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As Filed with the Securities and
Exchange Commission on __________,1997 File No. 70-9095
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO.1 TO
APPLICATION-DECLARATION
ON FORM U-1
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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CONECTIV, INC.
DELMARVA POWER & LIGHT COMPANY
SUPPORT CONECTIV, INC.(1)
DELMARVA INDUSTRIES, INC.
DELMARVA ENERGY CO.
800 King Street
Wilmington, DE 19899
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DELMARVA CAPITAL INVESTMENTS, INC. ATLANTIC CITY ELECTRIC COMPANY
CONECTIV SERVICES, INC. DEEPWATER OPERATING COMPANY
CONECTIV COMMUNICATIONS, INC. ATLANTIC ENERGY ENTERPRISES, INC.
DELMARVA SERVICES COMPANY ATLANTIC ENERGY INTERNATIONAL, INC.
DCI I, INC. 6801 Black Horse Pike
DCI II, INC. Egg Harbor Township, NJ 08234
DELMARVA CAPITAL TECHNOLOGY CO.
DCTC-BURNEY, INC. ATLANTIC GENERATION, INC.
DELMARVA CAPITAL REALTY COMPANY ATLANTIC SOUTHERN PROPERTIES, INC.
CHRISTIANA CAPITAL MANAGEMENT, INC. ATE INVESTMENT, INC.
POST AND RAIL FARMS, INC. ATLANTIC THERMAL SYSTEMS, INC.
DELMARVA OPERATING SERVICES CO. COASTALCOMM, INC.
DELSTAR OPERATING COMPANY ATLANTIC ENERGY TECHNOLOGY, INC.
DELWEST OPERATING COMPANY BINGHAMTON GENERAL, INC.
DELCAL OPERATING COMPANY BINGHAMTON LIMITED, INC.
PINE GROVE, INC. PEDRICK LIMITED, INC.
PINE GROVE LANDFILL, INC. PEDRICK GENERAL, INC.
PINE GROVE HAULING COMPANY VINELAND LIMITED, INC.
CONECTIV SOLUTIONS, INC. VINELAND GENERAL, INC.
CONECTIV ENTERPRISES, INC.(1) ATLANTIC JERSEY THERMAL SYSTEMS, INC.
CONECTIV ENERGY, INC.(1) ATS OPERATING SERVICES, INC.
252 Chapman Road THE EARTH EXCHANGE, INC.
P.O. Box 6066 ATLANTIC PAXTON COGENERATION, INC.
Newark, DE 19714 5100 Harding Highway
Mays Landing, NJ 08330
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(Names of companies filing this statement and addresses of principal executive
offices)
CONECTIV, INC.
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(Name of top registered holding company parent)
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Barbara S. Graham Michael J. Barron
President and Secretary Vice President and Treasurer
Conectiv, Inc. Conectiv, Inc.
800 King Street 6801 Black Horse Pike
Wilmington, Delaware 19899 Egg Harbor Township, NJ 08234
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(Names and addresses of agents for service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application-Declaration to:
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Dale G. Stoodley, Esq. James E. Franklin II, Esq. Joyce Koria Hayes, Esq.
Delmarva Power & Light Company Atlantic Energy, Inc. 7 Graham Court
800 King Street 6801 Black Horse Pike Newark, DE 19711
Wilmington, DE 19899 Egg Harbor Township, NJ 08234
</TABLE>
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(1) Companies to be formed prior to Merger
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ITEMS 1 THROUGH 5 OF THE APPLICATION-DECLARATION AS PREVIOUSLY FILED ARE HEREBY
RESTATED IN THEIR ENTIRETY.
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
(a) Furnish a reasonably detailed and precise description of the proposed
transaction, including a statement of the reasons why it is desired to
consummate the transaction and the anticipated effect thereof. If the
transaction is part of a general program, describe the program and its relation
to the proposed transaction.
A. General
Conectiv, Inc. ("Conectiv")(1), a Delaware corporation, has previously
filed an Application-Declaration on Form U-1 with the U. S. Securities and
Exchange Commission (the "Commission") under Section 9(a)(2) of the Public
Utility Holding Company Act of 1935, as amended (the "Act"), seeking approvals
relating to the proposed acquisition by Conectiv of securities of Delmarva Power
& Light Company ("Delmarva"), a Delaware and Virginia utility corporation, and
merger into Conectiv of Atlantic Energy, Inc.("Atlantic"), a New Jersey
corporation and parent of Atlantic City Electric Company ("Atlantic Electric"),
a New Jersey utility corporation (collectively, these transactions are referred
to as the "Merger"), and for other related transactions including the formation
of Support Conectiv as a subsidiary service company in accordance with the
provisions of Rule 88 under the Act (File No. 70-9069) (the "Merger U-1")(2).
Conectiv will register as a holding company under the Act upon consummation of
the transactions contemplated in the Merger U-1. Each of the entities that will
be directly and indirectly owned subsidiaries of Conectiv upon consummation of
the transactions described in the Merger U-1 is referred to herein individually
as a "Subsidiary" and collectively as "Subsidiaries". For purposes of sections
I.E.3., "Non-Utility Subsidiary Financing", I.E.4.a., "Guarantees", and I.E.5.,
"Changes in Capital Stock of Wholly-Owned Subsidiaries and Dividends Out of
Capital or Unearned Surplus by Non-Utility Subsidiaries", the terms "Subsidiary"
and "Subsidiaries" shall also include other direct or indirect subsidiaries that
Conectiv may form after the Merger with either the approval of the Commission,
pursuant to the Rule 58 exemption or pursuant to Section 34 of the Act. Thus,
future Rule 58 and exempt telecommunication companies ("ETCs") are included in
the term "Subsidiaries" for purposes of
(1) To be renamed Conectiv subsequent to merger.
(2) No authority to issue debt or equity securities is sought in the
Merger U-1 except for the authority for Conectiv to issue one share of Conectiv
common stock for each share of Delmarva common stock outstanding on the
effective date and .75 of a share of common stock and .125 of a share of Class A
common stock for each share of Atlantic common stock outstanding on the
effective date of the Merger and for Support Conectiv to issue up to 3,000
shares of its common stock to Conectiv.
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those sections. Conectiv and the Subsidiaries are sometimes hereinafter
collectively referred to as the "Conectiv System" or as the "Applicants". For
purposes of section I.E.4.b., "Money Pool", the term "Subsidiary" or
"Subsidiaries" shall only include the companies specifically named on the cover
and on the signature page of this application/declaration and shall specifically
exclude Conectiv Communications, Inc., and CoastalComm, Inc., both wholly-owned
ETCs. The Commission is asked to reserve jurisdiction over the participation in
the System Money Pool of future companies formed by Conectiv until a specific
post-effective amendment is filed, naming the subsidiary to be added as a
participant in the System Money Pool.
In order to ensure that the Conectiv System is able to meet its capital
requirements immediately following registration and plan its future financing,
the Applicants hereby request authorization for financing transactions for the
period beginning with the effective date of an order issued pursuant to this
filing through December 31, 2000 (the "Authorization Period").
B. Description of the Parties to the Transaction
Following the consummation of the Merger, Conectiv will have two operating
utility subsidiaries (the "Utility Subsidiaries"): Delmarva, an electric and gas
utility company providing gas and electric service in Delaware, and electric
service in ten primarily Eastern Shore counties in Maryland and the Eastern
Shore area of Virginia; and Atlantic Electric, an electric utility company
providing service in the southern part of New Jersey. A list of Conectiv's other
Subsidiaries is set forth on the cover of this filing and in the Merger U-1 and
the exhibits thereto. All of Conectiv's direct and indirect Subsidiaries, other
than the Utility Subsidiaries, are herein called the "Non-Utility Subsidiaries".
C. Overview of Financing Request
The Applicants hereby request authorization to engage in the financing
transactions set forth herein during the Authorization Period. The approval by
the Commission of this Application-Declaration (the "Application") will give the
Applicants flexibility that will allow them to respond quickly and efficiently
to their financing needs and to changes in market conditions, which, in turn,
should make them more competitive with other energy companies, including those
not subject to the jurisdiction of the Act. At the same time, the Commission
will continue to have oversight over financings by the Applicants through the
regular disclosures under the Securities Act of 1933, as amended (the "1933
Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
through the notification process established pursuant to this Application. This
request for authority to issue a variety of securities over a period of time is
consistent with existing Commission precedent. See, e.g., The Columbia Gas
System, Inc., et al., HCAR No. 26634 (December 23, 1996); Consolidated Natural
Gas Company, HCAR No. 26500, File 70-8667 (March 28, 1996); Gulf States
Utilities Company, HCAR No. 26451 (January 16, 1996). The request for Conectiv
to issue long-term debt is consistent with precedent
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noted in Regulation of Public Utility Holding Companies, the report of The
Division of Investment Management dated June 1995 at page 44 and with the
Commission order dated August 23, 1996 in General Public Utilities Corporation,
HCAR No. 26559.
The Applicants also hereby request authorization to deviate from the
Commission's statements of policy with respect to first mortgage bonds and
preferred stock in connection with the securities proposed to be issued and sold
pursuant to this Application or pursuant to applicable exemption under the Act.
The authorizations requested herein relate to (i)(a) external issuances by
Conectiv of common stock, long-term debt, short-term debt, and other securities
for cash and the issuance of common stock by Conectiv in consideration for the
acquisition by Conectiv or a Non-Utility Subsidiary of securities acquired
pursuant to an order issued in connection with the Merger U-1 or pursuant to
Rule 58 or Section 34 and (b) the entering into by Conectiv of transactions to
manage interest rate risk ("hedging transactions"); (ii) issuances of debt
securities (including commercial paper) and the entering into of hedging
transactions by the Utility Subsidiaries to the extent not exempt pursuant to
Rule 52; (iii) issuances by Non-Utility Subsidiaries of debt securities which
are not exempt pursuant to Rule 52; (iv) the establishment of a money pool (the
"Money Pool") and the issuance of intrasystem guarantees by Conectiv and the
Non-Utility Subsidiaries on behalf of Subsidiaries; (v) (a) the ability of
wholly-owned Subsidiaries to alter their capital stock to engage in financing
with their parent company and to engage in a reverse stock split to reduce
franchise taxes, subject in the case of Utility Subsidiaries to the approval of
a state utility commission in a state where the utility is incorporated and
doing business and (b) the ability of Non-Utility Subsidiaries to pay dividends
out of capital or unearned surplus; and (vi) the formation of financing entities
and the issuance by such entities of securities otherwise authorized to be
issued and sold pursuant to this Application or pursuant to applicable
exemptions under the Act, including intrasystem guarantees of such securities
and the retention of existing financing entities.
D. Parameters for Financing Authorization
Authorization is requested herein to engage in certain financing
transactions during the Authorization Period for which the specific terms and
conditions are not at this time known, and which may not be covered by Rule 52,
without further prior approval by the Commission. The following general terms
will be applicable where appropriate to the financing transactions requested to
be authorized hereby:
1. Effective Cost of Money on Borrowings
The effective cost of money on long-term debt borrowings occurring
pursuant to the authorizations granted under the Application will not exceed at
issuance 300 basis points over comparable term U.S. Treasury securities and the
effective cost of money on short-term
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borrowings pursuant to authorizations granted under the Application will not
exceed at issuance 300 basis points over the comparable term London Interbank
Offered Rate ("LIBOR").
2. Maturity of Debt
The maturity of indebtedness will not exceed 50 years.
3. Issuance Expenses
The underwriting fees, commissions, or other similar remuneration paid in
connection with the non-competitive issue, sale or distribution of a security
pursuant to the Application will not exceed 5% of the principal or total amount
of the financing.
4. Use of Proceeds
The proceeds from the sale of securities in external financing
transactions will be used for general and corporate purposes including (i) the
financing, in part, of capital expenditures of the Conectiv System, (ii) the
financing of working capital requirements of the Conectiv System, (iii) the
acquisition, retirement, or redemption pursuant to Rule 42 of securities
previously issued by Conectiv or the Subsidiaries without the need for prior
Commission approval, and (iv) other lawful purposes including direct or indirect
investment in companies authorized under the Merger U-1 and in Rule 58 companies
and ETCs. The Applicants represent that no such financing proceeds will be used
to acquire a new subsidiary unless such financing is consummated in accordance
with an order of the Commission or an available exemption under the Act.
Conectiv represents that, at all times during the Authorization Period,
its common equity (as reflected in its most recent Form 10-K or Form 10-Q filed
with the Commission pursuant to the 1934 Act) will be at least 30% of its
consolidated capitalization as adjusted to reflect subsequent events that affect
capitalization.
E. Description of Specific Types of Financing
1. Conectiv External Financing
Conectiv requests authorization to obtain funds externally through sales
of common stock and long-term and short-term debt securities. With respect to
common stock, Conectiv also requests authority to issue common stock to third
parties in consideration for the acquisition by Conectiv or a Non-Utility
Subsidiary of equity or debt securities of a company being acquired pursuant to
Rule 58, Section 34 of the Act or pursuant to order issued in connection with
the Merger U-1. In addition, Conectiv seeks the flexibility to enter into
certain hedging transactions to manage interest rate risk.
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a. Common Stock.
The aggregate amount of financing obtained by Conectiv during the
Authorization Period from the issuance and sale of common stock, $0.01 par value
per share, as described in this section, shall not exceed, when combined with
issuances of long-term debt pursuant to this Application, $500 million for the
uses set forth above. In addition, authorization is requested to issue up to 10
million shares of Conectiv common stock (or options to purchase such shares)
pursuant to benefit plans and the dividend reinvestment plan described below
during the ten year period from the date of the order of the Commission under
this Application. The number of shares to be issued pursuant to the benefit
plans will not exceed 5 million. The shares of common stock to be issued in
connection with acquisitions will not exceed an aggregate market value of $100
million.
i. General
Subject to the foregoing, Conectiv may issue and sell common stock or, if
pursuant to employee benefit plans, issue options exercisable for common stock
and common stock upon the exercise of options. Conectiv may also buy back shares
of such stock or such options during the Authorization Period in accordance with
Rule 42.
Common stock financings may be issued and sold pursuant to underwriting
agreements of a type generally standard in the industry. Public distributions
may be pursuant to private negotiation with underwriters, dealers or agents as
discussed below or effected through competitive bidding among underwriters. In
addition, sales may be made through private placements or other non-public
offerings to one or more persons. All such common stock sales will be at rates
or prices and under conditions negotiated or based upon, or otherwise determined
by, competitive capital markets.
Conectiv may sell common stock covered by this Application in any of the
following ways: (i) through underwriters or dealers; (ii) through agents; (iii)
directly to a limited number of purchasers or a single purchaser; or (iv)
directly to employees (or to trusts established for their benefit) and other
shareholders through its employee benefit plans or its dividend reinvestment
plan. If underwriters are used in the sale of the securities, such securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be offered to the public either through
underwriting syndicates (which may be represented by a managing underwriter or
underwriters designated by Conectiv) or directly by one or more underwriters
acting alone. The securities may be sold directly by Conectiv or through agents
designated by Conectiv from time to time. If dealers are utilized in the sale of
any of the securities, Conectiv will sell such securities to the dealers as
principals. Any dealer may then resell such securities to the public at varying
prices to be determined by such dealer at the time of resale. If common stock is
being sold in an
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underwritten offering, Conectiv may grant the underwriters thereof a "green
shoe" option permitting the purchase from Conectiv at the same price additional
shares then being offered solely for the purpose of covering over-allotments.
ii. Benefit Plans
The number of shares of Conectiv common stock to be issued and sold under
benefit plans pursuant to the authority requested herein shall be subject to the
limitation set forth in Item 1.E.1.a. above, relating to benefit plans and the
dividend reinvestment plan. As described in the Merger U-1, it is intended that
the Conectiv Incentive Compensation Plan will replace long-term incentive plans
currently in place at Delmarva and Atlantic. Conectiv may adopt one or more
other plans which will provide for the issuance and/or sale of Conectiv common
stock, stock options and stock awards to a group which has not yet been
determined but may include directors, officers and employees. Conectiv may issue
shares of its common stock under the authorization, and within the limitations,
set forth herein in order to satisfy its obligations under such plans. To the
extent that, following consummation of the Merger, Conectiv modifies an existing
Delmarva or Atlantic plan or adopts its own employee benefit plans that provide
for the issuance of Conectiv common stock or options or awards for Conectiv
common stock, Conectiv may issue shares of its common stock or options or awards
for such shares under the authorization and within the limitations set forth
herein, provided that Conectiv will provide the Commission with a summary of the
terms of any such Conectiv employee benefit plan prior to issuing any shares or
options or awards pursuant to any authorization provided in this proceeding.
Shares of common stock for use under any employee benefit plan may either be
newly issued shares, treasury shares, or shares purchased in the open market.
iii. Dividend Reinvestment Plan
The number of shares of Conectiv common stock to be issued and sold under
the dividend reinvestment plan pursuant to the authority requested herein shall
be subject to the limitation set forth in Item 1.E.1.a. above, relating to
benefit plans and the dividend reinvestment plan. Concurrent with the Merger, a
Conectiv Dividend Reinvestment Plan substantially in the form attached hereto as
Exhibit B-5 will become operational. Under the Conectiv Dividend Reinvestment
Plan, shares of common stock may be issued to stockholders reinvesting in the
plan or to any individual making optional cash investments. Conectiv may issue
and/or sell shares of its common stock under the authorization, and within the
limitations set forth herein, in connection with the operation of the Conectiv
Dividend Reinvestment Plan. Shares of common stock for use under the plan may
either be newly issued shares, treasury shares or shares purchased in the open
market. Conectiv hereby seeks authority for the issuance and sale of its shares
in accordance with the Conectiv Dividend Reinvestment Plan.
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iv. Acquisitions
Under the terms of the Merger U-1, Rule 58 and Section 34 of the Act,
Conectiv is authorized to acquire securities of companies engaged in
energy-related consumer services, "energy related businesses" as described in
Rule 58 and ETCs. Historically, similar acquisitions have occasionally involved
the exchange of parent company stock for securities of the company being
acquired in order to provide the seller with certain tax advantages. These
transactions are individually negotiated. The Conectiv common stock to be
exchanged may be purchased on the open market pursuant to Rule 42, treasury
shares or may be original issue. Original issue stock may be registered under
the 1933 Act, but at present it is expected that the common stock would not be
registered and the common stock acquired by the third parties would be subject
to resale restrictions pursuant to Rule 144 under the 1933 Act. Such
transactions would not occur while a public offering is being made.
The ability to offer stock as consideration makes a transaction more
economical for Conectiv as well as the seller of the business. Therefore,
Conectiv requests authorization to issue common stock with an aggregate market
value of up to $100 million in consideration for the acquisition by Conectiv or
a Non-Utility Subsidiary of securities of a business, the acquisition of which
is exempt under Rule 58 or Section 34 of the Act, or which has been authorized
in the Merger U-1. The Conectiv common stock would be valued at market value
based upon the closing price on the day before closing of the sale or based upon
average high and low prices for a period prior to the closing of the sale as
negotiated by the parties. From the perspective of the Commission, the use of
stock as consideration valued at market value is no different than a sale of
common stock on the open market and use of the proceeds to acquire securities,
the acquisition of which is otherwise authorized.
b. Long-Term Debt
Conectiv requests Commission authorization during the Authorization Period
to issue long-term debt securities in an amount, when combined with issuances of
common stock (other than for benefit plans or the Conectiv Dividend Reinvestment
Plan) under this Application, not to exceed $500 million. Such long-term debt
securities would include notes, debentures and medium-term notes issued under an
indenture (the "Conectiv Indenture") and/or borrowings from banks and other
financial institutions under terms described below. Any long-term debt security
would have such designation, aggregate principal amount, maturity, interest
rate(s) or methods of determining the same, terms of payment of interest,
redemption provisions, non-refunding provisions, sinking fund terms and other
terms and conditions as Conectiv may determine at the time of issuance.
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i. Terms of Indenture
The Conectiv Indenture will permit the issuance of a wide variety of
unsecured debt securities in one or more series. Securities issuable can include
notes, debentures, medium-term notes, securities having a low or zero coupon
(which may be issued with original issue discount), securities as to which
payments of interest or principal are based on a formula or index, and
securities on which payment of interest or principal are denominated in a
foreign currency or currencies. The terms of a specific issue of securities,
including any applicable negative covenants, will be set under the Conectiv
Indenture by a supplemental indenture.
The Conectiv Indenture contains numerous variable terms, such as the
principal amount, interest rate, redemption terms, denominations, events of
default, etc., which may be included as part of the terms of a new issue, and
permits other terms to be included or excluded in the supplemental indenture
authorizing a particular series of securities. In theory, any combination of the
variable terms could be included in a single series of securities which, under
current practice, would be called "notes", "debentures" or "medium-term notes".
The Conectiv Indenture also permits any series of securities to be issued either
in certificated form or in "global" form (i.e., transferable only by book-entry
on the records of a securities depository such as The Depository Trust Company).
The Conectiv Indenture contains no negative covenants or restrictions. Any
covenants or restrictions negotiated at the time of issuance will be included in
a supplemental indenture establishing a particular security. The Conectiv
Indenture contains the following event of default provisions: (i) defaults in
payment of the Conectiv Indenture securities; (ii) failures to comply with
agreements; and (iii) certain events of insolvency with respect to Conectiv,
subject, as applicable, to customary grace periods.
An application on Form T-3 for qualification of the Conectiv Indenture
under the Trust Indenture Act of 1939, as amended, will be filed and become
effective prior to the issuance of any securities under the Conectiv Indenture.
A form of the Conectiv Indenture will be filed by amendment herein as Exhibit
A-2.
ii. Terms of Borrowings from Banks and Other Financial Institutions.
Borrowings from banks and other financial institutions will be unsecured
debt and will rank pari passu with debt securities issued under the Conectiv
Indenture and the short-term Credit Facility (as described below). Specific
terms of any borrowings will be determined by Conectiv at the time of issuance
and will comply in all regards to the parameters on financing authorization set
forth above. A copy of any note or agreement executed pursuant to this
authorization will be filed under cover of the next quarterly report under Rule
24.
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iii. Benefit of Structure
Conectiv has chosen this financing structure (i.e., the issuance of
long-term debt at both the holding company and subsidiary levels) because it
provides more flexibility with a reduced administrative burden than the
alternative of having the smaller and mostly startup (and likely less
creditworthy) Non-Utility Subsidiaries issue long-term debt supported by a
Conectiv guarantee. At the same time the proposed financial structure produces
the same result in that the ultimate obligor is Conectiv. For example, the
establishment of individual medium-term note programs for multiple Non-Utility
Subsidiaries would be impractical from both cost and administrative
perspectives. The establishment of a single, medium-term note program at the
Conectiv level to primarily fund the capital requirements of the Non-Utility
Subsidiaries provides administrative efficiencies without duplicative expenses
for document preparation, printing, legal review, etc. Further, the funding of
the capital requirements of the Non-Utility Subsidiaries, a substantial portion
of which is anticipated to involve projects which are long-term by nature, with
long-term debt is appropriate. To fund such requirements with short-term debt
may increase Conectiv's exposure to short-term interest rate swings and to
rollover risk.
c. Short-Term Debt
To refund pre-Merger short-term debt, to provide for the reissuance of
pre-Merger letters of credit and to provide financing for general corporate
purposes, working capital requirements and Subsidiary capital expenditures until
long-term financing can be obtained, Conectiv requests authorization to have
outstanding at any one time during the Authorization Period, up to $500 million
of short-term debt consisting of bank borrowings, commercial paper or bid notes
(all as described below).
As noted in Exhibit I-2, Atlantic is a party to a credit agreement with an
outstanding balance of $63 million as of June 30, 1997. As a result of the
Merger, Atlantic will cease to exist, requiring the outstanding balance under
its credit agreement to be refinanced by Conectiv. In addition, subsidiaries of
Atlantic, including Atlantic Electric, Atlantic Thermal Systems, Inc. and ATE
Investment Inc., had outstanding short-term debt amounting to $189 million at
June 30, 1997. It is anticipated that this short-term debt also will be
refinanced by Conectiv, resulting in the issuance by Conectiv of approximately
$252 million of short-term debt upon consummation of the Merger. In addition to
the need to refund this short-term debt, Conectiv will need short-term financing
capacity should the Commission be unable to authorize long-term debt financing
contemporaneous with the Merger.
Conectiv anticipates entering into a revolving credit facility (the
"Credit Facility") with a group of banks on or before the effective date of the
Merger. A portion of the Credit Facility may be used to support letters of
credit issued by Conectiv or the Subsidiaries in the ordinary course of
business. Also, as discussed below, if a Utility Subsidiary issues commercial
paper,
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the Utility Subsidiary may be made a party to the Credit Facility as backup for
the commercial paper.
The interest rates on the Credit Facility are expected to be based on a
triple option pricing formula as follows:
Option 1: Prime Rate
Option 2: LIBOR + Margin
Option 3: CD + Margin
Maturities on loans issued under the LIBOR rate option are expected to be
for 1, 2, 3 or 6 months. Maturities on loans issued under the CD rate option are
expected to be for 30, 60, 90 or 180 days. All such loans will be evidenced by
promissory notes. It is expected that the Credit Facility will contain negative
covenants consistent with those covenants required by bank lenders for
comparable bank facilities. The Credit Facility will be unsecured debt of
Conectiv and will rank pari passu with debt issued under the Conectiv Indenture
and any long-term debt securities issued directly to banks or other financial
institutions.
A copy of the Credit Facility will be filed under cover of the next
quarterly report under Rule 24 after execution.
Conectiv may sell commercial paper, from time to time, in established
domestic or European commercial paper markets. Such commercial paper would be
sold to dealers at the discount rate or coupon rate per annum prevailing at the
date of issuance for commercial paper of comparable quality and maturities sold
to commercial paper dealers generally. It is expected that the dealers acquiring
commercial paper from Conectiv will reoffer such paper at a discount to
corporate, institutional and, with respect to European commercial paper,
individual investors. Institutional investors are expected to include commercial
banks, insurance companies, pension funds, investment trusts, foundations,
colleges and universities and finance companies.
Backup bank lines of credit for 100% of the outstanding amount of
commercial paper are generally required by credit rating agencies. The Credit
Facility will serve as backup for Conectiv's commercial paper program, thus
negating the need for additional lines of credit.
Conectiv requests approval to enter into individual agreements ("Bid Note
Agreements") with one or more commercial banks which may or may not be lenders
under the Credit Facility. The Bid Note Agreements would permit Conectiv to
negotiate with one or more banks ("Bid Note Lender[s]") on any given day for
such Bid Note Lender, or any affiliate or subsidiary of such lender, to purchase
promissory notes ("Bid Notes") directly from Conectiv. Such notes would bear
interest rates comparable to, or lower than, those available through other forms
of short-term borrowing with similar terms requested in this Application. The
maturity of any Bid Note would not exceed 270 days, and the total amount of Bid
Notes outstanding at any time,
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when added to the aggregate amounts of short-term borrowing outstanding under
other forms of short-term borrowing contemplated in this Application, would not
exceed the total amount of short-term debt for which authorization is requested.
A form of the proposed Bid Note Agreement will be filed by amendment as Exhibit
A-5 to this Application; however, the exact form of the Bid Note Agreement will
be negotiated separately with each of the Bid Note Lenders.
d. Other Securities
In addition to the specific securities for which authorization is sought
herein, Conectiv may also find it necessary or desirable to minimize financing
costs or to obtain new capital under then existing market conditions to issue
and sell other types of securities from time to time during the Authorization
Period. The issuance of any such securities would be subject to the aggregate
$500 million limit on long-term debt or $500 million limit on short-term debt
and to the parameters on financing authorization set forth above. Conectiv
requests that the Commission reserve jurisdiction over the issuance of
additional types of securities. Conectiv also undertakes to file a
post-effective amendment in this proceeding which will describe the general
terms of each such security and the amount to be issued and to request a
supplemental order of the Commission authorizing the issuance thereof by
Conectiv.
e. Interest Rate Risk Management Devices
Conectiv requests authority to enter into, perform, purchase and sell
financial instruments intended to manage the volatility of interest rates,
including but not limited to interest rate swaps, caps, floors, collars and
forward agreements or any other similar agreements. Conectiv would employ
interest rate swaps as a means of prudently managing the risk associated with
any of its outstanding debt issued pursuant to this authorization or an
applicable exemption by, in effect, synthetically (i) converting variable rate
debt to fixed rate debt, (ii) converting fixed rate debt to variable rate debt,
(iii) limiting the impact of changes in interest rates resulting from variable
rate debt and (iv) providing an option to enter into interest rate swap
transactions in future periods for planned issuances of debt securities. In no
case will the notional principal amount of any interest rate swap exceed that of
the underlying debt instrument and related interest rate exposure, i.e.,
Conectiv will not engage in "leveraged" or "speculative" transactions. The
underlying interest rate indices of such interest rate swaps will closely
correspond to the underlying interest rate indices of Conectiv's debt to which
such interest rate swap relates. Conectiv will only enter into interest rate
swap agreements with counterparties whose senior debt ratings, as published by
Standard & Poor's Corporation, are greater than or equal to "BBB+", or an
equivalent rating from Moody's Investor Service, Inc., Fitch Investor Service or
Duff & Phelps.
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2. Utility Subsidiary Financing
As shown on Exhibit I-1, Delmarva has previously issued, and there are
currently outstanding, preferred stock, commercial paper notes, first mortgage
bonds issued under a Mortgage and Deed of Trust dated October 1, 1943, medium
term notes issued under an Indenture dated as of November 1, 1988, unsecured
subordinated debt securities issued in connection with certain securities issued
by a subsidiary trust and various exempt revenue bonds and pollution control
notes. Any future issue of such securities would qualify for issuance without
prior approval by this Commission pursuant to Rule 52, except short-term debt
securities which will have been approved by the Virginia State Corporation
Commission ("VSCC") but not the Delaware Public Service Commission ("DPSC")(3),
and except for unsecured subordinated debt securities issued in connection with
securities issued by a subsidiary trust which involve affiliate guarantees.
Commission authorization is sought for the issuance by Delmarva of up to
$275 million of short-term debt securities consisting of commercial paper,
unsecured bank loans and borrowings from the System Money Pool (as described
below). A copy of the order issued by the VSCC will be filed by amendment as
Exhibit D-1. Such issuances of securities will comply in all instances with the
parameters for financing described above. Any short-term borrowings by Delmarva,
when combined with short-term borrowings by Conectiv for which authority is
sought herein, will not exceed $500 million at any time during the Authorization
Period.
As shown on Exhibit I-2, Atlantic also has previously issued and there are
currently outstanding preferred stock, first mortgage bonds and secured medium
term notes issued under a Mortgage and Deed of Trust dated January 15, 1937,
unsecured medium term notes issued under an Indenture dated March 1, 1997,
junior funded debt issued under an Indenture dated February 1, 1986, pollution
control notes, and notes under bank credit lines and unsecured subordinated debt
securities issued in connection with certain securities issued by a subsidiary
trust. Any future issue of similar securities would be issued with the approval
of the New Jersey Board of Public Utilities ("NJBPU") and thus, such issue would
be exempt under the terms of Rule 52, except that unsecured subordinated debt
securities issued by a subsidiary trust involve affiliate guarantees and do not
qualify under Rule 52.
In Item I.E.6 below, authorization is requested for both Utility
Subsidiaries to retain certain existing financing entities, to establish and
acquire new financing entities and for the financing entities to issue
securities to third parties to be guaranteed by the applicable Utility
Subsidiary.
In addition, the Utility Subsidiaries may find it necessary or desirable
to issue other types of securities during the Authorization Period that are not
exempt from prior Commission
(3) Since Delmarva is incorporated both in Delaware and Virginia and only one
state takes jurisdiction over short-term debt, it appears that Rule 52 is
inapplicable.
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approval. The Utility Subsidiaries request that the Commission reserve
jurisdiction over the issuance of such additional types of securities and the
amount thereof except to the extent the same are exempt pursuant to Rule 52.
Each Utility Subsidiary also undertakes to have a post-effective amendment filed
in this proceeding that will describe the general terms of each such security
and the amount thereof of such Utility Subsidiary and request a supplemental
order of the Commission authorizing the issuance thereof. To the extent that a
Utility Subsidiary elects to issue commercial paper, either pursuant to Rule 52
or pursuant to an order in this file, the Utility may be made party to the
Conectiv Credit Facility discussed above as back-up to the commercial paper.
To the extent not exempt under Rule 52, the Utility Subsidiaries also
request authority to enter into interest rate risk management transactions of
the same type and under the same conditions as requested above by Conectiv.
3. Non-Utility Subsidiary Financing
As noted on Exhibits I-1 and I-2, certain Non-Utility Subsidiaries have
debt, construction loans, letters of credit and support arrangements in place.
Certain guarantees in favor of a direct or indirect Subsidiary issued by another
Subsidiary may be replaced by a Conectiv guarantee as described below. In
addition, the Merger U-1 contemplates, and the order permitting the Merger U-1
to become effective will authorize, the formation or retention of other
Subsidiaries named herein which do not currently have outstanding debt. It is
expected that future financing by all such Non-Utility Subsidiaries will be made
pursuant to the terms of Rule 52.
The Non-Utility Subsidiaries are engaged in and expect to continue to be
active in the development and expansion of their existing energy-related or
otherwise functionally-related, non-utility businesses. They will be competing
with large, well-capitalized companies in different sectors of the energy and
other industries. In order to quickly and effectively invest in such competitive
arenas, it will be necessary for the Non-Utility Subsidiaries to have the
ability to engage in financing transactions which are commonly accepted for such
types of investments. The majority of such financings will be exempt from prior
Commission authorization pursuant to Rule 52(b). The Non-Utility Subsidiaries
may, however, engage in types of security financing with non-affiliates that are
not exempt from prior Commission approval. The Non-Utility Subsidiaries
therefore request that the Commission reserve jurisdiction over the issuance of
such additional types of securities and the amounts thereof and undertake to
cause a post-effective amendment to be filed in this proceeding which will
describe the general terms of each such security and the amounts thereof and
request a supplemental order of the Commission authorizing the issuance thereof
by the subject Non-Utility Subsidiary.
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4. Guarantees and Intrasystem Money Pool
a. Guarantees
Conectiv requests authorization to enter into guarantees, obtain letters
of credit, enter into expense agreements or otherwise provide credit support
with respect to the obligations of Subsidiaries as may be appropriate to enable
such Subsidiaries to carry on in the ordinary course of their respective
businesses, in an aggregate principal amount not to exceed $350 million
outstanding at any one time, except to the extent the same are exempt pursuant
to Rule 45. Included in this amount are guarantees and other credit support
mechanisms of Atlantic previously issued in favor of its subsidiaries which will
be assumed by Conectiv upon consummation of the Merger.
In addition, authority is requested for Non-Utility Subsidiaries to enter
into arrangements with each other similar to those described with respect to
Conectiv above in an aggregate principal amount not to exceed $100 million
outstanding at any one time, except to the extent the same are exempt pursuant
to Rule 45. The limits on guarantees and other credit support obligations
described above are not to be included in the aggregate respective limits
applicable to external financings requested elsewhere herein. Any guarantee of
an existing Subsidiary which is an energy-related company as defined in Rule 58
or of a new subsidiary whose securities are acquired pursuant to Rule 58 will be
included in the computation of aggregate investments in energy-related companies
for purposes of Rule 58.
Conectiv requests that this guarantee authority include the ability to
guarantee debt. The debt guaranteed will comply with the parameters for
financing set forth above.
b. Authorization and Operation of System Money Pool
Since all lending and borrowing transactions conducted through the
proposed System Money Pool involve the issuance of a note, the Rule 52 exemption
applies so long as the participation by any utility subsidiary has been approved
by the state commission in the state where the utility is incorporated and doing
business and the formulation of applicable interest rates comply with Rule 52.
Participation in the System Money Pool by Delmarva will have been approved by
the VSCC but not the DPSC. If not for this issue, approval for operation of the
System Money Pool would not have been requested. Conectiv and the Subsidiaries
hereby request authorization to establish the System Money Pool. Delmarva
currently has a $200 million line of credit and authorization from the VSCC for
up to $275 million of short-term debt. Atlantic Electric has $250 million of
credit lines and similar authorization from the NJBPU for short-term debt.
Delmarva and Atlantic may borrow up to the full authorization through the System
Money Pool or directly from Conectiv. Except for the two Utility Subsidiaries,
no other participant in the System Money Pool will be permitted to have
borrowings from the System Money Pool exceeding $25 million at any time during
the Authorization Period. The largest
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source of funds for the System Money Pool will be Conectiv, which can invest in,
but not borrow from, the System Money Pool.
The Applicants believe that the all-in cost of the proposed borrowings
through the System Money Pool will generally be more favorable to the borrowing
participants than the comparable all-in cost of external short-term borrowings,
and the yield to the participants contributing available funds to the System
Money Pool will generally be higher than the typical yield on short-term
investments.
Under the proposed terms of the System Money Pool, short-term funds would
be available from surplus funds in the treasuries of Conectiv and the
Subsidiaries for short-term loans to the Subsidiaries from time to time. The
determination of whether a System Money Pool participant at any time has surplus
funds to lend to the System Money Pool or shall lend funds to the System Money
Pool would be made by such participant's chief financial officer or treasurer,
or by a designee thereof, on the basis of current cash position, cash flow
projections and other relevant factors.
System Money Pool participants that borrow would borrow pro rata from each
company that lends, in the proportion that the total amount loaned by each such
lending company bears to the total amount then loaned through the System Money
Pool. On any day when more than one fund source (e.g., surplus treasury funds of
Conectiv and other System Money Pool participants ("Internal Funds") and funds
from external borrowings by Conectiv ("External Funds")), with different rates
of interest, is used to fund loans through the System Money Pool, each borrower
would borrow pro rata from each such funding source in the System Money Pool in
the same proportion that the amount of funds provided by that funding source
bears to the total amount of short-term funds available to the System Money
Pool.
Interest expense (income) will be charged (credited) monthly to all
participants in the System Money Pool based on each participant's daily average
cash position. The cost of money for all advances from the System Money Pool and
the investment rate for moneys invested in the System Money Pool will be the
same. To derive this rate, Support Conectiv will use the System Money Pool's net
monthly interest expense (expense less any income) generated by external
borrowings incurred on behalf of the System Money Pool. This net amount will
then be divided by Support Conectiv's average net daily investment/borrowing
position to derive an interest rate for the month. In the unlikely event that,
on a consolidated basis, investments in the System Money Pool are exactly offset
by borrowings from the System Money Pool such that there are no external
borrowings or investments, the cost of money and the investment rate will be the
prior month's average Federal Funds Rate as published in the Federal Reserve
Statistical Release, Publication H.15 (519).
The cost of compensating balances, if any, and fees paid to banks to
maintain credit lines and accounts by Conectiv in lending External Funds to the
System Money Pool would initially
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be paid by Conectiv. A portion of such costs -- or all of such costs in the
event Conectiv establishes a line of credit solely for purposes of lending any
External Funds obtained thereby into the System Money Pool -- would be allocated
to the System Money Pool participants borrowing such External Funds through the
System Money Pool in proportion to their respective daily outstanding borrowings
of such External Funds.
Borrowings from the System Money Pool would require authorization by the
borrower's chief financial officer or treasurer, or by a designee thereof. No
loans through the System Money Pool would be made to Conectiv.
Conectiv and investing Subsidiaries would be investors ("Investors")
pursuant to a System Money Pool evidence of deposit (see Exhibit A-7). Loans to
Subsidiaries through the System Money Pool will be made pursuant to a short-term
grid note (see Exhibit A-8) Such short-term grid note will be due upon demand by
the Investor(s), but in any case will be repaid prior to May 1 of the calendar
year after borrowing. A default rate equal to 2% per annum above the pre-default
rate on unpaid principal or interest amounts will be assessed if any interest or
principal payment becomes past due.
Funds not required by the System Money Pool to make loans (with the
exception of funds required to satisfy the Money Pool's liquidity requirements)
would ordinarily be invested in one or more short-term investments, including:
(i) interest-bearing accounts with banks; (ii) obligations issued or guaranteed
by the U.S. government and/or its agencies and instrumentalities, including
obligations under repurchase agreements; (iii) obligations issued or guaranteed
by any state or political subdivision thereof, provided that such obligations
are rated not less than "A" by a nationally recognized rating agency; (iv)
commercial paper rated not less than "A-1" or "P-1" or their equivalent by a
nationally recognized rating agency; (v) money market funds; (vi) bank
certificates of deposit, (vii) Eurodollar funds; and (viii) such other
investments as are permitted by Section 9(c) of the Act and Rule 40 thereunder.
A draft copy of the Conectiv System Money Pool Investment Guidelines is included
as Exhibit A-9. The interest income and investment income earned on loans and
investments of surplus funds would be allocated among the participants in the
System Money Pool in accordance with the proportion each participant's
contribution of funds bears to the total amount of funds in the System Money
Pool and the cost of funds provided to the System Money Pool by such
participant.
Operation of the System Money Pool, including record keeping and
coordination of loans, will be handled by Support Conectiv under the authority
of the appropriate officers of the participating companies. Support Conectiv
will administer the System Money Pool on an "at cost" basis. Support Conectiv
will act strictly in an agency capacity, and not as principal, with regard to
funds deposited in the System Money Pool by other participants.
The maximum amount of System Money Pool borrowings outstanding for each
Subsidiary will be determined by Conectiv and the Subsidiaries in accordance
with business
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needs. Actual short-term financing would be issued based on working capital
requirements and any interim financing needed to bridge between issuances of
long-term capital.
Proceeds of any short-term borrowings from the System Money Pool by the
Applicants may be used by each such Applicant (i) for the interim financing of
its construction and capital expenditure programs; (ii) for its working capital
needs; (iii) for the repayment, redemption or refinancing of its debt and
preferred stock; (iv) to meet unexpected contingencies, payment and timing
differences, and cash requirements; and (v) to otherwise finance its own
business and (vi) for other lawful general purposes.
5. Changes in Capital Stock of Wholly-Owned Subsidiaries and Dividends
Out of Capital or Unearned Surplus by Non-Utility Subsidiaries
The portion of an individual Subsidiary's aggregate financing to be
effected through the sale of stock to Conectiv or other intermediate parent
company during the Authorization Period pursuant to Rule 52 and/or pursuant to
an order issued pursuant to this file cannot be ascertained at this time. It may
happen that the proposed sale of capital stock may in some cases exceed the then
authorized capital stock of such Subsidiary. In addition, the Subsidiary may
choose to use capital stock with no par value or a different par value. Also, a
wholly-owned Subsidiary may wish to engage in a reverse stock split to reduce
franchise or other taxes. As needed to accommodate such proposed transactions
and to provide for future issues, request is made for authority to change the
terms of any such wholly-owned Subsidiary's authorized capital stock
capitalization by an amount deemed appropriate by Conectiv or other immediate
parent company in the instant case. A Subsidiary would be able to change the par
value, or change between par and no-par stock, without additional Commission
approval. Any such action by a Utility Subsidiary would be subject to and would
only be taken upon the receipt of any necessary approvals by the state
commission in the state or states where the Utility Subsidiary is incorporated
and doing business. (See New Century Energies, Inc. No. 35-26750, dated August
1, 1997).
In addition, Conectiv requests the flexibility to withdraw capital from a
Non-Utility Subsidiary with excess funds through a dividend out of capital
surplus to the full extent permitted by the law of the state where the
Non-Utility Subsidiary is incorporated. Said capital would then be used for the
authorized business of the Conectiv System.
One situation could result if Conectiv were to acquire all of the capital
stock of a Rule 58 company, which in turn acquired a security in a specific
project. Following the acquisition, the project might do a debt financing
pursuant to Rule 52 and return equity to the Conectiv Rule 58 subsidiary.
Assuming it has no earnings, the Conectiv Rule 58 company could not, without
Commission approval, distribute such cash to Conectiv. In the same example, if
the Conectiv Rule 58 company were to sell a portion of its equity in the project
to a third party for cash, the Conectiv Rule 58 subsidiary would have
substantial cash available for upstream distribution, but
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would not have available current earnings and therefore, could not, without
prior Commission approval, declare and pay a dividend out of such cash proceeds.
Applicants expect that situations will arise where a direct or indirect
Non-Utility Subsidiary will have unrestricted cash available for distribution in
excess of current and retained earnings. Consequently, in these situations the
declaration and payment of a dividend would have to be charged, in whole or in
part, to capital or unearned surplus.
Any dividend actually declared and paid out of capital or unearned surplus
pursuant to the authority requested herein will conform to applicable law of the
respective company's jurisdiction or organization and applicable covenant
restrictions in loan or other financing agreements.
The ability of the Non-Utilities Subsidiaries to use distributable cash to
pay dividends ultimately to Conectiv will benefit the Conectiv System by
enabling Conectiv to apply such amounts to the reduction or refinancing of
outstanding bank borrowings and to fund operations of other Subsidiaries. In
addition, since the Non-Utility Subsidiaries are or will be engaged in
activities exclusively dedicated to owning or operating non-utility facilities
as permitted under existing Commission orders or regulations, the payment of
dividends by the Non-Utility Subsidiaries out of capital or unearned surplus
will not adversely affect the financial integrity of the Conectiv System or
jeopardize the working capital of Utility Subsidiaries within the contemplation
of Section 12(c) of the Act.
The Commission has recently issued orders authorizing the payment of
dividends out of capital or unearned surplus under circumstances
substantially similar to those proposed herein. See The Columbia Gas System,
Inc. Release No. 35-26209, December 29, 1994; GPU International, Inc., et
al., Release No. 35-26678, February 28, 1997; The Southern Company, et al.,
Release No. 35-26543, July 17, 1996; Cinergy Corp., et al., Release No.
35-26719, May 22, 1997.
6. Financing Entities
Authority is sought for the Subsidiaries to organize new corporations,
trusts, partnerships or other entities created for the purpose of facilitating
financings through their issuance to third parties of income preferred
securities or other securities authorized hereby or issued pursuant to an
applicable exemption. Request is also made for these financing entities to issue
such securities to third parties in the event such issuances are not exempt
pursuant to Rule 52. Additionally, request is made for authorization with
respect to (i) the issuance of debentures or other evidences of indebtedness by
any of the Subsidiaries to a financing entity in return for the proceeds of the
financing, (ii) the acquisition by any of the Subsidiaries of voting interests
or equity securities issued by the financing entity to establish any such
Subsidiary's ownership of the financing entity (the equity portion of the entity
generally being created through a capital
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contribution or the purchase of equity securities, ranging from 1 to 3 percent
of the capitalization of the financing entity) and (iii) the guarantee by the
Applicants of such financing entity's obligations in connection therewith. Each
of the Subsidiaries also request authorization to enter into expense agreements
with its respective financing entity, pursuant to which it would agree to pay
all expenses of such entity. Any amounts issued by such financing entities to
third parties pursuant to this authorization will be included in the overall
external financing limitation authorized herein for the immediate parent of such
financing entity. Applicants also request that Delmarva be authorized to retain
Delmarva Power Financing I, a wholly-owned trust, that issued trust preferred
securities and loaned the proceeds to Delmarva and that Atlantic Electric be
authorized to retain Atlantic Capital I, a wholly-owned trust, that issued trust
preferred securities and loaned the proceeds to Atlantic Electric. The
authorization sought herein with respect to financing entities is substantially
the same as that given to New Century Energies, Inc. in Release No. 35-26750
dated August 1, 1997.
F. Summary of Authorizations Sought
Conectiv requests Commission authorization with this Application for the
following financing transactions without any additional Commission approvals
required except as indicated. Unless otherwise specifically indicated, all
requested authorizations pertain to transactions initiated prior to December 31,
2000.
1. Conectiv External Financing
a. Authorization to issue common stock and long-term debt in an
aggregate amount not to exceed $500 million, including $100 million
of common stock to be issued for acquisitions
b. Authorization to issue up to 10 million shares of Conectiv common
stock (in addition to the authorization sought in Item 1.G.1.a
above) pursuant to dividend reinvestment plans and Conectiv benefit
plans and, in connection with benefit plans, to issue options to
acquire Conectiv common stock for a period extending ten years from
the date of the Commission Order under this Application
c. Authorization to issue common stock aggregating no more than $100
million (included in the authorization sought in Item 1.G.1.a above)
in market value at the time of issue in consideration for securities
being acquired by Conectiv or a Non-Utility Subsidiary pursuant to
the order issued in connection with the Merger U-1 or pursuant to
Rule 58 or Section 34
d. Authorization to have outstanding at any one time, up to $500
million of short-term debt consisting of borrowings under the Credit
Facility, the issuance of commercial paper and the sale of bid notes
e. Authorization to issue other types of securities that Conectiv deems
appropriate, for which the Commission would reserve jurisdiction
over such issuance subject to the parameters for financing
authorization described herein
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f. Authorization for Conectiv to enter into certain hedging
transactions to convert all or a portion of its variable rate debt
existing or to be issued pursuant to this Application to fixed rate
debt or to convert all or a portion of its fixed rate debt existing
or to be issued pursuant to this Application to variable rate debt
or to limit the impact of changes in interest rates on variable rate
debt or planned issuances of debt
2. Utility Subsidiary Financing
a. Authorization for Delmarva to have outstanding at any one time up to
$275 million of short-term debt consisting of commercial paper,
unsecured bank loans and borrowings under the System Money Pool
b. To the extent not exempt under Rule 52, authorization to enter into
hedging transactions similar to those identified above for Conectiv
c. To the extent not exempt under Rule 52, authorization to issue other
types of securities that the Utility Companies deem appropriate, for
which the Commission would reserve jurisdiction over issuance
3. Non-Utility Subsidiary Financing
a. To the extent not exempt, authorization to issue other types of
securities that the Non-Utility Companies deem appropriate, for
which the Commission would reserve jurisdiction over issuance
thereof
4. Intrasystem Financing
a. To the extent not exempt under Rule 45, authorization for Conectiv
to enter into guarantees (of debt and otherwise), letters of credit
or otherwise provide credit support with respect to the obligations
of Conectiv System companies in an aggregate amount not to exceed
$350 million
b. To the extent not exempt under Rule 45, authorization for the
Non-Utility Subsidiaries to enter into guarantees, letters of credit
or otherwise provide credit support with respect to the debt and
obligations of other Subsidiaries in an aggregate amount not to
exceed $100 million
c. Authorization for Delmarva to participate in the System Money Pool
5. Financing Entities
a. Authorization for the Subsidiaries to organize new corporations,
trusts, partnerships or other entities created for the purpose of
facilitating financings through their issue to third parties of
income preferred securities or other securities. Request is also
made for these financing entities to issue such securities to third
parties in the event such transactions may not be covered by Rule
52. Additionally, request is made for
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authorization with respect to (i) the issuance of debentures or
other evidences of indebtedness by any of the Subsidiaries to a
financing entity in return for the proceeds of the financing, (ii)
the acquisition by any of the Subsidiaries of voting interests or
equity securities issued by the financing entity to establish any
such Subsidiary's ownership of the financing entity and (iii) the
guarantee by the Applicants of such financing entity's obligations.
b. Authorization for certain Subsidiaries to retain financing entities
in existence prior to the Merger
G. Filing of Certificates of Notification
It is proposed that, with respect to Conectiv, the reporting systems of
the 1933 Act and the 1934 Act be integrated with the reporting system under the
Act. This would eliminate duplication of filings with the Commission that cover
essentially the same subject matters, resulting in a reduction of expense for
both the Commission and Conectiv. To effect such integration, the portion of the
1933 Act and 1934 Act reports containing or reflecting disclosures of
transactions occurring pursuant to the authorization granted in this proceeding
would be incorporated by reference into this proceeding through Rule 24
certificates of notification. The certificates would also contain all other
information required by Rule 24, including the certification that each
transaction being reported on had been carried out in accordance with the terms
and conditions of and for the purposes represented in this Application. Such
certificates of notification would be filed within 60 days after the end of each
of the first three calendar quarters, and 90 days after the end of the last
calendar quarter, in which transactions occur.
The Rule 24 certificates will contain the following information:
a. If sales of common stock or debt by Conectiv are reported, the
purchase price per share and the market price per share at the date
of the agreement of sale;
b. The total number of shares of Conectiv common stock issued or
issuable pursuant to options granted during the quarter under
Conectiv's dividend reinvestment plan and employee benefit plans
including any employee benefit plans hereinafter adopted as
discussed in Item 1.E.1.a.ii;
c. If Conectiv common stock has been transferred to a seller of
securities of a company being acquired, the number of shares so
issued, the value per share and whether the shares are restricted in
the hands of the acquiror;
d. If a guarantee is issued during the quarter, the name of the
guarantor, the name of the beneficiary of the guarantee and the
amount, terms and purpose of the guarantee;
e. The amount and terms of any short-term debt issued by Conectiv and
Delmarva during the quarter;
f. The amount and terms of any financings consummated by any Utility
Subsidiary that are not exempt under Rule 52;
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g. The amount and terms of any financings consummated by any
Non-Utility Subsidiary during the quarter that are not exempt under
Rule 52;
h. A list of U-6B-2 forms filed with the Commission during the quarter,
including the name of the filing entity and the date of filing;
i. Consolidated balance sheets as of the end of the quarter and
separate balance sheets as of the end of the quarter for each
company, including Conectiv, that has engaged in jurisdictional
financing transactions during the quarter; and
j. Future registration statements filed under the 1933 Act with respect
to securities that are subject of the Application will be filed or
incorporated by reference as exhibits to the next certificate filed
pursuant to Rule 24
H. Statement Pursuant to Rule 54
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an exempt wholesale generator ("EWG") or
foreign utility company ("FUCO"), or other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs or FUCOs,
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an EWG or a FUCO upon the registered holding company
system if Rules 53(a),(b) or (c) are satisfied. Delmarva currently owns and
Conectiv will indirectly acquire a less than 50% equity interest in Burney
Forest Products, a joint venture, which owns a qualifying facility and related
sawmill in Burney, California. Burney Forest Products is also an EWG.
Delmarva's aggregate current investment in Burney Forest Products is de minimis.
Rule 53 is complied with, in that the investment does not exceed 50% of the
Conectiv System's consolidated retained earnings. Conectiv and the Subsidiaries
owning an interest in Burney Forest Products will maintain books and records to
identify the investments in and earnings from Burney Forest Products, thereby
satisfying Rule 53(a)(2) and Burney Forest Products will maintain books and
records in conformity with United States generally accepted accounting
principles ("GAAP"), the financial statements will be prepared according to
GAAP and Conectiv undertakes to provide the Commission access to such books and
records and financial statements as it may request.
Employees of Conectiv's domestic public-utility companies do not render
any services, directly or indirectly, to Burney Forest Products, thereby
satisfying Rule 53(a)(3).
None of the conditions described in Rule 53(b) exist, thereby satisfying
Rule 53(b) and making Rule 53(c) inapplicable.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
(a) State (1) the fees, commissions and expenses paid or incurred, or to be paid
or incurred, directly or indirectly, in connection with the proposed transaction
by the applicant or declarant or
<PAGE> 25
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any associate company thereof, and (2) if the proposed transaction involves the
sale of securities at competitive bidding, the fees and expenses to be paid to
counsel selected by applicant or declarant to act for the successful bidder.
Estimated Legal Fees and Expenses
Estimated Miscellaneous Expenses
TOTAL *(TO BE PROVIDED BY AMENDMENT)
*The above fees do not include the expenses for the public issuance of long-term
debt and equity securities. As noted previously, Conectiv proposes that such
fees be capped at 5% of the issuance amount.
(b) If any person to whom fees or commissions have been or are to be paid in
connection with the proposed transaction is an associate company or an affiliate
of the applicant or declarant, or is an affiliate of an associate company, set
forth the facts with respect thereto.
Not applicable.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
(a) State the section of the Act and the rules thereunder believed to be
applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of exemption.
Conectiv External Financing:
The issuance of common stock, long-term debt, short-term debt and other
securities by Conectiv is subject to Sections 6 and 7 of the Act. Rule 54 is
also applicable to the issuance of securities by Conectiv. Compliance with Rule
54 is discussed above.
Section 6(a) provides in relevant part that it is unlawful for a
registered holding company or subsidiary of a registered holding company to
issue a security except in accordance with a declaration under Section 7 and
with the order under such section permitting such declaration to become
effective or except pursuant to applicable exemption or exception.
Subparagraph (b) of Section 6 provides an exemption from the approval
requirement for short-term (maturing in less than nine months) debt issued in a
private offering aggregating no more than 5 per cent of the principal amount and
par value of the other securities of the company outstanding or such greater
amount as the Commission authorizes. The authorized level of short-term debt
sought herein for Conectiv would be approximately 10% of consolidated
capitalization and is well within the parameters established by Commission
precedent.
<PAGE> 26
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Section 7(c) sets forth the requirements to be met for the issuance of
securities by registered public utility holding companies. Subparagraph (1)
essentially requires that the registered company issue only common stock or debt
which is secured by a lien on a physical asset of the company or indirectly
secured by a physical asset of a subsidiary. Certain refunding obligations are
also permitted:
7(c) The Commission shall not permit a declaration regarding the issue or
sale of a security to become effective unless it finds that:
(1) such security is (A) a common stock having a par value and
being without preference as to dividends or distributions over
and having at least equal voting rights with any outstanding
security of the declarant; (B) a bond (i) secured by a first
lien on physical property of the declarant, or (ii) secured by
an obligation of a subsidiary company of the declarant secured
by a first lien on physical property of such subsidiary
company, or (iii) secured by any other assets of the type and
character which the Commission by rules and regulations or
order may prescribe as appropriate in the public interest or
for the protection of investors; (C) a guaranty of, or
assumption of liability on, a security of another company; or
(D) a receiver's or trustee's certificate duly authorized by
the appropriate court or courts.
The debentures, and medium term notes meet the standards of Section
7(c)(1) except for certain criteria set forth in the Statements of Policy
governing First Mortgage Bonds and Preferred Stock. However, the Commission has
stated, " . . .[T]he SEC has found that the Statements of Policy have become
anachronistic and hinder the ability of registered companies to raise capital.
As a result, the SEC has permitted more and more deviations on a case-by-case
basis from the requirements of the Statements of Policy." Conectiv hereby
requests authority to deviate from the Statements of Policy to the extent that
any preferred stock which may be issued by the Utility Subsidiaries pursuant to
Rule 52 and the long-term debt to be issued by Conectiv pursuant to authority
sought herein and the Utility Subsidiaries pursuant to Rule 52 do not comply
with such statements.
In addition, subparagraph (2) of Section 7(c) permits other securities to be
issued if certain criteria are met:
(2) such security is to be issued or sold solely (A) for the
purpose of refunding, extending, exchanging or discharging an
outstanding security of the declarant and/or a predecessor
company thereof or for the purpose of effecting a merger,
consolidation or other reorganization; (B) for the purpose of
financing the business of the declarant as a public-utility
company; (C) for the purpose of financing the business of the
declarant, when the declarant is neither a holding company nor
a public-utility company; and/or (D) for
<PAGE> 27
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necessary and urgent corporate purposes of the declarant there
the provisions of (1) would impose an unreasonable financial
burden upon the declarant and are not necessary or appropriate
in the public interest or for the protection of investors or
consumers.
In order for the Commission to issue an order permitting the issuance of a
security not complying with Section 7(c)(1), Section 7(c)(2)(D) requires that
the proposed financing (i) be for necessary and urgent corporate purposes of the
declarant, (ii) where the provisions of (1) would impose an unreasonable
financial burden upon the declarant and are not necessary or appropriate in the
public interest or for the protection of investors or consumers. Conectiv
submits that the proposed debenture financing is for a necessary and urgent
corporate purpose in that it is for the financing of the nonutility side of a
new competitive total energy services company. Also, compliance with the
provisions of Subparagraph (1) would impose an unreasonable financial burden on
the declarant by imposing a more costly and unnecessary means of raising needed
capital. Compliance with the provisions of Subparagraph (1) is not necessary or
appropriate in the public interest or for the protection of investors or
consumers.
A. The Proposed Financing is Required for a Necessary and Urgent
Corporate Purposes of the Declarant.
As is true of many other companies in the electric utility industry,
Conectiv does not project capital needs for utility subsidiaries in the
foreseeable future that will exceed the capability of the utility to meet
through retained earnings or the public issuance of preferred stock or debt by
the utility.(4) The area of most growth and need for incremental capital is in
the energy-related businesses that the system must offer to customers to remain
competitive.
As stated by the Commission in the Release adopting Rule 58 (HCAR No.
26667):
As a result of Congressional action, combined with initiatives of
the Federal Energy Regulatory Commission and state and local ratemaking
authorities, the pace of change in the gas and electric utility industry
is accelerating. Today the gas industry is largely deregulated and the
electric industry is undergoing a similar process. In addition to
increasing competition at the wholesale level, retail electric competition
is developing more rapidly than anticipated due to state efforts.
Utilities and other suppliers of energy appear poised to compete in retail
markets. As a result of these developments, the contemporary gas and
electric industries no longer focus solely upon the traditional production
and distribution functions of a regulated utility, but are instead
evolving toward a broadly based, competitive, energy services business.
(4) From time to time, Conectiv may elect to raise capital to fund utility needs
through the sale by Conectiv of debentures, common stock or short-term debt and
loan of the proceeds to the utility, if, in the view of management, it is more
appropriate and less costly to do so rather than raise funds through the issue
of debt by the utility.
<PAGE> 28
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All participants in the evolving energy services market are turning to the
holding company structure as a means of insulating the utility companies from
the risks of the nonutility activities.
"Applicants state that the proposed restructuring will establish a
more appropriate corporate structure to conduct nonutility business
activities, while providing a mechanism for protecting the utility
business and utility customers... from the risks and costs of these
activities." HCAR No. 26759 (September 12, 1997) See also, Current Report
on Form 8-K filed by New York State Electric & Gas dated October 10, 1997
(File No. 1-31-3-2) announcing planned formation of holding company.
Investments in these energy-related energy service businesses will require
incremental long-term capital. For reasons stated below, it is inappropriate and
financially burdensome for Conectiv to raise the necessary capital utilizing
only common stock, short-term debt or subsidiary financing guaranteed by the
parent company.
B. Compliance with the provisions of Section 7(c)(1) would impose an
unreasonable burden on the Declarant.
In the absence of an order under Section 7(c)(2)(D) permitting the
issuance of long-term debt by Conectiv, there would be three practical avenues
open to Conectiv, as one of a few registered holding companies, to finance
investments in permissible energy-related businesses: common stock, short-term
debt and subsidiary level financing guaranteed by Conectiv. All would impose an
unreasonable cost on Conectiv when compared to the cost of debenture financing
by Conectiv.
1. Common Stock: If Conectiv were only able to finance its investments
in energy-related and energy service activities through the issuance
of Common Stock, the result would be higher after-tax financing
costs, an increase in the overall composite cost of capital, and, at
least during an initial start-up period, potentially a higher
dividend payout ratio and a decline in earnings per share. For this
reason, if management were faced with only the alternatives of
common stock, short-term debt or subsidiary level debt guaranteed by
Conectiv, management would not choose common stock as the sole
financing vehicle.
2. Short-term Debt: This is the avenue currently utilized by many
registered electric systems to fund recent investments in exempt
projects in the evolving energy industry. It does have some
semblance of appropriateness in some instances where
pre-construction equity investments are returned. This is frequently
the case for qualified cogeneration projects and exempt wholesale
generation projects, where some equity is returned after
construction is complete and project financing has been
<PAGE> 29
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implemented. This is not true for investments in wholly-owned
energy-related and energy service companies. And as is illustrated
by Cinergy in the application/declaration (File No. 70-8993) filed
to request authorization to issue debentures to refinance short-term
debt incurred to finance Cinergy's ownership in an exempt foreign
utility company, some or all of the capital invested in an exempt
foreign utility company may be a long-term investment. Use of
short-term debt for the financing of long-term investments subjects
the declarant to the risks of periodic interest rate repricing and
to covenants that are generally more onerous in short-term loan
agreements than in indentures.
3. Subsidiary Level Financing with a Parent Guarantee: If the parent
company is authorized to guarantee the debt of the subsidiary as has
been requested and for which there is ample precedent, the guarantee
has the same substantive effect as a debenture issued by the parent
company. The cost, however, is much higher due to the need to
provide separate documentation for each subsidiary doing a
financing. In addition, the aggregate credit needed for individual
facilities for multiple subsidiaries would exceed the credit line
needed in a single facility.
Granting Conectiv the ability to use management discretion to raise funds
needed for investments in energy-related and energy service businesses through
the issue of debentures or common stock (or through short-term borrowing if the
investment is short-term in nature) grants to Conectiv the ability to compete on
equal terms with exempt holding company systems and non-holding company
participants in the highly competitive gas and electric industry and, for that
matter, with the registered gas systems which have been granted this authority.
C. Compliance with Section 7(c)(1) is Neither Necessary nor Appropriate
in the Public Interest or for the Protection of Investors or
Consumers.
Section 7 (c) reflects a Congressional determination that leveraged
pyramiding that was prevalent prior to the passage of the Act would no longer be
permitted, except to the extent that the Commission determined that
noncompliance with Section 7(c)(1) would not be detrimental to investors or
consumers.
An exception to the requirement that long-term debt be secured by a lien
on property has been permitted where subsidiaries do not issue long-term debt to
third parties. See Columbia Gas & Electric Corp., 25 SEC 638 (1946);
Consolidated Natural Gas Company, HCAR No. 8105 (April 5, 1948); National Fuel
Gas Company, HCAR No. 8319 (June 30, 1948). In Cities Service Power & Light Co.,
16 SEC 461 (1944) and Derby Gas and Electric Corp., 23 SEC. 375 (1946) the
parent company long-term debt was secured by a pledge of subsidiary common
stock, but the subsidiaries had no outstanding long-term debt and the indenture
restricted the issue of such debt. In each instance, the assets of the
subsidiaries are available to support the value of the parent debenture. Where
subsidiaries do have long-term debt outstanding, relatively few orders
<PAGE> 30
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have been issued permitting the parent company to issue unsecured long-term
debt. Generally, the orders have cited an urgent need for the exception. For
instance, in New England Electric Association 27 SEC 507 (1948), an issuance of
common stock was inappropriate because the outstanding common stock had only
recently been issued in a recapitalization under Section 11(e) and could not be
considered as having become sufficiently seasoned to justify any new issues.
Conectiv submits that its proposal to issue debentures does not constitute
the type of leveraged pyramiding that was prevalent when the Act was enacted.
Conectiv proposes to issue up to $500 million in a combination of common stock
and debentures through December 31, 2000. This would give Conectiv the
flexibility to raise capital to finance the system's nonutility businesses that
is comparable to that granted by this Commission to the registered gas systems
with which Conectiv may have to compete in the very near future. See The
Columbia Gas System, Inc., HCAR No. 25534 (December 26, 1996) and Consolidated
Natural Gas Company, HCAR No. 26500 (January 16, 1996). Under the terms of the
loan agreement between Conectiv and the Nonutility Subsidiary financed with the
proceeds of a debenture issue, the Subsidiary will be precluded from issuing
long-term secured debt unless the obligation to Conectiv is also ratably
secured. The Nonutility Subsidiaries will not issue any public debt. The
Nonutility Subsidiaries are expected to incur long-term third-party debt only in
the form of leases, installment obligations incurred in connection with the
purchase of property and other similar debt arising in the normal course of
business. The situation will, on the nonutility side, be comparable to that of
the gas utility systems. With very limited exceptions demanded by the nature of
the day to day business operations, or perhaps for some limited short-term debt,
there will be no debt at the Nonutility Subsidiary level and the assets of the
Nonutility Subsidiaries will be available to respond to the Conectiv
debtholders' claims for repayment without intervening claimants.
The adequacy of the underlying assets and income stream will be attested
for by the rating agency evaluating the debentures. Conectiv will not issue a
debenture unless it has been rated investment grade. No rating agency will issue
an investment grade rating unless it is assured that the underlying assets are
adequate.
Nor is confusion of the investor a concern today. Today rating agencies
and disclosure laws provide the investor with adequate information concerning a
security. The ownership of a debenture issued by a parent holding company in a
system where subsidiaries also have debt outstanding is similar to that of a
minority common stock holder. As was stated by the Commission in the Release
proposing amendments to Rule 52 to, among other things, delete the requirement
that common stock only by issued to the parent company:
"The Commission, in the early years of the Act's history, was concerned
about the ability of the stock purchaser to evaluate without adequate and
verifiable disclosure, the potential disadvantages of owning a minority
interest. The situation is quite different
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now. Accurate information is readily available to the investor though
prospectuses, 10-K filings and other public information, which allows the
investor to make an informed decision as to the advisability of purchasing
a minority interest. Thus, the Commission believes there may no longer
exist valid reasons to prohibit the public-utility subsidiaries of
registered holding companies from financing in a manner available to
corporate subsidiaries generally." (See HCAR No. 25059, dated March 19,
1990).
With respect to condition (6) in the original Rule 52, which did
limit two tier debt financing by the public-utilities that qualified for
use of the Rule (At the time the Rule did not apply to non-utilities.),
the Commission noted:
Condition six restricts public debt and preferred stock financing at
more than one level. Rule 52 as adopted permits two-tier debt
financing if the debt at the holding company level is limited to
short-term debt. The Commission now seeks comment on the need to
remove limitations on two-tier financing generally, and seeks
comment on whether any restrictions should remain.
In the release adopting the amendments to Rule 52, the Commission
deleted the restriction on minority issues of common stock: "The
Commission agrees with the majority of commenters that the limitation,
while appropriate in 1934 when minority common stock shareholders had
little ability to assess their investment IS no longer necessary to
protect investors and shareholders. (HCAR 25573 dated July 7, 1992)
(emphasis added).
With respect to the limitations on the ability of public utilities
to issue debt, the Commission stated:
Condition (6) provides that a public-utility subsidiary company may issue
and sell securities to non-associates only if its parent holding company
has issued no securities other than common stock and short-term debt. All
eight commenters that considered this condition recommended it be
eliminated. They noted that it may be appropriate for a holding company to
issue and sell long-term debt and that such a transaction is subject to
prior Commission approval. THEY FURTHER OBSERVED THAT OTHER CONTROLS, THAT
DID NOT EXIST WHEN THE STATUTE WAS ENACTED, PROVIDE ASSURANCE THAT SUCH
FINANCINGS WILL NOT LEAD TO ABUSE. THESE INCLUDE THE LIKELY ADVERSE
REACTION OF RATING AGENCIES TO EXCESSIVE AMOUNTS OF DEBT AT THE PARENT
HOLDING COMPANY LEVEL AND THE DISCLOSURE REQUIRED OF COMPANIES SEEKING
PUBLIC CAPITAL. THE COMMISSION AGREES WITH THESE OBSERVATIONS and also
notes the power of many state utility commissions to limit the ability of
utility subsidiaries to service holding company debt by restricting the
payments of dividends to
<PAGE> 32
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the parent company. The Commission concludes that this requirement should
be eliminated. HCAR No. 25573 (July 7, 1992) (Emphasis added.)
Thus, the Commission has quite clearly indicated that two-tier debt
financing may be appropriate today. As discussed above, some debt
financing by Conectiv as part of an overall financing program is the most
efficient, least costly and therefore most competitive means for Conectiv
to fund the system's investments in the non-utility energy-related
activities that are so much a focus of the evolving energy industry.
Section 7(d) sets forth specific findings that, if made, preclude
the SEC from permitting the application to go effective:
1. the security is not reasonably adapted to the security structure of the
declarant and other companies in the same holding company system;
As shown on the pro-forma financial statements, Conectiv's consolidated
debt-equity ratio will be consistent with that of an investment grade
utility system.
2. the security is not reasonably adapted to the earning power of the
declarant;
The ability of Conectiv to meet its interest obligations hinges on the
earnings of its subsidiaries. Conectiv will have the financial capacity to
discharge all of its payment obligations without adversely affecting the
operating companies.
3. financing by the issue and sale of the particular security is not
necessary or appropriate to the economical and efficient operation of a
business in which the applicant is engaged or has an interest;
As discussed above, financing with long-term debt offers advantages over
alternative means of obtaining funding.
4. the fees, commission, or other remuneration, to whomsoever paid, directly
or indirectly, in connection with the issue, sale or distribution of the
security are not reasonable;
The fees, commissions, expenses and margins referenced in Item 2 are
reasonable.
5. in the case of a . . .guaranty of . . a security of another company, the
circumstances are such as to constitute the making of such guaranty . ..
an improper risk . . ; or
The guarantees to be issued by Conectiv in favor of the Subsidiaries are
discussed below.
<PAGE> 33
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6. the terms and conditions of the issue or sale of the security are
detrimental to the public interest or the interest of investors or
consumers.
The investor and public interest issues are discussed above.
The acquisition by Conectiv and the Utility Subsidiaries of hedging
instruments that represent interests in securities is subject to Sections 9 and
10 of the Act.
Subsidiary Financing:
Except as exempt pursuant to Rule 52 discussed below, the issuance of
common stock or debt securities by a Subsidiary is subject to Sections 6, 7 and
12 and Rule 43 and the acquisition by an affiliate is subject to Sections 9, 10
and 12 of the Act and Rule 45.
Applicability of Rule 52:
The issuance of common stock and long-term debt by Delmarva will have been
approved by the VSCC and the DPSC and will qualify for exemption from the
approval requirements of Sections 6 and 7 of the Act pursuant to the terms of
Rule 52. The issuance of such securities and short-term debt by Atlantic
Electric will have been approved by the NJBPU and will qualify for exemption
from the approval requirements of Sections 6 and 7 of the Act pursuant to the
terms of Rule 52.
The issuance by Delmarva of commercial paper and short-term notes,
including the issuance of short-term notes in connection with money-pool
borrowing will have been approved by the VSCC but not by the DPSC. Therefore,
Sections 6 and 7 apply to require Commission approval prior to the issuance of
such notes and, to the extent that short-term notes are acquired by Conectiv or
an affiliate, Sections 9 and 10 apply.
Guarantees:
The issuance by Conectiv and/or Non-Utility Subsidiaries of guarantees on
behalf of their subsidiaries or other Non-Utility Subsidiaries is subject to
Section 12(b) and Rule 45 thereunder.
Money Pool
The NJBPU has jurisdiction over Atlantic Electric's issuance of short-term
debt and the investment of funds in the System Money Pool and, under the terms
of the order approving the establishment of Atlantic, has the right to exercise
jurisdiction over any affiliate transaction. Atlantic Electric's participation
in the System Money Pool will have been approved by the NJBPU. The VSCC has
jurisdiction over Delmarva's participation in the System Money Pool under its
jurisdiction over the issuance of short-term debt and under the statute
requiring
<PAGE> 34
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approval of all affiliate transactions. The DPSC does not exercise jurisdiction
over the issuance of short-term debt nor over affiliate transactions. As a
result, Rule 52 does not apply to Delmarva's participation in the Money Pool and
Commission approval of Delmarva's participation in the System Money Pool is
requested
Subsidiary Changes in Par Value and Non-Utility Subsidiary Dividends out of
Capital or Unearned Surplus:
To the extent that a change in par value may result in the effective
exchange of one security for another, Sections 6, 7, 9, and 10 and Rule 52 may
be deemed applicable. Section 12(c) and Rule 46 are applicable to the proposed
issuance by a Non-Utility Subsidiary of dividends out of capital or unearned
surplus including surplus created by a change in par value. Upon the issuance of
an order permitting this application to become effective, the terms of Rule 46
will have been complied with.
General:
To the extent that the transactions which are the subject matter of this
Application are considered by the Commission to require authorization, approval
or exemption under any section of the Act or provision of the rules and
regulations other than those specifically referred to herein, request for such
authorization, approval or exemption is hereby made.
ITEM 4. REGULATORY APPROVAL
(a) State the nature and extent of the jurisdiction of any State
commission or any Federal commission (other than the U. S. Securities
and Exchange Commission) over the proposed transaction.
The DPSC and VSCC exercise jurisdiction over the issuance of common stock,
preferred stock, and long-term debt securities by Delmarva. The VSCC also
approves Delmarva's issuance of short-term debt. In addition, the VSCC has
jurisdiction over Delmarva's sale of common stock, preferred stock, and both
long- and short-term debt securities to Conectiv. The DPSC has no similar
authority. The NJBPU will also have approved the issuance by Atlantic Electric
of preferred stock and short-term and long-term debt securities.
(b) Describe the action taken or proposed to be taken before any commission
named in answer to paragraph (1) of this item in connection with the proposed
transaction.
<PAGE> 35
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An application will be made by the aforementioned subsidiary companies to
their respective state regulatory commissions as set forth in answer to Item
3(a) above.
ITEM 5. PROCEDURE
(a) State the date when Commission action is requested. If the date is less than
40 days from the date of the original filing, set forth the reasons for
acceleration.
The Applicants hereby request that there be no hearing on this Application
and that the Commission issue its order as soon as practicable after the filing
hereof. The Commission is respectfully requested to issue and publish the
requisite notice under Rule 23 with respect to the filing of this Application
not later than October 31, 1997, such notice to specify a date not later than
November 26, 1997, by which comments may be entered and a date not later than
the date of the Commission's order for the Merger U-1, as the date which an
order of the Commission granting and permitting the Application to become
effective may be entered by the Commission. (b) State (i) whether there should
be a recommended decision by a hearing officer, (ii) whether there should be a
recommended decision by any other responsible officer of the Commission, (iii)
whether the Division of Investment Management may assist in the preparation of
the Commission's decision, and (iv) whether there should be a 30-day waiting
period between the issuance of the Commission's order and the date on which it
is to become effective.
Applicants hereby (i) waive a recommended decision by a hearing officer,
(ii) waive a recommended decision by any other responsible officer or the
Commission, (iii) consent that the Division of Investment Management may assist
in the preparation of the Commission's decision, and (iv) waive a 30-day waiting
period between the issuance of the Commission's order and the date on which it
is to become effective.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Amendment No. 1 to
Form U-1 to be signed on their behalf by the undersigned thereunto duly
authorized.
The signatures of the applicants and of the persons signing on their
behalf are restricted to the information contained in this application which is
pertinent to the application of the respective companies.
<TABLE>
<CAPTION>
DATE: CONECTIV, INC.
<S> <C>
October 29, 1997 /s/ B. S. Graham
- ---------------- ---------------------------------------------------
President & Secretary
Delmarva Power & Light Company
Delmarva Industries, Inc.
Delmarva Energy Company
Delmarva Capital Investments, Inc.
Conectiv Services, Inc.
DCI I, Inc.
DCI II, Inc.
Delmarva Capital Technology Company
DCTC-Burney, Inc.
Delmarva Capital Management, Inc.
Post and Rail Forms, Inc.
Delmarva Operating Services Company
Delstar Operating Company
Delwest Operating Company
Delcal Operating Company
Pine Grove, Inc.
Pine Grove Landfill, Inc.
Pine Grove Hauling Company
October 29, 1997 /s/ D. P. Connelly
- ---------------- ---------------------------------------------------
Secretary
Conectiv Solutions, Inc.
October 29, 1997 /s/ H. E. Cosgrove
- ---------------- ---------------------------------------------------
Chairman and Chief Executive Officer
</TABLE>
<PAGE> 37
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<TABLE>
<S> <C>
Atlantic City Electric Company
October 29, 1997 /s/ J. L. Jacobs
- ---------------- -------------------------------------------------
Chairman and Chief Executive Officer
Deepwater Operating Company
October 29, 1997 /s/ L. M. Walters
- ---------------- -------------------------------------------------
Treasurer
Atlantic Energy Enterprises, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Senior Vice President and Treasurer
Atlantic Energy International, Inc.
October 29, 1997 /s/ P. M. Jansson
- ----------------- -------------------------------------------------
President
Atlantic Generation, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Treasurer and Secretary
Atlantic Southern Properties, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Vice President and Treasurer
ATE Investment, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Vice President and Treasurer
</TABLE>
<PAGE> 38
Page 36
<TABLE>
<S> <C>
Atlantic Thermal Systems, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
President and Chief Executive Officer
Coastal Comm, Inc.
October 29, 1997 /s/ R. L. Aveyard
- ---------------- -------------------------------------------------
President and Treasurer
Atlantic Energy Technology, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Treasurer
Binghamton General, Inc.
Binghamton Limited, Inc.
Pedrick Limited, Inc.
Pedrick General, Inc.
Vineland Limited, Inc.
Vineland General, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
Vice President
Atlantic Jersey Thermal Systems, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
President
ATS Operating Services, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
President
The Earth Exchange, Inc.
</TABLE>
<PAGE> 39
Page 37
<TABLE>
<S> <C>
October 29, 1997 /s/ F. E. DiCola
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President
Atlantic Paxton Cogeneration, Inc.
October 29, 1997 /s/ F. E. DiCola
- ---------------- -------------------------------------------------
President
</TABLE>
