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File No. 70-9655
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM U-1
APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Conectiv
Conectiv Energy Holding Company
Atlantic City Electric Company
ACE REIT, Inc.
Conectiv Atlantic Generation, LLC
Delmarva Power & Light Company
Conectiv Delmarva Generation, Inc.
800 King Street
Wilmington, DE 19899
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(Name of company filing this statement
and address of principal executive offices)
Conectiv
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(Name of top registered holding company parent)
Philip S. Reese
Vice President and 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, Esquire Joyce Koria Hayes, Esquire
General Counsel 7 Graham Court
Conectiv Newark, DE 19711
(address above)
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Table of Contents
Item 1. DESCRIPTION OF PROPOSED TRANSACTIONS
A. Introduction.
B. Background and Regulatory Environment.
C. Transactions related to the capitalization of Conectiv Delmarva
Generation, Inc. ("CDG") and Conectiv Atlantic Generation, LLC
("CAG") through the contribution of generating assets.
Capitalization of ACE REIT, Inc. ("ACE-REIT") through the
contribution of CAG ownership interests to ACE-REIT.
D. Dividend of capital stock of CDG and ACE-REIT to Conectiv.
E. Authorization for the issuance of nominal shares of capital stock
to Conectiv. Approval of acquisition of the capital stock of CDG
and the capital stock of ACE-REIT by CEH. Establishment of
Conectiv Energy Holding Company ("CEH") as a subsidiary utility
holding company through the contribution of CDG and ACE-REIT
common stock to CEH. Determination that ACE-REIT is not a utility
holding company. Possible future activities of CEH.
F. Request for reservation of jurisdiction pending completion of the
record with respect to status of CDG and CAG as EWGs.
G. CEH Authority to acquire EWGs as an intermediary company.
H. Financing of CEH and financing of ACE-REIT, CAG, and CDG by CEH
or Conectiv.
1. CEH financing by Conectiv.
2. CDG, CAG, and ACE-REIT financing by CEH or Conectiv.
I. Authority for the acquisition of utility assets pursuant to a
like-kind exchange if at that time CDG is not an EWG.
J. Affiliate Transactions.
K. Authorization Period and Reporting.
L. Statement Pursuant to Rule 54.
Item 2. FEES, COMMISSION AND EXPENSES
Item 3. APPLICABLE STATUTORY PROVISIONS
Item 4. REGULATORY APPROVAL
Item 5. PROCEDURE
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Item 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
B. Financial Statements as of December 31, 1999.
Item 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
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Item 1(a) of the Application/Declaration filed herein is hereby amended and
restated as follows:
1(a) 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. Introduction
Conectiv, a registered holding company and a Delaware corporation, owns 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. Among the nonutility businesses that Conectiv
was permitted to retain under the Merger Order is Conectiv Energy Supply, Inc.
("CESI")(named Delmarva Energy Company at the time of the Merger Order and later
renamed), which is currently operating as an energy marketing company. (See
order authorizing the restructuring of the Conectiv nonutility operations and
the merger into CESI of Petron Oil Company and the acquisition of stock of
Delmarva Operating Services Company during phase 1 of the restructuring and of
Atlantic Generating Inc. during phase 2 of the restructuring (HCAR No. 26953
dated December 16, 1998(1) (the "Restructuring Order"))). Conectiv also owns
Conectiv Energy, Inc., ("CEI") a previously inactive company that has recently
begun investing in two projects that will qualify as eligible facilities. The
Federal Energy Regulatory Commission ("FERC") has determined that CEI qualifies
as an exempt wholesale generator ("EWG").(2)
This filing seeks authorizations required under the Public Utility Holding
Company Act of 1935 as amended (the "Act") for the transfer of certain
generating facilities of Delmarva and ACE to affiliates that initially will be
utilities for purposes of the Act. Other generating assets will be sold to third
parties and, to the extent authorizations under the Act are required in
connection with the sales to third parties, a separate filing has been made.(3)
Conectiv's intent is to transfer the
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1 The restructuring U-1 envisioned that certain assets and contracts held by a
division of Delmarva (doing business as Conectiv Energy) would be transferred to
Conectiv Services, Inc. rather than CESI. It is now contemplated that CESI will
engage in energy marketing at not only the industrial and commercial level, but
also at the retail level. The Company now proposes that the assets and contracts
referred to will be transferred to CESI or a subsidiary of CESI. The assets and
contracts are not utility assets and the transfer does not require the approval
of this Commission under the Act. The assets and contracts are utilized in an
energy-related business as specified in Rule 58(b)(1)(v).
2 The implementation of a like-kind exchange may require that CEI be sold to a
third party intermediary. Under the like-kind exchange, at a later time, CEI's
assets as they then exist or other suitable generating assets would be
transferred by the third party to CDG in consideration for and exchange for
certain generating facilities previously transferred to CDG from Delmarva. The
like-kind exchange is discussed in more detail in Section I below.
3 See File No. 70-9607. As discussed in more detail later, there are three
categories of generating facilities to be transferred by ACE and four categories
to be transferred by Delmarva: 1) those sold to a non-EWG third party purchaser
by Delmarva and ACE for which approval under the Act is required and requested
in File No. 70-9607; 2) those being sold to EWG third party purchasers by
Delmarva and ACE for which no approval under the Act is required; 3) those being
transferred to CDG or CAG by Delmarva or ACE and retained by the transferee and
4) those being transferred by Delmarva to CDG subject to an obligation to
transfer the facilities to an EWG third party
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retained generating assets to affiliates that are not engaged in the
transmission and distribution business and to convert Delmarva and ACE to "wires
and pipes companies" that provide only regulated electric transmission and
distribution services and, in the case of Delmarva, regulated gas distribution
services.
The transaction to accomplish the transfer of the facilities has been
structured to maximize financing flexibility and to minimize state and federal
tax consequences. The Delmarva facilities will be transferred to Conectiv
Delmarva Generation, Inc. ("CDG"), which is a wholly-owned subsidiary of
Delmarva that was originally incorporated as a real estate investment trust(4).
In exchange for the facilities, CDG will issue new shares of common stock to
Delmarva. After the transfer of the facilities from Delmarva to CDG in exchange
for additional common equity issued by CDG, Delmarva will declare a capital
dividend to Conectiv in the form of CDG common stock. Conectiv will then fund a
new subsidiary holding company created for this purpose named Conectiv Energy
Holding Company ("CEH") by contributing the CDG common stock to CEH making CDG a
direct subsidiary of CEH. CEH will become an intermediate holding company in the
Conectiv corporate family.
The ACE generating facilities to be retained will be contributed to
Conectiv Atlantic Generation, LLC ("CAG"), a new wholly-owned subsidiary of ACE
in exchange for the ownership interest in CAG. CAG will temporarily become a
wholly-owned subsidiary of ACE. ACE will then contribute the CAG ownership
interest to ACE REIT, Inc. ("ACE-REIT"), an ACE subsidiary that was also formed
to be a real-estate investment trust but was never funded (although initial
minimal shares were issued) and was never active. ACE will then issue a dividend
to Conectiv of ACE-REIT's common stock. Conectiv will then contribute the
ACE-REIT common stock to CEH, making ACE-REIT a direct subsidiary of CEH and CAG
an indirect subsidiary of CEH.
The following two tables illustrate the intra-corporate transfers of the
facilities and the corresponding transfers of the common equity shares related
to the Facilities:
[DELMARVA FACILITIES FLOW CHART]
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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purchaser under the terms of a like-kind exchange agreement. The latter two
types of facilities are identified on Exhibit H-1.
4 Under the terms of the Financing Order (HCAR No. 35-26833) dated February 26,
1998 as supplemented by the supplemental order (HCAR No. 35-27111) dated
December 14, 1999, subsidiaries of Conectiv are authorized to organize new
entities for the purpose of facilitating financing. Delmarva and ACE now request
authority for the use of CDG and CAG as utility subsidiaries and use of ACE-REIT
as a subsidiary utility holding company until such time as CDG and CAG qualify
as EWGs. Although minimal common stock was issued by CDG and ACE-REIT, CDG, CAG
and ACE-REIT companies were never fully funded and never became operational.
DPL-REIT, Inc.'s name was changed to CDG in anticipation of the proposed
transfer. DPL REIT Holding Company, Inc., a shell intermediary company that
existed for a time, was merged into Delmarva so that CDG is now a wholly-owned
direct subsidiary of Delmarva.
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[ATLANTIC FACILITIES FLOW CHART]
The net effect of these transactions is that Delmarva's generating facilities
will be transferred to CDG and ACE's generating facilities to CAG and the common
equity ownership related to the Delmarva and ACE generating facilities will be
transferred to CEH. CDG and CAG will own no assets other than generation
facilities and appurtenant transmission facilities and will sell power
exclusively at wholesale. Both CDG and CAG will become subsidiaries of CEH,
which will be a directly-owned subsidiary of Conectiv. In addition to the
capital stock of CDG and CAG, Conectiv proposes to contribute to CEH the capital
stock of CESI, a Rule 58 company and may at a future date contribute to CEH the
capital stock of Atlantic Cogeneration, Inc., which is also a Rule 58 company.
The following tables show the placement of the relevant companies in the
Conectiv corporate family on a pre-reorganization and post-reorganization basis.
[PRE-REORGANIZATION FLOW CHART]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[POST-REORGANIZATION FLOW CHART]
Thus, Delmarva and ACE will be solely in the transmission and distribution
business in those states in which they now operate. CEH will be an intermediate
holding company and indirectly will be in the power production and sales and
energy marketing businesses through its ownership of CDG, CAG and CESI. The
retention of these facilities in a nonregulated environment in the system made
up of Conectiv and its subsidiaries (the "System") has no financial impact and
does not subject the System to any unusual risk as would proposed investments in
foreign utilities or foreign EWGs. The operation of these facilities is part of
the business in which the System has been engaged historically. The arena has
merely changed from one of regulation to a deregulated environment.
Following authorization from this Commission, CEH will issue securities to
Conectiv to fund its business and the CEH subsidiaries each will issue
securities to either CEH or Conectiv to fund its businesses.
The authorizations requested under the Act related to the foregoing
transactions are as follows:
1. Transactions Related to the Capitalization of CDG and CAG (referred to
collectively as the "Energy Subsidiaries;")
a) A capital contribution of certain generating utility assets by
Delmarva to CDG, the issuance by CDG of capital stock in
consideration therefore, and the acquisition of the capital stock
by Delmarva;
b) A capital contribution of certain generating utility assets by
ACE to CAG; the issuance by CAG of ownership interests in the
limited liability company in consideration therefore, the
acquisition of the ownership interest by ACE and the contribution
by ACE of the ownership interests in CAG to ACE-REIT establishing
ACE-REIT as a Delaware holding company; and
c) the acquisition by each of the Energy Subsidiaries of its portion
of the generating assets.
2. Dividend out of capital or unearned surplus by ACE to Conectiv of the
capital stock of ACE-REIT and by Delmarva to Conectiv of the capital stock
of CDG.
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3. Establishment of Conectiv Energy Holding Company ("CEH") as a subsidiary
utility holding company through the contribution of CDG and ACE-REIT
capital stock to CEH. Approval of acquisition of CDG and ACE-REIT by CEH.
Authorization for the Issuance of nominal shares of capital stock to
Conectiv. Determination that ACE-REIT is not a utility holding company.
4. Request for reservation of jurisdiction pending completion of the record
with respect to status of CDG and CAG as EWGs.
5. CEH authority to acquire EWGs as an Intermediary Company.
6. Financing of CEH by Conectiv and financing of CDG, CAG, and ACE-REIT by CEH
or Conectiv.
7. Authority for the acquisition of utility assets pursuant to a like-kind
exchange if, at that time, CDG is not an EWG.
B. Background and Regulatory Environment
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. 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.
On August 31, 1999, the Delaware Public Service Commission ("DPSC") issued
an order with respect to Delmarva's plan for complying with the Electric Utility
Restructuring Act of 1999 (the "Delaware Act"). Retained customers with peak
monthly load of 1,000 kilowatts ("KW") or more were able to choose electric
suppliers as of October 1, 1999, customers with loads of 300KW or more were able
to choose as of January 15, 2000 and all others may choose electric suppliers as
of October 1, 2000. The Delaware Act permits Delmarva to sell, transfer, or
otherwise divest its electric generating plants without DPSC approval after
October 1, 1999. Electric rates are unaffected by such sales. Delmarva remains
the provider of default service to customers who do not choose an alternative
electricity supplier for a period of three or four years for non-residential and
residential customers, respectively. Electric rates for these customers are
fixed throughout this transition period. Following this transition period, the
DPSC may request that Delmarva remain the provider of default service, but the
service would be provided at market-based rates. Pursuant to a pending
settlement of a Code of Conduct case initiated by the DPSC, Delmarva will be
required to make good faith efforts to divest all competitive, nonregulated,
nonutility business activity by August 31, 2000.
In Maryland, as in Delaware, Delmarva's Plan for implementing Electric
Customer Choice and Competition Act of 1999, which was approved by the Maryland
Public Utility Commission on October 8, 1999, provides that rates are unaffected
by the sale or transfer of any generating assets. Delmarva will provide default
service to customers who do not choose an alternative electricity supplier from
July 1, 2000 to July 1, 2004 for residential customers and July 1, 2000 to July
1, 2003 for others.
The Virginia Electric Utility Restructuring Act phases-in retail electric
competition beginning January 1, 2002. As part of a restructuring application
filed with the Virginia State
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Corporation Commission ("VaSCC"), Delmarva is seeking approval to transfer the
facilities. Approval also will be obtained for the transfer of the facilities
from Delmarva to CDG under the Virginia Affiliates Act.
The New Jersey Board of Public Utilities ("NJBPU") issued a Summary Order
on July 15, 1999 concerning restructuring of ACE's electric supply business.
Among other matters, the Summary Order provided ACE's customers with a choice of
electricity suppliers effective August 1, 1999. However, ACE is obligated to
supply electricity to customers who do not choose an alternative electricity
supplier through July 31, 2002 under the Basic Generation Service(5). Gains or
losses on the sale of ACE's generating plants (other than certain "mid-merit"
plants) will affect the amount of stranded costs to be recovered from customers
and would not affect ACE future earnings. In the event of a sale within four
years of certain "mid-merit" plants to third parties, 50% of any gain would
reduce stranded costs and 50% would affect earnings. The transfer to an
affiliate is preapproved and does not affect stranded costs nor future earnings.
ACE is only required to file proposed accounting entries with the NJBPU. On
March 8, 2000, the NJBPU adopted standards governing the relationship between
ACE and its nonregulated nonutility affiliates. Under those standards, ACE is
required to divest any interest in nonutility competitive businesses.
Under the Delaware and New Jersey electric industry restructuring
legislation and implementing rules, Delmarva and ACE are in the process of
exiting the business of generating electricity. Conectiv is implementing a
"mid-merit" strategy through the sale of baseload facilities and the retention
of "mid-merit" facilities. Nuclear and non-strategic baseload fossil electric
generating plants that run almost continuously to supply the base of minimum
demand level for electricity are to be sold to third parties. The mid-merit
facilities to be retained and transferred to an affiliate are comprised of
electric generating plants that can quickly increase or decrease their KW per
hour output level on an economic basis. These plants are generally operated
during times when demand for electricity rises and prices are higher.
Approximately 1,412 MW of net generating capacity owned by Delmarva and 1,123 of
net generating capacity owned by ACE will be transferred or sold to
non-affiliates.(6) Pursuant to this application, it is proposed that
approximately 1,364 MW of net generating capacity owned by Delmarva (exclusive
of the net generating capacity subject to the like-kind exchange) and 502 MW of
net generating capacity owned by ACE will be transferred to CDG and CAG
respectively. In addition, CEI has begun making investments in the construction
of two projects involving combustion turbine generating facilities that are
compatible with Conectiv's mid-merit strategy.
C. Transactions related to the establishment of CDG and CAG as utility
subsidiaries and the capitalization of CDG and CAG through the contribution of
generating assets. Capitalization of ACE-REIT through the contribution of CAG
ownership interests to ACE-REIT.
CDG is currently an inactive wholly-owned subsidiary of Delmarva. CDG
issued a minimal number of shares of capital stock to Delmarva to establish CDG
as a subsidiary that could qualify as a real estate investment trust. Delmarva
proposes to fully capitalize CDG through the contribution by Delmarva to CDG of
generating assets listed in Exhibit H-1 hereto. In consideration for the capital
contribution, CDG will issue additional capital stock to Delmarva.
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5 Under the terms of the Summary Order, ACE is outsourcing the Basic Generation
Service. CESI may bid to supply all or a portion of the capacity and energy need
of the Basic Generation Service.
6 It is currently anticipated that approximately 127 MW of net generating
capacity owned by Delmarva will be transferred to CDG subject to an obligation
to transfer the assets to a third party in consideration for certain like-kind
assets. (The specific assets are identified on Exhibit H-1). See Item 1.I below.
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ACE will make a capital contribution consisting of the generating assets
listed in Exhibit H-1 (together with the generating assets transferred by
Delmarva to CDG, the "Generating Assets") to CAG, a newly established Delaware
limited liability company. CAG will issue ownership interests to ACE. ACE will
then contribute the ownership interest in CAG to another wholly-owned
subsidiary, ACE-REIT, establishing CAG as an indirect subsidiary of ACE and a
direct subsidiary of ACE-REIT, which will be a Delaware holding company. The
assets so transferred will continue to be accounted for as part of the Atlantic
Utility Group (as defined in the Conectiv Re-Stated Certificate of
Incorporation) for purposes of determining the dividend on Conectiv Class A
Common Stock so that the transfer has no impact on the dividend for Class A
Common Stock.
CDG and CAG will acquire their respective portion of the Generating Assets
so transferred and will operate the assets, selling 100% of the output to CESI,
the marketing company in the System as described below.
Delmarva's Generating Assets are encumbered by a Mortgage and Deed of
Trust, dated October 1, 1943 as supplemented by 94 indentures supplemental
thereto (the "Delmarva Mortgage"), in favor of Delmarva's bondholders. ACE's
Generating Assets are encumbered by a Mortgage, dated January 15, 1937 as
supplemented by 40 indentures supplemental thereto (the "ACE Mortgage"), in
favor of ACE's bondholders. The Chase Manhattan Bank is the Successor Trustee
under the Delmarva Mortgage and Bank of New York is the Successor Trustee under
the ACE Mortgage. Delmarva and ACE are working with the Trustees to release the
Generating Assets from the liens of the mortgages, in accordance with the
provisions of the terms of the mortgages.
Pursuant to orders of the state commissions in which they operate and
subject to the submission of certain accounting entries to the NJBPU in the case
of ACE and approval of the VaSCC in the case of Delmarva, ACE and Delmarva each
has been authorized and pre-approved to transfer the Generating Assets at book
value to a new affiliate in the Conectiv System. Such a transfer will permit the
new affiliate to operate the assets efficiently in a competitive environment.
Ultimately CDG and CAG will need the flexibility shared by competitors in the
deregulated generating industry and can only achieve that flexibility with EWG
status as discussed below.
D. Dividend of Capital Stock of CDG and ACE-REIT to Conectiv.
As of December 31, 1999, as a result of write-downs occurring due to state
electric industry restructuring, Delmarva has approximately $147.3 million of
retained earnings. The capital or unearned surplus account, titled "Additional
Paid in Capital" totaled approximately $528.9 million. The book value net of
deferred taxes of the CDG capital stock to be transferred to Conectiv by
dividend is approximately $301.4 million (of which $26.4 million is associated
with the assets transferred and subject to the like-kind exchange) and will be
paid out of the capital or unearned surplus account, leaving all retained
earnings for the payment of dividends to preferred stockholders and to Conectiv
as the holder of all outstanding common stock. The capital dividend by Delmarva
will cause the common equity to total capitalization ratio for Delmarva to fall
below 30% until the sale of other generating facilities to third parties is
completed. The closing is scheduled for September 1, 2000 but is contingent on
the prior receipt of state regulatory approvals.
As of December 31, 1999, also as a result of write-downs occurring due to
state electric industry restructuring, ACE has approximately $130.0 million of
retained earnings. The book value net of deferred taxes of the ACE-REIT stock to
be transferred to Conectiv by dividend is approximately $77.2 million and thus,
could be paid by ACE out of retained earnings. However,
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generally accepted accounting principles require that the dividend be accounted
for as a dividend out of capital surplus.
Conectiv may make a cash capital contribution to Delmarva or ACE, if
necessary, to return the capital structure of the utility company to an
appropriate debt-equity ratio. If, however, the equity portion of the proceeds
from the sale of assets to third parties, if retained by Delmarva or ACE, is
sufficient to achieve a proper capital structure for Delmarva or ACE, as the
case may be, no capital contribution will be made by Conectiv to either ACE or
Delmarva, as the case may be.
E. Authorization for the Issuance of nominal shares of capital stock to
Conectiv. Establishment of Conectiv Energy Holding Company ("CEH") as a
subsidiary utility holding company through the contribution of CDG and
ACE-REIT Capital Stock to CEH. Approval of acquisition of CDG and ACE-REIT
by CEH. Determination that ACE-REIT is not a utility holding company.
Conectiv proposes to establish CEH as a new subsidiary holding company for
the purpose of holding ownership and directing the activities of various
companies engaged in the generation and marketing of electricity and other forms
of energy. Following authorization from this Commission, CEH will issue a
nominal number of shares of capital stock to Conectiv in exchange for a nominal
amount of cash not exceeding $1000. Conectiv then proposes to transfer to CEH,
through a capital contribution, Conectiv's ownership interest in CDG and
ACE-REIT. Approval of the Commission is requested for the creation of CEH, the
contribution of the capital stock of CDG and ACE-REIT to CEH, the acquisition of
the capital stock by CEH and the issuance of the capital stock to Conectiv. CEH
will not be an operating company, will have no employees and will function as an
intermediary holding company that will be a utility holding company until such
time as CDG and CAG are qualified as EWGs. Until such time as CDG and CAG are
declared to be EWGs, Conectiv requests that the Commission deem ACE-REIT not to
be a utility holding company solely for the purpose of section 11(b)(2) which
provides that this Commission shall take such action as it finds necessary in
order that the holding company shall cease to be a holding company with respect
to each of its subsidiary companies which itself has a subsidiary company which
is a holding company. ACE-REIT, as a Delaware holding company, is a company that
derives its revenues solely from the ownership of the common stock in companies
doing business in other jurisdictions.(7)
Conectiv also proposes to contribute to CEH the capital stock and other
securities held in CESI and at some point in the future, may contribute to CEH
capital stock and other securities held in Atlantic Cogeneration, Inc. ("AGI").
Since CESI and AGI are Rule 58 companies the acquisition of the securities by
CEH is exempt from approval under Rule 58. The capital contribution of the
securities by Conectiv also requires no approval pursuant to Rule 45(b)(4). The
following description of the companies is intended to provide an overview of the
holdings of the proposed subsidiary utility holding company, CEH.
In the Merger Order, Conectiv was authorized to retain ownership of CESI
(formerly named Delmarva Energy Company) as a Rule 58 energy marketing company
(See HCAR No. 35-26832
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7 In the National Grid Group Acquisition of New England Electric System order
(HCAR No. 35-27154 dated March 15, 2000), the Commission concluded that it could
"look through" the Intermediate Holding Companies. . . for the purposes of the
analysis under section 11(b)(2) of the Act." (Text accompanying Footnote 70). As
with National Grid, ACE-REIT "will not serve as means . . . to diffuse control
of the [Conectiv System]. . . Rather, th[is] compan[y] will be created a
special-purpose entit[y] for the sole purpose of helping the parties capture
economic efficiencies that might otherwise be lost in a cross-[state]
transaction."
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dated February 25, 1998). Under the subsequent Restructuring Order, Petron Oil
Corporation was merged into CESI and CESI acquired ownership of Delmarva
Operating Services Company ("DOSC"), a company providing management services to
independent production companies or EWGs.
CESI will also become the company providing energy management services to
customers. Services may include:
- - Energy services to large commercial and industrial customers including
power system consulting, end-use efficiency services, customized on-site
systems services and other energy services.
- - Energy management services including demand-side management and energy
audits.
- - Conditioned power services that prevent, control or mitigate adverse
effects of power disturbances.
- - Asset management services related to energy-related systems, facilities and
equipment including distribution systems and substations, transmission
facilities, generation facilities, boilers, chillers, and HVAC and lighting
systems and to qualifying and non-qualifying cogeneration and small power
production facilities under the Public Utility Regulatory Policies Act of
1978.
- - 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 similar services.
- - Other services related to the consumption of energy and the maintenance of
property by end-users.
Currently, Conectiv Solutions, LLC ("Solutions") is authorized to engage in
the business of providing these services. For the information of the Commission,
it is planned that Solutions will withdraw from these activities and will
confine its services to those other services previously authorized.
CESI will continue to be a Rule 58 company. Substantially all revenues will
be derived from (in order of anticipated relative contribution): 1) brokering,
marketing (at wholesale and retail) and trading transactions involving
electricity and other types of energy commodities (Rule 58(b)(1)(v)); 2) energy
management or demand-side management services (Rule 58(b)(1)(i)); and 3) the
sale of technical, operational, management, and other similar services and
expertise developed in the course of utility operations in such areas as power
plant and transmission system engineering, development and design and
rehabilitation; construction; maintenance and operation; fuel procurement,
delivery and management; and environmental licensing, testing and remediation.
(Rule 58(b)(1)(vii)). To minimize risks associated with dealing in energy
commodities, CESI also will engage in hedging and/or financial transactions
associated with energy marketing, including derivatives, future contracts,
options and swaps, including, without limitation, electric power, oil, natural
and manufactured gas, emission allowances, coal, refined petroleum products and
natural gas liquids and to provide incidental related services to customers,
such as fuel management, storage and procurement services. CESI would engage in
such activities without regard to the location or identity of customers or
source of revenues; provided, however, that only with approval of the FERC under
the Federal Power Act, will CESI sell electricity to either of Conectiv's
electric utility subsidiaries, Delmarva or ACE. CESI will have the right to sell
at retail in Delmarva's and ACE's service territories and will be assuming any
unregulated retail transactions and programs
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already underway at Delmarva. As discussed below, the Energy Subsidiaries will
have contracts with CESI providing for the sale of each Energy Subsidiary's
output to CESI. The Energy Subsidiaries Delmarva and ACE may also have contracts
providing for the purchase of power from CESI. The Delmarva purchases would
constitute a portion of the power needed to meet its default service
requirements.
AGI was a nonutility subsidiary holding company that was an indirect
subsidiary of Atlantic Energy, Inc. prior to the merger that created Conectiv.
AGI and its subsidiaries develop, own and operate independent power production,
which is also a permissible energy-related activity under Rule 58(b)(1)(viii).
As noted above, under the Restructuring Order, it was contemplated that AGI
would become a subsidiary of CESI during phase 2 of the restructuring. It is now
proposed that ownership of AGI would be transferred to CEH.
F. Request for Reservation of Jurisdiction pending Completion of the Record with
Respect to Status of CDG and CAG as EWGs.
Conectiv intends for the Energy Subsidiaries (CDG and CAG) to be qualified
as EWGs for purposes of Section 32 and Rules 52 through 54 promulgated
thereunder. However, Conectiv does not believe that the requisite orders of the
state commissions under Section 32 (c) of the Statute will be received in a
timely manner. Also, if the book value of the investment in the Generating
Assets at the time of transfer is included in the "Aggregate Investment" for
purposes of Rule 53, the limit on Aggregate Investments contained in the Rule
will be exceeded. Therefore, Conectiv requests that the Commission reserve
jurisdiction over the status of CDG and CAG as EWGs pending completion of the
record by the filing of the requisite state orders.
G. CEH Authority to Acquire EWGs as Intermediary Company or Conectiv
Conectiv requests authorization for CEH to invest in one or more EWGs and
to consolidate or dispose of the ownership interests in any such EWG so acquired
so long as the aggregate limitation on such investments as established from time
to time is not exceeded.
H. Financing of CEH and Financing of ACE-REIT, CAG and CDG by CEH
Authorization is requested for CEH, ACE-REIT, CAG and CDG to engage in
certain financing until such time as CAG and CDG qualify as EWGs and the
financing of the companies can be accomplished through Rule 52 or until March
31, 2002 whichever first occurs (the "Authorization Period").
1. CEH Financing by Conectiv
CEH requests authority to issue capital stock or long or short-term
debt to Conectiv as necessary to fund the operations of its businesses through
the Authorization Period and after the initial nominal funding described above.
Since CEH is temporarily a utility holding company under the Act, Rule 52 is
unavailable to permit financing without Commission approval. After CDG and CAG
become EWGs, Rule 52 will apply to permit future financing without further order
of the Commission.
Any debt issued by CEH to Conectiv will bear interest at a rate
designed to approximate Conectiv's cost of money and will be for a maximum term
of 30 years. Also, authorization is requested for CEH to participate in the
Conectiv System Money Pool. The total debt and equity to be issued by CEH
through the Authorization Period to meet the borrowing needs of CEH
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subsidiaries, including not only CAG, CDG and ACE-REIT, but CESI and potentially
AGI and EWGs acquired in the future is estimated not to exceed $750 million
dollars, less the amount of any debt issued by a CEH subsidiary directly to
Conectiv. CEH's investment in EWGs will be subject to the aggregate limitation
on investments in EWGs established by Rule 53 or by Order from time to time.
2. CAG, CDG and ACE-REIT financing by CEH or Conectiv
Under the terms of the Financing Order, Conectiv has authority to guarantee
the obligations of direct and indirect subsidiaries aggregating up to $350
million at any time outstanding. Under this authority, Conectiv may guarantee
obligations of CAG, ACE-REIT, CDG, CESI and other subsidiaries of CEH subject to
any limitations on Aggregate Investments in EWGs or Rule 58 companies.
ACE-REIT, CAG and CDG request authority to issue capital stock or long or
short-term debt to CEH or Conectiv as necessary to fund the operations of their
businesses through the Authorization Period. Since CAG and CDG are utility
companies under the Act, but are not subject to regulation in a state, Rule 52
is unavailable to permit financing without Commission approval. Similarly
ACE-REIT is a utility holding company making Rule 52 unavailable. After CDG and
CAG become EWGs, Rule 52 will apply to permit future financing without further
order of the Commission. Any debt issued by CAG, CDG or ACE-REIT will mature in
thirty years or less and will bear interest at a rate designed to approximate
the lender's cost of money. Also, authorization is requested for CAG, CDG, and
ACE-REIT to participate in the Conectiv System Money Pool until such time as CAG
and CDG qualify as EWGs. It is proposed that the maximum amount of debt and
equity financing for CDG be $150 million and for ACE-REIT and CAG be $100
million each, recognizing that any equity funding of CAG will flow though
ACE-REIT.
I. Authority for the acquisition of utility assets pursuant to a like-kind
exchange if at that time CDG is not an EWG
As noted in Footnotes 2 and 6 above, it is currently anticipated that
approximately 127 MW of net generating capacity owned by Delmarva will be
transferred to CDG subject to an obligation to transfer the assets to a third
party in consideration for receipt of certain like-kind assets ("The LKE Assets
Received from Delmarva").
The like-kind exchange agreement will enhance cash flow and utilize certain
tax efficiencies for the System. If the like-kind exchange agreements are
executed, ownership of CEI will be transferred to a third party intermediary to
facilitate the exchange and as a result, a portion of the investment to be made
by CEI in certain eligible facilities aggregating up to $350 million, for which
authorization is currently sought in File No. 70-9095 (the "New Hay Road
Facilities"), will be made by a nonaffiliated third party. The LKE Assets
Received from Delmarva will ultimately be sold to the third party in exchange
for the acquisition by CDG of either 1) the New Hay Road Facilities at the time
when the investment in the New Hay Road Facilities equals or approximates the
value of the LKE Assets Received from Delmarva or 2) other suitable generating
assets. If the New Hay Road Facilities are reacquired, CDG then would complete
the construction of the New Hay Road Facilities. The third party will be an EWG
so the transfer by CDG of generating assets to the third party will not require
further approvals. If CDG is an EWG at the time of the reacquisition of the New
Hay Road Facilities or other generating assets, the aggregate investment will
have been approved by the order currently sought in File No. 70-9095. If CDG is
not an EWG
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at the time of the reacquisition of the New Hay Road Facilities or other
generating assets, authorization is requested for the acquisition of the
facilities as utility assets.
J. Affiliate Transactions
All ongoing relationships between the Energy Subsidiaries or CEH and
affiliates involve the sale of electricity or natural gas or of another
commodity or service, the sale of which is normally subject to public regulation
so that under Rules 80 and 81, approval of this Commission is not required. The
sole exceptions are the form of the service agreement with Conectiv Resource
Partners, Inc. ("CRPI") and the intrasystem tax allocation agreement. The
service agreement will be executed in the form previously approved by this
Commission. The tax allocation agreement complies with Rule 45(c) and has
previously been filed with this Commission as an exhibit to the Annual Report on
Form U5-S. Approvals from the utility commissions in the states of Virginia and
New Jersey will be required for the interconnection and other agreements between
CDG and Delmarva and CAG and ACE and Virginia approval will be required for the
power purchase agreement between Delmarva and CESI.
K. Authorization Period and Reporting
Rule 24 (c)(1) under the Act provides, in pertinent part, that unless
otherwise designated in an application or declaration, every order is subject to
a requirement that the transaction proposed be carried out within 60 days of the
date of such order. To avoid the situation in which the Applicants fail to
designate an alternative period, Applicants hereby designate the period from the
date of the order in this matter to the expiration of the authority under this
order as the period in which they will carry out the transactions authorized in
this order, or previously authorized by Commission order, in accordance with the
terms and conditions of, and for the purposes as authorized by, the relevant
orders.
Applicants request that Energy Subsidiaries and CEH be authorized to
report, annually in an Annual Report on Form U- 13-60 under the Act, the
following information: (a) each investment made by Conectiv or Delmarva or ACE
in CEH, CDG, CAG or ACE-REIT during the immediately prior year; (b) a general
description of the activities of each company in the immediately prior year; and
(c) the revenues and expenses of each company during the immediately prior year.
The foregoing shall be in lieu of any certificates of completion or partial
completion otherwise required by Rule 24 under the Act. If any report contains
confidential or proprietary business or commercial information, confidential
treatment under Rule 104 under the Act may be sought at such time.
L. 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 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. Conectiv is in compliance with Rules 53(a), (b) and
(c).
Rule 53(a) permits the Commission to authorize the issuance of securities
to fund the acquisition of EWGs or FUCOs if the aggregate investment does not
exceed 50% of the average consolidated retained earnings as reported for the
four most recent quarterly periods on the holding
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company's Form 10-K or 10-Q. Conectiv's current investment in EWGs is less than
50% of average consolidated retained earnings as reported for the most recent
quarterly periods.
Conectiv has insignificant indirect interests in EWGs. 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. There has been no
additional post-merger investment in this EWG by Conectiv or a subsidiary. CEI
is in the process of developing two new combustion turbine generation facilities
as discussed above. As of March 22, 2000, Conectiv's investment in EWGs totaled
$22 million.
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.
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 1, 2000
Conectiv
Atlantic City Electric Company
Delmarva Power & Light Company
ACE REIT, Inc.
Conectiv Atlantic Generation, LLC
Conectiv Delmarva Generation, Inc.
Conectiv Energy Holding Company
By: /s/ Philip S. Reese
Philip S. Reese
Vice President and Treasurer
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