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Previous: VARIABLE ANNUITY ACCT C OF AETNA LIFE INSURANCE & ANNUITY CO, AW, 1995-06-20 |
Next: ENVIROSOURCE INC, 11-K, 1995-06-20 |
File No. 70-8613
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
TO
APPLICATION OR DECLARATION
ON
FORM U-1
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Monongahela Power Company
1310 Fairmont Avenue
Fairmont, WV 26554
The Potomac Edison Company
10435 Downsville Pike
Hagerstown, MD 21740-1766
West Penn Power Company
800 Cabin Hill Drive
Greensburg, PA 15601
(Name of company or companies filing this statement and addresses
of principal executive offices)
Allegheny Power System, Inc.
(Name of top registered holding company parent of each applicant
or declarant)
Nancy H. Gormley, Esq.
Allegheny Power System, Inc.
12 East 49th Street
New York, NY 10017
(Name and address of agent for service)
<PAGE>
1. Applicants hereby amend Item 6. Exhibits and Financial Statements by filing
the following:
(a) Exhibits
D-2 Potomac Edison's Application to the Maryland Public
Service Commission.
D-3 Potomac Edison's Application to the Virginia State
Corporation Commission.
D-8 Order of the Virginia State Corporation Commission
regarding Potomac Edison's Application.
F-1 Opinion of Counsel.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, the undersigned companies have duly caused this statement to be
signed on their behalf by the undersigned thereunto duly authorized.
MONONGAHELA POWER COMPANY
By NANCY H. GORMLEY
Nancy H. Gormley
Vice President
THE POTOMAC EDISON COMPANY
By NANCY H. GORMLEY
Nancy H. Gormley
Counsel
WEST PENN POWER COMPANY
By NANCY H. GORMLEY
Nancy H. Gormley
Counsel
Dated: June 20, 1995
U:\DUMP\MIDS\AMEND4
LETTERHEAD
May 4, 1995
Daniel T. Gahagan, Executive Secretary
PUBLIC SERVICE COMMISSION OF MARYLAND
6 St. Paul Centre
Baltimore, MD 21202-6806
RE: IN THE MATTER OF THE APPLICATION OF
THE POTOMAC EDISON COMPANY FOR
AUTHORITY TO ISSUE UP TO $61,834,900
OF JUNIOR SUBORDINATED DEBENTURES
Dear Mr. Gahagan:
Enclosed herewith for filing with the Commission please find the original
and fourteen copies of the petition of The Potomac Edison Company seeking
authority to issue up to $61,834,900 of junior subordinated debentures.
Fifteen copies of the direct testimony and exhibits of Dale F. Zimmerman
supporting the Company's petition in this matter are also enclosed.
Included herewith is a disk setting forth the petition and supporting
direct testimony and exhibits in electronic format.
I have enclosed an extra copy of the petition and testimony. I would
appreciate your marking the extra copy as having been "filed" and
returning it to me in the self-addressed, envelope provided.
Thank you for your kind cooperation.
Very truly yours,
PHIPIP J. BRAY
Philip J. Bray
Attorney
PJB/pms/DTG-DS
Encl.
<PAGE>
In the Matter of the Application of BEFORE THE
The Potomac Edison Company for authority PUBLIC SERVICE COMMISSION
to issue junior subordinated debentures OF MARYLAND
CASE NO. ________
PETITION
The petition of The Potomac Edison Company ("Potomac") respectfully
shows:
1. Potomac is a Maryland and Virginia corporation and a public
service company subject to the jurisdiction of the Commission
as fully appears in former proceedings before this Commission.
2. Potomac has authority to issue up to $195 million of bonds, up
to $15 million of preferred stock and up to $21 million of
pollution control notes (Case No. 8622), for refunding if
economic and market conditions make it desirable.
3. Potomac proposes to issue and sell at any time or from time to
time in one or more series through December 31, 1998 under an
indenture or indentures to be entered into, between Potomac
and a trustee or trustees to be named, as trustee, up to an
aggregate of $61,834,900 of junior subordinated debentures
(the "Debt Securities").
4. The Debt Securities of each series will have a term (including
any extension) of up to 50 years. Prior to maturity, Potomac
will pay interest on its Debt Securities at a rate which may
be either a fixed rate or an adjustable rate to be determined
on a periodic basis as a percentage of or interest rate spread
from some predetermined benchmark security, or by auction or
remarketing procedures, in accordance with a formula or
formulae based upon certain reference rates, or by other
predetermined methods. Interest on the Debt Securities will
be payable monthly, or quarterly or at other periodic
intervals. Potomac may have the right, from time to time, to
defer payment of interest on its Debt Securities for up to
five years; provided that (i) at the end of any such deferral
period Potomac would be required to pay all interest then
accrued and unpaid (together with interest thereon at the rate
borne by such Debt Securities); and (ii) during any such
deferral period, Potomac may not be permitted to declare or
pay any dividend on, or redeem or otherwise acquire, any of
its capital stock.
<PAGE>
5. The Debt Securities will be unsecured obligations and will be
subordinate to all other existing and future indebtedness for
borrowed money of Potomac and may or may not have cross-
default provisions with respect to other indebtedness of
Potomac -- i.e., a default under any other outstanding
indebtedness may or may not result in an acceleration of
payment of the Debt Securities.
6. It is expected that Potomac's interest payments on the Debt
Securities issued by it will be deductible for federal income
tax purposes. The Debt Securities of any series may be
redeemable at the option of the Company at a price equal to
their principal amount, plus any accrued and unpaid interest,
plus a premium amount, if any, at any time after a specified
date not later than twenty years from their date of issuance.
7. Potomac believes that the proposed Debt Securities will
provide substantial benefits over traditional perpetual
preferred stock while still receiving substantially similar
treatment for rating agency and other analysis purposes.
Although Potomac expects that the Debt Securities will carry
a somewhat higher interest rate than the dividend rate of
traditional perpetual preferred stock, the expected tax
deductibility of interest payments will afford increased cash
flow and net income and result in a lower net interest cost.
At the same time, Potomac understands that the financial
markets will view the financing that Potomac obtains through
the Debt Securities as having essentially the same equity
characteristics as would be the case if Potomac were to issue
traditional perpetual preferred stock. Potomac also
understands that the rating agencies will view the financing
that Potomac obtains through the issuance of the Debt
Securities as having equity characteristics similar to
traditional perpetual preferred stock. While it is expected
that the interest rate of the Debt Securities will exceed the
dividend rate for a perpetual preferred issue, Potomac
believes that, over the life of a Debt Securities issue,
significant savings, on a net present value basis, would be
achieved. The Debt Securities will be carried in the debt
section of Potomac's balance sheet.
8. The Debt Securities will be sold at such time, at such
interest rates, and for such prices as shall be approved by
Potomac. The timing of the sale of each series of Debt
Securities will depend upon a subjective determination by
<PAGE>
Potomac of market conditions. In view of the fact that the
purchasers of the Debt Securities and the price to be received
by Potomac will not be determined until the approval of such
purchasers and such price by Potomac, it is not possible at
this time to set forth such information. Attached hereto is
an affidavit by Dale F. Zimmerman showing the amount to be
realized by the issuance and sale of all of the Debt
Securities which are the subject of this application.
9. Potomac will use the proceeds of the Debt Securities proposed
to be issued for the refunding of individual and/or all
series of its preferred stock.
The preferred stock to be redeemed includes the 3.60%
Cumulative Preferred Stock issued and sold in 1946 as approved
by the Commission in Case No. 4750. This series of stock is
subject to redemption at the Company's option at a price of
$103.75 per share, plus accrued dividends.
The $5.88 Cumulative Preferred Stock, Series C to be
redeemed, was issued and sold in 1967 as approved by the
Commission in Case No. 6115. This series of stock is subject
to redemption at the Company's option at a price of $102.85
per share, plus accrued dividends.
The $7.00 Cumulative Preferred Stock, Series D to be
redeemed, was issued and sold in 1968 as approved by the
Commission in Case No. 6189. This series of stock is subject
to redemption at the Company's option at a price of $103.20
per shares, plus accrued dividends.
The $8.32 Cumulative Preferred Stock, Series F issued
and sold in 1971 as approved by the Commission in Case No.
6424. This series of stock is subject to redemption at the
Company's option at a price of $103.54 per share, plus accrued
dividends.
The $8.00 Cumulative Preferred Stock, Series G to be
redeemed, was issued and sold in 1972 as approved by the
Commission in Case No. 6537. This series of stock is subject
to redemption at the Company's option at a price of $103.25
per share, plus accrued dividends.
The $7.16 Cumulative Preferred Stock, Series J to be
redeemed, was issued and sold in 1986 as approved by the
<PAGE>
Commission in Case No. 7966. This series of stock is subject
to redemption at the Company's option at a price of $105.37
per share, plus accrued dividends.
10. Potomac files as part hereof the direct testimony and exhibits
of Dale F. Zimmerman detailing the proposed transactions and
including as Exhibit DFZ-3 the financial condition of Potomac.
11. There is appended hereto an affidavit made by three of the
directors of Potomac showing that it is the intention of
Potomac, in good faith, to use the proceeds of the Debt
Securities proposed to be issued for the purposes set forth in
this petition.
12. No franchise or right of Potomac is capitalized, directly or
indirectly, except as authorized by the Public Service
Commission Law.
WHEREFORE, Potomac prays that the Public Service Commission of Maryland,
by its order, authorize the issuance by it of Debt Securities as set forth
in this petition and take such further action in the premises as may be
requisite.
Respectfully submitted,
THE POTOMAC EDISON COMPANY
DALE F. ZIMMERMAN
Dale F. Zimmerman
Secretary & Treasurer
Counsel:
PHILIP J. BRAY
Philip J. Bray, Esq.
Attorney-at-Law
The Potomac Edison Company Building
10435 Downsville Pike
Hagerstown, MD 21740-1766
(301) 790-6283
May 4, 1995
PET-DS.495
<PAGE>
A F F I D A V I T
STATE OF MARYLAND )
) ss:
COUNTY OF WASHINGTON )
I HEREBY CERTIFY that on this 4th day of May, 1995, before me, the
subscriber, a Notary Public of the State of Maryland, in and for the
County of Washington, personally appeared Dale F. Zimmerman, Secretary
and Treasurer of The Potomac Edison Company, and made oath in due form of
law that the matters and facts set forth in the foregoing Petition
including his direct testimony and exhibits are true to the best of his
knowledge, information and belief and that The Potomac Edison Company
expects to realize up to $61,834,900 from the issuance and sale of Debt
Securities which are the subject of this application.
WITNESS my hand and notarial seal, the day and year last above
written.
PATTI M. SOWERS
Patti M. Sowers
Notary Public
My Commission expires December 1, 1998.
(NOTARIAL SEAL)
<PAGE>
AFFIDAVIT OF THREE DIRECTORS
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that on this 2nd day of May, 1995, before me the
subscriber, a Notary Public of the State of New York, in and for the
County of New York aforesaid, personally appeared Messrs. S. I. Garnett,
II, A. J. Noia, and P. J. Skrgic, three of the directors of The Potomac
Edison Company ("Potomac"), and made oath in due form of law that they are
directors of Potomac; that they have read the foregoing Petition; and that
it is the intention of Potomac in good faith to use the proceeds of the
Debt Securities proposed to be issued for the purpose set forth in said
Petition.
WITNESS my hand and notarial seal, the day and year last above
written.
EILEEN M. BECK
Notary Public
Eileen M. Beck
(NOTARIAL SEAL) Notary Public, State of New York
No. 31-4870953
Qualified in New York County
Commission Expires September 15, 1996
<PAGE>
BEFORE THE
PUBLIC SERVICE COMMISSION
OF MARYLAND
.
.
IN THE MATTER OF THE APPLICATION OF .
THE POTOMAC EDISON COMPANY FOR . CASE NO. __________
AUTHORITY TO ISSUE DEBT SECURITIES .
.
........................................................................
DIRECT TESTIMONY AND EXHIBITS
OF
DALE F. ZIMMERMAN
THE POTOMAC EDISON COMPANY
May 4, 1995
<PAGE>
A. INTRODUCTION
Q. Please state your name, address, position including its duties, and
your educational and professional qualifications.
A. My name is Dale F. Zimmerman. My business address is The Potomac
Edison Company Building, 10435 Downsville Pike, Hagerstown, Maryland
21740-1766. I am Secretary and Treasurer of The Potomac Edison
Company ("Potomac" or "Company"). My duties, educational
background, professional credentials and work experience are
included at the end of my testimony.
B. PURPOSE AND OUTLINE
Q. What is the purpose of your testimony?
A. My testimony will describe our request for authority to issue prior
to December 31, 1998 not more than $61,834,900 of debt securities.
Q. Please outline the testimony you plan to present in this case.
A. I will testify to:
1. The proposed debt securities financing;
2. The advantages of the financing;
3. The approvals required;
4. Use of proceeds;
5. Potomac's financial condition;
6. Effect of the proposed financings on capital structure; and
7. The anticipated expenses.
C. SUMMARY
Q. Please summarize your testimony.
A. Potomac is filing an application under Section 65(a)(iii) of the
Public Service Commission Law and Section 20.07.04.02 of COMAR for
authority to issue up to $61,834,900 of debt securities. The
<PAGE>
proceeds of the debt securities financing will be used to redeem the
Company's currently outstanding cumulative preferred stock. The
financing will permit the Company to reduce the cost of its
outstanding preferred stock and maintain a balanced capital
structure. The issuance of debt securities will be accomplished
with minimal cost to the Company's customers. The Commission's
approval of Potomac's application in these matters is clearly in the
public interest.
D. EXHIBIT LIST
Q. Have you prepared or had prepared any exhibits to accompany your
direct testimony?
A. Yes. I have prepared and am sponsoring exhibits labelled for
convenience as DFZ-1 through DFZ-3 as follows:
DFZ-1 - The Company's petition filed in this case
DFZ-2 - The Potomac Edison Company preferred stock refunding
analysis
DFZ-3 - Statement of financial condition
DFZ-4 - Capital structure
E. DISCUSSION
1. The Proposed Financing
Q. Are you familiar with Potomac's proposed debt securities financing
which is the subject of these proceedings?
A. Yes, I am. My exhibit DFZ-1 is the Petition filed by Potomac to
institute this proceeding.
Q. Please describe the debt securities financing briefly.
A. After obtaining necessary regulatory approvals, the Company proposes
to issue for cash an aggregate principal amount of not more than
$61,834,900 of debt securities.
The new debt securities will be issued prior to December 31,
1998, in one or more series, each such series will have a term of up
to 50 years. The annual interest rate on the debt securities may be
either a fixed rate or an adjustable rate to be determined on a
periodic basis as a percentage of or interest rate spread from some
predetermined benchmark security or by auction or remarketing
procedures, in accordance with a formula or formulae based upon
certain reference rates, or by other pre-determined methods.
<PAGE>
Q. Describe the procedure and state the terms upon which the Company
proposes to issue the new debt securities.
A. After the new debt securities have been registered with the SEC
pursuant to a Rule 415 "shelf registration," Potomac in its
discretion, on 48 hours notice, will request competing groups of
bidders to put together a bid resulting in a specified cost of money
to the Company. Potomac would retain the right to revoke the offer,
modify it prior to acceptance or reject any offer. The result would
be for the Company to conduct a conventional competitive bidding at
any time prior to December 31, 1998 when it believes market
conditions to be most favorable.
The price or prices to be paid Potomac for the debt securities
and the interest rate on the debt securities will be determined by
such bidding.
If due to market conditions competitive bidding is not deemed
practical, the Company proposes to negotiate with underwriters for
the purchase of the debt securities or privately place the debt
securities with institutional investors. The Company believes
coupling the competitive bidding process with the negotiation or
private placement options will assure the best terms and interest
rate for the debt securities available in the money market on the
date of sale.
2. The Advantages of the Proposed Refinancing
Q. Please further describe the securities to be redeemed and state the
current redemption price of each series.
A. Pertinent information concerning the series of Company preferred
stocks to be redeemed is set forth in Exhibit DFZ-2.
The preferred stock to be redeemed includes the 3.60%
Cumulative Preferred Stock issued and sold in 1946 as approved by
the Commission in Case No. 4750. This series of stock is subject to
redemption at the Company's option at a price of $103.75 per share,
plus accrued dividends.
The $5.88 Cumulative Preferred Stock, Series C to be redeemed,
was issued and sold in 1967 as approved by the Commission in Case
No. 6115. This series of stock is subject to redemption at the
<PAGE>
Company's option at a price of $102.85 per share, plus accrued
dividends.
The $7.00 Cumulative Preferred Stock, Series D to be redeemed,
was issued and sold in 1968 as approved by the Commission in Case
No. 6189. This series of stock is subject to redemption at the
Company's option at a price of $103.20 per shares, plus accrued
dividends.
The $8.32 Cumulative Preferred Stock, Series F issued and sold
in 1971 as approved by the Commission in Case No. 6424. This series
of stock is subject to redemption at the Company's option at a price
of $103.54 per share, plus accrued dividends.
The $8.00 Cumulative Preferred Stock, Series G to be redeemed,
was issued and sold in 1972 as approved by the Commission in Case
No. 6537. This series of stock is subject to redemption at the
Company's option at a price of $103.25 per share, plus accrued
dividends.
The $7.16 Cumulative Preferred Stock, Series J to be redeemed,
was issued and sold in 1986 as approved by the Commission in Case
No. 7966. This series of stock is subject to redemption at the
Company's option at a price of $105.37 per share, plus accrued
dividends.
Q. What study has been made to determine that redemption of these
series of preferred stock should be considered at this time?
A. Our study is set forth on the attached Exhibit DFZ-2 entitled
"The Potomac Edison Company Preferred Stock Refunding Analysis."
The Company is requesting authority to capture these cost savings if
market interest rates decline to a point that refinancing these
securities is economic.
The lower costs resulting from the proposed refinancing will
lower the Company's embedded costs to the ultimate benefit of its
customers.
However, Potomac represents that it will not so redeem or
tender for its outstanding securities unless the estimated present
value savings derived from the difference between interest payments
on a new issue of debt securities and those securities refunded is
on an after-tax basis greater than the estimated present value of
all redemption, tendering and issuing cost, assuming an appropriate
discount rate. Such discount rate will be based on meeting
Potomac's long-term capital structure goals, with appropriate
adjustments for income taxes.
<PAGE>
3. The Approvals Required
Q. What approvals must be acquired before the proposed debt securities
can be issued?
A. The proposed debt securities financings require the approval of the
Public Service Commission of Maryland, the Virginia State
Corporation Commission, the Public Service Commission of West
Virginia and the Securities and Exchange Commission.
4. Use of Proceeds
Q. For what purpose will Potomac use the proceeds of this financing?
A. Potomac will use the proceeds of the debt securities proposed to be
issued for the refunding of its cumulative preferred stock as
outlined in Exhibit DFZ-2.
5. Potomac's Financial Condition
Q. Please describe the Company's financial condition.
A. Exhibit DFZ-3 is Potomac's statement of financial condition for the
twelve (12) month period ended December 31, 1994. This exhibit was
prepared in accordance with COMAR, Section 20.07.04.01 and sets
forth as of December 31, 1994, amount and classes of stock
authorized, amount and classes of stock issued, terms of preference
of all preferred stock, a brief description of Potomac's mortgage,
the number and amount of bonds authorized and issued and interest
paid thereon during the preceding fiscal year, other indebtedness of
all kinds, interest paid during the previous fiscal year on other
indebtedness, and the amount of dividends paid on each class of
stock during the previous fiscal year, detailed statements of income
for the twelve month period ended December 31, 1994 and Potomac's
balance sheet as of December 31, 1994.
There has been no material change in the financial condition
of Potomac since December 31, 1994 which is not in the ordinary
course of business.
6. Effect on Capital Structure
Q. Have you determined the effect on Potomac's capital structure of the
proposed issuance of first debt securities?
<PAGE>
A. The Company understands that the financial markets and the rating
agencies will view this financing through the issuance of debt
securities as having substantially similar characteristics to
traditional perpetual preferred stock and therefore would have no
effect on capitalization. The capital structure is shown in Exhibit
DFZ-4.
7. Expenses
Q. What expenses do you foresee in connection with the proposed
issuance of the debt securities?
A. The total expenses of the issuance of the debt securities applied
for in this case are estimated to be $245,000. This estimate is
comprised of the following expenses and fees:
<TABLE>
<CAPTION>
DEBT SECURITIES
<S> <C>
Independent Accountants $ 17,000
Legal Fees 60,000
Trustees' Fees and Expenses 7,000
Blue Sky Fees 8,000
1935 Act Fee 667
SEC Registration Fee 21,323
Bond Rating Fees 15,000
Recordation Fees, Taxes and Miscellaneous 10,000
TOTAL $ 138,990
</TABLE>
Underwriting expenses are estimated to not exceed 1% of principal.
Q. What will be the effect on the customers of the cost of issuing the
additional debt securities applied for in this case?
A. The expenses of issuing the debt securities will be amortized over the
life of debt securities. Assuming a 30-50 year term, the effect on the
customer will be minimal.
F. CONCLUSIONS
Q. Mr. Zimmerman, what conclusions, if any, do you have concerning
Potomac's request in this case?
<PAGE>
A. I believe our proposal meets previously established Commission criteria
and is in the best interest of our customers. The securities will
not be issued unless savings can be achieved. Such savings will
benefit our customers.
G. RESPONSIBILITIES AND QUALIFICATIONS
Q. Please describe your duties, educational background and professional
qualifications.
A. I am Secretary and Treasurer of The Potomac Edison Company. As
Treasurer am responsible for handling Potomac's cash resources, the
budgeting, collection, deposit and custody of cash, and the financing
by loans, stock and bond issues to meet the cash requirements of
Potomac.
I graduated from Shepherd College in 1958 with a Bachelor of
Science degree in Business Administration, majoring in Accounting.
From 1958 to present I have been employed by The Potomac Edison
Company. During that time I have served in numerous positions
including Internal Auditor; Accountant; and Special Assistant
assigned to the Secretary and Treasurer. In June, 1964, I became
Assistant Secretary andin 1967 was also elected Assistant Treasurer.
On January 1, 1990, I became Secretary and Treasurer.
<PAGE>
EXHIBIT DFZ-1
POTOMAC EDISON'S PETITION FOR
AUTHORITY TO ISSUE
JUNIOR SUBORDINATED DEBENTURES
IS INCORPORATED HEREIN AS AN EXHIBIT.
<PAGE>
DFZ-2
Page 1 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS
20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 6,378 Size ($000's) 6,378
Series$3.60 Breakeven Rate 4.6%
Target Refunding Rate 4.2%
Years 30
Call Premium 3.750%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $239 $239
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $201 $201
Total Refunding Cost $440
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $230 $2,585
New Annual Interest ($267) ($174) ($1,954)
Savings $631
NPV OF SAVINGS: $191
</TABLE>
Financial Planning 23-May-95
<PAGE>
DFZ-2
Page 2 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
EXISTING ISSUE PROPOSED ISSUE
Size ($000's) 10,000 Size ($000's) 10,000
Series $5.88 Breakeven Rate 8.2%
Target Refunding Rate 7.8%
Years 30
Call Premium 2.850%
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $285 $285
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $315 $315
Total Refunding Cost $600
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $588 $6,620
New Annual Interest ($782) ($508) ($5,720)
Savings $900
NPV OF SAVINGS: $300
</TABLE>
Financial Planning 23-May-95
<PAGE>
DFZ-2
Page 3 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
EXISTING ISSUE PROPOSED ISSUE
Size ($000's) 5,000 Size ($000's) 5,000
Series $7.00 Breakeven Rate 9.9%
Target Refunding Rate 9.5%
Years 30
Call Premium 3.200%
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $160 $160
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $158 $158
Total Refunding Cost $318
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $350 $3,940
New Annual Interest ($475) ($308) ($3,473)
Savings $467
NPV OF SAVINGS: $150
</TABLE>
Financial Planning 23-May-95
<PAGE>
DFZ-2
Page 4 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
EXISTING ISSUE PROPOSED ISSUE
Size ($000's) 5,000 Size ($000's) 5,000
Series $8.32 Breakeven Rate 11.9%
Target Refunding Rate 11.5%
Years 30
Call Premium 3.540%
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $177 $177
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $158 $158
Total Refunding Cost $335
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $416 $4,683
New Annual Interest ($574) ($373) ($4,199)
Savings $485
NPV OF SAVINGS: $150
</TABLE>
Financial Planning 23-May-95
<PAGE>
DFZ-2
Page 5 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
EXISTING ISSUE PROPOSED ISSUE
Size ($000's) 10,000 Size ($000's) 10,000
Series $8.00 Breakeven Rate 11.4%
Target Refunding Rate 11.0%
Years 30
Call Premium 3.250%
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $325 $325
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $315 $315
Total Refunding Cost $640
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $800 $9,006
New Annual Interest ($1,102) ($717) ($8,066)
Savings $940
NPV OF SAVINGS: $300
</TABLE>
Financial Planning 23-May-95
<PAGE>
DFZ-2
Page 6 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 25,457 Size ($000's) 25,457
Series $7.16 Breakeven Rate 5.8%
Target Refunding Rate 5.4%
Years 30
Call Premium 5.370%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
<S> <C> <C> <C>
Call Premium: (Principal * Call Premium) $1,367 $1,367
NEW ISSUE:
Total Costs: (3.15%) New Issue Cost $802 $802
Total Refunding Cost $2,169
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $12,942
New Annual Interest $1,368 $889 $10,009
Savings $2,933
NPV OF SAVINGS: $764
</TABLE>
Financial Planning 23-May-95
<PAGE>
THE POTOMAC EDISON COMPANY
STATEMENT OF FINANCIAL CONDITION
December 31, 1994
(a) Amount and classes of stock authorized:
(a) 23,000,000 shares Common Stock - no par value
(b) 5,388,046 shares Cumulative Preferred Stock - par value $100
(b) Amount and classes of stock issued and outstanding as of December
31, 1994:
(1) 22,385,000 shares Common Stock
627,784 shares Cumulative Preferred Stock, as follows:
3.60% Series - 63,784 shares
$ 5.88 Series C - 100,000 shares
$ 7.00 Series D - 50,000 shares
$ 8.32 Series F - 50,000 shares
$ 8.00 Series G - 100,000 shares
$ 7.16 Series J - 264,000 shares
(c) Terms of preference of all preferred stock:
All shares of equal rank
(d) Brief description of each mortgage upon any property of the
corporation, giving date of execution, name of trustee, amount of
indebtedness authorized to be secured thereby, amount of
indebtedness actually secured and brief description of the mortgaged
property or collateral:
See Indenture dated October 1, 1944, as supplemented, between
The Potomac Edison Company and Chemical Bank, as Trustee, and
Thomas J. Foley, as Individual Trustee as heretofore filed
with this Commission from time to time in Case No. 8498 and
cases referred to therein.
<PAGE>
(e) Number and amount of bonds authorized and issued under each
mortgage, describing each class separately, giving date of issue,
par value, rate of interest, date of maturity and how secured:
Potomac has bonds issued and outstanding under the
above-mentioned Indenture consisting of series, all of which
are First Mortgage Bonds, as follows:
Amount
Series Outstanding
1966 - 5 7/8% due 1996 18,000,000
1989 - 9 1/4% due 2019 65,000,000
1990 - 9 5/8% due 2020 80,000,000
1991 - 8 7/8% due 2021 50,000,000
1991 -8% due 2006 50,000,000
1992 -8% due 2022 55,000,000
1993 - 7 3/4% due 2023 45,000,000
1993 - 5 7/8% due 2000 75,000,000
1994 -8% due 2024 75,000,000
$ 513,000,000
(f) Other indebtedness of all kinds, giving same by classes and
describing security, if any:
(1) $ 5,500,000 long-term unsecured pollution control notes;
(2) $91,700,000 long-term secured pollution control notes.
(g) Amount of interest paid during previous fiscal year upon each
species of indebtedness and rate thereof and, if different rates
were paid, amount paid at each rate:
(1) $36,164,965 interest with respect to bonds
(2) $346,500 on long-term unsecured pollution control notes
(3) $4,974,850 on long-term secured pollution control notes and
solid waste disposal notes
(4) See attached Schedule A for commercial paper notes and bank
loans
(h) Amount of dividends paid upon each class of stock during previous
fiscal year and rate thereof:
<PAGE>
1993
Class of Stock Amount
Cumulative Preferred:
3.60% Series $ 229,623
4.70% Series B 14,262
$ 5.88 Series C 588,000
$ 7.00 Series D 350,000
$ 8.32 Series F 416,000
$ 8.00 Series G 800,000
$ 7.16 Series J 2,040,600
Common Stock $60,385,750
(i) A statement of income for the twelve months ended December 31,
1994 and balance sheet as of December 31, 1994 are attached as
Schedules B and C, respectively.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Page 1 of 2
DATE: 01/01/93 TO 01/01/94
OUTSTANDING
PORTFOLIOS: PE
SECURITIES: ALL
AVERAGE # DAYS AVG ANNUAL INTEREST AVERAGE
TYPE DATE AMOUNT PER DAY OUTSTANDING PRINCIPAL FOR PERIOD INTEREST RATE
BANK LOAN
<S> <C> <C> <C> <C> <C> <C> <C>
BL 06/30/93 $4,250,000.00 $11,805.56 1 $11,805.56 $419.10 3.5500
BL 07/01/93 $4,600,000.00 $12,777.78 1 $12,777.78 $421.67 3.3000
BL 07/02/93 $4,500,000.00 $12,500.00 4 $50,000.00 $1,525.00 3.0500
BL 07/06/93 $5,350,000.00 $14,861.11 1 $14,861.11 $475.56 3.2000
BL 07/07/93 $6,350,000.00 $17,638.89 1 $17,638.89 $643.82 3.6500
BL 07/08/93 $3,850,000.00 $10,694.44 1 $10,694.44 $342.22 3.2000
BL 07/09/93 $1,800,000.00 $5,000.00 3 $15,000.00 $472.50 3.1500
BL 07/19/93 $1,850,000.00 $5,138.89 1 $5,138.89 $179.86 3.5000
BL 07/20/93 $2,750,000.00 $7,638.89 1 $7,638.89 $267.36 3.5000
BL 07/21/93 $550,000.00 $1,527.78 1 $1,527.78 $56.15 3.6753
BL 08/02/93 $2,200,000.00 $6,111.11 1 $6,111.11 $216.94 3.5499
BL 08/03/93 $1,350,000.00 $3,750.00 1 $3,750.00 $125.63 3.3501
BL 08/04/93 $1,300,000.00 $3,611.11 1 $3,611.11 $127.11 3.5200
BL 08/05/93 $1,100,000.00 $3,055.56 1 $3,055.56 $106.94 3.4999
BL 08/16/93 $400,000.00 $1,111.11 1 $1,111.11 $40.14 3.6126
BL 09/15/93 $9,200,000.00 $25,555.56 1 $25,555.56 $856.11 3.3500
BL 09/16/93 $8,750,000.00 $24,305.56 1 $24,305.56 $789.93 3.2500
BL 09/17/93 $7,950,000.00 $22,083.33 3 $66,250.00 $2,053.75 3.1000
BL 09/20/93 $8,450,000.00 $23,472.22 1 $23,472.22 $751.11 3.2000
BL 09/21/93 $6,750,000.00 $18,750.00 1 $18,750.00 $600.00 3.2000
BL 09/22/93 $5,100,000.00 $14,166.67 1 $14,166.67 $464.67 3.2800
BL 09/23/93 $4,100,000.00 $11,388.89 1 $11,388.89 $353.06 3.1000
BL 09/27/93 $5,550,000.00 $15,416.67 1 $15,416.67 $502.58 3.2600
BL 09/28/93 $11,400,000.00 $31,666.67 1 $31,666.67 $1,021.25 3.2250
BL 09/29/93 $13,550,000.00 $37,638.89 1 $37,638.89 $1,279.72 3.4000
BL 09/30/93 $19,950,000.00 $55,416.67 1 $55,416.67 $2,078.13 3.7500
BL 10/01/93 $20,050,000.00 $55,694.44 3 $167,083.33 $5,597.29 3.3500
BL 10/04/93 $22,700,000.00 $63,055.56 1 $63,055.56 $1,994.13 3.1625
BL 10/05/93 $20,950,000.00 $58,194.44 1 $58,194.44 $1,876.77 3.2250
BL 10/06/93 $18,600,000.00 $51,666.67 1 $51,666.67 $1,633.96 3.1625
BL 10/07/93 $17,500,000.00 $48,611.11 1 $48,611.11 $1,506.94 3.1000
BL 10/08/93 $13,900,000.00 $38,611.11 4 $154,444.44 $4,691.25 3.0375
BL 10/12/93 $13,600,000.00 $37,777.78 1 $37,777.78 $1,218.33 3.2250
BL 10/13/93 $10,800,000.00 $30,000.00 1 $30,000.00 $966.00 3.2200
BL 10/14/93 $9,850,000.00 $27,361.11 1 $27,361.11 $864.61 3.1600
TOTAL US $1,126,944.47 $36,519.59 3.2406
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Page 2 of 2
DATE: 01/01/93 TO 01/01/94
OUTSTANDING
PORTFOLIOS: PE
SECURITIES: ALL
AVERAGE # DAYS AVG ANNUAL INTEREST AVERAGE
TYPE DATE AMOUNT PER DAY OUTSTANDING PRINCIPAL FOR PERIOD INTEREST RATE
COMMERCIAL PAPER
<S> <C> <C> <C> <C> <C> <C> <C>
CP 09/24/93 $4,398,911.00 $12,219.20 3 36,657.59 1,089.00 2.9707
TOTAL US 36,657.59 1,089.00 2.9707
GRAND TOTAL $1,163,602.06 $37,608.59 3.2321
</TABLE>
<PAGE>
SCHEDULE B
THE POTOMAC EDISON COMPANY
STATEMENT OF INCOME
FOR TWELVE MONTHS ENDED DECEMBER 1994
(Thousands)
ELECTRIC OPERATING REVENUES 759 365
OPERATING EXPENSES:
Operation:
Fuel 145 045
Purchased power and exchanges, net 217 137
Deferred power costs, net 1 321
Other 85 024
Maintenance 58 624
Depreciation 59 989
Taxes other than income taxes 46 740
Federal and state income taxes 33 163
Total Operating Expenses 647 043
Operating Income 112 322
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 3 671
Other income, net 10 243
Total Other Income and Deductions 13 914
Income Before Interest Charges 126 236
INTEREST CHARGES:
Interest on first mortgage bonds 38 775
Interest on other long-term obligations 5 931
Other interest 1 750
Allowance for borrowed funds used during
construction (2 203)
Total Interest Charges 44 253
Income before cumulative effect
of accounting change 81 983
Cumulative effect of accounting
change, net 16 471
Net Income 98 454
<PAGE>
SCHEDULE C
Page 1 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994
(Thousands)
Assets
Property, plant, and equipment:
At original cost 1,978,396
Accumulated depreciation (673 853)
Investments and other assets:
Allegheny Generating Company -
common stock at equity 62 364
Other 938
Current assets:
Cash 2 196
Accounts receivable:
Electric service 69 891
Affiliated and other 2 403
Allowance for uncollectible accounts (1 177)
Notes receivable from affiliates 1 900
Materials and supplies--at average cost:
Operating and construction 27 800
Fuel 22 316
Prepaid taxes 13 168
Other 5 000
Deferred charges:
Regulatory assets 88 758
Unamortized loss on reacquired debt 8 344
Other 21 091
Total Assets 1 629 535
<PAGE>
SCHEDULE C
Page 2 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994
(Thousands)
Capitalization:
Common stock:
Common stock - no par value, authorized
23,000,000 shares, outstanding
22,385,000 shares (no change 447,700
since 01/01/94)
Other paid-in capital (increase of $10,000
since 01/01/94) 2 724
Retained earnings 207 722
Preferred stock:
Cumulative preferred stock - par value
$100 per share, authorized 5,388,046
shares, outstanding 627,784 shares:
Not subject to mandatory redemption 36 378
Subject to mandatory redemption 25 200
Long-term debt 604 749
Current liabilities:
Short-term debt -
Preferred stock due within one year 1 200
Accounts payable 37 126
Accounts payable to affiliates 10 485
Taxes accrued:
Federal and state income 3 565
Other 11 874
Interest accrued 9 195
Other 17 399
Deferred credits and other liabilities:
Unamortized investment credit 28 041
Deferred income taxes 149 299
Regulatory liabilities 16 957
Other 19 921
Total Capitalization and Liabilities 1,629,535
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DFZ-4
THE POTOMAC EDISON COMPANY
1995 Junior Subordinated Securities Financing
Effect on Capital Structure
December 31, 1994
Actual Pro Forma
Amount (000's) % Amount (000's) %
(Note A)
Common Stock:
<S> <C> <C> <C> <C> <C>
Common Stock $ 447,700 $ 447,700
Other paid-in capital 2,724 2,724
Retained earnings 207,722 207,722
Total $ 658,146 49.7 $ 658,146 49.7
Preferred Stock (5,388,046 shares
authorized, 615,784 shares
outstanding): (1)
Cumulative preferred stock
(Debt Securities) $ 61,578 $ 61,578
Total $ 61,578 4.7 $ 61,578 4.7
First Mortgage Bonds:
Outstanding, including debt
premium and discount, net $ 507,549 $ 507,549
Total $ 507,549 38.3 $ 507,549 38.3
Other long-term obligations $ 97,200 7.3 $ 97,200 7.3
Total long-term debt $ 604,749 45.6 $ 604,749 45.6
Total capitalization $1,324,473 100.0 $1,324,473 100.0
Short-term Debt $ 0
NOTE A:
(1) Excludes 12,000 shares and $1.2 million of $7.16 preferred which are
subject to mandatory redemption on September 1, 1995.
The proposed refinancing of bonds and preferred stock will have no
effect on capitalization (Case No. 8622).
* Adjustments:
Applicant understands that rating agencies and the financial markets
will view the Debt Securities as equity.
</TABLE>
LETTERHEAD
May 4, 1995
William J. Bridge, Clerk
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
Document Control Center
Tyler Building
1300 East Main Street
Richmond, VA 23219
RE: Application of The Potomac Edison Company
for authority to issue not more than
$61,834,900 of junior subordinated debentures
Dear Mr. Bridge:
Enclosed for filing with the State Corporation Commission please find the
original and four copies of The Potomac Edison Company's Application for
Authority to Issue Securities. Also enclosed are the original and four
copies of the Company's Financing Summary.
A check payable to the Commission for $250 is included herewith to cover
the filing fee required by Virginia Code, Section 56-75.
Very truly yours,
PHILIP J. BRAY
Philip J. Bray
Attorney
PJB/pms/WJB-0504.95
Encl.
pc: D. Pippert, Mgr. Finance (cover letter only)
<PAGE>
BEFORE THE
STATE CORPORATION COMMISSION
OF VIRGINIA
COMMONWEALTH OF VIRGINIA, ex rel.
STATE CORPORATION COMMISSION
In re: Application of The Potomac Edison Company
for authority to issue not more than
$61,834,900 of junior subordinated debentures
Case No. _____________________
APPLICATION FOR AUTHORITY TO ISSUE SECURITIES
The Potomac Edison Company ("Applicant"), a Maryland and Virginia
corporation, respectfully shows:
1. Applicant is a public service company and the primary supplier
of electricity to portions of the states of Virginia, Maryland
and West Virginia.
2. Prior to December 31, 1998, Applicant proposes to issue and
sell at any time or from time to time in one or more series
under an Indenture or Indentures to be entered into between
Applicant and a Trustee or Trustees to be named, as Trustee,
up to an aggregate of $61,834,900 of junior subordinated
debentures (the "Debt Securities").
3. The Debt Securities of each series will have a term (including
any extension) of up to 50 years. Prior to maturity,
Applicant will pay only interest on its Debt Securities, at a
rate which may be either a fixed rate or an adjustable rate to
be determined on a periodic basis as a percentage of or
interest rate spread from some predetermined benchmark
security, or by auction or remarketing procedures, in
accordance with a formula or formulae based upon certain
reference rates, or by other pre-determined methods. Interest
on the Debt Securities will be payable monthly, quarterly or
at other periodic intervals. Applicant may have the right,
<PAGE>
from time to time, to defer payment of interest on its Debt
Securities for up to five years; provided that (i) at the end
of any such deferral period Applicant would be required to pay
all interest then accrued and unpaid (together with interest
thereon at the rate borne by such Debt Securities); and (ii)
during any such deferral period, Applicant may not be
permitted to declare or pay any dividend on, or redeem or
otherwise acquire, any of its capital stock.
4. The Debt Securities will be unsecured obligations and will be
subordinate to all other existing and future indebtedness for
borrowed money of Applicant, and may or may not have cross-
default provisions with respect to other indebtedness of
Applicant -- i.e., a default under any other outstanding
indebtedness may or may not result in a default under any Debt
Securities of Applicant.
5. It is expected that Applicant's interest payments on the Debt
Securities issued by it will be deductible for federal income
tax purposes. The Debt Securities of any series may be
redeemable at the option of Applicant at a price equal to
their principal amount, plus any accrued and unpaid interest,
plus a premium amount, if any, at any time after a specified
date not later than 20 years from their date of issuance.
6. Applicant believes that the proposed Debt Securities will
provide substantial benefits over traditional perpetual
preferred stock while still receiving substantially similar
treatment for rating agency and other credit analysis
purposes. Although Applicant expects that the Debt Securities
will carry a somewhat higher interest rate than traditional
perpetual preferred stock, the expected tax deductibility of
interest payments will afford increased cash flow and net
income and result in a lower net interest cost. Applicant
understands that the financial markets and rating agencies
will view the financing through the Debt Securities as having
essentially the same equity characteristics as would be the
case if the issue was traditional perpetual preferred stock.
The Debt Securities will be carried in the debt section of the
Applicant's balance sheet.
<PAGE>
7. The Debt Securities will be sold at such time, at such
interest rates, and for such prices as shall be approved by
the Applicant. The timing of the sale of each series of Debt
Securities will depend upon a subjective determination by the
Applicant of market conditions.
8. Applicant anticipates selling the Debt Securities through the
alternate competitive bidding procedures consistent with an
SEC Rule 415 "shelf-registration". The price or prices to be
paid to Applicant and the interest rate or rates would be
determined by such competitive bidding. The interest rate or
rates, the price or prices to Applicant and the public
offering price or prices, if any, of the Debt Securities and
the prices at which the Debt Securities may be redeemed, are
to be determined, and the award of the Debt Securities to be
made, in accordance with the bid which offers the lowest cost
of money to Applicant. In the event, however, that market or
other conditions make competitive bidding impracticable or
undesirable, Applicant proposes to negotiate with underwriters
for the purchase of the Debt Securities or privately place the
Debt Securities with institutional investors. Under such
circumstances the interest rate or rates and the price or
prices to be paid Applicant will be determined by such
negotiations.
9. Applicant will use the proceeds from the issuance of up to
$61,834,900 of Debt Securities as a part of the funds
necessary to effect the redemption, if market conditions
warrant, of any one or more of six series of its currently
outstanding cumulative preferred stock by way of optional
redemption or by tender offer. However, the Applicant
represents that it will not so redeem or tender for its
outstanding securities unless the estimated present value
savings derived from the difference between interest payments
on a new issue of Debt Securities and those securities
refunded is on an after-tax basis greater than the estimated
present value of all redemption, tendering and issuing cost,
assuming an appropriate discount rate. Such discount rate
will be based on meeting the Applicant's long-term capital
<PAGE>
structure goals, with appropriate adjustments for income
taxes.
10. The current financial statements of Applicant as of December
31, 1994 are included as Exhibits A and B.
Applicant, therefore, prays that all requisite authorization under
the laws of Virginia be given for this proposed transaction.
THE POTOMAC EDISON COMPANY
J. D. LATIMER
J. D. Latimer
Executive Vice President
ATTEST:
DALE F. ZIMMERMAN
Secretary
PHILIP J. BRAY
Philip J. Bray, Esq.
The Potomac Edison Company Building
10435 Downsville Pike
Hagerstown, MD 21740-1766
(301) 790-6283
Counsel for Applicant
May 4, 1995
VA.PET-DS.495
<PAGE>
APPLICATION BY THE POTOMAC EDISON COMPANY
FOR AUTHORITY TO ISSUE NOT MORE THAN
$61,834,900 OF JUNIOR SUBORDINATED DEBENTURES
UNDER PUBLIC UTILITIES SECURITIES LAW
FINANCING SUMMARY
ITEM 1: DESCRIPTION OF ISSUE AND PROPOSED USES:
A) Type of security - Junior subordinated debentures ("the
Debt Securities") to be issued in one or more new
series.
B) Public offering, private placement, intercompany
financing arrangement, or special distribution (e.g.,
equity via dividend reinvestment plan, employee purchase
plan, etc.) - Applicant anticipates selling the Debt
Securities through competitive bidding, the price or
prices to be paid to Applicant and the interest rate or
rates to be determined by such competitive bidding. If
due to market conditions competitive bidding is not
deemed practical, the annual interest rate to be borne
by each series of the new Debt Securities and the price
to be paid to the issuer would be determined by
negotiations between Applicant and private investors or
underwriters. There are no special characteristics to
the proposed Debt Securities financing.
C) Proposed amount - up to $61,834,900 in debt securities.
D) Proposed date(s) of issue - Prior to December 31, 1998.
E) Specific uses of proceeds with estimated amounts -
Applicant will use the net proceeds of the debt
securities to be issued as part of the funds necessary
to redeem any one or more of the following six series of
currently outstanding cumulative preferred stock:
<TABLE>
<CAPTION>
CURRENT
PRINCIPAL OPTIONAL
SHARES AMOUNT REDEMPTION DATE OF
SERIES OUTSTANDING OUTSTANDING PRICE ISSUE
<C> <C> <C> <C> <C>
3.60% 63,784 6,378,400 103.75 1946
$ 5.88 C 100,000 10,000,000 102.85 1967
$ 7.00 D 50,000 5,000,000 103.20 1968
$ 8.32 F 50,000 5,000,000 103.54 1971
$ 8.00 G 100,000 10,000,000 103.25 1972
$ 7.16 J 254,565 25,456,500 105.37 1976
</TABLE>
ITEM 2: TERMS OF ISSUE:
A) Estimated interest or dividend rate - Applicant
anticipates selling the Debt Securities through
competitive bidding, the price or prices to be paid to
Applicant and the interest rate or rates to be
determined by such competitive bidding. If due to
market conditions competitive bidding is not deemed
practical, the annual interest rate to be borne by each
series of the new debt securities and the price to be
paid to the issuer would be determined by negotiations
between Applicant and private investors or underwriters.
Applicant represents that it will not so redeem or
tender for its outstanding securities unless the
estimated present value savings derived from the
difference between interest payments on a new issue of
debt securities and those securities refunded is on an
after-tax basis greater than the estimated present value
<PAGE>
of all redemption, tendering and issuing costs, assuming
an appropriate discount rate as shown on Exhibit C.
Such discount rate will be based on meeting Applicant's
long-term capital structure goals, with appropriate
adjustments for income taxes.
B) Terms of any rate adjustment - Prior to maturity,
Applicant will pay only interest on its Debt Securities,
at a rate which may be either a fixed rate or an
adjustable rate to be determined on a periodic basis as
a percentage of or interest rate spread from some
predetermined benchmark security, or by auction or
remarketing procedures, in accordance with a formula or
formulae based upon certain reference rates, or by other
pre-determined methods.
C) Timing of payments - The timing of interest payments
will be determined by competitive bidding or by
negotiation with underwriters or institutional investors
and will be set forth in an Indenture. Interest on the
Debt Securities will be payable monthly, quarterly or at
other periodic intervals.
D) Proposed maturity - The Debt Securities will be issued
in one or more new series, each such series will have a
term (including any extension) of up to 50 years.
E) Current security rating - Applicant's securities and
commercial paper are rated as follows:
<TABLE>
<CAPTION>
Moody's S&P Fitch
<S> <C> <C> <C>
Commercial Paper P-1 A-1 F-1+
First Mortgage Bond Aa3 A+ AA-
Preferred Stock aa3 A AA-
</TABLE>
F) Underwriter(s) - Underwriters shall be determined by
competitive bidding or, if circumstances warrant, by
negotiations. The name of the underwriter(s) will be
supplied as part of Applicant's report to the Commission
following issuance of the securities.
G) Estimate of all costs related to issuance (including
underwriting, legal, printing, etc.) -
<TABLE>
<CAPTION>
<S> <C>
Independent Accountants $ 17,000
Legal Fees 60,000
Trustees' Fees and Expenses 7,000
Blue Sky Fees 8,000
1935 Act Fee 667
SEC Registration Fee 21,323
Bond Rating Fees 15,000
Recordation Fees, Taxes and Miscellaneous 10,000
TOTAL $ 138,990
</TABLE>
Underwriting expenses are estimated to not exceed 3.5%
of principal.
H) Miscellaneous terms and provisions - Applicant may have
the right, from time to time, to defer payment of
interest on its Debt Securities for up to five years;
provided that (i) at the end of any such deferral period
Applicant would be required to pay all interest then
accrued and unpaid (together with interest thereon at
the rate borne by such Debt Securities); and (ii) during
any such deferral period, Applicant may not be permitted
to declare or pay any dividend on, or redeem or
otherwise acquire, any of its capital stock.
Applicant believes that the proposed Debt Securities
will provide substantial benefits over traditional
perpetual preferred stock while still receiving
substantially similar treatment for rating agency and
<PAGE>
other analysis purposes. Although Applicant expects
that the Debt Securities will carry a somewhat higher
interest rate than the dividend rate of traditional
perpetual preferred stock, the expected tax
deductibility of interest payments will afford increased
cash flow and net income and result in a lower net
interest cost. At the same time, Applicant understands
that the financial markets will view the financing
obtained through the Debt Securities as having
essentially the same equity characteristics as would be
the case if traditional perpetual preferred stock were
issued. Applicant also understands that the rating
agencies will view the financing through the issuance of
the Debt Securities as having essentially the same
equity characteristics as would be the case if the
Applicant were to issue traditional perpetual preferred
stock. While it is expected that the interest rate of
the Debt Securities will exceed the dividend rate for a
perpetual preferred issue, Applicant believes that, over
the life of Debt Securities issue, significant savings,
on a net present value basis, would be achieved. The
Debt Securities will be carried in the debt section of
Applicant's balance sheet.
It is expected that Applicant's interest payments on the
Debt Securities issued by it will be deductible for
federal income tax purposes. The Debt Securities of any
series may be redeemable at the option of Applicant at
a price equal to their principal amount, plus any
accrued and unpaid interest, plus a premium amount, if
any, at any time after a specified date not later than
20 years from their date of issuance.
I) If a parent/subsidiary intercompany financing
arrangement is proposed, summarize any other relevant
characteristics. - Not applicable.
ITEM 3: BRIEF DISCUSSION OF REASONABLENESS OF ISSUE/FINANCING
STRATEGY:
A) How does the proposed issue fit in with both the
Company's financing plan submitted to the Commission at
the beginning of the year and the Company's target
capital structure - The proposed issuance of new Debt
Securities, is discussed in Applicant's amendment to its
Financing Plan for 1995 which was submitted to the
Commission on May 3, 1995. How the issue fits with
target capitalization ratios is part of the amended
Financing Plan and is discussed therein.
B) If debt, compare the expected interest rate with rates
on recent issues of similar quality and terms in the
capital markets - The interest rate on Debt Securities
of similar quality and terms issued in the recent past
have been in the range of 8-3/4% to 9-3/4% for a 30-year
period.
C) If equity, show market/book ratio, price/earnings ratio,
and any other relevant comparisons - Not applicable.
D) If a leasing arrangement or other form of indebtedness,
summarize the economic justification for choosing this
alternative (e.g., leasing versus ownership), to include
any analysis performed - Not applicable.
E) If the purpose of the proposed financing is the
refunding of obligations, provide a description of the
obligations, to include the principal amounts, discounts
or premiums applicable, the dates of issue, and
maturities. Provide an analysis showing the break-even
refund rate - The primary purpose of the proposed
financing is to refund $61,834,900 of Applicant's
preferred stock series which are presently outstanding.
The break-even refund rates considering the call price
and estimated underwriter's commission and expenses of
the new issues are set forth on Exhibit C hereto. Also
shown are the target rates for refundings.
<PAGE>
F) Trace the history of any, and all, amendments to the
original proposal, to include a summary of costs and
other justifications for the amendment(s). - Not
applicable.
ITEM 4: IMPACT ON COMPANY:
A) Change in capital structure due to issue - The following
exhibits show the effect of selling the Debt Securities.
<TABLE>
<CAPTION>
<S> <C> <C>
1. Income Statement, Actual and Pro Forma Exhibit D
2. Balance Sheets, Actual and Pro Forma Exhibit E
3. Capitalization Ratios, Actual and Pro Forma Exhibit F
4. Cash Flow Statement, Actual and Pro Forma Exhibit G
</TABLE>
B) Change in interest coverage due to issue - Interest
coverage, actual and pro forma, Exhibit H.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
THE POTOMAC EDISON COMPANY
STATEMENT OF INCOME
FOR TWELVE MONTHS ENDED DECEMBER 1994
(Thousands)
<S> <C>
ELECTRIC OPERATING REVENUES 759 365
OPERATING EXPENSES:
Operation:
Fuel 145 045
Purchased power and exchanges, net 217 137
Deferred power costs, net 1 321
Other 85 024
Maintenance 58 624
Depreciation 59 989
Taxes other than income taxes 46 740
Federal and state income taxes 33 163
Total Operating Expenses 647 043
Operating Income 112 322
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 3 671
Other income, net 10 243
Total Other Income and Deductions 13 914
Income Before Interest Charges 126 236
INTEREST CHARGES:
Interest on first mortgage bonds 38 775
Interest on other long-term obligations 5 931
Other interest 1 750
Allowance for borrowed funds used during
construction (2 203)
Total Interest Charges 44 253
Income before cumulative effect
of accounting change 81 983
Cumulative effect of accounting
change, net 16 471
Net Income 98 454
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT B
Page 1 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994
(Thousands)
Assets
Property, plant, and equipment:
<S> <C>
At original cost 1,978,396
Accumulated depreciation (673 853)
Investments and other assets:
Allegheny Generating Company -
common stock at equity 62 364
Other 938
Current assets:
Cash 2 196
Accounts receivable:
Electric service 69 891
Affiliated and other 2 403
Allowance for uncollectible accounts (1 177)
Notes receivable from affiliates 1 900
Materials and supplies--at average cost:
Operating and construction 27 800
Fuel 22 316
Prepaid taxes 13 168
Other 5 000
Deferred charges:
Regulatory assets 88 758
Unamortized loss on reacquired debt 8 344
Other 21 091
Total Assets 1 629 535
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
Page 2 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994
(Thousands)
Capitalization:
Common stock:
Common stock - no par value, authorized
23,000,000 shares, outstanding
<C> <C>
22,385,000 shares (no change 447,700
since 01/01/94)
Other paid-in capital (increase of $10,000
since 01/01/94) 2 724
Retained earnings 207 722
Preferred stock:
Cumulative preferred stock - par value
$100 per share, authorized 5,388,046
shares, outstanding 627,784 shares:
Not subject to mandatory redemption 36 378
Subject to mandatory redemption 25 200
Long-term debt 604 749
Current liabilities:
Short-term debt -
Preferred stock due within one year 1 200
Accounts payable 37 126
Accounts payable to affiliates 10 485
Taxes accrued:
Federal and state income 3 565
Other 11 874
Interest accrued 9 195
Other 17 399
Deferred credits and other liabilities:
Unamortized investment credit 28 041
Deferred income taxes 149 299
Regulatory liabilities 16 957
Other 19 921
Total Capitalization and Liabilities 1,629,535
</TABLE>
EXHIBIT C
Page 1 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 6,378 Size ($000's) 6,378
Series $3.60 Breakeven Rate 4.6%
Target Refunding Rate 4.2%
Years 30
Call Premium 3.750%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $239 $239
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $201 $201
Total Refunding Cost $440
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $230 $2,585
New Annual Interest ($267) ($174) ($1,954)
Savings $631
NPV OF SAVINGS: $191
</TABLE>
Financial Planning 23-May-95
<PAGE>
EXHIBIT C
Page 2 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 10,000 Size ($000's) 10,000
Series $5.88 Breakeven Rate 8.2%
Target Refunding Rate 7.8%
Years 30
Call Premium 2.850%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $285 $285
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $315 $315
Total Refunding Cost $600
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $588 $6,620
New Annual Interest ($782) ($508) ($5,720)
Savings $900
NPV OF SAVINGS: $300
</TABLE>
<PAGE>
EXHIBIT C
Page 3 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 5,000 Size ($000's) 5,000
Series $7.00 Breakeven Rate 9.9%
Target Refunding Rate 9.5%
Years 30
Call Premium 3.200%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $160 $160
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $158 $158
Total Refunding Cost $318
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $350 $3,940
New Annual Interest ($475) ($308) ($3,473)
Savings $467
NPV OF SAVINGS: $150
</TABLE>
Financial Planning 23-May-95
<PAGE>
EXHIBIT C
Page 4 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 5,000 Size ($000's) 5,000
Series $8.32 Breakeven Rate 11.9%
Target Refunding Rate 11.5%
Years 30
Call Premium 3.540%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $177 $177
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $158 $158
Total Refunding Cost $335
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $416 $4,683
New Annual Interest ($574) ($373) ($4,199)
Savings $485
NPV OF SAVINGS: $150
</TABLE>
Financial Planning 23-May-95
<PAGE>
EXHIBIT C
Page 5 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 10,000 Size ($000's) 10,000
Series $8.00 Breakeven Rate 11.4%
Target Refunding Rate 11.0%
Years 30
Call Premium 3.250%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $325 $325
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $315 $315
Total Refunding Cost $640
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $800 $9,006
New Annual Interest ($1,102) ($717) ($8,066)
Savings $940
NPV OF SAVINGS: $300
</TABLE>
Financial Planning 23-May-95
<PAGE>
EXHIBIT C
Page 6 of 6
ASSUMPTION: Refund Preferred Issue with MIDS
THE POTOMAC EDISON COMPANY
PREFERRED STOCK REFUNDING ANALYSIS 20-Apr-95
GENERAL INFORMATION
Annual Discount Rate 8.00%
Tax Rate 35.00%
<TABLE>
<CAPTION>
EXISTING ISSUE PROPOSED ISSUE
<S> <C> <S> <C>
Size ($000's) 25,457 Size ($000's) 25,457
Series $7.16 Breakeven Rate 5.8%
Target Refunding Rate 5.4%
Years 30
Call Premium 5.370%
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
COST OF REFUNDING TAX TAX PV
CURRENT ISSUE:
Call Premium:
<S> <C> <C>
(Principal * Call Premium) $1,367 $1,367
NEW ISSUE:
Total Costs:
(3.15%) New Issue Cost $802 $802
Total Refunding Cost $2,169
INTEREST SAVINGS OVER THE LIFE OF THE NEW ISSUE:
Old Annual Dividend $12,942
New Annual Interest $1,368 $889 $10,009
Savings $2,933
NPV OF SAVINGS: $764
</TABLE>
Financial Planning 23-May-95
<PAGE>
<TABLE>
<CAPTION>
THE POTOMAC EDISON COMPANY
STATEMENT OF INCOME FOR TWELVE MONTHS ENDED DECEMBER 31, 1994
PER BOOKS AND PRO FORMA GIVING EFFECT AS AT BEGINNING OF PERIOD
TO THE ADJUSTMENTS SET FORTH HEREIN
(Thousands)
Per Books Adjustments* Pro Forma
(NOTE A)
<S> <C> <C> <C>
ELECTRIC OPERATING REVENUES 759 365 759 365
OPERATING EXPENSES:
Operation:
Fuel 145 045 145 045
Purchased power and exchanges, net 217 137 217 137
Deferred power costs, net 1 321 1 321
Other 85 024 85 024
Maintenance 58 624 58 624
Depreciation 59 989 59 989
Taxes other than income taxes 46 740 46 740
Federal and state income taxes 33 949 (2 053) 31 896
Total Operating Expenses 647 829 (2 053) 645 776
Operating Income 111 536 2 053 113 589
OTHER INCOME AND DEDUCTIONS:
Allowance for other than borrowed funds
used during construction 3 671 3 671
Other income, net 10 243 10 243
Total Other Income and Deductions 13 914 13 914
Income Before Interest Charges 125 450 2 053 127 503
INTEREST CHARGES:
Interest on first mortgage bonds 36 787 36 787
Interest on other long-term
obligations 5 796 5 565 11 361
Other interest 1 750 1 750
Allowance for borrowed funds used during
construction (2 203) (2 203)
Total Interest Charges 42 130 5 565 47 695
Income before cumulative effect
of accounting change 83 320 (3 512) 79 808
Cumulative effect of accounting
change, net 16 471 16 471
Net Income 99 791 (3 512) 96 279
Dividends on Preferred Stock 4 331 (4 331) 0
Balance for Common 95 460 819 96 279
</TABLE>
NOTE A:
Net of interest and taxes $195 million of bonds and $21 million of
pollution control notes and refunding of same amounts (Case No. PUF930061).
* ADJUSTMENTS:
Sale of $61,835,000 Debt Securities - interest at an assumed rate of 9.0%
- - after Commission authorization
<TABLE>
<CAPTION>
<S> <C>
Increase in interest on long-term debt $5565
Decreast in federal income taxes 2053
Decrease in preferred dividends 4331
INCREASE IN BALANCE FOR COMMON $ 819
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit E
Page 1 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994 PER BOOKS
AND PRO FORMA GIVING EFFECT AS AT THAT DATE
TO THE ADJUSTMENTS SET FORTH HEREIN
(Thousands)
Per Books Adjustments* Pro Forma
Assets
Property, plant, and equipment:
<S> <C> <C> <C>
At original cost 1,978,396 1,978,396
Accumulated depreciation (673 853) (673 853)
Investments and other assets:
Allegheny Generating Company -
common stock at equity 62 364 62 364
Other 938 938
Current assets:
Cash 2 196 (62 176)(1) 0
59 980 (2)
Accounts receivable:
Electric service 69 891 69 891
Affiliated and other 2 403 2 403
Allowance for uncollectible
accounts (1 177) (1 177)
Notes receivable from affiliates 1 900 1 900
Materials and supplies--at average cost:
Operating and construction 27 800 27 800
Fuel 22 316 22 316
Prepaid taxes 13 168 13 168
Other 5 000 5 000
Deferred charges:
Regulatory assets 88 758 88 758
Unamortized loss on
reacquired debt 8 344 2 553(1) 10 897
Other 21 091 1 855(2) 22 946
Total Assets 1 629 535 2 212 1 631 747
</TABLE>
(1) Proposed redemption by the Company of $61,835,000 principal amount of
preferred stock plus optional redemption premium.
(2) Proposed sale by the Company of $61,835,000 principal amount of debt
securities, less estimated issuance expenses.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT E
Page 2 of 2
THE POTOMAC EDISON COMPANY
BALANCE SHEET - DECEMBER 31, 1994 PER BOOKS
AND PRO FORMA GIVING EFFECT AS AT THAT DATE
TO THE ADJUSTMENTS SET FORTH HEREIN
(Thousands)
Per Books Adjustments* Pro Forma
Capitalization and Liabilities
Capitalization:
Common stock:
Common stock - no par value, authorized
23,000,000 shares, outstanding
22,385,000 shares (no change
<S> <C> <C>
since 1-1-94) 447,700 447,700
Other paid-in capital (increase of $10,000
since 1-1-94) 2 724 2 724
Retained earnings 207 722 207 722
Preferred stock:
Cumulative preferred stock - par value
$100 per share, authorized 5,388,046
shares, outstanding 627,784 shares:
Not subject to mandatory redemption 36 378 (36 378)(1) 0
Subject to mandatory redemption 25 200 (25 200)(1) 0
Long-term debt 604 749 61 835(2) 666 584
Current liabilities:
Short-term debt - 2 212(1) 2 212
Preferred stock due within one year 1 200 (257)(1) 943
Accounts payable 37 126 37 126
Accounts payable to affiliates 10 485 10 485
Taxes accrued:
Federal and state income 3 565 3 565
Other 11 874 11 874
Interest accrued 9 195 9 195
Other 17 399 17 399
Deferred credits and other liabilities:
Unamortized investment credit 28 041 28 041
Deferred income taxes 149 299 149 299
Regulatory liabilities 16 957 16 957
Other 19 921 19 921
Total Capitalization and Liabilities 1,629,535 2,212 1,631,747
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT F
THE POTOMAC EDISON COMPANY
Statement of Capitalization
December 31, 1994
Actual Adjustments * Pro Forma
Amount (000's) % (000's) Amount (000's) %
(Note A)
Common Stock:
<S> <C> <C> <C> <C>
Common stock $ 447,700 $ 447,700
Other paid-in capital 2,724 2,724
Retained earnings 207,722 207,722
Total $ 658,146 49.7 $ 658,146 49.7
Preferred Stock (5,388,046 shares
authorized, 615,784 shares
outstanding): (1)
Cumulative preferred stock
<S> <C> <C> <C> <C>
(Debt Securities) $ 61,578 $ 61,578
Total $ 61,578 4.7 $ 61,578 4.7
First Mortgage Bonds:
Outstanding, including debt
premium and discount, net $ 507,549 $ 507,549
Total $ 507,549 38.3 $ 507,549 38.3
Other Long-term obligations $ 97,200 7.3 $ 97,200 7.3
Total long-term debt $ 604,749 45.6 $ 604,749 45.6
Total capitalization $1,324,473 100.0 0 $1,324,473 100.0
Short-term debt $ 0
</TABLE>
NOTE A:
(1) Excludes 12,000 shares and $1.2 million of $7.16 preferred which are
subject to mandatory redemption on September 1, 1995.
The proposed refinancing of bonds and preferred stock will have no
effect on capitalization (Case No. PUF930061).
* ADJUSTMENTS:
Applicant understands that rating agencies and the financial market
will view the Debt Securities as equity.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT G
THE POTOMAC EDISON COMPANY
Change in Net Cash Flow/Permanent Capital
as of December 31, 1994
Actual Adjustments * Pro Forma
(000's) (000's) (000's)
(Note A)
CASH FLOW:
<S> <C> <C> <C>
Net Income - 12 months (12/31/94) $ 99,791 $ (3,512) (1) $ 96,279
Depreciation & amortization 59,989 59,989
Change in deferred taxes 14,955 14,955
Change in investment tax credit (2,267) (2,267)
AFUDC 5,874 5,874
$178,342 $ (3,512) $174,830
NET CASH FLOW:
Cash Flow $178,342 $ (3,512) $174,830
Common dividends (62,454) (62,454)
Preferred dividends (4,331) 4,331 0
$111,557 $ 819 $112,376
</TABLE>
NOTE A:
Net of interest and taxes $195 million of bonds and $21 million of
pollution control notes and refunding of same amounts.
ADJUSTMENTS:
(1) Sale of $61,835,000 debt securities - interest at an assumed rate of
9.0% after Commission authorization (PUF930061).
Increase in interest on debt securities 5,565
Decrease in federal income taxes 2,053
Decrease in preferred dividends 4,331
INCREASE IN BALANCE FOR COMMON 819
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT H
THE POTOMAC EDISON COMPANY
Interest Coverage
12 Months Ended December 31, 1994
Actual Adjustments Pro Forma
(000's) (000's) (000's)
(1)
<S> <C> <C> <C>
Net Income $ 98,454 $ (3,512) $ 94,942
Income Taxes 33,163 (2,053) 31,110
Net income before taxes $131,617 $ (5,565) $126,052
Interest on long-term debt 44,706 5,565 50,271
Other interest 1,750 - 1,750
Total interest charges $ 46,456 $ 5,565 $ 52,021
Income before interest
and taxes $178,073 $ 0 $178,073
Pretax interest coverage (x) 3.83 3.42
</TABLE>
(1) Sale of $61,835,000 debt securities - interest at an assumed rate of
9.0% - after Commission authorization
Increase in interest on debt securities 5,565
Decrease in Federal Income Taxes 2,053
DECREASE IN NET INCOME 3,512
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
AT RICHMOND, JUNE 2, 1995
APPLICATION OF
THE POTOMAC EDISON COMPANY CASE NO. PUF950007
For authority to issue debt
ORDER GRANTING AUTHORITY
On May 8, 1995, The Potomac Edison Company ("Potomac
Edison", "Applicant") filed an application with the
Commission under Chapter 3 of Title 56 of the Code of
Virginia for authority to issue long-term debt. Applicant
has paid the requisite fee of $250.
Potomac Edison proposes to issue and sellt in one or
more series, up to $61,834,900 in junior subordinated
debentures ("debentures") prior to December 31, 1998. The
proceeds will be used by Applicant for the sole purpose
of retiring, prior to maturity, its outstanding preferred
stock. The interest rate on the debentures will be
determined at the time of issuance based on market
conditions. Applicant represents that the interest rates
on the debentures will be such that retiring the existing
preferred stock will result in a net cost savings. The
debentures may have maturity of up to 50 years.
THE COMMISSION, upon consideration of the
application and representations of Applicant and having
been advised by its Staff, is of the opinion and finds
that approval of the application will not be detrimental
to the public interest. Accordingly,
IT IS ORDERED:
1) That Applicant is authorized to issue and sell
up to $61,834,900 of junior subordinated debentures under
the terms and conditions and for the purposes as stated
in the application on or before December 31, 1998,
provided the refunding of the preferred stock results in
cost savings to Applicant;
2) That Applicant shall submit a preliminary
Report of Action within seven days after the issuance of
any junior subordinated debentures pursuant to this Order
to include the issuance date, the amount of the issue,
the interest rate, the maturity date, and the series of
preferred stock retired;
<PAGE>
3) That within 60 days after the end of each
calendar quarter in which any debentures are issued,
Applicant shall file a more detailed Report of Action
with respect to the debentures to include, the date and
amount of each series, the interest rates, the maturity
date, net proceeds to Applicant, an itemized list of
expenses to date associated with each issue, the series
of preferred stock retired with an analysis demonstrating
the cost savings associated with the refunding and a
balance sheet reflecting the action taken;
4) That Applicant's Final Report of Action shall
be due on or before February 28, 1999, to include a
summary of all information filed in the Reports of Action
pursuant to Ordering paragraph 3, in addition to the
information, if required, related to the issuance of
debentures in the quarter ended December 31, 1998;
5) That the authority granted herein shall have no
implications for ratemaking purposes; and
6) That this matter shall be continued, subject to
the continued review, audit and appropriate directive of
the Commission.
AN ATTESTED COPY hereof shall be sent to Applicant,
care of Philip J. Bray, Attorney, 10435 Downsville Pike,
Hagerstown, MD 21740-1766; and to the Division of
Economics and Finance of the Commission.
EXHIBIT F-1
June 20, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Referring to the Application or Declaration on Form U-1 filed by
Monongahela Power Company (Monongahela), The Potomac Edison Company (Potomac
Edison) and West Penn Power Company (West Penn) under the Public Utility
Holding Company Act of 1935 with respect to the proposed issuance of up to
$266,834,900 of junior subordinated debentures (Debt Securities) through
December 31, 1998, all as described in the Application or Declaration of which
this Opinion is a part, I have examined such documents and questions of law as
I deemed necessary to enable me to render this opinion.
I understand that the actions taken in connection with the
proposed issuance of the Debt Securities will be in accordance with the
Application or Declaration; that all amendments necessary to complete the
above-mentioned Application or Declaration will be filed with the Commission;
and that all other necessary corporate action by the Board of Directors and
officers of Monongahela, Potomac Edison and West Penn in connection with the
issuance has been or will be taken prior thereto.
Based upon the foregoing, I am of the opinion that
(1) Monongahela is a validly organized and duly existing corporation;
(2) Potomac Edison is a validly organized and duly existing
corporation;
(3) West Penn is a validly organized and duly existing corporation;
and
(4) If the said Application or Declaration is permitted to become
effective and the proposed transaction is consummated in
accordance therewith: (a) all state laws applicable to the
proposed transaction will have been complied with; (b) the Debt
Securities issued by Monongahela, Potomac Edison and West Penn
will be valid and binding obligations of Monongahela, Potomac
Edison and West Penn, respectively, in accordance with their
terms; and (c) the consummation of the proposed transaction will
not violate the legal rights of the holders of any of the
securities issued by Monongahela, Potomac Edison and West Penn or
by any associate or affiliate company or any of them.
This opinion does not relate to State Blue Sky or securities laws.
<PAGE>
I consent to the use of this Opinion as part of the Application or
Declaration which has been filed by Monongahela, Potomac Edison and West
Penn.
Very truly yours,
NANCY H. GORMLEY
Nancy H. Gormley
Counsel for
MONONGAHELA POWER COMPANY
THE POTOMAC EDISON COMPANY
WEST PENN POWER COMPANY
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