<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -------------------
Commission file number 1-1405
Delmarva Power & Light Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware and Virginia 51-0084283
---------------------------- -------------------
(States of incorporation) (I.R.S. Employer
Identification No.)
800 King Street, P.O. Box 231, Wilmington, Delaware 19899
--------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-429-3359
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
----------------------------- ---------------------------------
Common Stock, $2.25 par value 60,523,411 Shares
<PAGE>
DELMARVA POWER & LIGHT COMPANY
------------------------------
Table of Contents
-----------------
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.................................. 2-3
Consolidated Statements of Income for the three and
nine months ended September 30, 1996 and 1995.......... 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995............... 5
Notes to Consolidated Financial Statements............. 6-12
Selected Financial and Operating Data.................. 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 14-21
Part II. Other Information and Signature.......................... 22-27
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS
------
<S> <C> <C>
UTILITY PLANT, AT ORIGINAL COST:
Electric........................................ $3,022,062 $2,942,969
Gas............................................. 219,916 208,245
Common.......................................... 136,236 130,949
------------- ------------
3,378,214 3,282,163
Less: Accumulated depreciation................. 1,266,817 1,189,269
------------- ------------
Net utility plant in service.................... 2,111,397 2,092,894
Construction work-in-progress................... 99,008 105,588
Leased nuclear fuel, at amortized cost.......... 32,729 31,661
------------- ------------
2,243,134 2,230,143
------------- ------------
INVESTMENTS AND NONUTILITY PROPERTY:
Investment in leveraged leases.................. 47,306 48,367
Funds held by trustee........................... 34,662 36,275
Other investments and nonutility property, net.. 60,331 54,781
------------- ------------
142,299 139,423
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents....................... 28,280 28,951
Accounts receivable:
Customers................................... 110,881 116,606
Other....................................... 24,219 14,630
Deferred energy costs........................... 19,041 --
Inventories, at average cost:
Fuel (coal, oil, and gas)................... 31,724 30,076
Materials and supplies...................... 35,868 36,823
Prepayments..................................... 9,277 12,969
Deferred income taxes, net...................... -- 5,400
------------- ------------
259,290 245,455
------------- ------------
DEFERRED CHARGES AND OTHER ASSETS:
Prepaid pension cost............................ 27,458 16,899
Unamortized debt expense........................ 11,776 12,256
Deferred debt refinancing costs................. 22,018 23,972
Deferred recoverable income taxes............... 140,983 151,250
Other........................................... 51,153 47,287
------------- ------------
253,388 251,664
------------- ------------
TOTAL ASSETS $2,898,111 $2,866,685
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-2-
<PAGE>
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CAPITALIZATION:
Common stock, $2.25 par value; 90,000,000
shares authorized; shares issued: 1996--
60,763,085, 1995--60,760,685................ $136,717 $136,713
Additional paid-in capital...................... 506,680 506,328
Retained earnings............................... 299,108 281,862
------------- ------------
942,505 924,903
Treasury shares, at cost: 1996--239,674;
1995--1,320................................. (5,020) (30)
Unearned compensation........................... (824) (1,433)
------------- ------------
Total common stockholders' equity........... 936,661 923,440
Preferred stock................................. 168,085 168,085
Long-term debt.................................. 827,242 853,904
------------- ------------
1,931,988 1,945,429
------------- ------------
CURRENT LIABILITIES:
Short-term debt.................................. 81,187 63,154
Long-term debt due within one year............... 27,244 1,485
Variable rate demand bonds....................... 86,500 86,500
Accounts payable................................. 50,694 64,056
Taxes accrued.................................... 12,396 4,802
Interest accrued................................. 21,336 16,355
Dividends declared............................... 23,288 23,426
Current capital lease obligation................. 12,456 12,604
Deferred income taxes, net....................... 5,438 --
Other............................................ 31,314 33,817
------------- ------------
351,853 306,199
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes, net....................... 518,785 519,597
Deferred investment tax credits.................. 43,141 45,061
Long-term capital lease obligation............... 21,711 20,768
Other............................................ 30,633 29,631
------------- ------------
614,270 615,057
------------- ------------
TOTAL CAPITALIZATION AND LIABILITIES $2,898,111 $2,866,685
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-3-
<PAGE>
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric........................................... $277,504 $278,123 $752,415 $685,891
Gas................................................ 13,852 4,942 82,164 68,002
--------- --------- --------- ---------
291,356 283,065 834,579 753,893
--------- --------- --------- ---------
OPERATING EXPENSES
Electric fuel and purchased energy................. 90,768 77,122 244,593 207,810
Gas purchased...................................... 7,280 169 43,844 35,935
Purchased electric capacity........................ 8,194 15,647 25,147 18,384
Operation and maintenance.......................... 63,717 60,985 191,449 172,978
Depreciation....................................... 30,861 29,309 91,435 83,550
Taxes other than income taxes...................... 11,092 10,411 32,218 29,310
Income taxes....................................... 25,181 28,462 62,547 62,536
--------- --------- --------- ---------
237,093 222,105 691,233 610,503
--------- --------- --------- ---------
OPERATING INCOME.................................... 54,263 60,960 143,346 143,390
--------- --------- --------- ---------
OTHER INCOME
Nonutility Subsidiaries
Revenues and gains................................ 13,955 9,329 42,194 34,785
Expenses including interest and income taxes...... (13,517) (9,373) (39,105) (32,340)
--------- --------- --------- ---------
Net earnings of nonutility subsidiaries....... 438 (44) 3,089 2,445
Allowance for equity funds used during
construction..................................... 293 91 774 462
Other income, net of income taxes.................. (893) (267) (1,202) 381
--------- --------- --------- ---------
(162) (220) 2,661 3,288
--------- --------- --------- ---------
INCOME BEFORE UTILITY INTEREST CHARGES.............. 54,101 60,740 146,007 146,678
--------- --------- --------- ---------
UTILITY INTEREST CHARGES
Interest expense................................... 17,857 18,288 53,589 50,460
Allowance for borrowed funds used during
construction..................................... (791) (262) (2,085) (1,348)
--------- --------- --------- ---------
17,066 18,026 51,504 49,112
--------- --------- --------- ---------
NET INCOME.......................................... 37,035 42,714 94,503 97,566
DIVIDENDS ON PREFERRED STOCK........................ 2,430 2,476 7,293 7,477
--------- --------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK................. $34,605 $40,238 $87,210 $90,089
========= ========= ========= =========
COMMON STOCK
Average shares outstanding (000)................... 60,667 60,372 60,709 60,073
Earnings per average share......................... $0.57 $0.67 $1.44 $1.50
Dividends declared per share....................... $0.38 1/2 $0.38 1/2 $1.15 1/2 $1.15 1/2
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
DELMARVA POWER & LIGHT COMPANY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $94,503 $97,566
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................ 95,508 89,872
Allowance for equity funds used during construction...... (774) (462)
Investment tax credit adjustments, net................... (1,920) (1,950)
Deferred income taxes, net............................... 20,293 6,664
Net change in :
Accounts receivable................................. (3,864) (5,768)
Inventories......................................... (693) 20,090
Accounts payable.................................... (13,362) (2,603)
Other current assets & liabilities*................. (6,488) 9,859
Other, net............................................... (5,540) (3,229)
-------- --------
Net cash provided by operating activities...................... 177,663 210,039
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures, excluding allowance for funds
used during construction................................. (98,274) (87,961)
Allowance for borrowed funds used during construction...... (2,085) (1,348)
Acquisition of COPCO, net of cash acquired................. -- (156,987)
Investment in subsidiary projects and operations........... (6,790) (2,348)
Decrease in bond proceeds held in trust funds.............. 5,526 2,626
Deposits to nuclear decommissioning trust funds............ (2,825) (2,199)
Other, net................................................. (4,810) 1,970
-------- --------
Net cash used by investing activities.......................... (109,258) (246,247)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends: Common........................................ (69,968) (68,988)
Preferred..................................... (7,428) (7,319)
Issuance of common stock................................... 50 18,628
Purchase of common stock................................... (4,599) (1,253)
Issuance of long-term debt................................. -- 125,800
Retirement of long-term debt............................... (939) (862)
Issuance of variable rate demand bonds..................... -- 15,000
Principal portion of capital lease payments................ (4,073) (6,322)
Net change in term loan.................................... -- (45,000)
Net change in short-term debt ............................. 18,033 20,353
Cost of issuances.......................................... (152) (1,491)
-------- --------
Net cash provided/(used) by financing activities............... (69,076) 48,546
-------- --------
Net change in cash and cash equivalents........................ (671) 12,338
Cash and cash equivalents at beginning of period............... 28,951 25,029
-------- --------
Cash and cash equivalents at end of period..................... $28,280 $37,367
======== ========
</TABLE>
*Other than debt classified as current and current deferred income taxes.
See accompanying Notes to Consolidated Financial Statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
----------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The statements reflect all adjustments
necessary in the opinion of the Company for a fair presentation of interim
results. They should be read in conjunction with the Company's 1995 Annual
Report to Stockholders, the Company's Reports on Form 10-Q for the first
and second quarters of 1996, and Part II of this Report on Form 10-Q for
additional relevant information.
2. PURCHASE OF CONOWINGO POWER COMPANY
-----------------------------------
As previously disclosed in Note 4 to the Consolidated Financial Statements
of the Company's 1995 Annual Report to Stockholders, on June 19, 1995, the
Company acquired Conowingo Power Company (COPCO), which was merged into the
Company and now is being operated as the Conowingo District. Operating
results of the Conowingo District after June 19, 1995 are included in the
Company's Consolidated Statements of Income.
3. PENDING MERGER WITH ATLANTIC ENERGY, INC.
-----------------------------------------
As previously reported in Note 3 to the Consolidated Financial Statements
of the Company's Report on Form 10-Q for the second quarter of 1996, in
August 1996, the Company, Atlantic Energy, Inc., a New Jersey corporation
headquartered in Egg Harbor Township, New Jersey (AEI), DS, Inc., a
Delaware corporation which has been newly formed to accomplish this
transaction, and DS Sub, Inc., a newly-formed Delaware corporation and a
wholly-owned subsidiary of DS, Inc. (DS Sub), entered into an Agreement and
Plan of Merger (the Merger Agreement), providing for a business combination
of the Company and AEI as peer firms in a merger of equals (the
Transaction). As a result of the Transaction, DS, Inc. will become the
holding company of the combined enterprise and will be registered under the
Public Utility Holding Company Act of 1935, as amended. The Transaction is
expected to close shortly after all of the conditions to the consummation
of the Transaction, including obtaining applicable regulatory approvals,
are met or waived. The regulatory approval process is expected to take
approximately 12 to 18 months from the signing of the Merger Agreement.
-6-
<PAGE>
4. SALEM NUCLEAR GENERATING STATION
--------------------------------
The Company owns 7.41% of Salem Nuclear Generating Station (Salem), which
consists of two pressurized water nuclear reactors (PWR) and is operated by
Public Service Electric & Gas Company (PSE&G). As of September 30, 1996,
the Company's net investment in plant in service for Salem was
approximately $56 million for Unit 1 and $59 million for Unit 2, including
common plant allocated between the two units. Each unit represents
approximately 2% of the Company's total assets and approximately 3% of the
Company's installed electric generating capacity.
Salem Units 1 and 2 were removed from operation by PSE&G on May 16, 1995,
and June 7, 1995, respectively, due to operational problems and maintenance
concerns. Their return dates are subject to completion of the requirements
of their respective restart plans to the satisfaction of PSE&G and the
Nuclear Regulatory Commission (NRC), which encompasses a substantial review
and improvement of personnel, process, and equipment issues.
With respect to Unit 1, PSE&G informed the Company in early 1996 that
inspections of the steam generators using a new testing technology
indicated degradation in a significant number of tubes. After evaluating
several options, in May 1996 replacement steam generators from the
unfinished Seabrook Unit 2 nuclear power plant in New Hampshire were
purchased from Northeast Utilities for installation in Salem Unit 1. The
replacement steam generators arrived on site in October 1996 and are
scheduled for installation by year-end 1996. By using these steam
generators, PSE&G expects to return Unit 1 to service in mid-1997. The
Company's share of the costs to be capitalized for the steam generators,
including installation, will range from approximately $11 million to $13
million.
With respect to Unit 2, PSE&G also informed the Company in early 1996 that
inspections of the steam generators using the new testing technology
confirmed that the condition of the generators is within current repair
limits. On July 22, 1996, PSE&G announced that although substantial
progress has been made in upgrading Unit 2's 46 major systems, some of the
originally scheduled work, along with additional work that had been
identified since, remained to be completed and that the outage at Unit 2
would continue well into the fourth quarter of 1996. PSE&G recently advised
the Company that Unit 2 currently is expected to return to service early
in the first quarter of 1997.
In 1995, the Company incurred higher than expected operation and
maintenance costs at Salem of approximately $5 million, which were expensed
as incurred. For the nine-month period ended September 30, 1996, the
Company incurred and expensed higher than expected operation and
maintenance costs at Salem of approximately $8 million.
-7-
<PAGE>
The Company incurs replacement power costs while the units are out of
service of approximately $750,000 per month, per unit. Such amounts vary,
however, depending on the cost and availability of other Company-owned
generation and the cost of purchased energy. Replacement power costs
typically are not incurred for routine refueling and maintenance outages,
and the recovery of replacement power costs is subject to approval by the
regulatory commissions having jurisdiction over the Company. From the
inception of the Salem unit outages through September 30, 1996,
approximately one-half of the current estimated replacement power costs of
$18 million has been expensed and the remaining portion has been deferred
on the Company's Consolidated Balance Sheet in expectation of future
recovery.
The actual costs to be incurred by the Company may vary from the foregoing
estimates, since the periods projected by PSE&G during which the Salem
units will be out of service, the extent of the maintenance that will be
required, and the costs of replacement power and the extent of its recovery
may be different from those set forth above.
In May 1996, the Company filed an application with the Virginia State
Corporation Commission (VSCC) for increased fuel rates effective July 1996.
In June 1996, the Company filed an application with the Maryland Public
Service Commission (MPSC) for increased fuel rates effective August 1996.
In both filings, the Company proposed that one-half of the replacement
power costs associated with the Salem outage be permitted on an interim
basis until a full review of the outage is made at a future time. The VSCC
and MPSC approved the Company's filings, with rates subject to refund.
In October 1996, the Company filed a proposal with the Delaware Public
Service Commission (DPSC) to address the recovery of replacement power
costs. In that filing, the Company asserted a belief that it should be
permitted to recover all replacement power costs associated with this
outage, and requested an interim treatment which would permit recovery of
approximately 50% of replacement power costs, beginning in January 1997,
until the DPSC renders a final decision on this issue. The Company's
filing also provides that any proceeds from litigation concerning
replacement power costs will be credited to customers, net of litigation
costs, if full recovery is authorized by the DPSC. The Company expects a
decision on the requested interim treatment by year-end.
On February 27, 1996, the co-owners of Salem, including the Company, filed
a complaint in the United States District Court for the District of New
Jersey against Westinghouse Electric Corporation (Westinghouse), the
designer and manufacturer of the Salem steam generators. The complaint,
which seeks to recover from Westinghouse the costs associated with and
resulting from the cracks discovered in Salem's steam generators and with
replacing such steam generators, alleges violations of federal and New
Jersey Racketeer Influenced and Corrupt Organizations Acts, fraud,
negligent misrepresentation, and breach of contract. The Salem co-owners
contend that the recently-discovered degradation of the steam generators
will prevent the steam generators from operating for a design life of 40
years. The lawsuit asserts that the Salem steam generators require
replacement and these costs should be borne by Westinghouse and not the
customers and shareholders of the Salem co-owners. Westinghouse filed an
answer and a $2.5 million counterclaim for unpaid work on April 30, 1996.
The Company cannot predict the outcome of this lawsuit
-8-
<PAGE>
On March 5, 1996, the Company and PECO Energy Company (PECO) filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against Public Service Enterprise Group, Inc. (Enterprise) and
PSE&G. The lawsuit alleges that the defendants failed to heed numerous
citations, warnings, notices of violations, and fines by the NRC as well as
repeated warnings from the Institute of Nuclear Power Operations about
performance, safety, and management problems at Salem and to take
appropriate corrective action. The suit contends that as a result of these
actions and omissions, the Salem units were forced to shut down in 1995.
The suit asks for compensatory damages for breach of contract, negligence,
and punitive damages, in amounts to be specified. The Company cannot
predict the outcome of this lawsuit. A similar complaint has been filed
against Enterprise and PSE&G in the Superior Court of New Jersey by the
remaining co-owner, Atlantic City Electric Company.
5. PREFERRED CAPITAL SECURITIES OF A WHOLLY-OWNED TRUST
----------------------------------------------------
In October 1996, a wholly-owned trust (Delmarva Power Financing I) formed
for the purpose of issuing securities, issued $70 million of 8.125%
preferred capital securities (representing 2,800,000 preferred capital
securities at $25 per security). All or a portion of the preferred capital
securities, which are subject to mandatory redemption in 2036, may be
redeemed on or after September 30, 2001. The wholly-owned trust loaned the
proceeds to the Company, which used $63,813,000 of the total proceeds in
October 1996 to purchase $63,382,700 (par value) of its preferred stock as
follows: $1,013,400 of the 3.70% series ($100 par value); $2,012,600 of the
4% series ($100 par value); $2,459,600 of the 4.2% series ($100 par value);
$2,154,000 of the 4.28% series ($100 par value), $3,042,900 of the 4.56%
series ($100 par value); $3,147,700 of the 5% series ($100 par value),
$16,500,000 of the 6.75% series ($100 par value); $32,087,500 of the 7.75%
series ($25 par value), and $965,000 of the Adjustable Rate series ($100
par value). By December 1996, the Company plans to use the remaining
proceeds of $6,187,000 and cash from short-term debt to fund the redemption
of its entire 7.52% preferred stock series which has a total par value of
$15,000,000.
6. CONTINGENCIES
-------------
Nuclear Insurance
- -----------------
In the event of an incident at any commercial nuclear power plant in the
United States, the Company could be assessed for a portion of any third-
party claims associated with the incident. Under the provisions of the
Price Anderson Act, if third-party claims relating to such an incident
exceed $200 million (the amount of primary insurance), the Company could
be assessed up to $23.7 million for third-party claims. In addition,
Congress could impose a revenue-raising measure on the nuclear power
industry to pay such claims.
-9-
<PAGE>
The co-owners of the Peach Bottom Atomic Power Station (Peach Bottom) and
Salem maintain property insurance coverage in the aggregate amount of
$2.8 billion for each unit for loss or damage to the units, including
coverage for decontamination expense and premature decommissioning. The
Company is self-insured, to the extent of its ownership interest, for its
share of property losses in excess of insurance coverage. Under the
terms of the various insurance agreements, the Company could be assessed
up to $5.4 million in any policy year for losses incurred at nuclear
plants insured by the insurance companies.
The Company is a member of an industry mutual insurance company, which
provides replacement power cost coverage in the event of a major
accidental outage at a nuclear power plant. The premium for this
coverage is subject to retrospective assessment for adverse loss
experience. The Company's present maximum share of any assessment is
$1.4 million per year.
The property damage and replacement power policies discussed above do not
cover the operational problems and maintenance concerns, including the
steam generator degradation, which caused PSE&G to remove Salem Units 1
and 2 from operation and to keep the units shut down.
Environmental Matters
- ---------------------
As previously disclosed under "Hazardous Substances" on page I-19 of the
Company's 1995 Annual Report on Form 10-K, the disposal of Company-
generated hazardous substances can result in costs to clean up facilities
found to be contaminated due to past disposal practices. The Company is
currently a potentially responsible party at three federal superfund
sites and is alleged to be a third-party contributor at three other
federal superfund sites. The Company also has two former coal
gasification sites in Delaware and one former coal gasification site in
Maryland which are state superfund sites. The Company is currently
participating with the States of Delaware and Maryland in evaluating
these sites to assess the extent of contamination and risk to the
environment. As of September 30, 1996, the Company had accrued a
liability of $2 million representing its estimate of site study and
cleanup costs for all of its federal and state superfund sites.
Other
- -----
The Company is involved in certain other legal and administrative
proceedings before various courts and governmental agencies concerning
rates, fuel contracts, tax filings, and other matters. The Company
expects that the ultimate disposition of these proceedings will not have
a material effect on the Company's financial position or results of
operations.
-10-
<PAGE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
(Dollars in Thousands) 1996 1995
-------- --------
<S> <C> <C>
Cash paid for
Interest, net of amounts
capitalized $44,669 $41,673
Income taxes, net of refunds $39,226 $64,691
</TABLE>
8. NONUTILITY SUBSIDIARIES
-----------------------
The following presents condensed financial information of the Company's
nonregulated wholly-owned subsidiaries: Delmarva Capital Investments, Inc.;
Delmarva Energy Company; and Delmarva Industries, Inc. A subsidiary that
leases real estate to the Company's utility business, Delmarva Services
Company, is excluded from these statements since its income is derived from
intercompany transactions which are eliminated in consolidation.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
(Dollars in Thousands) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues and gains
Landfill and waste hauling $3,377 $3,502 $11,235 $10,277
Operating services 5,582 5,084 15,807 18,262
Real estate 4,376 245 10,450 715
Leveraged leases 184 121 501 1,638
Other revenue 436 377 4,201 3,893
-------- -------- -------- --------
13,955 9,329 42,194 34,785
-------- -------- -------- --------
Cost and expenses
Operating expenses 12,977 9,322 36,855 30,745
Interest expense, net 209 124 660 269
Income taxes 331 (73) 1,590 1,326
-------- -------- -------- --------
13,517 9,373 39,105 32,340
-------- -------- -------- --------
Net income $ 438 $ (44) $ 3,089 $ 2,445
======== ======== ======== ========
Earnings per share of common
stock attributed to subsidiaries $0.01 -- $0.05 $0.04
</TABLE>
-11-
<PAGE>
Pine Grove Landfill, Inc.
- -------------------------
One of the Company's indirect subsidiaries, Pine Grove Landfill, Inc.
("Pine Grove"), which owns and operates a solid waste disposal facility in
Pennsylvania, currently has pending before the Pennsylvania Department of
Environmental Protection an application for expansion of the facility. In
August 1996, the Governor of Pennsylvania issued an executive order which
suspended consideration of all landfill expansion applications in the
Commonwealth, including Pine Grove's, while state officials re-evaluate
existing regulations. At this time, it is unknown how long this delay in
considering expansion applications will continue. Pine Grove's existing
permitted capacity is limited and, at the 1,000 tons per day maximum Pine
Grove is allowed to accept for disposal, would be fully utilized in March
1998. Management is limiting the intake of waste at the site with the
intent of extending the life of the facility until March 1999. Based on
this March 1999 date, Pine Grove would need to receive its expansion permit
by May 1998 to avoid a temporary or permanent shutdown. Management is
taking additional steps to secure regulatory approval of the expansion.
However, no assurance can be given that such steps will be successful.
Pine Grove records depletion expense to recognize, in part, the usage of
certain general facilities at the landfill and the landfill closure
liability based on the planned landfill capacity, including the additional
capacity related to the pending expansion permit. In the event that Pine
Grove does not receive approval of the expansion permit, Pine Grove may
expense approximately $10 million (pre-tax) of capitalized costs.
-12-
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
-------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30 September 30
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ELECTRIC REVENUES
- -----------------
Residential $107,891 $116,374 $297,087 $266,285
Commercial 85,057 84,530 220,384 203,278
Industrial 42,987 43,538 119,414 116,449
Resale 18,765 19,380 52,502 46,050
Other Sales Revenues (1) (2,648) 505 (603) 4,447
---------- ---------- ---------- ----------
Sales Revenues 252,052 264,327 688,784 636,509
Interchange Deliveries 21,573 10,640 52,908 40,442
Miscellaneous Revenues 3,879 3,156 10,723 8,940
---------- ---------- ---------- ----------
Total Electric Revenues $277,504 $278,123 $752,415 $685,891
========== ========= ========== =========
ELECTRIC SALES
- --------------
(1000 kWh)
Residential 1,106,917 1,194,218 3,345,325 2,944,920
Commercial 1,122,412 1,114,054 3,061,018 2,823,962
Industrial 895,748 909,555 2,520,139 2,512,294
Resale 363,723 392,451 1,029,485 928,448
Other sales (2) (56,599) (24,586) (106,126) (41,501)
---------- ---------- ---------- ----------
Total Electric Sales 3,432,201 3,585,692 9,849,841 9,168,123
========== ========= ========== =========
GAS REVENUES
- ------------
Firm Sales (1) $11,107 $2,925 $76,503 $61,686
Non-firm Sales, Gas Transportation,
and Miscellaneous Revenues 2,745 2,017 5,661 6,316
---------- ---------- ---------- ----------
Total Gas Revenues $13,852 $4,942 $82,164 $68,002
========== ========= ========== =========
GAS SALES AND GAS TRANSPORTED
- -----------------------------
(1000 mcf)
Firm Sales (2) 1,377 1,615 12,263 11,340
Non-firm Sales and Gas Transported 1,629 1,302 3,790 3,705
---------- ---------- ---------- ----------
Total 3,006 2,917 16,053 15,045
========== ========= ========== =========
<CAPTION>
September 30, 1996 December 31, 1995
------------------------- -------------------------
$ % $ %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CAPITALIZATION
Variable Rate Demand Bonds (3) $86,500 4.3 $86,500 4.3
Long-Term Debt 827,242 41.0 853,904 42.0
Preferred Stock 168,085 8.3 168,085 8.3
Common Stockholders' Equity 936,661 46.4 923,440 45.4
---------- ---------- ---------- ----------
Total $2,018,488 100.0 $2,031,929 100.0
========== ========= ========== =========
</TABLE>
(1) Includes unbilled revenues.
(2) Includes unbilled sales.
(3) The Company intends to use the bonds as a source of long-term financing
as discussed in Note 12 to the Consolidated Financial Statements of the
1995 Annual Report.
-13-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
EARNINGS SUMMARY
- ----------------
Earnings per share for the third quarter of 1996 were $0.57, a $.10
decrease compared to 1995. The decrease was primarily due to cooler summer
weather which caused electric kilowatt-hour (kWh) sales and revenues to
decline. Additional revenues gained in the first half of 1996 from
increased electricity and gas usage attributable to a colder heating season
were largely offset by the unfavorable impact of mild weather on electric
sales in the third quarter. Earnings per share for the nine months ended
September 30, 1996 were $1.44, a $0.06 decrease from 1995 which reflects a
$0.12 decrease in earnings per share due to increased expenses associated
with the Salem outage discussed in Note 4 to the Consolidated Financial
Statements. The decrease in earnings per share attributed to the Salem
outage was comprised of increases in operation and maintenance expense
($0.08) and fuel-related costs ($0.04), including replacement power.
Excluding the Salem outage, earnings rose $0.06 per share primarily due to
additional revenues from customer growth and the positive net impact of
weather, partly offset by higher operating expenses.
Operating results from the Conowingo District, which began in June 1995,
had a minimal impact on earnings, as expected.
UPDATE ON THE COMPANY'S WHOLESALE (RESALE) BUSINESS
- ---------------------------------------------------
The Company currently provides approximately 200 megawatts (MW) of load to
Old Dominion Electric Cooperative (ODEC), the Company's largest resale
customer. In 1995, total revenues from ODEC represented 3.8% of the
Company's total sales revenues, and non-fuel (base rate) revenues from ODEC
were about $24 million. On August 16, 1996, ODEC notified the Company that
it will reduce its load by 60 MW effective September 1, 1998, and will
further reduce its load to zero effective September 1, 2001.
ODEC had issued a request for proposals in March 1996 to replace eventually
ODEC's capacity and energy agreements with its current suppliers. On July
1, 1996, the Company submitted its proposal to ODEC to continue to serve
all of the load currently supplied by the Company. ODEC expects to select
a supplier by December 1996 for the 60 MW it will cease purchasing under
its existing contract with the Company, effective September 1, 1998.
If ODEC selects a new electric supplier for some or all the load currently
supplied by the Company, the decrease in non-fuel revenues would be offset
partially by purchased capacity costs which otherwise would have been
incurred. The Company would continue to receive transmission wheeling
revenues from ODEC. Based on these assumptions, the Company estimates that
earnings per share would decrease by $0.06 to $0.08 if ODEC reduces its
load by 60 MW and that earnings per share would decrease by an additional
$0.10 to $0.12 if ODEC further reduces its load to zero. Any such earnings
decrease would be mitigated by natural load growth in the Company's service
territory and by any of ODEC's load that the Company may secure through the
bidding process.
-14-
<PAGE>
UPDATE ON THE COMPANY'S RETAIL BUSINESS
- ---------------------------------------
In March and April 1996, the MPSC and DPSC, respectively, accepted the
Company's proposal to establish a forum to address changes in the
regulation of the electric utility industry. The Company's objective is to
work together with the Commissions and other interested parties in order to
develop a blueprint to move toward increased customer choice; i.e., the
ability of all retail customers to gain direct access to market-priced
electricity from the suppliers of their choice. The forum process is
addressing issues such as retail wheeling, stranded investment, rate
redesign, and alternative forms of regulation, such as performance-based
regulation. Forum participants are to submit reports to the DPSC and MPSC
by December 31, 1996, describing the significant issues raised by allowing
customer choice and providing proposed solutions to those issues.
In June 1996, the Company sponsored a conference in which utility experts
addressed restructuring issues from a variety of perspectives. The
conference was attended by participants of both the Delaware and Maryland
forums. Meetings with forum participants in Delaware and Maryland are
ongoing.
In October 1996, the MPSC issued an order to reopen the issue of retail
electric competition in Maryland. In August 1995, the MPSC had determined
that retail competition was not in the public interest at that time. The
MPSC chose to reopen this issue in view of the recent orders of the Federal
Energy Regulatory Commission on open access transmission at the wholesale
level and actions by other states concerning retail open access. In
consultation with Maryland's electric utilities and other concerned
stakeholders, the MPSC Staff is directed to evaluate regulatory and
competitive issues facing the electric utility industry, including electric
retail competition, developments in federal and state regulation, and the
interests of Maryland's customers and utilities. The MPSC instructed its
Staff to submit their recommendations by May 31, 1997. The MPSC plans to
use "Roundtables" to identify, discuss, and resolve industry issues. The
MPSC also advised Maryland's four major electric utilities, including the
Company, to be prepared to present unbundled cost studies and model
unbundled retail service tariffs to their respective Roundtables on or
before August 1, 1997.
-15-
<PAGE>
ELECTRIC REVENUES AND SALES
- ---------------------------
Details of the changes in the various components of electric revenues are
shown below:
<TABLE>
<CAPTION>
Increase in Electric Revenues
From Comparable Period in Prior Year
------------------------------------
(Dollars in Millions)
Three Nine
Months Months
------ ------
<S> <C> <C>
Non-fuel (Base Rate) Revenues
Retail Sales Volume $(14.5) $ 31.2
Resale Sales Volume (1.6) 1.2
Fuel Revenues 3.8 19.9
Interchange Delivery Revenues 10.9 12.5
Other Operating Revenues 0.8 1.7
------ ------
Total $ (0.6) $ 66.5
====== ======
</TABLE>
Non-fuel revenues from retail sales volume decreased $14.5 million for the
three-month period due to a 3.9% decrease in retail kWh sales which was
mainly due to cooler summer weather. For the nine-month period, non-fuel
revenues from retail sales volume increased $31.2 million primarily because
electric sales to the Conowingo District began June 19, 1995. A 2.2%
increase in retail sales excluding the Conowingo District also contributed
to the $31.2 million non-fuel revenue increase. This sales increase
resulted from customer growth and the positive net effect of weather.
Non-fuel revenues from resale sales volume decreased $1.6 million for the
three-month period due to a 7.3% decrease in resale kWh sales which
resulted from the cooler summer weather. Non-fuel revenues from resale
sales volume increased $1.2 million for the nine-month period due to a
10.9% kWh sales increase which mainly resulted from the Company providing a
part of the Delaware municipalities' load previously served by other
suppliers. Changes in resale sales have less impact on non-fuel revenues
than changes in retail sales, since average resale non-fuel rates are
significantly lower than average retail non-fuel rates.
Electric fuel costs billed to customers, or fuel revenues, generally do not
affect net income, since the expense recognized as fuel costs is adjusted
to match the fuel revenues. The amount of under- or over-recovered fuel
costs is deferred until it is subsequently recovered from or returned to
utility customers. Fuel revenues increased $3.8 million for the three-
month period due to higher average fuel rates and increased $19.9 million
for the nine-month period primarily due to higher sales.
-16-
<PAGE>
Interchange delivery revenues are reflected in the calculation of rates
charged to customers under fuel adjustment clauses and, thus, generally do
not affect net income. Interchange delivery revenues benefit customers by
reducing the effective cost of fuel billed to customers. Interchange
delivery revenues increased $10.9 million and $12.5 million for the three-
month period and nine-month period, respectively. The revenue increases in
both periods were primarily attributed to increased purchases of cheaper
power in the third quarter which enabled the Company to sell more of its
peaking unit output to utilities in the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM).
GAS REVENUES, SALES, AND TRANSPORTATION
- ---------------------------------------
For the three-month period, total gas revenues increased $8.9 million in
1996, primarily because in July of last year, $6.8 million of over-
recovered gas costs had been refunded to customers. For the nine-month
period, total gas revenues increased $14.2 million due to a $6.3 million
increase in non-fuel revenues and a $7.9 million increase in fuel revenues.
Non-fuel revenues increased $6.3 million mainly due to a colder heating
season which resulted in a 6.7% increase in total gas sold and transported.
Fuel revenues increased $7.9 million primarily due to the prior year
customer refund.
ELECTRIC FUEL AND PURCHASED ENERGY EXPENSES
- -------------------------------------------
The components of the changes in electric fuel and purchased energy
expenses are shown in the table below:
<TABLE>
<CAPTION>
Increase (Decrease) in Electric Fuel and
Purchased Energy From Comparable Period in Prior Year
-----------------------------------------------------
(Dollars in Millions)
Three Nine
Months Months
------ ------
<S> <C> <C>
Higher Average Cost of Electric
Fuel and Purchased Energy $ 3.4 $ 41.9
Increased kWh Output 8.5 20.9
Deferral of Fuel Costs 1.7 (26.0)
------ ------
Total $ 13.6 $ 36.8
====== ======
</TABLE>
For the three-month period, expenses rose $3.4 million due to a higher
average cost per kWh of output, which was related primarily to higher gas
commodity prices partially offset by lower prices for purchased energy.
The $8.5 million increase associated with higher kWh output resulted from
increased purchases of cheaper power which enabled the Company to sell more
of its peaking unit output to utilities in the PJM.
-17-
<PAGE>
For the nine-month period, costs increased $41.9 million primarily due to
higher gas and oil prices and increased purchases of energy at a higher
average price which was mitigated by lower prices in the third quarter.
The Company purchased more energy during the nine-month period primarily
due to higher demand and lower overall availability of its generating
units, including the Salem units. The $20.9 million increase that resulted
from greater kWh output reflects stronger sales demand and increased
interchange sales during the third quarter.
Expenses increased $1.7 million and decreased $26 million for the three-
and nine-month periods, respectively, due to variances in fuel costs
deferred and subsequently recovered or expensed under the Company's fuel
adjustment clauses.
The kWh output required to serve load within the Company's service
territory is substantially equivalent to total output less interchange
deliveries. For the nine months ended September 30, 1996, the Company's
output for load within its service territory was provided by 36% coal
generation, 26% net purchased power, 29% oil and gas generation, and 9%
nuclear generation.
GAS PURCHASED
- -------------
The cost of gas purchased increased $7.1 million and $7.9 million for the
three-month and nine-month periods, respectively, primarily due to higher
gas commodity prices and the $6.8 million refund in July 1995 of over-
recovered fuel costs. The $6.8 million refund reduced the cost of gas
purchased in 1995 since gas purchased costs are adjusted (reduced) to
match fuel revenues.
PURCHASED ELECTRIC CAPACITY
- ---------------------------
Compared to 1995, purchased electric capacity decreased $7.5 million in
the third quarter of 1996 primarily due to higher costs incurred last year
under an interim purchased power contract with PECO, which was effective
from June 19, 1995 to February 1, 1996 and was associated with the
Company's purchase of COPCO. Pursuant to agreements made in conjunction
with the COPCO purchase, in February 1996, a long-term contract with
lower-priced capacity replaced the interim contract. For the nine-month
period, purchased electric capacity increased $6.7 million due to the
absence of the aforementioned purchased power contracts during the first
half of 1995, partially offset by lower-priced capacity purchased under
the long-term contract during the third quarter.
-18-
<PAGE>
OPERATION, MAINTENANCE, AND DEPRECIATION EXPENSES
- -------------------------------------------------
Operation and maintenance expense increased $2.7 million and $18.5 million
for the three- and nine-month periods, respectively. During the third
quarter of 1996, the higher expense resulted from increases in costs
related to the Salem outage ($1.4 million) and various other expenses ($1.3
million). The year-to-date increase was due to higher costs related to the
Salem outage ($7.7 million), the addition of the Conowingo District ($2.4
million), and various other expenses ($8.4 million), none of which were
materially significant individually.
Depreciation expense increased $1.6 million and $7.9 million for the three-
and nine-month periods, respectively, primarily due to higher utility plant
balances including those of the Conowingo District.
UTILITY FINANCING COSTS--INTEREST EXPENSE
- -----------------------------------------
Interest expense increased $3.1 million for the nine-month period
primarily due to long-term debt issued in June 1996 to finance the COPCO
acquisition and higher average short-term debt balances. These increases
were partly offset by decreased interest expense on deferred energy costs.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flows from operating activities were $177.7 million for the nine
months ended September 30, 1996 in comparison to $210.0 million for the
same period last year. The $32.3 million decrease reflects three major
factors. First, the increase in electric fuel and purchased energy costs
exceeded the increase in electric fuel revenues. Second, cash required for
fuel inventories in 1995 was minimized by a high inventory level at the
beginning of 1995. Third, lower income tax payments partly offset the
effect of the first two items. Short-term debt increased $18.0 million
mainly due to the decrease in cash flows from operating activities.
On October 31, 1996, the Company filed for an increase in Delaware electric
retail fuel rates. Electric fuel rates in the Company's other regulatory
jurisdictions were raised beginning in May 1996.
For the first nine months of 1996, utility construction expenditures were
$98 million compared to $88 million for the same period last year.
Internally-generated funds (net cash provided by operating activities less
common and preferred dividends) provided 102% and 152% of the cash
required for construction during the nine months ended September 30, 1996
and 1995, respectively.
-19-
<PAGE>
Cash flows from investing and financing activities for last year's nine-
month period reflected the Company's $157.0 million payment to acquire
COPCO. The acquisition was financed primarily by $125.8 million of long-
term debt, and the balance of funds was provided by short-term debt. Last
year's cash flows from financing activities also include a $45 million term
loan repayment and $18.6 million of cash raised from common stock issued
through the Dividend Reinvestment and Common Share Purchase Plan (DRIP).
In 1996, no cash has been raised through the DRIP since the Company has
obtained common shares for the DRIP through open market purchases.
Long-term debt due within one year increased from $1.5 million as of
December 31, 1995 to $27.2 million as of September 30, 1996 primarily
because the Company's $25 million, 6 3/8% Series First Mortgage Bond is
scheduled to mature on September 1, 1997.
In October 1996, a wholly-owned trust of the Company issued $70 million of
mandatorily redeemable preferred securities. The wholly-owned trust
loaned the proceeds to the Company which used the funds in part to
purchase $63,382,700 (par value) of its preferred stock. This transaction
will lower the after-tax cost of the Company's total capital and is not
expected to affect the Company's credit rating. Refer to Note 5 to the
Consolidated Financial Statements for further details.
RATIO OF EARNINGS TO FIXED CHARGES
- ----------------------------------
The Company's ratios of earnings to fixed charges under the Securities and
Exchange Commission (SEC) Method are shown below:
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
September 30, -------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
(SEC Method).................. 3.33 3.54 3.49 3.47 3.03 2.58
Ratio of Earnings to Fixed Charges
(SEC Method) as Adjusted...... 3.74 2.78
</TABLE>
Adjusted ratios exclude the following pre-tax amounts: for 1994, a $17.5
million early retirement charge and, for 1992, an $18.5 million gain from
the Company's share of the settlement of a lawsuit against PECO in
connection with the shutdown of Peach Bottom.
Under the SEC Method, earnings, including Allowance for Funds Used During
Construction (AFUDC), have been computed by adding income taxes and fixed
charges to net income. Fixed charges include gross interest expense and
the estimated interest component of rentals. Net income and income taxes
related to the cumulative effect of a change in accounting for unbilled
revenues recorded in 1991 are excluded from the computation of these
ratios.
-20-
<PAGE>
NONUTILITY SUBSIDIARIES
- -----------------------
Earnings per share of nonutility subsidiaries were $0.05 and $0.04 for the
nine-month periods ended September 30, 1996 and 1995. Both nine-month
periods reflect earnings primarily from the recovery of previously written-
off joint venture assets and the operation of power plants for other
parties. The prior nine-month period also reflects an operating loss for
the solid waste group and income from the receipt of an additional payment
related to the sale of a leveraged lease interest in a previous year.
As discussed in Note 8 to the Consolidated Financial Statements, it is
uncertain that a permit to expand the Pine Grove landfill will be received.
Pine Grove records depletion expense to recognize, in part, the usage of
certain general facilities at the landfill and the landfill closure
liability based on the planned landfill capacity, including the additional
capacity related to the pending expansion permit. In the event that Pine
Grove does not receive approval of the expansion permit, Pine Grove may
expense approximately $10 million (pre-tax) of capitalized costs.
-21-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- -------------------------
Salem Nuclear Generating Station
- --------------------------------
Refer to Note 4 to the Consolidated Financial Statements for information on
the complaints filed by the Company against PSE&G and Westinghouse related
to Salem.
Item 5. Other Information
- -------------------------
Pending Merger with Atlantic Energy, Inc.
- -----------------------------------------
Refer to Note 3 to the Consolidated Financial Statements for information
regarding an Agreement and Plan of Merger with Atlantic Energy, Inc.
Salem Nuclear Generating Station
- --------------------------------
Refer to Note 4 to the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
for an update on matters concerning the current Salem outage.
PSE&G has informed the Company that in August 1996, the NRC conducted an
inspection of the Physical Security Program for Salem and Hope Creek and
identified six apparent violations which are being considered for escalated
enforcement. These apparent violations include the failure to: (1) control
photo badge key cards; (2) properly search an individual prior to entrance
to the protected area; (3) notify the nuclear shift supervisor of a
potential threat event; (4) deactivate photo badges for individuals who no
longer require site access; (5) complete training for security supervisors
prior to assignment of duties; and (6) test an intrusion detection system
in accordance with procedures. On September 3, 1996, PSE&G met with the
NRC to discuss these issues and provide specific corrective actions. On
November 14, 1996, an enforcement conference will be held to address these
apparent violations. PSE&G has advised the Company that it cannot predict
what other actions the NRC may take on this matter.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits
- --------
Exhibit 12, Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27, Financial Data Schedule.
-22-
<PAGE>
Reports on Form 8-K
- -------------------
The Company did not file any Reports on Form 8-K during the third quarter
of 1996 in addition to those listed in the Company's Report on Form 10-Q
for the period ended June 30, 1996.
-23-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delmarva Power & Light Company
------------------------------
(Registrant)
Date: November 14, 1996 /s/ B. S. Graham
----------------- --------------------------------------
B. S. Graham, Senior Vice President,
Treasurer, and Chief Financial Officer
-24-
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
------- ------
Computation of ratio of earnings to fixed charges 12 26
Financial Data Schedule 27 27
-25-
<PAGE>
Exhibit 12
Delmarva Power & Light Company
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
----------------------
<TABLE>
<CAPTION>
12 Months
Ended Year Ended December 31,
September 30, ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (1) $114,426 $117,488 $108,310 $111,076 $98,526 $80,506
------------- --------- --------- --------- --------- ---------
Income taxes (1) 74,882 75,540 67,613 67,102 54,834 43,249
------------- --------- --------- --------- --------- ---------
Fixed charges:
Interest on long-term
debt 69,130 65,572 61,128 62,651 66,976 68,133
Other interest 11,950 10,353 9,336 9,245 8,449 10,192
------------- --------- --------- --------- --------- ---------
Total fixed charges 81,080 75,925 70,464 71,896 75,425 78,325
------------- --------- --------- --------- --------- ---------
Nonutility capitalized
interest (309) (304) (256) (246) (231) (143)
------------- --------- --------- --------- --------- ---------
Earnings before income
taxes and fixed
charges $270,079 $268,649 $246,131 $249,828 $228,554 $201,937
============= ========= ========= ========= ========= =========
Ratio of earnings to
fixed charges 3.33 3.54 3.49 3.47 3.03 2.58
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges, less nonutility capitalized interest. Fixed charges consist
of interest on long-and short-term debt, amortization of debt discount,
premium, and expense, plus the interest factor associated with the Company's
major leases, and one-third of the remaining annual rentals.
(1) Net income and income taxes related to the cumulative effect of a change
in accounting for unbilled revenues recorded in 1991 are excluded from
the computation of this ratio.
-26-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME
FROM THE COMPANY'S 3RD QUARTER 1996 FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,243,134
<OTHER-PROPERTY-AND-INVEST> 142,299
<TOTAL-CURRENT-ASSETS> 259,290
<TOTAL-DEFERRED-CHARGES> 253,388
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,898,111
<COMMON> 136,717
<CAPITAL-SURPLUS-PAID-IN> 506,680
<RETAINED-EARNINGS> 299,108
<TOTAL-COMMON-STOCKHOLDERS-EQ> 936,661
0
168,085
<LONG-TERM-DEBT-NET> 827,242
<SHORT-TERM-NOTES> 81,187
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 27,244
0
<CAPITAL-LEASE-OBLIGATIONS> 21,711
<LEASES-CURRENT> 12,456
<OTHER-ITEMS-CAPITAL-AND-LIAB> 823,525
<TOT-CAPITALIZATION-AND-LIAB> 2,898,111
<GROSS-OPERATING-REVENUE> 834,579
<INCOME-TAX-EXPENSE> 62,547
<OTHER-OPERATING-EXPENSES> 628,686
<TOTAL-OPERATING-EXPENSES> 691,233
<OPERATING-INCOME-LOSS> 143,346
<OTHER-INCOME-NET> 2,661
<INCOME-BEFORE-INTEREST-EXPEN> 146,007
<TOTAL-INTEREST-EXPENSE> 51,504
<NET-INCOME> 94,503
7,293
<EARNINGS-AVAILABLE-FOR-COMM> 87,210
<COMMON-STOCK-DIVIDENDS> 69,965
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 177,663
<EPS-PRIMARY> $1.44
<EPS-DILUTED> $1.44
</TABLE>
