UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Conectiv, Inc.
800 King Street
Wilmington, Delaware 19899
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(Name of company filing this statement
and address of principal executive offices)
None
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(Name of top registered holding company parent)
Barbara S. Graham Michael J. Barron
President Vice President
Conectiv, Inc. Conectiv, Inc.
800 King Street 6801 Black Horse Pike
Wilmington, Delaware 19899 Egg Harbor Township,
New Jersey 08234
(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:
Joanne C. Rutkowski, Esq. James M. Cotter, Esq.
William S. Lamb, Esq. Vincent Pagano, Jr., Esq.
H. Liza Moses, Esq. Simpson Thacher & Bartlett
LeBoeuf, Lamb, Greene & 425 Lexington Avenue
MacRae, L.L.P. New York, New York 10017
125 West 55th Street
New York, New York 10019
Dale Stoodley, Esq. James E. Franklin II, Esq.
Delmarva Power & Light Company Atlantic Energy, Inc.
800 King Street 6801 Black Horse Pike
Wilmington, Delaware 19899 Egg Harbor Township,
New Jersey 08234
The Form U-1 Application/Declaration in this proceeding, originally filed with
the Commission on July 2, 1997 and amended on August 13, 1997 and November 26,
1997, is hereby amended to the extent indicated below.
1. Item 1.A.1. is restated to read as follows:
"1. General Request
Pursuant to Sections 9(a)(2) and 10 of the Act, Conectiv hereby requests
authorization and approval of the Commission to acquire, by means of the Mergers
described below, all of the issued and outstanding common stock of Delmarva and
Atlantic. Conectiv also hereby requests that the Commission approve:
(i) the designation of Support Conectiv ("Support Conectiv") as a subsidiary
service company in accordance with the provisions of Rule 88 of the Act and the
Service Agreement as a basis for Support Conectiv to comply with Section 13 of
the Act and the Commission's rules thereunder;
(ii) the acquisition by Conectiv of the gas properties of Delmarva and the
continued operation of Delmarva as a combination utility; and
(iii) the acquisition by Conectiv of the nonutility activities, businesses and
investments of Delmarva and Atlantic."
2. Item 1.B.1.c.iii. is restated to read as follows:
"iii. Delmarva's Subsidiaries
In conjunction with the Mergers, Delmarva's existing subsidiaries will be
reorganized. Delmarva's direct subsidiaries, except DPF I, are not expected to
remain subsidiaries of Delmarva but instead are expected to become direct or
indirect subsidiaries of Conectiv. At present, these direct subsidiaries of
Delmarva are Conectiv Services, Inc., Conectiv Communications, Inc., Delmarva
Capital Investments, Inc. ("DCI"), Delmarva Services Company, Delmarva Energy
Company, Conectiv Solutions LLC and East Coast Natural Gas Cooperative, LLC
("ECNG"). As described below, DCI is a holding company for a variety of
non-utility interests."
3. Item 1.B.3. is restated to read as follows:
"3. Nonutility Subsidiaries
Both Delmarva and Atlantic engage indirectly, through subsidiaries and
affiliates, in various nonutility activities related to the systems' core
utility businesses.
a. Delmarva
Delmarva has seven direct nonutility subsidiaries: Delmarva Services
Company, Delmarva Energy Company, Conectiv Services, Inc., Conectiv
Communications, Inc., DCI, Conectiv Solutions LLC and ECNG.
Delmarva Services Company, a Delaware corporation and a direct subsidiary
of Delmarva, was formed in 1986 to own and finance an office building that it
leases to Delmarva and/or its affiliates. Delmarva Services Company also owns
approximately 2.9% of the common stock of Chesapeake Utilities Corporation, a
publicly-traded gas utility company with gas utility operations in Delaware,
Maryland and Florida.
Delmarva Energy Company ("DEC"), a Delaware corporation and a direct
subsidiary of Delmarva, was formed in 1975 to participate in gas and oil
exploration and development opportunities.
DEC's subsidiaries are:
Conectiv/CNE Energy Services LLC, a Delaware limited liability company in
which DEC holds a 50% interest, was formed in 1997 to engage in Rule 58 energy
marketing activities in the New England states.
Conectiv Services, Inc. ("CSI"), a Delaware corporation and a direct
subsidiary of Delmarva, was formed in 1996 to acquire and operate service
businesses primarily involving heating, ventilation and air conditioning
("HVAC") sales, installation and servicing, and other energy-related activities.
CSI's subsidiaries are:
Power Consulting Group, Inc., a Delaware corporation, was formed in 1997 to
provide electrical engineering, testing and maintenance services to large
commercial and industrial customers.
Conectiv Communications, Inc., a Delaware corporation and a direct
subsidiary of Delmarva, was formed in 1996 to provide a full-range of retail and
wholesale telecommunications services.
Conectiv Solutions LLC, a Delaware limited liability company in which
Delmarva holds a 50% interest, was formed in 1997 to provide power systems
consulting, end use efficiency services, customized on-site systems services and
other energy services to large commercial and industrial customers.
ECNG, a Delaware limited liability company in which Delmarva holds a 1/7th
interest, is engaged in gas related activities. Delmarva participates in ECNG to
do bulk purchasing of gas in order to improve the efficiency of its natural gas
local distribution operations.
Delmarva Capital Investments, Inc. ("DCI"), a Delaware corporation and a
direct subsidiary of Delmarva, was formed in 1985 to be a holding company for a
variety of unregulated investments.
DCI's subsidiaries are:
DCI I, Inc., a Delaware corporation and a wholly-owned subsidiary of DCI
formed in 1985 to be involved in equity investments in leveraged leases.
DCI II, Inc., a Virgin Islands corporation and a wholly-owned foreign sales
subsidiary of DCI formed in 1985 to be involved in leveraged lease investments.
Delmarva Capital Technology Company ("DCTC"), a Delaware corporation and a
wholly-owned subsidiary of DCI formed in 1986 to be involved in projects related
to the development of new technologies and alternative energy resources.
DCTC's subsidiaries are:
DCTC-Burney, Inc., a Delaware corporation and a wholly-owned subsidiary of
DCTC formed in 1987 to invest in Burney Forest Products, A Joint Venture, as a
general partner.
DCTC-Burney, Inc.'s subsidiaries are:
Forest Products, L.P., a Delaware limited partnership, in which
DCTC-Burney, Inc. is the sole 1% general partner, and which is a general partner
in Burney Forest Products, A Joint Venture.
Burney Forest Products, A Joint Venture, a California general partnership
which is owned by DCTC-Burney, Inc. and Forest Products, L.P. The partnership
owns a power plant in Burney, CA. DCTC-Burney, Inc.'s total direct and indirect
ownership interest is 45%.
DCTC is a limited partner in:
Luz Solar Partners, Ltd. IV, a California limited partnership which owns a
solar-powered generating station in Southern California in which DCTC owns a
4.7% limited partnership interest.
UAH-Hydro Kennebec, L.P., a New York limited partnership which owns a
hydro-electric project in which DCTC owns a 27.5% limited partnership interest.
Delmarva Capital Realty Company ("DCRC"), a Delaware corporation and a
wholly-owned subsidiary of DCI formed in 1986 to invest in real estate projects.
It is a vehicle for the sale of properties not used or useful for the utility
business.
DCRC's subsidiaries are:
Christiana Capital Management, Inc., a Delaware corporation and a
wholly-owned subsidiary formed in 1987, which owns an office building leased to
affiliates.
Post and Rail Farms, Inc., a Delaware corporation and a wholly-owned
subsidiary formed in 1987 to develop and sell a residential housing development.
Delmarva Operating Services Company, a Delaware corporation and a
wholly-owned subsidiary of DCI formed in 1987, which acts as a holding company
for utility operation and maintenance companies.
Delmarva Operating Service Company's subsidiaries are:
DelStar Operating Company, a Delaware corporation and a wholly-owned
subsidiary formed in 1992 to operate and maintain the Delaware City Power Plant
in Delaware City, DE, a qualifying facility, under a contract with the plant's
current owner.
DelWest Operating Company, a Delaware corporation and a wholly-owned
subsidiary formed in 1993 to operate and maintain a power plant in Burney, CA, a
qualifying facility under a contract with the plant's owner, Burney Forest
Products, A Joint Venture (an investment of DCTC-Burney, Inc.).
DelCal Operating Company, a Delaware corporation and a wholly-owned
subsidiary formed in 1996 to operate and maintain a power plant in Sacramento,
California, a qualifying facility owned by the Sacramento Power Authority under
a subcontract with Siemens Power Corporation.
Together, at December 31, 1996, Delmarva's nonutility subsidiaries and
investments constituted approximately 4 percent of the consolidated assets of
Delmarva and its subsidiaries. In connection with the Mergers, one or more of
the direct and indirect subsidiaries of Delmarva may be merged with and into, or
become a subsidiary of, one or more existing direct or indirect subsidiaries of
Atlantic or vice versa. A corporate chart of Delmarva and its subsidiaries,
showing their nonutility interests, is filed as Exhibit E-2.
b. Atlantic
Atlantic has three direct nonutility subsidiaries, AEII, AEE, and Conectiv
Solutions LLC.
AEII, a Delaware corporation, is a direct subsidiary of Atlantic formed in
1996 to broker used utility equipment to developing countries and to provide
utility consulting services related to the design of sub-stations and other
utility infrastructure. This subsidiary is winding down its business.
AEE, a New Jersey corporation, is a direct subsidiary of Atlantic formed in
1995 to be a holding company for Atlantic's non-regulated subsidiaries. Through
its 6 wholly-owned subsidiaries, and 50% equity interest in Enerval, LLC, a
natural gas marketing venture, AEE has consolidated assets totaling $217
million. These 7 subsidiaries pursue growth opportunities in energy-related
fields, particularly those that will complement Atlantic's existing businesses
and customer relationships.
AEE's active subsidiaries are:
ATE, a New Jersey corporation and a wholly-owned subsidiary of AEE formed
in 1986. ATE holds and manages capital resources for AEE. ATE's primary
investments are equity investments in leveraged leases of three commercial
aircraft and two container ships. In August, 1996, ATE joined with an
unaffiliated company to create EnerTech Capital Partners, L.P., an equity
limited partnership that will invest in and support a variety of energy-related
technology growth companies. ATE also owns 94% of EnerTech Capital Partners L.P.
At December 31, 1996, ATE had invested $7.3 million in this partnership. At
December 31, 1996, ATE's total equity amounted to $11.1 million. It has
outstanding financing arrangements of $10.0 million with ASP and $14.1 million
with AEE.
AGI, a New Jersey corporation and a wholly-owned subsidiary of AEE formed
in 1986. AGI develops, owns and operates independent power production projects.
AGI's investments in power projects consist of the following:
Pedrick Ltd., Inc., a New Jersey corporation and a wholly-owned subsidiary
of AGI, formed in 1989 to hold a 35% limited partnership interest in Pedricktown
Cogeneration Limited Partnership.
Pedrick Gen., Inc., a New Jersey corporation and a wholly-owned subsidiary
of AGI, formed in 1989 to hold a 15% general partnership interest in Pedricktown
Cogeneration Limited Partnership.
Vineland Limited, Inc., a Delaware corporation and a wholly-owned
subsidiary of AGI, formed in 1990 to hold a 45% limited partnership interest in
Vineland Cogeneration Limited Partnership.
Vineland General, Inc., a Delaware corporation and a wholly-owned
subsidiary of AGI, formed in 1990 to hold a 5% general partnership interest in
Vineland Cogeneration Limited Partnership.
Binghamton General, Inc., a Delaware corporation and a wholly-owned
subsidiary of AGI, formed in 1990 to hold a 10% general partnership interest in
Binghamton Cogeneration Limited Partnership, whose assets have been sold to a
third party.
Binghamton Limited, Inc., a Delaware corporation and a wholly-owned
subsidiary of AGI, formed in 1990 to hold a 35% limited partnership interest in
Binghamton Cogeneration Limited Partnership, whose assets have been sold to a
third party.
ATS, a Delaware corporation and a wholly-owned subsidiary of AEE, formed in
1994. ATS and its wholly-owned subsidiaries develop, own and operate thermal
heating and cooling systems. ATS also provides other energy-related services to
business and institutional energy users. ATS plans to make an investment in
capital expenditures related to district heating and cooling systems to serve
the business and casino district in Atlantic City, NJ. ATS is also pursuing the
development of thermal projects in other regions of the U.S.
ATS's subsidiaries are:
Atlantic Jersey Thermal Systems, Inc., a Delaware corporation and
wholly-owned subsidiary formed in 1994, that owns a 10% general partnership
interest in TELPI (as defined below).
ATS Operating Services, Inc., a Delaware corporation and a wholly-owned
subsidiary formed in 1995 that provides thermal energy operating services.
Thermal Energy Limited Partnership I ("TELPI"), a Delaware limited
partnership wholly-owned by Atlantic Thermal and Atlantic Jersey Thermal
Systems, that holds an investment in the Midtown Energy Center. The Midtown
Energy Center, which produces steam and chilled water, will represent the
initial principal operations of ATS. Currently, TELPI is operating the heating
and cooling equipment of several businesses in Atlantic City, NJ. Some of these
businesses will be served by the ATS district system once it is in commercial
operation and others will continue to be served independently by ATS.
Atlantic Paxton Cogeneration, Inc., a wholly-owned subsidiary formed in
1997, that holds a 5% general partnership interest in ATS-EPC, L.P.
ATS-EPC, L.P., a limited partnership formed in 1997 with a 5% general
partnership interest held by Atlantic Paxton Cogeneration, Inc. and a 45%
limited partnership interest held by ATS, owns a cogeneration qualifying
facility which sells steam to Harrisburg Steam Works Limited and electric energy
to Pennsylvania Power & Light Company.
Harrisburg Steam Works Limited, a Pennsylvania corporation owned 50% by
ATS, provides thermal energy services to the city of Harrisburg, Pennsylvania.
Discussions are underway for the sale of the Atlantic Paxton Cogeneration, Inc.
and Atlantic's interests in Harrisburg Steam Works Limited and ATS-EPC, L.P.
Atlantic-Pacific Glendale, LLC, a Delaware limited liability company in
which ATS holds a 50% interest, was formed in 1997 to construct, own and operate
an integrated energy facility to provide heating, cooling and other energy
services to DreamWorks Animation, LLC in Glendale, California.
Atlantic-Pacific Las Vegas, LLC, a Delaware limited liability company in
which ATS holds a 50% interest, was formed in 1997 to finance, own and operate
an integrated energy plant to provide heating and cooling services to three
affiliated customers in Las Vegas, Nevada.
CCI, a Delaware corporation and a wholly-owned subsidiary of AEE formed in
1995 to pursue investments and business opportunities in the telecommunications
industry.
ASP, a New Jersey corporation and a wholly-owned subsidiary of AEE formed
in 1970 that owns and manages a 280,000 square-foot commercial office and
warehouse facility in southern New Jersey. Approximately fifty percent of the
space is presently leased to system companies and fifty percent is leased to
nonaffiliates.
AET, a Delaware corporation and a wholly-owned subsidiary of AEE formed in
1991. AET is currently winding up its sole investment in technology, The Earth
Exchange, Inc., which is nominal. There are no future plans for investment
activity at this time by AET.
Enerval, LLC ("Enerval"), a Delaware limited liability company. In 1995,
AEE and Cenerprise, Inc., a subsidiary of Northern States Power established
Enerval, formerly known as Atlantic CNRG Services, LLC. AEE and Cenerprise each
own 50 percent of Enerval. Enerval provides energy management services,
including natural gas procurement, transportation and marketing. Discussions are
underway for the sale of Enerval.
Conectiv Solutions LLC, a Delaware limited liability company in which
Atlantic holds a 50% interest, was form in 1997 to provide power systems
consulting, end use efficiency services, customized on-site systems services and
other energy services to large commercial and industrial customers.
At December 31, 1996, Atlantic's nonutility subsidiaries and investments
constituted approximately 8.2 percent of the consolidated book value of the
assets of Atlantic and its subsidiaries.
A corporate chart of Atlantic and its subsidiaries, showing their
nonutility interests, is filed as Exhibit E-3. In connection with the Mergers,
one or more of the direct and indirect subsidiaries of Atlantic may be merged
with and into, or become a subsidiary of, one or more existing direct or
indirect subsidiaries of Delmarva or vice versa."
4. Item 3.A.2.a.ii. is restated to read as follows:
"ii. Direct and Indirect Nonutility Subsidiaries of Conectiv
As a result of the Mergers, the nonutility businesses and interests of
Delmarva and Atlantic described in Item 1.B.3 above will become businesses and
interests of Conectiv. The total assets of all nonutility investments of
Delmarva and Atlantic at June 30, 1997 totaled $403 million.
Corporate charts showing the nonutility subsidiaries of Delmarva and
Atlantic are filed as Exhibits E-2 and E-3. A corporate chart showing the
projected arrangement of these subsidiaries under Conectiv has been filed as
Exhibit E-4.
Standard for acquisition: Section 11(b)(1) generally limits a
registered holding company to acquire "such other businesses as are reasonably
incidental, or economically necessary or appropriate, to the operations of [an]
integrated public utility system." Although the Commission has traditionally
interpreted this provision to require an operating or "functional" relationship
between the nonutility activity and the system's core nonutility business, in
its recent release promulgating Rule 58,/1/ the Commission stated that it "has
sought to respond to developments in the industry by expanding its concept of a
functional relationship." The Commission added "that various considerations,
including developments in the industry, the Commission's familiarity with the
particular nonutility activities at issue, the absence of significant risks
inherent in the particular venture, the specific protections provided for
consumers and the absence of objections by the relevant state regulators, made
it unnecessary to adhere rigidly to the types of administrative measures" used
in the past. Furthermore, in the 1995 REPORT, the Staff recommended that the
Commission replace the use of bright-line limitations with a more flexible
standard that would take into account the risks inherent in the particular
venture and the specific protections provided for consumers./2/ As set forth
more fully below, the non-utility business interests that Conectiv will hold
directly or indirectly all meet the Commission's standards for retention.
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/1/ EXEMPTION OF ACQUISITION BY REGISTERED PUBLIC-UTILITY HOLDING COMPANIES OF
SECURITIES OF NONUTILITY COMPANIES ENGAGED IN CERTAIN ENERGY-RELATED AND
GAS-RELATED ACTIVITIES, HCAR No. 26667 (Feb. 14, 1997) ("RULE 58 RELEASE").
/2/ 1995 REPORT at 81-87, 91-92.
- ----------
The following is a description of the specific bases under which the
nonutility investments of Delmarva and Atlantic may be retained in the Conectiv
holding company system:
Development and commercialization of electrotechnologies:
The business activities of the following company, either directly or
through a subsidiary, are energy-related activities within the meaning of Rule
58(b)(1)(ii), involving "the development and commercialization of
electrotechnologies related to energy conservation, storage and conversion,
energy efficiency, waste treatment, greenhouse gas reduction, and similar
innovations." SEE ALSO NEW CENTURY ENERGIES, HCAR No. 26748 (Aug. 1, 1997).
Accordingly, these interests are retainable under Section 11(b)(1) of the
Act:/3/
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/3/ Rule 58 explicitly permits indirect investment in energy- related companies
through project parents. Although Rule 58 was adopted pursuant to Section
9(c)(3) of the Act, businesses permissible under the rule are retainable
under Section 11. See Michigan Consolidated Gas Co., 44 S.E.C. 361 (1970),
aff'd, 444 F.2d 931 (D.C. Cir. 1971) (Section 9(c)(3) may not be used to
circumvent Section 11).
- ----------
ATE is an investor in EnerTech Capital Partners, L.P., a limited
partnership that will invest in and support a variety of energy technology
growth companies.
Brokering and marketing of energy commodities:
The business activities of the following companies are energy-related
activities within the meaning of Rule 58(b)(1)(v), involving "the brokering and
marketing of energy commodities, including but not limited to electricity or
natural or manufactured gas or other combustible fuels." SEE ALSO NEW CENTURY
ENERGIES, INC., HCAR No. 26784 (Aug. 1, 1997); SEI HOLDINGS, INC., HCAR No.
26581 (Sept 26, 1996); NORTHEAST UTILITIES, HCAR No. 26654 (Aug. 13, 1996);
UNITIL CORP., HCAR No. 26257 (May 31, 1996); NEW ENGLAND ELECTRIC SYSTEM, HCAR
No. 26520 (May 23, 1996); and EASTERN UTILITIES ASSOCIATES, HCAR No. 26493
(March 14, 1996). Accordingly, these interests are retainable under Section
11(b)(1) of the Act:
Delmarva Energy Company is expected to provide marketing of energy.
Conectiv/CNE Energy Services LLC provides energy marketing services in the
New England states.
Thermal energy products:
The business activities of the following companies (directly or through
subsidiaries) are energy-related activities within the meaning of Rule
58(b)(1)(vi), involving "the production, conversion, sale and distribution of
thermal energy products, such as process steam, heat, hot water, chilled water,
air conditioning, compressed air and similar products; alternative fuels; and
renewable energy resources; and the servicing of thermal energy facilities." SEE
ALSO NEW CENTURY ENERGIES, HCAR No. 26748 (Aug. 1, 1997); CINERGY CORP., HCAR
No. 26474 (Feb. 20, 1996). Accordingly, these interests are retainable under
Section 11(b)(1) of the Act:
ATS develops, owns and operates thermal heating and cooling systems. It is
also exempt as a holding company over the following companies engaged in the
same type of activities:
Atlantic Jersey Thermal Systems, Inc. provides operating services for
thermal heating and cooling systems.
ATS Operating Services, Inc. provides thermal energy operating services.
TELPI holds an investment in the Midtown Energy Center, which produces
steam and chilled water.
Atlantic-Pacific Glendale, LLC provides heating, cooling and other energy
services.
Atlantic-Pacific Las Vegas, LLC provides heating and cooling services.
Ownership and operation of QFs:
The business activities of the following companies, directly or through
subsidiaries, are energy-related activities within the meaning of Rule
58(b)(1)(viii), involving "the development, ownership or operation of
'qualifying facilities'..., and any integrated thermal, steam host, or other
necessary facility constructed, developed or acquired primarily to enable the
qualifying facility to satisfy the useful thermal output requirements under
PURPA." SEE ALSO NEW CENTURY ENERGIES, INC., HCAR No. 26748 (AUG. 1, 1997);
ENTERGY CORP., HCAR No. 26322 (June 30, 1995); SOUTHERN CO., HCAR No. 26212
(Dec. 30, 1994); CENTRAL AND SOUTH WEST CORP., HCAR No. 26156 (Nov. 3,
1994);CENTRAL AND SOUTH WEST CORP., HCAR No. 26155 (Nov. 2, 1994); and NORTHEAST
UTILITIES, HCAR No. 25977 (Jan. 24, 1994). Accordingly, these interests are
retainable under Section 11(b)(1) of the Act:
DCTC has partnership interests in Luz Solar Partners, Ltd. IV and UAH-Hydro
Kennebec, L.P., which own qualifying facilities located in southern California
and New York state, respectively.
Delmarva Operating Services Company ("DOSC") is retainable as a holding
company over the following companies engaged in the operation and maintenance of
qualifying facilities:
DelWest Operating Company will operate and maintain a qualifying facility
in Burney, CA, under a contract with the plant's owner, Burney Forest Products,
Joint Venture (an investment of DCTC-Burney, Inc.).
DelCal Operating Company operates and maintains a qualifying facility in
Sacramento, California owned by the Sacramento Power Authority under a
subcontract with Siemens Power Corporation.
DelStar Operating Company operates and maintains the Delaware City Power
Plant, a qualifying facility in Delaware City, Delaware under a contract with
the plant's owner.
DCTC-Burney, Inc. together with the following company or companies, engages
in the operation and ownership of qualifying facilities:
Forest Products, L.P. is a general partner in a general partnership that
owns a qualifying facility.
Burney Forest Products, A Joint Venture owns a qualifying facility in
Burney, CA.
AGI is retainable as a holding company over the following companies engaged
in the operation and ownership of qualifying facilities:
Pedrick Ltd., Inc. holds a limited partnership interest in Pedricktown
Cogeneration Limited Partnership, a qualifying facility.
Pedrick Gen., Inc. holds a general partnership interest in Pedricktown
Cogeneration Limited Partnership, a qualifying facility.
Vineland Limited, Inc. holds a limited partnership interest in Vineland
Cogeneration Limited Partnership, a qualifying facility.
Vineland General, Inc. holds a general partnership interest in Vineland
Cogeneration Limited Partnership, a qualifying facility.
Telecommunications facilities:
Section 34 of the Act provides an exemption from the requirement of prior
Commission approval the acquisition and retention by a registered holding
company of interests in companies engaged in a broad range of telecommunications
activities and businesses. Section 34 permits ownership of interests in
telecommunications companies engaged exclusively in the business of providing
telecommunications service upon application to the Federal Communications
Commission for a determination of "exempt telecommunications company" status.
Conectiv Communications, Inc. is an exempt telecommunications company under
Section 34 of the Act. CCI is expected to merge with and into Conectiv
Communications, Inc. shortly after the Merger is consummated.
Real estate:
In prior orders, the Commission has approved the purchase of real estate
which is incidentally related to the operations of a registered holding company.
See UNITIL Corporation et al., Holding Co. Act Release No. 25524 (Apr. 24, 1992)
(Commission noted that UNITIL Realty Corporation, a subsidiary of the registered
holding company, UNITIL, which acquired real estate to support utility
operations, engaged in activities which were within the confines of the Act).
Consequently, since the real estate held by the following companies is
substantially similar to that owned by UNITIL Realty Corporation, the companies
are retainable subsidiaries of a registered holding company under Section
11(b)(1) of the Act:
Delmarva Services Company was formed to own and finance an office building
leased to Delmarva and/or affiliates.
Christiana Capital Management, Inc. was formed to own and finance an office
building leased to affiliates.
ASP owns and manages a commercial office and warehouse facility in southern
New Jersey. Fifty percent of the space is presently leased to system companies
and fifty percent is leased to a high school and a day care center.
Delmarva Capital Realty Company ("DCRC") is a vehicle for the sale of
properties not used or useful for the utility business.
Post and Rail Farms, Inc. ("Post and Rail") is engaged in the development
and sale of a residential housing development.
With respect to DCRC and Post and Rail, these companies are managing real
estate that was acquired for an intended utility purpose which has ceased to
exist, or in order for the utility to obtain the necessary rights of way for
transmission lines and other utility operations. Unlike many other states,
Delaware does not provide a right of condemnation for a franchised electric
utility. Rather, the utility is often forced to acquire the underlying fee
simple for a larger parcel in order to obtain an easement or right of way. The
development of these properties is a means of recovering the costs associated
with their acquisition. Accordingly, we submit, such interests are retainable
either under Section 11(b)(1) or pursuant to Section 9(c)(3) "in the ordinary
course of business" of a registered system.
Leveraged leases:
The Commission has approved investments by registered holding companies in
leveraged leases under Section 9(c)(3), which exempts from Section 9(a) and
Section 10, "such commercial paper and other securities, within such
limitations, as the Commission may by rules and regulations or order prescribe
as appropriate in the ordinary course of business of a registered holding
company or subsidiary company thereof and as not detrimental to the public
interest or the interest of investors or consumers." Central and South West
Corporation, HCAR 23588 (Jan. 22, 1985). As the Commission noted in Central and
South West, title held by the lessor in such circumstances is insufficient to
make lessor an "owner" under Section 2(a)(3)(4) of the Act. Moreover, attempting
to reduce one's tax liability through leveraged lease investments is within the
ordinary course of business. Consequently, since the leveraged lease investments
held by the following companies and related activities of the companies are
substantially similar to those discussed above, the companies are retainable
subsidiaries of a registered holding company under 11(b)(1) of the Act:
DCI I, Inc. makes equity investments in leveraged leases of aircraft.
DCI II, Inc. is a foreign sales subsidiary formed to obtain certain tax
benefits from leveraged lease investments by DCI I, Inc.
ATE's primary investments are equity investments in leveraged leases of
three commercial aircraft and two container ships. The other activities of ATE
Investment, Inc. are (i) its investment in EnerTech Capital Partners, L.P.,
which, as discussed above, is retainable pursuant to Rule 58(b)(1)(ii) and (ii)
certain financing arrangements with affiliates.
Gas related Activities:
Conectiv will hold an indirect ownership interest in ECNG, which is engaged
in gas-related activities. Delmarva participated in the formation of ECNG in
order to improve the efficiency of its natural gas local distribution
operations. ECNG members provide emergency backup natural gas supplies to other
members and jointly undertake the bulk purchase and storage of natural gas for
use in their local distribution business. Because these activities are
functionally related to the operations of the gas utility business of Delmarva,
ECNG is retainable by Conectiv under Section 11(b)(1). Further, upon Commission
approval of the Mergers, ECNG will be exempt from all obligations, duties or
liabilities imposed upon it by the Act as a subsidiary company or as an
affiliate of a registered holding company or of a subsidiary company thereof.
SEE RULE 16.
Nonutility Holding Companies:
In addition to the companies discussed above which are engaged in a single
type of business activity, Conectiv will have several other direct and indirect
holding company subsidiaries, which are holding companies for subsidiaries
engaged in a variety of businesses. The following holding companies are
retainable because all of their investments are in companies which are
retainable, as outlined above:
DCI is the holding company over DCI I, Inc., DCI II, Inc., DOSC, DCRC and
Delmarva Capital Technology Company.
Delmarva Capital Technology Company ("DCTC") is the holding company over
DCTC-Burney, Inc.
AEE is holding company over ATE, AET, AGI, ATS, CCI, ASP and Enerval.
Home Security Business:
The home security business of ACE, which is located exclusively in its
service territory has annual revenues of less than $10,000. It is a small
operation that developed from utility operations and incurs very little cost at
this point. Accordingly, Conectiv seeks to retain this business under Section
11(b)(1). Although it is currently within ACE, it may be moved to a separate
subsidiary of Conectiv. Any such subsidiary will apply for exempt
telecommunications company status under Section 34.
Retail Services:
Conectiv Services, Inc. ("CSI"), directly and through subsidiaries,
provides a wide range of energy-related goods and services to industrial,
commercial and residential customers. Many of these services are
"energy-related" within the meaning of Rule 58. The remainder have previously
been found to be "functionally related" and so retainable under Section
11(b)(1)./4/
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/4/ Certain of these services are currently being offered by Delmarva or
Atlantic or certain of their subsidiaries. It is contemplated that, in
connection with the proposed Mergers, the responsibility for these services
will be transferred to a newly-formed entity, Conectiv Enterprises Inc.
("CEI").
- ----------
CSI provides Energy Management Services, often on a turnkey basis, which
may involve the marketing, sale, installation, operation and maintenance of
various products and services related to the business of energy management and
demand-side management. Energy Management Services may include energy audits;
facility design and process enhancements; construction, maintenance and
installation of, and training client personnel to operate energy conservation
equipment; design, implementation, monitoring and evaluation of energy
conservation programs; development and review of architectural, structural and
engineering drawings for energy efficiencies; design and specification of energy
consuming equipment; and general advice on programs, as contemplated by Rule
58(b)(1)(i). In particular, Energy Management Services include the design,
construction and installation, and maintenance of new and retrofit heating,
ventilating, and air conditioning ("HVAC"), electrical and power systems,
motors, pumps, lighting, water and plumbing systems, and related structures as
approved by the Commission in Cinergy Corp., Holding Co. Act Release No. 26662
(Feb. 7, 1997) ("Cinergy Solutions"). CSI also provides conditioned power
services, that is, services designed to prevent, control, or mitigate adverse
effects of power disturbances on a customer's electrical system to ensure the
level of power quality required by the customer, particularly with respect to
sensitive electronic equipment, again as approved in the Cinergy Solutions
Order.
CSI also markets comprehensive Asset Management Services, on a turnkey
basis or otherwise, in respect of energy-related systems, facilities and
equipment, including distribution systems and substations, transmission
facilities, electric generation facilities (stand-by generators and
self-generation facilities), boilers, chillers (refrigeration and coolant
equipment), HVAC and lighting systems, located on or adjacent to the premises of
a commercial or industrial customer and used by that customer in connection with
its business activities, as permitted under the Cinergy Solutions Order. CSI
also provides such services to qualifying and non-qualifying cogeneration and
small power production facilities under the Public Utility Regulatory Policies
Act of 1978. See Rule 58(b)(1)(viii)./5/
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/5/ CSI will not undertake any Asset Management Service without further
Commission approval if, as a result thereof, CSI would become a public
utility company within the meaning of the Act.
- ----------
CSI provides Consulting Services to associate and nonassociate companies.
The Consulting Services may include technical and consulting services involving
technology assessments, power factor correction and harmonics mitigation
analysis, meter reading and repair, rate schedule design and analysis,
environmental services, engineering services, billing services, risk management
services, communications systems, information systems/data processing, system
planning, strategic planning, finance, feasibility studies, and other similar or
related services. See the Cinergy Solutions Order; see also Rule 58(b)(1)(vii).
CSI also offers marketing services to nonassociate businesses in the form of
bill insert and automated meter-reading services, as well as other consulting
services, such as how to set up a marketing program. See Consolidated Natural
Gas Co., Holding Co. Act Release No. 26757 (Aug. 27, 1997) (the "1997 CNG
Order").
With respect to all of the utility or energy-related service lines that
enter a customer's house, as well as utility bill insurance and other similar or
related services. See the Cinergy Solutions Order. CSI may also provide
centralized bill payment centers for "one stop" payment of all utility and
municipal bills, and annual inspection, maintenance and replacement of any
appliance. See Consolidated Natural Gas Co., Holding Co. Act Release No. 26363
(Aug. 28, 1995). CSI also is engaged, either directly or through subsidiaries,
in the marketing and brokering of energy commodities, including retail marketing
activities, as approved by Rule 58(b)(1)(v).
CSI also provides Other Goods and Services as are permissible for a
gas-registered holding company under Rule 58 and incidental services related to
the consumption of energy and the maintenance of property by those end-users,
where the need for the service arises as a result of, or evolves out of, the
above services and the incidental services do not differ materially from the
enumerated services. See the 1997 CNG Order.
In connection with its activities, CSI from time to time may form new
subsidiaries to engage in the above activities, or acquire the securities or
assets of nonassociate companies that derive substantially all of their revenues
from the above activities./6/
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/6/ Immediately after the merger while corporate reorganization is being
implemented, and from time to time thereafter, it may be appropriate for
these services to be offered through an associate company of CSI. Conectiv
requests the Commission to reserve jurisdiction pending completion of the
record with respect to such associate companies.
- ----------
Provision of the above goods and services, which are closely related to the
system's core energy business, is intended to further Conectiv's goal of
becoming a full-service energy provider.
As noted previously, Delmarva Services Company also owns approximately 2.9%
of the common stock of Chesapeake Utilities Corporation ("Chesapeake"), a
publicly-traded gas utility company with gas utility operations in Delaware,
Maryland and Florida. Conectiv requests that the Commission reserve jurisdiction
over the Chesapeake stock for a period of three years from the date of its order
to permit Conectiv to effect an orderly disposition of the stock or otherwise
comply with the requirements of the Act.
5. In Item 3.B.2., the third paragraph is restated to read as follows:
"In addition, it is expected that certain assets such as real property used
for administrative purposes and information technology equipment and software
may be transferred from Delmarva or ACE to Support Conectiv or other Conectiv
companies at cost in conjunction with the integration of the two companies after
consummation of the Mergers. For example, Delmarva currently owns the building
that is likely to be used by Support Conectiv and so may transfer this asset.
These transfers may require approval by various public utility commissions. Any
such transfers will be in accordance with Section 13 and the rules thereunder."
6. The following exhibit is added to Item 6.A.:
J-5 Certificate of Service, November 26, 1997.
7. The following exhibit is added to Item 6.A.:
J-6 Certificate of Service, December 19, 1997.
8. The following exhibit is added to Item 6.A:
J-7 FERC Order Denying Rehearing.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned company has duly caused this Amendment No. 3 to the
Application/Declaration of Conectiv, Inc. to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 19, 1997
Conectiv, Inc.
By: /s/ B.S. Graham
Barbara S. Graham
President
BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF DELAWARE
IN THE MATTER OF THE APPLICATION OF )
DELMARVA POWER & LIGHT COMPANY )
TO MERGE WITH DS SUB, INC. AND TO ) PSC DOCKET NO. 97-58
TRANSFER CONTROL TO CONECTIV, INC. )
(FILED FEBRUARY 24, 1997) )
ORDER NO. 4606
AND NOW, this 23rd day of September, 1997:
WHEREAS, the Commission has received and considered the Proposed Settlement
attached hereto as Exhibit "A" offered in an attempt to resolve the issues
raised in this docket; and
WHEREAS, the Commission, being fully aware of the record created before the
Hearing Examiner, finds, pursuant to 26 Del. C. ss. 512, that the Proposed
Settlement is in the public interest;
NOW, THEREFORE, by the affirmative vote of a majority1 of its members, IT
IS ORDERED:
1. That the proposed merger is approved by the Commission pursuant to 26
Del. C. ss. 215(d) as it is made in accordance with law, is for a proper
purpose, and, subject to the following conditions, is consistent with the public
interest:
a.(1) Upon the closing of the Merger and continuing for a period of one
year thereafter, the Company shall decrease its electric rates to its Delaware
retail customers for usage on and after the Merger closing date by $7,537,000.
The rate decrease shall be allocated among the customer classes on a pro rata
basis based upon total revenues (base rates plus fuel revenues).
- --------
1 Chairman McMahon and Commissioners McClelland, McRae, and Puglisi voting
aye; Vice Chairman Twilley absent.
(2) Effective with usage beginning on and after the first anniversary date
of the closing of the Merger, the Company shall decrease: (a) its electric rates
to its Delaware retail customers by an additional $600,000; and (b) its gas
rates to its Delaware retail customers by $538,000. The rate decrease for both
electric and gas customers shall be allocated among the customer classes on a
pro rata basis as above.
(3) Effective with usage beginning on and after the second anniversary date
of the closing of the Merger, the Company shall decrease its electric rates to
its Delaware retail customers by an additional $400,000. The rate decrease shall
be allocated among the customer classes on a pro rata basis as above.
b. If this Settlement Agreement is approved, no later than thirty (30) days
after approval, the Company shall file with the Commission revised electric
tariff sheets reflecting the rate decrease agreed to herein. Similarly, for the
rate decreases to become effective with usage on and after the first and second
anniversary dates respectively, the Company shall file with the Commission
revised electric and gas tariff sheets reflecting the rate decreases agreed to
herein for those respective periods no later than thirty (30) days prior to the
effective dates of such rate changes.
c. That no decision is made on the ratemaking treatment of the acquisition
premium.
d. The amortization of out-of-pocket costs over ten years with recognition
of a 9.35% return on the unamortized balance should be approved.
e. That Delmarva will hold Delaware ratepayers harmless from the risks
associated with the potential stranded costs of Atlantic City Electric Company
that may result from the Merger.
f. Delmarva agrees that the Commission will continue to have jurisdiction
over the allocation of all costs to Delaware ratepayers, including but not
limited to affiliated company costs and that Conectiv, Inc. and its subsidiaries
will provide to Staff and the DPA complete access to its books and records of
account, subject to appropriate proprietary agreements so long as the
information sought is relevant to some purpose within the scope of the
Commission's jurisdiction.
g. Delmarva agrees that Conectiv's regulated Delaware operations shall be
required to meet all current quality of service and reliability standards, and
that the Commission shall monitor post-merger service levels to ensure
compliance with those standards.
h. The parties agree that issues of Delmarva's market power should be
addressed in the currently-pending restructuring docket; however, the Commission
finds that the incremental effect of the merger on the Company's ability to
exercise market power in the region is not of sufficient concern at this time to
cause the Commission to reject the proposed merger.
2. That the Commission reserves the jurisdiction and authority to enter
such further Orders in this matter as may be deemed necessary or proper.
BY ORDER OF THE COMMISSION:
---------------------------
Chairman
---------------------------
Vice Chairman
---------------------------
Commissioner
---------------------------
Commissioner
---------------------------
Commissioner
ATTEST:
- ---------------------
Secretary
EXHIBIT "A"
BEFORE THE PUBLIC SERVICE COMMISSION
OF THE STATE OF DELAWARE
IN THE MATTER OF THE APPLICATION OF )
DELMARVA POWER & LIGHT COMPANY )
TO MERGE WITH DS SUB, INC. AND TO ) PSC DOCKET NO. 97-58
TRANSFER CONTROL TO CONECTIV, INC. )
(FILED FEBRUARY 24, 1997) )
PROPOSED SETTLEMENT
On this day, September 22, 1997, the undersigned parties (the "Settling
Parties") hereby propose a settlement of this proceeding as follows:
I. INTRODUCTION
1. On February 27, 1997, Delmarva Power & Light Company ("Delmarva" or the
"Company") filed with the Delaware Public Service Commission (the "Commission")
an application seeking the Commission's authority and approval pursuant to 26
Del. C. ss. 215 for the merger of Delmarva and DS Sub, Inc. as part of an
overall transaction with Atlantic Energy, Inc. and its wholly-owned subsidiary
Atlantic City Electric Company. As part of this same transaction, the Company
also sought all necessary authority and approval for Conectiv, Inc., a
newly-formed holding company incorporated in Delaware, to acquire control of the
Company. (Together, the transactions are referred to herein as the "Proposed
Merger"). Delmarva requested the Commission to establish expedited proceedings
to ensure that a final decision would be made well before December 31, 1997.
2. Pursuant to Order No. 4450, the Company published notice of its
application, including information on how to intervene in the proceeding. The
Division of the Public Advocate ("DPA"), the Delaware Energy Users Group
("DEUG") and the City of Wilmington intervened in the proceeding. The Delaware
Alliance for Fair Competition made an appearance but did not participate in the
proceedings in this docket.
3. On May 27, 1997, the Company published notice of the scheduled
evidentiary hearings in this docket and of the dates and locations of public
comment sessions to be conducted. Representatives of Delmarva, the DPA and the
Commission Staff attended those public comment sessions, which were transcribed
and are part of the record.
4. On June 17, 1997, the Hearing Examiner conducted a public evidentiary
hearing. Witnesses for the Company, DPA and Staff who had submitted prefiled
direct and rebuttal testimony offered live testimony and were subject to
cross-examination. In addition, the testimony of two Delmarva witnesses was
admitted into evidence by stipulation of the parties. No one on behalf of DEUG,
the City of Wilmington or the Delaware Alliance for Fair Competition appeared at
the evidentiary hearing.
5. After the record was closed, Delmarva, the DPA, Staff, DEUG and the City
of Wilmington submitted simultaneous opening and reply briefs to the Hearing
Examiner. On August 25, 1997, the Hearing Examiner issued proposed findings and
recommendations. Delmarva, the DPA, Staff, DEUG and the City of Wilmington each
filed exceptions taking issue with one or more of the Hearing Examiner's
recommendations.
6. On September 9, 1997, the Commission met to hear oral argument and
deliberate on the issues. After oral argument and deliberations, the Commission
approved the Proposed Merger on the condition that the Company implement upon
closing of the Merger an across-the-board rate decrease of 1.5% for Delmarva's
Delaware retail electric and gas customers.
7. Prior to the entry of a written order reflecting the Commission's
decision, Delmarva filed an application to reopen deliberations or,
alternatively, for reargument. Subsequent to that application and prior to the
Commission's consideration of it, the Settling Parties met and reached the
settlement set forth herein. This settlement is proposed for the Commission's
consideration pursuant to 26 Del. C. ss. 512.
II. SETTLEMENT PROVISIONS
8. The Proposed Merger should be approved by the Commission pursuant to 26
Del. C. ss. 215(d) as it is made in accordance with law, is for a proper
purpose, and, subject to the following conditions, is consistent with the public
interest:
a.(1) Upon the closing of the Merger and continuing for a period of one
year thereafter, the Company shall decrease its electric rates to its Delaware
retail customers for usage on and after the Merger closing date by $7,537,000.
The rate decrease shall be allocated among the customer classes on a pro rata
basis based upon total revenues (base rates plus fuel revenues).
(2) Effective with usage beginning on and after the first anniversary date
of the closing of the Merger, the Company shall decrease: (a) its electric rates
to its Delaware retail customers by an additional $600,000; and (b) its gas
rates to its Delaware retail customers by $538,000. The rate decrease for both
electric and gas customers shall be allocated among the customer classes on a
pro rata basis as above.
(3) Effective with usage beginning on and after the second anniversary date
of the closing of the Merger, the Company shall decrease its electric rates to
its Delaware retail customers by an additional $400,000. The rate decrease shall
be allocated among the customer classes on a pro rata basis as above.
b. If this Settlement Agreement is approved, no later than thirty (30) days
after approval, the Company shall file with the Commission revised electric
tariff sheets reflecting the rate decrease agreed to herein. Similarly, for the
rate decreases to become effective with usage on and after the first and second
anniversary dates respectively, the Company shall file with the Commission
revised electric and gas tariff sheets reflecting the rate decreases agreed to
herein for those respective periods no later than thirty (30) days prior to the
effective dates of such rate changes.
c. No decision is made on the ratemaking treatment of the acquisition
premium.
d. The amortization of out-of-pocket costs over ten years with recognition
of a 9.35% return on the unamortized balance should be approved.
e. Delmarva will hold Delaware ratepayers harmless from the risks
associated with the potential stranded costs of Atlantic City Electric Company
that may result from the Merger.
f. Delmarva agrees that the Commission will continue to have jurisdiction
over the allocation of all costs to Delaware ratepayers, including, but not
limited to, affiliated company costs, and that Conectiv, Inc. and its
subsidiaries will provide to Staff and the DPA complete access to its books and
records of account, subject to appropriate proprietary agreements so long as the
information sought is relevant to some purpose within the scope of the
Commission's jurisdiction.
g. Delmarva agrees that Conectiv's regulated Delaware operations shall be
required to meet all current quality of service and reliability standards, and
that the Commission shall monitor post-merger service levels to ensure
compliance with those standards.
h. The parties agree that issues of Delmarva's market power should be
addressed in the currently-pending restructuring docket; however, the Commission
finds that the incremental effect of the merger on the Company's ability to
exercise market power in the region is not of sufficient concern at this time to
cause the Commission to reject the proposed merger.
9. The provisions of this settlement are not severable.
10. This settlement represents a compromise for the purposes of resolving
this docket and shall not be regarded as precedent with respect to any
ratemaking or any other principle in any future case. No party to this
settlement necessarily agrees or disagrees with the treatment of any particular
item, any procedure followed, or the resolution of any particular issue in
agreeing to this settlement other than as specified herein, except that the
parties agree that with the conditions imposed, the Proposed Merger is
consistent with the public interest.
IN WITNESS WHEREOF, intending to bind themselves and their successors and
assigns, the undersigned parties have caused this Proposed Settlement to be
signed by their duly-authorized representatives.
Dated:________ ________________________________________
Delmarva Power & Light Company
Dated:________ ________________________________________
Delaware Public Service Commission Staff
Dated:________ ________________________________________
The Division of the Public Advocate
Dated:________ ________________________________________
The Delaware Energy Users Group
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, AUGUST 6, 1997
APPLICATION OF
DELMARVA POWER AND LIGHT COMPANY CASE NO. PUA970008
and
CONECTIV, INC.
For approvals under
Va. Code ss. 56-88.1 and Chapter 4
of Title 56 of the Code of
Virginia
CONSENT ORDER
On February 25, 1997, Delmarva Power & Light Company ("Delmarva") and
Conectiv, Inc. ("Conectiv") (collectively, "the Companies") filed a joint
application ("the Application"),/1/ pursuant to Virginia Code ss. 56-88.1, for
approval of proposed transactions that would result in Conectiv acquiring
control of Delmarva. The change in control stems from the proposed merger of
Atlantic Energy, Inc. ("Atlantic Energy"), the parent of Atlantic City Electric
Company ("Atlantic Electric") , into Conectiv and the merger of DS Sub, Inc. a
subsidiary of Conectiv, into Delmarva and results in both Delmarva and Atlantic
Electric becoming subsidiaries of Conectiv (hereafter referenced as "the
Merger").
- ----------
/1/ The Agreement and Plan of Merger dated August 9, 1996, as amended and
restated as of December 26, 1996, was included as Exhibit A of the
Application.
- ----------
On August 1, 1997, the Commission Staff filed, pursuant to Commission
orders dated March 19, 1997, and July 10, 1997, a report ("Staff Report")
detailing the results of its analysis of the Application. Pursuant to
recommendations made in that report, Delmarva and the Commission Staff agree to
the following:
l. Delmarva shall not assert, in any future proceeding, that the
Commission's ratemaking authority is preempted by federal law with respect to
Virginia's retail ratemaking treatment of any charges from any affiliate to
Delmarva or from Delmarva to any affiliate;
2. The estimated merger-related savings/2/ and costs set forth in the
Application appear to be reasonable estimates of the potential savings
attributable to the Merger and the costs incurred to achieve such merger;
- ----------
/2/ Merger savings will result from elimination of duplication in corporate and
administrative programs, greater efficiencies in operations and business
processes, increased purchasing efficiencies and the combination of two
work forces.
- ----------
3. In anticipation of merger-related savings, Delmarva shall reduce its
Virginia retail base revenues by an annual revenue amount of $422,000, or
approximately 1.52% of total 1996 revenues, effective for service rendered on or
after the date of the Closing./3/ The $422,000 revenue reduction represents
approximately 50% of the estimated average annual net merger savings for
Virginia jurisdictional customers. Such base rate decrease shall be reflected in
a compliance filing made within 60 days after issuance of this Order;
- ----------
/3/ "Closing" refers to the date of the consummation of the Merger.
- ----------
4. The revenue reduction shall be apportioned and the rates designed in a
manner consistent with the recommendations of the Division of Energy Regulation
as detailed in the Staff Report;
5. In the event that Delmarva should agree to return to ratepayers a
greater percentage of estimated merger-related savings in other jurisdictions,
Delmarva agrees to provide the same percentage of savings to its Virginia
jurisdictional customers, but in no event shall such savings be less than the
$422,000. In such event, Delmarva shall submit to the Division of Public Utility
Accounting a copy of the settlement agreement together with a comparison showing
how the rate reduction is calculated;
6. Should actual merger-related savings be greater than the estimates
reflected herein, such additional savings may be at issue in any future Annual
Informational Filing ("AIF") or other filing or proceeding addressing rates,
commencing with test year 1998;
7. All merger-related savings shall be recorded above the line for purposes
of Delmarva's AIFs or other filings or proceedings addressing rates.
8. For purposes of Delmarva's AIFs or other filings or proceedings
addressing rates, the nonrecurring out-of-pocket cash costs to achieve the
Merger shall be amortized over 10 years, commencing as of the date of the
Closing. Delmarva shall file a report with the Commission describing all of its
then-known actual nonrecurring out-of-pocket merger-related costs within 180
days after the date of the Closing;
9. Commencing with test year 1998 the unamortized balance of the deferred
costs to achieve the merger shall be subject to write-off or write-down in the
event of a per books over-earnings situation as provided in Case No.
PUE940063;/4/
- ----------
/4/ Application of Appalachian Power Company, For an expedited increase in base
rates, Case No. PUE940063, 1996 S.C.C. Ann. Rept. 255.
- ----------
10. Without prior Commission approval Delmarva agrees not to include in
Virginia retail rates any costs attributable to Atlantic Energy's power supply
costs and/or regulatory assets;
11. Delmarva shall not include any merger-related costs in excess of
merger-related savings in Virginia retail base rates in any test year. To comply
with this commitment, Delmarva shall: (i) quantify, in accordance with generally
accepted accounting principles, the direct, indirect and internal merger-
related costs attributable to the period used to establish Virginia retail base
rates; and (ii) demonstrate that merger-related savings for the same time period
exceed such merger-related costs; and
12. Delmarva acknowledges and agrees that the one for one stock conversion
authority requested in its application to execute the merger only extends to
shares of Delmarva stock previously authorized by the Commission and outstanding
on the date of the Closing, and that such authority does not extend to any other
affiliate or nonaffiliate financing authority.
THE COMMISSION, having considered the joint request of Delmarva and Staff
and applicable law, is of the opinion that adequate service at just and
reasonable rates will not be impaired or jeopardized by Delmarva becoming a
subsidiary of Conectiv and by Conectiv acquiring control of Delmarva pursuant to
the terms and conditions set forth in the Merger Agreement, subject to the
conditions agreed upon as set forth herein. The Commission is of the further
opinion that the affiliate arrangements by which Support Conectiv will provide
various services to Delmarva and that Delmarva will provide to Support Conectiv
should be considered in a separate docket. Accordingly,
IT IS ORDERED THAT:
(1) The joint application of Delmarva and Conectiv of proposed transactions
that will result in Delmarva becoming a subsidiary of Conectiv and Conectiv
acquiring control of Delmarva be, and hereby is, approved subject to the terms
and conditions as set forth in the Merger Agreement and the conditions agreed
upon as detailed herein.
(2) Within 60 days of the Closing Delmarva shall file appropriate tariffs
with the Division of Energy Regulation that reflect the rate design described
herein.
(3) The affiliate arrangements by which Support Conectiv will provide
various services to Delmarva and by which Delmarva will provide to Support
Conectiv and arrangements by which various non-utility subsidiaries of Delmarva
are made direct subsidiaries of Conectiv shall be considered in a separate
docket; namely, Case No. PUA970040.
(4) There being nothing further to be done in this matter, it be, and
hereby is, dismissed from the Commission's docket of active cases.
AN ATTESTED COPY hereof shall be sent by the Clerk of the Commission to:
Peter F. Clark, Assistant General Counsel, Delmarva Power & Light Company, 800
King Street, P.O. Box 231, Wilmington, Delaware 19899; Guy T. Tripp, III,
Esquire, Hunton & Williams, Riverfront Plaza, East Tower, 951 East Byrd Street,
Richmond, Virginia 23219; The Honorable Robert S. Bloxom, Mappsville, Virginia
23407; The Honorable Thomas K. Norment, Jr., General Assembly Building, Room
320, Richmond, Virginia 23219; Thomas B. Nicholson, Office of Attorney General,
Division of Consumer Counsel, 900 East Main Street, Richmond, Virginia 23219;
and the Commission's Divisions of Public Utility Accounting, Energy Regulation,
and Economics and Finance.
Have seen and agreed:
- ---------------------------------
Judith Williams Jagdmann, Esquire
Marta B. Curtis, Esquire
Have seen and agreed:
- ---------------------------------
Peter F. Clark, Esquire
Guy T. Tripp, III, Esquire
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
Harrisburg, PA 17105-3265
Public Meeting held October 2, 1997
Commissioners Present:
John M. Quain, Chairman
Robert K. Bloom, Vice Chairman
John Hanger, Statement attached
David W. Rolka
Nora Mead Brownell
Joint Application of Atlantic City A-00091675F.0002
Electric Company (ACE), Delmarva Power &
Light Company (Delmarva), and Conectiv,
Inc. (Conectiv) for the transfer of
control of ACE and Delmarva to Conectiv.
OPINION AND ORDER
BY THE COMMISSION:
On March 24, 1997, Atlantic City Electric Company ("ACE"), Delmarva Power &
Light Company ("Delmarva"), and Conectiv, Inc. ("Conectiv"), filed the joint
application captioned above at A-00091675F.0002 pursuant to Chapter 11 of the
Pennsylvania Public Utility Code, 66 Pa. C.S. ss.ss. 1101, et seq. for approval
of the transfer of control of ACE and Delmarva to Conectiv. ACE is a wholly
owned subsidiary of Atlantic Energy, Inc. ("AE"). AE will be merged with and
into Conectiv, with Conectiv the surviving corporation. AE will, therefore,
cease to exist. Delmarva and ACE will become wholly owned subsidiaries of
Conectiv. On September 26, 1997, attorneys for the applicants filed a
supplementary letter pointing out that through an intermediate subsidiary AE
also owns a 50 percent partnership interest in Harrisburg Steam Works, Ltd.
(HSW), a jurisdictional utility providing retail steam service within
Pennsylvania. HSW is not a party to the instant application, however.
ACE, a New Jersey Corporation, is a public utility primarily engaged in the
generation, transmission, and distribution of electric energy in the southern
one-third of New Jersey. ACE owns undivided interests in the Keystone Generating
Station, the Conemaugh Generating Station, the Conemaugh- Conestone EHV
Transmission Line and the Peach Bottom Station in Pennsylvania, and is a member
of the PJM. ACE has no retail utility customers in Pennsylvania, receives no
gross operating revenue for service rendered pursuant to tariffs filed with the
Commission for intrastate service within Pennsylvania and operates no facilities
within the Commonwealth for electric generation, electric or gas transmission or
electric or gas distribution.
Delmarva, a Delaware and Virginia corporation, is an investor owned public
utility that provides predominately electric service in Delaware, ten primarily
eastern shore counties in Maryland, and the Eastern Shore area of Virginia and
gas service in northern Delaware. Delmarva owns undivided interests in the
Keystone Generating Station, the Conemaugh Generating Station, the
Conemaugh-Conestone EHV Transmission Line and the Peach Bottom Station in
Pennsylvania, and is a member of the PJM. Delmarva has no retail utility
customers in Pennsylvania, receives no gross operating revenue pursuant to
tariffs filed with the commission for interstate service within Pennsylvania,
and operates no facilities within the Commonwealth for electric generation,
transmission or distribution.
Conectiv was incorporated under the laws of Delaware on August 8, 1996. AE
and Delmarva each owns 50% of the capital stock of Conectiv. Following certain
intermediate transactions, Delmarva will become a direct wholly owned subsidiary
of Conectiv and AE will cease to exist. AE's direct subsidiaries, including ACE,
will become direct subsidiaries of Conectiv and HSW will become a
50-percent-owned second-level subsidiary of Conectiv.
As a result of the mergers, (i) each issued and outstanding share of
Delmarva common stock will be converted into one share of Conectiv common stock;
and (ii) each issued and outstanding share of AE common stock will be converted
into .75 shares of Conectiv common stock and .125 shares of Conectiv Class A
common stock. Accordingly, the current common shareholders of AE will own 39.4%
of the Conectiv common stock and 100% of the Conectiv Class A common stock and
the current common shareholders of Delmarva will own 60.6% of the Conectiv
Common Stock (based on the capitalization of each company at December 31, 1996).
Shares of Conectiv Common Stock will represent approximately 94% of the voting
power of the common stock, and shares of Conectiv Class A Common Stock will
represent approximately 6% of that voting power. The mergers will not affect the
debt securities or the preferred stock of either Delmarva or ACE.
As a result of the mergers, ACE and Delmarva will become wholly owned
subsidiaries of Conectiv, a new holding company. Therefore, the Mergers will
result in transfers of control of both ACE and Delmarva, through the
aforementioned stock transfers, constituting the transfer of utility property
within the intendment of Section 1102(a)(3) of the Code. Since ACE and Delmarva
will continue to exist as operating companies, none of their undivided interests
described above will be physically transferred to Conectiv.
The Merger Agreement required the approval of the shareholders of common
stock in Delmarva and AE. The common shareholders of both these entities
approved the merger agreement on January 30, 1997.
The Applicants contend that the Mergers will provide opportunities to
achieve benefits for their respective shareholders, customers, employees and
communities that would not be available if they were to remain separate
companies. The anticipated benefits to be achieved through the Mergers include:
economies of scale with associated cost savings, competitive prices and
services, and a more balanced customer base. The applicants also expect that the
combined entities under Conectiv's new holding company system will have
increased financial flexibility and greater access to the regional market. We
note that Standard & Poor's rates the proposed merger of ACE and Delmarva as
"positive". Although we have elevated concern over market power in our ongoing
evaluation of utility mergers, our market power analysis based upon the federal
government Guidelines demonstrates that no additional market power will be
created as a result of the Delmarva/ACE merger. Conectiv will still be among the
smallest utilities in the country, as well as within the PJM. S&P currently
rates Delmarva's senior debt A and ACE's senior debt A-. S&P's positive rating
on the proposed merger reflects the rating agency's belief that Conectiv should
be financially stronger than the now separate utilities. There should be no
direct effect upon rates paid by Pennsylvania consumers of other utilities, at
this time, but, a more efficient Conectiv carries the prospect of lower-cost
power becoming available to PJM, which could benefit consumers in central and
eastern Pennsylvania.
The parties, in their application and in the supplementary letter, ask that
we grant additional relief in the form of "all relief appropriate under Chapter
21" of the Code. To the extent that the agreement governing the proposed merger
may be an affiliated interest agreement, the approval requested is appropriate.
There may also need to be new or revised affiliated interest agreements filed by
the domestic utility, HSW, following the merger. We will consider those
agreement(s) when and if filed.
Our review of the subject Applications leads us to conclude that the
proposed merger is necessary or proper for the service, accommodation,
convenience, or safety of the public, that the Joint Application should be
approved and the relief under Chapter 21 be granted as requested; THEREFORE,
IT IS ORDERED:
1. That the Joint Application of Atlantic City Electric Company (ACE),
Delmarva Power & Light Company, (Delmarva), and Conectiv, Inc. (Conectiv) for
the transfer of control of ACE and Delmarva to Conectiv through a transfer of
stock be, and hereby is approved and that a Certificate of Public Convenience be
issued evidencing such approval.
2. That the merger agreement among the applicants is hereby approved as an
affiliated interest agreement pursuant to Chapter 21 of the Public Utility Code.
3. That within thirty days following the consummation of the transactions
described in Ordering Paragraph No. 1, above, Atlantic City Electric Company
and/or Delmarva Power and Light Company notify this Commission of the effective
date of the merger.
4. That within 120 days of the consummation of the merger, Harrisburg Steam
Works, Ltd., file such new or amended affiliated interest agreements as may be
appropriate to govern transactions between that utility and its affiliates.
5. That a copy of this Order be served on Harrisburg Steam Works, Ltd., in
addition to the parties of record.
BY THE COMMISSION,
James J. McNulty
Acting Secretary
(SEAL)
ORDER ADOPTED: October 2, 1997
ORDER ENTERED: October 3, 1997
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Harrisburg, Pennsylvania
JOINT APPLICATION OF ATLANTIC CITY PUBLIC MEETING-
ELECTRIC COMPANY, DELMARVA POWER & OCTOBER 2, 1997
LIGHT COMPANY, AND CONECTIV, INC. OCT-97-FUS-1267 REV
DOCKET NO. A-00091675
F.0002
STATEMENT OF COMMISSIONER JOHN HANGER
Atlantic City Electric (ACE) and Delmarva have proposed to merge into a new
entity, Conectiv. Both ACE and Delmarva have existing certificates of public
convenience reflecting part ownership interest of generating and transmission
facilities in Pennsylvania. The merger includes a transfer of the existing
certificates to Conectiv. For this reason, the proposed merger is before the
Pennsylvania Commission for approval pursuant to Section 1102(a)(3) of the
Public Utility Code.
In addition, Section 2811 of The Electricity Generation Customer Choice and
Competition Act gives the Commission the specific obligation to consider any
likely impact on the competitive retail electricity market and impose any terms
and conditions found to be necessary to preserve the benefits of a properly
functioning and workable competitive retail electricity market.
As the Staff Report indicates, the Conectiv merger has no likely negative
impact on the proper functioning of a competitive retail market in Pennsylvania,
and the application should be approved. In fact, the Conectiv merger unites the
two smallest PJM members that were unlikely to be strong competitors in the
Pennsylvania retail market. While ACE and Delmarva have not provided retail
electric service in Pennsylvania previously, Conectiv is now licensed and is
aggressively participating in the retail market during Pennsylvania's pilots. As
a result of Conectiv's stronger presence in the retail market affecting much of
Pennsylvania, it is likely that competition will be increased as a result of the
merger.
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1 As noted in the Staff Report, the Conectiv merger has a limited impact on
the concentration of market power in the PJM region, primarily because both
Delmarva and ACE control such a small portion of generation in the total
PJM region that includes about two-thirds of Pennsylvania, all of Delaware,
New Jersey and the District of Columbia, most of Maryland, and a small part
of Virginia. This merger therefore is substantially different than the
merger of BG&E and PEPCO into Constellation. While Conectiv will control
only about 10% of the PJM market, Constellation, if it receives final
approval, will control 22% of all sales and 26% of all capacity in the PJM
region, making it significantly more powerful than any other PJM company
and the eighth largest electric utility in the nation.
A merger that results in Conectiv, or the proposed merger of BG&E and PEPCO
to form Constellation, could affect the Pennsylvania retail market even if the
entities do not actively participate as licensed suppliers in Pennsylvania.
There is no Pennsylvania retail market for generation that stands separate from
the PJM regional market. If the PJM regional market were polluted by an
overconcentration of ownership of generating facilities in Maryland, Delaware or
New Jersey, Pennsylvania consumers would bear the consequences. It is for this
reason that the merger of two companies outside of Pennsylvania but within the
same market as Pennsylvania is of great consequence to Pennsylvania.
Consequently, it is critical that FERC as well as each state Commission within
regional markets consider the impact of a proposed merger on retail competition.
As I pointed out in my May 22, 1997 Statement in the Constellation merger
case, a jurisdictional breakdown could occur unless FERC and the states work
together in addressing the impact of a proposed merger on competitive markets.
If FERC does not consider the impact on retail regional markets, or if the
merging companies are located in a state that has not yet adopted retail
competition, a proposed merger could harm retail competition without meaningful
review by any agency of government. This Commission, FERC, and indeed every
state with jurisdiction to do so must review fully any proposed merger to ensure
that the new competitive markets may develop successfully.
Finally, PJM has not yet successfully reformulated itself as an Independent
System Operator operating a competitive Power Exchange. An Independent System
Operator can be useful in minimizing some, but not all, negative impacts of
market power concentrations. I again urge FERC to resolve quickly the various
PJM filings. It is now imperative that a cloud of uncertainty be lifted via a
final decision from FERC. Almost any final answer, even a misguided one, would
be better than the continual absence of a FERC determination.
- -------------------- --------------------------
DATED JOHN HANGER, COMMISSIONER
PENNSYLVANIA
PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE APPLICATION OF: A-00091675F.0002
Joint Application of Atlantic City Electric Company (ACE), Delmarva Power &
Light Company (Delmarva), and Conectiv, Inc. (Conectiv) for the transfer of
control of ACE and Delmarva to Conectiv.
The Pennsylvania Public Utility Commission hereby certifies that after an
investigation and/or hearing, it has, by its report and order made and entered,
found and determined that the granting of the application is necessary or proper
for the service, accommodation, convenience and safety of the public and hereby
issues to the applicant this CERTIFICATE OF PUBLIC CONVENIENCE evidencing the
Commission's approval.
In Witness Whereof, The PENNSYLVANIA PUBLIC UTILITY COMMISSION has
caused these presents to be signed and sealed, and duly attested by
Its Secretary at its office in the city of Harrisburg this 2nd day of
October 1997.
Acting Secretary
Certificate of Service
I certify that I have this day served the foregoing document upon:
Thomas P. Thackston
Davis, Reberkenny & Abramowitz
499 Cooper Landing Road
Box No. 5459
Cherry Hill, New Jersey 08002
Dated November 26, 1997.
--------------------------------------
Joanne C. Rutkowski
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Certificate of Service
I certify that I have this day served the foregoing document upon:
Thomas P. Thackston
Davis, Reberkenny & Abramowitz
499 Cooper Landing Road
Box No. 5459
Cherry Hill, New Jersey 08002
Dated December 19, 1997.
--------------------------------------
Jody M. Ruiu
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: James J. Hoecker, Chairman; Vicky A.
Bailey, and William L. Massey
Atlantic City Electric Company ) Docket No. EC97-7-001
Delmarva Power & Light Company )
ORDER DENYING REHEARING
(Issued November 5, 1997)
Delaware Municipal Electric Corporation, Inc. (Delaware Municipal) has
requested rehearing of the Commission's July 30, 1997 order approving the merger
of Atlantic City Electric Company (Atlantic City Electric) and Delmarva Power &
Light Company (Delmarva) (jointly, Applicants).1 As discussed below, we deny the
request for rehearing.
BACKGROUND
On November 27, 1996, Atlantic City Electric and Delmarva filed a joint
application pursuant to section 203 of the Federal Power Act (FPA), 16 U.S.C.
ss. 824b (1994), seeking authorization to consolidate their jurisdictional
facilities through a merger. Following issuance of the Commission's Merger
Policy Statement,2 Applicants were requested to and did revise their competition
analysis using the competitive screen analysis described in Appendix A of the
Merger Policy Statement.
In accordance with the Merger Policy Statement, the Commission focussed its
review of the merger on the merger's effect on competition, rates, and
regulation. The Commission concluded that the merger raised no transmission or
vertical market power concerns, and we declined to consider issues related to
retail competition because no state commission asked us to do so. With respect
to horizontal market power, we found that the competitive screen analysis
submitted by Applicants adequately supported the conclusion that the merger
would not significantly concluded that Applicants' ratepayer protection
provision was adequate to protect wholesale and transmission customers from
merger-related cost increases, and that the merger would not have an adverse
impact on regulation. Accordingly, having satisfied the Merger Policy
Statement's guidelines for merger approval, the proposed consolidation of
facilities was approved.
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1 Atlantic City Electric Company and Delmarva Power & Light Company, 80 FERC
P. 61,126 (1997).
2 Inquiry Concerning the Commission's Merger Policy under the Federal Power
Act: Policy Statement, Order No. 592, 61 Fed. Reg. 68,595 (1996), FERC
Stats. & Regs. P. 31,044 (1996), reconsideration denied, Order No. 592-A,
62 Fed. Reg. 33341, 79 FERC P. 61,321 (1997) (Merger Policy Statement).
DELAWARE MUNICIPAL'S REHEARING REQUEST
In its request for rehearing, Delaware Municipal alleges error with respect
to our decision not to address retail competition issues, and also alleges that
we did not consider all of the issues raised in its protest and did not apply
all of the requirements of our Merger Policy Statement.
1. Retail Competition
In the merger order, we declined to consider the proposed merger's effect
on competition with respect to retail customers, noting that no state commission
had requested that we examine the merger's effect on retail competition, and
that we had no reason to believe that the state commissions would not consider
this issue to the extent they believed it necessary.3 This result was consistent
with the approach we adopted in the Merger Policy Statement.4
Delaware Municipal asserts on rehearing that the Commission is required to
examine retail competition issues as a result of the Supreme Court's decision in
Federal Power Commission v. Conway, 426 U.S. 271, 48 L. Ed. 2d 626, 96 S. Ct.
1999 (1976) (Conway).5 We disagree that our determination not to examine retail
competition in circumstances where, as here, the state has authority to address
the issue, is inconsistent with Conway. Moreover, Delaware Municipal does not
even allege a harm to retail competition that is caused by the merger. Delaware
Municipal's allegation of anticompetitive harm is that the merger may make
Delmarva "more competitive, as its costs may decrease," while Delaware
Municipal's members' power costs will increase under existing wholesale
contracts with Delmarva.6 Accordingly, it is clear that Delaware Municipal is
concerned with how rate levels may affect retail competition, not with how the
merger will affect retail competition. The harm alleged by Delaware Municipal
does not result from the combination of Delmarva with Atlantic City Electric,
but from the fact that it has wholesale power contracts with Delmarva at rates
that it now believes are too high. Any remedy for this lies not in this merger
proceeding, but in a complaint proceeding seeking to amend the wholesale power
supply arrangements under FPA section 206.7
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3 80 FERC at 61,404.
4 Merger Policy Statement, FERC Stats. & Regs. at 30,128; Baltimore Gas &
Electric Company and Potomac Electric Power Company, 79 FERC P. 61,027 at
61,115 (1997) (Constellation).
5 In Conway, the Supreme Court held that the Commission must take into
account, under FPA sections 205 and 206, whether the difference between the
utility's wholesale and retail rates creates a discriminatory and
anticompetitive effect on wholesale customers who may want to compete for
retail sales with the utility. If such an anticompetitive "price squeeze"
exists, the Court said, the Commission could remedy it by lowering the
wholesale rates to the lower range of the zone of reasonableness.
6 Delmarva Municipal Request for Rehearing at 4.
7 See Enron Corporation, et al., 78 FERC P. 61,179 at 61,739 (1997)
(Commission rejected wholesale customer's argument that the merger should
be conditioned on an open season requirement because its power supply
agreement allegedly impeded its ability to compete in the retail market).
Delaware Municipal cites to our Constellation order8 for the proposition
that we acknowledged our authority to consider issues related to retail
competition. We do not dispute that we have this authority in appropriate
circumstances. However, while we recognized in Constellation that the record
there raised retail competition concerns that merited consideration, the
concerns identified there were not at all similar to the concerns asserted by
Delaware Municipal in this case. What we were concerned about in Constellation
was record evidence that showed that the merged company would control 100
percent of the market for firm energy and 80-88 percent of the market for
non-firm energy if retail access became available. Nevertheless, we concluded in
Constellation that this issue was appropriately addressed by the relevant state
commissions because they appeared capable of doing so in pending proceedings.9
Here, as explained above, Delaware Municipal has not even alleged a
merger-related effect on retail competition, but only a rate-related effect
which, if it in fact exists, is appropriately pursued in a different proceeding.
In addition, we note that the Delmarva/Atlantic City Electric merger has now
been reviewed and approved by three state commissions (Maryland, Virginia, and
Delaware) and is pending review by two others (New Jersey and Pennsylvania). As
we said in the Merger Policy Statement, when we are asked to address a merger's
effect on retail markets by a state commission without authority to conduct such
an inquiry, we will do so. We also are aware that as retail markets evolve into
regional power markets, it may become more difficult for individual states
adequately to examine a merger's impact on such markets. There is no indication,
however, that these issues are raised by the facts of this case. No state
commission has asserted that it lacks authority to address retail competition
issues in its state or asked us to address these issues. Accordingly, we see no
reason why any legitimate retail competition issues cannot be addressed by the
state commissions.
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8 See note 4 supra.
9 Constellation, 79 FERC at 61,115.
2. Issues Raised in Delaware Municipal's Protest
Delaware Municipal argues that we did not consider all of the issues and
arguments raised in its protest, and lists five such issues. We disagree. We
considered all issues raised by all parties to this proceeding, and just because
we did not explicitly state that we were responding to a particular argument
made by Delaware Municipal does not mean that we did not take it into account in
arriving at our disposition of an issue.10 Delaware Municipal does not identify
any specific errors in our analysis, but merely cross-references citations to
its protest that it claims we did not consider.
Delaware Municipal first asserts that we did not address its arguments
pertaining to constraints on the Pennsylvania-New Jersey-Maryland (PJM)
transmission system. In fact, we specifically recognized that the issue of
constraints and transfer capability was a significant issue in this case and
gave it full consideration.11 Delaware Municipal's reference to statements made
about PJM transmission capacity in a different proceeding concerning different
transmission paths does not undermine the specific evidence presented and relied
on in this case with respect to transmission capability affecting the markets
examined in the context of the present merger.
Delaware Municipal next asserts that we did not consider the alleged
failure of Applicants to analyze all generating capacity data. Delaware
Municipal cites to its protest where it argues that if the eastern PJM area
capacity were analyzed assuming no transfer capability over the eastern
interface, the effect of the merger on market concentration would be greater. No
evidence suggests that zero transfer capability is a realistic situation, and
there is no need to address a scenario that does not in fact exist. We
thoroughly considered what transfer capabilities were reasonable to assume for
purposes of determining the generating capacity data relevant to the merger's
effect on market concentration.12
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10 See Public Service Company of New Mexico, 832 F.2d 1201, 1206-7 n.5 (10th
Cir. 1987); Nepco Mun. Rate Comm'n v. FERC, 668 F.2d 1327, 1334, 1347 (D.C.
Cir. 1981), cert. denied, 457 U.S. 1117 (1982).
11 80 FERC at 61,408-09.
12 Id. at 61,409-11.
Delaware Municipal's third item that it alleges we did not discuss relates
to the assertions in its protest as to market concentrations for the Delaware
transmission dependant utilities (TDUs). Again, the issue of market
concentrations is one we carefully considered and found that the evidence
presented supported the conclusion that the merger would not significantly
increase concentration in any relevant market.13 Delaware Municipal made some
unidentified assumptions in its protest that caused it to arrive at
concentration levels that are different from the ones we have found to be
supported by the evidence.14 Delaware Municipal has not pointed to any specific
errors in Applicants' analysis or our review thereof that would warrant us to
reconsider our conclusion that the merger would not significantly increase
concentration.
Delaware Municipal next asserts that we did not discuss Applicants' alleged
failure to properly analyze eastern interface transfer capacity. As noted above,
we gave full consideration to the issue of eastern interface transfer
capability. We concluded that while we had some concerns with Applicants' use of
regression analysis to estimate transfer capability, we found the results
reasonable primarily because they were corroborated by operator estimates and
actual metered data.15 The pages in its protest that Delaware Municipal cites
deal primarily with the fact that Applicants did not use the same numbers for
transfer capability in its supplemental filing as it did in its original filing.
We based our decision on the more recent supplemental filing which we found
provided a reasonable analysis of eastern interface transfer capability.
Applicants adequately explained that the transfer capability used in their
original filing was different because it did not include facilities below 500
kV, and assumed a static transfer capability.16
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13 Id.
14 For example, Delaware Municipal's analysis excluded without explanation
virtually all capacity in western PJM, which necessarily results in
increased concentration levels.
15 80 FERC at 61,409.
16 Application, Exh. ___ (JCD-3), at 11.
The fifth item that Delaware Municipal claims that we did not consider is
Applicants' alleged failure to identify certain additional transmission costs
for potential suppliers to the market. This, too, is incorrect. We considered
and accepted Applicants' decision to exclude from their analysis potential
suppliers other than PJM sources and New York Power Pool (NYPP) sources because
they were not directly connected to the eastern PJM market, and excluding them
would only serve to overstate concentration levels (i.e. make the case worse for
Applicants).17 We also specifically considered, and criticized, Applicants'
assumptions about transmission costs for NYPP sources, but we found that even if
worst-case transmission costs were assumed for NYPP sources, it would not change
the market concentrations so as to raise concerns.18 We also fully explained why
it was appropriate, in the specific facts of this case, not to factor congestion
costs into the assumed transmission costs for PJM suppliers.19 Delaware
Municipal has not identified any errors with respect to our analysis of these
issues.
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17 80 FERC at 61,406 n.35.
18 Id. at 61,407 and n.40.
19 Id. at 61,407-08.
3. Conformance to Appendix A Analysis
Delaware Municipal argues that we failed to require Applicants to comply
with the Merger Policy Statement's Appendix A analysis. This is not correct. We
found that Applicants' screen analysis adequately supported the conclusion that
the merger would not significantly increase concentration in any relevant
market.20 As we stated in the Merger Policy Statement, the Appendix A screen is
intended to be somewhat flexible and to allow differing methods and factors
where properly supported.21
Delaware Municipal incorrectly argues that the Merger Policy Statement
requires Applicants to examine "four or more relevant products." In fact, the
Merger Policy Statement stated that the Commission had in the past analyzed
three relevant products (long-term capacity, short-term capacity, and non-firm
energy) and that these remained reasonable products to recognize, although other
product definitions may be acceptable.22 Applicants provided an analysis
adequate to support the conclusion that the merger would not affect competition
in the long-term or short-term capacity markets.23 Applicants showed that there
were no barriers to entry and that they were unable to erect or maintain any
barriers to entry, which is sufficient to satisfy concerns with respect to
long-term capacity. Applicants further showed that they had no uncommitted
capacity through 2001, which is sufficient to satisfy concerns with respect to
short-term capacity. It was appropriate, therefore, under the facts of this
case, for Applicants to focus primarily on the market concentration analysis for
non-firm energy.
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20 Id. at 61,411.
21 Merger Policy Statement, FERC Stats. & Regs. at 30,119.
22 Id. at 30,130.
23 80 FERC at 61,405.
Delaware Municipal is also incorrect in asserting that Appendix A requires
the use of four different capacity measures for each product. In fact, Appendix
A states that it is appropriate and desirable to use "several" capacity measures
for a product.24 For the non-firm energy product, Applicants analyzed three
capacity measures, which is sufficient to satisfy the Merger Policy Statement
requirement in these circumstances.25
Finally, Delaware Municipal argues that Applicants did not meet the
requirements of Appendix A because they did not perform a delivered price
analysis for each individual customer. We explicitly addressed this issue in our
order and found that Applicants' approach to the delivered price analysis was
reasonable given the transmission pricing in effect for PJM.26 The Merger Policy
Statement is flexible enough to permit this approach where appropriate, and
Delaware Municipal has provided no reason why acceptance of that approach here
was error.
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24 Merger Policy Statement, FERC Stats. & Regs. at 30,131-32.
25 80 FERC at 61,409-11.
26 Id. at 61,407.
The Commission orders:
Delaware Municipal's request for rehearing is denied.
By the Commission.
( S E A L )
Lois D. Cashell,
Secretary
