File No. 70-______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Conectiv
Conectiv Solutions LLC
ATE Investment, Inc.
King Street Assurance Ltd.
800 King Street
Wilmington, DE 19899
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(Name of company filing this statement
and addresses of principal executive offices)
Conectiv
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(Name of top registered holding company parent)
Philip S. Reese
Treasurer
Conectiv
(address above)
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(Name and addresses of agents for service)
The Commission also is requested to send copies of any
communications in connection with this matter to:
Peter F. Clark Joyce Koria Hayes, Esquire
General Counsel 7 Graham Court
Conectiv Newark, DE 19711
(address above)
Judith A. Center, Esq.
Kathleen A. Foudy, Esq.
William C. Weeden
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
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TABLE OF CONTENTS
Page
ITEM I: DESCRIPTION OF PROPOSED TRANSACTION................................ 1
A. Introduction and Request for Commission Action................... 1
1. Background.................................................. 1
2. KSA's Current Insurance Program............................. 2
3. Proposed Expansion of Insurance Program..................... 4
4. Benefits of Expanding the Insurance Program................. 6
5. Safeguards.................................................. 8
6. Statement Pursuant to Rule 54............................... 8
ITEM II. FEES, COMMISSIONS AND EXPENSES................................... 9
ITEM III. APPLICABLE STATUTORY PROVISIONS................................. 10
ITEM IV. REGULATORY APPROVAL.............................................. 10
ITEM V. PROCEDURE......................................................... 10
ITEM VI. EXHIBITS AND FINANCIAL STATEMENTS................................ 10
A. Exhibits......................................................... 10
B. Financial Statements............................................. 11
ITEM VII. INFORMATION AS TO ENVIRONMENTAL EFFECTS.......................... 12
<PAGE>
ITEM I: DESCRIPTION OF PROPOSED TRANSACTION
A. Introduction and Request for Commission Action
This Form U-1 Application/Declaration ("Application/Declaration")
seeks approvals relating to the proposed expansion of the activities of King
Street Assurance Ltd. ("KSA") to serve as reinsurer of certain of the risks of
the Conectiv System. As discussed below, KSA, an indirect subsidiary of
Conectiv, is a Bermuda-incorporated and licensed insurance company which
currently provides reinsurance associated with risks of warranties issued for
heating, ventilation, and cooling ("HVAC") equipment.
The purpose of this Application is to seek authorization for KSA to
expand its activities as a reinsurer to include various additional risk areas.
Specifically, Conectiv and KSA seek to reinsure the transmission and
distribution ("T&D") line risk of Conectiv's two regulated utility companies,
Delmarva Power and Light Company ("DPL") and Atlantic City Electric Company
("ACE") through KSA. Authorization also is sought for KSA to reinsure the risks
of surge protection and "whole house" appliance protection products and to
reinsure the self-insured deductible levels of Conectiv subsidiaries in other
areas, including automobile, general liability, workers' compensation and other
predictable system risks.
KSA will reinsure risk assumed from a direct commercial insurer, or
primary insurer, that is relatively predictable based on claim frequency and
severity. In accordance with current practice, KSA will receive a portion of the
premiums paid to the primary insurer in return for assuming this risk. KSA also
may reinsure volatile or less predictable risk with other commercial reinsurers.
In its role as reinsurer, KSA will not write direct contracts with Conectiv
System affiliates. Instead, contracts with Conectiv System affiliates will be
written by third-party commercial insurers, and then reinsured by KSA.
The proposed activity expansion will yield substantial benefits to
KSA, the Conectiv System and consumers. It will allow KSA to obtain
cost-effective third- party insurance in several important business areas and
will provide the Conectiv system with direct access to the reinsurance market.
The benefits of the Transaction are discussed in detail in Item I(A)(4) below.
1. 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 DPL and ACE, and of certain
<PAGE>
direct and indirect non-utility subsidiaries. (See HCAR No. 26832 dated February
25, 1998 in File No. 70-9069) (the "Merger Order")).
Conectiv registered as a holding company under the Act following the
consummation of the transactions described in the Merger Order. In order to
ensure that Conectiv and its subsidiaries were able to meet their capital
requirements upon registration and plan their future financing accurately,
Conectiv and its subsidiaries also filed an Application/Declaration on Form U-1
in 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), September 28, 1998 (HCAR No. 26921), October 21, 1998
(HCAR No. 26930), and November 13, 1998 (HCAR No. 26941) (the "Financing
Orders").
By Order dated August 10, 1999 (HCAR No. 27059), Conectiv was
authorized to transfer the ownership of ATE Investment, Inc. ("ATE") to either
Conectiv Services, Inc. ("CSI") or Conectiv Solutions LLC ("Solutions"). On
August 11, 1999, Conectiv transferred 94 shares of Common Stock of ATE to
Solutions as a capital contribution1. Simultaneously, ATE formed KSA for the
purpose of offering HVAC and appliance warranties. Under the Merger Order, as
discussed below, Solutions is authorized to conduct an array of energy-related
and energy-management activities directly or indirectly through subsidiaries.
KSA was funded with $1,000,000 in cash and by the contribution to KSA by ATE of
the limited partnership interest in EnerTech Partners LP ("EnerTech"), a venture
capital fund investing in various energy-related and telecommunications
technologies, as also authorized for Solutions or its subsidiaries under the
terms of the Merger Order.
2. KSA's Current Insurance Program
Under the authority recognized and granted in the Merger Order, KSA
currently is authorized to engage in risk management services as a subsidiary of
Solutions. The Merger Order authorized Solutions to provide "service line repair
and extended warranties with respect to all of the utility or energy-related
service lines that enter a customer's house, as well as utility bill insurance
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1 Six shares, or approximately 13 percent of ATE voting securities are held
by Atlantic Generation, Inc. ("AGI"). AGI is a first-tier subsidiary of
Conectiv. In 1998, Pedrick Ltd, Inc., formerly a subsidiary of AGI, merged
with and into ATE. In exchange for the interest that Pedrick Ltd, Inc. held
in the Pedricktown Cogen Limited Partnership, ATE transferred such shares
to AGI.
<PAGE>
and other similar or related services . . . [and] annual inspection maintenance
and replacement of any appliance," the latter service commonly referred to as
"appliance warranties." The Merger Order also authorized Solutions to engage in
a variety of activities, directly or through subsidiaries, including energy
management and consulting services that "may include: technical and consulting
services involving technology assessments, power factor correction and harmonics
mitigation analysis, meter reading and repair, rate schedule design and
analysis, environmental services, engineering services, billing services, risk
management services, communications systems, information systems/data
processing, system planning, strategic planning, finance, feasibility studies
and other similar or related services."
KSA reinsures Service Solution Plus service warranty contracts issued
by Federal Warranty Service Corporation ("Federal Warranty"), a subsidiary of
American Bankers Insurance Group, Inc. ("ABIG"), a non-affiliated commercial
insurer. Service Solution Plus warranties generally cover HVAC units. The
warranty contracts issued by Federal Warranty and insured with ABIG are issued
to individual residential customers/purchasers of HVAC equipment in CSI's
"southern" region (mainly Delaware and eastern Maryland). As a reinsurer, KSA
assumes the risk of a predictable loss layer from Federal Warranty. KSA receives
a portion of the premiums paid to Federal Warranty in return for assuming this
risk.
The warranty service contracts cover repairs on customers' HVAC
equipment for a period of twelve months, up to the replacement cost of the unit.
The average cost of the residential units is $5,000. Estimated loss payouts on
the reinsured risk, based on CSI's actual loss experience, are 60 percent of
total premiums collected per year. KSA began conducting insurance business in
August 1999, reinsuring only a portion of the warranties issued in a region. As
a result, KSA's reinsurance premiums for operations in 1999 are estimated to be
less than $1,000,000.
Initial funding for KSA was $1,000,000 in cash and a limited
partnership interest in EnerTech with an approximate fair-market value of $41
million on the date of capitalization. This level of capitalization is necessary
to fund KSA's proposed expansion, discussed below.
Authority for KSA participation in Conectiv's money pool is being
sought in post-effective Amendment No. 7 in File No. 70-9095.
<PAGE>
3. Proposed Expansion of Insurance Program
(a) Expansion of Existing Program Offered Under
Solution's Authority.
Conectiv plans to expand KSA's current reinsurance of HVAC warranty
risks and to offer a selection of additional insurance products to customers,
including surge protection and "whole house" appliance protection, with KSA
serving as reinsurer of such protected risks2. These activities are consistent
with the risk management services and customer utility line-related activities
which Solutions is authorized to undertake directly or indirectly3. Conectiv
proposes to expand KSA's reinsurance of HVAC warranty risks from its current
volume to an estimated $10 million in premiums annually by the year 2003. As
described above, estimated loss payouts on these risks are based on CSI's actual
loss experience of 60 percent of total warranty fees collected per year.
Commercial insurers charge insurance premiums based on actuarially
projected "predictable" losses plus an overhead or administrative charge, which
typically is approximately 30 percent of projected loss. In contrast, KSA's
coverage only adds the actual cost of administration, resulting in substantial
premium savings as compared to traditional, wholly-third party policies. KSA
anticipates writing approximately $5 million in warranty service and appliance
protection contract risks next year. As shown in Exhibit H-1, based upon the
elimination of overhead due to KSA's re-insurer role, the savings to Conectiv
would approximate $1.4 million for year 2000, with savings increasing
proportionately as KSA's level of warranty reinsurance activity increases over
time. In addition, to the extent that Conectiv offers new protection programs
(i.e., surge and whole-house protection), with KSA's participation as reinsurer,
it can expect to experience cost savings as compared to the cost of comparable
third-party only coverage.
(b) Expansion of Program in Other Areas.
Conectiv also proposes to expand KSA's coverage to include T&D line
insurance for ACE and DPL. It currently is not cost-effective for Conectiv to
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2 In addition, in the future KSA may wish to reinsure the risks of various
other warranty services for homes and businesses. At such time, KSA will
amend this Application/Declaration to seek such authority.
3 If, however, the Commission does not agree that this expansion is within
existing authority, then Conectiv requests that the Commission authorize
such expansion.
<PAGE>
obtain the scope of coverage it desires from a wholly-third-party insurer. T&D
insurance from third-party insurers (where the insurer assumes all the risk) is
often unavailable or available only at prohibitive cost because insurers with
the capacity to insure catastrophic risk often face claims from a large
percentage of insureds at the same time due to the same event (for example, a
large and widespread hurricane), and therefore have difficulty spreading risk
among similarly situated insureds to provide such insurance at reasonable rates.
Conectiv has estimated premiums for T&D risks based on discussions
with third-party reinsurers and brokers. Exhibit H-2 summarizes the estimated
savings in premium costs expected from the use of KSA as reinsurer of the DPL
and ACE T&D risks. Conectiv's survey of prevailing market rates for a
third-party policy with a $25 million insurance limit and a $5 million
deductible amount indicates a cost range for such coverage of $2.5 - $3.8
million ($3.15 million average cost). Conectiv estimates that the cost of such a
policy where KSA acts as reinsurer for the entire insured amount would be
approximately $3 million, thus yielding average savings of $150,000. If KSA were
to participate in a reinsurance syndicate where it retained 80 percent of the
risk and further reinsured the remainder of the risk with other insurers, the
average cost of a $25 million/$5 million deductible policy would be
approximately $2.85 million, representing $300,000 in savings over the estimated
average cost of a wholly-third party policy.
Moreover, it should be emphasized that third-party policies with
quoted rates that may be nominally at or below the cost of a policy which
includes KSA as reinsurer do not provide as broad coverage or as favorable terms
as KSA-reinsured policies. For example, a KSA-reinsured policy can include a $1
million reinstatement provision. This reinstatement provision could add an
additional $25 million of coverage that currently is unavailable in the
commercial market. Additionally, if and when Conectiv were to file a large claim
on its policy, a third-party insurer could either increase rates significantly
or decline to provide coverage at any price. This would not occur where KSA
serves as reinsurer.
Conectiv currently is developing plans for KSA to reinsure the self-
insured deductible levels of Conectiv subsidiaries in the areas of automobile,
general liability, workers' compensation, and other predictable system risks.
Conectiv believes that KSA's participation in these areas will produce
significant benefits for the system, by way of overhead savings and flexibility
in setting subsidiaries' deductibles based upon specific loss histories.
Conectiv is in the process of formulating its premium costs and savings analysis
<PAGE>
with respect to this planned expansion for KSA, and it intends to supplement
this Application with an Amendment detailing such analysis.4
4. Benefits of Expanding the Insurance Program
As explained below, expanding the scope of KSA's activities will yield
substantial benefits to KSA, the Conectiv System and consumers.
(a) Risk Diversification
By expanding the scope of KSA's insurance activity to include
different types of risk, KSA will further diversify its risk. Diversification
among types of risk covered should reduce KSA's overall risk and maximize the
benefits of its addition to Conectiv's risk management program.
(b) Access to Secondary Insurance Market
Direct access to the commercial reinsurance market, will help ensure
the most competitive and cost-effective pricing for Conectiv's "unpredictable"
commercial insurance exposures, including T&D coverage. Catastrophic T&D line
damage could severely damage Conectiv's business and disrupt the utility service
of ACE and DPL. As noted above, catastrophic T&D line insurance coverage is
difficult to obtain directly from third-party insurers and, if available, is
available only at prohibitive cost. KSA may reinsure the more predictable
portions of these risks and thereafter seek to reinsure the more catastrophic
with a commercial reinsurer. Reinsurers generally are only accessible by
commercial insurers and brokers who charge a fee. KSA provides Conectiv direct
access to reinsurance markets, avoiding the fee, and permits access to the same
group of reinsurers which many Fortune 500 companies already access. These
reinsurers are among the world's largest and most innovative insurers and are
among the most competitively priced.
(c) Minimization of Premium Costs and More
Favorable Terms
As set forth in Exhibits H-1 and H-2, it is anticipated that the
expansion of KSA's activities also will result in premium costs that are lower
than those that would be incurred if KSA were not the reinsurer. In addition, as
discussed above, by spreading the risk insured, KSA's role as reinsurer will
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4 Conectiv, however, requests that the Commission's consideration of the
other KSA activities proposed in this Application not be delayed pending
supplementation of the Application with respect to these additional
coverage areas.
<PAGE>
enable Conectiv to obtain greater coverage and more favorable terms at lower
premium rates than would be obtainable from third-party sources. This is a
particularly important benefit with regard to risks involving potentially
catastrophic losses, such as in the T&D area.
(d) Control and Input Over the Claim
Management Process
Under standard arrangements related to coverage types beyond KSA's
current activity, commercial insurers may determine if and when to settle
claims. Expanding KSA's business would place greater control with Conectiv
companies than they could exercise in the context of a wholly third-party
administered insurance program.
(e) Lessened Premium Volatility
Commercial insurers base premiums not only on a company's loss
history, but also on the results in the industry, subjecting companies to
potentially dramatic changes in insurance rates from year to year. For example,
insurance rates for utility companies can fluctuate widely as the result of
seasonal factors, such as hurricanes. To the extent that KSA can serve to
minimize reliance on commercial insurers, the vulnerability to such changes is
lessened. The portion of insurance premiums paid to KSA would be based solely on
the company's underwriting factors and loss experience and would not be subject
to industry-driven volatility, thus promoting predictability in business
planning. For example, commercial rates quoted to Conectiv for T&D coverage
similar to that which KSA will provide recently fluctuated from a range of $2.5
million to $3.0 million to a range of $3.0 million to $3.8 million.
(f) Benefit to Utility Customers
To the extent that expanding KSA's activity results in cost-effective
enhancements to Conectiv's risk management program, Conectiv's electric and
service consumers should benefit correspondingly. As noted above, the Conectiv
system expects to realize approximately $1.5-1.7 million per year in premium
savings in securing T&D and expanded warranty risk insurance through use of KSA,
as compared to the costs of such coverage from third-party insurers. The
Commission has previously recognized the benefits of captive reinsurance
companies. See The Columbia Gas System, Inc., HCAR No. 26596 (October 25, 1996);
HCAR No. 27051 (July 23, 1999).
<PAGE>
(g) Flexibility in Selection of Deductibles
As KSA is able to expand its activities to include a broader range of
Conectiv system risks, Conectiv subsidiaries may over time be able to choose
their level of self-insured risk and premium levels associated with general
liability insurance, and other predictable risks. KSA can reinsure the higher
levels of risk and loss, or may seek to insure the unpredictable risk.
5. Safeguards
To the extent that premiums and interest earned exceed current claims
and expenses, a reserve accumulates to respond to years when claims and expenses
exceed premiums. In the unlikely event that losses exceed aggregate limits,
commercial insurance may be accessed to provide coverage for claim(s) in excess
of the aggregate retention. KSA could reinsure a portion of the T&D risk to
minimize its exposure. The financial strength and integrity of KSA is further
bolstered by its compliance with strict Bermuda capital-to-premium requirements
of $1 of capital for every $5 of net premium, as well as the adequate level of
capitalization within KSA to support potential T&D losses.
6. 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 percent of a system's consolidated retained earnings. Currently,
Conectiv has one insignificant indirect interest in an EWG. DCTC-Burney, Inc.,
an indirect subsidiary of Conectiv, holds a 45 percent 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 any of its
subsidiaries. Conectiv Energy, Inc. has been investing in the development of two
generating projects that will be eligible facilities as defined in Section
32(a)(2). As of September 30, 1999, the aggregate investment by Conectiv Energy,
Inc. totaled approximately $6 million. As noted in Post-Effective Amendment No.
7 in File No. 70-9095, it is projected that Conectiv will no longer comply with
<PAGE>
Rule 53 in January, 2000. An order has been requested authorizing Conectiv to
invest in EWGs an amount equal to 50 percent of average retained earnings at the
end of the preceding four quarterly periods, as adjusted to include $225 million
in retained earnings that were not attributed to Conectiv under the accounting
for the merger.
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). The books and
records of each such entity will be kept in conformity with United States
generally accepted accounting principles ("GAAP"). The financial statements also
will be prepared according to GAAP. In addition, Conectiv undertakes to provide
the Commission access to such books and records and financial statements as the
Commission 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 or
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) correspondingly will be 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. Rule 53(d) also does
not apply.
ITEM II. 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:
Fees of Conectiv Resource Partners, Inc...... $ *
Fees of outside counsel...................... $ *
Miscellaneous expenses....................... $ *
---
TOTAL........................................ $ *
* to be filed by amendment.
<PAGE>
ITEM III. APPLICABLE STATUTORY PROVISIONS
Sections 9, 10 and 11 may be deemed applicable to the expansion of
KSA's activities into new lines of insurance not authorized in the Merger Order.
ITEM IV. REGULATORY APPROVAL
No other regulatory agency has jurisdiction over the proposed
expansion of KSA's activity except with respect to the proposed reinsurance of
DPL and ACE T&D liability. The New Jersey Board of Public Utilities and the
Virginia State Corporation Commission will be provided with copies of this
Application and approvals will be sought from those two commissions for that
portion of KSA's expansion of activity.
ITEM V. PROCEDURE
Conectiv requests that the Commission issue and publish not later than
November 19, 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 December 20, 1999, as the date after which the Commission may
issue an order granting this Application.
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 VI. EXHIBITS AND FINANCIAL STATEMENTS
a. EXHIBITS Tab
A-1 Not Applicable....................................................
B-1 Not Applicable....................................................
C-1 Not Applicable....................................................
D-1 Not Applicable....................................................
<PAGE>
E-1 Not Applicable....................................................
F-1 Opinion of Counsel (to be filed by amendment).....................
H-1 Savings Analysis..................................................
I-1 Proposed Form of Notice...........................................
b. FINANCIAL STATEMENTS
FS-1 King Street Assurance Ltd. Balance Sheet - Unaudited Pro-Forma -
As of December 31, 1999...........................................
FS-2 King Street Assurance Ltd. Statement of Capitalization -
Unaudited Pro-Forma - As of December 31, 1999.....................
FS-3 King Street Assurance Ltd. Statement of Income - Unaudited
Pro Forma - For period ended December 31, 1999....................
FS-4 King Street Assurance Ltd. Statement of Equity - Unaudited
Pro-Forma - As of December 31, 1999...............................
FS-5 Conectiv Consolidated Income Statement per books and per forma
for the period ended June 30, 1999 (Exhibit FS-2 to Conectiv's
Post-Effective Amendment No. 7 to Form U-1 Declaration under The
Public Utility Holding Company Act of 1935, File No. 070-09095,
and incorporated herein by reference).............................
FS-6 Conectiv Financial Statements of Cash Flows.......................
FS-7 Conectiv Consolidated Balance Sheet per books and per forma,
dated June 30, 1999 (Exhibit FS-1 to Conectiv's Post-Effective
Amendment No. 7 to Form U-1 Declaration under The Public Utility
Holding Company Act of 1935, File No. 070-09095, and incorporated
herein by reference)..............................................
FS-8 Conectiv Consolidated Financial Data Schedule (include in
electronic submission only) (Exhibit FS-4 to Conectiv's
Post-Effective Amendment No. 7 to Form U-1 Declaration under
The Public Utility Holding Company Act of 1935, File No.
070-09095, and incorporated herein by reference)..................
<PAGE>
ITEM VII. INFORMATION AS TO ENVIRONMENTAL EFFECTS
The Commission's action in this matter will not constitute major
federal action significantly affecting the quality of the human environment.
No other federal agency has prepared or is preparing an environmental
impact statement with regard to the proposed transactions.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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: November 2, 1999
Conectiv
By: /s/ Philip S. Reese
-----------------------------------
Treasurer
Conectiv Solutions LLC
By: /s/ Philip S. Reese
-----------------------------------
Treasurer
ATE Investment, Inc.
By: /s/ Philip S. Reese
-----------------------------------
Treasurer
King Street Assurance Ltd.
By: /s/ Philip S. Reese
-----------------------------------
Treasurer
<PAGE>
EXHIBIT H-1
ANALYSIS OF PROJECTED SAVINGS FROM KSA
AS REINSURER OF CSI WARRANTY PROTECTION
KSA as Reinsurer Third-Party Insurance
($ in million)
Premium to Third-Party (0.30) (5.00)
Premium to KSA (4.70)
Less Commission Fee to CSI 0.15 0.75
Less Fee for Labor Mark-up 0.20
Less Mark-up for Administrative 1.80
Costs
Final Cost to CSI (2.85) (4.25)
Savings to CSI from KSA 1.40
Reinsurance:
<PAGE>
EXHIBIT H-2
ANALYSIS OF PROJECTED SAVINGS FROM KSA AS
REINSURER/CO-REINSURER OF CONECTIV T&D RISKS
[GRAPHIC OMITTED]
($ in million)
Third-Party Premium Quotes (Range) (2.5) - (3.8)
Average Third-Party Quote (3.15)
Premium - KSA as Reinsurer (3.0)
Savings Over Average Third-Party Quote 0.15
Reinsurance Syndicate (with KSA) Quotes (Range) (2.5) - (3.2)
Average Syndicate Quotes (2.85)
Savings Over Average Third-Party Quote 0.30
<PAGE>
EXHIBIT I-1
SECURITIES AND EXCHANGE COMMISSION
Conectiv, a holding company registered under the Public Utility
Holding Company Act of 1935 (the "Act") and its wholly-owned direct and indirect
subsidiaries, Conectiv Solutions, LLC ("Solutions"), ATE Investment, Inc.
("ATE") and King Street Assurance, Ltd. ("KSA"), all located at 800 King Street,
Wilmington, DE 19899, has filed an application-declaration under Sections 9(a),
10, and 11 of the Act.
Conectiv requests authorization to expand the scope of insurance
activities currently undertaken by its insurance subsidiary, KSA. Currently, KSA
engages in the reinsurance of predictable losses under insured heating,
ventilation, and cooling system ("HVAC") warranty service coverages. Conectiv
plans to expand its insurance subsidiary's scope of coverage to include
reinsurance of surge protection risks and "whole house" appliance protection.
Conectiv also proposes to expand KSA's coverage to include transmission and
distribution ("T&D") line reinsurance for affiliated regulated utilities
Atlantic City Electric Company ("ACE") and Delmarva Power & Light Company
("DPL"), as well as for general liability, workers' compensation, and other
system risks.
The application-declaration and any amendments thereto are available
for public inspection through the Commission's office of Public Reference.
Interested persons wishing to comment or request a hearing should submit their
views in writing by ___________, 1999, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549, and serve a copy on the applicant-declarant at
the address specified above. Proof of service (by affidavit or, in the case of
an attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that
are disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in this manner.
After said date, the application-declaration, as filed or as it may be amended,
may be permitted to become effective.
For the Commission by the Division of Investment Management, pursuant
to delegated authority.
Jonathan G. Katz
Secretary
FS-1
King Street Assurance Ltd.
Balance Sheet - Unaudited
Pro-Forma - As of December 31, 1999
Assets
Cash & Cash Equivalents.................................... 16,770,500
Investments................................................ 41,921,750
Accrued Interest........................................... 205,000
Insurance Premium Receivable............................... 106,250
--------------------
Total Assets 59,003,500
====================
Liabilities
Accrued Expenses........................................... 22,000
Income Tax Payable......................................... 15,931,000
Unearned Premium Reserves.................................. 106,250
Loss and LAE Reserves...................................... 22,500
--------------------
Total Liabilities 16,081,750
--------------------
Equity
Capital Stock.............................................. 120,000
Additional Paid in Capital................................. 18,385,000
Retained Earnings.......................................... 24,416,750
--------------------
Total Equity 42,921,750
--------------------
Total Liabilities & Equity 59,003,500
====================
FS-2
King Street Assurance Ltd.
Statement of Capitalization - Unaudited
Pro Forma - As of December 31, 1999
Stockholder's Equity
Common Stock, $1 par value, authorized
and issued 120,000 shares 120,000
Additional paid in capital - cash 880,000
ECP Interest 17,505,000
Retained earnings 24,416,750
---------------
Total Stockholder's Equity 42,921,750
---------------
Total Long-Term Debt -
---------------
Total Capitalization 42,921,750
===============
FS-3
King Street Assurance Ltd.
Statement of Income - Unaudited
Pro-Forma - For Period Ended December 31, 1999
Underwriting Income
Direct Premiums Written.................................... 150,000
Change in Unearned Premium Reserves........................ (106,250)
-----------------
Total Underwriting Income 43,750
Underwriting Expenses
Loss and LAE Paid.......................................... 67,500
Change in Loss, LAE, and IBNR Reserves..................... 22,500
-----------------
Total Underwriting Expenses 90,000
Net Underwriting Income (46,250)
General & Administrative Expenses
Management Fees............................................ 50,000
Audit Fees................................................. 20,000
Actuarial Fees............................................ 2,000
Legal Costs................................................ 6,000
Travel and Meetings Expense................................ 3,000
Start-Up Costs (Legal, Review, Application)................ 25,000
-----------------
Total General & Administrative Expenses 106,000
Net Operating Income/(Loss) (152,250)
Other Income
Gain on Investments........................................ 39,000,000 1
Interest Income............................................ 1,500,000
------------------
Net Other Income/(Loss) 40,500,000
Net Income (Loss) Before Taxes 40,347,750
Income Tax Expense/(Benefit).............................. 15,931,000
------------------
Net Income/(Loss) 24,416,750
==================
1 Future income statements may show gains and losses. The
gain for this operating period was the result of
successful returns from investments made in Enertech
Capital Partners, LP. The limited partnership interest
in Enertech Capital Partners, LP was contributed to KSA
upon KSA's formation to support the expanded business
operations outlined in this request.
FS-4
King Street Assurance Ltd.
Statement of Equity - Unaudited
Pro Forma - As of December 31, 1999
Common Stock
Balance at beginning of year -
Common stock issued 120,000
----------------
Balance at August 31, 1999 120,000
================
Additional Paid in Capital
Balance at beginning of year -
Common stock issued 880,000
ECP Interest 17,505,000
----------------
Balance at August 31, 1999 18,385,000
================
Retained Earnings
Balance at beginning of year -
Net income (loss) 24,416,750
----------------
Balance at August 31, 1999 24,416,750
================
Total Common Stock Equity 42,921,750
================
FS-6
<TABLE>
<CAPTION>
CONECTIV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Unaudited)
Six Months Ended
June 30,
---------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES ---------------------------
<S> <C> <C>
Net income $ 80,054 $ 35,366
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 145,824 117,573
Allowance for equity funds used during construction (1,134) (1,116)
Investment tax credit adjustments, net (2,547) (2,125)
Deferred income taxes, net (4,289) (3,090)
Net change in:
Accounts receivable 13,978 (17,940)
Inventories 8,487 16,480
Prepaid New Jersey sales and excise taxes (20,156) (62,207)
Accounts payable (25,797) 6,234
Other current assets & liabilities (1) 16,407 1,747
Other, net (8,913) 8,343
---------- --------
Net cash provided by operating activities 201,914 99,265
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (14,704) 8,938
Capital expenditures (134,219) (71,023)
Investments in partnerships (21,116) (10,530)
Deposits to nuclear decommissioning trust funds (5,341) (5,344)
Decrease in bond proceeds held in trust funds 11,536 -
Decrease in investment in leveraged leases 5,930 6,532
Other, net 1,336 1,403
---------- --------
Net cash used by investing activities (156,578) (70,024)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid (87,518) (65,966)
Long-term debt issued 250,000 33,000
Common stock issued - 63
Long-term debt redeemed (80,805) (193,336)
Common stock purchased (358,943) (2,028)
Principal portion of capital lease payments (10,650) (7,711)
Net change in short-term debt 223,947 240,884
Cost of issuances and refinancings (2,818) (492)
---------- --------
Net cash used by financing activities (66,787) 4,414
---------- --------
Net change in cash and cash equivalents (21,451) 33,655
Cash and cash equivalents at beginning of period 65,884 35,339
---------- --------
Cash and cash equivalents at end of period $ 44,433 $ 68,994
========== ========
(1) Other than debt and deferred income taxes classified as current.
</TABLE>
