ScottishPower PLC and PacifiCorp announced they have brokered asettlement in principle with the staff of the Oregon Public UtilityCommission (OPUC) that essentially clears the way for the firstacquisition by a foreign company of a U.S. power utility.

The settlement, which was reached last Friday, ends months of”open and frank” negotiations between ScottishPower,Portland,OR-based PacifiCorp and PUC staff members, who in the endagreed to recommend conditional approval of the $7 billionstock-for-stock transaction. Oregon regulators are scheduled tohold hearings on the merger later this week, and issue their finaldecision within 60 days.

Oregon has been the lone state holdout to the merger. The otherfive western states served by PacifiCorp – California, WashingtonUtah, Idaho and Wyoming – all have either approved the proposeddeal or have recommended it for approval by their respectivecommissions. At the federal level, the merger has passed muster atFERC and the Securities and Exchange Commission, but it stillawaits clearance by the Nuclear Regulatory Commission. With respectto the latter, no holdup is foreseen since PacifiCorp owns only aminuscule interest in a nuclear asset.

Officials for both companies anticipate the merger transactionwill be completed by the end of the year. PacifiCorp would operateas a wholly owned subsidiary of Glasgow, Scotland-basedScottishPower, the leading power utility in the United Kingdom.PacifiCorp serves about 1.4 million electric customers, of whichabout a third are in Oregon.

Under the settlement, the merged company has agreed to payOregon customers a credit of $12 million annually for three yearsand $15 million in the fourth year, beginning one year followingthe completion of the transaction. This would equate to a 1.7%reduction in individual customer bills over the four-year length ofthe credit, estimated Rachel Sherrard, a spokeswoman forScottishPower in the U.S.

The credit would include Oregon’s share of the merger-relatedcost savings ($3.4 million), which ScottishPower previously hadcommitted to pass through to customers in the state. Also,PacifiCorp would be able to offset $9 million and $12 million ofthe credit in years three and four, respectively, through filing arate case in which cost savings are demonstrated, the two companiessaid in a prepared statement.

The agreement further would give the Oregon PUC the option torequire PacifiCorp to seek a rate reduction by March 1, 2004 in theevent its earnings in the state are shown to be above a “reasonablerange.”

Elsewhere in the settlement, a merged ScottishPower-PacifiCorputility has said it would pay Oregon customers a maximum of $50 incases where it fails to investigate and quickly respond tocomplaints as outlined in the agreed-upon customer-servicestandards, noted Sherrard. Also it has agreed to seven performancestandards under which it has promised to respond to 80% of customercalls within 20 seconds in the short term, she said. The requiredresponse time would be shortened to 10 seconds three months afterthe merger is completed.

Moreover, ScottishPower and PacifiCorp have committed toinvesting in 50 MWs of new renewable energy-generated power overthe next five years. This would be in addition to PacifiCorp’sexisting renewable energy portfolio – which includes hydro, windand other sources. “With this added commitment, the company will begenerating 5% to 10% of the new renewable energy in the UnitedStates” within five years, Sherrard noted.

ScottishPower also has agreed to triple PacifiCorp’s funding forlow-income customers to $400,000 annually over a three-year period,as well as to invest $6 million annually in conservation measuresover a three-year period and to make a one-time $5 million donationto the PacifiCorp Foundation for charitable activities. “We believethat the conditions, coupled with the customer service,environmental and community commitments we have made [in thissettlement], represent significant benefit for customers inOregon,” said Alan Richardson of ScottishPower, who has beendesignated to become CEO of PacifiCorp when the merger iscompleted.

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