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File No. 70-9499
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1 to
FORM U-1
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Conectiv
Atlantic City Electric Company
Delmarva Power & Light Company
800 King Street
Wilmington, DE 19899
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(Name of company filing this statement
and address of principal executive offices)
Conectiv
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(Name of top registered holding company parent)
Philip S. Reese
Treasurer
Conectiv
(address above)
(Name and address of agent of service)
The Commission is requested to send copies of all notices, orders and
communications in connection with this Application to:
Peter F. Clark Joyce Koria Hayes, Esquire
General Counsel 7 Graham Court
Conectiv Newark, DE 19711
(address above)
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The Declaration as previously filed is hereby amended in the following respects:
Item 1. Description of Proposed Transactions
Paragraphs B, C, E & F of Item 1 are hereby amended and restated as follows:
B.1 NEW JERSEY RESTRUCTURING AND THE IMPACT ON ACE.
On June 9, 1999, ACE entered into a Stipulation of Settlement
("Stipulation") with some of the parties to proceedings pending before the New
Jersey Board of Public Utilities ("NJBPU") concerning ACE's stranded costs,
unbundled rates and restructuring. The Stipulation was filed with the NJBPU and
on July 15, a summary order ("New Jersey Order") was issued detailing the
NJBPU's modifications to the Stipulation. The NJBPU stated that a more detailed
order would be issued at a later date. The New Jersey Order provides that ACE
may divest its nuclear and fossil fuel baseload units and transfer the remaining
generating units to a non-utility affiliated company at net book value. The New
Jersey Order provides that ACE shall be permitted the opportunity to recover
100% of the net stranded costs related to the generation units to be divested,
subject to further NJBPU proceedings. The New Jersey Order further provides that
ACE may also recover 100% of the stranded costs associated with power purchased
from Non-Utility Generators ("NUGs"). The New Jersey Order also provides for the
securitization of amounts used to effect potential buyouts or buydowns of
contracts with NUGs as well as limited incentives for ACE in the event of such
contract restructuring. Management has made a preliminary estimate of the amount
of stranded costs not expected to be recovered through regulated electricity
delivery rates after the electric utility industry is restructured in New
Jersey. Based on the New Jersey Order, management expects that, in the third
quarter of 1999, ACE's electricity supply business will no longer be subject to
the requirements of the Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation." ("SFAS No. 71")
The total amount that could be charged to earnings due to this change includes
the impairment amount for the electric generating plants of ACE and regulatory
assets related to the electric generation business, The charge to earnings is
reduced by the estimated cost recovery through regulated electricity delivery
rates. Based on this methodology (giving effect to estimated cost recoveries),
management currently estimates that the electric utility industry restructuring
in New Jersey will result in an extraordinary after-tax charge to ACE earnings
of approximately $50 to $75 million during the third quarter of 1999. As was
publicly disclosed in the Quarterly Reports on Form 10-Q for the quarter ended
June 30, 1999, filed by Conectiv and ACE on August 16, 1999, as of June 30,
1999, ACE has approximately $189 million in retained earnings. Only a
write-down of more than $189 million would require payment of dividends out of
capital or unearned surplus, which would require an order of this Commission
under Section 12(c) of the Act. Since a write-down of this magnitude is not
anticipated, the Commission is requested to continue the reservation of
jurisdiction until the final order is issued by the NJBPU and the impacts have
been ascertained.
B.2. DELAWARE, MARYLAND AND VIRGINIA RESTRUCTURING AND THE IMPACT ON DELMARVA.
DELAWARE ELECTRIC UTILITY INDUSTRY RESTRUCTURING LEGISLATION
On March 31, 1999, the Governor of Delaware signed the Electric
Utility Restructuring Act of 1999 (the "Delaware Act"). Pursuant to the
requirements of the Delaware Act, on April 15, 1999, the Company submitted to
the Delaware Public Service Commission (the "DPSC") a compliance plan for the
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implementation of retail choice in the Company's service area. On August 31,
1999, the DPSC issued its order (the "Delaware Order") with regard to the retail
competition restructuring plan filed by the Company. The DPSC stated that a more
detailed order would be issued at a later date. The DPSC order approved the
Company's proposed rate structure, thus permitting the Company to recover $16
million in stranded costs and to reduce residential rates by 7.5%.
Electric rates would not be changed in the event Delmarva sells or
transfers generating assets.
MARYLAND ELECTRIC UTILITY INDUSTRY RESTRUCTURING LEGISLATION
On April 2, 1999, the Maryland General Assembly passed legislation to
restructure the electric utility industry (the Maryland Act). On April 8, 1999,
the Governor of Maryland signed the Maryland Act. On May 5, 1999, Delmarva filed
a proposed settlement with the Maryland Public Service Commission ("MPSC") in
Delmarva's pending restructuring proceeding and amended the proposed settlement
on August 4, 1999, to include an additional party. The proposed settlement is
with all of the parties to the proceeding, including the MPSC Staff and the
Office of People's Counsel. Included in the proposed settlement are the
following provisions: (i) effective July 1, 2000, all of Delmarva's
Maryland-retail customers will be eligible to select an alternative electricity
supplier; (ii) for a period of at least 3 years thereafter, Delmarva will remain
the supplier of "standard offer service" for customers who do not select an
alternative electricity supplier; (iii) agreed-upon unbundled rates (including
nuclear decommissioning costs and funding for low income energy assistance
programs at an estimated level of between $2 and $3 million per year); (iv) the
deregulation of Delmarva's generating facilities, such that electric rates would
not be changed in the event Delmarva sells or transfers generating assets (v)
authorization to transfer Delmarva generating assets to one or more affiliates
at net book value; (vi) the recovery of an estimated $8 million (Maryland retail
basis) in stranded costs from non-residential customers; (vii) a 7.5% reduction
in residential rates effective July 1, 2000 and (viii) effective July 1, 2000,
"rate freezes" for 4 years for residential customers and 3 years for
non-residential customers, subject to certain adjustments
The MPSC is expected to issue an order with respect to the proposed
settlement by October 1, 1999.
VIRGINIA ELECTRIC UTILITY INDUSTRY RESTRUCTURING LEGISLATION
On March 29, 1999, the Governor of Virginia signed Virginia Electric
Utility Restructuring Act (the "Virginia Act"). However, in 1998, revenues from
Delmarva's Virginia customers comprised less than 2% of consolidated Conectiv
electric revenues earned from regulated electricity sales.
PROJECTED POSSIBLE IMPACT OF ELECTRIC INDUSTRY RESTRUCTURING ON DELMARVA:
Based on the Delaware Order and the Maryland Order anticipated to be
issued on October 1, 1999, management expects that, in the third quarter of
1999, Delmarva's electricity supply business will no longer be subject to the
requirements of the SFAS No. 71, "Accounting for Effects of Certain Types of
Regulation." The total amount that could be charged to earnings includes the
impairment amount for the electric
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generating plants of Delmarva, the stranded cost amount for Delmarva's purchased
power contracts and regulatory assets related to the electric generation
business, The charge to earnings is reduced by the estimated cost recovery
through regulated electricity delivery rates. Based on this methodology, as was
disclosed in the Quarterly Reports on Form 10-Q for Conectiv and Delmarva, the
total after tax charge to earnings due to the impairment amount for Delmarva's
electric generating plants, the stranded cost amount for purchased power
contracts, and regulatory assets related to the electric generation businesses,
after reduction by the estimated cost recovery through regulated electricity
delivery rates could range from $300 million to $425 million. As of June 30,
1999, Delmarva has retained earnings totaling approximately $335 million. The
addition of an another quarter of earnings during the peak cooling season has
further strengthened Delmarva's retained earnings. Only a write-off at the high
end of the range of estimates would result in the elimination of retained
earnings. Delmarva does not request an Order of the Commission at this time,
but Commission is requested to reserve jurisdiction over the declaration of
future dividends until the state proceedings are complete and the impacts have
been ascertained.
C. CONSOLIDATED IMPACT ON CONECTIV OF RESTRUCTURING LEGISLATION:
As was disclosed in Conectiv's 2nd Quarter 10-Q, the total amount that
could be charged to Conectiv's earnings, on a consolidated basis, includes (a)
the impairment amount for the electric generating plants of Delmarva and ACE,
(b) the stranded cost amount for Delmarva's purchased power contracts, and (c)
regulatory assets of Delmarva and ACE related to their electric generation
businesses. The charge to earnings is reduced by the estimated cost recovery
through regulated electricity delivery rates of Delmarva and ACE. Based on this
methodology (giving effect to estimated cost recoveries), management currently
estimates future charges to earnings, after taxes, as a result of electric
utility industry restructuring could be within the following ranges:
DPL $300 million to $425 million
ACE $ 50 million to $ 75 million
Consolidated Conectiv $350 million to $500 million
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As of June 30, 1999, Conectiv has approximately $289 million in
retained earnings. As shown on Exhibit H-1 hereto, had Conectiv been able to use
pooling rather than purchase accounting in connection with the Merger by which
Delmarva and ACE became subsidiaries of Conectiv, the ACE retained earnings
would not have been excluded from Conectiv's consolidated retained earnings and
Conectiv's retained earnings would have been higher and better able to absorb
the anticipated write-downs. If a write-down in excess of $289 million plus
earnings during the third quarter is required during the third quarter, the
dividend that would normally be declared on September 28, 1999, would have to be
declared out of capital or unearned surplus, as permitted by the laws of the
State of Delaware, where Conectiv is incorporated. Under these circumstances, an
order of this Commission under Section 12(c) would be required prior to
September 28, 1999. Conectiv's per quarter dividend obligation is $19.4 million
for Common Stock and $4.6 million for Class A Common Stock for a $24 million
total per quarter. The Commission is requested to issue an order authorizing
Conectiv to declare dividends in the forgoing amounts out of capital or unearned
surplus in the third quarter should write-offs in that quarter eliminate
retained earnings. The Commission is requested to continue to reserve
jurisdiction over future dividend declarations until the restructuring
proceedings are complete and the impacts ascertained.
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E. IMPACT OF PAYMENTS OF DIVIDENDS OUT OF CAPITAL OR UNEARNED SURPLUS PENDING
ASSET SALES
Exhibit H-2, which was filed with the original Declaration on Form U-1
pursuant to a request for confidential treatment, was a quarter by quarter
projection for Conectiv, ACE and Delmarva of the time required for the sales of
assets and income in the ordinary course of business to return retained earnings
to positive numbers following hypothetical write-downs due to state electric
industry restructuring. Exhibit H-2 portrayed (1) a worst case scenario using
the $500 million write-down in the second quarter (1) a high case in which $500
million write-down is incurred in the third quarter and (2) a lower case
scenario using a lower write-down (1).
A revised version of Exhibit H-2 is filed herewith under a request for
confidential treatment. Exhibit H-2(Revised) is updated to June 30, 1999, does
not include projections for ACE nor Delmarva since no authorization is currently
requested for either company, and presents a high case write-down of $500
million and a low case write-down of $350 million, both in the third quarter. As
shown on Exhibit H-2 (Revised), even if the worst case scenario of a $500
write-down during the third quarter of 1999 occurs, expected gains on the sales
of assets and net income would return Conectiv consolidated retained earnings
to positive numbers in a relatively short period of time. Under the low case no
further orders will be required from this Commission.
F. SUMMARY OF REQUESTED ACTION:
Conectiv requests that this Commission issue an Order on or before
September 24, 1999 permitting the Declaration to become effective, permitting
Conectiv to declare dividends out of capital or unearned surplus aggregating up
to $19.4 million with respect to Common Stock and $4.6 million with respect to
Class A Common Stock The Commission is requested to continue to reserve
jurisdiction over the declaration of future dividends out of capital or
unearned surplus by ACE, Delmarva and Conectiv until the restructuring
proceedings in all states are resolved and the impacts ascertained.
Item 2. Fees, Commissions and Expenses.
Item 2(a) is restated as follows:
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1 Exhibit H-2 includes Pro-Forma Consolidated Statements of Retained
Earnings/(Accumulated Deficit) for Conectiv, ACE and Delmarva. The pro forma
statements contained in Exhibit H-2 start with the historical balances, as filed
in each company's March 31, 1999 Form 10-Q. March 31, 1999 historical Conectiv
balances are adjusted to reflect the impact of the Company's Common Stock tender
offer. The second and third quarters of 1999 reflect the charges due to state
electric industry restructuring legislation. The second quarter of 2000 reflects
the impact of estimated gains on the sales of certain generating facilities.
Each quarter also reflects estimated income and Common Stock and Class A Common
Stock dividends. Because these statements contain confidential proprietary
projects of future performance, Exhibit H-2 was submitted under a request for
confidential treatment and was not included in the electronic filing.
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The fees, commissions and expenses to be incurred, directly or
indirectly, by Conectiv or any associate company thereof in connection with the
preparation of this declaration are estimated as follows:
Fees of Conectiv Resource Partners, Inc...... $ 2,000
Fees of outside counsel............ $ 9,000
Miscellaneous expenses $ 1,000
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TOTAL.............................. $ 12,000
Item 4. Regulatory Approval.
Item 4(a) is restated as follows:
No other regulatory agency has jurisdiction over the proposed payment
of dividends out of capital or unearned surplus by Conectiv
Item 5. Procedure.
Item 5(a) is amended and restated as follows:
Conectiv requests that an order be issued permitting this Declaration
to become effective on or before Friday, September 24, 1999 to permit the
orderly declaration of the dividend on September 28, 1999.
Item 6. Exhibits and Financial Statements.
Item 6(a) is revised to file the following additional or revised Exhibits:
F Preliminary opinion of counsel (filed herewith)
H-2(Revised) Revised Financial Analysis - Present to June 2000 (filed
under request for confidential treatment.)
SIGNATURE
Pursuant to the requirements of the Act, the undersigned companies have
duly caused this amended Application to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 20, 1999
Conectiv
By: /s/ Philip S. Reese
Treasurer
Atlantic City Electric Company
By /s/ Philip S. Reese
Treasurer
Delmarva Power & Light Company
By: /s/ Philip S. Reese
Treasurer
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Exhibit F-1
September 17, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549
Re: Conectiv
SEC File No. 70-9499
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Dear Sir or Madam:
As General Counsel for Conectiv, a Delaware corporation ("Conectiv"), I
have acted as counsel to Conectiv in connection with the Declaration on Form U-1
as amended by Amendment No. 1 thereto (File No. 70-9499) (hereinafter the
"Declaration") filed under Section 12(c) of the Public Utility Holding Company
Act of 1935 as amended and Rule 46 promulgated thereunder with the Securities
and Exchange Commission ("Commission") jointly by Conectiv, Delmarva Power &
Light Company ("Delmarva"), a Delaware and Virginia corporation and combination
gas and electric utility company, and Atlantic City Electric Company ("ACE"), a
New Jersey corporation and an electric utility company (collectively the
"Declarants").
By the Declaration, as amended, Conectiv requests authorization for the
payment of specified dividends out of capital or unearned surplus (hereinafter
the "Proposed Dividend Payments"). The Commission is requested to reserve
jurisdiction over the payment of future dividends out of capital or unearned
surplus by ACE, Delmarva or Conectiv.
I am a member of the bar of the State of Delaware, the state in which
Conectiv is incorporated.
In connection with this opinion, I or attorneys in whom I have
confidence, have examined originals or copies, certified or otherwise identified
to my satisfaction, of such records and such other documents, certificates and
corporate or other records as I have deemed necessary or appropriate as a basis
for the opinions set forth herein. In my examination, I have assumed the
genuineness of all signatures, the legal capacity of all persons, the
authenticity of all documents submitted to me as originals, the conformity to
original documents of documents submitted to me as certified or photostatic
copies and the authenticity of the originals of such copies. As to various
questions of fact material to such opinions, I have, when relevant facts were
not independently established, relied upon statements contained in the
Declaration.
The opinions expressed below with respect to the Proposed Dividend
Payments are subject to the following assumptions, qualifications, limitations,
conditions and exceptions:
(a) the Commission shall have duly entered an appropriate order or
orders permitting the Declaration to become effective under
the Act and the rules and regulations
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thereunder, and the Proposed Dividend Payments are consummated
in accordance with the Declaration.
(b) No act or event other than as described herein shall have
occurred subsequent to the date hereof which would change the
opinions expressed below
(c) Appropriate corporate action will have been taken by Conectiv
to authorize the payment of the Proposed Dividend Payments.
Based on the foregoing and subject the assumptions, qualifications,
limitations, conditions and exceptions set forth herein, I am of the
opinion that, in the event the Proposed Dividend Payments are
consummated in accordance with the Declaration:
1. All state laws applicable to the Proposed Dividend Payments
will have been complied with
2. The payment of the Proposed Dividend Payment will not violate
the legal rights of the holders of any securities issued by
any Declarant or any associate company thereof
I hereby consent to the use of this opinion in connection with the
Declaration .
Very truly yours,
Peter F. Clark
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PRO FORMA CONSOLIDATED STATEMENT
FILED WITH THE OFFICE OF THE SECRETARY UNDER A REQUEST FOR CONFIDENTIAL
TREATMENT
