[Federal Register: January 10, 2006 (Volume 71, Number 6)]
[Notices]
[Page 1569-1580]
[DOCID:fr10ja06-62]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-28079]

Filing Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')

December 30, 2005.
    Notice is hereby given that the following filing has 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-
declaration for complete statements of the proposed transactions
summarized below. The application-declaration and any amendments 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-declaration should submit their views in writing by January
23, 2006, to the Secretary, Securities and Exchange Commission,
Washington, DC 20549-0609, and serve a copy on Applicants at the
addresses 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 fact 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 this matter. After January 23, 2006, the
application-declaration, as filed or as amended, may be granted and/or
permitted to become effective.

Exelon Corporation et al. (70-10294)

    Exelon Corporation (``Exelon''), a registered holding company;
Exelon's public utility subsidiaries Commonwealth Edison (``ComEd'');
Exelon Generation Company, LLC (``Exelon Generation''), 300 Exelon Way,
Kennet Square, PA 19348; PECO Energy Company (``PECO'') 2301 Market
Street, Philadelphia, PA; Commonwealth Edison Company of Indiana, Inc.
(``Indiana Company''); Exelon's nonutility registered holding company
subsidiaries Exelon Energy Delivery Company, LLC (``Delivery'') and
Exelon Ventures Company, LLC (``Ventures''); and Exelon's nonutility
subsidiaries (``Nonutility Subsidiaries''), each located at 10 South
Dearborn Street, Chicago, Illinois 60603; Public Service Enterprise
Group Incorporated (``PSEG''), an exempt public utility holding
company, Public Service Electric and Gas Company (``PSE&G''), a public
utility company subsidiary of PSEG, and its nonutility subsidiaries,
each located at 80 Park Plaza, Newark, New Jersey 07102 (collectively
``Applicants'') have filed an application-declaration (``Application'')
with the Commission under sections 6(a), 7, 9(a), 10, 11, 12, 13(b),
32, 33 and 34 of the Act and rules 42, 43, 44, 45, 46, 53, and 54 under
the Act.\1\
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    \1\ The Applicants are Exelon and its Subsidiaries and PSEG and
its Subsidiaries and such other direct and indirect subsidiary
companies that Exelon may form or acquire in accordance with a
Commission order or otherwise in accordance with the Act or a rule
promulgated under the Act.
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I. Overview of the Merger

    On December 20, 2004, Exelon and PSEG, an electric and gas utility
holding company that claims exemption from registration pursuant to
Rule 2 under section 3(a)(1) of the Act, entered into an Agreement and
Plan of Merger (the ``Merger Agreement''). Under the terms of the
Merger Agreement, PSEG would merge into Exelon (the ``Merger''). Each
PSEG shareholder would be entitled to receive 1.225 shares of Exelon
common stock for each PSEG share held and cash in lieu of any fraction
of an Exelon share that a PSEG shareholder would have otherwise been
entitled to receive. Exelon common stock would be unaffected by the
Merger, with each issued and outstanding share remaining outstanding
following the Merger as a share in the surviving company. Upon
completion of the Merger, Exelon would change its name to Exelon
Electric & Gas Corporation.
    As the surviving company in the Merger, Exelon would remain the
ultimate corporate parent of PECO and ComEd and the other Exelon
subsidiaries and become the ultimate corporate parent of PSE&G and the
other PSEG subsidiaries.
    Exelon would continue to be a registered public utility holding
company under the Act until the six months after August 8, 2005, the
date of enactment of the Energy Policy Act of 2005, and ComEd, PECO and
PSE&G would continue to be public utility subsidiary companies. Exelon
would remain headquartered in Chicago but would also have energy
trading and nuclear headquarters in southeastern Pennsylvania and
generation headquarters in Newark, New Jersey. PSE&G would remain
headquartered in Newark. PECO would remain headquartered in
Philadelphia and ComEd would remain headquartered in Chicago.
    The Merger is subject to a number of conditions precedent,
including receipt by the parties of required state and federal
regulatory approvals and filing of pre-merger notification statements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (``HSR Act''), and the expiration or termination of the
statutory waiting period under that act. Applicants state that, the
boards of directors of Exelon and PSEG and the shareholders of PSEG
have approved the proposed Merger. Also, the shareholders of Exelon
have approved the issuance of shares of common stock by Exelon.
    In addition to the changes resulting from the Merger Agreement, the
Applicants intend to revise their

corporate structure (the ``Exelon Generation Restructuring'').
Applicants state that, although their plans are not yet completely
finalized, they currently propose to implement the following changes,
subject to approval, as required, by the Commission. After obtaining
necessary approvals and third party consents, PSEG Power LLC (``PSEG
Power'') and its direct subsidiaries PSEG Nuclear LLC (``PSEG
Nuclear''), PSEG Fossil LLC (``PSEG Fossil'') and PSEG Energy Resources
& Trade LLC (``PSEG ER&T'') would all cease to exist as separate
entities and would become part of Exelon Generation. The business
functions of each of these former PSEG entities would become a part of
the respective Exelon Generation business unit. The Applicants
anticipate retaining the subsidiaries owned by these PSEG entities as
direct subsidiaries of Exelon Generation.
    Also in connection with the Merger, PSE&G would become a direct
subsidiary of Delivery.\2\ The current subsidiaries of PSE&G would
remain intact. PSEG Holdings would become a subsidiary of Exelon, as
the successor to PSEG. The current subsidiaries of PSEG Holdings would
remain intact. PSEG Service Corporation (``PSEG Services'') would sell
all of its assets to Exelon Businesses Services Company (``Exelon
BSC''), change its name, and remain as a non-energy subsidiary. Exelon
BSC would be the sole ``service company'' of Exelon.
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    \2\ This would be accomplished through a contribution of the
common stock of PSE&G held by Exelon contemporaneously with the
Merger to Delivery or other appropriate corporate transaction.
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    Applicants' Mitigation Plan was approved by the Federal Energy
Regulatory Commission (``FERC'') in its ``Order Authorizing Merger
under section 203 of the Federal Power Act'' issued July 1, 2005
(``Merger Order'') based on, among other things, acceptance of a
proposal to divest, through the sale of plant or through the sale of
long-term firm energy rights, 6,600 MW of generation capacity
(``Mitigation Plan'') to mitigate any generation market concentration
concerns resulting from the Merger. The Mitigation Plan, according to
Applicants, calls for the divestiture by sale of 4000 MW of generation
capacity.\3\ The sale would occur within twelve (12) months following
close of the Merger. Applicants request Commission approval for the
disposition of this generating capacity because, as a result of the
Exelon Generation Restructuring, the subject generation capacity would
be owned by Exelon Generation, a public utility company under the Act.
The disposition of generation capacity owned by Exelon Generation, as
finally approved by FERC pursuant to post-Merger compliance filings
required to be made by Exelon under the FERC Merger Order (the ``Post-
Merger FERC Compliance Filings''), is referred to as the Generation
Divestiture.
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    \3\ As explained more fully below, on July 1, 2005, FERC
accepted a Mitigation Plan including the Generation Divestiture.
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    In connection with consummation of the Generation Divestiture,
subsequent to the Exelon Generation Restructuring, the Applicants state
they would make further revisions to their corporate structure (the
``Divestiture Generation Restructurings'') in respect of the particular
electric generating units, or interests, being sold. The Post-Merger
FERC Compliance Filings would address the particular facts of the
Divestiture Generating Restructurings. The Exelon Generation
Restructuring, the Divestiture Generation Restructuring and the
Generation Divestiture are collectively called the ``Generation
Transactions.''
    In addition to authorization of the Merger, the Exelon Generation
Restructuring, the Divestiture Generation Restructuring, and the
Generation Divestiture, Applicants request certain related approvals,
including:
    1. Authorizations related to service company and other affiliate
transactions;
    2. Issuance by Exelon of common stock in connection with the Merger
and employee and director compensation plans as described below;
    3. Authorization of the consolidation (or replacement in lieu of
consolidation) of existing indebtedness and obligations of PSEG and its
subsidiaries as obligations of Exelon or its subsidiaries as a result
of the Merger;
    4. Modifications to Exelon's existing omnibus financing authority
Holding Company Act Release No. 27830 (April 1, 2004) (the ``2004
Financing Order''); and
    5. Approval of a section 11(e) plan in respect of the Generation
Transactions and related approvals as necessary or appropriate in
respect of the tax treatment afforded by section 1081 of the Internal
Revenue Code.

II. Description of Exelon and Its Subsidiaries

A. Exelon

    Exelon was incorporated in Pennsylvania in February 1999. On
October 20, 2000, Exelon became the ultimate parent corporation for
PECO and ComEd, and registered pursuant to section 5 of the Act.
    Exelon, through its subsidiaries, operates in two business
segments--Delivery and Generation--as described below. In addition to
Exelon's two business segments, Exelon BSC, a subsidiary of Exelon,
provides Exelon and its subsidiaries with financial, human resources,
legal, information technology, supply management and corporate
governance services, as well as direction and management of shared
functions for Delivery.
    Delivery. Exelon's energy delivery business consists of the
purchase and sale of electricity and distribution and transmission
services by ComEd in northern Illinois and by PECO in southeastern
Pennsylvania and the purchase and sale of natural gas and distribution
services by PECO in the Pennsylvania counties surrounding the City of
Philadelphia.
    Generation. Exelon's generation business consists of electric
generating facilities and energy marketing operations of Exelon
Generation, a 49.5% interest in two power stations in Mexico, and the
competitive retail sales business of Exelon Energy Company.

B. The Exelon Utility Subsidiaries

    Exelon indirectly owns all of the issued and outstanding membership
interests of Exelon Generation, all the issued and outstanding common
stock of PECO and substantially all of the issued and outstanding
common stock of ComEd,\4\ and ComEd owns all the issued and outstanding
common stock of Commonwealth Edison Company of Indiana, Inc. (the
``Indiana Company'') (together, the ``Exelon Utility Subsidiaries'').
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    \4\ In connection with the conversion of warrants and
convertible preferred stock that were outstanding prior to the 2000
merger of Unicom Corporation with PECO Energy Corp., a small number
of shares of common stock of ComEd (about 0.1% of the total
outstanding) are not owned by Exelon but are held by third parties.
See Exelon Corporation, Holding Co. Act Release No. 27256, note 4
(Oct. 19, 2000) (the ``2000 Merger Order'').
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    PECO is engaged principally in the purchase, transmission,
distribution and sale of electricity to residential, commercial and
industrial customers in southeastern Pennsylvania and in the purchase,
distribution and sale of natural gas to residential, commercial and
industrial customers in the Pennsylvania counties surrounding the City
of Philadelphia. PECO is subject to regulation by the Pennsylvania
Public Utility Commission (``PAPUC'') as to electric and gas rates, the
issuances of certain securities and certain other aspects of PECO's
operations. PECO is

also subject to regulation by FERC as to transmission rates, gas
pipelines and certain other aspects of its business.
    PECO's retail service territory covers approximately 2,100 square
miles in southeastern Pennsylvania. PECO provides electric delivery
service in an area of approximately 2,000 square miles, with a
population of approximately 3.8 million, including 1.5 million in the
City of Philadelphia. Natural gas service is supplied in an
approximately 1,900 square mile area in southeastern Pennsylvania
adjacent to Philadelphia, with a population of approximately 2.3
million. PECO delivers electricity to approximately 1.5 million
customers and natural gas to approximately 460,000 customers.
    ComEd is engaged principally in the purchase, transmission,
distribution and sale of electricity to a diverse base of residential,
commercial, industrial and wholesale customers in northern Illinois.
ComEd is subject to regulation by the Illinois Commerce Commission
(``ICC'') as to rates, the issuance of certain securities, and certain
other aspects of ComEd's operations. ComEd is also subject to
regulation by the FERC as to transmission rates and certain other
aspects of its business.
    ComEd's retail service territory has an area of approximately
11,300 square miles and an estimated population of eight million. The
service territory includes the City of Chicago, an area of about 225
square miles with an estimated population of three million. ComEd has
approximately 3.7 million customers.
    Electric utility restructuring legislation was adopted in
Pennsylvania in December 1996 and in Illinois in December 1997. Both
Illinois and Pennsylvania permit competition by alternative generation
suppliers for retail generation supply while transmission and
distribution services remain fully regulated. Both states, through
their regulatory agencies, established a phased approach for allowing
customers to choose an alternative electric generation supplier,
required rate reductions and imposed caps on rates during a transition
period, and allowed the collection of competitive transition charges
from customers to recover costs that might not otherwise be recovered
in a competitive market.
    Effective as of January 1, 2001, Exelon effected a restructuring
that involved the transfer of the electric generating assets of ComEd
and PECO to Exelon Generation, a Pennsylvania limited liability company
and a public utility company engaged in the generation, sale and
purchase of electricity in Pennsylvania, Illinois and elsewhere and
also engaged in the trading of other energy and energy-related
commodities and development and ownership of exempt wholesale
generators (``EWGs'').
    PJM Interconnection, L.L.C. (``PJM'') is the independent system
operator and the FERC-approved Regional Transmission Organization
(``RTO'') for the Mid-Atlantic and a portion of the Midwest. PJM is the
transmission provider under, and the administrator of, the PJM Open
Access Transmission Tariff, operates the PJM Interchange Energy Market
and Capacity Credit Markets, and conducts the day-to-day operations of
the bulk power system of the PJM region. ComEd's and PECO's
transmission systems are currently under the control of PJM and, by
order dated October 28, 2004 (Holding Co. Act Release No. 27904) (the
``PJM Order''), the Commission found that the electric utility
properties of the Exelon system satisfy the interconnection requirement
of section 2(a)(29)(A) of the Act by reason of PJM's operational
control of the transmission assets of ComEd and PECO.\5\
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    \5\ In the 2000 Merger Order the Commission found that the
electric utility operations of Exelon constituted a single,
integrated electric utility system, and that the gas utility
operations of Exelon constituted a single, integrated gas utility
system that was a permissible ``additional'' system under the
standards of section 2(a)(11) of the Act.
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    Both ComEd and PECO are public utility companies. ComEd is also a
holding company exempt from registration pursuant to section 3(a)(1) of
the Act, by reason of its ownership of the Indiana Company. Delivery is
an intermediate registered holding company and a first-tier subsidiary
of Exelon. Delivery owns all of the issued and outstanding common stock
of PECO and substantially all of the issued and outstanding common
stock of ComEd.
    Exelon Generation is also an electric utility company. Exelon
Generation is a wholly owned subsidiary of Ventures, which is an
intermediate registered holding company and a first tier subsidiary of
Exelon. Ventures and Delivery are referred to as the ``Other Registered
Holding Companies.'' None of the Other Registered Holding Companies has
securities outstanding in the hands of the public.

C. Direct Non-Utility Subsidiaries of Exelon

    Exelon has direct wholly owned non-utility subsidiaries as follows:
    Exelon BSC, a service company, provides administrative, management
and technical services to Exelon and its associate companies;
    Exelon Investment Holdings, LLC, an Illinois limited liability
company, is a holding company for tax-advantaged housing transactions;
    UII, LLC, an Illinois limited liability company, is engaged in a
like-kind exchange transaction pursuant to which a portion of the
proceeds from the sale of ComEd's fossil generating stations was
invested in passive generating station leases with entities unrelated
to Exelon. The generating stations were leased back to such entities as
part of the transaction.\6\
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    \6\ Unicom Investment, Inc., an Illinois corporation, was
reorganized as an Illinois limited liability company, UII, LLC on
November 10, 2004.
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    Exelon has the following additional direct subsidiaries: Unicom
Assurance Company, Ltd., an inactive captive insurance company, Exelon
Capital Trust I, an inactive finance company, Exelon Capital Trust II,
an inactive finance company and Exelon Capital Trust III, an inactive
finance company.

D. Capitalization of Exelon

    The total authorized shares of capital stock of Exelon consist of
(i) 1,200,000,000 shares of common stock, no par value and (ii)
100,000,000 shares of preferred stock, no par value. At the close of
business on December 31, 2004, 664,187,996 shares of Exelon common
stock were outstanding, and no shares of Exelon preferred stock were
issued and outstanding. In addition, at that date (i) 2,499,865 shares
of common stock were held by Exelon in its treasury, (ii) 25,205,285
shares of common stock were reserved for issuance pursuant to
outstanding options to purchase common stock granted under Exelon's
Long-Term Incentive Plan, Exelon's Amended and Restated Long-Term
Incentive Plan, as amended, and Exelon's 1998 Stock Option Plan
(together with Exelon's Directors' Stock Unit Plan, the ``Exelon Stock
Incentive Plans''), (iii) 14,777,078 shares of common stock were
reserved for the grant of additional awards under the Exelon Stock
Incentive Plans, (iv) 7,000,000 shares of common stock were reserved
for issuance pursuant to the Dividend Reinvestment and Stock Purchase
Plan, (v) 624,495 shares of common stock were reserved for issuance
pursuant to outstanding performance shares, (vi) 216,000 shares of
common stock were reserved for issuance pursuant to outstanding units
under Exelon's Directors' Stock Unit Plan, (vii) 5,357,745 shares of
common stock were reserved for issuance under Exelon's Employee Stock
Purchase Plan, (viii) 1,060,053 shares of common stock were reserved
for issuance pursuant to

outstanding restricted shares (shares of common stock subject to
forfeiture) and (ix) 1,336,516 shares of common stock were reserved for
issuance pursuant to outstanding deferred shares (shares of common
stock the issuance of which has been deferred pursuant to Exelon's
Deferred Compensation Plan).
    As of December 31, 2004, Exelon's capitalization on a consolidated
basis was as follows: Common Equity (includes Retained Earnings)
40.79%; Minority Interest 0.18%; Preferred and Preference Stock 2.74%;
Securitization Obligations 20.76%; Long-Term Debt 31.56%; Current
Maturities of Long-Term Debt 1.85%; Total Long-Term Debt 33.41%; Short-
Term Debt 2.12%.

III. Description of PSEG and Its Subsidiaries

A. PSEG

    PSEG was incorporated under the laws of the State of New Jersey in
1985 and is a section 3(a)(1) exempt public utility holding company.
PSEG, through its subsidiaries, operates in three business segments--
Delivery, Generation and Enterprises, as described below. In addition
to PSEG's three business segments, PSEG Services, a subsidiary of PSEG,
provides PSEG and its subsidiaries with financial, human resources,
legal, information technology, supply management and corporate
governance services.
    Delivery--PSEG's domestic energy delivery business consists of the
transmission and distribution of electric energy and gas in New Jersey
through PSE&G.
    Generation--PSEG's generation businesses consist of the owned and
contracted for electric generation facilities and energy marketing
operations of the PSEG Power subsidiaries and the PSEG Global LLC
(``PSEG Global'') subsidiaries. PSEG Power has three principal direct
wholly owned subsidiaries: PSEG Nuclear, PSEG Fossil and PSEG ER&T. The
PSEG Power generation portfolio consists of approximately 14,607 MW of
generation in the Northeast and Midwest. PSEG Global has equity
ownership interests in approximately 2,404 MW of generation in North
America. All the generation assets in the PSEG system are held by PSEG
subsidiaries with EWG or foreign utility company (``FUCO'') status
under the Act or qualifying facility (``QF'') status under the Public
Utility Regulatory Policies Act of 1978, as amended (``PURPA'').
    Enterprises--PSEG's enterprise businesses consist primarily of (1)
investments in energy-related financial transactions, leveraged leases,
operating leases, leveraged buyout funds, marketable securities and a
demand-side management business and (2) investments in international
generation and delivery businesses qualified as EWGs and foreign
utility companies through PSEG Resources LLC (``PSEG Resources'') and
through PSEG Global.

B. The PSEG Utility Subsidiary

    PSE&G is a public utility company subsidiary of PSEG. PSE&G is an
electric and gas utility company engaged principally in the
transmission and distribution of electric energy and gas in New Jersey.
PSE&G is subject to extensive regulation by the New Jersey Board of
Public Utilities (``NJBPU'') as to electric and gas rates, the issuance
of securities and certain other aspects of PSE&G's operations. PSE&G is
also subject to regulation by the FERC as to electric transmission
rates and certain other aspects of its business.
    PSE&G's retail service territory covers a corridor of approximately
2,600 square miles running diagonally across New Jersey from Bergen
County in the northeast to an area below the city of Camden in the
southwest with a population of approximately 5.5 million. PSE&G
provides service to approximately 2.0 million electric customers and
approximately 1.6 million gas customers.
    PSE&G does not own or operate any electric generation facilities.
PSE&G, as a result of an order of the NJBPU issued under the provisions
of the New Jersey Electric Discount and Energy Competition Act
(``EDECA''), transferred all of its electric generation facilities,
plant, equipment and wholesale power trading contracts to its affiliate
PSEG ER&T in August 2000. Also, under an NJBPU order, PSE&G transferred
its gas supply business, including its inventories and supply
contracts, to PSEG ER&T in May 2002. PSE&G continues to own and operate
its electric transmission and electric and gas distribution business.
PSE&G has transferred functional control over its electric transmission
facilities to PJM.
    All electric and gas customers in New Jersey have the ability to
choose an electric energy and/or gas supplier. For those retail
electric customers located in New Jersey who do not choose a
competitive electric supplier, New Jersey's Electric Distribution
Companies (``EDCs''), including PSE&G, provide basic generation service
(``BGS'') or provider of last resort service (``POLR''). The EDCs
satisfy their BGS obligations through a competitive state-wide annual
auction. PSE&G's affiliate PSEG ER&T, has historically been a
successful participant in these auctions and serves several EDCs
including PSE&G.
    For those retail gas customers located in New Jersey who do not
choose a competitive natural gas supplier, New Jersey's gas
distribution companies, including PSE&G, provide basic gas supply
service (``BGSS'') or POLR. PSE&G has entered into a full requirements
contract through 2007 with PSEG ER&T to meet the supply requirements of
PSE&G's gas customers.\7\ PSEG ER&T charges PSE&G for the gas commodity
costs, which PSE&G recovers from its customers. Any difference between
rates charged by PSEG ER&T under the BGSS contract and rates charged to
PSE&G's customers are deferred and collected or refunded through future
adjustments in retail rates.
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    \7\ The BGSS contract continues year to year thereafter unless
terminated by either party consistent with its terms.
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    PSE&G's natural gas facilities consist entirely of local gas
distribution facilities in the State of New Jersey and neither PSE&G
nor any other PSEG company owns any interstate natural gas facilities
subject to the Natural Gas Act.

C. Direct Non-Utility Subsidiaries of PSEG

    PSEG has three direct wholly owned non-utility subsidiaries, PSEG
Power, PSEG Holdings and PSEG Services.
    PSEG Power has three principal direct wholly owned subsidiaries:
PSEG Nuclear, which owns and operates nuclear generating stations; PSEG
Fossil, which develops, owns and operates domestic fossil generating
stations and other non-nuclear generating stations; and PSEG ER&T,
which markets the capacity and production of PSEG Fossil's and PSEG
Nuclear's stations, manages the commodity price risks and market risks
related to generation and markets electricity, capacity, ancillary
services and natural gas products on a wholesale basis. PSEG Power also
provides specialized maintenance, repair and plant engineering services
on energy-related electro-mechanical equipment to its affiliates. PSEG
Nuclear and PSEG Fossil are both EWGs.
    PSEG ER&T conducts energy trading operations and does not own any
utility assets. PSEG ER&T is subject to regulation by FERC as to its
wholesale electric sales and certain other aspects of its business. As
explained below, it is contemplated that PSEG ER&T will be merged into
Exelon Generation.
    PSEG Holdings has two principal subsidiaries: PSEG Resources, which

invests primarily in energy-related, financial transactions, and PSEG
Global, which invests in international generation and delivery
businesses qualified as EWGs and FUCOs and domestic generation
qualified as EWGs and QFs.\8\
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    \8\ Neither PSEG Holdings nor any of its subsidiaries is a
public utility company for purposes of the 1935 Act. PSEG Holdings
and its subsidiaries are more fully described in Exhibit G-7
attached to the Application.
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    PSEG Resources has investments in energy-related financial
transactions and assets including leveraged leases, operating leases,
leveraged buyout funds, limited partnerships and marketable securities.
PSEG Resources also engages in demand side management services in New
Jersey through its subsidiaries.
    PSEG Global, through various subsidiaries qualified as FUCOs and
EWGs, has investments in electric generation, transmission and
distribution facilities in selected international markets and through
various subsidiaries qualified as EWGS and QFs, has investments in
electric generation in selected domestic markets. PSEG Global's
domestic generation assets are located in California, Pennsylvania,
Texas, New Hampshire and Hawaii.
    PSEG Services is a non-utility service company. As explained below,
it is contemplated that PSEG Services will sell all of its assets to
Exelon BSC, change its name, and remain as a subsidiary.
    As of December 31, 2004, PSEG's consolidated capitalization was as
follows: Common Equity (includes Retained Earnings) 29.03%; Preferred
and Preference Stock 6.48%; Securitization Obligations 10.55%; Long-
Term Debt 49.50%; Current Maturities of Long-Term Debt 1.21%; Total
Long-Term Debt 50.71%; Short-Term Debt 3.23%.

IV. Principal Terms of the Merger Agreement

A. Generally

    The Merger Agreement provides for a business combination whereby
PSEG will be merged with and into Exelon, with Exelon surviving. At the
effective time of and as a result of the Merger, (i) each outstanding
share of PSEG common stock will be converted into the right to receive
1.225 shares of Exelon common stock (the ``Exchange Ratio'') and (ii)
each share of Exelon common stock will remain outstanding. All
outstanding PSEG stock options will be converted into options to
purchase the number of shares of Exelon common stock determined by
multiplying (a) the number of shares of PSEG common stock subject to
such stock option immediately prior to the effective time by (b) the
Exchange Ratio, at an exercise price per share of Exelon common stock
equal to the exercise price per share of PSEG common stock under such
stock option immediately prior to the effective time divided by the
Exchange Ratio.
    Following the effective time of the Merger, the surviving
corporation, which will be renamed Exelon Electric & Gas Corporation,
will have an eighteen-member board of directors, which will include
twelve Exelon directors and six new members nominated by PSEG.
    Applicants state that Exelon and PSEG have made customary
representations, warranties and covenants in the Merger Agreement,
including, among others, covenants (i) by PSEG not to (a) solicit
proposals relating to alternative business combination transactions or
(b) subject to certain exceptions, enter into discussions concerning
alternative business combination transactions, (ii) by Exelon and PSEG
to cause shareholder meetings to be held to consider approval of the
Merger and related transactions, (iii) subject to PSEG's right to
terminate the Merger Agreement to accept a superior proposal (as
described in the Merger Agreement), for the board of directors of PSEG
to recommend adoption and approval by PSEG's shareholders of the Merger
Agreement and related transactions and (iv) for the board of directors
of Exelon to recommend approval by Exelon's shareholders of the
issuance of shares of Exelon contemplated by the Merger Agreement
subject to Exelon's board of directors' right to change its
recommendation as required by its fiduciary duties.
    Consummation of the Merger is subject to various conditions,
including the requisite approval by the shareholders of Exelon and
PSEG, respectively, no legal impediment to the Merger, the receipt of
required regulatory approvals, the absence of a material adverse effect
on Exelon, PSEG or, prospectively, the surviving corporation and the
absence of certain specified burdensome actions as a condition to the
regulatory approvals for the Merger. The Merger Agreement contains
certain termination rights for both Exelon and PSEG, and further
provides that, upon termination of the Merger Agreement, a termination
fee may be payable under specified circumstances including (i) if
Exelon enters into a definitive agreement to be acquired, it must pay
PSEG a termination fee of $400 million plus PSEG's transaction expenses
up to $40 million, (ii) if Exelon's board of directors changes its
recommendation, it must pay PSEG's transactions expenses up to $40
million and (iii) if PSEG's board of directors changes its
recommendation or if PSEG enters into a definitive agreement for a
superior proposal to be acquired it must pay Exelon a termination fee
of $400 million plus Exelon's transaction expenses up to $40 million.

B. Accounting Treatment for the Merger

    Applicants state that the Merger would be accounted for under the
purchase method of accounting, the assets and liabilities of PSEG would
be recorded, as of completion of the Merger, at their respective fair
values and added to those of Exelon. The reported financial condition
and results of operations of Exelon issued after completion of the
Merger would reflect PSEG's balances and results after completion of
the Merger, but would not be restated retroactively to reflect the
historical financial position or results of operations of PSEG.
Following completion of the Merger, the earnings of the combined
company would reflect purchase accounting adjustments, including
changes to amortization and depreciation expense for acquired assets.

C. Operation of the Combined System Post-Merger

    Following the Merger, ComEd, PECO and PSE&G (the ``Retail Utility
Subsidiaries'') would all be subsidiaries of Delivery and would operate
their respective electric distribution systems, and PECO and PSE&G
would operate their respective gas distribution systems. The electric
transmission systems of the Retail Utility Subsidiaries together with
the Indiana Company would be interconnected through and subject to the
functional control of a single operator, PJM. The Retail Utility
Subsidiaries, the Indiana Company and Exelon Generation are referred to
as the ``Utility Subsidiaries.''
    Applicants assert that the combination of the electric utility
operations of the Utility Subsidiaries would result in a single,
integrated electric utility system. In addition, the combination of
PSE&G's gas utility properties with those of PECO would comprise a
single integrated gas utility system that may be retained by Exelon as
an additional system under the standards of section 11. Applicants note
that in the alternative, the Commission could find that each of the
PECO and PSE&G gas systems is a separate

integrated public utility system and that the PSE&G gas system is a
retainable additional system under the standards of section 11.

V. Exelon Generation Restructuring

    After obtaining necessary approvals and third party consents,
Applicants state that PSEG Power and PSEG Fossil would cease to exist
as separate entities and would become part of Exelon Generation.
Applicants state that the Generation Transactions are predicated on the
assumption that the Exelon Generation Restructuring would precede the
Divestiture Generation Restructuring and the Generation Divestiture.
    After obtaining any appropriate third-party consents, including
consents of certain PSEG Power debt holders to certain amendments of
PSEG Power debt agreements, the Applicants would undertake the Exelon
Generation Restructuring such that PSEG Power and its direct
subsidiaries PSEG Nuclear, PSEG Fossil and PSEG ER&T would all cease to
exist as separate entities and would become part of Exelon Generation.
The business functions of these former PSEG entities would become a
part of their respective Exelon Generation business unit. The
subsidiaries owned by these PSEG entities would be retained as direct
subsidiaries of Exelon Generation, which would continue to be an
electric utility company. It is contemplated that the Exelon Generation
Restructuring would take place contemporaneously with the closing of
the Merger.\9\ Applicants seek approval for the Exelon Generation
Restructuring.\10\
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    \9\ Applicants anticipate that the current subsidiaries of PSEG
Fossil that own and/or operate electric generation facilities would
remain subsidiaries of Exelon Generation as EWGs. The Exelon
Generation Restructuring would not result in any new ``public
utility'' subsidiary of Exelon Generation.
    \10\ Applicants state that FERC has granted approvals related to
the Exelon Generation Restructuring. The Applicants state that the
New Jersey Department of Environmental Protection (``NJDEP'') has
determined that the Industrial Site Recovery Act (``ISRA'') does not
apply to the Merger and its related corporate reorganizations
including the Generation Restructuring. Filings have also been made
with the Connecticut Siting Council (the ``Siting Counsel'') and the
Connecticut Department of Environmental Protection (``CDEP'') with
respect to the implications of the Merger and the Generation
Restructuring to the generating stations located in Connecticut and
owned by a subsidiary of PSEG Fossil. The Siting Counsel has
approved the Merger and CDEP approval will be sought closer to the
expected time of the Merger (CDEP approvals are valid only for
ninety days).
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VI. Exelon Generation Divestiture

    The Merger would increase the total capacity of generation
resources owned or controlled by Exelon. To ensure that the combined
company does not have market power in any relevant market, the
Applicants state that Exelon and PSEG have proposed the Mitigation Plan
designed to address in full FERC's requirements for competitive
markets. As part of the plan, the companies have proposed the
Generation Divestiture--to divest a number of coal, mid-merit, and
peaking generating plants. The Mitigation Plan also provides for the
transfer of control of the output of a portion of their baseload
nuclear generating capacity.
    Applicants state that Exelon Generation owns or controls all of the
Exelon system's generating assets including the electric generating
units that are subject to divestiture as part of the Generation
Divestiture. Applicants propose to effect the Generation Divestiture
pursuant to a voluntary plan under section 11(e) of the Act.
    PSEG Fossil is an EWG and is a wholly-owned subsidiary of PSEG
Power. PSEG Fossil owns directly the electric generating units that are
subject to being divested as part of the Generation Divestiture.
    The final divestiture proposal made by Applicants and approved by
FERC in the Merger Order would result in Applicants divesting 6,600 MW
of capacity. Of this, 4,000 MW would be physically divested fossil
generation. Under the Merger Order, Applicants are required to make a
compliance filing at FERC within 30 days of the completion of their
physical divestiture, providing an analysis of the Merger's effect on
competition in energy and capacity markets, given actual plants and
assets divested and the actual acquirers of the divested assets. If the
analysis shows that the Merger's harm to competition has not been
sufficiently mitigated, Applicants must propose additional mitigation
at that time. The divestiture of the 4,000 MW contemplated in the
Merger Order plus any subsequent physical divestiture ordered by FERC
as necessary additional mitigation is referred to as the Generation
Divestiture.
    Rather than divest their nuclear baseload units, Applicants have
proposed, and FERC has accepted, a ``virtual divestiture'' whereby they
would divest, through sales of long-term firm energy rights, 2,600 MW
of nuclear generating capacity in PJM East. According to the
Applicants, such ``virtual divestiture'' would take the form of FERC
jurisdictional wholesale power transactions, would not constitute the
disposition of ``utility assets'' within the meaning of the Act, and
therefore, no approval by the Commission would be required for the
virtual divestiture.
    Exhibit G-4 to the Application is a listing of generation
facilities subject to divestiture as initially proposed by Exelon and
PSEG (1,000 MW of peaking capacity and a total of 1,900 MW of mid-merit
capacity of which 550 MW would be coal-fired). Subsequent to filing the
Application, the proposed Generation Divestiture was expanded by an
additional 1,100 MW for the total divestiture as approved in the Merger
Order of 6,600 MW as noted above and certain other generation
facilities were added to the list subject to divestiture. See Exhibit
G-4.1 for the final list of the facilities that may be subject to the
Generation Divestiture.
    The Merger Order requires Applicants to execute sales agreements
and make appropriate filings at FERC within twelve (12) months of the
Closing of the Merger in order to implement the Generation Divestiture.
The Applicants state that they intend to commence the divestiture
process more quickly, but that 12 months may be necessary to conduct a
sales process, negotiate all necessary agreements and file for all
necessary regulatory approvals.
    Applicants state that FERC approved the Merger based upon, among
other things, the Mitigation Plan. Applicants request that the
Commission make the necessary findings to support relief pursuant to
section 1081 of the Internal Revenue Code with respect to the
Generation Transactions. The Applicants state that none of the proposed
mitigation, including the Generation Divestiture, would adversely
affect the integration of the combined electric utility operations for
purposes of the Act.

VII. Divestiture Generation Restructuring

    In order to maximize the amount a buyer would be willing to pay for
the Subject Assets, defined below, the Applicants state that they are
considering alternative options for effecting the disposition by sale
of the electric generating assets listed in Exhibit G-10 to the
Application (the ``Subject Assets''), as required by the Generation
Divestiture. Subsequent to the Merger but prior to the implementation
of any of the options set forth below, the Applicants state that Exelon
would cause the assets listed in Exhibit G-11 to the Application to be
transferred to Exelon Generation (``Consolidating Transfers'').
Pursuant to Option 2 described below, an internal restructuring would
occur immediately prior to the disposition of the Subject Assets to the
buyer that would change the ownership structure of the Subject Assets.
The particular tax characteristics

of the sale of a generating unit, including the buyer's desired
business and tax structures, would determine which option would be
utilized. Because there are likely to be multiple buyers of the Subject
Assets (each buyer a ``Third Party''), the Applicants may utilize
either of the disposition options described below to effectuate the
sale of the Subject Assets to each Third Party (the disposition to each
Third Party is referred to as a ``Divestiture Transaction''). Each of
the Subject Assets would be acquired pursuant to each Divestiture
Transaction in exchange for cash and/or notes (the ``Transfer
Consideration'').
    Option 1: Exelon Generation would sell each of the assets listed in
Exhibit G-13 of the Application to a Third Party pursuant to the
Divestiture Transaction in exchange for the Transfer Consideration.
Exelon Generation may distribute to Exelon, through Ventures, the
Transfer Consideration received.
    Option 2: Exelon Generation would sell, in exchange for an amount
of cash equal to the Transfer Consideration each of the assets listed
in Exhibit G-14 to the Application to the corporation wholly-owned by
Ventures that is listed as the ``Acquiring Sub'' next to that asset in
Exhibit G-14. Exelon Generation may distribute to Exelon (via Ventures)
the cash received. Ventures would then sell all of the interests in the
Acquiring Sub to the Third Party in exchange for the Transfer
Consideration.
    The particulars of the option selected for each Divestiture
Transaction would be specified in the applicable Post-Merger FERC
Compliance Filing. Applicants state that each of the steps outlined in
Option 2 could occur simultaneously.

VIII. Section 1081 Recitals

    Applicants state that Internal Revenue Code section 1081(d)
provides for the nonrecognition of gain or loss from certain
intercompany transactions between members of the same system group if
such transactions are made in obedience to a Commission order.
    Applicants request that the order on this Application: (i) Recite
that the sale or disposition of generating units as part of the
Generation Transactions is necessary or appropriate to the integration
or simplification of the post-Merger Exelon holding company system and
to effectuate the provisions of section 11(b); and (ii) require post-
Merger Exelon to take appropriate actions to cause its direct and
indirect subsidiaries, as the case may be, to complete the Generation
Divestiture as required in order to comply with the Merger Order.

IX. Affiliate Transactions

A. Service Company Transactions

    Applicants state that, under the 2000 Merger Order, the Commission
authorized Exelon to organize and capitalize Exelon BSC as a service
company subsidiary, and authorized Exelon BSC to provide ComEd, PECO
and other companies in the Exelon system with administrative,
management, engineering, construction, environmental, and other support
services pursuant to a General Services Agreement.
    Further, Exelon filed a post-effective amendment in File No. 70-
9645 describing its accounting systems and cost allocation
methodologies and request a supplemental order of the Commission, as
required by the 2000 Merger Order. On October 31, 2003, Exelon
submitted a 60-day letter that, as supplemented, described certain
proposed changes in allocation methods for ``corporate governance
costs,'' and the reorganization of Energy Delivery Shared Services, a
business unit of Exelon BSC that would begin to provide new services to
ComEd and PECO effective January 1, 2004.\11\
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    \11\ Under the 2000 Merger Order, Exelon BSC is required to give
written notice to the Commission at least 60 days prior to
implementing any change in the type and character of the companies
receiving services, the methods of allocating costs to associate
companies, or the scope or character of services to be rendered.
---------------------------------------------------------------------------

    In connection with the Merger, the Applicants state that PSEG
Services would sell all of its assets to Exelon BSC, change its name
and remain as a subsidiary. Post-Merger, Exelon BSC intends to add the
former PSEG companies as client companies under the General Services
Agreement and would provide to the new client companies the same
administrative, management, and technical services that it now provides
to Exelon system companies, utilizing the same work order procedures
and the same methods of allocating costs that are specified in the
General Services Agreement.\12\ In connection with the Transaction,
certain employees of PSEG Services may be transferred to and become
employees of Exelon BSC, which would be the sole subsidiary service
company for the Exelon system.
---------------------------------------------------------------------------

    \12\ Exelon and PSE&G are seeking approval of the General
Services Agreement from the NJBPU.
---------------------------------------------------------------------------

    Exelon requests that the Commission find, that Exelon BSC would
continue to be organized and conducted in accordance with section 13(b)
of the Act. Applicants request authority to delay the full
implementation of all services and systems relative to the new PSEG
clients until after February 8, 2006.

B. Other Inter-Company Goods and Services At Cost

1. Incidental Services
    The 2000 Merger Order recognized that ComEd, PECO and Exelon
Generation may provide services incidental to their utility businesses,
such as infrastructure services and storm outage emergency repairs, to
one another and other associate companies in accordance with rules 87,
90 and 91. Accordingly, Applicants propose that, following the Merger,
PSE&G also may provide these incidental services to, or receive these
incidental services from, the other Exelon companies. PSE&G also may
provide goods, through a leasing arrangement or otherwise, to one or
more associate companies, and may use certain assets for the benefit of
one or more associate companies.
2. Services Required for the Efficient Operation of Exelon Generation's
Businesses
    Under the 2000 Merger Order, the Commission authorized Exelon
Generation and any future subsidiary of Exelon Generation and AmerGen
Energy Company, LLC (``AmerGen'') to provide services at cost to each
other as required for the efficient operation of the Exelon system
generating facilities. Although Exelon Generation is an ``electric
utility company'' under the Act, it is not subject to state rate
regulation and has no ``captive'' customers. Following the Merger, as
is the case now, Exelon Generation would own and operate generating
facilities, engage in energy marketing and trading, and invest in and
own exempt wholesale generators, intermediate companies and other
permitted investments such as Rule 58 energy-related companies, all of
which are operated as an integral part of its system generating
facilities. Accordingly, Exelon Generation proposes that post-Merger
it, and all of its current and future subsidiaries, including the
former PSEG subsidiaries, provide services at cost to each other.
3. Services at the Interface Between Generation and Transmission and
Distribution
    Under the 2000 Merger Order, the Commission authorized Exelon
Generation to render and receive services at cost from ComEd and PECO
related to the interface--primarily switchyard facilities--between the
generation function of Exelon Generation and the transmission and
distribution functions of ComEd and

PECO. Applicants request authorization for ComEd, PECO, PSE&G, Exelon
Generation and its subsidiaries to render and receive the same types of
services at cost, among each other following the Merger.
4. Exelon Generation Services in Connection With Supply of Electricity
and Natural Gas
    a. Scheduling Coordination Agreements. Applicants state that PSE&G
is obligated to purchase electricity from certain QFs, is obligated to
purchase electricity from certain EWGs under restructured former PURPA
contracts, and receives an allocation of hydroelectric power from the
St. Lawrence Power Project. Further, that under a stipulation filed at
the NJBPU, PSE&G is obligated to resell this power at wholesale into
the PJM spot market. As PSE&G owns no generation and engages in no
other wholesale energy transactions, it relies upon its affiliate PSEG
ER&T to schedule these transactions on its behalf and to submit bids
for capacity as directed by PSE&G. PSEG ER&T also fulfills certain
billing and accounting functions with respect to such energy and
capacity. These services are provided under two agreements
(``Scheduling Coordination Agreements'') pursuant to which PSE&G
receives the full PJM market value for the electricity. PSE&G either
(i) pays PSEG ER&T a cost-based fee, or (ii) enables PSEG ER&T to
receive a credit from PJM for capacity from the purchases described
above against any emergency power it would otherwise have to pay for
under the PJM Open Access Transmission Tariff. The Applicants represent
that the Scheduling Coordination Agreements will be assumed by Exelon
Generation by operation of law.
    b. BGSS Gas Contract. The Applicants state that PSEG ER&T provides
full-requirements gas supply service to PSE&G pursuant to a contract
approved by the NJBPU for the purpose of satisfying all of PSE&G's
retail gas service obligations (``BGSS Gas Contract''). As part of the
transaction approved by the NJBPU, PSEG ER&T assumed the PSE&G
entitlements under most of its gas transportation and storage contracts
with interstate pipelines. In a few cases, the entitlements remained
with PSE&G and PSEG ER&T administers the contracts as PSE&G's agent.
The Applicants state that the BGSS Gas Contract will be assumed by
Exelon Generation by operation of law.
    Under the 2000 Merger Order, the Commission authorized Exelon
Generation to provide, at cost, supply planning services and assistance
to ComEd and PECO and to assist the utilities in obtaining energy
supply resources from unaffiliated sellers, in each case in connection
with the utility's unbundled retail sales and/or wholesale sales, to
the extent that energy supply is not provided by Exelon Generation.
Applicants state that the Retail Utility Subsidiaries might require
assistance from Exelon Generation with respect to the procurement
process for the procurement of energy for the utilities' bundled as
well as unbundled retail sales. For this reason, and also to allow
Exelon Generation to provide any jurisdictional services currently
provided by PSEG ER&T pursuant to the Scheduling Coordination
Agreements and the BGSS Gas Contract, the Applicants request that the
authorization obtained in the 2000 Merger Order be modified not only to
include PSE&G, but also to relate to the Retail Utility Subsidiaries'
bundled retail sales, as well as unbundled retail sales and/or
wholesale sales, of both electricity and natural gas. Thus, the
Applicants request that the Commission authorize Exelon Generation to
provide, at cost, supply planning services and assistance to the Retail
Utility Subsidiaries and to assist the utilities in obtaining, or
disposing of, energy supply resources from unaffiliated sellers, in
each case in connection with the Retail Utility Subsidiaries' bundled
and unbundled retail sales and/or wholesale sales, to the extent that
energy supply is not provided by Exelon Generation.\13\
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    \13\ Applicants state that the described services will be
provided at cost, with the exception of some services under the
Scheduling Coordination Agreements, which provide, as an alternate
mechanism for PSE&G to compensate PSEG ER&T (Exelon Generation after
the Exelon Generation Restructuring) for scheduling coordination
services, for PSEG ER&T to receive a credit from PJM for capacity.
---------------------------------------------------------------------------

5. Modification of Intercompany Services Authorized by the 2000 Merger
Order
    Applicants state that ComEd currently provides to and receives from
affiliates certain services in accordance with an Affiliated Interests
Agreement (``ComEd AIA'') approved by the ICC. PECO's form of Mutual
Services Agreement (``PECO MSA'') under which PECO provides and
receives certain services from affiliates has been approved by the
PAPUC. In connection with the Merger, Applicants state that PSE&G plans
to enter into a Mutual Services Agreement (the ``PSE&G MSA'') to govern
affiliated interest transactions between PSE&G and its affiliates at
cost, consistent with Rules 90 and 91.\14\
---------------------------------------------------------------------------

    \14\ Exelon and PSE&G are seeking approval of the PSE&G MSA from
the NJBPU.
---------------------------------------------------------------------------

    Applicants state that the 2000 Merger Order approved individual
contracts pursuant to which ComEd and PECO received or rendered
services at other than cost. Further, that those arrangements or
contracts have all either concluded, or are being conducted currently
at cost. Exelon proposes to modify the service providers and recipients
under the types of services so described in the 2000 Merger Order so
that each of ComEd, PECO, PSE&G and Exelon Generation may provide, at
cost, the listed services to associate companies in the new Exelon
system under the same conditions as currently apply to the Exelon
system companies.\15\
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    \15\ Such services include: services provided by the Retail
Utility Subsidiaries: regulatory and legislative services, call
center, central mail, fleet services, real estate and facilities,
distribution technical services, telephone overflow coverage,
strategic marketing and sourcing, installation and maintenance of
substation equipment, purchase of materials and logistics, metering
equipment and rubber goods, customer services rep emergency
training, environmental and lab services, training for electrical
and fire; and services provided by Exelon Generation: instrument
calibration, operation of Richmond Frequency Converters and
synchronous condenser maintenance.
---------------------------------------------------------------------------

    In addition to the services authorized by the 2000 Merger Order,
Applicants request authorization for the following additional services
to be provided at cost. These services would also be subject to the
reporting requirements discussed above:
    (a) PowerLabs Services to ComEd, PECO and PSE&G. Exelon Generation
was authorized to provide Instrument Calibration services to PECO and,
since the time of the 2000 Merger Order, has done so through Exelon
PowerLabs, LLC (``PowerLabs''), a first-tier Rule 58 subsidiary of
Exelon Generation. PowerLabs also provides Instrument Calibration and
other technical services at cost, pursuant to Rule 87(b)(1), to Exelon
BSC, which passes them through, at cost, to ComEd and PECO. Applicants
request that PowerLabs be authorized to provide Instrument Calibration
and other technical services, (including component testing and failure
analysis) at cost, directly to ComEd, PECO and PSE&G, in addition to
Exelon Generation.
    (b) Energy Efficiency Audit Services by the Retail Utility
Subsidiaries to Other Exelon Companies. ComEd Technical Services
performs site efficiency assessments, which review current energy use
profiles and identify cost-savings opportunities (``Energy Efficiency
Audit Services''). ComEd has

provided a small volume of these services at cost to Exelon Generation
and PECO under Rules 87, 90 and 91. Applicants request the Retail
Utility Subsidiaries be authorized to provide Energy Efficiency Audit
Services to other companies in the Exelon system at cost.
    (c) Exelon Generation Maintenance, Repair and Plant Engineering
Services. PSEG Power provides a range of specialized maintenance,
repair and plant engineering services on energy-related electro-
mechanical equipment. PSEG Power provides these services to PSEG Fossil
and its EWG subsidiaries, as well as to PSEG Nuclear, PSE&G and PSEG
Services. PSEG Power charges its affiliates a blended hourly rate that
recovers the fully allocated cost of providing these services. PSEG
Power charges PSE&G approximately $3.4 million on an annual basis for
the services it provides to PSE&G. PSEG Power charges PSEG Fossil's EWG
subsidiaries approximately $150,000 on an annual basis for the services
it provides to these entities. After the Exelon Generation
Restructuring, PSEG Power will be part of Exelon Generation. Thus,
Applicants request authorization for Exelon Generation to provide these
services, at cost, to other Exelon companies, including, PSE&G, Exelon
BSC, ComEd and PECO.
    (d) Peak Shaving Services. To facilitate PSEG ER&T's provision of
BGSS to PSE&G, PSE&G provides a peaking natural gas supply to PSEG ER&T
from three Liquefied Propane Air (``LPA'') Plants and one Liquefied
Natural Gas (``LNG'') Plant. PSE&G charges PSEG ER&T for all labor,
material and other costs that are required to operate and maintain the
facilities along with a carrying cost for the return on and
depreciation of the investment. Applicants request authorization for
PSE&G to provide these peak shaving services to Exelon Generation, as
successor to PSEG ER&T and for PECO to provide similar peak shaving
services to Exelon Generation, in the event PECO enters into similar
arrangements with Exelon Generation.
    (e) All services required to manage and operate the facilities of
the Indiana Company are provided by either Exelon BSC or ComEd. Exelon
BSC has authority to provide the services it currently provides to the
Indiana Company. To date, ComEd has provided, at cost, incidental
services in connection with operation and maintenance of the Indiana
Company's transmission assets, as well as various administrative and
managerial services. Applicants request that ComEd be authorized to
provide operation and maintenance services and administrative and
managerial services, at cost, to the Indiana Company on an ongoing
basis.

X. Issuance of Common Stock in the Merger

    Exelon requests approval to issue that number of shares of its
common stock necessary to comply with its obligations under the Merger
Agreement. Exelon expects that it would issue approximately 341 million
shares of common stock to the former holders of PSEG common stock in
the Merger. This includes approximately 14 million shares of common
stock, or options on its common stock, that Exelon would be required to
issue at the consummation of the Merger to satisfy the obligations
under various PSEG stock option and employee benefit plans.
    Upon completion of the Merger, each outstanding option to purchase
shares of PSEG common stock would be assumed by Exelon and substituted
with an option to purchase shares of Exelon common stock, exercisable
on generally the same terms and conditions that applied before the
Merger. The number of shares of Exelon common stock subject to the
substitute Exelon stock option would equal the number of shares of PSEG
common stock subject to the PSEG stock option immediately prior to
completion of the Merger, multiplied by the exchange ratio, rounded
down to the nearest whole share. The per share exercise price of each
substitute Exelon stock option would equal the exercise price of the
PSEG stock option immediately prior to completion of the Merger divided
by the exchange ratio, rounded up to the nearest whole cent. In
addition, upon completion of the Merger, Exelon would assume all PSEG
equity-based awards and substitute them with equity-based awards with
respect to shares of Exelon common stock on generally the same terms
and conditions that applied before completion of the Merger. The number
of shares of Exelon common stock issuable under those awards, and the
exercise prices for those awards, would be adjusted to take into
account the exchange ratio (1.225) in the Merger.

XI. PSEG Indebtedness Assumed

    As a consequence of the Merger and the Exelon Generation
Restructuring, all the existing consolidated indebtedness of PSEG would
become consolidated indebtedness of Exelon. As the surviving entity in
the Merger, Exelon would become the successor obligor on all
outstanding indebtedness directly issued by PSEG. Further, subject to
receipt of the appropriate consents, upon the Exelon Generation
Restructuring, indebtedness and obligations of PSEG Power, PSEG
Nuclear, PSEG Fossil and PSEG ER&T would become obligations of Exelon
Generation. Prior to the closing of the Merger, PSEG Power's debt
holders would be solicited for consent to amendments to certain of its
existing debt instruments to reflect the changes in credit profile and
other circumstances that would result from the assumption by Exelon
Generation of PSEG Power indebtedness.
    Applicants state that Exelon would not legally assume or become
successor obligor on any outstanding indebtedness of PSEG system
companies, except for PSEG indebtedness for which Exelon is successor
obligor. Exelon may issue guaranties on behalf of former PSEG system
companies subject to the limitations on guaranties contained in the
2004 Financing Order, modified as described below. Likewise, except for
the obligations of PSEG Power, PSEG Nuclear, PSEG Fossil and PSEG ER&T
for which Exelon Generation becomes successor obligor in the Generation
Restructuring, Exelon Generation would not legally assume any
outstanding indebtedness of any PSEG system company. Exelon Generation
may issue guaranties on behalf of former PSEG system companies subject
to the limitations on guaranties contained in the 2004 Financing Order,
modified as described below.
    Applicants seek approval for the consolidation of indebtedness, or
in the case of Exelon and Exelon Generation, becoming the successor
obligor under the indebtedness, and continuation of inter-company
guaranties, as described above. Applicants further request authority to
continue existing financing arrangements, guarantees and hedging
arrangements, as well as any transactions undertaken to extend the
terms of or replace, refund or refinance existing obligations and the
issuance of new obligations in exchange for existing obligations,
provided in each case that the issuing entity's total capitalization is
not increased as a result of such financing transaction except as
permitted by the 2004 Financing Order modified as discussed below.

XII. Modifications to 2004 Financing Order

A. The 2004 Financing Order

    The Commission issued the 2004 Financing Order which authorized,
through April 15, 2007, certain financing transactions, including the
issuance of common stock, preferred securities, equity-linked
securities, long-

term debt and short-term debt in an aggregate amount not to exceed $8
billion above the amount outstanding for Exelon and Exelon Generation
at December 31, 2003, with no separate sublimit for short-term debt.
The 2004 Financing Order also authorized the use of up to $4 billion of
the proceeds of financings for investments in EWGs and FUCOs, and
reserved jurisdiction over a request to use an additional $3 billion of
the proceeds of financings for investments in EWGs and FUCOs.
    Because the 2004 Financing Order did not contemplate a transaction
of the magnitude of the current Merger, Exelon requests approval for
the issuance of its common stock in the Merger and related to stock
options and employee plans. Except for the issuance of common stock in
the Merger and the specific modifications listed below, however,
Applicants state that Exelon does not seek any changes to the approvals
granted in the 2004 Financing Order.
    In particular, Exelon is not proposing to increase the authorized
amount of new financing it will be permitted above the existing
authorized $8 billion. Applicants, citing to the 2004 Financing Order,
note: ``Applicants state that [the $8 billion External Limit] does not
include the refunding or replacement of securities where capitalization
is not increased from that in place at [a specified date]. Applicants
state that any refunding or replacement of securities where
capitalization is not increased from that in place at [the specified
date] will be through the issuance of securities of the type authorized
in [the 2004 Financing Order].'' Applicants request that the base level
of capitalization, against which the authorized increase of $8 billion
will be measured, will be adjusted to be the pro forma capitalization
of Exelon or Exelon Generation, as the case may be, as of the date of
consummation of the Merger and Exelon Generation Restructuring.
    Exelon proposes that the 2004 Financing Order will remain in full
force and effect, including all parameters, restrictions and conditions
imposed in the 2004 Financing Order, except to the extent expressly
modified by the Commission's order in this matter.
1. Requested Modifications of 2004 Financing Order \16\
    Applicants seek the following modifications to the 2004 Financing
Order:
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    \16\ Capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the 2004 Financing Order.
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    i. The definition of ``Utility Subsidiaries'' under the 2004
Financing Order be amended to include PSE&G, and the definition of
``Nonutility Subsidiaries'' be amended to include all non-utility
subsidiary companies of PSEG.
    ii. The Utility Money Pool authority be amended to permit: (a)
PSE&G to become a participant in the Utility Money Pool, with a
participation limit for borrowing of $1 billion, and (b) Exelon
Generation to borrow up to $1.5 billion (an increase from $1 billion)
at any one time outstanding from the Utility Money Pool \17\, and (c)
PSEG Holdings to participate in the Utility Money Pool as a lender to,
but not as a borrower from, the Utility Money Pool.
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    \17\ Applicants state that the 2004 Financing Order authorized
Unicom Investments, Inc. to participate in the Utility Money Pool as
a lender only. Unicom Investments, Inc. has been reorganized and is
now UII, LLC.
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    iii. To authorize the establishment of a Nonutility Money Pool.
    iv. To add authority for PSE&G to enter into Hedge Instruments and
Anticipatory Hedges of the same type and under the same conditions as
authorized under the 2004 Financing Order.
    v. To add authority for Exelon to enter into guarantees to or on
behalf of the PSEG companies, and PSE&G to enter into Non-Exempt
Utility Guarantees, all under the terms and conditions authorized under
the 2004 Financing Order.
    vi. To increase to $8 billion (from the current $6 billion) the
aggregate authority for Exelon and Exelon Generation to issue
guaranties.
    vii. To add authority for PSE&G to pay dividends out of capital to
the extent of PSE&G's retained earnings immediately prior to the Merger
where such retained earnings are transferred to paid in capital in
accordance with purchase accounting.
    viii. To add authority for Delivery to pay dividends out of capital
to the extent of PSE&G's retained earnings immediately prior to the
Merger where such retained earnings are transferred to paid in capital
in accordance with purchase accounting.
    ix. To add authority for Exelon Generation to pay dividends out of
capital to the extent of the retained earnings of PSEG Power, PSEG
Nuclear, PSEG Fossil and PSEG ER&T immediately prior to the Merger
where such retained earnings are transferred to paid in capital in
accordance with purchase accounting.
    x. To add authority for Ventures to pay dividends out of capital to
the extent of the retained earnings of (A) PSEG Power, PSEG Nuclear,
PSEG Fossil and PSEG ER&T immediately prior to the Merger where such
retained earnings are transferred to paid in capital in accordance with
purchase accounting and (B) PSEG Holdings immediately prior to the
Merger where such retained earnings are transferred to paid in capital
in accordance with purchase accounting in the event PSEG Holdings
becomes a subsidiary of Ventures rather than a direct subsidiary of
Exelon.\18\
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    \18\ Such dividend authority is requested in the event that
Exelon were to do an internal restructuring to move PSEG Holdings, a
non-utility subsidiary to be a subsidiary of Ventures rather than as
a direct first tier subsidiary of Exelon as is contemplated
following the Merger.
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    xi. To increase Exelon's authority to pay dividends out of capital
by the amount of PSEG's retained earnings immediately prior to the
Merger where such retained earnings are transferred to paid in capital
in accordance with purchase accounting.\19\
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    \19\ This new approval would not affect the authority of ComEd
and Exelon to pay dividends out of capital as approved in the 2004
Financing Order.
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    xii. To add authority for Exelon, Exelon Generation, Ventures,
Delivery and PSE&G to declare and pay dividends out of current earnings
before any deduction resulting from impairment of goodwill or other
intangibles recognized as a result of the Merger.\20\
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    \20\ Applicants ask the Commission to reserve jurisdiction over
their request pending completion of the record.
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    xiii. To increase to 75 million shares (from 42 million shares
approved by the 2004 Financing Order) the number of shares of Exelon
common stock that may be issued, following the Merger, under Exelon's
dividend reinvestment plan, employee stock ownership plan, certain
incentive compensation plans and certain other employee benefit plans,
including PSEG plans assumed as part of the Merger, as described below
(collectively, the ``Plans'').
    xiv. To increase the amount of financing proceeds that may be used
for investments in EWGs and FUCOs such that ``aggregate investment''
does not exceed $8 billion (an increase from $4 billion currently
authorized).
    xv. To provide that the base capitalization against which the limit
of additional financing of $8 billion authorized in the 2004 Financing
Order is measured shall be the pro forma capitalization of Exelon or
Exelon Generation as the case may be, as of the date of consummation of
the Merger and the Exelon Generation Restructuring. As required under
the 2004 Financing Order, all financing where capitalization

is not increased from that in place at the Merger date will be through
the issuance of securities of the type authorized in the 2004 Financing
Order, modified as described herein, and subject to the Financing
Parameters (as defined in the 2004 Financing Order).\21\
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    \21\ The capitalization base for Exelon and Exelon Generation,
respectively, would be measured according to the balance sheet
prepared to reflect consummation of the Merger, by taking the post-
Merger outstanding common stock or membership interests (excluding
retained earnings), preferred and preference securities, long-term
debt, short-term debt, current portion of long-term debt and
securitization obligations, as applicable, of Exelon and Exelon
Generation. Increases in capitalization through securities issuances
of Exelon and Exelon Generation, as the case may be, would count
towards the $8 billion limit; but increases in consolidated
capitalization resulting from exempt securities issuances (such as
issuances of state commission approved securities by the Retail
Utility Subsidiaries) and increases to retained earnings will not
reduce available financing. Retirement or redemption of securities
or reductions in equity through stock buybacks by Exelon or Exelon
Generation, as the case may be, in each case with available funds
will correspondingly increase available financing.
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    xvi. To add authority for Exelon Generation to engage in tax-exempt
financing pursuant to sale or lease transactions of its utility assets
as described below.
2. Parameters for Financing Authorization
    The proposed financing transactions would be subject to the
Financing Parameters, as set forth in the 2004 Financing Order. The 30%
common equity condition shall apply to PSE&G as a ``Utility
Subsidiary.'' The 30% Condition would be unchanged for Exelon, ComEd,
PECO and Exelon Generation. Finally, the Investment Grade Condition (as
defined in the 2004 Financing Order) would apply to PSE&G to the extent
it requires Commission approval for any securities issuance.
3. Filing of Certificates of Notification
    Exelon currently files quarterly reports in connection with the
2004 Financing Order. Applicants propose to continue to file Rule 24
certificates through February 8, 2006 containing the information
required by the 2004 Financing Order for the post-Merger Exelon system,
including equivalent information relating to former PSEG system
subsidiaries.
4. Increase in Shares for Plans; New and Adopted Plans
    The 2004 Financing Order authorized Exelon to issue and/or acquire
in open market transactions, or by some other method which complies
with applicable law and Commission interpretations then in effect, up
to 42 million shares of Exelon common stock (adjusted for a stock
split) under Exelon's dividend reinvestment plan, employee stock
ownership plan, certain incentive compensation plans and certain other
employee benefit plans. Such issuances are in addition to common stock
that may be issued under the general financing authorization of $8
billion. Exelon proposes to increase the number of shares authorized
for this purpose to 75 million to accommodate two new Exelon plans and
the former PSEG plans that would become Exelon's responsibility
following the Merger. Exelon stock would be used, following the Merger,
to satisfy requirements under the PSEG plans to provide common stock.
5. Nonutility Money Pool
    In the 2004 Financing Order, the Commission reserved jurisdiction
over the formation of the Nonutility Money Pool. Applicants request
that the Commission release jurisdiction over the formation of the
Nonutility Money Pool. The Nonutility Money Pool is to be operated on
the same terms and conditions as the Utility Money Pool, except that
Exelon funds made available to the Money Pools would be made available
to the Utility Money Pool first to the extent it is operated and needed
and thereafter to the Nonutility Money Pool. None of the Utility
Subsidiaries would be a participant in the Nonutility Money Pool, and
no loans through the Nonutility Money Pool would be made to, and no
borrowings through the Nonutility Money Pool would be made by, Exelon,
Ventures or Delivery.
    Furthermore, Applicants request authority for other Non-Utility
Subsidiaries (i.e., Non-Utility Subsidiaries that are not currently
anticipated to participate in the Non-Utility Money Pool and such that
are acquired or formed in the future, collectively, ``Other Non-Utility
Subsidiaries'') may lend funds to and borrow from the Non-Utility Money
Pool, when established, without the need for additional authority from
the Commission.
6. Exelon Generation Tax-Exempt Financing
    Applicants state that Exelon Generation may be able to incur lower
financing costs by taking advantage of tax-exempt financing where a
governmental entity, such as a county or a state authority or agency,
issues securities and lends the proceeds to Exelon Generation or where
Exelon Generation sells or leases an undivided interest in one or more
of its generating facilities and related assets to the governmental
entity and leases back or purchases the assets and operates such assets
as before. In connection with such transactions, Exelon Generation
seeks approval for the sale, lease or other transfer and lease back,
purchase or other operating arrangement of generating and related
assets that constitute utility assets under the Act. Such sale, lease
or other transfer and lease back, purchase or other operation
arrangement would be solely for financing purposes and would not affect
the operation of the assets.

XIII. Retention of Nonutility Subsidiaries

    Exhibit G-7 (attached to the Application) lists and describes those
non-utility businesses conducted by PSEG and its subsidiary companies.
As a result of the Merger, those non-utility businesses and interests
would become businesses and interests of Exelon. Except as discussed
(in Exhibit G-7), Applicants request authority to retain these non-
utility interests.
    Applicants ask the Commission to find that pre-existing investments
by PSEG and its subsidiaries in ``energy-related companies'' prior to
the effective date of Rule 58 will not count in the calculation of the
15% limitation for purposes of the safe harbor under Rule 58.

XIV. Post-Merger Corporate Structure: The Intermediate Holding Company

    Post-Merger, there would be one instance of a ``great-grandfather''
holding company, the existence of which the Commission approved in the
2000 Merger Order. Exelon, through Delivery, owns substantially all of
the outstanding common stock of ComEd which, in turn, is a holding
company for the Indiana Company. The Indiana Company has no retail
customers and owns only transmission facilities with a depreciated book
value at December 31, 2004 of only $7.4 million. The operation of the
Indiana Company's transmission facilities is subject to the control of
PJM. Accordingly, the Indiana Company has virtually no business
operations with outside third parties.
    Applicants state that, PSE&G has pending an application with the
NJBPU seeking approval in connection with the issuance of up to $150
million of securitization obligations under N.J.S.A. 48:3-57. If the
application is approved, Applicants state that the NJBPU would
authorize a transition bond charge which amounts would be sold by PSE&G
to a special purpose Financing Subsidiary in connection with the
securitization financing. Because PSE&G will be covered by the general

authorizations applicable to the Exelon system approving formation and
activities of Financing Subsidiaries and entering into servicing
agreements at ``market rates'' in compliance with rating agency
requirements, Applicants state that PSE&G will need no further approval
from the Commission for the proposed $150 million securitization
financing.
    Exelon (70-10294) and the other Applicants state that they consent
and agree that consummation by them of the Merger shall constitute
their acceptance of the survival of the Implementation Order
notwithstanding the effectiveness of the repeal of the Act.

Nancy M. Morris,
Secretary.
 [FR Doc. E6-84 Filed 1-9-06; 8:45 am]

BILLING CODE 8010-01-P