Holding Company Act Release 27469
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- 27469)
Filings Under the Public Utility Holding Company Act of 1935, as amended ("Act")
November 28, 2001
Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by December 24, 2001, to the Secretary, Securities and Exchange Commission, Washington, D.C. 20549-0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below. Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After December 24, 2001, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective.
KeySpan Corporation (70-9987)
KeySpan Corporation ("KeySpan"), a registered holding company, One MetroTech Center, Brooklyn, New York 11202, has filed an application-declaration under sections 6(a), 7, 9(a), 10 and 13(b) of the Act and rules 43, 45, 90 and 91 under the Act.
KeySpan requests authority to establish a subsidiary captive insurance company, ("Captive"), to engage in reinsuring certain levels of predictable risk for KeySpan and its associate companies. KeySpan requests authority to form and capitalize Captive. KeySpan will be the sole shareholder upon purchase of all shares of common stock for $100. The aggregate amount of the initial insurance premiums required by Captive is $36 million. Funding of the premiums to Captive will be as follows: the first $18 million will be paid in cash from the participating KeySpan system companies based on their allocated share and the remaining $18 million will be in the form of KeySpan common stock issued to Captive. All funds will be depositd with the Captive's bank in Vermont and will be invested in securities that are exempt by rule 40 under the Act.
Captive will provide three types of insurance coverage for KeySpan: automobile liability, workers' compensation and general liability insurance to affiliates. It will also provide, under an Owner's Controlled Insurance Program, general liability and worker's compensation insurance to its unaffiliated principal contractor for the duration of any projects involving KeySpan system companies. These projects will only involve gas main construction and maintenance for system companies.
Captive will be a direct, wholly owned subsidiary of KeySpan and will be authorized to operate as an insurance company in Vermont. Captive will assume the risk.
PECO Energy Company and PECO Energy Transition Trust (70-10003)
PECO Energy Company ("PECO"), a utility subsidiary of Exelon Corporation ("Exelon"), 10 South Dearborn Street, 37th Floor, Chicago, Illinois 60603, a registered holding company, and PECO Energy Transition Trust ("PETT"), a special purpose subsidiary of Exelon (collectively, "Declarants"), have filed a declaration under section 13(b) of the Act and rules 87, 90, 91 and 54 under the Act.
In Commission orders dated November 2, 2000 (Holding Co. Act Release No. 27266), and December 8, 2000 (Holding Co. Act Release No. 27296) (collectively, the "Prior Orders"), the Commission approved PECO's refinancing of up to the full amount of outstanding transition bonds due March 1, 2004, and September 1, 2007, with refunding transition bonds having a final maturity not later than March 1, 2011.1 On March 1, 2001, PETT refinanced approximately $805 million of the prior transition bonds through the issuance of Series 2001-A Transition Bonds.2
In Amendment No. 5 to the Form U-1 in File No. 70-9693, Exelon sought approval under section 13(b) of the Act for PECO to provide certain servicing functions to PETT at a price not restricted to cost. Exelon states that it will withdraw that request from File No. 70-9693 and instead Declarants are making the same request in the Form U-1 filed in the current matter.
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 non-bypassable transition charges through the issuance of "transition bonds." This right is known as "Intangible Transition Property."
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 PETT as an independent special purpose entity. PETT is a statutory business trust formed on June 23, 1998, under a trust agreement between PECO, as grantor, First Union Trust Company, N.A., as issuer trustee, and two beneficiary trustees appointed by PECO. PETT was organized for the special purpose of purchasing from PECO the Intangible Transition Property, issuing transition bonds, pledging its interest in the Intangible Transition Property 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 Intangible Transition Property used to pay the bonds, i.e., "Intangible Transition Charges" 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"), under which PECO, as servicer, manages and administers the ITP sold to PETT and collects the Intangible Transition Charges on behalf of PETT.3
To help ensure the necessary legal separation for purposes of isolating PETT from PECO for bankruptcy purposes, the rating agencies desire that 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 at market pricing and will continue to do so while any transition bonds remain outstanding. PECO and PETT seek approval under section 13(b) of the Act and rules 87, 90 and to continues this practice during the period and transition bonds remain outstanding and the Servicing Agreement remains in place.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
1 As of June 30, 2000, there was $1.132 billion outstanding in these transition bonds outstanding.
2 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.
3 The Servicing Agreement is incorporated by reference to Exhibits 10.3 and 10.4 to PETT's Form S-3 Registration Statement in File No. 333-51740.