Merger U-1 (Service Company Matters)
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As filed with the Securities and Exchange Commission on October 1, 2001
File No. 1.070-09645
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
AMENDMENT NO. 5
(Second Post-Effective)
TO
FORM U-1 APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
_________________________________
Exelon Corporation
(and Subsidiaries Listed on Signature Page Hereto)
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
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Table of Contents
Page
Item 1. Description of Proposed Transaction........................ 1
A. Summary of Request...................................... 1
B. Retention of Investments................................ 2
1. Eastern Pennsylvania Development Company ("EPDC")
and subsidiaries..................................... 2
2. Thermal Companies Operating in Canada................ 3
3. Apeco Corporation.................................... 3
4. Utility Competitive Advantage Funds.................. 4
C. Approval of Exelon Services............................. 6
D. Inter-Company Services At Cost.......................... 9
1. Currently Approved Services.......................... 9
2. proposed Additional Services......................... 9
3. Services Provided At Cost; Accounting................ 11
4. Reporting and Modifications.......................... 12
Item 2. Fees, Commissions and Expenses............................. 12
Item 3. Applicable Statutory Provisions............................ 13
Item 4. Regulatory Approvals....................................... 13
Item 5. Procedure.................................................. 13
Item 6. Exhibits and Financial Statements.......................... 13
A. Exhibits................................................ 13
B. Financial Statements - not applicable.................. 13
Item 7. Information as to Environmental Effects.................... 14
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Exelon Corporation ("Exelon") filed an Application-Declaration on Form U-1
(File No. 70-09645) on March 16, 2000 (as amended, the "Merger U-1") under the
Public Utility Holding Company Act of 1935, as amended (the "Act" or "PUHCA")
with the Securities and Exchange Commission (the "Commission") seeking approvals
relating to the acquisition by Exelon of the common stock of Commonwealth Edison
Company ("ComEd"), an electric utility company, and formerly a subsidiary of
Unicom Corporation ("Unicom"); of PECO Energy Company ("PECO"), an electric and
gas utility company; of Exelon Generation Company, LLC ("Genco"), to which the
generating assets of ComEd and PECO were transferred, each of which is an
electric utility company; and, indirectly of the public utility subsidiaries of
ComEd and PECO. The Merger (as defined in the Merger U-1) was completed October
20, 2000, subsequent to the Commission issuing its order approving the Merger on
October 19, 2000 (Holding Co. Act Release No. 35-27256, as modified in Holding
Co. Act Release No. 35-27259, October 20, 2000) (the "Merger Order"). Exelon
filed its notice of intent to register as a holding company under the Act on
October 20, 2000.
On April 2, 2001, Exelon filed a Post-Effective Amendment to the Merger U-1
(together with any further amendments or supplements thereto, the "Market Price
Amendment") seeking approval of the Commission for a modification to the Merger
Order to allow Exelon Infrastructure Services ("EIS") and Exelon Services Inc.
(formerly Unicom Mechanical Services Inc., "ES") to continue to provide services
and goods to Exelon's utility subsidiaries at market prices, determined without
regard to cost, after December 31, 2001 (the expiration date for a temporary
approval to provide services and goods at market contained in the Merger Order).
This Post-Effective Amendment addresses subjects other than those covered in the
Market Price Amendment and is not intended to supercede, amend or replace the
Market Price Amendment and Exelon continues to seek the relief described in the
Market Price Amendment.
Item 1. Description of Proposed Transaction.
In the Merger Order the Commission reserved jurisdiction over several
matters pending completion of the record. Exelon is filing this amendment to
provide additional information on all outstanding matters, other than those
described in the Market Price Amendment, as set out herein.
A. Summary of Request
Exelon hereby requests the following:
1. That the Commission release jurisdiction over Exelon's
request to retain the investments identified in (a)
through (d) below. Except for the following four
categories of investment, all other investments of
Exelon were approved for retention in the Merger Order.
(a) Eastern Pennsylvania Development Company and
subsidiaries.
(b) Thermal companies operating in Canada (Northwind
Thermal Technologies Inc., Unicom
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Thermal Technologies Inc., Edison Financial
Partnership and Edison Development Canada Inc.).
(c) Apeco Corporation.
(d) Utility Competitive Advantage Funds.
2. That the Commission release jurisdiction over Exelon
Business Service Company ("Exelon Services") and
approve:
(a) the General Services Agreement pursuant to which
Exelon Services will provide services to associate
companies in the Exelon system;
(b) the Exelon Business Service Company Associate
Transaction Procedures Manual dated October 1,
2001 (the "Procedures Manual");
(c) Exelon Services' accounting methods and systems
and cost allocation methodologies and procedures
so as to determine that Exelon Services is "so
organized and conducted, or to be so conducted, as
to meet the requirements of Section 13(b) of the
Act with respect to reasonable assurance of
efficient and economical performance, at cost
fairly and equitably allocated among them (or as
permitted by [Rule] 90)" pursuant to Rule 88.
3. That the Commission approve under Rule 87 the other
inter-company services which certain Exelon
subsidiaries will provide to associate companies as
more specifically described below.
B. Retention of Investments
In the Merger Order the Commission reserved jurisdiction over four classes
of investment. As explained in detail in this section, Exelon has disposed of
several of such investments and is seeking to retain all of the remaining
investments for the reasons set out herein.
1. Eastern Pennsylvania Development Company ("EPDC") and subsidiaries
At the time of the Merger, EPDC held (1) Exelon Fossil Holdings, an EWG,
(2) the Exelon Peakers and ExTex companies, also EWGs and (3) Adwin Realty
Company and its partnership interests (mainly real estate investments). In
restructuring approved as part of the Merger Order, EPDC was dissolved, Exelon
Fossil Holdings, Exelon Peakers and ExTex companies were transferred to Genco
and Adwin Realty Company remained a subsidiary of
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PECO. PECO is in the process of disposing of the real estate investments of
Adwin and Adwin will be dissolved and/or its assets disposed of prior to October
20, 2003 as required by the Merger Order.
In summary, all investments in this category are permitted EWGs, or have
been disposed of or will be disposed of prior to October 20, 2003.
2. Thermal Companies Operating in Canada
Exelon provides thermal services in Canada through Northwind Thermal
Technologies Canada, Inc., Unicom Thermal Technologies Inc., Edison Finance
Partnership, and Edison Development Canada Inc. ("Canadian Thermal Companies").
In the Merger Order, the Commission reserved jurisdiction over the retention by
Exelon of the Canadian Thermal Companies because of their operations outside the
United States. But for this non-U.S. activity, each of the Canadian Thermal
Companies would qualify as a Rule 58 investment. The thermal businesses of
Exelon which operate in the United States were approved for retention in the
Merger Order./1/
Exelon has made a request in its U-1 Application/Declaration in Docket 70-
9691 ("Investment U-1") to be allowed to make investments in energy related
companies engaged in thermal services in Canada and Mexico. In the Investment
U-1 Exelon requests the Commission to release jurisdiction over the retention of
its existing Canadian thermal businesses. In addition to the energy management,
consulting and energy marketing activities noted in the Investment U-1 which the
Commission has allowed in Canada, it has also allowed development, exploration
and production of natural gas and oil in Canada./2/ Exelon submits that the
risks associated with the thermal activities which it conducts in Canada are not
greater than the risks associated with oil and gas exploration and development
or energy marketing and trading. Further, like the energy management, energy
consulting and new technology development, Thermal Services are closely related
to Exelon's core activities. Thermal Activities include construction and
operation of facilities that are very similar to electric generation and
distribution or gas distribution. For these reasons, and the further reasons
noted in the Investment U-1, Exelon believes that the Commission should approve
retention of the Canadian Thermal Companies and grant the relief requested in
the Investment U-1.
3. Apeco Corporation
Exelon has disposed of all of its interest in Apeco Corporation.
______________________
/1/ Rule 58(b)(1)(vi) and (vii). See Ameren Corp., Holding Co. Act Release No.
35-26809 (Dec. 30, 1997); WPL Holdings, Inc. Holding Co. Act Release No. 35-
26856 (April 14, 1998); See also Energy East Corp., Holding Company Act Release
No. 35-27224 (Aug. 31, 2000) (Commission authorized to provide district heating
and cooling services to a number of large buildings in Hartford, Connecticut);
General Public Utility Corp., 32 SEC 807, 840-841 (Dec. 28, 1951) ( Commission
authorized retention of steam heating systems); North American Co., 11 SEC 194
(April 14, 1942) (Commission authorized retention of steam heating operations
which provided steam heat to customers). In Cinergy Corp., Holding Co. Act
Release No. 35-26474 (Feb. 20, 1996), the Commission found a district heating
and cooling business which also provided steam to be functionally related to the
utility business.
/2/ See, NiSource, Inc., Holding Co. Act Release No. 35-27265 (Nov. 1, 2000).
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4. Utility Competitive Advantage Funds
Utility Competitive Advantage Funds (now known as Kinetic Ventures Funds,
but referred to collectively herein as "UCAF") are individual, but substantially
similar, venture capital investments in businesses engaged in communications,
the Internet, utility customer service opportunities and companies with products
or services to help utilities retain and build a customer base, improve core
operating efficiencies and generate new revenue sources. Exelon has the
following investments as of August 31, 2001:
Name of Fund Amount Invested % of Fund
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Kinetic Ventures I (formerly UCAF I) $16,278,436 22.2%
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Kinetic Ventures II (formerly UCAF II) 6,420,000 14.3%
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Total $22,698,436 NA
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The Commission has approved numerous passive, venture capital fund
investments similar to UCAF./3/ Accordingly, Exelon should be permitted to
retain these investments.
UCAF's close alignment with the deregulating utility industry and relevant
Commission precedent both support Exelon's retention of UCAF. The manager of
UCAF, Kinetic Ventures, focuses "on investments in segments critical to the
transition underway in the deregulating utility industry."/4/ In particular,
UCAF invests in three industry segments: communications
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/3/See Energy East Corp., Holding Co. Act Release No. 35-27224 (Aug. 31, 2000)
(authorizing investments in short-term money market instruments as passive);
GPU, Inc., Holding Co. Act Release No. 35-27139 (Feb. 18, 2000) (acquisition of
limited partnership interests in partnership investing in the broader energy
communications and other utility-like services industries); WPL Holdings,
Holding Co. Act Release No. 35-26856 (April 14, 1998) (passive and/or de minimis
investment); Ameren Corp., Holding Co. Act Release No. 35-26809 (Dec. 30, 1997)
(venture capital fund for minority business development); Appalachian Power Co.,
Holding Co. Act Release No. 35-25266 (March 6, 1991)(growth capital in new and
expanding small, rural firms to improve local economy); Northeast Utilities, 40
SEC Docket 412 (Feb. 24, 1988) (investment in locally focused venture capital
fund).
/4/See Kinetic Ventures web page at: http://www.kineticventures/about.html (last
visited September 19, 2001). As of September 19, 2001 UCAF's holdings included:
(1) APX, an internet-based exchange for the purchase and sale of electricity,
transmission and related products; (2) BroadRiver Communications, Inc. which
delivers in integrated communications platform for the development, provisioning
and management of quality of service enabled applications over a variety of
broadband access technologies; (3) Cerent Corporation, which develops fiber
optic equipment for metropolitan networks; (4) ClearSource, Inc., which offers
broadband communications in Tier II and Tier III communities; (5) Codeon
Corporation, which develops cutting-edge optical devices; (6) Corvis
Corporation, which develops optical switching technologies and products; (7) Eba
Systems, Inc., which develops mobile data solutions for multiple enterprise
databases; (8) Epoch Internet, Inc., which offers commercial internet services
on a global basis; (9) FoodBuy, a business to business e-commerce solution for
the food service industry; (10) FreeMe.com, which offers an internet-based
application platform to assist internet service providers in becoming
application service providers; (11) Grande Communications, Inc., offers
broadband communications services, including cable TV, phone and high-speed
internet access; (12) Homes.com, provides online services to real estate
brokers, home buyers and renters, mortgage brokers and relocation service
providers; (13) iTango
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(equipment, services and infrastructure); the internet (e-commerce, enterprise
systems and transaction networks); and customer service (outsourcing, customer
relationship management, customer self-service and other interactive
solutions)./5/ UCAF's investments in the communications and internet industry
segments are all capable of qualifying as exempt telecommunications companies
("ETC") under Section 34 of PUHCA./6/ Most of UCAF's investments in the customer
service segment are also capable of qualifying as ETCs. For instance, Centennial
Security Holdings, a past investment, provided alarm monitoring services; a
"customer service" which is an information service in which ETCs may permissibly
engage./7/
UCAF's customer service investments may alternatively qualify as "energy-
related" under Rule 58(b)(1)(vii) (authorizing the sale of technical,
operational, management, and other similar kinds of services and expertise
developed in the course of utility operations). Traditional utilities operate
both walk-in customer service centers and phone-based customer service support
operations. UCAF's investment in customer service operations that are critical
to the deregulation of the utility industry satisfies the requirements of Rule
58. Because Exelon would be able to retain each of the companies in which UCAF
have invested on an individual basis (as an ETC, Rule 58 energy-related company,
or other investment that does not require prior Commission approval), Exelon
should be permitted to retain UCAF.
______________________
Software, Inc., which produces internet enterprises software; (14) Nayna
Networks, Inc., which develops leading edge telecommunications equipment; (15)
NetCore Systems, Inc., which develops integrated communication switching
products; (16) Optical Capital Group. LLC, which develops optical networking
equipment, components and software through a network of partner companies; (17)
Pathfire, which develops video transport technologies; (18) Pathnet, Inc., which
builds fiber optic and wireless voice and data networks; (19) Peace Software
International, Ltd., which develops and installs a fully-integrated web-based
customer care and billing system for the deregulating utility industry; (20)
PlaceWare, a provider of web conferencing services and products that enable
businesses to conduct real-time interactive meetings and presentations over the
internet; (21) Proficient Systems, Inc.'s provides software to its customers
changing how to deploy sales labor and sales collateral information to drive
revenue of complex, consultative products and services both online and offline;
(22) Ramp Networks, Inc., which develops internet access technologies for the
small office/home office marketplace; (23) Seneca Networks, Inc., is developing
a new generation of optical infrastructure platforms that enable rapid broadband
service delivery; (24) Sitara Networks, Inc., which develops, markets and
supports products designed to improve the performance of applications delivered
over IP networks; (25) SmartSynch Ltd., a provider of end-to-end fixed wireless
solutions; (26) Utility.com, the world's first internet utility company; (27)
Vectrad Networks Corporation, a supplier of metropolitan fixed-wireless
broadband networks; (28) VerticalOne, Inc., which creates e-commerce software;
and (29) Zaffire, Inc., which is developing a next-generation optical services
networking system for service providers worldwide. See
http://kineticventures/portfolio.html.
/5/see http://kineticventures/focus.html.
/6/In fact, Exelon believes all of UCAF's present holdings (listed above) meet
the criteria for ETC status and are capable of qualifying as ETCs. However,
Exelon cannot warrant that UCAF's future investments will likewise meet the
criteria set forth in Section 34(a)(1) of PUHCA. Therefore Exelon is seeking
authorization to retain UCAF as a hybrid investment that includes ETCs, energy-
related companies and other permissible investments. Further, Exelon does not
control any of the UCAF funds and therefore cannot cause any of the fund's
investments to obtain ETC certification.
/7/See Notice of Proposed Rulemaking, In the Matter of Implementation of Section
255 of the Telecommunications Act of 1996; Access to Telecommunications
Services, Telecommunications Equipment, and Customer Premises Equipment by
Persons With Disabilities, 13 FCC Rcd 20391 at 20410-411, 1998 FCC LEXIS 1871 at
**39 (1998); Bell Operating Companies Joint Petition for Waiver of Computer II
Rules, Order, 10 FCC Rcd 13,758, at 13,770-774, App. A (Com. Car. Bur. 1995).
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Finally, other Commission precedent also supports Exelon's retention of
UCAF. The Commission has permitted registered holding companies to create or
retain "intermediate" companies that may, in turn, hold a combination of ETCs,
Rule 58 energy related companies and other permissible investments./8/ For
instance, in Energy East Corp., Holding Co. Act Release No. 35-27228 (September
12, 2000), the Commission authorized Energy East to create and own intermediate
companies that hold energy related companies, ETCs, foreign utility companies
and other authorized nonutility subsidiaries./9/ The SEC's Interstate Energy
order, Holding Co. Act Release No. 35-27069 (August 26, 1999), permitted
Interstate (now Alliant) to form intermediate subsidiaries that would, in turn,
acquire and hold one or more of the following types of entities: (a) exempt
wholesale generators, (b) energy related companies, (c) ETCs, and (d) other non-
exempt nonutility subsidiaries whose retention was authorized by the Commission.
Thus the SEC has permitted intermediate companies to hold a mix of investments
comparable to UCAF's mix of potential ETCs and Rule 58 energy related companies.
Exelon requests that the Commission treat its investment in UCAF as an
intermediate company and permit its retention based upon the precedent set forth
above. As explained above, the very purpose of Kinetic Ventures' UCAF is to
invest in businesses that are "critical to the transition underway in the
deregulating utility industry." So long as Kinetic Ventures keeps to its
investment focus, each of its investments should be capable of qualifying for an
exemption as an energy related company or ETC.
Exelon recognizes that its proposed retention of UCAF will effectively
permit it to indirectly invest in companies that could qualify as ETCs without
obtaining a determination of ETC status from the FCC. While Section 34 of PUHCA
specifically authorizes the acquisition of ETCs with the approval of the Federal
Communications Commission ("FCC"), the Commission may also exercise its
authority under Sections 9 and 10 of PUHCA to permit registered holding
companies to retain any investment that does not harm the interests that PUHCA
was designed to protect. Thus, the Commission may authorize the retention of
UCAF./10/
C. Approval of Exelon Services
__________________
/8/Exelon is seeking this approval in Docket 70-9691.
/9/The Commission has granted similar authority to other registered holding
companies. See e.g., New Century Energies Inc. et al., Holding Co. Act Release
No. 27218 (Aug. 22, 2000) and Ameren Corp., et al., Holding Co. Act Release No.
27053 (July 23, 1999).
/10/In this regard, it should also be noted that Section 34 of PUHCA permits
ETCs to indirectly engage in permissible activities. The FCC has authorized
indirect participation in permissible activities through ETC investment
companies which invest only in companies that meet the exclusivity requirement
set forth in Section 34(a)(1) of PUHCA. See, e.g., New England Investment
Corporation, NSD File No. ETC 00-29 (notice August 1, 2000); New England
Business Trust, NSD File No. ETC 00-30 (notice August 1, 2000); In the Matter of
Applications of Centerior Communications Holdings, Inc. for a determination of
ETC Status, File No. ETC-97-6 (July 2, 1997). The FCC does not directly regulate
or review investments by the ETC investment companies; instead the FCC relies on
Section 1.5006 of its regulations (47 C.F.R. (S) 1.5006) which requires ETCs to
inform the FCC of any "material change in facts" that might affect any ETC's
eligibility for ETC status. The FCC's mechanism is similar to SEC Rule 58, which
permits the acquisition of energy related companies without prior approval. Both
the SEC's and FCC's regulations rely (in part) on registered holding companies
to police their own investments.
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Since January 1, 2001, Exelon Services has acted as the service company
subsidiary for the Exelon system and provides, or may provide in the future,
Exelon, ComEd, PECO, Genco and other subsidiaries, including non-utility
subsidiaries, with one or more of the following services: administrative,
management and support services, including services relating to support of
electric and gas plant operations (i.e., energy supply management of the bulk
power and natural gas supply, procurement of fuels, coordination of electric and
natural gas distribution systems, maintenance, construction and engineering
work); customer bills, and related matters; materials management; facilities;
real estate; rights of way; human resources; finance; accounting; internal
auditing; information systems; corporate planning and research; public affairs;
corporate communications; legal; environmental matters; executive services and
other services listed on Schedule 2 to the General Services Agreement. Exelon
Services is capitalized as follows at June 30, 2001: common equity, negative
$7,733,362; long-term debt $0; short-term debt $30,000,000. Notwithstanding such
capitalization, Exelon Services will not include in any "cost of capital" charge
included in its costs any equity capital in excess of $10,000. To date, Exelon
Services has not included a cost of equity capital in its charges to associate
companies. Interest expense on debt attributable to service company operations
will be included in Exelon Services charges.
In accordance with the General Services Agreement, services provided by
Exelon Services will be directly assigned, distributed or allocated by activity,
project, program, work order or other appropriate basis. To accomplish this,
employees of Exelon Services will record their labor and expenses to bill the
appropriate subsidiary company. Costs of Exelon Services will be accumulated in
accounts of the service company and be directly assigned, distributed, or
allocated to the appropriate client company in accordance with the guidelines
set forth in the General Services Agreement and the procedures in the Procedures
Manual which is filed as an exhibit hereto. Exelon has an internal audit group
which, among other things, will audit the assignment of service company charges
to client companies. Exelon Services' accounting and cost allocation methods and
procedures are structured so as to comply with the Commission's standards for
service companies in registered holding company systems.
Exelon Services was staffed primarily by transferring existing personnel
from the employee rosters of Unicom (ComEd's former parent), PECO and their
subsidiaries. Exelon Services has its headquarters in Chicago and conducts
substantial operations in both Chicago and Philadelphia.
Exelon Services currently contains the following principal departments or
functions (which are subject to change as noted in the paragraph following this
table):
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Department/Function Approximate FTEs
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HR Services 115
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Supply Services 80
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Financial Services/11/ 61
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/11/Includes accounts payable and payroll.
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Business Services Group
Support Services/12/ 44
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Legal Services 104
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IT Services 434
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Corporate Center/13/ 160
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Total 998
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Exelon will continually review the manner in which services are provided
within the Exelon system and make changes from time to time to respond to
changing business and economic conditions, to improve efficiency and to respond
to changing requirements of its businesses. Exelon may reorganize Exelon
Services to meet the goals set out in the preceding sentence. Exelon Services
may institute additional services in the future or decide not to offer certain
services. Changes which result in a change in the broad nature of services
provided or in the allocation factors will be submitted to the Commission by
means of a 60-day letter.
As compensation for services, the General Services Agreement provides that
"Client Companies listed in Attachment A hereto, as revised from time to time,
shall pay to Service Company [i.e., Exelon Services] all costs which reasonably
can be identified and related to particular services provided by Service Company
for or on Client Company's behalf (except as may otherwise be permitted by the
SEC)."
Where more than one company is involved in or has received benefits from a
service performed, under the General Services Agreement such costs will be
fairly and equitably allocated using the ratios set forth in the General
Services Agreement. Thus, charges for all services provided by Exelon Services
to affiliated companies will be as determined under Rules 90 and 91 of the Act,
except for the requested exceptions discussed below. In the event that any
changes to the General Services Agreement or allocations are needed to more
accurately allocate costs to ComEd, PECO, Genco or other affiliates, Applicant
will propose such changes to the Commission through a 60-day letter as they
become known.
The General Services Agreement provides that no change in the organization
of Exelon Services, the type and character of the companies to be serviced, the
factors for allocating costs to associate companies, or in the broad categories
of services to be rendered subject to Section 13 of the Act, or any rule,
regulation or order thereunder, shall be made unless and until Exelon Services
shall first have given the Commission written notice of the proposed change not
less than 60 days prior to the proposed effectiveness of any such change. If,
upon the receipt of any such notice, the Commission shall notify Exelon Services
within the 60-day period that a question exists as to whether the proposed
change is consistent with the provisions of Section 13 of the Act, or of any
rule, regulation or order thereunder, then the proposed change shall not
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(continued...)
/12/"Business Services Group" is an administrative division within Exelon
Services that is responsible for service company administration and the "back
office" functions of Exelon Services.
/13/"Corporate Center" is an administrative division within Exelon Services
and includes senior management, governance and support functions.
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become effective unless and until Exelon Services shall have filed with the
Commission an appropriate declaration regarding such proposed change and the
Commission shall have permitted such declaration to become effective.
Exelon and Exelon Services each believes that the General Services
Agreement is structured so as to comply with Section 13 of the Act and the
Commission's rules and regulations thereunder and thereby requests that the
Commission grant approvals needed under that Section and Rule 88.
D. Inter-Company Services At Cost
1. Currently Approved Services
ComEd currently provides to or receives from affiliates certain services in
accordance with an Affiliated Interests Agreement ("AIA") approved by the
Illinois Commerce Commission ("ICC")./14/ PECO's form of Mutual Services
Agreement ("MSA") under which PECO provides and receives certain services from
affiliates has been approved by the Pennsylvania Public Utility Commission
("PaPUC"). The AIA and MSA were filed as Exhibits B-3.1 and B-3.2, respectively,
to the Merger U-1 and are thus a part of this record.
In the Merger Order the Commission gave approval for ComEd, PECO, Genco and
other subsidiaries of Exelon to provide certain services to associate companies,
at cost./15/ A listing of such services, the service provider and recipient,
approximate annual dollar volume and the controlling agreement was filed as
Exhibit B-3.3 to the Merger U-1. Under the Merger Order, Exelon must make a
semi-annual filing with the Commission reporting certain information regarding
these services.
2. Proposed Additional Services
Exelon requests that the approval granted in the Merger Order be expanded
to include certain additional services as noted in the following paragraphs.
These additional services will be provided at cost as defined in Rules 90 and
91.
As part of its review of corporate organization and procedures, Exelon
currently anticipates that it will consolidate certain utility administrative
functions at the operating utilities, ComEd and PECO, in addition to the
centralized services provided by Exelon Services. Exelon believes that these
functions, which relate to Exelon's Energy Delivery business unit (i.e., the
"pipes and wires business") are best concentrated in the operating utility
entities. As noted below, the proposed organization will result in significant
savings and economies.
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/14/The AIA will govern only those transactions not subject to SEC
jurisdiction. Transactions subject to SEC jurisdiction are conducted at cost
under Rules 90 and 91.
/15/The approval for these services at cost had no expiration date. Other
services were also approved to be provided at other than cost, but the Merger
Order provided that on and after January 1, 2002, all such inter-company
services would be at cost as defined in Rules 90 and 91. As noted above, Exelon
is seeking approval in the Market Price Amendment for EIS and ES to be able to
continue to provide certain services at market prices after that date. This
Post-Effective Amendment addresses only services provided at cost.
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In general, certain supervisory, strategic planning and efficiency and
coordination functions of each of these functional areas will be centralized at
one of the operating utilities (i.e., at either ComEd or PECO). Below this
level, in each of these functional areas there will be implementation staff
located at and devoted to the individual operating company. This organization
will keep the supervision and implementation of these important services close
to the internal "customers" and achieve the benefits of centralized planning and
supervision with the benefits of responsive service to individual customers.
Another benefit of this organizational structure is that it will provide an
efficient basis for expansion and an efficient means of integrating another
utility operating company into the Exelon system if a future business
combination transaction is undertaken. Given the dynamic nature of the energy
industry today, Exelon believes it is imperative that it be prepared for such
future transactions.
ComEd and PECO currently each have full departments engaged in
communications, finance, human resources and labor relations, information
technology, fleet management, real estate and facilities management, claims,
environmental services, safety and training and methods, marketing and customer
billing. Exelon expects to generally centralize the planning and supervisory
aspects in each of these functions while keeping separate the implementation
activities. Exelon is finalizing these plans and the numbers of employees and
other information will change from time to time during implementation and
thereafter as Exelon continues to refine its business practices to improve
efficiency. It is not yet known which of the two utilities, ComEd or PECO, will
be providing the shared services identified to the other. ComEd and PECO will
not be providing these services to any non-utility affiliate of Exelon.
The following table includes information regarding the approximate number
of centralized or "shared" employees and individual company employees for each
identified function. Subject to adjustment as plans develop, as shown in the
table, a total of 1,237 employees will be engaged in all of the identified
activities. Of this number, about 152 or 12% of the total will be employees who
will provide shared services. As more fully described in the following section,
the cost of shared services rendered by those employees will be allocated and
charged to each utility company based on appropriate allocation factors and, to
the extent those employees do work for one of the utilities, only that utility
will be charged for that direct cost.
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Individual Company Employees/17/
Shared --------------------------------------------------
Function Employees/16/ ComEd PECO
---------------------------------------------------------------------------------------------------------------------
Communications 18 10 7
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Finance/18/ 8 31 12
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HR/Labor Rel. 4 43 39
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Information Technology 19 253 135
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Fleet 13 172 76
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Real Estate/Facilities 10 50 29
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Claims 10 14 17
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Environmental 5 10 11
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Safety 5 14 8
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Training 20 42 30
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Marketing/19/ 35 49 18
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Customer billing/20/ 5 15/21/ 0
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3. Services Provided At Cost; Accounting
The approximate amount of annual total billings for shared services
resulting from the consolidation plan described herein is $14 million. Exelon
expects that the consolidation plan will result in aggregate annual costs
savings of about $68 million or about 13% of previous expenditures in these
areas. As is currently the case with the shared services which Exelon
subsidiaries have been engaged in since the Merger, as approved by the
Commission in the Merger Order, the new shared services between operating
companies will be provided at cost as defined in Rules 90 and 91. Each
department where shared services are provided will institute procedures to
capture costs. Costs associated with only one customer will be charged directly
to that customer. Common costs will be allocated based on established allocation
factors and billed to the receiving company. Section 10 of the General Services
Agreement provides that an Exelon subsidiary providing services to another
subsidiary may use the terms and conditions,
______________
/16/ Shared employees will be employed by one of the utilities - ComEd or PECO -
but will provide services to both utilities.
/17/ In most cases individual employees will only provide implementation
services to the company by which they are employed.
/18/ "Finance" includes certain strategic planning and chief financial officer
functions, but will not include any "treasury" functions such as external
financing.
/19/ For Marketing certain aspects of the marketing function for the utilities
including supervisory and implementation will be conducted through shared
services from one utility to the other.
/20/ For Customer Billing the entire function, supervisory and implementation,
will be centralized at one of the utilities which will do this work for
both companies.
/21/ These employees would also provide shared services.
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including cost allocation methods, provided in the General Services
Agreement to govern such inter-company transactions./22/
4. Reporting and Modifications
Exelon will continue to provide the information called for in the semi-
annual reports as provided in the Merger Order. The reporting will be expanded
to include information regarding the additional services described herein.
Exelon proposes that in lieu of the semi-annual reports, all the information
required by the Merger Order and as proposed herein be filed with the Commission
as an appendix or exhibit to Exelon Business Services Company's annual Form U-
13-60 filings. This approach will centralize reporting regarding service
matters and ease the burden on the Commission Staff. Exelon requests that the
Merger Order be modified to reflect this change. The appendix or exhibit to the
U-13-60, commencing with the report due in May 2002, will include the following
information:
. List of all service providers described above who provided
service in the period
. For each service provider:
. a list of companies receiving services
. a description of the types of services
provided
. the dollar amount the services provided by
category
. a description of the method of charging for
services, i.e., cost or, if permitted, other
than cost (and a citation to the authority for
providing the service at other than cost)
. reference to the agreement under which such
services were provided
. An income statement and balance sheet for each service
provider for and as of the most recently completed fiscal
year.
Exelon proposes to provide the Commission information regarding changes in
the functions in which shared services are provided through the 60-day letter
process. Changes which result in a material change in the nature of services
provided from one operating utility to the other or in the allocation factors
will be submitted to the Commission by means of a 60-day letter.
Item 2. Fees, Commissions and Expenses.
The incremental fees, commissions and expenses incurred or to be incurred
in connection with this Post-Effective Amendment are estimated to be not more
than $10,000.
___________________
/22/ This approach has been approved in a previous case. See Ameren
Corporation, Holding Co. Act Release No. 35-27053 (July 23, 1999).
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Item 3. Applicable Statutory Provisions
Applicants believe that the following sections of the Act and the
Commission's rules thereunder are or may be directly or indirectly applicable to
the approvals sought herein: Sections 9, 11, and 13 of the Act and Rules 88, 87
and 90 through 95. To the extent that other sections of the Act or the
Commission's rules are deemed to be applicable to the approvals sought herein,
such sections and rules should be considered to be set forth in this Item 3.
Item 4. Regulatory Approvals
The General Services Agreement has been approved by the ICC and the PaPUC.
No other State or local regulatory body or agency and no Federal commission or
agency, other than the Commission, has jurisdiction over the transactions
proposed herein.
Item 5. Procedure
To the extent determined to be necessary, the Commission is respectfully
requested to publish the requisite notice under Rule 23 with respect to the
filing of this Post-Effective Amendment to the Application-Declaration,
specifying a date by which comments must have been entered and a date on or
after that date, as the date when an order of the Commission granting and
permitting this Post-Effective Amendment to Application-Declaration to become
effective may be entered by the Commission.
It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the Merger.
The Commission Staff may assist in the preparation of the Commission's decision.
There should be no waiting period between the issuance of the Commission's order
and the date on which it is to become effective.
Item 6. Exhibits and Financial Statements
In addition to the exhibits heretofore filed in this docket, the following
exhibits are filed in connection with this Post-Effective Amendment:
A. Exhibits
Exhibit No. Description of Document Method of Filing
--------------------------------------------------------------------------------
B-2 Form of General Services Agreement Incorporated by reference to
(amended) Annex A to Exhibit B-2.1
--------------------------------------------------------------------------------
B-2.1 Exelon Business Service Company Filed herewith
Associate Transaction Procedures
Manual dated October 1, 2001
--------------------------------------------------------------------------------
B. Financial Statements - not applicable
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Item 7. Information as to Environmental Effects
The transactions described herein neither involve "major federal actions"
nor "significantly [affect] the quality of the human environment" as those terms
are used in Section (2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4332. The only Federal actions related to the transactions pertain to the
Commission's approval of this Application-Declaration. Consummation of the
transactions will not result in changes in the operations of Exelon that would
have any impact on the environment. No Federal agency is preparing an
environmental impact statement with respect to this matter.
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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: October 1, 2001
Exelon Corporation Exelon Business Services Company
Exelon Ventures Company, LLC
By /s/ Ruth Ann M. Gillis Exelon Enterprises Company, LLC
---------------------- Exelon Generation Company, LLC
Senior Vice President and Chief Financial Officer Exelon Energy Delivery Company, LLC
By Exelon Corporation
By /s/ Ruth Ann M. Gillis
----------------------
Senior Vice President and Chief Financial Officer
Commonwealth Edison Company PECO Energy Company
By /s/ Robert E. Berdelle By /s/ Thomas P. Hill
---------------------- ------------------
Vice President and Chief Financial Officer Vice President and Chief Financial Officer
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