions in connection with its participation in any
greenhouse gas reporting or regulatory programs or transfer or assign such
Carbon Reductions to one or more other persons.
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses incurred or to be incurred in
connection with the preparation and filing of this Application/Declaration are
estimated not to exceed $2,000.
Item 3. Applicable Statutory Provisions.
A. General.
Sections 9(a)(1) and 10 of the Act are applicable to the proposed
acquisition of a membership interest in the Company, as well as to the
acquisition of the securities of any new subsidiary formed exclusively for the
purpose of acquiring and holding the membership interest. The subsequent sale of
all or a portion of the membership interest in the Company acquired by the
Applicant to any associate company thereof is subject to Section 12(f) of the
Act, but may be exempt under Rule 43.
B. Standards of Sections 9(a) and 10.
The transaction proposed herein involves an acquisition of securities,
as well as an acquisition of an interest in an other (i.e., non-utility)
business, and is therefore subject to the approval of this Commission under
Section 10. The relevant standards for approval under Section 10 are set forth
in subsections (b), (c) and (f). As applied to interests in non-utility
businesses, Section 10(c)(1) of the Act provides that the Commission shall not
approve an acquisition that is "detrimental to the carrying out of the
provisions of section 11." Section 11(b)(1), in turn, directs the Commission to
limit the operations of a holding company system to a single integrated
public-utility system and such non-utility businesses as are "reasonably
incidental, or economically necessary or appropriate to the operations" of its
integrated system or systems. The Commission and the courts have interpreted
these provisions as expressing a
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Congressional policy against non-utility activities that bear no operating or
functional relationship to the utility operations of the registered system./3/
The Commission has previously authorized new registered holding
companies to retain, under the standards of Section 11(b)(1), interests in
ventures formed to invest in start-up companies that offer products or services
that will generate greenhouse gas emission reductions for submission to the DOE
as "Climate Challenge" credits pursuant to Title XVI of the Energy Policy Act of
1992./4/ Further, under Rule 58(b)(1)(ii), a registered holding company may,
without the need for prior approval by the Commission (subject to certain
investment limitations), acquire the securities of companies that engage in the
"development and commercialization of electrotechnologies related to energy
conservation, storage and conversion, energy efficiency, waste treatment,
greenhouse gas reduction, and similar innovations." (Emphasis supplied)
The Applicant's proposed investment in the Company is intended to
contribute positively to the national goal of reducing greenhouse gases through
voluntary industry specific efforts. The forestation projects that the Company
will fund have received strong backing from the DOE, EPA, Department of
Agriculture and Department of Interior. Moreover, the proposed investment in the
Company will provide the Applicant with a means to obtain carbon or CO\2\
reduction credits, if and when such credits become available.
C. Compliance with Rule 54. The proposed transaction is also
subject to Rule 54. Rule 54 provides that, in determining whether to approve the
issue or sale of any securities for purposes other than the acquisition of any
"exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO") or
other transactions unrelated to EWGs or FUCOs, the Commission shall not consider
the effect of the capitalization or earnings of subsidiaries of a registered
holding company that are EWGs or FUCOs if the requirements of Rule 53(a), (b)
and (c) are satisfied. Under Rule 53(a), the Commission shall not make certain
specified findings under Sections 7 and 12 in connection with a proposal by a
holding company to issue securities for the purpose of acquiring the securities
of or other interest in an EWG, or to guarantee the securities of an EWG, if
each of the conditions in paragraphs (a)(1) through (a)(4) thereof are met,
provided that none of the conditions specified in paragraphs (b)(1) through
(b)(3) of Rule 53 exists.
Exelon currently does not meet all of the conditions of Rule 53(a). As of
March 31, 2003, Exelon's "aggregate investment," as defined in Rule 53(a)(1), in
EWGs and FUCOs was approximately $2,157 million which is in excess of the 50% of
Exelon's average consolidated retained earnings of $1,887 million at March 31,
2003 which is the "safe harbor" limitation contained in Rule 53(a). Exelon's
retained earnings were $322 million at December 31, 2000, and Exelon's average
consolidated retained earnings were $661 million at December 31, 2001 and $1,591
million
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/3/ See Michigan Consolidated Gas Co., 44 S.E.C. 361, 363-365 (1970), aff'd 444
F.2d 913 (D.C.Cir.1971).
/4/ See Exelon Corp., Holding Co. Act Release No. 27256 (Oct. 19, 2000); and
CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov. 27, 2000).
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at December 31, 2002. However, under the Financing Order/5/ 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 Financing Order.
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 Financing Order, there has been no material adverse
impact on Exelon's consolidated capitalization resulting from Exelon's
investments in EWGs and FUCOs.
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Capitalization 12/31/2000 12/31/2001 12/31/2002 3/31/2003
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Equity 31.3% 34.7% 32.1% 32.6%
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Preferred Securities 2.7% 2.6% 2.5% 2.5%
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Long-Term Debt (Including 60.1% 61.2% 60.3% 59.1%
current maturities)
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Short-Term Debt 5.9% 1.5% 5.0% 5.8%
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Total 100.0% 100.0% 100.0% 100.0%
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These ratios are within acceptable industry ranges. The proposed
transactions will not have any material impact on capitalization. In the
aggregate, Exelon's EWG and FUCO investments have been profitable for all annual
periods ending December 31, 2000 through December 31, 2002 and for the quarter
ended March 31, 2003. For information on EWG revenues and earnings, please see
Item 5A of Exelon's quarterly filed Rule 24 certificates. H. Exelon's
investments in Sithe Energies, Inc. ("Sithe") and AmerGen Energy Company, LLC
("AmerGen"), which were the major contributors of EWG net income, were accounted
for under the equity method of accounting. Pursuant to that method, the revenues
of Sithe and AmerGen are not consolidated with the revenues of Exelon. Thus,
since the date of the Financing Order, the capitalization and earnings
attributable to Exelon's investments in EWGs and FUCOs have not had an adverse
impact on Exelon's financial integrity.
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.
Exelon's authority to use the proceeds of financings for investments in EWGs and
FUCOs is contained in the Financing Order. Exelon represents that it will remain
in compliance with the requirements of rule 53(a), other than rule 53(a)(1), at
all times through March 31, 2004. As required by the Financing Order, Exelon
will file a post-effective amendment in File No. 70-9693 in the event that one
of the circumstances described in rule 53(b) should occur during the period
through March 31, 2004. If a rule 53(b) event should occur, the Financing Order
would cease to be effective to the extent that it authorizes Exelon to use the
proceeds of financings
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/5/ The Commission entered its order on November 2, 2000 (HCAR No. 35-27266;
70-9693) as supplemented on December 8, 2000 (HCAR No. 35-27296) (the "Financing
Order") approving certain financing transactions for Exelon and its
Subsidiaries.
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approved therein to make any further investments in EWGs and FUCOs in amounts in
excess of 50% of consolidated retained earnings without obtaining a supplemental
order.
Item 4. Regulatory Approval.
No state commission, and no federal commission, other than this
Commission, has jurisdiction over the proposed transaction.
Item 5. Procedure.
The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application/Declaration as soon as practicable.
The Applicant requests that the Commission's order be issued as soon as
practicable after the notice period and in any event not later than July 31,
2003 in order to accommodate the initial call of capital contributions by the
Company. The Applicant further requests that there should not be a 30-day
waiting period between issuance of the Commission's order and the date on which
the order is to become effective, hereby waives a recommended decision by a
hearing officer or any other responsible officer of the Commission, and consents
to the assistance of the Division of Investment Management in the preparation of
the Commission's decision and/or order, unless the Division of Investment
Management opposes the matters proposed herein.
Item 6. Exhibits and Financial Statements.
A. Exhibits.
A - Draft of Operating Agreement of PowerTree Carbon
Co. LLC
B - None
C - Inapplicable
D - None
E - Inapplicable
F-1 - Opinion of Counsel for the Applicant
F-2 Opinion of Morris, James, Hitchens & Williams LLP
G - Form of Federal Register Notice
B. Financial Statements.
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(Deemed unnecessary because of the de minimis nature of the
proposed transaction)
Item 7. Information as to Environmental Effects.
None of the matters that are the subject of this
Application/Declaration involves a "major federal action" nor do such matters
"significantly affect the quality of the human environment" as those terms are
used in section 102(2)(C) of the National Environmental Policy Act. The
transaction that is the subject of this Application/Declaration will not result
in changes in the operation of the Applicant that will have an impact on the
environment. The Applicant is not aware of any federal agency that has prepared
or is preparing an environmental impact statement with respect to the
transaction that is the subject of this Application/Declaration.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned company has duly caused this statement to be signed on
its behalf by the undersigned thereunto duly authorized.
Exelon Corporation
By: /s/ Randall Mehrberg
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Name: Randall Mehrberg
Title: Executive Vice President and General
Counsel
Date: June 20, 2003
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