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File No. 70-9655
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
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 common stock of CDG and ACE-REIT to Conectiv.
E. Authorization for the issuance of nominal shares of common stock to
Conectiv. Approval of acquisition of the common stock of CDG and the
common 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. 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.
G. Authority for the acquisition of utility assets pursuant to a
like-kind exchange if at that time CDG is not an EWG.
H. Affiliate Transactions.
I. Authorization Period and Reporting.
J. Statement Pursuant to Rule 54.
Item 2. FEES, COMMISSION AND EXPENSES
Item 3. APPLICABLE STATUTORY PROVISIONS
Item 4. REGULATORY APPROVAL
Item 5. PROCEDURE
Item 6. EXHIBITS AND FINANCIAL STATEMENTS
A. Exhibits
B. Financial Statements as of December 31, 1999.
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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
[GRAPHIC FOR INTRA-CORPORATE TRANSFERS]
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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 a 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
[GRAPHIC FOR INTRA-CORPORATE TRANSFERS]
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 common stock of CDG and ACE-REIT, Conectiv proposes to
contribute to CEH the common stock of CESI, a Rule 58 company and may at a
future date contribute to CEH the common 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
[PLACEMENT GRAPHIC]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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POST-REORGANIZATION
[PLACEMENT GRAPHIC]
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 common stock in
consideration therefore, and the acquisition of the common
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
common stock of ACE-REIT and by Delmarva to Conectiv of the common 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
common stock to CEH. Approval of acquisition of CDG and ACE-REIT by CEH.
Authorization for the Issuance of nominal shares of common 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 common 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 common
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 Common 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 common 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 common stock to
Conectiv. 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. 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. Conectiv intends 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.
Following authorization from this Commission, CEH will issue a nominal
number of shares of common 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 common stock of CDG and ACE-REIT to CEH, the
acquisition of the common stock by CEH and the issuance of common 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 common stock and other
securities held in CESI and at some point in the future, may contribute to
CEH common 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
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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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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 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,
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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 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. 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 common 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 will not exceed $750 million
dollars, less the amount of any debt issued by a CEH subsidiary directly to
Conectiv as proposed below. The proceeds will be used to meet the borrowing
needs of CEH subsidiaries, including not only CAG, CDG and ACE-REIT, but
also CESI and potentially AGI and EWGs acquired in the future. 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
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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 equity 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. 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.
G. 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 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.
H. 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
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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.
I. 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.
J. 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
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.
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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 3, 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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