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ScottishPower, PacifiCorp Merger Nears Finish

ScottishPower, PacifiCorp Merger Nears Finish

ScottishPower PLC and PacifiCorp announced they have brokered a settlement in principle with the staff of the Oregon Public Utility Commission (OPUC) that essentially clears the way for the first acquisition 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 end agreed to recommend conditional approval of the $7 billion stock-for-stock transaction. Oregon regulators are scheduled to hold hearings on the merger later this week, and issue their final decision within 60 days.

Oregon has been the lone state holdout to the merger. The other five western states served by PacifiCorp - California, Washington Utah, Idaho and Wyoming - all have either approved the proposed deal or have recommended it for approval by their respective commissions. At the federal level, the merger has passed muster at FERC and the Securities and Exchange Commission, but it still awaits clearance by the Nuclear Regulatory Commission. With respect to the latter, no holdup is foreseen since PacifiCorp owns only a minuscule interest in a nuclear asset.

Officials for both companies anticipate the merger transaction will be completed by the end of the year. PacifiCorp would operate as a wholly owned subsidiary of Glasgow, Scotland-based ScottishPower, the leading power utility in the United Kingdom. PacifiCorp serves about 1.4 million electric customers, of which about a third are in Oregon.

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

The credit would include Oregon's share of the merger-related cost savings ($3.4 million), which ScottishPower previously had committed to pass through to customers in the state. Also, PacifiCorp would be able to offset $9 million and $12 million of the credit in years three and four, respectively, through filing a rate case in which cost savings are demonstrated, the two companies said in a prepared statement.

The agreement further would give the Oregon PUC the option to require PacifiCorp to seek a rate reduction by March 1, 2004 in the event its earnings in the state are shown to be above a "reasonable range."

Elsewhere in the settlement, a merged ScottishPower-PacifiCorp utility has said it would pay Oregon customers a maximum of $50 in cases where it fails to investigate and quickly respond to complaints as outlined in the agreed-upon customer-service standards, noted Sherrard. Also it has agreed to seven performance standards under which it has promised to respond to 80% of customer calls within 20 seconds in the short term, she said. The required response time would be shortened to 10 seconds three months after the merger is completed.

Moreover, ScottishPower and PacifiCorp have committed to investing in 50 MWs of new renewable energy-generated power over the next five years. This would be in addition to PacifiCorp's existing renewable energy portfolio - which includes hydro, wind and other sources. "With this added commitment, the company will be generating 5% to 10% of the new renewable energy in the United States" within five years, Sherrard noted.

ScottishPower also has agreed to triple PacifiCorp's funding for low-income customers to $400,000 annually over a three-year period, as well as to invest $6 million annually in conservation measures over a three-year period and to make a one-time $5 million donation to the PacifiCorp Foundation for charitable activities. "We believe that the conditions, coupled with the customer service, environmental and community commitments we have made [in this settlement], represent significant benefit for customers in Oregon," said Alan Richardson of ScottishPower, who has been designated to become CEO of PacifiCorp when the merger is completed.

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