As filed with the Securities and Exchange Commission on September 22, 2003
File No. 70-10139
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1/A
AMENDMENT NO. 1
TO
APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Exelon Corporation
10 South Dearborn Street, 37th Floor
Chicago, IL 60603
(Name of company or companies filing this statement and address of principal
executive offices)
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None
(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, 37th 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 10 South Dearborn Street, 35th Floor
77 West Wacker, Suite 3500 Chicago, Illinois 60603
Chicago, IL 60601 312-394-3604
312-782-3939
The Application-Declaration filed in this proceeding on June 20, 2003 is
hereby amended and restated in its entirety to read as follows:
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 (CO2) 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 CO2 from the atmosphere and store it in tree biomass and
roots and soil. The Bush
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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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Administration is considering, as part of its Global Climate Change program, the
creation of transferable emission reduction credits for measures which reduce
greenhouse gas emissions.
The Company has obtained commitments totaling $3,275,000 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 CO2 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 CO2 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 CO2 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.
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:
Arizona Public Service Company (a subsidiary of Pinnacle West Capital
Corporation), The Detroit Edison Company, Diversified Lands LLC (a subsidiary of
CLECO Corporation), Duke Energy Corporation, Oglethorpe Power Corporation,
Oklahoma Gas & Electric Company (a subsidiary of OGE Energy Corp.), Peabody
PowerTree Investments, LLC (a subsidiary of Peabody Energy Corporation), Public
Service Electric and Gas Company, PNM Resources, Inc. (the parent of Public
Service Company of New Mexico), Reliant Resources, Inc.,
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Tennessee Valley Authority, TXU Generation Company LP (a subsidiary of 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:
------------------------ ------------------------ ------------------------
Name of Registered Total Capital Percentage Interest in
Holding Company Contribution Company
Commitment
------------------------ ------------------------ ------------------------
Ameren Corp. $100,000 3.05%
------------------------ ------------------------ ------------------------
American Electric Power $300,000 9.16%
------------------------ ------------------------ ------------------------
Cinergy Corp. $100,000 3.05%
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Dominion Resources $100,000 3.05%
------------------------ ------------------------ ------------------------
Entergy Corp. $100,000 3.05%
------------------------ ------------------------ ------------------------
Exelon Corp. $100,000 3.05%
------------------------ ------------------------ ------------------------
FirstEnergy Corp. $100,000 3.05%
------------------------ ------------------------ ------------------------
Great Plains Energy $ 50,000 1.53%
------------------------ ------------------------ ------------------------
PEPCO Holdings $ 50,000 1.53%
------------------------ ------------------------ ------------------------
Progress Energy $100,000 3.05%
------------------------ ------------------------ ------------------------
Xcel Energy $100,000 3.05%
------------------------ ------------------------ ------------------------
Total $1,200,000 36.64%
------------------------ ------------------------ ------------------------
In the aggregate, the capital contribution commitments of the eleven
registered holding companies represent approximately 36.6% 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
"Operating Agreement"), 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
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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 (as shown in the table above).
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 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.
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
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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 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 CO2
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 June 30, 2003, Exelon's "aggregate investment," as defined in Rule 53(a)(1),
in EWGs and FUCOs was
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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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approximately $2,806 million which is in excess of the 50% of Exelon's average
consolidated retained earnings of $2,150 million at June 30, 2003 which is the
"safe harbor" limitation contained in Rule 53(a). Exelon's retained earnings
were $324 million at December 31, 2000, and Exelon's average consolidated
retained earnings were $872 million at December 31, 2001 and $1,591 million 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. See table immediately below.
------------------- -------------- -------------- -------------- -------------
Capitalization 12/31/2000 12/31/2001 12/31/2002 6/30/2003
------------------- -------------- -------------- -------------- -------------
Equity 31.3% 34.7% 32.1% 33.7%
------------------- -------------- -------------- -------------- -------------
Preferred 2.7% 2.6% 2.5% 2.5%
Securities
------------------- -------------- -------------- -------------- -------------
Long-Term Debt 60.1% 61.2% 60.3% 59.9%
(Including current
maturities)
------------------- -------------- -------------- -------------- -------------
Short-Term Debt 5.9% 1.5% 5.0% 3.9%
------------------- -------------- -------------- -------------- -------------
Total 100.0% 100.0% 100.0% 100.0%
------------------- -------------- -------------- -------------- -------------
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 two
quarters ended June 30, 2003. For information on EWG earnings, please see item
5a of Exelon's quarterly filed Rule 24 certificates. 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.
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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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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 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 has published a notice under Rule 23 with respect to
the filing of this Application/Declaration (Holding Co. Act Release No. 27699)
and no hearing has been requested. The Applicant requests that the Commission
issue an order approving the proposed transaction as soon as practicable. 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.
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A - Draft of Operating Agreement of PowerTree Carbon Co. LLC
(Previously filed)
B - None
C - Inapplicable
D - None
E - Inapplicable
F-1 - Opinion of Counsel for the Applicant (Previously filed)
F-2 Opinion of Morris, James, Hitchens & Williams LLP
(Previously filed)
G - Form of Federal Register Notice (Previously filed)
B. Financial Statements.
(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 amended 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: September 22, 2003
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