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FILE NO. 70-XXXX
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
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[ ]
Conectiv
[ ]
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(Name of top registered holding company parent)
Louis M. Walters
Treasurer
Conectiv
(address above)
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(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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Item 1. Description of Proposed Transactions
(a) Furnish a reasonably detailed and precise description of the proposed
transaction, including a statement of the reason why it is desired to consummate
the transaction and the anticipated effect thereof. If the transaction is part
of a general program, describe the program and its relation to the proposed
transaction.
A. BACKGROUND
Conectiv, a Delaware corporation, previously was authorized under
Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended
(the "Act"), to consummate certain transactions resulting in the acquisition by
Conectiv of all of the outstanding common stock of Delmarva Power & Light
Company, a Delaware and Virginia corporation and an operating public utility
company ("Delmarva"), and of Atlantic City Electric Company, a New Jersey
corporation and an operating public utility company ("ACE"), and of certain
direct and indirect nonutility subsidiaries. (See HCAR No. 26832 dated February
25, 1998 ) (the "Merger Order") in File No. 70-9069. Delmarva provides electric
service in Delaware, Maryland and Virginia and natural gas service in northern
Delaware and ACE provides electric service in New Jersey. Following the
consummation of the transactions described in the Merger Order, Conectiv
registered as a holding company under the Act. In order to ensure that Conectiv
and its subsidiaries are able to meet their capital requirements upon
registration and plan their future financing, Conectiv and its subsidiaries also
filed an Application/Declaration on Form U-1 in this File No. 70-9095 requesting
authorization for financing transactions for the period beginning with the
effective date of an order issued in such proceeding through December 31, 2000.
Those financing transactions were approved by Order dated February 26, 1998
(HCAR No. 26833) as supplemented by Orders dated August 21, 1998 (HCAR No.
26907), October 21, 1998 (HCAR No. 26930), and November 13, 1998 (HCAR No.
26941) (the "Financing Orders").
As is discussed in more detail below, each of the states in which
Delmarva and ACE operate has enacted legislation restructuring the electric
utility industry in that state to provide retail choice of electricity suppliers
in the near future. Generally, with restructuring, the supply component of the
price charged to a customer for electricity would be deregulated, and
electricity suppliers would compete to supply electricity to customers.
Customers would continue to pay the local utility a regulated price for the
delivery of the electricity over the transmission and distribution system.
Stranded costs are costs which may not be recoverable in a competitive
energy supply market due to lower prices or customers choosing a different
supplier. Stranded costs generally include above-market costs associated with
generation facilities or long-term purchased power agreements, and regulatory
assets. Delmarva and ACE have quantified stranded costs in Maryland and New
Jersey regulatory filings, respectively, and have proposed plans seeking
approval for partial to full recovery of those costs from customers during the
transition to a competitive market.
During the second quarter of 1999 (by June 30, 1999), the New Jersey
Board of Public Utilities ("NJBPU") is expected to issue an order that will
specify the amount of stranded cost recovery to be permitted by ACE. The public
service commissions in Delaware and Maryland are expected to issue similar
orders for Delmarva during the second or third quarters of 1999. After the
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orders are received, the financial impact of the restructurings, including
charges to earnings, will be finalized and recorded. When restructuring orders
become effective, Delmarva's and ACE's electricity supply business will no
longer be subject to the requirements of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation." The total amount to be charged to
earnings, on a consolidated basis, includes (a) the impairment amount for
Delmarva and ACE's electric generating plants(1), (b) the impairment amount for
Delmarva's purchased power contracts (2), and (c) Delmarva's and ACE's
regulatory assets related to the electric generation business. These charges
will be reduced by the expected cost recovery through regulated electricity
delivery rates.
Currently, management of ACE and Conectiv do not anticipate that the
New Jersey restructuring orders will cause sufficient write-downs to offset
retained earnings on the books of ACE or on the books of Conectiv, but
management cannot predict the results of the regulatory process with certainty.
ACE's identified stranded costs in New Jersey are large enough that an order
denying recovery could cause write-downs sufficient to offset existing retained
earnings. Write-downs anticipated due to action in Delaware and Maryland,
expected during the third quarter (but possible during the second quarter),
could also be sufficient to offset current levels of retained earnings of
Delmarva and Conectiv. If these substantial write-downs were to occur, under the
Act, ACE, Delmarva and Conectiv would not be permitted to pay dividends without
an order of this Commission under Section 12(c). As discussed below, this is
expected to be a temporary problem and is largely a result of accounting
convention and timing. Conectiv has also announced the proposed sale of certain
generating assets. The gains on the sales of those assets and income over the
period are expected to return retained earnings to a positive level.
The purpose of this filing is to request approval for the payment of
dividends out of capital or unearned surplus, should this payment ultimately be
required. Conectiv requests authority to pay dividends to the holders of its
common stock, par value $0.01 per share (the "Common Stock") and of its Class A
Common Stock, par value $0.01 per share ("Class A Common Stock") and Delmarva
and ACE each request authority to pay dividends to the holders of various issues
of preferred stock and to Conectiv as the holder of common stock. Because action
in New Jersey is expected to occur during the second quarter, the Commission is
requested to issue a notice of the possible payment of dividends out of capital
or unearned surplus as expeditiously as possible so that an order, if needed,
can be issued prior to the normal dividend declaration date (June 29) and the
dividends can be paid in the normal fashion.
Conectiv has recently announced a financial restructuring that is
relevant to this Declaration because it reduces the level of future dividends on
Common Stock. On May 10, 1999, Conectiv's Board of Directors announced its
intention to reduce the Conectiv Common Stock dividend and recapitalize its
balance sheet. The dividend policy remains unchanged for the Conectiv Class A
Common Stock, subject to declaration by the Conectiv Board of Directors. The
Common Stock quarterly dividend per share is expected to be reduced from $0.385
to an intended level of $0.22, effective with the expected declaration of the
next quarterly dividend, on June 29, 1999. Conectiv is targeting a payout ratio
of 40% to 60%, which is believed to be more consistent with companies operating
in a competitive environment, and transitions Conectiv away from the
traditionally higher
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(1) The impairment amount is the amount by which book value exceeds
estimated discounted future cash flows.
(2) The impairment amount is the net present value of the contract's costs
less the forecasted revenues from the sales of related purchased power.
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dividend payout ratios typical of the regulated utility industry.
Contemporaneously, a recapitalization will be accomplished through a "Dutch
Auction" self-tender offer, beginning May 11, 1999 and ending June 8, 1999,
unless extended. Pursuant to the "Dutch Auction," Conectiv plans to buy back up
to 14 million shares of its Common Stock. Shareholders will have the opportunity
to tender their shares within a price range established by the Company of $23.50
to $25.50.
This recapitalization reduces the possible impact of a potential
payment of dividends out of unearned or capital surplus. Instead of a dividend
per share per quarter of $0.385 for 100,589,000 shares outstanding, the
estimated dividend per quarter will be approximately $0.22 per quarter for
approximately 87,912,000 shares, reducing the aggregate quarterly dividend from
approximately $38.7 million to $19.4 million. If 800,000 shares of Conectiv
Class A Common Stock are converted to 1.3 shares of Common Stock and tendered
during the offering period, as is estimated, the aggregate Class A Common Stock
quarterly dividend will be reduced from approximately $5.2 million to
approximately $4.6 million for a total dividend obligation for Conectiv of
approximately $24 million per quarter.
B. NEW JERSEY RESTRUCTURING AND THE IMPACT ON ACE.
The Electric Discount and Energy Competition Act (the "New Jersey Act")
was signed into law by the Governor of New Jersey on February 9, 1999. The New
Jersey Act requires electric utilities to reduce their rates by at least 5% at
the start of retail choice (scheduled for August 1, 1999) and by a total of 10%
within 36 months of the start of choice. Assuming that the rate reduction had
been effective as of January 1, 1998, management estimates that the impact on
revenue of ACE from the initial rate reduction of 5% would have been to decrease
revenues during the fiscal year ended December 31, 1998 by approximately $38
million.
In connection with the deregulation of electric rates, the New Jersey Act
authorizes the NJBPU to permit electric public utilities to recover the full
amount of their stranded costs through a non-bypassable market transition
charge, as long as the mandated rate reductions are achieved. The NJBPU will
determine the utility's stranded cost amount, which will then be subject to
periodic recalculation and true-up over the recovery period. The New Jersey Act
establishes an eight year recovery period for stranded costs associated with
ACE-owned generation. The recovery period can be extended by the NJBPU to allow
full recovery of the stranded costs and the meeting of mandated rate reductions.
The recovery period for stranded costs associated with purchased power contracts
is to be the remainder of the contract term. In addition, the New Jersey Act
would allow for the issuance of transition bonds to finance portions of a given
utility's stranded costs, as determined to be appropriate by the NJBPU. All
savings generated through the use of such transition bonds are to be provided to
the customers through rate reductions.
ACE previously filed stranded cost estimates and unbundled rates as
required by the NJBPU. On August 19, 1998, an Administrative Law Judge ("ALJ")
from the New Jersey Office of Administrative Law issued an initial decision on
ACE's stranded costs and unbundled rate filing. The ALJ, in reviewing ACE's
filing, recognized that ACE's stranded costs were $812 million for nonutility
generation contracts and $397 million for owned generation.
The ALJ made no specific recommendation on rate issues.
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Settlement discussions in the NJBPU restructuring proceeding for ACE are
ongoing. An NJBPU decision in ACE's restructuring case is expected by June 30,
1999.
As was publicly disclosed in the Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1999 filed by Conectiv on May 10, 1999 ("1st Quarter
10-Q"), management currently estimates that future charges to earnings, after
taxes, as a result of electric utility industry restructuring could be between
$50 million and $75 million for ACE. Charges at this level would not create the
need for an order under Section 12(c) of the Act. As of March 31, 1999, ACE has
approximately $176 million in retained earnings. Only a write-down of more than
$176 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. However, since management cannot predict the outcome of the regulatory
process with absolute certainty, ACE (and as discussed later, Delmarva and
Conectiv) request that a notice be issued of the intent to pay dividends out of
capital, should such become necessary.
B. DELAWARE, MARYLAND AND VIRGINIA RESTRUCTURING AND THE IMPACT ON DELMARVA.
DELAWARE ELECTRIC UTILITY INDUSTRY RESTRUCTURING LEGISLATION
The Delaware General Assembly passed the Electric Utility Restructuring
Act of 1999 (the "Delaware Act") on March 25, 1999. On March 31, 1999, the
Governor of Delaware signed the Delaware Act. Assuming that a 7.5% rate
reduction for residential customers only, as required by the Delaware Act, had
been effective as of January 1, 1998, management estimates that the impact on
revenue of Delmarva would have been to decrease revenue during the fiscal year
ended December 31, 1998, by approximately $17 million. Among other matters,
unbundled rates to be charged by Delmarva during the "rate freeze" periods
prescribed by the Delaware Act have been agreed upon by a number of the
participants in the restructuring proceeding contemplated by the Delaware Act.
Included within the agreement on unbundled rates, which is subject to Delaware
Public Service Commission ("DPSC") approval, Delmarva would recover $16 million
(Delaware retail basis) of stranded costs, and electric rates would not be
changed in the event Delmarva sells or transfers generating assets.
A decision is expected in Delmarva's restructuring case by August 31,
1999.
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. The proposed settlement is with
some parties, including the MPSC Staff and the Office of People's Counsel, but
not all parties to the proceeding. 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
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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 (representing a revenue reduction of
approximately $12.5 million, assuming fiscal year 1998 sales and revenue levels)
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
Electric utility restructuring legislation was introduced in the
Virginia General Assembly on January 21, 1999. The Virginia General Assembly
passed the Virginia Electric Utility Restructuring Act (the "Virginia Act") on
March 25, 1999. On March 29, 1999, the Governor of Virginia signed the Virginia
Act. 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:
As was disclosed in the Conectiv 1st Quarter 10-Q, 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 March 31, 1999, Delmarva
has retained earnings totaling approximately $334 million. This number will
increase as a result of second quarter earnings and the anticipated charge to
earnings should not be sufficient to totally offset current retained earnings
requiring the payment of preferred stock dividends (approximately $1.1 million
per quarter) and common stock dividends ( approximately $12 million projected
for the quarter ending June 30, 1999) out of capital or unearned surplus.
However, in Delaware and Maryland as in New Jersey, management cannot
predict the outcome of the regulatory process with certainty and the charge to
Delmarva earnings due to DPSC and MPSC orders may be greater than is now
anticipated. The issuance of a notice for the possible payment of dividends out
of capital or unearned surplus satisfies the administrative requirements and
permits the issuance of an order under the Act expeditiously, if required.
If a write-down in excess of Delmarva's aggregate retained earnings is
required during the third quarter, the dividends that would normally be declared
at the end of September, 1999, would have to be declared out of capital or
unearned surplus, as permitted by the laws of the State of Delaware and the
Commonwealth of Virginia, where Delmarva is incorporated. An order authorizing
this payment under Section 12(c) would be required.
C. CONSOLIDATED IMPACT ON CONECTIV OF RESTRUCTURING LEGISLATION:
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As was disclosed in Conectiv's 1st 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 Delmarva's and ACE's regulated electricity delivery rates. 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:
Delmarva $300 million to $425 million
ACE $ 50 million to $75 million
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Consolidated Conectiv $350 million to $500 million
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As of March 31, 1999, Conectiv has approximately $282 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, 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 the New Jersey order results in
write-downs that are less than $282 million, the need for Conectiv to declare
dividends out of capital, if it occurs, will not occur until the third quarter
of 1999. If a write-down in excess of $282 million is required during the second
quarter, the dividend that would normally be declared on June 29, 1999, would
have to be declared out of capital or unearned surplus, as permitted by the laws
of the State of Delaware and the Commonwealth of Virginia, where Conectiv is
incorporated. Under these circumstances, an order of this Commission under
Section 12(c) would be required prior to June 29, 1999.
D. SALES OF GENERATING ASSETS:
Management also expects to sell certain of the electric generating plants
of Delmarva and ACE. After electric generating plants that are impaired as a
result of electric utility industry restructuring are written down to fair
value, any sales of the impaired electric generating plants are not expected to
result in significant gains or losses. Some of the electric generating plants
which are not impaired may be sold at a gain. Under GAAP, the write-down of
impaired assets is not reduced by expected future gains on sales of assets which
are not impaired by electric utility industry restructuring; the gain on the
sale of an asset is recognized when the sale occurs.
Under New Jersey electric utility restructuring legislation, any gains on
sales of ACE's electric generating plants reduce stranded cost recovery, which
results in no earnings effect when the gain is realized. Delmarva's agreements
with some of the participants in restructuring proceedings being conducted by
the DPSC and with some of the participants in the proceedings being conducted by
the MPSC provide that electric rates will not be changed in the event Delmarva
sells or transfers assets. Accordingly, subject to DPSC and MPSC approval of
these agreements, the Delaware and Maryland portions of any gains, or losses,
realized on the sale of Delmarva electric generating plants would affect future
earnings. There can be no assurances, however, that Delmarva or ACE will elect
or be able to sell any such electric generating plants, or that any gains will
be realized from such sales of electric generating plants. However, recent sales
of similar facilities are believed to be indicative that value can be realized.
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As stated in the 1st Quarter 10-Q, after the sale of electric
generating plants is completed, management estimates that the net impact on
retained earnings of asset impairments, stranded costs, and asset sales to be a
charge of approximately $300 million to $400 million.
The following is the Generation Portfolio of the Conectiv System as of
December 31,1998, not including 579 MW from four nonutility suppliers:
<TABLE>
<CAPTION>
Name Fuel MW
<S> <C> <C>
Hay Road Oil/Gas 511
Edge Moor: Gas/Coal/Oil 705
Deepwater Gas /Coal/ Oil 220
Peaking Units Gas/Oil 718
Indian River Coal 767
B.L.England Coal/Oil 439
Vienna Oil 153
Keystone Coal 105
Conemaugh Coal 128
Peach Bottom Nuclear 328
Salem Nuclear 328
Hope Creek Nuclear 52
Total 4454
</TABLE>
Conectiv has announced its plans to consider selling its partial
interests in Keystone, Conemaugh, Peach Bottom, Salem, and Hope Creek as well as
the Indian River and B.L.England facilities. Conectiv has also stated that it is
further evaluating whether to offer the Vienna and Deepwater interests for sale.
The Hay Road and Edgemoor plants will be retained as will various
peaking facilities.
Following the sales, the foundation of Conectiv's near-term growth
opportunities are considered to be its energy, telecommunications and regulated
electric and gas delivery businesses. These areas allow the company to focus on
vital services to the customer and allow Conectiv to concentrate on deepening
customer relationships within its growing region. The energy business will be
centered on 2,000 megawatts of flexible, low-cost generation that back
Conectiv's merchant capabilities. Conectiv also will focus resources on growing
its facilities-based telecommunications business, taking advantage of the many
high growth opportunities including internet and high speed DSL (digital
subscriber line) that will be available to customers later this year.
E. IMPACT OF PAYMENTS OF DIVIDENDS OUT OF CAPITAL OR UNEARNED SURPLUS
PENDING ASSET SALES
Exhibit H-2, which is filed herewith pursuant to a request for
confidential treatment, is 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 portrays (1) a worst
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case scenario using the $500 million write-down in the second quarter, (2) a
middle case in which the $500 million write-down is partially incurred in the
second and partially in the third quarter and (3) a lower case scenario using a
lower write-down(3).
ACE:
ACE's preferred dividend obligation is approximately $750,000 per
quarter and, as stated above, the common stock dividend would be less than 60%
of earnings or $12 million for the quarter ended June 30, 1999 and for each
quarter thereafter in which dividends might be paid out of capital or unearned
surplus. Exhibit H-2 shows that, in the case of ACE, under the worst case
assumptions, it would take approximately four quarters for the gains on the
sales of assets and net income to return retained earnings to positive numbers.
ACE would pay approximately $52 million of dividends out of capital or unearned
surplus out of a total of $493 million of capital surplus available as of March
31, 1999 or approximately 11% of the total capital surplus.
Delmarva:
As shown on Exhibit H-2, under the worst-case assumptions, gains on the
sale of assets and net income in the ordinary course would return Delmarva's
retained earnings to positive numbers within four quarters. Payments of
dividends out of capital or unearned surplus aggregating $13.1 million per
quarter results in a total of $52.4 million paid out of a total of $529 million
capital surplus available as of March 31, 1999 or approximately 10% of the total
capital surplus.
Conectiv:
As shown on Exhibit H-2, if the worst case scenario of a $500 million
write-down during the second quarter of 1999 occurs, Conectiv retained earnings
would be $218 million dollars negative and gains on the sales of assets and net
income would return retained earnings to positive numbers in approximately six
quarters. As noted above, Conectiv's per quarter dividend obligation is
estimated to be $19.4 million for Common Stock and $4.6 million for Class A
Common Stock for a $24 million total per quarter. The aggregate payment of
Conectiv dividends out of capital or unearned surplus over six quarters would be
approximately $144 million out of the aggregate available as of March 31, 1999,
of $1,465 million or approximately 10% of the total capital or unearned surplus
available.
This problem is in part an accounting-driven issue. As noted above,
accounting requires the recognition of the asset impairment as soon as
regulatory certainty is achieved through the issuance of an order. However,
accounting standards do not permit the recognition of the potential
- ---------- (3) Exhibit H-2 includes Pro-Forma Consolidated Statements of
capitalization and short-term debt 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 has been submitted under a request
for confidential treatment and is not included in the electronic filing.
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gain on an asset sale driven by the same regulatory process until the asset is
sold. Further, as is shown on Exhibit H-1 attached, if the pooling method of
accounting had been used for the Merger rather than the purchase method of
accounting, ACE retained earnings would not have been excluded from Conectiv's
consolidated retained earnings and Conectiv retained earnings would have been
higher and better able to absorb the anticipated write-downs.
F. SUMMARY OF REQUESTED ACTION:
Conectiv, ACE and Delmarva each request that this Commission issue a
notice pursuant to Rule 23 announcing the companies' intent to pay dividends out
of capital or unearned surplus should adverse state electric industry
restructuring orders require charges to retained earnings in an amount which
exceeds the company's level of retained earnings at the time of the charge.
Because action in New Jersey is expected to occur during the second quarter, the
Commission is requested to issue a notice of the possible payment of dividends
out of capital or unearned surplus as expeditiously as possible so that an
order, if needed, can be issued prior to the normal dividend declaration date
(June 29) and the dividends can be paid in the normal fashion. In the case of
Conectiv, authorization to pay dividends with respect to Common Stock and Class
A Common Stock is requested for up to six quarters aggregating approximately
$144 million or approximately 10% of Conectiv's capital or unearned surplus as
of March 31, 1999. ACE requests authority to pay dividends out of capital or
unearned surplus to preferred stockholders and to Conectiv as the holder of ACE
common stock for up to four quarters aggregating approximately $52 million or
11% of the ACE capital or unearned surplus as of March 31, 1999. Delmarva
requests authority to pay dividends out of capital or unearned surplus to
preferred stockholders and to Conectiv as the holder of Delmarva common stock
for up to four quarters aggregating approximately $52.4 million or approximately
10% of Delmarva's capital surplus as of March 31, 1999. An order from the
Commission will not be requested until a definitive regulatory order or orders
are issued by one or more state regulatory agencies that have the effect of
rendering retained earnings of one or more of the Declarants negative and this
file is completed by the filing of details of the state regulatory order(s) and
the resulting charges to earnings. The amendment will seek an order permitting
the issuance of the dividend out of capital or unearned surplus. In any such
order, when and if issued, the Commission may authorize the payment of dividends
for the current quarter and for future quarters or may reserve jurisdiction with
respect to the issuance of dividends for future quarters pending completion of
the record.
H. STATEMENT PURSUANT TO RULE 54.
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an Exempt Wholesale Generator ("EWG") or
a Foreign Utility Company ("FUCO"), or other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs or FUCOs,
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an EWG or a FUCO upon the registered holding company
system if Rules 53(a), (b), or (c) are satisfied. As demonstrated below such
rules are satisfied.
Rule 53 requires that the aggregate investment in EWGs and FUCOs not
exceed 50% of a system's consolidated retained earnings. Currently, Conectiv has
one insignificant indirect interest
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in an EWG. DCTC-Burney, Inc., an indirect subsidiary of Conectiv, holds a 45%
direct and indirect interest in Burney Forest Products, A Joint Venture, which
is an EWG. Due to earnings of the EWG that have not been distributed, the net
book investment in the EWG is $5.065 million as of March 31, 1999. However,
there has been no additional post-merger investment in this EWG by Conectiv or a
subsidiary.
Conectiv and its subsidiaries will maintain books and records to
identify the investments in earnings from EWGs and FUCOs in which they directly
or indirectly hold an interest, thereby satisfying Rule 53(a)(2).
In addition, the books and records of each such entity will be kept in
conformity with United States generally accepted accounting principles ("GAAP"),
the financial statements will be prepared according to GAAP, and Conectiv
undertakes to provide the Commission access to such books and records and
financial statements as it may request. Employees of Conectiv's domestic
public-utility companies will not render services, directly or indirectly, to
any EWGs or FUCOs in the Conectiv System, thereby satisfying Rule 53(a)(3).
Conectiv, in connection with any Form U-1 seeking approval of EWG and
FUCO financing, will submit copies of such Form U-1 and every certificate filed
pursuant to Rule 24 with every federal, state or local regulator having
jurisdiction over the retail rates of the public utility companies in the
Conectiv System. Rule 53(a)(4) will be correspondingly satisfied. None of the
conditions described in Rule 53(b) exists with respect to Conectiv, thereby
satisfying Rule 53(b) and making Rule 53(c) inapplicable.
(b) Describe briefly, and where practicable state the approximate amount of, any
material interest in the proposed transaction, direct or indirect, of any
associate company or affiliate of the applicant or any affiliate of any such
associate company.
Not applicable.
(c) If the proposed transaction involves the acquisition of securities not
issued by a registered holding company or a subsidiary thereof, describe briefly
the business and property, present or proposed, of the issuer of such
securities.
Not applicable.
(d) If the proposed transaction involves the acquisition or disposition of
assets, describe briefly such assets, setting forth original cost, vendor's book
cost (including the basis of determination) and applicable valuation and
qualifying reserves.
Not applicable.
11
<PAGE> 12
Item 2. Fees, Commissions and Expenses.
The fees, commissions and expenses to be incurred, directly or
indirectly, by Conectiv or any associate company thereof in connection with the
proposed transactions are estimated as follows:
<TABLE>
<S> <C>
U-1 filing fee............................. $2,000
Fees of Conectiv Resource Partners, Inc.... $ *
Fees of outside counsel.................... $ *
Miscellaneous expenses $ *
--
TOTAL...................................... $ *
</TABLE>
* to be filed by amendment.
(b) If any person to whom fees or commissions have been or are to be paid in
connection with the proposed transaction is an associate company or an affiliate
of the applicant or declarant, or is an affiliate of an associate company, set
forth the facts with respect thereto.
The financial statements and other portions of this declaration were
prepared by personnel of Conectiv Resource Partners, Inc., whose time will be
allocated to Conectiv, ACE and Delmarva at cost as appropriate.
Item 3. Applicable Statutory Provisions
(a) State the sections of the Act and the rules thereunder believed to be
applicable to the proposed transaction. If any section or rule would be
applicable in the absence of a specific exemption, state the basis of
exemption.
Section 12 (c) and Rule 46 (a) are applicable to the proposed dividends out
of capital and unearned surplus by Conectiv, ACE and Delmarva.
The most recent precedent in which this Commission authorized the issuance
of dividends on parent company common stock is Eastern Utilities Associates,
Release No. 35-25330 dated June 1991. Following the failure of the Seabrook
Nuclear Power Generating Project in Seabrook, New Hampshire, EUA Power
Corporation, a wholly-owned electric public-utility subsidiary of Eastern
Utility Associates ("EUA"), declared bankruptcy and EUA was required to write
off $147 million of retained earnings, creating negative retained earnings. An
accounting reorganization reclassified sufficient capital surplus to bring the
retained earnings deficit to zero. EUA sought Commission authorization for the
payment of dividends out of capital surplus aggregating up to $8 million for the
second and/or third quarters of 1991.
The Commission noted that four factors are considered under the standards of
Section 12(c):
(i) the asset value of the company in relation to its capitalization,
(ii) the company's prior earnings, (iii) the company's current earnings
in relation to the proposed dividend and (iv) the company's projected
cash position after payment of a dividend. Further the payment of the
dividend must be 'appropriate in the public interest' and in the best
interests of security holders. (footnotes omitted).
12
<PAGE> 13
The capitalization of the company was deemed to be adequate following
the dividend; past, current and projected earnings were deemed adequate; and the
payment of the dividend was deemed not to contravene the purpose of section
12(c):
Congress intended section 12(c) to prevent the 'milking of operating
companies in the interest of the controlling holding company groups'
and to safeguard the working capital of the public-utility companies.
EUA's declaration is motivated by the exceptional circumstance, the
failed investment in Seabrook, and clearly is not the type of activity
the statute is designed to prevent. The requested authorization for $8
million from capital surplus represents 3.4% of EUA's consolidated
capital surplus of $236.2 million as of December 31, 1990. The
Commission is satisfied that a one-time return of capital in the form
of a common stock dividend from capital surplus, will not be
detrimental to the financial integrity or working capital of
public-utility companies in the EUA system. (Footnotes Omitted.)
Each of the Section 12 (c) standards enunciated in the EUA
decision are met by Conectiv, Delmarva and ACE:
(i) The asset value of the company in relation to its capitalization,
EUA had an asset value of $1.1 billion which was deemed adequate
in relation to its $807 million capitalization. As is shown on Exhibit
H-2 filed herewith under a request for confidential treatment, the
equity portion of the capitalization of Conectiv is projected to equal
at least 30% of capitalization through-out the period in which
dividends out of capital or unearned surplus might be paid. As of March
31, 1999, Conectiv has an asset value of $6.1 billion and a
capitalization of $ 3.8 billion. ACE has an asset value of $2,371
million and capitalization of $1,595 million and Delmarva has an asset
value of $2,912 million and capitalization of $1,974 million.
(ii) The company's prior earnings.
EUA had a long and generally favorable history of prior earnings.
Conectiv has been in existence just over a year, but its earnings
history to date and the earnings history of the constituent companies
are favorable as well.
(iii) The company's current earnings in relation to the proposed dividend.
EUA's projected earnings were sufficient to support the dividend. In
the case of Conectiv the earnings are more than sufficient to support
the dividend, especially in view of the Conectiv Board of Directors'
recently-announced intention of lowering the dividend payout ratio.
Instead of paying out dividends at the level of 80% to 90% of earnings,
Conectiv is targeting a payout ratio of 40% to 60%. In the case of ACE
and Delmarva, a similar 40% to 60% payout ratio will be adopted with
respect to the common stock held by Conectiv, while the dividend is
being paid out of capital or unearned surplus.
(iv) The company's projected cash position after payment of a dividend.
13
<PAGE> 14
As of March 31, 1999, Conectiv had cash on hand of $102 million. ACE
and Delmarva had $75 million and $9 million respectively. The potential
write-downs are non-cash items that will not affect the companies' cash
flow. After the payment of a dividend of $24 million for Conectiv and
$13 million combined common stock and preferred stock dividend for ACE
the companies will continue to have more than sufficient cash to meet
their operating needs. Delmarva currently has more than sufficient cash
on hand to pay the $13.1 million combined common and preferred stock
dividend and has adequate cash resources to meet the obligation. Of
course earnings and normal cash flow will be available in future
quarters.
(v) Further the payment of the dividend must be 'appropriate in the public
interest' and in the best interests of security holders.
Conectiv is in very sound financial condition, and will remain so
following any write-downs that may occur. Following the announcement of
the intent to reduce the dividend, the common stock self-tender and the
future sale of generating assets, both Standard & Poor's and Moody's
confirmed the stable ratings outlook for Conectiv, ACE and Delmarva.
Agency Conectiv Delmarva ACE
------- --------------- ------------ -------------
Moody's Baa1 A2 A3
S & P BBB+/Stable/A-2 A/Stable/A-1 A-/Stable/A-2
Should the worst case scenario occur and dividends out of
capital or unearned surplus be required for six quarters, the total
dividends to be paid by Conectiv would represent less than 10% of
Conectiv's total capital surplus amount as of March 31, 1999. In the
case of Delmarva and ACE, the worst-case assumptions call for the
payment of dividends out of capital or unearned surplus amounting to no
more than 11% of the total capital surplus amount as of March 31, 1999.
While EUA was authorized to pay out a dividend out of capital or
unearned surplus that totaled only $8 million or 3.4% of consolidated
capital surplus, the company also engaged in an accounting
reorganization that recharacterized $78.3 million of capital surplus to
bring negative retained earnings to zero. The total actual impact on
EUA capital surplus was $86.3 million or approximately 36% of the
capital surplus.
The requested payment of dividends does not contravene the
public interest or the purpose of Section 12(c), which is intended to
prevent the "milking" of public utility subsidiaries by their holding
company parents, and the consequent impairment of utility working
capital and operations. See S. Rep. No. 621, 74th Cong., Ist Sess. 3434
(1935); EUA, supra. The circumstances which give rise to Conectiv's
potential need to declare dividends out of capital or unearned surplus
- electric utility restructuring - are beyond Conectiv's control, and
the payment of such dividends will, as discussed above, in no way
adversely affect the utility subsidiaries. The dividend payments for
which authorization is requested will not have the effect of enriching
Conectiv's shareholders at the expense of the utility subsidiaries, but
will instead enable the both the Company and its utility companies to
more effectively meet electric industry competition. In fact, should
payments of dividends out of capital be required of the utility
subsidiaries, the payout ratio on common stock dividends out of capital
will be reduced to parallel the payout ratio adopted by
14
<PAGE> 15
Conectiv with respect to Conectiv Common Stock. No milking of the
utility subsidiaries will result. However, payments of dividends by ACE
and Delmarva on the common stock held by Conectiv are necessary to
enable Conectiv to pay dividends on its Common Stock and Class A Common
Stock, as is normally the case in holding company systems.
It should be plainly clear that, should need arise, the
payment of dividends out of capital or unearned surplus to the holders
of Conectiv Common Stock and Conectiv Class A Common Stock and Delmarva
and ACE preferred and common stock are in the public interest and in
the interest of the investors. These are financially strong companies.
The write-downs are one time events that will be offset in a relatively
short time period by the sales of assets and the normal income of the
companies. The Act cannot be construed to prohibit the payment of these
dividends under the circumstances presented here. Prohibition of such
payments would inflict serious harm on Conectiv and its subsidiaries
and impair the ability of Conectiv (and other similarly situated
registered holding companies) to respond to changes in the electric
utility industry.
(b) If an applicant is not a registered holding company or a subsidiary
thereof, state the name of each public utility company of which it is an
affiliate, or of which it will become an affiliate as a result of the
proposed transactions, and the reasons why it is or will become such an
affiliate.
Not applicable.
Item 4. Regulatory Approval.
(a) State the nature and extent of the jurisdiction of any State commission or
any Federal commission (other than the Securities and Exchange Commission)
over the proposed transaction.
No other regulatory agency has jurisdiction over the proposed transaction.
(b) Describe the action taken or proposed to be taken before any commission
named in answer to paragraph (a) of this item in connection with the
proposed transaction
Not applicable.
Item 5. Procedure.
(a) State the date when Commission action is requested. If the date is less
than 40 days from the date of the original filing, set forth the reasons
for acceleration.
Conectiv requests that the Commission issue and publish not later than May
28, 1999, the requisite notice under Rule 23 with respect to the filing of this
Declaration. Conectiv further requests that such notice specify a date not later
than June 25, 1999, as the date after which the Commission may issue an order
granting this Application.
(b) State (i) whether there should be a recommended decision by a hearing
officer, (ii) whether there should be a recommended decision by any other
responsible officer of the Commission,
15
<PAGE> 16
(iii) whether the Division of Corporate Regulation may assist in the
preparation of the Commission's decision, and (iv) whether there should
be a 30-day waiting period between the issuance of the Commission's
order and the date on which it is to become effective.
Conectiv waives a recommended decision by a hearing officer or other
responsible officer of the Commission; consents that the Staff of the Division
of Investment Management may assist in the preparation of the Commission's
order; and requests that there be no waiting period between the issuance of the
Commission's order and its effectiveness.
Item 6. Exhibits and Financial Statements.
(a) Exhibits:
A Not applicable
B Not applicable
C Not applicable
D Not applicable
E Not applicable
F Preliminary opinion of counsel (to be filed by amendment)
G Form of Federal Register notice
H - 1 Comparison of Purchase versus Pooling Accounting for Merger
H - 2 Financial Analysis - Present to June 2000 (Filed under request
for confidential Treatment).
(b) Financial Statements:
FS-1 Conectiv and Subsidiaries Actual and Pro Forma Consolidated
Balance Sheet dated March 31, 1999.
FS-2 Conectiv and Subsidiaries Actual and Pro Forma Consolidated
Statement of Income for the Twelve Months Ended March 31, 1999
FS-3 Delmarva Actual and Pro Forma Balance Sheet dated March 31, 1999.
FS-4 Delmarva Actual and Pro Forma Statement of Income for the Twelve
Months Ended March 31, 1999
FS-5 ACE Actual and Pro Forma Balance Sheet dated March 31, 1999.
FS-6 ACE Actual and Pro Forma Statement of Income for the Twelve Months
Ended March 31, 1999
FS-7 Pro Forma Notes
16
<PAGE> 17
Item 7. Information as to Environmental Effects.
(a) Describe briefly the environmental effects of the proposed transaction in
terms of the standards set forth in Section 102(2)(C) of the National
Environmental Policy Act (42 U.S.C. 4312(2)(C)). If the response to this item is
a negative statement as to the applicability of Section 102(2)(C) in connection
with the proposed transaction, also briefly state the reasons for that response.
The Commission's action in this matter will not constitute major
federal action significantly affecting the quality of the human environment.
(b) State whether any other federal agency has prepared or is preparing an
environmental impact statement ("EIS") with respect to the proposed transaction.
If any other Federal agency has prepared or is preparing an EIS, state which
agency or agencies and indicate the status of that EIS preparation.
No other federal agency has prepared or is preparing an environmental
impact statement with regard to the proposed transactions.
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: May 19, 1999
Conectiv
By: /s/ Louis M. Walters
Treasurer
Atlantic City Electric Company
By: /s/ Louis M. Walters
Treasurer
Delmarva Power & Light Company
By: /s/ Louis M. Walters
Treasurer
17
<PAGE> 1
Exhibit G
Conectiv, Delmarva Power & Light Company and Atlantic City Electric Company
(70- ) Notice of Proposal to Issue Dividends Out Of Capital or Unearned Surplus.
Conectiv, a Delaware corporation and a registered public utility
holding company, and its two wholly-owned public utility companies, Delmarva
Power & Light Company ("Delmarva"), a Delaware and Virginia Corporation, and
Atlantic City Electric Company ("ACE"), a New Jersey corporation, all of 800
King Street, Wilmington, DE 19899 have filed a declaration under Section 12(c)
and Rule 46(a) of the Public Utility Holding Company Act of 1935, as amended
(the "Act").
Conectiv previously was authorized under Section 9(a)(2) Act to
consummate certain transactions resulting in the acquisition by Conectiv of all
of the outstanding voting securities of Delmarva and ACE and of certain direct
and indirect nonutility subsidiaries. (See HCAR No. 26832 dated February 25,
1998 ) (the "Merger Order") Delmarva provides electric service in Delaware,
Maryland and Virginia and natural gas service in northern Delaware and ACE
provides electric service in New Jersey.
Each of the states in which Delmarva and ACE operate has enacted
legislation restructuring the electric utility industry in that state to provide
retail choice for the generation of electricity in the near future. Generally,
with restructuring, the supply component of the price charged to a customer for
electricity would be deregulated, and electricity suppliers would compete to
supply electricity to customers. Customers would continue to pay the local
utility a regulated price for the delivery of the electricity over the
transmission and distribution system.
Stranded costs are costs which may not be recoverable in a competitive
energy supply market due to lower prices or customers choosing a different
supplier. Stranded costs generally include above-market costs associated with
generation facilities or long-term purchased power agreements, and regulatory
assets. Delmarva and ACE have quantified stranded costs in Maryland and New
Jersey regulatory filings, respectively, and have proposed plans seeking
approval for partial to full recovery of those costs from customers during the
transition to a competitive market.
During the second quarter of 1999 (by June 30, 1999), the New Jersey Board
of Public Utilities is expected to issue an order that will specify the amount
of stranded cost recovery to be permitted by ACE. The public service commissions
in Delaware and Maryland are expected to issue similar orders affecting Delmarva
during the second or third quarter of 1999. After the orders are received, the
financial impact of the restructurings, including charges to earnings, will be
finalized and recorded. When restructuring orders become effective, Delmarva and
ACE's electricity supply business will no longer be subject to the requirements
of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." The
total amount to be charged to earnings, on a consolidated basis, includes (a)
the impairment amount for Delmarva and ACE's electric generating plants, (b) the
impairment amount for Delmarva's purchased power contract and (c) Delmarva's and
ACE's regulatory assets related to the electric generation business. These
charges will be reduced by the expected cost recovery through regulated
electricity delivery rates. 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:
18
<PAGE> 2
Delmarva $300 million to $425 million
ACE $ 50 million to $ 75 million
----------------------------
Consolidated Conectiv $350 million to $500 million
============================
As of March 31, 1999, Conectiv has approximately $282 million in
retained earnings, Delmarva has $334 million in retained earnings and ACE has
$176 million in retained earnings. Write-downs in the highest of the above
ranges would eliminate retained earnings and require that dividends be paid out
of capital or unearned surplus for each of the companies except ACE.
Currently, Conectiv does not anticipate that the New Jersey
restructuring orders will cause sufficient write-downs to offset retained
earnings on the books of ACE or on a consolidated basis on the books of
Conectiv, but management cannot predict the result of the regulatory process
with certainty. ACE's identified stranded costs in New Jersey are large enough
that an unexpected adverse order denying recovery could cause write-downs
sufficient to offset existing levels of retained earnings. Write-downs
anticipated due to action in Delaware and Maryland, expected during the third
quarter (but possible during the second quarter), could also be sufficient to
offset current levels of retained earnings. If these were to occur, under the
Act, ACE, Delmarva and Conectiv would not be permitted to pay dividends without
an order of this Commission under Section 12(c).
Conectiv states that this is expected to be a temporary problem and is
largely a result of accounting convention and timing. Conectiv has submitted
data showing that had Conectiv been able to use pooling rather than purchase
accounting in connection with the Merger, the ACE retained earnings would not
have been excluded from Conectiv's consolidated retained earnings and retained
earnings level would have been higher and better able to absorb any write-down
that may be required. Conectiv has also announced the proposed sale of certain
generating assets. The gains on the sales of those assets and income over the
period are expected to return retained earnings to a positive level in the
relatively near future. Even assuming a worst case scenario, Conectiv estimates
that gains on the sales of assets and income in the normal course will return
retained earnings to positive numbers in six quarters for Conectiv and four
quarters for Delmarva and ACE.
Conectiv has recently announced a financial restructuring that is
relevant to this Declaration, because it reduces the level of future dividends
on Common Stock. On May 10, 1999, Conectiv's Board of Directors announced its
intention to reduce the Conectiv Common Stock dividend and recapitalize its
balance sheet. The dividend policy remains unchanged for the Conectiv Class A
Common Stock, subject to declaration by the Conectiv Board of Directors. The
quarterly Common Stock dividend is expected to be reduced from $0.385 to an
intended level of $0.22, effective with the expected declaration of the next
quarterly dividend, on June 29, 1999. Conectiv is targeting a payout ratio of
40% to 60%, which is believed to be more consistent with companies operating in
a competitive environment, and transitions Conectiv away from the traditionally
higher dividend payout ratios typical of the regulated utility industry.
Contemporaneously, a recapitalization will be accomplished through a "Dutch
Auction" self-tender offer, beginning May 11, 1999 and ending June 8, 1999,
unless extended. Pursuant to the "Dutch Auction," Conectiv plans to buy back up
to 14 million of its outstanding common shares. Shareholders will have the
opportunity to tender their shares within a price range established by the
Company of $23.50 to $25.50.
19
<PAGE> 3
This recapitalization reduces the possible impact of potential payment
of dividends out of unearned or capital surplus. Instead of a dividend per
share per quarter of $0.385 for 100,589,000 shares outstanding, the estimated
dividend per quarter will be approximately $ .22 per quarter for approximately
87,912,000 shares, reducing the aggregate quarterly dividend from approximately
$38.7 million to $19.4 million. If 800,000 shares of Conectiv Class A Common
Stock are converted to 1.3 million shares of Common Stock and tendered during
the offering period (as is currently anticipated), the aggregate Class A Common
Stock quarterly dividend will be reduced from approximately $5.2 million to
approximately $4.6 million for a total dividend obligation for Conectiv of
approximately $24 million per quarter. Over six quarters, the aggregate payment
out of capital or unearned surplus would be approximately $144 million out of
the aggregate available as of March 31, 1999, of $1,465 million or
approximately 10% of the total. Dividends paid to Conectiv as holder of common
stock issued by ACE and Delmarva will be proportionately reduced to parallel
the reduced Conectiv dividend. Effective for the third quarter, 1999, ACE's
quarterly dividend requirement is estimated to be $750,000 for preferred stock
and $12 million for common stock and Delmarva's quarterly dividend requirement
is estimated to be $1.1 million for preferred stock and $12 million for common.
Conectiv, ACE and Delmarva each has requested that this Commission issue a
notice pursuant to Rule 23 announcing the companies' intent to pay dividends out
of capital or unearned surplus should adverse state electric industry
restructuring orders require charges to retained earnings in an amount which
exceeds the company's level of retained earnings at the time of the charge. In
the case of Conectiv, authorization to pay dividends with respect to Common
Stock and Class A Common Stock is requested for up to six quarters aggregating
approximately $144 million or approximately 10% of Conectiv's capital or
unearned surplus as of March 31, 1999. ACE requests authority to pay dividends
out of capital or unearned surplus to preferred stockholders and to Conectiv as
the holder of ACE common stock for up to four quarters aggregating approximately
$52 million or 11% of the ACE capital or unearned surplus as of March 31, 1999.
Delmarva requests authority to pay dividends out of capital or unearned surplus
to preferred stockholders and to Conectiv as the holder of Delmarva common stock
for up to four quarters aggregating approximately $52.4 million or approximately
10% of Delmarva's capital surplus as of March 31, 1999. An order will not be
requested until a definitive regulatory order or orders are issued by one or
more state regulatory agencies that have the effect of rendering the retained
earnings of one or more of the Declarants negative and this file is completed by
the filing of details of the state regulatory order(s) and the resulting charges
to earnings. The amendment will seek an order permitting the issuance of the
dividend out of capital or unearned surplus. In any such order, when and if
issued, the Commission may authorize the payment of dividends for the current
quarter and for any and all subsequent quarters or may reserve jurisdiction with
respect to the issuance of dividends for future quarters pending completion of
the record.
For the Commission, by the Division of Investment Management, pursuant
to delegated authority.
Jonathan G. Katz
Secretary
20
<PAGE> 1
H-1
CONSOLIDATED CONECTIV COMMON STOCKHOLDERS' EQUITY ACCOUNTS ADJUSTED FROM
PURCHASED METHOD ACCOUNTING TO POOLING OF INTERESTS ACCOUNTING.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) PAR VALUE PAID IN CAPITAL
----------------- -------------------------
COMMON COMMON
STOCK CLASS A STOCK CLASS A
------- ------- -------------------------
<S> <C> <C> <C> <C>
BALANCE AS OF MARCH 31, 1999 $ 1,008 $ 66 $ 1,464,599 $ 107,095
ADJUSTMENTS TO POOLING ACCOUNTING
(a) Remove goodwill which resulted from valuing
Atlantic Energy Inc. (AEI) based on its
stock price as of the merger announcement (132,902)
(b) Recognize AEI's retained earnings on
February 28, 1998 (the day prior to the (Merger) (224,663)
(c) Recognize in earnings the direct merger costs
capitalized under purchase accounting
(d) Remove the earnings effect of amortizing goodwill
and purchase accounting adjustments related to
pension and other postretirement benefit
obligations
PRO FORMA BALANCE AS OF MARCH 31, 1999, ASSUMING ------- ---- ----------- ---------
POOLING ACCOUNTING $ 1,008 $ 66 $ 1,107,034 $ 107,095
======= ==== =========== =========
</TABLE>
<PAGE> 2
H-1
<TABLE>
<CAPTION>
TOTAL
RETAINED TREASURY UNEARNED COMMON
EARNINGS STOCK COMP. EQUITY
-------- -------- -------- ------
<S> <C> <C> <C> <C>
BALANCE AS OF MARCH 31, 1999 $ 281,682 $ (3,819) $ (2,421) $1,848,211
ADJUSTMENTS TO POOLING ACCOUNTING
(a) Remove goodwill which resulted from valuing
Atlantic Energy Inc. (AEI) based on its
stock price as of the merger announcement (132,902)
(b) Recognize AEI's retained earnings on
February 28, 1998 (the day prior to the Merger) 224,663 --
(c) Recognize in earnings the direct merger
costs capitalized under purchase accounting (50,728) (50,728)
(d) Remove the earnings effect of amortizing goodwill
and purchase accounting adjustments related to
pension and other postretirement benefit obligations 3,606 3,606
PRO FORMA BALANCE AS OF MARCH 31, 1999, ASSUMING --------- -------- -------- ----------
POOLING ACCOUNTING $ 459,224 $ (3,819) $ (2,421) $1,668,187
========= ======== ======== ==========
</TABLE>
Conectiv's merger of Delmarva Power and Atlantic City Electric was accounted for
using the purchase method of accounting for business combinations. Because of
the purchase method, the retained earnings of Atlantic as of the merger date are
excluded from Conectiv's consolidated retained earnings.
<PAGE> 1
H-2
CONECTIV
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - HIGH
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2) * * - *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 * * * * - *
3RD QUARTER INCOME (3) * -
3RD QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 * * * * - *
4TH QUARTER INCOME (3) * -
4TH QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 * * * * - *
*
1ST QUARTER INCOME (3) * -
1ST QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
GAIN ON SALE OF
GENERATING PLANT (6) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 2
H-2
CONECTIV
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - MEDIUM
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2) * * - *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 * * * * * *
2ND QUARTER INCOME (3) * *
2ND QUARTER DIVIDENDS (4) * *
ASSET WRITEDOWNS (5) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 * * * * * *
3RD QUARTER INCOME (3) * *
3RD QUARTER DIVIDENDS (4) * *
ASSET WRITEDOWNS (5) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 * * * * * *
4TH QUARTER INCOME (3) * *
4TH QUARTER DIVIDENDS (4) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 * * * * * *
1ST QUARTER INCOME (3) * *
1ST QUARTER DIVIDENDS (4) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 * * * * * *
*
2ND QUARTER INCOME (3) * *
2ND QUARTER DIVIDENDS (4) * *
GAIN ON SALE OF
GENERATING PLANT (6) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 3
H-2
CONECTIV
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - LOW
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2) * * - *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 * * * * * *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 * * * * * *
3RD QUARTER INCOME (3) * -
3RD QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 * * * * * *
4TH QUARTER INCOME (3) * -
4TH QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 * * * * - *
1ST QUARTER INCOME (3) * -
1ST QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
GAIN ON SALE OF
GENERATING PLANT (6) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 4
H-2
CONECTIV
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
(1) Amounts from March 31, 1999 Conectiv Quarterly Report on Form 10-Q.
(2) Pro Forma impact of offer to purchase up to 14 million common shares at
$25 1/2 per share, plus $3 million in costs of offer - financed with
$250 million of Notes Payable with a five year average life and $107
million in commercial paper.
(3) Estimated income.
(4) Dividends at a quarterly rate of $0.22 per common share and $0.80 per
class A common stock share.
(5) Estimated impact of discontinuing the application of SFAS No. 71 to the
electric supply business. Estimates include (a) the impairment amount
for Delmarva Power & Light Company (DPL) and Atlantic City Electric
Company(ACE) generating plants, (b) impairment amount for DPL's
purchased power contract, (c) DPL's and ACE's regulatory assets related
to the electric generation business, and (d) less expected
cost-recovery through electric delivery rates. The range of expected
after-tax charges is presently estimated between $350 million and $500
million.
For purposes of the pro forma statements, three cases were done; The
high case - assumes $500 million (high end of range) and orders in all
primary rate jurisdictions (DE, MD, NJ) received in second quarter. The
medium case - assumes a rate order in New Jersey with a $300 million
asset write-down, in the second quarter and rates orders in Delaware
and Maryland with aggregate asset write-downs of $200 million, in the
third quarter. (Note: Although the actual range of write-down relating
to New Jersey is expected to be in the $50 million to $75 million
range, this case was done to demonstrate that, even if the Delmarva and
Maryland rate orders are received in the third quarter, as expected, an
adverse rate order in New Jersey in the second quarter could eliminate
Conectiv's retained earnings and jeopardize its ability to pay
dividends on its common and class A common stocks) The low case -
assumes a rate order in New Jersey in the second quarter with a
write-down at the low end of the range - $50 million and rates orders
in Delaware and Maryland in the third quarter, as expected, with
aggregate write-downs of $300 million.
(6) Some of Conectiv's electric generating plants that are not impaired may
be sold at a gain. Under settlement agreements with some of the
participants in restructuring proceedings expected in Delaware and
Maryland, gains or losses realized on the sale of Delmarva plants would
effect future earnings and would not have to be used to reduce customer
rates. Management's estimate is $100 million of possible gains on the
sale of such plants, which are not expected to close until mid-2000.
<PAGE> 5
H-2
ATLANTIC CITY ELECTRIC COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - HIGH
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED
STOCK &
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 * * * * - *
*
3RD QUARTER INCOME (3) * -
3RD QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 * * * * - *
4TH QUARTER INCOME (3) * -
4TH QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 * * * * - *
*
1ST QUARTER INCOME (3) * -
1ST QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 * * - * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
GAIN ON SALE OF
GENERATING PLANT (6)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 6
H-2
ATLANTIC CITY ELECTRIC COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - LOW
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED
STOCK &
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 * * * * - *
3RD QUARTER INCOME (3) * -
3RD QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 * * * * - *
*
4TH QUARTER INCOME (3) * -
4TH QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 * * * * - *
1ST QUARTER INCOME (3) * -
1ST QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 * * * * - *
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
GAIN ON SALE OF
GENERATING PLANT (6)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 7
H-2
ATLANTIC CITY ELECTRIC COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
(1) Amounts from March 31, 1999 ACE Quarterly Report on Form 10-Q.
(2) No effect to ACE, repurchase of common stock and the related debt issue
are at Conectiv level.
(3) Estimated income.
(4) Dividends include preferred stock dividend requirement of $1 million,
common stock dividend to Conectiv of $7 million for ACE's share of the
Conectiv common stock dividend and $5 million for the Conectiv Class A
common stock dividend.
(5) Estimated impact of discontinuing the application of SFAS No. 71 to the
electric supply business. Estimates include (a) the impairment amount
for generating plants, (b) regulatory assets related to the generating
assets business, and (c) less expected cost-recovery through electric
delivery rates. The range of expected after-tax charges is presently
estimated between $50 million and $75 million.
For purposes of the pro forma statements, two cases were done; The high
case - although the actual range of write-down relating to New Jersey
is expected to be in the $50 million to $75 million range, this case,
which assumes a $300 million write-down, was done to demonstrate that
an adverse rate order in New Jersey would eliminate ACE's retained
earnings and jeopardize its ability to pay preferred stock dividends.
The low case - assumes a rate order in New Jersey in the second quarter
with a write-down at the low end of range - $50 million.
(6) Some of Conectiv's electric generating plants that are not impaired may
be sold at a gain. Gains on the sales of electric generating plants in
New Jersey will not affect earnings, they will serve to reduce stranded
cost recovery.
<PAGE> 8
H-2
DELMARVA POWER & LIGHT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - HIGH
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED
STOCK &
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 - - - - - -
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
ASSET WRITEDOWNS (5) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 - - - - - -
3RD QUARTER INCOME (3) * -
3RD QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 - - - - - -
4TH QUARTER INCOME (3) * -
4TH QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 - - - - - -
1ST QUARTER INCOME (3) * -
1ST QUARTER DIVIDENDS (4) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 - - - - - -
2ND QUARTER INCOME (3) * -
2ND QUARTER DIVIDENDS (4) * -
GAIN ON SALE OF
GENERATING PLANT (6) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 9
H-2
DELMARVA POWER & LIGHT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
ASSET WRITE-OFF CASE - LOW
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED
STOCK &
COMMON PREFERRED RETAINED
STOCK & SECURITIES EARNINGS/
PAID IN OF (ACCUMULATED LONG-TERM TOTAL SHORT-TERM
CAPITAL SUBSIDIARIES DEFICIT) DEBT CAPITALIZATION DEBT
------- ------------ ------------ --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL (1) * * * * * *
PRO FORMA ADJUSTMENTS:
TENDER OFFER (2)
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 1999 - - - - - -
2ND QUARTER INCOME (3) * *
2ND QUARTER DIVIDENDS (4) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 1999 - - - - - -
3RD QUARTER INCOME (3) * *
3RD QUARTER DIVIDENDS (4) * *
ASSET WRITEDOWNS (5) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA SEPTEMBER 30, 1999 - - - - - -
4TH QUARTER INCOME (3) * *
4TH QUARTER DIVIDENDS (4) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA DECEMBER 31, 1999 - - * - * -
1ST QUARTER INCOME (3) * *
1ST QUARTER DIVIDENDS (4) * *
------- ------------ ------------ --------- -------------- ----------
PRO FORMA MARCH 31, 2000 - - * - * -
2ND QUARTER INCOME (3) * *
2ND QUARTER DIVIDENDS (4) * *
GAIN ON SALE OF
GENERATING PLANT (6) * -
------- ------------ ------------ --------- -------------- ----------
PRO FORMA JUNE 30, 2000 * * * * * *
</TABLE>
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE> 10
H-2
DELMARVA POWER & LIGHT COMPANY
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF CAPITALIZATION AND SHORT TERM DEBT
(1) Amounts from March 31, 1999 DPL Quarterly Report on Form 10-Q.
(2) No effect to DPL, repurchase of common stock and the related debt issue
are at Conectiv level.
(3) Estimated income.
(4) Dividends include preferred stock dividend requirement of $1 million,
common stock dividend to Conectiv of $12 million for DPL's share of the
Conectiv common stock dividend.
(5) Estimated impact of discontinuing the application of SFAS No. 71 to the
electric supply business. Estimates include (a) the impairment amount
for generating plants, (b) impairment amounts for purchased power
contract, (c) regulatory assets related to the electric generation
business, and (d) less expected cost-recovery through electric delivery
rates. The range of expected after-tax charges is presently estimated
between $300 million and $425 million.
For purposes of the pro forma statements, two cases were done; The high
case - assumes an aggregate write-down $425 million (high end of range)
and rates orders in Delaware and Maryland received in the second
quarter. The low case - assumes rates orders in Delaware and Maryland
in the third quarter, as expected, with an aggregate write-down at the
low end of the range - $300 million.
(6) Some of Conectiv's electric generating plants that are not impaired may
be sold at a gain. Under settlement agreements with some of the
participants in restructuring proceedings expected in Delaware and
Maryland, gains or losses realized on the sale of Delmarva plants would
effect future earnings and would not have to be used to reduce customer
rates. Management's estimate is $100 million of possible gains on the
sale of such plants, which are not expected to close until mid-2000.
<PAGE> 1
FS-1
CONECTIV AND SUBSIDIARIES
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
------ ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 102,049 $ (4,700)(1) $ 97,349 $ -- $ 97,349
Accounts receivable 484,073 -- 484,073 -- 484,073
Inventories, at average cost:
Fuel (coal, oil, and gas) 51,369 -- 51,369 -- 51,369
Materials and supplies 81,977 -- 81,977 -- 81,977
Prepaid New Jersey sales and excise taxes 641 -- 641 -- 641
Other prepayments 14,394 -- 14,394 -- 14,394
Deferred income taxes, net 31,453 -- 31,453 -- 31,453
----------- ----------- ----------- ----------- -----------
765,956 (4,700) 761,256 -- 761,256
----------- ----------- ----------- ----------- -----------
INVESTMENTS
Investment in leveraged leases 121,901 -- 121,901 -- 121,901
Funds held by trustee 165,733 -- 165,733 -- 165,733
Other investments 118,019 -- 118,019 -- 118,019
----------- ----------- ----------- ----------- -----------
405,653 -- 405,653 -- 405,653
----------- ----------- ----------- ----------- -----------
PROPERTY, PLANT, and EQUIPMENT
Electric utility plant 5,678,398 -- 5,678,398 (685,000)(11) 4,993,398
Gas utility plant 251,670 -- 251,670 -- 251,670
Common utility plant 179,354 -- 179,354 -- 179,354
----------- ----------- ----------- ----------- -----------
6,109,422 -- 6,109,422 (685,000) 5,424,422
Less: Accumulated depreciation 2,553,975 -- 2,553,975 -- 2,553,975
----------- ----------- ----------- ----------- -----------
Net utility plant in service 3,555,447 -- 3,555,447 (685,000) 2,870,447
Utility construction work-in-progress 232,046 -- 232,046 -- 232,046
Leased nuclear fuel, at amortized cost 58,885 -- 58,885 -- 58,885
Nonutility property, net 227,094 -- 227,094 -- 227,094
Goodwill, net 401,918 -- 401,918 -- 401,918
----------- ----------- ----------- ----------- -----------
4,475,390 -- 4,475,390 (685,000) 3,790,390
----------- ----------- ----------- ----------- -----------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs 43,583 -- 43,583 -- 43,583
Deferred recoverable income taxes 184,340 -- 184,340 -- 184,340
Unrecovered New Jersey state excise tax 33,204 -- 33,204 -- 33,204
Deferred debt refinancing costs 43,118 -- 43,118 -- 43,118
Deferred other postretirement benefit costs 34,353 -- 34,353 -- 34,353
Prepaid employee benefits costs 20,534 -- 20,534 -- 20,534
Unamortized debt expense 27,547 1,700(2) 29,247 -- 29,247
License fees 24,362 -- 24,362 -- 24,362
Other 76,543 -- 76,543 (50,000)(11) 26,543
----------- ----------- ----------- ----------- -----------
487,584 1,700 489,284 (50,000) 439,284
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 6,134,583 $ (3,000) $ 6,131,583 $ (735,000) $ 5,396,583
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 2
FS-1
CONECTIV AND SUBSIDIARIES
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments
----------- -------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CURRENT LIABILITIES
Short-term debt $ 374,411 $ 107,000(3)
Long-term debt due within one year 126,688 --
Variable rate demand bonds 125,100 --
Accounts payable 226,155 --
Taxes accrued 69,384 --
Interest accrued 39,949 --
Dividends payable 47,437 --
Deferred energy costs 51,572 --
Current capital lease obligation 28,202 --
Accrued employee separation and
other merger-related costs 7,468 --
Other 63,163 --
----------- -------------
1,159,529 107,000
----------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES
Other postretirement benefits obligation 101,125 --
Deferred income taxes, net 875,618 --
Deferred investment tax credits 78,251 --
Long-term capital lease obligation 32,127 --
Other 54,209 --
----------- -------------
1,141,330 --
----------- -------------
CAPITALIZATION
Common stock: $0.01 par value;
150,000,000 shares authorized; shares outstanding--
100,589,287 actual, and 87,907,287 pro forma 1,008 (127)(4)
Class A common stock, $0.01 par value;
10,000,000 shares authorized; shares outstanding--
6,560,612 actual and 5,736,612 pro forma 66 (8)(4)
Additional paid-in capital--common stock 1,464,599 (346,368)(4)
Additional paid-in capital--Class A common stock 107,095 (13,497}(4)
Retained earnings 281,682 --
----------- -----------
1,854,450 (360,000)
Treasury shares, at cost:
186,010 shares in actual and pro forma (3,819) --
Unearned compensation (2,421) --
----------- -----------
Total common stockholders' equity 1,848,210 (360,000)
Preferred stock of subsidiaries:
Not subject to mandatory redemption 95,933 --
Subject to mandatory redemption 188,950 --
Long-term debt 1,700,631 250,000(5)
----------- -----------
3,833,724 (110,000)
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 6,134,583 $ (3,000)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Restructuring
Pro Forma
Pro Forma Adjustments Pro Forma
----------- ---------- --------------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
------------------------------
CURRENT LIABILITIES
Short-term debt $ 481,411 $ -- $ 481,411
Long-term debt due within one year 126,688 -- 126,688
Variable rate demand bonds 125,100 -- 125,100
Accounts payable 226,155 -- 226,155
Taxes accrued 69,384 -- 69,384
Interest accrued 39,949 -- 39,949
Dividends payable 47,437 -- 47,437
Deferred energy costs 51,572 -- 51,572
Current capital lease obligation 28,202 -- 28,202
Accrued employee separation and
other merger-related costs 7,468 -- 7,468
Other 63,163 -- 63,163
----------- ---------- --------------
1,266,529 -- 1,266,529
----------- ---------- --------------
DEFERRED CREDITS AND OTHER LIABILITIES
Other postretirement benefits obligation 101,125 -- 101,125
Deferred income taxes, net 875,618 (335,000)(11) 540,618
Deferred investment tax credits 78,251 -- 78,251
Long-term capital lease obligation 32,127 -- 32,127
Other 54,209 100,000 154,209
----------- ---------- --------------
1,141,330 (235,000) 906,330
----------- ---------- --------------
CAPITALIZATION
Common stock: $0.01 par value;
150,000,000 shares authorized; shares outstanding--
100,589,287 actual, and 87,907,287 pro forma 881 -- 881
Class A common stock, $0.01 par value;
10,000,000 shares authorized; shares outstanding--
6,560,612 actual and 5,736,612 pro forma 58 -- 58
Additional paid-in capital--common stock 1,118,231 -- 1,118,231
Additional paid-in capital--Class A common stock 93,598 -- 93,598
Retained earnings 281,682 (500,000)(11) (218,318)
----------- ----------- -----------
1,494,450 (500,000) 994,450
Treasury shares, at cost:
186,010 shares in actual and pro forma (3,819) -- (3,819)
Unearned compensation (2,421) -- (2,421)
----------- ----------- -----------
Total common stockholders' equity 1,488,210 (500,000) 988,210
Preferred stock of subsidiaries:
Not subject to mandatory redemption 95,933 -- 95,933
Subject to mandatory redemption 188,950 -- 188,950
Long-term debt 1,950,631 -- 1,950,631
----------- ----------- -----------
3,723,724 (500,000) 3,223,724
----------- ----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 6,131,583 $ (735,000) $ 5,396,583
=========== =========== ===========
</TABLE>
<PAGE> 1
FS-2
CONECTIV AND SUBSIDIARIES
ACTUAL AND PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Actual Adjustments
----------- -----------
<S> <C> <C>
OPERATING REVENUES
Electric $ 2,412,933 $ --
Gas 711,147 --
Other services 390,520 --
----------- -----------
3,514,600 --
----------- -----------
OPERATING EXPENSES
Electric fuel and purchased energy 968,710 --
Gas purchased 659,396 --
Other services' cost of sales 313,564 --
Purchased electric capacity 210,199 --
Employee separation and other merger-related costs (12,919) --
Operation and maintenance 563,134 --
Depreciation 264,412 --
Taxes other than income taxes 80,814 --
----------- -----------
3,047,310 --
----------- -----------
OPERATING INCOME 467,290 --
----------- -----------
OTHER INCOME
Allowance for equity funds used
during construction 3,013 --
Other income 54,113 --
----------- -----------
57,126 --
----------- -----------
INTEREST EXPENSE
Interest charges 167,549 25,330(8)
Allowance for borrowed funds used during
construction and capitalized interest (5,015) --
----------- -----------
162,534 25,330
----------- -----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS OF SUBSIDIARIES 16,951 --
----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 344,931 (25,330)
INCOME TAXES 139,057 (10,132)(9)
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM $ 205,874 $ (15,198)
EXTRAORDINARY ITEM (net of $335,000 income taxes) -- --
----------- -----------
NET INCOME/(LOSS) $ 205,874 $ (15,198)
=========== ===========
EARNINGS/(LOSS) APPLICABLE TO COMMON STOCK
Common stock $ 192,786 $ (13,996)(10)
Class A common stock 13,088 (1,202)(10)
----------- -----------
$ 205,874 $ (15,198)
=========== ===========
COMMON STOCK
Average shares outstanding (000)
Common stock 100,800 (12,677)(6)
Class A common stock 6,561 (824)(7)
Earnings / (Loss) per average share--basic and diluted
before extraordinary item
Common stock $ 1.91
Class A common stock $ 1.99
Extraordinary item
Common stock $ --
Class A common stock $ --
Earnings / (Loss) per average share--basic and diluted
Common stock $ 1.91
Class A common stock $ 1.99
Dividends declared per share
Common stock $ 1.54 $ (0.66)(13)
Class A common stock $ 3.20 $ --
</TABLE>
<TABLE>
<CAPTION>
Restructuring
Pro Forma
Pro Forma Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 2,412,933 $ -- $ 2,412,933
Gas 711,147 -- 711,147
Other services 390,520 -- 390,520
----------- ----------- -----------
3,514,600 -- 3,514,600
----------- ----------- -----------
OPERATING EXPENSES
Electric fuel and purchased energy 968,710 -- 968,710
Gas purchased 659,396 -- 659,396
Other services' cost of sales 313,564 -- 313,564
Purchased electric capacity 210,199 -- 210,199
Employee separation and other merger-related costs (12,919) -- (12,919)
Operation and maintenance 563,134 -- 563,134
Depreciation 264,412 -- 264,412
Taxes other than income taxes 80,814 -- 80,814
----------- ----------- -----------
3,047,310 -- 3,047,310
----------- ----------- -----------
OPERATING INCOME 467,290 -- 467,290
----------- ----------- -----------
OTHER INCOME
Allowance for equity funds used
during construction 3,013 -- 3,013
Other income 54,113 -- 54,113
----------- ----------- -----------
57,126 -- 57,126
----------- ----------- -----------
INTEREST EXPENSE
Interest charges 192,879 -- 192,879
Allowance for borrowed funds used during
construction and capitalized interest (5,015) -- (5,015)
----------- ----------- -----------
187,864 -- 187,864
----------- ----------- -----------
PREFERRED STOCK DIVIDEND
REQUIREMENTS OF SUBSIDIARIES 16,951 -- 16,951
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 319,601 -- 319,601
INCOME TAXES 128,925 -- 128,925
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM $ 190,676 $ -- $ 190,676
EXTRAORDINARY ITEM (net of $335,000 income taxes) -- (500,000)(11) (500,000)
----------- ----------- -----------
NET INCOME/(LOSS) $ 190,676 $ (500,000) $ (309,324)
=========== =========== ===========
EARNINGS/(LOSS) APPLICABLE TO COMMON STOCK
Common stock $ 178,790 $ (479,525)(12) $ (300,735)
Class A common stock 11,886 (20,475)(12) (8,589)
----------- ----------- -----------
$ 190,676 $ (500,000) $ (309,324)
=========== =========== ===========
COMMON STOCK
Average shares outstanding (000)
Common stock 88,123 -- 88,123
Class A common stock 5,737 -- 5,737
Earnings / (Loss) per average share--basic and diluted
before extraordinary item
Common stock $ 2.03 $ 2.03
Class A common stock $ 2.07 $ 2.07
Extraordinary item
Common stock $ -- $ (5.44)
Class A common stock $ -- $ (3.57)
Earnings / (Loss) per average share--basic and diluted
Common stock $ 2.03 $ (3.41)
Class A common stock $ 2.07 $ (1.50)
Dividends declared per share
Common stock $ 0.88 $ -- $ 0.88
Class A common stock $ 3.20 $ -- $ 3.20
</TABLE>
<PAGE> 1
FS-3
DELMARVA POWER & LIGHT COMPANY
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,715 $ -- $ 8,715
Accounts receivable 297,898 -- 297,898
Accounts receivable from associated companies 2,262 -- 2,262
Intercompany loan receivable 800 -- 800
Inventories, at average cost:
Fuel (coal, oil, and gas) 26,561 -- 26,561
Materials and supplies 39,443 -- 39,443
Prepayments 7,684 -- 7,684
Deferred income taxes, net 13,870 -- 13,870
----------- ----------- -----------
397,233 -- 397,233
----------- ----------- -----------
INVESTMENTS
Funds held by trustee 61,491 -- 61,491
Notes receivable 254 -- 254
Other investments 1,103 -- 1,103
----------- ----------- -----------
62,848 -- 62,848
----------- ----------- -----------
PROPERTY, PLANT, and EQUIPMENT
Electric utility plant 3,065,830 (560,000)(11) 2,505,830
Gas utility plant 251,670 -- 251,670
Common utility plant 159,669 -- 159,669
----------- ----------- -----------
3,477,169 (560,000) 2,917,169
Less: Accumulated depreciation 1,523,330 -- 1,523,330
----------- ----------- -----------
Net utility plant in service 1,953,839 (560,000) 1,393,839
Utility construction work-in-progress 139,978 -- 139,978
Leased nuclear fuel, at amortized cost 26,087 -- 26,087
Nonutility property, net 3,825 -- 3,825
Goodwill, net 71,422 -- 71,422
----------- ----------- -----------
2,195,151 (560,000) 1,635,151
----------- ----------- -----------
DEFERRED CHARGES AND OTHER ASSETS
Deferred recoverable income taxes 82,117 -- 82,117
Deferred debt refinancing costs 15,549 -- 15,549
Prepaid employee benefits costs 102,618 -- 102,618
Unamortized debt expense 12,031 -- 12,031
Other 44,376 (50,000)(11) (5,624)
----------- ----------- -----------
256,691 (50,000) 206,691
----------- ----------- -----------
TOTAL ASSETS $ 2,911,923 $ (610,000) $ 2,301,923
=========== =========== ===========
</TABLE>
<PAGE> 2
FS-3
DELMARVA POWER & LIGHT COMPANY
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CURRENT LIABILITIES
Long-term debt due within one year $ 31,287 $ -- $ 31,287
Variable rate demand bonds 71,500 -- 71,500
Accounts payable 153,910 -- 153,910
Taxes accrued 36,886 -- 36,886
Interest accrued 24,255 -- 24,255
Dividends payable 23,865 -- 23,865
Deferred energy costs 15,651 -- 15,651
Current capital lease obligation 12,484 -- 12,484
Accrued employee separation and --
other merger-related costs 701 -- 701
Other 22,086 -- 22,086
----------- ----------- -----------
392,625 -- 392,625
----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 466,972 (285,000)(11) 181,972
Deferred investment tax credits 36,743 -- 36,743
Long-term capital lease obligation 14,742 -- 14,742
Other 26,795 100,000(11) 126,795
----------- ----------- -----------
545,252 (185,000) 360,252
----------- ----------- -----------
CAPITALIZATION
Common stock: $2.25 par value; shares authorized:
1,000,000; shares outstanding: 1,000 2 -- 2
Additional paid-in capital--common stock 528,893 -- 528,893
Retained earnings 333,491 (425,000)(11) (91,509)
----------- ----------- -----------
Total common stockholder's equity 862,386 (425,000) 437,386
Cumulative preferred stock 89,703 -- 89,703
DPL obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely DPL
debentures 70,000 -- 70,000
Long-term debt 951,957 -- 951,957
----------- ----------- -----------
1,974,046 (425,000) 1,549,046
----------- ----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,911,923 $ (610,000) $ 2,301,923
=========== =========== ===========
</TABLE>
<PAGE> 1
FS-4
DELMARVA POWER & LIGHT COMPANY
ACTUAL AND PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 1,374,228 $ -- $ 1,374,228
Gas 710,330 -- 710,330
Other services 18,938 -- 18,938
----------- ----------- -----------
2,103,496 -- 2,103,496
----------- ----------- -----------
OPERATING EXPENSES
Electric fuel and purchased energy 658,361 -- 658,361
Gas purchased 659,396 -- 659,396
Other services' cost of sales 15,945 -- 15,945
Purchased electric capacity 39,443 -- 39,443
Employee separation and other merger-related costs (12,920) -- (12,920)
Operation and maintenance 245,561 -- 245,561
Depreciation 130,990 -- 130,990
Taxes other than income taxes 37,172 -- 37,172
----------- ----------- -----------
1,773,948 -- 1,773,948
----------- ----------- -----------
OPERATING INCOME 329,548 -- 329,548
----------- ----------- -----------
OTHER INCOME
Allowance for equity funds used
during construction 2,417 -- 2,417
Other income 5,185 -- 5,185
----------- ----------- -----------
7,602 -- 7,602
----------- ----------- -----------
INTEREST EXPENSE
Interest charges 82,229 -- 82,229
Allowance for borrowed funds used during
construction and capitalized interest (1,789) -- (1,789)
----------- ----------- -----------
80,440 -- 80,440
----------- ----------- -----------
DIVIDENDS ON PREFERRED SECURITIES
OF A SUBSIDIARY TRUST 5,688 -- 5,688
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 251,022 -- 251,022
INCOME TAXES 98,142 -- 98,142
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 152,880 -- 152,880
EXTRAORDINARY ITEM (net of $285,000 income taxes) -- (425,000)(11) (425,000)
----------- ----------- -----------
NET INCOME / (LOSS) 152,880 (425,000) (272,120)
DIVIDENDS ON PREFERRED STOCK 4,339 -- 4,339
----------- ----------- -----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 148,541 $ (425,000) $ (276,459)
=========== =========== ===========
</TABLE>
<PAGE> 1
FS-5
ATLANTIC CITY ELECTRIC COMPANY
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 75,089 $ -- $ 75,089
Accounts receivable 116,178 -- 116,178
Inventories, at average cost:
Fuel (coal and oil) 24,767 -- 24,767
Materials and supplies 29,431 -- 29,431
Deferred income taxes, net 17,582 -- 17,582
Prepaid New Jersey sales & excise taxes 641 -- 641
Other prepayments 2,991 -- 2,991
----------- ----------- -----------
266,679 -- 266,679
----------- ----------- -----------
INVESTMENTS
Funds held by trustee 104,117 -- 104,117
Other investments 112 -- 112
----------- ----------- -----------
104,229 -- 104,229
----------- ----------- -----------
PROPERTY, PLANT, and EQUIPMENT
Electric utility plant 2,612,539 (125,000)(11) 2,487,539
Less: Accumulated depreciation 1,029,255 -- 1,029,255
----------- ----------- -----------
Net utility plant in service 1,583,284 (125,000) 1,458,284
Utility construction work-in-progress 91,677 -- 91,677
Leased nuclear fuel, at amortized cost 32,798 -- 32,798
Nonutility property, net 8,147 --
8,147
----------- ----------- -----------
1,715,906 (125,000) 1,590,906
----------- ----------- -----------
DEFERRED CHARGES AND OTHER ASSETS
Unrecovered purchased power costs 43,583 -- 43,583
Deferred recoverable income taxes 102,223 -- 102,223
Unrecovered state excise taxes 33,204 -- 33,204
Deferred debt refinancing costs 27,569 -- 27,569
Deferred other postretirement benefit costs 34,353 -- 34,353
Unamortized debt expense 14,346 -- 14,346
Other 29,038 -- 29,038
----------- ----------- -----------
284,316 -- 284,316
----------- ----------- -----------
TOTAL ASSETS $ 2,371,130 $ (125,000) $ 2,246,130
=========== =========== ===========
</TABLE>
<PAGE> 2
FS-5
ATLANTIC CITY ELECTRIC COMPANY
ACTUAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ------------- ---------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CURRENT LIABILITIES
Long-term debt due within one year $ 76,075 $ -- $ 76,075
Variable rate demand bonds 22,600 -- 22,600
Accounts payable 36,026 -- 36,026
Taxes accrued 41,405 -- 41,405
Interest accrued 14,208 -- 14,208
Dividends payable 21,422 -- 21,422
Deferred energy costs 35,921 -- 35,921
Current capital lease obligation 15,636 -- 15,636
Accrued employee separation and
other merger-related costs 6,656 -- 6,656
Other 26,062 -- 26,062
----------- ----------- -----------
296,011 -- 296,011
----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net 343,416 (50,000)(11) 293,416
Deferred investment tax credits 41,509 -- 41,509
Long-term capital lease obligation 17,318 -- 17,318
Pension benefit obligation 11,727 -- 11,727
Other postretirement benefit obligation 45,103 -- 45,103
Other 21,290 -- 21,290
----------- ----------- -----------
480,363 (50,000) 430,363
----------- ----------- -----------
CAPITALIZATION
Common stock: $3.00 par value; shares authorized:
25,000,000; shares outstanding: 18,320,937 54,963 -- 54,963
Additional paid-in capital--common stock 493,007 -- 493,007
Retained earnings 176,377 (75,000)(11) 101,377
----------- ----------- -----------
Total common stockholder's equity 724,347 (75,000) 649,347
Preferred stock subject to mandatory redemption 23,950 -- 23,950
Preferred stock not subject to mandatory redemption 6,231 -- 6,231
ACE obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ACE
debentures 95,000 -- 95,000
Long-term debt 745,228 -- 745,228
----------- ----------- -----------
1,594,756 (75,000) 1,519,756
----------- ----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,371,130 $ (125,000) $ 2,246,130
=========== =========== ===========
</TABLE>
<PAGE> 1
FS-6
ACTUAL AND PRO FORMA CONSOLIDATED STATEMENT OF INCOME for
THE TWELVE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESTRUCTURING
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
------ ------------- ---------
<S> <C> <C> <C>
OPERATING REVENUES $ 1,044,503 $ -- $ 1,044,503
OPERATING EXPENSES
Electric fuel and purchased energy 310,349 -- 310,349
Purchased electric capacity 170,756 -- 170,756
Employee separation and other merger-related costs 9,612 -- 9,612
Operation and maintenance 214,690 -- 214,690
Impairment loss on assets held for sale 18,000 -- 18,000
Depreciation 114,125 -- 114,125
Taxes other than income taxes 42,246 -- 42,246
----------- ----------- -----------
879,778 -- 879,778
----------- ----------- -----------
OPERATING INCOME 164,725 -- 164,725
----------- ----------- -----------
OTHER INCOME
Allowance for equity funds used
during construction 595 -- 595
Other income 8,666 -- 8,666
----------- ----------- -----------
9,261 -- 9,261
----------- ----------- -----------
INTEREST EXPENSE
Interest charges 63,050 -- 63,050
Allowance for borrowed funds used during
construction and capitalized interest (874) -- (874)
----------- ----------- -----------
62,176 -- 62,176
----------- ----------- -----------
DIVIDENDS ON PREFERRED SECURITIES
OF A SUBSIDIARY TRUSTS 6,528 -- 6,528
----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 105,282 -- 105,282
INCOME TAXES 39,178 -- 39,178
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 66,104 -- 66,104
EXTRAORDINARY ITEM (net of $50,000 income taxes) -- (75,000)(11) (75,000)
----------- ----------- -----------
NET INCOME / (LOSS) 66,104 (75,000) (8,896)
DIVIDENDS ON PREFERRED STOCK 2,969 -- 2,969
GAIN ON PREFERRED STOCK REDEMPTION (2,545) -- (2,545)
----------- ----------- -----------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 65,680 $ (75,000) $ (9,320)
=========== =========== ===========
</TABLE>
<PAGE> 1
FS-7
<TABLE>
<CAPTION>
PRO FORMA NOTES ($000'S)
- --------------- --------
<S> <C>
(1) Represents the effects on cash of the following:
(a) Proceeds from the issuance of debt: $250 million of Notes and $107 million $ 357,000
of commercial paper.
(b) Debt issuance costs paid. (1,700)
(c) 14,000,000 common shares redeemed at $25 1/2 per share. (357,000)
(d) Represents assumed costs of Offer. (3,000)
---------
$ (4,700)
=========
(2) Represents assumed costs of issuing $250 million of Notes with a five-year
average life.
(3) Represents assumed amount of funds used to purchase common shares which
are raised from issuing commercial paper.
(4) (a) 14,000,000 common shares are assumed to be repurchased at 25 1/2 per share. $(357,000)
(b) Represents assumed costs of Offer. (3,000)
---------
$(360,000)
=========
(5) Represents the assumed amount of funds used to purchase common shares
which are raised from issuing Notes with a five-year average life.
(6) Represents the assumed purchase of common shares excluding the shares
purchased due to the conversion of Class A common stock.
(7) Represents the assumed number of shares of Class A common stock which
are converted to common shares.
(8) (a) Interest expense on $357 million of 7% debt. $ 24,990
(b) Annual amortization of the assumed debt issuance costs of $1.7 million
which are amortizied over the five-year average life of the Notes. 340
---------
$ 25,330
=========
</TABLE>
(9) Income tax benefit of debt interest expense and amortization of debt
issuance expenses based on an effective tax rate of 40%.
(10) (a) Represents the pro forma effect on net income of the debt issuance.
(b) Represents assumed increase in earnings available for common shares
(and decrease in earnings available for Class A Common Stock) due
to the decrease in percentage allocable to shares of Class A common
stock of earnings from Atlantic Utility Group in excess of $40
million per year from 30% to 27.3%, due to fewer shares of Class A
common stock outstanding.
<PAGE> 2
FS-7
PRO FORMA NOTES - continued
(11) Estimated impact of discontinuing the application of SFAS No. 71 to the
electric supply business. Estimates include (a) the impairment amount
for DPL and ACE generating plants, (b) impairment amount for DPL's
purchased power contract, (c) DPL's regulatory assets related to the
electric generation business, and (d) less expected cost recovery
through regulated electric delivery rates. The range of expected
after-tax charges is presently estimated between $350 million and $500
million. The high end of the range is used for the pro forma adjustment.
<TABLE>
<CAPTION>
GROSS NET OF TAX
AMOUNT TAXES AMOUNT
------ ----- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
DPL:
Property, Plant & Equipment $(560,000) $ 225,000 $(335,000)
Deferred Charges (Regulatory Assets) (50,000) 20,000 (30,000)
Purchased Power Contract (100,000) 40,000 (60,000)
--------- --------- ---------
$(710,000) $ 285,000 $(425,000)
ACE:
Property, Plant & Equipment - ACE $(125,000) $ 50,000 $ (75,000)
--------- --------- ---------
TOTAL CONECTIV CONSOLIDATED $(835,000) $ 335,000 $(500,000)
========= ========= =========
</TABLE>
(12) The impact of discontinuing the application of SFAS No. 71 to the
electric supply business on Class A common shares is estimated by
multiplying the ACE net of tax amount by 27.3%. The estimated impact on
common shares is the total Conectiv net of tax amount less the amount
that was estimated for Class A common stock.
(13) Represents the expected reduction in the annual dividend rate per
common share.
