FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended...March 31, 1994........
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......1-1401.......
................PECO Energy Company................
(Exact name of registrant as specified in its charter)
......Pennsylvania................ 23-0970240....
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
...2301 Market Street, Philadelphia, PA....19103.....
(Address of principal executive offices) (Zip Code)
.................(215) 841-4000...................
(Registrant's telephone number, including area code)
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. The
Company had 221,531,984 shares of common stock outstanding on April
30, 1994.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of Dollars)
3 Months Ended
March 31
1994 1993
OPERATING REVENUES
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Electric $ 921,587 $ 903,110
Gas 206,822 168,382
TOTAL OPERATING REVENUES 1,128,409 1,071,492
OPERATING EXPENSES
Fuel and Energy Interchange 259,779 222,609
Other Operating 222,722 208,719
Maintenance 90,171 90,363
Depreciation 108,740 103,540
Income Taxes 103,724 84,504
Other Taxes 82,960 80,023
TOTAL OPERATING EXPENSES 868,096 789,758
OPERATING INCOME 260,313 281,734
OTHER INCOME AND DEDUCTIONS
Allowance for Other Funds Used
During Construction 2,100 2,984
Income Taxes (2,865) (4,596)
Other, Net 7,262 95
TOTAL OTHER INCOME AND DEDUCTIONS 6,497 (1,517)
INCOME BEFORE INTEREST CHARGES 266,810 280,217
INTEREST CHARGES
Long-Term Debt 99,990 113,585
Short-Term Debt 9,716 7,324
Total Interest Charges 109,706 120,909
Allowance for Borrowed Funds
Used During Construction (2,280) (3,048)
NET INTEREST CHARGES 107,426 117,861
NET INCOME 159,384 162,356
PREFERRED STOCK DIVIDENDS 10,831 13,051
EARNINGS APPLICABLE TO COMMON STOCK $148,553 $149,305
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING (THOUSANDS) 221,517 220,609
EARNINGS PER AVERAGE COMMON
SHARE (DOLLARS) $0.67 $0.68
DIVIDENDS PER COMMON SHARE (DOLLARS) $0.38 $0.35
See Notes to Condensed Consolidated Financial Statements
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31, December 31,
1994 1993
(Unaudited)
ASSETS
UTILITY PLANT
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Plant at Original Cost $14,218,127 $14,149,040
Less Accumulated Provision for Depreciation 4,039,722 3,946,805
10,178,405 10,202,235
Nuclear Fuel, Net 170,520 179,529
Construction Work in Progress 386,173 381,247
Leased Property, Net 180,435 194,702
10,915,533 10,957,713
CURRENT ASSETS
Cash and Temporary Cash Investments 52,770 46,923
Accounts Receivable, Net
Customer 137,079 122,581
Other 54,190 47,768
Inventories, at Average Cost
Fossil Fuel 40,603 67,040
Materials and Supplies 139,075 142,132
Deferred Income Taxes 17,672 30,185
Other 194,513 58,205
635,902 514,834
REGULATORY AND OTHER ASSETS
Recoverable Deferred Income Taxes 2,321,424 2,297,368
Deferred Limerick Costs 428,201 433,605
Deferred Non-Pension Postretirement
Benefits Costs 55,127 44,691
Investments 233,211 218,636
Loss on Reacquired Debt 336,288 343,004
Other 259,745 222,476
3,633,996 3,559,780
TOTAL $15,185,431 $15,032,327
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Shareholders' Equity
Common Stock (No Par) $3,488,576 $3,488,477
Other Paid-In Capital 1,214 1,214
Retained Earnings 838,025 773,727
Preferred and Preference Stock
Without Mandatory Redemption 422,472 422,472
With Mandatory Redemption 185,450 186,500
Long-Term Debt 4,775,751 4,884,343
9,711,488 9,756,733
CURRENT LIABILITIES
Notes Payable, Bank 135,097 119,350
Long-Term Debt Due Within One Year 310,813 252,263
Capital Lease Obligations Due Within One Year 60,464 60,500
Accounts Payable 181,679 242,239
Taxes Accrued 93,805 24,939
Deferred Energy Costs 20,566 48,691
Interest Accrued 115,048 97,540
Dividends Payable 31,587 18,345
Other 136,887 90,710
1,085,946 954,577
DEFERRED CREDITS AND OTHER LIABILITIES
Capital Lease Obligations 119,971 134,202
Deferred Income Taxes 3,443,343 3,386,136
Unamortized Investment Tax Credits 379,546 386,162
Pension Obligation for Early Retirement Plan 135,286 135,286
Non-Pension Postretirement Benefits Obligation 64,726 51,781
Other 245,125 227,450
4,387,997 4,321,017
Commitments and Contingencies (NOTE 8)
TOTAL $15,185,431 $15,032,327
See Notes to Condensed Consolidated Financial Statements
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of Dollars)
3 Months Ended
March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
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Net Income $159,384 $162,356
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 124,980 118,646
Deferred Income Taxes 30,789 4,565
Deferred Energy Costs (28,125) 30,194
Changes in Working Capital:
Accounts Receivable (20,920) (7,507)
Inventories 29,494 29,148
Accounts Payable (60,560) (51,293)
Other Current Assets and Liabilities (3,757) (27,425)
Other Items Affecting Operations (6,984) (18,218)
Net Cash Flows Provided by Operating Activities 224,301 240,466
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Plant (93,505) (114,131)
Increase in Investments (14,575) (3,432)
Net Cash Flows Used by Investing Activities (108,080) (117,563)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Short-Term Debt 15,747 (40,750)
Issuance of Common Stock 99 5,705
Issuance of Preferred Stock --- 50,000
Retirement of Preferred Stock (1,050) (800)
Issuance of Long-Term Debt --- 350,000
Retirement of Long-Term Debt (50,800) (417,429)
Loss on Reacquired Debt 6,716 5,097
Dividends on Preferred and Common Stock (95,003) (91,872)
Change in Dividends Payable 13,242 13,582
Other Items Affecting Financing 675 (527)
Net Cash Flows Used by Financing Activities (110,374) (126,994)
Increase in Cash and Cash Equivalents 5,847 (4,091)
Cash and Cash Equivalents at beginning of period 46,923 50,369
Cash and Cash Equivalents at end of period $52,770 $46,278
See Notes to Condensed Consolidated Financial Statements
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PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial
statements are unaudited, but include all adjustments which the
Company considers necessary for a fair presentation of such
financial statements. All adjustments are of a normal,
recurring nature. The accompanying condensed consolidated
financial statements reflect the Company's adoption of Statement
of Financial Accounting Standards (SFAS) No. 112 and SFAS No.
115 described in notes 3 and 4, respectively. The year-end
condensed consolidated balance sheet data were derived from
audited financial statements but do not include all disclosures
required by generally accepted accounting principles. Certain
prior-year amounts have been reclassified for comparative
purposes.
These notes should be read in conjunction with the Notes to
Consolidated Financial Statements in the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 (1993 Form
10-K).
2. VOLUNTARY RETIREMENT AND SEPARATION INCENTIVE PROGRAMS
In April 1994, the Company's Board of Directors approved a
package of financial incentives that will permit eligible
employees to participate in either a Voluntary Retirement
Incentive Program (VRIP) or a Voluntary Separation Incentive
Program (VSIP).
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All regular, part-time, and intermittent employees who will
be 50 years of age and have at least five years of credited
service as of December 31, 1995 are eligible for the VRIP. The
Company estimates that 2,135 employees are eligible for the
VRIP.
All regular and part-time employees of the Company are
eligible, regardless of age or seniority, for the VSIP.
Employees who voluntarily separate from the Company will receive
three weeks pay per year of credited service in a lump sum
payment capped at a maximum of 65 weeks or $100,000, whichever
is less. The minimum separation payment will be eight weeks of
pay, regardless of years of credited service.
The election by eligible employees to accept early
retirement under the VRIP or separation from the Company under
the VSIP must be made between July 5, 1994 and September 16,
1994. Although the cost of the VRIP and VSIP will depend upon
the number of employees who accept the package, the Company
expects to incur a substantial charge against income in the
third quarter of 1994 as a result of these programs.
3. ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which
requires current recognition of the expected costs of the
obligation to provide benefits to former or inactive employees
during the period after active employment but before retirement.
These costs include disability benefits, severance benefits,
salary continuation and supplemental unemployment benefits.
This is a change from the previous practice of recognizing the
costs of these benefits as they were paid. The Company's
transition obligation under SFAS No. 112 was $10.9 million,
which represents the previously unrecognized accumulated
postemployment benefits obligation. The Company's increased
SFAS No. 112 costs for 1994 are estimated to be $1.4 million.
The Company expects to recover all increased expenses resulting
from the adoption of SFAS No. 112, and accordingly, has deferred
all such expenses. As of March 31, 1994, the Company recorded a
deferred liability, along with a corresponding deferred asset of
$11.3 million, representing the transition obligation plus the
incremental SFAS No. 112 cost incurred for the three months
ended March 31, 1994.
4. ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES
Effective January 1, 1994, the Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires the fair value of investments in
certain debt and equity securities be recorded in the financial
statements. The Company recovers from customers the Company's
share of the estimated costs for decommissioning its nuclear
generating stations. These amounts are deposited in escrow and
trust accounts and invested for funding of future costs. As of
March 31, 1994, the Company recognized approximately $5 million
of unrealized gains using the average cost method, which is
recorded as a deferred liability. The Company had no other such
investments as of
March 31, 1994.
5. PRIOR YEAR ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1993, the Company adopted SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," and SFAS No. 109, "Accounting for Income Taxes."
SFAS No. 106 requires the recognition of the expected costs of
benefits during the years employees render service, but not
later than the date eligible for retirement. SFAS No. 109
requires an asset and liability approach for financial
accounting and reporting for income taxes. The Company adopted
SFAS No. 106 utilizing the prescribed accrual method and SFAS
No. 109 utilizing the cumulative method of adoption.
6. NUCLEAR FUEL AGREEMENT WITH LONG ISLAND POWER AUTHORITY
(LIPA)
In March 1993, the Company entered into an agreement with
LIPA and other parties, subsequently revised in September 1993,
to receive $46 million as compensation for accepting slightly
irradiated nuclear fuel from the Shoreham Nuclear Power Station.
The Company is to receive the $46 million in installments as the
nuclear fuel shipments are accepted. As of March 31, 1994, the
Company had received 21 of the expected 33 nuclear fuel
shipments.
The payments from LIPA, in excess of related costs, are
being recognized in income. The Company recognized $3 million
as other income in the Condensed Consolidated Statement of
Income for the three months ended March 31, 1994, and has
deferred $7 million of payments received on the Condensed
Consolidated Balance Sheet as of March 31, 1994, pursuant to
this agreement. The Company estimates that the acquisition of
the fuel will result in benefits to the Company's customers of
$70 million over the next 12 to 15 years due to reduced fuel-
purchase requirements.
7. SALES OF ACCOUNTS RECEIVABLE
The Company is party to an agreement with a financial
institution under which it can sell on a daily basis and with
limited recourse an undivided interest in up to $325 million of
designated accounts receivable through January 24, 1996. At
March 31, 1994, the Company had sold a $325 million interest in
accounts receivable under this agreement. The Company retains
the servicing responsibility for these receivables. At March
31, 1994, the average annual service-charge rate, computed on a
daily basis on the portion of the accounts receivable sold but
not yet collected, was 3.2%.
By terms of this agreement, under certain circumstances, a
portion of Deferred Limerick Costs may be included in the pool
of eligible receivables. At March 31, 1994, $42 million of
Deferred Limerick Costs were included in the pool of eligible
receivables.
8. COMMITMENTS AND CONTINGENCIES
The Price-Anderson Act, as amended (Price-Anderson Act),
sets the limit of liability of approximately $9.3 billion,
effective March 20, 1994, for claims that could arise from an
incident involving any licensed nuclear facility in the nation.
The limit is subject to increase to reflect the effects of
inflation and changes in the number of licensed reactors. All
utilities with nuclear generating units, including the Company,
have obtained coverage for these potential claims through a
combination of private insurances of $200 million and mandatory
participation in a financial protection pool. Under the Price-
Anderson Act, all nuclear reactor licensees can be assessed up
to $76 million per reactor per incident, payable at no more than
$10 million per reactor per incident per year. This assessment
is subject to inflation, state premium taxes, and an additional
surcharge of 5% if the total amount of claims and legal costs
exceeds the basic assessment. If the damages from an incident
at a licensed nuclear facility exceed $9.3 billion, the
President of the United States is to submit to Congress a plan
for providing additional compensation to the injured parties.
Congress could impose further revenue-raising measures on the
nuclear industry to pay claims. The Price-Anderson Act and the
extensive regulation of nuclear safety by the Nuclear Regulatory
Commission (NRC) do not preempt claims under state law for
personal, property or punitive damages related to radiation
hazards.
Although the NRC requires the maintenance of property
insurance on nuclear power plants in the amount of $1.06 billion
or the amount available from private sources, whichever is less,
the Company maintains coverage in the amount of its $2.75
billion proportionate share for each station. The Company's
insurance policies provide coverage for decontamination
liability expense, premature decommissioning, and loss or damage
to its nuclear facilities. These policies require that
insurance proceeds first be applied to assure that the facility,
following an accident, is in a safe and stable condition and can
be maintained in such condition. Within 30 days of stabilizing
the reactor, the licensee must submit a report to the NRC which
provides a clean-up plan including the identification of all
clean-up operations necessary to decontaminate the reactor to
either permit the resumption of operations or decommissioning of
the facility. Under the Company's insurance policies, proceeds
not already expended to place the reactor in a stable condition
must be used to decontaminate the facility. If the decision is
made to decommission the facility, a portion of the insurance
proceeds must be allocated to a fund which the Company is
required by the NRC to maintain to provide funds for
decommissioning the facility. These proceeds would be paid to
the fund to make up any difference between the amount of money
in the fund at the time of the early decommissioning and the
amount that would be in the fund if contributions had been made
over the normal life of the facility. The Company is unable to
predict what effect these requirements may have on the amount
and the availability of insurance proceeds for the benefit of
the Company's bondholders under the Company's Mortgage. Under
the terms of the various insurance agreements, the Company could
be assessed up to $35 million for losses incurred at any plant
insured by the insurance companies. The Company is self-insured
to the extent that any losses may exceed the amount of insurance
maintained. Any such losses, if not recovered through the
ratemaking process, could have a material adverse effect on the
Company's financial condition.
The Company is a member of an industry mutual insurance
company which provides replacement power cost insurance in the
event of a major accidental outage at a nuclear station. The
premium for this coverage is subject to assessment for adverse
loss experience. The Company's maximum share of any assessment
is $17 million per year.
* * * *
On April 11, 1991, 33 former employees of the Company filed
an amended class action suit against the Company in the United
States District Court for the Eastern District of Pennsylvania
(Eastern District Court) on behalf of approximately 141 persons
who retired from the Company between January and April 1990.
The lawsuit, filed under the Employee Retirement Income Security
Act (ERISA), alleges that the Company fraudulently and/or
negligently misrepresented or concealed facts concerning the
Company's 1990 Early Retirement Plan and thus induced the
plaintiffs to retire or not to defer retirement immediately
before the initiation of the 1990 Early Retirement Plan, thereby
depriving the plaintiffs of substantial pension and salary
benefits. In June 1991, the plaintiffs filed amended complaints
adding additional plaintiffs. The lawsuit names the Company,
the Company's Service Annuity Plan (SAP) and two Company
officers as defendants. The plaintiffs seek approximately $20
million in damages representing, among other things, increased
pension benefits and nine months salary pursuant to the terms of
the 1990 Early Retirement Plan, as well as punitive damages. On
March 24 and 25, 1994, the case was tried in the Eastern
District Court on the issue of liability. No decision is
expected for several months. The ultimate outcome of this
matter is not expected to have a material adverse effect on the
Company's financial condition.
On May 2, 1991, 37 former employees of the Company filed a
class action suit against the Company, the SAP and three former
Company officers in the Eastern District Court on behalf of 147
former employees who retired from the Company from January
through June 1987. The lawsuit was filed under ERISA and
concerns the August 1, 1987 amendment to the SAP. The
plaintiffs claim that the Company concealed or misrepresented
the fact that an amendment to the SAP was planned to increase
retirement benefits and, as a consequence, they retired prior to
the amendment to the SAP and were deprived of significant
retirement benefits. The complaint does not specify any dollar
amount of damages. On March 24 and 25, 1994, the case was tried
in the Eastern District Court on the issue of liability. No
decision is expected for several months. The ultimate outcome
of this matter is not expected to have a material adverse effect
on the Company's financial condition.
* * * *
As disclosed in note 3 to Notes to Consolidated Financial
Statements for the year ended December 31, 1993, the Company's
share of the current estimated cost for decommissioning nuclear
generating stations, based on site-specific studies approved for
ratemaking purposes by the Pennsylvania Public Utility
Commission (PUC), is $643 million expressed in 1990 dollars. As
of March 31, 1994, the Company had recovered $156 million from
customers which has been deposited in escrow and trust accounts
for funding future decommissioning costs. These funds are
recorded on the balance sheet as an investment and as a credit
to accumulated depreciation.
As disclosed in note 3 to Notes to Consolidated Financial
Statements for the year ended December 31, 1993, the Company
recorded an estimated liability and related regulatory asset of
$69 million, reflecting the Company's share of the costs of
decommissioning and decontamination of the Department of
Energy's nuclear enrichment facilities which the Company is
required to pay under the National Energy Policy Act of 1992
(Energy Act). The Company is currently recovering this cost in
rates through the Energy Cost Adjustment clause.
The Company believes that the ultimate costs of
decommissioning and decontamination of its nuclear generating
stations and any assessments under the Energy Act will continue
to be recoverable through rates, although such recovery is not
assured.
* * * *
The Company's operations have in the past and may in the
future require substantial capital expenditures in order to
comply with environmental laws. The Company expects that
capital expenditures to construct facilities for compliance with
environmental laws and the operating costs of such facilities
would be recoverable through the ratemaking process, although
such recovery is not assured.
* * * *
Under federal and state environmental laws, the Company is
generally liable for the costs of remediating environmental
contamination of property now or formerly owned by the Company
or of property contaminated by hazardous substances generated by
the Company. The Company owns or leases a substantial number of
real estate parcels, including parcels on which its operations
or the operations of others may have resulted in contamination
by substances which are considered hazardous under environmental
laws. The Company is currently involved in a number of
proceedings relating to sites where hazardous substances have
been deposited and may be subject to additional proceedings in
the future. An evaluation of all Company sites for potential
environmental clean-up liability is in progress, including
approximately 20 sites where manufactured gas plant activities
may have resulted in site contamination. Past activities at
several sites have resulted in actual site contamination. The
Company is presently engaged in performing detailed evaluations
of these sites to define the nature and extent of the
contamination, to determine the necessity of remediation and to
identify possible remediation alternatives. As of March 31,
1994, the Company had accrued $18 million for various
investigation and remediation costs that currently can be
reasonably estimated. The Company cannot currently predict
whether it will incur other significant liabilities for
additional investigation and remediation costs at these or
additional sites identified by the Company, environmental
agencies or others, or whether any such costs will be
recoverable through rates or from third parties.
* * * *
The Company is involved in various other litigation
matters, the ultimate outcomes of which, while uncertain, are
not expected to have a material adverse effect on the Company's
financial condition.
* * * *
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's construction program is currently estimated
to require expenditures of approximately $575 million for 1994
and $1.5 billion from 1995 to 1997, all of which are expected to
be financed from internal sources. The estimated expenditures
do not include any amounts for cooling towers at Salem
Generating Station (Salem) that may be required for
environmental reasons. See the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (1993 Form 10-K).
Such construction expenditures, if required, are expected to be
substantial and may require external sources of financing. The
Company's construction program is subject to periodic review and
revision to reflect changes in economic conditions, revised load
forecasts and other appropriate factors. Certain facilities
under construction and to be constructed may require permits and
licenses which the Company has no assurance will be granted.
See note 8 of Notes to Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q under "PART I.
FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS," for a
discussion of commitments and contingencies relating to
environmental matters.
* * * *
Pursuant to the terms of the Company's settlement agreement
with the PUC relating to the Limerick Unit No. 2 rate case, on
April 1, 1994, the Company began sharing in the benefits which
result from the operation of Limerick Units No. 1 and No. 2
through retention of 16.5% of energy savings. See "PART I, ITEM
1. BUSINESS, Electric Operations" in the 1993 Form 10-K.
* * * *
The Company's electric business, particularly sales to
large industrial customers and off-system sales, continues to be
effected by increased competition. In order to reduce costs to
enhance its competitive position, on April 13, 1994, the
Company's Board of Directors approved a package of financial
incentives that will permit eligible employees to participate in
either a Voluntary Retirement Incentive Program (VRIP) or a
Voluntary Separation Incentive Program (VSIP). See note 2 of
Notes to Condensed Consolidated Financial Statements in this
Quarterly Report on Form 10-Q under PART I. FINANCIAL
INFORMATION, ITEM 1. FINANCIAL STATEMENTS." Although the cost
of the VRIP and VSIP will depend upon the number of employees
who accept the package, the Company expects to incur a
substantial charge against income in the third quarter of 1994
as a result of these programs.
* * * *
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits," requires
the expected costs of the obligation to provide benefits to
former or inactive employees during the period after active
employment but before retirement be recognized currently. The
Company adopted the provisions of SFAS No. 112 as of January 1,
1994. For additional information concerning SFAS No. 112, see
note 3 of Notes to Condensed Consolidated Financial Statements
under "PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL
STATEMENTS" in this Quarterly Report on Form 10-Q.
* * * *
SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," requires the fair value of investments
in certain debt and equity securities be recorded in the
financial statements. The Company adopted the provisions of
SFAS No. 115 as of January 1, 1994. For additional information
concerning SFAS No. 115, see note 4 of Notes to Condensed
Consolidated Financial Statements under "PART I. FINANCIAL
INFORMATION, ITEM 1. FINANCIAL STATEMENTS" in this Quarterly
Report on Form 10-Q.
* * * *
As of March 31, 1994, the Company and its subsidiaries had
$135 million of short-term borrowings outstanding. The Company
has formal and informal lines of bank credit aggregating $351
million. As of March 31, 1994, the Company and its subsidiaries
had $7 million of short-term investments.
* * * *
The Company's Ratio of Earnings to Fixed Charges (Mortgage
Method) for the twelve months ended March 31, 1994 was 4.21
times compared to 3.41 times for the corresponding period ended
March 31, 1993. The Company's Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends (Articles of
Incorporation Method) for the twelve months ended March 31,
1994, was 2.44 times compared to 2.10 times for the
corresponding period ended March 31, 1993. For the three months
ended March 31, 1994, the Company's Ratio of Earnings to Fixed
Charges (SEC Method) and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends (SEC Method) were 3.58
times and 3.05 times, respectively.
* * * *
RESULTS OF OPERATIONS
EARNINGS
Common stock earnings for the three months ended March 31,
1994 were $0.67 per share, compared to $0.68 per share for the
corresponding period ended March 31, 1993. The slight decline in
first quarter 1994 earnings was due primarily to a non-recurring
federal income tax adjustment which benefited first quarter 1993
results by $0.06 per share. The decrease was partially offset by
higher sales in 1994 due to colder weather conditions and a
reduction in interest expense and preferred stock dividends
resulting from the Company's ongoing debt and preferred stock
refinancing program.
* * * *
OPERATING REVENUES
Electric revenues increased 2.0% for the three months ended
March 31, 1994, compared with the corresponding period ended
March 31, 1993 primarily due to increased sales to other
utilities and increased retail sales due to colder weather
conditions. These increases were partially offset by lower
revenues from large commercial and industrial customers and lower
fuel-clause revenues.
Gas revenues increased 22.8% for the three months ended
March 31, 1994 compared with the corresponding period ended March
31, 1993 primarily due to increased retail sales due to colder
weather conditions and higher fuel-clause revenues. These
increases were partially offset by reduced transportation charges
primarily due to less gas being used at the Company's Cromby
Generating Station.
* * * *
FUEL AND ENERGY INTERCHANGE EXPENSES
Fuel and energy interchange expenses increased 16.7% for the
three months ended March 31, 1994 compared with the corresponding
period ended March 31, 1993 primarily due to increased electric
output and gas sendout required to meet customer demand related
to colder weather conditions, increased sales to other utilities
and increased gas and interchange purchase costs.
* * * *
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses increased 4.6% for the
three months ended March 31, 1994 compared with the corresponding
period ended March 31, 1993 primarily due to higher employee-
related charges and increased transmission system maintenance
charges resulting from storm damage, which were partially offset
by lower nuclear generating station charges resulting from fewer
and shorter refueling and maintenance outages.
* * * *
DEPRECIATION
Depreciation expense increased 5.0% for the three months
ended March 31, 1994 compared with the corresponding period ended
March 31, 1993 primarily due to additions to plant in service.
* * * *
INCOME TAXES
Income taxes charged to operating expenses increased 22.7%
for the three months ended March 31, 1994 compared with the
corresponding period ended March 31, 1993 primarily due to the
first quarter 1993 change in estimate to ratably decrease
deferred federal income taxes in accordance with the tax-rate
decrease mandated by the Tax Reform Act of 1986, lower interest
expense allocated to operations in the first quarter of 1994 and
a higher federal income tax rate.
* * * *
OTHER TAXES
Other taxes charged to operating expenses increased by 3.7%
for the three months ended March 31, 1994 compared with the
corresponding period ended March 31, 1993 primarily due to
increased Pennsylvania gross receipts tax resulting from higher
operating revenues.
* * * *
OTHER INCOME AND DEDUCTIONS
Other income and deductions increased significantly for the
three months ended March 31, 1994 compared with the corresponding
period ended March 31, 1993 primarily due to the charge related
to the adoption of SFAS No. 109, which reduced first quarter 1993
income, and an increase in revenue from customer service
contracts. * * * *
TOTAL INTEREST CHARGES
Total interest charges decreased 9.3% for the three months
ended March 31, 1994 compared with the corresponding period ended
March 31, 1993 due to the refinancing of higher-cost, long-term
debt, reductions in total debt and lower interest rates.
* * * *
PREFERRED DIVIDENDS
Preferred stock dividends decreased 17.0% for the three
months ended March 31, 1994 compared with the corresponding
period ended March 31, 1993 due to reductions in preferred stock
outstanding and the refinancing of higher-cost preferred stock.
* * * *
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the 1993 Form 10-K, on April 11,
1991, 33 former employees of the Company filed an amended class
action suit against the Company, the Company's Service Annuity Plan
(SAP) and two Company officers in the United States District Court
for the Eastern District of Pennsylvania (Eastern District Court)
on behalf of approximately 141 persons who retired from the Company
between January and April 1990. On March 24 and 25, 1994, the case
was tried in the Eastern District Court on the issue of liability.
No decision is expected for several months.
* * * *
As previously reported in the 1993 Form 10-K, on May 2, 1991,
37 former employees of the Company filed an amended class action
suit against the Company, the SAP and three former Company officers
in the Eastern District Court on behalf of 147 former employees who
retired from the Company from January through June 1987. On March
24 and 25, 1994, the case was tried in the Eastern District Court
on the issue of liability. No decision is expected for several
months.
* * * *
As previously reported in the 1993 Form 10-K, attorneys on
behalf of two shareholders filed a shareholder derivative action in
the Court of Common Pleas of Philadelphia County against several of
the Company's present and former officers alleging mismanagement,
waste of corporate assets and breach of fiduciary duty in
connection with the Company's credit and collections practices. On
April 12, 1994, the Company filed a motion for summary judgment
seeking termination of the action pursuant to the Board of
Directors' resolution of March 14, 1994.
* * * *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 13, 1994, the Company held its 1994 Annual Meeting of
Shareholders.
The following Class I directors of the Company were re-elected
for terms expiring in 1997:
Votes For Votes Withheld
Richard G. Gilmore 185,043,811 3,726,939
Richard H. Glanton 184,474,839 4,295,911
Joseph J. McLaughlin 185,374,006 3,396,744
Corbin A. McNeill, Jr. 185,421,830 3,348,920
A resolution adopted by the Board of Directors in 1973
provides that a director shall withhold his name from nomination
for re-election to the Board of Directors at the Annual Meeting
next following his 70th birthday. Pursuant to this resolution,
Class I Director Robert D. Harrison, a director since 1970 who is
now 70, withheld his name from renomination. As a result, the
Board of Directors adopted a resolution setting the number of
directors at fourteen, with four directors in Class I.
Richard A. Ash, a nominee from the floor at the Annual
Meeting, received 31,102 votes which were insufficient for election
as a director of the Company.
The incumbent Class II directors, with terms expiring in 1995,
are Susan W. Catherwood, Nelson G. Harris, Edithe J. Levit, John M.
Palms and Joseph F. Paquette, Jr. The incumbent Class III
directors, with terms expiring in 1996, are M. Walter D'Alessio,
James A. Hagan, Joseph C. Ladd, Kinnaird R. McKee and Ronald Rubin.
Other items voted on by holders of common stock at the Annual
Meeting were as follows:
(1) The appointment of the firm of Coopers & Lybrand,
independent certified public accountants, as auditors of
the Company for 1994 was approved with 185.7 million
common shares (83.8% of common shares outstanding) voting
for, 1.3 million common shares (0.6% of common shares
outstanding) voting against and 1.8 million common shares
(0.8% of common shares outstanding) abstaining;
(2) A shareholder proposal requiring "that no lawyer shall be
selected for the PECO slate of endorsed candidates for
director that either directly or indirectly derives any
compensation from any law firm that provides legal
services to PECO" was defeated with 19.1 million common
shares (8.6% of common shares outstanding) voting for,
134.5 million common shares (60.7% of common shares
outstanding) voting against and 11.2 million common
shares (5.0% of common shares outstanding) abstaining;
and 24.0 million common shares (10.8% of common shares
outstanding) broker non-votes;
(3) A shareholder proposal to require the Company to adopt a
new energy policy to, among other things, more
aggressively expand energy conservation, reduce energy
waste and utilize more renewable energy sources was
defeated with 11.0 million common shares (5.0% of common
shares outstanding) voting for, 142.3 million common
shares (64.2% of common shares outstanding) voting
against, 11.5 million common shares (5.2% of common
shares outstanding) abstaining and 24.0 million common
shares (10.8% of common shares outstanding) broker non-
votes; and
(4) A shareholder proposal that the Company's Board of
Directors take the necessary steps to declassify the
Board of Directors for the purpose of director elections
was defeated with 53.8 million common shares (24.3% of
common shares outstanding) voting for, 103.5 million
common shares (46.7% of common shares outstanding) voting
against, 7.5 million common shares (3.4% of common shares
outstanding) abstaining and 24.0 million common shares
(10.8% of common shares outstanding) broker non-votes.
ITEM 5. OTHER INFORMATION
As previously reported in the 1993 Form 10-K, in February
1989, the Company, on behalf of the co-owners of Peach Bottom
Atomic Power Station (Peach Bottom), filed a proof of loss with
Nuclear Electric Insurance Limited (NEIL) for replacement power
costs associated with 1983 outages of Unit No. 3. On January 19,
1993, the arbitrators issued a decision in favor of NEIL and denied
the Company's claim. On April 19, 1993, the Company filed a motion
in the United States District Court for the Southern District of
New York to vacate the arbitration decision, which was denied on
March 4, 1994.
* * * *
As previously reported in the 1993 Form 10-K, on May 21, 1992,
the Company filed a request with the Nuclear Regulatory Commission
(NRC) to amend its Facility Operating Licenses for Peach Bottom
Units No. 2 and No. 3 to extend the expiration dates to August 2013
and July 2014, respectively, 40 years from the dates of issuance.
By letter dated March 28, 1994, the NRC approved the Company's
request to extend the license expiration dates.
* * * *
The Company has been informed by Public Service Electric and
Gas Company (PSE&G) that Salem Unit No. 1 experienced a reactor
trip on April 7, 1994 due to excessive grass from the Delaware
River clogging the station's intake structure. Subsequent to the
trip, a precautionary alert was declared at 1:16 p.m. and this
emergency classification was terminated at 8:20 p.m. No abnormal
releases of radiation to the environment occurred during the event
and there was no threat to the public health and safety. Salem
Unit No. 1 has remained out of service while PSE&G and the NRC have
investigated the event and PSE&G has implemented remedial actions
that must be completed prior to returning the unit to service.
PSE&G agreed not to restart the unit until approval is obtained
from the NRC.
On April 7, 1994, the NRC sent an augmented inspection team
(AIT) to Salem to investigate the event. The AIT completed its on-
site investigation on April 15, 1994 and presented its preliminary
findings at a public meeting held on April 26, 1994. The AIT
concluded that the event had challenged the reactor coolant
system pressure boundary, that operator error occurred which
complicated the event, that management allowed equipment problems
to exist which made operations difficult for plant operators, and
that some equipment was degraded by the event, but overall the
plant performed as designed. The AIT further concluded that
operator use of emergency operating procedures was good and that
investigation and trouble-shooting efforts were good. PSE&G's
investigation of the event has resulted in conclusions similar to
those of the AIT. On May 9, 1994, PSE&G and the NRC staff
presented their findings to the NRC Commissioners, and PSE&G
described the actions it has taken to prepare Salem Unit No. 1
for restart. On May 9, 1994, PSE&G and the NRC staff presented
their findings to the NRC Commissioners, and PSE&G described the
actions it has taken to prepare Salem Unit No. 1 for restart. On
May 11, 1994, United States Senator Joseph Biden, representing
Delaware, wrote to the NRC expressing his concerns concerning
early restart of the unit and requested assurances "that all
outstanding mechanical and management problems have been resolved
and that a fine in the maximum amount will be levied upon the
licensee." Nevertheless, PSE&G believes that the event has been
thoroughly analyzed and that all necessary corrective actions
have been identified so as to permit the unit to return to
service. PSE&G expects to request authorization to restart the
unit shortly. PSE&G cannot determine what action, if any, the
NRC may take in this matter or when PSE&G will be permitted to
restart the unit.
* * * *
As previously reported in the 1993 Form 10-K, in 1993, the
Pennsylvania Public Utility Commission (PUC) reversed a policy
which might have precluded the Company from fully recovering
"transition costs" associated with the Federal Energy Regulatory
Commission Order 636, which restructured the interstate gas
pipeline industry. On January 28, 1994, the Company filed with
the PUC to begin recovery of such costs, and, in an order entered
on March 24, 1994, the PUC authorized cost recovery to begin on
April 1, 1994.
* * * *
Effective April 1, 1994, the Energy Cost Adjustment was
changed from a credit value of 7.600 mills per kilowatthour (kWh)
to a credit value of 5.627 mills per Kwh, which represents
increase an increase in annual revenue of approximately $62
million.
* * * *
As previously reported in the 1993 Form 10-K, on November 4,
1993, the Company and the Office of Consumer Advocate reached an
agreement to defer the issue of recovery of $1.3 million relating
to one Purchased Gas Cost No. 10 issue involving alleged excess
peak-day capacity. In an order entered on April 15, 1994, the
agreement was accepted by the PUC.
* * * *
As previously reported in the 1993 Form 10-K, on December 1,
1993, the PUC issued an order establishing a special Demand-Side
Management cost-recovery mechanism. On April 8, 1994, in response
to the Petitions for Reconsideration filed by the Office of
Consumer Advocate and the Pennsylvania Energy Office, the PUC
entered an order clarifying certain aspects of the "incentive" and
"lost revenue" recovery portions of the PUC's December 1, 1993
order. On April 15, 1994, a coalition of large industrial
customers filed a petition with the Commonwealth Court of
Pennsylvania appealing the PUC's April 8 order.
* * * *
On April 28, 1994, the Company filed with the PUC an update of
the Company's 20-year Consolidated Integrated Resource Plan
(Resource Plan). The Resource Plan represents the Company's
assessment of the most economic way to meet customer electric needs
while maintaining service reliability. The Resource Plan addresses
a range of variables such as changing customer demand, economic
growth and fuel costs among other factors and proposes a
comprehensive strategy that includes continued operation of
existing generation; productivity improvements to existing base-
load units; conservation and DSM programs; and new energy
resources. Although peak customer demand is expected to grow by
23% during the forecast period, the Company projects no need for
new energy resources until 2007.
* * * *
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12-1 - Statement regarding computation of
ratio of earnings to fixed charges.
12-2 - Statement regarding computation of ratio
of earnings to combined fixed charges and
preferred stock dividends.
(b) Reports on Form 8-K (filed during the reporting period):
Report, dated March 18, 1994, reporting information
under "ITEM 5. OTHER EVENTS" regarding management's
consideration of a program of financial incentives
permitting a voluntary retirement/separation program to
be offered to eligible employees.
Reports on Form 8-K (filed subsequent to the reporting
period):
Report, dated April 14, 1994, reporting information under
"ITEM 5. OTHER EVENTS" detailing the terms of the
Company's voluntary retirement/separation program being
offered to eligible employees.<PAGE>
Signatures
Pursuant to 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.
PECO ENERGY COMPANY
/s/ Kenneth G. Lawrence
--------------------------
Kenneth G. Lawrence
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date May 12, 1994
--------------------------
<TABLE>
<CAPTION>
EXHIBIT 12-1
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SEC METHOD
($000)
3 MONTHS
ENDED
03/31/94
--------
<S> <C>
NET INCOME $159,384
ADD BACK:
- - - - - - INCOME TAXES:
OPERATING INCOME 103,724
NON-OPERATING INCOME 2,865
-------
NET TAXES 106,589
- - - - - - FIXED CHARGES:
INTEREST APPLICABLE TO DEBT 101,342
ANNUAL RENTALS 1,749
-------
TOTAL FIXED CHARGES 103,091
ADJUSTED EARNINGS INCLUDING AFUDC $369,064
==========
RATIO OF EARNINGS TO FIXED CHARGES 3.58
==========
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12-2
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
SEC METHOD
($000)
3 MONTHS
ENDED
03/31/94
--------
<S> <C>
NET INCOME $159,384
ADD BACK:
- - - - - - INCOME TAXES:
OPERATING INCOME 103,724
NON-OPERATING INCOME 2,865
-------
NET TAXES 106,589
- - - - - - FIXED CHARGES:
INTEREST APPLICABLE TO DEBT 101,342
ANNUAL RENTALS 1,749
-------
TOTAL FIXED CHARGES 103,091
EARNINGS REQUIRED FOR PREFERRED DIVIDENDS:
DIVIDENDS ON PREFERRED STOCK 10,831
ADJUSTMENT TO PREFERRED DIVIDENDS* 7,243
-------
18,074
FIXED CHARGES AND PREFERRED DIVIDENDS $121,165
========
EARNINGS BEFORE INCOME TAXES AND
FIXED CHARGES $369,064
========
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS 3.05
----
* ADDITIONAL CHARGE EQUIVALENT TO EARNINGS REQUIRED
TO ADJUST DIVIDENDS ON PREFERRED STOCK TO A PRE-TAX BASIS
</TABLE>
